Friday, 28 January 2011 Asian Daily (Asia Edition)img.jrjimg.cn/2011/01/20110128142852643.pdf · does and seeks to do business with companies covered in its research reports. As a

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Friday, 28 January 2011

Asian Daily (Asia Edition)EPS, TP and Rating changes EPS TP (% change) T+1 T+2 Chg Up/Dn Rating Dangdang Initiation 4 N (NA) Wing Hang Bank Initiation 7 N (NA) Grasim (7) 11 15 10 O (O) JSPL (6) 0 11 18 O (O) JSW Steel (5) 0 0 (9) U (U) Ultratech Cement (30) 3 15 (18) U (U) Bank Mandiri 0 1 0 41 O (O) Asahi Glass 2 15 27 31 O (O) Bursa Malaysia 3 (14) 1 14 O (O) MHB Initiation 24 O (NA) Hyundai Heavy 0 17 83 20 O (N) Hyundai Mipo 0 (13) 8 12 N (O) Hyundai Mobis 0 9 14 26 O (O) Hyundai Motor 0 35 65 5 N (U) Lotte Shopping 2 3 0 3 N (N) Mando Corp 0 0 21 21 O (O) Samsung Heavy 0 0 31 (4) N (N) Seoul Semiconductor (14) (10) (16) 28 O (O) S-Oil 27 31 18 18 O (O) AUO (24) (12) 0 11 N (N) Huaku 1 0 0 12 O (O) Kinsus 1 (1) 0 16 O (O) MediaTek 0 (17) 0 (14) U (U) Novatek (4) (2) (2) 12 O (O) TSMC (3) 4 5 16 O (O)

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Top of the pack ...

Asia Technology Strategy Manish Nigam (3) Semis powering ahead

China Property Sector – Maintain UW Jinsong Du (4) Property tax not the end of policies, and why should volume decline YoY

Malaysia Marine and Heavy Engineering (MMHE MK) – Initiating Coverage with O Annuar Aziz (5) New report: Building the future

Genting Singapore (GENS SP) – Maintain O Foong Wai Loke (6) New report: More good things to come

Hyundai Heavy (009540 KS) – Upgrade to O Henry Kwon (7) New report: Strong 4Q earnings; new business segment target; upgrade to OUTPERFORM

... and the whole pack Global Global Equity Strategy Andrew Garthwaite (8) Sector rotation most extreme for 10 years

Regional Asia-Pacific Financials – Maintain UW Sanjay Jain (9) New report: Hong Kong Banks - Positives are priced in Asia Technology Strategy Manish Nigam (3) Semis powering ahead

China China Property Sector – Maintain UW Jinsong Du (4) Property tax not the end of policies, and why should volume decline YoY CNOOC (883 HK) – Maintain U Prashant Gokhale (10) 2011 strategy presentation: Production guidance disappoints E-commerce China Dangdang Inc. (DANG US) – Initiating Coverage with N Wallace Cheung (11) New report: The 'Amazon' model with local wisdom

Hong Kong Wing Hang Bank (302 HK) – Initiating Coverage with N Franco Lam (12) Approaching M&A valuation

India Grasim (GRASIM IN) – Maintain O Anand Agarwal, CFA (13) New Report: 3Q11 - VSF continues to provide good support, margins contract JSPL (JSP IN) – Maintain O Neelkanth Mishra (14) Significant jump in steel profits in FY12 JSW Steel (JSTL IN) – Maintain U Neelkanth Mishra (15) Heavy capex likely to pressure gearing and erode fair value in the near term Ultratech Cement (UTCEM IN) – Maintain U Anand Agarwal, CFA (16) 3Q FY11: Sequential improvement as expected, but cost pressures remain

Indonesia

Bank Mandiri (BMRI IJ) – Maintain O Focus list stock Teddy Oetomo (17) Rights issue, Garuda IPO to boost net income Kalbe Farma (KLBF IJ) – Maintain N Ella Nusantoro (18) Acting as standby buyer for subsidiary's rights issue, with total proceeds of Rp300 bn

Japan Asahi Glass (5201 JP) – Maintain O Shinya Yamada (19) Structural improvement in LCD glass supply-demand not yet priced in


Asian Daily

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Asian indices - performance (% change) Latest 1D 1W 3M YTD ASX300 4,819 0.0 (0.6) 2.8 1.2 CSEALL 7,211 (0.4) 0.3 9.7 8.7 Hang Seng 23,780 (0.3) (0.9) 2.5 3.2 H-SHARE 12,650 0.0 (1.5) (5.1) (0.3) JCI 3,515 0.4 1.8 (3.4) (5.1) KLSE 1,527 0.5 (2.5) 1.8 0.5 KOSPI 2,115 0.2 0.4 10.9 3.1 KSE100 12,477 (0.1) 0.5 16.6 3.8 NIFTY 5,604 (1.5) (1.5) (7.9) (8.6) PCOMP 3,990 1.5 (0.4) (6.3) (5.0) RED CHIP 4,219 0.2 (0.2) 0.5 1.2 SET 987 0.9 (3.5) (0.1) (4.5) STI 3,220 0.0 0.4 2.9 0.9 TWSE 9,102 0.5 0.9 9.0 1.4 VNINDEX 503 0.3 (1.8) 11.7 3.7

Thomson Financial Datastream Asian currencies (vs US$) (% change) Latest 1D 1W 3M YTD A$ 1.0 (0.3) 0.5 1.5 (2.5) Bt 30.9 0.2 (0.5) (2.9) (2.8) D 19,498.0 0.0 0.0 0.0 0.0 NT$ 29.0 0.1 0.1 5.6 0.3 P 44.1 (0.4) 0.7 (2.3) (1.2) PRs 85.8 0.0 (0.4) 0.0 (0.1) Rp 9,026.0 (0.1) 0.4 (1.0) (0.5) Rs 45.5 (0.2) 0.3 (2.2) (1.8) S$ 1.3 (0.1) 0.4 1.5 0.2 SLRs 111.1 0.0 (0.3) 0.5 (0.1) W 1,112.2 (0.3) 0.9 1.1 0.8

Thomson Financial Datastream Global indices (% change) Latest 1D 1W 3M YTD DJIA 11,995 0.1 1.5 7.8 3.6 S&P 500 1,299 0.2 1.5 9.8 3.3 NASDAQ 2,756 0.6 1.9 10.1 3.9 SOX 452 2.0 3.9 21.9 9.7 EU-STOX 2,681 0.1 1.1 6.0 3.7 FTSE 5,965 (0.1) 1.7 5.7 1.1 DAX 7,156 0.4 1.9 8.9 3.5 CAC-40 4,060 0.3 2.4 6.4 6.7 NIKKEI 10,479 0.7 0.4 11.9 2.4 TOPIX 930 0.8 0.3 14.2 3.4 10 YR LB 3.39 (0.7) (1.7) 24.6 2.9 2 YR LB 0.59 (5.0) (5.0) 43.3 0.0 US$:E 1.37 (0.1) 1.4 (0.9) 2.6 US$:Y 82.8 (0.2) 0.0 (1.9) (1.8) BRENT 97.2 (0.5) 1.5 17.4 3.1 GOLD 1,317.8 (2.1) (2.1) (0.6) (7.2) VIX 16.5 (1.0) (8.4) (20.5) (7.2)

Thomson Financial Datastream

MSCI Asian indices – valuation & perf. EPS grth. P/E (x) Performance MSCI Index 10E 11E 10E 11E 1D 1M YTD Asia F X Japan 39 13 14.9 13.3 0.0 2.6 0.5 Asia Pac F X J. 31 15 15.4 13.4 0.0 1.8 0.0 Australia 6 20 13.5 12.0 (0.1) (0.4) (1.6) China 24 19 14.4 12.1 (0.1) 2.0 0.7 Hong Kong 25 6 19.5 18.3 (0.2) 4.2 3.6 India 24 22 18.0 14.7 (1.4) (7.3) (10.6) Indonesia 20 21 15.9 13.2 0.1 (4.1) (6.1) Korea 56 6 11.2 10.6 0.2 8.0 5.1 Malaysia 28 15 17.7 15.4 0.6 2.4 1.7 Pakistan 27 14 9.3 8.2 (0.1) 5.8 3.9 Philippines 23 12 16.4 14.6 1.6 (4.1) (6.4) Singapore 21 11 15.9 14.3 (0.1) 4.2 1.4 Sri Lanka 11 109 27.1 21.5 0.4 (0.2) 0.3 Taiwan 93 11 15.4 13.8 0.8 5.0 2.6 Thailand 19 18 14.1 11.9 1.1 (4.5) (6.3)

* IBES estimates

Malaysia Malaysia Economics Kun Lung Wu (20) Rate hikes still not imminent; other measures considered Bursa Malaysia (BURSA MK) – Maintain O Yvonne Voon (21) New report: FY10 top line in line; Proxy to rising volumes Genting Berhad (GENT MK) – Maintain O Foong Wai Loke (22) Cheaper proxy to GENS Malaysia Marine and Heavy Engineering (MMHE MK) – Initiating Coverage with O Annuar Aziz (5) New report: Building the future

Pakistan Fauji Fertiliser (FFC PA) – Maintain N Farhan Rizvi, CFA (23) CY10 earnings up 25%YoY, but final cash payout disappoints

Singapore Genting Singapore (GENS SP) – Maintain O Foong Wai Loke (6) New report: More good things to come

South Korea GS Home Shopping (028150 KS) – Maintain O Sonia Kim (24) 4Q10 results stronger than expected, but headwinds may be ahead Hyundai Heavy (009540 KS) – Upgrade to O Henry Kwon (7) New report: Strong 4Q earnings; new business segment target; upgrade to OUTPERFORM Hyundai Mipo (010620 KS) – Downgrade to N Henry Kwon (25) 4Q earnings below expectations: downgrade to NEUTRAL Hyundai Mobis (012330 KS) – Maintain O Henry Kwon (26) 4Q earnings; raising our target price Hyundai Motor (005380 KS) – Upgrade to N Henry Kwon (27) New report: Realistically, any steep downside risks should be market risk Lotte Shopping (023530 KS) – Maintain N Sonia Kim (28) 4Q10 operations in line Mando Corp (060980 KS) – Maintain O Henry Kwon (29) 4Q10: Parent earnings directionally in line Samsung Heavy (010140 KS) – Maintain N Henry Kwon (31) 4Q earnings in line with expectations Samsung SDI (006400 KS) – Maintain U John Sung (32) 4Q10 results and FY11 guidance - no tangible catalysts in the near term Seoul Semiconductor (046890 KS) – Maintain O John Sung (33) Core 4Q10 operating performance in line S-Oil (010950 KS) – Maintain O A-Hyung Cho (30) New report: Near-term earnings visibility remains high WFH (053000 KS) – Maintain O Sokmo Yun (34) Revived share overhang risk is the least likely fallout, but ...

Taiwan AUO (2409 TT) – Maintain N Robin Cheng (35) New report: Recovery appears to be delayed Huaku (2548 TT) – Maintain O Sidney Yeh (36) Clear earnings visibility for 2011; generous dividend yield for 2011/12 Kinsus (3189 TT) – Maintain O Pauline Chen (37) 4Q10 weak margins hurt by the Piotek merger MediaTek (2454 TT) – Maintain U Randy Abrams, CFA (38) 4Q10 results preview: Cautious near term as smartphone inflection still further out Novatek (3034 TT) – Maintain O Robin Cheng (39) FX hurts 4Q margins but 2011 growth intact TSMC (2330 TT) – Maintain O Randy Abrams, CFA (40) New report: Executing on growth and profitability

Thailand PTTCH (PTTCH TB) – Maintain O Paworamon (Poom) Suvarnatemee, CFA (41) PTTCH + PTTAR – we prefer PTTCH

O=Outperform N=Neutral U=Underperform R=Restricted OW= Overweight MW=Market Weight UW=Underweight Research mailing options To make any changes to your existing research mailing details, please e-mail us directly at [email protected]

Sales Contact Hong Kong 852 2101 6218 Singapore 65 6212 3052 London 44 20 7888 4367 New York 1 212 325 5955 Boston 1 617 556 5634


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Top of the pack ... Asia Technology Strategy------------------------------------------------------------------------------------ Semis powering ahead Manish Nigam / Research Analyst / 852 2101 7067 / [email protected] Hui Min Ng / Research Analyst / 65 6212 3098 / [email protected]

● With continued switch from emerging-markets to developed market proxies, tech in Asia has continued to perform well YTD, outperforming the MSCI AxJ by 3%.

● However, performance within tech has become even more lopsided YTD than it was in 4Q10, with semis powering ahead, while the downstream/IT services performing in line with AxJ.

● On the revenue front, disappointing PC and TV chains are the negatives while stronger-than-expected smartphones and the early build for tablets are the positives. Rising local currencies, China labour costs and material prices are hurting margins.

● As a result, earnings cuts are widespread, but interestingly, three of the largest tech stocks (TSMC, HTC and Samsung) are seeing EPS upgrades, driven by the smartphone/tablet build.

● Our portfolio strategy remains the same: Buy smartphone/tablet components*, the laggard plays from the PC space that in our view transition to the new tablet environment (Lenovo, Pegatron and Wistron) and semis geared to the same theme (TSMC and ASE). Samsung qualifies for more than one of the above reasons.

Figure 1: MSCI sectors and IT subsectors YTD performance

(2.0)

1.3

(5.4)

0.2

3.5

1.20.5

2.4 2.5

(6.4)

(0.5)(2.6)

0.5

6.6

(8.0)(6.0)

(4.0)(2.0)-

2.04.0

6.08.0

Reg

ion

Ene

rgy

Mat

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ls

Indu

stria

ls

Con

s. D

isc

Con

s S

tapl

es

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lth C

are

Fina

ncia

ls

Telc

os

Util

ities IT

Sof

twar

e

Har

dwar

e

Sem

is

(%)

Source: Factset, MSCI, Credit Suisse estimates

*Component names we like are Wintek/TPK/Young Fast in the touch space (TPK for those who want the best execution and quality, Wintek for more value-conscious investors), Unimcron/Tripod/Kinsus in the PCB/substrate space and then NAND flash plays.

Figure 2 lists the top-30 MSCI weighted stocks in Korea/Taiwan/India. The key observation is that while foundries, backend, HTC and Samsung have seen upgrades, PCs, TFT and DRAM have seen downgrades. Essentially EPS changes are reflecting the end-demand situation among downstream names. However, the build for communication semis—smartphones and tablets—has offset both the negative seasonality of 4Q and 1Q as well as the weakness in PC-related chain. This has meant that foundry and back-end have seen an EPS uptick and outperformance. While we continue to hold both TSMC and ASE in our portfolio, the semi inventory build and rising TWD both pose a serious challenge to further upgrades.

Figure 2: 2011EPS %change YTD and performance of top weighted stocks in MXASJIT (semis and hardware) 2011 EPS Perf. % chg YTD YTD 12M 005930.KS Samsung Electronics 2.7 6.9 27.72330.TW TSMC 3.0 5.5 37.02317.TW Hon Hai 0.0 3.0 9.12498.TW HTC 8.1 6.0 206.12454.TW MediaTek -8.3 -3.6 -14.1000660.KS Hynix -8.2 19.5 24.62308.TW Delta -0.1 (5) 63034220.KS LG Display -4.9 2.0 6.12303.TW UMC 3.3 7 162409.TW AU Optronics -5.4 (3) (13)2353.TW Acer -2.6 (9) (1)009150.KS SEMCO -2.4 7.4 42.32311.TW ASE 1.9 8 673481.TW Chimei Innolux -5.9 (8) (17)2324.TW Compal -1.4 (1) (1)2382.TW Quanta 1.0 2 62357.TW Asustek 0.5 (5) (28)006400.KS Samsung SDI -5.3 -1.0 25.32325.TW SPIL -1.4 9 13231.TW Wistron 0.1 (1) 162347.TW Synnex 0.0 (1) 490992.HK Lenovo 0.0 (5) (9)2301.TW Lite-On Tech 0.0 0 92354.TW Foxconn Tech 7.0 2 172337.TW Macronix -2.0 11 44Source: I/B/E/S, Datastream, Factset, MSCI, Credit Suisse estimates


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China Property Sector----------------------------------------------------- Maintain UNDERWEIGHT Property tax not the end of policies, and why should volume decline YoY Jinsong Du / Research Analyst / 852 2101 6589 / [email protected] Wenhan Chen / Research Analyst / 852 2101 6407 / [email protected] Ronney Cheung / Research Analyst / 852 2101 7472 / [email protected]

● We believe the sooner-than-expected implementation of property tax in Shanghai and Chonqing, starting on 28 January 2011, should weaken market sentiment further, especially since the Ministry of Housing officials we talked to indicate that more cities may implement property tax soon.

● While many expect the property tax to signal the removal of the policy overhang, we disagree – officials told us that there should be more tightening measures, especially on credit policies.

● We expect the policies to reduce property market demand and any potential property price correction to also reduce transaction volume – in an oversupply environment, the consensus expectation of a property price correction, coupled with volume surge, is unlikely to occur in a sustainable manner, in our view. Historical evidence and experience from other property markets support Credit Suisse’ view of a YoY volume decline in 2011E.

● We maintain UNDERWEIGHT on the China property sector, and our preference for mass-market oriented, high assess-turn players remains.

Volume should decline YoY Although some developers claim mortgage tightening should not affect their sales, we still cannot understand the rational of their arguments. Even though a higher percentage of home buyers are paying 100% in cash, a larger portion of buyers still rely on mortgages – this is true for every developer. Moreover, as more and more housing investors are forced to pay 100% in cash, they lose the capability of financial leverage, which also reduces demand. We believe much slower growth for loans and M2 this year, combined with the deleveraging for home buyers, should reduce transaction volume.

We continue to believe high-end players are the most vulnerable and maintain UNDERPERFORM on COLI, CR Land and Greentown.

Figure 2: Developers’ landbank by exposure in Shanghai and Chongqing mn sqm Total GFA Shanghai Chongqing Others3383 HK Agile 33.0 2% 1% 97%2868 HK Beijing Capital Land 4.6 0% 27% 73%588 HK Beijing North Star 6.3 0% 0% 100%1224 HK CC Land 11.0 0% 73% 27%200002 CH China Vanke 40.0 7% 3% 89%688 HK COLI 34.6 4% 12% 84%2007 HK Country Garden 42.8 0% 1% 99%1109 HK CRL 24.6 3% 2% 94%3333 HK Evergrande 72.4 0% 6% 94%817 HK Franshion 1.3 50% 0% 50%0845.HK Glorious Ppty 16.9 17% 0% 83%3900 HK Greentown 22.6 2% 0% 98%2777 HK GZ R&F 24.6 1% 27% 72%754 HK Hopson 29.8 15% 0% 85%1638 HK Kaisa 18.3 1% 0% 99%1813 HK KWG 9.8 4% 0% 96%600048.SS Poly - "A" 45.1 6% 10% 84%813 HK Shimao 43.9 3% 1% 96%272 HK Shui On Land 13.0 22% 27% 51%3377 HK Sino-Ocean Land 14.5 1% 0% 99%410 HK SOHO China 1.5 5% 0% 95%337 HK SPG Land 5.3 14% 0% 86%YLLG SP Yanlord 4.2 17% 0% 83%Source: Company data, Credit Suisse estimates

Figure 1: Key summary of the property tax measures in Shanghai and Chongqing Shanghai Chongqing Implementation date 28-Jan-11 28-Jan-11 Tax on new purchases after the implementation date only Tax on both existing housing stock and new purchases after the

implementation date Tax target 1. Locals: newly purchased second home or above 1. Villas - both existing and new purchase 2. Non-local residents: first new purchase 2. *High-end residential apartments - new purchase only (Both 1 and 2 include units in both primary and secondary market.) 3. For non-Chongqing residents (i.e., those speculators with no working

status or registered companies in Chongqing) , property tax would be levied on any purchases after the first one (including both ordinary and high-end housing)

Geographical coverage The whole Shanghai city The 9 main cities of Chongqing Taxable base 70% of the property’s market value Based on the current transaction price (re-valuation may start after 3-5 yrs) Allowable deductions from taxable base calculation

60 sq m per person. (For example, a three-person household with total residential property of 200 sq m will be taxed only on the remaining 20 sq m.)

A maximum exemption on unit size of 100 sqm per household is allowed. (For example, a three-person household with total residential property of 200 sq m will be taxed on the remaining 100 sq m)

Tax rate Generally 0.6%; and 0.4% for those unit price at or within 200% of last year's average selling price in local primary market.

If the ASP is: 1. less than 3 times the city's average ASP, tax rate = 0.5%

2. between 3-4 times the city's average ASP, tax rate = 1% 3. Above 4 times the city's average ASP, tax rate = 1.2% Source: Government websites; Credit Suisse research; * In Chongqing, residential housing is defined as high end when its ASP is 100% higher than that of the city's average


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Malaysia Marine and Heavy Engineering -------Initiating Coverage with OUTPERFORM New report: Building the future EPS: ◄► TP: ◄► Annuar Aziz / Research Analyst / 603 2723 2084 / [email protected]

● Malaysia Marine & Heavy Engineering Holdings Berhad (MHB) provides engineering and construction (E&C), marine repair and conversion services for the energy sector.

● MHB will benefit from high oil prices, which spurs demand for E&C services. Petronas is pushing to develop deepwater fields in Malaysia. As the engineering arm of Petronas, we expect this to provide built-in demand for MHB’s future services.

● 1H FY11 tenderbook of RM6 bn is understated, as it excludes potential Turkmenistan contracts, the impact of the new tax incentives to boost oil and gas production and the RM20 bn earmarked for ETP2 related oil and gas projects (Jan-11). We expect MHB to secure RM12 bn in orders between FY11-FY13.

● Initiating coverage on MHB with an OUTPERFORM rating and a RM7.15 target price based on 25x FY3/12 earnings. This is a 25% premium to the Singaporean O&M stocks, which we believe is justified given its higher EPS growth and de-facto monopoly on domestic deepwater E&C projects.

● For full report click here.

About Malaysia Marine & Heavy Engineering (MHB) MHB operates two yards in Malaysia and Turkmenistan, conduction engineering and construction (E&C), and marine conversion and repairs. The E&C unit accounts for over 90% revenue. With a record of topsides fabrication, LNG repairs and FPSO conversions, MHB is now constructing its first deepwater production semi-submersible. Right place, right time MHB is well placed to take advantage of developments such as high oil prices, which spurs exploration and production (E&P) activity and increase demand for MHB’s E&C. Plus, at current levels, most large offshore E&P projects are viable, underpinning parent Petronas’ aggressive drive to develop deepwater fields in Malaysia. According to ODS-Petrodata, seven deepwater fields will be developed within five years. As the engineering arm of Petronas, we expect this ‘deepwater drive’ to provide built-in demand for MHB’s future services. MHB is

also a beneficiary of the Economic Transformation Programme (ETP), which will see RM20 bn invested in the oil and gas sector. Exciting tenderbook MHB’s 2Q DY3/12 tenderbook of RM6 bn is understated, as it excludes potential Turkmenistan contracts, the impact of government tax incentives to boost oil & gas production (Nov-10), and the RM20 bn earmarked for ETP2 related oil & gas projects (Jan-11). We expect the company to secure RM12 bn in new orders between FY11-FY13. Initiating with an OUTPERFORM rating We are initiating coverage on MHB with an OUTPERFORM rating. The RM7.15 target price (24% upside potential) is based on 25x FY3/12 earnings, which is a 25% premium to the target multiples for the Singaporean O&M stocks. In our view, the premium is justified, as MHB’s position as the engineering arm of Petronas will help drive MHB’s four-year EPS CAGR of 21% – outpacing its Singaporean peers at -3% to -4%. Moreover, during oil & gas sector booms, Malaysian plays trade at a range of 25x-55x.

Figure 1: With the largest load-out capacity, MHB has a de-facto monopoly on deepwater structure in Malaysia

40,000

20,00015,000

11,000 8,4004,000 4,000

-

10,000

20,000

30,000

40,000

50,000

MHB Kencana SimeDarby

Ramunia Oil Corp Boustead Brooke

(MT)

Source: Company data, Credit Suisse estimates

With the largest lift capacity and the sole track record for FPSO/FSO tanker conversion in Malaysia, MHB has a near monopoly on domestic deepwater E&C projects. Hence, in our view, MHB is positioned to take the lion’s share of E&C work in Malaysia.

Figure 2: MHB’s valuation matrix P/E multiples Premium to O&M

sector OP/E of 20x FY3/12 EPS (sern) Target Price (RM)

20 x 0% 0.28 5.70 22 x 10% 0.28 6.2724 x 20% 0.28 6.84 25 x 25% 0.28 7.15 Source: Company data, Credit Suisse estimates Key risk factors Key risks are (1) potentially costly changes in regulations; (2) geopolitical risks from its overseas unit; (3) cost overruns; (4) reliance on subcontractors and (5) delays in the start of projects by clients.

Price (26 Jan 11, RM) 5.76TP (Prev. TP RM) 7.15 (NA) Est. pot. % chg. to TP 2452-wk range (RM) 6.50 - 3.61Mkt cap (RM/US$ mn) 9,216.0/ 3,020.2

Bbg/RIC MMHE MK / MHEB.KL Rating (prev. rating) O (NA) [V] Shares outstanding (mn) 1,600.00 Daily trad vol - 6m avg (mn) 5.3 Daily trad val - 6m avg (US$ mn) 8.3 Free float (%) 25.5 Major shareholders MISC Berhad (66%),

Technip (8%)

Performance 1M 3M 12MAbsolute (%) 3.2 59.6 —Relative (%) (1.1) — —

Year 3-09A 3-10A 3-11E 3-12E 3-13ERevenues (RM mn) 4,021 6,147 4,667 5,713 6,493EBITDA (RM mn) 373.4 407.6 397.6 522.2 576.8Net profit (RM mn) 278.3 279.2 404.3 455.7 491.2EPS (RM) 0.17 0.17 0.25 0.28 0.31- Change from prev. EPS (%) n.a. n.a. - Consensus EPS (RM) n.a. n.a. 0.24 0.26 0.30EPS growth (%) 44.7 0.3 44.8 12.7 7.8P/E (x) 33.1 33.0 22.8 20.2 18.8Dividend yield (%) 0 0 0 0 0EV/EBITDA (x) 24.7 21.5 20.2 16.7 15.2P/B (x) 10.0 7.7 4.2 3.5 2.9ROE (%) 35.7 26.4 23.7 18.7 16.9Net debt (net cash)/equity (%) 2.3 (38.0) (52.8) (18.0) (13.6) Note 1: MHB is the marine & heavy engineering arm of Petronas. Operating out of yards in Malaysia and Turkmenistan, MHB has three core business. Note 2: Divdend yield is net.

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Genting Singapore----------------------------------------------------------- Maintain OUTPERFORM New report: More good things to come EPS: ◄► TP: ◄► Foong Wai Loke / Research Analyst / 603 2723 2082 / [email protected]

● Genting Singapore (GENS) provides high beta and liquid exposure to Singapore tourism. We believe the following will be positive for GENS: 1) strong tourist arrivals (we project +16% YoY for 2011), 2) positive GDP growth for Singapore and other Asian economies for 2011E-12E and 3) an active stock market.

● Anecdotal evidence suggests a happy holiday season for GENS. The resort was packed, with hotels at full house and theme park tickets sold out for Nov-Dec. However, there is no visibility as to how its VIP business performed and this is ultimately a crucial swing factor for 4Q10 earnings.

● Key catalysts include LVS results on 3 February, GENS results in late Feb, new hotels and attractions in 2011-12 and the potential licensing of junkets. FY11 street EBITDA estimates have been flat since November 2010, but GENS has fallen 8% since then.

● We continue to rate GENS an OUTPERFORM. Taking 2010-12E EBITDA CAGR (%) into account, GENS is relatively cheap versus its global peers.

● For the full version of this note click here.

Tourism play We like Genting Singapore as a high beta and liquid proxy to Singapore tourism. We expect GENS to benefit from:

● rising tourist arrivals to Singapore, we expect 16% YoY growth for 2011.

● positive GDP growth for Singapore and neighbouring Asian economies for 2011-12E, ranging from 4-9% YoY.

● a hot stock market could be beneficial for VIP casino revenues. ● strong CPO prices currently will likely be positive for spending by

gamblers from Johor. Historically, the Malaysian casino has benefitted during CPO price upswings.

Key catalysts ahead include:

● LVS 4Q10 results due on 3 February. ● GENS 4Q10 results due late February. 4Q is traditionally strong

due to seasonality ● 1Q11 should also be seasonally strong due to the Chinese New

Year festivities, which is a traditional peak season ● GENS will launch new hotels and attractions in 2011-12. ● The potential licensing of junkets could provide upside to gaming

revenues (albeit with thinner margins). A happy holiday season? Anecdotal evidence suggests that Genting Singapore (GENS) enjoyed a happy holiday season, bolstered by school holidays in the region. The resort was packed, with hotels running at maximum capacity and theme park tickets sold out for November-December. However, there is no visibility as to how its VIP business performed and this is ultimately a crucial swing factor for 4Q10 earnings. 2011 street estimates flat since November 2010 The company’s share price is 8% below mid-November levels (just prior to 3Q10 results) even though FY11 street estimates have been flat since then. There remains a wide range for street 2011 EBITDA; we are 8.5% above the street average but 14% below the street maximum. Low P/E(x) with high EBITDA CAGR 2010-12E(%) Figure 1: Global casino P/E(x)-EBITDA CAGR 2010-12E (%)

0%

10%

20%

30%

40%

50%

60%

70%

0 5 10 15 20 25 30 35 40 45 50

PE (x)

EBIT

DA C

AGR

2010

-12E

(%)

Wy nn Resorts

LVS

Sands China

Wy nn Macau

Galax y

Melco

GENS

Crow n

SJMGENTGENMRank

Kangw on

Low P/E, High EBITDA CAGR

High P/E, High EBITDA CAGR

Source: Credit Suisse estimates

We continue to rate GENS an OUTPERFORM. Taking 2010-12E EBITDA CAGR (%) into account, GENS is relatively cheap versus its global peers. Our target price gives 28% potential upside from the current levels.

Alternatively, its parent, Genting Berhad, offers a cheaper exposure to GENS. The differential between the current market value for GENT and its RNAV implies that GENT gives investors exposure to GENS at a 20% discount to the current market price.

Price (26 Jan 11 , S$) 2.07TP (Prev. TP S$) 2.65 (2.65) Est. pot. % chg. to TP 2852-wk range (S$) 2.35 - 0.84Mkt cap (S$/US$ bn) 25.2/ 19.7

Bbg/RIC GENS SP / GENS.SI Rating (prev. rating) O (O) [V] Shares outstanding (mn) 12,171.56 Daily trad vol - 6m avg (mn) 130.0 Daily trad val - 6m avg (US$ mn) 182.1 Free float (%) — Major shareholders Genting Bhd (54.3%)

Performance 1M 3M 12MAbsolute (%) (1.4) (6.8) 88.2Relative (%) (3.3) (8.4) 60.1

Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (S$ mn) 644 491 3,216 4,041 4,350EBITDA (S$ mn) 13 (55) 1,319 1,895 2,040Net profit (S$ mn) (125) (278) 183 1,269 1,395EPS (S$) (0.01) (0.02) 0.02 0.10 0.11- Change from prev. EPS (%) n.a. n.a. 0 0 0- Consensus EPS (S$) n.a. n.a. 0.07 0.10 0.11EPS growth (%) n.a. n.a. n.a. 592.5 9.9P/E (x) NM NM 137.4 19.8 18.0Dividend yield (%) 0 0 0 0 0EV/EBITDA (x) 1,915.5 (481.2) 18.2 12.3 10.8P/B (x) 9.2 6.1 4.9 3.9 3.2ROE (%) (4.1) (8.1) 3.9 21.8 19.5Net debt (net cash)/equity (%) 14.5 28.6 (24.0) (28.2) (40.9) Note1:Ord/ADR=50.0000.Note2:Genting Singapore owns the Sentosa integrated casino resort in Singapore. It also owns Stanley Leisure, the largest casino operator in the UK. Genting Singapore is a subsidiary of Genting Berhad in Malaysia..

http://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=868567081&serialid=%2fSFe45QO5zDlvbPJhimNcZoNMIry54Md2rPHyTDia0s%3d


Asian Daily

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Hyundai Heavy -------------------------------------------------------------Upgrade to OUTPERFORM New report: Strong 4Q earnings; new business segment target; upgrade to OUTPERFORM EPS: ▲ TP: ▲ Henry Kwon / Research Analyst / 822 3707 3732 / [email protected] Seungwoo Hong / Research Analyst / 822 3707 3795 / [email protected]

● 4Q10 operating margin improved to 15.3% from 15.0% in 3Q10, driven by strong performance of the shipbuilding, offshore and plant divisions.

● The company released its new revenue guidance, incorporating for the first time its new green energy segment revenue target for 2011 of W1.2 tn, which was not previously incorporated into our earnings forecast.

● We raise our revenue forecast by 6.5% and 12.2% for 2011 and 2012, respectively, adding the new segment and stronger than previously assumed new order outlook for existing segments. We raise 2011E and 2012E EPS by 17.0% and 24.1%, respectively.

● We believe consensus is underestimating the earnings potential of the company for 2011-12. We raise our target price for HHI to W600,000 based on our upward earnings revision for 2011-12 and 2011E target P/B of 2.7x (1.6x previously). Based on 19.8% potential upside, we believe it is still not late for entry, and upgrade our rating on HHI to an OUTPERFORM from Neutral.

Strong 4Q results 4Q10 operating margin improved to 15.3% from 15.0% in 3Q10, driven by strong performance of the shipbuilding, off-shore and plant divisions. Green energy segment to generate revenue in 2011 The company released its new revenue guidance, incorporating for the first time its new green energy segment revenue target for 2011 of W1.2 tn. This was not previously incorporated into our earnings forecast.

Figure 1: HHI: Parent new order and backlog trend (W bn) 1Q10 2Q10 3Q10 4Q10 QoQ YoYRevenue 5,306 5,335 5,334 6,440 20.7% 20.8% Shipbuilding 1,938 1,882 1,818 2,222 22.2% 1.5% Marine structures 654 816 917 1,026 11.8% 41.5% Construction equipment 533 637 560 544 -2.9% 67.3% Engine machinery 597 656 576 1,006 74.7% 43.8% Power equipment 773 802 714 953 33.4% 28.9% Plant 779 507 710 648 -8.8% 5.0% Other 32 36 38 42 9.3% 16.9% Operating profit 881 771 799 983 23.1% 45.7% Shipbuilding 343 287 246 Marine structures 101 150 221 Construction equipment 30 60 65 Engine machinery 170 177 147 Power equipment 154 135 113 Plant 146 31 72 Other -63 -70 -64 Net profit 926 911 863 1,061 22.9% 47.1% OP margin 16.6% 14.4% 15.0% 15.3% Shipbuilding 17.7% 15.2% 13.5% Marine structures 15.5% 18.4% 24.1% Construction Equipment 5.6% 9.4% 11.5% Engine machinery 28.4% 27.0% 25.6% Power equipment 19.9% 16.9% 15.8% Plant 18.8% 6.2% 10.2% Net margin 17.5% 17.1% 16.2% 16.5%Source: Company data Raise earnings forecast We raise our revenue forecast by 6.5% and 12.2% for 2011 and 2012, respectively, adding the new segment and stronger than previously assumed new order outlook for existing segments. We raise 2011E and 2012E EPS by 17.0% and 24.1%, respectively. Valuation We continue to believe that consensus is underestimating the earnings potential of the company for 2011 and 2012. Our P/B versus ROE analysis suggests a fair value for 2011E of W600,000 at a target P/B of 2.7x. Based on 19.8% potential upside, we believe it is still not late for entry, and upgrade our rating on HHI to an OUTPERFORM. As of close of business on 26 January 2011, Credit Suisse Securities (Europe) Limited, Seoul Branch performs the role of liquidity provider on the warrants of which underlying asset is HHI and hold 22,394,490 of warrants concerned. These may be covered warrants that constitute part of a hedged position.

Price (26 Jan 11 , W) 501,000.00TP (Prev. TP W) 600,000 (327,000) Est. pot. % chg. to TP 2052-wk range (W) 504000 - 187000Mkt cap (W/US$ bn) 38,076.0/ 34.1

Bbg/RIC 009540 KS / 009540.KS Rating (prev. rating) O (N) [V] Shares outstanding (mn) 76.00 Daily trad vol - 6m avg (mn) 0.3 Daily trad val - 6m avg (US$ mn) 95.2 Free float (%) 49.4 Major shareholders Chung, MJ and

related parties: 39.5%

Performance 1M 3M 12MAbsolute (%) 9.7 35.4 148.0Relative (%) 5.2 23.1 92.4

Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (W bn) 19,957 21,142 21,311 26,533 25,512EBITDA (W bn) 2,597 2,668 3,705 4,347 4,080Net profit (W bn) 2,257 2,146 3,289 3,846 3,603EPS (W) 29,693 28,243 43,274 50,600 47,410- Change from prev. EPS (%) n.a. n.a. 0 17 24- Consensus EPS (W) n.a. n.a. 47,299 46,852 45,355EPS growth (%) 30.0 (4.9) 53.2 16.9 (6.3)P/E (x) 16.9 17.7 11.6 9.9 10.6Dividend yield (%) 1.5 1.5 1.5 1.5 1.5EV/EBITDA (x) 14.4 14.4 10.9 9.1 9.5P/B (x) 6.8 3.9 3.0 2.3 1.9ROE (%) 40.7 27.9 29.0 25.9 19.7Net debt (net cash)/equity (%) (11.9) 2.6 18.1 8.4 2.7 Note1:Hyundai Heavy Industries Co., Ltd. engineers and builds ships for commercial and military purposes. The company manufactures oil tankers, cargo and passenger vessels and warships..


Asian Daily

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Global Global Equity Strategy ---------------------------------------------------------------------------------------- Sector rotation most extreme for 10 years Andrew Garthwaite / Research Analyst / 44 20 7883 6477 / [email protected]

● January sector rotation in Europe is the most extreme since 2001. 69% of sectors reversed their performance of the prior year. The most notable switch is from mining to banks. Construction and pharma underperformed in both periods.

● We identify the following factors behind this rotation, but believe they may not be sustained throughout 2011: 1) The fall in peripheral European sovereign CDS spreads; 2) Overheating fears in emerging markets; 3) Even higher food and oil prices; 4) The momentum style became very overbought.

● We therefore think a lot of January’s sector rotation could reverse and would highlight Outperform-rated companies that beat the market in Q4, but have underperformed YTD, are cheap on HOLT® with a FCF yield above 5% - BMW, Rio, Meggitt and Compass.

● Sectors that should rotate to be winners again: UK REITs and indirect GEM consumer plays (Swatch, ABInbev). Sectors that have been unaffected by rotation and have continued to outperform include software and media, which we like as plays on corporate spending (SAP, WPP).

Figure 1: 69% of European sectors reversed their 2010 performance inJanuary

Source: Thomson Reuters, Credit Suisse research Sector rotation most extreme in 10 years One of the features of the equity market so far this year has been some marked sector rotation. In particular, the strong outperformance of cyclicals versus financials, that has dominated the market since the September last year, has reversed sharply, with the price relative of mining relative to banks peaking on 31st December and falling 14%. Sectors with exposure to corporate spending – software, media and premium autos (just) –have outperformed in both 2010 and January 2011 as well as semis (where 55% of demand is from corporates) and paper. Construction and pharma are the only sectors to have significantly underperformed in both periods. Biggest January sector rotation since 2001 69% of sectors have seen their 2010 performance reverse compared with an average of 47%. This is the most extreme since 2001- where there was a sharp bounce in tech following the ‘tech wreck’ of 2000. What have been the drivers of rotation? 1) A rally in financials as sovereign CDS spreads fell More positive news on peripheral European has seen a relief rally in banks. We note that three out of the top four performing European

banks so far this year have been Spanish. Banks’ relative performance has clearly been driven by the sharp improvement in sovereign CDS spreads as investors expect the size and scope of the EFSF to be expanded. 2) Overheating concerns in emerging markets The market is clearly nervous about the threat of tightening in China. As we outline in 11 surprises for 2011 (19 January, 2011), we are more sanguine than most clients we speak to and do not view the rise in inflation as driven by supply side constraints – wage growth is in line with average (at 16%), suppliers delivery times are not extreme and companies do not report difficulties in hiring skilled labour. We note that the price component of China PMI is still consistent with core inflation staying within its 5-year range and export prices in both dollar and RMB terms are not yet rising (suggesting that wage growth and productivity are offsetting most of the rise in margins). Only Brazil and India appear to be obviously overheating. We assess overheating risk by looking at the output gap versus inflation and the output gap versus the gap between nominal GDP growth and short-term interest rates. 3) The rise in commodity, especially oil and food prices, undermining cyclical margins We note that beverages and food producers have underperformed YTD, while they marginally outperformed in Q4 2010. Clearly, rising commodity prices has been an issue for those sectors that have a high proportion of costs being commodity related and do not have pricing power. 4) Higher bond yields are benefiting the insurance sector As we outlined in our note, Rising bond yields: how much of a threat? (7 January 2011), life insurance companies are one of the main beneficiaries of rising bond yields as they have longer duration liabilities than assets, with our insurance team estimating that assets have an average duration which is about ½ to 1 year shorter. 5) Momentum as a style was clearly overbought We noted last December (2011 Outlook - Sectors, themes and styles, 17 December 2010) that our price momentum style had become 2 stdev overbought. This has now corrected to be in line with its 6-month moving average. Can these drivers persist? We think of the five factors that we believe explain the sector rotation, four have largely played out (the improvement in European CDS spreads, the rise in bond yields, the correction in momentum and the rise in oil and food prices) and the last macro risk (overheating in emerging markets) is exaggerated. Consequently, we think there will be some reversion back to the trends of Q4. (This is an extract from Andrew Garthwaite’s Sector rotation most extreme for 10 years report, published on 27 January 2011. For details, please see the CS Research & Analytics website).


Asian Daily

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Regional Asia-Pacific Financials ---------------------------------------------------- Maintain UNDERWEIGHT New report: Hong Kong Banks - Positives are priced in Sanjay Jain / Research Analyst / 65 6212 3017 / [email protected] Anand Swaminathan / Research Analyst / 65 6212 3012 / [email protected]

● Three positives: 1) Strong loan growth on the back of China – Hong Kong became the strongest loan growth market in 2010 in Asia. 2011E loan growth may surprise on the upside; 2) NIMs are finally stabilising after two years of squeeze, hence the incremental loan growth will directly lead to earnings; and 3) Wealth management sales and fee income should advance nicely as well, given negative real interest rates, firm trading volumes in the Hong Kong stock market, lending related fee, etc.

● Three negatives: 1) Valuations are stretched – At 16x, HK banks’ 2011E P/E is the second costliest among Asian banks. In Sakthi’s P/B minus ROE relative model, HK banks are trading at a 50% premium to NJA banks (5-year average 28%); 2) Funding issues in some banks, as loan growth was running far head of deposit growth; 3) HIBOR drag is likely to continue for quite a while.

● We maintain our UNDERWEIGHT stance on Hong Kong in the Asian financials context, but shift to HSB from BOC-HK following HSB’s massive underperformance in 2010: Our HK banks analyst Franco Lam also likes the smaller banks based on the M&A angle but timing is uncertain.

Figure 1: Asia – banking system loans and deposits 2010 YTD (%)

18.7 19.0

4.6 5.0

18.7

6.6

11.8 13.2

5.4

13.417.1

4.1

13.6

3.46.5

10.57.3

0.4

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18.6

0

5

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30

CN IN KR TW ID TH MY SG HK PH

Loans 2010 YTD Deposits 2010 YTD

Source: CEIC (Data as of November 2010). Positive 1: Strong loan growth on the back of China Hong Kong banks reported the strongest loan growth in Asia, a feat not achieved in a long time thanks in large part to China corporates. Positive 2: Net interest margins stabilising NIMs show a strong correlation with HIBOR, and are stabilising at 1.3% levels for the HK banking system (according to data from HKMA).

Figure 2: 3-month HIBOR versus HK banks NIM (%)

0.0

1.0

2.03.0

4.0

5.0

6.0

7.0

Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-101.2

1.4

1.6

1.8

2.0

2.2HIBOR 3-month HK Banks NIM (RHS)

Source: CEIC

Positive 3: Wealth management sales and fee income Stock market turnover boosts brokerage income, which is a significant component of fee income for BOC-HK and HSB. The RMB inflows benefit BOCHK, which charges 12.5 bp for the clearing function. Negative 1: Valuations are pricing in the positives Figure 3: Asian banks MSCI 12-month P/E (x)

19.615.9 15.7 15.0 13.7 13.5 12.8 11.5 11.2

9.4 8.4

0

5

10

15

20

25

IN HK TW PH MY ID SG AU TH CN KR

Source: Factset

Figure 4: Asian banks—P/B relative less ROE relative premium/discountto NJA banks (%)

53 50

33 30

12 9 6

-3 -3-11

-23 -26-40

-20

0

20

40

60

IN-P HK TW ID MY SG PH AU TH KR CN IN-G

(%)

Source: Credit Suisse estimates Negative 2: Funding issues in some banks The loan-deposit ratio went up sharply in most Hong Kong banks in 2010. Repeating such strong loan growth without corresponding HKD/USD deposit growth (excluding RMB deposits which mostly end up with the central bank) may constrain loan growth in some banks. Negative 3: HIBOR drag likely to continue for quite a while Low HIBOR exerts pressure on margins and it is unlikely to change anytime soon – our economists are predicting US Fed to move rates not before 2H12. The bank that has suffered the most and is leveraged into rising rates is HSB (with BOC-HK a close second) Shift to Hang Seng Bank from BOC-HK Figure 5: Hong Kong banks – valuation snapshot 2011E Mkt cap CMP Tgt Up. P/E EPS P/B ROE26-Jan-2011 US$ bn LC LC % x %gth x %0011.HK HSB 32.0 130.2 159.0 22% 15.1 14.6 3.4 23.22388.HK BOC-HK 35.1 25.9 25.0 -3% 15.8 14.6 2.1 14.30023.HK BEA 9.3 35.8 36.0 1% 17.3 11.0 1.6 9.70302.HK WHB 4.1 106.9 114.0 7% 17.0 17.5 2.1 13.00440.HK DSF 2.1 56.1 68.0 21% 12.7 25.2 1.3 10.22356.HK DSBG 2.2 14.2 16.5 17% 13.2 11.9 1.3 10.5Source: Credit Suisse estimates


Asian Daily

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China CNOOC ---------------------------------------------------------------------- Maintain UNDERPERFORM 2011 strategy presentation: Production guidance disappoints EPS: ◄► TP: ◄► Prashant Gokhale / Research Analyst / 852 2101 6944 / [email protected] Horace Tse / Research Analyst / 852 2101 7379 / [email protected]

● CNOOC’s volume guidance for 2011 was disappointing – it failed to meet our estimates even including the additional volumes from Bridas. The production target (ex-Bridas top up) implies 2-5% YoY growth, and a decline over 4Q10 production.

● This reinforces our view outlined in our recent note, where we had highlighted the likelihood of CNOOC’s Offshore China oil production declining sequentially in 2011, and falling YoY in 2012. CNOOC’s Offshore China oil reserve life is now 6-7 years. Growth will have to come from Offshore China gas and overseas oil.

● This headline growth also masks the underling margin pressure. Offshore China gas and overseas oil is 30-70% less profitable on a post-tax EBIT/bbl basis.

● CNOOC’s recent 3Q10 financials also highlighted the rising cost concerns that we have voiced in the past. Slower growth and rising costs are a potent combination for margin pressure. CNOOC implies a long-term oil price of US$110/bbl. We maintain our UNDERPERFORM rating with a target price of HK$14.0.

2011 guidance reinforces our view that Offshore China oil will decline this year CNOOC’s production guidance at its annual strategy presentation targets 355-365 mmboe for 2011, growth of 8-12%. On the face of it, this looks healthy. However, this includes the additional stake purchased in Bridas (30%) which is booked from 2Q11 onwards. Stripping this out, the like-for-like growth is only 2-5% YoY.

This would imply that CNOOC’s ‘same store’ volumes would decline over the implied 4Q10 number. This reinforces our concerns outlined in our report CNOOC: Down the Profitability Ladder published in October 2010, where we had suggested that Offshore China oil – the most profitable barrel in CNOOC’s production mix – would decline sequentially in 2011.

What is also of interest to us is the thin development pipeline for 2011 – this will have a lingering impact in 2012, and is reflective of the thin exploration success of the company in 2008-09.

Figure 1: CNOOC quarterly production – disappointing 2011 guidance

400

500

600

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800

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1,000

1,100

1Q10 2Q1 0 3Q 10 Imp lied 4Q1 0 1Q11 E 2Q1 1E 3Q 11E 4 Q11E400

500

600

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1,0 00

1,1 00

O ffsh ore Ch ina Oil Offshore China Ga s Overseas Extra B ridas CNOOC guid ance

(KBD) (K BD)

Source: Company data, Credit Suisse estimates CNOOC’s 6-10% CAGR 2010-15 target maintained We believe that this 6-10% CAGR target for 2010-15 is unlikely to be met without further acquisitions. It would require CNOOC to raise its reserve replacement significantly in 2010/11 and 2012 to make a difference to production by 2015 (3-4 year lead time to production). 3Q10 financials reinforce our costs concerns The recent disclosure of 3Q10 financials (as part of the bond issuance document) suggests that the DD&A impact is larger than even what we had anticipated – 3Q10 unit DD&A was up almost 30% YoY, and up 13% over 1H10. Our analysis of opex suggests that 4Q usually sees a spike in costs, and that would leave 2010 earnings vulnerable to disappointment, and further raising risks for 2011. The mix change – headline volume growth masks margin pressure With CNOOC’s core volume growth slowing, we also see Offshore China oil starting to decline sequentially in 2011, with YoY declines in 2012. Offshore China gas will help as will overseas oil. However, as we have highlighted in the past, the post-tax EBIT margins on Offshore China gas and overseas oil is 30-70% lower than Offshore China Oil. This would mean that earnings growth should be limited despite good headline volume numbers. Implies US$110/bbl LT oil price; maintain UNDERPERFORM CNOOC currently implies a long-term oil price of US$110/bbl. The gap between CNOOC’s share price and oil price performance is at its widest in history. Momentum has carried CNOOC far in 2010, as it continued to beat volume expectations. This upward momentum in earnings can only be sustained by higher and higher oil prices. Current oil prices, we believe, reflect most of the good news on seasonality, as well as bigger expectations on economic recovery in OECD. Supply continues to surprise the market on the upside. We believe that investors should sell CNOOC – we reiterate our target price of HK$14.0.

Price (26 Jan 11 ) 18.68TP (Prev. TP) 14.00 (14.00) Est. pot. % chg. to TP (25)52-wk range 19.40 - 11.02Mkt cap (bn) 834.4/ 107.2

Bbg/RIC 883 HK / 0883.HK Rating (prev. rating) U (U) Shares outstanding (mn) 44,669.20 Daily trad vol - 6m avg (mn) 58.8 Daily trad val - 6m avg (mn) 140.8 Free float (%) 35.5 Major shareholders CNOOC Group

64.4%


Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (mn) 101,734 84,260 147,888 166,633 166,479EBITDA (mn) 63,275 55,338 96,246 108,918 109,187Net profit (mn) 44,460 29,485 49,577 53,389 52,360EPS 0.99 0.66 1.11 1.19 1.17- Change from prev. EPS (%) n.a. n.a. 0 0 0- Consensus EPS n.a. n.a. 1.15 1.28 1.36EPS growth (%) 42.4 (33.8) 68.1 7.7 (1.9)P/E (x) 15.9 24.0 14.3 13.2 13.5Dividend yield (%) 2.2 2.2 2.7 2.7 2.7EV/EBITDA (x) 10.5 12.1 7.0 6.3 6.3P/B (x) 4.4 4.1 3.4 2.9 2.6ROE (%) 30.2 17.7 26.0 23.8 20.3Net debt (net cash)/equity (%)

(24.2) (19.2) (13.7) (9.9) (6.4) Note1:Ord/ADR=100.0000.Note2:CNOOC Limited is a pure E&P company with operations primarily offshore China, but with additional operations in Indonesia..


Asian Daily

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E-commerce China Dangdang Inc.-----------------------Initiating Coverage with NEUTRAL New report: The 'Amazon' model with local wisdom Wallace Cheung, CFA / Research Analyst / 852 2101 7090 / [email protected] Vivian Hao / Research Analyst / 852 2101 7039 / [email protected]

● We initiate coverage of Dangdang, a leading B2C e-commerce company in China, with a NEUTRAL rating, as it is almost fairly valued. Our probability-based target price for Dangdang is US$30.4, implying 246x 2011E diluted P/E, 2.5x PEG and 4.9x P/S in 2011.

● Well positioned in China’s fast emerging e-commerce market. Dangdang is the largest Chinese language online book retailer, and one of the biggest online malls in China offering general merchandise, with a 9% market share, according to iResearch.

● Dangdang trades at a premium to peers for the following reasons: 1) Non-GAAP EPS three-year CAGR for 2011-14 of 87.6%, faster than Amazon’s; 2) Dangdang is a household e-commerce brand; 3) Dangdang is a top-two B2C e-commerce company in China; 4) Inflation accelerating the e-commerce market growth; 5) No major e-commerce IPOs expected in 2011; and 6) large-scale e-commerce investment that implies a positive outlook.

● For the full report, click here.

A top 2 B2C e-commerce company

Dangdang is a top-two pure-play B2C E-commerce company in China with a market share of 9%, according to iResearch. Dangdang is also the largest Chinese language online book retailer, in terms of revenue, and offers 590,000-plus book titles. In 2009, Dangdang had 6 mn active customers and 1.24 mn average daily UV (unique visitors) on dangdang.com with 100,000-plus orders per day. Apart from online media and books retail, Dangdang is also one of the biggest online malls in China offering general merchandise and a marketplace for merchants. It has proven self-built fulfilment and third-party delivery capabilities with a nationwide coverage. E-book and general merchandise as key growth drivers According to iResearch, the book and media category contain the second most frequently bought products online. Dangdang is now the largest online Chinese language trade book retailer in China and offers more than 590,000 titles online, of which 25,000 titles are

exclusive and total Stock Keeping Units (SKUs) are about twice the amount available at the largest physical book store in China.

In November 2010, Dangdang announced e-book strategies and plans to launch an e-book platform in 2H11. The e-book market competition is intense, as large Internet players are eyeing the e-book market as well. Despite not being a first-mover, we expect Dangdang to be a major player in the e-book market with a 33% share given strong publisher relationship. Similar to Amazon’s cross-selling, from books to general merchandise (GM) business, Dangdang launched its GM business in 2004. Dangdang’s platform offers 43,000 plus GM SKUs, up from 14,100 in 2007. We expect Dangdang GM’s revenue (% of total revenue) to increase 17% in 2010 to 49% in 2015. Initiating coverage with a NEUTRAL rating We expect total revenue to have a three-year CAGR of 52.9% over 2010-13 mainly due to the 36.2% expected CAGR in media revenue over the same period and the 97.3% CAGR growth in general merchandise revenue. We forecast media business should account for 82% of total revenue in 2010, but will gradually decline to 62% (including e-book) in 2013.

Our primary valuation approach is discounted cash flow, with P/E the secondary valuation tool. Based on our base-case DCF value (WACC – 13.05%, Terminal growth – 4%, 10-year FCF forecast), we value DangDang at US$1,884 mn or US$24.1/ADR. Our probability-based target price is US$30.4, implying 246x 2011E diluted P/E, 2.5x PEG and 4.9x P/S in 2011. Given limited upside, we initiate coverage of Dangdang with a NEUTRAL.

Near-term catalysts include: 1) the launch of an e-book platform in 2H11; 2) improvement in Dangdang.com traffic, third party GMV measurement; 3) rising numbers of product SKUs and new product categories introduced; and 4) better 4Q10 results and 1Q11 guidance.

At 246x FY11E diluted P/E and 2.5x PEG, Dangdang trades at a premium to China e-commerce peers and Amazon for the following reasons: 1) The non-GAAP EPS three-year CAGR over 2011-14 is 87.6%, faster than Amazon’s 22%; 2) Dangdang is a household e-commerce brand with a strong brand premium; 3) Dangdang is a top-two B2C e-commerce company in China, according to iResearch; 4) The inflationary environment is accelerating the e-commerce market growth; 5) There are no major e-commerce IPOs in 2011; 6) Recent large private investment in e-commerce companies implies a positive outlook for the sector. Key risks of Dangdang are: 1) a potential share placement after the IPO lock-up; 2) inadequate Internet talent; 3) potential price competition; 4) fluctuation of raw material prices.

Price (26 Jan 11 , US$) 29.25TP (Prev. TP US$) 30.40 (NA) Est. pot. % chg. to TP 452-wk range (US$) 34.39 - 28.94Mkt cap (US$ mn) 2,278.9

Bbg/RIC DANG US / DANG.N Rating (prev. rating) N (NA) [V] Shares outstanding (mn) 77.91 Daily trad vol - 6m avg (mn) 0.7 Daily trad val - 6m avg (US$ mn) 19.8 Free float (%) — Major shareholders —

Performance 1M 3M 12MAbsolute (%) — — —Relative (%) (2.1) — —

Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (Rmb mn) 766 1,458 2,263 3,477 5,579EBITDA (Rmb mn) (87.8) 10.9 9.2 33.9 166.2Net profit (Rmb mn) (81.8) 16.9 28.9 69.1 187.9EPS (US$) (3.34) 0.38 0.09 0.12 0.32- Change from prev. EPS (%) n.a. n.a. - Consensus EPS (Rmb) n.a. n.a. 0.26 0.76 1.37EPS growth (%) n.a. n.a. (76.2) 30.9 171.8P/E (x) NM 77.9 327.1 249.9 91.9Dividend yield (%) 0 0 0 0 0EV/EBITDA (x) (173.7) 1,393.4 1,442.2 391.5 79.5P/B (x) (2.3) (4.5) 4.4 8.8 7.9ROE (%) 56.1 (6.0) 4.2 4.1 10.3Net debt (net cash)/equity (%) (86.3) (89.6) (103.6) (100.2) (93.6) Note1:Mecox Lane is China's leading online apparel and accessories platform, which offers products under its own proprietary brands, such as Euromoda and Rampage, and third-party brands, through its M18.com e-commerce website and off-line stores..

http://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=868579341&serialid=U1jS5QxOeZoQey4DIn2xI7MOPStuQNzWZpYKSBYbsSg%3d


Asian Daily

- 12 of 47 -

Hong Kong Wing Hang Bank------------------------------------------------Initiating Coverage with NEUTRAL Approaching M&A valuation Franco Lam / Research Analyst / 852 2101 7642 / [email protected]

● Initiate with NEUTRAL: We initiate coverage on WHB with a NEUTRAL rating and a target price of HK$114 (potential upside of 7%) – equivalent to 2.3x 2011E P/B and 18x P/E. Trading at 1 standard deviation above its historical mean multiples, we see limited upside as the current stock price is approaching M&A valuation.

● M&A: The bank is seen as a favourable target, given its respectable banking franchise and concentrated shareholder structure. While we believe the Fung family will eventually dispose of its stake, the timing really depends on pricing as the shareholders are in no urgency to sell unless with a premium valuation (e.g., P/B of 3x).

● Solid earnings outlook: We expect a solid recovery in earnings growth as we forecast earnings will grow 18%/14% in FY11/FY12, supported by stable NIM, resumption of fee income growth and virtually limited bad debts.

● Premium valuation likely to stay: While there is downside M&A share price support, we see limited catalysts for a further rerating of the stock in the near term.

Positive factors in the price

Wing Hang Bank is one of the better-managed medium-size Hong Kong banks, in our view. WHB was able to deliver a solid track record of ROE (average ROE in 2000-09 of 15%) without too many hiccups through lower credit costs than peers and solid earnings delivery. While 2010 earnings should continue to improve, we believe the earnings recovery (e.g., ROE) has significantly lagged the stock price appreciation.

Figure 1: WHB – historical P/B valuation

+2 SD 2.74x, 2.7

Mean 1.67x, 1.67

-2 SD 0.61x, 0.61

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

7/4/04 1/4/05 7/4/05 1/4/06 7/4/06 1/4/07 7/4/07 1/4/08 7/4/08 1/4/09 7/4/09 1/4/10 7/4/10 1/4/11

Source: Company data, Credit Suisse estimates Remains a favourable M&A target As one of the few remaining family-owned Hong Kong banks, WHB seems to have the right size for any M&A transaction. The bank has a strong retail presence in Hong Kong with decent and growing China and Macau branch networks. And what’s important, its shareholder structure is less fragmented. We believe the increasing cross-border activities between Hong Kong and China make the Chinese banks likely acquirers of the Hong Kong banks, including WHB. Chinese banks want a larger presence in overseas markets and Hong Kong is seen as the perfect match, given its image as an international financial centre under Chinese authority.

Figure 2: Shareholder structure Major shareholders StakeBank of New York 20.3%Patrick Fung's family 23.7%Source: Company data Solid earnings growth We expect stable revenue growth for WHB. We forecast earnings growth of 19% for FY11 and 14% for FY12, supported by stable NIM and a recovery in fee income through better brokerage fees, loan commission and strong lending growth in China and Macau. We expect costs to rise on the back of salary and inflationary pressure but should be manageable given the bank owns a majority of the branches (e.g., over two-third). Given the robust property prices, we do not expect asset quality deterioration in the near term. Our credit cost assumptions are currently at 5 bp and 6 bp for FY11 and FY12, respectively. Our earnings forecasts are 2% below consensus. Key risks Key upside risks include M&A that can crystallize for the bank at near historical transactions of 3x P/B. Downside risks include deterioration in its asset quality in China and Macau and M&As that do not materialise.

Price (26 Jan 11, HK$) 106.90TP (Prev. TP HK$) 114 (NA) Est. pot. % chg. to TP 752-wk range (HK$) 117.40 - 62.80Mkt cap (HK$/US$ mn) 31,566.9/ 4,053.5

Bbg/RIC 302 HK / 0302.HK Rating (prev. rating) N (NA) Shares outstanding (mn) 295.29 Daily trad vol - 6m avg (mn) 0.4 Daily trad val - 6m avg (US$ mn) 4.8 Free float (%) 56.0 Major shareholders Fung family 24%,

BNY 20%

Performance 1M 3M 12MAbsolute (%) 0.4 16.1 59.8Relative (%) (1.2) 21.8 41.7

Year 12/08A 12/09A 12/10E 12/11E 12/12EPre-prov Op profit (HK$ mn) 2,224 1,281 1,621 2,101 2,423Net profit (HK$ mn) 1,162 1,205 1,576 1,852 2,119EPS (HK$) 3.94 4.10 5.36 6.30 7.21- Change from prev. EPS (%) n.a. n.a. 4 7 4- Consensus EPS (HK$) n.a. n.a. 5.48 6.48 7.38EPS growth (%) (42.9) 4.0 30.8 17.5 14.4P/E (x) 27.1 26.1 19.9 17.0 14.8Dividend yield (%) 1.0 0.7 1.3 2.1 2.7BVPS (HK$) 36.0 42.6 46.6 50.7 55.0P/B (x) 3.0 2.5 2.3 2.1 1.9ROE (%) 11.0 10.4 12.0 13.0 13.6ROA (%) 0.9 0.9 1.0 1.1 1.2Tier 1 (%) 8.4 10.6 9.9 10.1 10.4 Note 1: Ord/ADR=2.0000. Note 2: Founded in 1937, Wing Hang Bank was listed in 1993. With more than 50 branches and representative offices throughout Hong Kong, Macau and Mainland China, the group offers a diverse range of banking services to meet the needs of its customers.


Asian Daily

- 13 of 47 -

India Grasim --------------------------------------------------------------------------- Maintain OUTPERFORM New Report: 3Q11 - VSF continues to provide good support, margins contract EPS: ▼ TP: ▲ Anand Agarwal, CFA / Research Analyst / 9122 6777 3796 / [email protected] Abhishek Bansal / Research Analyst / 91 22 6777 3968 / [email protected]

● Grasim reported 3Q FY11 standalone PAT of Rs2.8 bn, up 8% YoY and 3% lower than estimated due to lower other income and higher tax provisioning. Consolidated PAT after minorities stood at Rs5 bn, declining 14% YoY and was 2% below estimates.

● VSF revenue went up 17% YoY on the back of higher volumes and realisations. Margins, however, were down 757 bps YoY due to a sharp increase in input costs. In the cement business, revenue was up 9% YoY and margins declined 855 bps YoY.

● Grasim has overall capex plans of over Rs135 bn over the next three years. Rs34 bn is expected to be spent on the VSF and chemicals business and the rest in the cement business. Grasim incurred Rs3 bn capex in 3Q FY11, taking 9M11 total capex to Rs8.9 bn. Rs24 bn capex for FY11 as planned appears difficult to achieve.

● We update our model for the latest coal cost assumptions and expect higher VSF realisations ahead. We roll forward our model to Mar-12 and our target price for Grasim increases to Rs2,604 (from Rs2,261 earlier). We maintain our OUTPERFORM.

Results marginally lower than estimates Grasim reported 3Q FY11 standalone PAT of Rs2.8 bn, up 8% YoY and 3% lower than our estimates due to lower-than-expected other income and higher tax provisioning. Consolidated PAT after minorities stood at Rs5 bn, declining 14% YoY and was 2% below estimates. The consolidated EBITDA margin declined 812 bps YoY to 20.8% and was in line with estimates.

Figure 1: 3Q FY11 consolidated results summary (Rs mn) 3Q FY11 3Q FY10 2Q FY11 YoY (%) QoQ (%) CS est. % diff.Revenue 53,845 47,884 44,390 12 21 50,641 6Operating expense 42,644 34,035 37,179 25 15 40,022 7EBITDA 11,202 13,848 7,211 (19) 55 10,619 5EBITDA margin (%) 20.8 28.9 16.2 -812 bps 456 bps 21.0 -17 bpsPBT 8,594 11,771 5,134 (27) 67 8,755 (2)Provision for taxes 2,604 4,092 1,508 (36) 73 2,326 12PAT 5,991 7,679 3,627 (22) 65 6,429 (7)Source: Company data, Credit Suisse estimates. Strong VSF volumes and realisations, margins contract Grasim’s VSF revenue went up 17% YoY on the back of higher volumes and realisations. VSF volumes were up 4% YoY whereas realisations went up 12% YoY. Margins, however, fell 757 bps YoY due to a sharp increase in input costs. In the cement business, revenue was up 9% YoY; however, margins declined 855 bps YoY. The VSF business contributed 34% to consolidated EBITDA compared to 28% in 3Q FY10. Capex plans of over Rs135 bn over the next three years Grasim has overall capex plans of over Rs135 bn over the next three years. Rs34 bn is expected to be spent in the VSF and chemicals business and Rs56 bn is earmarked for a 9.2 mn tonne cement capacity expansion in Ultratech. Another Rs46 bn shall be spent on the modernisation and upgradation of existing cement plants. Grasim incurred Rs3 bn capex in 3Q FY11 taking 9M FY11 total capex to Rs8.9 bn. Rs24 bn capex for FY11 as planned earlier appears difficult to achieve. Raising target price to Rs2,604, revising estimates We update our model for the latest coal cost assumptions, and expect higher VSF realisations ahead. Consolidated EPS for Grasim declines by 7% for FY11, as margins are expected to be lower. We roll forward our model to Mar-12 and our target price for Grasim stands at Rs2,604 (from Rs2,261 earlier). We maintain our OUTPERFORM.

Figure 2: Summary of changes to our estimates FY11E FY12E FY13E (Rs bn) Old New % chg Old New % chg Old New % chgRevenue 202.0 201.6 (0) 208.5 218.5 5 227.3 237.8 5EBITDA 50.3 44.6 (11) 46.2 48.1 4 48.0 49.2 2EBITDA margin (%) 24.9 22.1 -275 bp 22.2 22.0 -18 bp 21.1 20.7 -43 bpPAT 22.8 21.3 (7) 21.7 24.1 11 22.7 25.0 10EPS (Rs) 249 232 (7) 237 262 11 247 272 10Source: Company data, Credit Suisse estimates

Figure 3: SOTP valuation for Grasim mn shares TP/CMP Disc. (%) Rs mn Rs/shareA.VSF and chemicals business 104,764 1,142B.Ultratech – cement valuation 165 839 30 97,069 1,059C.Listed investments 20,393 222

Idea Cellular 171 72 40 7,342 80 Aditya Birla Nuvo Ltd 3 746 40 1,498 16 L&T 4 1,670 40 3,859 42 Hindalco 55 235 40 7,694 84

D.cash/(net debt) as of Mar-10 16,530 180Grasim value (A+B+C+D) 238,755 2,604Source: Company data, Credit Suisse estimates

Price (25 Jan 11 , Rs) 2,368.60TP (Prev. TP Rs) 2,604 (2,261) Est. pot. % chg. to TP 1052-wk range (Rs) 2916.00 - 1750.80Mkt cap (Rs/US$ bn) 217.2/ 4.8

Bbg/RIC GRASIM IN / GRAS.BO Rating (prev. rating) O (O) Shares outstanding (mn) 91.70 Daily trad vol - 6m avg (mn) 0.0 Daily trad val - 6m avg (US$ mn) 0.7 Free float (%) 74.8 Major shareholders Aditya Birla Group -

25.19%

Performance 1M 3M 12MAbsolute (%) 3.6 4.8 (9.5)Relative (%) 9.7 12.2 (19.9)

Year 3/09A 3/10A 3/11E 3/12E 3/13ERevenues (Rs mn) 182,966 199,334 201,562 218,530 237,787EBITDA (Rs mn) 43,323 57,867 44,619 48,082 49,200Net profit (Rs mn) 21,867 27,595 21,318 24,050 24,958EPS (Rs) 238 301 232 262 272- Change from prev. EPS (%) n.a. n.a. (7) 11 10- Consensus EPS (Rs) n.a. n.a. 226 237 252EPS growth (%) (16.2) 26.2 (22.7) 12.8 3.8P/E (x) 9.9 7.9 10.2 9.0 8.7Dividend yield (%) 1.5 1.5 1.9 2.1 2.4EV/EBITDA (x) 5.8 3.7 4.5 3.8 3.4P/B (x) 1.9 1.7 1.5 1.3 1.2ROE (%) 21.1 22.9 15.9 15.8 14.5Net debt (net cash)/equity (%) 25.9 (1.1) (9.3) (16.0) (21.9) Note1:Grasim Industries, a flagship company of the Aditya Birla Group, ranks among India's largest private sector companies. Grasim is a diversified company with five main divisions - cement, viscose staple fibre (VSF), sponge iron, chemicals and textiles..


Asian Daily

- 14 of 47 -

JSPL ------------------------------------------------------------------------------ Maintain OUTPERFORM Significant jump in steel profits in FY12 EPS: ▼ TP: ▲ Neelkanth Mishra / Research Analyst / 9122 6777 3716 / [email protected] Riya Bhattacharya / Research Analyst / 91 22 6777 3839 / [email protected]

● Results were ahead of EBITDA estimates by 8% due to: 1) higher power sales volume (PLF 101% at Tamnar); and 2) higher pellet sales (~200kt vs CS ~80kt), offset by lower steel volume.

● Average merchant realisation was Rs4.28, a differential of Rs 1.87 over the IEX average rate for the quarter. The two units of 1,350 MW captive power are still stabilising and 3Q11 PLF was low at 35% (4Q target 70%). We have pushed out our ramp estimates.

● We raise FY12 JSPL steel price forecasts in line with our industry estimates – due to iron ore integration and 50% DRI-based production where it uses its own thermal coal, leading to a substantial increase in steel EBITDA and steel valuation.

● We also lower our FY12/13 merchant power price forecasts to Rs4.2/kWh (blended Rs3.9) from Rs5.2. JSPL expects a Rs3.75-4.5 range in FY12. For FY13 onwards we maintain Rs4. We believe these may surprise on the upside.

● Our FY11-13 estimates change by -6%/0%/-7%. Our steel business value rises and for the power business (DCF-based) falls slightly. TP raised from Rs730 to Rs810. Maintain an Outperform.

Results marginally ahead Results were ahead of estimates at the EBITDA level by 8% due to: 1) higher power volume sales (PLF 101%); 2) higher-than-expected pellet sales (~200kt versus CS’ estimate of ~80kt) partly offset by lower sales of iron ore fines and steel volumes. Average merchant realisation was Rs4.28, a differential of Rs1.87 over the IEX average rate for the quarter.

The first two units of 1,350 MW capacity are still under stabilisation and 3Q11 PLF was low at 35% but expected to improve in 4Q to 70%. Steel price hikes increase valuations, TP raised to Rs810 We raise JSPL steel price forecasts in line with our industry estimates. As JSPL is vertically integrated on iron ore and 50% of its production is DRI based, most of this increase flows down to the EBITDA level. This has a material impact on the steel business valuation – although this still remains a small part of the overall valuation.

Figure 1: 3Q11 actual results versus CS results (Rs mn) Consolidated 3Q11A 3Q11E Diff. (%) 3Q10A YoY (%)Net sales 31,740 32,276 -2 26,871 18EBITDA 15,987 14,846 8 14,511 10Net profit 9,511 8,938 6 8,744 9Power Net sales 7,966 7,373 8 9,653 -17Units produced (mn) 2,220 2,081 7 2,120 5Average ASP (Rs/KWh) 4.0 3.9 1 5.1 -21Net profit 4,871 4,404 11 5,825 -16Steel Net sales 24,098 24,903 -3 17,694 36EBITDA 9,356 8,677 8 6,189 51Net profit 5,015 4,835 4 3,256 54Source: Company data, Credit Suisse estimates.

We also lower our FY12/13 merchant price forecasts to Rs4.2 (blended Rs3.9) from Rs5.2. FY13 onwards we maintain Rs4/kWh. JSPL expects merchant prices to remain at Rs3.75-4.5 in FY12.

Our FY11 estimate falls 6%; an FY12 steel profit jump offsets the decline in power profitability and FY13 EPS falls 7% as by then we expect steel prices to come down. Near-term earnings do not impact our power valuations as much, which are DCF-based. We increase our target price from Rs730 to Rs810. Key takeaways from conference call ● Pellet sales: To continue until captive consumption increases, as

they are highly profitable. JSPL expects capacity utilisation to run at ~90%.

● Steel sales: FY12 volume guidance is ~2.5 mn tonnes. Shadeed trial production has begun, but 4Q11 contribution not significant.

● JSPL would like to sell power though six to 12-month PPAs, and still feels it is too early to get into 15-20-year PPAs.

● Coal supply: With CIL delivering only about ~60% of linkage commitments, e-auctions and coal imports to be used for the 2,400MW plant when commissioned. Captive mining in South Africa has started.

● Bolivia: Mining has started and logistics issues are being sorted out. Ramp-up should be easier once logistics are in place.

Figure 2: SOTP for JSPL Sum of the parts Value (Rs/share) Earlier NowSteel (6x EV/EBITDA for four forward quarters) 180 255 1,000 MW merchant power (DCF) 240 228 1,350 MW captive power (DCF) – costs lower 135 150 2400 MW commercial power (DCF) 176 176 Total 730 810 Source: Company data, Credit Suisse estimates.

Price (26 Jan 11 , Rs) 688.35TP (Prev. TP Rs) 810 (730) Est. pot. % chg. to TP 1852-wk range (Rs) 749.95 - 601.15Mkt cap (Rs/US$ bn) 642.9/ 14.1

Bbg/RIC JSP IN / JNSP.BO Rating (prev. rating) O (O) [V] Shares outstanding (mn) 933.94 Daily trad vol - 6m avg (mn) 0.2 Daily trad val - 6m avg (US$ mn) 2.6 Free float (%) 41.3 Major shareholders Promoters 58.75%

Performance 1M 3M 12MAbsolute (%) (1.4) (2.6) 2.7Relative (%) 4.4 3.9 (9.1)

Year 3/09A 3/10A 3/11E 3/12E 3/13ERevenues (Rs mn) 108,510 110,915 127,290 176,395 236,031EBITDA (Rs mn) 52,262 58,513 64,298 87,361 105,141Net profit (Rs mn) 30,457 35,730 38,715 51,435 56,338EPS (Rs) 32.8 38.1 41.3 54.9 60.1- Change from prev. EPS (%) n.a. n.a. (6) 0 (7)- Consensus EPS (Rs) n.a. n.a. 44.5 55.8 67.2EPS growth (%) 138.2 16.1 8.4 32.9 9.5P/E (x) 21.0 18.0 16.7 12.5 11.4Dividend yield (%) 0.1 0.2 0.2 0.2 0.2EV/EBITDA (x) 13.7 12.4 11.8 8.7 7.3P/B (x) 9.1 6.2 4.6 3.4 2.6ROE (%) 55.9 40.9 31.5 30.9 25.7Net debt (net cash)/equity (%) 100.5 79.7 78.8 60.9 51.5 Note1:JSPL produces iron through both the DRI and BF routes, and is also a large merchant power producer..


Asian Daily

- 15 of 47 -

JSW Steel ------------------------------------------------------------------- Maintain UNDERPERFORM Heavy capex likely to pressure gearing and erode fair value in the near term EPS: ▼ TP: ◄► Neelkanth Mishra / Research Analyst / 9122 6777 3716 / [email protected] Riya Bhattacharya / Research Analyst / 91 22 6777 3839 / [email protected]

● 3Q11 results were weaker than our estimates, but this was largely expected after the weak numbers reported by SAIL two weeks back. The only disappointment for us in the results was in the lower-than-expected net non-operating income – we had expected a boost from the high cash holdings of the company.

● FY12 & 13 are capex now expected to be substantially higher than our prior estimates: Rs70 bn in FY12 and Rs70-80 bn in FY13. In addition to the working capital increase due to higher volumes and higher prices, this could pressure gearing again.

● End-Dec net debt was Rs122 bn. This is likely to jump up to Rs150-160 bn by the year-end: Rs21 bn has been paid for Ispat in Jan, and Rs2 bn of capex is likely to happen this quarter. Note that higher debt erodes fair value (Rs32 bn of increase is ~Rs131/ share) till the time the capacity is close to getting commissioned.

● 4Q11 EBITAD/t likely to see a jump, as JSW is confident of taking Rs4,500/t of price increases, and costs are largely tied up. We maintain our 4Q11 EBITDA/t estimate of $175. But we continue to find consensus estimates too high. Maintain UNDERPERFORM and our target price of Rs880.

Results weaker than estimates but expectedly so 3Q11 results were weaker than our estimates, but this was largely expected after the weak numbers reported by SAIL two weeks back. The decline in the stock post results was therefore surprising. The only disappointment for us in the results was in the lower-than-expected net non-operating income – we had expected a boost from the high cash holdings of the company.

The slight EBITDA miss as expected happened because of slightly lower prices – after SAIL, this should have been anticipated. On the cost front, better-than-expected power and other costs offset higher material costs.

Figure 1: 3Q11 India operations 3Q11A 3Q11E Diff (%) 3Q10A YoY %Sales volume (kt) 1,593 1,603 -1% 1,425 12%Average ASP $/t 808 812 0% 690 17% Benchmark HRC ($/t) 715 715 0% 596 20% Premium ($/t) 93 96 -4% 94 -2%Material cost $/t 522 517 1% 392 33%Conversion cost $/t 151 156 -3% 134 12% Personnel $/T 18 18 -1% 13 35% Power $/T 42 44 -4% 38 11% Others $/T 91 94 -3% 83 9%EBITDA $/t 135 138 -2% 164 -18%Source: Company data, Credit Suisse estimates.

Figure 2: 3Q11 actual performance vs. CS estimates (Consolidated) Rs mn 3Q11A 3Q11E Diff (%) 3Q10A Y/Y %Net sales 59,648 60,002 -1% 47,960 24%Total expenditure 49,862 50,003 0% 37,440 33% Material cost 38,655 37,983 2% 27,918 38% Power and fuel 3,070 3,229 -5% 2,608 18% Staff cost 1,524 1,699 -10% 1,189 28% Other expenses 6,613 7,091 -7% 5,726 15%EBITDA 9,786 9,999 -2% 10,519 -7%EBITDA margin 16.4% 16.7% 0% 21.9% -6%Depreciation 3,906 3,897 0% 3,298 18%Other income 416 1,069 -61% 1,302 -68%Interest cost 1,968 2,032 -3% 2,583 -24%Income tax 1,501 1,571 -4% 1,723 -13%Net income 2,917 3,520 -17% 4,217 -31%EPS (Rs) 15.6 18.8 -17% 22.5 -31%Source: Company data, Credit Suisse estimates Analyst meet takeaways ● FY12 and 13 capex are now expected to be substantially higher

than our prior estimates. Management guided Rs70 bn of capex in FY12 (Rs40 bn in JSW Bengal, Rs20 bn on remaining capex in Vijaynagar 10 mtpa expansion and Rs10 bn on the Cold Rolling Mill), and Rs70-80 bn in FY13. In addition to the working capital increase due to higher volumes and higher prices, this can pressure gearing again.

● End-Dec net debt was Rs122 bn. This is likely to jump up to Rs150-160 bn by the year-end – Rs21 bn has been paid for Ispat, and Rs2 bn of capex is likely to happen this quarter.

● The Bellary Steel acquisition (0.5 mt capacity) is primarily for the 700 acres of land that come with the company. JSW repeatedly clarified that this is an asset purchase, and it is not inheriting any liabilities. There has been a counter-suit, pending which the acquisition cannot be closed. Payment has been made.

● Rs4,500/t price increase expected in 4Q11: Rs1,500 has been taken, and the company expects Rs1,500 each of increase in Feb and March as well. This should help improve 4Q EBITDA/t substantially, as costs are only expected to go up marginally QoQ: we maintain our US$175/t estimate.

● The company has reduced FY12 volume guidance to 9 mt of sales from 10 mt given last quarter. We maintain 8.1 mt.

Price (26 Jan 11 , Rs) 965.60TP (Prev. TP Rs) 880 (880) Est. pot. % chg. to TP (9)52-wk range (Rs) 1390.85 - 948.25Mkt cap (Rs/US$ bn) 215.4/ 4.7

Bbg/RIC JSTL IN / JSTL.BO Rating (prev. rating) U (U) [V] Shares outstanding (mn) 223.12 Daily trad vol - 6m avg (mn) 0.2 Daily trad val - 6m avg (US$ mn) 4.7 Free float (%) 53.5 Major shareholders Promoter 47%

Performance 1M 3M 12MAbsolute (%) (17.4) (21.3) (8.2)Relative (%) (12.6) (16.1) (18.8)

Year 3/09A 3/10A 3/11E 3/12E 3/13ERevenues (Rs mn) 158,863 188,970 232,231 324,157 334,884EBITDA (Rs mn) 29,333 40,105 42,376 56,953 70,802Net profit (Rs mn) 2,749 15,976 14,970 21,619 30,077EPS (Rs) 15 85 63 90 125- Change from prev. EPS (%) n.a. n.a. (5) 0 0- Consensus EPS (Rs) n.a. n.a. 71 117 140EPS growth (%) (84.8) 481.1 (26.3) 42.8 39.1P/E (x) 65.7 11.3 15.3 10.7 7.7Dividend yield (%) 0.3 1.1 1.4 1.3 1.3EV/EBITDA (x) 12.8 9.3 8.0 5.3 3.8P/B (x) 2.4 2.0 1.4 1.2 1.0ROE (%) 3.6 19.4 11.9 12.1 14.4Net debt (net cash)/equity (%) 198.6 167.5 75.0 43.4 23.7 Note1:JSW Steel is the third largest steel manufacturer in India..


Asian Daily

- 16 of 47 -

Ultratech Cement--------------------------------------------------------- Maintain UNDERPERFORM 3Q FY11: Sequential improvement as expected, but cost pressures remain EPS: ▼ TP: ▲ Anand Agarwal, CFA / Research Analyst / 9122 6777 3796 / [email protected] Abhishek Bansal / Research Analyst / 91 22 6777 3968 / [email protected]

● Ultratech’s 3Q FY11 PAT stood at Rs3.2 bn, 9% lower than estimates due to lower other income and a higher tax realisation. Revenue at Rs37.1 bn was 2% lower than estimates whereas EBITDA was in line. Numbers restated for cement business merger indicate that PAT was down 36% YoY.

● Total cement volumes stood at 9.8 mn tonnes (up 8% QoQ) and another 0.75 mn tonnes were sold by newly acquired company, Star Cement. The average realisation went up 8% QoQ in line with estimates. EBITDA/t improved sequentially to Rs706 in 3Q11 from Rs439/t in 2Q11 due to better realisations, but was down 6% YoY.

● We update our model to reflect rising coal costs and marginally reduce our cement volumes assumptions. We are now building in 7%/6% higher realisations for FY12/13, as we expect a portion of increased costs to be passed on.

● We roll forward our model to Mar-12 and our target price stands at Rs839 (Rs730 earlier). We maintain our UNDERPERFORM on the stock as we expect oversupply and cost pressures to continue.

3Q FY11: sequential improvement, cost pressures remain

Total cement volumes stood at 9.8 mn tonnes (up 8% QoQ) and another 0.75 mn tonnes were sold by newly acquired company, Star Cement. Average realisations went up 8% QoQ in line with estimates. Figure 1: Cement volumes summary 3Q11A 3Q10A YoY* % 2Q11A QoQ % CS ests % Diff Domestic sales (mn t) 9.14 4.34 n.a. 8.76 4 9.38 (3) Cement exports (mn t) 0.20 0.16 n.a. 0.10 100 0.18 9 Clinker sale(mn t) 0.46 0.58 n.a. 0.23 100 0.50 (8) Total (mt) 9.80 5.08 n.a. 9.09 8 10.07 (3) Avg realisation (Rs/t) 3,210 3,091 n.a. 2,978 8 3,164 1* Numbers not comparable to previous quarters due to merger of Samruddhi Cement with Ultratech, w.e.f. 1 July 2010. Source: Company data, Credit Suisse estimates

Ultratech’s 3Q FY11 PAT stood at Rs3.2 bn, 9% lower than estimates due to lower-than-expected other income and higher tax realisations.

Revenue at Rs37.1 bn was 2% lower than estimates whereas EBITDA was in line. Numbers restated for the cement business merger indicate that PAT was down 36% YoY and revenue was flat YoY. Figure 2: 3QFY11 results summary (Rs mn) 3Q11A 3Q10A YoY* % 2Q11A QoQ % CS ests % diff Net Sales 37,152 16,518 n.a. 32,147 16 37,977 (2) EBITDA 7,078 3,836 n.a. 4,078 74 7,076 0 EBITDA Margin (%) 19.1 23.2 n.a. 12.7 637 bps 18.6 42 bps PBT 4,675 2,888 n.a. 1,733 170 4,776 (2) PAT 3,190 1,960 n.a. 1,158 176 3,487 (9)* YoY comparison not meaningful Source: Company data, Credit Suisse estimates Sequential improvement in EBITDA/t EBITDA/t improved sequentially to Rs706 in 3Q11 from Rs439/t in 2Q11 due to better realisations, but was down 6% YoY. Power and fuel costs/t went up 27% YoY due to a rise in imported coal costs from US$92/t in 3Q10 to US$125/t in 3Q11. Freight costs/t rose 26% YoY. Figure 3: EBITDA (Rs/t) trend for Ultratech

692 847 807 979917

7064397927061,016

1,0721,027

842

996727920 1,352 1,127755

(500)

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Jun-06

Sep-06

Dec-06

M ar-07

Jun-07

Sep-07

Dec-07

M ar-08

Jun-08

Sep-08

Dec-08

M ar-09

Jun-09

Sep-09

Dec-09

M ar-10

Jun-10

Sep-10

Dec-10

Stocks Raw Materials Employ ees Pow er and fuel Freight Other Ex penditure EBITDA

Source: Company data, Credit Suisse estimates.

Ultratech has earmarked Rs56 bn towards a 9.2 mn tonne capacity expansion at Chattisgarh (4.8 mn tonnes) and Karnataka (4.4 mn tonnes). This new capacity is expected to be commissioned by early FY14. An additional Rs45.7 bn is expected to be spent on modernising and completing existing projects. Total planned capex stands at Rs102 bn over the next three years. Revise estimating, raising target price to Rs839 We update our model to reflect rising coal costs and marginally reduce our cement volumes assumptions. We are now building in 7%/6% higher realisations for FY12/FY13, expecting a portion of higher costs to be passed on. We roll forward our model to Mar-12 and our target price becomes Rs839 (Rs730 earlier). Maintain an UNDERPERFORM. Figure 4: Summary of changes to our estimates FY11E FY12E FY13E (Rs bn) Old New % chg Old New % chg Old New % chg Volumes (mn t) 35.5 34.3 (3) 43.4 43.0 (1) 47.1 46.7 (1) Revenue 133.5 131.0 (2) 159.5 166.8 5 174.3 181.8 4 EBITDA 32.0 24.7 (23) 33.2 32.6 (2) 34.0 32.4 (5) PAT 17.6 12.2 (30) 17.1 17.6 3 17.5 17.4 (1) EPS 64.1 44.6 (30) 62.4 64.1 3 63.9 63.4 (1)Source: Company data, Credit Suisse estimates.

Price (25 Jan 11 , Rs) 1,019.30TP (Prev. TP Rs) 839 (730) Est. pot. % chg. to TP (18)52-wk range (Rs) 1160.00 - 829.00Mkt cap (Rs/US$ bn) 279.3/ 6.1

Bbg/RIC UTCEM IN / ULTC.BO Rating (prev. rating) U (U) Shares outstanding (mn) 274.03 Daily trad vol - 6m avg (mn) 0.0 Daily trad val - 6m avg (US$ mn) 0.6 Free float (%) 35.9 Major shareholders Grasim - 54.78%

Performance 1M 3M 12MAbsolute (%) (2.9) (7.7) 12.6Relative (%) 2.8 (1.3) (0.4)

Year 3/09A 3/10A 3/11E 3/12E 3/13ERevenue (Rs mn) 63,831 70,497 131,021 166,804 181,751EBITDA (Rs mn) 17,323 19,711 24,659 32,641 32,432Net profit (Rs mn) 9,770 10,932 12,210 17,553 17,381EPS (Rs) 78.5 87.8 44.6 64.1 63.4- Change from prev. EPS (%) n.a. n.a. (30) 3 (1)- Consensus EPS (Rs) n.a. n.a. 59.1 69.6 83.3EPS growth (%) (3.0) 11.9 (49.3) 43.8 (1.0)P/E (x) 13.0 11.6 22.9 15.9 16.1Dividend yield (%) 0.5 0.6 0.6 0.6 0.7EV/EBITDA (x) 16.7 14.1 11.4 8.3 8.0P/B (x) 3.5 2.8 2.6 2.3 2.0ROE (%) 31.0 26.6 16.0 15.4 13.4Net debt (net cash)/equity (%) 27.8 (2.1) 0.6 (7.6) (14.5) Note1: UltraTech Cement Limited, a Grasim subsidiary has an annual capacity of 17 mn tonnes. It makes and markets Ordinary Portland Cement, Portland Blast Furnace Slag Cement and Portland Pozzolana Cement.


Asian Daily

- 17 of 47 -

Indonesia Bank Mandiri------------------------------------------------------------------- Maintain OUTPERFORM Rights issue, Garuda IPO to boost net income EPS: ▼ TP: ◄► Teddy Oetomo / Research Analyst / 6221 2553 7911 / [email protected]

● BMRI announced a Rp5,000/share exercise price for its one new for nine old right issues. Post the rights issue, BMRI’s free float will rise to 40%, allowing BMRI to benefit from a 5% tax rate cut.

● BMRI will also sell its 1.9 bn shares of Garuda Indonesia (not listed) in the airline’s upcoming IPO. We estimate that the sale will generate proceeds of Rp1.4 tn.

● Net net, we increase our FY11E-12E earning estimates for BMRI by 13.1-9.7% on: 1) a lower tax rate from increasing the free float to 40% on the back of upcoming rights issue, 2) earnings generated from the proceeds of the rights issue, assumed to be re-invested in SBI, and 3) proceeds from Garuda’s IPO.

● We maintain BMRI as our top pick for Indonesia’s bank sector on robust fundamentals (a low LDR and high CASA) and undemanding valuations. Adjusting for the benefits from the rights issue and Garuda divestment, we believe that BMRI is trading at the lowest 2011E P/E of all Indonesian banks under our coverage. Maintain an OUTPERFORM and a target price of Rp8,400/share.

● Bank Mandiri is a CS Focus List stock.

Right issue + Garuda IPO BMRI announced a Rp5,000/share one new for nine old rights issues. Post the rights issuance, BMRI’s free float will increase to 40%, allowing the bank to benefit from 5% tax rate cut incentives. Based on BMRI’s closing price on 27 January 2011, we estimate the TERP at RP5,855/share. BMRI will also sell its 1.9 bn shares of Garuda Indonesia (not listed) in the airline’s upcoming IPO. We estimate that the sale will generate proceeds of Rp1.4 tn.

Figure 1: BMRI right issue Current SP 5950 Rp/shareRight issue 2.338 bn shrsExercise price 5,000 Rp/shareEst. TERP 5,855 Rp/shareSource: Company data, Credit Suisse estimates.

Changing our estimates Net net, we increase our FY11E-FY12E earning estimates for BMRI by 13.1-9.7% on: 1) a lower tax rate from increasing the free float to 40% on the back of the upcoming rights issue, 2) earnings generated from proceeds of the rights issue, which are assumed to be re-invested in SBI and 3) proceeds from Garuda’s IPO.

Figure 2: Changing our estimates New est. Chg. (%) 2010 2011 2012 2010 2011 2012Net Int Inc Rp bn 19,308 22,326 26,701 - 2.1 5.2Pre-prov profit Rp bn 15,868 19,443 24,636 - 6.4 9.6Provisions Rp bn 4,033 4,279 5,651 - - -Net Income Rp bn 8,549 13,105 15,050 - 13.1 9.7EPS Rp/shr 409 562 645 (0) 1 (2)ROE % 22.5 25.3 22.2 (0) (0.4) (3.2) New est. Old est. 2010 2011 2012 2010 2011 2012Loans growth % 24.4 25.1 24.4 24.4 25.1 24.4Deposit growth % 16.1 16.2 14.6 16.1 16.2 14.6NIM % 5.1 5.1 5.2 5.1 5.1 5.1Credit costs % 2.0 1.7 1.8 2.0 1.7 1.8Prov coverage % 191.0 185.9 187.1 191.0 185.9 187.1Cum prov to loans % 1.6 1.3 1.4 1.6 1.3 1.4CAR % 14.7 18.4 16.8 14.7 13.6 12.7Source: Company data, Credit Suisse estimates Maintaining BMRI as our top pick We maintain BMRI as our top pick for Indonesia’s bank sector. We believe that BMRI continues to show robust fundamentals with a lower-than-peer LDR and higher-than-average CASA. The bank’s lower-than-peer LDR signifies ample growth capacity, while its lower-than-average CASA implies that BMRI’s earnings are more resilient to risk of higher competition for funding than peers.

In addition, we believe that valuations of BMRI remain undemanding. Adjusting our earnings for the upcoming rights issue and proceeds from the Garuda IPO, BMRI is trading at the lowest 2011E P/E of all the banks under our coverage. We maintain our target price of Rp8,400/share for BMRI, based on Gordon’s Growth model, implying 3.1x 2011E P/B, 2.7x 2012E P/B, 15.0x 2011E P/E and 13.0x 2012E P/E.

Valuation metrics Company Ticker CS Price Year P/E (x) P/B ratiing Local Target T T+1 T+2 (x)BCA BBCA IJ N 5,850 6,900 12/09 17.3 16.0 4.4BRI BBRI IJ O 5,300 6,750 12/09 14.6 11.6 3.9Bank Mandiri BMRI IJ O 5,950 8,400 12/09 14.5 10.6 3.0Bank Danamon BDMN IJ N 6,250 6,300 12/09 17.6 13.0 2.9Panin Bank PNBN IJ N 1,080 1,040 12/09 17.3 15.6 2.1Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Source: Company data, Credit Suisse estimates

Price (26 Jan 11 , Rp) 5,950.00TP (Prev. TP Rp) 8,400 (8,400) Est. pot. % chg. to TP 4152-wk range (Rp) 7250 - 4325Mkt cap (Rp/US$ bn) 123,679.6/ 13.7

Bbg/RIC BMRI IJ / BMRI.JK Rating (prev. rating) O (O) Shares outstanding (mn) 20,786.50 Daily trad vol - 6m avg (mn) 25.4 Daily trad val - 6m avg (US$ mn) 17.8 Free float (%) 33.3 Major shareholders Government of

Indonesia (66.76%)

Performance 1M 3M 12MAbsolute (%) (6.3) (16.8) 29.3Relative (%) (3.0) (13.2) (4.8)

Year 12/08A 12/09A 12/10E 12/11E 12/12EPre-prov Op profit (Rp bn) 10,505 12,430 15,868 19,443 24,636Net profit (Rp bn) 5,313 7,155 8,549 13,105 15,050EPS (Rp) 254 342 409 562 645- Change from prev. EPS (%) n.a. n.a. 0 1 (2)- Consensus EPS (Rp) n.a. n.a. 409 491 578EPS growth (%) 21.2 34.7 19.5 37.3 14.8P/E (x) 23.4 17.4 14.5 10.6 9.2Dividend yield (%) 1.8 2.0 2.4 3.3 3.8BVPS (Rp) 1,460 1,680 1,960 2,681 3,120P/B (x) 4.1 3.5 3.0 2.2 1.9ROE (%) 17.8 21.8 22.5 25.3 22.2ROA (%) 1.6 1.9 2.0 2.7 2.6Tier 1 (%) 12.8 12.4 12.3 16.2 14.9 Note1:Ord/ADR=10.0000.Note2:Bank Mandiri is formed by the merger of four state-owned banks and opertes in the commercial banking services.


Asian Daily

- 18 of 47 -

Kalbe Farma -------------------------------------------------------------------------- Maintain NEUTRAL Acting as standby buyer for subsidiary's rights issue, with total proceeds of Rp300 bn EPS: ◄► TP: ◄► Ella Nusantoro / Research Analyst / 62 21 2553 7917 / [email protected]

● Kalbe Farma’s subsidiary, Enseval Putera Megatrading (EPMT.JK), announced its plan for a rights issue with a ratio of 188-to-1,000, or 15.8% of enlarged capital, pending shareholders’ approval at a EGM on 2 March. The rights are priced at Rp700/share, with Kalbe Farma acting as a standby buyer. The total proceeds of Rp300 bn will be used for EMPT’s distribution expansion (warehouses and offices).

● Kalbe Farma owns an 83.75% stake in EPMT, and should it take up all the rights, its ownership will increase to 86.32%. Kalbe will fund EPMT’s rights using internal funds. As at the end of September 2010, Kalbe’s net cash was Rp1.4 tn, and it still has 7.69% T-Stock, currently valued at Rp2.3 tn (Rp3,000/share).

● EPMT contributes 33% of Kalbe’s revenue and 19% of gross profit in 9M10.

● We maintain our NEUTRAL rating on the stock with a target price of Rp3,200, which equates to 19.7x 2011E P/E on 21% earnings growth this year.

Figure 1: Kalbe Farma – cash versus cash YoY growth

1,292 1,4471,625

2,016

3,192

2,44231%21%24%

12%12%

-15%1,000

1,500

2,000

2,500

3,000

3,500

2007 2008 2009 2010E 2011E 2012E-20%-10%0%10%20%30%40%

Cash (Rp bn) Cash YoY Growth (RHS)

1,292 1,4471,625

2,016

3,192

2,44231%21%24%

12%12%

-15%1,000

1,500

2,000

2,500

3,000

3,500

2007 2008 2009 2010E 2011E 2012E-20%-10%0%10%20%30%40%

Cash (Rp bn) Cash YoY Growth (RHS)


Figure 2: Kalbe Farma – 9M10 revenue breakdown

Consumer health18%

Distribution & packaging

33%

Prescription pharma

26%

Nutritionals23%

Source: Company data

Figure 3: Kalbe Farma – 9M10 gross profit breakdown

Consumer health20%

Nutritionals27%

Distribution & packaging

19%

Prescription pharmaceuticals

34%

Source: Company data

Figure 4: Kalbe Farma – forward P/E band

0500

1,0001,5002,0002,5003,0003,5004,000

01/06 11/06 09/07 07/08 05/09 03/10 01/11

6x11x

10x

14x

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01/06 11/06 09/07 07/08 05/09 03/10 01/11

6x11x

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Rp/ share


Price (26 Jan 11 , Rp) 3,000.00TP (Prev. TP Rp) 3,200 (3,200) Est. pot. % chg. to TP 752-wk range (Rp) 3775 - 1390Mkt cap (Rp/US$ bn) 30,468.0/ 3.4

Bbg/RIC KLBF IJ / KLBF.JK Rating (prev. rating) N (N) [V] Shares outstanding (mn) 10,156.00 Daily trad vol - 6m avg (mn) 28.1 Daily trad val - 6m avg (US$ mn) 76,384.1 Free float (%) 47.0 Major shareholders PT Gira Sole Prima

Performance 1M 3M 12MAbsolute (%) (4.8) 13.2 115.8Relative (%) (1.4) 18.1 58.9

Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (Rp bn) 7,877 9,087 10,510 12,093 14,170EBITDA (Rp bn) 1,299 1,725 2,074 2,480 2,943Net profit (Rp bn) 707 929 1,358 1,647 1,965EPS (Rp) 70 91 134 162 194- Change from prev. EPS (%) n.a. n.a. 0 0 0- Consensus EPS (Rp) n.a. n.a. 129 154 177EPS growth (%) 0.2 31.4 46.2 21.3 19.4P/E (x) 43.1 32.8 22.4 18.5 15.5Dividend yield (%) 0.3 0.4 1.4 1.7 2.0EV/EBITDA (x) 22.8 17.0 13.8 11.4 9.3P/B (x) 8.4 7.1 5.8 4.7 3.9ROE (%) 20.2 23.4 28.4 28.1 27.5Net debt (net cash)/equity (%) (21.1) (25.5) (32.1) (32.8) (36.3) Note1:Kalbe farma produces and develops pharmaceutical products for human and animal healthcare. Through its subsidiaries, the company also operates in the pharmaceutical, health food, and packaging industries..


Asian Daily

- 19 of 47 -

Japan Asahi Glass -------------------------------------------------------------------- Maintain OUTPERFORM Structural improvement in LCD glass supply-demand not yet priced in EPS: ▲ TP: ▲ Shinya Yamada / Research Analyst / 813 4550 9910 / [email protected]

● We raise our EPS forecasts by 2-42% for 2010-12 to reflect an emerging structural improvement in the supply-demand balance for LCD glass, which we believe can reduce downward pressure on prices.

● Demand for cover glass could reach approximately 7% of LCD glass demand. We now assume a 10% drop for both FY12/11 and FY12/12 (previously 20%) in LCD glass prices.

● We see the 9 February results announcement as a potential upside catalyst for the shares.

● Our new target price of ¥1,330 suggests 30.6% potential upside; we reiterate our OUTPERFORM call.

Raise forecast on supply-demand improvement We raise our forecasts for Asahi Glass and increase our target price from ¥1,050 to ¥1,330 (30.6% potential upside). Our new estimates reflect an emerging structural improvement in the supply-demand balance for LCD glass, which we believe could reduce downward pressure on prices. Expect LCD glass prices to fall Demand for cover glass, which Asahi Glass has announced it will begin production of, is rising in line with the rapid expansion of the smartphone and tablet PC markets. With cover glass also being used in some TVs, we believe demand could reach approximately 7% of LCD glass demand. Major cover glass makers are retooling LCD glass lines for cover glass production, and we believe this could tighten supply-demand conditions for LCD glass.

This represents a structural change that we believe will reduce downward pressure on LCD glass prices; thus, we now assume a 10% drop in LCD glass price for both FY12/11 and FY12/12 (previously 20%). Our volume assumptions are meanwhile unchanged at +20% for FY12/11 and +10% for FY12/12. 4Q10 results a potential catalyst We see the 9 February results announcement as a potential upside catalyst for the share price. We expect the dividend to be increased to

¥30 in FY12/11 from ¥24 in FY12/10, which may push up the share price. Valuation Our target price continues to be based on our FY12/11 EPS forecast and the sector-average P/E for LCD-related companies, but with the latter now at 11x (previously 10x).

Figure 1: LCD-related companies’ valuations

FY10E FY11E<LCD material makers>

5201 Asahi Glass 9.7 8.45214 Nippon Electric Glass 7.6 8.66988 Nitto Denko Corp 12.8 11.6GLW Corning 9.3 10.7

<LCD panel makers>034220.KS LG Display Co Ltd. 11.6 9.92409.TW AU Opt ronics 22.1 13.93481.TW Chimei Innolux Corporation 62.6 15.6

Total average 19.4 11.3

P/E

Note: EPS figures for Nitto Denko, Corning, LG Display, AU Optronics, and Chimei Innolux are Bloomberg consensus. FY10 actual is used for Corning. Calculated based on share prices as of 26 Jan. 2011 (or 25 Jan, depending on the market). Source: Bloomberg, Credit Suisse estimates

Figure 2: AGC’s market share in expansion (shipment volume index)

0

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07/1Q 07/3Q 08/1Q 08/3Q 09/1Q 09/3Q 10/1Q 10/3Q 11/1Q E

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CS estim ate


Price (26 Jan 11 , ¥) 1,018.00TP (Prev. TP ¥) 1,330 (1,050) Est. pot. % chg. to TP 3152-wk range (¥) 1129 - 773Mkt cap (¥/US$ bn) 1,188.6/ 14.4

Bbg/RIC 5201 JP / 5201.T Rating (prev. rating) O (O) Shares outstanding (mn) 1,167.60 Daily trad vol - 6m avg (mn) 6.3 Daily trad val - 6m avg (US$ mn) 68.0 Free float (%) 12.3 Major shareholders Meiji Life Insurance

Co


Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (¥ bn) 1,444 1,148 1,268 1,341 1,391EBITDA (¥ bn) 289.3 223.4 338.0 366.0 363.0Net profit (¥ bn) 39.2 20.0 123.0 141.0 139.0EPS (¥) 34 17 105 121 119- Change from prev. EPS (%) n.a. n.a. 2 15 42- Consensus EPS (¥) n.a. n.a. 103 100 0EPS growth (%) (43.5) (49.0) 515.5 14.6 (1.4)P/E (x) 30.3 59.5 9.7 8.4 8.6Dividend yield (%) 2.4 1.6 2.4 2.9 2.9EV/EBITDA (x) 5.9 7.5 4.7 4.2 4.2P/B (x) 1.6 1.6 1.4 1.2 1.1ROE (%) 4.7 2.7 15.3 15.6 13.8Net debt (net cash)/equity (%) 71.1 66.0 49.6 38.5 30.7 Note 1: Ord/ADR=1.0000. Note 2: Manufactures and sells variety of glass products, electronic parts, and so on.


Asian Daily

- 20 of 47 -

Malaysia Malaysia Economics ------------------------------------------------------------------------------------------- Rate hikes still not imminent; other measures considered Kun Lung Wu / Research Analyst / +65 6212 3418 / [email protected]

● Bank Negara Malaysia (BNM) kept the overnight policy rate unchanged at 2.75%, as was widely expected. It expects growth to remain steady in 2011 and prices to increase at a modest pace in the coming months.

● BNM reiterated its view that the current policy stance remains “appropriate” and supportive of growth. But it noted that “additional policy tools such as the statutory reserve requirement and macro-prudential lending measures may be considered to avoid the risks of macroeconomic and financial imbalances.”

● BNM’s assessment of the economy is broadly in line with ours. We think BNM will be in no hurry to resume its rate hikes and will only hike again in 2H11. Our end-2011 and end-2012 policy rate forecasts remain unchanged at 3% and 3.5%, respectively.

● Higher fuel prices remain the main risk to inflation, in our view. If oil prices were to rise much further, the government might hike fuel prices more frequently to reduce subsidy costs. Alternatively, BNM might allow more currency appreciation to reduce subsidy costs.

Figure 1: Inflation and loan growth momentum

-1.0

-0.50.0

0.5

1.01.5

2.0

Dec-08 Jun-09 Dec-09 Jun-10 Dec-10

CPI (3mma, % mom, sa)Loan outstanding (3mma, % mom, sa)

Source: CEIC, Credit Suisse estimates

Steady growth, moderate inflation. Bank Negara Malaysia (BNM) kept the overnight policy rate unchanged at 2.75%, as was widely expected. BNM, in its monetary policy statement, said, “the Malaysian economy is expected to grow at a steady pace in 2011, underpinned by continued firm expansion in domestic demand amid more moderate external demand.” On inflation, it said, “prices are expected to increase at a modest pace in the coming months, driven primarily by rising global commodity and food prices … with limited evidence of excess demand exerting pressure on prices.”

Macro-prudential measures over rate hikes? BNM reiterated its view that the current policy stance remains “appropriate” and “supportive of economic growth.” However, it noted “additional policy tools such as the statutory reserve requirement and macro-prudential lending measures may be considered to avoid the risks of macroeconomic and financial imbalances.”

Figure 2: Industrial production vs exports

859095

100105110115120

Nov-03 Aug-05 May-07 Feb-09 Nov-103035404550556065Industrial production Index (3mma)

Exports (RM bn, 3mma, RHS)


Our end-2011 and end-2012 policy rate forecasts remain unchanged at 3% and 3.5%, respectively. BNM’s assessment of the economy is broadly in line with ours. We think BNM will be in no hurry to resume its rate hikes and will hike again only in 2H11. Output remains below the pre-crisis level (Figure 2) and demand-pull inflation is likely to stay low until the export sector recovers, in our view. The pick-up in loan growth was a potential concern and something we had noted earlier, but the statement suggests that BNM prefers to tackle this through macro-prudential measures and hikes in reserve requirements, as opposed to using the interest rates.

Figure 3: Inflation vs policy rate

-4-202468

10

Nov-02 Nov-04 Nov-06 Nov-08 Nov-10

Food and fuel inf lation (pp contribution)Core CPI inf lation (pp contribution)Policy rate (%)CPI inf lation (% yoy)


Higher fuel prices remain the main risk to inflation, in our view. If oil prices were to rise much further, the government might hike fuel prices more frequently to reduce subsidy costs. We estimate that if the government were to liberalise fuel prices at the current prices of about US$90/barrel (not our base case assumption), it would add 1.5-2 pp to headline inflation, bringing YoY inflation to 4% or more. Another way to lower subsidy costs is to allow further MYR appreciation. If growth momentum gradually picks up in coming months as we expect, BNM might feel more comfortable in letting the currency appreciate further.


Asian Daily

- 21 of 47 -

Bursa Malaysia---------------------------------------------------------------- Maintain OUTPERFORM New report: FY10 top line in line; Proxy to rising volumes EPS: ▲ TP: ▲ Yvonne Voon / Research Analyst / 65 6212 3026 / [email protected] Danny Goh / Research Analyst / 603 2723 2083 / [email protected]

● Bursa reported top line growth of 10.6% YoY, bringing FY10 income to RM361 mn. Growth was driven by equity revenues, which were up 20.8% YoY on stronger market volumes towards year-end. Net profit of RM113 mn (+11.2%) YoY was below expectations as staff costs came in 10% above our estimates.

● We believe market volumes will continue to be strong on the back of: (1) foreign and retail investors returning to the market; (2) ongoing structural reforms including new IPOs (and secondary placements) and GLC selldown; and (3) potential positive news flows in the run up to a possible election in 1H11.

● Bursa is a key beneficiary to rising volumes as 60-70+% of its income is derived from volume-related activities. With a relatively low fixed cost base and no significant capex in the near term, it is poised for margin expansion if markets continue to hold strong.

● We adjust net profit +3%/-14% for FY11/12E as we adjust for better market conditions in 2011 and push forward expectations of fruition from the CME tie-up closer to 2013. We raise target price to RM9.50 (from RM9.40) and maintain OUTPERFORM.

FY10 top line was broadly in line

Bursa reported 10.6% YoY growth in its top line to RM361 mn, mainly attributable to a 20.8%YoY growth in equity revenues as market

volumes picked up towards year end. However, FY10 net profit of RM113 mn (+11.2% YoY) disappointed, accounting for 89% of CS and 92% of street’s FY10E due to higher-than-expected salary costs.

Figure 2: Key market statistics FY10 FY09 %YoY 4Q10 3Q10 2Q10 1Q10Velocity (%) 33 34 37 31 28 35Mkt cap (RM bn) 1,275 999 27.6 1,275 1,150 1,044 1,061Turnover* (RM mn) 1,570 1,220 28.7 2,000 1,488 1,289 1,532Derivatives t/o* 24,818 24,749 0.3 27,776 25,111 22,517 23,889No. of IPOs 29 14 8 9 9 3* Daily average. Source: Company data Expect strong volumes to continue into 2011 The year has started out strong for Bursa with an average daily turnover of RM2.76 bn so far, and we believe that market volumes will remain strong in 2011, supported by 1) foreign investors coming into the market (Dec10 marked the seventh consecutive month of foreign net buying); 2) ongoing structural reforms including new IPOs (and secondary placements) and GLC selldown; 3) potential positive news flows in the run up to a possible 1H11 election; and 4) further upside to volumes could come from the return of retail investors. Bursa is a key beneficiary to rising volumes Bursa is a key proxy to rising volumes as 60-70+% of its income is derived from volume-related activities. With a relatively low fixed cost base and no significant capex in the near term, it is poised for margin expansion if markets continue to hold strong. We have tweaked our net profit by +3%/ -14% for FY11/12E as we adjust for better market conditions in 2011, and pushed forward our expectations of fruition from the CME tie-up to 2013. Maintain OUTPERFORM. Our revised target price is now RM9.50 (from RM9.40). We estimate that for every 5% increase in velocity, FY11 will increase by 13.6%. Key upside risk is a potential special dividend (we have not factored this in), and downside risks are if there is no capital management and a market downturn. Figure 3: Summary of earnings revision New Old % Change RM mn FY11E FY12E FY13E FY11E FY12E FY11E FY12ETrading revenue 284.0 301.8 342.7 261.4 333.1 9% -9%- Equity 244.2 258.1 294.8 219.2 286.8 11% -10%- Derivatives 39.8 43.6 48.0 42.1 46.3 -6% -6%Stable revenue 102.9 106.1 109.4 113.5 117.0 -9% -9%Total revenue 441.8 464.6 510.5 430.5 505.7 3% -8%Staff cost (96.7) (99.6) (102.6) (86.6) (89.1) 12% 12%Net profit 164.0 174.8 201.6 159.5 204.2 3% -14%Source: Credit Suisse estimates

Figure 1: Summary of financials FY10 FY09 %YoY CS FY10E % CS FY est % of Street FY10E 4Q10 4Q09 %YoY 3Q10 %QoQTrading revenue 205.6 177.5 15.8 209.7 98 61.3 41.9 46.3 50.3 21.8 - Equity 167.9 139.1 20.8 171.4 98 50.8 33.7 50.8 40.7 24.8 - Derivatives 37.6 38.5 (2.2) 38.3 98 10.5 8.2 27.9 9.6 9.1 Stable revenue 125.6 120.2 4.5 128.1 98 33.0 32.3 2.0 29.0 13.8 Total income 361.0 326.4 10.6 373.6 97 103 101.9 81.4 25.2 86.8 17.5 Staff costs (92.4) (83.3) 11.0 (84.2) 110 (25.7) (23.3) 10.4 (23.0) 11.8 EBIT 164.4 143.8 14.3 187.3 88 96 47.0 29.4 59.7 39.0 20.5 Core net profit 113.0 101.6 11.2 127.2 89 92 29.8 20.3 46.4 27.7 7.5 Source: Company data, Thomson One Analytics, Credit Suisse estimates. Note: Core net profit for FY09 excludes a RM76mn one-off gain, incurred in 4Q09.

Price (26 Jan 11, RM) 8.37TP (Prev. TP RM) 9.50 (9.40) Est. pot. % chg. to TP 1452-wk range (RM) 8.97 - 6.78Mkt cap (RM/US$ mn) 4,447.8/ 1,457.6

Bbg/RIC BURSA MK / BMYS.KL Rating (prev. rating) O (O) Shares outstanding (mn) 531.40 Daily trad vol - 6m avg (mn) 1.3 Daily trad val - 6m avg (US$ mn) 3.5 Free float (%) 60.0 Major shareholders CMDF-19%, MoF-

19%

Performance 1M 3M 12MAbsolute (%) 8.7 (1.5) 7.3Relative (%) 8.1 (3.0) (9.4)

Year 12/09A 12/10A 12/11E 12/12E 12/13ERevenues (RM mn) 402.4 361.0 441.8 464.6 510.5EBITDA (RM mn) 258.7 207.6 282.5 299.3 338.3Net profit (RM mn) 177.6 113.0 164.0 174.8 201.6EPS (RM) 0.32 0.20 0.30 0.31 0.36- Change from prev. EPS (%) n.a. n.a. 3 (14) - Consensus EPS (RM) n.a. n.a. 0.29 0.33 0.34EPS growth (%) 70.1 (36.4) 45.1 6.6 15.3P/E (x) 26.2 41.2 28.4 26.6 23.1Dividend yield (%) 2.1 2.4 3.3 3.5 4.1EV/EBITDA (x) 15.9 19.3 14.2 13.1 11.4P/B (x) 5.5 5.5 5.4 5.3 5.3ROE (%) 22.6 13.4 19.1 20.2 23.0Net debt (net cash)/equity (%) (39.7) (52.1) (49.9) (57.0) (65.1) Note 1: Malaysia’s exchange holding company. Note 2: Dividend yield is net. Note 3: 2009 adjusted for RM76 mn gain from derivatives sale. Reported NP RM177.6n.


Asian Daily

- 22 of 47 -

Genting Berhad -------------------------------------------------------------- Maintain OUTPERFORM Cheaper proxy to GENS EPS: ◄► TP: ◄► Foong Wai Loke / Research Analyst / 603 2723 2082 / [email protected]

● We are bullish on Genting Berhad (GENT) because Genting Singapore (GENS) is likely to be a prime beneficiary of the following: 1) strong tourist arrivals (we project +16% YoY for 2011), 2) positive GDP growth for Singapore and other Asian economies for 2011E-12E and 3) an active stock market could boost VIP gaming revenues.

● GENT gives cheaper exposure to GENS and the two stocks are highly correlated. The differential between the current market value for GENT and its RNAV of RM6.4 bn implies GENT gives investors exposure to GENS with a 20% discount to the current market price.

● Alternatively, Buy GENT and get the Plantations stake for free or Buy GENT and get a 67% discount to Genting Malaysia.

● GENT is the 5th cheapest casino stock globally based on 2011E PE valuations whereas on EV/EBITDA, it is the cheapest.

● We continue to rate GENT an OUTPERFORM, our TP gives 24% potential upside from current levels.

Bullish on Singapore We are bullish on Genting Berhad (GENT) because Genting Singapore (GENS) is likely to be a prime beneficiary of the following:

● rising tourist arrivals to Singapore, we expect 16% YoY growth for 2011.

● positive GDP growth for Singapore and neighbouring Asian economies for 2011E-2012E, ranging from 4-9% YoY.

● a hot stock market could be beneficial for VIP casino revenues Moreover, strong CPO prices currently will likely be positive for spending by gamblers from Johor. GENS will also add new hotels and attractions through 2011-2012 and this bodes well for visitor arrivals. Buy GENT and get cheaper exposure to GENS GENT gives cheaper exposure to GENS and the two stocks are highly correlated. The differential between the current market value for GENT and its RNAV of RM6.4 bn implies GENT gives investors

exposure to GENS with a 20% discount to the current market price of S$2.06. Buy GENT and the stake in GENP comes free The differential between the current market value for GENT and its SOTP of RM6.4 bn is well in excess of its 54.7% stake in Genting Plantations, which is currently worth RM3.6 bn. Buy GENT and get cheaper exposure to GENM The differential between the current market value for GENT and its RNAV of RM6.4bn, implies that GENT gives investors exposure to Genting Malaysia with a 67% discount to the current market price of RM3.28. GENT is cheap vs global peers In our view, Genting Berhad’s (GENT) valuations are compelling, it ranks as the fifth cheapest casino stock globally based on 2011E PE valuations whereas on EV/EBITDA, it is the cheapest currently. Genting Berhad is currently trading at a 14% discount to RNAV, compared to a historical range of 3%-23%.

Figure 1: Genting Berhad RNAV based on CS target prices Target Market Price cap (local) (RM mn) Using CS TP for GENM RM 3.30 19,520.5 Using CS TP for GENP RM 6.40 4,856.6 Using CS TP for GENS S$ 2.65 76,648.9 Genting's SH Genting's Stake Mkt cap portion funds portion (RM mn) (RM mn) (RM mn) (RM mn)Genting Malaysia 49.1% 19,520.5 9,576.8 10,137.3 4,973.3Genting Plantations 54.7% 4,856.6 2,656.6 2,548.1 1,393.8Genting Singapore 51.7% 76,648.9 39,650.5 9,817.0 5,078.3 51,883.8 11,445.4 + GENT shareholders funds 13,887.1- shareholders funds of listed coys -11,445.4Value of non-listed entities 2,441.7 Total sum of parts value RM 54,325.5No of Genting shares 3,713.6Genting RNAV/share RM 14.6Current market price RM 11.8Holding coy discount 8%CS TP for Genting Berhad 13.5Source: Company data, Credit Suisse estimates.

Price (26 Jan 11 , RM) 10.92TP (Prev. TP RM) 13.50 (13.50) Est. pot. % chg. to TP 2452-wk range (RM) 11.98 - 6.22Mkt cap (RM/US$ bn) 40.5/ 13.3

Bbg/RIC GENT MK / GENT.KL Rating (prev. rating) O (O) Shares outstanding (mn) 3,705.70 Daily trad vol - 6m avg (mn) 6.3 Daily trad val - 6m avg (US$ mn) 20.0 Free float (%) 43.0 Major shareholders Lim family 41%


Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (RM mn) 9,083 8,894 15,784 20,351 21,602EBITDA (RM mn) 3,409 3,456 6,657 7,966 8,500Net profit (RM mn) 569 1,044 1,913 2,871 3,165EPS (RM) 0.15 0.28 0.51 0.77 0.85- Change from prev. EPS (%) n.a. n.a. 0 0 0- Consensus EPS (RM) n.a. n.a. 0.59 0.73 0.83EPS growth (%) (70.4) 83.4 83.2 50.1 10.3P/E (x) 71.5 39.0 21.3 14.2 12.9Dividend yield (%) 0.5 0.5 0.5 0.6 0EV/EBITDA (x) 11.7 12.4 6.0 4.4 3.7P/B (x) 3.2 2.9 2.6 2.2 1.8ROE (%) 4.6 7.9 13.0 16.7 15.2Net debt (net cash)/equity (%) (5.0) 6.7 (4.7) (19.0) (29.7) Note1:Genting is involved in various businesses: casino and resort operations (operated by Resorts World), cruise operations (via Star Cruises), plantations and property development (via Asiatic Development), paper & packaging, oil & gas and power..Note2:Divdend yield is net.


Asian Daily

- 23 of 47 -

Pakistan Fauji Fertiliser ------------------------------------------------------------------------ Maintain NEUTRAL CY10 earnings up 25%YoY, but final cash payout disappoints EPS: ◄► TP: ◄► Farhan Rizvi, CFA / Research Analyst / 65 6212 3036 / [email protected]

● FFC has announced robust CY10 earnings of PRs11.0 bn (EPS PRs16.25) up 25% YoY. Earnings were slightly ahead of consensus EPS estimate of PRs16.0, but 3% lower than our estimate of PRs16.45. FFC also announced a below consensus final dividend of PRs3.5/share and a surprise 25% bonus issue.

● CY10 EPS was higher mainly on account of 14% growth in urea prices which averaged PRs820/bag. Hence, revenues rose 24% to PRs45 bn, while gross margins improved by 33bp to 44%. 4Q10 results were expectedly strong with an EPS of PRs5.9, up 84% YoY. On the cost front, distribution and admin expenses rose in line with inflationary pressures, up 20% YoY to PRs5.3 bn.

● The key takeaway from the results was the lower payout (59%) in 4Q CY10 than the usual near 100%, which signals that the deal to acquire a majority stake in Agritech is reaching conclusion.

● We are NEUTRAL on FFC with a target price of PRs164 and expect the stock to be under pressure due to lower payout, with news flow on the Agritech deal determining the stock behaviour in the near term.

Robust 4Q10 results drive full-year earnings up 25%YoY FFC expectedly announced very strong 4Q10 results with an EPS of PRs5.9, up 84% YoY. Record urea sales of 837k tonnes (up 38%YoY) led the surge in earnings and ensured a strong finish to 2010. Full-year earnings clocked in at PRs11.0 bn (EPS PRs16.25), a jump of 25% YoY driven by a 24%YoY rise in revenues and 33% increase in dividend income from FFBL. The sharp rise in revenues was primarily on account of 14% higher urea prices, which averaged PRs820/bag in 2010 (2009: PRs719). This helped margins to improve marginally by 33 bp to 44%. With its subsidiary FFBL enjoying a solid CY10, dividend income rose 33% to PRs2.5 bn and also contributed to earnings momentum. On the flip side, rising inflationary pressures led to a 20% rise in distribution and admin expenses to PRs5.3 bn.

Figure 1: Summary of CY10 financial results 4Q10A 4Q CS est. +/-(%) 2010A 2009 +/-(%)Revenues 16,369 15,460 6 44,874 36,163 24Gross profit 6,846 6,988 (2) 19,564 15,648 25Gross margins 42% 45% (7) 44% 43% 1Dist. & admin 1,476 1,364 8 5,320 4,447 20Div. from FFBL 594 594 - 2,519 1,901 33Other income 319 368 (13) 634 900 (30)Profit before int & tax 6,283 6,586 (5) 17,397 14,002 24Interest expense 249 369 (33) 1,087 945 15Profit before tax 6,034 6,216 (3) 16,310 13,057 25Net profit 4,008 4,141 (3) 11,029 8,823 25EPS (PRs) 5.90 6.1 (3) 16.25 13.00 25Urea price/bag 830 830 - 820 719 14Urea sales (k tonnes) 837 843 (1) 2,484 2,464 1Source: Company data, Credit Suisse estimates Cash payout disappoints; a signal towards likely AGL deal Though the full results remained ahead of consensus estimates, PRs3.5/share final dividend was disappointing, as it translated in to a payout ratio of 59% in 4Q10 as against the near-100% historical payout trend. We believe the recent conditional approval by the Competition Commission (CCP) to allow the proposed acquisition of Agritech Limited (AGL), a small competitor dealing with urea and SSP was the major reason behind the lower payout decision. The acquisition of AGL could be a value creator for FFC, given the obvious synergies, however the acquisition price would be the most important determinant. On a positive note, a 25% bonus issue was a major surprise and appears to be aimed at limiting the likely investor disappointment on the low cash payout.

Figure 2: Potential increase in prod. and market share. from AGL acq. Pre

acquisition Post acq. excl

DebottleneckingPost acq. - incl.

DebottleneckingUrea Capacity (tonnes) 2,100,000 2,458,000 2,583,000 Production (tonnes) 2,350,000 2,700,000 2,800,000 Market Share 37% 42% 43% SSP Capacity (tonnes) Nil 90,000 162,000 Production (tonnes) Nil 100,000 145,000 Market Share Nil 59% 73%Source: Company data, Credit Suisse estimates Remain NEUTRAL; AGL news flow to drive stock behaviour We remain NEUTRAL on FFC with a target price of PRs164, which implies a potential upside of 5% at current levels. We expect the stock to remain under some pressure in the immediate term as investors look to book profits amid a disappointing dividend announcement. That said, news flow on the proposed AGL deal would play a major role in shaping up the investor sentiment with any positive announcement likely to generate some momentum in the stock. FFC currently trades at 2011E EV/EBITDA and P/E of 4.4x and 7.7x respectively, a 11% and 9% discount to historical multiples.

Price (26 Jan 11 ) 156.50TP (Prev. TP) 164 (164) Est. pot. % chg. to TP 552-wk range 157 - 102Mkt cap (bn) 106.2/ 1.2

Bbg/RIC FFC PA / FAUF.KA Rating (prev. rating) N (N) Shares outstanding (mn) 678.53 Daily trad vol - 6m avg (mn) 1.1 Daily trad val - 6m avg (mn) 1.7 Free float (%) 51.0 Major shareholders Fauji Foundation

(48.77%)


Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (mn) 30,593 36,163 43,965 48,501 51,041EBITDA (mn) 12,362 16,041 19,876 24,109 24,242Net profit (mn) 6,525 8,823 11,162 13,728 13,935EPS 9.6 13.0 16.4 20.2 20.5- Change from prev. EPS (%) n.a. n.a. 0 0 0- Consensus EPS n.a. n.a. 15.0 18.0 17.8EPS growth (%) 21.7 35.2 26.5 23.0 1.5P/E (x) 16.3 12.0 9.5 7.7 7.6Dividend yield (%) 6.4 7.6 10.0 12.3 12.5EV/EBITDA (x) 8.9 6.9 5.4 4.4 4.5P/B (x) 8.6 8.1 7.8 7.4 7.1ROE (%) 106.2 69.6 83.5 98.2 95.0Net debt (net cash)/equity (%) 67.6 65.9 35.9 22.0 13.5 Note1:Fauji Fertilizer Co Ltd manufactures, purchases and markets fertilizers..


Asian Daily

- 24 of 47 -

South Korea GS Home Shopping --------------------------------------------------------- Maintain OUTPERFORM 4Q10 results stronger than expected, but headwinds may be ahead EPS: ◄► TP: ◄► Sonia Kim / Research Analyst / 822 3707 3764 / [email protected] Soyeon Hong / Research Analyst / 822 3707 3740 / [email protected]

● Results were better than expected on stronger sales growth and a favourable SG&A base effect, as 4Q09 had one-off expenses on corporate identity marketing. Mix is broadly improving, as the proportion of apparels or personal cares increased. But, overall GM fell 190 bp, as insurance products sales are still falling.

● GS HS still appears not to have reflected the gain from the sale of its system operators. It did not indicate where the proceeds will be used, but stressed it will not be used to subsidise its holding company’s future investment strategies.

● We think GS HS’s recent share price appreciation was largely due to its low valuations (2011E EV/EBITDA was less than 2.5x three weeks ago), and widespread speculation of M&A interest by Shinsegae in the home-shopping market. The stock is still compelling on valuations and capital management, which is why we maintain our OUTPERFORM rating.

● We are, however, concerned that there may be some headwinds, as: (1) new license announcement in Feb; (2) SO commission may rise 20%; and (3) holding company is asking for higher brand royalty to use “GS” brand from 0.1% to 0.2% of sales. We would review our model, pending further analysis of these results.

4Q10 was better than thought The TV home-shopping market is stated to have grown nearly 17% YoY on strong consumer sentiment, and cold weather that largely increased apparel sales. Sales of insurance products still appear to have slipped, though the rate of decline is slowing.

Amid this strong environment, GS HS benefited with strong sales in cable TV home-shopping of 12% and internet sales growth of 30% YoY. It appears that GS HS is intentionally lifting its focus from the catalogue due to falling consumer demand and high operating costs in this channel. Its gross margin fell 190 bp on lower insurance product sales, despite improvements in the mix (i.e., more apparel sales). Its operating

margin rose 60 bp, as 4Q09 had higher marketing costs to promote its new online site brand, and losses from d&shop (090090.KQ, W2,015, not rated) had reduced. GS HS stated the gain from its sale of Gangnam Cable (unlisted) or Ulsan Cable (unlisted) have not been booked in 2010, which is why net earnings appear much below our estimates that capture this gain. It stated the proceeds from the gain will be used for core operations, and not for the investments that its holding company may consider. Still looks cheap, but some headwinds ahead So far, the sales trend appears strong, as the weather is playing favourably. Not only the consumers are buying more winter apparels, but they appear to be watching more TV at home. As GS HS exceeded our estimates by 10%+, we believe our numbers for 2011 need to be revised. We think GS HS still looks cheap on valuations. However, we believe some headwinds may correct the recent share price appreciation, which we think was due to higher interest in the stock from the M&A angle. This is referring to Shinsegae (004170.KS, W567,000, OUTPERFORM, TP W680,000)’s widely reported interest in acquiring a home-shopping player. Some issues are: (1) announcement of new license in February; (2) SO commission increase could be as high as 20%+, which will likely exceed sales growth potential this year; and (3) GS Holdings is asking for an increase in brand royalty from its affiliates, though the impact of this is small. As there may be continued talks of Shinsegae’s interest in an online or home-shopping player, GS HS valuations may be supported by this too. We note some near-term weakening earnings catalysts ahead, but we maintain our OUTPERFORM rating. We would review our model, pending further analysis of these results. Figure 1: 4Q10/2010 results summary (W bn) 4Q10 YoY gr QoQ gr 2010 YoY gr CS FY10E % of

CSEGross sales 624.0 17.5% 16.5% 2,229.0 17.9% 2,167.8 103% CATV 354.0 12.1% 9.6% 1,295.7 14.1% 1,273.3 102% Catalogue 53.4 -5.8% 34.2% 181.8 3.6% 185.1 98% Internet 201.1 31.0% 24.8% 708.0 25.7% 675.8 105%Net sales 227.5 9.6% 19.4% 799.2 15.2% 791.8 101% CATV 159.1 7.8% 15.5% 562.6 13.5% n.a. n.a. Catalogue 20.0 -9.1% 36.1% 68.1 3.3% n.a. n.a. Internet 41.9 18.0% 25.8% 149.4 20.6% n.a. n.a.Gross profit 185.5 10.3% 16.0% 667.5 10.2% 650.0 103%SG&A 150.8 6.2% 13.5% 550.0 8.5% 546.8 101%Operating profit 34.7 32.7% 28.3% 117.5 18.5% 103.1 114%Recurring profit 25.7 103.2% -2.4% 105.3 25.6% 231.7 45%Net profit 17.1 186.8% -11.9% 77.0 32.1% 173.1 44%Margins and change (based on gross sales) Gross margin 29.7% -1.9pp -0.1pp 29.9% -2.1pp 30.0%SG&A to sales 24.2% -2.6pp -0.6pp 24.7% -2.1pp 25.2%Operating margin 5.6% 0.6pp 0.5pp 5.3% 0pp 4.8%Recurring margin 4.1% 1.7pp -0.8pp 4.7% 0.3pp 10.7%Source: Company data, Credit Suisse estimates 028150 KQ Old rating New rating Old TP New TPOct 27, 2010 OUTPERFORM OUTPERFORM W10,000 W135,000

Price (27 Jan 11 , W) 135,300.00TP (Prev. TP W) 135,000 (135,000) Est. pot. % chg. to TP 052-wk range (W) 139500 - 66600Mkt cap (W/US$ bn) 887.9/ 0.8

Bbg/RIC 028150 KS / 028150.KQ Rating (prev. rating) O (O) Shares outstanding (mn) 6.60 Daily trad vol - 6m avg (mn) .0000 Daily trad val - 6m avg (US$ mn) 3.0 Free float (%) 44.0 Major shareholders GS Holdings: 30%


Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (W bn) 1,687 1,891 2,168 2,297 2,419EBITDA (W bn) 89.9 105.8 106.9 104.4 106.2Net profit (W bn) 55.5 58.3 173.1 87.6 91.8EPS (W) 8,461 8,879 26,380 13,341 13,986- Change from prev. EPS (%) n.a. n.a. 0 0 0- Consensus EPS (W) n.a. n.a. 11,857 13,848 16,197EPS growth (%) 16.0 5.0 197.1 (49.4) 4.8P/E (x) 16.0 15.2 5.1 10.1 9.7Dividend yield (%) 2.2 2.2 2.6 2.6 2.6EV/EBITDA (x) 8.4 7.4 3.7 3.1 2.3P/B (x) 2.4 2.5 1.7 1.5 1.4ROE (%) 15.7 16.0 39.8 16.2 15.1Net debt (net cash)/equity (%) (36.5) (28.6) (96.8) (98.9) (100.6) Note1:GS Home Shopping Inc. operates a cable television shopping channel and an Internet-based shopping mall. It also sells its merchandise through catalogues delivered via direct mail in Korea..


Asian Daily

- 25 of 47 -

Hyundai Mipo------------------------------------------------------------------Downgrade to NEUTRAL 4Q earnings below expectations: downgrade to NEUTRAL EPS: ▼ TP: ▲ Henry Kwon / Research Analyst / 822 3707 3732 / [email protected] Seungwoo Hong / Research Analyst / 822 3707 3795 / [email protected]

● Hyundai Mipo’s 4Q results came in below our expectations at the operating profit level and again at the pre-tax profit levels.

● For Mipo, there are a number of ships currently under construction that were ordered from 2010. We estimate these low priced vessels will have caused the decline in margins. Unlike Samsung Heavy whose margins saw a one-off decline largely due to bonus payments, we believe Mipo’s operating margins are likely to come in below our previous forecast range in 2011.

● We have lowered our operating margin assumptions for 2011 and 2012, to 11.9% and 11.8% respectively, from 13.7% and 13.3% as a result, and thus revise down earnings by 13% and 11%, respectively.

● We have switched our valuation method from using an average value suggested by our residual income model and P/B vs ROE analysis, to using only our 2011E P/B vs ROE analysis. Our new method suggests a fair value of W248,000 per share. Based on the limited potential upside we downgrade the stock to NEUTRAL.

Valuation metrics Company Ticker CS Price Year P/E (x) P/B Rating Local Target T T+1 T+2 (x)Hyundai Mipo 010620 KS N 221,000 248,000 12/09 8.1 8.1 1.4DSME 042660 KS O 41,100 35,000 12/09 9.7 9.5 2.0Hyundai Heavy 009540 KS O 501,000 600,000 12/09 11.6 9.9 3.0Samsung Heavy 010140 KS N 43,700 42,000 12/09 11.5 10.8 2.8Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Source: Company data, Credit Suisse estimates

Figure 1: Hyundai Mipo: Summary of 4Q10 earnings release (W bn) 1Q10A 2Q10A 3Q10A 4Q10A FY10A FY10ESales 783 942 971 1,041 3,737 3,737Operating profit 117 174 140 116 547 581Net Profit 115 156 110 72 454 549 OP margin 15.0% 18.4% 14.4% 11.1% 14.6% 15.6%NP margin 14.7% 16.6% 11.3% 7.0% 12.1% 14.7%Source: Company data, Credit Suisse estimates

Figure 2: Hyundai Mipo: Summary of earnings forecast change New New Old Old New vs.

OldNew vs.

Old(W bn) 2011E 2012E 2011E 2012E 2011E 2012ERevenues 4,582 4,622 4,582 4,622 0.0% 0.0%Operating profit 581 577 688 667 -15.6% -13.4%Net profit 546 545 629 614 -13.3% -11.3% Operating margin 12.7% 12.5% 15.0% 14.4%Net margin 11.9% 11.8% 13.7% 13.3% Source: Company data, Credit Suisse estimates

Figure 3: Hyundai Mipo: P/B v. ROE target price derivation Item 2011E ROE 15.2% Risk free rate 4.4% Beta 1.11 Cost of equity 11.0% Target P/B multiple 1.4x BPS 179,741P/B vs ROE implied fair value 248,000Source: Company data, Credit Suisse estimates Potential downside risk? Mipo will likely generate 15.2% ROE similar to 2009 when the lowest valuation point for the stock at trough cycle reached 0.8x. Given relatively high exposure to the bulk sector, we believe bulk related stock market concerns over current BDI levels could potentially hit Mipo the hardest out of our coverage universe. At 0.8x 2011E P/B, we believe the short-term potential downside risk for the stock is W144,000. We would consider re-entry within 15% of this level, should the stock see a significant correction as a result of the combined effects of a weak earnings announcement and the market concern over a weak dry bulk segment.

Rating history (010620 KS) Date Old rating New rating Old TP New TP1 Nov 10 NEUTRAL OUTPERFORM W150,000 W229,00027 Jan 11 OUTPERFORM NEUTRAL W229,000 W248,000As of close of business on 26 January 2011, Credit Suisse Securities (Europe) Limited, Seoul Branch performs the role of liquidity provider on the warrants of which underlying asset is HHI/ Hyundai Mipo/ SHI/ DSME and hold 22,394,490/ 13,163,210/ 13,592,690/ 16,341,240 of warrants concerned, respectively. These may be covered warrants that constitute part of a hedged position.


Bbg/RIC 010620 KS / 010620.KS Rating (prev. rating) N (O) [V] Shares outstanding (mn) 20.00 Daily trad vol - 6m avg (mn) 0.2 Daily trad val - 6m avg (US$ mn) 32.7 Free float (%) 52.2 Major shareholders Hyundai Samho and

related parties: 41.6%

Performance 1M 3M 12MAbsolute (%) (3.1) 14.8 96.4Relative (%) (7.1) 4.4 52.4

Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (W bn) 3,805 3,711 3,737 4,582 4,622EBITDA (W bn) 580.2 429.4 622.9 621.9 618.2Net profit (W bn) 519.1 378.7 548.6 545.9 544.6EPS (W) 25,957 18,933 27,432 27,297 27,228- Change from prev. EPS (%) n.a. n.a. 0 (13) (11)- Consensus EPS (W) n.a. n.a. 25,764 24,462 21,695EPS growth (%) (1.9) (27.1) 44.9 (0.5) (0.3)P/E (x) 8.5 11.7 8.1 8.1 8.1Dividend yield (%) 2.3 1.4 1.4 1.4 1.4EV/EBITDA (x) 6.9 8.4 5.6 5.8 5.7P/B (x) 2.0 1.7 1.4 1.2 1.1ROE (%) 19.4 15.5 19.2 16.3 14.2Net debt (net cash)/equity (%) (17.4) (30.9) (29.2) (23.5) (21.5) Note1:Hyundai Mipo Dockyard Co. Ltd changed itself as shipbuilders since 1996 with successful turnaround from 2003. The company speciallized in product and chemical tanker manufacturing with dominant global market shares for the segments..


Asian Daily

- 26 of 47 -

Hyundai Mobis ---------------------------------------------------------------- Maintain OUTPERFORM 4Q earnings; raising our target price EPS: ▲ TP: ▲ Henry Kwon / Research Analyst / 822 3707 3732 / [email protected] Seungwoo Hong / Research Analyst / 822 3707 3795 / [email protected]

● Mobis’ 4Q10 earnings came broadly in line with expectations at the operating profit level, but stronger-than-expected equity method gains from HMC caused FY10 net profit to be 7% above our expectations.

● We raise our earnings projections mostly at the non-operating profit level, given our earnings forecast upgrade on HMC following its earnings release. While our operating profit forecast was upwardly revised by 1.6% and 0.5% in 2011 and 2012, net profit forecast was upwardly adjusted by 9.3% and 9.9%, respectively, versus our previous forecast.

● We continue to believe that strong long-term growth potential lies with Korean auto suppliers, not final assemblers, and continue to prefer Mobis to HMC and Kia.

● We raise our target price for Mobis to W372,000 based largely on our revised valuation of Mobis’ HMC holding at our new target price for HMC. We maintain our OUTPERFORM rating on Mobis.

Valuation metrics Company Ticker CS Price Year P/E (x) P/B Rating Local Target T T+1 T+2 (x)Hyundai Mobis 012330 KS O 296,000 372,000 12/09 12.7 13.0 2.9Hyundai Motor 005380 KS N 196,000 206,000 12/09 10.1 9.8 1.6KIA Motors 000270 KS N 59,400 39,000 12/09 11.3 16.0 2.4Mando Corp 060980 KS O 150,000 179,000 12/09 12.0 10.9 2.0Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Source: Company data, Credit Suisse estimates

Figure 1: Mobis: Summary of 4Q10 earnings vs CS forecast (W bn) 1Q10 2Q10 3Q10 4Q10 FY10 CS

FY10EFY10A vs

FY10ESales 3,256 3,508 3,279 3,653 13,696 13,273 3%OP 406 477 437 483 1,803 1,772 2%NP 542 685 605 592 2,423 2,264 7% OpM 12.5% 13.6% 13.3% 13.2% 13.2% 13.4%NPM 16.6% 19.5% 18.4% 16.2% 17.7% 17.1%Source: Company data, Credit Suisse estimates

Figure 2: Mobis: Summary of earnings forecast changes New New Old Old(W bn) 2011E 2012E 2011E 2012EDomestic Auto Production 4.0 4.1 3.6 3.7Domestic Units in Operation 13.3 13.6 13.2 13.6Overseas Units in Operation 25.7 28.2 25.7 28.3KRW:USD 1,093 1,075 1,075 1,050KRW:EUR 1,471 1,570 1,398 1,365 Revenues 13,746 14,130 13,326 13,664 AS Parts 3,891 4,196 3,822 4,016 Modules & Mfg 9,856 9,934 9,504 9,648Operating Profit 1,729 1,836 1,702 1,827 AS Parts 904 1,012 919 993 Modules & Mfg 826 824 783 834Net non-op Income 1,113 1,159 897 899 Equity Method Gains 1,127 1,166 912 906Pre-tax Profit 2,842 2,995 2,599 2,725Net Profit 2,217 2,336 2,027 2,126 Operating margin 12.6% 13.0% 12.8% 13.4% AS Parts 23.2% 24.1% 24.0% 24.7% Modules & Mfg 8.4% 8.3% 8.2% 8.6%Pre-tax margin 20.7% 21.2% 19.5% 19.9%Net margin 16.1% 16.5% 15.2% 15.6%Source: Company data, Credit Suisse estimates

Figure 3: Mobis: Sum-of-the-parts valuation Item ValueHMC target price 206,000 % Equity Stake 20.8%Implied value of HMC holding 9,414Mobis DCF Equity value 24,793 WACC 7.0% Terminal Growth rate 2.7%Total value 34,207Implied per share value 372,000Source: Company data, Credit Suisse estimates As of close of business on 27 January 2011, Credit Suisse Securities (Europe) Limited, Seoul Branch performs the role of liquidity provider on the warrants of which underlying assets are Hyundai Motor/ Hyundai Mobis/ KIA Motors and holds 28,789,060/ 13,115,120/ 23,174,400 of warrants concerned, respectively. These may be covered warrants that constitute part of a hedged position.


Bbg/RIC 012330 KS / 012330.KS Rating (prev. rating) O (O) Shares outstanding (mn) 97.30 Daily trad vol - 6m avg (mn) 0.3 Daily trad val - 6m avg (US$ mn) 71.1 Free float (%) 66.9 Major shareholders KIA Motors: 16.87%

Performance 1M 3M 12MAbsolute (%) 2.4 6.7 105.6Relative (%) (1.9) (3.0) 59.5

Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (W bn) 9,373 10,633 13,273 13,746 14,130EBITDA (W bn) 1,326 1,653 2,036 2,017 2,155Net profit (W bn) 1,090 1,615 2,264 2,217 2,336EPS (W) 12,476 17,587 23,310 22,823 24,054- Change from prev. EPS (%) n.a. n.a. 0 9 10- Consensus EPS (W) n.a. n.a. 25,423 28,790 31,614EPS growth (%) 39.3 41.0 32.5 (2.1) 5.4P/E (x) 23.7 16.8 12.7 13.0 12.3Dividend yield (%) 0.3 0.4 0.4 0.4 0.4EV/EBITDA (x) 21.2 17.2 13.1 12.8 11.3P/B (x) 4.8 3.5 2.9 2.3 2.0ROE (%) 22.6 24.4 25.3 19.9 17.4Net debt (net cash)/equity (%) (13.7) (4.7) (22.0) (23.9) (30.4) Note1:Hyundai Mobis manufactures/markets automotive parts/eqpt such as automotive service components, modules, systems; products industrial machinery, military vehicles, transportation containers..


Asian Daily

- 27 of 47 -

Hyundai Motor --------------------------------------------------------------------Upgrade to NEUTRAL New report: Realistically, any steep downside risks should be market risk EPS: ▲ TP: ▲ Henry Kwon / Research Analyst / 822 3707 3732 / [email protected] Seungwoo Hong / Research Analyst / 822 3707 3795 / [email protected]

● 4Q results beat our expectations. While gross profit came in line with expectations, continued reduction in SG&A and stronger-than-expected equity method gains drove the gap between our forecast and actual results.

● The new base created by 4Q10 results caused our EPS estimates to rise 35% and 44%, but they should continue to represent a YoY decline.

● We expect the KRW to strengthen 6% against the USD and 3% against the EUR in 2011 on average. HMC’s EPS sensitivities to every 1% movement in the respective currencies come to 3.4% and 0.3%, respectively. We expect HMC’s 2011 net profit to fall 16% YoY, versus W5.3 tn reported its preliminary results.

● We switch to our P/B versus ROE analysis to derive our new target price of W206,000 (versus W125,000 earlier) based on a target 2011E P/B of 1.5x, from a more conservative residual income analysis used previously. We upgrade our rating on HMC to a NEUTRAL, based on our new target price of W206,000.

Figure 1: 4Q10 results summary (W bn) 1Q10 2Q10 3Q10 4Q10 FY10A CS10E FY10A vs CS

est.Sales 8,418 9,560 8,847 9,943 36,769 35,756 3.0%GP 1,974 2,427 2,113 2,405 8,919 8,606 4.0%OP 703 863 752 909 3,227 2,923 10.0%NP 1,127 1,390 1,353 1,397 5,267 4,294 23.0%GPM 23.4% 25.4% 23.9% 24.2% 24.3% 24.1%OPM 8.3% 9.0% 8.5% 9.1% 8.8% 8.2%NPM 13.4% 14.5% 15.3% 14.0% 14.3% 12.0%Source: Company data, Credit Suisse estimates Strong 4Q10 results 4Q results beat our expectations. While gross profit came in line with expectations, continued reduction in SG&A and stronger-than-expected equity method gains drove the gap between our forecast and results.

Still remain non-consensus on forecasts The new base created by 4Q10 results caused our EPS estimates to rise 36% and 44%, but they should continue to represent a YoY decline. We expect the KRW to strengthen 6% against the USD and 3% against the EUR in 2011 on average. HMC’s EPS sensitivities to every 1% movement in the respective currencies come to 3.4% and 0.3%, respectively. We expect HMC’s 2011 net profit to fall 16% YoY, versus W5.3 tn reported its preliminary results.

Figure 2: HMC: Summary of earnings forecast changes (W bn) Old

2011EOld

2012E New

2011E New

2012ENew vs.

Old 2011E

New vs. Old

2012EParent unit sales 1,757 1,770 1,787 1,799 1.7% 1.6% Domestic 632 653 651 671 3.0% 2.7% Exports 1,125 1,117 1,136 1,128 1.0% 1.0%Average Won:$ 1,075 1,050 1,093 1,075 1.7% 2.4%ASP 19.7 19.8 20.4 20.4 3.7% 3.0%Sales 34,531 35,017 36,432 36,664 5.5% 4.7%GP 7,902 7,798 8,505 8,541 7.6% 9.5% Selling expense 3,346 3,391 3,517 3,539 5.1% 4.4% as a % of sales 9.7% 9.7% 9.7% 9.7%OP 2,311 2,124 2,953 2,929 27.8% 37.9% net eq method gains 1,687 1,769 2,386 2,567 41.4% 45.1%Pre-tax Profit 4,164 4,087 5,641 5,879 35.5% 43.9%Net Profit 3,248 3,188 4,400 4,586 35.5% 43.9%Gross margin 22.9% 22.3% 23.3% 23.3%Operating margin 6.7% 6.1% 8.1% 8.0%Pre-tax margin 12.1% 11.7% 15.5% 16.0%Net Margin 9.4% 9.1% 12.1% 12.5%Source: Company data, Credit Suisse estimates How to take this upgrade Frankly speaking, we have been waiting for a stock price correction that never came on HMC, and given such a phenomenal outperformance over a sustained period, we believe it is unrealistic at this point to expect a steep correction without a KOSPI correction. That said, having missed the rally, it is difficult for us to see significant potential upside at current valuations, either. Valuation We switch to our P/B versus ROE analysis to derive our new target price of W206,000, based on a target 2011E P/B of 1.5x, from a more conservative residual income analysis used previously. Our residual income analysis suggests downside risk to W149,000 on our revised forecast, should the stock see a correction. We upgrade our rating on HMC to a NEUTRAL, based on our new target price of W206,000. As of close of business on 27 January 2011, Credit Suisse Securities (Europe) Limited, Seoul Branch performs the role of liquidity provider on the warrants of which underlying assets are Hyundai Motor and holds 28,789,060 of warrants concerned. These may be covered warrants that constitute part of a hedged position.


Bbg/RIC 005380 KS / 005380.KS Rating (prev. rating) N (U) Shares outstanding (mn) 220.30 Daily trad vol - 6m avg (mn) 0.9 Daily trad val - 6m avg (US$ mn) 140.6 Free float (%) 63.1 Major shareholders Hyundai Mobis and

others: 26.0%


Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (W bn) 32,190 31,859 35,756 36,432 36,664EBITDA (W bn) 4,028 3,894 5,048 5,188 5,197Net profit (W bn) 1,448 2,962 4,294 4,400 4,586EPS (W) 6,584 13,445 19,494 19,974 20,819- Change from prev. EPS (%) n.a. n.a. 0 35 44- Consensus EPS (W) n.a. n.a. 19,345 21,387 22,861EPS growth (%) (14.1) 104.2 45.0 2.5 4.2P/E (x) 29.8 14.6 10.1 9.8 9.4Dividend yield (%) 0.4 0.4 0.4 0.4 0.4EV/EBITDA (x) 11.0 11.1 8.4 8.0 7.6P/B (x) 2.2 2.0 1.6 1.4 1.2ROE (%) 7.7 14.2 17.8 15.3 13.8Net debt (net cash)/equity (%) 6.1 (0.6) (2.6) (4.6) (11.0) Note1:Ord/ADR=.5000.Note2:Hyundai Motor Company Limited manufactures and sells passenger cars, trucks, commercial vehicles, and auto parts. Hyundai Motor operates auto-repair service centers. .


Asian Daily

- 28 of 47 -

Lotte Shopping ---------------------------------------------------------------------- Maintain NEUTRAL 4Q10 operations in line EPS: ▲ TP: ◄► Sonia Kim / Research Analyst / 822 3707 3764 / [email protected] Soyeon Hong / Research Analyst / 822 3707 3740 / [email protected]

● Lotte 4Q10 results were broadly in line with our expectations. The SSS of department stores was 8%, and discount stores 3% YoY, both slower than the previous quarters. Discount stores margins slipped largely from new store openings that were backloaded to 4Q10. Overseas sales growth was strong, though the profitability was still low due to the overseas expansions.

● The colder-than-usual weather is helping winter apparel sales, and the near-term sales outlook is strong. We reflect the recent strength in sales and increase our EPS by 2% for FY11.

● Catalysts to lift share price are: 1) investment strategies that may lessen the concerns of over diversification; 2) so far, the sales are stronger than expected. If this trend continues, earnings upgrades could occur.

● We keep our NEUTRAL rating, as we are concerned about its mid-term outlook due to: 1) lack of clarity in its investment strategies in other industries or new markets; 2) potential increase in mortgage servicing costs that affects discretionary spending, and 3) dip in promotional activities of retailers and credit card companies; until recently these activities had increased, which, in turn, had accelerated th e discretionary spending.

4Q10 operations were in line

4Q10 was broadly in line with our expectations excluding the one-off gains from the sale and lease back of its property asset (W207 bn). Department stores SSS was 8% (competitors around 12-13%), and Lottemart’s SSS was 3% (competitors 2-4%). The expansions were backloaded to 4Q, which resulted in EBITDA margins subsiding at the discount stores. Lotte had restated its depreciation terms this year, hence, it is more meaningful to look at EBITDA margins.

The overseas sales were strong and grew 24% YoY in 4Q, and 17% YoY for the full year. SSS of its China and Indonesia affiliates was 8% YoY. The profitability of the existing stores appears to have improved, but as there were new store openings, the blended OP margin of overseas was 0.4%. Lotte currently has 82 discount stores in China,

and it plans to open 13 in 2011; 22 in Indonesia and plans to open four in 2011; two department stores in Vietnam and has plans for one more store in 2011. On top of expansion in these markets, Lotte intends to leverage these affiliates to expand co-procurement, and expand private brands for its discount stores.

Figure 1: 4Q10 / 2010 results summary (W bn, exc %) 4Q10 YoY gr

(%)QoQ gr

(%) 2010 YoY gr

(%)CS FY10E

(old)% of CSE

Gross sales 3,958 18.1 12.1 14,097 17.3 13,966 101 Dept store 2,097 13.3 37.8 6,921 12.6 6,806 102 Disc store 1,414 24.8 -7.6 5,427 22.1 5,504 99Net sales 3,787 18.1 11.6 13,517 17.2 13,426 101Gross profit 1,189 17.1 14.9 4,182 16.9 4,137 101 Dept store 692 12.3 40.4 2,273 11.7 2,227 102 Disc store 354 27.3 -9.7 1,365 25.1 1,378 99Operating profit 315 22.0 30.5 1,147 30.8 1,129 102 Dept store 254 20.4 93.9 795 17.3 774 103 Disc store 64 48.8 -32.6 311 85.3 319 98EBITDA 407 13.1 26.8 1,443 15.4 1,421 102 Dept store 298 15.5 75.3 938 9.8 916 102 Disc store 96 15.7 -22.0 417 32.8 429 97Pretax profit 498 104.3 106.4 1,329 41.4 1,118 119Net profit 376 110.5 105.8 1,011 41.1 853 119Margins & chgs Gross margin 30.0% -0.2 p.p. 0.7 p.p. 29.7% -0.1 p.p. 29.6% Dept store 33.0% -0.3 p.p. 0.6 p.p. 32.8% -0.3 p.p. 32.7% Disc store 25.0% 0.5 p.p. -0.6 p.p. 25.2% 0.6 p.p. 25.0%Operating margin 8.0% 0.3 p.p. 1.1 p.p. 8.1% 0.8 p.p. 8.1% Dept store 12.1% 0.7 p.p. 3.5 p.p. 11.5% 0.5 p.p. 11.4% Disc store 4.5% 0.7 p.p. -1.7 p.p. 5.7% 2 p.p. 5.8%EBITDA margin 10.3% -0.5 p.p. 1.2 p.p. 10.2% -0.2 p.p. 10.2% Dept store 14.2% 0.3 p.p. 3 p.p. 13.6% -0.3 p.p. 13.5% Disc store 6.8% -0.5 p.p. -1.2 p.p. 7.7% 0.6 p.p. 7.8%Pretax margin 12.6% 5.3 p.p. 5.7 p.p. 9.4% 1.6 p.p. 8.0%Net margin 9.5% 4.2 p.p. 4.3 p.p. 7.2% 1.2 p.p. 6.1%Source: Company data, Credit Suisse estimates Catalysts Recently, Lotte has underperformed sharply due to: 1) growing concerns on its investment strategies as there are talks of interest in Korea Express (000120.KS, W115,000, Not rated), or retailers in new markets (e.g., Russia, Vietnam); 2) promotions increasing at the retailers and credit card companies that may subside in 2011, and negatively affect discretionary spending sequentially; and 3) profit taking from past year’s outperformance due to these issues. At its recent valuation bands, we believe there will be trading opportunities. Catalysts are likely to build conviction about its investment strategies, and sales trends at department stores that become stronger despite the heightening base effect. Lotte will come out with its 2011 guidance in February. 023530 KS Old rating New rating Old TP New TPSep. 23, 2010 NEUTRAL NEUTRAL W365,000 W460,000


Bbg/RIC 023530 KS / 023530.KS Rating (prev. rating) N (N) Shares outstanding (mn) 29.00 Daily trad vol - 6m avg (mn) 0.1 Daily trad val - 6m avg (US$ mn) 26.7 Free float (%) 30.7 Major shareholders Shin family and

related; 69.34%

Performance 1M 3M 12MAbsolute (%) (4.9) 1.5 45.6Relative (%) (8.9) (7.7) 13.0

Year 12/09A 12/10A 12/11E 12/12E 12/13ERevenues (W bn) 12,017 14,097 15,230 15,945 16,543EBITDA (W bn) 1,250 1,443 1,526 1,560 1,567Net profit (W bn) 716 1,011 975 1,012 1,297EPS (W) 24,667 34,809 33,586 34,831 44,645- Change from prev. EPS (%) n.a. n.a. 2 3 - Consensus EPS (W) n.a. n.a. 36,788 41,658 46,582EPS growth (%) (3.7) 41.1 (3.5) 3.7 28.2P/E (x) 18.1 12.8 13.3 12.8 10.0Dividend yield (%) 0.3 0.3 0.4 0.4 0.4EV/EBITDA (x) 11.5 11.6 10.8 10.4 9.8P/B (x) 1.1 1.0 0.9 0.9 0.8ROE (%) 6.8 7.9 7.1 6.9 8.2Net debt (net cash)/equity (%) 11.4 28.4 24.7 21.9 14.2 Note1:Ord/ADR=.0500.Note2:Lotte Shopping operates department stores and discount stores in South Korea. The Company retails clothing, household goods, foods and other items through several branches. It also operates movie theaters..Note3:Lotte Shopping is the number one retailer in Korea. Lotte currently opearates 26 department stores, 70 discount stores, supermarket chains of 190 stores and 36 mutiplex theathers..


Asian Daily

- 29 of 47 -

Mando Corp -------------------------------------------------------------------- Maintain OUTPERFORM 4Q10: Parent earnings directionally in line EPS: ◄► TP: ▲ Henry Kwon / Research Analyst / 822 3707 3732 / [email protected] Seungwoo Hong / Research Analyst / 822 3707 3795 / [email protected]

● Mando’s 4Q10 parent earnings release showed that the company achieved a QoQ improvement in sales, operating profitability and pre-tax profitability. Directionally, this is in line with our expectations.

● The company’s earnings release material also showed that it achieved FY10 consolidated revenue of W3.62 tn, which was 1.7% stronger than our FY10 consolidated revenue forecast of W3.56 tn.

● As the company will release its consolidated earnings information later, we have not changed our existing forecast, which is based on consolidated, not parent, reporting.

● We have revised our terminal growth rate assumption on our DCF analysis from 1% to 2.5%, as we believe the former assumption was too conservative, given Mando’s likelihood of continued growth via customer base expansions. Our DCF analysis suggests W179,000 as fair value, which we take as our new target price. We maintain our OUTPERFORM rating on the stock.

Valuation metrics Company Ticker CS Price Year P/E (x) P/B rating local target T T+1 T+2 (x)Mando 060980 KS O 147,500 179,000 12/09 12.0 10.9 2.0Hyundai Motor 005380 KS N 196,000 206,000 12/09 10.1 9.8 1.6KIA Motors 000270 KS N 59,400 39,000 12/09 11.3 16.0 2.4Hyundai Mobis 012330 KS O 296,000 372,000 12/09 12.7 13.0 2.9Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Source: Company data, Credit Suisse estimates

Figure 1: Mando: Summary of parent 4Q10 earnings release (Won Bn) 1Q10 2Q10 3Q10 4Q10 FY10Revenues 457.7 514.2 516.4 621.3 2,109.6Gross profit 72.2 63.8 75.7 94.7 306.4EBITDA 52.7 31.2 36.4 48.0 168.3Operating profit 29.5 12.2 17.9 28.0 87.6Pre-tax profit 64.1 59.8 36.0 50.7 210.6Net profit 56.7 52.4 35.7 46.5 191.3 Gross margin 15.8% 12.4% 14.7% 15.2% 14.5%EBITDA margin 11.5% 6.1% 7.0% 7.7% 8.0%Operating margin 6.4% 2.4% 3.5% 4.5% 4.2%Net margin 12.4% 10.2% 6.9% 7.5% 9.1%Source: Company data

Figure 2: Mando: DCF analysis Terminal Growth rate 2.5%Implied terminal year EV/EBITDA 9.1xPost tax unlevered Beta 0.79WACC 8.2% Discounted FCF ('09-14E) 795Terminal value 2,772Net debt (Year-end 09) 308Implied fair value per share 179,000 Implied 2011E PB 2.2x Implied 2011E PE 13.3x Implied 2011E EV/EBITDA 6.8xSource: Company data, Credit Suisse estimates As of close of business on 27 January 2011, Credit Suisse Securities (Europe) Limited, Seoul Branch performs the role of liquidity provider on the warrants of which underlying assets are Hyundai Motor/ Hyundai Mobis/ KIA Motors and holds 28,789,060/ 13,115,120/ 23,174,400 of warrants concerned, respectively. These may be covered warrants that constitute part of a hedged position.


Bbg/RIC 060980 KS / 060980.KS Rating (prev. rating) O (O) [V] Shares outstanding (mn) 18.20 Daily trad vol - 6m avg (mn) 0.3 Daily trad val - 6m avg (US$ mn) 32.6 Free float (%) 32.9 Major shareholders Halla E and C: 22.5%

Performance 1M 3M 12MAbsolute (%) 11.7 2.4 —Relative (%) 7.1 (6.8) —

Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (W bn) 2,425 2,727 3,563 3,871 4,183EBITDA (W bn) 183.2 321.9 421.1 445.8 471.2Net profit (W bn) 41.3 107.4 214.4 245.8 271.7EPS (W) 5,541 13,795 12,305 13,493 14,916- Change from prev. EPS (%) n.a. n.a. 0 0 0- Consensus EPS (W) n.a. n.a. 11,276 14,061 16,625EPS growth (%) (65.1) 149.0 (10.8) 9.7 10.6P/E (x) 26.6 10.7 12.0 10.9 9.9Dividend yield (%) 0.5 0 0.3 0.3 0.3EV/EBITDA (x) 17.4 9.3 6.6 5.8 5.1P/B (x) 1.4 1.3 2.0 1.8 1.5ROE (%) 6.2 13.1 20.1 17.9 16.7Net debt (net cash)/equity (%) 65.0 35.5 8.5 (6.2) (15.8) Note1:Mando Corp. manufactures and markets automotive parts and equipments including brake system, suspension system, and steering system..


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S-Oil ------------------------------------------------------------------------------ Maintain OUTPERFORM New report: Near-term earnings visibility remains high EPS: ▲ TP: ▲ A-Hyung Cho / Research Analyst / 822 3707 3735 / [email protected] Jihong Choi / Research Analyst / 82 2 3707 3796 / [email protected]

● 4Q earnings were ahead of our and market expectations. The drastic improvement resulted from strong demand and competitors’ supply constraints in the petrochemical and lubricants businesses.

● 2011 guidance is positive for both refining and petrochemicals due to the tight supply-demand dynamics and the completion of the new PX plant. Management has become more confident on dividends, which should be announced post the BoD meeting at the beginning of February.

● We revise up our EPS estimates by 31% and 21% for 2011-12, respectively, reflecting higher margins in 1Q11. Our revised target price of W130,000 is based on 2.8x P/B with ROE of 27%, in line with the regional P/B to ROE average.

● We continue to like S-Oil on the strong crack spread, timely expansion of PX and its healthy dividend outlook. We believe that, while refining and PX margins could soften on seasonal and one-off factors, the average 2011 margins are expected to be strong YoY.

4Q10 earnings better than expected

Better-than-expected 4Q10 earnings were released during market hours on 27 January. Margins were higher QoQ on tight supply-demand dynamics.

Refining – 4Q10 crack spread, in which S-Oil benefited the most, was stronger QoQ and sales volume improved, both domestic and export, on strong demand thanks to a very cold winter and industrial demand. Middle distillates demand were driven by both a very cold winter and industrial demand (including the power supply cut in China).

Petrochemical – PX spread spiked (average going up by 67% to U$476/MT) on strong polyester demand, embargo in Iran which restricted Iranian export of PX and some unexpected plant troubles. We believe some speculation by traders also explains the recent rise. Management noted that the recent uptick (from U$533 in 4Q-end to

U$810/MT) in PX-naphtha spread could be short-lived, but that the 2011 average spread would be ~U$50-100/MT better than 2010.

Lubricants – Demand remains strong and an effective cost pass-through (on rising oil price) explains the flat OP margin of 24%. Supply was tighter due to turnaround at some major competitors. Benefits from both healthy refining and PX going forward 2011 supply dynamics remains favourable, with less new supply and some refineries to be closed down in Europe and Japan. According to our colleagues in Europe, 2.085 mn bbl/day capacity is at risk and could be converted into terminals, closed down permanently or out for sale. Japan also has plans to close down 760,000 bbl/day capacity.

Our checks with the traders indicate that the PX market could turn milder, while a collapse is unlikely with healthy demand and planned outages in the region. According to industry sources and S-Oil management, the new plant in Urumqi, China (1mn MT capacity) has infrastructural issues and may take time to supply to the market.

Based on our analysis, a US$1/bbl increase in refining OP/bbl results in 14% EPS increase and a U$100/MT increase in chemical OP/MT raises EPS by 13%. We have assumed refining and PX margins would soften on seasonal and one-off factors, the average 2011 margins are expected to be strong YoY. Hence, should January-to-date margin sustain, the 2011 average spread could offer more upside.

Figure 1: S-Oil 4Q10 earnings table 4Q10 Previous results 2010E (W bn) Actual 3Q10 4Q09 QoQ(%) YoY(%) Actual Cons.Revenue 6,086.2 5,168.3 4,859.2 17.8 25.3 20,524.5 19,996.4Refining 5,133.0 4,329.0 4,170.7 18.6 23.1 17,345.4 Petrochem 436.0 358.4 377.6 21.7 15.5 1,540.5 Lube 517.2 480.9 310.9 7.5 66.4 1,638.6 OP 416.8 171.3 -85.7 143.3 nm 834.6 740.8Refining 256.2 51.6 -143.3 396.5 nm 414.9 Petrochem 37.3 1.2 12.8 3008.3 191.4% 66.2 Lube 123.3 118.5 44.8 4.1 175.2 353.5 RP 410.8 306.3 -124.5 34.1 nm 890.4 796.8OPM (%) 6.8% 3.3% nm 4% 3.7%Refining 5.0% 1.2% nm 2%Petrochem 8.6% 0.3% 3.4% 4%Lube 23.8% 24.6% 14.4% 22%RPM (%) 6.7% 5.9% nm 4% 4.0%Source: Company data, Credit Suisse estimates

Rating history (010950.KS) Date Old rating New rating Old TP (W) New TP (W)27-Jan-10 Outperform Outperform 110,000 130,000


Bbg/RIC 010950 KS / 010950.KS Rating (prev. rating) O (O) Shares outstanding (mn) 112.60 Daily trad vol - 6m avg (mn) 0.3 Daily trad val - 6m avg (US$ mn) 22.6 Free float (%) 36.6 Major shareholders Saudi Aramco (35%)


Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (W bn) 23,000 17,424 20,529 24,479 24,462EBITDA (W bn) 1,566 469 1,023 1,854 1,994Net profit (W bn) 426 224 757 1,268 1,250EPS (W) 3,784 1,988 6,723 11,264 11,100- Change from prev. EPS (%) n.a. n.a. 27 31 21- Consensus EPS (W) n.a. n.a. 5,463 8,570 9,761EPS growth (%) (38.5) (47.5) 238.1 67.6 (1.5)P/E (x) 29.2 55.6 16.4 9.8 10.0Dividend yield (%) 4.5 1.3 2.5 3.6 4.5EV/EBITDA (x) 8.2 29.8 13.5 7.3 6.4P/B (x) 3.7 3.2 2.9 2.4 2.2ROE (%) 11.6 6.1 18.3 26.8 23.0Net debt (net cash)/equity (%) 11.0 38.4 32.4 21.7 6.6 Note1:Ord/ADR=.5000.Note2:S-Oil Corporation refines, manufactures, and sells petroleum and its related products. The company's major products include gasoline, diesel, bunker oil, lubricants, benzene, toluene and xylene.


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Samsung Heavy --------------------------------------------------------------------- Maintain NEUTRAL 4Q earnings in line with expectations EPS: ▲ TP: ▲ Henry Kwon / Research Analyst / 822 3707 3732 / [email protected] Seungwoo Hong / Research Analyst / 822 3707 3795 / [email protected]

● Samsung Heavy’s 4Q10 results came in line with expectations. ● We saw no need to adjust our 2011 forecast, but given the

company’s recent spate of order takings, we expect 2012E earnings to be stronger than our previous forecast.

● We raise our 2012E earnings by 11% on our stronger new order scenario based on the current momentum. We have been arguing that consensus estimates are likely to rise, given: (1) delivery push-backs of 2007 orders to 2011 and (2) stronger-than-expected new order momentum, which should provide operating leverage-driven margin stabilisation in 2011 and 2012.

● Based on our P/B versus ROE analysis, we derive our new target price of W42,000. We believe its current share price fairly reflects the company’s fundamental outlook, but based on stock market liquidity factors could trade in the +/-15% range from our target price. We maintain our NEUTRAL rating on the stock.

Valuation metrics Company Ticker CS Price Year P/E (x) P/B Rating Local Target T T+1 T+2 (x)Samsung Heavy 010140 KS N 43,700 42,000 12/09 11.5 10.8 2.8DSME 042660 KS O 41,100 35,000 12/09 9.7 9.5 2.0Hyundai Heavy 009540 KS O 501,000 600,000 12/09 11.6 9.9 3.0Hyundai Mipo 010620 KS N 221,000 248,000 12/09 8.1 8.1 1.4Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Source: Company data, Credit Suisse estimates

Figure 1: Samsung Heavy: 4Q10 vs CS forecast (W bn) 1Q10 2Q10 3Q10 4Q10 4Q10E FY10A FY10E FY10A vs.

FY10ESales 3,330 3,035 3,146 3,542 3,451 13,054 12,963 0.7%Operating profit 216 260 264 257 268 997 1,008 -1.1%Net profit 200 230 258 200 187 888 875 1.5% OP margin 6.5% 8.6% 8.4% 7.3% 7.8% 7.6% 7.8% Net margin 6.0% 7.6% 8.2% 5.6% 5.4% 6.8% 6.8%Source: Company data, Credit Suisse estimates.

Figure 2: Samsung Heavy: New order and backlog forecast revision summary US$ bn 2010E 2011E 2012ENew orders New 10.1 9.7 9.8Old 9.8 8.5 8.5New vs old 2.3% 14.7% 15.3%Backlog New 40.5 38.6 37.3Old 40.3 37.1 35.0New vs old 0.6% 4.0% 6.6%Source: Company data, Credit Suisse estimates

Figure 3: Samsung Heavy: Summary of earnings forecast changes Old Old New New New vs

oldNew vs

old(W bn) 2011E 2012E 2011E 2012E 2011E 2012ERevenue 13,244 12,397 13,244 12,917 0.0% 4.2%Operating profit 1,099 919 1,099 1,035 0.0% 12.6%Net profit 936 801 936 891 0.0% 11.3% OP margin 8.3% 7.4% 8.3% 8.0% NP margin 7.1% 6.5% 7.1% 6.9%Source: Company data, Credit Suisse estimates

Rating history (010140 KS) Date Old rating New rating Old TP New TPNov 3, 2010 NEUTRAL NEUTRAL W22,000 W32,000Jan 27, 2011 NEUTRAL NEUTRAL W32,000 W42,000As of close of business on 26 January 2011, Credit Suisse Securities (Europe) Limited, Seoul Branch performs the role of liquidity provider on the warrants of which underlying asset is HHI/ Hyundai Mipo/ SHI/ DSME and hold 22,394,490/ 13,163,210/ 13,592,690/ 16,341,240 of warrants concerned, respectively. These may be covered warrants that constitute part of a hedged position.

Price (26 Jan 11 , W) 43,700.00TP (Prev. TP W) 42,000 (32,000) Est. pot. % chg. to TP (4)52-wk range (W) 45300 - 21250Mkt cap (W/US$ bn) 10,089.3/ 9.0

Bbg/RIC 010140 KS / 010140.KS Rating (prev. rating) N (N) Shares outstanding (mn) 230.90 Daily trad vol - 6m avg (mn) 1.8 Daily trad val - 6m avg (US$ mn) 53.9 Free float (%) 75.6 Major shareholders SEC and related

parties: 31.0%

Performance 1M 3M 12MAbsolute (%) 3.9 33.4 70.0Relative (%) (0.4) 21.4 31.9

Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (W bn) 10,664 13,095 12,963 13,244 12,917EBITDA (W bn) 995 1,075 1,316 1,433 1,400Net profit (W bn) 627.2 669.7 875.0 935.6 891.0EPS (W) 2,717 2,901 3,790 4,052 3,859- Change from prev. EPS (%) n.a. n.a. 0 0 11- Consensus EPS (W) n.a. n.a. 3,970 3,926 3,663EPS growth (%) 29.3 6.8 30.6 6.9 (4.8)P/E (x) 16.1 15.1 11.5 10.8 11.3Dividend yield (%) 1.1 1.1 1.1 1.1 1.1EV/EBITDA (x) 10.0 11.5 9.6 8.7 8.8P/B (x) 4.3 3.6 2.8 2.3 1.9ROE (%) 30.3 25.9 27.2 23.3 18.5Net debt (net cash)/equity (%) (7.9) 78.6 70.1 54.3 42.2 Note1:Samsung Heavy Industries Co., Ltd. manufactures crude oil tankers, container vessels, bulk carriers, cruisers, and passenger ferries. The company also produces steel and bridge structures, and material handling equipment.


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Samsung SDI -------------------------------------------------------------- Maintain UNDERPERFORM 4Q10 results and FY11 guidance - no tangible catalysts in the near term EPS: ◄► TP: ◄► John Sung / Research Analyst / 822 3707 3739 / [email protected]

● SDI’s core operating performance in 4Q10 was substantially weaker mainly due to aggressive ASP strategy on its recharge battery, not-so-one-off charges and currency appreciation. Its weak operating results were somewhat offset in its bottom-line thanks to the healthy support from Samsung Mobile Display.

● SDI discussed that the ongoing challenges the company faces ahead would be manageable, through timely restructuring implementations, streamlining cost competitiveness and further increase in economies of scale. SDI also projects that volume growth of its PDP and recharge battery would continue.

● However, our concern remains in the ASP side of those products and also the additional costs SDI would have to incur to further gain incremental volume shares beyond its current high levels. We believe its sales could decline at least in the short-to-mid term and its core operating profit would remain flat at best. We continue to believe that it is too early to factor in those new products in the distant pipeline.

● We reiterate our cautious stance on SDI with an UNDERPERFORM rating and unchanged target price of W137,000/share.

4Q10 results – substantially weaker operating performance. SDI’s core operating performance in 4Q10 was substantially weaker mainly due to: 1) aggressive ASP strategy on its recharge battery, 2) not-so-one-off charges totalling about W400 bn (including CRT-related restructuring and inventory write-down) and 3) currency appreciation (of about 4% QoQ against US$). SDI commented that it had to be one of the ASP aggressors in 4Q10 to sustain and/or strengthen its volume market share in slowing notebook battery market, in the wake of demand migration to table PCs. PDP seems to have fared relatively well again, given its ASP advantage over the LCD camp, but overall ASP weakness in display sector brought back its margins to a loss from mid single-digits in 3Q10. Its weak operating performance was somewhat offset in its bottom-line earnings thanks to the healthy support from Samsung Mobile Display (SMD: a 50-50 JV with

Samsung Electronics). SMD contributed about W66 bn of equity-method gain to SDI’s bottom-line earnings in 4Q10. Of note, SBLiMotive’s (a 50-50 JV with Bosch of Germany in hybrid battery) loss contribution (as the company is still in R&D phase) was about W11 bn in 4Q10.

FY11 guidance – challenging but manageable, according to the management. At the local conference meeting, SDI discussed the ongoing challenges the company faces such as structural demise of CRT, likely capped volume growth in PDP and demand mix shift in recharge battery. In sum, SDI basically indicates that it would try to cope with these challenges, respectively, through timely restructuring implementations, streamlining cost competitiveness and further planned increase in economies of scale.

Our core thoughts on SDI revisited – slowing growth of its existing businesses, while new products remain too distant to factor in. Beside CRT, SDI projects that volume growth of its PDP and recharge battery would continue. We agree partially, but our concern remains on the ASP of those products and also the additional costs SDI would have to raise to further gain incremental volume shares beyond its current high levels. We believe its sales could decline at least in the short-to-medium term and its core operating profit would remain flat at best. In the meantime, even SDI thinks that its new products in the pipeline (e.g., hybrid battery, ESS, etc.) could see meaningful volumes probably beyond FY12/13. We continue to believe that it is still too early to factor in those uncertainties.

Minor forecast adjustments and UNDERPERFORM reiterated – no tangible catalysts in the near term. As shown in Figure 1, we only had minor adjustments following the 4Q10 results. We basically project that the growth of its core profits would remain flat YoY in FY11. We reiterate our cautious stance on the stock with our UNDERPERFORM rating and the same target price of W137,000 (attained from the sum of its core book value, holding value of its affiliates and projected PV of is hybrid battery JV).

Figure 1: 4Q10 results and revised forecast (consolidated) 4Q10 FY10 FY11 (W bn, %) Actual % QoQ % YoY CS BBG Actual Old New OldSales 1,245 -7.6 -10.7 1,307 1,251 5,124 5,187 4,735 4,589Op. profit 15 -88.1 -68.5 99 74 287 371 289 305Net profit 81 -49.1 427.6 100 89 356 375 360 355OP margin 1.2 - - 7.6 5.9 5.6 7.2 6.1 6.6NP margin 6.5 - - 7.7 7.1 6.9 7.2 7.6 7.7Source: Company data, Bloomberg, Credit Suisse estimates.

Rating history (006400 KS) Date Old rating New rating Old TP New TPOct 27, 2010 UNDERPERFORM UNDERPEFORM W130,000 W137,000As of close of business on 26 Jan, 2009, Credit Suisse Securities (Europe) Limited, Seoul Branch performs the role of liquidity provider on the warrants of which underlying assets are Samsung SDI/Samsung Electronics and holds 14,304,960/27,106,170 of warrants concerned. These may be covered warrants that constitute part of a hedged position.

Price (27 Jan 11, W) 162,000.00TP (Prev. TP W) 137,000 (137,000) Est. pot. % chg. to TP (15)52-wk range (W) 187000 - 127000Mkt cap (W/US$ bn) 7,482.2/ 6.7

Bbg/RIC 006400 KS / 006400.KS Rating (prev. rating) U (U) Shares outstanding (mn) 45.60 Daily trad vol - 6m avg (mn) 0.6 Daily trad val - 6m avg (US$ mn) 81.7 Free float (%) 62.5 Major shareholders SEC, 20.38%

Performance 1M 3M 12MAbsolute (%) (0.3) 5.2 19.1Relative (%) (4.5) (4.3) (7.6)

Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (W bn) 3,726 3,551 3,950 4,230 4,177EBITDA (W bn) 750.9 766.4 862.6 871.2 865.8Net profit (W bn) 38.0 217.1 355.1 358.8 363.0EPS (W) 816 4,670 7,616 7,514 7,424- Change from prev. EPS (%) n.a. n.a. (5) 1 7- Consensus EPS (W) n.a. n.a. 6,258 8,852 10,987EPS growth (%) n.a. 472.0 63.1 (1.3) (1.2)P/E (x) 198.4 34.7 21.3 21.6 21.8Dividend yield (%) 0.3 0.3 0.3 0.3 0.3EV/EBITDA (x) 9.8 9.6 8.3 8.1 8.1P/B (x) 1.7 1.5 1.4 1.3 1.3ROE (%) 0.8 4.6 6.9 6.5 6.2Net debt (net cash)/equity (%) (2.2) (1.8) (5.5) (7.6) (8.4) Note 1:Samsung SDI (SDI) is a leading global producer of cathode ray tubes (CRT), super twisted nematic liquid crystal displays (STN0-LCD) and vacuum fluorescent display (VFD). SDI is venturing into plasma display panels (PDP) and organic light-emitting diode (OLEDs).


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Seoul Semiconductor------------------------------------------------------- Maintain OUTPERFORM Core 4Q10 operating performance in line EPS: ▼ TP: ▼ John Sung / Research Analyst / 822 3707 3739 / [email protected] Yonghi Li / Research Analyst / 822 3707 3761 / [email protected]

● During market hours on 27 January, Seoul Semiconductor (SSC) reported 4Q10 results. Its core operating performance was roughly in line with the street’s estimates and also in line with its original guidance.

● SSC presented a very aggressive FY11 target, with 61% YoY target growth in sales (W1.35 tn) and OP (W177 bn, in terms of SSC only) backed by a further increase in customer diversification and economies of scale. Although we believe SSC should be able to post a stronger growth than others in relative terms on the back of further client diversifications expected, its guidance looks a bit too aggressive considering the current competitive landscape.

● We revise our earnings estimates, mainly reflecting the lower LED price bases exiting FY10. We now forecast net profit of W124 bn in FY11 (down from W138 bn earlier).

● We reiterate our positive view on SSC, with an OUTPERFORM rating and a lower target price of W53,000 (down from W63,000), based on the same implied target PEG of 0.46x, reflecting our revised forecast.

4Q10 results – core operations roughly in line with expectations. During market hours on 27 January, SSC reported its 4Q10 results. Its core operating performance was roughly in line with the street’s estimates and also in line with its original guidance. Of note, SSC is the only LED name among the big three in Korea with a positive margin in 4Q10 (vs OP loss reported on LED by Samsung LED and LG Innotek). SSC’s larger product mix towards non-TV LEDs (i.e., those for smartphones, tablet PCs and general lighting) was key to better earnings performance in relative terms. But, SSC’s earnings were not as healthy, due to the weaker performance of Seoul Opto Device (SOD), an unlisted LED chip making subsidiary of SSC. SOD production has a higher exposure to TV applications and posted 30% OP loss in 4Q10 (vs 5% OP margin in 3Q10).

FY11 earnings guidance – further growth ahead. SSC at the local conference meeting presented a very aggressive FY11 target, with

61% YoY growth target in sales (W1.35 tn) and OP (W177 bn, in terms of SSC only) backed by a further increase in customer diversification and economies of scale. Although full details were not discussed, SSC expects SOD’s substantial YoY turnaround backed by growing economies of scale. Although we believe SSC should be able to post a stronger growth than others in relative terms on further client diversifications expected, its guidance looks a bit too aggressive considering the current competitive landscape (e.g., still aggressive capacity additions by others even under low utilisation rates).

Revised earnings forecast – reflecting lower LED price base. We agree with the overall direction of SSC’s guidance on its business outlook, but as discussed earlier its FY11 guidance appears a bit stretched, in our view. Our revisions shown in Figure 1 mainly reflect the lower LED price bases exiting FY10. We now forecast an OP of W135 bn in FY11 (down from W138 bn earlier).

Reiterate OUTPERFORM – our preferred pick in Korea LED. We reiterate our positive view on SSC with an OUTPERFORM rating and lower target price of W53,000 (down from W63,000), based on the same implied target PEG of 0.46x, reflecting our revised forecast. Although the degree of industry’s sequential utilisation pick-up would be still debatable following the normalisation of channel inventory in progress, we continue to prefer SSC to other key LED names in Korea, given its healthier earnings track and more operationally leveraged nature of its earnings.

Figure 1: 4Q10 results summary and revised forecast 4Q10 FY10 FY11 (W bn, %) Actual % QoQ % YoY CS BBG Actual Old New OldSales 222 -19.8 80.2 252 252 839 869 1,071 1,104Operating profit 24 -42.9 208.5 26 29 110 112 135 138Net profit 13 -61.6 518.0 28 24 92 107 124 138OP margin 11.0 - - 10.5 11.6 13.1 12.8 12.6 12.5NP margin 6.0 - - 11.0 9.5 11.0 12.3 11.6 12.5Source: Company data, Bloomberg, Credit Suisse estimates

Figure 2: Quarterly OP vs share price

-30-20-10

01020304050

01-0

207

-02

01-0

307

-03

01-0

407

-04

01-0

507

-05

01-0

607

-06

01-0

707

-07

01-0

807

-08

01-0

907

-09

01-1

007

-10

01-1

107

-11

010,00020,00030,00040,00050,00060,00070,000(W bn) (W)

SSC's share price (RHS)

SSC's quarterly OP (LHS)

Source: Company data, Credit Suisse estimates Rating history Ticker Date Old rating New rating Old TP New TP046890.KQ Jan 27 2011 OUTPERFORM OUTPERFORM W63,000 W53,000


Bbg/RIC 046890 KS / 046890.KQ Rating (prev. rating) O (O) [V] Shares outstanding (mn) 58.30 Daily trad vol - 6m avg (mn) 0.7 Daily trad val - 6m avg (US$ mn) 25.9 Free float (%) 48.4 Major shareholders CEO, 21.5%

Performance 1M 3M 12MAbsolute (%) 6.6 (1.1) (4.7)Relative (%) 2.1 (10.0) (26.1)

Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (W bn) 284 453 839 1,071 1,341EBITDA (W bn) 3.6 63.5 142.0 203.0 241.9Net profit (W bn) (12.5) 28.2 92.0 124.2 164.5EPS (W) (246) 548 1,578 2,130 2,822- Change from prev. EPS (%) n.a. n.a. (14) (10) (3)- Consensus EPS (W) n.a. n.a. 1,726 2,509 3,222EPS growth (%) n.a. n.a. 188.3 35.0 32.5P/E (x) NM 75.7 26.3 19.5 14.7Dividend yield (%) 0 0.2 0.5 0.8 1.0EV/EBITDA (x) 673.6 37.6 16.9 11.8 9.8P/B (x) 12.8 4.7 4.3 3.6 3.0ROE (%) (7.2) 9.1 18.0 20.2 22.3Net debt (net cash)/equity (%) 8.3 (5.9) (3.2) (3.9) (4.4) Note1:Seoul Semiconductor is the largest LED packaging supplier and LED pure play in Korea.Note2:Seoul Semiconductor is the largest LED packaging supplier and LED pure play in Korea.


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WFH------------------------------------------------------------------------------- Maintain OUTPERFORM Revived share overhang risk is the least likely fallout, but ... EPS: ◄► TP: ◄► Sokmo Yun / Research Analyst / 822 3707 3763 / [email protected] Soyeon Hong / Research Analyst / 822 3707 3740 / [email protected]

● On 26 January, Maeil Economic Daily reported that the regulator has decided to sell KDIC’s stake in WFH through a block deal within this year. Despite the immediate denial by the regulator, WFH share price on 27 Jan closed -3.59%, weighed by a knee-jerk sell-off amid revived concerns over share overhang.

● We believe the block sale of a sizeable WFH stake is least likely since it seems hard for the regulator to recoup tax payer's money (breakeven is W16,256 without opportunity cost). And we couldn’t find any compelling reason to sell hurriedly at sizeable losses even with the public backlash ahead of next year’s election.

● Since the privatisation talks stalled in 2010-end, market seemed to give a ‘benefit of doubt’ to WFH and the regulator on the privatisation, along with the expectation of an earnings turnaround in 2011. With this backdrop, although FSC denied the possible block sale within this year, we believe the burden of proof still lies upon the regulator until market finally shrugs it off. As such, this might increase the risk to WFH share price in the short term.

Block sale speculation triggered the knee-jerk selloff On 26 January, Maeil Economic Daily reported that the regulator has decided to sell KDIC’s stake in WFH through a block deal within this year. Later that day, FSC officially denied the above, saying that no detailed guideline or method of selling is decided and those agenda will be dealt by PFOC (Public Fund Oversight Committee) later. Despite the regulator’s immediate denial, WFH share price on 27 January showed a knee-jerk reaction, closing near a daily low at -3.59%. We could hear more on how the new head of FSC will proceed with the privatisation from the PFOC meeting slated for 28 January. However, we believe it will take time for them to come up with a meaningful agenda. PFOC meeting on 28 January is the first meeting since the change of FSC head. FSC head takes the co-chairman position of PFOC, which consists of eight members (comprising two officials and six professors and experts recommended by relevant groups).

Block sale of sizeable stake a least likely option We still believe the block sale of a sizeable WFH stake is a least likely option, mainly because a block sale makes it hard for the government to meet its priority condition – to recoup tax payer's money. WFH share price level (W15,300) is already below KDIC’s breakeven price (W16,256), which doesn’t even consider opportunity cost for almost a ten-year investment. And the possible series of block sales without addressing how to deal with the large chunk of controlling stake does nothing but to increase concerns over share overhang, which will in turn make it even harder to recoup tax payers’ money. More importantly, we couldn’t find any compelling rationale for the regulator to sell the stake at sizeable losses even with the public backlash ahead of the general election next year. And the block sale seems to be a lower priority than more imminent concerns such as mutual savings banks’ restructuring.

Figure 1: KDIC’s equity stake in WFH Number Per share price Cash flow

Dateof shares (Won) (Wbn)

Public fund injection Mar-01 727,458,609 -12,766Dividend Mar-02 727,458,609 250 182Dividend Mar-03 727,458,609 100 378Public placement Jun-02 54,000,000 6,800 367Dividend Mar-04 673,458,609 150 1011st block sale Sep-04 45,000,000 7,200 324Dividend Mar-05 628,458,609 400 251Dividend Mar-06 628,458,609 600 377Dividend Mar-07 628,458,609 600 3772nd block sale Jun-07 40,300,000 22,750 9173rd block sale Nov-09 56,420,000 15,350 8664th block sale Apr-10 72,540,000 16,000 1,161Remaining stakes 459,198,609 16,256* -7,465Source: FSS, Credit Suisse estimates. *Note: W16,256 per share is breakeven price for remaining 56.97% stake without considering opportunity cost. Near-term risk to share price – ‘Benefit of doubt’ might swing back to ‘burden of proof’ Since the privatisation talks stalled in 2010-end, we initially believed that the privatisation will not hamper the possible valuation recovery for the time being. And along with the expectation of an earnings turnaround, market seemed to give a benefit of doubt to WFH and the regulator on the privatisation scenario, in our view. With this backdrop, the revived share overhang concerns might be negative to the market sentiment toward WFH. Although FSC officially denied the possible privatisation through a block sale within this year, we believe the burden of proof still lies upon the regulator until the market finally overcomes the concerns. This might increase the risk to WFH share price in the short term. Rating history (053000.KS) Date Old rating New rating Old TP New TPJan 5, 2011 OUTPERFORM OUTPERFORM W16,000 W20,000As of close of business 26 Jan 2011, Credit Suisse Securities (Europe) Limited, Seoul Branch performs the role of liquidity provider on the warrants of which underlying assets is WFH and holds 12,042,960 of warrants concerned. These may be covered warrants that constitute part of a hedged position.


Bbg/RIC 053000 KS / 053000.KS Rating (prev. rating) O (O) Shares outstanding (mn) 806.00 Daily trad vol - 6m avg (mn) 4.4 Daily trad val - 6m avg (US$ mn) 57.7 Free float (%) 27.0 Major shareholders KDIC; 56.97%

Performance 1M 3M 12MAbsolute (%) (3.3) 1.0 3.9Relative (%) (7.5) (8.8) (20.2)

Year 12/08A 12/09A 12/10E 12/11E 12/12EPre-prov Op profit (W bn) 2,932 3,906 5,124 5,509 5,788Net profit (W bn) 454 1,026 1,267 2,289 2,599EPS (W) 564 1,273 1,571 2,840 3,225- Change from prev. EPS (%) n.a. n.a. 0 0 0- Consensus EPS (W) n.a. n.a. 1,587 2,505 2,661EPS growth (%) (77.6) 125.8 23.5 80.7 13.5P/E (x) 26.2 11.6 9.4 5.2 4.6Dividend yield (%) 0 0 1.4 2.7 4.1BVPS (W) 15,145 17,023 18,124 20,262 23,251P/B (x) 1.0 0.9 0.8 0.7 0.6ROE (%) 3.5 7.9 9.0 14.8 14.8ROA (%) 0.2 0.4 0.4 0.8 0.8Tier 1 (%) 7.7 10.2 11.9 13.9 16.8 Note 1: Ord/ADR=3.0000. .Note 2: Woori Finance Holdings Co., Ltd. is a holding company of Woori Bank, Kwangju Bank, Kyongnam Bank, Woori Securities and other subsidiaries. The company operates and controls its financial subsidiaries.


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Taiwan AUO-------------------------------------------------------------------------------------- Maintain NEUTRAL New report: Recovery appears to be delayed EPS: ▼ TP: ◄► Robin Cheng / Research Analyst / 886 2 2715 6386 / [email protected] Jimmy Huang / Research Analyst / 886 2 2715 6352 / [email protected]

● AUO reported 4Q10 net loss of NT$11.3 bn, below our and consensus estimates. 4Q10 sales fell 18% QoQ, as area shipments fell 7.4% while area ASP fell 8.5% sequentially.

● AUO guided 1Q11 shipments to be flattish, with IT panel up slightly and TV panel down slightly QoQ. It expects IT panel ASP to rebound slightly while TV panel ASP to be flattish QoQ, supported by a higher mix of LED. AUO expects utilisation to be in the mid-80% range and 2011 capex to be NT$90-95 bn.

● We think the LCD industry could begin recovering in 2Q11, but the strength will likely be mild and duration could be lengthy due to: (1) slower demand growth; (2) still under-utilised capacity; (3) retail price promotion caps panel price upside.

● We cut our FY10/11E earnings by 24% and 12%, respectively, on weaker 4Q10 results and the delayed pricing recovery. We maintain a NEUTRAL on AUO, with a target price of NT$32, based on the same 1x 2011E P/B.

Figure 1: AUO – 4Q10 results summary NT$ mn 3Q10A 4Q10A QoQ % Old CS 4Q +/-% Street +/-%Sales 124,403 102,605 -18 102,621 0 111,756 -8Gross profit 6,241 -4,537 NM -2,850 -59 NMOperating profit 232 -11,080 NM -7,981 -39 -5,067 -119EBITDA 22,494 10,942 -51 14,281 -23 21,238 -48Pre-tax profit -20 -11,375 -56,775 -9,731 -17 -6,167 -84Net income 227 -11,339 NM -9,731 -17 -6,132 -85EPS (NT$) 0.03 -1.3 NM -1.1 -18 -0.77 -69GM % 5 -4.4 -2.8 NMOpM % 0.2 -10.8 -7.8 -4.5EBITDA M % 18.1 10.7 13.9 19Net margin % 0.2 -11.1 -9.5 -5.5Source: Company data, Credit Suisse estimates

Figure 2: Quarterly P&L for 2H10 and FY11 NT$ mn 3Q10 4Q10 1Q11E 2Q11E 3Q11E 4Q11E 2010E 2011ESales 124,403 102,605 96,222 112,478 129,440 127,496 467,158 465,636Gross profit 6,241 -4,537 -6,747 7,003 17,354 16,299 36,298 33,908Operating profit 232 -11,080 -11,558 929 10,494 9,797 10,496 9,661EBITDA 22,494 10,942 10,464 23,171 33,181 32,937 99,631 99,753Net income 98 -11,465 -12,008 479 9,039 8,412 6,692 5,922EPS (NT$) 0.01 -1.3 -1.36 0.05 1.02 0.95 0.76 0.67 Gross margin% 5 -4.4 -7 6.2 13.4 12.8 7.8 7.3OpM % 0.2 -10.8 -12 0.8 8.1 7.7 2.2 2.1EBITDA Mar. % 18.1 10.7 10.9 20.6 25.6 25.8 21.3 21.4Net margin % 0.1 -11.2 -12.5 0.4 7 6.6 1.4 1.3Source: Company data, Credit Suisse estimates Capex and expansion: focusing on “value-add” AUO expects 2011 capex to be NT$90-95 bn (about US$3 bn), of which 80% will be spent on its core display business while the remaining 20% will be allocated to its new solar business. On the display side, the key expansion for 2011 will be the ramp up of its new 8.5G (L8B). AUO expects the line to begin mass production in April and reach 45,000 monthly substrate input in 2H11. AUO will also convert one of its 5.3G lines to LTPS and OLED production, with a total capacity of 7,000 per month. AUO expects its capacity growth in 2011 to be 12-13% YoY, slower than that of LGD. Instead of focusing on capacity and volumes, AUO’s focus is to increase the value on each panel sold with either better specs (LED, LTPS) or added features (touch solution, 3D).

Figure 3: 1Q11 guidance comparison AUO LGDShipment Flattish QoQ High single digit declineTV Flat or slightly down QoQ IT Slightly up QoQ Price trend TV Flat QoQ supported by better mix Price decline deceleratingIT Up single digit QoQ Price stabilisationCapex 2011 NT$90-95 bn Won 5 tn.Source: Company data, Credit Suisse estimates

Figure 4: AUO – 12-month forward P/B

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Jan-06 Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 Jan-11

AUO share price 0.5x 1x 1.5x 2x

(NT$)


Price (26 Jan 11 ) 28.90TP (Prev. TP) 32.00 (32.00) Est. pot. % chg. to TP 1152-wk range 38.0 - 27.3Mkt cap (bn) 255.1/ 8.8

Bbg/RIC 2409 TT / 2409.TW Rating (prev. rating) N (N) Shares outstanding (mn) 8,827.05 Daily trad vol - 6m avg (mn) 45.9 Daily trad val - 6m avg (mn) 47.8 Free float (%) 70.0 Major shareholders Qisda (8%)

Performance 1M 3M 12MAbsolute (%) (5.4) (6.0) (21.7)Relative (%) (7.1) (13.4) (34.3)

Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (mn) 423,928 359,331 467,158 465,636 499,321EBITDA (mn) 111,781 74,869 99,631 99,753 110,197Net profit (mn) 21,267 (26769) 6,692 5,922 10,361EPS 2.50 (3.04) 0.76 0.67 1.17- Change from prev. EPS (%) n.a. n.a. (24) (12) (3)- Consensus EPS n.a. n.a. 1.36 2.60 3.17EPS growth (%) (65.4) n.a. n.a. (11.5) 75.0P/E (x) 11.6 NM 38.1 43.1 24.6Dividend yield (%) 8.0 1.0 0.7 0.7 1.2EV/EBITDA (x) 3.0 4.7 4.0 3.8 3.2P/B (x) 0.8 1.0 1.0 0.9 0.9ROE (%) 7.3 (9.7) 2.5 2.2 3.8Net debt (net cash)/equity (%) 26.5 35.7 51.5 43.8 34.0 Note1:Ord/ADR=10.0000.Note2:AU Optronics manufactures thin film transistor liquid crystal display (TFT LCD) panels..Note3:0.


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Huaku ---------------------------------------------------------------------------- Maintain OUTPERFORM Clear earnings visibility for 2011; generous dividend yield for 2011/12 EPS: ▲ TP: ◄► Sidney Yeh / Research Analyst / 886 2 2715 6368 / [email protected] David Liao / Research Analyst / 8862 2715 6342 / [email protected]

● Huaku sold V-5, an office building in Neihu, for NT$2.04 bn. The implied ASP is NT$410,000-420,000/ping, which is in line with our estimate. The gross margin is expected to be around 46%, given the cheaper land cost (acquired in 2007).

● The construction of the V-5 project kicked off in 2Q10 and the completion is scheduled for the end of 2011. Management stated that earnings booking would start at the end of this month and continue throughout the year.

● Following V-5, the company has another three projects (of total estimated sales of NT$17.2 bn) for 2011. Among the three, the other office building, V-park, is also considered a very lucrative project with large size and cheap land cost.

● Earnings momentum has been accelerating from 4Q10. With the sales/profits injection through V-5, we believe 2011 earnings will be even stronger. We are very comfortable with our 2011 EPS forecast as 75% of the forecast is already locked in. Generous dividend yield of 7-10% is anticipated for 2011/12 (on 2010/11 earnings).

V5 is sold with good ASP and lucrative margin Huaku sold V-5, an office building in Neihu, for NT$2.04 bn. The implied ASP is NT$410,000-420,000/ping, or NT$123,870-126,890 sqm. The ASP is roughly in line with our assumption of NT$420,000/ping. Due to the cheap land cost (acquired in 2007), the project generates lucrative gross margin of around 46%. As the company started the construction earlier in 2Q10, the construction progress is rapid now and is likely to be finished by the end of 2011. This implies that the company can book all the sales and profits in 2011. Management stated that the booking would start this month.

After the sales of the V-5 project, Huaku still has three projects in the pipeline for this year. Among the three, there are two residential projects and one office building.

Figure 1: Huaku’s projects for 2011 Floor space Est. Sales Launch Location (ping) (NT$ mn) timeV-5 (commercial) Neihu, Taipei City 4,600 2,046 1Q2011XinDian Project (Res.) XinDian, Taipei County 6,500 3,575 2011Song Jiang (Res.) Chungshan, Taipei City 4,100 2,790 2011V-Park (commercial) Neihu, Taipei City 21,000 10,860 3Q2011Source: Company data, Credit Suisse estimates

The market focus would be on the commercial project, V-Park, in our view, as this project is both sizeable and lucrative. With 3,837 pings land, V-Park is designed for offices of 21,000 pings floor space. As the market demand for office has been increasing in tandem with employment improvement in Taiwan, we believe the sales of V-Park will be decent. The land was also acquired in 2007 and the projected sales are NT$10.9 bn with gross margins of above 45%. This project should be a key earnings contributor for the company from 4Q11 onward through 2012/13.

Figure 2: Major commercial transactions in Taipei City GFA Price New ASP/GFA Name Date Location (ping) (NT$ bn) buyer (NT$/ping)TF World Trade May-10 Sinyi 5,316 2.2 Fubon Life 413,845Uni- P Int'l (F29) Aug-10 Sinyi 782 0.9 ADATA 1,151,361Chinfon HQ Aug-10 Chungcheng 2,417 2.6 Taiwan Life 1,059,081Taipei Fin. Center (B1, F1,2,8 and 9)

Aug-10 Sungshan 1,905 1.8 Lun Yen 955,381

Show Der (B1, F1) Sep-10 Chungcheng 1,180 1.8 Pan Overseas 1,543,482Hannover Building May-10 Neihu 13,450 4.7 Fubon Life 350,260V-5 (5th Element) Jan-11 Neihu 4,600 2.0 n.a 420,000Source: Company data, Credit Suisse estimates Comfortable with 2011E EPS of NT$13.6 The company's earnings momentum has been accelerating from 4Q10. Huaku had announced preliminary results for 2010 with pretax income of NT$3 bn or pretax EPS of NT$11.6. Now, with the sales/profit injection through the V-5 project, the earnings momentum should be even stronger. In the worst-case scenario (assuming no further new sales from now to the year end), the company could still have EPS of NT$10.2 in 2011. In other words, 75%+ of our 2011 EPS forecast is locked in. Maintain OUTPERFORM

Huaku is now trading at a 5% discount to our estimated NAV. However, there appears some upside risk to our NAV forecast as our ASP assumptions for projects in 2H11 and 2012 are very conservative. We maintain our OUTPERFORM rating on Huaku, which is at 7.0X 2011E EPS. The street’s consensus EPS forecast (ranging from NT$9 to NT$11 per share) appears low to us and we expect some revisions from here. We also anticipate very generous dividend yield on the company, which is estimated at 7.0-10.0% for 2011/2012 (on 2010 and 2011 earnings).

Price (26 Jan 11, NT$ ) 95.40TP (Prev. TP NT$) 107 (107) Est. pot. % chg. to TP 1252-wk range (NT$) 98.7 - 70.6Mkt cap (NT$/US$mn) 24,879.2/ 857.2

Bbg/RIC 2548 TT / 2548.TW Rating (prev. rating) O (O) Shares outstanding (mn) 260.79 Daily trad vol - 6m avg (mn) 1.9 Daily trad val - 6m avg (mn) 5.9 Free float (%) 70.0 Major shareholders Management

families (20%)


Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (mn) 10,033 9,351 9,637 9,922 12,124EBITDA (mn) 2,556 2,925 3,098 3,896 4,250Net profit (mn) 2,570 2,565 2,831 3,575 3,878EPS 11.0 10.6 10.8 13.6 14.7- Chg. from prev. EPS (%) n.a. n.a. 1 0 0- Consensus EPS n.a. n.a. 10.2 10.3 13.9EPS growth (%) 4.5 (3.7) 1.4 26.3 8.5P/E (x) 8.7 9.0 8.9 7.0 6.5Dividend yield (%) 5.2 6.3 7.3 10.0 10.8EV/EBITDA (x) 13.0 9.4 9.4 7.6 6.8P/B (x) 3.4 2.7 2.5 2.1 1.9ROE (%) 43.5 33.6 30.3 33.0 31.5Net debt (net cash)/equity (%) 128.4 30.4 43.2 41.3 31.4 Note 1: Huaku Construction Corporation builds, sells and leases commercial and residential buildings which are constructed by independent contractors.


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Kinsus --------------------------------------------------------------------------- Maintain OUTPERFORM 4Q10 weak margins hurt by the Piotek merger EPS: ▼ TP: ◄► Pauline Chen / Research Analyst / 886 2 2715 6323 / [email protected] Josette Chang / Research Analyst / 886 2 2715 6367 / [email protected]

● Kinsus reported its first quarter results post the Piotek merger. 4Q EPS of NT$1.41 was roughly in line, but its consolidated GM and OPM were below estimates, hurt by weaker-than-expected profitability from Piotek. Without Piotek, its core substrates business was in line with expectations.

● There is no change to the 1Q11/2011 outlook. We remain comfortable with our estimates for its substrate business, given our positive view on the overall smartphone market, Kinsus technology leadership, and potential upside from tablets.

● However, we lower our PCB assumptions from 1% net margin to breakeven for 2011, after the weak 4Q results. We note there could be 6% upside to our 2011 EPS, if Kinsus can meet its target for 20% YoY sales growth and 4% net margin for PCB business.

● We fine tune our FY10-12 EPS estimates after 4Q10 results. Kinsus is trading at 13x FY11 P/E, versus its post-crisis trading range of 10-17x. Valuation is not demanding for a company with technology leadership in an uptrend sector (positive product cycle with an improving supply-demand balance). OUTPERFORM.

4Q10 results operationally weaker hurt by Piotek merger

Kinsus reported its first consolidated results after the Piotek (PCB subsidiary) merger. 4Q10 EPS of NT$1.41 (down 11% QoQ but up 23% YoY) was in line with our and street’s estimates. However, both gross and operating margins were weaker than expected at 20% and 12%, respectively. We estimate its substrate business reported 29.5% GM (versus guidance for 30%), and its PCB business reported 0% GM (below guidance 5%). Operating expenses grew by 33% QoQ, pushing the opex-to-sales ratio back to 8.9%. Without Piotek, 4Q opex-to-sales ratio for substrates is estimated at 7.6%, roughly in line with the 3Q level. Overall, we believe the results were hurt by Piotek’s weak profitability – which we also underestimated. No change in 1Q11/2011 outlook (for substrates) There is no change to the 1Q11/2011 outlook. Kinsus still expected a 5% QoQ revenue decline with falling GM by 100 bp in 1Q11, and 20%

YoY growth with improving GM in 2011 (due to a better product mix). We remain comfortable with our assumptions for 25% YoY sales growth and flattish GM in 2011, as we are more positive on the overall smartphone market growth and potential contribution from the tablet projects. However, we lower our PCB profitability assumption from 1% net margin to breakeven only for 2011, given the weak 4Q10 results. We note that if Kinsus can deliver its target for 20% YoY revenue growth and 4% net margin for its PCB business, there would be 6% upside to our 2011 EPS estimates. Our view We fine tune our FY10-12 EPS estimates, folowing its 4Q10 results. While we agree the Piotek merger is not a good capital management (paying over book value for a loss-making company), we note that Kinsus does have the management capability (experience) to turn around this business. The stock is trading at 13x FY11E P/E, versus its post-crisis trading range of 10-17x. Valuation is not demanding for a company with solid technology leadership in an uptrend sector (positive product cycle with an improving supply-demand balance). We maintain our OUTPERFORM rating.

Figure 1: Kinsus 4Q10 preliminary results (consolidated) NT$ (mn) Actual CS +/- (%) QoQ (%) YoY (%) Street +/- (%)Net sales 5,727 5,535 3 12 80 5,583 3Gross profit 1,165 1,239 -6 -8 27 Operating profit 660 763 -14 -26 30 Net income 630 606 4 -11 23 636 -1 EPS (NT$) 1.41 1.36 4 -11 23 1.43 -1 Gross margin (%) 20 22 Operating margin (%) 12 14 Net margin (%) 11 11 11 Source: Company data, Credit Suisse estimates, Bloomberg I/B/E/S estimates

Figure 2: Kinsus – 4Q10/1Q11 outlook (for substrates only) 4Q10A 1Q11E (NT$ mn) CS Actual CS GuidanceRevenue 3,885 3,943 3,752 3,745 QoQ change -2 Flat -5 -5GM (%) 31.0 29.5 28.2 29.0Source: Company data, Credit Suisse estimates Figure 3: Kinsus’ 2010-12 earnings revisions 2010F 2011F 2012F (NT$ mn) New Old +/- (%) New Old +/- (%) New Old +/- (%)Sales 17,595 16,256 8 24,518 23,963 2 27,784 27,500 1Gross profits 4,419 4,494 -2 5,758 5,892 -2 6,609 6,610 0Gross margin (%) 25.1% 27.6% 23.5% 24.6% 23.8% 24.0%Operating profits 2,844 3,005 -5 3,758 3,891 -3 4,258 4,283 -1Op margin (%) 16.2% 18.5% 15.3% 16.2% 15.3% 15.6%Pre-tax income 2,763 2,858 -3 3,770 3,884 -3 4,280 4,277 0Net income 2,453 2,429 1 3,281 3,300 -1 3,638 3,633 0EPS (NT$) 5.50 5.45 1 7.36 7.40 -1 8.16 8.15 0Source: Company data, Credit Suisse estimates

Price (27 Jan 11 ) 96.10TP (Prev. TP) 112 (112) Est. pot. % chg. to TP 1652-wk range 103.0 - 62.2Mkt cap (mn) 42,860.6/ 1,474.9

Bbg/RIC 3189 TT / 3189.TW Rating (prev. rating) O (O) [V] Shares outstanding (mn) 446.00 Daily trad vol - 6m avg (mn) 3.7 Daily trad val - 6m avg (mn) 10.9 Free float (%) 59.0 Major shareholders Asustek (41.07%)

Performance 1M 3M 12MAbsolute (%) (2.3) 14.8 14.4Relative (%) (4.1) 5.8 (4.0)

Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (mn) 12,215 11,083 17,595 24,518 27,784EBITDA (mn) 3,967 3,806 5,477 7,175 7,861Net profit (mn) 2,198 1,919 2,453 3,281 3,638EPS 4.93 4.30 5.50 7.36 8.16- Change from prev. EPS (%) n.a. n.a. 1 (1) 0- Consensus EPS n.a. n.a. 5.69 7.37 8.33EPS growth (%) (44.2) (12.7) 27.8 33.8 10.9P/E (x) 19.5 22.3 17.5 13.1 11.8Dividend yield (%) 2.1 2.4 2.4 3.2 3.6EV/EBITDA (x) 9.4 9.9 6.3 4.4 3.6P/B (x) 2.4 2.3 2.1 1.9 1.7ROE (%) 12.4 10.4 12.5 15.3 15.3Net debt (net cash)/equity (%) (31.8) (26.4) (35.8) (44.6) (53.5) Note1:Kinsus Interconnect Technology Corp manufactures BGA (Ball Grid Array) boards. The Company's products include PBGA (Plastic BGA), MCM (Multi Chip Module) BGA, Mini BGA, TEBGA (Thermal Enhanced BGA), and flip chip substrate boards..


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MediaTek-------------------------------------------------------------------- Maintain UNDERPERFORM 4Q10 results preview: Cautious near term as smartphone inflection still further out EPS: ▼ TP: ◄► Randy Abrams, CFA / Research Analyst / 886 2 2715 6366 / [email protected] Tony Wu / Research Analyst / 8862 2715 6335 / [email protected] Jimmy Huang / Research Analyst / 886 2 2715 6352 / [email protected]

● Results on Monday – near-term still cautious. We expect mixed 4Q10 results and a cautious 1Q11 outlook, as the competitive feature phone market still dominates the financial outlook. We adjusted our 4Q10E net sales and EPS from NT$22.9 bn and NT$4.27 to NT$22.7bn and NT$4.18; street is still at NT$3.98.

● Dampened 1Q11 guidance expected. We expect sales to be down 10-15% QoQ and gross margin in the mid-40% range (est: 47%) on fewer working days, competition and moderate price pressure.

● Smartphone ramp up still early and limiting 2011 upside. Mediatek is up to a few dozen customers on its EDGE smartphone but still less than 1 mn volumes. The higher powered 3.5G smartphone platform will be introduced in 2Q11, but not in material volumes until 2012. We see potential inflection in 2012, but still risks through this year.

● Maintain UNDERPERFORM. We maintain UNDERPERFORM and NT$350 target based on 14x 2012E EPS of NT$28, discounted back 10%. We use 2012 since 2011 is depressed by price erosion from feature phones without longer-term smartphone earnings.

Figure 1: Mediatek – summary of CS estimates for 3Q/4Q10 4Q10 1Q11

(NT$ mn) CS CS(old) Street Guidanc CS CS(old) StreetNet sales $22,679 $22,887 $22,918 $22.5-

24 0b$19,968 $21,560 $20,729

Chg -19.5% -18.8% -18.7% -15-20% Q Q

-12.0% -5.8% -9.6%

GM (%) 50.0% 50.0% 49-51% 47.0% 49.0%Op. M (%) 19.3% 19.6% 18.9% 18.5- 13.2% 16.9% 18.2%Net income 4,544 4,642 4,312 2,858 3,834 3,877

EPS (NT$) $4.18 $4.27 $3.98 $2.63 $3.52 $3.51

Source: Company data, Bloomberg consensus, Credit Suisse estimates Results on Monday: Near-term still cautious Mediatek will report its results Monday afternoon with a Mandarin call at 2pm HK/Taipei and English call at 4pm HK/Taipei with dial-in +852-3005-2055, passcode 898604. The Taiwan stock market will be closed that day and all next week and will reopen on 8 Feb. We expect mixed

4Q10 results and a cautious outlook for 1Q11, as the competitive feature phone market still dominates the financial outlook. We have already adjusted our 4Q10E net sales and EPS from NT$22.9 bn and NT$4.27 to NT$22.7bn and NT$4.18; street is still at NT$3.98. For 1Q11, we see potential for sales to come 10-15% QoQ below guidance and gross margin toward the mid-40% range (we model in 47%). The company is seeing a modest decline in units on fewer working days and more competition, coupled with some moderate ASP pressure. With Mediatek and its competitors Mstar and Spreadtrum each introducing cost down platforms, the vendors could have room to pass on another price cut later in 1Q11. We cut our 1Q11E sales and EPS from NT$21.6 bn and NT$3.52 to NT$19.7bn and NT$2.63, respectively; street is at NT$3.51. Smartphone ramp up still early, limiting upside in 2011 Mediatek has a dozen Chinese customers in small volume on its EDGE Android MT6516, though initial orders are <1 mn a month (vs 40 mn/month for feature phones). We expect the company’s HSUPA feature phone platform to be sampling for customers at MWC in February, consistent with expectations and more meaningful Android 650 MHz smartphone platform sampling as expected in 2Q11, but likely not material for sales growth until early 2012. We model a ramp to 23 mn units in 2011 and 100 mn units in 2012, equivalent to 20% global smartphone share and 40% emerging market smartphone share by 2012, and >50% exiting 2012. Our revised 2012 with that ramp up would return to 2010 levels at NT$28; the key risks include penetration into smartphones slower-than-expected and fierce feature phone price erosion remains on less platform innovation. Figure 2: Mediatek’s 2011/2012 segment assumptions

2011 2012Units ASPs Sales Share Units ASPs Sales (NT$) Share (%)

Feature phones 559.4 3.81 61,632 42% 585.2 3.13 52,031 45%Smart phones 19.4 10.11 5,675 5% 100.0 10.45 29,680 21%Total handsets 578.8 4.02 67,307 34% 685.2 4.20 81,711 38%Handsets by Technology standard2G/2.5G 543.5 3.66 57,553 53% 564.6 3.11 49,928 57%WCDMA 19.1 10.28 5,667 4% 94.4 9.72 26,055 16%TD-SCDMA 16.3 8.69 4,087 36% 26.2 7.70 5,728 36%Total handsets 578.8 4.02 67,307 34% 685.2 4.20 81,711 38%

Source: Company data, Credit Suisse estimates Maintain UNDERPERFORM – reducing 2010/2011 estimates On continued competitive pressure on the maturing platforms, we reduce 2011/2012E EPS from NT$22/NT$30 to NT$18/NT$28, below street’s NT$21/NT$31. We maintain UNDERPERFORM and NT$350 target based on 14x 2012E EPS of NT$28, discounted back 10%, with 2011 being depressed by feature phones. Figure 3: Mediatek – summary of CS estimates for 2011 and 2012

2011 2012(NT$ mn) CS CS(old) Street CS CS(old) StreetNet sales $94,054 $101,271 $101,464 $113,027 $119,502 $126,213Chg -17.1% -11.0% -10.8% 20.2% 18.0% 24.4%

GM (%) 49.5% 51.0% 53.0% 53.1%Op. M (%) 20.0% 22.8% 22.0% 26.9% 27.5% 29.1%Net income 19,402 23,453 23,400 30,211 32,531 33,019 EPS (NT$) $17.84 $21.56 $21.07 $27.77 $29.91 $31.34

Source: Company data, Bloomberg consensus, Credit Suisse estimates

Price (26 Jan 11 ) 406.00TP (Prev. TP) 350 (350) Est. pot. % chg. to TP (14)52-wk range 579.0 - 376.0Mkt cap (bn) 446.6/ 15.4

Bbg/RIC 2454 TT / 2454.TW Rating (prev. rating) U (U) Shares outstanding (mn) 1,099.97 Daily trad vol - 6m avg (mn) 9.3 Daily trad val - 6m avg (mn) 135.3 Free float (%) 85.5 Major shareholders Chairman, Ming-Kai

Tsai

Performance 1M 3M 12MAbsolute (%) (4.1) 3.3 (21.3)Relative (%) (5.9) (4.8) (34.0)

Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (mn) 90,402 115,512 113,521 94,054 113,027EBITDA (mn) 24,356 39,632 34,407 21,484 33,041Net profit (mn) 19,180 36,705 31,677 19,402 30,211EPS 18.1 34.1 29.1 17.8 27.8- Change from prev. EPS (%) n.a. n.a. 0 (17) (7)- Consensus EPS n.a. n.a. 29.7 23.5 28.1EPS growth (%) (44.2) 88.1 (14.6) (38.8) 55.7P/E (x) 22.4 11.9 13.9 22.8 14.6Dividend yield (%) 4.6 3.4 6.4 5.4 3.3EV/EBITDA (x) 16.0 8.8 10.3 16.6 10.3P/B (x) 5.3 4.0 3.8 4.0 3.5ROE (%) 22.9 38.5 28.3 17.1 25.4Net debt (net cash)/equity (%) (70.4) (88.9) (81.2) (81.6) (84.2) Note1:MediaTek is a leading fabless semiconductor company for wireless communications and digital multimedia solutions. The company is a market leader in SOC system solutions for wireless communications, HD TVs, optical storage, DVD and Blu-ray products..


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Novatek-------------------------------------------------------------------------- Maintain OUTPERFORM FX hurts 4Q margins but 2011 growth intact EPS: ▼ TP: ▼ Robin Cheng / Research Analyst / 886 2 2715 6386 / [email protected] Jimmy Huang / Research Analyst / 886 2 2715 6352 / [email protected]

● Novatek’s 4Q10 net income of NT$896 mn was below our and consensus estimates, mainly on a lower gross margin. The company attributed the worse-than-expected gross margin to the NTD appreciation and unfavourable product mix in 4Q10.

● Management guided 1Q11 revenue to be flat or slightly up without taking currency into consideration, while gross margin is expected to be maintained at the current level. Mobile driver momentum is improving but tight foundry capacity is a concern.

● Novatek suggests 2011 growth drivers include: (1) mobile drivers and tablet PCs, (2) replacement of corporate PCs and 3) the higher resolution trend for different display products. We expect 2011 top-line growth to reach 16%, and margins to sustain through a better product mix.

● We cut our FY10/FY11E earnings by 4% and 2%, respectively, on weaker 4Q10 earnings and lower 1H11 gross margin. As such, we cut our target price from NT$112 to NT$110, based on the same 12x FY11 P/E. We maintain an OUTPERFORM.

4Q10 below CS and street expectations

Novatek’s 4Q10 net income of NT$896 mn was below our and consensus estimates, mainly on worse-than-expected gross margin. 4Q10 revenue of NT$8,720 mn was better than company’s previous guidance, mainly due to driver IC restocking after a sharp correction in late-3Q10. However, gross margin of 25.1% was lower than its guidance of less than 100 bp decline because of the NTD appreciation and a higher mix of large-size driver IC sales. Novatek’s 4Q10 inventory turnover days fell slightly from 52 days in 3Q to 51 days, with inventory amount down 6% QoQ to NT$3,645 mn.

Figure 1: 4Q10 results NT$ mn 4Q10A QoQ YoY 4Q10 CS old Diff. 4Q10 Street Diff. Sales 8,720 -8% 18% 8,720 0% 8,624 1%Gross profit 2,190 -17% 3% 2,317 -5% n.a. n.a.Operating profit 1,106 -23% 4% 1,157 -4% 1,187 -7%Net profit 896 -27% -16% 1,069 -16% 1,052 -15%EPS 1.50 -27% -17% 1.79 -16% 2.10 -28%GM (%) 25.1 26.6 n.a.OpM (%) 12.7 13.3 13.8Net margin (%) 10.3 12.3 12.2Source: Company data, Credit Suisse estimates

Figure 2: Novatek’s product mix trend

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100%

2007 2008 2009 2010 2011E

TFT LCD driver ICs - L size TFT LCD driver ICs - M size Mobile drivers SoC Others

Source: Company data, Credit Suisse estimates 1Q11 guidance in line with expectations Novatek guided 1Q11 revenue to be flattish or slightly up without taking currency into consideration. Gross margin is expected to be similar to the 4Q10 level, as Novatek tries to minimise the impact of NTD appreciation by doing more natural hedge. Among the segments in 1Q11, Novatek thinks NB demand is flat QoQ while monitor seems relatively weak and strength in TV varies by region., based on current visibility. Meanwhile, management expects mobile driver IC demand to be better in 1Q11 but tight foundry capacity is a concern. Solid 2011 growth drivers Novatek indicated its 2011 top-line growth will come from: (1) tablet and smartphone products, (2) the replacement of corporate PCs, and (3) the higher resolution trend for different display products. For 2011, we expect its mobile driver IC to grow 43% YoY, reaching 20% of total revenue. For large-size drive ICs, we believe Novatek should continue to gain market share, from Japan, Korea and China, in FY11 but growth will not be as robust as in 2010, in our view. Management is also confident about the outlook of its SoC product lines, such as STB and T-Con. We expect SoC-related revenue to grow 18% YoY in 2011. Maintain OUTPERFORM We cut our FY10/FY11E earnings by 4% and 2%, respectively, on weaker 4Q10 earnings and lower 1H11 gross margin assumptions. As such, we cut our target price from NT$112 to NT$110, based on the same 12x 2011E P/E. The stock now trades at 10.7x 2011E PE, with a strong ROE. We maintain an OUTPERFORM on Novatek, given its continued market share gains and solid earnings growth.

Price (26 Jan 11 ) 97.80TP (Prev. TP) 110 (112) Est. pot. % chg. to TP 1252-wk range 111.5 - 74.5Mkt cap (mn) 58,584.6/ 2,016.0

Bbg/RIC 3034 TT / 3034.TW Rating (prev. rating) O (O) [V] Shares outstanding (mn) 599.02 Daily trad vol - 6m avg (mn) 5.4 Daily trad val - 6m avg (mn) 16.5 Free float (%) 84.5 Major shareholders UMC, 10.56%

Performance 1M 3M 12MAbsolute (%) 1.9 7.9 5.2Relative (%) 0.0 (0.5) (11.8)

Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (mn) 26,183 27,013 36,206 41,946 49,495EBITDA (mn) 3,938 4,334 5,583 6,542 8,256Net profit (mn) 3,684 4,019 4,584 5,463 6,680EPS 6.5 6.8 7.7 9.2 11.2- Change from prev. EPS (%) n.a. n.a. (4) (2) 1- Consensus EPS n.a. n.a. 7.8 9.0 10.9EPS growth (%) (52.6) 4.1 13.1 19.2 22.3P/E (x) 15.0 14.4 12.7 10.7 8.7Dividend yield (%) 8.8 4.6 5.1 5.6 6.9EV/EBITDA (x) 13.2 11.6 8.8 7.3 5.6P/B (x) 3.1 2.8 2.6 2.4 2.1ROE (%) 20.6 20.6 21.3 23.2 25.7Net debt (net cash)/equity (%) (36.0) (40.7) (42.3) (43.4) (43.9) Note1:Novatek is a fabless semiconductor company. It is one of the global leaders in driver ICs for LCD panels. UMC is its major foundry (also a 12% holder) and AUO the largest customer..Note2:Novatek is a fabless semiconductor company. It is one of the global leaders in driver ICs for LCD panels..


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TSMC ----------------------------------------------------------------------------- Maintain OUTPERFORM New report: Executing on growth and profitability EPS: ▲ TP: ▲ Randy Abrams, CFA / Research Analyst / 886 2 2715 6366 / [email protected] Tony Wu / Research Analyst / 8862 2715 6335 / [email protected]

● Maintain our positive view. We maintain an OUTPERFORM, as the company is still seeing upside still from gross margin, share gains, and more content in smartphones and tablets. 4Q10 results and 1Q11 guidance hit the high-end of expectations.

● Smartphones and tablets key drivers. Our bottom-up of content for TSMC in smartphones and tablets points to these applications growing from 20% to 30% of its sales from 2010 to 2012, and potentially providing two-thirds of growth needed for the period.

● Some risks to monitor. Competition remains a factor, but we believe GlobalFoundries/Samsung threats continue to push out. Meanwhile, TSMC’s foundry leadership keeps pricing intact. Inventory rose modestly in 4Q10, so could dampen 2H11 growth.

● Valuation still reasonable. TSMC trades at 12x 2011E earnings and 3.0x 2011E P/B (versus 2-4x range) at a 15-year high ROE of 28%. We maintain an OUTPERFORM and raise our target price from NT$83 to NT$87, reflecting the same 14x 2011E EPS.

● For full report click here.

Figure 1: 4Q10 results and 1Q11 guidance at high-end of expectations 4Q10 1Q11

(NT$ mn) Actual CS(old) Street Guidance CS CS(old) Street Guidance

Net sales 110,142 110,142 110,174 $107-109bn 106,025 102,092 106,380 $105-107bn seq. chg (%) -1.9 -1.9 -1.8 -3-5% QoQ -3.7 -7.3 -3.4 -3-5% QoQ

GM (%) 49.8 49.6 48.1 48-50% 48.0 45.6 47-49%R&D expense 8,072 8,437 7,789 8,141SG&A expense 5,233 5,275 5,050 5,091Op margin (%) 37.7 37.2 37.4 35.5-37.5% 35.9 32.6 36.2 35-37% Net income 40,720 40,607 39,048 NT$30.60 37,056 32,845 35,941 NT$29.16

EPS (NT$) 1.57 1.57 1.54 1.43 1.27 1.37

Source: Company data, Credit Suisse estimates, Bloomberg consensus

Figure 2: Raise 2011E EPS on better GM, despite currency headwinds 2010 2011

(NT$ mn) CS CS(old) Street CS CS(old) Street

Net sales 419,538 419,538 419,444 458,154 456,650 466,724 seq. chg (%) 41.9 41.9 41.8 9.2 8.8 11.3

GM (%) 49.4 49.3 47.7 46.4R&D expense 29,707 30,072 32,105 33,556SG&A expense 18,172 18,214 20,506 20,674Op margin (%) 37.9 37.8 37.8 36.2 34.5 36.8 Net income 161,605 161,492 160,288 160,706 154,242 159,398

EPS (NT$) 6.24 6.27 6.20 6.20 5.95 6.21EPS per ADR (US$) 0.99 1.02 0.98 1.01 0.97 1.01

Source: Company data, Credit Suisse estimates, Bloomberg consensus

Figure 3: A risk to monitor: customer inventory building slightly in 4Q10

US$ mn Inventory US$ (mn) Inventory DaysCompany 3Q 4Q QoQ (%) 3Q 4Q QoQ (Days)

Fabless + IDM 4,680 4,993 6.7 70.1 72.1 2.0Source: Company data, Credit Suisse estimates, Bloomberg consensus Figure 4: Smartphones and tablets are material growth drivers TSMC Smartphone contribution 2010 2011 2012Smartphone units 296.5 426.3 539.7Content $13.1 $12.3 $11.6TSMC share (%) 60% 60% 60%Smartphone revenue for TSMC $2,335 $3,155 $3,755TSMC sales $12,222.5 $14,584.1 $15,896.6TSMC (% from smartphones) 19% 22% 24%

TSMC tablet contribution 2010 2011 2012Apple iPad Units 8 40 70Content $15.5 $15.5 $15.5TSMC share (%) 50% 60% 60%iPad Revenue for TSMC $62.0 $372.1 $651.2Android Tablets 2 15 30Content $23.0 $21.6 $20.3TSMC share (%) 70% 70% 70%Android Revenue for TSMC $32.1 $226.6 $426.0Total tablet revenue $94 $599 $1,077TSMC sales $12,222.5 $14,584.1 $15,896.6TSMC (% from tablets) 0.8% 4% 7%


Figure 5: Tablets should more than offset notebook cannibalisation Cannibalization of notebooks

$497 10% 20% 30% 40% 50%35 $386 $351 $316 $282 $24745 $496 $451 $407 $362 $31755 $606 $552 $497 $442 $38865 $716 $652 $587 $523 $45875 $827 $752 $678 $603 $529

10% cannibalization costs US$55mn sales. 10mn tablets adds $90mn

2011

Tab

lets

Source: Company data, Credit Suisse estimates Figure 6: TSMC still trading at a reasonable level of 12x earnings

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Price (26 Jan 11 ) 75.20TP (Prev. TP) 87.00 (83.00) Est. pot. % chg. to TP 1652-wk range 78.0 - 57.2Mkt cap (bn) 1,948.4/ 67.0

Bbg/RIC 2330 TT / 2330.TW Rating (prev. rating) O (O) Shares outstanding (mn) 25,910.08 Daily trad vol - 6m avg (mn) 50.2 Daily trad val - 6m avg (mn) 113.7 Free float (%) 79.0 Major shareholders Development Fund,

Executive Yuan


Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (mn) 333,158 295,742 419,538 458,154 516,036EBITDA (mn) 185,947 172,777 246,985 280,321 322,522Net profit (mn) 99,934 89,218 161,605 160,706 177,095EPS 3.87 3.45 6.24 6.20 6.84- Change from prev. EPS (%) n.a. n.a. (3) 4 11- Consensus EPS n.a. n.a. 6.13 6.07 6.21EPS growth (%) (6.1) (10.8) 80.8 (0.6) 10.2P/E (x) 19.5 21.8 12.1 12.1 11.0Dividend yield (%) 4.0 8.0 4.0 4.0 4.0EV/EBITDA (x) 9.4 10.2 7.3 6.5 5.4P/B (x) 4.1 3.9 3.4 3.0 2.6ROE (%) 20.7 18.4 30.2 26.1 25.1Net debt (net cash)/equity (%) (41.4) (38.1) (25.2) (19.0) (25.1) Note1:Ord/ADR=5.0000.Note2:Taiwan Semiconductor Manufacturing Company Ltd. manufactures and markets integrated circuits. The Company provides the following services: wafer manufacturing, wafer probing, assembly and testing, mask production, and design services..

http://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=868580011&serialid=3UVENOXikF3rrCtdn%2b38AGYypzQwDE%2fagzQPdpQMizM%3d


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Thailand PTTCH --------------------------------------------------------------------------- Maintain OUTPERFORM PTTCH + PTTAR – we prefer PTTCH EPS: ◄► TP: ◄► Paworamon (Poom) Suvarnatemee, CFA / Research Analyst / 662 614 6210 / [email protected] Puchong Kometsopha / Research Analyst / 66 2 614 6215 / [email protected]

● PTT plans to announce the merger between PTTCH and PTTAR by end-1Q11 and complete the deal in 3Q11. The format of the merger is likely to be amalgamation, similar to previous deals.

● We do not believe the value of synergy matters in determining the swap prices, as synergy takes time to materialise, especially those related to expansion in Maptaphut area. Instead, the swap ratio would be determined by share prices at the time of the announcement to avoid resistance from minority shareholders.

● As both stocks are now trading at similar multiples, based on consensus earnings, share price performance would be influenced by changes in major earnings drivers, including: (1) PX margins, (2) HDPE margins and (3) oil prices.

● We prefer PTTCH. However, a short-term positive factor for PTTAR is the release of its strong 4Q10 earnings, boosted by the huge stock gain, versus PTTCH’s low margin and utilisation. Beyond the results, we see more downside risk at PTTAR due to its currently high PX margin (Figure 2), which explains its recent outperformance.

Timing: Announcement in 1Q11, completion by 3Q11 PTT (PTT.BK, Bt344, N, TP Bt346) plans to announce the merger between PTTCH and PTTAR (PTTAR.BK, Bt37.25, U [V], TP Bt32) by end-1Q11 and complete the deal in 3Q11. In the previous deal, the process took five-six months between the announcement of swap ratio and the first day of the trade of the merged stock. Format of the merger: Amalgamation The format of the merger is likely to be amalgamation, similar to previous deals that created PTTCH (NPC + TOC) and PTTAR (ATC + RRC), unless there are changes in the tax law ahead of the deal. Value of synergy matters? Not in the short term We do not believe the value of synergy matters in determining the swap ratio. Synergy would be created by co-investment further downstream or in expansion with feedstock swaps. It takes time for

these synergy to materialise, especially those related to expansion in the Map Ta Phut area. So, what matters in the pricing of the deal? The swap ratio would be determined by share prices at the time of the announcement to avoid resistance from minority shareholders. Once the swap ratio is announced, share price of both stocks should move together until the deal is completed. So, the key issue now is to determine share price target/direction of both stocks over the next two-three months before the deal is announced. Currently, both stocks are trading on similar valuation based on consensus earnings (Figure 1). Therefore, the driver of share price performance from here would be potential earnings surprises (i.e., changes in key earnings drivers) in the next few months.

Figure 1: Both stocks are now trading at similar multiples on consensus Current P/E (x) EV/EBITDA (x) P/B (x) ROE (%)Company (Bt/sh) 2011 2011 2011 2011PTTCH 142.0 11.6 7.8 1.8 16.8%PTTAR 37.3 12.9 9.1 1.6 13.2%Source: Bloomberg, Credit Suisse estimates Earnings drivers: PX close to peak, PE close to trough We review earnings drivers to see the chance of earnings surprise at PTTCH and PTTAR. Unlike the previous deals, earnings expectations are already high for both stocks. We see room for PX margins correction given its high margins currently (Figure 2). Thus, we prefer PTTCH to PTTAR.

PX margins tripled from its low in mid 2010. It is now at its previous peak of May 2009 and below the historical peak of US$900/t in mid-2006. We see more downside than upside.

HDPE-naphtha price has been hovering around the bottom of the US$430-470/t cycle over the past six months. This may continue through 1Q11 before it moves closer to the next peak of US$700/t.

Oil price: A sharp and quick surge in oil price benefits PTTAR more due to its stock gains. A steady rise in oil price to a higher level helps PTTCH more and hurts PTTAR’s production yield loss.

Figure 2: PX-naphtha price (US$/t) – more downside than upside

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Price (27 Jan 11 , Bt) 142.00TP (Prev. TP Bt) 185 (185) Est. pot. % chg. to TP 3052-wk range (Bt) 166.50 - 73.50Mkt cap (Bt/US$ bn) 215.0/ 7.0

Bbg/RIC PTTCH TB / PTTC.BK Rating (prev. rating) O (O) [V] Shares outstanding (mn) 1,514.10 Daily trad vol - 6m avg (mn) 9.5 Daily trad val - 6m avg (US$ mn) 42.3 Free float (%) 30.0 Major shareholders PTT (49.3%)

Performance 1M 3M 12MAbsolute (%) (2.1) (5.0) 87.5Relative (%) 2.0 (3.3) 34.5

Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (Bt mn) 81,960 83,952 98,588 131,906 136,627EBITDA (Bt mn) 20,380 15,989 17,438 27,655 29,618Net profit (Bt mn) 11,739 6,802 9,989 17,524 19,587EPS (Bt) 7.8 4.5 6.7 11.7 13.0- Change from prev. EPS (%) n.a. n.a. 0 0 0- Consensus EPS (Bt) n.a. n.a. 6.9 12.4 15.3EPS growth (%) (38.8) (42.2) 46.9 75.4 11.8P/E (x) 18.1 31.3 21.3 12.2 10.9Dividend yield (%) 2.8 1.4 2.3 4.1 4.6EV/EBITDA (x) 11.7 15.6 14.2 8.7 7.7P/B (x) 2.2 2.1 2.0 1.8 1.7ROE (%) 12.5 7.0 9.8 15.8 16.1Net debt (net cash)/equity (%) 24.4 33.8 30.3 21.1 10.7 Note 1: PTTCH manufactures olefins and by products for integrated downstream operation and to sell to downstream industries.


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Recently Published Research

Date Title Author(s) Tel. E-mail Fri 28 Jan Hyundai Motor Henry Kwon

Seungwoo Hong 822 3707 3732 822 3707 3795

[email protected] [email protected]

Fri 28 Jan Taiwan Semiconductor Manufacturing Randy Abrams, CFA Tony Wu

886 2 2715 6366 8862 2715 6335


Thu 27 Jan Asia Pacific Financials Sanjay Jain Anand Swaminathan Franco Lam

65 6212 3017 65 6212 3012 852 2101 7642

[email protected] [email protected] [email protected]

Thu 27 Jan AU Optronics Robin Cheng Jimmy Huang

886 2 2715 6386 886 2 2715 6352


Thu 27 Jan Bursa Malaysia Yvonne Voon Danny Goh

65 6212 3026 603 2723 2083


Thu 27 Jan E-commerce China Dangdang Inc. Wallace Cheung, CFA Vivian Hao

852 2101 7090 852 2101 7039


Thu 27 Jan Genting Singapore Loke Foong Wai 603 2723 2082 [email protected] Thu 27 Jan Grasim Industries Anand Agarwal, CFA

Abhishek Bansal 9122 6777 3796 91 22 6777 3968


Thu 27 Jan Hyundai Heavy Industries Henry Kwon Seungwoo Hong

822 3707 3732 822 3707 3795


Thu 27 Jan Malaysia Marine and Heavy Engineering Annuar Aziz 603 2723 2084 [email protected] Thu 27 Jan NJA Insurance Weekly Arjan van Veen 852 2101 7508 [email protected] Thu 27 Jan S-Oil Corp A-Hyung Cho

Jihong Choi 822 3707 3735 82 2 3707 3796


Wed 26 Jan China Utilities Sector Edwin Pang 852 2101 6406 [email protected] Wed 26 Jan Fauji Fertilizer Company Limited Farhan Rizvi, CFA 65 6212 3036 [email protected] Wed 26 Jan Hong Kong Banks Sector Franco Lam 852 2101 7642 [email protected] Wed 26 Jan LG Electronics John Sung

Yonghi Li 822 3707 3739 822 3707 3761



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Companies mentioned Agile Property Holdings ltd. (3383.HK, HK$12.04, NEUTRAL [V], TP HK$12.70) Anheuser-Busch InBev (ABI.BR, Eu41.92, OUTPERFORM, TP Eu53.00, OVERWEIGHT) Asahi Glass (5201, ¥1,018, OUTPERFORM, TP ¥1,330, OVERWEIGHT) AU Optronics (2409.TW, NT$29.15, NEUTRAL, TP NT$32.00) Bank of East Asia (0023.HK, HK$35.75, NEUTRAL, TP HK$36.00) Beijing Capital Land (2868.HK, HK$2.66, NOT RATED) Beijing North Star (0588.HK, HK$2.12, NOT RATED) BMW (BMWG.F, Eu57.06, OUTPERFORM, TP Eu70.00, MARKET WEIGHT) BOC Hong Kong (Holdings) (2388.HK, HK$25.85, UNDERPERFORM, TP HK$25.00) Boustead Heavy Industries Corporation Bhd (BHIB.KL, RM4.02) Boyd Gaming (BYD, $11.55, OUTPERFORM [V], TP $12.00) Bursa Malaysia Bhd (BMYS.KL, RM8.37, OUTPERFORM, TP RM9.50) C C Land (1224.HK, HK$2.90, NOT RATED) Chimei Innolux Corporation (3481.TW, NT$36.95, NEUTRAL, TP NT$39.00) China Overseas Land & Investment (0688.HK, HK$15.50, UNDERPERFORM, TP HK$16.10) China Resources Land Ltd (1109.HK, HK$14.52, UNDERPERFORM, TP HK$15.70) China Vanke Co Ltd-B (200002.SZ, HK$9.76, OUTPERFORM, TP HK$10.10) CNOOC Ltd (0883.HK, HK$18.68, UNDERPERFORM, TP HK$14.00) Compass (CPG.L, 561.00 p, OUTPERFORM, TP 643.00 p, MARKET WEIGHT) Corning Incorporated (GLW, $19.64) Country Gardens Holdings Co. (2007.HK, HK$2.97) Crown (CWN.AX, A$8.77, OUTPERFORM, TP A$9.75) d&shop (090090.KQ, W2,015, NOT RATED) Daewoo Shipbuilding & Marine Engineering (042660.KS, W41,100, OUTPERFORM [V], TP W35,000) Dah Sing Banking Group (2356.HK, HK$14.16, OUTPERFORM, TP HK$16.50) Dah Sing Financial (0440.HK, HK$56.05, OUTPERFORM, TP HK$68.00) E-commerce China Dangdang Inc. (DANG.N, $29.25, NEUTRAL, TP $30.4) Evergrande Real Estate Group Ltd (3333.HK, HK$4.34, OUTPERFORM [V], TP HK$5.00) Fauji Fertilizer Bin Qasim Limited (JORD.KA, PRs41.00) Fauji Fertilizer Company Limited (FAUF.KA, PRs156.50, NEUTRAL, TP PRs164.00) Franshion (0817.HK, HK$1.35, NOT RATED) Galaxy Entertainment Group Ltd (0027.HK, HK$11.34, NEUTRAL [V], TP HK$7.10) Genting (GENT.KL, RM10.92, OUTPERFORM, TP RM13.50) Genting Malaysia Bhd (GENM.KL, RM3.24, NEUTRAL, TP RM3.30) Genting Singapore (GENS.SI, S$2.07, OUTPERFORM [V], TP S$2.65) Glorious Ppty (0845.HK, HK$2.41, NOT RATED) Greentown China Holdings Ltd (3900.HK, HK$9.23, UNDERPERFORM [V], TP HK$7.95) GS Home Shopping Inc (028150.KQ, W135,300, OUTPERFORM, TP W135,000) Guangzhou R&F Properties Co Ltd (2777.HK, HK$12.12, NEUTRAL [V], TP HK$10.30) Hang Seng Bank (0011.HK, HK$130.20, OUTPERFORM, TP HK$159.00) Hopson Development Holdings (0754.HK, HK$9.49, NEUTRAL [V], TP HK$9.90) Hyundai Heavy Industries (009540.KS, W501,000, OUTPERFORM [V], TP W600,000) Hyundai Mipo Dockyard (010620.KS, W221,000, NEUTRAL [V], TP W248,000) Hyundai Mobis (012330.KS, W296,000, OUTPERFORM, TP W372,000) Hyundai Motor (005380.KS, W196,000, NEUTRAL, TP W206,000) Kaisa Group Holdings (1638.HK, HK$2.63, OUTPERFORM, TP HK$3.30) Kangwon Land Inc. (035250.KS, W26,200, NEUTRAL, TP W28,000) Kencana Petroleum (KENP.KL, RM2.50, NOT RATED) Keppel Corporation (KPLM.SI, S$11.92, OUTPERFORM, TP S$14.00) Kia Motors (000270.KS, W59,400, NEUTRAL [V], TP W39,000) Kinsus Interconnect Tech (3189.TW, NT$96.10, OUTPERFORM [V], TP NT$111.80) Korea Express (000120.KS, W115,000, NOT RATED) KWG Property Holding Limited (1813.HK, HK$6.40, NEUTRAL [V], TP HK$6.70) Las Vegas Sands (LVS, $45.04, NEUTRAL [V], TP $45.00) LG Display Co Ltd. (034220.KS, W39,900, OUTPERFORM, TP W48,000) LG Innotek (011070.KS, W139,500, UNDERPERFORM [V], TP W112,000) Lotte Shopping (023530.KS, W447,000, NEUTRAL, TP W460,000) Malaysia Marine and Heavy Engineering Holdings Bhd (MHEB.KL, RM5.76, OUTPERFORM, TP RM7.15) Mando Corp (060980.KS, W147,500, OUTPERFORM [V], TP W179,000) MediaTek Inc. (2454.TW, NT$406.00, UNDERPERFORM, TP NT$350.00) Meggitt (MGGT.L, 363.80 p, OUTPERFORM, TP 320.00 p, MARKET WEIGHT) Melco (0200.HK, HK$5.52, OUTPERFORM [V], TP HK$4.30) Melco Crown Entertainment-ADR (MPEL.OQ, $7.64, OUTPERFORM [V], TP $8.00) MGM Resorts International (MGM, $14.58, NEUTRAL [V], TP $12.00) MStar (3697.TW, NT$231, NOT RATED) Nippon Electric Glass (5214, ¥1,201, OUTPERFORM [V], TP ¥1,360, OVERWEIGHT) Nitto Denko Corp (6988, ¥4,105)


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Novatek Microelectronics Corp Ltd (3034.TW, NT$97.80, OUTPERFORM [V], TP NT$110.00) OilCorp Berhad (OILC.KL, RM0.015, NOT RATED) Poly Real Estate Group (600048.SS, Rmb13.84, OUTPERFORM [V], TP Rmb17.30) PTT Aromatics and Refining (PTTAR.BK, Bt37.25, UNDERPERFORM [V], TP Bt32.00) PTT Chemical PLC (PTTC.BK, Bt142.00, OUTPERFORM [V], TP Bt185.00) PTT Public Company Limited (PTT.BK, Bt344.00, NEUTRAL, TP Bt346.00) Ramunia Holdings (RAMU.KL, RM0.65, NOT RATED) Rank Group (RNK.L, 128.40 p, NEUTRAL, TP 131.00 p, MARKET WEIGHT) Rio Tinto Limited/PLC (RIO.L, 4400.00 p, OUTPERFORM [V], TP 6000.00 p, OVERWEIGHT) Samsung Electronics (005930.KS, W994,000, OUTPERFORM, TP W1,100,000) Samsung Heavy Industries (010140.KS, W43,700, NEUTRAL, TP W42,000) Samsung SDI (006400.KS, W162,000, UNDERPERFORM, TP W137,000) Sands China (1928.HK, HK$18.58, NEUTRAL, TP HK$15.70) SAP (SAPG.F, Eu41.11, OUTPERFORM, TP Eu47.50) Sembcorp Marine Ltd. (SCMN.SI, S$5.38, OUTPERFORM, TP S$6.10) Seoul Semiconductor Co Ltd (046890.KQ, W41,450, OUTPERFORM [V], TP W53,000) Shimao Property Holdings Ltd (0813.HK, HK$12.42, OUTPERFORM [V], TP HK$15.15) Shinsegae Co. (004170.KS, W567,000, OUTPERFORM, TP W680,000) Shui On Land Ltd (0272.HK, HK$3.81) Sime Darby (SIME.KL, RM9.20, UNDERPERFORM, TP RM7.80) SJM Holdings Ltd. (0880.HK, HK$13.12, OUTPERFORM [V], TP HK$13.90) SOHO China (0410.HK, HK$6.16, NOT RATED) S-Oil Corp (010950.KS, W98,700, OUTPERFORM, TP W130,000) SPG Land (0337.HK, HK$4.23, NOT RATED) Spreadtrum (SPRD, $20.85) Swatch Group (UHR.VX, SFr394.70, OUTPERFORM, TP SFr450.00, OVERWEIGHT) Taiwan Semiconductor Manufacturing (2330.TW, NT$75.20, OUTPERFORM, TP NT$87.00) Wing Hang Bank (0302.HK, HK$106.90, NEUTRAL, TP HK$114.00) Woori Finance Holdings (053000.KS, W14,750, OUTPERFORM, TP W20,000) WPP (WPP.L, 788.00 p, OUTPERFORM, TP 830.00 p, OVERWEIGHT) Wynn Macau (1128.HK, HK$21.20, UNDERPERFORM, TP HK$14.30) Wynn Resorts (WYNN, $115.38, NEUTRAL [V], TP $114.00) Yanlord (YLLD.SI, S$1.60, NOT RATED)

Disclosure Appendix Important Global Disclosures The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities. Analysts’ stock ratings are defined as follows: Outperform (O): The stock’s total return is expected to outperform the relevant benchmark* by at least 10-15% (or more, depending on perceived risk) over the next 12 months. Neutral (N): The stock’s total return is expected to be in line with the relevant benchmark* (range of ±10-15%) over the next 12 months. Underperform (U): The stock’s total return is expected to underperform the relevant benchmark* by 10-15% or more over the next 12 months. *Relevant benchmark by region: As of 29th May 2009, Australia, New Zealand, U.S. and Canadian ratings are based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe**, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. Some U.S. and Canadian ratings may fall outside the absolute total return ranges defined above, depending on market conditions and industry factors. For Latin American, Japanese, and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; for European stocks, ratings are based on a stock’s total return relative to the analyst's coverage universe**. For Australian and New Zealand stocks a 22% and a 12% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively, subject to analysts’ perceived risk. The 22% and 12% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively, subject to analysts’ perceived risk. **An analyst's coverage universe consists of all companies covered by the analyst within the relevant sector. Restricted (R): In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.


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Analysts’ coverage universe weightings are distinct from analysts’ stock ratings and are based on the expected performance of an analyst’s coverage universe* versus the relevant broad market benchmark**: Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months. Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months. Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months. *An analyst’s coverage universe consists of all companies covered by the analyst within the relevant sector. **The broad market benchmark is based on the expected return of the local market index (e.g., the S&P 500 in the U.S.) over the next 12 months. Credit Suisse’s distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Outperform/Buy* 45% (61% banking clients) Neutral/Hold* 41% (59% banking clients) Underperform/Sell* 11% (53% banking clients) Restricted 2%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

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Additional information about the Credit Suisse HOLT methodology is available on request. Important MSCI Disclosures The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, re-disseminated or used to create any financial products, including any indices. This information is provided on an “as is” basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor’s. GICS is a service mark of MSCI and S&P and has been licensed for use by Credit Suisse. For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683. Disclaimers continue on next page.


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