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Wednesday,12October2011AsianDaily(AsiaEdition)EPS,TPandRatingchangesEPSTP(%change)T+1T+2ChgUp/DnRatingSinaCorporationn.
m(49)(18)13N(N)NeptuneOrientLinesn.
m(63)(12)8N(O)SeoulSemiconductor(27)(14)(13)7N(O)C3:ConnectingclientstocorporatesHongKongMaxisBerhad(MXSC.
KL)Date17-18October,HongKongCoverageAnalystFoongWaiLokeE.
SunFinancialHoldingCo.
(2884.
TW)Date27-28October,HongKongCoverageAnalystChungHsuEnergyDevelopmentCorporation(EDC.
PS)Date07-08November,HongKongCoverageAnalystDanteTingaSingaporeMalaysiaAirports(MAHB.
KL)Date17-18October,SingaporeCoverageAnalystAnnuarAzizMaxisBerhad(MXSC.
KL)Date19October,SingaporeCoverageAnalystFoongWaiLokeOversea-ChineseBankingCorp.
(OCBC.
SI)ResultDate03November,SingaporeCoverageAnalystAnandSwaminathanEnergyDevelopmentCorporation(EDC.
PS)Date09-11November,SingaporeCoverageAnalystDanteTingaEuropeHDFCLtd.
(HDFCIN)Date13October,ParisCoverageAnalystAshishGuptaMaxisBerhad(MXSC.
KL)Date20-21October,LondonCoverageAnalystFoongWaiLokeOthersJohnKeellsHoldings(JKH.
CM)Date18October,SydneyCoverageAnalystNickSelvaratnamPersistentSystems(PERS.
BO)Date19October,MumbaiCoverageAnalystManishNigamAsianHealthcareConferenceDate14-15November,HongKongAsianInvestmentConference2012Date19-23March,HongKongContactcseq.
events@credit-suisse.
comorYourusualsalesrepresentative.
Topofthepack.
.
.
ChinaBanksSector–MaintainUWSanjayJain(3)Newreport:WhatliesbeneathAsiaEquityStrategySakthiSiva(4)Newreport:CylicalsworthanotherlookSeoulSemiconductor(046890KS)–DowngradetoNJohnSung(5)DowngradetoNEUTRALasitsnear-termearningsshoulddisappointfurtherChinaOilandGasSectorDavidHewitt(6)ChinaannouncesOil&Gasresourcetaxbetween5-10%ofrevenue.
.
.
andthewholepackRegionalAsiaEquityStrategySakthiSiva(4)Newreport:CylicalsworthanotherlookAsiaPetrochemicalSectorSanjayMookim(7)KeytakeawaysfromthecallwithPaulHodges—onAsianpolymerdemandandsupplyAsiaContainerShippingSectorSamLee(8)Earningsdownsidefromweaker-than-expectedpeakseason,butvaluationsalreadyfactorinmulti-yearlossesChinaChinaeconomicsDongTao(9)StatefundbuysbanksharesinanefforttoboostmarketconfidenceChinaBanksSector–MaintainUWSanjayJain(3)Newreport:WhatliesbeneathChinaOilandGasSectorDavidHewitt(6)ChinaannouncesOil&Gasresourcetaxbetween5-10%ofrevenueChinaResourcesGas(1193HK)–MaintainOEdwinPang(10)Opportunistictakeover—slightaccretionifithappensGome(0493.
HK)–MaintainNKevinYin(11)Weaker-than-expectedholidaysalesgrowthonhighbase,propertytighteningandcompetitionSinaCorporation(SINAUS)–MaintainNWallaceCheung,CFA(12)Weibo-solidusergrowth,gradualmonetisation;potentialwrite-offin4Q11SinaCorporation(SINAUS)–MaintainNWallaceCheung,CFA(13)Weibo—sustainableusergrowth;micro-numbertobelaunchedsoonHongKongMidlandHoldingsLimited(1200HK)–MaintainOJoyceKwock(14)CentalinefollowsMidland'ssuittoreallocatetheChinabranchesIndonesiaIndonesiaEconomicsKunLungWu(15)BankIndonesia'sratecutlooksprematureandriskshigherinflationdowntheroadIndonesiaMarketStrategyTeddyOetomo(16)Feedbackfromsevendaysofmarketing—risktolagwhenthedustsettlesMalaysiaMalaysiaEconomicsKunLungWu(17)StrongindustrialproductioninAugustbodeswellforQ3GDPgrowthSingaporeSingaporeEquityStrategySakthiSiva(18)CyclicalsworthanotherlookSingaporeOffshoreandMarineSector–MaintainMWGeraldWong(19)KeppelandSembcorpIndustriespresentthebestrisk-rewardprofilehttp://goo.
gl/ZgZCZWednesday,12October2011AsianDaily-2of32-Asianindices-performance(%change)Latest1D1W3MYTDASX3004,2250.
79.
2(6.
1)(11.
3)CSEALL6,669(0.
4)(1.
7)(1.
5)0.
5HangSeng18,1422.
47.
8(16.
3)(21.
2)H-SHARE9,2574.
410.
1(23.
1)(27.
1)JCI3,5322.
38.
0(10.
3)(4.
6)KLSE1,4121.
03.
7(10.
5)(7.
1)KOSPI1,7951.
65.
2(14.
9)(12.
5)KSE10012,055(0.
3)1.
0(1.
9)0.
3NIFTY4,974(0.
1)2.
6(11.
4)(18.
9)PCOMP4,1091.
77.
3(5.
5)(2.
2)REDCHIP3,5053.
310.
0(15.
1)(15.
9)SET9452.
310.
4(11.
1)(8.
5)STI2,6930.
96.
4(12.
5)(15.
6)TWSE7,3992.
65.
5(12.
9)(17.
5)VNINDEX418(0.
5)(0.
1)0.
1(13.
8)ThomsonFinancialDatastreamAsiancurrencies(vsUS$)(%change)Latest1D1W3MYTDA$1.
00.
04.
1(5.
5)(1.
9)Bt31.
00.
30.
7(1.
9)(3.
1)D20,865.
00.
1(0.
1)(1.
4)(6.
6)NT$30.
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8)(2.
0)Rp8,941.
00.
40.
1(4.
0)0.
4Rs49.
30.
80.
1(9.
4)(9.
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8(4.
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0SLRs110.
00.
00.
2(0.
4)0.
9W1,171.
10.
61.
6(8.
8)(4.
3)ThomsonFinancialDatastreamGlobalindices(%change)Latest1D1W3MYTDDJIA11,4290.
05.
7(8.
6)(1.
3)S&P5001,1970.
16.
5(9.
3)(4.
9)NASDAQ2,5810.
67.
3(7.
9)(2.
7)SOX366(0.
3)7.
5(10.
1)(11.
2)EU-STOX2,249(0.
2)7.
6(11.
5)(13.
0)FTSE5,396(0.
1)9.
1(9.
0)(8.
5)DAX5,8650.
312.
4(18.
9)(15.
2)CAC-403,154(0.
3)10.
6(17.
2)(17.
1)NIKKEI8,7742.
02.
7(11.
6)(14.
2)TOPIX7551.
81.
1(11.
9)(16.
0)10YRLB2.
164.
118.
8(25.
9)(34.
4)2YRLB0.
305.
621.
1(14.
3)(48.
7)US$:E1.
370.
62.
4(1.
8)2.
3US$:Y76.
70.
00.
03.
96.
1BRENT109.
60.
97.
2(6.
2)16.
2GOLD1,666.
7(0.
6)2.
67.
317.
3VIX33.
10.
2(27.
2)107.
586.
4ThomsonFinancialDatastreamMSCIAsianindices–valuation&perf.
EPSgrth.
P/E(x)PerformanceMSCIIndex11E12E11E12E1D1MYTDAsiaFXJapan111210.
69.
40.
0(10.
7)(21.
2)AsiaPacFXJ.
121210.
99.
70.
0(9.
0)(19.
3)Australia191112.
010.
90.
3(3.
8)(13.
6)China14138.
67.
63.
5(11.
2)(23.
9)HongKong22(10)11.
412.
62.
1(10.
6)(19.
5)India101613.
911.
6(1.
0)(7.
0)(27.
7)Indonesia211713.
111.
22.
8(14.
1)(2.
2)Korea17129.
08.
02.
2(6.
2)(15.
3)Malaysia111314.
612.
80.
7(8.
4)(9.
6)Pakistan19137.
26.
4(0.
8)6.
2(4.
4)Philippines71314.
512.
91.
6(6.
4)(6.
4)Singapore1912.
311.
30.
7(8.
4)(18.
0)Taiwan(14)2815.
111.
83.
2(6.
2)(21.
0)Thailand211310.
39.
12.
8(11.
2)(10.
3)SriLanka191815.
413.
00.
0(5.
9)(15.
0)*IBESestimatesNeptuneOrientLines(NOLSP)–DowngradetoNSamLee(20)Weaker3Q11freightrates,andP/BnotlowenoughdespiterecentcorrectionSouthKoreaKoreaTelecomSector–MaintainMWJeffKahng(21)3Q11earningspreviewSeoulSemiconductor(046890KS)–DowngradetoNJohnSung(5)DowngradetoNEUTRALasitsnear-termearningsshoulddisappointfurtherTaiwanTaiwanSolarEnergySectorDarrylCheng(22)WeakupstreaminSeptembersuggestingpoorcellvisibilityintoOctoberThailandThailandMarketStrategy–MaintainUWDanFineman(23)ChannelcheckonfloodsituationThailandMarketStrategy–MaintainUWDanFineman(24)ImpactoftaxcutsHomeProductsCenter(HMPR.
BK)–MaintainUKarimP.
Salamatian,CFA(25)Floodwarning:AssessingpreliminaryfloodrisksTiscoFinancialGroup(TISCOTB)–MaintainOThaniyaKevalee(26)3Q11results:ThelastquarterofmargincontractionO=OutperformN=NeutralU=UnderperformR=RestrictedOW=OverweightMW=MarketWeightUW=UnderweightResearchmailingoptionsTomakeanychangestoyourexistingresearchmailingdetails,pleasee-mailusdirectlyatasia.
research@credit-suisse.
comSalesContactHongKong85221016218Singapore6562123052London442078884367NewYork12123255955Boston16175565634Wednesday,12October2011AsianDaily-3of32-Topofthepack.
.
.
ChinaBanksSectorMaintainUNDERWEIGHTNewreport:WhatliesbeneathSanjayJain/ResearchAnalyst/85221016088/sanjay.
jain@credit-suisse.
comDaisyWu/ResearchAnalyst/85221017167/daisy.
wu@credit-suisse.
comVineetThodge/ResearchAnalyst/85221017466/vineet.
thodge@credit-suisse.
comHowbadcouldthingsgetRealestateandmanufacturingloansaregenerallytwobiggestsourcesofstressforbanksduringadownturn.
CombinedwithlocalgovernmentandSMEloans,theyaccountforoverhalftheloanbookbutareexpectedtocontributemorethanfour-fifthsofpotentialNPLsinourestimates.
WereviseourbasecaseNPLratioforecasttoa8-12%rangeofloansfromourprevious4.
5-5.
0%estimate.
Weestimatethepotentiallosscouldworkoutto40-60%ofbanks'equity.
Clickhereforreport.
IntroducingP/adj.
B.
ValuationssuggestinvestorsarescepticalaboutNPLsreportedbybanks.
Asasensitivity,wefindNPLratiorisingby5%wouldwipeoutbankprofits,andanyincreasethereafterwouldstarthurtingbookvalue.
UsingourbasecaseNPLrangeof8-12%,theP/adj.
Bworksoutto1.
6-2.
1x.
Sanitycheck—2015EEPS-basedvalue.
Assumingassetqualityissueswillbetackledinthenextthreeyears,2015shouldseeareturntonormalisedprofitability.
UsingthatEPS,applyinga9xP/E,anddiscountingitbythreeyearsgivesusatheoreticalfairvalue.
Thisturnsouttobehigherthanourtargetprices.
Revisingearnings&TPs.
WeincreasecreditcostandNPLassumptionsin2012-13projectionsandtrimTPsonlowerROEs.
MaintainUNDERWEIGHTon1-yrview.
ToppicksICBCandCCB.
Figure1:CSestimatesofpotentialimpairment:basecase(lowandhigh)June2011(RMBbn)BaseLowBaseHighAmount%ofloansAmountImpairmt%AmountImpairmt%Consumerloans8,184151091.
32042.
5Mortgage6,84312.
56811372Consumerex-mortg1,3412.
5403675Corporate/SMEloans46,466853,9388.
56,13113.
2Localgovernment12,000222,400203,60030Realestate-direct3,4176.
33421068320Realestate-indirect3,0005.
515052408Smallenterprise2,733519172469Manufacturing9,56417.
538345746Othercorporate15,75328.
847337885Total54,6501004,0477.
46,33511.
6Off-balancesheetcredit10,69619.
621423213Trustloans1,4862.
7302453Entrustedloans3,9537.
27921193Bankacceptances5,2579.
610521583Grandtotal65,347119.
64,2617.
86,65612.
2%of2011Eequity65%102%Source:CreditSuisseestimatesWhatisthemarketpricinginUsingtheGordonGrowthModelandcurrentP/B,weestimatethemarketimpliedROEforeachbank.
Thenweback-calculatethemarket-impliedcreditcost,whichworksoutto170-180bpannually.
ThiscorrespondstoincrementalNPLsof3.
0%ofloanseveryyear.
Figure2:Potentiallossonimpairment(assuming60%lossratio)vsbankingsystemequity(RMBbn)%ofLowbase%ofHighbase%ofAmountloansPot.
lossequityPot.
lossequityEquity20105,83211.
5Equity2011E6,50711.
12,55639.
33,99361.
4Equity2012E7,18111.
12,81239.
24,39361.
2Equity2013E7,88911.
13,09339.
24,83261.
3Source:CreditSuisseestimatesFigure3:CSestimateof2015EPS-basedtheoreticalfairvalueEPS2015E(RMB)ApplicableP/E(x)Theoreticalprice2015Discountedprice20122015-based-valuevs.
TPICBC0.
7010.
38.
846.
3215%CCB0.
7610.
09.
256.
5916%ABC0.
578.
45.
473.
8330%BOC0.
498.
34.
953.
5425%BCOM0.
858.
38.
686.
1425%CMB*2.
039.
423.
3616.
6132%CITIC0.
657.
05.
653.
99%CMBC*1.
008.
210.
027.
1445%CQRC0.
556.
94.
683.
2324%*CMBandCMBCsharenumbershavenotbeenadjustedforproposedcapitalraisings.
Source:CreditSuisseestimatesEarningsrevisionsOurearningsrevisionsaredrivenbythreechanges:(1)higherloanlossprovisionstoreflectrevisedpotentialimpairmentrange,(2)slightlylowerNIMsgiveninterestincomecannotbeaccruedoncealoanisdowngradedtosub-standardorbelowcategory,and(3)slightlysofterfeeincomegrowthgivenanticipateddecelerationintheeconomy,exportsandpossibilityofrestraintsonoff-B/Slending.
Figure4:Chinabanks—EPSforecastrevisionsOldNewChange(%)EPS(RMB)2011E2012E2013E2011E2012E2013E2011E2012E2013EICBC0.
60.
520.
580.
60.
470.
480.
0-8.
2-17.
3CCB0.
710.
570.
590.
710.
510.
510.
0-11.
7-15.
1BOC0.
430.
330.
340.
430.
30.
30.
0-6.
4-12.
8ABC0.
430.
370.
390.
430.
350.
360.
0-4.
6-8.
4BCOM0.
720.
630.
640.
720.
560.
50.
0-10.
4-21.
8CMB1.
661.
561.
561.
661.
331.
440.
0-14.
5-7.
6CITIC0.
680.
490.
490.
680.
460.
450.
0-7.
0-7.
4CMBC0.
970.
710.
670.
970.
610.
570.
0-14.
1-14.
6CQRC0.
440.
390.
430.
440.
360.
320.
0-8.
0-25.
2Source:CreditSuisseestimatesFigure5:GordonGrowthModel-derivedtargetpricesProjCOEP/B(x)NewCMPUpsideOldChngBankROETP(HKD)(%)TP(%)ICBC15.
8%11.
8%1.
585.
494.
3127.
47.
38-26CCB15.
3%12.
0%1.
485.
705.
1111.
58.
13-30BOC11.
1%11.
8%0.
892.
842.
657.
03.
72-24ABC13.
8%12.
6%1.
152.
952.
99-1.
34.
07-27BCOM11.
8%12.
2%0.
954.
904.
694.
66.
57-25CMB^14.
0%^12.
0%1.
2712.
5812.
064.
320.
32-38CNCB11.
2%13.
1%0.
773.
593.
492.
85.
08-29CMBC^11.
1%^12.
0%0.
884.
925.
17-4.
86.
80-28CRCB10.
8%13.
1%0.
712.
612.
581.
14.
04-35^CMBROEassumedtobe2.
0%lowerandCMBC's1.
5%lowergivenexpecteddilution.
Source:CreditSuisseestimatesWednesday,12October2011AsianDaily-4of32-AsiaEquityStrategyNewreport:CylicalsworthanotherlookSakthiSiva/ResearchAnalyst/6562123027/sakthi.
siva@credit-suisse.
comKinNangChik/ResearchAnalyst/85221017482/kinnang.
chik@credit-suisse.
comWehadsuggestedbackinAprilsellingexpensivecyclicalswhichatthattimewereIndonesiancoal,Singapore/Malaysiapalmoil,ChinesecementandChinesemetals.
While,athindsight,weshouldhavesuggestedsellingallcyclicalsnotjusttheexpensiveones,weareincreasinglyfindingvalueincyclicalsgiventherecent25%underperformance(seeFigure1).
WealsonotethattherelativepriceperformanceofcyclicalsversusdefensivestrackstheUSISM.
AndtheUSISMrosefrom50.
6inAugustto51.
6inSeptember.
Onourprice-to-bookversusROEvaluationmodel,thebiggestdiscountscurrentlyamongcyclicalsareinKoreanenergy(-62%),Chinesecement(-62%)andChineseoils(-49%).
Wealsoestimatediscountsof35%forKoreanbasicmaterials,32%forChinesemetals,18%forChinesecoaland16%forKoreanconsumercyclicals.
GiveninvestorconcernsontheROEofcyclicalsectors,wehighlightthatIndustrialstradingat1.
31xbookhavethelowestabsoluteprice-to-bookamongthecyclicals.
ThekeyrisktoourcallthatcyclicalsareworthanotherlookisthatthefallinEuriborspreads(ourproxyforcontagiontotheEuropeanbankingsystem)isjustablipandwegetarepeatof2008.
Insuchascenario,cyclicalsarelikelytogetevenmoreundervalued.
Forthefullversionofthisnote,pleaseclickhere.
Figure1:Asiaex-JapanCyclicals/defensivesrelativeperformancevsUSISM60708090100110120Dec-03Dec-05Dec-07Dec-09CyclicalsvsDefensives3035404550556065USISMAsiaex-JPCyclicalsvsDefensivesUSISM24.
6%under-performancefrom30Aprilto30Sep2011Source:Companydata,MSCI,Datastream,ISM,CreditSuisseresearchCyclicalshaveunderperformeddefensivesby25%since30AprilWehadsuggestedbackinAprilsellingexpensivecyclicalswhichatthattimewereIndonesiancoal,Singapore/Malaysiapalmoil,ChinesecementandChinesemetals.
Whileathindsightweshouldhavesuggestedsellingallcyclicalsnotjusttheexpensiveones,weareincreasinglyfindingvalueincyclicalsgiventherecent25%underperformance(seeFigure1).
WealsonotethattherelativepriceperformanceofcyclicalsversusdefensivestrackstheUSISM.
AndtheUSISMrosefrom50.
6inAugustto51.
6inSeptember.
Figure2:ExpensivecyclicalshighlightedinAprilusingourprice-to-bookversusROEvaluationmodel30-AprCurrentIndonesiancoal92-13Singapore/Malaysiapalmoil2034Chinesecement16-62Chinesemetals13-32Source:CreditSuisseresearchBiggestdiscountscurrentlyareinKoreanenergy,ChinesecementandChineseoilsOnourprice-to-bookversusROEvaluationmodel,thebiggestdiscountscurrentlyamongcyclicalsareinKoreanenergy(-62%),Chinesecement(-62%)andChineseoils(-49%).
Wealsoestimatediscountsof35%forKoreanbasicmaterials,32%forChinesemetals,18%forChinesecoaland16%forKoreanconsumercyclicals.
Figure2:ChinesecementP/BversusROErelativetotheregion-120%-80%-40%0%40%Jan-00Jan-02Jan-04Jan-06Jan-08Jan-10ChineseCement-61.
7%currentlyavg:-34.
3%61.
7%discount16%premiumApril2011Source:CreditSuisseresearchFigure4:KoreaenergyP/BversusROErelativetotheregion-120%-80%-40%0%40%Jan-00Jan-02Jan-04Jan-06Jan-08Jan-10Energy-PBrellessROEreltoAPxJ:-62.
1%currentlyaverage:-36.
7%-62%-120%-80%-40%0%40%Jan-00Jan-02Jan-04Jan-06Jan-08Jan-10Energy-PBrellessROEreltoAPxJ:-62.
1%currentlyaverage:-36.
7%-62%Source:CreditSuisseresearchIndustrialsonlowestabsoluteprice-to-bookGiveninvestorconcernsontheROEofcyclicalsectors,wehighlightthatIndustrialstradingat1.
31xbookhavethelowestabsoluteprice-to-bookamongthecyclicals.
ThekeyrisktoourcallthatcyclicalsareworthanotherlookisthatthefallinEuriborspreads(ourproxyforcontagiontotheEuropeanbankingsystem)isjustablipandwegetarepeatof2008.
Insuchascenario,cyclicalsarelikelytogetevenmoreundervalued.
Wednesday,12October2011AsianDaily-5of32-SeoulSemiconductor-DowngradetoNEUTRALDowngradetoNEUTRALasitsnear-termearningsshoulddisappointfurtherEPS:TP:JohnSung/ResearchAnalyst/82237073739/john.
sung@credit-suisse.
comWebelievetheextentofSeoulSemi's(SSC)3Q11earningsdisappointmentcouldbelargerthanwhatwehadpreviouslydiscussedmainlyduetosignificantmarginerosioninitsBLUoperations(whileitslightingbusinessremainsrelativelyhealthy).
WenowforecastSSC'soperatingprofittodeclinetoW12.
5bn(-30%QoQ)in3Q11.
WeakervolumescouldalsobeduetothefactthatSSCremainsasecond-tiervendorforlocalpanelandTVmakersunderthecurrentprolongedproductdown-cycle.
Toreflectthenear-termearningsgapfromBLUsinparticular,wehavecutournetprofitforecasttoW48bninFY11(-27%fromourpreviousforecast).
Althoughitslightingbusinessshouldstayhealthy,webelievestreetwillfocusonSSC'soverallearningsdisappointmentinthenearterm.
WedowngradeourratingforSSCtoNEUTRAL(fromOutperform)withanew12-monthtargetpriceofW23,500(downfromW27,000)basedonthesametargetP/Eof16xandFY12EPSforecast.
RelativelyhealthylightingnotenoughtooffsetweakerBLU;BLUmarginscollapsingAsdiscussedinour27Septembercompanynote,SSC's3Q11earningsshoulddisappoint.
Butnowitseemsthedisappointmentcouldbemuchbigger,accordingtoourrecentdiscussionswithSSCandchannelchecks.
WebelievethekeyculpritwillagainbeitsBLUbusiness,whererelatedmarginscouldcomeclosetothebreak-evenlevelin3Q11(versusmid-singledigitduring1H)on:(1)weakerend-marketvolume(magnifiedbySSC'ssecond-tiervendorstatusespeciallyforlocalpanelandTVcustomers),(2)furtherASPpressureand(3)consequentmarginsqueeze.
AsshowninFigure1,eventherelativelyhealthyoperationsatthelightingbusinessdonotseemenoughtooffsetthedownsidedragfromBLUoperations.
Revisedforecast—toningdownfurtherReflectingthesenear-termearningsgapfromBLUinparticular,wehavefurthertoneddownourforecast(Figure2).
Our2011EnetprofitforSSCfallstoW48bn(-27%fromthepreviousforecast).
SeoulOptoDevice—rightsissuedisclosedOn10October,SeoulOptoDevice(anunlistedLEDchip-makingaffiliateofSSC)discloseditsrightsissuetoathirdparty(Figure2).
SSC'sequitystakedoesnotchangemuchasshowninthefigure.
DowngradingtoNEUTRAL—near-termearningstodisappointfurtherAlthoughitslightingbusinessshouldstayhealthy,webelievestreet'sfocuswillbeonitsoverallearningsdisappointmentinthenearterm.
WedowngradeourratingforSSCtoNEUTRAL(fromOutperform)withanewtargetpriceofW23,500basedonthesametargetP/Eof16xandFY12EPSforecast(fromW27,000).
Figure1:Quarterlysales(LHS)andOP(RHS)forecastbyproduct0501001502002501Q112Q113Q11E4Q11EBLULightingHandset(Wbn)051015201Q112Q113Q11E4Q11EBLULightingHandset(Wbn)Source:Companydata,CreditSuisseestimatesFigure2:SSC'sstakeatSeoulOptobeforeandaftertherightsissueBeforeAfterSSC'sholdingsatSeoulOpto11,829,21411,829,214SeoulOpto#ofstocksoutstanding29,713,49031,347,476SSCownership(%)39.
8037.
70Source:Companydata,CreditSuisseestimatesRatinghistoryTickerDateOldratingNewratingOldTPNewTP046890.
KQOct112011OUTPERFORMNEUTRALW27,000W23,500Figure3:Revisedearningsforecast1Q112Q113Q11E4Q11EFY11E(Wbn)ActualActualNewQoQ(%)YoY(%)OldBBGNewOldNewYoY(%)Old(%)BBGSales207.
4208.
1194.
7-6.
4-29.
7214.
9254.
4211.
0242.
4821.
1-2.
1872.
8958.
6Operatingprofit14.
117.
812.
5-29.
8-70.
818.
025.
813.
722.
158.
1-47.
171.
986.
9Netprofit10.
616.
111.
2-30.
7-67.
916.
125.
510.
222.
848.
1-48.
965.
675.
2OPmargin(%)6.
88.
66.
4--8.
410.
16.
59.
17.
1-8.
29.
1NPmargin(%)5.
17.
75.
7--7.
510.
04.
89.
45.
9-7.
57.
8Source:Companydata,Bloomberg,CreditSuisseestimatesPrice(11Oct11,W)21,950TP(prev.
TPW)23,500(27,000)Est.
pot.
%chg.
toTP752-wkrange(W)44800.
0-18550.
0Mktcap(W/US$bn)1,279.
8/1.
1Bbg/RIC046890KS/046890.
KQRating(prev.
rating)N(O)[V]Sharesoutstanding(mn)58.
31Dailytradvol-6mavg(mn)0.
9Dailytradval-6mavg(US$mn)22.
6Freefloat(%)48.
4MajorshareholdersCEO,21.
5%Performance1M3M12MAbsolute(%)(5.
2)(18.
4)(45.
9)Relative(%)(2.
7)(11.
1)(38.
3)Year12/09A12/10A12/11E12/12E12/13ERevenue(Wbn)4538398219451,094EBITDA(Wbn)63.
5142.
0125.
7159.
1173.
1Netprofit(Wbn)28.
294.
148.
184.
3101.
5EPS(W)5481,6148241,4451,712-Changefromprev.
EPS(%)n.
a.
n.
a.
(27)(14)(15)-ConsensusEPS(W)n.
a.
n.
a.
1,3021,8772,534EPSgrowth(%)n.
m.
194.
7(48.
9)75.
418.
4P/E(x)40.
113.
626.
615.
212.
8Dividendyield(%)0.
41.
40.
81.
31.
6EV/EBITDA(x)19.
79.
510.
78.
37.
6P/B(x)2.
52.
12.
01.
81.
6ROE(%)9.
117.
87.
812.
513.
6Netdebt(cash)/equity(%)(5.
9)11.
810.
25.
95.
6Note1:SeoulSemiconductorCo.
,Ltd.
engagesinthemanufactureandsaleoflightemittingdiode(LED)productsworldwide.
ItsproductlineincludessurfacemounteddeviceLEDs,customdisplaysandsensors.
Wednesday,12October2011AsianDaily-6of32-ChinaOilandGasSectorChinaannouncesOil&Gasresourcetaxbetween5-10%ofrevenueDavidHewitt/ResearchAnalyst/6562123064/david.
hewitt.
2@credit-suisse.
comHoraceTse/ResearchAnalyst/85221017379/horace.
tse@credit-suisse.
comOnTuesday,Chinaannouncedthatitsnewprice-basedoil&gasresourcetaxwillbeimplementedatbetweenfivetotenpercentofrevenue.
ThiswillbeeffectivenationwidefromNovember2011.
Animportantpointisthatwhileoffshoreproductionisincluded,foreignproductionsharingcontracts(PSCs)arenotincluded,indicatingforeignparticipationhasbeengrandfathered.
Whatisnotclearatthisstageisthecriterionforthefiveandtenpercent.
Iftheeffectivetaxendsupatorc.
5%,theearningseffectisrelativelymarginalforPetroChina/Sinopecversusourcurrentforecast.
Ifpaymentsheadtowards10%,theeffectisfarmorematerial.
ThesameappliesforCNOOC,whichhasmitigatedtheeffectbyassuringitsforeignPSCsaregrandfatheredfromthenewresourcetax.
WithcrudepricemomentumsupportingtheCSforecast,theconfirmationofrefiningearningchallengesatcurrentcrudepricelevels(productpricecutovertheweekendandtheNDRCstatementaccompanyingthecut)andnowmoreclarityontheresourcetaxeffecttothebigthree,were-iterateourOUTPERFORMratingsforCNOOCandCOSL.
Figure1:Valuationcomps–ChineseOilsCompanyTickerRat.
PriceYearP/E(x)P/B(x)LocalTargetTT+1T+2T+1PetroChina0857.
HKN9.
0211.
1512/108.
28.
31.
3Sinopec0386.
HKN7.
098.
5012/106.
67.
41.
1CNOOC0883.
HKO13.
7216.
6012/107.
16.
71.
8COSL2883.
HKO10.
7813.
1012/109.
77.
41.
4Note:O=OUTPERFORM,N=NEUTRAL,U=UNDERPERFORMSource:Companydata,CreditSuisseestimatesEvent:ChinaannouncesOil&Gasresourcetaxbetween5-10%ofrevenueInitialview:CNOOConlypartiallyincluded–minimaleffectat5%Whatwasannounced:Newprice-basedresourcetaxwillbetaxedat5-10%byrevenueforoil&gas.
ThistaxwillbeimplementednationwidefromNovember2011onwards,aftertrialsinWesternChina.
Otherresourcesremaintaxableonavolumebasis,withexistinglevies.
Offshoreproductionisincluded,BUT(anditisanimportantcondition)foreigncontracts(PSCs)areNOTincluded.
Thismeansthatforeignparticipationhasbeengrandfathered.
Tobeclarified:Whatarethecriterionforapplyingthe5&10%levelsInthetrialperiodtobeimplementedinWesternChina,5%wastheheadlinetaxlevel–with'discounts'givenforheavyoilandEnhancedOilRecovery(EOR)production(moreexpensive).
Itisnotclearatthisstagewhatwouldcausetheamounttovaryabove5%,andifdiscountsstillremain.
Effecttoourcurrentearningsassumptions:OurmodelscurrentlyassumePetroChinapays3.
8%in2012,Sinopecpays4%andCNOOCpays6%(productiontaxplusroyalty)onallproduction–i.
e.
weassumedanationwideroll-outin2012.
At5%,theeffectisnegativebutnotmaterialforPetroChinaandSinopec(2.
7%&3.
4%,respectively)At10%,theeffectismaterialfortheonshorestocks–PetroChina-14.
8%,Sinopec-9.
6%OurCNOOC2012EBITwoulddeclineby3.
8%–iftheheadlineresourcetaxis5%(assuming50%ofrevenueisPSC-generated)Figure2:2012EBITcomparison—CSversusconsensus2012EBITestimates(RMBbn)CompanyTickerConsensusCSPetroChina0857.
HK226227Sinopec0386.
HK12097CNOOC0883.
HK9097Source:Bloomberg,CreditSuisseestimatesConclusions:Iftheeffectivetaxendsupatoraround5%,theearningseffectisrelativelymarginalforPetroChina/Sinopecversusourcurrentforecast.
Ifpaymentsheadtowards10%,theeffectisfarmorematerial.
ItisthesameforCNOOC,whichhasmitigatedtheeffectbyassuringitsforeignProductionSharingContracts(PSCs)aregrandfatheredfromthenewresourcetaxperiod.
WithcrudepricemomentumsupportingtheCSforecast,theconfirmationofrefiningearningschallengesatcurrentcrudepricelevels(productpricecutovertheweekendandtheNDRCstatementaccompanyingtheannouncedcut)andnowmoreclarityontheresourcetaxeffecttothebigthreeplayers,were-iterateourOUTPERFORMratingsforCNOOCandCOSL.
Wednesday,12October2011AsianDaily-7of32-RegionalAsiaPetrochemicalSector-KeytakeawaysfromthecallwithPaulHodges—onAsianpolymerdemandandsupplySanjayMookim/ResearchAnalyst/912267773806/sanjay.
mookim@credit-suisse.
comSaurabhMishra/ResearchAnalyst/912267773894/saurabh.
mishra@credit-suisse.
comWehostedPaulHodges,theinternationalpetchemconsultant,onaconferencecalltopresenthisviewsonPolyethylene(PE)demandandsupply.
Wepresentkeytakeawaysinthisnote.
PaulbelievesPEsupplyhasbeenhurtbystructuralissues–lowoperatingratesatrefineries(particularlyinEurope),limitingfeedstock–naphtha–supplyandavailabilityofrawmaterial(ethane)forplantsintheMiddleEast.
HighercrudeoutputinSaudiArabiahasresolvedthelatter,andMEsupplieshaverisen.
Demandhadbeeninflatedbyrisingcrudeprices;ascenariowhichhasnowreversed.
Whiletherehasbeensomede-stocking,theremayberoomformoreinChina.
Demographic-ledchangesmayaffectlonger-termdemandoutlookforPE.
Nameplatecapacitygrowthislowforthenextfewyears;operatingratesshouldincreaseonheadlineevenifdemandweretobeabitsoft.
Marginsmaynot,however,respond(andcouldfall)ifthecurrentsupply-sideissueswereresolved.
WebelieveanyreductioninSaudicrudeoutput(ifLibyanproductionincreased)andanincreaseincommodityprices(drivingare-stockingcycle)couldpresentneartermupsideriskstomargins.
Figure1:Valuationmetrics–AsianpetrochemicalsCompanyTickerRat.
FXPriceTPP/E(x)P/B(x)EV/EBITDA(x)ROE(%)11E12E11E11E12E11EFPC1301.
TWNTWD8810011.
312.
22.
014.
916.
717.
8NYPC1303.
TWOTWD708512.
610.
51.
915.
616.
315.
0FCFC1326.
TWOTWD861149.
28.
91.
711.
610.
918.
9FPCC6505.
TWUTWD937723.
922.
93.
615.
213.
815.
2Hanwha009830.
KSUKRW26k33k6.
86.
30.
74.
74.
610.
5Honam011170.
KSOKRW283k520k7.
36.
81.
64.
54.
521.
9LGChemLtd.
051910.
KSOKRW337k600k9.
08.
02.
35.
95.
025.
8SiamCementSCC.
BKOTHB28738010.
88.
52.
39.
17.
521.
3ThaiOilTOP.
BKOTHB55706.
67.
81.
44.
34.
820.
7IVLIVL.
BKOTHB31477.
18.
32.
28.
67.
330.
5RILRELI.
BOOINR8261,05711.
710.
01.
68.
28.
613.
8Source:Companydata,CreditSuisseestimatesWehostedPaulHodges,ChairmanofInternationaleChem,anindependentpetrochemicalconsultancyfirm,onaconferencecall,wherehepresentedhisviewsonPEdemand/supply.
Constrainedsupplyhashelpednear-termPEmarginsPaulbelieveslowerrefiningoperatingratesindevelopedcountries(particularlyEurope)hasaffectedoperatingratesatintegratedPolyethylene(PE)plants(throughloweravailabilityoffeedstock–naphtha)–reducingsuppliedinthemarket.
Inaddition,reducedgasavailabilityintheMiddleEasthasalsolimitedoperatingratesatthelargenewcapacities.
ThesehaveworkedtohelpPEmarginsrecently;andeffectiveutilisationswerehigherthannameplate.
WiththeincreaseincrudeoutputintheMiddleEast(principallyinSaudiArabia),associatedgasproductionhasincreasedaswell–utilisationratesatMiddleEasternPEplantsmightnowbeexceeding90%.
Thisadditionalsupplyhasaffectedmarketsandhurtmargins.
DemandinflatedbyrisingoilpricesTheincreaseincrudepriceswitnessedearlyintheyearhaslikelyledtoanincreaseindemand–asPEconsumersrushedtobookrawmaterialandlock-inmargins.
Withcrudepriceshavingcomeoff,thiscyclehasturnedandsomeinventoryde-stockinghaslikelyhappened.
Anecdotalevidencesuggestsconsumershavelittleconfidenceandareattemptingtomanageoperationswithlittleinventory.
Thatsaid,PaulbelievesChinamaystillhavesomepotentialforinventoryreduction,andevidencesuggestsChinaisre-exportingtheproduct–someofiteventoLatinAmerica.
StructuralchangestodemandgoingforwardChangingdemographicsintheWesternworld(withagreaterpercentageofpopulationagedabove55years),islikelytoaffectdemandpatternsforpolymers.
Theincreaseddemandinhousing,autosandelectronicsseeninthebabyboomereraisunlikelytoberepeated–demandfromtheoldergenerationislikelytobefordifferentproducts,andpotentiallyslower.
NameplatecapacitygrowthislowAfterthelargeincreasesintheMiddleEast,PEcapacitygrowthislikelytoslowoverthenextfewyears.
Evenwithslightlyweakdemandforecasts,nameplateutilisationratesarelikelytoimprove;thoughtheymayremainbelowhistoricalhighs.
TheriskisthatutilisationratesatMiddleEasternplantsremainhighandothersupplybottlenecksease.
Thismightcap(andpotentiallyhurt)ethylenemargins.
Largecapacityadditionbycompaniesinemergingeconomies(notnecessarilyhavingafocusonprofitability)canalsoimpactlong-termmargins.
AnyreductioninSaudicrudeoutput(becauseofanincreaseinLibyaforexample),canreducePEoutput.
Anystability/increaseincrudepricescanleadtofurtherinventorybuild,andpresentnear-termupsiderisks,inourview.
Figure2:Globalethylenesupply/demandSource:InternationaleChem,CreditSuisseestimatesWednesday,12October2011AsianDaily-8of32-AsiaContainerShippingSectorEarningsdownsidefromweaker-than-expectedpeakseason,butvaluationsalreadyfactorinmulti-yearlossesSamLee/ResearchAnalyst/85221017186/sam.
lee@credit-suisse.
comHungBinToh/ResearchAnalyst/85221017481/hungbin.
toh@credit-suisse.
comThispeakseasonhasstartedlatebutfinishedearlierthanexpectedonweakercargovolumeandoversupplyconcerns.
SpotChinaoutboundfreightrateisnowbacktoorbelowearlyAugustlevel.
Withlimitedratehikesin3Q11Eandadeterioratingmacrooutlook,wecutfreightrateassumptionsandnowexpectcompanies'blendedratestodecline4-14%inFY11(Figure2).
Wehavethereforecutearningsforecastsonlowerrateassumptions(Figure3),andexpectCSCL,NOLandYangMingtomakefull-yearlossesthisyear.
Ifratesdonotrecoverasexpected,wethinkmorecarrierswillmakelossinFY12E.
Toreflectourearningsdowngradesandrisingearningsriskonanuncertainmacroenvironment,wecutourtargetpricesonlowerP/Bmultiplies.
Withlimitedupside,wedowngradeNOLtoNEUTRAL.
Thatsaid,afterrecentcorrections,wethinksharepriceshavefactoredinmulti-yearlosses.
ExceptforWHL,allaretradingbelowtheirforwardbookvalues,withCSCLandOOILatthelowest(0.
5-0.
6x).
Mostaremorethan1SDbelowtheirhistoricalaverages,andcloserto2008-09troughs(Figure5).
ValuationmetricsCompanyStockLatestTargetRating*MktcapFY11Ecodepriceprice(US$mn)P/EP/BRoAECSCL2866.
HKHK$1.
301.
80OP4,298-6.
30.
5-7.
1Evergreen2603.
TWNT$15.
8018.
70OP1,81070.
40.
81.
2NOLNEPS.
SIS$1.
141.
23N2,286-19.
10.
7-3.
8OOIL0316.
HKHK$34.
7545.
00OP2,79512.
60.
74.
8WanHai2615.
TWNT$15.
0519.
50OP1,10150.
31.
02.
1YangMing2609.
TWNT$12.
0010.
70N1,115-5.
30.
9-15.
2*O/P=Outperform,N=NeutralandU/P=UnderperformSource:Companydata,CreditSuisseestimatesPeakseasonendedearly;earningsandTPscutAccordingtocarriersandindustrynewsflow,therecentsurgeinseasonaldemandisnoweasing,withutilisationonmajortradesweakeningto80-90%from85-95%.
Figure1:SpotChinaoutboundratesfallingagain6008001,0001,2001,4001,6001,8002,0002,2002,400Oct-09Dec-09Feb-10Apr-10Jun-10Aug-10Oct-10Dec-10Feb-11Apr-11Jun-11Aug-119001,4001,9002,4002,9003,400AsiatoEuropeAsiatoANZAsiatoUSWC(RHS)US$/TEUUS$/FEUSource:Companydata,ShanghaiShippingExchange,CreditSuisseestimates.
WhilewehavecutFY11-13Erategrowth,wecontinuetoexpectminorraterecoverynextyearon:(1)ourbasecaseassumessomedemandgrowthbasedonslowerglobalgrowth(2012E:3.
8%GDP)butnotarecession;(2)wethinkthecurrentloss-makingrateisunsustainable,andexpectmorecapacitywithdrawalafterpeakseasontosupportratesforFY12E.
Inthepastweek,variouscarriershaveannouncedthatfourtranspacificservices,with6%capacityonthattrade,willbecutinthenexttwomonths;and(3)lowinventorylevelsforshippingcustomers,inourview,willlikelyleadtorestockingin2012E.
Figure2:Freightrategrowthassumptions(%)FreightratesgrowthOld20102011F2012F2013F2011F2012F2013FCSCL71-1464-1384Evergreen29-433333NOL22-934-844OOIL27-633-433WanHai23211242YangMing40-1033033Source:Companydata,CreditSuisseestimates.
Figure3:EarningsdowngradesCompanyCur'cyActualEarnings(New)Earnings(Old)20102011F2012F2013F2011F2012F2013FCSCLRmnmn4,203-2,0093111,901-1,4186332,801EvergreenNT$mn15,1652,4963,8248,3709,07810,22415,332NOLUS$mn461-1211073101287478OOILUS$mn1,867233295438328396543WanHaiNT$mn5,4488302,6853,5134,3865,3847,740YangMingNT$mn11,788-5,404-2,1822,3534,7209,16913,630Source:Companydata,CreditSuisseestimates.
Ournewtargetmultipliesareallbelow1xandatleast1SDbelowhistoricalaverage.
WHL'stargetP/Bishigherabsolutelyduetoitshighertradingrange,butisalsoat1SDbelowaverageof1.
6x.
Figure4:RatingandtargetpricerevisionsCompanyRatingTargetpriceUpsideTargetpricemethodologyNewOldNewOld(%)CSCLOPOP1.
802.
45380.
6xforwardP/B,1SDbelowhistavgEvergreenOPOP18.
7028.
18180.
8xforwardP/B,1SDbelowhistavgNOLNOP1.
231.
4080.
8xforwardP/B,1SDbelowhistavgOOILOPOP45.
0051.
40290.
8xFP/Bshippingassets,1xpropertyWanHaiOPOP19.
5026.
19301.
3xforwardP/B,1SDbelowhistavgYangMingNN10.
7023.
18-110.
8xforwardP/B,1SDbelowhistavgSource:Companydata,CreditSuisseestimates.
Figure5:12-monthforwardP/B:Now,2008-09lowand1SDbelowavg.
0.
20.
40.
60.
81.
01.
21.
4WanHaiYangMingEvergreenNOLOOILCSCL12MFP/B2008-09low1SDbelowavgP/B(x)Source:Companydata,CreditSuisseestimates.
Wednesday,12October2011AsianDaily-9of32-ChinaChinaeconomics-StatefundbuysbanksharesinanefforttoboostmarketconfidenceDongTao/ResearchAnalyst/+85221017469/dong.
tao@credit-suisse.
comTheCentralHuijinInvestmentLtdannouncedyesterdaythatithadboughtsharesofthefourlargestChinesebanksinthesecondaryA-sharemarketinanefforttoboostmarketconfidence.
Thepurchasesizewassmall,buttheintentiontoboostinvestmentconfidenceisclear.
ThisisthethirdtimeinhistorythatHuijinincreaseditsstakesinthelargestbanks.
Inourview,Huijin'smovehelpsboostshort-termconfidence,butitslong-termimpactmaybelimited.
Wearguethatunlike2008,Chinahasstructuralissuestosortout,e.
g.
localgovernmentdebt,informallending,apropertybubbleandthelackofbusinessinterestforindustrialinvestmentsthatthreatensfinancialstabilityandgrowthprospects.
Further,localgovernmentsandentrepreneursareexpectedtooffloadmorestakesinthesecondarymarketasthecreditcrunchcontinues.
HuijinbuysbanksharesagainChina'sstatefund,theCentralHuijinInvestmentLtd,announcedyesterdaythatitboughtsharesofthefourlargestChinesebanksinthesecondaryA-sharemarketinanefforttoboostmarketconfidence.
ThetotalpurchasingwasRmb197mn,or5%ofyesterday'stotaltradingvolume.
TheCentralHuijinInvestmentLtdisaholdingcompanyundertheChinaInvestmentCorporationwhichissolelyownedbytheChinesegovernment.
Ithassixbanks,twoinsurancecompaniesandfourbrokeragehousesinitsportfolio,includingthefourbanksitincreasedstakesinyesterday.
HuijinboughtthesharesinthedomesticA-sharemarket,butnottheHongKong-basedH-sharemarket.
Thesizeofpurchaseyesterdaywassmall,butthepolicyintentiontoboostinvestmentconfidenceisclear.
ThisisthethirdtimeinhistorythatHuijinincreaseditsstakesinthelargestbanks.
On19September2008,HuijinannounceditboughtsharesofthethreelargebanksandtheA-sharemarketsurged9.
5%thatday,followedbyanother7.
8%thenextday,buttheindextrendedloweragainuntiltheannouncementoftheRmb4trnfiscalstimulusplan.
Positiveshort-termboost,butlimitedlong-termimpactInourview,Huijin'smovehelpsboostshort-termconfidence,butitslong-termimpactmaybelimited.
Asofmid-session,theShanghaiCompositeIndexjumped1.
5%andtheHangSengChinaIndexwasup5%.
Clearly,investorstookthemovepositively,inadrasticallyover-soldmarket.
However,wearguethatunlikein2008,Chinahassomestructuralissuestosortoutnow.
In2008,Chinafellvictimtotheglobalfinancialcrisis,butitsbankingsystemwassound.
Thistimearound,somestructureimbalanceshaveemergedafteradrasticfiscalexpansionandaggressivequantativetighteningprocess.
Awiderangeofissueslikelocalgovernmentdebt,informallending,propertybubble,andthelackofbusinessinterestforindustrialinvestmentsisthreateningfinancialstabilityandgrowthprospects.
Furthermore,localgovernmentandprivateentrepreneursareexpectedtooffloadmorestakesinthesecondarymarketasthecreditcrunchcontinues.
Wednesday,12October2011AsianDaily-10of32-ChinaResourcesGasMaintainOUTPERFORMOpportunistictakeover—slightaccretionifithappensEPS:TP:EdwinPang/ResearchAnalyst/85221016406/edwin.
pang@credit-suisse.
comCRGasandits56%-heldZhengzhouGasweresuspendedpendinganofferfortheremainingstake.
PrivatisationispresentedtotheSFCandtheannouncementwillbemadeinthenextfewdays.
Detailsontheofferpricewillbemadeknowninduecourse.
ZhengzhouGashasbeendownsharply(-40%toHK$10/share)since4Q11.
Continueddelaysinthepass-throughoftheupstreamgaspricehike(+Rmb0.
23/cmsinceJune2010)foritsresidentialgassales(>34%ofsales)hasaffecteditsmargins.
PositivesforCRGas:Zhengzhou'sP/Ediscount(6xP/E),netcashpershareofHK$5(i.
eex-cash3xP/E),goodFCFgeneration,potentialgassalesgrowthviaWE-IIin2012andimminentapprovalofresidentialtariffpass-through.
Assumingthetakeoverpriceis10%premiumtoitslasttradedprice,itwouldcostCRGas~HK$600mn.
CRGashas~HK$6bncashsotherearenoimmediatefundingneeds.
WeestimatetheEPSaccretiontoCRGasforFY12wouldbe~5%.
CRGasremainsourpreferredpickinthesector.
MaintainOUTPERFORM.
EventCRGasandits56%-ownedsubsidiaryZhengzhouGasweresuspendedpendingatakeoveroffer.
TheprivatisationwillbepresentedtotheSFCandtheannouncementwillbemadeinthenextfewdays.
Detailsontheofferpricewillbemadeknowninduecourse.
Zhengzhou:1H11affectedduetoalackofresidentialZhengzhouGashasbeendownsharply(-40%toHK$10/share)since4Q11.
Giventhat>34%ofitsgassalesisattributedtoresidential,continueddelaysinthepublicconsultationoverthepass-throughoftheupstreamgaspricehike(upRmb0.
23/cmsinceJune2010)hasaffecteditsmargins.
1H11earningsgrowthwasonly+5%(toRmb136mn)despite+23%growthingassales(to313mcm).
Figure1:ZhengzhouGassnapshot(P&Landdrivers)(Rmbmn)1H102H101H11Revenue757770973–Gassales554585731–Connectionfee204185242GrossMargin240188265–Gassales54(9)43–Connectionfee164161187–Others223634PAT13075136Gassalesvolume,mcm256238313–Residential9670109–C&I123123158–Vehicluar364546MarginsdriversGassalesdollarmargin(Rmb/cm)0.
310.
090.
24Connectionfeemargin(Rmb/cust.
)2,9422,3374,042Source:Companydata,CreditSuisseestimates.
FivereasonsandbenefitforCRGasFirst,thevaluationdiscount—CRGastradesat16xP/EFY11EvsZhengzhouat6xP/EFY11E.
Second,CRGasexpectstheapprovalbytheZhengzhougovernmentforresidentialgastariffpass-throughinthenearfuture.
AssumingthatitgoesthroughinDecember2011,thisshouldprovide10%growthtoZhengzhou'searningsinFY12E(excludingassumingorganicgrowth).
Third,cash,andlotsofit.
ZhengzhouisnetcashatRmb522mn,whichis~HK$5perZhengzhouGas'sshare(i.
e.
,impliedex-cashP/Eisonly3xFY11).
Fourth,capexforitscity-gaspipelinesismostlyinplaceandZhengzhougeneratesFCF/shareofHK$1.
5(steadystate,withoutcapexforfutureexpansion),whichimplies6-7xPrice/FCF(atcurrentlevels).
Fifth,CRGasexpectsZhengzhou'srelativelymaturecitygassalesgrowthof20%p.
ainthenextfewyears(againstthegroup's25-30%growth)astheWE-2willcomethroughin2012.
Assumingthatnewconnectionsdonotfallsharply,webelieve,shouldprovide10-15%earningsgrowth.
CostandEPSaccretionforCRGasAssumingthetakeoverpriceis10%premiumtothelasttradedprice,itwouldcostCRGas~HK$600mn.
CRGasisnetcash(aroundHK$6bn)andhaveaccesstolowcostHKDbankfunding.
AssumingthedealiscompletedbyDec-11,weestimatetheEPSaccretiontoCRGasforFY12wouldbearound5%,somaintainOUTPERFORM.
Figure2:SummaryvaluationsMktvalEntvalYldP/EEV/EBITDANameCodeRatFXPxTPUS$mnUS$mn(%)11E12E11E12EHKG0003UHK$17.
1015.
5517,36217,1192.
122.
321.
414.
513.
4BJEnt.
0392OHK$39.
7052.
505,8045,5531.
816.
013.
77.
46.
4ENN2688NHK$26.
5027.
803,6334,1431.
618.
214.
69.
27.
7CRGas1193OHK$10.
0814.
502,5811,7571.
516.
312.
88.
16.
4ChinaGas0384OHK$1.
834.
001,1722,4501.
88.
96.
96.
75.
5SZGas601139ORMB10.
5513.
902,2972,1761.
241.
029.
024.
817.
7Kunlun0135NRHK$10.
46-6,6366,4661.
713.
911.
36.
04.
4Towngas1083NRHK$3.
99-1,0041,2341.
016.
813.
311.
411.
7Average1.
619.
215.
411.
09.
1Source:IBES,Companydata,CreditSuisseestimates.
*MarYEi.
e11E=Mar'12E.
Price(10Oct11,HK$)10.
08TP(prev.
TPHK$)14.
50(14.
50)Est.
pot.
%chg.
toTP4452-wkrange(HK$)12.
3-9.
7Mktcap(HK$/US$mn)20,082.
1/2,581.
3Bbg/RIC1193HK/1193.
HKRating(prev.
rating)O(O)Sharesoutstanding(mn)1,992.
27Dailytradvol-6mavg(mn)2.
3Dailytradval-6mavg(US$mn)3.
4Freefloat(%)31.
9MajorshareholdersCRHoldings68.
08%Performance1M3M12MAbsolute(%)(17.
9)(9.
4)(12.
7)Relative(%)(3.
6)15.
515.
6Year12/09A12/10A12/11E12/12E12/13ERevenue(HK$mn)3,7478,32713,38218,26723,573EBITDA(HK$mn)7521,6492,6083,5364,378Netprofit(HK$mn)4227341,2351,5662,008EPS(HK$)0.
300.
510.
620.
791.
01-Changefromprev.
EPS(%)n.
a.
n.
a.
000-ConsensusEPS(HK$)n.
a.
n.
a.
0.
590.
720.
88EPSgrowth(%)78.
170.
322.
126.
828.
2P/E(x)33.
819.
916.
312.
810.
0Dividendyield(%)0.
61.
21.
51.
92.
5EV/EBITDA(x)29.
511.
68.
16.
45.
1P/B(x)2.
82.
62.
72.
32.
0ROE(%)12.
113.
718.
719.
321.
1Netdebt(cash)/equity(%)37.
8(11.
8)10.
323.
216.
6Note1:ChinaResourcesGasGroupLimited("CRGas")isprincipallyengagedincitygasdistributionbusinessincludingpipednaturalorpetroleumgasdistributionandoperatingCNG(compressednaturalgas)fillingstationsinthePRC.
ItspipednaturalgasoperationsarestrategicallylocatedinareasofChinawithrichreservesofnaturalgasandareaswhichareeconomicallymoredevelopedanddenselypopulated.
.
Wednesday,12October2011AsianDaily-11of32-GomeMaintainNEUTRALWeaker-than-expectedholidaysalesgrowthonhighbase,propertytighteningandcompetitionEPS:TP:KevinYin/ResearchAnalyst/85221017655/kevin.
yin@credit-suisse.
comGome'sNationalDayholidaysalesincreased12.
14%YoY,excludingthee-commercecontribution(2.
6%oftotal).
Weattributetheweaker-than-expectedresultsto:1)ahighbase;2)propertytightening(weestimatethatnearly35%ofsaleswasassociatedwithnewhomepurchase);and3)intensifyingcompetitionfrombothpeersande-commerce.
Thisiscomparisonto:1)17.
5%YoYgrowthduringChina'soverallNationalholidaysales(accordingtotheMinistryofCommerce,homeappliancewasoneofthebestperformingsegmentsduringthisholiday,implyingsegmentgrowthofabove17.
5%);2)27%duringGome's2011Mayholidaysales;3)18%duringGome's2011ChineseNewYearsales;and4)GoldenEagle's29%,Springland's27%,Maoye's28%andIntime's25%forthisNationalholiday.
OurtargetpriceofHK$2.
5isbasedon:1)ourDCF-basedfairvalueofHK$3.
6(16.
8x2012EP/Ewitha22%three-yearearningsCAGR)and2)a30%valuationdiscountforbusinessoverhangandcorporategovernance.
WemaintainourNEUTRALrating.
Aweakholidayseason:12%YoYforNationalDayExcludingthee-commercecontribution(2.
6%oftotal),Gome's2011Nationalholidaysalesincreased12.
14%YoY,lowerthanthe17.
5%YoYriseinoverallholidayretailsales.
ThisisincomparisontoGome's27%YoYduring2011Mayholiday,whichoutperformedthe19.
7%YoYgrowthofoverallholidayretailsales.
12%growth=3%SSSgrowth+9%storeopeningGomedidnotdisclosethecontributionfactorsforthe12%salesgrowth.
Weestimatethat:1)SSSgrowthcontributed3%(versus7.
4%during1H11,10-12%during2011Mayholiday,14.
6%for2011CNY,22.
6%for4Q10,14.
1%for3Q10,and21.
8%for2010);and2)newstoreopeningcontributed9%(130newstoresopenedin1H11andnearly90openedinthisSeptember).
Tier2marketsoutperformingTier1marketsAccordingtomanagement,SSSgrowthforTier1markets(80%ofGome'stotalsales)amountedtoflattolow-singledigitgrowth,whileitcontinuestoseedoubledigitgrowthforTier2markets(above20%forthebestperformingstores).
Categoryranking:from8%(smallapp)to32%(telecom)Telecom(14.
3%of2010totalsales)wasthebestperformingsegment,thoughsalesgrowthslowedto32%forthisNationalDayfrom65%forthisMayDay.
Weattributethestrongresultsto:1)thestrategiccooperationwithtelecomcompaniesand2)popularityofsmartphonesinChina.
Refrigeratorandwashingmachinesales(17.
2%oftotal)slowedto12%from17%forMayholiday,astheyaremorepropertyrelated.
Airconsales(14.
6%oftotal)slowedto9%from40%forMayDay,followingtheexpiryofenergy-savingsubsidypolicy.
Whathappenedin2008/09downturnInthelastdownturn,China'soverallretailsalesgrowthslowedfrom30%(March2008,thepeak)to8%(March2009,thetrough),whileconsumerelectronicssalesgrowthslowedfrom32%tonegative1%.
Gome'sSSSgrowthslowedfrom3.
2%in1Q08tonegative21%in1Q09andnegative8.
3%in2Q09.
Reportedearningsdeclined30%YoYin1H09.
Gometradedat9.
2xforwardP/Ein1H09.
Figure1:Historicalholidaysalesbreakdownbycategory20102011201120102010SalesNationalMay2011Xmas&NationalsplitDayDayCNYnewyearDayTV27.
6%16.
0%15.
0%12.
2%25.
4%12.
0%Refri&Wash17.
2%11.
5%17.
0%15.
3%13.
6%20.
0%AirCon14.
6%9.
2%40.
0%59.
3%23.
9%28.
7%Telecom14.
3%31.
7%65.
0%33.
7%46.
9%22.
5%SmallApp11.
3%8.
1%22.
0%30.
1%35.
2%n.
a.
Computers7.
6%22.
4%51.
0%50.
8%73.
7%61.
0%Digital7.
4%11.
8%-2.
0%21.
4%53.
0%17.
0%Total100.
0%15.
1%27.
0%18.
0%34.
7%24.
5%Source:CompanydataFigure2:ChinaretailYoY—peak(2008/3)&trough(09/3)20.
044.
132.
049.
518.
124.
730.
646.
930.
348.
811.
31.
47.
919.
817.
617.
515.
7106.
3-2.
66.
8-1(5.
0)5.
015.
025.
035.
045.
055.
0FuelsElectronicsJewelleryFootwearF&BOverallretailApparelCosmeticsAuto&partsMedicineFurniture2008/32009/3Source:CEICPrice(10Oct11,HK$)2.
01TP(prev.
TPHK$)2.
50(2.
50)Est.
pot.
%chg.
toTP2452-wkrange(HK$)3.
79-1.
56Mktcap(HK$/US$mn)33,933.
1/4,361.
6Bbg/RIC493HK/0493.
HKRating(prev.
rating)N(N)Sharesoutstanding(mn)16,882Dailytradvol-6mavg(mn)105.
8Dailytradval-6mavg(US$mn)40.
0Freefloat(%)66.
3MajorshareholdersHuangGuangyu(31%)Performance1M3M12MAbsolute(%)(37.
6)(40.
7)(17.
3)Relative(%)(23.
2)(15.
9)11.
0Year12/09A12/10A12/11E12/12E12/13ERevenue(Rmbmn)42,66850,91059,46670,97586,349EBITDA(Rmbmn)2,2582,9733,2003,7334,721Netprofit(Rmbmn)1,4711,9812,3802,8273,572EPS(Rmb)0.
110.
120.
150.
180.
23-Changefromprev.
EPS(%)n.
a.
n.
a.
000-ConsensusEPS(Rmb)n.
a.
n.
a.
0.
150.
190.
22EPSgrowth(%)(23.
6)18.
020.
118.
826.
4P/E(x)15.
513.
110.
99.
27.
3Dividendyield(%)02.
22.
73.
34.
8EV/EBITDA(x)11.
27.
97.
96.
14.
8P/B(x)1.
91.
81.
61.
41.
3ROE(%)14.
414.
915.
316.
318.
3Netdebt(cash)/equity(%)(21.
2)(29.
3)(14.
6)(27.
7)(23.
8)Note1:GOMEElectricalAppliancesHoldingsLimited,alongwithitssubsidiaries,isengagedintheretailingofelectricalappliancesandconsumerelectronicproductsinChina.
TheCompanyderivesitsrevenuemainlyfrombusinessactivitiesinMainlandChina.
Wednesday,12October2011AsianDaily-12of32-SinaCorporationMaintainNEUTRALWeibo-solidusergrowth,gradualmonetisation;potentialwrite-offin4Q11EPS:TP:WallaceCheung,CFA/ResearchAnalyst/85221017090/wallace.
cheung@credit-suisse.
comJenniferGao/ResearchAnalyst/85221016479/jennifer.
gao@credit-suisse.
comWeremainpositiveonthesustainablegrowthofweibo.
Givenlowercertaintyofitsbusinessmodel,weexpectweibomonetisationplanwillbeconservativeandusergrowthahigherpriority.
Assuch,wereduceweiborevenueby9%in2013.
Givenuncertainglobaleconomygrowthprospects,weexpectSinashouldgrowat9%YoY(ex-video,inRMBterms)in2012(cutfrompreviousforecastat16%YoY).
SinceSinahassmallervideorevenue,weexpectSinabrandad(includingbothdisplayandvideo)willgrowat15%YoY(downfrompreviousforecastat24%YoY),lowerthanSohuat17%YoY.
In4Q10result,SinawrotedownUS$129mnonCRIC.
Givendeclineofitsinvestmentportfolio,weexpectSinatowrite-downUS$216mnbasedonlatestcurrentprice.
Duetolowerbrandadrevenuegrowth,weiborevenueandpotentialwrite-down,weexpectSina2011GAAPEPStobeinlossandcut2012EPSby49%.
Assuch,wecutourDCFtargetpricefromUS$106.
4toUS$87.
2.
MaintainNEUTRALonSina.
SlowerweibomonetisationplanWeremainpositiveonthesustainablegrowthofweibo,intermsofusersandtraffic.
Givenlowercertaintyofitsbusinessmodel,weexpectweibomonetisationplantobeconservativeandusergrowthtobeahigherpriority.
Thus,wereduceweiborevenueby9%for2013E.
Figure1:SinaweiborevenueandprofitforecastWeibo(USDmn)2011E2012E2013E2014E2015ERevenue1070200361Netloss(126)(141)(114)(38)63%changeRevenue0%-9%-7%-2%Netloss10%110%-14%Source:CreditSuisseestimatesBrandadvertisinggrowthtoslowGivenuncertainglobaleconomygrowthprospects,weexpectonlineadwillgrowat38%YoYin2012E(49%YoYin2011).
Amongalladsegments,weexpectportaldisplayadsegment(withoutonlinevideo)willgrowat16%YoYbecauseofslowdownoftheonlineadsegmentandlowerappetiteoncost-per-time(CPT)model.
Keypositivecatalystsfordisplayadin2012shouldbeOlympicsspendingandhigherrevenuecontributionfromcost-per-sales(CPS)model.
ComparedwithSohu,weexpectSinatogrowat9%YoY(ex-video,inRMBterms)in2012(cutfrompreviousforecastat16%YoY)because:(1)Sohuhashigherrelianceonslowergrowthrealestateandgamesegments;(2)Sinahasstrongerbrandnameandtraffic.
But,sinceSinahasasmallervideorevenue,weexpectSinabrandad(includingbothdisplayandvideo)willgrowat15%YoY(downfrompreviousforecastat24%YoY),lowerthanSohuat17%YoY.
Figure2:SinaandSohubrandadvertisinggrowthrate%(RMBbase)Brandadgrowthrate%2011E2012E2013E2014ESina20%15%14%12%Sohu24%17%18%16%Brandad(ex-video)%Sina15%9%8%6%Sohu18%4%7%5%Source:CreditSuisseestimatesFigure3:Potentialwrite-offInvestedcompaniesBookedCost(USD)Potentialwritedown(USDmn)CRIC8.
3157Mecoxlane6.
044Tudou25.
915Total216Source:CreditSuisseestimatesFigure4:SinaquarterlyearningsforecastUSDmn1Q112Q113Q11E4Q11ETotalrevenue*95.
5114.
3125.
9124.
8Non-GAAPincome16.
913.
315.
08.
1Revenueguidance*93-96m112-115mEPS(dil)(Non-GAAP)(USD)0.
250.
200.
220.
12*RevenueNon-GAAP.
Source:Companydata,CreditSuisseestimatesInits4Q10result,SinawrotedownUS$129mnonCRIC.
Givendeclineofitsinvestmentportfolio,weestimateSina'spotentialwrite-downin2011shouldbeUS$216mn,basedonlatestcurrentprice.
Duetolowerbrandadrevenuegrowth,weiborevenueandpotentialwrite-down,weexpectSina's2011GAAPEPSwillbeintheredandcut2012EPSby49%.
Thus,DCFtargetpricewascutfromUS$106.
4toUS$87.
2.
Givenlimitedupside,wemaintainNEUTRALonSina.
Figure5:Sinasum-of-the-partsvaluationSinavalueValue(USDmn)Stake(%)USDmnValue/Sinash(USD)%Sinaparentlevelvaluation*1,667100%1,66725.
129%Sinamicro-blog3,53284%2,97144.
751%Sinaparentcash(+CRIC)1,157100%1,15717.
420%Sinasum-of-partsvaluation6,3565,79487.
2*implying12.
9xNon-GAAPex-cashPERin2011.
Source:CreditSuisseestimatesPrice(10Oct11,US$)77.
13TP(prev.
TPUS$)87.
20(106.
40)Est.
pot.
%chg.
toTP1352-wkrange(US$)142.
8-51.
4Mktcap(US$mn)5,080.
3Bbg/RICSINAUS/SINA.
OQRating(prev.
rating)N(N)[V]Sharesoutstanding(mn)65.
87Dailytradvol-6mavg(mn)2.
0Dailytradval-6mavg(US$mn)204.
5Freefloat(%)87%MajorshareholdersNewWave(13%)Performance1M3M12MAbsolute(%)(26.
3)(32.
7)45.
9Relative(%)(12.
0)(7.
8)74.
1Year12/09A12/10A12/11E12/12E12/13ERevenue(US$mn)358.
6402.
6479.
3555.
4672.
3EBITDA(US$mn)57.
6115.
648.
036.
657.
6Netprofit(US$mn)411.
9(19.
1)(174.
3)32.
750.
8EPS(US$)6.
93(0.
29)(2.
60)0.
480.
74-Changefromprev.
EPS(%)n.
a.
n.
a.
n.
m(49)(59)-ConsensusEPS(US$)n.
a.
n.
a.
0.
941.
592.
63EPSgrowth(%)419.
8n.
m.
n.
m.
n.
m.
53.
5P/E(x)11.
1n.
mn.
m159.
9104.
2Dividendyield(%)00000EV/EBITDA(x)78.
139.
797.
3127.
180.
0P/B(x)3.
53.
84.
74.
64.
4ROE(%)44.
7(1.
6)(15.
0)3.
04.
4Netdebt(cash)/equity(%)(47.
4)(40.
0)(37.
6)(38.
2)(39.
2)Note1:SINACorporation(SINA)isanonlinemediacompanyandMVASproviderinthePeople'sRepublicofChina(PRC)andtheglobalChinesecommunities.
Wednesday,12October2011AsianDaily-13of32-SinaCorporationMaintainNEUTRALWeibo—sustainableusergrowth;micro-numbertobelaunchedsoonEPS:TP:WallaceCheung,CFA/ResearchAnalyst/85221017090/wallace.
cheung@credit-suisse.
comJenniferGao/ResearchAnalyst/85221016479/jennifer.
gao@credit-suisse.
comAccordingtoGoogleAdplanner,WeibohasenjoyedstronggrowthinbothUniqueVisitors(UVs)andpageviewsin2011,whereasQQmicrobloghaslargeUVsbutrelativelylowpageviews.
ItshowsWeibohasstronguserstickiness.
Intermsofmonetisation,Sinalauncheditscorporatemicro-blogservicesandattractedTaobaomall,360buyandMecoxlaneasthefirstbatchofusers.
Weibohaslauncheddirectshopping,collectionandsharingfunctionsonthecorporatemicro-blog.
AccordingtoQQITchannel,Sinawillreleasea'micro-number'serviceplansoon.
Sina'smicro-numberissimilartoTencent'sQQIDnumber.
Weexpectthemicro-numbertobewidelyusedamongWeibopartnersasdefaultloginusernamesandpasswords.
Givenresilientgrowthtrendandnewproductlaunches,weremainpositiveonthelong-termprospectsofWeibo.
However,Weiboistestingvariousmonetisationapproaches.
Sinceuserandtrafficgrowthremainsapriority,weexpectWeibo'smonetisationplantobeslowerthanexpectations.
MaintainNEUTRAL.
Figure1:UniquevisitorsoftopSNSsites0102030405060708090Apr-10May-10Jun-10Jul-10Aug-10Sep-10Oct-10Nov-10Dec-10Jan-11Feb-11Mar-11Apr-11May-11Jun-11Jul-11Aug-11Kaixin001.
comrenren.
comt.
sina.
com.
cn(weibo.
com)pengyou.
comt.
qq.
comSource:GoogleAdplannerWeibo—thetopplayerwithstrongUVsandpageviewsAccordingtoGoogleAdplanner,WeibohasenjoyedstronggrowthinbothUniqueVisitors(UVs)andpageviewsin2011,whereasQQmicrobloghaslargeUVsbutrelativelylowpageviews.
ItshowsWeibo'sstronguserstickiness.
BesidesUVsandtraffic,weexpectWeibohassubstantialvaluegivenalargeuserbaseofhighendusersinChina.
Figure2:PageviewsoftopSNSsites05001,0001,5002,0002,5003,0003,500Apr-10May-10Jun-10Jul-10Aug-10Sep-10Oct-10Nov-10Dec-10Jan-11Feb-11Mar-11Apr-11May-11Jun-11Jul-11Aug-11mnKaixin001.
comrenren.
comt.
sina.
com.
cn(weibo.
com)pengyou.
comt.
qq.
comSource:GoogleAdplannerSina'micro-number'launch—migrationtoarealIMplayerAccordingtoQQITchannel,Sinawillreleaseits'micro-number'serviceplansoon.
Thisnewserviceplanhasalreadyenteredtheclosedtestingstage.
Sina'smicro-numberissimilartoTencent'sQQIDnumber.
Inthefuture,Weibouserswouldjustneedtoinputtheirmicro-numberandcodetologintotheirWeiboaccounts.
Furthermore,Sina'smicro-numbermayalsoincludesomenewfunctionssuchasamicro-numberreminderfunctionandWeiboanti-theftfunction.
Weibomicro-number'sofficialURLishao.
weibo.
com.
Inthefuture,Sinamayintegratetheresourcesofitsmicro-numberservicesandSinaWeibo'smicro-chatting(orprivateletter)function.
Themicro-chattingfunctionmaybeindependentfromtheSinaWeiboserviceanditmayevenbeavalue-addedservice.
SimilartoQQID,weexpectmicro-numbertobewidelyusedamongWeibopartnersasdefaultloginusernamesandpasswords.
Sinaenterprisemicro-blogdevelopse-commerceentryIntermsofmonetisation,Sinalaunchedcorporatemicro-blogservicesandattractedTaobaomall,360buyandMecoxlaneasitsfirstbatchofusers.
Weibolauncheddirectshopping,collectionandsharingfunctionsonitscorporatemicro-blog.
Forinstance,360buy's'micro-shopping'enterprisemicro-blogcouldprovideovertencategoriesofgoodsinvolving3Cproductsandgeneralmerchandise.
Whenacustomerclicksonthepurchasebutton,thepagewillredirectconsumertoa360buywebsitewherethegoodswillbesuccessfullyaddedtotheusers'shoppingcart.
Givenresilientgrowthtrendandnewproductlaunches,weremainpositiveonthelong-termprospectsofWeibo.
However,Weiboistestingvariousmonetisationapproaches,e.
g.
corporatemicro-blog.
Sinceuserandtrafficgrowthremainsapriority,weexpectWeibo'smonetisationplantobeslowerthanexpectations.
MaintainNEUTRAL.
Price(10Oct11,US$)77.
13TP(prev.
TPUS$)87.
20(106.
40)Est.
pot.
%chg.
toTP1352-wkrange(US$)142.
8-51.
4Mktcap(US$mn)5,080.
3Bbg/RICSINAUS/SINA.
OQRating(prev.
rating)N(N)[V]Sharesoutstanding(mn)65.
87Dailytradvol-6mavg(mn)2.
0Dailytradval-6mavg(US$mn)204.
5Freefloat(%)87%MajorshareholdersNewWave(13%)Performance1M3M12MAbsolute(%)(26.
3)(32.
7)45.
9Relative(%)(12.
0)(7.
8)74.
1Year12/09A12/10A12/11E12/12E12/13ERevenue(US$mn)358.
6402.
6479.
3555.
4672.
3EBITDA(US$mn)57.
6115.
648.
036.
657.
6Netprofit(US$mn)411.
9(19.
1)(174.
3)32.
750.
8EPS(US$)6.
93(0.
29)(2.
60)0.
480.
74-Changefromprev.
EPS(%)n.
a.
n.
a.
n.
m(49)(59)-ConsensusEPS(US$)n.
a.
n.
a.
0.
941.
592.
63EPSgrowth(%)419.
8n.
m.
n.
m.
n.
m.
53.
5P/E(x)11.
1n.
mn.
m159.
9104.
2Dividendyield(%)00000EV/EBITDA(x)78.
139.
797.
3127.
180.
0P/B(x)3.
53.
84.
74.
64.
4ROE(%)44.
7(1.
6)(15.
0)3.
04.
4Netdebt(cash)/equity(%)(47.
4)(40.
0)(37.
6)(38.
2)(39.
2)Note1:SINACorporation(SINA)isanonlinemediacompanyandMVASproviderinthePeople'sRepublicofChina(PRC)andtheglobalChinesecommunities.
Wednesday,12October2011AsianDaily-14of32-HongKongMidlandHoldingsLimited-MaintainOUTPERFORMCentalinefollowsMidland'ssuittoreallocatetheChinabranchesEPS:TP:JoyceKwock/ResearchAnalyst/85221017496/joyce.
kwock@credit-suisse.
comCussonLeung,CFA/ResearchAnalyst/85221016621/cusson.
leung@credit-suisse.
comAccordingtoHongKongEconomicTimeson11October,Midland'smajorcompetitor,CentalineGroup(notlisted),isscalingdownitsChinabusinessespeciallyinBeijing,from200branchesto160branches.
TheexpansioninotherChinacitieswouldonlybedoneselectivelyandstrategically.
MidlandhasadoptedafocusstrategyinChinasinceMay2011,byreshufflingthebranchesfromloss-makingmarkets(Shanghai,Beijing)toprofitablemarkets(Shenzhen,Guangzhou,Chongqing,Chengdu).
Setupcostsareincurredduringthereallocationsoweexpectthelosstocontinueinto2H11,butitspositiveeffecttomaterialisestartingfromFY12.
In2H11,weexpecttheHongKongprimaryresidentialmarkettobethekeyprofitdriverofMidlandandtoaccountfor36%of2H11revenue.
Weexpect2H11toremainprofitableaslongasthesecondaryvolumedoesnotdropbeyond70%HoH.
Midlandistradingat6.
6x2011EP/E,or1.
9x2011Eex-cashP/E.
Wemaintainourviewthatthiscash-richstockoffersinexpensiveexposuretoanyrevivalinthetransactionvolume.
CentalinescalingdownitsBeijingbusinessAccordingtoHongKongEconomicTimeson11October,CentalineGroup(CentalineandRicacorp)isscalingdownitsChinabusiness,especiallyinBeijing.
TheoverallChinabusinessisjustbreakingeven,withprofitcomingprimarilyfromShenzhenwhileBeijingandShanghaiareincurringlosses.
Centalinehasapproximately1,100branchesinChina;160branchesareinBeijing,cutdownfrom200branchesearlierthisyear.
MovetoSoutheastChinawhereMidlandperformsthebestInMaythisyear,MidlandadoptedafocusstrategyforitsChinabusiness,byreshufflingthebranchesfromShanghai/BeijingtoSoutherncities(ShenzhenandGuangzhou)andSouthwestcities(ChengduandChongqing)whereMidlandperformsbetter.
Shenzhenbranchesaccountforover50%ofMidland'sChinabranches.
ExpectingthefocusstrategyinChinatomaterialisein1H12WebelievethelossincurredoverthepasttwoyearshasprimarilybeenfromBeijingandShanghai,wherethecompetitionandthesubsequentpolicieshavebeenthestiffest.
WebelievethatShenzhen,Guangzhou,ChongqingandChengduaremakingslimprofitsatthemoment.
WeexpectthereallocationofChinabrancheswouldincursomesetupcosts,andhencethelosswouldcontinueinto2H11.
However,weexpectitspositiveeffecttomaterialisestartingfromFY12,bysignificantlynarrowingdownlossesifnotbreakingeven.
Figure1:Revenuecontributionbybusinesssegment:Chinaaccountsfor11.
3%in1H11Note:yellow=HKresid;green=HKIC&I;Blue=Chinaproperty;Purple=Macau.
Source:CompanydataFigure2:MainlandChina:focusstrategyadoptedsinceMay2011Source:CompanydataFigure3:StaffandbranchnumbersinHongKongandChina2,0002,5003,0003,5004,0004,5005,000Jan-07Apr-07Jul-07Oct-07Jan-08Apr-08Jul-08Oct-08Jan-09Apr-09Jul-09Oct-09Jan-10Apr-10Jul-10Oct-10Jan-11Apr-11Jul-11HongKong-staffno.
Non-HongKong-staffno.
80130180230280330380Jan-07Apr-07Jul-07Oct-07Jan-08Apr-08Jul-08Oct-08Jan-09Apr-09Jul-09Oct-09Jan-10Apr-10Jul-10Oct-10Jan-11Apr-11Jul-11HongKong-branchno.
Non-HongKong-branchno.
Source:Companydata,CreditSuisseestimates.
Price(10Oct11,HK$)3.
42TP(prev.
TPHK$)5.
20(5.
20)Est.
pot.
%chg.
toTP5252-wkrange(HK$)8.
81-3.
00Mktcap(HK$/US$mn)2,465.
5/316.
9Bbg/RIC1200HK/1200.
HKRating(prev.
rating)O(O)[V]Sharesoutstanding(mn)720.
92Dailytradvol-6mavg(mn)4.
0Dailytradval-6mavg(US$mn)2.
3Freefloat(%)94.
93MajorshareholdersMarathonAssetMgmt(12.
04%)Performance1M3M12MAbsolute(%)(16.
4)(18.
2)(55.
4)Relative(%)(8.
4)(1.
5)(34.
2)Year12/09A12/10A12/11E12/12E12/13ERevenue(HK$mn)3,4333,7723,7073,7763,875EBITDA(HK$mn)845.
6693.
6480.
7388.
5347.
5Netprofit(HK$mn)713.
7532.
8375.
2304.
5271.
0EPS(HK$)0.
990.
740.
520.
420.
38-Changefromprev.
EPS(%)n.
a.
n.
a.
000-ConsensusEPS(HK$)n.
a.
n.
a.
0.
480.
450.
44EPSgrowth(%)n.
m.
(25.
4)(29.
3)(18.
8)(11.
0)P/E(x)3.
54.
66.
68.
19.
1Dividendyield(%)23.
817.
212.
29.
98.
8EV/EBITDA(x)1.
21.
31.
41.
51.
3P/B(x)1.
41.
41.
31.
31.
3ROE(%)46.
630.
420.
716.
314.
2Netdebt(cash)/equity(%)(80.
2)(84.
4)(90.
0)(92.
8)(95.
4)Note1:MidlandHoldingsLimitedisaninvestmentholdingcompany.
TheprincipalactivitiesoftheCompanyanditssubsidiariesareprovisionofpropertyagencyservicesinHongKong,theMainlandChinaandMacau.
TheCompanyoperatesinthreebusinesssegments:residentialproperties,commercialandindustrialpropertiesandothers.
.
Wednesday,12October2011AsianDaily-15of32-IndonesiaIndonesiaEconomics-BankIndonesia'sratecutlooksprematureandriskshigherinflationdowntheroadKunLungWu/ResearchAnalyst/+6562123418/kunlung.
wu@credit-suisse.
comBankIndonesia(BI)hascutthepolicyrateby25bpto6.
5%againstmarketexpectations.
Afterhikingthepolicyratebyonly25bpsincetheglobalfinancialcrisis,BIisthefirstcentralbankinNon-JapanAsiatocutthepolicyrate.
Thepolicyratehastendedtomovecontemporaneouslywithheadlineinflation,sothelowinflationprintinSeptember(4.
6%YoY)wasprobablythemainreasonthatpromptedtheratecut.
Withfoodcommoditypricesremainingstableinrecentmonths,foodinflationisunlikelytobeanissueinthenearterm.
Whatismoreworrisomeiscoreinflation,inourview.
Recentgrowthindicatorssuggestthatdomesticdemandremainsstrong,whiletherecentdepreciationoftherupiahisalsolikelytoputupwardpressureoninflationinthecomingmonths.
Wemaintainourviewthatinflationislikelytoresumeitsriseinthecomingmonths,ledbycoreinflation.
Hence,wethinkBankIndonesia'smonetarypolicyeasingisabitpremature.
Figure1:Policyratetendstoreacttoheadlineinflationratherthantheotherwayround2468101214161820Sep-02Dec-04Mar-07Jun-09Sep-11CPIinflation(%yoy)Policyrate(%)Source:CEIC,CreditSuisseestimatesBIcutthepolicyrateby25bpunexpectedlyBankIndonesia(BI)cutthepolicyrateby25bpto6.
5%againstmarketexpectations.
AlloftheeconomistssurveyedbyBloomberg,includingus,expectedBItokeepthepolicyrateunchanged.
Afterhikingthepolicyratebyonly25bpsincetheglobalfinancialcrisis,BIisthefirstcentralbankinNon-JapanAsiatocutthepolicyrate(forreference,thepolicyratewasat9.
5%in2008).
WhatmakesitmoreperplexingisthatIndonesiaislikelytobeamongthecountriesinAsialeastimpactedbyweakerglobalgrowth,inourview(seeAsia'sRiskList,27July2011).
PolicyratetendstofollowheadlineinflationThelowinflationprintinSeptember(4.
6%YoY)wasprobablythemainreasonthatpromptedtheratecut,inourview.
AsFigure1shows,thepolicyratehastendedtomovecontemporaneouslywithheadlineinflation.
Theslowdowninheadlineinflationinrecentmonthswasledbyafallinvolatilefoodprices,whichwasinlinewiththefallintheFAOfoodpriceindexinAugustandSeptember.
Withfoodcommoditypricesremainingstableinrecentmonths,foodinflationisunlikelytobeanissueinthenearterm.
However,ourcommodityresearchteamnotedthatthegrainsmarketremainstight,andfurthersupplyshockscouldsendfoodpriceshigher(seeCommodityForecasts:"ADangerousNewPhase…",4October2011).
Whatismoreworrisomeiscoreinflation,inourviewOnaseasonally-adjustedbasis,weestimatethatcoreinflationaveraged0.
5%MoMoverJuly-September,anannualisedrateofabout5.
7%YoY.
Recentgrowthindicatorsalsosuggestthatdomesticdemandremainsstrong:1)M2andloangrowthrose17.
2%YoYand24%YoYinAugust,respectively,2)retailsalessurged33.
5%YoYinAugust,whileconsumerconfidencerosetoanewcyclicalhighinSeptember,itshighestsinceJuly2009,and3)exportsremainedstrong,rising37%YoYinAugust.
PrematureeasingInadditiontotoday'spolicyratecutandtheloweringoftheinterestratecorridoratthelastmonetarypolicymeeting,therecentdepreciationoftherupiahisalsoade-factoreasingthatislikelytoputupwardpressureoninflationinthecomingmonths.
Wemaintainourviewthatinflationislikelytoresumeitsriseinthecomingmonths,ledbycoreinflation.
Withgrowthlikelytoremainstrongandheadlineinflationbeinglowermainlyduetothefluctuationinvolatilefoodprices,wethinkBankIndonesia'smonetarypolicyeasingisabitpremature.
Wednesday,12October2011AsianDaily-16of32-IndonesiaMarketStrategyFeedbackfromsevendaysofmarketing—risktolagwhenthedustsettlesTeddyOetomo/ResearchAnalyst/622125537911/teddy.
oetomo@credit-suisse.
comAgusSandianto/ResearchAnalyst/622125537916/agus.
sandianto@credit-suisse.
comWerecentlycompletedfivedaysofAsiamarketingandtwodaysoflocalmarketing.
Thefeedbackisasfollows:Wesensenopanicsofar,potentiallyduetoalowerleveragelevelaswellasindicationsthatfundamentalinvestorsmayhaveboughtintoIndonesiabelowrecentbottomJCIseenincurrentpullback.
InvestorsremaincomfortablewiththefundamentalsofIndonesiaand,inlinewithourchannelchecks,webelieveinvestorsareateasewiththecountry'searningsvisibility.
However,themainissueisoncurrentadministration'sexecutionabilityinutilisingthecountry'srobustfundamentaltosailthroughthecurrentuncertainenvironment.
Failuretodeliveradequateexecutionmayresultinthemarketlosingsentiment.
OurtakeisthatwebelieveIndonesianmarketremainvolatileandmaylagitsregionalpeerswhenthedustsettles,givenitsvaluationpremium,providinglonger-terminvestorsopportunitytorebalancetheirIndonesianportfolio.
Formedium-tolong-terminvestors,wecontinuetorecommendfinancial,materialandindustrialsectors.
Figure1:ForeignownershipversusForexreservesA.
Bondmarket(USDbn)Totalbondmarket142(-)Forexdenominated20(-)Non-tradable30TotaltradableIDRdenominated93Foreignownership(%)31%Foreignownershipofbonds28B.
Capitalmarket(USDbn)Totalmarketcap337Freefloat(%)41%Freefloatmarketcap138Foreignownership(%)61%Foreignownershipofstock84Total(A+B)113Foreignexchangereserves115Source:DebtManagementOffice,CEIC,KSEI,CreditSuisseestimatesWehavecompletedfivedaysofAsiamarketingandtwodaysoflocalmarketing.
Thefeedbackisasfollows:1.
WearesensingnopanicsofarOurtripindicatesthatthemoodofinvestors,thoughuncertain,remainsrelativelycontrolled.
WefindlittleevidenceofpanicamongAsianinvestors.
Webelievethatitmaypartlybeduetothelowerlevelofleveragethistimearoundcomparedto2008.
Inaddition,wedetectapotentialformostinvestorswemettohaveboughtintoIndonesiabelowtherecentbottomofJCIduringthecurrentpullback.
2.
ComfortablewithfundamentalsWebelievethatthefundamentalsofIndonesiaremainintact,bothfromadomesticgrowthperspectiveaswellasfromthecountry'sabilitytoweatherthecurrentuncertainty.
WeestimatethatthepotentialforeignownershipinIndonesianbondandequitymarketsamounttolessthanthecurrentforeignreserveholdingoftheIndonesiangovernment.
Thus,webelievethatmathematically,Indonesiangovernmentreservesarewellpositionedtoweatheranypotentialstormofforeigncapitaloutflow.
Thequestion,however,iswhetherthecurrentadministrationwillbeabletosustainsentimenttopreventcapitaloutflowfromthelocals.
3.
TheissueisaboutsentimentInlinewithourrecentchannelcheckswithmanagements,webelieveearningsvisibilityofIndonesiaremainsrelativelyintact.
Theissue,however,iswhetherif.
giventhestrongfundamentals,thecurrentadministrationwillundertaketherightactionstosustainsentiment.
Ourtake—anopportunitytorebalanceGiventhattheIndonesianmarket'svaluationsremainrelativelyatapremiumcomparedtotheregionalpeers,weseepotentialforIndonesianmarket'srecoverytolagitsregionalpeers.
However,weforeseeriskthatIndonesianmarketmayremainvolatile.
WebelievethepotentiallaginIndonesianmarket,combinedwithariskofvolatilityallowsinvestorstorebalancetheirportfolios.
Inthemedium-tolong-term,wecontinuetoviewapotentialinvestmentup-cycleinIndonesia,andthus,wecontinuetofocusourcoreportfolioonsectorslikelytobenefitfromapotentialinvestmentup-cycleinIndonesia,namelyfinancial,materialandindustrialsectors.
Figure2:OurportfolioSharepriceP/E(X)P/B(X)ROE(%)P/BvsROErel.
toIndomarketTickerRtgCurrentTrgtPrc11E12E11E12E11E12ECurr.
5-yravgInvestmentup-cycleBMRIO6,4508,60012.
710.
82.
42.
12321-2%-6%BBNIO3,5004,68011.
49.
21.
71.
51617-8%-6%UNTRO21,50030,00014.
313.
43.
02.
7252212%1%SMGRO7,95011,50012.
010.
43.
32.
83030-11%-11%RelativelylessdemandingvaluationsBBRIO6,2508,10011.
210.
13.
32.
63329-18%-18%PTBAO15,10026,5009.
18.
33.
73.
04940-46%25%INTPN13,60018,40013.
411.
73.
22.
626254%19%QualitynamesASIIO65,90074,00015.
413.
54.
63.
9323126%-18%BMRIO6,4508,60012.
710.
82.
42.
12321-2%-6%DemandingvaluationsBBCAN7,7508,40019.
616.
44.
94.
1272759%13%GGRMO56,00055,50021.
518.
34.
43.
8222263%-6%KLBFN3,4003,40020.
817.
75.
44.
6282875%13%Source:Companydata,CreditSuisseestimatesTheauthorofthisreportwishestoacknowledgethecontributionmadebyAgusSandianto,anemployeeofPTTempindo,athird-partyprovidertoCreditSuisse.
Wednesday,12October2011AsianDaily-17of32-MalaysiaMalaysiaEconomicsStrongindustrialproductioninAugustbodeswellforQ3GDPgrowthKunLungWu/ResearchAnalyst/+6562123418/kunlung.
wu@credit-suisse.
comIndustrialproduction(IP)rose3%YoYinAugust,comparedtoa0.
5%YoYfallinJulyandwasmuchstrongerthanmarketexpectationsof0.
4%YoY.
IPinJuly-Augustwasup2.
9%from2Q'slevel,inlinewithourviewthatsequentialgrowthwillremainpositivein3Q.
MiningIProse6.
1%MoM(-1.
4%YoY)inAugust.
Miningproductionisnearlybacktoitslong-termtrend.
Thissuggeststhattheboosttogrowthgoingforwardislikelytobesmaller.
Onaseasonally-adjustedbasis,weestimatethatmanufacturingproductionrose2.
4%MoM(+4.
8%YoY).
Domestic-orientedproductionhasbeenthemaindriverofIPoverthepastseveralmonths,andweexpectthistrendtocontinue.
TheweakglobalPMIsandUSsemiconductorbook-to-billratiosuggestthatexternaldemandislikelytoremainsluggishinthecomingmonths.
However,weexpecttheincreaseingovernmentspendingtohelpboostdomesticgrowthfortherestoftheyear.
Figure1:IndustrialproductionwasstrongfromJunetoAugustIPIndex,Dec=100859095100105110115DecJanFebMarAprMayJunJulAugSepOctNov2008200920102011Source:CEIC,CreditSuisseestimatesIndustrialproductionstrongerthanexpectedIndustrialproduction(IP)rose3%YoYinAugust,muchstrongerthanmarketexpectationsof0.
4%YoY(accordingtoaBloombergsurvey).
IPinJuly-Augustwasup2.
9%from2Q'slevel,whichisinlinewithourviewthatsequentialgrowthwillremainpositivein3Q.
Figure2:Miningproductionisalmostbacktoitslong-termtrend708090100110120Aug-04May-06Feb-08Nov-09Aug-11MiningproductionindexSource:CEIC,CreditSuisseresearchMiningisbackMiningIProse6.
1%MoM(-1.
4%YoY)inAugust.
MiningproductionwasadragtooverallIPgrowthin2Qduetofacilitiesbeingshutdownformaintenanceandrepair.
Miningproductionisnowalmostbacktoitslong-termtrend(Figure2).
Thissuggeststhattheboosttogrowthgoingforwardislikelytobesmaller.
Withthisrebound,thegapbetweenexportsandIPhasnarrowed(Figure3).
DomesticdemandledmanufacturingIPgrowthwasnotonlyaboutmining.
Onaseasonally-adjustedbasis,weestimatethatmanufacturingproductionrose2.
4%MoM(+4.
8%YoY).
Domestic-orientedproductionhasbeenthemaindriverofIPoverthepastseveralmonths,andweexpectthistrendtocontinueasgovernment-relatedspendingcontinuestohelpboostdomesticdemand.
Figure3:IPgrowthisgraduallyconvergingwithexportgrowth.
9095100105110115Aug-04May-06Feb-08Nov-09Aug-113040506070IndustrialproductionIndex(3mma)Exports(RMbn,3mma,RHS)Source:CEIC,CreditSuisseresearchExternallychallenged,domesticallydrivenTheweakglobalPMIsandUSsemiconductorbook-to-billratiosuggestthatexternaldemandislikelytoremainsluggishinthecomingmonths.
However,aswenotedinMalaysia:Apeoplefriendlybudget(7October2011)andMalaysia'simpendingfiscalboost(2September2011),weexpecttheincreaseingovernmentspendingtohelpboostdomesticgrowthfortherestoftheyear.
Figure4:DomesticorientedproductionledIPgrowth8090100110120130140150160Jul-08Jul-09Jul-10Jul-11ExportorientedIP(Index)DomesticorientedIP(Index)Source:CEIC,CreditSuisseeresearchWednesday,12October2011AsianDaily-18of32-SingaporeSingaporeEquityStrategy-CyclicalsworthanotherlookSakthiSiva/ResearchAnalyst/6562123027/sakthi.
siva@credit-suisse.
comKinNangChik/ResearchAnalyst/85221017482/kinnang.
chik@credit-suisse.
comInourrecentreports,wehighlightedthatin2008marketsdidnotbottomuntilTEDspreads(ourproxyforcontagiontothebankingsystem)peaked.
So,weareencouragedtoseeEuriborspreads(LIBORless3monthTbills)fallingfromahighof89bpsto71bps.
WithEuriborspreadsstartingtocomedown,webelievecyclicalsareworthanotherlook,particularlygiventheriseintheUSISMfrom50.
6inAugustto51.
6inSeptember.
Figure1highlightsthattherelativepriceperformanceofMSCISingaporecyclicals/defensives'relativepriceperformancetrackstheUSISMwell.
WithMSCISingaporecyclicalsunderperformingdefensivesby25%from30April2011to30September2011,weareincreasinglyfindingvalueinSingaporecyclicals.
WecontinuetosuggestinvestorsbuyOlamandSembcorpInds.
Inour22Augustand27Septemberreports,wesuggestedinvestorsbuystockswithP/Bat2008-09lows.
ThesixstockswhereP/Bisat2008-09lowsare:Olam,SembcorpIndustries,Capitaland,ComfortDelgro,SMRTandSingaporeTelecom.
Giventhe25%underperformanceoverthepastfivemonths,wethinkthetwocyclicals–OlamandSembcorpIndustries–lookmoreinterestingatthispoint.
CSOffshoreandMarineanalyst,GeraldWong,alsofavoursKeppelCorporation.
Forthefullversionofthisnote,pleaseclickhere.
Figure1:MSCISingaporeCyclicals/DefensivesversusUSISM708090100110120130140Jun-04Jun-06Jun-08Jun-10Cyclicals/Defensives3040506070USISMSingaporeCyclicals/DefensivesUSISMSource:MSCI,Datastream,ISM,CreditSuisseestimates.
CyclicalsworthanotherlookasEuriborspreadsfallInourrecentreports,wehavebeenhighlightingthatin2008marketsdidnotbottomuntilTEDspreads(ourproxyforcontagiontothebankingsystem)peaked.
So,weareratherencouragedtoseeEuriborspreads(LIBORless3-monthTbills)starttofallfromahighof89bpsto71bps.
WithEuriborspreadsstartingtocomedown,webelievecyclicalsareworthanotherlook,particularlygiventheriseintheUSISMfrom50.
6inAugustto51.
6inSeptember.
Figure1highlightsthattherelativepriceperformanceofMSCISingaporecyclicals/defensives'relativepriceperformancetrackstheUSISMwell.
Figure2:Performanceofstockshighlightedinour22AugustreportPrice(S$)Price(US$)10-Oct-1122-Aug-11%chg.
10-Oct-1122-Aug-11%chg.
SingaporeTelecom3.
122.
907.
62.
442.
401.
8Capitaland2.
452.
430.
81.
922.
01-4.
6Olam2.
342.
149.
31.
831.
773.
5ComfortDelGro1.
311.
310.
01.
031.
08-5.
4SMRT1.
801.
734.
01.
411.
43-1.
5Average4.
4-1.
2MSCISingapore306.
38315.
61-2.
9478.
22520.
04-8.
0reltoMSCISingapore7.
36.
8Source:Companydata,Bloomberg,MSCI,CreditSuisseestimates.
WithMSCISingaporecyclicalsunderperformingdefensivesby25%from30April2011to30September2011,weareincreasinglyfindingvalueinSingaporecyclicals.
Figure3:Olam'sprice-to-book024681012Dec-00Dec-02Dec-04Dec-06Dec-08Dec-10OLAMINTERNATIONAL-PBlow08/09:2.
00xcurrent2.
16x024681012Dec-00Dec-02Dec-04Dec-06Dec-08Dec-10OLAMINTERNATIONAL-PBlow08/09:2.
00xcurrent2.
16xSource:Companydata,CreditSuisseestimates.
Figure4:SembcorpIndustries'price-to-book01234Dec-00Dec-02Dec-04Dec-06Dec-08Dec-10SEMBCORPINDUSTRIES-PBlow08/09:1.
38xcurrent1.
58x01234Dec-00Dec-02Dec-04Dec-06Dec-08Dec-10SEMBCORPINDUSTRIES-PBlow08/09:1.
38xcurrent1.
58xSource:Companydata,CreditSuisseestimates.
WecontinuetosuggestbuyingOlamandSembcorpIndsInourreportsof22Augustand27September,wesuggestedinvestorsbuystockswithprice-to-bookat2008-09lows.
Thesixstockswhereprice-to-bookisat2008-09lowsare:Olam,SembcorpIndustries,Capitaland,ComfortDelgro,SMRTandSingaporeTelecom.
Giventhe25%underperformanceoverthepastfivemonths,wethinkthetwocyclicals–OlamandSembcorpIndustries–lookmoreinterestingatthispoint.
CSOffshoreandMarineanalyst,GeraldWong,alsofavoursKeppelCorporation.
Wednesday,12October2011AsianDaily-19of32-SingaporeOffshoreandMarineSector-MaintainMARKETWEIGHTKeppelandSembcorpIndustriespresentthebestrisk-rewardprofileGeraldWong/ResearchAnalyst/6562123037/gerald.
wong@credit-suisse.
comChristopherChang/ResearchAnalyst/6562123024/christopher.
chang@credit-suisse.
comCSequitystrategistSakthiSivanotesthatwithEuriborspreadsstartingtocomedown,cyclicalsareworthanotherlook.
WithMSCISingaporecyclicalsunderperformingdefensivesby25%from30April2011to30September2011,thereisincreasingvalueinSingaporecyclicals.
Withintheoffshoreandmarinesector,wecontinuetobelievethattightercreditconditionswillleadtoaslowdowninnewbuildorders.
Althoughmostcompanieshavesecuredordersinthepastmonth,wenotethatoptionsforjackuprigswithEnscoandAsiaOffshoreDrillinghavealsolapsed.
Ourpreferenceisforstocksclosetomeetingorderexpectationsorclosetotroughvaluation,includingOUTPERFORM-ratedKeppelandSembcorpIndustries.
WithanadditionalS$700mnofcontractssecuredinthepastmonth,Keppelhasachieved87%ofour2011orderforecastsofS$10bn.
OnaP/Bof1.
58x,SCIistradingclosetoits2008–09troughof1.
38x.
Weremaincautiousonstockswiththebiggestriskstoordersandearningsexpectations,includingSembcorpMarine(NEUTRAL),STXOSV(NEUTRAL)andCoscoCorp(UNDERPERFORM).
Figure1:Keppelclosesttomeeting2011orderexpectations10.
04.
011.
02.
31.
88.
72.
75.
21.
91.
2KeppelSembcorpMarineSTXOSVCoscoYangzijiangNewforecastYTDorderwinsPercentageofnewforecastsachieved:87%69%47%81%67%3.
0NKr3bnTranspetrocontractexpectedtobeeffectivein2H11Source:Companydata,CreditSuisseestimatesTightercredittakesitstollKeppelcontinuedtoshowthestrongestordermomentuminthepastmonth,securingS$700mnoforders,includingjackuprigsfromSafinGulf(US$199mn)andEnsco(US$245mn),aswellasconversioncontractsworthS$142mn.
SembcorpMarinealsosecuredaS$130mnconversionFPSOconversioncontractfromMODEC.
STXOSVsecuredclosetoNKr1.
35bnofcontractsforthreesterntrawlersfromAkerSeafoods(NKr750mn)andaplatformsupplyvesselfromTromsOffshore(NKr600mn),inlinewithourviewthattherewillbeslowerconversionrateofoptions,asoptionsforjackuprigswithEnscoandAsiaOffshoreDrillinghavelapsed.
ProceedwithcautioninuncertaineconomicenvironmentStocksinthesectorwithinourcoveragefellby2–21%since15September,versusa4%declineintheSTI.
Weremaincautiousonstockswiththebiggestriskstoordersandearningsexpectations,includingSembcorpMarine(NEUTRAL),STXOSV(NEUTRAL)andCoscoCorp(UNDERPERFORM).
Figure2:Sharepriceperformanceofstocks-33%-58%-61%-41%-32%-19%-33%-8%-54%-56%-35%-22%-16%-28%-21%-16%-9%-8%-7%-4%-2%-70%-60%-50%-40%-30%-20%-10%0%SOHYZJCOSSMMKEPSTISCIFromPeakYTDFrom15SepSource:BLOOMBERGOurpreferencecontinuestobeforstocksclosetomeetingorderexpectationsoronesthatareclosetotroughvaluation,includingOUTPERFORM-ratedKeppel(toppick)andSembcorpIndustries.
Figure3:Risk-rewardprofileofSingaporeoffshoreandmarinestocks-60%-40%-20%0%20%40%60%80%100%120%140%KeppelSMMSCICoscoYZJSTXOSVTPPeakvalueTroughvalueSource:Companydata,CreditSuisseestimatesWenotethatonaP/Bof1.
58x,SembcorpIndustriesistradingclosetoits2008–09troughof1.
38x.
Figure4:SembcorpIndustriesP/B01234Dec-00Dec-02Dec-04Dec-06Dec-08Dec-10SEMBCORPINDUSTRIES-PBlow08/09:1.
38xcurrent1.
58xSource:Companydata,CreditSuisseestimatesWednesday,12October2011AsianDaily-20of32-NeptuneOrientLinesDowngradetoNEUTRALWeaker3Q11freightrates,andP/BnotlowenoughdespiterecentcorrectionEPS:TP:SamLee/ResearchAnalyst/85221017186/sam.
lee@credit-suisse.
comHungBinToh/ResearchAnalyst/85221017481/hungbin.
toh@credit-suisse.
comThisyear'speakseasonhasstartedlatebutfinishedearlier-than-expectedonweakercargovolumeandoversupplyconcerns.
The3QCCFIis1.
7%lowerthanthatof2Q,implyingdownsideearningsriskforNOL.
Onlowerrateassumptions,weexpectNOLtorecordanetlossofUS$121mninFY11E,followedbyasmallprofitofUS$107mninFY12EandUS$310mninFY13E.
IfratesfailtoreboundinFY12Easweexpect,NOLcouldreportfurtherlosses.
NOLison0.
8xforwardP/B,1SDbelowitshistoricalaverage,butstill35%abovethe2008-09trough.
Comparedtoitspeers,itsvaluationisnotattractiveenough.
ItspeerOOILhasperformedbetteroperationally(1H11operatingmarginof+6%versusNOL's-2%)andisonlowerP/Bof0.
6x.
CSCLsufferedabiggerlossin1H11,butisonanevenlowerP/Bof0.
5x,almosthalfthatofNOL.
OurnewNOLtargetpriceofS$1.
23isbasedon0.
8xforwardP/B,1SDbelowitshistoricalaverage.
Withlimitedupside,wedowngradeNOLtoaNEUTRALrating.
Weaker-than-expectedpeakseason=earningslossin2HAccordingtoChinaContainerizedFreightIndex(CCFI),freightratespeakedinearlySeptemberandhavestartedtocomeoff.
Historically,NOL'sblendedfreightratecorrelatedwithCCFI(Figure1).
Withweaker3Qrateandworseningmacrooutlook,wehaveloweredNOL'sFY11-13Efreightrateby2-3%,andnowexpectNOL'sFY11Efreightratetofall9%YoY.
NOLmadenetlossofUS$57mnin2Q11andweexpectittoloseUS$60mnin2H11despitestrongerseasonalvolume.
WebelieveNOLsufferedfromhigherunitcostgiventheexpensivevesselchartercontractsitenteredintobefore.
Yet,wecontinuedtoassumemoderate3-4%ratehikesinFY12-13E,onourexpectationofmorefleetbeingidledbeyondthepeakseason,andpotentialinventoryrestocking,whichcouldsupportfreightratestomoresustainablelevelsinthenexttwoyears.
Figure1:NOL'sblendedfreightratevsCCFI2000220024002600280030003200Jan-09Mar-09May-09Jul-09Sep-09Nov-09Jan-10Mar-10May-10Jul-10Sep-10Nov-10Jan-11Mar-11May-11Jul-11Sep-117008009001000110012001300NOLrate(US$/FEU)CCFI(RHS)CCFIUS$/FEUSource:ShanghaiShippingExchange,Companydata,CreditSuisseestimatesFigure2:EarningsdowngradeRevisedOld2011F2012F2013F2011F2012F2013FVolume(kTEU)5,8596,2106,7075,8596,2106,707Freightrate(USD/TEU)1,2651,2991,3531,2861,3401,389Fuelprice(USD/tonne)630630630630630630Revenue9,15310,05011,2549,26910,29911,488Expense-9,208-9,868-10,787-9,206-9,929-10,857CoreEBIT-5518246763370631-Liner-1161033722291536-Logistics607995607995Interestexpense-37-75-132-33-62-107Associates121517121517Netprofit-1211073101287478EBITmargin-0.
6%1.
8%4.
1%0.
7%3.
6%5.
5%ROAErecurring(%)-3.
8%3.
4%9.
4%0.
1%8.
6%13.
2%Source:Companydata,CreditSuisseestimatesWhilewebelieveNOL'sstockpricewillalsobenefitabsolutelyifglobaleconomicgrowthandthustradeoutlookimproves,itislesslikelytooutperformitspeersgivenitsrelativelyhighercoststructureandP/Bmultiple.
Figure3:NOL's0.
8xforwardP/Bis1SDbelowhistoricalaverage0.
40.
60.
81.
01.
21.
41.
61.
82.
02.
22.
4Jan-00Jan-01Jan-02Jan-03Jan-04Jan-05Jan-06Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12P/B(x)TargetpriceofS$1.
23Source:ShanghaiShippingExchange,Companydata,CreditSuisseestimatesPrice(11Oct11,S$)1.
14TP(prev.
TPS$)1.
23(1.
40)Est.
pot.
%chg.
toTP852-wkrange(S$)2.
38-1.
02Mktcap(S$/US$mn)2,946.
9/2,305.
8Bbg/RICNOLSP/NEPS.
SIRating(prev.
rating)N(O)Sharesoutstanding(mn)2,584.
97Dailytradvol-6mavg(mn)12.
4Dailytradval-6mavg(US$mn)13.
7Freefloat(%)11.
2%MajorshareholdersTemasekHoldings(46.
8%)Performance1M3M12MAbsolute(%)—(20.
8)(44.
9)Relative(%)4.
7(8.
0)(30.
1)Year12/09A12/10A12/11E12/12E12/13ERevenue(US$mn)6,5169,4229,15310,05011,254EBITDA(US$mn)(372.
8)846.
6230.
0498.
2823.
3Netprofit(US$mn)(740.
8)467.
6(121.
1)107.
0309.
9EPS(US$)(0.
35)0.
18(0.
05)0.
040.
12-Changefromprev.
EPS(%)n.
a.
n.
a.
n.
m(63)(35)-ConsensusEPS(US$)n.
a.
n.
a.
(0.
05)0.
040.
10EPSgrowth(%)n.
m.
n.
m.
n.
m.
n.
m.
189.
5P/E(x)n.
m4.
9n.
m21.
57.
4Dividendyield(%)04.
101.
23.
4EV/EBITDA(x)(7.
8)3.
213.
67.
55.
3P/B(x)0.
80.
70.
70.
70.
7ROE(%)(28.
2)15.
5(3.
8)3.
49.
4Netdebt(cash)/equity(%)21.
411.
726.
343.
958.
4Note1:ORD/ADR=4.
00.
Note2:NeptuneOrientLinesLimited(NOL)isaninvestmentholdingcompany.
Thecompanyisengagedintheownershipandcharterofvessels,aswellasparticipationinventuresrelatedtotheseactivitiesandtheprincipalactivitiesofitssubsidiaries.
Thecompanyoperatesintwosegments:LinerandLogistics.
NOL'sgloballinersprovideoperationsofcontainertransportationetc.
Wednesday,12October2011AsianDaily-21of32-SouthKoreaKoreaTelecomSector-MaintainMARKETWEIGHT3Q11earningspreviewJeffKahng/ResearchAnalyst/82237073738/jeff.
kahng@credit-suisse.
comJihongChoi/ResearchAnalyst/82237073796/jihong.
choi@credit-suisse.
comRelativeto2Q11,weexpectimproved3Q11resultsfortheKoreatelecomsector.
However,theimprovementismoremarginal,giventhatthehighernumberofsmartphonesubscribergrowthwouldnotresultinhigherARPUgrowth.
Withthefocusofthemarketmovingtowardsthelaunchofnew4GLTEservices,alarge-scaleearningsturnaroundisunlikelyfortheKoreatelecomsectorinthenearterm.
Despitealackofmajorearningsturnaround,weexpecthigherdividendyieldtodrivetheshareprice,withKTnowtradingat2011Edividendyieldof7.
0%followedbyLGUof4.
3%.
KTremainsourtoppickinthesectorwith12-monthtargetpriceofW48,000.
ForKTSkylife,weexpectsolid3Q11resultsfollowingweak2Q11resultsthatwerehamperedbytheone-offitems.
Thatsaid,thekeytoSkylife'sshareperformancewillbeitsabilitytodrivesubscribergrowthaheadof2012digitalbroadcastingandKT'seffortstopushitsOTSproductaspartofitsbundlingstrategy.
ValuationmetricsCompanyTickerRatingPriceYearP/E(x)P/B(x)LocalTargetT11E12E11EKT030200.
KSO36,10048,00012/107.
07.
30.
8LGUplus032640.
KSN6,3906,00012/1016.
712.
40.
8SKBroadband033630.
KQN3,3704,80012/1068.
017.
80.
7Skylife053210.
KSO31,05034,40012/1038.
922.
64.
6Note:O=OUTPERFORM,N=NEUTRAL,U=UNDERPERFORMSource:Companydata,CreditSuisseestimatesTelecomsectorGiventhatsmartphonesalesareprimarilydrivenbyrevenuediscountratherthanhandsetsubsidy,theriseinthenumberofsmartphonesubscribersin3Q11shouldnotdrivemarketingcosts.
Instead,highernumberofsubscribersonrevenuediscountwouldlikelyputpressureontheARPU.
Similarto2Q11,wearealsoconcernedaboutthenegativeimpactofunlimiteddataplansonopex.
Notonlynetworkcostsareontherise,therecentresultsofthefrequencyauctionwillalsoaddadditionalamortisationcosts.
Figure1:KTCorp.
—3Q11Eearningspreview(K-IFRSconsolidated)3Q11EPreviousresults2011E(Wbn)CSest.
Cons.
2Q11QoQ3Q10YoYCSest.
Cons.
Sales5,3705,2805,3430.
5%5,3200.
9%21,75721,195Telephony930954-2.
5%1,070-13.
1%3,783Wireless1,8241,7742.
8%1,7951.
6%7,237Internet6696601.
4%6316.
0%2,638Data3323223.
0%3223.
0%1,300Handsetrevenue1,1501,186-3.
0%1,1044.
2%4,640Others4654474.
0%39816.
8%2,159Operatingprofit4565124335.
4%591-22.
8%1,8582,070EBITDA1,2161,2991,1743.
6%1,263-3.
7%4,8575,226Netprofit282345421-32.
9%430-34.
3%1,3611,505EBITDAmargin22.
7%24.
6%22.
0%23.
7%22.
3%24.
7%Marketingcost/Rev11.
7%12.
4%14.
0%13.
2%Source:Companydata,FNguide,CreditSuisseestimatesFigure2:LGUplus—3Q11Eearningspreview(K-IFRSconsolidated)3Q11EPreviousresults2011E(Wbn)CSest.
Cons.
2Q11QoQ3Q10YoYCSest.
Cons.
Sales2,3212,3162,3040.
8%2,06612.
4%9,1009,055(1)Servicerevenue1,6531,5943.
7%1,5933.
8%6,468Wireless8678472.
4%883-1.
7%3,415TPS3112955.
5%26716.
6%1,215Data3443236.
4%31010.
9%1,321Telephony1331320.
5%1330.
0%523Others(2)(2)-16.
7%0-766%(6)(2)Handsetrev.
653687-4.
9%45942.
4%2,572(3)Otherrevenue1522-30.
7%152.
9%60Operatingprofit88866046.
3%24270.
6%306295EBITDA40041034615.
6%34017.
9%1,5221,549Netprofit62563575.
2%7759.
1%197187EBITDAmargin17.
2%17.
7%15.
0%16.
4%16.
7%17.
1%Marketingcost/Rev24.
1%25.
8%28.
0%24.
9%Source:Companydata,FNguide,CreditSuisseestimatesBroadcastingsectorWithflattishsubscribergrowthfor3Q11versus2Q11,weareexpectingSkylife's3Q11resultstobemoreflattishonone-offitemsthatdrovedownthecompany's2Q11earnings.
For2Q11,Skylifehadtwoone-offitems:(1)W2bnofcontentfeespaidtoterrestrialbroadcastingcompaniesforunpaid2009–10feesand(2)W1bnofrevenuediscountforoverchargingpenaltyfeestosubscribers.
Hence,for3Q11,thecompanyshouldreportatleastW3bnhigheroperatingprofitthanthatof2Q11,withmostoftherevenueandcostitemsremainingstable.
Figure3:KTSkylife—3Q11Eearningspreview(K-IFRSseparated)3Q11EPreviousresults2011E(Wbn)CSest.
Cons.
2Q11QoQ3Q10YoYCSest.
Cons.
Sales1181201152.
6%10512.
1%473474Service82802.
0%767.
5%326Platform11111.
6%925.
2%42Facilityrevenue15150.
5%1318.
4%60KTcommission8717.
6%567.
8%37Others22-2.
1%3-28.
7%8Operatingprofit13131035.
6%13-1.
1%5344Netprofit911736.
9%11-11.
4%3735Operatingmargin11.
0%11.
0%8.
3%12.
5%11.
1%9.
4%Source:Companydata,FNguide,CreditSuisseestimatesAsofthecloseofbusiness10Oct2011,CreditSuisseSecurities(Europe)Limited,SeoulBranch,performstheroleofliquidityprovideronthewarrantsofwhichunderlyingassetisKTCorp.
andholds22,763,960ofwarrantsconcerned.
Thesemaybewarrantsthatconstitutepartofahedgedposition.
Wednesday,12October2011AsianDaily-22of32-TaiwanTaiwanSolarEnergySector-WeakupstreaminSeptembersuggestingpoorcellvisibilityintoOctoberDarrylCheng/ResearchAnalyst/886227156333/darryl.
cheng@credit-suisse.
comSeptembersalesofTaiwan'stop-fivesolarcellmakersfell11%MoMafterthreemonths'sequentialgrowth.
3Q11salesendedupwith11%QoQgrowthafter1Q's10%declineand2Q's42%fall,inlinewithourviewthat2Q11wasthebottomforcellmakers.
Septembercellshipmentsalsofell12%MoMand2%YoYto283MWp,while3Qshipmentsof923MWprepresented29%QoQand10%YoYgrowth.
ThedrasticASPerosionfromUS$1.
3/Wp+in3Q10tothecurrentUS$0.
7/Wphasdamagedcellmakers'P&L.
SeptembercellASPsstillheldatUS$0.
7-0.
75/Wp.
Webelievesomecellmakerswereselectiveintakingorderstopreventloss-making.
However,weexpectadescendingASPintoOctober,assecond-tierplayersarealreadyofferingUS$0.
6x/Wpcellprices.
Inupstream,Taiwan'stop-3solarwafermakers'Septembersalesplunged18%MoM,and3Q11salesby18%QoQ.
Gigasolar,supplierofAl-pasteforcellproduction,alsoreporteda19%MoMdropinSep,seeingsecond-tiercellmakerscuttingCURinthe2HofSepandlikelytobefollowedbyfirst-tierplayersintoOct.
Figure1:Top-5Taiwansolarcellmakers'monthlysalesvsseq.
growth0481216Jan-10Apr-10Jul-10Oct-10Jan-11Apr-11Jul-11Oct-11-40-2002040TWtop-5solarcellmakers'sales(NT$bn,LHS)MoM(%,RHS)(NT$bn)(%)Source:Companydata.
Figure2:Top-5Taiwansolarcellmakers'monthlyshipmentvsref.
ASP0100200300400Jan-10Apr-10Jul-10Oct-10Jan-11Apr-11Jul-11Oct-110.
00.
51.
01.
52.
0TWtop-5cellmakers'shipment(MWp,LHS)ReferenceASP(US$/Wp,RHS)(MWp)(US$/Wp)Source:Companydata.
SeptembersolarcellshipmentsweakenagainAggregateSeptembersalesofthetop-fivesolarcellmakersinTaiwanfell11%MoMtoNT$6,645mnafterthree-months'consecutivegrowthfromJune-August.
TheirSeptembershipmentalsodeclinedasimilar12%,suggestingnearlyflattishASPfromAugust.
Wespokewiththetop-fivesolarcellmakers.
AugustASPwasaboutUS$0.
75/Wp-plus,andSeptemberASPstillheldintheUS$0.
7-0.
75/Wprange.
Someofthemturnedselectiveintakingorders,aswafercostswerenotlowenoughforthemtogenerateprofits,whichwebelievehashelpedtomaintainSeptemberASP.
IntoOctober,weexpectpricepressuretopersist,asourrecentindustrychecksalreadysuggestbelow-US$0.
7/Wppricesofferedbysecond-tiersolarcellmakersinTaiwan.
Onaquarterlybasis,3Q11salesgrew11%sequentiallytoNT$21.
3bn(shipments+29%QoQ)after1Q's10%and2Q's42%QoQdecline.
3Q11shipmentsof923MWprepresented10%YoYgrowth,withthe37%YoYdeclineinsalesclearlyhurtbydrasticASPerosionfromUS$1.
3/Wp-plusin3Q10tothecurrentUS$0.
7/Wp.
Figure3:Top-5Taiwansolarcellmakers'SeptembersalesMoMYoYQoQYoYYoY(NT$mn)Sep-11(%)(%)QTD(%)(%)YTD(%)Motech2,195-20-447,56917-3524,273-7Gintech1,5781-424,70727-3914,675-28NSP1,749-1-175,1701-1217,55131Solartech774-22-412,842-4-1710,74854E-Ton349-18-809813-816,406-50Sales(NT$mn)6,645-11-4421,27011-3773,652-7Shipment(MWp)283-12-292329102,63031Gigasolar(pastes)281-19392837202,54245Source:TEJ,CompanydataFigure4:Top-3Taiwansolarwafermakers'SeptembersalesMoMYoYQoQYoYYoY(NT$mn)Sep-11(%)(%)QTD(%)(%)YTD(%)SAS1,096-10-433,554-13-3613,398-4GET1,128-25-284,103-21-1115,80336Danen260-18-33866-25-73,58457Wafer(NT$mn)2,484-18-368,524-18-2332,78417Source:TEJ,CompanydataWeakupstreamsuggestspoorOctobervisibilityInupstream,Taiwan'stop-threesolarwafermakers'Septembersalesfellbyalarger18%MoM.
Wehadexpectedsolarwafermakerstofaceatougher3Q11duetotheirrelativelylowbargainingpoweragainstpolysiliconsuppliersandcellcustomers.
Inthemeantime,Gigasolar,aleadingsupplierforAl-pasteusedforproducingsolarcells,alsoreporteda19%MoMdeclineinSeptembersales,indicatingweaknear-termshipmentsofsolarcells.
GigasolarcitedflattishAl-pasteASPinSeptember,withshipmentsfallingfrom225-250tonsinAugusttobelow200tonsinSeptember.
Thecompanysawsecond-tiersolarcellmakerscuttingutilisationinthe2HofSeptember,andexpectsfirst-tierplayerstostarttotakeactionintoOctober,asnear-termvisibilityremainspoor.
Figure5:StocktradinginformationPrice(NT$)SharesMktcapDailytradFreefloatQFIICSestEPS(NT$)52-wkrange(NT$)Relperformance(%)CompanyTickerRating7OctTarget(mn)(US$mn)(US$mn)20112012HighLow1M3M12MMotech6244.
TWON51.
056.
04377771264120.
693.
69111.
346.
4(7.
7)(34.
2)(36.
5)Gintech3514.
TWN41.
038.
0339484138417-0.
443.
2483.
436.
45.
4(20.
1)(37.
8)SAS5483.
TWON49.
661.
94237312374163.
495.
06126.
849.
6(15.
3)(30.
3)(30.
3)Source:TEJ,CreditSuisseestimatesWednesday,12October2011AsianDaily-23of32-ThailandThailandMarketStrategy-MaintainUNDERWEIGHTChannelcheckonfloodsituationDanFineman/ResearchAnalyst/6626146218/dan.
fineman@credit-suisse.
comSiripornSothikul,CFA/ResearchAnalyst/6626146217/siriporn.
sothikul@credit-suisse.
comWeconductedchannelcheckswithlistedcompaniestodeterminetheimpactoffloodsontheiroperations.
Theimpactin4Qcouldbesignificantforseveralcompanies,butsofarcompaniesareguidingforalimitedimpact.
About1%ofCPALLstoreshavebeenclosed,whileotherretailersaretalkingabout1–3%revenuedeclinesforSeptember,withOctoberlikelytobeworse.
AnIVLplantaccountingforlessthan5%ofglobaloutputhasclosed,butinsuranceshouldcoverthelosses.
Bankssofarexpectlittleimpact.
CPFcouldseeanincreaseinearningsfromthesituation.
Unlessthesituationdeterioratessignificantly,withlongerlossoffactoryproductionorseveredamagesinBangkok,wedonotexpectthefloodstohavealastingimpactonstocks.
Wedonotexpecttochangeanystockratingsduetothefloodsoradjustearnings,untiltheextentofthedamagebecomesclearer.
RetailersmostaffectedRetailersseemthemostaffected(seeKarim'snoteonHomeProductsCenter).
FiveofHMPRO's44storesareaffected.
AtRobinson,1–2%ofSeptembersaleswerelost,andpresumablymorewillbelostinOctober.
BIGCreports2–3%lossinSeptembersales,withCPALLprobablyseeingasimilarimpact.
PossiblyoffsettingtheselossesisthehoardinginBangkokinrecentdaysthathasemptiedstoreshelves.
Onthewhole,itislikelyretailerswillloseseveralpercentagepointsofgrowthoverthetwo-monthperiod(SeptemberandOctober).
OtherconsumerstockscouldseesomeimpactConsumerstocks,MINTandMajor,havereportednoimpactsofar,butdepressedsentimentcouldaffectmovie-goingifthefloodslastlong.
Telcoscouldseesomelossofrevenue,thoughnotverylarge.
PossibleupsideforCPFWithitsfarmsinthehighlands,CPFhasseennosignificantimpact,butthelossesatotherfarmsareraisingmeatprices.
ThefloodscouldthereforeresultinhigherearningsforCPF.
LimitedimpactonbanksBanksexpectlittleimpactfromfloods.
Theyarerestructuringloanstofloodvictims,buttheBankofThailanddoesnotrequirethemtoclassifytheseloansasNPL.
Thenumberssofarseemsmall.
EnergyandpetrochemsshouldbefineOtherthanIVL,noenergyorpetrochemscompanyissufferingfromanysignificant,directdamage.
APTTpipelinewasdisrupted,buttherevenueimpactshouldbeminor.
Hospitals,airportsandutilitiesnotaffectedHospitals,AOTandutilitiesreportednodamageorrevenueloss.
BangkokInternationalAirportisinthefloodplain,butisprotectedbyafloodwall.
GDPimpactcouldexceedearningsimpactCreditSuisseeconomistSantitarnSathirathaihasestimatedthatthefloodscouldsubtract20-30bpfromannualGDP.
Quitepossibly,theimpactonearningscouldbeevenmilder.
ThebiggesthittoGDPisfromtheinundationoffactoriesnorthofBangkok.
ThevastmajorityofthosefactoriesareexportersCreditSuissedoesnotcoverorMNCs.
Non-lifeinsurers,ofcourse,couldsuffer,butwehavenoneunderourcoverage.
NomajorchangesifguidanceforBangkokholdsWeexpectnomajorchangestoourearningsorratings,assumingthegovernment'sforecastsforalimitedimpactonBangkokproveaccurate.
Ifthecapitalseesmuchworsefloodingthanweexpect,wewouldneedtoreviewournumbers,especiallyfortheconsumersector.
Figure1:GuidancefromlistedcompaniesonfloodimpactRetailersBIGC12outofthe178storesinthefloodzonesareaffected.
Theyremainopenandhaveseenstrongtraffictrendsascustomersstockpilesupplies.
Allstoresremainopen.
Theexpectedimpactis2–3%ofSeptembersales,buttheimpactshouldbelargerinOctober.
CPALLPressreportsthatabout1%ofstoresclosed.
GLOBALChiangMaistorehadtoclosefor2daysastheparkinglotwasflooded.
Nakhonsawanstoreisinthefloodzonebutremainsopenandhasnotbeendamaged.
Despitethis,SSSgrowthisstillatlow-teens.
HMPRO5storesoutof44areaffected.
TherewasanoticeableslowdowninSepSSSgrowthvsthatinOct.
Nostoreshavebeenclosed.
Octimpactislikelytobelarger.
MAKRONakhonSawanstorehasbeenaffected(butremainsopen)andonestoreinBangkokneartheChaoPrayaislikelytohavebeenadverselyaffected.
Sofar,netsalesimpactisnotmaterial.
ROBINSAyutthayastore(2–3%oftotalsales)hasseenOctsalesdropby50%vsSep.
Sepsaleswerenegativelyaffectedby1–2%withtheAyutthayaandChiangmaistoresimpacted.
Neitherstorehasbeenclosed.
ConsumerCPFIthasnotbeenyetdirectlyimpactedasitsfarmsareinthehighlands.
Impactoncompetitors'farmsinlowlandsispushingupthemeatprices,whichisworkinginthecompany'sfavour.
MajorNoneofitscinematheatreswerephysicallyaffected,butthatinAyutthaya(only4screensoutof380screens)hasseennoaudienceforthepastfewdaysbecauseofthefloods.
Businessvolumesfortherestwerenormal.
Ifthescaleofthefloodmagnifies,thecompanyseestheriskofpeoplestayingawayfromthetheatres.
MINTThefloodinChiangmaiandChiangraihasnotaffectedMINT'sproperties.
Sofar,cancellationisnotanissue,butifthefloodslastintothehighseason(2HofNovandDec)thereisarisktooccupancy.
ThefoodbusinesssawminimalimpactwithonlyoneoutletinChiangmaiaffected.
BanksBanksMostbankssaidtheimpactonthemwaslimited,butmanagementshavestartedtoworkonmeasurestohelptheaffectedborrowers.
Creditcardandpersonalconsumptionloansborrowersseemtofeelthegreatestimpactfornow,particularlythelow-incomesegment(i.
e.
factoryworkers)duefactoryshutdowns.
BOThasnotifiedbankstohelpthisgroupofborrowers.
EnergyandchemicalsIVLOneplantinLopburihasbeenshutsincelateSeptember.
Salesfromthissitecontribute<5%ofconsolidatedsales,andtheplantshaveacomprehensiveinsurancecoverage.
PTTTheimpactismainlyongasstationsales,butnonumbershavebeenreportedyet.
Pipeline'sdisruptioninAyutthayamayalsocauseaslightfallinvolumes.
PTTEPNoeffectonfuelproduction,butS1sitesareusingtrucksinsteadoftrainsTOPNoimpacthasbeenreported.
Oilistransportedviaapipeline,whichisnotaffectedbytheflood.
However,domesticdemand,currentlyaccountingfor80%oftotalsales,maybeaffectedduetolowersalesatgasstations.
UtilitiesRATCHNoimpactatanyofitsplants,includingthosebelongingtoitsassociates.
RATCHalsohasinsurancetocoverbothpropertydamageandpotentiallossofrevenuesincaseEGATdoesnotpay,whichishighlyunlikely.
AirportsAOTAllofitssixairportsaresafe.
Businessvolumeshavebeennormalsofar.
BusinessvolumesintheSouth,i.
e.
PhuketandSamuiarequitestrong.
Source:Companydata,CreditSuisseresearchWednesday,12October2011AsianDaily-24of32-ThailandMarketStrategy-MaintainUNDERWEIGHTImpactoftaxcutsDanFineman/ResearchAnalyst/6626146218/dan.
fineman@credit-suisse.
comSiripornSothikul,CFA/ResearchAnalyst/6626146217/siriporn.
sothikul@credit-suisse.
comOn10October,thecabinetapprovedacutinthecorporatetaxratefrom30%to23%for2012and20%for2013.
Allbut17ofthe45firmsunderourcoveragepaythefull30%rateandthuswillenjoythefullbenefits.
ThecutsboostEPSatthesefirmsby10%in2012and14%in2013.
Stocksthatwillnotenjoyfullbenefitsincludecompanieswithoverseasoperations(Banpu,IVL,TUF,MINT,BBL),taxholidays(SCC,IVL,PTTCH/PTTAR,GLOW,CPF,TUF,TTW,PS),taxlosscarryforwards(ITD,TMB)andonefirmsubjecttoanon-incometax(PTTEP).
PTTbenefitsfullyonlyontheparentoperations.
WecalculatetheEPSboosttothewholemarketas8%for2012.
Thecutto23%for2012doesnotcomeasasurprise,butwewerenotexpectingthecutfor2013tobeimplementedsoquickly.
Weestimatethecabinet'sdecisionisworthanother1%short-termupsideforthemarket.
Wewillreviewallourforecastsinlightofthetaxcut,likelychangestotheminimumwageandslowerglobalgrowth.
Figure1:CompaniesnotfullybenefitingfromtaxcutsNameEffectivetaxrateCommentPTT37%Benefitsatparentlevel,butsubsidiariesonlypartiallybenefitPTTEP39%Subjectprimarilytopetroleumtax,whichwillnotbecut,ratherthanincometaxSCC22%BOIincentivesforpetrochemsoperationsBBL32%17%ofloanbookheldbyoverseassubsidiariesCPF18%BOItaxbenefitsPTTCH10%BOItaxincentivesBANPU27%LimitedoperationsinThailandIVL6%Tax-losscarryforwardonThaioperations,andalsolargeoverseasoperationsPTTAR25%BOItaxincentivesGLOW14%BOItaxincentivesLH28%DuetotaxlosscarryforwardTMB0%Duetotaxlosscarryforward,butwillpayfull30%in2013TUF12%BOItaxincentivesandoverseasoperationsMINT25%15%ofearningsfromoverseasPS27%BOItaxincentivesTTW17%LownowonBOIincentives,butrisingto26%in2013,assumingnotaxcutsITD0%MakinglossesSource:Companydata,CreditSuisseCutseffectiveJanuaryThecabinet'sdecisionshouldmakethecutsareality.
Becausethecutisanadjustmenttoanexistingtax,webelievenoParliamentaryapprovalisrequired.
FinancingoptionsThegovernmentisyettostatedefinitivelyhowthecutswillbefinanced,butweexpectthatthebudgetdeficitwillbeallowedtorisesomewhat,whileeliminationofsomeBoardofInvestment(BOI)privilegesofferedtobusinessesinfavoredindustrieswillfundtherest.
WhysomecompaniesdonotbenefitfullySeveralfactorscanlimitthebenefitsacompanymightenjoyfromthecuts.
Operationsconductedthroughoverseassubsidiarieswouldnotbenefit,assumingtransferpricingmechanismscannotbeimplemented.
CompanieswithBOItaxprivilegesalreadypaylowornotaxes.
TMBbenefitsthrough2012fromatax-losscarry-forward,thoughitwillbesubjecttothefullratefrom2013.
ITDshouldenjoytaxlossbenefitslonger.
PTTEPissubjecttoaspecialpetroleumtax.
IncompletewinnersFigure1showscompaniesnotfullybenefitingfromthetaxcuts.
PTTEPandBanpustandoutfornotbenefitingtoanysignificantextent.
Banpuearnsallitsprofitsoverseas,whilePTTEPpaysincometaxonlyonitsinterestincome.
SCC,IVL,PTTCH/PTTAR,GLOW,CPF,TUF,TTWandPSwillenjoyonlypartialgainsduetoBOIprivilegesthatalreadykeeptheireffectivetaxratesbelow30%.
IVL,BBL,TUFandMINThavesizeableoverseasoperationsandwillnotbenefit.
PTTparentwillenjoyfullbenefits,butconsolidatedearningswillnotduetothesubsidiarysituations.
DecisionamildsurpriseThedecisionwasonlyamildsurprise.
Thegovernmenthadstatedclearlythatitintendedtocuttaxesforbothyearsbythespecifiedamount.
Wewereonlysurprisedthatthedecisiontocutto20%in2013wasmadenowratherthannextyear.
Another1%short-termupsideWeestimatethatthecabinetdecisioncouldaddanother1%tothemarketinthecomingdays.
Beforethedecision,wegavea90%chancetothe2012cutto23%beingimplementedthismonthanda70%chancetothe2013cutto20%.
Withthetaxcutsboostingcoveragestocks'EPSby8%in2012andanother3%in2013,havingcertaintyonbothyearsadds1.
7%toaprobability-weightedaccountingofthegains.
Inotherwords,beforewehad(80%x8%)+(70%x3%)=9.
3%potentialupside,whereasnowwehaveafull8%+3%=11%.
Thedifferenceis1.
7%.
Examinationofintradaytradingindicatesthemarketrose0.
7%onthenews,leavinganother1%upside.
RevisionscomingInthecomingdays,wewillreviewthenumbersforallourcompaniesonthreecounts:taxcuts,likelychangestotheminimumwageandslowerglobalgrowth.
Becausethetaxcutswerelargelyexpected,wedonotexpectchangesinourratingsbasedonthecabinet'sdecision.
Wednesday,12October2011AsianDaily-25of32-HomeProductsCenter-MaintainUNDERPERFORMFloodwarning:AssessingpreliminaryfloodrisksEPS:TP:KarimP.
Salamatian,CFA/ResearchAnalyst/6626146216/karim.
salamatian@credit-suisse.
comAsthemostdevastatingfloodsin52yearssubmergemuchofthenorthandnowthreatenBangkok,wetakeaquicklookattheirpotentialimpactonHMPROandsomeoftheotherlistedretailers.
OurThailandeconomist,SantitarnSathirathai,recentlyreleasedpreliminaryestimatesof20–30bpimpactonannualGDPfromthefloods.
Theannualimpactonprivateconsumption(PCI)couldbe10–20bp.
Estimatescouldprovelowasfloodsareintensifying.
PCIismorevolatileintimesofnationaldisasters,wherebystock-pilinginadvanceandduringbenefitsstaplesretailers,whilerecoveryandrestorationpostthedisasterbenefitsdiscretionaryretailers.
Septemberand4Q11-to-datehavebeensofterfordiscretionaryretailers.
WedonotrecommendbuyingHMPRObasedonrecovery/rebuildingoffthisnaturaldisaster,asthenetimpactcouldbemarginal—theplusesandminusestakeplacewithin4Q11.
ButiffloodwatersovertakeBangkok,andcausematerialdamageandaprolongedrecoveryperiod,thentheoperatingbenefitforHMPROcouldmorethanoffsetthenear-termnegativeeffects.
HMPRO'ssame-storesales(SSS)growthinJulyandAugustwasinlinewiththetrend,with1H11at~7%;butslowertrafficinfloodedregionsledtoweakergrowthinSeptember.
PotentialimpactonSSSpermonthcanbeseeninFigure1basedonnumberofstoresandsalesdecline.
Figure1:Same-storesalesimpactpermonthfromflood-affectedstoresDeclineinfloodaffectedstoresales20%30%40%50%60%20.
1%0.
1%0.
2%0.
2%0.
2%40.
2%0.
2%0.
3%0.
4%0.
5%50.
2%0.
3%0.
4%0.
5%0.
6%60.
2%0.
4%0.
5%0.
6%0.
7%80.
3%0.
5%0.
6%0.
8%1.
0%100.
4%0.
6%0.
8%1.
0%1.
2%Numberofflood-affectedstores120.
5%0.
7%1.
0%1.
2%1.
4%Source:CreditSuisseestimatesAsofnow,fiveHomeProstores(allremainopen)ofthecompany's44storesareinfloodedareas,andareexperiencingweakersalesasaresult.
Forflood-affectedstores,weassumethatsalesareatleast20–30%weaker.
AffectedstoresinSeptemberandOctobercombinedcouldpotentiallyshave50bpofSSSgrowth.
NoprecedentofsalesreboundduringfloodaftermathHistorically,HMPROhasnotexperiencedameaningfulrecoveryinSSSgrowthinperiodsfollowingthefloodseason.
In4Q09,therewasa680bpsequentialimprovementinSSSgrowth,butthishadmoretodowithpent-updemandfollowingtheglobalcrisisthananythingelse.
Figure2:HMPRO—nohistoricalevidenceofstrongfloodrecoveryYoYsame-storesalesgrowth-10%-5%0%5%10%15%20%Q1/07Q2/07Q3/07Q4/07Q1/08Q2/08Q3/08Q4/08Q1/09Q2/09Q3/09Q4/09Q1/10Q2/10Q3/10Q4/10Q1/11Q2/11Source:CompanydataHistorically,thefloodinghasimpactedruralandfarmcommunities,whereHMPROhasaweakerpresence;however,ifthecityofBangkok'sfloodwallsarebreached,floodinginthecapitalwillrequirequickandcostlyrebuilding,whichwouldbenefitHMPROmorethaninthepastasitoperates19greaterBangkokstores.
Lastly,HMPRO'sbi-annualHomeProEXPO,whichweestimateadds1%tosales,istakingplacethismonthandwouldbeadverselyaffectedbythefloods.
ImpactatotherretailersWehavecontactedotherlistedretailers,andtheseareourfindingsofthestoreimpactthusfar,keepinginmindfloodscontinuetoworsen:ROBINS:Ayutthayastore's(2–3%oftotalsales)Octobersalesdropped50%versusSeptember.
Septembersaleswerenegativelyimpactedby1–2%becauseoftheAyutthayaandChiangMaistoresbeinghit.
Neitherstorehasbeenclosed.
GLOBAL:ChiangMaistorehadtoclosefortwodays,asitsparkinglotgotflooded.
Nakhonsawanstoreisinthefloodzonebutremainsopenandhasnotbeendamagedbyanyfloodwaters.
Despitethis,same-storesalesgrowthisstillinlowteens.
BIGC:12storesoutof178aredirectlyaffectedinthefloodzones.
Theyremainopen,andhaveseenstrongtraffictrends,ascustomersstockpilesupplies.
Allstoresremainopen.
Managementsuggestedimpactis2–3%ofSeptembersaleswithOctoberimpactpotentiallylarger.
MAKRO:NakhonSawanstorehasbeenimpacted(remainsopen),andonestoreinBangkokneartheChaoPrayarivercouldbeadverselyimpactednextweek.
Sofar,netsalesimpactisnotmaterial.
Price(11Oct11,Bt)9.
30TP(prev.
TPBt)6.
00(6.
00)Est.
pot.
%chg.
toTP(35)52-wkrange(Bt)9.
30–5.
85Mktcap(Bt/US$mn)47,484.
2/1,538.
7Bbg/RICHMPROTB/HMPR.
BKRating(prev.
rating)U(U)Sharesoutstanding(mn)5,105.
83Dailytradvol-6mavg.
(mn)14.
3Dailytradval-6mavg.
(US$mn)3.
8Freefloat(%)45.
0MajorshareholdersLandandHousePCL(30%),QualityHousesPCL(20%)Performance1M3M12MAbsolute(%)1.
221.
539.
1Relative(%)12.
333.
842.
5Year12/09A12/10A12/11E12/12E12/13ERevenue(Btbn)21.
825.
928.
331.
434.
9EBITDA(Btbn)2.
53.
33.
64.
24.
6Netprofit(Btbn)1.
11.
61.
81.
92.
1EPS(Bt)0.
260.
370.
320.
330.
35-Changefromprev.
EPS(%)n.
a.
n.
a.
000-ConsensusEPS(Bt)n.
a.
n.
a.
0.
380.
470.
57EPSgrowth(%)(47.
6)44.
0(13.
0)1.
66.
7P/E(x)35.
924.
928.
628.
226.
4Dividendyield(%)4.
81.
90.
41.
61.
8EV/EBITDA(x)19.
214.
913.
712.
111.
2P/B(x)7.
86.
56.
96.
15.
4ROE(%)22.
228.
625.
523.
221.
9Netdebt(cash)/equity(%)25.
521.
231.
438.
944.
2Note1:HomeProisThailand'slargesthomeimprovementretailer,with42storesacrossthecountry.
Wednesday,12October2011AsianDaily-26of32-TiscoFinancialGroup-MaintainOUTPERFORM3Q11results:ThelastquarterofmargincontractionEPS:TP:ThaniyaKevalee/ResearchAnalyst/6626146219/thaniya.
kevalee@credit-suisse.
comDanFineman/ResearchAnalyst/6626146218/dan.
fineman@credit-suisse.
comSiripornSothikul,CFA/ResearchAnalyst/6626146217/siriporn.
sothikul@credit-suisse.
comTISCOreportedastrongnetprofitofBt899mn,up23%YoYand4%QoQdespiteasignificantNIMcontractionof38bp.
Cumulativenetprofitaccountedfor79%ofourfull-yearestimate.
TISCO'sfundingcostsurged88bp,reflectingstrongmarketcompetitionsince2Q11.
Withthestrongriseinnon-interestincomeandeffectivecostcontrol,however,TISCOwasabletogrowitsPPOP6%QoQ.
Thecost-to-incomeratiofellto44%from47%inthepreviousquarter.
Asaresult,itsROEexpandedto24%from23%in2Q11.
Inspiteoflowercreditcost,TISCO'sNPLcoverageratiorosesignificantlytoover200%from157%attheendoflastyear.
Thisimpliesthatitissittingonamuchbiggerprofitcushion,whichcouldbeutilisedatthetimeofweakoperatingresults.
WemaintainourOUTPERFORMratingonTISCO.
Asmarketinterestrateappearstohavepeaked,webelievemarginsshouldstabiliseandstartexpandingagainsoon.
TISCOisalsotradingatasignificantvaluationdiscounttothesectorpeers.
ContractioninmarginoutweighedloangrowthimpactTISCOachievedanotherstrongquarterlyloangrowthof3.
9%,whichbroughtitsyear-to-Septemberloangrowthto21%.
Nonetheless,itsnetinterestincomewasdown7%QoQasitsmarginwassqueezedsignificantlyby38bpfromthepreviousquarter.
TISCOsufferedan88bpQoQriseinitsaveragefundingcostduetotheintensemarketcompetitionwhichstartedin2Q11(fullimpactrealisedin3Q11).
Strongnon-interestincomeandeffectivecostcontrolInspiteofmargincontraction,TISCOwasabletoraiseitsPPOPby6%QoQduelargelytostrongnon-interestincome(up13.
9%QoQ)andeffectivecostcontrol.
Operatingexpensesweredown6%QoQduemainlytoa20%QoQcontractioninpersonnelexpenses.
ThiswasinlinewithTISCO'slong-standingpolicyofrewardingitsemployeesbasedoncorebusinessperformance.
Thecost-to-incomeratioasaresultsoftenedto44%from47%inthepreviousquarter.
ROEremainsrobust,expandingto24%from23%in2Q11.
StrongassetqualityandNPLcoverageratioTheNPLratiofellto1.
3%from1.
6%in2Q11and1.
8%attheendoflastyearduetoNPLresolutionandsomewrite-offs.
However,thelowerratioalsoreflectedstrongassetquality.
Asaresult,theNPLcoverageratiowentupsubstantiallyto203%from163%in2Q11inspiteofTISCOfurthercuttingitsprovisionto70bpofaverageloan(from80bpinthepreviousquarter).
TISCO'sloanlossreserveisnow2.
7xminimumreserverequiredbytheBOT.
TherisingcoverageratioimpliesTISCOhasmuchbiggerprofitcushion,whichcouldbeutilisedatthetimeofaweakoperatingenvironment.
PeakinterestratecycleisgoodnewsTISCO'sloanyieldexpanded20bpin3Q11following25bpexpansionin2Q11.
Withitsfundingcoststabilisingsoon,weseeapotentialthatTISCOcouldseeitsmarginimprovingagainsoon.
Figure1:TISCO:3Q11resultssummary(Btbn)3Q102Q113Q11QoQ%YoY%FY11E%ofFY11ENetinterestincome1.
751.
881.
74-7.
1-0.
77.
2575.
2Feesandserviceincome0.
750.
710.
732.
4-3.
32.
2895.
5Non-interestincome0.
970.
961.
1013.
913.
53.
8478.
0Operatingexpenses(1.
16)(1.
34)(1.
26)-6.
48.
8(5.
04)76.
1PPOP1.
571.
501.
585.
71.
16.
0576.
2Loanlossprovision(0.
60)(0.
33)(0.
30)-8.
0-50.
0(1.
51)64.
9Gainonsaleofsec.
0.
140.
06(0.
01)-110.
5-104.
20.
1738.
2Netprofit0.
730.
860.
904.
122.
93.
3078.
6BalancesheetGrossloans1421751823.
928.
5167Totalassets1561982074.
332.
3198Deposits5835388.
3-35.
262Equity1415155.
79.
716NPLs2.
62.
82.
3-19.
8-14.
02.
8Ratios(%)NPL(%ofgrossloans)1.
91.
61.
31.
7LLR/NPLs138.
9162.
5203.
0163.
6Loanyield6.
726.
706.
907.
00Overallassetyield6.
416.
186.
606.
64Costoffunding1.
972.
603.
483.
01Overallspread4.
443.
583.
123.
63NIM4.
673.
853.
473.
97LTD242.
0500.
1479.
8267.
7LTD(includeBE)123.
8107.
3105.
6115.
0Cost/income42.
547.
344.
345.
5LLP(%ofavgloans)1.
80.
80.
70.
95Returnonequity21.
523.
024.
021.
2Source:Companydata,CreditSuissePrice(11Oct11,Bt)32.
75TP(prev.
TPBt)49.
00(49.
00)Est.
pot.
%chg.
toTP5052-wkrange(Bt)45.
3-30.
8Mktcap(Bt/US$mn)23,838.
0/772.
5Bbg/RICTISCOTB/TISCO.
BKRating(prev.
rating)O(O)Sharesoutstanding(mn)727.
88Dailytradvol-6mavg(mn)2.
6Dailytradval-6mavg(US$mn)3.
3Freefloat(%)80.
0MajorshareholdersKooFamily(11%)Performance1M3M12MAbsolute(%)(21.
1)(17.
1)(12.
1)Relative(%)(10.
0)(4.
8)(8.
7)Year12/09A12/10A12/11E12/12E12/13EPre-provOpprofit(Btmn)4,383.
35,882.
06,045.
57,119.
68,378.
3Netprofit(Btmn)1,9882,8883,2983,7794,320EPS(CSadj.
Bt)2.
774.
014.
535.
195.
93-Changefromprev.
EPS(%)n.
a.
n.
a.
000-ConsensusEPS(Bt)n.
a.
n.
a.
4.
555.
045.
82EPSgrowth(%)15.
845.
012.
914.
614.
3P/E(x)11.
88.
27.
26.
35.
5Dividendyield(%)5.
36.
97.
38.
49.
0BVPS(CSadj.
Bt)17.
120.
322.
425.
028.
0P/B(x)1.
911.
611.
461.
311.
17ROE(%)16.
721.
221.
221.
922.
4ROA(%)1.
51.
91.
81.
81.
9Tier1Ratio(%)12.
59.
910.
210.
310.
5Note1:TISCOFinancialGroupPublicCompanyLimitedisaThailand-basedholdingcompanyengagedinthefinancialandbankingbusinesses.
TheCompanyprimarilyoperatesintwomainactivities:commercialbankingbusinessandsecuritiesbusiness.
Wednesday,12October2011AsianDaily-27of32-RecentlyPublishedResearchDateTitleAuthor(s)Tel.
E-mailTue11OctAsiaEquityStrategy-CylicalsworthanotherlookSakthiSivaKinNangChik656212302785221017482sakthi.
siva@credit-suisse.
comkinnang.
chik@credit-suisse.
comTue11OctChinaConsumerSectorKevinYinJulieKe8522101765585221016323kevin.
yin@credit-suisse.
comjulie.
ke@credit-suisse.
comTue11OctChinaPropertySectorJinsongDuWenhanChenDuoChen852210165898522101640785221017350jinsong.
du@credit-suisse.
comwenhan.
chen@credit-suisse.
comduo.
chen@credit-suisse.
comTue11OctSingaporeEquityStrategySakthiSivaKinNangChik656212302785221017482sakthi.
siva@credit-suisse.
comkinnang.
chik@credit-suisse.
comMon10OctAsianSemiconductorsRandyAbrams,CFAKevinChen886227156366886227156364randy.
abrams@credit-suisse.
comkevin.
chen@credit-suisse.
comMon10OctGEMEquityStrategy-DoubleDipWatch:Euriborspreadsstarttofall;signallingmarketbottomasin2008SakthiSivaKinNangChik656212302785221017482sakthi.
siva@credit-suisse.
comkinnang.
chik@credit-suisse.
comMon10OctIndianTechPulseAnanthaNarayan912267773730anantha.
narayan@credit-suisse.
comMon10OctSingaporeBanksSectorAnandSwaminathanSanjayJain656212301285221016088anand.
swaminathan@credit-suisse.
comsanjay.
jain@credit-suisse.
comMon10OctSingaporeOfficeSectorYvonneVoonTriciaSongSingPingChok656212302665621231416562123011yvonne.
voon@credit-suisse.
comtricia.
song@credit-suisse.
comsingping.
chok@credit-suisse.
comFri7OctChinaInternetSectorWallaceCheung,CFAJenniferGao8522101709085221016479wallace.
cheung@credit-suisse.
comjennifer.
gao@credit-suisse.
comFri7OctJump-StartAsiaResearchTeam85221016570jahanzeb.
naseer@credit-suisse.
comFri7OctNJALifeInsuranceSectorArjanvanVeen85221017508arjan.
vanveen@credit-suisse.
comWednesday,12October2011AsianDaily-28of32-CompaniesmentionedAgriculturalBankofChina(1288.
HK,HK$2.
99,UNDERPERFORM,TPHK$2.
95)AirportsofThailand(AOT.
BK,Bt38.
25,OUTPERFORM,TPBt58.
00)AkerSeafood(AKSE.
OL)AstraInternational(ASII.
JK,Rp65,900.
00,OUTPERFORM,TPRp74,000.
00)BangkokBank(BBLf.
BK,Bt151.
50,OUTPERFORM,TPBt219.
00)BankCentralAsia(BBCA.
JK,Rp7,750.
00,NEUTRAL,TPRp8,400.
00)BankMandiri(Persero)(BMRI.
JK,Rp6,450.
00,OUTPERFORM,TPRp8,600.
00)BankNegaraIndonesia(BBNI.
JK,Rp3,500.
00,OUTPERFORM,TPRp4,680.
00)BankofChinaLtd(3988.
HK,HK$2.
65,NEUTRAL,TPHK$2.
84)BankofCommunications(3328.
HK,HK$4.
69,NEUTRAL,TPHK$4.
90)BankRakyatIndonesia(BBRI.
JK,Rp6,250.
00,OUTPERFORM,TPRp8,100.
00)BanpuPublicCoLtd(BANP.
BK,Bt568.
00,OUTPERFORM,TPBt869.
00)BeijingEnterprisesHoldings(0392.
HK,HK$39.
70,OUTPERFORM,TPHK$52.
50)BigCSupercenterPublicCo(BIGC.
BK,Bt118.
00,NOTRATED)C.
P.
AllPCL(CPALL.
BK,Bt47.
25,NEUTRAL,TPBt52.
50)Capitaland(CATL.
SI,S$2.
45,OUTPERFORM,TPS$3.
50)CharoenPokphandFoodsPublic(CPF.
BK,Bt27.
50,OUTPERFORM,TPBt37.
10)ChinaCiticBank(0998.
HK,HK$3.
49,NEUTRAL,TPHK$3.
59)ChinaConstructionBank(0939.
HK,HK$5.
11,OUTPERFORM,TPHK$5.
70)ChinaGasHoldingsLtd(0384.
HK,HK$1.
83,OUTPERFORM[V],TPHK$4.
00)ChinaMerchantsBank-H(3968.
HK,HK$12.
06,NEUTRAL,TPHK$12.
58)ChinaMinshengBankingCorporation(1988.
HK,HK$5.
17,UNDERPERFORM,TPHK$4.
92)ChinaOilfieldServicesLtd(2883.
HK,HK$10.
78,OUTPERFORM,TPHK$13.
10)ChinaPetroleum&ChemicalCorporation-H(0386.
HK,HK$7.
09,NEUTRAL,TPHK$8.
50)ChinaRealEstateInformationCorporation(CRIC.
OQ,$3.
89,OUTPERFORM[V],TP$8.
00)ChinaResourcesGas(1193.
HK,HK$10.
08,OUTPERFORM,TPHK$14.
50)ChinaShippingContainerLinesCompanyLtd(2866.
HK,HK$1.
30,OUTPERFORM[V],TPHK$1.
80)ChongqingRuralCommercialBank(3618.
HK,HK$2.
58,UNDERPERFORM[V],TPHK$2.
61)CNOOCLtd(0883.
HK,HK$13.
72,OUTPERFORM,TPHK$16.
60)ComfortDelGro(CMDG.
SI,S$1.
31,OUTPERFORM,TPS$1.
75)COSCOCorporation(Singapore)Ltd(COSC.
SI,S$0.
95,UNDERPERFORM,TPS$0.
70)Danen(3686.
TW,NT$17.
35,NOTRATED)ENNEnergyHoldingsLtd(2688.
HK,HK$26.
50,NEUTRAL,TPHK$27.
80)EnscoPlc.
(ESV,$42.
69,OUTPERFORM,TP$71.
00)E-TonSolarTechCoLtd(3452.
TWO,NT$14.
65,NOTRATED)EvergreenMarine(2603.
TW,NT$15.
80,OUTPERFORM,TPNT$18.
70)FormosaChemical&Fibre(1326.
TW,NT$86.
20,OUTPERFORM,TPNT$113.
90)FormosaPetrochemical(6505.
TW,NT$93.
00,UNDERPERFORM,TPNT$76.
85)FormosaPlastics(1301.
TW,NT$88.
00,NEUTRAL,TPNT$100.
20)Gigasolar(3691.
TWO,NT$325.
00,NOTRATED)GintechEnergyCorporation(3514.
TW,NT$41.
00,NEUTRAL,TPNT$38.
00)GlowEnergyPCL(GLOW.
BK,Bt50.
50,OUTPERFORM,TPBt61.
00)GoldenEagleRetailGroupLtd.
(3308.
HK,HK$16.
30,OUTPERFORM,TPHK$22.
00)GOMEElectricalAppliancesHoldingLimited(0493.
HK,HK$2.
01,NEUTRAL[V],TPHK$2.
50)GreenEnergyTech(3519.
TW,NT$35.
35,NOTRATED)GudangGaram(GGRM.
JK,Rp56,000.
00,OUTPERFORM,TPRp55,500.
00)HanwhaChemical(009830.
KS,W26,300,UNDERPERFORM[V],TPW33,000)HomeProductsCenterPCL(HMPR.
BK,Bt8.
95,UNDERPERFORM,TPBt5.
86)HonamPetrochemical(011170.
KS,W283,000,OUTPERFORM[V],TPW520,000)HongKongandChinaGas(0003.
HK,HK$17.
10,UNDERPERFORM,TPHK$15.
55)Indocement(INTP.
JK,Rp13,600.
00,NEUTRAL,TPRp18,400.
00)IndoramaVenturesPCL(IVL.
BK,Bt30.
00,OUTPERFORM[V],TPBt47.
00)Industrial&CommercialBankofChina(1398.
HK,HK$4.
31,OUTPERFORM,TPHK$5.
49)Intime(1833.
HK,HK$9.
61,NOTRATED)Italian-ThaiDevelopments(ITD.
BK,Bt3.
22,UNDERPERFORM,TPBt2.
50)KalbeFarma(KLBF.
JK,Rp3,400.
00,NEUTRAL,TPRp3,400.
00)KeppelCorporation(KPLM.
SI,S$8.
02,OUTPERFORM,TPS$11.
60,UNDERWEIGHT)KeppelCorporation(KPLM.
SI,S$8.
23,OUTPERFORM,TPS$11.
60,UNDERWEIGHT)KTCorp(030200.
KS,W36,100,OUTPERFORM,TPW48,000)KTSkylife(053210.
KS,W31,050,OUTPERFORM[V],TPW34,400)KunlunGas(0135.
HK,HK$10.
46)LandandHouses(LH.
BK,Bt6.
55,OUTPERFORM,TPBt8.
00)LGChemLtd.
(051910.
KS,W337,000,OUTPERFORM,TPW600,000)LGUplus(032640.
KS,W6,390,NEUTRAL,TPW6,000)MajorCineplexGroupPcl(MAJO.
BK,Bt11.
30,OUTPERFORM,TPBt21.
00)Maoye(0848.
HK,HK$1.
78,NOTRATED)MecoxLaneLtd.
(MCOX.
OQ,$1.
39)Wednesday,12October2011AsianDaily-29of32-MidlandHoldingsLtd(1200.
HK,HK$3.
42,OUTPERFORM[V],TPHK$5.
20)MinorInternationalPCL(MINT.
BK,Bt10.
60,OUTPERFORM,TPBt14.
80)Modec(6269,1,336)MotechIndustries(6244.
TWO,NT$51.
00,NEUTRAL[V],TPNT$56.
00)NanYaPlastics(1303.
TW,NT$69.
50,OUTPERFORM,TPNT$84.
80)NeoSolarPowerCorp(3576.
TW,NT$29.
35,NOTRATED)NeptuneOrientLines(NEPS.
SI,S$1.
14,NEUTRAL,TPS$1.
23)Olam(OLAM.
SI,S$2.
34,OUTPERFORM,TPS$3.
85)OrientOverseasInternational(0316.
HK,HK$34.
75,OUTPERFORM[V],TPHK$45.
0)PetroChina-H(0857.
HK,HK$9.
02,NEUTRAL,TPHK$11.
15)PreuksaRealEstate(PS.
BK,Bt13.
50,UNDERPERFORM,TPBt16.
90)PTTambangBatubaraBukitAsamTbk(PTBA.
JK,Rp15,100.
00,OUTPERFORM,TPRp26,500.
00)PTTExploration&Production(PTTE.
BK,Bt147.
00,UNDERPERFORM,TPBt163.
00)PTTPublicCompanyLimited(PTT.
BK,Bt292.
00,NEUTRAL,TPBt362.
00)RatchaburiElectricityGeneratingHolding(RATC.
BK,Bt40.
25,OUTPERFORM,TPBt55.
00)RelianceIndustries(RELI.
BO,Rs825.
85,OUTPERFORM,TPRs1,057.
00)RobinsonDepartmentStore(ROBIN.
BK,Bt33.
50,NOTRATED)SembcorpIndustriesLimited(SCIL.
SI,S$3.
70,OUTPERFORM,TPS$4.
90,UNDERWEIGHT)SembcorpMarineLtd.
(SCMN.
SI,S$3.
55,NEUTRAL,TPS$4.
00,UNDERWEIGHT)SemenGresik(Persero)(SMGR.
JK,Rp7,950.
00,OUTPERFORM,TPRp11,500.
00)SeoulSemiconductorCoLtd(046890.
KQ,W21,950,NEUTRAL[V],TPW23,500)ShenzhenGasCorporation(601139.
SS,Rmb10.
55,OUTPERFORM,TPRmb13.
90)SiamCement(SCC.
BK,Bt287.
00,OUTPERFORM,TPBt380.
00)SiamGlobalHouse(GLOBAL.
BK,Bt8.
70,NOTRATED)SiamMakroPublicCo.
Ltd(MAKR.
BK,Bt216.
00,NOTRATED)SinaCorporation(SINA.
OQ,$77.
13,NEUTRAL[V],TP$87.
2)SingaporeTelecom(STEL.
SI,S$3.
12,OUTPERFORM,TPS$3.
75)Sino-AmericanSiliconProducts(5483.
TWO,NT$49.
60,NEUTRAL[V],TPNT$61.
93)SKBroadbandCoLtd(033630.
KQ,W3,370,NEUTRAL,TPW4,800)SMRT(SMRT.
SI,S$1.
80,UNDERPERFORM,TPS$1.
80)Sohu.
com(SOHU.
OQ,$56.
93,OUTPERFORM[V],TP$86.
70)Solartech(3561.
TW,NT$31.
25,NOTRATED)SpringlandInternationalHoldingsLimited(1700.
HK,HK$4.
75,OUTPERFORM[V],TPHK$10.
31)STXOSVHoldingsLtd(STXO.
SI,S$1.
01,NEUTRAL[V],TPS$1.
60,UNDERWEIGHT)ThaiOil(TOP.
BK,Bt54.
75,OUTPERFORM,TPBt70.
00)ThaiTapWater(TTW.
BK,Bt4.
86,OUTPERFORM,TPBt7.
00)ThaiUnionFrozenProductsPCL(TUF.
BK,Bt53.
00,OUTPERFORM,TPBt75.
00)TiscoFinancialGroup(TISCO.
BK,Bt32.
75,OUTPERFORM,TPBt49.
00)TMBBankPublicCoLtd(TMB.
BK,Bt1.
34,UNDERPERFORM,TPBt1.
90)TowngasChina(1083.
HK,HK$3.
99)TudouHoldingsLimited(TUDO.
OQ,$14.
08)UnitedTractors(UNTR.
JK,Rp21,500.
00,OUTPERFORM,TPRp30,000.
00)WanHaiLines(2615.
TW,NT$15.
05,OUTPERFORM,TPNT$19.
50)YangMingMarineTransport(2609.
TW,NT$12.
0,NEUTRAL,TPNT$10.
70)YangzijiangShipbuilding(Holdings)Ltd(YAZG.
SI,S$0.
89,OUTPERFORM,TPS$1.
30)ZhengzhouGas(3928.
HK,HK$10,NOTRATED)DisclosureAppendixImportantGlobalDisclosuresTheanalystsidentifiedinthisreporteachcertify,withrespecttothecompaniesorsecuritiesthattheindividualanalyzes,that(1)theviewsexpressedinthisreportaccuratelyreflecthisorherpersonalviewsaboutallofthesubjectcompaniesandsecuritiesand(2)nopartofhisorhercompensationwas,isorwillbedirectlyorindirectlyrelatedtothespecificrecommendationsorviewsexpressedinthisreport.
Theanalyst(s)responsibleforpreparingthisresearchreportreceivedcompensationthatisbaseduponvariousfactorsincludingCreditSuisse'stotalrevenues,aportionofwhicharegeneratedbyCreditSuisse'sinvestmentbankingactivities.
Analysts'stockratingsaredefinedasfollows:Outperform(O):Thestock'stotalreturnisexpectedtooutperformtherelevantbenchmark*byatleast10-15%(ormore,dependingonperceivedrisk)overthenext12months.
Neutral(N):Thestock'stotalreturnisexpectedtobeinlinewiththerelevantbenchmark*(rangeof±10-15%)overthenext12months.
Underperform(U):Thestock'stotalreturnisexpectedtounderperformtherelevantbenchmark*by10-15%ormoreoverthenext12months.
*Relevantbenchmarkbyregion:Asof29thMay2009,Australia,NewZealand,U.
S.
andCanadianratingsarebasedon(1)astock'sabsolutetotalreturnpotentialtoitscurrentsharepriceand(2)therelativeattractivenessofastock'stotalreturnpotentialwithinananalyst'scoverageuniverse**,withOutperformsrepresentingthemostattractive,Neutralsthelessattractive,andUnderperformstheleastattractiveinvestmentopportunities.
SomeU.
S.
andCanadianratingsmayfalloutsidetheabsolutetotalreturnrangesdefinedabove,dependingonmarketconditionsWednesday,12October2011AsianDaily-30of32-andindustryfactors.
ForLatinAmerican,Japanese,andnon-JapanAsiastocks,ratingsarebasedonastock'stotalreturnrelativetotheaveragetotalreturnoftherelevantcountryorregionalbenchmark;forEuropeanstocks,ratingsarebasedonastock'stotalreturnrelativetotheanalyst'scoverageuniverse**.
ForAustralianandNewZealandstocks,12-monthrollingyieldisincorporatedintheabsolutetotalreturncalculationanda15%anda7.
5%thresholdreplacethe10-15%levelintheOutperformandUnderperformstockratingdefinitions,respectively.
The15%and7.
5%thresholdsreplacethe+10-15%and-10-15%levelsintheNeutralstockratingdefinition,respectively.
**Ananalyst'scoverageuniverseconsistsofallcompaniescoveredbytheanalystwithintherelevantsector.
Restricted(R):Incertaincircumstances,CreditSuissepolicyand/orapplicablelawandregulationsprecludecertaintypesofcommunications,includinganinvestmentrecommendation,duringthecourseofCreditSuisse'sengagementinaninvestmentbankingtransactionandincertainothercircumstances.
VolatilityIndicator[V]:Astockisdefinedasvolatileifthestockpricehasmovedupordownby20%ormoreinamonthinatleast8ofthepast24monthsortheanalystexpectssignificantvolatilitygoingforward.
Analysts'coverageuniverseweightingsaredistinctfromanalysts'stockratingsandarebasedontheexpectedperformanceofananalyst'scoverageuniverse*versustherelevantbroadmarketbenchmark**:Overweight:Industryexpectedtooutperformtherelevantbroadmarketbenchmarkoverthenext12months.
MarketWeight:Industryexpectedtoperformin-linewiththerelevantbroadmarketbenchmarkoverthenext12months.
Underweight:Industryexpectedtounderperformtherelevantbroadmarketbenchmarkoverthenext12months.
*Ananalyst'scoverageuniverseconsistsofallcompaniescoveredbytheanalystwithintherelevantsector.
**Thebroadmarketbenchmarkisbasedontheexpectedreturnofthelocalmarketindex(e.
g.
,theS&P500intheU.
S.
)overthenext12months.
CreditSuisse'sdistributionofstockratings(andbankingclients)is:GlobalRatingsDistributionOutperform/Buy*49%(61%bankingclients)Neutral/Hold*39%(56%bankingclients)Underperform/Sell*9%(55%bankingclients)Restricted2%*ForpurposesoftheNYSEandNASDratingsdistributiondisclosurerequirements,ourstockratingsofOutperform,Neutral,andUnderperformmostcloselycorrespondtoBuy,Hold,andSell,respectively;however,themeaningsarenotthesame,asourstockratingsaredeterminedonarelativebasis.
(Pleaserefertodefinitionsabove.
)Aninvestor'sdecisiontobuyorsellasecurityshouldbebasedoninvestmentobjectives,currentholdings,andotherindividualfactors.
CreditSuisse'spolicyistoupdateresearchreportsasitdeemsappropriate,basedondevelopmentswiththesubjectcompany,thesectororthemarketthatmayhaveamaterialimpactontheresearchviewsoropinionsstatedherein.
CreditSuisse'spolicyisonlytopublishinvestmentresearchthatisimpartial,independent,clear,fairandnotmisleading.
FormoredetailpleaserefertoCreditSuisse'sPoliciesforManagingConflictsofInterestinconnectionwithInvestmentResearch:http://www.
csfb.
com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.
htmlCreditSuissedoesnotprovideanytaxadvice.
AnystatementhereinregardinganyUSfederaltaxisnotintendedorwrittentobeused,andcannotbeused,byanytaxpayerforthepurposesofavoidinganypenalties.
ImportantRegionalDisclosuresSingaporerecipientsshouldcontactaSingaporefinancialadviserforanymattersarisingfromthisresearchreport.
RestrictionsoncertainCanadiansecuritiesareindicatedbythefollowingabbreviations:NVS--Non-Votingshares;RVS--RestrictedVotingShares;SVS--SubordinateVotingShares.
IndividualsreceivingthisreportfromaCanadianinvestmentdealerthatisnotaffiliatedwithCreditSuisseshouldbeadvisedthatthisreportmaynotcontainregulatorydisclosuresthenon-affiliatedCanadianinvestmentdealerwouldberequiredtomakeifthiswereitsownreport.
ForCreditSuisseSecurities(Canada),Inc.
'spoliciesandproceduresregardingthedisseminationofequityresearch,pleasevisithttp://www.
csfb.
com/legal_terms/canada_research_policy.
shtml.
Asofthedateofthisreport,CreditSuisseactsasamarketmakerorliquidityproviderintheequitiessecuritiesthatarethesubjectofthisreport.
Principalisnotguaranteedinthecaseofequitiesbecauseequitypricesarevariable.
Commissionisthecommissionrateortheamountagreedwithacustomerwhensettingupanaccountoratanytimeafterthat.
TaiwaneseDisclosures:ReportswrittenbyTaiwan-basedanalystsonnon-TaiwanlistedcompaniesarenotconsideredrecommendationstobuyorsellsecuritiesunderTaiwanStockExchangeOperationalRegulationsGoverningSecuritiesFirmsRecommendingTradesinSecuritiestoCustomers.
Pleasefindthefullreports,includingdisclosureinformation,onCreditSuisse'sResearchandAnalyticsWebsite(http://www.
researchandanalytics.
com)ImportantCreditSuisseHOLTDisclosuresWithrespecttotheanalysisinthisreportbasedontheCreditSuisseHOLTmethodology,CreditSuissecertifiesthat(1)theviewsexpressedinthisreportaccuratelyreflecttheCreditSuisseHOLTmethodologyand(2)nopartoftheFirm'scompensationwas,is,orwillbedirectlyrelatedtothespecificviewsdisclosedinthisreport.
TheCreditSuisseHOLTmethodologydoesnotassignratingstoasecurity.
Itisananalyticaltoolthatinvolvesuseofasetofproprietaryquantitativealgorithmsandwarrantedvaluecalculations,collectivelycalledtheCreditSuisseHOLTvaluationmodel,thatareconsistentlyWednesday,12October2011AsianDaily-31of32-appliedtoallthecompaniesincludedinitsdatabase.
Third-partydata(includingconsensusearningsestimates)aresystematicallytranslatedintoanumberofdefaultvariablesandincorporatedintothealgorithmsavailableintheCreditSuisseHOLTvaluationmodel.
Thesourcefinancialstatement,pricing,andearningsdataprovidedbyoutsidedatavendorsaresubjecttoqualitycontrolandmayalsobeadjustedtomorecloselymeasuretheunderlyingeconomicsoffirmperformance.
Theseadjustmentsprovideconsistencywhenanalyzingasinglecompanyacrosstime,oranalyzingmultiplecompaniesacrossindustriesornationalborders.
ThedefaultscenariothatisproducedbytheCreditSuisseHOLTvaluationmodelestablishesthebaselinevaluationforasecurity,andauserthenmayadjustthedefaultvariablestoproducealternativescenarios,anyofwhichcouldoccur.
AdditionalinformationabouttheCreditSuisseHOLTmethodologyisavailableonrequest.
TheCreditSuisseHOLTmethodologydoesnotassignapricetargettoasecurity.
ThedefaultscenariothatisproducedbytheCreditSuisseHOLTvaluationmodelestablishesawarrantedpriceforasecurity,andasthethird-partydataareupdated,thewarrantedpricemayalsochange.
Thedefaultvariablesmayalsobeadjustedtoproducealternativewarrantedprices,anyofwhichcouldoccur.
CFROI,HOLT,HOLTfolio,HOLTSelect,ValueSearch,AggreGator,SignalFlagand"PoweredbyHOLT"aretrademarksorservicemarksorregisteredtrademarksorregisteredservicemarksofCreditSuisseoritsaffiliatesintheUnitedStatesandothercountries.
HOLTisacorporateperformanceandvaluationadvisoryserviceofCreditSuisse.
AdditionalinformationabouttheCreditSuisseHOLTmethodologyisavailableonrequest.
ImportantMSCIDisclosuresTheMSCIsourcedinformationistheexclusivepropertyofMorganStanleyCapitalInternationalInc.
(MSCI).
WithoutpriorwrittenpermissionofMSCI,thisinformationandanyotherMSCIintellectualpropertymaynotbereproduced,re-disseminatedorusedtocreateanyfinancialproducts,includinganyindices.
Thisinformationisprovidedonan"asis"basis.
Theuserassumestheentireriskofanyusemadeofthisinformation.
MSCI,itsaffiliatesandanythirdpartyinvolvedin,orrelatedto,computingorcompilingtheinformationherebyexpresslydisclaimallwarrantiesoforiginality,accuracy,completeness,merchantabilityorfitnessforaparticularpurposewithrespecttoanyofthisinformation.
Withoutlimitinganyoftheforegoing,innoeventshallMSCI,anyofitsaffiliatesoranythirdpartyinvolvedin,orrelatedto,computingorcompilingtheinformationhaveanyliabilityforanydamagesofanykind.
MSCI,MorganStanleyCapitalInternationalandtheMSCIindexesareservicesmarksofMSCIanditsaffiliates.
TheGlobalIndustryClassificationStandard(GICS)wasdevelopedbyandistheexclusivepropertyofMorganStanleyCapitalInternationalInc.
andStandard&Poor's.
GICSisaservicemarkofMSCIandS&PandhasbeenlicensedforusebyCreditSuisse.
ForCreditSuissedisclosureinformationonothercompaniesmentionedinthisreport,pleasevisitthewebsiteatwww.
credit-suisse.
com/researchdisclosuresorcall+1(877)291-2683.
Disclaimerscontinueonnextpage.
Wednesday,12October2011AsianDaily-32of32-DisclaimersThisreportisnotdirectedto,orintendedfordistributiontooruseby,anypersonorentitywhoisacitizenorresidentoforlocatedinanylocality,state,countryorotherjurisdictionwheresuchdistribution,publication,availabilityorusewouldbecontrarytolaworregulationorwhichwouldsubjectCreditSuisseAG,theSwissbank,oritssubsidiariesoritsaffiliates("CS")toanyregistrationorlicensingrequirementwithinsuchjurisdiction.
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Noneofthematerial,noritscontent,noranycopyofit,maybealteredinanyway,transmittedto,copiedordistributedtoanyotherparty,withoutthepriorexpresswrittenpermissionofCS.
Alltrademarks,servicemarksandlogosusedinthisreportaretrademarksorservicemarksorregisteredtrademarksorservicemarksofCSoritsaffiliates.
Theinformation,toolsandmaterialpresentedinthisreportareprovidedtoyouforinformationpurposesonlyandarenottobeusedorconsideredasanofferorthesolicitationofanoffertosellortobuyorsubscribeforsecuritiesorotherfinancialinstruments.
CSmaynothavetakenanystepstoensurethatthesecuritiesreferredtointhisreportaresuitableforanyparticularinvestor.
CSwillnottreatrecipientsasitscustomersbyvirtueoftheirreceivingthereport.
Theinvestmentsorservicescontainedorreferredtointhisreportmaynotbesuitableforyouanditisrecommendedthatyouconsultanindependentinvestmentadvisorifyouareindoubtaboutsuchinvestmentsorinvestmentservices.
Nothinginthisreportconstitutesinvestment,legal,accountingortaxadviceorarepresentationthatanyinvestmentorstrategyissuitableorappropriatetoyourindividualcircumstancesorotherwiseconstitutesapersonalrecommendationtoyou.
CSdoesnotofferadviceonthetaxconsequencesofinvestmentandyouareadvisedtocontactanindependenttaxadviser.
Pleasenoteinparticularthatthebasesandlevelsoftaxationmaychange.
CSbelievestheinformationandopinionsintheDisclosureAppendixofthisreportareaccurateandcomplete.
InformationandopinionspresentedintheothersectionsofthereportwereobtainedorderivedfromsourcesCSbelievesarereliable,butCSmakesnorepresentationsastotheiraccuracyorcompleteness.
Additionalinformationisavailableuponrequest.
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Tradingcallsareshorttermtradingopportunitiesbasedonmarketeventsandcatalysts,whilestockratingsreflectinvestmentrecommendationsbasedonexpectedtotalreturnovera12-monthperiodasdefinedinthedisclosuresection.
Becausetradingcallsandstockratingsreflectdifferentassumptionsandanalyticalmethods,tradingcallsmaydifferdirectionallyfromthestockrating.
Inaddition,CSmayhaveissued,andmayinthefutureissue,otherreportsthatareinconsistentwith,andreachdifferentconclusionsfrom,theinformationpresentedinthisreport.
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Thesebusinessesincludespecializedtrading,riskarbitrage,marketmaking,andotherproprietarytrading.
Pastperformanceshouldnotbetakenasanindicationorguaranteeoffutureperformance,andnorepresentationorwarranty,expressorimplied,ismaderegardingfutureperformance.
Information,opinionsandestimatescontainedinthisreportreflectajudgementatitsoriginaldateofpublicationbyCSandaresubjecttochangewithoutnotice.
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Thevalueofsecuritiesandfinancialinstrumentsissubjecttoexchangeratefluctuationthatmayhaveapositiveoradverseeffectonthepriceorincomeofsuchsecuritiesorfinancialinstruments.
InvestorsinsecuritiessuchasADR's,thevaluesofwhichareinfluencedbycurrencyvolatility,effectivelyassumethisrisk.
Structuredsecuritiesarecomplexinstruments,typicallyinvolveahighdegreeofriskandareintendedforsaleonlytosophisticatedinvestorswhoarecapableofunderstandingandassumingtherisksinvolved.
Themarketvalueofanystructuredsecuritymaybeaffectedbychangesineconomic,financialandpoliticalfactors(including,butnotlimitedto,spotandforwardinterestandexchangerates),timetomaturity,marketconditionsandvolatility,andthecreditqualityofanyissuerorreferenceissuer.
Anyinvestorinterestedinpurchasingastructuredproductshouldconducttheirowninvestigationandanalysisoftheproductandconsultwiththeirownprofessionaladvisersastotherisksinvolvedinmakingsuchapurchase.
Someinvestmentsdiscussedinthisreporthaveahighlevelofvolatility.
Highvolatilityinvestmentsmayexperiencesuddenandlargefallsintheirvaluecausinglosseswhenthatinvestmentisrealised.
Thoselossesmayequalyouroriginalinvestment.
Indeed,inthecaseofsomeinvestmentsthepotentiallossesmayexceedtheamountofinitialinvestment,insuchcircumstancesyoumayberequiredtopaymoremoneytosupportthoselosses.
Incomeyieldsfrominvestmentsmayfluctuateand,inconsequence,initialcapitalpaidtomaketheinvestmentmaybeusedaspartofthatincomeyield.
Someinvestmentsmaynotbereadilyrealisableanditmaybedifficulttosellorrealisethoseinvestments,similarlyitmayprovedifficultforyoutoobtainreliableinformationaboutthevalue,orrisks,towhichsuchaninvestmentisexposed.
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