Tuesday, 22 March 2011 Asian Daily (AIC Edition)pg.jrj.com.cn/acc/Res/CN_RES/INVEST/2011/3/22/a49d0cd1-1...DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US

DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/ researchdisclosures or call +1 (877) 291-2683. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Tuesday, 22 March 2011

Asian Daily (AIC Edition)EPS, TP and Rating changes EPS TP (% change) T+1 T+2 Chg Up/Dn Rating China Taiping 0 0 (7) 20 N (N) Lonking Holdings 14 21 16 32 O (O)

C3: Connecting clients to corporates

Hong Kong Hopefluent Group Holdings (0733.HK)

Date 28-29 March, Hong Kong Coverage Analyst Ronney Cheung

Shanghai Prime Machinery (2345.HK) Date 28-29 March, Hong Kong Coverage Analyst Kenny Lau

Shenzhou (2313.HK) Post result Date 29 March, Hong Kong Coverage Analyst Eva Wang

Shun Tak Holdings Ltd(0242.HK) Date 29 March, Hong Kong Coverage Analyst Cusson Leung

Singapore PICC (2328.HK)

Date 29-31 March, Singapore Coverage Analyst Arjan van Veen

Sinopharm (1099.HK) Post annual result Date 31 March, Singapore Coverage Analyst Jinsong Du

China Shanshui Cement Group Ltd. (0691.HK) Date 31-March - 01-April, Singapore Coverage Analyst Trina Chen

US China Life Insurance (2628.HK)

Date 23-29 March, US Coverage Analyst Arjan van Veen

Europe PICC (2328.HK)

Date 21-28 March, Europe Coverage Analyst Arjan van Veen

Evergrande Real Estate Group Ltd (3333.HK) Date 31 March, London Coverage Analyst Jinsong Du

Sinopharm (1099.HK) Date 31-March - 01-April, London Coverage Analyst Jinsong Du

YTL Corp (YTLS.KL) Date 01-04 April, UK Coverage Analyst Tingmin Tan

Others 14th Asian Investment Conference

Date 21-25 March, Hong Kong

Shanghai Prime Machinery (2345.HK) Date 29-31 March, Sydney Coverage Analyst Kenny Lau

China Shanshui Cement Group Ltd. (0691.HK) Date 01 April, Shanghai Coverage Analyst Trina Chen

China Investment Conference Date 22-24 June, China

ASEAN + India Conference Date 25-26 August, Singapore

Contact [email protected] or Your usual sales representative.

Top of the pack ...

Asian Investment Conference 2011 Jahanzeb Naseer (3) Key macro messages from Day 1 of the AIC

Hutchison Whampoa (13 HK) – Maintain O Focus list stock Cusson Leung, CFA (4) FY10 results preview

HSBC (5 HK) – Maintain O Sanjay Jain (5) Notes from the AIC: Well positioned for Asian growth

SCC (SCC TB) – Maintain O Paworamon (Poom) Suvarnatemee, CFA (6) Notes from the AIC: Focusing on High Value Added products and ASEAN expansions

... and the whole pack Regional Asia Pacific Strategy Kin Nang Chik (7) Credit Suisse GEM valuation snapshot Asia Pacific Strategy Kin Nang Chik (8) Credit Suisse valuation snapshot Asian Investment Conference 2011 Jahanzeb Naseer (3) Key macro messages from Day 1 of the AIC

China New Oriental Education & Technology Vivian Hao (9) Notes from the AIC: EDU group presentation key takeaways China Property Sector – Maintain UW Jinsong Du (10) Weekly update: Another 7% WoW volume drop after the previous week's 28% drop -- 14% YoY drop so far in March China Taiping (966 HK) – Maintain N Arjan van Veen (11) 2010 result mixed / 2011 outlook still 'challenging' Lonking Holdings (3339 HK) – Maintain O Victoria Li (12) FY10 results beat expectations, would invest more on R&D to drive organic growth

Hong Kong Cafe de Coral Phoebe Tse (13) Notes from the AIC: Margin pressure from labour and food costs; recent ASP increase to help pass on some pressure Esprit (330 HK) – Maintain N Gabriel Chan, CFA (14) Note from the AIC: Half full or half empty?

https://www.credit-suisse.com/conferences/aic/2011/en/index.jsp


Asian Daily

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Asian indices - performance (% change) Latest 1D 1W 3M YTD ASX300 4,655 0.4 0.4 (2.7) (2.2) CSEALL 7,156 (0.4) (0.2) 12.2 7.8 Hang Seng 22,685 1.7 (2.8) (1.3) (1.5) H-SHARE 12,646 1.8 (1.8) 0.3 (0.4) JCI 3,519 0.7 (1.4) (3.3) (5.0) KLSE 1,509 0.3 0.9 0.2 (0.7) KOSPI 2,003 1.1 1.6 (1.7) (2.3) KSE100 11,375 (2.0) (5.6) (3.8) (5.4) NIFTY 5,365 (0.2) (3.0) (10.6) (12.5) PCOMP 3,844 0.1 (1.9) (6.0) (8.5) RED CHIP 4,051 2.4 0.2 (2.5) (2.8) SET 1,020 1.7 (0.3) 0.7 (1.2) STI 2,984 1.6 (1.6) (5.0) (6.5) TWSE 8,468 0.9 (0.6) (4.1) (5.6) VNINDEX 468 1.6 (2.4) (2.8) (3.4)

Thomson Financial Datastream Asian currencies (vs US$) (% change) Latest 1D 1W 3M YTD A$ 1.0 1.5 1.8 0.7 (1.1) Bt 30.3 (0.1) 0.7 (0.4) (1.0) D 20,878.0 0.0 0.0 (6.6) (6.6) NT$ 29.6 0.2 (0.3) 1.1 (1.4) P 43.5 (0.4) 0.7 1.5 0.2 PRs 85.5 0.0 (0.1) 0.3 0.3 Rp 8,725.0 (0.4) 1.0 3.6 2.9 Rs 45.0 (0.1) 0.6 0.2 (0.7) S$ 1.3 (0.7) 1.1 3.4 1.3 SLRs 110.4 (0.1) 0.1 0.8 0.5 W 1,121.7 (0.6) 1.6 2.6 (0.1)

Thomson Financial Datastream Global indices (% change) Latest 1D 1W 3M YTD DJIA 11,859 0.7 (1.5) 2.8 2.4 S&P 500 1,279 0.4 (1.9) 2.0 1.7 NASDAQ 2,644 0.3 (2.6) (0.9) (0.3) SOX 419 0.3 (2.0) 1.5 1.8 EU-STOX 2,553 1.8 (0.6) (3.6) (1.3) FTSE 5,792 1.3 0.3 (2.7) (1.8) DAX 6,800 2.0 (1.0) (3.9) (1.6) CAC-40 3,886 2.0 0.2 (1.1) 2.1 NIKKEI 9,207 2.7 (10.2) (11.2) (10.0) TOPIX 830 2.4 (9.3) (8.4) (7.6) 10 YR LB 3.30 0.9 (1.8) (0.2) 0.1 2 YR LB 0.62 5.5 4.1 1.9 4.0 US$:E 1.42 0.2 2.3 8.1 6.2 US$:Y 81.0 0.3 0.6 3.0 0.4 BRENT 115.7 1.3 2.0 24.3 22.7 GOLD 1,431.9 0.9 0.4 3.3 0.8 VIX 24.4 (7.3) 21.7 48.2 37.7

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 40 13 13.6 12.0 0.0 (3.2) (5.6) Asia Pac F X J. 30 15 14.0 12.2 0.0 (4.2) (5.5) Australia 4 19 15.5 13.2 2.8 (7.6) (5.0) China 32 15 12.9 11.2 0.3 (3.6) (3.8) Hong Kong 32 4 16.5 15.9 0.2 (5.3) (5.9) India 21 22 17.3 14.2 (1.3) (1.0) (13.6) Indonesia 15 22 16.0 13.1 0.4 1.7 (2.8) Korea 47 14 11.4 10.0 1.7 (2.6) (2.3) Malaysia 32 13 16.5 14.6 0.9 (1.7) (0.4) Pakistan 26 16 8.7 7.7 (2.0) (2.8) (2.6) Philippines 44 8 14.9 13.8 0.8 (2.6) (10.8) Singapore 28 5 13.8 13.1 0.2 (5.3) (7.8) Sri Lanka 89 16 19.7 17.1 (1.5) (8.0) (5.7) Taiwan 84 13 14.4 12.7 1.1 (5.9) (8.0) Thailand 34 9 13.1 12.0 0.2 2.9 (1.5)

* IBES estimates

Galaxy (27 HK) – Maintain N Gabriel Chan, CFA (15) Note from the AIC: firing on all cylinders for Cotai opening HSBC (5 HK) – Maintain O Sanjay Jain (5) Notes from the AIC: Well positioned for Asian growth

Hutchison Whampoa (13 HK) – Maintain O Focus list stock Cusson Leung, CFA (4) FY10 results preview SJM (880 HK) – Maintain N Gabriel Chan, CFA (16) Note from the AIC: Management remains upbeat despite challenges from new opening

Malaysia AirAsia (AIRA MK) – Maintain O Annuar Aziz (17) Notes from the AIC: Management plans for 2011

Singapore Olam (OLAM SP) – Maintain O Su Tye Chua (18) Notes from the AIC: Ahead of strategy

Taiwan Taiwan Economics Christiaan Tuntono (19) February export orders were weaker than expected, distorted by the lunar new year effect

Thailand Minor International (MINT TB) – Maintain O Thaniya Kevalee (20) Proposed acquisition of OAKS could provide further upside SCC (SCC TB) – Maintain O Paworamon (Poom) Suvarnatemee, CFA (6) Notes from the AIC: Focusing on High Value Added products and ASEAN expansions

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]

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Asian Daily

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Top of the pack ... Asian Investment Conference 2011----------------------------------------------------------------------- Key macro messages from Day 1 of the AIC Jahanzeb Naseer / Research Analyst / 852 2101 6554 / [email protected]

● The Asian Investment Conference 2011 (this is the 14th AIC for Credit Suisse) started in Hong Kong on the 21st of March. We highlight some of the key messages from Day 1, as well as the scope of the conference in this note.

● The five-day event, the largest-ever in its 14-year history, will host 2,000 institutional investors and 270 corporates from Asia Pacific, plus more than 40 keynote and panel speakers.

● The first day is usually focused on the macro themes, key notes and some key corporate presentations.

● The macro message is one of optimism. Jonathan Wilmot, our global strategist, put up a case for what makes markets go up – essentially growth driven by excess capacity and attractive valuations. While valuations have moved much higher, they are not that expensive; excess capacity is running out in emerging markets. He likes US housing and Japanese equities.

● While food prices are a key concern at the moment, Wilmot believes that food price inflation will ease in 2H11, helping inflation as a whole. He is also more sanguine on oil price-related risks and believes that oil price would have to go dramatically higher to derail growth.

Cost of political conflict has risen, now becoming a deterrent Gareth Evans, former Australian foreign minister, President Emeritus of the International Crisis Group and Chancellor of the Australian National University, kicked off the key note addresses by explaining how best to anticipate and respond to today’s political risks. He was cautiously optimistic about the future of Asian political relations (with India/Pakistan relationship the wildcard and riskiest). He notes that Asia has gone from the most war torn in three decades after WW2 to most peaceful now, due in large part to economic integration which he says has ‘greatly raised the cost of conflict,’ highlighting how economic integration and interdependence has led to stability in the region and will become a self reinforcing process. Markets continue to look attractive but the capital shift could continue Jonathan Wilmot and Sakthi Siva presented their macro views on world markets and Asia specifically. Wilmot conducted a general poll of the audience that suggested investors believed that Asia was coming up against certain capacity constraints that could lead to inflationary pressures and tighter policy. The audience also believed that such pressures were much more muted in the developed markets.

Wilmot believes that markets rally essentially on the back of growth driven by excess capacity and attractive valuations. While valuations have moved much higher they are not that expensive; excess capacity is running out in emerging markets. However, he and the audience appeared to agree that on the capacity front there was more room for non-inflationary growth in the developed world. He likes US housing and Japanese equities. What to look out for in the coming four days The 14th Credit Suisse AIC will present a strong line-up of keynote speakers, whose opinion and expertise influence industry, markets,

government and society. Gareth Evans and Jonathan Wilmot and Sakthi Siva kicked off the AIC with their views. This will be followed by a debate on sustainable global growth to be hosted by Jagdish Bhagwati, Professor of Economics and Law at Columbia University, and YV Reddy, former Governor, Reserve Bank of India. Significant attention will also turn to emerging Asian nations with the Philippines’ Secretary of Finance, Cesar Purisima, presenting the outlook for their respective countries, while the opportunities and challenges faced in the commodities markets will be explored with Tom Albanese, CEO of Rio Tinto.

As the AIC draws to a close, Tidjane Thiam, Group Executive of Prudential plc, will explore Asia’s considerable savings pool and the potential for the insurance industry; Malcolm Gladwell, international best-selling author of ‘The Tipping Point,’ ‘Blink’ and ‘Outliers,’ will share his insights as a keen observer of social phenomena; and John Wood, Founder and Board Co-Chair of Room to Read, will discuss the role of education as a necessary precondition for long-term economic growth.

In keeping with AIC tradition, a series of panel sessions will focus on a wide array of topics including: the future of microfinance; food shortages and inflation risks; progress and challenges of Malaysia’s new economic model announced in 2010; Indonesia’s growth prospects and challenges; reform in Sri Lanka’s financial sector; China’s 12th Five-Year Plan; China property; the internationalisation of the Renminbi; the misconceptions around Exchange Traded Funds; a corporate perspective on the Philippines; and a special panel led by Sir John Major on the challenges and opportunities brought about by the recent political developments in the Middle East.

Throughout the course of the conference, Credit Suisse’s leading economists and strategists will further articulate global, regional and sectoral investment themes and trends.


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Hutchison Whampoa-------------------------------------------------------- Maintain OUTPERFORM FY10 results preview EPS: ◄► TP: ◄► Cusson Leung, CFA / Research Analyst / 852 2101 6621 / [email protected] Joyce Kwock / Research Analyst / 852 2101 7496 / [email protected]

● Hutch will announce its FY10 earnings on 29 March and we expect its underlying earnings to increase by 19% to HK$16.9 bn. Although the EBIT of the established businesses is expected to be flat, the earnings driver is likely to be from the substantial improvement in 3G operations.

● In case 3G delivers a positive EBIT in 2010, we believe dividend is likely to be raised. Our dividend forecast for 2010 is at HK$2.0/shr versus a constant dividend of HK$1.73/shr for the last nine years. We believe this will be a symbolic boost to the market’s confidence level on the company’s 3G operations.

● After its recent corrections, we believe Hutch is now back to an attractively valued range at 22% discount to NAV. Despite the small decline in HPHT market value, the impact on Hutch’s NAV is insignificant given it only accounts for 3% of its NAV now.

● We maintain our OUTPERFORM rating on the stock as we believe the earnings momentum of the company will remain strong and there is further potential for asset disposal by the company.

19% underlying earnings growth; div expected to increase Hutch will announce its FY10 results on 29 March. We expect the company to report underlying earnings of HK$16.9 bn, representing a growth of 19% YoY. While the EBIT of its established businesses is expected to be flat from the previous year, the big earnings driver is expected to be from the substantial improvement from the 3G operation that reported a loss before interest and taxation (LBIT) of HK$8.9 bn in 2009. We are expecting a marginal loss of HK$101 mn in 2010 for the 3G operations but we believe the risk is to the upside. In case 3G turns in a positive EBIT, we believe the company will raise its full year dividend to HK$2.0/shr. The company has been paying out a constant dividend of HK$1.73/shr since 2000. We think this would be more a positive symbolic sign than anything else.

Figure 1: Estimated earnings for FY10 (HK$ mn) 2009A 2010E YoY% Ports 10,406 11,779 13% Property and hotels 6,430 5,990 -7% Retail 5,692 6,826 20% Infrastructure 6,905 6,163 -11% Husky 4,010 3,658 -9% Finance and inv. 3,934 2,801 -29% Telecom 493 936 90% EBIT - established business 37,870 38,153 1% 3G Revenue 57,590 61,212 6% EBITDA 17,482 25,399 45% CAC expense and amortisation -17,306 -17,249 0% Depreciation and amortisation -9,098 -9,763 7% One-off items 1,613 NM LBIT - 3G -8,922 -101 -99% Total EBIT 28,948 38,052 31% Net interest expenses -13,025 -12,378 -5% Other one-off items 15,267 1,460 -90% PBT 31,190 27,134 -13% Taxation -9,453 -6,316 -33% PAT 21,737 20,818 -4% Minority interests -7,569 -3,920 -48% Net profit 14,168 16,897 19% Source: Company data, Credit Suisse estimates

Figure 2: Estimated NAV breakdown HK$/shr % of GNAV HK$/shr Unlisted Retail 20.6 16% Property 27.3 21% Ports 23.4 18% 3G 16.1 12% 87.4 Listed Husky Energy 16.7 13% CKI 16.7 13% HTHKH 2.0 2% HPHT 4.2 3% HTIL 0.0 0% HTA 2.0 2% 41.6 Gross NAV 100% 129.0 Debt -20.5 NAV 108.5 Stub NAV 66.9 Stub share price 43.3 Discount to stub -35% Ex-3G stub NAV 50.8 Discount to ex-3G stub -15% Source: Company data, Credit Suisse estimates Valuation is attractive again With its recent correction, we believe the stock is back to an attractive level again at a 22% discount to NAV. On a stub-basis, the stock is at 35% discount to its stub NAV. We believe continued improvement in 3G operations will start to drive upgrade on the valuation of the stock.

Price (18 Mar 11, HK$) 84.85 TP (Prev. TP HK$) 109 (109) Est. pot. % chg. to TP 28 52-wk range (HK$) 95.80 - 46.65 Mkt cap (HK$/US$ bn) 361.7/ 46.4

Bbg/RIC 13 HK / 0013.HK Rating (prev. rating) O (O) Shares outstanding (mn) 4,263.37 Daily trad vol - 6m avg (mn) 16.8 Daily trad val - 6m avg (US$ mn) 178.9 Free float (%) 50.1 Major shareholders Cheung Kong: 49.9%

Performance 1M 3M 12M Absolute (%) (8.8) 8.9 47.7 Relative (%) (3.5) 10.9 41.3

Year 12/08A 12/09A 12/10E 12/11E 12/12E Revenues (HK$ mn) 235,478 208,808 235,713 259,191 279,875 EBITDA (HK$ mn) 84,152 60,794 54,917 65,418 73,132 Net profit (HK$ mn) 12,681 14,168 16,897 64,828 24,783 EPS (HK$) 3.0 3.3 4.0 15.2 5.8 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (HK$) n.a. n.a. 3.71 4.83 5.98 EPS growth (%) (58.6) 11.7 19.3 283.7 (61.8) P/E (x) 28.5 25.5 21.4 5.6 14.6 Dividend yield (%) 2.0 2.0 2.4 2.4 2.4 EV/EBITDA (x) 7.3 8.9 9.8 7.6 6.7 P/B (x) 1.4 1.3 1.2 1.0 1.0 ROE (%) 4.5 5.2 5.9 20.3 7.0 Net debt (net cash)/equity (%) 73.3 56.5 53.4 34.0 30.2 Note1:Ord/ADR=5.0000.Note2:Hutchison is Hong Kong’s largest conglomerate and an associated company of the Cheung Kong group. It is engaged in five core businesses. 1) property; 2) ports; 3) telecom; 4) retail & manufacturing; and 5) energy & infrastructure.


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HSBC ----------------------------------------------------------------------------- Maintain OUTPERFORM Notes from the AIC: Well positioned for Asian growth EPS: ◄► TP: ◄► Sanjay Jain / Research Analyst / 65 6212 3017 / [email protected] Anand Swaminathan / Research Analyst / 65 6212 3012 / [email protected]

● During yesterday's presentation at the AIC, HSBC’s Asia CEP Peter Wong highlighted the bank’s strong 2010 performance in Asia. He explained that HSBC remains well positioned in the six core markets – HK, CH, IN, SG, MY and ID.

● After becoming too conservative in 2008-09 even in Asia (loans contracted), HSBC rebounded strongly in 2010 (Asia loans +38%, revenue +11%, PBT +26%). Peter expects growth to continue, not only in loans/assets but also in non-interest (fee) income.

● With a loan-deposit ratio of 57% in Asia, HSBC stands to gain substantially from rising rates when that happens. Meanwhile, tightening liquidity (e.g. in Hong Kong, India) should help margins that have lately come under pressure due to competition.

● Asia ROEs are strong (21% in 2010) and Peter would like them to continue in the range of 18–20%. However, Group ROE target for the medium term has been reset to 12–15% recently from 15–18% previously. Costs are a key focus for the Group (cost-income ratio was 55% in 2010) and would help improve ROEs going forward.

Asia: Growth should continue After becoming too conservative and losing market share in Asia for several years, HSBC came back very strongly in 2010: Loans were up 38%, revenue 11% and PBT 26%. Growth was across the board, with Hong Kong loans advancing 41% and Rest of Asia Pacific loans advancing 36%. Deposits were up 11% with loan-deposit ratio 47% in HK and 69% in Rest of Asia Pacific. Fee income was up 17% and cost-income ratio came in at 48% in Asia (versus 55% for the Group).

Business was well-balanced with Hong Kong’s profit share falling below half (to 49%) for the first time. It was also well-balanced in terms of Personal Financial Services contributing 34%, Global Banking and Markets 35%, Commercial Banking 25% and Private Banking 3%.

Well positioned in six core markets In mainland China, HSBC remains the largest foreign bank with 108 outlets in 28 cities. The China business is now completely intertwined with Hong Kong where about one quarter of new Premier customers and about 56% of new SME customers are from China.

Hong Kong remains HSBC’s stronghold where it is the largest bank in deposits, mortgages, credit cards and life insurance. It has more than 0.5 mn premier customers in HK, out of 1.2 mn in Asia.

In India, HSBC’s profit before tax surged 82% to US$679 mn in 2010 and the bank intends to make it a US$1 bn market. It has 34,000 employees in India, the largest in Asia.

In Singapore and Malaysia, HSBC is pursuing broad-based growth across all businesses, while in Indonesia it is more focused on fee income products such as foreign exchange, trade and loan syndication. The RMB opportunity Peter clarified at the outset that RMB business is unlikely to generate much profits in the near term, but it is a strategic move for HSBC to maintain a strong presence here. HSBC estimates RMB deposits to constitute over 20% of total deposits in HK by 2012, offshore (HK) RMB bond market to grow 50% in 2011 and RMB to become world’s third largest trading currency in the future. Asia strategy for 2011 HSBC would like to grow quality assets by participating in the Asian growth story, boost non interest income by diversifying revenue channels and build liabilities to capture benefits of rising rates.

Figure 1: HSBC – forecasts summary (US$ mn) 2010 2011E 2012E 2013E '11E

YoY% '12E

YoY% '13E

YoY% Net interest income 39,410 39,989 41,613 44,102 1.5 4.1 6.0 Non-interest income 28,147 29,754 31,463 33,263 5.7 5.7 5.7 Total income 67,557 69,743 73,075 77,366 3.2 4.8 5.9 Total expenses 37,669 38,725 39,932 41,741 2.8 3.1 4.5 Pre-provision op profit 29,888 31,018 33,144 35,625 3.8 6.9 7.5 Provisions 14,039 11,040 9,429 8,861 -21.4 -14.6 -6.0 Associates & other 2,517 2,739 2,971 3,229 8.8 8.5 8.7 PBT Credit Suisse 18,366 22,716 26,686 29,993 23.7 17.5 12.4 PBT Reported 19,037 22,716 26,686 29,993 19.3 17.5 12.4 CS net profit 12,246 15,344 18,209 20,581 25.3 18.7 13.0 (US$ bn) Customer loans 958 1,008 1,057 1,112 5.2 4.9 5.2 Customer deposits 1,228 1,295 1,366 1,437 5.5 5.4 5.2 Equity tier 1 capital 115 127 134 150 10.0 5.7 11.9 Risk weighted assets 1,103 1,175 1,310 1,389 6.5 11.5 6.0 Ratios (%) Cost-income ratio 55.8 55.5 54.6 54.0 Loan-deposit ratio 78 78 77 77 Tier 1 ratio 12.1 12.3 11.6 12.1 Equity tier 1 ratio 10.5 10.8 10.2 10.8 CS ROTE 11.9 13.1 13.9 14.0 CS ROE 9.2 10.5 11.3 11.7 Source: Company data, Credit Suisse estimates.

Price (18 Mar 11 , HK$) 79.45 TP (Prev. TP HK$) 95.00 (95.00) Est. pot. % chg. to TP 20 52-wk range (HK$) 91.75 - 69.55 Mkt cap (HK$/US$ bn) 1,406.8/ 180.4

Bbg/RIC 5 HK / 0005.HK Rating (prev. rating) O (O) Shares outstanding (mn) 17,706.77 Daily trad vol - 6m avg (mn) 17.6 Daily trad val - 6m avg (US$ mn) 302.6 Free float (%) 100.0 Major shareholders —

Performance 1M 3M 12M Absolute (%) (13.4) (0.9) (2.5) Relative (%) (8.4) 1.0 (6.7)

Year 12/09A 12/10A 12/11E 12/12E 12/13E Pre-prov Op profit (US$ mn) 30,930 33,746 34,766 36,251 — Net profit (US$ mn) 11,468 12,246 15,344 18,209 20,581 EPS (US$) 0.70 0.70 0.87 1.02 1.13 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (US$) n.a. n.a. 0.98 1.20 1.36 EPS growth (%) 8.8 (0.1) 23.8 16.9 11.2 P/E (x) 14.5 14.5 11.7 10.0 9.0 Dividend yield (%) 0.3 0.3 0.3 0.3 0.4 BVPS (US$) 7.2 7.9 8.5 9.2 10.0 P/B (x) 1.4 1.3 1.2 1.1 1.0 ROE (%) 10.7 9.2 10.5 11.3 11.7 ROA (%) 0.5 0.5 0.6 0.7 0.7 Tier 1 (%) 10.8 12.1 12.3 11.6 12.1 Note1: HSBC Holdings plc is the holding company for HSBC group. The company provides a variety of International banking and financial services, including retail and corporate banking, trade, trusteeship, securities, custody and capital markets.


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SCC ------------------------------------------------------------------------------- Maintain OUTPERFORM Notes from the AIC: Focusing on High Value Added products and ASEAN expansions EPS: ◄► TP: ◄► Paworamon (Poom) Suvarnatemee, CFA / Research Analyst / 662 614 6210 / [email protected] Puchong Kometsopha / Research Analyst / 66 2 614 6215 / [email protected]

● SCC’s CEO Khun Kan Trakulhoon made a presentation at CS’s Asian Investment Conference in Hong Kong. The focus was on its two core strategies; geographical expansions in three core products in ASEAN, and the increase of portion of High Value Added (HVA) products in order to command extra margins.

● Management expects ethylene margins to improve and continue to rise until 2015 due to the absence of global capacity increase during 2013-15. Market is expected to be balanced in 2011 and demand growth is expected to outpace supply growth in 2012. Propylene margins are relatively strong currently and expect to continue in the future.

● Regarding its stake in PTTCH, SCC said it has a plan to hold on to the stake for a while. Its equity income contribution from PTTCH in 2010 would be more than offset by higher contributions from its new JV with Dow Chemical.

● We maintain our OUTPERFORM rating on SCC with a DCF-based target price of Bt374.

Focus on two core strategies SCC plans to focus on two core strategies. Firstly, SCC will focus on geographical expansions into ASEAN markets in its three core businesses of paper, petrochemicals, and cement. Secondly, the focus would be on increasing the proportion of High Valued Added (HVA) products in order to create higher and sustained margins. High Value Added (HVA) to increase margins SCC has been spending more money in R&A with the aim to increase the proportion of sales of HVA products to 50% of its sales revenue by 2015 from 2010’s portion of 29%. The efforts are made by working more closely with customers in order to improve product quality to meet clients’ need. Under SCC’s definition, HVA are products that command EBITDA margins of between 5% and 10% extra on top of the margins of commodity grade products. These products command higher margins. In 2010, it made up around 32% of sales of the petrochemical group but contributed slightly more than 50% of EBITDA for the group. SCC has also invested substantially in human

resources in order to create a more sustained development of innovation culture in the company. Cement price increase compensated for coal price rise Cement price continue to rise in 1Q11. Management believes that the increase is more than enough to cover the increase in cost of coal so far. In 2011, management expects continued high crop prices would support increase in cement demand from upcountry which accounted for 60% of Thailand cement demand.. Ethylene chain to start ‘supercycle’ up to 2015 Management expects to see 6 mn t and 3 mn t of global ethylene capacity additions in 2011 and 2012, respectively. In 2011, the increase of supply should be in line with demand increase. The market should start to get tighter in 2012 onwards. No capacity expansion is being planned globally until 2015. Management expects polyethylene margins not to drop below US$400/t and start to improve going forward. Capex plan budgeted US$5 bn for next five years The amount has been approved but may not be spent entirely depending on the opportunity. SCC did not provide a specific plan on capex but said that the focus would be more on acquisitions which provide immediate EBITDA to the firm. This would be different from the last round of capex cycle, of which majority of cash was spent on greenfield projects. Its Vietnam petrochemical project is still under consideration due mainly to difficulty in financing the projects on a project-financing basis. By 3Q11, SCC expects to be able to decide on the project.

As for its Indonesian cement plant, it is expected to announce in 2Q11. Management expects the process to take three years before completion. Capacity is expected to be 1.5-2 mn t a year. Outlook of Indonesia’s cement market remains tight. PTTCH – ‘to continue to hold for a while’ Referring to the question whether SCC plans to sell its remaining 4% of its holding in PTTCH, SCC’s CEO said that SCC will ‘continue to hold the shares of PTTCH for a while’. There is no rush to sell as the company has cash in hand of Bt70 bn and the sell-down of 4% in PTTCH would add another Bt10 bn to its cash position. SCC plans to maintain its dividend payout ratio of 40-50%.

We maintain our OUTPERFORM rating on SCC with a DCF-based target price of Bt374.

Price (18 Mar 11 , Bt) 332.00 TP (Prev. TP Bt) 374 (374) Est. pot. % chg. to TP 13 52-wk range (Bt) 352.00 - 234.00 Mkt cap (Bt/US$ bn) 398.4/ 13.1

Bbg/RIC SCC TB / SCC.BK Rating (prev. rating) O (O) Shares outstanding (mn) 1,200.00 Daily trad vol - 6m avg (mn) 2.6 Daily trad val - 6m avg (US$ mn) 25.1 Free float (%) 65.0 Major shareholders Crown Property

Bureau (35%)

Performance 1M 3M 12M Absolute (%) 4.4 (2.4) 39.5 Relative (%) 3.6 (0.5) 5.5

Year 12/08A 12/09A 12/10E 12/11E 12/12E Revenues (Bt mn) 293,230 238,664 301,323 316,135 348,001 EBITDA (Bt mn) 34,206 44,046 41,943 49,445 55,776 Net profit (Bt mn) 16,771 24,346 37,382 31,372 39,085 EPS (Bt) 14.0 20.3 31.2 26.1 32.6 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Bt) n.a. n.a. 31.2 26.3 31.3 EPS growth (%) (44.8) 45.2 53.6 (16.1) 24.6 P/E (x) 23.8 16.4 10.7 12.7 10.2 Dividend yield (%) 2.3 2.6 3.8 3.9 4.9 EV/EBITDA (x) 15.2 11.8 11.5 10.0 8.6 P/B (x) 4.6 3.8 3.0 2.8 2.5 ROE (%) 19.3 25.4 31.5 23.0 25.9 Net debt (net cash)/equity (%) 108.2 92.9 52.4 56.3 41.7 Note1:The Siam Cement Public Company Limited is Thailand's leading conglomerate with three main businesses: cement, pulp and paper and petrochemicals..


Asian Daily

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Regional Asia Pacific Strategy------------------------------------------------------------------------------------------- Credit Suisse GEM valuation snapshot Kin Nang Chik / Research Analyst / 852 2101 7482 / [email protected]

Figure 1: Historical valuations 18 Mar 11 12M P/E (x) Trailing P/B (x) Trailing DY (%)

Current 5-yr avg. Current 5-yr avg. Current 5-yr avg. Argentina 9.0 11.1 1.6 2.2 2.2 1.8 Brazil 10.0 10.0 1.8 2.3 2.8 3.0 Chile 14.7 16.3 2.5 2.3 1.4 2.0 China 10.7 13.6 2.2 2.7 2.3 2.1 Czech Republic 10.8 12.4 2.0 2.5 6.4 4.8 Egypt 9.1 11.1 1.6 3.2 4.6 3.7 Hungary 9.2 9.5 1.3 1.9 1.5 2.4 India 14.1 16.2 3.1 3.9 1.1 1.1 Indonesia 12.6 12.4 4.1 4.0 2.3 2.7 Israel 9.6 12.2 2.0 2.3 2.9 2.3 Korea 9.6 10.5 1.5 1.5 1.2 1.6 Malaysia 14.0 14.2 2.4 2.1 2.5 2.7 Mexico 13.8 13.1 2.7 2.9 1.7 1.9 Morocco 15.5 15.4 6.6 5.3 4.2 3.4 Pakistan 7.4 8.7 2.1 2.5 6.1 6.1 Philippines 13.4 13.8 2.6 2.5 2.7 2.7 Poland 11.2 11.9 1.7 1.9 2.5 3.9 Russia 6.8 8.5 1.3 1.7 1.4 1.7 South Africa 10.7 10.8 2.4 2.7 2.5 2.9 Taiwan 12.0 14.8 2.0 1.9 3.4 4.1 Thailand 11.5 10.3 2.3 1.9 2.8 3.8 Turkey 9.7 8.9 1.9 1.8 2.4 3.0 Con Discretionary 11.1 11.9 2.5 2.2 1.4 1.7 Con Staples 16.1 16.2 3.1 3.3 2.1 2.2 Energy 8.9 9.1 1.5 2.0 2.0 2.4 Financials 10.3 11.7 1.9 2.1 2.4 2.4 Health Care 11.5 14.9 4.2 3.3 0.7 0.9 Industrials 11.1 13.1 1.9 2.1 1.6 1.9 Info Technology 11.5 14.8 2.4 2.3 2.2 2.4 Materials 9.9 10.3 2.2 2.2 1.9 3.1 Telecoms 10.6 12.3 2.3 2.8 3.8 3.3 Utilities 11.4 12.9 1.2 1.3 3.1 2.9 EMF 10.5 11.5 2.0 2.2 2.2 2.5 EM Asia 11.2 12.7 2.1 2.1 2.1 2.4 EM Europe 7.8 9.0 1.4 1.8 1.8 2.3 EM Latin America 10.9 11.0 2.0 2.4 2.5 2.7 Figure 2: Forecast valuations (IBES estimates) 18 Mar 11 EPS growth (%) 3M chg. in est. (%) P/E (x) 2010 2011 2012 2011 2012 2010 2011 2012 Argentina 18.1 10.9 16.2 10.2 6.4 10.4 9.4 8.1 Brazil 26.3 10.6 11.4 -0.2 -0.2 11.3 10.2 9.2 Chile 22.5 12.0 12.9 -3.7 0.6 17.0 15.2 13.4 China 31.9 15.3 16.0 1.5 1.2 12.9 11.2 9.6 Czech Republic -0.7 -6.8 4.6 -4.0 -3.6 10.2 10.9 10.4 Egypt 18.6 18.3 21.7 -7.0 -15.3 11.2 9.6 7.9 Hungary 7.4 14.6 20.6 -1.8 -3.5 11.1 9.7 8.1 India 21.0 21.9 18.2 -1.9 -2.3 17.3 14.2 12.0 Indonesia 15.2 21.9 16.9 2.5 3.8 16.0 13.1 11.2 Israel 29.7 13.0 9.4 -1.4 -3.6 11.4 10.1 9.0 Korea 46.9 14.4 13.4 1.0 1.5 11.4 10.0 8.8 Malaysia 32.3 13.4 11.6 0.3 0.3 16.5 14.6 13.1 Mexico -10.0 45.6 14.2 1.9 3.3 20.8 14.3 12.5 Morocco 6.7 7.9 7.3 0.0 -2.6 17.0 15.8 14.7 Pakistan 25.7 16.5 10.1 2.8 5.6 8.7 7.7 7.0 Philippines 44.4 8.2 10.7 0.2 -1.3 14.9 13.8 12.4 Poland 30.3 18.6 7.2 5.4 4.2 13.5 11.4 10.6 Russia 33.7 17.7 6.1 5.9 1.5 8.3 7.0 6.5 South Africa 17.0 35.2 19.5 -0.7 1.2 15.8 11.7 9.8

Figure 2 (continued): Forecast valuations (IBES estimates) EPS growth (%) 3M chg. in est. (%) P/E (x) 2010 2011 2012 2011 2012 2010 2011 2012 Taiwan 83.6 13.2 15.6 1.1 4.2 14.3 12.6 10.8 Thailand 34.1 9.1 16.6 2.0 2.7 13.1 12.0 10.3 Turkey 18.0 1.3 11.8 -3.5 -4.4 10.1 10.0 8.9 Cons. Discretionary 24.9 23.1 15.6 1.2 1.7 14.2 11.5 10.0 Consumer Staples 13.8 14.3 17.0 0.8 1.4 19.3 16.9 14.5 Energy 17.0 7.0 7.4 5.2 2.9 9.7 9.1 8.5 Financials 27.8 20.6 16.9 -0.1 -0.4 13.0 10.8 9.2 Health Care 31.9 14.9 10.1 -2.7 -6.0 13.6 11.8 10.7 Industrials 66.9 11.4 13.8 1.1 1.0 12.8 11.5 10.1 Info.Technology 76.1 9.5 17.9 -0.4 2.9 13.2 12.0 10.1 Materials 67.6 31.8 12.8 2.0 3.0 13.6 10.3 9.1 Telecoms 2.3 14.0 9.0 -1.2 -2.1 12.4 10.9 10.0 Utilities 11.6 12.8 14.5 -5.8 -4.5 13.3 11.8 10.3 EMF 32.3 16.4 13.5 1.0 1.0 12.7 10.9 9.6 EM Asia 41.5 15.2 15.2 0.9 1.5 13.3 11.6 10.0 EM Europe 28.7 14.9 7.3 4.2 0.8 9.3 8.1 7.4 EM Latin America 20.6 15.8 11.9 0.2 0.7 13.0 11.2 10.0 Figure 3: Index – absolute performance in US$ (%) 18 Mar 11 1W 1M 3M YTD 12M Argentina -2.3 -8.0 -11.4 -13.6 46.7 Brazil -0.6 -2.3 1.0 -4.0 1.2 Chile 0.1 -4.5 -15.1 -14.7 19.5 China -3.3 -3.6 -2.6 -3.8 0.4 Colombia 3.5 9.0 0.2 0.0 26.9 Czech Republic 2.3 5.5 15.3 11.3 -0.2 Egypt -0.3 -0.8 -19.2 -22.0 -21.2 Hungary 1.7 0.3 12.6 12.1 -11.8 India -1.1 -1.0 -9.5 -13.6 -0.5 Jordan 0.4 -5.0 -6.2 -8.9 -14.5 Indonesia -1.7 1.7 0.7 -2.8 16.9 Israel -0.6 -5.3 -5.6 -7.2 -11.9 Korea 1.9 -2.6 0.5 -2.3 20.9 Malaysia 0.2 -1.7 2.5 -0.4 25.6 Mexico -2.5 -5.7 -3.8 -6.1 12.4 Morocco 0.4 4.1 6.7 7.6 16.3 Pakistan -5.0 -2.8 0.2 -2.6 9.7 Peru -1.3 -3.0 -12.5 -14.5 26.5 Philippines -2.9 -2.6 -5.8 -10.8 15.6 Poland 2.1 3.9 5.9 3.9 14.5 Russia 3.1 7.2 13.5 11.9 24.2 South Africa -3.9 -2.9 -6.1 -11.4 9.2 Taiwan -2.1 -5.9 -4.4 -8.0 13.1 Thailand 0.1 3.0 -0.4 -1.5 38.1 Turkey 0.3 -4.2 -4.3 -7.9 12.5 Consumer Discretionary -3.1 -3.1 -4.9 -7.1 19.7 Consumer Staples -1.9 -1.2 -4.8 -7.6 15.2 Energy 1.0 4.8 10.4 5.6 14.1 Financials -1.3 -2.1 -3.3 -6.6 6.5 Health Care -0.7 -1.9 -8.5 -11.5 2.4 Industrials -0.7 -5.3 -7.0 -9.7 11.3 Information Technology -2.2 -6.6 -4.3 -6.7 7.2 Materials 1.2 -3.2 -0.3 -3.4 12.8 Telecommunication Services -2.9 -2.9 -2.4 -5.2 2.6 Utilities -0.6 -0.3 -2.8 -4.7 -1.3 EMF -0.9 -2.1 -1.5 -4.6 9.7 EM Asia -1.2 -3.0 -2.7 -5.4 10.1 EM Europe 2.5 4.8 9.7 7.7 18.3 EM Latin America -0.8 -2.8 -1.6 -5.3 5.9 Source for all figures: MSCI, IBES Aggregates. Note: Sectors are EMF sectors.


Asian Daily

- 8 of 24 -

Asia Pacific Strategy------------------------------------------------------------------------------------------- Credit Suisse valuation snapshot Kin Nang Chik / Research Analyst / 852 2101 7482 / [email protected]

Figure 1: Country – DDM-based valuations 18 Mar 11 Implied discount rate (IDR) (%) Equity risk premium (ERP) (%) Current 5Y avg. Std Dev. Current 5Y avg. Std Dev. Australia 12.0 11.3 1.2 6.6 6.0 0.4 China 12.8 12.0 0.6 8.9 8.0 1.0 Hong Kong 9.6 9.6 0.7 7.0 6.1 0.7 India 13.1 13.0 0.7 5.1 5.4 1.2 Indonesia 14.6 14.4 1.6 6.3 3.9 1.3 Korea 11.5 12.3 0.7 7.0 7.1 1.2 Malaysia 11.0 10.9 0.3 7.1 6.6 0.6 Singapore 10.8 10.5 0.3 8.4 7.8 0.7 Taiwan 10.4 11.4 0.6 9.0 9.4 0.9 Thailand 12.2 14.4 1.0 8.5 9.8 1.1 Asia ex. Japan 11.2 11.2 0.4 7.9 7.1 0.7

Figure 2: Sector – DDM-based valuations 18 Mar 11 Market implied growth rate (MIGR) (%) Current 5-year average Std Dev. Cons. discretionary 3.2 6.9 3.9 Consumer staples 3.0 7.4 3.9 Energy 2.3 3.1 4.4 Financials 4.1 7.6 4.4 Health care 5.9 9.3 4.1 Industrials 3.2 7.8 4.5 Information tech 10.2 12.0 2.8 Materials 4.4 5.8 4.1 Telecom services 3.9 7.9 3.8 Utilities 3.5 6.0 2.7

Figure 3: Historical valuations 18 Mar 11 12M forward

P/E (x) Trailing P/B (x)

Trailing dividend yield (%)

Current 5-yr avg. Current 5-yr avg. Current 5-yr avg. Australia 11.7 13.3 2.0 2.4 4.2 4.3 China 10.7 13.5 2.2 2.7 2.3 2.1 Hong Kong 15.3 16.0 1.7 1.7 2.7 2.9 India 14.1 16.1 3.1 3.9 1.1 1.1 Indonesia 12.6 12.4 4.1 4.0 2.2 2.7 Japan 11.9 17.2 1.1 1.5 2.0 1.7 Korea 9.6 10.4 1.5 1.5 1.3 1.6 Malaysia 14.0 14.2 2.4 2.1 2.6 2.7 Philippines 13.4 13.7 2.6 2.5 2.8 2.7 Singapore 12.8 14.0 1.7 1.9 3.4 3.2 Taiwan 12.0 14.7 2.0 1.9 3.6 4.1 Thailand 11.5 10.3 2.3 1.9 2.7 3.8 Cons. discretionary 11.7 12.8 2.3 2.1 1.8 2.4 Consumer staples 14.3 16.3 2.6 3.1 3.2 2.9 Energy 12.0 12.1 2.3 2.7 2.2 2.6 Financials 11.3 13.2 1.6 1.8 3.6 3.6 Health care 17.5 19.2 4.1 4.3 2.0 1.7 Industrials 11.8 14.2 1.8 1.9 1.9 2.6 Information tech 11.5 14.8 2.3 2.3 2.2 2.4 Materials 10.7 11.4 2.6 2.6 2.0 2.9 Telecom services 11.0 12.9 2.0 2.5 4.9 3.9 Utilities 13.8 14.6 1.5 1.6 2.9 2.9 Asia Pacific 11.8 14.7 1.5 1.8 2.5 2.4 Asia ex. Japan 11.6 13.0 2.0 2.0 2.3 2.5 Asia Pac ex. Japan 11.6 13.1 2.0 2.1 2.8 3.0

Figure 4: Forecast valuations (IBES estimates) 18 Mar 11 3-mth chg. in EPS growth (%) EPS est. (%) P/E (x) 2010 2011 2012 2011 2012 2010 2011 2012 Australia 4.1 19.0 15.7 -0.4 2.8 15.5 13.2 11.4 China 31.9 15.3 16.0 1.5 1.2 12.9 11.2 9.6 Hong Kong 31.9 3.8 13.8 0.6 2.2 16.5 15.9 14.0 India 21.0 21.9 18.2 -1.9 -2.3 17.3 14.2 12.0 Indonesia 15.2 21.9 16.9 2.5 3.8 16.0 13.1 11.2 Japan nm 85.5 14.2 2.3 3.2 25.6 13.6 11.9 Korea 46.9 14.4 13.4 1.0 1.5 11.4 10.0 8.8 Malaysia 32.3 13.4 11.6 0.3 0.3 16.5 14.6 13.1 Philippines 44.4 8.2 10.7 0.2 -1.3 14.9 13.8 12.4 Singapore 27.8 5.4 10.8 0.0 1.2 13.8 13.1 11.8 Taiwan 83.6 13.2 15.6 1.1 4.2 14.3 12.6 10.8 Thailand 34.1 9.1 16.6 2.0 2.7 13.1 12.0 10.3 Cons. discretionary 18.7 14.3 8.8 1.1 2.0 12.1 10.6 9.1 Consumer staples 7.3 14.2 11.7 -1.2 -0.4 15.2 13.4 11.7 Energy 18.3 15.0 0.5 4.7 4.6 12.5 10.8 11.1 Financials 14.3 14.0 9.8 0.2 0.5 11.8 10.4 9.7 Health care 10.5 15.5 10.1 -0.9 -1.5 18.7 16.2 14.4 Industrials 7.0 13.5 20.3 0.8 1.4 12.3 10.8 9.1 Information tech 10.3 18.3 -2.1 -0.1 3.2 12.1 10.1 10.1 Materials 34.7 15.7 0.8 3.1 5.0 11.5 10.0 9.9 Telecom services 3.1 8.3 9.4 -2.1 -2.0 11.2 10.4 9.5 Utilities 13.9 14.6 3.4 -2.9 -2.2 14.3 12.4 12.2 Asia Pacific 47.4 14.8 14.0 1.7 2.4 14.0 12.2 10.7 Asia F X Japan 39.6 13.5 14.8 0.8 1.5 13.6 12.0 10.5 Asia Pac F X Japan 30.5 15.2 14.6 0.8 1.8 14.0 12.2 10.6 Note: P/E and EPS growth numbers for Australia and Japan corresponds to June 10-12 and March 10-12; and EPS change numbers correspond to June 11-12 and March 11-12, respectively. Figure 5: Index – absolute performance in US$ (%) (18 Mar 11) US$ – price index 1W 1M 3M YTD 12M MSCI Australia -1.5 -7.6 -1.8 -5.0 1.8 MSCI China -3.3 -3.6 -2.6 -3.8 0.4 MSCI Hong Kong -4.4 -5.3 -4.6 -5.9 9.9 MSCI India -1.1 -1.0 -9.5 -13.6 -0.5 MSCI Indonesia -1.7 1.7 0.7 -2.8 16.9 MSCI Japan -8.5 -12.4 -4.6 -7.6 -1.7 MSCI Korea 1.9 -2.6 0.5 -2.3 20.9 MSCI Malaysia 0.2 -1.7 2.5 -0.4 25.6 MSCI Philippines -2.9 -2.6 -5.8 -10.8 15.6 MSCI Singapore -3.8 -5.3 -4.1 -7.8 9.2 MSCI Taiwan -2.1 -5.9 -4.4 -8.0 13.1 MSCI Thailand 0.1 3.0 -0.4 -1.5 38.1 Cons. Discretionary -2.6 -4.1 -3.7 -4.9 19.7 Consumer Staples -2.3 -3.9 -4.4 -7.7 4.9 Energy 0.8 1.2 3.2 -0.6 18.3 Financials -2.7 -4.9 -3.0 -5.7 2.6 Health Care -2.4 -4.3 -6.8 -9.8 3.3 Industrials -1.5 -6.0 -4.4 -7.4 12.4 Information Tech -2.2 -7.0 -4.6 -7.0 7.3 Materials 1.4 -4.3 0.7 -2.9 14.3 Telecom Services -3.9 -5.2 -4.6 -6.4 -0.7 Utilities -1.7 -2.5 -5.5 -7.2 -3.1 MSCI AC Asia Pacific -4.4 -7.7 -3.4 -6.3 3.8 MSCI AC Asia ex JP -1.8 -3.4 -3.1 -5.6 10.0 MSCI AC Asia Pacific ex JP -1.7 -4.6 -2.7 -5.5 7.6 Note: All sectoral data refers to Asia Pacific ex Japan. Source for all figures: MSCI, Factset, Thomson Financial Datastream, Credit Suisse


Asian Daily

- 9 of 24 -

China New Oriental Education & Technology ------------------------------------------------ NOT RATED Notes from the AIC: EDU group presentation key takeaways Vivian Hao / Research Analyst / 852 2101 7039 / [email protected] Wallace Cheung, CFA / Research Analyst / 852 2101 7090 / [email protected]

● At the Credit Suisse 2011 Asian Investment Conference in Hong Kong, Louis Hsieh, the President of New Oriental, commented on EDU’s 2011 outlook and key strategies during a group presentation.

● In 2011, EDU expects to continue to benefit from the fast expansion of the K-12 after-school tutoring segment through the You-Can and Kids programs, while maintaining its current leadership in the test prep segment.

● In the near term, margins might remain under pressure, especially in the 1-on-1 segment, which requires high marketing spending, while classroom utilisation improvement and cost control on operating/servicing expenses are key to addressing the situation.

● EDU plans to moderate the pace of adding new learning centres but expects utilisation improvement to safeguard top-line growth. Stringent cost control measures have also been put in place to improve margins.

● EDU does not see impending threats from new entrants in the market given its current national network coverage and brand name but 1-on-1 after-school tutoring market is highly competitive.

EDU remains leader in China education space EDU remains China’s leading private education service provider, with the strongest brand despite the recent wave of public listings of private education services providers by the end of 2010.

EDU had approximately 2 mn (50% kids and 50% adults) total student enrolments and US$464 mn in revenue in CY2010. It remains the dominant leader in the Overseas Test Prep market by enrolments, with approximately 300,000; and by revenue, with US$137 mn, and still sees 20–25% YoY growth. In CY2010, it was the market leader in the English language training market by enrolments, with approximately 1.4 mn and revenue of US$194 mn.

EDU has also become a leading player in the K-12 after-school tutoring market, with enrolments of around 1 mn and revenue of US$153 mn in the past 12 months. It also had over 6 mn cumulative registered users and 224,000 paid users for its online K-College in the past year.

EDU has also further extended its nationwide network to 447 learning centres, including 51 schools in 43 cities across China; 25 bookstores and over 5,000 third-party bookstores. Highlights of the presentation ● You-Can and Pop Kids to reaccelerate revenue growth, with the

major part of the business likely to see a steady 20–25% growth YoY. After-school tutoring segment has grown from less than 5% 2–3 years ago to about 20% of overall revenue.

● Margins to stabilise and improve from current level, as learning centres offering new courses (K-12 all-subject after-school tutoring) will mature in the coming 1–2 years after the initial heavy investment period. Group GM is around 62–63%, while Kids offerings are of lower margins (around 57–58%) but stabilising.

● Implement stringent cost controls to improve margin: 1) freezing hiring (will only hire teaching staff and necessary servicing staff),

2) letting go bottom 5% non-performing teaching staff, 3) changing of comps structure.

Q&A 1) Q: Current regulatory environment?

A: It is favourable for EDU. 2) Q: Current growth strategy for EDU?

A: Focus more on consolidating existing resources than aggressive geographic expansion. With arguably the strongest brand, EDU does not see impending threats from newly listed competitors in the market. However, each of these players does have their specialty area in certain geographic regions. Utilisation improvement in new learning centres will be key factor driving top-line growth.

3) Q: Number of students at suitable age is decreasing? A: EDU still sees decent growth overall. Test prep and language training is growing 20–25% while after-school tutoring is growing robustly. Thus, a 30–35% top-line growth on group level is safe.

4) Q: Impact of macro environment on EDU? A: Inflation is a double-edged sword for EDU. While staff compensation is rising, customers of EDU whose incomes are relatively high spending more on private education and choosing high-end product offerings.

5) Q: What is the trend on cost side for EDU? A: Revenue growth is well on track while SG&A expenses are likely to grow less than revenue. EDU has been overspending on S&M due to new product offerings but is scaling back now.


Asian Daily

- 10 of 24 -

China Property Sector----------------------------------------------------- Maintain UNDERWEIGHT Weekly update: Another 7% WoW volume drop after the previous week's 28% drop -- 14% YoY drop so far in March 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]

● Last week (14-20 March), the weekly primary housing transaction volume in the major cities we track continued to drop by 7% WoW, even after a 28% drop in the previous week. So far in March, the volume has dropped by 14% YoY. We expect continued weakness in transaction volume in March and April, and maintain our view of 10-15% YoY decline in China's primary housing transaction volume in FY11E.

● Transaction volume in the secondary market was generally flat, similar to that in the previous week -- also after substantial drops.

● Land market continued to be quiet last week. There were only 49 residential land transactions and the average premium over opening price shrank to 7%.

● As mentioned in yesterday's pre-AIC trip takeaway notes, we believe the current China property sector outperformance should be short lived, as both weakening transaction volume and continued credit tightening should eventually hurt stock price performance. We maintain our UNDERWEIGHT for the sector.

Figure 1: Primary sales last week Primary sales (units sold) Week ending 3/13/2011 3/20/2011 WoW % chg YTD - YoY % chg Beijing 627 887 41% -13% Shanghai 2,525 1,871 -26% 16% Tianjin 1,501 1,175 n.a. 35% Shenzhen 484 519 7% 27% Guangzhou 1,044 900 n.a. 18% Hangzhou* 375 411 10% 211% Nanjing 421 504 20% 9% Suzhou 403 359 -11% 22% Wuhan* n.a n.a n.a -45% Chengdu 510 713 40% 29% 9 cities excluding Wuhan

7,890 7,339 -7% 10%

Source: Company data, Credit Suisse estimates

Last week (14-20 March), the weekly primary housing transaction volume in the major cities we track continued to drop by 7% WoW, even after the 28% drop in the previous week. So far in March, the volume has dropped by 14% YoY. Specifically, although volume in Beijing increased by 41% WoW, its YTD volume dropped 13% YoY, Shanghai -26% WoW, Tianjin -22% WoW and Guangzhou -14% WoW. We expect continued weakness in transaction volumes in March and April, and maintain our view of 10-15% YoY decline in China's primary housing transaction volume in FY11E. However, the property ASP has not yet shown a decline -- indicating that the tightening policies should continue.

Figure 2: Secondary sales last week Units sold per week GFA sold (sqm) per week 14th - 20th

Mar 7th - 13th

Mar wow %

chg 14th - 20th

Mar 7th - 13th

Mar wow %

chg Beijing 2,606 2,326 12% 235,722 211,489 11% Hangzhou 271 96 182% 41,295 14,509 185% Shenzhen 2,297 2,619 -12% 207,728 269,430 -23% Tianjin 1,074 1,092 -2% 83,192 85,734 -3% Changsha 315 260 21% 30,485 24,057 27% 6,563 6,393 3% 598,421 605,219 -1% Source: Company data, Credit Suisse estimates

Transaction volume in the secondary market was generally flat, similar to that in the previous week -- also after substantial drops.

Figure 3: Key land sales last week City GFA (sqm) Final price per

sqm (Rmb/sqm) Premium over

opening price (%) Buyer

Nanchang 19,328 2,117 0% Local developer Haerbin 203,698 2,823 0% Local developer Conghua 15,721 204 0% Local developer Jiujiang 65,727 58 0% Local developer Huizhou 19,687 316 0% Local developer Fuzhou 319,393 5,755 0% Local developer Haerbin 189,460 1,599 0% SPG Land Fuzhou 202,200 5,935 11% Local developer Fuzhou 117,096 5,773 0% Local developer Fuzhou 6,188 12,282 41% Local developer Kunming 201,624 1,640 0% Local developer Kunming 175,366 1,640 0% Local developer Kunming 163,562 1,873 0% Local developer Huizhou 36,913 317 0% Local developer Kunming 123,236 1,310 0% Local developer Kunming 147,766 1,640 0% Local developer Nantong 122,090 189 0% Local developer Kunming 361,590 1,910 0% Local developer Weihai 160,257 2,513 n.a. Local developer Hefei 361,750 1,956 16% COGO Hefei 578,153 692 0% Local developer Huizhou 50,824 317 0% Local developer Hefei 865,826 534 0% Local developer Hefei 68,133 1,890 26% Local developer Ningbo 46,271 742 175% Local developer Yinchuan 485,715 493 0% Local developer Source: Company data, Credit Suisse estimates

The land market continued to remain quiet last week. There were only 49 residential land transactions and the average premium over opening price shrank to 7%. COLI's COGO (0081.HK) bought a site with a GFA of 0.36 mn sqm in Hefei at the average cost of Rmb1,956 per sqm. SPG (337.HK) also bought a site in Harbin.

As mentioned in yesterday's pre-AIC trip takeaway notes, we believe the current China property sector outperformance should be short-lived, as both weakening transaction volumes and continued credit tightening should eventually hurt stock price performance. We maintain our UNDERWEIGHT rating for the sector.


Asian Daily

- 11 of 24 -

China Taiping------------------------------------------------------------------------- Maintain NEUTRAL 2010 result mixed / 2011 outlook still 'challenging' EPS: ◄► TP: ▼ Arjan van Veen / Research Analyst / 852 2101 7508 / [email protected] Frances Feng / Research Analyst / 852 2101 6693 / [email protected]

● China Taiping delivered somewhat mixed trends in its 2010 results. Underlying result of HK$1.1 bn (excluding HK$1.2 bn profit on Ming An sale) was 9% behind CS expectations. Weakness came from the life insurance division, whilst the P&C result was very strong. No dividend was declared (as expected).

● Life insurance (60% of FY11F earnings): value of new business growth was strong, up 35% on 2009 (1H10 +32%). Agency number fell 17% during 2010 (-12% in 2H10), which is a key issue given bancassurance headwinds.

● Property and casualty (20%): was the key stand-out of the result – with strong improvement in loss ratio (China market driven) and the company ‘optimistic’ about its prospects.

● Reinsurance (20%): re-affirmed its Japan estimate and deems that given recent events, pricing should firm in 2011.

● We have reduced target price to HK$25.50 (from 27.50) due to increased risk in near-term growth profile (through both channels), which retains our NEUTRAL investment rating.

Life insurance

1) Strong value of new business growth. Taiping Life delivered strong VNB growth of 35% in 2010 (32% in 1H10) from 36% growth in new business APE, though we note that the reduction in the cost of solvency added 7% (with some other offsets) to this growth. 2) Agency growth negative. Taiping Life agent numbers fell 17% in 2010 (-12% 1H10). We note that the underlying quality of agent is

more important and does not appear to have an impact on its growth so far (noting growth has averaged 15% over the last four years), but would want to see these growth rates improve. A fundamental part of China Taiping’s investment proposition is the removal of cost overruns. CTIH is planning to get to 1,200 branches in the next three years and needs to increase the density (number of agents) per branch to remove the overruns. 3) Capital position sound. China Taiping raised Rmb4 bn in sub-debt recently, which raises the solvency ratio of Taiping Life to above 250%, which should remove any capital concerns investors might have in the near term. 4) 2011 outlook remains key. China Taiping commented that the new CIRC regulations were positive for insurers (allow insurance staff in branches to help train bank staff, greater focus on profit) and the impact of bancassurance original ruling had weakened since first released in November 2010. We deem any improvement in monthly trends in this regard is key to the stock rating, and in particular what value of new business multiple it trades on (see Figure 1 below).

2011 year to date APE premium (to the end of Feb) growth was 26%, which compares to 5yr average growth rates of 66% pa (57% in 2010). P&C insurance 5) P&C can be a key future profit driver. Key positives for us in the result are the improving loss and expense ratios in the P&C business, though remained above 100% for the mainland operations. Given the relative size of the operation, every 1% improvement in the loss ratio adds around 2% to China Taiping group EPS.

Figure 1: China Taiping VNB multiple below historical average

0

5

10

15

20

25

30

35

40

45

50

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

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Jan-11

Mar-11

Impl

ied

VNB m

ultip

le (x

)

+ 1 std dev

- 1 std dev

Average

Sources: Reuters, company data, Credit Suisse estimates

Valuation Metrics - 21 March 2010 Company Ticker CS Price TP (%) Up/dn PE EPS EV (BV*) P/EV (P/BV*) VNB multiple EV

growthVNB

growthT = Dec 10 Rating Local Target Chg (%) T+1 T+1 T+2 T+1 T+2 T+1 T+2 T+1 T+2 T+1 T+1 China Life 2628.HK NTRL 28.95 37.00 0.0% 28% 16.3x 1.8 2.1 15.09 17.23 1.9x 1.7x 14.8x 11.1x 15% 16% Ping An 2318.HK RSTR 75.10 0.0% 21.5x 3.5 4.4 33.93 39.06 2.2x 1.9x 15.5x 11.3x 10% 20% China Pacific 2601.HK OPFM 31.45 41.00 0.0% 30% 18.3x 1.7 2.1 19.16 21.39 1.6x 1.5x 12.4x 8.5x 11% 20% China Taiping 0966.HK NTRL 21.20 25.50 0.0% 20% 26.3x 0.8 1.1 12.12 13.71 1.7x 1.5x 15.7x 10.4x 26% 28% PICC* 2328.HK UPFM 9.02 10.00 0.0% 11% 14.3x 0.6 0.7 4.33 4.85 2.1x 1.9x na na 53% na Source: Company data, Credit Suisse estimates, *book value for PICC as it does not disclose embedded values as it is a P&C insurer

Price (21 Mar 11 , HK$) 21.20 TP (Prev. TP HK$) 25.50 (27.50) Est. pot. % chg. to TP 20 52-wk range (HK$) 30.00–20.90 Mkt cap (HK$/US$ mn) 36,120.9/ 4,631.0

Bbg/RIC 966 HK / 0966.HK Rating (prev. rating) N (N) Shares outstanding (mn) 1,703.82 Daily trad vol - 6m avg (mn) 3.0 Daily trad val - 6m avg (US$ mn) 9.5 Free float (%) 40.0 Major shareholders China Insurance

Holdings 52%, ICBC Asia (6.9%).

Performance 1M 3M 12M Absolute (%) (8.2) (14.3) (29.2) Relative (%) (5.5) (11.5) (29.6)

Year 12/09A 12/10A 12/11E 12/12E 12/13E Net profit (HK$ mn) 826 2,245 1,371 1,796 2,435 EPS (HK$) 0.53 1.32 0.81 1.05 1.43 - Change from prev. EPS (%) n.a. n.a. 0 0 - Consensus EPS (HK$) n.a. n.a. 0.98 1.24 1.71 EPS growth (%) n.a. 150.4 (39.0) 31.0 35.6 P/E (x) 40.2 16.1 26.3 20.1 14.8 Dividend yield (%) 0 0 0 0 0 P/B (x) 3.5 2.8 2.0 1.8 1.6 ROE (%) 8.7 8.7 9.5 11.6 — Note1: China Taiping Holdings is composite insurer with the following operations: Taiping Life (#7 in China with 3% market share) accounts for 60% of earnings; Taiping Re (pan-Asia reinsurance) 25% and Taiping General Insurance 15% of earnings.


Asian Daily

- 12 of 24 -

Lonking Holdings ------------------------------------------------------------ Maintain OUTPERFORM FY10 results beat expectations, would invest more on R&D to drive organic growth EPS: ▲ TP: ▲ Victoria Li / Research Analyst / 86 21 3856 0326 / [email protected]

● Net profit in FY10 surged by 121% YoY, beating consensus by 21%, thanks to the increasing revenue contribution from medium-size excavators, and sales price hikes of wheel loaders.

● To focus on four major products (loader, excavator, forklift and roller) and achieve a 25% CAGR of total revenue in 2011-15E, the company would increase its R&D expense from 2% of total sales in 2010 to 5% in 2015, which is good for its long-term organic growth, in our view.

● Financial lease percentage declined to 25% in FY10 from 18% in 1H10, we think it is good to control the potential risk. But the excavator sales target turns to be more conservative. It targets to sell 6,000-7,000 units, up 50-75% YoY vs a 100% previous target.

● In conclusion, we raise our earnings forecast for 2011-12E by 14% and 21%, respectively, based on the better results. Target price is raised to HK$6.58 from HK$5.66. We maintain an OUTERPERFORM rating on the stock given its low valuation.

Net profit in FY10 is posted at Rmb1,766 mn, or Rmb0.41 per share, beating our estimates and market consensus by 15% and 21%, respectively. The key difference between real numbers and our estimates are: gross margin is better than expected. We had expected the gross margin in 2H10 to decline due to higher steel cost, but its gross margin surged to 32.5% in 2H10 from 25.2% in 1H10. Margin improvement in 2H10 is led by the three price hikes of wheel loaders in 1H10 and the higher sales percentage of medium-sized excavators (from 40% in 1H10 to 60% in 2H10).

In FY10, Lonking’s total revenue surged by 74% to Rmb12.02 bn. Wheel loaders segment was still the major revenue contributor, providing 69.4% of total sales. But this percentage declined from 73.5% in FY09 due to faster growth of excavators and forklifts. Excavator sales surged by 152% YoY to Rmb1.96 bn, or 16.3% of total revenue, versus 14.7% in FY09.

During the analyst briefing, we saw some positive change in the company’s strategy. In FY10, Lonking spent 2% of total sales on R&D, and it targets to raise the ratio to 5% by 2015, which is good for its

long-term development. Sales price of wheel loaders was raised by 4% in Jan 2011 to cover steel cost increases. The company guides its March sales of excavators, loaders and forklifts at 1,200-1,300 units (+69-83% YoY), 6,500-7,000 units (+9-18% YoY), 2,300-2,600 units (+84-108% YoY).

Figure 1: HoH data comparison (Rmb mn) 2H10 1H10 2H09 1H09 sales of construction machinery 5,327 6,490 3,263 3,526 including: sale of goods 3,681 3,922 1,912 2,366 including: financial lease sales 1,646 2,568 1,351 1,160 Interest income on financial lease 127 76 65 48 Turnover 5,454 6,566 3,328 3,573 Cost of sales -3,683 -4,911 -2,431 -2,852 Gross profit 1,771 1,656 897 721 Gross margin 32.5% 25.2% 26.9% 20.2% Research expenditures -168 -73 -30 -13 Administrative expenses -132 -115 -84 -101 Selling and distribution costs -221 -395 -226 -197 Operating profit 1,250 1,072 557 410 Operating margin 22.9% 16.3% 16.7% 11.5% Interest income 4 6 9 6 Other income 25 23 16 26 Other gains and losses -131 117 19 56 Other expenses -17 -1 -7 -0 Finance costs -114 -92 -93 -92 Income tax expense -177 -199 -61 -44 Profit for the period 840 926 439 361 Equity holders of the parent 840 926 439 361 Minority interest 0 0 0 0 Net margin 15.4% 14.1% 13.2% 10.1% Source: Company data

Figure 2: Major products sales data (Rmb mn) FY10 FY09 Chg YoY

(%) 2H10 1H10 2H09 1H09

Wheel loader Revenue 8,343 5,070 65% 3,738 4605 2,398 2,672 Sales volume(units) 40,139 25,056 60% 19,492 20,647 11,766 13,290 ASP (Rmb mn/unit) 0.21 0.20 3% 0.19 0.22 0.20 0.20 Excavator Revenue 1,957 775 152% 885 1072 385 390 Sales volume 4,045 2,026 100% 1,549 2496 1,015 1011 ASP (Rmb mn/unit) 0.48 0.38 26% 0.57 0.43 0.38 0.39 Forklifts Revenue 586 292 101% 303 283 175 117 Sales volume 9873 5518 79% 4773 5100 3,320 2198 ASP (Rmb mn/unit) 0.059 0.053 12% 0.063 0.055 0.053 0.053 Source: Company data

Price (18 Mar 11, HK$) 4.98 TP (Prev. TP HK$) 6.58 (5.66) Est. pot. % chg. to TP 32 52-wk range (HK$) 5.14 - 2.18 Mkt cap (HK$/US$ mn) 21,314.9/ 2,732.7

Bbg/RIC 3339 HK / 3339.HK Rating (prev. rating) O (O) [V] Shares outstanding (mn) 4,280.10 Daily trad vol - 6m avg (mn) 18.1 Daily trad val - 6m avg (US$ mn) 10.6 Free float (%) 44.8 Major shareholders China Longgong

Performance 1M 3M 12M Absolute (%) 14.5 8.5 85.8 Relative (%) 18.5 11.1 84.1

Year 12/09A 12/10A 12/11E 12/12E 12/13E Revenues (Rmb mn) 6,901 12,020 15,046 16,781 18,819 EBITDA (Rmb mn) 1,141 2,801 3,167 3,534 3,938 Net profit (Rmb mn) 800 2,007 2,110 2,295 2,651 EPS (Rmb) 0.19 0.47 0.49 0.54 0.62 - Change from prev. EPS (%) n.a. n.a. 14 21 - Consensus EPS (Rmb) n.a. n.a. 0.37 0.41 0 EPS growth (%) 20.1 150.9 5.2 8.8 15.5 P/E (x) 22.4 8.9 8.5 7.8 6.8 Dividend yield (%) 0.9 1.3 3.4 4.1 4.5 EV/EBITDA (x) 16.9 7.3 6.6 5.7 4.8 P/B (x) 4.7 3.4 2.7 2.2 1.8 ROE (%) 23.0 44.5 35.3 30.6 28.8 Net debt (net cash)/equity (%) 34.4 49.2 44.3 25.3 9.1 Note 1: Lonking Holdings (formerly China Infrastructure Machinery) is the largest wheel loader producer in China. It also produces road rollers, forklifts and excavators.


Asian Daily

- 13 of 24 -

Hong Kong Cafe de Coral ----------------------------------------------------------------------------------- NOT RATED Notes from the AIC: Margin pressure from labour and food costs; recent ASP increase to help pass on some pressure Phoebe Tse / Research Analyst / 852 2101 7109 / [email protected] Gabriel Chan, CFA / Research Analyst / 852 2101 6523 / [email protected]

● Cafe de Coral’s (CDC) Investor Relations Manager Venus Zhao was at our Asian Investment Conference.

● CDC noted that labour costs are the main source of margin pressure. Without factoring ASP increases, CDC expects the Hong Kong segment’s labour costs as a percentage of sales to increase 3 p.p. to 25% for FY3/11 and further to 27% of sales in FY3/12.

● Food costs are the other source of margin pressure, and CDC expects that as a percentage of sales, it will increase by 1 p.p. overall.

● CDC noted that it effected high single-digit ASP increase in Dec/Jan, and this should help pass on some of the margin pressure to consumers. However, net margins are expected to be down 1–2 p.p. in FY3/11 despite factoring in ASP increase.

● On China, revenue for 9MFY3/11 was at +25% YoY, and SSS were +5.8%. Profits were +200% YoY on better efficiency and increased scale; and net margin achieved was at 9%. CDC expects profit contribution to increase as it speeds up expansion following the recent opening of its Guangzhou central kitchen.

Figure 1: Cafe de Coral’s valuation and financial summary Share price (HK$) 18 Mar 16.96 Abs perf (%) Market cap (US$ mn) 1,224 1M: -3 Daily trad vol - 6M (mn) 0.7 3M: -10 Daily trad value - 6M (US$ mn) 1.6 12M: -9 52-week high 22.95 52-week low 16.80 FY March end 2009A 2010A 2011E 2012E 2013E Revenue (HK$ mn) 4,633 4,883 5,455 6,192 7,140 EBITDA (HK$ mn) 630 798 822 966 1,152 EBIT (HK$ mn) 459 609 614 711 842 Net profit (HK$ mn) 442 513 512 580 706 EPS 0.79 0.91 0.90 1.02 1.22 PE 21.5 18.6 18.8 16.7 13.9 Source: FactSet, company data, IBES consensus estimates. Operator of fast food and specialty restaurants Cafe de Coral has a total of over 574 restaurant and catering units in Hong Kong, China and North America. Hong Kong is the core business (82% of 1HFY10 revenues; 89% of profit before tax) with over 305 restaurant/catering units – this includes 151 Cafe de Coral restaurants; along with other quick service restaurants and specialty concepts such as Oliver’s Super Sandwich’s, The Spaghetti House and Super Super Congee & Noodles.

In China – which contributes 14% of revenues and 12% to PBT – CDC primarily operates over 82 Cafe de Coral restaurants along with other specialty restaurants. (latest store numbers as of 21 Mar 2011) Labour costs the main source of margin pressure CDC noted that labour costs are the main source of margin pressure. Without factoring ASP increases, CDC expects the Hong Kong segment’s labour costs as a percentage of sales to increase to 25% for FY3/11 and further to 27% of sales in FY3/12; up from the previous 22%.

Re-capping, due to the minimum wage law requirements in Hong Kong where the hourly wage is required to be at a minimum of HK$28 by May 2011, Café de Coral has been progressively increasing the wages of its staff from the original average of HK$22 per hour. The company noted that 60% of the increases would have been reflected in FY3/11 results; while the remaining 40% of the increase is expected to be reflected in FY3/12. Food cost the other source of margin pressure The increasing food costs are the second source of margin pressure for CDC. Overall, negative impact on both HK and China margins is expected at 1% of sales.

On central kitchens, CDC expects cost savings to be at 1% of sales from each of its Guangzhou plant (recently opened) and Hong Kong Tai Po plant, but this is expected to come in gradually through time and the Hong Kong plant is not expected to open until 2013. ASP increase to help pass on cost pressure, overall net margin guided to be down 1–2 p.p. CDC noted slight improvement in its attempts in raising ASPs in December and January. ASP increases effected were at high single digits. With some offset in volume, January SSS were at low-single digit. Note that this compares with our note dated March 7 2011 where management noted ASP increase in 4QFY3/11 would be difficult due to media attention.

Factoring the potential impact from ASP increases, CDC said net margins could be down 1–2 p.p. in FY3/11. Update on China operations Cafe de Coral gave an update on its China operations. Revenue for 9MFY3/11 was at +25% YoY, SSS were +5.8%. Profits were +200% on better efficiency and increased scale; and net margin achieved was at 9%. As the company works towards its target of 270 total QSR stores in China by FY3/14, it expects improvement in profit margins and also increasing profit contribution from China (current: 12%). CDC expects to be able to speed up expansion on the opening of its Guangzhou central kitchen. FY3/11 expansion on track, remaining contracts signed Meanwhile, management noted that expansion is on track, with 53 new stores added during April-December 2010, out of the 65 planned for FY3/11. Target of 65 new stores includes 40 in Hong Kong, 20 in China and 5 in the US. The company noted that the contracts of the remaining stores to be opened have already been signed.

CDC’s overall 1,000 store target for FY3/14 includes 220 quick service restaurants in Hong Kong (current: 196); 270 Cafe de Coral stores in China (current: 79) and 300 stores in North America (current: 162), most of them being franchised. These are along with the targets of 70 specialty restaurants (current: 41) and 140 catering units (current: 87) in HK/China.


Asian Daily

- 14 of 24 -

Esprit ------------------------------------------------------------------------------------ Maintain NEUTRAL Note from the AIC: Half full or half empty? EPS: ◄► TP: ◄► Gabriel Chan, CFA / Research Analyst / 852 2101 6523 / [email protected] Phoebe Tse / Research Analyst / 852 2101 7109 / [email protected]

● Mr. Fook Aun Chew (CFO) and Mr. Patrick Lau (Senior Vice President – Group Finance) presented at the AIC on 21 March.

● Management basically reiterated its view given post the company’s 1HFY6/11 results in mid-February that it sees some sequential improvement in both wholesale and retail business, although the magnitude is not significant.

● On the margin front, management noted that the increased raw material and labour costs are expected to continue to exert margin pressure. Esprit is trying to control costs through consolidating suppliers, direct sourcing and shifting production to Bangladesh. Nevertheless, all these initiatives need time to materialise.

● Management stays that it plans to focus on the six strategic initiatives it introduced last year: 1) strengthening the Esprit brand; 2) increase global product line; 3) rationalisation of shop openings and closures; 4) improve COGS; 5) enhance support functions; and 6) channel-based organisation.

The worst is likely behind us Management reiterated its view given post the company’s 1HFY6/11 results in mid-February that it sees some sequential improvement in both the wholesale and retail business.

Compared to the company’s 1HFY6/11 results, which already showed marginal sales improvement from both its retail (with SSS growth marginally barring the poor weather in December in both Europe and the US) and the wholesaling division, which saw the first ever local currency sales growth since FY6/08, the continuous improvement in revenue outlook, albeit slowly, seems to have signified that the worst is likely behind.

Looking ahead, Esprit is more confident about the retail business, where the company targets to increase its floor space by 5-10% in FY6/11. While the company increased its floor space by 3.1% only, therefore the full year number is more likely to be at the lower-end of the target.

On the wholesale front, management indicated that funding availability is still low in Europe, and Esprit expects the situation is likely to continue until mid-2012 after all the banks complete their fund-raising. Because of this, management does not see chances for significant floor space expansion by wholesalers until then. Margin pressure remains a concern Management noted that the increased raw material and labour costs are expected to continue to exert margin pressure. On the pricing front, the company is exploring opportunity to raise ASP in its next financial year, i.e., after June 2011. On cost control, Esprit has taken five initiatives: 1) consolidation of suppliers; 2) moving sourcing base to a low-cost country such as Bangladesh; 3) direct sourcing of raw materials such as fabric and yarn; 4) switch pricing currency from Euro to USD; and 5) rolling out a global product line, which has increased global product overlap to 44% currently. Nevertheless, all these initiatives need time to materialise. China expansion on track Management is pleased with the progress in China, and reiterated the target to double its revenue in five years. In terms of store expansion, Esprit targets increasing its number of stores in China from 931 to 1,700 (currently 1,002). Note that Esprit achieves similar retail EBIT margin (~12%) but a much higher wholesale EBIT margin (~30%, compared to the group margin of ~26%) in China. The company is also considering a second line in China, which targets lower-end markets in Tier 3-5 cities, which may help improve penetration. 2HFY6/11 outlook cautiously optimistic On the retail front, management targets to achieve 5-10% floor space expansion, with overall SSS growth back to positive and relatively less currency headwind, which may help Esprit finally see positive retail revenue growth in HKD term. On the wholesale front, management sees signs of improvement, as customers already remain cautious with pre-orders, Esprit sees opportunities from special and injection order. Note order in-take for January to May 2011 shows only a low single-digit percentage decline YoY. Wholesale floor space is the key matrix to watch While it is difficult to judge Esprit’s brand positioning and market responses, we believe the key matrix to watch is the progress of wholesale floor space expansion given that the wholesalers are the ones who bear the capex and inventory risk to sell Esprit’s products, and should better know the domestic markets. While we believe it will take another 6-12 months for management to execute the initiatives to rejuvenate the brand, we would wait for the wholesale floor space expansion to come through to judge the success of the turnaround.

Price (18 Mar 11, HK$) 34.30 TP (Prev. TP HK$) 34.00 (34.00) Est. pot. % chg. to TP (1) 52-wk range (HK$) 64.25 - 33.60 Mkt cap (HK$/US$ mn) 44,229.1/ 5,670.5

Bbg/RIC 330 HK / 0330.HK Rating (prev. rating) N (N) Shares outstanding (mn) 1,289.48 Daily trad vol - 6m avg (mn) 7.3 Daily trad val - 6m avg (US$ mn) 37.5 Free float (%) 86.1 Major shareholders -


Year 6/09A 6/10A 6/11E 6/12E 6/13E Revenues (HK$ mn) 34,485 33,734 36,085 40,166 45,185 EBITDA (HK$ mn) 6,500 5,766 6,310 7,210 8,332 Net profit (HK$ mn) 4,745 4,226 4,045 4,658 5,523 EPS (HK$) 3.81 3.35 3.14 3.62 4.29 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (HK$) n.a. n.a. 2.92 3.33 3.65 EPS growth (%) (26.8) (12.3) (6.2) 15.2 18.6 P/E (x) 9.0 10.3 10.9 9.5 8.0 Dividend yield (%) 8.3 6.4 5.5 6.3 7.5 EV/EBITDA (x) 6.1 7.0 6.4 5.3 4.2 P/B (x) 3.0 2.7 2.6 2.3 2.0 ROE (%) 31.3 27.7 24.3 25.5 26.8 Net debt (net cash)/equity (%) (33.6) (25.8) (23.7) (32.0) (40.5) Note 1: Esprit is a global medium-priced lifestyle and apparel brand.


Asian Daily

- 15 of 24 -

Galaxy----------------------------------------------------------------------------------- Maintain NEUTRAL Note from the AIC: firing on all cylinders for Cotai opening EPS: ◄► TP: ◄► Gabriel Chan, CFA / Research Analyst / 852 2101 6523 / [email protected]

● Mr. Peter Caveny, Principal – Investor Relations, presented at the AIC on 21 March.

● Management is upbeat about the opening of its new flagship casino, Galaxy Macau. Management believes its Asia-centric design will be its key differentiating factor among other Cotai casinos.

● Galaxy believes the improving infrastructure, particularly the high-speed railway in China and the upcoming light-rail system in Macau, will be the key driver for the Macau gaming market.

● When asked about potential cannibalisation between Galaxy Macau and its existing casino, StarWorld, management indicated that it will step up cross-selling efforts. While market share at StarWorld may drop, the overall market share and profitability of Galaxy should improve.

● In our view, the key question is how long will it take Galaxy Macau to ramp up. Based on previous experiences in Cotai, we estimate it will be about 9-12 months for Galaxy’s new casino.

Galaxy Macau to open on 15 May Galaxy set the grand opening date of Galaxy Macau, the newest integrated casino resort in Macau, on 15 May, 2011. While the opening date is a bit later than the market’s expectation, as it will miss the high-season period of first week of May (labour day golden week holiday in China), but management emphasised it is more important to get the first impression and services right, rather than getting in cash flow but creating negative goodwill.

The casino, located in Cotai, will consist of 2,200 hotel rooms under three brands including Banyan Tree (250 suites and 10 floating villas), Hotel Okura (500 rooms) and Galaxy (1,500 rooms), over 50 Asia-centric food and beverage outlets, as well as Asian-themed entertainment such as China Rouge lounge & night club and the world’s largest roof-top wave pool.

Asian centric theme the key differentiating factor Management believes the Asia-centric focus should help the new casino differential itself from other properties, particularly those in Cotai. Management also emphasised that construction of the project is on a budget of HK$14.9 bn (US$1.9 bn), and it is expected to be the only new resort destination to open in Macau until at least the end of 2011, which should provide enough time for the casino to ramp up. Improving infrastructure to drive further growth Management strongly emphasised that the improving infrastructure, particularly the high-speed railway in China, has greatly expanded Macau’s addressable market, and will be the key driver of the gaming market going forward. Galaxy is particularly excited by the upcoming light-rail system in Macau, whose first stop in Cotai is expected by the company to be right at its new property. Potential cannibalisation against StarWorld? When asked about the potential cannibalisation of its existing casino StarWorld, management emphasised that the focus is not on the absolute market share, but how profitable is the achieved market share. Management further elaborated that it believes visitors to Macau, on average, visit three casinos per trip, and they normally spend 60%, 30% and 10% of their gaming budget among these casinos. What StarWorld and Galaxy Macau are going to do is strengthen cross-selling efforts and keep players within their own properties. For example, high-roller players at StarWorld could be offered free stays at Galaxy Macau and vice versa. How long will it take for Galaxy Macau to ramp up? Management indicated that the grand opening in May will include majority of the facilities (including the entire casino, most of the retail space as well as the roof-top wave pool) and over 50% of its total hotel rooms of its >2,200, while the rest of the property should be ready for customer by 3Q11.

In our view, for a new mass-market casino, the key is to build up sizeable customer numbers (over 500,000) and have repeat customers. Referencing the two other previous openings in Cotai, Venetian Macao took advantage of the good economic conditions (mid-2007) as well as the customer base already built by its sister casino Sands Macao, thus it required only 4-5 months to ramp up. CoD did not have a customer base and it opened in June 2008, which was three months ahead of the global financial crisis, it took almost two years to ramp up. Thus, for Galaxy Macau, similar to CoD, it does not have a readily available customer base, but it enjoys much better economic conditions comparatively, so we expect it will take about 9-12 months to ramp up.


Bbg/RIC 27 HK / 0027.HK Rating (prev. rating) N (N) [V] Shares outstanding (mn) 3,945.77 Daily trad vol - 6m avg (mn) 10.8 Daily trad val - 6m avg (US$ mn) 12.8 Free float (%) 26.2 Major shareholders Lui Chi Woo Family


Year 12/08A 12/09A 12/10E 12/11E 12/12E Revenues (HK$ mn) 10,497 12,233 20,610 39,681 50,529 EBITDA (HK$ mn) 230 1,041 2,143 4,112 6,110 Net profit (HK$ mn) (11390) 1,149 1,256 2,591 4,697 EPS (HK$) (2.89) 0.29 0.32 0.66 1.19 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (HK$) n.a. n.a. 0.30 0.41 0.69 EPS growth (%) n.a. n.a. 9.3 105.7 81.3 P/E (x) NM 37.0 33.8 16.4 9.1 Dividend yield (%) 0 0 0 0 0 EV/EBITDA (x) 190.6 43.7 22.4 12.1 7.1 P/B (x) 6.1 5.2 4.5 3.5 2.5 ROE (%) (162.5) 15.1 14.3 24.2 32.7 Net debt (net cash)/equity (%) 16.4 33.8 55.9 59.4 6.2 Note 1: Ord/ADR=10.0000. Note 2: Galaxy operates a casino and hotel business in Macau. Besides, the company also manufactures and distributes construction materials in Hong Kong and China.


Asian Daily

- 16 of 24 -

SJM -------------------------------------------------------------------------------------- Maintain NEUTRAL Note from the AIC: Management remains upbeat despite challenges from new opening EPS: ◄► TP: ◄► Gabriel Chan, CFA / Research Analyst / 852 2101 6523 / [email protected]

● Dr. Ambrose So (CEO), Mr. Robert McBain (CFO) and Mr. Frank McFadden (President – Joint Venture and Business Development) presented at the AIC on 21 March.

● Management highlighted SJM’s robust FY10 results, in which the company recorded market share gain, particularly in 4Q10. Management further emphasised that its relatively high income contribution from the more stable mass-market segment should bode well for future development.

● Looking ahead, SJM is looking to develop a new project in Cotai, which is awaiting the Macau government approval. On the other hand, the company is also considering redeveloping Casino Lisboa and its adjacent Escola Portuguesa site, as well as the Jai Alai casino to integrate it with Oceanus.

● Despite challenges from competitors’ new openings in Cotai, management remains upbeat that SJM can sustain its market share leadership. In our view, with its strong operating leverage, SJM should be able to sustain a 20% three-year EPS CAGR.

A strong finish in 2010 Management highlighted SJM’s robust FY10 results, in which the company recorded a 292% YoY increase in net profit, with a market share increase to 31.3% from 29.4% a year ago. Management further emphasised that its relatively high income contribution from the more stable mass-market segment, which accounted for 30% of its total gross gaming revenue (GGR) versus an industry average of 23.4%, should bode well for its future development. What’s next? SJM is actively considering three future projects. First, the company is awaiting the approval from the Macau government for a 73,856 sq m site in Cotai, which is adjacent to the Macau East Asia Games Dome. Second, SJM is also considering redeveloping Casino Lisboa together with the adjacent Escola Portuguesa site. Third, the company is also planning to redevelop Casino Jai Alai and integrate it with Oceanus. Management emphasised that given its strong net cash position of

over HK$11 bn as of the end of FY10, SJM has no plan for any share dilutive fund-raising. Reassuring management stability There were questions raised about management stability. Dr. Ambrose So indicated that he and another director, Mr. Angela Leong, will both opt for re-election in the upcoming AGM scheduled for late April, and the current board of directors is supportive about their decision. In our view, prolonged management stability should be welcomed by the market, and the successful re-election of the two directors should be considered as a major overhang being removed. SJM remains upbeat despite challenges from new openings Despite challenges from competitors’ new openings in Cotai, management remains upbeat that SJM can sustain its market share leadership. In February 2011, SJM opened a new area for premium mass market gaming on the mezzanine floor overlooking the main gaming floor of Grand Lisboa with 17 high-limit gaming tables. At Casino Lisboa, SJM has completed the installation of a new IT and player tracking systems, which will enable more efficient gaming table management and cultivation of customer loyalty through enhanced functionality of the Lisboa Card membership programme.

In our view, SJM’s operation remains solid, and its strong operating leverage should help sustain a three-year earnings CAGR of over 20% despite potential market loss to new openings. However, on the back of the weak investor sentiment, it may take some time for a re-rating to happen, and the successful re-election of two directors in late April may serve as a catalyst. Dividend payout ratio remains at 50% for now In light of its strong cash position on the balance sheet with about HK$2 per share of net cash on hand as of the end of FY10, management indicated that it has not decided to raise the dividend payout ratio from the current level of 50% because of the new projects under consideration. But with the strong cash flow continuing, SJM may consider raising the payout ratio in the future, having finalised the future capex.


Bbg/RIC 880 HK / 0880.HK Rating (prev. rating) N (N) [V] Shares outstanding (mn) 5,186.45 Daily trad vol - 6m avg (mn) 21.1 Daily trad val - 6m avg (US$ mn) 32.0 Free float (%) 25.0 Major shareholders STDM


Year 12/09A 12/10A 12/11E 12/12E 12/13E Revenues (HK$ mn) 34,353 57,151 68,289 74,113 84,715 EBITDA (HK$ mn) 2,121 4,857 5,972 6,763 7,975 Net profit (HK$ mn) 907 3,559 4,538 5,313 6,480 EPS (HK$) 0.18 0.69 0.83 0.97 1.19 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (HK$) n.a. n.a. 0.82 0.96 0.38 EPS growth (%) (1.5) 281.5 20.3 17.1 22.0 P/E (x) 70.6 18.5 15.4 13.1 10.8 Dividend yield (%) 0.7 2.7 3.3 3.8 4.6 EV/EBITDA (x) 30.4 11.4 8.4 6.7 4.9 P/B (x) 7.6 5.0 4.4 3.7 3.1 ROE (%) 11.5 33.0 31.5 30.5 31.2 Net debt (net cash)/equity (%) (21.4) (82.1) (102.8) (110.4) (118.9) Note 1: SJM conducts casino gaming operations and gaming-related activities in Macau.


Asian Daily

- 17 of 24 -

Malaysia AirAsia --------------------------------------------------------------------------- Maintain OUTPERFORM Notes from the AIC: Management plans for 2011 EPS: ◄► TP: ◄► Annuar Aziz / Research Analyst / 603 2723 2084 / [email protected]

● AirAsia management has a packed schedule at the AIC, with three days of one-on-one meetings. On 21 March, the company had a well attended presentation.

● CEO Tony Fernandes outlined the company’s strategy in terms of managing the high oil price environment, ancillary services and also on the monetisation of yield management.

● Management is keen to impose a fuel surcharge at this moment in time. Instead, AirAsia intends to focus on ancillary charges as it is a natural hedge against fuel. A RM1 increase in ancillary fares will cover a US$1/bbl increase in jet fuel prices.

● Monetising ‘other business’ units: May sell stake in AirAsia Academy (pilot and crew training centre) and travel website AirAsiaGo. AirAsia X is slated for an IPO in 2012.

AirAsia at the AIC AirAsia management has a packed schedule at the AIC, with three days of one-on-one meetings. Today, the company had a well attended presentation, with the company represented by CEO Tony Fernandes, together with the CEOs of Thai AirAsia (Mr Tassapon Bijleveld) and Indonesia AirAsia (Mr Dharmadi). Also, in attendance were Aireen Omar (Head of CF) and Ben Ismail (Investor Relations)

AirAsia is the largest Low Cost Carrier (LCC) operating its South East Asia. As a group, AirAsia has the second largest airline fleet, with a combined fleet of 93 aircraft (89 A320s and 4 B737s), with an average fleet age is 2.5 years.

Despite the high oil prices, management is not keen to impose a fuel surcharge at this moment in time. Instead, AirAsia intends to focus on ancillary charges as it is a natural hedge against fuel. A RM1 increase in ancillary fares will cover a US$1/bbl increase in jet fuel prices. Management has set a medium-term ancillary income per pax of RM60 (versus RM44 in FY10, RM30 in FY09). This will be driven by

higher take-up rates, new services and higher charges on existing services.

AirAsia has made significant progress in managing its gearing levels, which has fallen from a peak of 350% in 2Q FY09, to 175% in 4Q FY11. Over the same period, the amount owed to the company by its associates has fallen from RM823 mn to RM376 mn. Future strategy During the presentation, management laid out its future strategies, namely:

● Positive demand outlook: Forward demand outlook in higher in 2Q FY11 versus 2Q FY10. Fares among the lowest in region, thus there is scope to raise fares.

● Malaysia strategy: AirAsia plans to raise load factors and lowering average stage length to focus flights of less than 3.5 hours. Increasing frequencies to destinations popular with AirAsia X passengers, as it acts as a natural feeder for the short haul operations.

● Thai strategy: Developing 3rd hub in Chiang Mai, with a focus on expansion into China.

● Indonesia strategy: Growing existing hubs such as Bali and Surabaya, while introducing its 5th Indonesian hub in Medan.

● 100% Airbus A320 fleet in 2011: The company still operates B737s from its hub in Bandung Indonesia. However with the completion of the Bandung runway extension in April 2011, these old aircraft will be phased out.

● Future aircraft deliveries: AirAsia has 86 A320 on order, but is considering swapping them for the new A320-NEO (New Engine Order), which offers greater fuel efficiency.

● Monetising ‘other business’ units: May sell stakes in AirAsia Academy (pilot & crew training centre) and travel website AirAsiaGo. AirAsia X is slated for an IPO in 2012.

● Philippines joint venture: This unit will be operational in 2H FY11, initially with a fleet of two leased A320.

AirAsia X CEO Azran Osman-Rani, the long haul sister company of AirAsia, is presenting at the AIC on Thursday 24 March at 2 pm.

Price (18 Mar 11 , RM) 2.45 TP (Prev. TP RM) 4.30 (4.30) Est. pot. % chg. to TP 76 52-wk range (RM) 3.04 - 1.11 Mkt cap (RM/US$ mn) 6,798.6/ 2,227.1

Bbg/RIC AIRA MK / AIRA.KL Rating (prev. rating) O (O) Shares outstanding (mn) 2,774.95 Daily trad vol - 6m avg (mn) 9.4 Daily trad val - 6m avg (US$ mn) 7.9 Free float (%) 73.6 Major shareholders Tune Air: 26.4%

Performance 1M 3M 12M Absolute (%) (11.2) (7.9) 81.5 Relative (%) (10.4) (8.1) 57.1

Year 12-09A 12-10A 12-11E 12-12E 12-13E Revenues (RM mn) 3,179 3,993 4,899 5,451 6,065 EBITDA (RM mn) 1,324 1,670 1,850 2,098 2,391 Net profit (RM mn) 506 1,068 719 871 1,071 EPS (RM) 0.18 0.39 0.26 0.31 0.39 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (RM) n.a. n.a. 0.31 0.37 0.40 EPS growth (%) n.a. 109.9 (32.6) 21.1 22.9 P/E (x) 13.3 6.4 9.4 7.8 6.3 Dividend yield (%) 0 0 0 0 0 EV/EBITDA (x) 9.8 7.6 6.5 5.6 4.7 P/B (x) 2.6 1.9 1.6 1.3 1.1 ROE (%) 24.0 34.2 18.1 18.2 18.6 Net debt (net cash)/equity (%) 234.0 161.3 120.8 95.4 70.7 Note1:Note1: Airasia is a low-cost carrier in South East Asia, focussing on providing a high-frequency point-to-point short-haul service from hubs in Malaysia, Thailand & Indonesia. Owns 16% of long haul low cost carrier, AirAsiaX. Note2: Divdend yield is net..Note2:Divdend yield is net.Note3:Note1: Airasia is a low-cost carrier in South East Asia, focussing on providing a high-frequency point-to-point short-haul service from hubs in Malaysia, Thailand & Indonesia. Owns 16% of long haul low cost carrier, AirAsiaX. Note2: Divdend yield is net..


Asian Daily

- 18 of 24 -

Singapore Olam ------------------------------------------------------------------------------ Maintain OUTPERFORM Notes from the AIC: Ahead of strategy EPS: ◄► TP: ◄► Su Tye Chua / Research Analyst / 65 6212 3014 / [email protected] Christopher Chang / Research Analyst / 65 6212 3024 / [email protected]

● During his AIC presentation, CEO Sunny Verghese detailed Olam’s business model, gave a review on the execution of its FY09 corporate strategy and an update of its M&A roadmap.

● 80% of the initiatives identified in Olam’s strategic plan have either been executed or are currently underway, with 14 out of 17 deals completed since inception already tracking above their investment theses, with steady state returns expected to be higher.

● Given the early momentum, with FY10 and 1H11 performance significantly exceeding targets, and improved visibility from the initiatives undertaken so far, Olam is accelerating its investments to achieve a revised target of 4–5x growth in intrinsic value by FY15, versus its earlier target of 3-4x.

● We maintain that Olam remains one of the best ways to play the structural agricultural commodity theme, given its robust business model and well-defined growth strategy. We believe that further M&A traction should drive share price action. OUTPERFORM.

Recap of 2009 corporate strategy

At the presentation, Olam’s CEO offered a recap of the company’s corporate strategy, which was first detailed during its FY09 results announcement in August 2009. In summary, these five broad initiatives include: 1) value chain integration to strengthen its leadership position in coffee, edible nuts and West African palm oil; 2) selective expansion into value-chain adjacencies (cocoa, sugar, rice, dairy, spices and dehydrates, grains and rubber) to amortise costs and risks; 3) rationalisation of operations for existing businesses (cotton, sesame, pulses and timber); 4) leveraging of latent assets where existing distribution chains can be maximised through incremental earnings streams, driven by three new growth areas – packaged food distribution in West Africa, commodity financial services, and fertiliser manufacturing and distribution; and 5) downsizing or even exiting operations with unattractive returns. Olam is targeting to double its net margin from 2% in FY09 to 4% by FY15.

Review of execution 18 months out 80% of the initiatives identified in Olam’s 2009 strategic plan have either been executed or are currently underway, with 14 out of 17 deals completed since inception, tracking above their investment theses, with steady state returns expected to be higher. Olam invested a total of US$1.4 bn from FY07 to FY10 (US$1.7 bn including the Gilroy Foods acquisition completed in Jul-10). Olam’s acquisitions in FY10 generated 34% of its EBITDA, from 12.5% in FY09, with net contribution margin from these acquisitions improving from 13.4% to 16.1%, thus reaffirming the strength of its inorganic growth initiatives. Olam’s performance in FY10 and 1H11 have significantly exceeded the targets of its strategic plan. Given the early momentum and improved visibility from initiatives undertaken so far, Olam is accelerating its investments to achieve a revised target of 4–5x growth in intrinsic value by FY15, against its earlier target of 3-4x.

Figure 1: EBT breakdown by value chain

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25%

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2007 2009 2010 Actual 2015E 2015E Revised

Upstream Supply Chain/VAS Mid/downstream CFS

Source: Company data, Credit Suisse estimates Strong execution track record Against a backdrop of volatile underlying commodity markets, Olam has achieved a 23% core EPS CAGR, on a 22% volume CAGR over FY05-10. In the more recent 1H10 results, Olam saw core earnings jump 64% YoY on 16% YoY aggregate volume growth, led by strong contribution from its various inorganic initiatives, and driven by growth in both volumes and net contribution per tonne margin (in aggregate up 22% YoY) across all its four product categories. Valuations are compelling Olam is trading at 12x forward P/E, versus its historical average P/E of 18x and peak P/E of 32x. We expect more earnings-enhancing deals to be announced in the coming quarters, as Olam executes on its strategic plan, which should support our forecast of a 28% earnings CAGR through FY13. We maintain our OUTPERFORM rating and target price of S$4.20.

Price (18 Mar 11, S$) 2.58 TP (Prev. TP S$) 4.20 (4.20) Est. pot. % chg. to TP 63 52-wk range (S$) 3.38 - 2.21 Mkt cap (S$/US$ mn) 5,484.6/ 4,307.7

Bbg/RIC OLAM SP / OLAM.SI Rating (prev. rating) O (O) Shares outstanding (mn) 2,125.81 Daily trad vol - 6m avg (mn) 9.4 Daily trad val - 6m avg (US$ mn) 21.9 Free float (%) 45.9 Major shareholders Kewalram Chanrai

Group (23%)


Year 6/09A 6/10A 6/11E 6/12E 6/13E Revenues (S$ mn) 8,588 10,455 12,082 14,703 17,427 EBITDA (S$ mn) 536 683 696 855 1,026 Net profit (S$ mn) 252.0 360.0 349.9 459.6 579.8 EPS (S$) 0.15 0.18 0.16 0.22 0.27 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (S$) n.a. n.a. 0.16 0.19 0.23 EPS growth (%) 50.1 21.3 (7.5) 31.3 26.1 P/E (x) 17.6 14.5 15.7 11.9 9.4 Dividend yield (%) 1.4 1.7 1.6 2.1 2.6 EV/EBITDA (x) 15.6 14.0 14.1 12.2 10.8 P/B (x) 4.3 2.9 2.4 2.0 1.7 ROE (%) 30.1 25.7 17.2 18.4 19.8 Net debt (net cash)/equity (%) 278.4 231.0 187.8 185.8 176.8 Note 1: Ord/ADR=20.0000. Note 2: Olam is an integrated supply chain manager of agricultural products and food ingredients, sourcing 14 products from 56 countries and supplying to over 60 markets.


Asian Daily

- 19 of 24 -

Taiwan Taiwan Economics --------------------------------------------------------------------------------------------- February export orders were weaker than expected, distorted by the lunar new year effect Christiaan Tuntono / Research Analyst / +852 2101 7409 / [email protected]

● Export orders were up 5.33% YoY in February, weaker than consensus’ expectations, reflecting the distortion from the Chinese new year effect. On an official seasonally adjusted basis export order fell 1% MoM. Taking January and February together, we calculated that export orders grew 9.61% YoY.

● The yearly growth pace for Jan-Feb export orders this year was softer than 17.4% YoY in 2008 and 12.9% YoY in 2007, suggesting that the momentum of export order growth may have weakened subsequent to the credit crisis.

● Orders received from mainland China and Hong Kong rose 2.7% YoY, though they moderated again from January on a non-seasonally adjusted basis. Orders from the US rose stronger at 16.9% YoY.

● We believe the recent signs of stronger momentum in the US economy suggests global growth momentum will hold up in 2011. We maintain our view of a sanguine global growth picture, though reckon increased headwinds coming from a slower Chinese growth and the temporal disruption caused by the earthquake in Japan.

Figure 1: Export orders were weaker than expected in February, but wethink the orders received in March should improve

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Note: Industrial production levels are seasonally adjusted; export orders are unadjusted Source: Ministry of Economic Affairs, Credit Suisse February orders distorted down by lunar new year effect Export orders were up 5.33% YoY in February, weaker than consensus’ expectation of about 13.7% YoY surveyed by Bloomberg, reflecting the distortion from the Chinese new year effect. On an official seasonally adjusted basis export orders fell 1% MoM. The lunar new year day this year fell in the beginning of February, instead of mid-February last year, potentially causing more orders to be placed before the festival period in January. This is the reason why on a yearly growth basis, February export orders moderated beyond expectation, despite a favourable statistical base. Taking January and February together, we calculated that export orders grew 9.61% YoY this year, versus 52.9% YoY last year, and -32.7% YoY in 2009. The comparison with recent years was distorted by the lunar new year effect, and hence not very indicative, in our view. When compared with the growth pace in even earlier years, the yearly growth pace for Jan-Feb export orders this year was softer than 17.4% YoY in 2008

and 12.9% YoY in 2007, suggesting that the momentum of export order growth may have weakened subsequent to the credit crisis. Nonetheless, we think analysing the export orders data with the March release should provide a more accurate picture to its recent trend. Orders received in March should improve visibly from February, suggested by the MoEA’s survey.

Orders received from mainland China and Hong Kong rose 2.7% YoY, softer than January’s 7.2% YoY on a non-seasonally adjusted basis. Orders from the US rose 16.9% YoY, compared to 17.9% YoY in January, less affected by the lunar new year distortion. Orders from Europe rose 5.3% YoY, on the other hand, slowed from the 16.2% YoY seen in January. Orders from Japan fell 10.4% YoY, versus a 5.2% YoY gain in January, and may remain soft in the coming months.

Product-wise, the largest orders received were in electronics, which amounted to $6.86 bn, up 2.72% YoY. Orders for information and communication equipment reached US$6.74 bn in the month, but fell 3.59% YoY. Orders for other products such as metals, plastics, and chemicals saw double-digit yearly gains, helped by the rise of global commodity prices. Global growth remains sanguine, but with some headwinds We believe the recent signs of stronger momentum in the US economy suggest that global growth momentum will hold up in 2011. The solid US ISM new orders index is a support datapoint, while Taiwan’s own PMI index haven been staying in the expansionary territory in recent months. We think China’s slower economic growth momentum may slow order gains, but do not think the impact would be sharp. The earthquake in Japan may pose disruption to its supply to Taiwan, but we think the impact should stay temporal and manageable. Overall, we expect industrial production and exports for Taiwan to maintain an improving trend, although with added headwind against its pace.


Asian Daily

- 20 of 24 -

Thailand Minor International ---------------------------------------------------------- Maintain OUTPERFORM Proposed acquisition of OAKS could provide further upside EPS: ◄► TP: ◄► Thaniya Kevalee / Research Analyst / 662 614 6219 / [email protected] Siriporn Sothikul, CFA / Research Analyst / 662 614 6217 / [email protected]

● MINT has a proposal to buy out the entire stake in OAKS, one of Australia’s largest hotel and resort operators. Should the deal go through, we believe it would be earnings and value accretive.

● Based upon the proposed acquisition price and enterprise value that MINT would pay, the multiples are not expensive, with estimated P/E of 6.3x and EV/EBITDA of 3.4x. We also estimate that the completed deal, with 100% ownership in OAKS, has a potential to lift our 2012E net profit by 10% and our DCF-based target price to around Bt16.50.

● MINT already owns 14.96% stake in OAKS and has agreed to buy another 5% pending FIRB approvals. Another 34.4% are with Receivers and Managers, who have expressed interest to sell. MINT must be able to own at least 50% in order to proceed with the deal.

● We maintain our OUTPERFORM rating on MINT. Even without potential upside from the deal, we see attractive 40% upside to our target price. Profit had bottomed and is recovering strongly.

OAKS deal would further diversify MINT’s hotel exposure. OAKS has a management letting right (MLR), covering 4,373 service apartment units, with average useful life of 35 years, in Australia, New Zealand and Dubai. Successful acquisition would help MINT to further diversify its hotel exposure, given that MINT has no investment and hotel management contracts in Australia. According to MINT, the size of service apartment market in Australia almost doubled in 2010, compared with 2005. Liquidity position needs improvement. While OAKS enjoys strong EBITDA interest coverage (4.2x) and total debt to EBITDA (2x, Figure 1), the key weakness is that majority of its debt is short term. With 34.4% stake from two shareholders given to Receivers and Managers who expressed the intention to sell, we reckon that it is hard for OAKS to attempt any debt restructuring efforts with its bankers. We believe having MINT as a new

shareholder will solve this problem and OAKS can start focusing on running its core business. Core business appears strong and should add value. As shown in Figure 1, OAKS enjoyed 37% YoY increase in its 1H11 EBITDA (to A$19 mn), with EBITDA interest cover, debt to EBITDA and net debt to equity ratios all improving significantly from a year ago. Including a potential A$15 mn recapitalisation, total purchase would cost MINT A$75 mn, implying enterprise value of A$129 mn. These translate to acquisition P/E of 6.3x and EV/EBITDA of 3.4. With strong cash flow and balance sheet, MINT could comfortably fund this transaction using unused credit facilities with commercial banks. Would tender offer go through? MINT offers A$0.35 a share in a tender offer, which represents an attractive premium of 35% over the close price on March 18 (28% premium to weighted average share price over the past three months). We see high potential that the tender offer would sail through.

Figure 1: OAKS’s operation is strengthening A$ mn 2009 2010 1H10 1H11 Revenue 122 125 62 70 Other income 1 2 1 1 Operating expenses -93 -94 -49 -52 EBITDA 28.131 29.327 14 19 Interest expenses 10 8 -4 -5 EBITDA interest cover (x) -2.7 -3.9 3.2 4.2 Short-term debt 10 79 79 68 Long-term debt 87 9 9 7 total debt 97 88 88 75 Debt to EBITDA (x, annualized) 3.4 3.0 3.2 2.0 Cash 4 1 1 7 Net debt 93 87 87 68 Equity 75 63 71 81 Net debt to equity (x) 1.2 1.4 1.2 0.8 Source: Company data, Credit Suisse estimates.

Figure 2: OAKS share price has greatly underperformed

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Price (18 Mar 11 , Bt) 10.60 TP (Prev. TP Bt) 14.80 (14.80) Est. pot. % chg. to TP 40 52-wk range (Bt) 13.70–8.85 Mkt cap (Bt/US$ mn) 34,580.8/ 1,140.9

Bbg/RIC MINT TB / MINT.BK Rating (prev. rating) O (O) Shares outstanding (mn) 3,262.34 Daily trad vol - 6m avg (mn) 7.7 Daily trad val - 6m avg (US$ mn) 3.0 Free float (%) 45.2 Major shareholders Minor Holding

(16.8%)


Year 12/09A 12/10A 12/11E 12/12E 12/13E Revenues (Bt mn) 16,460 18,140 22,173 25,495 27,715 EBITDA (Bt mn) 2,965 2,683 4,180 5,099 5,570 Net profit (Bt mn) 1,400 1,241 2,045 2,721 3,219 EPS (Bt) 0.41 0.38 0.62 0.82 0.97 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Bt) n.a. n.a. 0.65 0.80 0.86 EPS growth (%) (25.9) (8.6) 64.4 32.9 18.3 P/E (x) 25.7 28.2 17.1 12.9 10.9 Dividend yield (%) 1.4 2.2 3.0 4.3 5.6 EV/EBITDA (x) 18.8 22.5 13.8 10.2 7.2 P/B (x) 3.1 2.7 2.4 2.2 2.0 ROE (%) 12.3 10.3 15.1 18.1 19.2 Net debt (net cash)/equity (%) 87.6 95.7 76.4 51.5 30.6 Note1: Minor International Pcl is one of the largest hospitality and leisure companies in the Asia Pacific region with over 1,000 restaurants and 27 hotel and resorts.


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Recently Published Research

Date Title Author(s) Tel. E-mail Fri 18 Mar Alibaba.com Limited Wallace Cheung, CFA

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Companies Mentioned New Oriental Education & Technology Group (EDU.N, $91.63) Olam (OLAM.SI, S$2.59, OUTPERFORM, TP S$4.20) HSBC Holdings (0005.HK, HK$79.45, OUTPERFORM, TP HK$95.00) COGO (0081.HK, HK$7.88, NOT RATED) SPG Land (0337.HK, HK$3.52, NOT RATED) Minor International PCL (MINT.BK, Bt10.60, OUTPERFORM, TP Bt14.80) Oaks Hotels and Resorts (OAK AU, A$0.26, NOT RATED) Cafe De Coral Holdings Ltd (0341.HK, HK$16.96, NOT RATED) Lonking Holdings Ltd. (3339.HK, HK$4.98, OUTPERFORM [V], TP HK$6.58) China Taiping (0966.HK, HK$21.20, NEUTRAL, TP HK$25.50) China Life (2628.HK, HK$28.40, NEUTRAL, TP HK$37.00) Ping An (2318.HK, HK$73.60, RESTRICTED) China Pacific (2601.HK, HK$30.40, OUTPERFORM, TP HK$41.00) PICC (2328.HK, HK$8.75, UNDERPERFORM, TP HK$10.00)

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.

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* 46% (62% banking clients) Neutral/Hold* 41% (58% banking clients) Underperform/Sell* 11% (50% 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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Tuesday, 22 March 2011 Asian Daily (AIC Edition)pg.jrj.com.cn/acc/Res/CN_RES/INVEST/2011/3/22/a49d0cd1-1...DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US