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China Consumer Sector

大和证券


Asia Pacific Daily 9 February 2010
Top story China Consumer Sector Preview of the Lunar New Year shopping season in China - The Lunar New Year is an important event for analysing personal-consumption trends. - We forecast retail sales during the 2010 new-year shopping season to rise by 15-18% YoY. - We focus on the food, apparel, cosmetics, home-appliances, and telecommunication-devices sectors.
P.2
-- Hongxia Zhu Results and economic announcements EPS forecasts Date Company Daiwa Consensus Results 9 Feb SMIC US$-0.25c US$-0.20c 4Q09 11 Feb Bank of East Asia HK$1.443 HK$1.345 FY09 11 Feb Capitaland S$0.329 S$0.151 FY09 12 Feb Olam International n.a. n.a. 2Q10 17 Feb ST Engineering n.a. n.a. 1Q09 18 Feb Hyflux n.a. n.a. 1Q09 18 Feb Oversea-Chinese S$0.581 S$0.601 FY09 Banking Corp 19 Feb IOI Corp n.a. n.a. 2Q10 22 Feb Sembcorp Marine n.a. n.a. 1Q09 Source: Daiwa
Asia equity research Regional LCD-panel price update IT panel prices rose for the first half of February
Analyst Jae H. Lee
Rating
Page
Positive P.3
Hong Kong and China Hong Kong Property Developers Looking at upcoming new launches
Jonas Kan Jonas Kan
Positive P.4 Positive P.5
Hong Kong Property Developers The physical market has been holding up so far, and a divergence has occurred
BOC Hong Kong (2388 HK) Issuance of new subordinated debt likely to have a limited impact on financials
Steven Chan
2
P.6
Dah Sing Banking Group (2356 HK) The issue of new subordinated debt should narrow NIM slightly
Steven Chan
2
P.8
Regional indices Performance chg EPS growth (%) (%) Market 1D 1M YTD 09E 10E HSI (0.6) (12.3) (10.6) (5.4) 20.0 HSCEI (1.3) (15.7) (14.1) 19.7 25.5 KOSPI (0.9) (8.4) (7.7) 50.4 40.1 TWSE 0.0 (12.9) (11.9) 59.1 77.7 FSSTI 0.4 (7.8) (7.0) (8.5) 13.8 ASX 200 0.2 (8.0) (7.2) 2.4 21.1 TOPIX (1.0) (6.2) (2.7) n.a. 87.5 Source: Thomson Reuters
PER (x) 09E 10E 14.8 12.3 13.1 10.4 12.9 9.2 25.5 14.3 12.1 10.6 15.6 12.9 32.2 17.1
Dah Sing Financial (440 HK) We see a slight dilutive impact from the issuance of new subordinated debt by Dah Sing
Steven Chan
2
P.10
Dry-Bulk Shipping The week ended 5 February
Geoffrey Cheng
Negative P.12
Korea CJ Internet (037150 KS) Global game publishing likely to accelerate
Thomas Y. Kwon Sung Yop Chung
2 4
P.13 P.15
Daewoo Shipbuilding & Marine Engineering (042660 KS) 4Q FY09 earnings review – we expect another lacklustre year for FY10
Doosan Infracore (042670 KS) Country weighting Underweight China HK India Indonesia Korea Malaysia Philippine Singapore Taiwan Thailand (3) (2) (1) 0 1 Overweight Index Target Jun 2010 HSCEI 12,500 HSI 21,200 SENSEX 15,500 KOSPI 1,430 FSSTI 2,650 TWSE 7,600
Mike Oh Thomas Y. Kwon
1→2
P.17 P.19
Earnings improvement expected to start from FY10
Webzen (069080 KS) Clearing the deck for the turn
2
Taiwan Taiwan Economy Surging exports may be a harbinger of broad-based economic acceleration
Prasenjit K. Basu
P.21
Silitech Technology (3311 TT) 1Q10 sales should be ahead of traditional seasonality
Andrew Chang
2
P.22
2
(%)
Singapore CapitaMalls Asia (CMA SP) CMA acquires new mall in Chengdu
David Lum David Lum
5 4→3
P.24 P.26
Source: Daiwa
DBS Group (DBS SP) New CEO rides the recovery
India India Banks 3Q FY10 results: NPLs rose, NIMs expanded, better loan growth for PSBs
Punit Srivastava
Positive P.28
Rating:
1 (Buy) 2 (Outperform) 3 (Hold)
4 (Underperform) 5 (Sell)
Korea: share prices and Daiwa recommendation trends Analyst company visits/results announcements/analyst meetings Rating and target-price information Recently published reports
P.29 P.32 P.33 P.33
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED ON THE LAST TWO PAGES OF THIS REPORT.
Global Equity Research

9 February 2010
8 February 2010 (No. of pages: 8)
China Consumer Sector Consumer durables and apparel/Food, beverage and tobacco/Retailing: China
Hongxia Zhu (852) 2848 4460 hongxia.zhu@hk.daiwacm.com
Preview of the Lunar New Year shopping season in China Summary The expansion of personal consumption is vital for China to move away from its dependence on policy measures to maintain stable and strong economic growth, in our view. We believe the Lunar New Year shopping season (seven days from 13 to 19 February) will be an important event for analysing personal-consumption trends. We forecast retail sales during the 2010 new-year shopping season to rise by 15-18% compared with those for the new-year season a year earlier, exceeding the 13.8% retail-sales growth for the 2009 shopping season (seven days from 25 January to 31 January). We believe the country’s return to inflation with the consumer price index (CPI) bouncing back to record positive year-on-year growth will give nominal retail-sales growth boost. In addition, increases in disposable income due to a significant improvement in employment will bolster spending, in our view. In our view, the food (including beverages, alcohol, and tobacco), apparel, cosmetics, homeappliance, and telecommunication-device sectors will benefit from: 1) Chinese people’s consumption habits during the Lunar New Year season, and 2) the PRC Government’s consumption stimulus plan. In addition, domestic and overseas travel is becoming more popular during the holiday season, and we expect an increase in the number of Chinese visitors, especially to Japan.
This is an excerpt from our report issued yesterday. Please contact us for further details.
Asia Pacific Daily
2

9 February 2010
LCD-panel price update IT panel prices rose for the first half of February Electronics: Regional Jae H. Lee (82) 2 787 9173 (jhlee@kr.daiwacm.com)
Rating: Positive
What has changed? ? LCD-panel prices rose slightly for the first half of February as the demand for IT products was better than usual for the time of the year.
Impact ? According to Witsview, for the first half of February, monitor-panel prices rose 5-6% and notebook PC panel prices increased 2-6%, compared with the second half of January. TV-panel prices were stable over the period. Panel makers told us that their order visibility to the end of March was looking bright, and they expected IT-panel prices to increase over the next couple of months. Despite recent market concerns about the increase in channel inventory for TV panels in China, it seems most panel makers believe the rise in inventory is not alarming and still expect good sell-through of LCD-TVs during the Lunar New Year. ? From our discussions with panel makers, LG Display (LGD) (034220 KS, W36,150, 2; 5 February, 2010 close) sounds optimistic about the panel-market outlook for 2010. It expects continued order flow from PRC LCD-TV makers and additional pull-in demand from the FIFA World Cup in June. However, Samsung Electronics (005930 KS, W750,000, 2) looks slightly more cautious about panel-supply growth for 2H10, as panel makers continue to ramp up new capacity. Meanwhile, AU Optronics (Not rated) expects panel demand for 2Q10 to decline compared with 1Q10 as it believes the build-up in inventory will be completed in 1Q10 amid panel-price hikes. LCD-panel price trend (US$) 1H-Nov Notebook panels 10.1"W 14"W 15.6"W Monitor panels 17" 19"W 22"W TV panels 26"W 32"W 37"W 42"W 46"W Source: Witsview
2H-Nov 32 60 63 71 73 91 150 200 255 340 440
1H-Dec 32 58 61 71 73 91 147 197 255 340 440
2H-Dec 32 57 60 72 74 92 145 195 255 340 435
1H-Jan 32 55 58 75 77 95 148 198 255 340 435
2H-Jan 32 55 58 76 78 96 150 200 255 340 435
1H-Feb 34 56 60 80 82 102 150 203 255 340 435
33 62 64 72 74 92 150 200 255 340 440
Valuation ? The stocks of the LCD companies in the region have fallen by 10-15% since mid-January, and are trading currently in a PBR range of 1.0-1.1x on our and the consensus (Bloomberg) FY10 BVPS forecasts.
Catalysts and action ? As the ‘peaks and valleys’ of the cycle have moderated, we expect the pure LCD plays, such as LGD, to trade in the range of 1.0-1.4x. Although we have a 3 (Hold) rating for LGD, given the positive panel-price trend we expect over the near term, we believe valuations are attractive near a PBR of 1.0x. Asia Pacific Daily
3

9 February 2010
Hong Kong Property Developers Looking at upcoming new launches Construction & real estate: Hong Kong Jonas Kan, CFA (852) 2848 4439 (jonas.kan@hk.daiwacm.com)
Rating: Positive
What has changed? ? We have examined the response to the projects that have been launched in the last two weeks and also upcoming new launches.
Impact ? So far, property market sales have not been affected much by the fall in the stock market. New World (Unrated) and Kerry (Unrated) launched their The Belcher’s Hill and Island Crest in the last two weeks, and both of them have achieved good ASP. According to our industry checks, over 130 units in The Belcher’s Hill have been sold at an ASP of about HK$12,000/sq.ft. and over 160 units in the Island Crest have been sold at about HK$15,000/sq.ft. ? We see Yoho Mid-town as the most important project in the coming months. We expect to see a number of prominent new launches in the coming months. In terms of relative importance, we think Yoho Mid-Town would be the most important among them in that it is located in the North West New Territories which is traditionally regarded as the bottom end of Hong Kong’s housing market. Thus, its achieved price would have implications for prices of flats in the rest of the New Territories and the urban area. We currently assume an ASP of HK$5,000/sq.ft. for the project, and we think there is the room for upside if the developer can successfully market it as a project for upgraders who previously would only consider projects in the New Territories.
Valuation ? The recent corrections in developers’ share prices have notably improved their valuations, with the sector now trading at an average 26.5% discount to its current NAV and an average 34.4% discount to our estimate of the stocks’ 2010 year-end forward NAVs. The sector’s average price-to-book has also fallen to 0.99x (0.93x after adjusting for deferred tax) versus an average of 1.34x since 1990.
Catalysts and action ? We think currently there is some divergence between stock prices and the situation in the physical market. We expect reassuring news flow related to new launches and land sales to drive investor interest in bargain-hunting for developer shares, and we keep our Positive sector rating. Valuation of property stocks Share price Company name Cheung Kong SHKP Henderson Land Sino Land MTRC Midland Target price Bloomberg 08-Feb-10 (local code (HK$) Rating curr.) 1 HK 90.65 2 117.00 16 HK 12 HK 83 HK 66 HK 1200 HK 98.30 46.40 12.48 26.20 6.18 2 1 3 2 1 130.10 67.20 16.80 32.40 8.42 P/NAV P/BVPS (x) (x) +/- Year (%) end 2008 2009E 2008 2009E 29.1 Dec 0.9 0.8 0.9 0.9 32.3 Jun 44.8 Dec 34.6 Jun 23.7 Dec 36.2 Dec 0.8 0.7 0.7 0.8 n.a. 0.8 0.7 0.7 0.8 n.a. 1.1 0.8 1.0 1.5 3.4 1.1 0.8 1.0 1.4 2.6
Upcoming new launches Upcoming projects Yoho Mid-town Larvotto Serenade 5 Star Street The Hermitage Festival City Phase One Hill Paramount No. of units 1,886 715 270 25 852 1,360 157 Districts Yuen Long Ap Le Chau, HK Island Tai Hang, HK Island Wanchai West Kowloon Tai Wai, Shatin Tai Wai, Shatin Developers SHKP SHKP/ Kerry/ Paliburg HK Land Swire Properties Sino Land consortium Cheung Kong Henderson Land
Source: Company, Daiwa forecasts
Source: Company, Daiwa forecasts
Asia Pacific Daily
4

9 February 2010
Hong Kong Property Developers
Rating: Positive
The physical market has been holding up so far, and a divergence has occurred Construction & real estate: Hong Kong Jonas Kan, CFA (852) 2848 4439 (jonas.kan@hk.daiwacm.com)
What has changed? ? We have examined recent developments in the physical market in the wake of the correction in the stock market.
Impact ? Prices continue to rise. While stock prices of developers have corrected since early January, prices in the physical market have risen, after surpassing the recent March 2008 high. Up to 5 February, the Centa-City leading index had a year-to-date price increase of 3.9%, or 2.8% above the March 2008 high. ? Impacts from a more active secondary market. Secondary-market activities have increased notably since January and have stayed at a relatively high level despite the upcoming Lunar New Year (weekly transactions in 35 housing estates were 224 for the week ended 7 February, above the annual average since 2003, except for 2007). We think this will have two main impacts on the physical market: translating theoretical home equity into real purchasing power, and providing a driver for upgrading activities. We think both of these factors will have a positive impact on the physical market, and we expect they would underpin the outlook of the physical market in the coming months.
Valuation ? Recent share-price corrections may have been driven more by the liquidity-flow situation in the stock market and the global environment rather than the anticipation of adverse property-market developments. This has brought developers to what we view as an attractive average valuation of 0.99x price-tobook and an average 34.4% discount to our 2010E year-end NAVs.
Catalysts and action ? Due to recent developments in the physical market, we think a pessimistic scenario would be a dry-up in volume, but we do not expect to see significant downward price pressure. As such, we think the chance is low that there would be a significant deterioration in the physical market to justify the stock prices. Instead, we expect news flow from the physical market will tend to be reassuring or positive in the coming months, and this will likely drive some interest for the bargain-hunting of property stocks. We maintain our Positive sector rating. Valuation of property stocks Company name Cheung Kong SHKP Henderson Land Sino Land MTRC Midland Target Share price price Bloomberg 08-Feb-10 (local code (HK$) Rating curr.) 1 HK 90.65 2 117.00 16 HK 12 HK 83 HK 66 HK 1200 HK 98.30 46.40 12.48 26.20 6.18 2 1 3 2 1 130.10 67.20 16.80 32.40 8.42 P/NAV P/BVPS (x) (x) +/- Year (%) end 2008 2009E 2008 2009E 29.1 Dec 0.9 0.8 0.9 0.9 32.3 Jun 44.8 Dec 34.6 Jun 23.7 Dec 36.2 Dec 0.8 0.7 0.7 0.8 n.a. 0.8 0.7 0.7 0.8 n.a. 1.1 0.8 1.0 1.5 3.4 1.1 0.8 1.0 1.4 2.6
The Centa-City leading index (Jul 97 = 100) 120 100 80 60 40 20 0 Jan-94 Sep-94 May-95 Jan-96 Sep-96 May-97 Jan-98 Sep-98 May-99 Jan-00 Sep-00 May-01 Jan-02 Sep-02 May-03 Jan-04 Sep-04 May-05 Jan-06 Sep-06 May-07 Jan-08 Sep-08 May-09 Jan-10 Current: 76.1
Source: Company, Daiwa forecasts
Source: Company, Daiwa forecasts
Asia Pacific Daily
5

9 February 2010
BOC Hong Kong (2388 HK)
Rating: 2
Issuance of new subordinated debt likely to have a limited impact on financials Banks: Hong Kong Steven Chan (852) 2848 4468 (steven.chan@hk.daiwacm.com) Price (5 Feb) Reuters code ADR/GDR code Shares per ADR/GDR
Target price: HK$22.00 → HK$20.00 (-9.1%)
HK$17.14 2388.HK n.a. n.a.
What has changed? ? On 5 February 2010, BOC Hong Kong (BOCHK) announced that it would issue US$1.6bn of 10-year US-dollar subordinated notes, with a fixed coupon rate of 5.55% on or about 11 February 2010.
Market data HSI Market cap 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate Performance (%)* Absolute Relative Source: Daiwa Note: *Relative to HSI 19,665.08 (US$bn) 23.32 (US$m) 32.40 (m) 10,573 (%) 34.2 Bank of China (65.8%) HK$/US$ 7.771 1M (0.5) 12.8 3M (4.1) 4.7 6M 11.2 15.8
Impact ? Early repayment of the subordinated debt issued to parent. BOCHK issued US$2.5bn of 10-year subordinated debt in 2008. In our view, the early repayment of this debt should help to reduce the cross-holding of its parent, Bank of China (3988 HK, HK$3.64, 3) of subordinated debt, which is being encouraged by the China Banking Regulatory Commission. The new subordinated debt will have a fixed coupon rate of 5.55%, which is higher than that for the previous subordinated debt of six-month LIBOR + 200 basis points (equivalent to 2.4% currently). ? Marginal downward revisions to NIM forecasts. As a result of the higher coupon rate of the new subordinated debt to be issued, we have revised down our NIM forecasts for BOCHK marginally, from 1.77% to 1.76% for FY10 and from 1.82% to 1.81% for FY11. We also revised down our net-profit forecasts slightly, by 0.8% and 1.1% for FY10 and FY11, respectively. ? No weakening of capital strength. As the amount of the new subordinated debt to be issued would be smaller than the amount of the old subordinated debt, BOCHK will use its own capital resources to fill the gap. Still, we forecast its tier-1 CAR and total CAR to remain solid, at 11.8% and 15.4%, respectively, by the end of December 2010.
Investment indicators 2009E PER (x) 14.2 PBR (x) 1.9 Dividend yield (%) 4.2 ROE (%) 14.5 ROA (%) 1.1 Relative to peers Relative to history Source: Daiwa forecasts 2010E 8.8 1.8 6.8 21.1 1.6 2011E 8.0 1.7 7.5 21.4 1.6 Above Below
Income summary (HK$m) Yr to 31 Dec 2008 2009E 2010E 2011E Op income 16,094 15,338 23,639 27,202 YoY (%) (20.2) (4.7) 54.1 15.1 Pre-tax profit 4,078 15,865 25,261 27,804 YoY (%) (78.7) 289.0 59.2 10.1 Net profit 3,343 12,768 20,526 22,593 YoY (%) (78.4) 281.9 60.8 10.1 EPS (HK$) 0.316 1.208 1.941 2.137 YoY (%) (78.4) 281.9 60.8 10.1 DPS (HK$) 0.438 0.725 1.165 1.282 Source: Company, Daiwa forecasts
Valuation ? We have adjusted downward our long-term ROE assumption for BOCHK in our Gordon Growth Model from 21.0% to 20.75%. As a result, we have lowered our six-month target price from HK$22.00 to HK$20.00. This is equivalent to a PBR of 2.09x on our December FY10 BVPS forecast.
Price and relative performance (HK$) 30.00 22.50 15.00 7.50 0.00 07/2 Rel to HSI
07/8
08/2
08/8
09/2
09/8
125 106 88 69 50 10/2
Source: Bloomberg, Daiwa
Catalysts and action ? We believe BOCHK would benefit from a recovery in loan growth and the NIM, as well as a potential write-back of loan provisions for FY10. Besides, it plans to strengthen its wealth-management product-manufacturing capability and compete aggressively with its peers in the high-margin regular-premium bancassurance business. We re-iterate our 2 (Outperform) rating for BOCHK. BOCHK: valuation summary 31-Dec 2008 2009E 2010E 2011E Operating profit (HK$m) 16,755 15,338 23,679 27,356 Operatingprofit growth (%) (14.0) (8.5) 54.4 15.5 Net profit Net-profit (HK$m) growth (%) 3,343 (78.4) 12,768 281.9 20,526 60.8 22,593 10.1 EPS (HK$) 0.32 1.21 1.94 2.14 EPS growth (%) (78.4) 281.9 60.8 10.1 PER (x) 54.2 14.2 8.8 8.0 PBR (x) 2.2 1.9 1.8 1.7 ROE (%) 3.8 14.5 21.1 21.4 DPS (HK$) 0.44 0.72 1.16 1.28 Yield (%) 2.6 4.2 6.8 7.5
Forecast revisions (%) Op. profit change Net profit change EPS change Source: Daiwa forecasts FY09E FY10E FY11E 0.0 (0.8) (1.1) 0.0 (0.8) (1.1) 0.0 (0.8) (1.1)
Fair value Valuation (HK$/shr) Methodology Key assumption Source: Daiwa forecasts 20.00 Gordon Growth Model 2010E PBR of 2.09x
Source: Company, Daiwa forecasts
Asia Pacific Daily
6

9 February 2010
Company background Established on 1 October 2001, BOC HK is a locally incorporated licenced bank. BOC HK is a leading listed commercial-banking group in Hong Kong in terms of assets and customer deposits. It has over 280 branches and 450 ATMs and other distribution channels in Hong Kong. BOC HK is one of the three note-issuing banks in Hong Kong. It has 15 branches and sub-branches in China, which provide cross-border banking services to its customers in Hong Kong and on the Mainland.
BOC Hong Kong – financial summary Profit and loss (HK$m) Year to 31 Dec Net-interest income Net fees & commission Trading and other income Net insurance income Total operating income Personnel expenses Other expenses Total expenses Pre-provision operating profit Total provision Operating profit after prov. Non-operating income Profit before tax Tax Min. int./pref. div./other items Net profit Adj. net profit EPS (HK$) EPS (adjusted) (HK$) DPS (HK$) 2007 19,395 6,274 2,599 (1,014) 27,254 (4,656) (3,117) (7,773) 19,481 685 20,166 (1,040) 19,126 (3,309) (371) 15,446 15,446 1.461 1.461 0.915 2008 20,157 5,179 2,008 (1,818) 25,526 (4,554) (4,217) (8,771) 16,755 (661) 16,094 (12,016) 4,078 (1,071) 336 3,343 3,343 0.316 0.316 0.438 2009E 18,800 5,548 725 2,013 27,086 (4,827) (6,921) (11,749) 15,338 0 15,338 527 15,865 (2,697) (400) 12,768 12,768 1.208 1.208 0.725 2010E 21,649 6,405 2,397 2,214 32,666 (5,213) (3,773) (8,987) 23,679 (41) 23,639 1,622 25,261 (4,294) (440) 20,526 20,526 1.941 1.941 1.165 2011E 24,448 7,436 2,851 2,436 37,171 (5,735) (4,080) (9,815) 27,356 (155) 27,202 602 27,804 (4,727) (484) 22,593 22,593 2.137 2.137 1.282
Balance sheet (HK$m) 2008 2009E 2010E As at 31 Dec 2007 Cash & equivalent 215,442 246,725 223,940 239,940 Investment securities 355,434 362,730 446,241 518,850 Net loans and advances 411,677 458,146 482,530 528,963 Fixed assets 31,351 30,522 30,685 30,848 Goodwill 0 0 0 0 Other assets 20,963 14,921 14,911 15,513 Total assets 1,034,867 1,113,044 1,198,307 1,334,114 Customers deposits 801,519 812,374 871,813 936,969 Borrowing 60,599 88,779 88,779 88,779 Debentures 0 27,339 27,339 20,319 Other liabilities 77,691 100,020 114,604 184,241 Total liabilities 939,809 1,028,512 1,102,535 1,230,308 Share capital 52,864 52,864 52,864 52,864 Reserves & others 39,978 29,855 40,695 48,289 Shareholders' equity 92,842 82,719 93,559 101,153 Minority interests 2,216 1,813 2,213 2,653 Total equity & liabilities 1,034,867 1,113,044 1,198,307 1,334,114 Avg interest-earning assets 936,957 1,007,850 1,092,546 1,229,367 Avg risk-weighted assets 528,414 565,744 608,254 662,088 BVPS (HK$) 8.78 7.82 8.85 9.57 2011E 257,163 546,152 580,605 31,013 0 16,164 1,431,097 1,006,557 88,779 20,319 202,792 1,318,447 52,864 56,649 109,513 3,137 1,431,097 1,352,028 729,889 10.36
Growth (YoY %) Year to 31 Dec Net-interest income Non-interest income Total operating income Total expenses Pre-provision operating profit Total provisions Operating profit after provisions Profit before tax Net profit (reported) Net profit (adjusted) EPS (reported) EPS (adjusted) Gross loans Deposits Total assets Total liabilities Shareholders' equity Avg interest-earning assets Avg risk-weighted assets 2007 22.5 43.5 27.9 18.5 32.0 n.a. 21.9 11.6 10.3 10.3 10.3 10.3 19.0 15.0 15.7 16.4 9.7 12.4 11.4 2008 3.9 (31.7) (6.3) 12.8 (14.0) n.a. (20.2) (78.7) (78.4) (78.4) (78.4) (78.4) 11.5 1.4 7.6 9.4 (10.9) 7.6 7.1 2009E (6.7) 54.3 6.1 33.9 (8.5) n.a. (4.7) 289.0 281.9 281.9 281.9 281.9 5.2 7.3 7.7 7.2 13.1 8.4 7.5 2010E 15.2 32.9 20.6 (23.5) 54.4 n.a. 54.1 59.2 60.8 60.8 60.8 60.8 9.5 7.5 11.3 11.6 8.1 12.5 8.9 2011E 12.9 15.5 13.8 9.2 15.5 280.2 15.1 10.1 10.1 10.1 10.1 10.1 9.7 7.4 7.3 7.2 8.3 10.0 10.2
Key ratios (%) Year to 31 Dec Liquidity Loan/deposit Capital adequacy ratios (CAR) Tier-1 CAR Total CAR Asset quality NPLs/gross loans Total loan-loss prov./NPLs Profitability ROAA ROAE Efficiency Net-interest margin Gross yield Cost of funds Net-interest spread Total cost/total income Others Effective tax Dividend-payout ratio 2007 51.5 12.2 13.1 0.4 76.2 1.6 17.4 2.1 4.9 3.4 1.5 28.5 17.3 62.6 2008 56.7 10.9 16.2 0.5 108.6 0.3 3.8 2.0 3.5 1.8 1.7 34.4 26.3 138.5 2009E 55.6 11.8 16.8 0.3 125.0 1.1 14.5 1.7 3.2 1.8 1.4 43.4 17.0 60.0 2010E 56.6 11.8 15.4 0.3 111.1 1.6 21.1 1.8 3.1 1.8 1.4 27.5 17.0 60.0 2011E 57.8 11.8 15.2 0.3 100.0 1.6 21.4 1.8 3.2 1.8 1.4 26.4 17.0 60.0
Key assumptions Year to 31 Dec Net interest margin (%) Tier-1 CAR (%) Total CAR (%) Credit cost (bps) NPL (%) Loan growth (%) Deposit growth (%) Loan to deposit ratio (%) Earning-asset growth (%) 2007 2.07% 12.2% 13.1% (16.58) 0.4% 19.0% 15.0% 51.5% 12.4% 2008 2.00% 10.9% 16.2% 14.36 0.5% 11.5% 1.4% 56.7% 7.6% 2009E 1.72% 11.8% 16.8% (0.01) 0.3% 5.2% 7.3% 55.6% 8.4% 2010E 1.76% 11.8% 15.4% 0.77 0.3% 9.5% 7.5% 56.6% 12.5% 2011E 1.81% 11.8% 15.2% 2.65 0.3% 9.7% 7.4% 57.8% 10.0%
PBR bands (HK$) 29 24 19 14 9 4 Jan-06 Dec-06 Dec-07 Dec-08 Dec-09
2.9x 2.4x 1.8x 1.3x 0.7x
Source: Company, Daiwa forecasts
Asia Pacific Daily
7

9 February 2010
Dah Sing Banking Group (2356 HK) The issue of new subordinated debt should narrow NIM slightly Banks: Hong Kong Steven Chan (852) 2848 4468 (steven.chan@hk.daiwacm.com) Price (5 Feb) Reuters code ADR/GDR code Shares per ADR/GDR
Rating: 2
Target price: HK$13.15 → HK$12.00 (-8.7%)
HK$10.28 2356.HK n.a. n.a.
What has changed? ? Bloomberg has reported that Dah Sing Banking Group (DSB) has issued 10year subordinated debt of US$225m. We have confirmed the news with the management of the company.
Market data HSI Market cap 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate Performance (%)* Absolute Relative Source: Daiwa Note: *Relative to HSI 19,665.08 (US$bn) 1.31 (US$m) 1.29 (m) 987 (%) 25.1 Dah Sing Financial Holdings (74.9%) HK$/US$ 7.771 1M (9.0) 3.1 3M (7.2) 1.3 6M 9.4 14.0
Impact ? New subordinated debt to replace old debt. DSB issued 10-year subordinated debt of US$150m in 2005. The debt is callable in May 2010. We think in order to maintain the company’s good reputation with bondholders, DSB has decided to replace subordinated debt issued in 2005 with new debt at a higher coupon rate. The old subordinated debt has a coupon rate of three-month Libor plus 60 basis points (equivalent to 0.83% currently). The new subordinated debt has a fixed coupon rate of 6.625%. ? Slight downward revision to our earnings forecasts. Due to the increase in the interest costs, we have revised down our net-interest margin (NIM) forecasts for DSB to 1.93% from 2.01% for FY10 and to 1.94% from 2.03% for FY11. As a result, we have revised down our net-profit forecasts by 5.5% for FY10 and 6.7% for FY11. ? We see no urgent need for other capital funding. As the new subordinated debt issued is more than enough to repay the old debt, we have revised up our total capital-adequacy ratio (CAR) forecast to 15.7% from 15.1% for FY10. We maintain our forecast tier-1 CAR at 9.7% for FY10. We see no immediate need for the company to raise new tier-1 capital in FY10.
Investment indicators 2009E PER (x) 10.1 PBR (x) 1.1 Dividend yield (%) 3.9 ROE (%) 11.2 ROA (%) 0.8 Relative to peers Relative to history Source: Daiwa forecasts 2010E 6.7 1.0 6.7 15.1 1.2 2011E 6.6 0.9 7.6 14.3 1.2 Below Below
Income summary (HK$m) Yr to 31 Dec 2008 2009E 2010E Op income 800 668 1,431 YoY (%) (47.0) (16.6) 114.3 Pre-tax profit 212 1,091 1,748 YoY (%) (76.9) 415.0 60.2 Net profit 189 989 1,504 YoY (%) (76.4) 424.3 52.1 EPS (HK$) 0.202 1.021 1.524 YoY (%) (76.4) 404.5 49.3 DPS (HK$) 0.180 0.401 0.686 Source: Company, Daiwa forecasts 2011E 1,566 9.4 1,793 2.6 1,543 2.6 1.564 2.6 0.782
Valuation ? We have adjusted down our long-term ROE assumption for DSB in our Gordon Growth Model to 14.25% from 15.0%. In addition, we have lowered our sixmonth target price to HK$12.00 from HK$13.15, based on a PBR of 1.4x on our FY10 BVPS forecast.
Price and relative performance (HK$) 30.00 22.50 15.00 7.50 0.00 07/2 Rel to HSI
07/8
08/2
08/8
09/2
09/8
125 100 75 50 25 10/2
Catalysts and action ? Still, we believe DSB will benefit from a recovery in loan growth and wealth management fees in FY10. In addition, we expect a potential write-back in its loan provisions for FY10. We reiterate our 2 (Outperform) rating. DSB: valuation summary 31-Dec 2008 2009E 2010E 2011E Operating profit Operating profit (HK$m) growth (%) 1,459 (13.7) 1,010 (30.8) 1,555 54.0 1,698 9.2 Net profit Net-profit EPS EPS PER PBV (HK$m) growth (%) (HK$) growth (%) (x) (x) 189 (76.4) 0.20 (76.4) 50.8 1.2 989.1 424.3 1.02 404.2 10.1 1.1 1,503.9 52.1 1.52 49.3 6.7 1.0 1,543.0 2.6 1.56 2.6 6.6 0.9 ROE DPS Yield (%) (HK$) (%) 2.2 0.18 1.8 11.2 0.40 3.9 15.1 0.69 6.7 14.3 0.78 7.6
Source: Bloomberg, Daiwa
Forecasts revisions (%) Op. profit change Net profit change EPS change Source: Daiwa forecasts FY09E FY10E FY11E 0.0 (6.7) (7.7) 0.0 (5.5) (6.7) 0.0 (5.5) (6.7)
Fair value Valuation (HK$/shr) Methodology Key assumption Source: Daiwa forecasts 12.00 Gordon Growth Model 2010E PBR of 1.14x
Source: Company data, Daiwa forecasts
Asia Pacific Daily
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9 February 2010
Company background DSB has been listed on the Hong Kong Stock Exchange since 2004. It has three banking subsidiaries (Dah Sing Bank, MEVAS Bank and Banco Commercial de Macau), and a securities-trading company, as well as an offshore joint-venture private-banking business with SG Hambros Bank. DSB has been a pioneer in the development of the consumer-banking, SME-lending and bancassurance sectors among mid-sized financial-services groups in Hong Kong.
Dah Sing Banking Group – financial summary Profit and loss (HK$m) Year to 31 Dec Net-interest income Net fees & commission Trading and other income Net insurance income Total operating income Personnel expenses Other expenses Total expenses Pre-provision operating profit Total provision Operating profit after prov. Non-operating income Profit before tax Tax Min. int./pref. div./other items Net profit Adj. net profit EPS (HK$) EPS (adjusted) (HK$) DPS (HK$) 2007 2008 2009E 2010E 2011E 2,068 2,208 2,192 2,288 2,461 647 532 338 390 454 248 274 168 178 188 0 0 0 0 0 2,963 3,014 2,698 2,855 3,102 (723) (678) (759) (812) (885) (550) (877) (929) (487) (518) (1,273) (1,555) (1,688) (1,300) (1,403) 1,690 1,459 1,010 1,555 1,698 (181) (659) (342) (125) (133) 1,510 800 668 1,431 1,566 (594) (589) 423 317 228 916 212 1,091 1,748 1,793 (109) (21) (100) (242) (248) (6) (2) (2) (2) (2) 800 189 989 1,504 1,543 800 189 989 1,504 1,543 0.859 0.202 1.021 1.524 1.564 0.859 0.202 1.021 1.524 1.564 0.400 0.180 0.401 0.686 0.782 2007 5.4 38.4 13.6 7.7 18.5 12.0 19.3 (36.7) (33.1) (33.1) (33.1) (33.1) 21.1 16.7 13.6 15.1 (0.9) 16.2 8.3 2008 6.8 (9.9) 1.7 22.2 (13.7) 264.2 (47.0) (76.9) (76.4) (76.4) (76.4) (76.4) (0.5) 2.1 (3.1) (2.3) (11.4) 9.3 11.5 2009E (0.7) (37.3) (10.5) 8.5 (30.8) (48.0) (16.6) 415.0 424.3 424.3 404.5 404.5 0.2 4.2 7.3 6.6 16.0 5.1 8.9 2010E 4.4 12.2 5.8 (23.0) 54.0 (63.6) 114.3 60.2 52.1 52.1 49.3 49.3 5.5 6.2 8.5 8.3 9.8 7.8 7.0 2011E 7.6 13.0 8.6 8.0 9.2 6.7 9.4 2.6 2.6 2.6 2.6 2.6 6.5 6.9 4.3 4.1 7.4 6.7 8.1
Balance sheet (HK$m) As at 31 Dec Cash & equivalent Investment securities Net loans and advances Fixed assets Goodwill Other assets Total assets Customers deposits Borrowing Debentures Other liabilities Total liabilities Share capital Reserves & others Shareholders' equity Minority interests Total equity & liabilities Avg interest-earning assets Avg risk-weighted assets BVPS (HK$) 2007 12,105 34,180 60,935 2,444 0 6,277 115,940 84,784 2,652 7,943 11,313 106,692 931 8,298 9,229 19 115,940 95,733 64,231 9.90 2007 72.3 9.1 15.5 0.5 128.8 0.7 8.6 2.2 6.1 4.3 1.8 43.0 11.9 46.6 2008 14,501 30,811 60,150 2,213 0 4,712 112,386 86,545 2,444 8,475 6,728 104,192 933 7,240 8,173 21 112,386 104,625 71,633 8.76 2008 70.5 6.8 13.6 1.7 81.9 0.2 2.2 2.1 4.4 2.4 2.0 51.6 10.0 89.0 2009E 15,196 38,194 60,324 2,257 0 4,588 120,558 90,204 2,444 7,824 10,583 111,054 987 8,495 9,482 23 120,558 110,006 78,021 9.61 2009E 67.8 9.4 15.2 1.5 86.7 0.8 11.2 2.0 4.2 2.4 1.8 62.6 9.2 39.3 2010E 15,942 44,141 63,771 2,302 0 4,594 130,750 95,787 2,444 8,409 13,678 120,317 987 9,422 10,409 25 130,750 118,541 83,508 10.55 2010E 67.3 9.7 15.7 1.2 89.6 1.2 15.1 1.9 4.2 2.5 1.7 45.5 13.8 45.0 2011E 16,818 44,608 68,029 2,348 0 4,623 136,426 102,438 2,444 8,409 11,928 125,218 987 10,194 11,180 27 136,426 126,530 90,302 11.33 2011E 67.0 9.8 15.5 0.7 135.7 1.2 14.3 1.9 4.2 2.5 1.7 45.2 13.8 50.0
Growth (YoY %) Year to 31 Dec Net-interest income Non-interest income Total operating income Total expenses Pre-provision operating profit Total provisions Operating profit after provisions Profit before tax Net profit (reported) Net profit (adjusted) EPS (reported) EPS (adjusted) Gross loans Deposits Total assets Total liabilities Shareholders' equity Avg interest-earning assets Avg risk-weighted assets
Key ratios (%) Year to 31 Dec Liquidity Loan/deposit Capital adequacy ratios (CAR) Tier-1 CAR Total CAR Asset quality NPLs/gross loans Total loan-loss prov./NPLs Profitability ROAA ROAE Efficiency Net-interest margin Gross yield Cost of funds Net-interest spread Total cost/total income Others Effective tax Dividend-payout ratio
Key assumptions Year to 31 Dec Net interest margin (%) Tier-1 CAR (%) Total CAR (%) Credit cost (bps) NPL (%) Loan growth (%) Deposit growth (%) Loan to deposit ratio (%) Earning-asset growth (%) 2007 2008 2.16 2.11 9.1 6.8 15.5 13.6 29.50 107.96 0.5 1.7 21.1 (0.5) 16.7 2.1 72.3 70.5 16.2 9.3 2009E 1.99 9.4 15.2 56.00 1.5 0.2 4.2 67.8 5.1 2010E 1.93 9.7 15.7 19.31 1.2 5.5 6.2 67.3 7.8 2011E 1.94 9.8 15.5 19.35 0.7 6.5 6.9 67.0 6.7
Chart: PBR bands (HK$) 22 17 12 7 2 Jan-06 Dec-06 Dec-07 Dec-08 Dec-09 2.2x 1.7x 1.3x 0.8x 0.3x
Source: Company, Daiwa forecasts
Asia Pacific Daily
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9 February 2010
Dah Sing Financial (440 HK)
Rating: 2
We see a slight dilutive impact from the issuance of new subordinated debt by Dah Sing Banks: Hong Kong Steven Chan (852) 2848 4468 (steven.chan@hk.daiwacm.com) Price (5 Feb) Reuters code ADR/GDR code Shares per ADR/GDR
Target price: HK$52.15 → HK$47.10 (-9.7%)
HK$36.95 0440.HK n.a. n.a.
What has changed? ? According to Bloomberg, Dah Sing Banking Group (DSB), a 75%-owned subsidiary of Dah Sing Financial (DSF), has issued US$225m in 10-year subordinated debt. We have confirmed this with management.
Market data HSI Market cap 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate Performance (%)* Absolute Relative Source: Daiwa Note: *Relative to HSI 19,665.08 (US$bn) 1.24 (US$m) 1.23 (m) 260 (%) 48.6 David Shou-yeh Wong (39.3%) HK$/US$ 7.771 1M (13.3) (1.7) 3M (15.8) (8.1) 6M (1.3) 2.8
Impact ? Issue of new subordinated debt to replace old debt. DSB issued US$150m of 10-year subordinated debt in 2005. This is callable in May 2010. In our opinion in order to maintain what we consider to be the bank’s good reputation with bondholders, DSB has decided to replace the subordinated debt issued in 2005 with new debt at a higher coupon rate. The old subordinated debt has a coupon rate of three-month LIBOR + 60 basis points (equivalent to 0.83% currently). The new subordinated debt has a fixed coupon rate of 6.625%. ? Slight downward revisions to our earnings forecasts. Due to the downward revisions our net-profit forecasts for DSF, we also revised down our net-profit forecasts for DSF by 4.2% and 4.8% for FY10 and FY11, respectively. ? Should have sufficient short-term funding to support DSB’s future capital needs. We estimate that DSF’s cash and cash equivalents will total HK$16.6bn at end-FY10. This is equivalent to 19% of our forecast for DSB’s risk-weighted assets. We believe DSF should be able to support DSB’s capital needs, if necessary, in the near future.
Investment indicators 2009E PER (x) 10.8 PBR (x) 0.8 Dividend yield (%) 3.7 ROE (%) 8.4 ROA (%) 0.7 Relative to peers Relative to history Source: Daiwa forecasts 2010E 6.6 0.8 6.0 12.3 1.1 2011E 6.0 0.7 6.7 12.6 1.2 Below Below
Income summary (HK$m) Yr to 31 Dec 2008 2009E 2010E Op income 809 883 1,816 YoY (%) (61.0) 9.3 105.6 Pre-tax profit 183 1,307 2,133 YoY (%) (86.5) 614.1 63.2 Net profit 106 891 1,453 YoY (%) (89.9) 739.4 63.0 EPS (HK$) 0.415 3.425 5.582 YoY (%) (90.1) 725.1 63.0 DPS (HK$) 0.163 1.370 2.233 Source: Company, Daiwa forecasts 2011E 2,084 14.8 2,312 8.4 1,600 10.1 6.149 10.1 2.459
Valuation ? We have adjusted downward our long-term ROE assumption for DSF in our Gordon Growth Model from 13.25% to 12.5%. As a result, we have lowered our six-month target price from HK$52.15 to HK$47.10. This is equivalent to a PBR of 1x on our December F2010 BVPS forecast.
Price and relative performance (HK$) 100.00 75.00 50.00 25.00 0.00 07/2 Rel to HSI
07/8
08/2
08/8
09/2
09/8
125 100 75 50 25 10/2
Catalysts and action ? We believe DSF should benefit from loan growth and a recovery in wealthmanagement fees, as well as the potential write-back of loan provisions of DSB in FY10. Besides, its wholly-owned subsidiary, Dah Sing Life (DSL), plans to continue to focus on selling high-margin regular premium life products through its agents over the next few years. It seems DSL also plans to switch to higheryield corporate bonds to improve investment returns. We reiterate our 2 (Outperform) rating. DSF: valuation summary Operating profit (HK$m) 1,467 1,226 1,941 2,217 Operatingprofit growth (%) (34.9) (16.5) 58.4 14.2
Source: Bloomberg, Daiwa
Forecasts revisions (%) Op. profit change Net profit change EPS change Source: Daiwa forecasts FY09E FY10E FY11E 0.1 (5.3) (5.9) 0.0 (4.2) (4.8) 0.0 (4.2) (4.8)
Fair value Valuation (HK$/shr) Methodology Key assumption Source: Daiwa forecasts 47.10 Gordon Growth Model 2010E PBR of 1x
31-Dec 2008 2009E 2010E 2011E
Net profit Net-profit (HK$m) growth (%) 106 (89.9) 891 739.4 1,453 63.0 1,600 10.1
EPS (HK$) 0.42 3.42 5.58 6.15
EPS growth (%) (90.1) 725.1 63.0 10.1
PER (x) 89.0 10.8 6.6 6.0
PBV (x) 1.0 0.8 0.8 0.7
ROE (%) 1.0 8.4 12.3 12.6
DPS (HK$) 0.16 1.37 2.23 2.46
Yield (%) 0.4 3.7 6.0 6.7
Source: Company, Daiwa forecasts
Asia Pacific Daily
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9 February 2010
Company background DSF is a leading financial-services group in Hong Kong, active in the banking and insurance businesses. It has been listed on the Hong Kong Stock Exchange since 1987. DSF is the holding company for the group's life- and general-insurance businesses, as well as the majority shareholder in DSB.
Dah Sing Financial – financial summary Profit and loss (HK$m) Year to 31 Dec Net-interest income Net fees & commission Trading and other income Net insurance income Total operating income Personnel expenses Other expenses Total expenses Pre-provision operating profit Total provision Operating profit after prov. Non-operating income Profit before tax Tax Min. int./pref. div./other items Net profit Adj. net profit EPS (HK$) EPS (adjusted) (HK$) DPS (HK$) 2007 2008 2009E 2010E 2011E 2,215 2,369 2,355 2,463 2,647 613 504 320 369 429 770 (16) 199 311 425 101 313 211 253 304 3,699 3,170 3,085 3,397 3,805 (814) (756) (846) (914) (1,007) (630) (948) (1,013) (541) (581) (1,444) (1,703) (1,859) (1,456) (1,588) 2,255 1,467 1,226 1,941 2,217 (181) (659) (342) (125) (133) 2,074 809 883 1,816 2,084 (715) (626) 423 317 228 1,358 183 1,307 2,133 2,312 (133) (29) (126) (240) (260) (176) (47) (290) (441) (452) 1,050 106 891 1,453 1,600 1,050 106 891 1,453 1,600 4.199 0.415 3.425 5.582 6.149 4.199 0.415 3.425 5.582 6.149 1.500 0.163 1.370 2.233 2.459
Balance sheet (HK$m) As at 31 Dec Cash & equivalent Investment securities Net loans and advances Fixed assets Goodwill Other assets Total assets Customers deposits Borrowing Debentures Other liabilities Total liabilities Share capital Reserves & others Shareholders' equity Minority interests Total equity & liabilities Avg interest-earning assets Avg risk-weighted assets BVPS (HK$) 2007 13,788 38,325 60,935 2,776 1,132 7,252 124,209 84,428 2,652 7,943 16,405 111,427 500 9,969 10,469 2,312 124,209 102,532 64,231 41.86 2008 14,465 35,690 60,150 2,529 1,109 6,237 120,180 84,602 2,444 8,072 13,125 108,243 521 9,372 9,892 2,045 120,180 112,297 71,633 38.01 2009E 15,619 43,338 60,324 2,279 1,109 4,645 127,313 90,204 2,444 7,824 13,125 113,596 521 10,862 11,382 2,335 127,313 118,073 78,021 43.73 2010E 16,584 46,238 63,771 2,325 1,109 4,765 134,793 95,787 2,444 8,409 13,125 119,763 521 11,734 12,254 2,776 134,793 127,869 83,508 47.08 2011E 17,625 48,799 68,029 2,372 1,109 4,924 142,857 102,438 2,444 8,409 13,125 126,415 521 12,694 13,214 3,228 142,857 136,487 90,302 50.77
Growth (YoY %) Year to 31 Dec Net-interest income Non-interest income Total operating income Total expenses Pre-provision operating profit Total provisions Operating profit after provisions Profit before tax Net profit (reported) Net profit (adjusted) EPS (reported) EPS (adjusted) Gross loans Deposits Total assets Total liabilities Shareholders' equity Avg interest-earning assets Avg risk-weighted assets 2007 5.9 49.2 19.9 10.5 26.7 12.1 28.2 (31.0) (24.8) (24.8) (24.8) (24.8) 22.8 16.7 13.9 15.3 4.2 16.7 8.3 2008 7.0 (46.0) (14.3) 18.0 (34.9) 264.2 (61.0) (86.5) (89.9) (89.9) (90.1) (90.1) (0.5) 0.2 (3.2) (2.9) (5.5) 9.5 11.5 2009E (0.6) (8.9) (2.7) 9.2 (16.5) (48.0) 9.3 614.1 739.4 739.4 725.1 725.1 0.2 6.6 5.9 4.9 15.1 5.1 8.9 2010E 4.6 28.0 10.1 (21.7) 58.4 (63.6) 105.6 63.2 63.0 63.0 63.0 63.0 5.5 6.2 5.9 5.4 7.7 8.3 7.0 2011E 7.5 24.0 12.0 9.0 14.2 6.7 14.8 8.4 10.1 10.1 10.1 10.1 6.5 6.9 6.0 5.6 7.8 6.7 8.1
Key ratios (%) Year to 31 Dec Liquidity Loan/deposit Capital adequacy ratios (CAR) Tier-1 CAR Total CAR Asset quality NPLs/gross loans Total loan-loss prov./NPLs Profitability ROAA ROAE Efficiency Net-interest margin Gross yield Cost of funds Net-interest spread Total cost/total income Others Effective tax Dividend-payout ratio 2007 72.6 9.1 15.5 0.5 128.8 0.9 10.2 2.2 5.8 4.3 1.6 39.0 9.8 35.7 2008 72.1 6.8 13.6 1.7 81.9 0.1 1.0 2.1 4.2 2.4 1.8 53.7 16.1 39.3 2009E 67.8 9.4 15.2 1.5 86.7 0.7 8.4 2.0 4.0 2.3 1.7 60.3 9.6 40.0 2010E 67.3 9.7 15.7 1.2 93.8 1.1 12.3 1.9 4.0 2.4 1.5 42.9 11.2 40.0 2011E 67.0 9.8 15.5 0.7 135.7 1.2 12.6 1.9 4.0 2.4 1.5 41.7 11.2 40.0
Key assumptions Year to 31 Dec Net interest margin (%) Tier-1 CAR (%) Total CAR (%) Credit cost (bps) NPL (%) Loan growth (%) Deposit growth (%) Loan to deposit ratio (%) Earning-asset growth (%) 2007 2008 2.16 2.11 9.1 6.8 15.5 13.6 29.50 107.96 0.5 1.7 22.8 (0.5) 16.7 0.2 72.2 71.1 16.7 9.5 2009E 1.99 9.4 15.2 56.00 1.5 0.2 6.6 67.8 5.1 2010E 1.93 9.7 15.7 19.31 1.2 5.5 6.2 67.3 8.3 2011E 1.94 9.8 15.5 19.35 0.7 6.5 6.9 67.0 6.7
PBR bands (HK$) 89 69 49 29 9 Jan-06 Dec-06 Dec-07 Dec-08 Dec-09 2.2x 1.7x 1.3x 0.8x 0.3x
Source: Company, Daiwa forecasts
Asia Pacific Daily
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9 February 2010
Dry-Bulk Shipping The week ended 5 February Transportation: China Geoffrey Cheng (852) 2848 4024 (geoffrey.cheng@hk.daiwacm.com)
Rating: Negative
What has changed? ? The Baltic Dry Index (BDI) declined by 5% WoW for the week ended 5 February. The China Coastal Bulk Freight Index (CCBFI) also dropped, by 8% WoW, for the week ended 3 February.
Impact ? The BDI was supported by the Baltic Capesize Index, especially during the latter part of the week. Interest in Panamax vessels was low for the week. The spot price of iron ore at China ports rose slightly week-on-week, to US$123.5/tonne on 5 February. The spot price of thermal coal at Newcastle port fell to US$91.85/tonne, down US$6.7/tonne in a week. ? Probably due to the recent decline in the BDI, period-fixing activity increased last week, with more than four timecharters concluded with a duration of one year or longer. Another four new orders for dry bulk vessels were recorded last week, while one 26-year-old Handymax was scrapped. ? With the Lunar New Year approaching, demand for coastal coal shipments declined following a flurry of restocking over the past few weeks. Demand in other areas, such as for grain shipments, also weakened, sending the CCBFI lower.
Catalysts and action ? For February, we forecast the BDI to range from 2,500-2,800 as demand from China looks likely to be subdued due to the long holiday. Our concern for the sector remains oversupply. Our core sector pick remains China Shipping Development. The BDI (5 February close) and CCBFI (3 February close) BALTIC DRY INDEX BALTIC CAPESIZE IX BALTIC PANAMAX IDX (LIF) BALTIC SUPRAMAX INDEX BALTIC HANDYSIZE INDEX CCBFI Index 1wk chg (%) 2,715 (5) 3,474 (1) 3,141 (8) 2,156 (5) 1,095 (6) 1,518 (8) 1m chg (%) (17) (22) (22) (4) (5) (18) 3m chg (%) (19) (37) (10) 16 24 35
FFA (US$/day) & iron ore transport cost (US$/tonne) Basis: closing mid-price Capesize, time-charter average Panamax, time-charter average Supramax, time-charter average Index 30,707 25,012 22,659 US/tonne 9.8 25.9 Feb-10 31,750 25,750 22,500 1wk chg (%) (13) (19) Q1-10 2010 33,800 25,750 25,125 17,000 21,750 15,075 1m 3m chg (%) chg (%) (17) (23) (20) (23)
Dampier/Beilun Tubarao/Beilun
Source: Bloomberg, Shanghai Shipping Exchange
Source: Clarkson (closing as at 28 January), Bloomberg (closing as at 29 January)
China dry-bulk shipping companies: valuations Bloomberg Company code China Shipping Development-H 1138 HK Pacific Basin Shipping Ltd 2343 HK Sinotrans Shipping Ltd 368 HK China COSCO Holdings-H 1919 HK Source: Bloomberg, Daiwa forecasts Share price 5-Feb-10 Target price +/- Year PER (x) PBR (x) EV/EBITDA (x) Dividend yield (%) (HK$) Rating (local curr.) (%) end 2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011E 11.72 2 14.5 23.7 Dec 28.5 14.4 11.5 1.6 1.4 1.2 15.0 9.1 7.4 0.7 1.3 1.6 5.76 3 5.7 (1.0) Dec 11.7 51.8 22.7 1.0 1.0 1.0 8.2 16.2 9.3 4.0 1.0 2.2 3.46 3 3.77 9.0 Dec 15.3 21.1 14.8 0.9 0.8 0.8 6.3 7.1 4.9 2.0 1.4 2.0 9.21 4 8.95 (2.8) Dec n.a. n.a. 69.1 1.9 2.0 1.9 n.a. n.m. 13.6 0.0 0.0 0.4
Asia Pacific Daily
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9 February 2010
CJ Internet (037150 KS) Global game publishing likely to accelerate Media: Korea Thomas Y. Kwon (82) 2 787 9181 (yskwon@kr.daiwacm.com) Price (8 Feb) Reuters code ADR/GDR code Shares per ADR/GDR
Rating: 2
Target price: W18,000 → W20,000 (+11.1%)
W15,000 037150.KS n.a. n.a.
What has changed? ? CJ Internet recorded a set of solid preliminary 4Q results, on strong seasonal demand for web board games and overseas royalties. Operating profit expanded by 26.7% QoQ, helped by a revenue contribution from global game publishing.
Market data KOSPI Market cap EV 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate 1,552.79 (US$m) 292.42 (US$m; 09E) 276.46 (US$m) 4.31 (m) 23 (%) 69.8 CJ Corporation (28.8%) W/US$ 1,169 3M 14.1 15.5 6M 11.1 12.8
Impact ? Revenue from web board games showed that the company has nicely recovered from new regulations with 12.4% QoQ sales growth. Surprisingly, CJ Internet recorded overseas royalties of W5.6bn, which we believe will improve investor confidence in its growth potential in global game publishing. Management projects overseas royalties to increase 15-20% YoY for 2010 on the back of commercial launches of Prius Online and Ys Online in Taiwan and China. ? CJ Internet has become more aggressive in acquiring talent game development studios and intellectual property of game titles. For 2010, it plans to commercialise seven game titles, including Dragonball Online, while it has shown positive operating statistics and started to generate meaningful revenue from February 2010. Management expects its web game business will continue to expand with its efforts to streamline and monetise a huge game platform. ? In our view, the company would enter a new revenue and earnings-growth cycle from 2010, driven by increasing overseas royalties, a strong revenue stream from new game launches in Korea and Asia regions, and the restructuring of unprofitable affiliates. We have revised up our FY10-11E earnings to reflect revenue contributions from high-margin business and strong operating leverage.
Performance (%)* 1M Absolute (2.3) Relative 6.7 Source: Daiwa Note: *Relative to KOSPI
Investment indicators 2009E 2010E 2011E PER (x) 13.1 8.4 6.9 PCFR (x) 5.9 5.4 4.3 EV/EBITDA (x) 5.1 3.7 2.9 PBR (x) 1.5 1.3 1.1 Dividend yield (%) 1.3 1.3 1.3 ROE (%) 11.9 16.5 17.2 ROA (%) 9.5 13.4 14.3 Net debt equity (%) net cash net cash net cash Relative to peers Above Relative to history Below Source: Daiwa forecasts
Income summary (Wbn) Yr to 31 Dec 2008 2009E 2010E Revenue 194 221 267 YoY (%) 21.2 13.9 21.0 EBITDA 64 63 85 YoY (%) 20.4 (2.0) 34.2 Net profit 25 26 41 YoY (%) (2.4) 3.5 56.8 EPS (W) 1,104 1,143 1,792 YoY (%) (2.6) 3.5 56.8 CFPS (W) 2,240 2,524 2,770 DPS (W) 150 200 200 Source: Company, Daiwa forecasts 2011E 305 14.1 96 13.9 50 21.9 2,185 21.9 3,474 200
Valuation ? The stock is trading at 8.4x our FY10 EPS forecast, representing the one of the most attractive online-game names in Korea, in our view. In addition to a DCF valuation, we apply a target PER of 9x and a target EV/EBITDA multiple of 5x our revised earnings forecasts, to derive our new six month target price.
Price and relative performance (W) 27,200 21,950 16,700 11,450 6,200 07/2 Rel to KOSPI
07/8
08/2
08/8
09/2
09/8
150 119 88 56 25 10/2
Catalysts and action ? We maintain our 2 rating on CJ Internet, as we expect near-term stock catalysts such as positive revenue contribution by Dragonball Online in Korea and Prius Online in Asia to drive the stock to outperform the market in 1H FY10. CJ Internet: quarterly-earnings trend (Wbn) Total revenue Growth (YoY %) Growth (QoQ %) Web game Publishing Others Operating profit Change (YoY %) Change (QoQ %) Margin (%) Source: Company Note: P - provisional
Source: Bloomberg, Daiwa
Forecasts revisions (%) Revenue change Net profit change EPS change Source: Daiwa forecasts FY09E FY10E FY11E (0.2) (0.7) (0.7) (11.9) 4.3 3.9 (11.9) 4.3 3.9
Fair value Valuation (W/shr) Methodology Key assumption Source: Daiwa forecasts 13,232 DCF and peer comparision WACC of 13.5% and terminal growth rate of 2.0%
3Q08 46.8 14.5 1.0 14.5 31.0 1.3 12.3 12.6 (11.2) 26.3
4Q08 52.1 17.1 11.1 17.0 33.3 1.8 14.5 7.2 17.5 27.8
1Q09 56.3 16.6 8.2 18.8 35.5 2.0 15.0 0.9 3.7 26.6
2Q09 51.0 9.9 (9.4) 13.9 35.2 1.9 9.2 (33.5) (38.5) 18.1
3Q09 54.7 16.7 7.2 13.8 39.0 1.8 10.2 (16.8) 11.1 18.7
4Q09P 4Q09E 58.6 60.5 12.5 16.3 7.2 10.7 15.5 16.1 41.1 42.4 2.0 2.0 13.0 13.3 (10.3) (8.0) 26.7 30.0 22.1 22.0
Asia Pacific Daily
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9 February 2010
Company background As at the end of 2Q FY09, the company offered 28 casual and role-playing games and had monthly average unique visitors of 5.9m, and paying users of 0.5m. It operates overseas game services in China, Japan and the US. CJ Corp. is the main shareholder of CJ Internet.
CJ Internet – financial summary Profit and loss (Wbn) Year to 31 Dec Game publishing Web board games Other revenue Total revenue Other income COGS SG&A Other op. expenses EBIT Net-interest inc./(exp.) Assoc/forex/extraord./others Pre-tax profit Tax Min. int./pref. div./others Net profit (reported) Net profit (adj.) EPS (reported) (W) EPS (adj.) (W) DPS (W) EBIT (adj.) EBITDA (adj.) 2007 94 58 8 160 0 (89) (25) 0 46 4 (12) 38 (12) 0 26 26 1,134 1,134 150 46 53 2008 2009E 2010E 2011E 123 151 191 224 64 63 68 73 6 7 7 8 194 221 267 305 0 0 0 0 (107) (136) (160) (181) (32) (37) (44) (49) 0 0 0 0 55 47 63 74 5 4 3 4 (17) (13) (7) (6) 43 38 59 72 (18) (12) (18) (22) 0 0 0 0 25 26 41 50 25 26 41 50 1,104 1,143 1,792 2,185 1,104 1,143 1,792 2,185 150 200 200 200 55 47 63 74 64 63 85 96
Balance sheet (Wbn) As at 31 Dec Cash & short-term investment Inventory Accounts receivable Other current assets Total current assets Fixed assets Goodwill & intangibles Other non-current assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Other non-current liabilities Total liabilities Share capital Reserves/R.E./others Shareholders' equity Minority interests Total equity & liabilities Net debt/(cash) 2007 60 0 27 64 151 24 16 39 229 0 10 22 32 0 2 34 11 184 195 0 229 (60) 2008 41 0 32 82 155 29 22 57 263 0 12 37 48 0 6 54 11 197 209 0 263 (41) 2009E 19 0 31 84 133 67 22 65 287 0 14 37 51 0 6 57 11 219 230 0 287 (19) 2010E 30 0 36 85 151 72 21 79 322 0 14 37 50 0 6 56 11 255 266 0 322 (30) 2011E 62 0 40 87 189 71 21 93 374 0 20 37 56 0 6 62 11 300 312 0 374 (62)
Cash flow (Wbn) Year to 31 Dec Profit before tax Depreciation and amortisation Tax paid Change in working capital Other operational CF items Cash flow from operations Capex Net (acquisitions)/disposal Other investing CF items Cash flow from investing Change in debt Net share issues/(repurchases) Dividends paid Other financing CF items Cash flow from financing Forex effect/others Change in cash 2007 38 8 (12) (4) 5 35 (7) (56) 10 (53) 0 25 (3) (25) (3) 0 (20) 2008 2009E 2010E 2011E 43 38 59 72 9 16 22 22 (18) (12) (18) (22) (4) 3 (6) 1 21 12 6 6 51 58 63 79 (9) (47) (18) (12) (28) (20) (20) (20) (30) (8) (10) (11) (67) (75) (48) (43) 0 0 0 0 14 0 0 0 (3) (5) (5) (5) (14) 0 0 0 (3) (5) (5) (5) 0 0 0 0 (19) (22) 11 32
Key ratios Year to 31 Dec Sales – YoY % EBITDA (adj.) – YoY % Net profit (adj.) – YoY % EPS (adj.) – YoY % EBITDA margin % (adj.) EBIT margin % (adj.) Net-profit margin % (adj.) ROAE (%) ROAA (%) ROCE (%) ROIC (%) Net debt to equity (%) Effective tax rate (%) Accounts receivable (days) Payables (days) Net interest cover (x) Net dividend payout (%) 2007 51.9 51.4 55.3 53.7 33.4 28.6 16.1 14.0 12.2 24.7 27.3 net cash 31.6 52.0 18.7 n.a. 13.2 2008 21.2 20.4 (2.4) (2.6) 33.2 28.7 13.0 12.5 10.2 27.5 21.3 net cash 41.9 55.5 20.8 n.a. 13.6 2009E 13.9 (2.0) 3.5 3.5 28.6 21.5 11.8 11.9 9.5 21.6 17.0 net cash 32.0 51.8 21.6 n.a. 17.5 2010E 21.0 34.2 56.8 56.8 31.7 23.6 15.3 16.5 13.4 25.4 19.5 net cash 30.7 45.4 19.2 n.a. 11.2 2011E 14.1 13.9 21.9 21.9 31.6 24.4 16.4 17.2 14.3 25.7 21.2 net cash 30.7 45.5 20.2 n.a. 9.2
Key assumptions Year to 31 Dec Number of unique visitors ('000) Number of paying users ('000) ARPU (Local currency) 2007 2008 2009E 2010E 2011E 7,791 7,211 5,597 5,922 6,117 437 525 543 592 631 21,773 23,932 25,155 26,765 28,130
Chart: PER bands (W) 53,718 43,718 33,718 23,718 13,718 3,718 Jan-06 Dec-06 Dec-07 Dec-08 44.6x 34.9x 25.1x 15.4x 5.6x Dec-09
Source: Company, Daiwa forecasts
Asia Pacific Daily
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9 February 2010
Daewoo Shipbuilding & Marine Engineering (042660 KS) 4Q FY09 earnings review – we expect another lacklustre year for FY10 Capital goods: Korea Sung Yop Chung (82) 2 787 9157 (sychung@kr.daiwacm.com) Price (8 Feb) Reuters code ADR/GDR code Shares per ADR/GDR
Rating: 4
Target price: W19,000 → W17,000 (-10.5%)
W18,050 042660.KS n.a. n.a.
What has changed? ? Daewoo Shipbuilding & Marine Engineering’s (DSME) 4Q FY09 operating profit was broadly in line with our and the Bloomberg-consensus estimates.
Market data KOSPI Market cap EV 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate 1,552.79 (US$bn) 2.97 (US$bn; 09E) 2.52 (US$m) 28.35 (m) 191 (%) 47.0 Korea Development Bank (31.3%) W/US$ 1,169 3M 13.2 14.6 6M (18.5) (17.3)
Impact ? 4Q FY09 earnings review. 4Q FY09 revenue and operating profit increased by 2.6% QoQ and 26.3% QoQ, respectively. According to the management, this was the result of aggressive cost-cutting efforts, more working days quarter-onquarter, and improved productivity in building offshore vessels. However, net profit fell by 56.7% QoQ, which according to the management was due mainly to a weaker equity-method gain from its shipyard in Mangalia, Romania. ? We expect another lacklustre year for FY10, due to what we see as its: 1) FY10 revenue growth remaining flat amid delivery delays, and 2) the company’s FY10 new shipbuilding-order target of US$10bn (50% from offshore vessels), from only US$3.5bn for FY09, being too aggressive. ? Low-priced order intake likely to result in weaker earnings from FY11. Although DSME has received new shipbuilding orders amounting to nearly US$3.7bn over the past two months, we are concerned about the profitability of these vessels. We believe the company was determined to secure new shipbuilding orders at a discount due to having an orderbook of only two years (the lowest among the big three-shipyards globally).
Performance (%)* 1M Absolute (10.9) Relative (2.7) Source: Daiwa Note: *Relative to KOSPI
Investment indicators 2009E 2010E 2011E PER (x) 6.0 9.2 14.8 PCFR (x) n.a. n.a. n.a. EV/EBITDA (x) 4.3 5.2 11.0 PBR (x) 1.7 1.4 1.7 Dividend yield (%) 5.2 6.6 6.6 ROE (%) 28.2 16.5 10.2 ROA (%) 3.7 2.5 1.6 Net debt equity (%) net cash net cash net cash Relative to peers In line Relative to history Above Source: Daiwa forecasts
Income summary (Wbn) Yr to 31 Dec 2008 2009E 2010E 2011E Revenue 11,075 12,443 12,889 9,675 YoY (%) 55.9 12.4 3.6 (24.9) EBITDA 1,051 687 569 290 YoY (%) 219.8 (34.7) (17.2) (49.0) Net profit 402 577 377 235 YoY (%) 25.1 43.8 (34.7) (37.6) EPS (W) 2,099 3,017 1,971 1,230 YoY (%) 25.1 43.8 (34.7) (37.6) CFPS (W) (1,671.4 (1,560.9 (359.99 (755.03 69) 17) 7) 0) DPS (W) 600 936 1,200 1,201 Source: Company, Daiwa forecasts
Valuation ? We have lowered our DCF/PER-based six-month target price to W17,000, from W19,000. This is after revising down our FY10 and FY11 earnings forecasts, as a result of factoring in: 1) an increase in payment and delivery rescheduling in FY10, and 2) a 6.4% upward adjustment to our FY10 steel-plate price assumption, to W1.12m/tonne from W1.05m/tonne. ? Valuation looks stretched. The stock is trading currently at a PBR of 1.4x, based on our FY10 BVPS forecast, compared with a PBR of 0.7x during the previous cyclical downturn in 1997.
Price and relative performance (W) 67,300 52,600 37,900 23,200 8,500 07/2 Rel to KOSPI
07/8
08/2
08/8
09/2
09/8
200 150 100 50 0 10/2
Catalysts and action ? A trading opportunity may emerge over the next six months, but we recommend selling into strength. We expect DSME’s M&A premium to emerge over the next six months, as the Korea Development Bank said it would privatise the company by the end of 3Q FY10. However, we recommend using this opportunity to sell into strength, given our view of weaker fundamentals and a continuous cyclical downturn in the global shipbuilding industry. DSME: 4Q FY09 earnings review (Wbn) 4Q FY09P 3,176 200 6.3 83 2.6 4Q FY09Daiwa 3,861 231 6.0 (45) (1.2) 4Q FY09Bloomberg 3,120 183 5.9 145 4.6 Diff (%) (17.7) (13.2) n.m. 4Q FY 08 3,668 567 15.5 293 8.0 YoY (%) (13.4) (64.7) (71.7) 3Q FY09 3,097 159 5.1 191 6.2 QoQ (%) 2.6 26.3 (56.7)
Source: Bloomberg, Daiwa
Forecasts revisions (%) Revenue change Net profit change EPS change Source: Daiwa forecasts FY09E (5.2) 28.2 28.2 FY10E (18.6) (11.4) (11.4) FY11E (18.6) (11.4) (11.4)
Fair value Valuation (W/shr) Methodology Key assumption Source: Daiwa forecasts 17,000 DCF/PER valuation WACC of 13.12%
Revenue Operating profit OP margin (%) Net profit NP margin (%)
Source: Company, Bloomberg-consensus forecasts, Daiwa Note: P - provisional
Asia Pacific Daily
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9 February 2010
Company background Established in 1978, DSME is the third-largest shipyard in the world, with an annual capacity of 2.4m CGT. It was a shipbuilding division of Daewoo Heavy Industries, but following the bankruptcy of Daewoo group in 2001, Daewoo Heavy Industries was split into DSME and Daewoo Heavy Industries & Machinery (now known as Doosan Infracore).
Daewoo Shipbuilding & Marine Engineering – financial summary Profit and loss (Wbn) Year to 31 Dec Domestic Export Other revenue Total revenue Other income COGS SG&A Other op. expenses EBIT Net-interest inc./(exp.) Assoc/forex/extraord./others Pre-tax profit Tax Min. int./pref. div./others Net profit (reported) Net profit (adj.) EPS (reported) (W) EPS (adj.) (W) DPS (W) EBIT (adj.) EBITDA (adj.) 2007 2008 2009E 111 172 194 6,994 10,902 12,249 0 0 0 7,105 11,075 12,443 0 0 0 (11,337 ) (6,534) (9,750) (59) (68) (62) (206) (226) (360) 307 1,032 684 84 148 28 53 (599) 56 443 580 768 (122) (178) (191) 0 0 0 321 402 577 321 402 577 1,678 2,099 3,017 1,678 2,099 3,017 600 936 319 307 1,032 684 329 1,051 687 2010E 2011E 201 151 12,689 9,525 0 0 12,889 9,675 0 0 (11,793 ) (9,024) (67) (72) (463) (292) 566 287 9 5 (72) 22 503 314 (126) (79) 0 0 377 235 377 235 1,971 1,230 1,971 1,230 1,200 1,201 566 287 569 290
Balance sheet (Wbn) As at 31 Dec 2007 2008 2009E 2010E 2011E Cash & short-term investment 2,279 1,021 1,287 1,299 1,012 Inventory 989 1,646 1,598 1,499 1,022 Accounts receivable 1,520 3,512 2,821 2,922 2,194 Other current assets 687 3,204 1,997 1,907 1,821 Total current assets 5,475 9,382 7,703 7,626 6,048 Fixed assets 2,246 2,638 2,902 3,193 3,512 Goodwill & intangibles 17 8 18 28 38 Other non-current assets 545 3,925 4,513 4,739 4,977 Total assets 8,282 15,954 15,136 15,586 14,575 Short-term debt 59 80 6 (60) (138) Accounts payable 1,106 947 1,693 2,016 1,624 Other current liabilities 4,571 8,840 7,931 5,877 6,180 Total current liabilities 5,736 9,867 9,630 7,833 7,666 Long-term debt 157 139 755 860 864 Other non-current liabilities 624 3,880 2,723 4,336 3,988 Total liabilities 6,517 13,886 13,108 13,029 12,518 Share capital 962 962 962 962 962 Reserves/R.E./others 803 1,106 1,066 1,595 1,095 Shareholders' equity 1,765 2,068 2,028 2,557 2,057 Minority interests 0 0 0 0 0 Total equity & liabilities 8,282 15,954 15,136 15,586 14,575 Net debt/(cash) (2,063) (801) (525) (499) (286)
Cash flow (Wbn) Year to 31 Dec 2007 2008 2009E 2010E 2011E Profit before tax 443 580 768 503 314 Depreciation and amortisation 143 145 33 35 37 Tax paid (122) (178) (191) (126) (79) Change in working capital 1,351 621 457 (1,772) 1,398 Other operational CF items 36 (1,488) (1,366) 1,292 (1,815) Cash flow from operations 1,851 (320) (299) (69) (145) Capex (400) (450) (480) (400) (360) Net (acquisitions)/disposal (665) (2,555) (636) (275) (288) Other investing CF items (110) 3,029 758 76 52 Cash flow from investing (1,175) 24 (358) (599) (596) Change in debt (38) (18) 538 26 (74) Net share issues/(repurchases) 0 0 0 0 0 Dividends paid (80) (95) (115) (115) (1,072) Other financing CF items 212 3,288 462 728 1,558 Cash flow from financing 93 3,176 885 640 412 Forex effect/others 0 0 0 0 0 Change in cash 769 2,881 229 (27) (328)
Key ratios Year to 31 Dec Sales – YoY % EBITDA (adj.) – YoY % Net profit (adj.) – YoY % EPS (adj.) – YoY % EBITDA margin % (adj.) EBIT margin % (adj.) Net-profit margin % (adj.) ROAE (%) ROAA (%) ROCE (%) ROIC (%) Net debt to equity (%) Effective tax rate (%) Accounts receivable (days) Payables (days) Net interest cover (x) Net dividend payout (%) 2007 31.6 n.a. 446.9 446.9 4.6 4.3 4.5 19.1 4.5 16.0 65.1 net cash 27.5 72.0 45.0 n.a. 19.0 2008 55.9 219.8 25.1 25.1 9.5 9.3 3.6 21.0 3.3 48.3 147.5 net cash 30.7 82.9 33.8 n.a. 28.6 2009E 12.4 (34.7) 43.8 43.8 5.5 5.5 4.6 28.2 3.7 27.0 37.2 net cash 24.8 92.9 38.7 n.a. 31.0 2010E 3.6 (17.2) (34.7) (34.7) 4.4 4.4 2.9 16.5 2.5 18.4 23.8 net cash 25.0 81.3 52.5 n.a. 60.9 2011E (24.9) (49.0) (37.6) (37.6) 3.0 3.0 2.4 10.2 1.6 9.4 11.2 net cash 25.0 96.5 68.7 n.a. 97.6
Key assumptions Year to 31 Dec New order growth (YoY%) Change in newbuilding price index (%) 2007 2008 2009E 2010E 2011E 77.0% (40.5%) (69.0%) 70.0% 25.0% 9.5 (3.8) (22.0) (20.3) 4.5
PER bands (W) 2,000,155 1,500,155 1,000,155 500,155 155 Jan-06 Dec-06 Dec-07 Dec-08 Dec-09 726.1x 545.6x 365.2x 184.7x 4.2x
Source: Company, Daiwa forecasts
Asia Pacific Daily
16

9 February 2010
8 February 2010 (No. of pages: 13)
Doosan Infracore (042670 KS) Capital goods: Korea
6-mth rating: 1
→2
Target price: W21,000 → W20,000 (-4.8%) Share price: W17,900 (5 Feb)
Mike Oh (82) 2 787 9179 mike.oh@kr.daiwacm.com
Earnings improvement expected to start from FY10 Target price lowered, rating downgraded We have downgraded our rating to 2 (Outperform) from 1 (Buy) as we believe Doosan Infracore (DI) has yet to find a strong share-price driver for FY10. We think strong China excavator sales are factored in to the current share price. We have lowered our six-month target to W20,000, from W21,000, based on a five-year (2005-09) average PBR of 2.8x. Loss expected for 4Q FY09 We expect DI to record a net loss for 4Q FY09, but forecast a strong operating-profit margin of 10.6% due to the pre-booking of one-off factors in 3Q FY09. Some macro factors are helping the company We think rising raw-material prices are positive for the construction-machinery makers, because such price rises reflect lively industrial activity. Some governments’ continuing commitment to stimulate their economies is likely to buoy DI sales, we believe. A potential appreciation in the Renminbi could boost earnings from the China subsidiaries, in our view. Earnings turnaround now expected from FY10 We have revised up our operating-profit forecasts for FY10 and FY11 by 29% and 20%, respectively. We now expect DI’s net profit to turn positive from FY10, not FY11, on the back of a decline in the equity-method loss and the absence of forexderivative contracts losses. Income summary Year to 31 Dec 2007 2008 2009E 2010E 2011E Source: Company, Daiwa forecasts
Reuters code
042670.KS 1,567.12 (US$bn) 2.57 (US$bn; 09E) 4.34 (US$m) 39.68 (m) 168 (%) 42.1 Doosan Heavy (38.9%) W/US$ 1,169 1M 4.4 12.6 3M 7.5 6.5 6M 6.2 5.7
Market data KOSPI Market cap EV 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate Performance (%)* Absolute Relative Source: Daiwa Note: *Relative to KOSPI
Investment indicators PER PCFR EV/EBITDA PBR Dividend yield ROE ROA Net debt equity Source: Daiwa forecasts
(x) (x) (x) (x) (%) (%) (%) (%)
2009E n.a. n.a. 18.1 2.6 0.6 n.a. n.a. 180.1
2010E 60.3 11.5 18.4 2.6 0.6 4.3 1.1 161.3
2011E 17.6 15.1 15.2 2.3 0.6 13.6 3.6 129.2
Price and relative performance (W) 46,300 36,575 26,850 17,125 7,400 07/2 Rel to KOSPI
07/8
08/2
08/8
09/2
09/8
200 163 125 88 50 10/2
Source: Bloomberg, Daiwa
Revenue (Wbn) (%) 3,720 13.3 3,963 6.5 2,653 (33.1) 2,805 5.7 2,969 5.8
EBITDA (Wbn) (%) 379 21.2 (20) n.a. 281 n.a. 268 (4.9) 312 16.7
Net profit (Wbn) (%) 180 32.8 (122) n.a. (338) n.a. 50 n.a. 171 242.2
EPS (W) 1,072 (724) (2,010) 297 1,016 (%) 32.8 n.a. n.a. n.a. 242.2
CFPS (W) 1,379 1,215 (2,377) 1,556 1,188
DPS (W) 350 150 100 100 100
This is an excerpt from our report issued yesterday. Please contact us for further details. Asia Pacific Daily
17

9 February 2010
Company background DI is Korea’s leading manufacturer of construction machinery, with shares of 49% in the domestic-excavator, 32% in the machinetools, and 50.9% in the forklift markets for 2008. Construction-machinery sales accounted for 60.7% of the company’s total 1H FY09 sales, and machine tools and engines for the remaining 39.3%. The company is competing for the top market share in the China excavator market, which accounts for 30% of its consolidated operating profit.
Doosan Infracore – financial summary Profit and loss (Wbn) Year to 31 Dec Construction equipment Industrial vehicles Other revenue Total revenue Other income COGS SG&A Other op. expenses EBIT Net-interest inc./(exp.) Assoc/forex/extraord./others Pre-tax profit Tax Min. int./pref. div./others Net profit (reported) Net profit (adj.) EPS (reported) (W) EPS (adj.) (W) DPS (W) EBIT (adj.) EBITDA (adj.) 2007 2008 2009E 2010E 2011E 1,372 1,419 1,161 1,209 1,325 501 461 355 356 371 1,847 2,084 1,137 1,241 1,272 3,720 3,963 2,653 2,805 2,969 0 0 0 0 0 (2,843) (3,011) (1,975) (2,117) (2,217) (555) (605) (458) (467) (489) 0 0 0 0 0 321 347 220 222 263 (24) (64) (104) (132) (138) (11) (368) (435) (50) 111 286 (85) (318) 40 236 (106) (37) (20) 10 (65) 0 0 0 0 0 180 (122) (338) 50 171 180 (122) (338) 50 171 1,072 (724) (2,010) 297 1,016 1,072 (724) (2,010) 297 1,016 150 100 100 100 350 (79) 220 222 263 321 (20) 281 268 312 379
Balance sheet (Wbn) As at 31 Dec Cash & short-term investment Inventory Accounts receivable Other current assets Total current assets Fixed assets Goodwill & intangibles Other non-current assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Other non-current liabilities Total liabilities Share capital Reserves/R.E./others Shareholders' equity Minority interests Total equity & liabilities Net debt/(cash) 2007 11 408 676 193 1,288 736 72 1,111 3,207 129 440 550 1,120 876 103 2,098 841 269 1,109 0 3,207 994 2008 25 529 490 952 1,996 1,235 70 1,625 4,926 518 268 1,261 2,046 1,013 321 3,380 841 705 1,546 0 4,926 1,506 2009E 184 363 363 568 1,478 1,077 107 1,993 4,655 650 167 749 1,566 1,600 342 3,508 841 306 1,147 0 4,655 2,066 2010E 297 384 384 601 1,666 1,070 112 1,845 4,693 500 154 792 1,445 1,700 367 3,512 841 339 1,180 0 4,693 1,903 2011E 426 407 407 636 1,875 1,081 118 1,810 4,884 500 163 838 1,500 1,650 399 3,549 841 493 1,335 0 4,884 1,724
Cash flow (Wbn) Year to 31 Dec Profit before tax Depreciation and amortisation Tax paid Change in working capital Other operational CF items Cash flow from operations Capex Net (acquisitions)/disposal Other investing CF items Cash flow from investing Change in debt Net share issues/(repurchases) Dividends paid Other financing CF items Cash flow from financing Forex effect/others Change in cash 2007 286 57 (106) 5 (11) 232 (66) (654) (84) (805) 608 (1) (59) (9) 540 0 (33) 2008 2009E 2010E 2011E (85) (318) 40 236 59 61 46 50 (37) (20) 10 (65) (156) 79 (45) (25) 423 (201) 211 4 204 (400) 262 200 (173) (66) (77) (78) (238) (70) 2 2 (91) 0 0 0 (501) (136) (75) (76) 526 719 (50) (50) 1 202 0 0 (59) (25) (17) (17) (157) 0 0 0 310 896 (67) (67) 0 0 0 0 13 360 120 57
Key ratios Year to 31 Dec Sales – YoY % EBITDA (adj.) – YoY % Net profit (adj.) – YoY % EPS (adj.) – YoY % EBITDA margin % (adj.) EBIT margin % (adj.) Net-profit margin % (adj.) ROAE (%) ROAA (%) ROCE (%) ROIC (%) Net debt to equity (%) Effective tax rate (%) Accounts receivable (days) Payables (days) Net interest cover (x) Net dividend payout (%) 2007 13.3 21.2 32.8 32.8 10.2 8.6 4.8 16.6 6.4 18.0 11.5 89.6 36.9 62.1 42.3 13.2 32.6 2008 6.5 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 13.5 97.4 n.a. 53.7 32.6 n.a. n.a. 2009E (33.1) n.a. n.a. n.a. 10.6 8.3 n.a. n.a. n.a. 6.8 7.0 180.1 n.a. 58.7 29.9 2.1 n.a. 2010E 5.7 (4.9) n.a. n.a. 9.5 7.9 1.8 4.3 1.1 6.6 7.1 161.3 n.a. 48.6 20.9 1.7 33.7 2011E 5.8 16.7 242.2 242.2 10.5 8.8 5.8 13.6 3.6 7.7 6.2 129.2 27.5 48.6 19.4 1.9 9.8
Key assumptions Year to 31 Dec Construction machinery demand growth (YoY%) 2007 5.0% 2008 2009E 2010E 2011E 5.0% 2.2% 7.7% 7.1%
PER bands (W) 47,083 37,083 27,083 17,083 7,083 Jan-06 Dec-06 Dec-07 Dec-08 Dec-09 45.5x 37.9x 30.3x 22.7x 15.1x
Source: Company, Daiwa forecasts
Asia Pacific Daily
18

9 February 2010
Webzen (069080 KS) Clearing the deck for the turn Software: Korea Thomas Y. Kwon (82) 2 787 9181 (yskwon@kr.daiwacm.com) Price (8 Feb) Reuters code ADR/GDR code Shares per ADR/GDR
Rating: 2
Target price: W15,000 → W14,500 (-3.3%)
W11,800 069080.KS n.a. n.a.
What has changed? ? Webzen recorded weaker-than-expected 4Q earnings due to surging operating expenses related to amortization and the headquarters move. Webzen projects a strong earnings turnaround in 1Q FY10 and 2010, with new game publishing.
Market data KOSPI Market cap EV 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate 1,552.79 (US$m) 130.91 (US$m; 09E) 100.94 (US$m) 2.56 (m) 13 (%) 76.3 NHN (34.5%) W/US$ 1,169 1M 8.3 18.2 3M (7.5) (6.3) 6M (14.8) (13.5)
Impact ? Revenue in 4Q of W7.5bn was in line with our projection of W7.4bn, but operating profit was substantially lower than our forecast due to one-off costs related to amortization, commissions, and bonus payments. Its new game, MU Blue, has demonstrated solid growth since its release in November 2009. Overseas revenue accounted for 44.9% of total revenue in 2009. ? Meanwhile, management expects strong game sales from Huxley and the global direct game service (GDS) of MU and SUN. We believe the company would commence the commercial service of Huxley in Korea in 2Q10. This game would help Webzen to diversify its revenue mix and drive solid earnings growth, in our view. Webzen plans to add two-to-three new games to its service lineup in 2H10 to create service synergies with NHN Games (unlisted). ? We forecast Webzen to record operating profit of W1.0bn for 1Q10, on the back of solid game sales for its flagship titles and the absence of one-off costs. As the company has become a slimmer game-development studio, we expect strong operating leverage, coupled with the commercial launch of Huxley and service-region expansion globally.
Performance (%)* Absolute Relative Source: Daiwa Note: *Relative to KOSPI
Investment indicators 2009E 2010E 2011E PER (x) n.m. 14.5 11.7 PCFR (x) 33.1 8.3 7.9 EV/EBITDA (x) n.m. 10.0 7.3 PBR (x) 1.3 1.2 1.1 Dividend yield (%) 0.0 0.0 0.0 ROE (%) 0.3 8.5 9.6 ROA (%) 0.2 7.7 8.6 Net debt equity (%) net cash net cash net cash Relative to peers Below Relative to history In line Source: Daiwa forecasts
Income summary (Wbn) Yr to 31 Dec 2008 2009E 2010E Revenue 28 28 36 YoY (%) 0.9 (2.4) 30.8 EBITDA (4) 0 11 YoY (%) n.a. n.a. n.m. Net profit (14) 0 11 YoY (%) n.a. n.a. n.m. EPS (W) (1,100) 25 814 YoY (%) n.a. n.a. n.m. CFPS (W) (1,006) 357 1,426 DPS (W) 0.000 0.000 0.000 Source: Company, Daiwa forecasts 2011E 41 13.7 14 25.1 13 23.7 1,007 23.7 1,492 0.000
Valuation ? The stock trades at PER of 14.5x our FY10 EPS forecast. We believe this valuation multiple is justified, given our expectation of a strong earnings turnaround, a potential merger with NHN Games, and diversification in the revenue mix and profitability improvement. We have slightly lowered our sixmonth target price to W14,500 from W15,000.
Price and relative performance (W) 21,000 16,675 12,350 8,025 3,700 07/2 Rel to KOSPI
07/8
08/2
08/8
09/2
09/8
200 150 100 50 0 10/2
Catalysts and action ? We maintain our 2 (Outperform) rating of Webzen, as we believe the stock will outperform the market due to our expectation of a quarterly earnings turnaround in 1Q10 and the commercial launch of the Huxley game in 2Q10. Webzen: quarterly-earnings trend (Wbn) Total revenue Growth (YoY %) Growth (QoQ %) Mu and Mu Blue SUN Huxley and others Operating profit Change (YoY %) Change (QoQ %) Margin (%) Source: Company,
Source: Bloomberg, Daiwa
Forecasts revisions (%) Revenue change Net profit change EPS change Source: Daiwa forecasts FY09E FY10E FY11E 0.3 (6.2) (4.3) (94.1) (12.6) (6.5) (94.1) (12.6) (6.5)
Fair value Valuation (W/shr) Methodology Key assumption Source: Daiwa forecasts 13,219 DCF and peer comparision WACC of 12.1% and terminal growth rate of 3.0%
3Q08 6.9 (9.0) (5.1) 4.3 2.5 0.1 (0.6) n.m. n.m. (8.8) Note: P - provisional
4Q08 7.2 3.5 4.8 4.6 2.6 0.0 1.3 T.B. T.B. 18.7
1Q09 7.4 3.9 2.9 4.7 2.7 0.0 1.9 T.B. 41.2 25.7
2Q09 6.2 (14.8) (16.8) 3.8 2.3 0.0 0.1 T.B. (96.4) 1.1
3Q09 6.7 (2.4) 8.8 3.6 2.3 0.8 0.4 T.B. 415.7 5.3
4Q09P 4Q09E 7.5 7.4 3.9 2.8 11.6 10.4 4.5 4.3 2.7 2.4 0.2 0.7 (3.9) 0.5 n.m. (66.6) n.m. T.B. (52.6) 6.1
Asia Pacific Daily
19

9 February 2010
Company background Webzen offers two games (MU and SUN) and plans to launch the Huxley game in 2H09 in Korea and China. NHN Games is the major shareholder, after acquiring a 23.74% stake in Webzen in October 2008.
Webzen – financial summary Profit and loss (Wbn) Year to 31 Dec MU game SUN game Other revenue Total revenue Other income COGS SG&A Other op. expenses EBIT Net-interest inc./(exp.) Assoc/forex/extraord./others Pre-tax profit Tax Min. int./pref. div./others Net profit (reported) Net profit (adj.) EPS (reported) (W) EPS (adj.) (W) DPS (W) EBIT (adj.) EBITDA (adj.) 2007 2008 2009E 2010E 2011E 20 18 17 20 17 8 10 10 13 21 0 0 2 3 4 28 28 28 36 41 0 0 0 0 0 (15) (12) (12) (14) (15) (28) (24) (17) (13) (15) 0 0 0 0 0 (14) (7) (2) 9 12 4 3 3 4 4 3 (10) 1 0 0 (7) (13) 1 13 16 (3) (1) (1) (2) (3) 0 0 0 0 0 (10) (14) 0 11 13 (10) (14) 0 11 13 (735) (1,100) 24.690 814 1,007 (735) (1,100) 24.690 814 1,007 0.000 0.000 0.000 0.000 0.000 (14) (7) (2) 9 12 (10) (4) 0 11 14
Balance sheet (Wbn) As at 31 Dec Cash & short-term investment Inventory Accounts receivable Other current assets Total current assets Fixed assets Goodwill & intangibles Other non-current assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Other non-current liabilities Total liabilities Share capital Reserves/R.E./others Shareholders' equity Minority interests Total equity & liabilities Net debt/(cash) 2007 65 0 7 11 83 6 11 57 158 0 0 10 10 0 8 17 6 135 141 0 158 (65) 2008 40 0 8 28 76 5 5 44 131 0 0 6 6 0 6 12 6 113 119 0 131 (40) 2009E 35 0 6 35 76 6 4 45 132 0 0 8 8 0 4 13 6 113 119 0 132 (35) 2010E 44 0 12 32 87 7 4 47 144 0 0 10 10 0 4 14 6 123 130 0 144 (44) 2011E 53 0 9 38 100 7 3 48 159 0 0 12 12 0 4 16 6 136 143 0 159 (53)
Cash flow (Wbn) Year to 31 Dec Profit before tax Depreciation and amortisation Tax paid Change in working capital Other operational CF items Cash flow from operations Capex Net (acquisitions)/disposal Other investing CF items Cash flow from investing Change in debt Net share issues/(repurchases) Dividends paid Other financing CF items Cash flow from financing Forex effect/others Change in cash 2007 (7) 4 (3) (2) (14) (20) (1) (7) 10 3 0 1 0 4 5 0 (13) 2008 2009E 2010E 2011E (13) 1 13 16 3 2 2 2 (1) (1) (2) (3) 0 1 (6) 2 (2) 1 12 2 (13) 5 18 19 (1) (2) (2) (2) 9 (2) (2) (2) (14) (7) (7) (7) (6) (11) (11) (11) 4 0 0 0 0 0 0 0 0 0 0 0 (11) 0 0 0 (8) 0 0 0 0 0 0 0 (27) (6) 8 9
Key ratios Year to 31 Dec Sales – YoY % EBITDA (adj.) – YoY % Net profit (adj.) – YoY % EPS (adj.) – YoY % EBITDA margin % (adj.) EBIT margin % (adj.) Net-profit margin % (adj.) ROAE (%) ROAA (%) ROCE (%) ROIC (%) Net debt to equity (%) Effective tax rate (%) Accounts receivable (days) Payables (days) Net interest cover (x) Net dividend payout (%) 2007 28.5 n.a. n.a. n.a. (35.0) (49.6) (33.8) n.a. n.a. (9.6) (18.5) net cash n.a. 76.5 0.0 n.a. n.a. 2008 0.9 n.a. n.a. n.a. (13.6) (24.7) (50.1) n.a. n.a. (5.4) (9.1) net cash n.a. 95.5 0.0 n.a. n.a. 2009E (2.4) n.a. n.a. n.a. 0.5 (5.8) 1.2 0.3 0.2 (1.4) (0.5) net cash 77.0 94.0 0.0 n.a. 0.0 2010E 30.8 n.m. n.m. n.m. 30.2 24.9 29.1 8.5 7.7 7.3 8.7 net cash 18.0 89.7 0.0 n.a. 0.0 2011E 13.7 25.1 23.7 23.7 33.3 28.1 31.6 9.6 8.6 8.5 10.8 net cash 18.0 91.3 0.0 n.a. 0.0
Key assumptions Year to 31 Dec PC café market share (%) Number of servicing games Overseas revenue portion (%) 2007 2008 2009E 2010E 2011E 1.6% 1.2% 1.0% 1.0% 1.0% 2 2 3 5 6 30.3% 40.0% 44.9% 44.9% 44.9%
Source: Company, Daiwa forecasts
Asia Pacific Daily
20

9 February 2010
Taiwan Economy Surging exports may be a harbinger of broad-based economic acceleration Economy: Taiwan Prasenjit K. Basu (65) 6321 3069 (p-k.basu@sg.daiwacm.com)
Summary ? Exports surged 76% YoY in January, aided by calendar effects, but imports expanded even faster (115% YoY). We expect real GDP to rise 6.2% in 2010 and the current account surplus to shrink to 8.4% of GDP (from 11% in 2009).
Fundamentals ? Taiwan’s exports soared 75.8% YoY in January 2010, aided by a calendar effect that lengthened the working month by three days (or 17.6% YoY) – as the four-day Chinese New Year holiday was in January last year (but will be in February this year) while January 2009 had five Sundays (versus four in January 2010). Adjusting for the calendar effect, exports still expanded well over 50% YoY in January, reflecting the strength of demand from the rest of Asia: exports to mainland China surged 157% YoY, to ASEAN 95% YoY, Korea 80% YoY, and Japan 31% YoY. Exports to the Netherlands, Germany and the UK all rose more than 40% YoY, while those to the US rose 14% YoY. ? Importantly, imports expanded faster than exports for the second consecutive month – rising 114.7% YoY in January – reflecting evidence of a turnaround in domestic demand as well. The trade surplus for December 2009-January 2010 fell about 10% YoY, which we interpret as an indicator of rebounding domestic demand. Export orders have continued accelerating in recent months, suggesting to us that exports will continue to expand more than 20% YoY in 1H10. With domestic demand also likely to stay robust, we revised our forecast for Taiwan’s real GDP growth in 2010 to 6.2% last month – and these trade figures affirm our conviction about the likely strength of the rebound in Taiwan’s economy this year. The likely conclusion of an Economic cooperation framework agreement (ECFA) between Taiwan and China, in particular, should provide a fillip to investment spending in Taiwan (as lower import tariffs in China, from the current average 9% level, will lower the cost of exporting capital goods from Taiwan to China, likely boosting capex in the former). ? CPI inflation was a modest 0.29% YoY in January 2010, marking the end of 11 months of deflation in the CPI. Wholesale price inflation remains much more severe (6.7% YoY) but policy should continue to be driven more by CPI. Consequently, we expect policy rate increases to resume only in 2H10. Imports outpace robust exports; surplus ebbs Trade surplus shrinks from record, as imports surge more than exports 70 35,000 50 30,000 30 25,000 10 20,000 (10) 15,000 (30) 10,000 (50) 5,000 (70) 0 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Trade balance (US$m): 12month rolling sum (LHS) Total exports (US$): % YoY: 3mma (RHS) Total imports (US$): % YoY: 3mma (RHS) Source: Company, Daiwa forecasts
Inflation barely positive, so rates may stay stable Rates to remain stable, as CPI inflation is barely positive 12 9 6 3 0 (3) (6) (9) (12) (15) Jan-94
Jan-98 Rediscount rate (%)
Jan-02
Jan-06
Jan-10 WPI: % YoY
CPI: % YoY
Source: Company, Daiwa forecasts
Asia Pacific Daily
21

9 February 2010
Silitech Technology (3311 TT) 1Q10 sales should be ahead of traditional seasonality Capital goods: Taiwan Andrew Chang (886) 2 8789 5341 (andrew.chang@daiwacm-cathay.com.tw) Price (5 Feb) Reuters code ADR/GDR code Shares per ADR/GDR
Rating: 2
Target price: NT$123.00 → NT$128.00 (+4.1%)
NT$104.00 3311.TW n.a. n.a.
What has changed? ? Silitech recorded January consolidated sales of NT$913m, up 5% MoM. After a disappointing 4Q09 of only flat QoQ sales, we forecast 1Q10 sales to decline by 12% QoQ, ahead of traditional seasonality of a 15%+ QoQ decline.
Market data TWSE Index Market cap EV 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate 7,217.83 (US$m) 570.50 (US$m; 09E) 508.95 (US$m) 5.19 (m) 176 (%) 53.6 Lite-On Technology (46.4%) NT$/US$ 32.066 3M 0.0 2.8 6M 41.4 34.1
Impact ? We forecast 4Q09 EPS of NT$2.43. We look for the 4Q09 sales disappointment to be due mainly to Nokia’s earlier inventory adjustments in November and December. We forecast the gross-profit margin to fall by 0.3 of a percentage point to 24% for 4Q09. ? We forecast sales to decline by 12% QoQ for 1Q10. With better-thanexpected consolidated sales for January, we expect Silitech to record less of a seasonal sales decline than Largan (down 14% QoQ) and Merry (near a 15% QoQ decline). Apparently, handset OEM customers are seeing stronger sellthrough at their retail ends, and the supply chain has turned more bullish on the sell-through and started to increase its handset keypad orders. ? Growth drivers of keypad market-share gains and hybrid keypad growth remain intact. We forecast Silitech to expand its global handset market share further to 25% for 2010 from 21% for 2009. Also, we estimate shipments of hybrid keypads (touchscreens plus Qwerty keypads) to rise further to 20-25% of Silitech’s overall keypad shipments in 2010, led by strong growth of smartphone shipments in 2010. Automotive stereo housing monthly sales have also recovered to over NT$70m per month since 4Q09.
Performance (%)* 1M Absolute (11.5) Relative 0.7 Source: Daiwa Note: *Relative to TWSE Index
Investment indicators 2009E 2010E 2011E PER (x) 13.9 11.3 10.5 PCFR (x) 10.3 9.6 7.6 EV/EBITDA (x) 8.8 6.7 5.8 PBR (x) 3.4 2.9 2.5 Dividend yield (%) 2.6 3.5 3.8 ROE (%) 26.9 27.3 25.3 ROA (%) 13.4 14.6 14.1 Net debt equity (%) net cash net cash net cash Relative to peers In line Relative to history In line Source: Daiwa forecasts
Income summary (NT$m) Yr to 31 Dec 2008 2009E 2010E 2011E Revenue 9,106 10,819 12,750 14,353 YoY (%) 2.2 18.8 17.8 12.6 EBITDA 1,349 1,852 2,354 2,587 YoY (%) (23.1) 37.3 27.1 9.9 Net profit 1,115 1,321 1,612 1,741 YoY (%) (13.5) 18.4 22.1 8.0 EPS (NT$) 6.506 7.508 9.164 9.899 YoY (%) (24.0) 15.4 22.1 8.0 CFPS (NT$) 8.981 10.101 10.783 13.678 DPS (NT$) 2.280 2.702 3.665 3.960 Source: Company, Daiwa forecasts
Valuation ? We maintain our 2 (Outperform) rating, but have raised our six-month target price slightly to NT$128 from NT$123, based on a higher target PER of 14x, from 13.5x previously. We have raised our target PER due to: 1) the steady margin trend supported by rising shipments of higher-ASP hybrid keypads, and 2) market-share gains through further project wins from Nokia and Samsung Electronics.
Price and relative performance (NT$) 200.0 150.0 100.0 50.0 0.0 07/2 Rel to TWSE Index
07/8
08/2
08/8
09/2
09/8
125 106 88 69 50 10/2
Catalysts and action ? We have fine-tuned our FY09 and FY10 net-profit forecasts to NT$1.3bn and NT$1.6bn, respectively. We expect a better seasonal outlook in 1Q10 and a continuing increase in higher ASP hybrid keypads in smartphones to lead to an improvement in the ROE during 2010. Silitech: earnings-forecasts revisions (NT$m) Revenue Gross profit Operating profit Pre-tax income Net income EPS, ex-dividend (NT$) Gross margin (%) Operating margin (%) Net margin (%) 4Q09E 4Q09 Diff 1Q10E 1Q10E New Old New E Old (%) 3,103 3,290 (5.7) 2,737 2,598 745 797 (6.5) 616 548 507 549 (7.7) 385 284 530 572 (7.3) 391 298 427 462 (7.5) 315 242 2.43 2.63 1.79 1.38 24.0 16.3 13.8 24.2 16.7 14.0 22.5 14.1 11.5 21.1 10.9 9.3 Diff (%) 5.4 12.4 35.7 31.3 30.2 2009E New 10,819 2,466 1,532 1,669 1,320 7.51 22.8 14.2 12.2 2009E Old 11,008 2,517 1,574 1,711 1,354 7.70 22.9 14.3 12.3 Diff (%) (1.7) (2.0) (2.7) (2.5) (2.5) 2010E 2010E New Old 12,750 12,628 2,951 2,939 1,925 1,910 1,997 1,982 1,612 1,599 9.16 9.09 23.1 15.1 12.6 23.3 15.1 12.7 Diff (%) 1.0 0.4 0.8 0.8 0.8
Source: Bloomberg, Daiwa
Forecasts revisions (%) Revenue change Net profit change EPS change Source: Daiwa forecasts FY09E FY10E FY11E (1.7) 1.0 0.0 (2.5) 0.8 (0.5) (2.5) 0.8 (0.5)
Fair value Valuation (NT$/shr) Methodology Key assumption Source: Daiwa forecasts 128.00 PER 14x 2010E EPS
Source: Daiwa forecasts
Asia Pacific Daily
22

9 February 2010
Company background Silitech Technology had a more than 20% share of the global handset keypad market in 1H09. Nokia, Samsung Electronics and Motorola are its major customers for handset keypads. Lite-On Tech is Silitech’s largest shareholder, with a 46% stake. Through joint development with Lite-On Tech, Silitech plans to increase its exposure to the handset metal-casing business.
Silitech Technology – financial summary Profit and loss (NT$m) Year to 31 Dec Keypad Auto Parts Other revenue Total revenue Other income COGS SG&A Other op. expenses EBIT Net-interest inc./(exp.) Assoc/forex/extraord./others Pre-tax profit Tax Min. int./pref. div./others Net profit (reported) Net profit (adj.) EPS (reported) (NT$) EPS (adj.) (NT$) DPS (NT$) EBIT (adj.) EBITDA (adj.) 2007 7,306 1,268 332 8,906 0 (6,500) (568) (218) 1,620 (36) 30 1,614 (325) 0 1,289 1,289 8.554 8.554 3.480 1,620 1,755 2008 2009E 2010E 2011E 7,586 9,620 11,282 12,746 1,094 716 943 994 426 483 525 613 9,106 10,819 12,750 14,353 0 0 0 0 (11,141 ) (7,018) (8,353) (9,799) (671) (609) (617) (665) (329) (324) (408) (444) 1,089 1,533 1,925 2,103 (60) (47) (64) (74) 299 183 136 128 1,327 1,669 1,997 2,157 (220) (338) (380) (410) 8 (11) (6) (6) 1,115 1,321 1,612 1,741 1,115 1,321 1,612 1,741 6.506 7.508 9.164 9.899 6.506 7.508 9.164 9.899 2.280 2.702 3.665 3.960 1,089 1,533 1,925 2,103 1,349 1,852 2,354 2,587
Balance sheet (NT$m) As at 31 Dec 2007 2008 2009E 2010E 2011E Cash & short-term investment 3,020 2,584 2,797 3,364 4,229 Inventory 381 492 552 729 742 Accounts receivable 1,978 2,404 2,748 3,352 3,565 Other current assets 275 349 343 343 343 Total current assets 5,653 5,828 6,440 7,788 8,879 Fixed assets 2,990 3,471 3,660 3,766 3,911 Goodwill & intangibles 36 38 36 36 36 Other non-current assets 95 157 151 151 151 Total assets 8,774 9,494 10,287 11,741 12,977 Short-term debt 0 260 0 0 0 Accounts payable 1,647 1,834 1,989 2,298 2,472 Other current liabilities 1,396 1,932 1,781 1,908 2,035 Total current liabilities 3,043 4,025 3,770 4,206 4,507 Long-term debt 1,233 778 750 750 750 Other non-current liabilities 273 199 305 305 305 Total liabilities 4,549 5,003 4,825 5,261 5,562 Share capital 1,507 1,714 1,759 1,759 1,759 Reserves/R.E./others 2,642 2,704 3,630 4,648 5,583 Shareholders' equity 4,150 4,418 5,389 6,407 7,342 Minority interests 76 73 73 73 73 Total equity & liabilities 8,774 9,494 10,287 11,741 12,977 Net debt/(cash) (1,786) (1,546) (2,047) (2,614) (3,479)
Cash flow (NT$m) Year to 31 Dec 2007 2008 2009E 2010E 2011E Profit before tax 1,614 1,327 1,669 1,997 2,157 Depreciation and amortisation 429 484 581 631 592 Tax paid (325) (220) (338) (380) (410) Change in working capital 608 (350) (250) (471) (52) Other operational CF items 25 299 114 119 119 Cash flow from operations 2,350 1,539 1,777 1,897 2,406 Capex (1,394) (691) (580) (550) (550) Net (acquisitions)/disposal 34 26 (12) 0 0 Other investing CF items (184) (144) 0 0 0 Cash flow from investing (1,544) (810) (592) (550) (550) Change in debt 754 (80) (288) 0 0 Net share issues/(repurchases) 0 0 0 0 0 Dividends paid (582) (756) (568) (664) (876) Other financing CF items 58 (197) 0 0 0 Cash flow from financing 231 (1,033) (857) (664) (876) Forex effect/others (35) (132) 0 0 0 Change in cash 1,002 (436) 328 683 980
Key ratios Year to 31 Dec Sales – YoY % EBITDA (adj.) – YoY % Net profit (adj.) – YoY % EPS (adj.) – YoY % EBITDA margin % (adj.) EBIT margin % (adj.) Net-profit margin % (adj.) ROAE (%) ROAA (%) ROCE (%) ROIC (%) Net debt to equity (%) Effective tax rate (%) Accounts receivable (days) Payables (days) Net interest cover (x) Net dividend payout (%) 2007 23.3 28.2 22.8 9.9 19.7 18.2 14.5 34.4 16.7 34.2 58.2 net cash 20.1 80.7 58.2 45.0 40.7 2008 2.2 (23.1) (13.5) (24.0) 14.8 12.0 12.2 26.0 12.2 19.8 33.7 net cash 16.6 87.8 69.8 18.0 35.0 2009E 18.8 37.3 18.4 15.4 17.1 14.2 12.2 26.9 13.4 26.1 38.4 net cash 20.2 86.9 64.5 33.0 36.0 2010E 17.8 27.1 22.1 22.1 18.5 15.1 12.6 27.3 14.6 28.6 42.8 net cash 19.0 87.3 61.4 30.1 40.0 2011E 12.6 9.9 8.0 8.0 18.0 14.7 12.1 25.3 14.1 27.3 43.7 net cash 19.0 88.0 60.7 28.4 40.0
Chart: PER bands (NT$) 180 130 80 30 Jan-07 Source: Company, Daiwa forecasts
18.5x 15.2x 11.9x 8.5x 5.2x Dec-07 Dec-08 Dec-09
Asia Pacific Daily
23

9 February 2010
CapitaMalls Asia (CMA SP) CMA acquires new mall in Chengdu Construction & real estate: Singapore David Lum, CFA/Boon Aun Phua (65) 6329 2102 (david.lum@sg.daiwacm.com) Price (5 Feb) Reuters code ADR/GDR code Shares per ADR/GDR
Rating: 5
Target price: S$2.02 → S$2.03 (+0.7%)
S$2.25 CMAL.SI n.a. n.a.
What has changed? ? CapitaMalls Asia (CMA) announced on 4 February 2010, that it had entered into an agreement with Chengdu Vanke Property Co. Ltd to acquire Meili Mall in Chengdu, China, for Rmb520m (S$109.5m), including fitting-out work.
Market data FSSTI Market cap EV 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate 2,683.56 (US$bn) 6.14 (US$bn; 10E) 3.58 (US$m) 43.07 (m) 3,884 (%) 34.5 Capitaland (65.5%) S$/US$ 1.422 S$/US$ 1.422 3M 6M
Impact ? The mall will be 100%-owned by CMA and will add about 4.3% of gross rentable area (GRA) to its China mall portfolio. Meili Mall will have a total GRA of 58,350 square metres. ? We have only made negligible adjustments to our earnings forecasts to account for the lower acquisition for the period from 2013 onwards, when it is expected to open.
Performance (%)* 1M Absolute (10.0) Relative (2.1) Source: Daiwa Note: *Relative to FSSTI
Investment indicators 2010E PER (x) 28.6 PCFR (x) n.m. EV/EBITDA (x) 29.3 PBR (x) 1.5 Dividend yield (%) 0.4 ROE (%) 5.5 ROA (%) 4.6 Net debt equity (%) 2.0 Relative to peers Relative to history Source: Daiwa forecasts 2011E 28.8 n.m. 27.6 1.5 0.4 5.2 4.5 3.7 2012E 22.1 107.5 23.1 1.4 0.4 6.4 5.6 7.0 Above Above
Valuation ? We have raised our target price to S$2.03 from S$2.02, as the mall should add about S$55m to CMA’s NAV after it is completed in 2013, based on our current assumptions. ? We have assumed a rental rate of Rmb12.60/sq ft per month, an NPI margin of 60%, a vacancy rate of 80%, and annual rental growth of 5%.
Income summary (S$m) Yr to 31 Dec 2009 2010E 2011E Revenue 229 276 303 YoY (%) 11.6 20.4 9.8 EBITDA 38 174 188 YoY (%) (76.6) 361.8 8.1 Net profit 388 305 304 YoY (%) 235.8 (21.4) (0.4) EPS (S$) 0.100 0.079 0.078 YoY (%) 166.2 (21.4) (0.4) EPS (S$) 0.100 0.079 0.078 CFPS (S$) 0.026 0.006 0.005 DPS (S$) 0.000 0.010 0.010 DPS (S$) 0.000 0.010 0.010 Source: Company, Daiwa forecasts 2012E 386 27.4 234 24.1 396 30.2 0.102 30.2 0.102 0.021 0.010 0.010
Catalysts and action ? We maintain our 5 (Sell) rating because we believe CMA is still expensive in relation to our NAV-based valuation. Previous Previous S$m S$ per share 1,771 1,631 187 184 1,263 136 1,338 1,096 128 544 (431) 7,846 5,459 New New S$m S$ per share 0.47 0.42 0.05 0.05 0.33 0.03 0.35 0.28 0.03 0.14 (0.11) 2.03 1.41 Var Var Var % Var %
NAV summary China malls CapitaMall Trust (29.83%) CapitaRetail China Trust (26.98%) Other malls held in funds 50% of Orchard Turn ION Orchard (50% interest) The Orchard Residences (50% interest) Net profit from fee based revenue Investment properties directly held* Properties under development Cash Financial liabilities
0.46 1,823 0.42 1,631 0.05 187 0.05 184 0.33 1,263 0.03 136 0.34 1,340 0.28 1,096 0.03 128 0.14 544
52 2 54.7 -
0 0 0 -
2.96 0.17 0.70 -
2.96 0.17 0.70 -
Price and relative performance (S$) 4.00 3.50 3.00 2.50 2.00 07/2 Rel to FSSTI
07/8
08/2
08/8
09/2
09/8
140 128 115 103 90 10/2
Source: Bloomberg, Daiwa
Forecasts revisions (%) Revenue change Net profit change EPS change Source: Daiwa forecasts FY10E FY11E FY12E 0.0 0.0 0.0 0.0 (0.2) (0.1) 0.0 (0.2) (0.1)
Fair value Valuation (S$/shr) Methodology Key assumption Source: Daiwa forecasts 2.03 Sum of parts Sum of parts
(0.11) (431) 2.02 7,901 1.41 5,459
NAV Book value as at 31 December 2009
Source: Company, Daiwa estimates Note: * Excluding majority-held China malls, which we have included on the first line
Asia Pacific Daily
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9 February 2010
Company background Listed on 25 November 2009, CMA is an Asian shopping-mall owner, developer and manager. It has interests in 86 retail properties across 48 cities in Singapore, China, Malaysia, Japan and India, with a total property value of S$20.6bn and total gross floor area of 66.5m sq ft, as at 31 December 2009.
CapitaMalls Asia – financial summary Profit and loss (S$m) Year to 31 Dec Fee based income Property and related income Other revenue Total revenue Other income COGS SG&A Other op. expenses EBIT Net-interest inc./(exp.) Assoc/forex/extraord./others Pre-tax profit Tax Min. int./pref. div./others Net profit (reported) Net profit (adj.) EPS (reported) (S$) EPS (adj.) (S$) DPS (S$) EBIT (adj.) EBITDA (adj.) 2008 109 96 0 205 120 (81) (87) (1) 156 (158) 144 141 (23) (3) 116 116 0.038 0.038 0.019 156 161 2009 2010E 2011E 2012E 135 132 142 164 92 143 161 222 2 0 0 0 229 276 303 386 85 52 47 42 (100) (121) (133) (169) (70) (39) (36) (32) (112) 0 0 0 32 168 182 227 (111) (24) (24) (24) 490 244 229 298 410 388 387 501 (16) (78) (77) (100) (6) (6) (6) (6) 388 305 304 396 388 305 304 396 0.100 0.079 0.078 0.102 0.100 0.079 0.078 0.102 0.000 0.010 0.010 0.010 32 168 182 227 38 174 188 234
Balance sheet (S$m) As at 31 Dec Cash & short-term investment Inventory Accounts receivable Other current assets Total current assets Fixed assets Goodwill & intangibles Other non-current assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Other non-current liabilities Total liabilities Share capital Reserves/R.E./others Shareholders' equity Minority interests Total equity & liabilities Net debt/(cash) 2008 138 0 307 0 445 16 0 4,664 5,125 1,355 454 32 1,841 1,648 51 3,540 1,533 0 1,533 52 5,125 2,865 2009 544 0 436 0 980 15 0 5,501 6,496 72 378 49 499 431 54 984 5,459 0 5,459 53 6,496 (41) 2010E 456 0 412 0 868 130 0 5,670 6,668 72 281 0 353 500 30 883 5,726 0 5,726 59 6,668 116 2011E 348 0 453 0 800 229 0 5,859 6,889 72 231 0 303 500 30 833 5,991 0 5,991 65 6,889 224 2012E 125 0 577 0 702 223 0 6,398 7,323 72 303 0 375 500 30 905 6,348 0 6,348 70 7,323 447
Cash flow (S$m) Year to 31 Dec Profit before tax Depreciation and amortisation Tax paid Change in working capital Other operational CF items Cash flow from operations Capex Net (acquisitions)/disposal Other investing CF items Cash flow from investing Change in debt Net share issues/(repurchases) Dividends paid Other financing CF items Cash flow from financing Forex effect/others Change in cash 2008 141 5 (23) 0 (68) 55 (9) (662) 18 (653) 744 0 (59) (72) 613 0 16 2009 2010E 2011E 2012E 410 388 387 501 6 6 6 6 (16) (78) (77) (100) 49 (73) (90) (52) (346) (220) (205) (274) 102 23 21 81 (5) (121) (106) 0 (463) (114) (113) (159) (168) 99 110 125 (637) (136) (109) (34) 1,057 141 43 (207) 0 0 0 0 0 (39) (39) (39) (116) (24) (24) (24) 941 79 (20) (270) 0 0 0 0 406 (34) (108) (222)
Key ratios Year to 31 Dec Sales – YoY % EBITDA (adj.) – YoY % Net profit (adj.) – YoY % EPS (adj.) – YoY % EBITDA margin % (adj.) EBIT margin % (adj.) Net-profit margin % (adj.) ROAE (%) ROAA (%) ROCE (%) ROIC (%) Net debt to equity (%) Effective tax rate (%) Accounts receivable (days) Payables (days) Net interest cover (x) Net dividend payout (%) 2008 20.9 10.1 (37.7) (42.9) 78.3 76.0 56.3 10.4 2.4 3.7 3.2 186.9 16.5 677.5 972.1 1.0 51.1 2009 11.6 (76.6) 235.8 166.2 16.5 13.8 169.5 11.1 6.7 0.6 0.6 net cash 3.9 592.0 662.7 0.3 0.0 2010E 20.4 361.8 (21.4) (21.4) 63.1 60.9 110.7 5.5 4.6 2.7 2.4 2.0 20.0 561.3 435.6 7.0 12.7 2011E 9.8 8.1 (0.4) (0.4) 62.1 60.1 100.3 5.2 4.5 2.8 2.4 3.7 20.0 521.1 308.3 7.6 12.8 2012E 27.4 24.1 30.2 30.2 60.5 58.9 102.5 6.4 5.6 3.3 2.8 7.0 20.0 486.8 252.7 9.5 9.8
Key assumptions Year to 31 Dec Interest cover ratio (%) 2008 98.6 2009 2010E 2011E 2012E 28.4 702.1 761.2 950.6
Chart: PBR bands (S$) 4.0 3.5 3.0 2.5 2.0 1.5 1.0 Nov-09
2.1x 2.0x 1.8x 1.7x 1.5x
Source: Company, Daiwa forecasts
Asia Pacific Daily
25

9 February 2010
8 February 2010 (No. of pages: 12)
DBS Group (DBS SP) Banks: Singapore
6-mth rating: 4
→3
Target price: S$13.37 → S$13.94 (+4.3%) Share price: S$14.04 (5 Feb)
David Lum, CFA (65) 6329 2102 david.lum@sg.daiwacm.com
New CEO rides the recovery Rating upgraded to 3 (Hold) from 4 (Underperform) We have upgraded our rating for DBS Group (DBS) to 3 (Hold) from 4 (Underperform) after its 4Q09 results announcement on 5 February 2010. Target price raised to S$13.94 (from S$13.37) DBS looks closer to fully-valued instead of overvalued after our target-price upgrade, based on our Gordon-Growth model valuation, to S$13.94 from S$13.37. We have revised up our EPS forecasts by 0.3% for FY10 and 4.6% for FY11. We expect DBS to enjoy the sharpest earnings recovery in the sector, with EPS growth of 18.7% YoY for FY10 and 15.4% YoY for FY11, underpinned by declining credit costs and rising interest rates. Too premature to expect wonders from Gupta We expect CEO Piyush Gupta to close DBS’s ROE gap with his Singapore competitors, but at this stage, and without any concrete evidence except for his inaugural presentation, we believe it would be too optimistic to expect that DBS’s sustainable ROE could come close to or surpass those of its peers in the foreseeable future. 4Q09 net profit 28% below forecast DBS’s 4Q09 net profit of S$493m was 28% below our forecast. The biggest negative variance came from allowances of S$384m compared with our estimate of S$199m. Income summary Year to 31 Dec 2008 2009 2010E 2011E 2012E Source: Company, Daiwa forecasts
Reuters code
DBSM.SI 2,683.56 (US$bn) 23.45 (US$m) 53.55 (m) 2,376 (%) 71.3 DBS Nominees (24.7%) S$/US$ 1.422 1M (9.4) (1.4) 3M 8.2 6.0 6M 4.8 1.8
Market data FSSTI Market cap 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate Performance (%)* Absolute Relative Source: Daiwa Note: *Relative to FSSTI
Investment indicators PER PBR Dividend yield ROE ROA Source: Daiwa forecasts
(x) (x) (%) (%) (%)
2010E 13.2 1.3 4.0 9.7 1.0
2011E 11.5 1.2 4.0 10.6 1.0
2012E 10.7 1.1 4.3 10.7 1.0
Price and relative performance (S$) 30.00 22.50 15.00 7.50 0.00 07/2 Rel to FSSTI
07/8
08/2
08/8
09/2
09/8
110 98 85 73 60 10/2
Source: Bloomberg, Daiwa
Operating profit (S$m) (%) 2,510 (14.3) 2,447 (2.5) 3,185 30.2 3,650 14.6 3,901 6.9
Pre-tax profit (S$m) (%) 2,585 (14.9) 2,513 (2.8) 3,251 29.4 3,716 14.3 3,973 6.9
Net profit (S$m) (%) 2,056 (17.3) 2,064 0.4 2,522 22.2 2,912 15.5 3,124 7.3
EPS (S$) 1.100 0.894 1.062 1.225 1.314 (%) (13.4) (18.7) 18.7 15.4 7.2
DPS (S$) 0.650 0.560 0.560 0.560 0.600
This is an excerpt from our report issued yesterday. Please contact us for further details.
Asia Pacific Daily
26

9 February 2010
Company background Established in 1968, DBS Group is the largest bank by total assets and market capitalisation in Singapore. Its primary operations are in Singapore and Hong Kong. For FY09, DBS’s total income came from Singapore (60%), Hong Kong (21%), rest of greater China (6%), South and Southeast Asia (8%), and rest of the world (5%).
DBS Group – financial summary Profit and loss (S$m) Year to 31 Dec Net-interest income Net fees & commission Trading and other income Net insurance income Total operating income Personnel expenses Other expenses Total expenses Pre-provision operating profit Total provision Operating profit after prov. Non-operating income Profit before tax Tax Min. int./pref. div./other items Net profit Adj. net profit EPS (S$) EPS (adjusted) (S$) DPS (S$) 2008 4,301 1,274 478 0 6,053 (1,301) (1,354) (2,655) 3,398 (888) 2,510 75 2,585 (446) (210) 1,929 2,056 1.040 1.100 0.650 2009 2010E 2011E 2012E 4,455 4,797 5,338 5,797 1,394 1,302 1,339 1,398 754 411 412 440 0 0 0 0 6,603 6,509 7,089 7,635 (1,292) (1,381) (1,520) (1,623) (1,312) (1,395) (1,526) (1,621) (2,604) (2,776) (3,046) (3,244) 3,999 3,733 4,044 4,391 (1,552) (548) (393) (490) 2,447 3,185 3,650 3,901 66 66 66 73 2,513 3,251 3,716 3,973 (285) (522) (596) (637) (187) (208) (208) (212) 2,041 2,522 2,912 3,124 2,064 2,522 2,912 3,124 0.884 1.062 1.225 1.314 0.894 1.062 1.225 1.314 0.560 0.560 0.560 0.600
Balance sheet (S$m) As at 31 Dec Cash & equivalent Investment securities Net loans and advances Fixed assets Goodwill Other assets Total assets Customers deposits Borrowing Debentures/subordinated debt Other liabilities Total liabilities Share capital Reserves & others Shareholders' equity Minority interests Total equity & liabilities Avg interest-earning assets Avg risk-weighted assets BVPS (S$) 2008 36,257 46,980 125,841 1,604 5,847 40,189 256,718 163,359 18,744 0 50,612 232,715 1,579 18,240 19,819 4,184 256,718 210,460 182,685 12.55 2009 44,718 52,948 129,973 1,532 5,847 23,626 258,644 178,448 17,223 0 33,474 229,145 2,375 22,998 25,373 4,126 258,644 220,645 177,222 10.69 2010E 44,099 55,749 138,151 1,553 5,847 24,765 270,165 186,733 17,578 0 35,078 239,388 2,376 24,275 26,650 4,126 270,165 229,383 187,961 11.22 2011E 43,536 58,666 154,275 1,572 5,847 25,952 289,847 202,379 18,311 0 36,747 257,437 2,377 25,908 28,284 4,126 289,847 243,802 206,749 11.90 2012E 42,565 61,736 172,267 1,591 5,847 27,198 311,204 219,348 19,102 0 38,499 276,949 2,378 27,752 30,129 4,126 311,204 263,086 227,541 12.67
Growth (YoY %) Year to 31 Dec Net-interest income Non-interest income Total operating income Total expenses Pre-provision operating profit Total provisions Operating profit after provisions Profit before tax Net profit (reported) Net profit (adjusted) EPS (reported) EPS (adjusted) Gross loans Deposits Total assets Total liabilities Shareholders' equity Avg interest-earning assets Avg risk-weighted assets 2008 4.7 (14.7) (1.8) 1.4 (4.1) 43.9 (14.3) (14.9) (15.3) (17.3) (18.1) (13.4) 16.9 12.9 10.2 10.9 (3.2) 11.3 (1.0) 2009 3.6 22.6 9.1 (1.9) 17.7 74.8 (2.5) (2.8) 5.8 0.4 (15.0) (18.7) 3.9 9.2 0.8 (1.5) 28.0 4.8 (3.0) 2010E 7.7 (20.3) (1.4) 6.6 (6.7) (64.7) 30.2 29.4 23.6 22.2 20.1 18.7 5.9 4.6 4.5 4.5 5.0 4.0 6.1 2011E 11.3 2.3 8.9 9.7 8.3 (28.1) 14.6 14.3 15.5 15.5 15.4 15.4 11.5 8.4 7.3 7.5 6.1 6.3 10.0 2012E 8.6 4.9 7.7 6.5 8.6 24.6 6.9 6.9 7.3 7.3 7.2 7.2 11.6 8.4 7.4 7.6 6.5 7.9 10.1
Key ratios (%) Year to 31 Dec Liquidity Loan/deposit Capital adequacy ratios (CAR) Tier-1 CAR Total CAR Asset quality NPLs/gross loans Total loan-loss prov./NPLs Profitability ROAA ROAE Efficiency Net-interest margin Gross yield Cost of funds Net-interest spread Total cost/total income Others Effective tax Dividend-payout ratio 2008 78.6 10.1 14.0 1.5 98.9 0.8 10.2 2.0 3.9 n.a. n.a. 43.9 17.3 62.5 2009 74.8 13.1 16.7 2.9 75.6 0.8 9.1 2.0 2.8 n.a. n.a. 39.4 11.3 63.3 2010E 75.6 13.1 16.5 2.7 81.5 1.0 9.7 2.1 2.9 n.a. n.a. 42.7 16.0 52.7 2011E 77.8 12.7 15.8 2.4 87.1 1.0 10.6 2.2 2.9 n.a. n.a. 43.0 16.0 45.7 2012E 80.1 12.3 15.2 2.2 90.8 1.0 10.7 2.2 2.9 n.a. n.a. 42.5 16.0 45.7
Key assumptions Year to 31 Dec Credit cost (bps) NPL (%) Loan growth (%) Deposit growth (%) Loan to deposit ratio (%) Earning-asset growth (%) Fee to income ratio (%) Expense to income ratio (%) 2008 2009 65.84 112.00 1.5 2.9 16.9 3.9 12.9 9.2 78.6 74.8 11.3 4.8 21.0 21.1 43.9 39.4 2010E 39.77 2.7 5.9 4.6 75.6 4.0 20.0 42.7 2011E 26.22 2.4 11.5 8.4 77.8 6.3 18.9 43.0 2012E 29.30 2.2 11.6 8.4 80.1 7.9 18.3 42.5
Chart: PBR bands (S$) 24 19 14 9 4 Feb-05 Feb-06 Feb-07 Jan-08 Jan-09 1.9x 1.6x 1.2x 0.9x 0.5x Jan-10
Source: Company, Daiwa forecasts
Asia Pacific Daily
27

9 February 2010
8 February 2010 (No. of pages: 9)
India Banks Banks: India
Positive Punit Srivastava (91) 22 6622 1013 punit.srivastava@in.daiwacm.com
Dhiren Shah (91) 22 6622 1015 dhiren.shah@in.daiwacm.com
3Q FY10 results: NPLs rose, NIMs expanded, better loan growth for PSBs Summary The 3Q FY10 results of the Indian banks were generally disappointing in terms of the fresh formation of NPLs, with most recording quarter-on-quarter rises. The treatment of some agriculture loans eligible for debt waiver and fresh slippages of restructured loans were the main reasons for the pick-up in NPLs during the quarter. The provisioning coverage of most banks improved substantially, as they added technically written-off NPLs when calculating their provision coverage, as per the new Reserve Bank of India (RBI) norms. Some of the banks that recorded substantial jumps in provision coverage as a result of the inclusion of technically written-off NPLs include State Bank of India (SBI), ICICI Bank, Canara Bank (Not rated) and Oriental Bank of Commerce (Not rated). Almost all banks saw their net-interest margins (NIM) pick up on a quarter-on-quarter basis, due to the positive impact of the downward repricing of high-cost deposits. We expect the impact of this to continue to be felt for another quarter, but expect the pace to moderate, as the bulk has already been done, in our opinion. Some public-sector banks (PSBs) recorded strong loan growth on both year-on-year and quarteron-quarter bases. SBI, Bank of Baroda (BOB) and Punjab National Bank (PNB) (Not rated) recorded strong year-on-year growth of 19%, 23% and 20.3%, respectively, for 3Q FY10, driven by retail loans, international loans, and loans to medium- and large-sized corporations. Our top picks: Out top picks in the sector are BOB, Axis Bank and HDFC Bank. India Banks: valuation summary Company name State Bank of India Bank of Baroda ICICI Bank HDFC Bank Axis Bank Share price Daiwa 6M Bloomberg 5 Feb target price +/- Year (local curr.) Rating (Rs) (%) end code SBIN IN 1,897.80 2 2,463 29.8 Mar BOB IN 559.80 1 704 25.8 Mar ICICIBC IN 798.15 3 816 2.2 Mar HDFCB IN 1,573.35 1 1,910 21.4 Mar AXSB IN 1,025.70 1 1,364 33.0 Mar 2009 11.3 9.4 24.5 28.1 20.7 PER (x) 2010E 2011E 10.6 9.8 6.9 5.9 23.3 20.3 23.2 17.9 16.0 14.1 EPS growth (% YoY) 2009 2010E 2011E 11.8 6.3 7.6 55.2 33.5 16.7 (18.3) 5.4 14.7 22.0 18.0 29.2 51.2 26.5 13.8 PBR ROE (x) (%) 2009 2010E 2009 2010E 1.7 1.5 16.4 15.1 1.8 1.5 21.3 23.5 1.9 1.8 7.8 7.8 4.6 3.4 16.9 16.3 3.7 2.7 19.1 18.7 Yield (% p.a.) 2009 2010E 1.5 1.4 1.6 1.9 1.3 1.3 0.6 0.7 1.0 1.1
Source: Company, Daiwa forecasts
This is an excerpt from our report issued yesterday. Please contact us for further details. Asia Pacific Daily
28

9 February 2010
Korea: share prices and Daiwa recommendation trends CJ Internet Date Target price Rating 2/8/10 20,000 2 7/31/09 18,000 2 5/21/09 22,100 2 4/29/09 19,500 2 2/4/09 18,100 2 11/3/08 13,000 2 10/14/08 13,700 2 8/8/08 17,500 2 4/29/08 18,400 3
25,000 20,000 15,000 10,000 5,000 0 18,400 17,500 13,700 13,000 18,100 22,100 19,500 20,000 18,000
Nov-09
May-09
Nov-08
Dec-08
Dec-09 Dec-09
May-08
Jan-09
Jun-09
Jun-08
Feb-08
Feb-09
Mar-08
Mar-09
Aug-09
Aug-08
Sep-08
Target price (W) Source: Daiwa
Closing price (W)
Daewoo Shipbuilding & Marine Engineering Date Target price Rating Date Target price Rating 2010/02/08 17,000 4 2008/04/07 53,000 2 2009/07/30 19,000 4 2008/02/13 45,000 2 2009/05/13 23,000 4 2009/02/03 18,000 4 2008/11/17 13,000 4 2008/11/10 14,000 4 2008/09/25 41,000 2 2008/05/08 52,000 2
60,000 50,000 40,000 30,000 20,000 10,000 0 45,000
53,000 52,000 41,000
14,000 13,000 18,000 23,000 19,000 17,000
Sep-09
Nov-08
Dec-08
May-08
May-09
Nov-09
Jan-09
Feb-08
Jun-08
Jun-09
Mar-08
Mar-09
Feb-09
Aug-09
Aug-08
Sep-08
Target price (W) Source: Daiwa
Closing price (W)
Sep-09
Jan-10
Jul-08
Jul-09
Oct-08
Apr-08
Apr-09
Oct-09
Jan-10
Jul-08
Jul-09
Oct-08
Apr-08
Apr-09
Oct-09
Asia Pacific Daily
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9 February 2010
Samsung Electronics Date Target price (W) Rating Date Target price (W) Rating 2010-01-29 970,000 2 2009-01-16 500,000 2 2009-10-30 920,000 2 2008-12-04 520,000 2 2009-09-29 960,000 2 2008-10-27 540,000 2 2009-09-02 940,000 2 2008-08-27 670,000 2 2009-07-24 800,000 2 2008-07-28 740,000 2 2009-07-03 720,000 2 2008-06-13 820,000 2 2009-04-24 560,000 3 2008-04-28 780,000 2 2009-01-29 480,000 3 2008-03-21 660,000 2
1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 780,000 660,000 820,000 940,000 740,000 670,000 540,000 520,000 480,000 500,000 560,000 800,000 720,000 960,000 920,000
970,000
Nov-09
May-08
May-09
Nov-08
Dec-08
Dec-09 Dec-09
Jun-09
Jun-08
Jan-09
Feb-08
Feb-09
Mar-08
Mar-09
Aug-09
Aug-08
Sep-08
Target price (W) Source: Daiwa
Closing price (W)
LG Display Date Target price (W) Rating Date Target price (W) Rating 2010-01-21 40,000 3 2008-07-10 45,000 2 2009-10-15 35,000 3 2009-07-09 42,000 2 2009-04-17 38,000 2 2009-04-03 36,000 2 2009-01-19 32,000 2 2008-11-14 22,000 3 2008-10-15 30,000 3
60,000 50,000 40,000 30,000 20,000 10,000 0 45,000 30,000 22,000 32,000 36,000 38,000 42,000 35,000 40,000
Sep-09
May-09
Nov-08
Dec-08
Nov-09
May-08
Jun-08
Jan-09
Jun-09
Feb-08
Jan-10
Jul-08
Jul-09
Apr-09
Oct-08
Oct-09
Jan-10 Feb-10
Jul-08
Jul-09
Oct-08
Apr-08
Apr-08
Feb-09
Mar-08
Mar-09
Apr-09
Aug-09
Aug-08
Sep-08
Target price (W) Source: Daiwa
Closing price (W)
Sep-09
Oct-09
Asia Pacific Daily
30

9 February 2010
Doosan Infracore Date Target price Rating 04/02/2010 20,000 2 03/11/2009 21,000 1
40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 21,000 20,000
Nov-09
May-09
Nov-08
Dec-08
Dec-09 Dec-09
May-08
Jan-09
Jun-09
Jan-08
Jun-08
Feb-09
Feb-08
Mar-08
Mar-09
Aug-09
Aug-08
Sep-08
Target price (W) Source: Daiwa
Closing price (W)
Webzen Date Target price Rating Date Target price Rating 2/8/2010 14,500 2 5/13/2008 10,000 3 12/2/2009 15,000 2 2/18/2008 11,000 3 8/12/2009 12,500 3 5/15/2009 13,000 3 2/16/2009 6,300 3 11/14/2008 5,300 3 8/14/2008 8,200 4 7/10/2008 8,400 4
25,000 20,000 15,000 10,000 5,000 0 11,000 13,000 10,000 8,400 8,200 5,300 6,300 12,500 15,000 14,500
Sep-09
Nov-08
Dec-08
May-08
May-09
Nov-09
Jan-09
Feb-08
Jun-08
Jun-09
Mar-08
Mar-09
Feb-09
Aug-09
Aug-08
Sep-08
Target price (W) Source: Daiwa
Closing price (W)
Sep-09
Jan-10
Jul-08
Jul-09
Oct-08
Apr-08
Apr-09
Oct-09
Jan-10
Jul-08
Jul-09
Oct-08
Apr-08
Apr-09
Oct-09
Asia Pacific Daily
31

9 February 2010
Analyst company visits/results announcements/analyst meetings Date 9 Feb 11 Feb 11 Feb 12 Feb 17 Feb 18 Feb 18 Feb 19 Feb 22 Feb 23 Feb 23 Feb 24 Feb 25 Feb 25 Feb 26 Feb 26 Feb 26 Feb 26 Feb 26 Feb 26 Feb 1 Mar 1 Mar 3 Mar Company SMIC Bank of East Asia Capitaland Olam International ST Engineering Oversea-Chinese Banking Corp Hyflux IOI Corp Sembcorp Marine Kencana Agri Noble Group Oceanus Group City Developments Sembcorp Industries First Resources Wilmar International Indofood Agri Resources Golden Agri_resources Sime Darby Bhd United Overseas Bank HSBC Hang Seng Bank Chong Hing Bank Event Announcements (T) Announcements (M) Announcements Announcements# Announcements# Announcements # Announcements# Announcements# Announcements Announcements# Announcements Announcements# Announcements Announcements Announcements# Announcements# Announcements# Announcements# Announcements# Announcements Announcements (M) Announcements (M) Announcements (M) Time +
Remarks 4Q09 results FY09 results FY09 results 2Q10 results 1Q09 results FY09 results 1Q09 results 2Q10 results 1Q09 results 1Q09 results 1Q09 results 1Q09 results FY09 results 1Q09 results 1Q09 results 1Q09 results 1Q09 results 1Q09 results 2Q10 results FY09 results FY09 results FY09 results FY09 results
Analyst Pranab K. Sarmah Steven Chan David Lum Chris Sanda Chris Sanda David Lum Chris Sanda Chris Sanda Chris Sanda Chris Sanda Chris Sanda Chris Sanda David Lum Chris Sanda Chris Sanda Chris Sanda Chris Sanda Chris Sanda Chris Sanda David Lum Steven Chan Steven Chan Steven Chan
TBA 17:15 17:15 12:30 (SG) 17:30 (Aft. Mkt) -
Note: AU = Australia, CN = China, HK = Hong Kong, JA = Japan, KR = Korea, SG = Singapore, TW = Taiwan, MY = Malaysia, US = United States, EU = Europe M = Meeting T = Teleconference # Pending/tentative + Local time
Asia Pacific Markets Closed
Hong Kong
China
Singapore Malaysia Korea
Taiwan Australia
New Zealand
India
Thailand Philippines Indonesia
Feb 10
15-16
15-19
15-16
1, 15-16
15
15-19
1
26
Asia Pacific Daily
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9 February 2010
Rating and target-price information Bloomberg Company name Doosan Infracore DBS Group CapitaMalls Asia Silitech Technology Megastudy Kangwon Land Wharf Holdings Busan Bank Lenovo Group StarHub China Unicom Far Eastern Department Stores United Microelectronics CapitaMalls Asia Esprit Insurance Australia Group AAC Acoustic Technology code 042670 KS DBS SP CMA SP 3311 TT 072870 KS 035250 KS 4 HK 005280 KS 992 HK STH SP 762 HK 2903 TT 2303 TT CMA SP 330 HK IAG AU 2018 HK Country Korea Singapore Singapore Taiwan Korea Korea Hong Kong Korea China Singapore China Taiwan Taiwan Singapore Hong Kong Australia China 6M rating Previous 1 ↓ 4 ↑ 5 – 2 – 2 – 2 – 2 ↑ 2 – 2 – 3 – 4 – 3 ↓ 2 – 5 – 2 – 3 – 1 – 6M target price* Latest Date 20,000 08-Feb-10 13.94 08-Feb-10 2.03 08-Feb-10 128 08-Feb-10 265,000 05-Feb-10 17,000 05-Feb-10 50.3 05-Feb-10 14,800 04-Feb-10 5.95 04-Feb-10 1.92 04-Feb-10 8.08 04-Feb-10 22.00 04-Feb-10 19.2 04-Feb-10 2.02 04-Feb-10 66.6 03-Feb-10 4.2 03-Feb-10 15.1 03-Feb-10 Latest Previous 2 21,000 ↓ 3 13.37 ↑ 5 2 2.02 ↑ 123 ↑
2 290,000 ↓ 2 18,400 ↓ 1 2 2 3 4 5 2 5 2 3 1 46.8 ↑ 15,300 ↓ 5.93 ↑ 1.99 ↓ 8.68 ↓ 33.70 ↓ 19.1 ↑ 2.00 ↑ 60.5 ↑ 3.9 ↑ 12 ↑
Note: Daiwa’s 18 most recent rating/target-price changes *Local currency; T: terminated
Recently published reports Subtitle Research reports* India Banks Doosan Infracore China Consumer Sector DBS Group Ess Dee Aluminium Wharf Holdings Ebbs and Flows Asia Focus China Unicom Far Eastern Department Stores CapitaMalls Asia Housing Development Finance Reliance Capital Asia LED Quarterly China Tech Tracker Tulip Telecom India Strategy Larsen & Toubro India Auto Sector Reliance Communications 3Q FY10 results: NPLs rose, NIMs expanded, better loan growth for PSBs Earnings improvement expected to start from FY10 Preview of the Lunar New Year shopping season in China New CEO rides the recovery Good 3Q results; on track for strong growth, in our view Attractive price for premier assets, and a solid re-rating in the making Turning cautious again Feedback from North America marketing trip Three potential negative catalysts MoEA reverses FEDS’ capital injection into PDI Maximum patience required Earnings-growth momentum likely to continue, despite the sale of loans Key businesses showing encouraging bottom-line trends Watching the popularisation of LED-TVs February: buy on weakness Data connectivity segment drives strong 3Q FY10 results 3Q FY10 results review: better than we expected We remain positive despite near-term disappointments Sales momentum continues 3Q FY10 results: non-mobile segments disappoint No. of Date of pages publication 9 13 8 12 7 32 6 9 10 9 10 9 10 38 14 9 31 12 7 8 08-Feb-10 08-Feb-10 08-Feb-10 08-Feb-10 05-Feb-10 05-Feb-10 05-Feb-10 05-Feb-10 04-Feb-10 04-Feb-10 04-Feb-10 03-Feb-10 03-Feb-10 03-Feb-10 03-Feb-10 03-Feb-10 03-Feb-10 02-Feb-10 02-Feb-10 02-Feb-10
*The 20 most recent reports published by Daiwa
Asia Pacific Daily
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9 February 2010
DAIWA’S ASIA PACIFIC RESEARCH DIRECTORY Hong Kong Regional Research Head Regional Research Co-head Macro Economy (Hong Kong, China) Strategy (Regional) All Industries (China) Automobiles (China) Banking (Hong Kong, China), Insurance (China) Consumer/Retail (Hong Kong, China) Consumer/Retail (China) IT/Electronics – Semiconductor and Solar (Regional, Taiwan, Singapore, Hong Kong and China) IT/Electronics – Tech IT Services (Hong Kong, China) Materials/Energy (Regional) Oil & Gas (China, Korea) Property Developers (Hong Kong) Property Developers (China), Small/Medium Caps (Hong Kong, China) Telecommunication (Regional, Greater China, Korea and Singapore) Transportation – Marine, Capital Goods – Infrastructure Construction (Hong Kong, China) Transportation – Aviation and Expressway (Hong Kong, China, Singapore) China – Shanghai Strategy (Regional) Singapore Head of Research Macro Economy (Regional) Banking, Property and REITs (Singapore) Conglomerates, Soft Commodities, Energy and Small/Medium Caps (Singapore) Taiwan Head of Research Co-head of Research Consumer/Retail IT/Technology Hardware (PC) IT/Technology Hardware (Handsets and Components) IT/Technology Hardware Materials, Small/Medium Caps South Korea Banking/Finance Automobiles, Shipbuilding, Steel Capital Goods (Construction and Machinery) Consumer/Retail Industrials IT/Electronics (Tech Hardware and Memory) IT/Electronics IT/Electronics, Software (Internet/On-line Game) Materials (Chemicals) Australia Banking/Insurance Resources/Mining/Petroleum India Strategy/Capital Goods/Industrials/Utilities Automobiles Banking/Finance Materials Oil & Gas, Construction, Small/Medium Caps Pharmaceuticals and Healthcare, Consumer Software (Tech IT Services), Telecommunications Nagahisa MIYABE Craig IRVINE Kevin LAI Mun Hon THAM Hongxia ZHU Ricon XIA Steven CHAN Peter CHU Nicolas WANG Pranab Kumar SARMAH (Regional Head of IT/Electronics) Joseph HO Alexander LATZER (Regional Head of Materials) Andrew CHAN Jonas KAN (Head of Hong Kong Research) Kevin LEUNG Marvin LO Geoffrey CHENG Kelvin LAU (852) 2848 4971 (852) 2848 4485 (852) 2848 4926 (852) 2848 4426 (852) 2848 4460 (852) 2848 4923 (852) 2848 4468 (852) 2848 4430 (852) 2848 4963 (852) 2848 4441 (852) 2848 4443 (852) 2848 4463 (852) 2848 4964 (852) 2848 4439 (852) 2848 4489 (852) 2848 4465 (852) 2848 4024 (852) 2848 4467 nagahisa.miyabe@hk.daiwacm.com craig.irvine@hk.daiwacm.com kevin.lai@hk.daiwacm.com munhon.tham@hk.daiwacm.com hongxia.zhu@hk.daiwacm.com ricon.xia@hk.daiwacm.com steven.chan@hk.daiwacm.com peter.chu@hk.daiwacm.com nicolas.wang@hk.daiwacm.com pranab.sarmah@hk.daiwacm.com joseph.ho@hk.daiwacm.com alexander.latzer@hk.daiwacm.com andrew.chan@hk.daiwacm.com jonas.kan@hk.daiwacm.com kevin.leung@hk.daiwacm.com marvin.lo@hk.daiwacm.com geoffrey.cheng@hk.daiwacm.com kelvin.lau@hk.daiwacm.com
Hirokazu YUIHAMA (Head of Research) Tatsuya TORIKOSHI Prasenjit K BASU (Chief Economist, Asia Ex-Japan) David LUM (Regional Head of Banking/Finance) Chris SANDA
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Hirokazu MITSUDA Alex YANG Yoshihiko KAWASHIMA Calvin HUANG Andrew CHANG Mitsuharu WATANABE Albert HSU Chang H LEE (Head of Research) Sung Yop CHUNG Mike OH Sang Hee PARK Naoki IEIRI Jae H LEE Steve OH Thomas Y KWON Daniel LEE Johan VANDERLUGT David BRENNAN Jaideep GOSWAMI (Head of Research) Hitesh GOEL Punit SRIVASTAVA Vishal CHANDAK Atul RASTOGI Kartik A. MEHTA R. RAVI
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Asia Pacific Daily
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9 February 2010
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Asia Pacific Daily
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9 February 2010
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Asia Pacific Daily
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Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.109 Memberships: Japan Securities Dealers Association, Financial Futures Association of Japan
Asia Pacific Daily
37

China Consumer Sector

发布机构:大和证券
报告类型:外行报告 发布日期:2010/2/9
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内容简介


Asia Pacific Daily 9 February 2010
Top story China Consumer Sector Preview of the Lunar New Year shopping season in China - The Lunar New Year is an important event for analysing personal-consumption trends. - We forecast retail sales during the 2010 new-year shopping season to rise by 15-18% YoY. - We focus on the food, apparel, cosmetics, home-appliances, and telecommunication-devices sectors.
P.2
-- Hongxia Zhu Results and economic announcements EPS forecasts Date Company Daiwa Consensus Results 9 Feb SMIC US$-0.25c US$-0.20c 4Q09 11 Feb Bank of East Asia HK$1.443 HK$1.345 FY09 11 Feb Capitaland S$0.329 S$0.151 FY09 12 Feb Olam International n.a. n.a. 2Q10 17 Feb ST Engineering n.a. n.a. 1Q09 18 Feb Hyflux n.a. n.a. 1Q09 18 Feb Oversea-Chinese S$0.581 S$0.601 FY09 Banking Corp 19 Feb IOI Corp n.a. n.a. 2Q10 22 Feb Sembcorp Marine n.a. n.a. 1Q09 Source: Daiwa
Asia equity research Regional LCD-panel price update IT panel prices rose for the first half of February
Analyst Jae H. Lee
Rating
Page
Positive P.3
Hong Kong and China Hong Kong Property Developers Looking at upcoming new launches
Jonas Kan Jonas Kan
Positive P.4 Positive P.5
Hong Kong Property Developers The physical market has been holding up so far, and a divergence has occurred
BOC Hong Kong (2388 HK) Issuance of new subordinated debt likely to have a limited impact on financials
Steven Chan
2
P.6
Dah Sing Banking Group (2356 HK) The issue of new subordinated debt should narrow NIM slightly
Steven Chan
2
P.8
Regional indices Performance chg EPS growth (%) (%) Market 1D 1M YTD 09E 10E HSI (0.6) (12.3) (10.6) (5.4) 20.0 HSCEI (1.3) (15.7) (14.1) 19.7 25.5 KOSPI (0.9) (8.4) (7.7) 50.4 40.1 TWSE 0.0 (12.9) (11.9) 59.1 77.7 FSSTI 0.4 (7.8) (7.0) (8.5) 13.8 ASX 200 0.2 (8.0) (7.2) 2.4 21.1 TOPIX (1.0) (6.2) (2.7) n.a. 87.5 Source: Thomson Reuters
PER (x) 09E 10E 14.8 12.3 13.1 10.4 12.9 9.2 25.5 14.3 12.1 10.6 15.6 12.9 32.2 17.1
Dah Sing Financial (440 HK) We see a slight dilutive impact from the issuance of new subordinated debt by Dah Sing
Steven Chan
2
P.10
Dry-Bulk Shipping The week ended 5 February
Geoffrey Cheng
Negative P.12
Korea CJ Internet (037150 KS) Global game publishing likely to accelerate
Thomas Y. Kwon Sung Yop Chung
2 4
P.13 P.15
Daewoo Shipbuilding & Marine Engineering (042660 KS) 4Q FY09 earnings review – we expect another lacklustre year for FY10
Doosan Infracore (042670 KS) Country weighting Underweight China HK India Indonesia Korea Malaysia Philippine Singapore Taiwan Thailand (3) (2) (1) 0 1 Overweight Index Target Jun 2010 HSCEI 12,500 HSI 21,200 SENSEX 15,500 KOSPI 1,430 FSSTI 2,650 TWSE 7,600
Mike Oh Thomas Y. Kwon
1→2
P.17 P.19
Earnings improvement expected to start from FY10
Webzen (069080 KS) Clearing the deck for the turn
2
Taiwan Taiwan Economy Surging exports may be a harbinger of broad-based economic acceleration
Prasenjit K. Basu
P.21
Silitech Technology (3311 TT) 1Q10 sales should be ahead of traditional seasonality
Andrew Chang
2
P.22
2
(%)
Singapore CapitaMalls Asia (CMA SP) CMA acquires new mall in Chengdu
David Lum David Lum
5 4→3
P.24 P.26
Source: Daiwa
DBS Group (DBS SP) New CEO rides the recovery
India India Banks 3Q FY10 results: NPLs rose, NIMs expanded, better loan growth for PSBs
Punit Srivastava
Positive P.28
Rating:
1 (Buy) 2 (Outperform) 3 (Hold)
4 (Underperform) 5 (Sell)
Korea: share prices and Daiwa recommendation trends Analyst company visits/results announcements/analyst meetings Rating and target-price information Recently published reports
P.29 P.32 P.33 P.33
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED ON THE LAST TWO PAGES OF THIS REPORT.
Global Equity Research

9 February 2010
8 February 2010 (No. of pages: 8)
China Consumer Sector Consumer durables and apparel/Food, beverage and tobacco/Retailing: China
Hongxia Zhu (852) 2848 4460 hongxia.zhu@hk.daiwacm.com
Preview of the Lunar New Year shopping season in China Summary The expansion of personal consumption is vital for China to move away from its dependence on policy measures to maintain stable and strong economic growth, in our view. We believe the Lunar New Year shopping season (seven days from 13 to 19 February) will be an important event for analysing personal-consumption trends. We forecast retail sales during the 2010 new-year shopping season to rise by 15-18% compared with those for the new-year season a year earlier, exceeding the 13.8% retail-sales growth for the 2009 shopping season (seven days from 25 January to 31 January). We believe the country’s return to inflation with the consumer price index (CPI) bouncing back to record positive year-on-year growth will give nominal retail-sales growth boost. In addition, increases in disposable income due to a significant improvement in employment will bolster spending, in our view. In our view, the food (including beverages, alcohol, and tobacco), apparel, cosmetics, homeappliance, and telecommunication-device sectors will benefit from: 1) Chinese people’s consumption habits during the Lunar New Year season, and 2) the PRC Government’s consumption stimulus plan. In addition, domestic and overseas travel is becoming more popular during the holiday season, and we expect an increase in the number of Chinese visitors, especially to Japan.
This is an excerpt from our report issued yesterday. Please contact us for further details.
Asia Pacific Daily
2

9 February 2010
LCD-panel price update IT panel prices rose for the first half of February Electronics: Regional Jae H. Lee (82) 2 787 9173 (jhlee@kr.daiwacm.com)
Rating: Positive
What has changed? ? LCD-panel prices rose slightly for the first half of February as the demand for IT products was better than usual for the time of the year.
Impact ? According to Witsview, for the first half of February, monitor-panel prices rose 5-6% and notebook PC panel prices increased 2-6%, compared with the second half of January. TV-panel prices were stable over the period. Panel makers told us that their order visibility to the end of March was looking bright, and they expected IT-panel prices to increase over the next couple of months. Despite recent market concerns about the increase in channel inventory for TV panels in China, it seems most panel makers believe the rise in inventory is not alarming and still expect good sell-through of LCD-TVs during the Lunar New Year. ? From our discussions with panel makers, LG Display (LGD) (034220 KS, W36,150, 2; 5 February, 2010 close) sounds optimistic about the panel-market outlook for 2010. It expects continued order flow from PRC LCD-TV makers and additional pull-in demand from the FIFA World Cup in June. However, Samsung Electronics (005930 KS, W750,000, 2) looks slightly more cautious about panel-supply growth for 2H10, as panel makers continue to ramp up new capacity. Meanwhile, AU Optronics (Not rated) expects panel demand for 2Q10 to decline compared with 1Q10 as it believes the build-up in inventory will be completed in 1Q10 amid panel-price hikes. LCD-panel price trend (US$) 1H-Nov Notebook panels 10.1"W 14"W 15.6"W Monitor panels 17" 19"W 22"W TV panels 26"W 32"W 37"W 42"W 46"W Source: Witsview
2H-Nov 32 60 63 71 73 91 150 200 255 340 440
1H-Dec 32 58 61 71 73 91 147 197 255 340 440
2H-Dec 32 57 60 72 74 92 145 195 255 340 435
1H-Jan 32 55 58 75 77 95 148 198 255 340 435
2H-Jan 32 55 58 76 78 96 150 200 255 340 435
1H-Feb 34 56 60 80 82 102 150 203 255 340 435
33 62 64 72 74 92 150 200 255 340 440
Valuation ? The stocks of the LCD companies in the region have fallen by 10-15% since mid-January, and are trading currently in a PBR range of 1.0-1.1x on our and the consensus (Bloomberg) FY10 BVPS forecasts.
Catalysts and action ? As the ‘peaks and valleys’ of the cycle have moderated, we expect the pure LCD plays, such as LGD, to trade in the range of 1.0-1.4x. Although we have a 3 (Hold) rating for LGD, given the positive panel-price trend we expect over the near term, we believe valuations are attractive near a PBR of 1.0x. Asia Pacific Daily
3

9 February 2010
Hong Kong Property Developers Looking at upcoming new launches Construction & real estate: Hong Kong Jonas Kan, CFA (852) 2848 4439 (jonas.kan@hk.daiwacm.com)
Rating: Positive
What has changed? ? We have examined the response to the projects that have been launched in the last two weeks and also upcoming new launches.
Impact ? So far, property market sales have not been affected much by the fall in the stock market. New World (Unrated) and Kerry (Unrated) launched their The Belcher’s Hill and Island Crest in the last two weeks, and both of them have achieved good ASP. According to our industry checks, over 130 units in The Belcher’s Hill have been sold at an ASP of about HK$12,000/sq.ft. and over 160 units in the Island Crest have been sold at about HK$15,000/sq.ft. ? We see Yoho Mid-town as the most important project in the coming months. We expect to see a number of prominent new launches in the coming months. In terms of relative importance, we think Yoho Mid-Town would be the most important among them in that it is located in the North West New Territories which is traditionally regarded as the bottom end of Hong Kong’s housing market. Thus, its achieved price would have implications for prices of flats in the rest of the New Territories and the urban area. We currently assume an ASP of HK$5,000/sq.ft. for the project, and we think there is the room for upside if the developer can successfully market it as a project for upgraders who previously would only consider projects in the New Territories.
Valuation ? The recent corrections in developers’ share prices have notably improved their valuations, with the sector now trading at an average 26.5% discount to its current NAV and an average 34.4% discount to our estimate of the stocks’ 2010 year-end forward NAVs. The sector’s average price-to-book has also fallen to 0.99x (0.93x after adjusting for deferred tax) versus an average of 1.34x since 1990.
Catalysts and action ? We think currently there is some divergence between stock prices and the situation in the physical market. We expect reassuring news flow related to new launches and land sales to drive investor interest in bargain-hunting for developer shares, and we keep our Positive sector rating. Valuation of property stocks Share price Company name Cheung Kong SHKP Henderson Land Sino Land MTRC Midland Target price Bloomberg 08-Feb-10 (local code (HK$) Rating curr.) 1 HK 90.65 2 117.00 16 HK 12 HK 83 HK 66 HK 1200 HK 98.30 46.40 12.48 26.20 6.18 2 1 3 2 1 130.10 67.20 16.80 32.40 8.42 P/NAV P/BVPS (x) (x) +/- Year (%) end 2008 2009E 2008 2009E 29.1 Dec 0.9 0.8 0.9 0.9 32.3 Jun 44.8 Dec 34.6 Jun 23.7 Dec 36.2 Dec 0.8 0.7 0.7 0.8 n.a. 0.8 0.7 0.7 0.8 n.a. 1.1 0.8 1.0 1.5 3.4 1.1 0.8 1.0 1.4 2.6
Upcoming new launches Upcoming projects Yoho Mid-town Larvotto Serenade 5 Star Street The Hermitage Festival City Phase One Hill Paramount No. of units 1,886 715 270 25 852 1,360 157 Districts Yuen Long Ap Le Chau, HK Island Tai Hang, HK Island Wanchai West Kowloon Tai Wai, Shatin Tai Wai, Shatin Developers SHKP SHKP/ Kerry/ Paliburg HK Land Swire Properties Sino Land consortium Cheung Kong Henderson Land
Source: Company, Daiwa forecasts
Source: Company, Daiwa forecasts
Asia Pacific Daily
4

9 February 2010
Hong Kong Property Developers
Rating: Positive
The physical market has been holding up so far, and a divergence has occurred Construction & real estate: Hong Kong Jonas Kan, CFA (852) 2848 4439 (jonas.kan@hk.daiwacm.com)
What has changed? ? We have examined recent developments in the physical market in the wake of the correction in the stock market.
Impact ? Prices continue to rise. While stock prices of developers have corrected since early January, prices in the physical market have risen, after surpassing the recent March 2008 high. Up to 5 February, the Centa-City leading index had a year-to-date price increase of 3.9%, or 2.8% above the March 2008 high. ? Impacts from a more active secondary market. Secondary-market activities have increased notably since January and have stayed at a relatively high level despite the upcoming Lunar New Year (weekly transactions in 35 housing estates were 224 for the week ended 7 February, above the annual average since 2003, except for 2007). We think this will have two main impacts on the physical market: translating theoretical home equity into real purchasing power, and providing a driver for upgrading activities. We think both of these factors will have a positive impact on the physical market, and we expect they would underpin the outlook of the physical market in the coming months.
Valuation ? Recent share-price corrections may have been driven more by the liquidity-flow situation in the stock market and the global environment rather than the anticipation of adverse property-market developments. This has brought developers to what we view as an attractive average valuation of 0.99x price-tobook and an average 34.4% discount to our 2010E year-end NAVs.
Catalysts and action ? Due to recent developments in the physical market, we think a pessimistic scenario would be a dry-up in volume, but we do not expect to see significant downward price pressure. As such, we think the chance is low that there would be a significant deterioration in the physical market to justify the stock prices. Instead, we expect news flow from the physical market will tend to be reassuring or positive in the coming months, and this will likely drive some interest for the bargain-hunting of property stocks. We maintain our Positive sector rating. Valuation of property stocks Company name Cheung Kong SHKP Henderson Land Sino Land MTRC Midland Target Share price price Bloomberg 08-Feb-10 (local code (HK$) Rating curr.) 1 HK 90.65 2 117.00 16 HK 12 HK 83 HK 66 HK 1200 HK 98.30 46.40 12.48 26.20 6.18 2 1 3 2 1 130.10 67.20 16.80 32.40 8.42 P/NAV P/BVPS (x) (x) +/- Year (%) end 2008 2009E 2008 2009E 29.1 Dec 0.9 0.8 0.9 0.9 32.3 Jun 44.8 Dec 34.6 Jun 23.7 Dec 36.2 Dec 0.8 0.7 0.7 0.8 n.a. 0.8 0.7 0.7 0.8 n.a. 1.1 0.8 1.0 1.5 3.4 1.1 0.8 1.0 1.4 2.6
The Centa-City leading index (Jul 97 = 100) 120 100 80 60 40 20 0 Jan-94 Sep-94 May-95 Jan-96 Sep-96 May-97 Jan-98 Sep-98 May-99 Jan-00 Sep-00 May-01 Jan-02 Sep-02 May-03 Jan-04 Sep-04 May-05 Jan-06 Sep-06 May-07 Jan-08 Sep-08 May-09 Jan-10 Current: 76.1
Source: Company, Daiwa forecasts
Source: Company, Daiwa forecasts
Asia Pacific Daily
5

9 February 2010
BOC Hong Kong (2388 HK)
Rating: 2
Issuance of new subordinated debt likely to have a limited impact on financials Banks: Hong Kong Steven Chan (852) 2848 4468 (steven.chan@hk.daiwacm.com) Price (5 Feb) Reuters code ADR/GDR code Shares per ADR/GDR
Target price: HK$22.00 → HK$20.00 (-9.1%)
HK$17.14 2388.HK n.a. n.a.
What has changed? ? On 5 February 2010, BOC Hong Kong (BOCHK) announced that it would issue US$1.6bn of 10-year US-dollar subordinated notes, with a fixed coupon rate of 5.55% on or about 11 February 2010.
Market data HSI Market cap 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate Performance (%)* Absolute Relative Source: Daiwa Note: *Relative to HSI 19,665.08 (US$bn) 23.32 (US$m) 32.40 (m) 10,573 (%) 34.2 Bank of China (65.8%) HK$/US$ 7.771 1M (0.5) 12.8 3M (4.1) 4.7 6M 11.2 15.8
Impact ? Early repayment of the subordinated debt issued to parent. BOCHK issued US$2.5bn of 10-year subordinated debt in 2008. In our view, the early repayment of this debt should help to reduce the cross-holding of its parent, Bank of China (3988 HK, HK$3.64, 3) of subordinated debt, which is being encouraged by the China Banking Regulatory Commission. The new subordinated debt will have a fixed coupon rate of 5.55%, which is higher than that for the previous subordinated debt of six-month LIBOR + 200 basis points (equivalent to 2.4% currently). ? Marginal downward revisions to NIM forecasts. As a result of the higher coupon rate of the new subordinated debt to be issued, we have revised down our NIM forecasts for BOCHK marginally, from 1.77% to 1.76% for FY10 and from 1.82% to 1.81% for FY11. We also revised down our net-profit forecasts slightly, by 0.8% and 1.1% for FY10 and FY11, respectively. ? No weakening of capital strength. As the amount of the new subordinated debt to be issued would be smaller than the amount of the old subordinated debt, BOCHK will use its own capital resources to fill the gap. Still, we forecast its tier-1 CAR and total CAR to remain solid, at 11.8% and 15.4%, respectively, by the end of December 2010.
Investment indicators 2009E PER (x) 14.2 PBR (x) 1.9 Dividend yield (%) 4.2 ROE (%) 14.5 ROA (%) 1.1 Relative to peers Relative to history Source: Daiwa forecasts 2010E 8.8 1.8 6.8 21.1 1.6 2011E 8.0 1.7 7.5 21.4 1.6 Above Below
Income summary (HK$m) Yr to 31 Dec 2008 2009E 2010E 2011E Op income 16,094 15,338 23,639 27,202 YoY (%) (20.2) (4.7) 54.1 15.1 Pre-tax profit 4,078 15,865 25,261 27,804 YoY (%) (78.7) 289.0 59.2 10.1 Net profit 3,343 12,768 20,526 22,593 YoY (%) (78.4) 281.9 60.8 10.1 EPS (HK$) 0.316 1.208 1.941 2.137 YoY (%) (78.4) 281.9 60.8 10.1 DPS (HK$) 0.438 0.725 1.165 1.282 Source: Company, Daiwa forecasts
Valuation ? We have adjusted downward our long-term ROE assumption for BOCHK in our Gordon Growth Model from 21.0% to 20.75%. As a result, we have lowered our six-month target price from HK$22.00 to HK$20.00. This is equivalent to a PBR of 2.09x on our December FY10 BVPS forecast.
Price and relative performance (HK$) 30.00 22.50 15.00 7.50 0.00 07/2 Rel to HSI
07/8
08/2
08/8
09/2
09/8
125 106 88 69 50 10/2
Source: Bloomberg, Daiwa
Catalysts and action ? We believe BOCHK would benefit from a recovery in loan growth and the NIM, as well as a potential write-back of loan provisions for FY10. Besides, it plans to strengthen its wealth-management product-manufacturing capability and compete aggressively with its peers in the high-margin regular-premium bancassurance business. We re-iterate our 2 (Outperform) rating for BOCHK. BOCHK: valuation summary 31-Dec 2008 2009E 2010E 2011E Operating profit (HK$m) 16,755 15,338 23,679 27,356 Operatingprofit growth (%) (14.0) (8.5) 54.4 15.5 Net profit Net-profit (HK$m) growth (%) 3,343 (78.4) 12,768 281.9 20,526 60.8 22,593 10.1 EPS (HK$) 0.32 1.21 1.94 2.14 EPS growth (%) (78.4) 281.9 60.8 10.1 PER (x) 54.2 14.2 8.8 8.0 PBR (x) 2.2 1.9 1.8 1.7 ROE (%) 3.8 14.5 21.1 21.4 DPS (HK$) 0.44 0.72 1.16 1.28 Yield (%) 2.6 4.2 6.8 7.5
Forecast revisions (%) Op. profit change Net profit change EPS change Source: Daiwa forecasts FY09E FY10E FY11E 0.0 (0.8) (1.1) 0.0 (0.8) (1.1) 0.0 (0.8) (1.1)
Fair value Valuation (HK$/shr) Methodology Key assumption Source: Daiwa forecasts 20.00 Gordon Growth Model 2010E PBR of 2.09x
Source: Company, Daiwa forecasts
Asia Pacific Daily
6

9 February 2010
Company background Established on 1 October 2001, BOC HK is a locally incorporated licenced bank. BOC HK is a leading listed commercial-banking group in Hong Kong in terms of assets and customer deposits. It has over 280 branches and 450 ATMs and other distribution channels in Hong Kong. BOC HK is one of the three note-issuing banks in Hong Kong. It has 15 branches and sub-branches in China, which provide cross-border banking services to its customers in Hong Kong and on the Mainland.
BOC Hong Kong – financial summary Profit and loss (HK$m) Year to 31 Dec Net-interest income Net fees & commission Trading and other income Net insurance income Total operating income Personnel expenses Other expenses Total expenses Pre-provision operating profit Total provision Operating profit after prov. Non-operating income Profit before tax Tax Min. int./pref. div./other items Net profit Adj. net profit EPS (HK$) EPS (adjusted) (HK$) DPS (HK$) 2007 19,395 6,274 2,599 (1,014) 27,254 (4,656) (3,117) (7,773) 19,481 685 20,166 (1,040) 19,126 (3,309) (371) 15,446 15,446 1.461 1.461 0.915 2008 20,157 5,179 2,008 (1,818) 25,526 (4,554) (4,217) (8,771) 16,755 (661) 16,094 (12,016) 4,078 (1,071) 336 3,343 3,343 0.316 0.316 0.438 2009E 18,800 5,548 725 2,013 27,086 (4,827) (6,921) (11,749) 15,338 0 15,338 527 15,865 (2,697) (400) 12,768 12,768 1.208 1.208 0.725 2010E 21,649 6,405 2,397 2,214 32,666 (5,213) (3,773) (8,987) 23,679 (41) 23,639 1,622 25,261 (4,294) (440) 20,526 20,526 1.941 1.941 1.165 2011E 24,448 7,436 2,851 2,436 37,171 (5,735) (4,080) (9,815) 27,356 (155) 27,202 602 27,804 (4,727) (484) 22,593 22,593 2.137 2.137 1.282
Balance sheet (HK$m) 2008 2009E 2010E As at 31 Dec 2007 Cash & equivalent 215,442 246,725 223,940 239,940 Investment securities 355,434 362,730 446,241 518,850 Net loans and advances 411,677 458,146 482,530 528,963 Fixed assets 31,351 30,522 30,685 30,848 Goodwill 0 0 0 0 Other assets 20,963 14,921 14,911 15,513 Total assets 1,034,867 1,113,044 1,198,307 1,334,114 Customers deposits 801,519 812,374 871,813 936,969 Borrowing 60,599 88,779 88,779 88,779 Debentures 0 27,339 27,339 20,319 Other liabilities 77,691 100,020 114,604 184,241 Total liabilities 939,809 1,028,512 1,102,535 1,230,308 Share capital 52,864 52,864 52,864 52,864 Reserves & others 39,978 29,855 40,695 48,289 Shareholders' equity 92,842 82,719 93,559 101,153 Minority interests 2,216 1,813 2,213 2,653 Total equity & liabilities 1,034,867 1,113,044 1,198,307 1,334,114 Avg interest-earning assets 936,957 1,007,850 1,092,546 1,229,367 Avg risk-weighted assets 528,414 565,744 608,254 662,088 BVPS (HK$) 8.78 7.82 8.85 9.57 2011E 257,163 546,152 580,605 31,013 0 16,164 1,431,097 1,006,557 88,779 20,319 202,792 1,318,447 52,864 56,649 109,513 3,137 1,431,097 1,352,028 729,889 10.36
Growth (YoY %) Year to 31 Dec Net-interest income Non-interest income Total operating income Total expenses Pre-provision operating profit Total provisions Operating profit after provisions Profit before tax Net profit (reported) Net profit (adjusted) EPS (reported) EPS (adjusted) Gross loans Deposits Total assets Total liabilities Shareholders' equity Avg interest-earning assets Avg risk-weighted assets 2007 22.5 43.5 27.9 18.5 32.0 n.a. 21.9 11.6 10.3 10.3 10.3 10.3 19.0 15.0 15.7 16.4 9.7 12.4 11.4 2008 3.9 (31.7) (6.3) 12.8 (14.0) n.a. (20.2) (78.7) (78.4) (78.4) (78.4) (78.4) 11.5 1.4 7.6 9.4 (10.9) 7.6 7.1 2009E (6.7) 54.3 6.1 33.9 (8.5) n.a. (4.7) 289.0 281.9 281.9 281.9 281.9 5.2 7.3 7.7 7.2 13.1 8.4 7.5 2010E 15.2 32.9 20.6 (23.5) 54.4 n.a. 54.1 59.2 60.8 60.8 60.8 60.8 9.5 7.5 11.3 11.6 8.1 12.5 8.9 2011E 12.9 15.5 13.8 9.2 15.5 280.2 15.1 10.1 10.1 10.1 10.1 10.1 9.7 7.4 7.3 7.2 8.3 10.0 10.2
Key ratios (%) Year to 31 Dec Liquidity Loan/deposit Capital adequacy ratios (CAR) Tier-1 CAR Total CAR Asset quality NPLs/gross loans Total loan-loss prov./NPLs Profitability ROAA ROAE Efficiency Net-interest margin Gross yield Cost of funds Net-interest spread Total cost/total income Others Effective tax Dividend-payout ratio 2007 51.5 12.2 13.1 0.4 76.2 1.6 17.4 2.1 4.9 3.4 1.5 28.5 17.3 62.6 2008 56.7 10.9 16.2 0.5 108.6 0.3 3.8 2.0 3.5 1.8 1.7 34.4 26.3 138.5 2009E 55.6 11.8 16.8 0.3 125.0 1.1 14.5 1.7 3.2 1.8 1.4 43.4 17.0 60.0 2010E 56.6 11.8 15.4 0.3 111.1 1.6 21.1 1.8 3.1 1.8 1.4 27.5 17.0 60.0 2011E 57.8 11.8 15.2 0.3 100.0 1.6 21.4 1.8 3.2 1.8 1.4 26.4 17.0 60.0
Key assumptions Year to 31 Dec Net interest margin (%) Tier-1 CAR (%) Total CAR (%) Credit cost (bps) NPL (%) Loan growth (%) Deposit growth (%) Loan to deposit ratio (%) Earning-asset growth (%) 2007 2.07% 12.2% 13.1% (16.58) 0.4% 19.0% 15.0% 51.5% 12.4% 2008 2.00% 10.9% 16.2% 14.36 0.5% 11.5% 1.4% 56.7% 7.6% 2009E 1.72% 11.8% 16.8% (0.01) 0.3% 5.2% 7.3% 55.6% 8.4% 2010E 1.76% 11.8% 15.4% 0.77 0.3% 9.5% 7.5% 56.6% 12.5% 2011E 1.81% 11.8% 15.2% 2.65 0.3% 9.7% 7.4% 57.8% 10.0%
PBR bands (HK$) 29 24 19 14 9 4 Jan-06 Dec-06 Dec-07 Dec-08 Dec-09
2.9x 2.4x 1.8x 1.3x 0.7x
Source: Company, Daiwa forecasts
Asia Pacific Daily
7

9 February 2010
Dah Sing Banking Group (2356 HK) The issue of new subordinated debt should narrow NIM slightly Banks: Hong Kong Steven Chan (852) 2848 4468 (steven.chan@hk.daiwacm.com) Price (5 Feb) Reuters code ADR/GDR code Shares per ADR/GDR
Rating: 2
Target price: HK$13.15 → HK$12.00 (-8.7%)
HK$10.28 2356.HK n.a. n.a.
What has changed? ? Bloomberg has reported that Dah Sing Banking Group (DSB) has issued 10year subordinated debt of US$225m. We have confirmed the news with the management of the company.
Market data HSI Market cap 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate Performance (%)* Absolute Relative Source: Daiwa Note: *Relative to HSI 19,665.08 (US$bn) 1.31 (US$m) 1.29 (m) 987 (%) 25.1 Dah Sing Financial Holdings (74.9%) HK$/US$ 7.771 1M (9.0) 3.1 3M (7.2) 1.3 6M 9.4 14.0
Impact ? New subordinated debt to replace old debt. DSB issued 10-year subordinated debt of US$150m in 2005. The debt is callable in May 2010. We think in order to maintain the company’s good reputation with bondholders, DSB has decided to replace subordinated debt issued in 2005 with new debt at a higher coupon rate. The old subordinated debt has a coupon rate of three-month Libor plus 60 basis points (equivalent to 0.83% currently). The new subordinated debt has a fixed coupon rate of 6.625%. ? Slight downward revision to our earnings forecasts. Due to the increase in the interest costs, we have revised down our net-interest margin (NIM) forecasts for DSB to 1.93% from 2.01% for FY10 and to 1.94% from 2.03% for FY11. As a result, we have revised down our net-profit forecasts by 5.5% for FY10 and 6.7% for FY11. ? We see no urgent need for other capital funding. As the new subordinated debt issued is more than enough to repay the old debt, we have revised up our total capital-adequacy ratio (CAR) forecast to 15.7% from 15.1% for FY10. We maintain our forecast tier-1 CAR at 9.7% for FY10. We see no immediate need for the company to raise new tier-1 capital in FY10.
Investment indicators 2009E PER (x) 10.1 PBR (x) 1.1 Dividend yield (%) 3.9 ROE (%) 11.2 ROA (%) 0.8 Relative to peers Relative to history Source: Daiwa forecasts 2010E 6.7 1.0 6.7 15.1 1.2 2011E 6.6 0.9 7.6 14.3 1.2 Below Below
Income summary (HK$m) Yr to 31 Dec 2008 2009E 2010E Op income 800 668 1,431 YoY (%) (47.0) (16.6) 114.3 Pre-tax profit 212 1,091 1,748 YoY (%) (76.9) 415.0 60.2 Net profit 189 989 1,504 YoY (%) (76.4) 424.3 52.1 EPS (HK$) 0.202 1.021 1.524 YoY (%) (76.4) 404.5 49.3 DPS (HK$) 0.180 0.401 0.686 Source: Company, Daiwa forecasts 2011E 1,566 9.4 1,793 2.6 1,543 2.6 1.564 2.6 0.782
Valuation ? We have adjusted down our long-term ROE assumption for DSB in our Gordon Growth Model to 14.25% from 15.0%. In addition, we have lowered our sixmonth target price to HK$12.00 from HK$13.15, based on a PBR of 1.4x on our FY10 BVPS forecast.
Price and relative performance (HK$) 30.00 22.50 15.00 7.50 0.00 07/2 Rel to HSI
07/8
08/2
08/8
09/2
09/8
125 100 75 50 25 10/2
Catalysts and action ? Still, we believe DSB will benefit from a recovery in loan growth and wealth management fees in FY10. In addition, we expect a potential write-back in its loan provisions for FY10. We reiterate our 2 (Outperform) rating. DSB: valuation summary 31-Dec 2008 2009E 2010E 2011E Operating profit Operating profit (HK$m) growth (%) 1,459 (13.7) 1,010 (30.8) 1,555 54.0 1,698 9.2 Net profit Net-profit EPS EPS PER PBV (HK$m) growth (%) (HK$) growth (%) (x) (x) 189 (76.4) 0.20 (76.4) 50.8 1.2 989.1 424.3 1.02 404.2 10.1 1.1 1,503.9 52.1 1.52 49.3 6.7 1.0 1,543.0 2.6 1.56 2.6 6.6 0.9 ROE DPS Yield (%) (HK$) (%) 2.2 0.18 1.8 11.2 0.40 3.9 15.1 0.69 6.7 14.3 0.78 7.6
Source: Bloomberg, Daiwa
Forecasts revisions (%) Op. profit change Net profit change EPS change Source: Daiwa forecasts FY09E FY10E FY11E 0.0 (6.7) (7.7) 0.0 (5.5) (6.7) 0.0 (5.5) (6.7)
Fair value Valuation (HK$/shr) Methodology Key assumption Source: Daiwa forecasts 12.00 Gordon Growth Model 2010E PBR of 1.14x
Source: Company data, Daiwa forecasts
Asia Pacific Daily
8

9 February 2010
Company background DSB has been listed on the Hong Kong Stock Exchange since 2004. It has three banking subsidiaries (Dah Sing Bank, MEVAS Bank and Banco Commercial de Macau), and a securities-trading company, as well as an offshore joint-venture private-banking business with SG Hambros Bank. DSB has been a pioneer in the development of the consumer-banking, SME-lending and bancassurance sectors among mid-sized financial-services groups in Hong Kong.
Dah Sing Banking Group – financial summary Profit and loss (HK$m) Year to 31 Dec Net-interest income Net fees & commission Trading and other income Net insurance income Total operating income Personnel expenses Other expenses Total expenses Pre-provision operating profit Total provision Operating profit after prov. Non-operating income Profit before tax Tax Min. int./pref. div./other items Net profit Adj. net profit EPS (HK$) EPS (adjusted) (HK$) DPS (HK$) 2007 2008 2009E 2010E 2011E 2,068 2,208 2,192 2,288 2,461 647 532 338 390 454 248 274 168 178 188 0 0 0 0 0 2,963 3,014 2,698 2,855 3,102 (723) (678) (759) (812) (885) (550) (877) (929) (487) (518) (1,273) (1,555) (1,688) (1,300) (1,403) 1,690 1,459 1,010 1,555 1,698 (181) (659) (342) (125) (133) 1,510 800 668 1,431 1,566 (594) (589) 423 317 228 916 212 1,091 1,748 1,793 (109) (21) (100) (242) (248) (6) (2) (2) (2) (2) 800 189 989 1,504 1,543 800 189 989 1,504 1,543 0.859 0.202 1.021 1.524 1.564 0.859 0.202 1.021 1.524 1.564 0.400 0.180 0.401 0.686 0.782 2007 5.4 38.4 13.6 7.7 18.5 12.0 19.3 (36.7) (33.1) (33.1) (33.1) (33.1) 21.1 16.7 13.6 15.1 (0.9) 16.2 8.3 2008 6.8 (9.9) 1.7 22.2 (13.7) 264.2 (47.0) (76.9) (76.4) (76.4) (76.4) (76.4) (0.5) 2.1 (3.1) (2.3) (11.4) 9.3 11.5 2009E (0.7) (37.3) (10.5) 8.5 (30.8) (48.0) (16.6) 415.0 424.3 424.3 404.5 404.5 0.2 4.2 7.3 6.6 16.0 5.1 8.9 2010E 4.4 12.2 5.8 (23.0) 54.0 (63.6) 114.3 60.2 52.1 52.1 49.3 49.3 5.5 6.2 8.5 8.3 9.8 7.8 7.0 2011E 7.6 13.0 8.6 8.0 9.2 6.7 9.4 2.6 2.6 2.6 2.6 2.6 6.5 6.9 4.3 4.1 7.4 6.7 8.1
Balance sheet (HK$m) As at 31 Dec Cash & equivalent Investment securities Net loans and advances Fixed assets Goodwill Other assets Total assets Customers deposits Borrowing Debentures Other liabilities Total liabilities Share capital Reserves & others Shareholders' equity Minority interests Total equity & liabilities Avg interest-earning assets Avg risk-weighted assets BVPS (HK$) 2007 12,105 34,180 60,935 2,444 0 6,277 115,940 84,784 2,652 7,943 11,313 106,692 931 8,298 9,229 19 115,940 95,733 64,231 9.90 2007 72.3 9.1 15.5 0.5 128.8 0.7 8.6 2.2 6.1 4.3 1.8 43.0 11.9 46.6 2008 14,501 30,811 60,150 2,213 0 4,712 112,386 86,545 2,444 8,475 6,728 104,192 933 7,240 8,173 21 112,386 104,625 71,633 8.76 2008 70.5 6.8 13.6 1.7 81.9 0.2 2.2 2.1 4.4 2.4 2.0 51.6 10.0 89.0 2009E 15,196 38,194 60,324 2,257 0 4,588 120,558 90,204 2,444 7,824 10,583 111,054 987 8,495 9,482 23 120,558 110,006 78,021 9.61 2009E 67.8 9.4 15.2 1.5 86.7 0.8 11.2 2.0 4.2 2.4 1.8 62.6 9.2 39.3 2010E 15,942 44,141 63,771 2,302 0 4,594 130,750 95,787 2,444 8,409 13,678 120,317 987 9,422 10,409 25 130,750 118,541 83,508 10.55 2010E 67.3 9.7 15.7 1.2 89.6 1.2 15.1 1.9 4.2 2.5 1.7 45.5 13.8 45.0 2011E 16,818 44,608 68,029 2,348 0 4,623 136,426 102,438 2,444 8,409 11,928 125,218 987 10,194 11,180 27 136,426 126,530 90,302 11.33 2011E 67.0 9.8 15.5 0.7 135.7 1.2 14.3 1.9 4.2 2.5 1.7 45.2 13.8 50.0
Growth (YoY %) Year to 31 Dec Net-interest income Non-interest income Total operating income Total expenses Pre-provision operating profit Total provisions Operating profit after provisions Profit before tax Net profit (reported) Net profit (adjusted) EPS (reported) EPS (adjusted) Gross loans Deposits Total assets Total liabilities Shareholders' equity Avg interest-earning assets Avg risk-weighted assets
Key ratios (%) Year to 31 Dec Liquidity Loan/deposit Capital adequacy ratios (CAR) Tier-1 CAR Total CAR Asset quality NPLs/gross loans Total loan-loss prov./NPLs Profitability ROAA ROAE Efficiency Net-interest margin Gross yield Cost of funds Net-interest spread Total cost/total income Others Effective tax Dividend-payout ratio
Key assumptions Year to 31 Dec Net interest margin (%) Tier-1 CAR (%) Total CAR (%) Credit cost (bps) NPL (%) Loan growth (%) Deposit growth (%) Loan to deposit ratio (%) Earning-asset growth (%) 2007 2008 2.16 2.11 9.1 6.8 15.5 13.6 29.50 107.96 0.5 1.7 21.1 (0.5) 16.7 2.1 72.3 70.5 16.2 9.3 2009E 1.99 9.4 15.2 56.00 1.5 0.2 4.2 67.8 5.1 2010E 1.93 9.7 15.7 19.31 1.2 5.5 6.2 67.3 7.8 2011E 1.94 9.8 15.5 19.35 0.7 6.5 6.9 67.0 6.7
Chart: PBR bands (HK$) 22 17 12 7 2 Jan-06 Dec-06 Dec-07 Dec-08 Dec-09 2.2x 1.7x 1.3x 0.8x 0.3x
Source: Company, Daiwa forecasts
Asia Pacific Daily
9

9 February 2010
Dah Sing Financial (440 HK)
Rating: 2
We see a slight dilutive impact from the issuance of new subordinated debt by Dah Sing Banks: Hong Kong Steven Chan (852) 2848 4468 (steven.chan@hk.daiwacm.com) Price (5 Feb) Reuters code ADR/GDR code Shares per ADR/GDR
Target price: HK$52.15 → HK$47.10 (-9.7%)
HK$36.95 0440.HK n.a. n.a.
What has changed? ? According to Bloomberg, Dah Sing Banking Group (DSB), a 75%-owned subsidiary of Dah Sing Financial (DSF), has issued US$225m in 10-year subordinated debt. We have confirmed this with management.
Market data HSI Market cap 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate Performance (%)* Absolute Relative Source: Daiwa Note: *Relative to HSI 19,665.08 (US$bn) 1.24 (US$m) 1.23 (m) 260 (%) 48.6 David Shou-yeh Wong (39.3%) HK$/US$ 7.771 1M (13.3) (1.7) 3M (15.8) (8.1) 6M (1.3) 2.8
Impact ? Issue of new subordinated debt to replace old debt. DSB issued US$150m of 10-year subordinated debt in 2005. This is callable in May 2010. In our opinion in order to maintain what we consider to be the bank’s good reputation with bondholders, DSB has decided to replace the subordinated debt issued in 2005 with new debt at a higher coupon rate. The old subordinated debt has a coupon rate of three-month LIBOR + 60 basis points (equivalent to 0.83% currently). The new subordinated debt has a fixed coupon rate of 6.625%. ? Slight downward revisions to our earnings forecasts. Due to the downward revisions our net-profit forecasts for DSF, we also revised down our net-profit forecasts for DSF by 4.2% and 4.8% for FY10 and FY11, respectively. ? Should have sufficient short-term funding to support DSB’s future capital needs. We estimate that DSF’s cash and cash equivalents will total HK$16.6bn at end-FY10. This is equivalent to 19% of our forecast for DSB’s risk-weighted assets. We believe DSF should be able to support DSB’s capital needs, if necessary, in the near future.
Investment indicators 2009E PER (x) 10.8 PBR (x) 0.8 Dividend yield (%) 3.7 ROE (%) 8.4 ROA (%) 0.7 Relative to peers Relative to history Source: Daiwa forecasts 2010E 6.6 0.8 6.0 12.3 1.1 2011E 6.0 0.7 6.7 12.6 1.2 Below Below
Income summary (HK$m) Yr to 31 Dec 2008 2009E 2010E Op income 809 883 1,816 YoY (%) (61.0) 9.3 105.6 Pre-tax profit 183 1,307 2,133 YoY (%) (86.5) 614.1 63.2 Net profit 106 891 1,453 YoY (%) (89.9) 739.4 63.0 EPS (HK$) 0.415 3.425 5.582 YoY (%) (90.1) 725.1 63.0 DPS (HK$) 0.163 1.370 2.233 Source: Company, Daiwa forecasts 2011E 2,084 14.8 2,312 8.4 1,600 10.1 6.149 10.1 2.459
Valuation ? We have adjusted downward our long-term ROE assumption for DSF in our Gordon Growth Model from 13.25% to 12.5%. As a result, we have lowered our six-month target price from HK$52.15 to HK$47.10. This is equivalent to a PBR of 1x on our December F2010 BVPS forecast.
Price and relative performance (HK$) 100.00 75.00 50.00 25.00 0.00 07/2 Rel to HSI
07/8
08/2
08/8
09/2
09/8
125 100 75 50 25 10/2
Catalysts and action ? We believe DSF should benefit from loan growth and a recovery in wealthmanagement fees, as well as the potential write-back of loan provisions of DSB in FY10. Besides, its wholly-owned subsidiary, Dah Sing Life (DSL), plans to continue to focus on selling high-margin regular premium life products through its agents over the next few years. It seems DSL also plans to switch to higheryield corporate bonds to improve investment returns. We reiterate our 2 (Outperform) rating. DSF: valuation summary Operating profit (HK$m) 1,467 1,226 1,941 2,217 Operatingprofit growth (%) (34.9) (16.5) 58.4 14.2
Source: Bloomberg, Daiwa
Forecasts revisions (%) Op. profit change Net profit change EPS change Source: Daiwa forecasts FY09E FY10E FY11E 0.1 (5.3) (5.9) 0.0 (4.2) (4.8) 0.0 (4.2) (4.8)
Fair value Valuation (HK$/shr) Methodology Key assumption Source: Daiwa forecasts 47.10 Gordon Growth Model 2010E PBR of 1x
31-Dec 2008 2009E 2010E 2011E
Net profit Net-profit (HK$m) growth (%) 106 (89.9) 891 739.4 1,453 63.0 1,600 10.1
EPS (HK$) 0.42 3.42 5.58 6.15
EPS growth (%) (90.1) 725.1 63.0 10.1
PER (x) 89.0 10.8 6.6 6.0
PBV (x) 1.0 0.8 0.8 0.7
ROE (%) 1.0 8.4 12.3 12.6
DPS (HK$) 0.16 1.37 2.23 2.46
Yield (%) 0.4 3.7 6.0 6.7
Source: Company, Daiwa forecasts
Asia Pacific Daily
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9 February 2010
Company background DSF is a leading financial-services group in Hong Kong, active in the banking and insurance businesses. It has been listed on the Hong Kong Stock Exchange since 1987. DSF is the holding company for the group's life- and general-insurance businesses, as well as the majority shareholder in DSB.
Dah Sing Financial – financial summary Profit and loss (HK$m) Year to 31 Dec Net-interest income Net fees & commission Trading and other income Net insurance income Total operating income Personnel expenses Other expenses Total expenses Pre-provision operating profit Total provision Operating profit after prov. Non-operating income Profit before tax Tax Min. int./pref. div./other items Net profit Adj. net profit EPS (HK$) EPS (adjusted) (HK$) DPS (HK$) 2007 2008 2009E 2010E 2011E 2,215 2,369 2,355 2,463 2,647 613 504 320 369 429 770 (16) 199 311 425 101 313 211 253 304 3,699 3,170 3,085 3,397 3,805 (814) (756) (846) (914) (1,007) (630) (948) (1,013) (541) (581) (1,444) (1,703) (1,859) (1,456) (1,588) 2,255 1,467 1,226 1,941 2,217 (181) (659) (342) (125) (133) 2,074 809 883 1,816 2,084 (715) (626) 423 317 228 1,358 183 1,307 2,133 2,312 (133) (29) (126) (240) (260) (176) (47) (290) (441) (452) 1,050 106 891 1,453 1,600 1,050 106 891 1,453 1,600 4.199 0.415 3.425 5.582 6.149 4.199 0.415 3.425 5.582 6.149 1.500 0.163 1.370 2.233 2.459
Balance sheet (HK$m) As at 31 Dec Cash & equivalent Investment securities Net loans and advances Fixed assets Goodwill Other assets Total assets Customers deposits Borrowing Debentures Other liabilities Total liabilities Share capital Reserves & others Shareholders' equity Minority interests Total equity & liabilities Avg interest-earning assets Avg risk-weighted assets BVPS (HK$) 2007 13,788 38,325 60,935 2,776 1,132 7,252 124,209 84,428 2,652 7,943 16,405 111,427 500 9,969 10,469 2,312 124,209 102,532 64,231 41.86 2008 14,465 35,690 60,150 2,529 1,109 6,237 120,180 84,602 2,444 8,072 13,125 108,243 521 9,372 9,892 2,045 120,180 112,297 71,633 38.01 2009E 15,619 43,338 60,324 2,279 1,109 4,645 127,313 90,204 2,444 7,824 13,125 113,596 521 10,862 11,382 2,335 127,313 118,073 78,021 43.73 2010E 16,584 46,238 63,771 2,325 1,109 4,765 134,793 95,787 2,444 8,409 13,125 119,763 521 11,734 12,254 2,776 134,793 127,869 83,508 47.08 2011E 17,625 48,799 68,029 2,372 1,109 4,924 142,857 102,438 2,444 8,409 13,125 126,415 521 12,694 13,214 3,228 142,857 136,487 90,302 50.77
Growth (YoY %) Year to 31 Dec Net-interest income Non-interest income Total operating income Total expenses Pre-provision operating profit Total provisions Operating profit after provisions Profit before tax Net profit (reported) Net profit (adjusted) EPS (reported) EPS (adjusted) Gross loans Deposits Total assets Total liabilities Shareholders' equity Avg interest-earning assets Avg risk-weighted assets 2007 5.9 49.2 19.9 10.5 26.7 12.1 28.2 (31.0) (24.8) (24.8) (24.8) (24.8) 22.8 16.7 13.9 15.3 4.2 16.7 8.3 2008 7.0 (46.0) (14.3) 18.0 (34.9) 264.2 (61.0) (86.5) (89.9) (89.9) (90.1) (90.1) (0.5) 0.2 (3.2) (2.9) (5.5) 9.5 11.5 2009E (0.6) (8.9) (2.7) 9.2 (16.5) (48.0) 9.3 614.1 739.4 739.4 725.1 725.1 0.2 6.6 5.9 4.9 15.1 5.1 8.9 2010E 4.6 28.0 10.1 (21.7) 58.4 (63.6) 105.6 63.2 63.0 63.0 63.0 63.0 5.5 6.2 5.9 5.4 7.7 8.3 7.0 2011E 7.5 24.0 12.0 9.0 14.2 6.7 14.8 8.4 10.1 10.1 10.1 10.1 6.5 6.9 6.0 5.6 7.8 6.7 8.1
Key ratios (%) Year to 31 Dec Liquidity Loan/deposit Capital adequacy ratios (CAR) Tier-1 CAR Total CAR Asset quality NPLs/gross loans Total loan-loss prov./NPLs Profitability ROAA ROAE Efficiency Net-interest margin Gross yield Cost of funds Net-interest spread Total cost/total income Others Effective tax Dividend-payout ratio 2007 72.6 9.1 15.5 0.5 128.8 0.9 10.2 2.2 5.8 4.3 1.6 39.0 9.8 35.7 2008 72.1 6.8 13.6 1.7 81.9 0.1 1.0 2.1 4.2 2.4 1.8 53.7 16.1 39.3 2009E 67.8 9.4 15.2 1.5 86.7 0.7 8.4 2.0 4.0 2.3 1.7 60.3 9.6 40.0 2010E 67.3 9.7 15.7 1.2 93.8 1.1 12.3 1.9 4.0 2.4 1.5 42.9 11.2 40.0 2011E 67.0 9.8 15.5 0.7 135.7 1.2 12.6 1.9 4.0 2.4 1.5 41.7 11.2 40.0
Key assumptions Year to 31 Dec Net interest margin (%) Tier-1 CAR (%) Total CAR (%) Credit cost (bps) NPL (%) Loan growth (%) Deposit growth (%) Loan to deposit ratio (%) Earning-asset growth (%) 2007 2008 2.16 2.11 9.1 6.8 15.5 13.6 29.50 107.96 0.5 1.7 22.8 (0.5) 16.7 0.2 72.2 71.1 16.7 9.5 2009E 1.99 9.4 15.2 56.00 1.5 0.2 6.6 67.8 5.1 2010E 1.93 9.7 15.7 19.31 1.2 5.5 6.2 67.3 8.3 2011E 1.94 9.8 15.5 19.35 0.7 6.5 6.9 67.0 6.7
PBR bands (HK$) 89 69 49 29 9 Jan-06 Dec-06 Dec-07 Dec-08 Dec-09 2.2x 1.7x 1.3x 0.8x 0.3x
Source: Company, Daiwa forecasts
Asia Pacific Daily
11

9 February 2010
Dry-Bulk Shipping The week ended 5 February Transportation: China Geoffrey Cheng (852) 2848 4024 (geoffrey.cheng@hk.daiwacm.com)
Rating: Negative
What has changed? ? The Baltic Dry Index (BDI) declined by 5% WoW for the week ended 5 February. The China Coastal Bulk Freight Index (CCBFI) also dropped, by 8% WoW, for the week ended 3 February.
Impact ? The BDI was supported by the Baltic Capesize Index, especially during the latter part of the week. Interest in Panamax vessels was low for the week. The spot price of iron ore at China ports rose slightly week-on-week, to US$123.5/tonne on 5 February. The spot price of thermal coal at Newcastle port fell to US$91.85/tonne, down US$6.7/tonne in a week. ? Probably due to the recent decline in the BDI, period-fixing activity increased last week, with more than four timecharters concluded with a duration of one year or longer. Another four new orders for dry bulk vessels were recorded last week, while one 26-year-old Handymax was scrapped. ? With the Lunar New Year approaching, demand for coastal coal shipments declined following a flurry of restocking over the past few weeks. Demand in other areas, such as for grain shipments, also weakened, sending the CCBFI lower.
Catalysts and action ? For February, we forecast the BDI to range from 2,500-2,800 as demand from China looks likely to be subdued due to the long holiday. Our concern for the sector remains oversupply. Our core sector pick remains China Shipping Development. The BDI (5 February close) and CCBFI (3 February close) BALTIC DRY INDEX BALTIC CAPESIZE IX BALTIC PANAMAX IDX (LIF) BALTIC SUPRAMAX INDEX BALTIC HANDYSIZE INDEX CCBFI Index 1wk chg (%) 2,715 (5) 3,474 (1) 3,141 (8) 2,156 (5) 1,095 (6) 1,518 (8) 1m chg (%) (17) (22) (22) (4) (5) (18) 3m chg (%) (19) (37) (10) 16 24 35
FFA (US$/day) & iron ore transport cost (US$/tonne) Basis: closing mid-price Capesize, time-charter average Panamax, time-charter average Supramax, time-charter average Index 30,707 25,012 22,659 US/tonne 9.8 25.9 Feb-10 31,750 25,750 22,500 1wk chg (%) (13) (19) Q1-10 2010 33,800 25,750 25,125 17,000 21,750 15,075 1m 3m chg (%) chg (%) (17) (23) (20) (23)
Dampier/Beilun Tubarao/Beilun
Source: Bloomberg, Shanghai Shipping Exchange
Source: Clarkson (closing as at 28 January), Bloomberg (closing as at 29 January)
China dry-bulk shipping companies: valuations Bloomberg Company code China Shipping Development-H 1138 HK Pacific Basin Shipping Ltd 2343 HK Sinotrans Shipping Ltd 368 HK China COSCO Holdings-H 1919 HK Source: Bloomberg, Daiwa forecasts Share price 5-Feb-10 Target price +/- Year PER (x) PBR (x) EV/EBITDA (x) Dividend yield (%) (HK$) Rating (local curr.) (%) end 2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011E 11.72 2 14.5 23.7 Dec 28.5 14.4 11.5 1.6 1.4 1.2 15.0 9.1 7.4 0.7 1.3 1.6 5.76 3 5.7 (1.0) Dec 11.7 51.8 22.7 1.0 1.0 1.0 8.2 16.2 9.3 4.0 1.0 2.2 3.46 3 3.77 9.0 Dec 15.3 21.1 14.8 0.9 0.8 0.8 6.3 7.1 4.9 2.0 1.4 2.0 9.21 4 8.95 (2.8) Dec n.a. n.a. 69.1 1.9 2.0 1.9 n.a. n.m. 13.6 0.0 0.0 0.4
Asia Pacific Daily
12

9 February 2010
CJ Internet (037150 KS) Global game publishing likely to accelerate Media: Korea Thomas Y. Kwon (82) 2 787 9181 (yskwon@kr.daiwacm.com) Price (8 Feb) Reuters code ADR/GDR code Shares per ADR/GDR
Rating: 2
Target price: W18,000 → W20,000 (+11.1%)
W15,000 037150.KS n.a. n.a.
What has changed? ? CJ Internet recorded a set of solid preliminary 4Q results, on strong seasonal demand for web board games and overseas royalties. Operating profit expanded by 26.7% QoQ, helped by a revenue contribution from global game publishing.
Market data KOSPI Market cap EV 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate 1,552.79 (US$m) 292.42 (US$m; 09E) 276.46 (US$m) 4.31 (m) 23 (%) 69.8 CJ Corporation (28.8%) W/US$ 1,169 3M 14.1 15.5 6M 11.1 12.8
Impact ? Revenue from web board games showed that the company has nicely recovered from new regulations with 12.4% QoQ sales growth. Surprisingly, CJ Internet recorded overseas royalties of W5.6bn, which we believe will improve investor confidence in its growth potential in global game publishing. Management projects overseas royalties to increase 15-20% YoY for 2010 on the back of commercial launches of Prius Online and Ys Online in Taiwan and China. ? CJ Internet has become more aggressive in acquiring talent game development studios and intellectual property of game titles. For 2010, it plans to commercialise seven game titles, including Dragonball Online, while it has shown positive operating statistics and started to generate meaningful revenue from February 2010. Management expects its web game business will continue to expand with its efforts to streamline and monetise a huge game platform. ? In our view, the company would enter a new revenue and earnings-growth cycle from 2010, driven by increasing overseas royalties, a strong revenue stream from new game launches in Korea and Asia regions, and the restructuring of unprofitable affiliates. We have revised up our FY10-11E earnings to reflect revenue contributions from high-margin business and strong operating leverage.
Performance (%)* 1M Absolute (2.3) Relative 6.7 Source: Daiwa Note: *Relative to KOSPI
Investment indicators 2009E 2010E 2011E PER (x) 13.1 8.4 6.9 PCFR (x) 5.9 5.4 4.3 EV/EBITDA (x) 5.1 3.7 2.9 PBR (x) 1.5 1.3 1.1 Dividend yield (%) 1.3 1.3 1.3 ROE (%) 11.9 16.5 17.2 ROA (%) 9.5 13.4 14.3 Net debt equity (%) net cash net cash net cash Relative to peers Above Relative to history Below Source: Daiwa forecasts
Income summary (Wbn) Yr to 31 Dec 2008 2009E 2010E Revenue 194 221 267 YoY (%) 21.2 13.9 21.0 EBITDA 64 63 85 YoY (%) 20.4 (2.0) 34.2 Net profit 25 26 41 YoY (%) (2.4) 3.5 56.8 EPS (W) 1,104 1,143 1,792 YoY (%) (2.6) 3.5 56.8 CFPS (W) 2,240 2,524 2,770 DPS (W) 150 200 200 Source: Company, Daiwa forecasts 2011E 305 14.1 96 13.9 50 21.9 2,185 21.9 3,474 200
Valuation ? The stock is trading at 8.4x our FY10 EPS forecast, representing the one of the most attractive online-game names in Korea, in our view. In addition to a DCF valuation, we apply a target PER of 9x and a target EV/EBITDA multiple of 5x our revised earnings forecasts, to derive our new six month target price.
Price and relative performance (W) 27,200 21,950 16,700 11,450 6,200 07/2 Rel to KOSPI
07/8
08/2
08/8
09/2
09/8
150 119 88 56 25 10/2
Catalysts and action ? We maintain our 2 rating on CJ Internet, as we expect near-term stock catalysts such as positive revenue contribution by Dragonball Online in Korea and Prius Online in Asia to drive the stock to outperform the market in 1H FY10. CJ Internet: quarterly-earnings trend (Wbn) Total revenue Growth (YoY %) Growth (QoQ %) Web game Publishing Others Operating profit Change (YoY %) Change (QoQ %) Margin (%) Source: Company Note: P - provisional
Source: Bloomberg, Daiwa
Forecasts revisions (%) Revenue change Net profit change EPS change Source: Daiwa forecasts FY09E FY10E FY11E (0.2) (0.7) (0.7) (11.9) 4.3 3.9 (11.9) 4.3 3.9
Fair value Valuation (W/shr) Methodology Key assumption Source: Daiwa forecasts 13,232 DCF and peer comparision WACC of 13.5% and terminal growth rate of 2.0%
3Q08 46.8 14.5 1.0 14.5 31.0 1.3 12.3 12.6 (11.2) 26.3
4Q08 52.1 17.1 11.1 17.0 33.3 1.8 14.5 7.2 17.5 27.8
1Q09 56.3 16.6 8.2 18.8 35.5 2.0 15.0 0.9 3.7 26.6
2Q09 51.0 9.9 (9.4) 13.9 35.2 1.9 9.2 (33.5) (38.5) 18.1
3Q09 54.7 16.7 7.2 13.8 39.0 1.8 10.2 (16.8) 11.1 18.7
4Q09P 4Q09E 58.6 60.5 12.5 16.3 7.2 10.7 15.5 16.1 41.1 42.4 2.0 2.0 13.0 13.3 (10.3) (8.0) 26.7 30.0 22.1 22.0
Asia Pacific Daily
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9 February 2010
Company background As at the end of 2Q FY09, the company offered 28 casual and role-playing games and had monthly average unique visitors of 5.9m, and paying users of 0.5m. It operates overseas game services in China, Japan and the US. CJ Corp. is the main shareholder of CJ Internet.
CJ Internet – financial summary Profit and loss (Wbn) Year to 31 Dec Game publishing Web board games Other revenue Total revenue Other income COGS SG&A Other op. expenses EBIT Net-interest inc./(exp.) Assoc/forex/extraord./others Pre-tax profit Tax Min. int./pref. div./others Net profit (reported) Net profit (adj.) EPS (reported) (W) EPS (adj.) (W) DPS (W) EBIT (adj.) EBITDA (adj.) 2007 94 58 8 160 0 (89) (25) 0 46 4 (12) 38 (12) 0 26 26 1,134 1,134 150 46 53 2008 2009E 2010E 2011E 123 151 191 224 64 63 68 73 6 7 7 8 194 221 267 305 0 0 0 0 (107) (136) (160) (181) (32) (37) (44) (49) 0 0 0 0 55 47 63 74 5 4 3 4 (17) (13) (7) (6) 43 38 59 72 (18) (12) (18) (22) 0 0 0 0 25 26 41 50 25 26 41 50 1,104 1,143 1,792 2,185 1,104 1,143 1,792 2,185 150 200 200 200 55 47 63 74 64 63 85 96
Balance sheet (Wbn) As at 31 Dec Cash & short-term investment Inventory Accounts receivable Other current assets Total current assets Fixed assets Goodwill & intangibles Other non-current assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Other non-current liabilities Total liabilities Share capital Reserves/R.E./others Shareholders' equity Minority interests Total equity & liabilities Net debt/(cash) 2007 60 0 27 64 151 24 16 39 229 0 10 22 32 0 2 34 11 184 195 0 229 (60) 2008 41 0 32 82 155 29 22 57 263 0 12 37 48 0 6 54 11 197 209 0 263 (41) 2009E 19 0 31 84 133 67 22 65 287 0 14 37 51 0 6 57 11 219 230 0 287 (19) 2010E 30 0 36 85 151 72 21 79 322 0 14 37 50 0 6 56 11 255 266 0 322 (30) 2011E 62 0 40 87 189 71 21 93 374 0 20 37 56 0 6 62 11 300 312 0 374 (62)
Cash flow (Wbn) Year to 31 Dec Profit before tax Depreciation and amortisation Tax paid Change in working capital Other operational CF items Cash flow from operations Capex Net (acquisitions)/disposal Other investing CF items Cash flow from investing Change in debt Net share issues/(repurchases) Dividends paid Other financing CF items Cash flow from financing Forex effect/others Change in cash 2007 38 8 (12) (4) 5 35 (7) (56) 10 (53) 0 25 (3) (25) (3) 0 (20) 2008 2009E 2010E 2011E 43 38 59 72 9 16 22 22 (18) (12) (18) (22) (4) 3 (6) 1 21 12 6 6 51 58 63 79 (9) (47) (18) (12) (28) (20) (20) (20) (30) (8) (10) (11) (67) (75) (48) (43) 0 0 0 0 14 0 0 0 (3) (5) (5) (5) (14) 0 0 0 (3) (5) (5) (5) 0 0 0 0 (19) (22) 11 32
Key ratios Year to 31 Dec Sales – YoY % EBITDA (adj.) – YoY % Net profit (adj.) – YoY % EPS (adj.) – YoY % EBITDA margin % (adj.) EBIT margin % (adj.) Net-profit margin % (adj.) ROAE (%) ROAA (%) ROCE (%) ROIC (%) Net debt to equity (%) Effective tax rate (%) Accounts receivable (days) Payables (days) Net interest cover (x) Net dividend payout (%) 2007 51.9 51.4 55.3 53.7 33.4 28.6 16.1 14.0 12.2 24.7 27.3 net cash 31.6 52.0 18.7 n.a. 13.2 2008 21.2 20.4 (2.4) (2.6) 33.2 28.7 13.0 12.5 10.2 27.5 21.3 net cash 41.9 55.5 20.8 n.a. 13.6 2009E 13.9 (2.0) 3.5 3.5 28.6 21.5 11.8 11.9 9.5 21.6 17.0 net cash 32.0 51.8 21.6 n.a. 17.5 2010E 21.0 34.2 56.8 56.8 31.7 23.6 15.3 16.5 13.4 25.4 19.5 net cash 30.7 45.4 19.2 n.a. 11.2 2011E 14.1 13.9 21.9 21.9 31.6 24.4 16.4 17.2 14.3 25.7 21.2 net cash 30.7 45.5 20.2 n.a. 9.2
Key assumptions Year to 31 Dec Number of unique visitors ('000) Number of paying users ('000) ARPU (Local currency) 2007 2008 2009E 2010E 2011E 7,791 7,211 5,597 5,922 6,117 437 525 543 592 631 21,773 23,932 25,155 26,765 28,130
Chart: PER bands (W) 53,718 43,718 33,718 23,718 13,718 3,718 Jan-06 Dec-06 Dec-07 Dec-08 44.6x 34.9x 25.1x 15.4x 5.6x Dec-09
Source: Company, Daiwa forecasts
Asia Pacific Daily
14

9 February 2010
Daewoo Shipbuilding & Marine Engineering (042660 KS) 4Q FY09 earnings review – we expect another lacklustre year for FY10 Capital goods: Korea Sung Yop Chung (82) 2 787 9157 (sychung@kr.daiwacm.com) Price (8 Feb) Reuters code ADR/GDR code Shares per ADR/GDR
Rating: 4
Target price: W19,000 → W17,000 (-10.5%)
W18,050 042660.KS n.a. n.a.
What has changed? ? Daewoo Shipbuilding & Marine Engineering’s (DSME) 4Q FY09 operating profit was broadly in line with our and the Bloomberg-consensus estimates.
Market data KOSPI Market cap EV 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate 1,552.79 (US$bn) 2.97 (US$bn; 09E) 2.52 (US$m) 28.35 (m) 191 (%) 47.0 Korea Development Bank (31.3%) W/US$ 1,169 3M 13.2 14.6 6M (18.5) (17.3)
Impact ? 4Q FY09 earnings review. 4Q FY09 revenue and operating profit increased by 2.6% QoQ and 26.3% QoQ, respectively. According to the management, this was the result of aggressive cost-cutting efforts, more working days quarter-onquarter, and improved productivity in building offshore vessels. However, net profit fell by 56.7% QoQ, which according to the management was due mainly to a weaker equity-method gain from its shipyard in Mangalia, Romania. ? We expect another lacklustre year for FY10, due to what we see as its: 1) FY10 revenue growth remaining flat amid delivery delays, and 2) the company’s FY10 new shipbuilding-order target of US$10bn (50% from offshore vessels), from only US$3.5bn for FY09, being too aggressive. ? Low-priced order intake likely to result in weaker earnings from FY11. Although DSME has received new shipbuilding orders amounting to nearly US$3.7bn over the past two months, we are concerned about the profitability of these vessels. We believe the company was determined to secure new shipbuilding orders at a discount due to having an orderbook of only two years (the lowest among the big three-shipyards globally).
Performance (%)* 1M Absolute (10.9) Relative (2.7) Source: Daiwa Note: *Relative to KOSPI
Investment indicators 2009E 2010E 2011E PER (x) 6.0 9.2 14.8 PCFR (x) n.a. n.a. n.a. EV/EBITDA (x) 4.3 5.2 11.0 PBR (x) 1.7 1.4 1.7 Dividend yield (%) 5.2 6.6 6.6 ROE (%) 28.2 16.5 10.2 ROA (%) 3.7 2.5 1.6 Net debt equity (%) net cash net cash net cash Relative to peers In line Relative to history Above Source: Daiwa forecasts
Income summary (Wbn) Yr to 31 Dec 2008 2009E 2010E 2011E Revenue 11,075 12,443 12,889 9,675 YoY (%) 55.9 12.4 3.6 (24.9) EBITDA 1,051 687 569 290 YoY (%) 219.8 (34.7) (17.2) (49.0) Net profit 402 577 377 235 YoY (%) 25.1 43.8 (34.7) (37.6) EPS (W) 2,099 3,017 1,971 1,230 YoY (%) 25.1 43.8 (34.7) (37.6) CFPS (W) (1,671.4 (1,560.9 (359.99 (755.03 69) 17) 7) 0) DPS (W) 600 936 1,200 1,201 Source: Company, Daiwa forecasts
Valuation ? We have lowered our DCF/PER-based six-month target price to W17,000, from W19,000. This is after revising down our FY10 and FY11 earnings forecasts, as a result of factoring in: 1) an increase in payment and delivery rescheduling in FY10, and 2) a 6.4% upward adjustment to our FY10 steel-plate price assumption, to W1.12m/tonne from W1.05m/tonne. ? Valuation looks stretched. The stock is trading currently at a PBR of 1.4x, based on our FY10 BVPS forecast, compared with a PBR of 0.7x during the previous cyclical downturn in 1997.
Price and relative performance (W) 67,300 52,600 37,900 23,200 8,500 07/2 Rel to KOSPI
07/8
08/2
08/8
09/2
09/8
200 150 100 50 0 10/2
Catalysts and action ? A trading opportunity may emerge over the next six months, but we recommend selling into strength. We expect DSME’s M&A premium to emerge over the next six months, as the Korea Development Bank said it would privatise the company by the end of 3Q FY10. However, we recommend using this opportunity to sell into strength, given our view of weaker fundamentals and a continuous cyclical downturn in the global shipbuilding industry. DSME: 4Q FY09 earnings review (Wbn) 4Q FY09P 3,176 200 6.3 83 2.6 4Q FY09Daiwa 3,861 231 6.0 (45) (1.2) 4Q FY09Bloomberg 3,120 183 5.9 145 4.6 Diff (%) (17.7) (13.2) n.m. 4Q FY 08 3,668 567 15.5 293 8.0 YoY (%) (13.4) (64.7) (71.7) 3Q FY09 3,097 159 5.1 191 6.2 QoQ (%) 2.6 26.3 (56.7)
Source: Bloomberg, Daiwa
Forecasts revisions (%) Revenue change Net profit change EPS change Source: Daiwa forecasts FY09E (5.2) 28.2 28.2 FY10E (18.6) (11.4) (11.4) FY11E (18.6) (11.4) (11.4)
Fair value Valuation (W/shr) Methodology Key assumption Source: Daiwa forecasts 17,000 DCF/PER valuation WACC of 13.12%
Revenue Operating profit OP margin (%) Net profit NP margin (%)
Source: Company, Bloomberg-consensus forecasts, Daiwa Note: P - provisional
Asia Pacific Daily
15

9 February 2010
Company background Established in 1978, DSME is the third-largest shipyard in the world, with an annual capacity of 2.4m CGT. It was a shipbuilding division of Daewoo Heavy Industries, but following the bankruptcy of Daewoo group in 2001, Daewoo Heavy Industries was split into DSME and Daewoo Heavy Industries & Machinery (now known as Doosan Infracore).
Daewoo Shipbuilding & Marine Engineering – financial summary Profit and loss (Wbn) Year to 31 Dec Domestic Export Other revenue Total revenue Other income COGS SG&A Other op. expenses EBIT Net-interest inc./(exp.) Assoc/forex/extraord./others Pre-tax profit Tax Min. int./pref. div./others Net profit (reported) Net profit (adj.) EPS (reported) (W) EPS (adj.) (W) DPS (W) EBIT (adj.) EBITDA (adj.) 2007 2008 2009E 111 172 194 6,994 10,902 12,249 0 0 0 7,105 11,075 12,443 0 0 0 (11,337 ) (6,534) (9,750) (59) (68) (62) (206) (226) (360) 307 1,032 684 84 148 28 53 (599) 56 443 580 768 (122) (178) (191) 0 0 0 321 402 577 321 402 577 1,678 2,099 3,017 1,678 2,099 3,017 600 936 319 307 1,032 684 329 1,051 687 2010E 2011E 201 151 12,689 9,525 0 0 12,889 9,675 0 0 (11,793 ) (9,024) (67) (72) (463) (292) 566 287 9 5 (72) 22 503 314 (126) (79) 0 0 377 235 377 235 1,971 1,230 1,971 1,230 1,200 1,201 566 287 569 290
Balance sheet (Wbn) As at 31 Dec 2007 2008 2009E 2010E 2011E Cash & short-term investment 2,279 1,021 1,287 1,299 1,012 Inventory 989 1,646 1,598 1,499 1,022 Accounts receivable 1,520 3,512 2,821 2,922 2,194 Other current assets 687 3,204 1,997 1,907 1,821 Total current assets 5,475 9,382 7,703 7,626 6,048 Fixed assets 2,246 2,638 2,902 3,193 3,512 Goodwill & intangibles 17 8 18 28 38 Other non-current assets 545 3,925 4,513 4,739 4,977 Total assets 8,282 15,954 15,136 15,586 14,575 Short-term debt 59 80 6 (60) (138) Accounts payable 1,106 947 1,693 2,016 1,624 Other current liabilities 4,571 8,840 7,931 5,877 6,180 Total current liabilities 5,736 9,867 9,630 7,833 7,666 Long-term debt 157 139 755 860 864 Other non-current liabilities 624 3,880 2,723 4,336 3,988 Total liabilities 6,517 13,886 13,108 13,029 12,518 Share capital 962 962 962 962 962 Reserves/R.E./others 803 1,106 1,066 1,595 1,095 Shareholders' equity 1,765 2,068 2,028 2,557 2,057 Minority interests 0 0 0 0 0 Total equity & liabilities 8,282 15,954 15,136 15,586 14,575 Net debt/(cash) (2,063) (801) (525) (499) (286)
Cash flow (Wbn) Year to 31 Dec 2007 2008 2009E 2010E 2011E Profit before tax 443 580 768 503 314 Depreciation and amortisation 143 145 33 35 37 Tax paid (122) (178) (191) (126) (79) Change in working capital 1,351 621 457 (1,772) 1,398 Other operational CF items 36 (1,488) (1,366) 1,292 (1,815) Cash flow from operations 1,851 (320) (299) (69) (145) Capex (400) (450) (480) (400) (360) Net (acquisitions)/disposal (665) (2,555) (636) (275) (288) Other investing CF items (110) 3,029 758 76 52 Cash flow from investing (1,175) 24 (358) (599) (596) Change in debt (38) (18) 538 26 (74) Net share issues/(repurchases) 0 0 0 0 0 Dividends paid (80) (95) (115) (115) (1,072) Other financing CF items 212 3,288 462 728 1,558 Cash flow from financing 93 3,176 885 640 412 Forex effect/others 0 0 0 0 0 Change in cash 769 2,881 229 (27) (328)
Key ratios Year to 31 Dec Sales – YoY % EBITDA (adj.) – YoY % Net profit (adj.) – YoY % EPS (adj.) – YoY % EBITDA margin % (adj.) EBIT margin % (adj.) Net-profit margin % (adj.) ROAE (%) ROAA (%) ROCE (%) ROIC (%) Net debt to equity (%) Effective tax rate (%) Accounts receivable (days) Payables (days) Net interest cover (x) Net dividend payout (%) 2007 31.6 n.a. 446.9 446.9 4.6 4.3 4.5 19.1 4.5 16.0 65.1 net cash 27.5 72.0 45.0 n.a. 19.0 2008 55.9 219.8 25.1 25.1 9.5 9.3 3.6 21.0 3.3 48.3 147.5 net cash 30.7 82.9 33.8 n.a. 28.6 2009E 12.4 (34.7) 43.8 43.8 5.5 5.5 4.6 28.2 3.7 27.0 37.2 net cash 24.8 92.9 38.7 n.a. 31.0 2010E 3.6 (17.2) (34.7) (34.7) 4.4 4.4 2.9 16.5 2.5 18.4 23.8 net cash 25.0 81.3 52.5 n.a. 60.9 2011E (24.9) (49.0) (37.6) (37.6) 3.0 3.0 2.4 10.2 1.6 9.4 11.2 net cash 25.0 96.5 68.7 n.a. 97.6
Key assumptions Year to 31 Dec New order growth (YoY%) Change in newbuilding price index (%) 2007 2008 2009E 2010E 2011E 77.0% (40.5%) (69.0%) 70.0% 25.0% 9.5 (3.8) (22.0) (20.3) 4.5
PER bands (W) 2,000,155 1,500,155 1,000,155 500,155 155 Jan-06 Dec-06 Dec-07 Dec-08 Dec-09 726.1x 545.6x 365.2x 184.7x 4.2x
Source: Company, Daiwa forecasts
Asia Pacific Daily
16

9 February 2010
8 February 2010 (No. of pages: 13)
Doosan Infracore (042670 KS) Capital goods: Korea
6-mth rating: 1
→2
Target price: W21,000 → W20,000 (-4.8%) Share price: W17,900 (5 Feb)
Mike Oh (82) 2 787 9179 mike.oh@kr.daiwacm.com
Earnings improvement expected to start from FY10 Target price lowered, rating downgraded We have downgraded our rating to 2 (Outperform) from 1 (Buy) as we believe Doosan Infracore (DI) has yet to find a strong share-price driver for FY10. We think strong China excavator sales are factored in to the current share price. We have lowered our six-month target to W20,000, from W21,000, based on a five-year (2005-09) average PBR of 2.8x. Loss expected for 4Q FY09 We expect DI to record a net loss for 4Q FY09, but forecast a strong operating-profit margin of 10.6% due to the pre-booking of one-off factors in 3Q FY09. Some macro factors are helping the company We think rising raw-material prices are positive for the construction-machinery makers, because such price rises reflect lively industrial activity. Some governments’ continuing commitment to stimulate their economies is likely to buoy DI sales, we believe. A potential appreciation in the Renminbi could boost earnings from the China subsidiaries, in our view. Earnings turnaround now expected from FY10 We have revised up our operating-profit forecasts for FY10 and FY11 by 29% and 20%, respectively. We now expect DI’s net profit to turn positive from FY10, not FY11, on the back of a decline in the equity-method loss and the absence of forexderivative contracts losses. Income summary Year to 31 Dec 2007 2008 2009E 2010E 2011E Source: Company, Daiwa forecasts
Reuters code
042670.KS 1,567.12 (US$bn) 2.57 (US$bn; 09E) 4.34 (US$m) 39.68 (m) 168 (%) 42.1 Doosan Heavy (38.9%) W/US$ 1,169 1M 4.4 12.6 3M 7.5 6.5 6M 6.2 5.7
Market data KOSPI Market cap EV 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate Performance (%)* Absolute Relative Source: Daiwa Note: *Relative to KOSPI
Investment indicators PER PCFR EV/EBITDA PBR Dividend yield ROE ROA Net debt equity Source: Daiwa forecasts
(x) (x) (x) (x) (%) (%) (%) (%)
2009E n.a. n.a. 18.1 2.6 0.6 n.a. n.a. 180.1
2010E 60.3 11.5 18.4 2.6 0.6 4.3 1.1 161.3
2011E 17.6 15.1 15.2 2.3 0.6 13.6 3.6 129.2
Price and relative performance (W) 46,300 36,575 26,850 17,125 7,400 07/2 Rel to KOSPI
07/8
08/2
08/8
09/2
09/8
200 163 125 88 50 10/2
Source: Bloomberg, Daiwa
Revenue (Wbn) (%) 3,720 13.3 3,963 6.5 2,653 (33.1) 2,805 5.7 2,969 5.8
EBITDA (Wbn) (%) 379 21.2 (20) n.a. 281 n.a. 268 (4.9) 312 16.7
Net profit (Wbn) (%) 180 32.8 (122) n.a. (338) n.a. 50 n.a. 171 242.2
EPS (W) 1,072 (724) (2,010) 297 1,016 (%) 32.8 n.a. n.a. n.a. 242.2
CFPS (W) 1,379 1,215 (2,377) 1,556 1,188
DPS (W) 350 150 100 100 100
This is an excerpt from our report issued yesterday. Please contact us for further details. Asia Pacific Daily
17

9 February 2010
Company background DI is Korea’s leading manufacturer of construction machinery, with shares of 49% in the domestic-excavator, 32% in the machinetools, and 50.9% in the forklift markets for 2008. Construction-machinery sales accounted for 60.7% of the company’s total 1H FY09 sales, and machine tools and engines for the remaining 39.3%. The company is competing for the top market share in the China excavator market, which accounts for 30% of its consolidated operating profit.
Doosan Infracore – financial summary Profit and loss (Wbn) Year to 31 Dec Construction equipment Industrial vehicles Other revenue Total revenue Other income COGS SG&A Other op. expenses EBIT Net-interest inc./(exp.) Assoc/forex/extraord./others Pre-tax profit Tax Min. int./pref. div./others Net profit (reported) Net profit (adj.) EPS (reported) (W) EPS (adj.) (W) DPS (W) EBIT (adj.) EBITDA (adj.) 2007 2008 2009E 2010E 2011E 1,372 1,419 1,161 1,209 1,325 501 461 355 356 371 1,847 2,084 1,137 1,241 1,272 3,720 3,963 2,653 2,805 2,969 0 0 0 0 0 (2,843) (3,011) (1,975) (2,117) (2,217) (555) (605) (458) (467) (489) 0 0 0 0 0 321 347 220 222 263 (24) (64) (104) (132) (138) (11) (368) (435) (50) 111 286 (85) (318) 40 236 (106) (37) (20) 10 (65) 0 0 0 0 0 180 (122) (338) 50 171 180 (122) (338) 50 171 1,072 (724) (2,010) 297 1,016 1,072 (724) (2,010) 297 1,016 150 100 100 100 350 (79) 220 222 263 321 (20) 281 268 312 379
Balance sheet (Wbn) As at 31 Dec Cash & short-term investment Inventory Accounts receivable Other current assets Total current assets Fixed assets Goodwill & intangibles Other non-current assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Other non-current liabilities Total liabilities Share capital Reserves/R.E./others Shareholders' equity Minority interests Total equity & liabilities Net debt/(cash) 2007 11 408 676 193 1,288 736 72 1,111 3,207 129 440 550 1,120 876 103 2,098 841 269 1,109 0 3,207 994 2008 25 529 490 952 1,996 1,235 70 1,625 4,926 518 268 1,261 2,046 1,013 321 3,380 841 705 1,546 0 4,926 1,506 2009E 184 363 363 568 1,478 1,077 107 1,993 4,655 650 167 749 1,566 1,600 342 3,508 841 306 1,147 0 4,655 2,066 2010E 297 384 384 601 1,666 1,070 112 1,845 4,693 500 154 792 1,445 1,700 367 3,512 841 339 1,180 0 4,693 1,903 2011E 426 407 407 636 1,875 1,081 118 1,810 4,884 500 163 838 1,500 1,650 399 3,549 841 493 1,335 0 4,884 1,724
Cash flow (Wbn) Year to 31 Dec Profit before tax Depreciation and amortisation Tax paid Change in working capital Other operational CF items Cash flow from operations Capex Net (acquisitions)/disposal Other investing CF items Cash flow from investing Change in debt Net share issues/(repurchases) Dividends paid Other financing CF items Cash flow from financing Forex effect/others Change in cash 2007 286 57 (106) 5 (11) 232 (66) (654) (84) (805) 608 (1) (59) (9) 540 0 (33) 2008 2009E 2010E 2011E (85) (318) 40 236 59 61 46 50 (37) (20) 10 (65) (156) 79 (45) (25) 423 (201) 211 4 204 (400) 262 200 (173) (66) (77) (78) (238) (70) 2 2 (91) 0 0 0 (501) (136) (75) (76) 526 719 (50) (50) 1 202 0 0 (59) (25) (17) (17) (157) 0 0 0 310 896 (67) (67) 0 0 0 0 13 360 120 57
Key ratios Year to 31 Dec Sales – YoY % EBITDA (adj.) – YoY % Net profit (adj.) – YoY % EPS (adj.) – YoY % EBITDA margin % (adj.) EBIT margin % (adj.) Net-profit margin % (adj.) ROAE (%) ROAA (%) ROCE (%) ROIC (%) Net debt to equity (%) Effective tax rate (%) Accounts receivable (days) Payables (days) Net interest cover (x) Net dividend payout (%) 2007 13.3 21.2 32.8 32.8 10.2 8.6 4.8 16.6 6.4 18.0 11.5 89.6 36.9 62.1 42.3 13.2 32.6 2008 6.5 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 13.5 97.4 n.a. 53.7 32.6 n.a. n.a. 2009E (33.1) n.a. n.a. n.a. 10.6 8.3 n.a. n.a. n.a. 6.8 7.0 180.1 n.a. 58.7 29.9 2.1 n.a. 2010E 5.7 (4.9) n.a. n.a. 9.5 7.9 1.8 4.3 1.1 6.6 7.1 161.3 n.a. 48.6 20.9 1.7 33.7 2011E 5.8 16.7 242.2 242.2 10.5 8.8 5.8 13.6 3.6 7.7 6.2 129.2 27.5 48.6 19.4 1.9 9.8
Key assumptions Year to 31 Dec Construction machinery demand growth (YoY%) 2007 5.0% 2008 2009E 2010E 2011E 5.0% 2.2% 7.7% 7.1%
PER bands (W) 47,083 37,083 27,083 17,083 7,083 Jan-06 Dec-06 Dec-07 Dec-08 Dec-09 45.5x 37.9x 30.3x 22.7x 15.1x
Source: Company, Daiwa forecasts
Asia Pacific Daily
18

9 February 2010
Webzen (069080 KS) Clearing the deck for the turn Software: Korea Thomas Y. Kwon (82) 2 787 9181 (yskwon@kr.daiwacm.com) Price (8 Feb) Reuters code ADR/GDR code Shares per ADR/GDR
Rating: 2
Target price: W15,000 → W14,500 (-3.3%)
W11,800 069080.KS n.a. n.a.
What has changed? ? Webzen recorded weaker-than-expected 4Q earnings due to surging operating expenses related to amortization and the headquarters move. Webzen projects a strong earnings turnaround in 1Q FY10 and 2010, with new game publishing.
Market data KOSPI Market cap EV 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate 1,552.79 (US$m) 130.91 (US$m; 09E) 100.94 (US$m) 2.56 (m) 13 (%) 76.3 NHN (34.5%) W/US$ 1,169 1M 8.3 18.2 3M (7.5) (6.3) 6M (14.8) (13.5)
Impact ? Revenue in 4Q of W7.5bn was in line with our projection of W7.4bn, but operating profit was substantially lower than our forecast due to one-off costs related to amortization, commissions, and bonus payments. Its new game, MU Blue, has demonstrated solid growth since its release in November 2009. Overseas revenue accounted for 44.9% of total revenue in 2009. ? Meanwhile, management expects strong game sales from Huxley and the global direct game service (GDS) of MU and SUN. We believe the company would commence the commercial service of Huxley in Korea in 2Q10. This game would help Webzen to diversify its revenue mix and drive solid earnings growth, in our view. Webzen plans to add two-to-three new games to its service lineup in 2H10 to create service synergies with NHN Games (unlisted). ? We forecast Webzen to record operating profit of W1.0bn for 1Q10, on the back of solid game sales for its flagship titles and the absence of one-off costs. As the company has become a slimmer game-development studio, we expect strong operating leverage, coupled with the commercial launch of Huxley and service-region expansion globally.
Performance (%)* Absolute Relative Source: Daiwa Note: *Relative to KOSPI
Investment indicators 2009E 2010E 2011E PER (x) n.m. 14.5 11.7 PCFR (x) 33.1 8.3 7.9 EV/EBITDA (x) n.m. 10.0 7.3 PBR (x) 1.3 1.2 1.1 Dividend yield (%) 0.0 0.0 0.0 ROE (%) 0.3 8.5 9.6 ROA (%) 0.2 7.7 8.6 Net debt equity (%) net cash net cash net cash Relative to peers Below Relative to history In line Source: Daiwa forecasts
Income summary (Wbn) Yr to 31 Dec 2008 2009E 2010E Revenue 28 28 36 YoY (%) 0.9 (2.4) 30.8 EBITDA (4) 0 11 YoY (%) n.a. n.a. n.m. Net profit (14) 0 11 YoY (%) n.a. n.a. n.m. EPS (W) (1,100) 25 814 YoY (%) n.a. n.a. n.m. CFPS (W) (1,006) 357 1,426 DPS (W) 0.000 0.000 0.000 Source: Company, Daiwa forecasts 2011E 41 13.7 14 25.1 13 23.7 1,007 23.7 1,492 0.000
Valuation ? The stock trades at PER of 14.5x our FY10 EPS forecast. We believe this valuation multiple is justified, given our expectation of a strong earnings turnaround, a potential merger with NHN Games, and diversification in the revenue mix and profitability improvement. We have slightly lowered our sixmonth target price to W14,500 from W15,000.
Price and relative performance (W) 21,000 16,675 12,350 8,025 3,700 07/2 Rel to KOSPI
07/8
08/2
08/8
09/2
09/8
200 150 100 50 0 10/2
Catalysts and action ? We maintain our 2 (Outperform) rating of Webzen, as we believe the stock will outperform the market due to our expectation of a quarterly earnings turnaround in 1Q10 and the commercial launch of the Huxley game in 2Q10. Webzen: quarterly-earnings trend (Wbn) Total revenue Growth (YoY %) Growth (QoQ %) Mu and Mu Blue SUN Huxley and others Operating profit Change (YoY %) Change (QoQ %) Margin (%) Source: Company,
Source: Bloomberg, Daiwa
Forecasts revisions (%) Revenue change Net profit change EPS change Source: Daiwa forecasts FY09E FY10E FY11E 0.3 (6.2) (4.3) (94.1) (12.6) (6.5) (94.1) (12.6) (6.5)
Fair value Valuation (W/shr) Methodology Key assumption Source: Daiwa forecasts 13,219 DCF and peer comparision WACC of 12.1% and terminal growth rate of 3.0%
3Q08 6.9 (9.0) (5.1) 4.3 2.5 0.1 (0.6) n.m. n.m. (8.8) Note: P - provisional
4Q08 7.2 3.5 4.8 4.6 2.6 0.0 1.3 T.B. T.B. 18.7
1Q09 7.4 3.9 2.9 4.7 2.7 0.0 1.9 T.B. 41.2 25.7
2Q09 6.2 (14.8) (16.8) 3.8 2.3 0.0 0.1 T.B. (96.4) 1.1
3Q09 6.7 (2.4) 8.8 3.6 2.3 0.8 0.4 T.B. 415.7 5.3
4Q09P 4Q09E 7.5 7.4 3.9 2.8 11.6 10.4 4.5 4.3 2.7 2.4 0.2 0.7 (3.9) 0.5 n.m. (66.6) n.m. T.B. (52.6) 6.1
Asia Pacific Daily
19

9 February 2010
Company background Webzen offers two games (MU and SUN) and plans to launch the Huxley game in 2H09 in Korea and China. NHN Games is the major shareholder, after acquiring a 23.74% stake in Webzen in October 2008.
Webzen – financial summary Profit and loss (Wbn) Year to 31 Dec MU game SUN game Other revenue Total revenue Other income COGS SG&A Other op. expenses EBIT Net-interest inc./(exp.) Assoc/forex/extraord./others Pre-tax profit Tax Min. int./pref. div./others Net profit (reported) Net profit (adj.) EPS (reported) (W) EPS (adj.) (W) DPS (W) EBIT (adj.) EBITDA (adj.) 2007 2008 2009E 2010E 2011E 20 18 17 20 17 8 10 10 13 21 0 0 2 3 4 28 28 28 36 41 0 0 0 0 0 (15) (12) (12) (14) (15) (28) (24) (17) (13) (15) 0 0 0 0 0 (14) (7) (2) 9 12 4 3 3 4 4 3 (10) 1 0 0 (7) (13) 1 13 16 (3) (1) (1) (2) (3) 0 0 0 0 0 (10) (14) 0 11 13 (10) (14) 0 11 13 (735) (1,100) 24.690 814 1,007 (735) (1,100) 24.690 814 1,007 0.000 0.000 0.000 0.000 0.000 (14) (7) (2) 9 12 (10) (4) 0 11 14
Balance sheet (Wbn) As at 31 Dec Cash & short-term investment Inventory Accounts receivable Other current assets Total current assets Fixed assets Goodwill & intangibles Other non-current assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Other non-current liabilities Total liabilities Share capital Reserves/R.E./others Shareholders' equity Minority interests Total equity & liabilities Net debt/(cash) 2007 65 0 7 11 83 6 11 57 158 0 0 10 10 0 8 17 6 135 141 0 158 (65) 2008 40 0 8 28 76 5 5 44 131 0 0 6 6 0 6 12 6 113 119 0 131 (40) 2009E 35 0 6 35 76 6 4 45 132 0 0 8 8 0 4 13 6 113 119 0 132 (35) 2010E 44 0 12 32 87 7 4 47 144 0 0 10 10 0 4 14 6 123 130 0 144 (44) 2011E 53 0 9 38 100 7 3 48 159 0 0 12 12 0 4 16 6 136 143 0 159 (53)
Cash flow (Wbn) Year to 31 Dec Profit before tax Depreciation and amortisation Tax paid Change in working capital Other operational CF items Cash flow from operations Capex Net (acquisitions)/disposal Other investing CF items Cash flow from investing Change in debt Net share issues/(repurchases) Dividends paid Other financing CF items Cash flow from financing Forex effect/others Change in cash 2007 (7) 4 (3) (2) (14) (20) (1) (7) 10 3 0 1 0 4 5 0 (13) 2008 2009E 2010E 2011E (13) 1 13 16 3 2 2 2 (1) (1) (2) (3) 0 1 (6) 2 (2) 1 12 2 (13) 5 18 19 (1) (2) (2) (2) 9 (2) (2) (2) (14) (7) (7) (7) (6) (11) (11) (11) 4 0 0 0 0 0 0 0 0 0 0 0 (11) 0 0 0 (8) 0 0 0 0 0 0 0 (27) (6) 8 9
Key ratios Year to 31 Dec Sales – YoY % EBITDA (adj.) – YoY % Net profit (adj.) – YoY % EPS (adj.) – YoY % EBITDA margin % (adj.) EBIT margin % (adj.) Net-profit margin % (adj.) ROAE (%) ROAA (%) ROCE (%) ROIC (%) Net debt to equity (%) Effective tax rate (%) Accounts receivable (days) Payables (days) Net interest cover (x) Net dividend payout (%) 2007 28.5 n.a. n.a. n.a. (35.0) (49.6) (33.8) n.a. n.a. (9.6) (18.5) net cash n.a. 76.5 0.0 n.a. n.a. 2008 0.9 n.a. n.a. n.a. (13.6) (24.7) (50.1) n.a. n.a. (5.4) (9.1) net cash n.a. 95.5 0.0 n.a. n.a. 2009E (2.4) n.a. n.a. n.a. 0.5 (5.8) 1.2 0.3 0.2 (1.4) (0.5) net cash 77.0 94.0 0.0 n.a. 0.0 2010E 30.8 n.m. n.m. n.m. 30.2 24.9 29.1 8.5 7.7 7.3 8.7 net cash 18.0 89.7 0.0 n.a. 0.0 2011E 13.7 25.1 23.7 23.7 33.3 28.1 31.6 9.6 8.6 8.5 10.8 net cash 18.0 91.3 0.0 n.a. 0.0
Key assumptions Year to 31 Dec PC café market share (%) Number of servicing games Overseas revenue portion (%) 2007 2008 2009E 2010E 2011E 1.6% 1.2% 1.0% 1.0% 1.0% 2 2 3 5 6 30.3% 40.0% 44.9% 44.9% 44.9%
Source: Company, Daiwa forecasts
Asia Pacific Daily
20

9 February 2010
Taiwan Economy Surging exports may be a harbinger of broad-based economic acceleration Economy: Taiwan Prasenjit K. Basu (65) 6321 3069 (p-k.basu@sg.daiwacm.com)
Summary ? Exports surged 76% YoY in January, aided by calendar effects, but imports expanded even faster (115% YoY). We expect real GDP to rise 6.2% in 2010 and the current account surplus to shrink to 8.4% of GDP (from 11% in 2009).
Fundamentals ? Taiwan’s exports soared 75.8% YoY in January 2010, aided by a calendar effect that lengthened the working month by three days (or 17.6% YoY) – as the four-day Chinese New Year holiday was in January last year (but will be in February this year) while January 2009 had five Sundays (versus four in January 2010). Adjusting for the calendar effect, exports still expanded well over 50% YoY in January, reflecting the strength of demand from the rest of Asia: exports to mainland China surged 157% YoY, to ASEAN 95% YoY, Korea 80% YoY, and Japan 31% YoY. Exports to the Netherlands, Germany and the UK all rose more than 40% YoY, while those to the US rose 14% YoY. ? Importantly, imports expanded faster than exports for the second consecutive month – rising 114.7% YoY in January – reflecting evidence of a turnaround in domestic demand as well. The trade surplus for December 2009-January 2010 fell about 10% YoY, which we interpret as an indicator of rebounding domestic demand. Export orders have continued accelerating in recent months, suggesting to us that exports will continue to expand more than 20% YoY in 1H10. With domestic demand also likely to stay robust, we revised our forecast for Taiwan’s real GDP growth in 2010 to 6.2% last month – and these trade figures affirm our conviction about the likely strength of the rebound in Taiwan’s economy this year. The likely conclusion of an Economic cooperation framework agreement (ECFA) between Taiwan and China, in particular, should provide a fillip to investment spending in Taiwan (as lower import tariffs in China, from the current average 9% level, will lower the cost of exporting capital goods from Taiwan to China, likely boosting capex in the former). ? CPI inflation was a modest 0.29% YoY in January 2010, marking the end of 11 months of deflation in the CPI. Wholesale price inflation remains much more severe (6.7% YoY) but policy should continue to be driven more by CPI. Consequently, we expect policy rate increases to resume only in 2H10. Imports outpace robust exports; surplus ebbs Trade surplus shrinks from record, as imports surge more than exports 70 35,000 50 30,000 30 25,000 10 20,000 (10) 15,000 (30) 10,000 (50) 5,000 (70) 0 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Trade balance (US$m): 12month rolling sum (LHS) Total exports (US$): % YoY: 3mma (RHS) Total imports (US$): % YoY: 3mma (RHS) Source: Company, Daiwa forecasts
Inflation barely positive, so rates may stay stable Rates to remain stable, as CPI inflation is barely positive 12 9 6 3 0 (3) (6) (9) (12) (15) Jan-94
Jan-98 Rediscount rate (%)
Jan-02
Jan-06
Jan-10 WPI: % YoY
CPI: % YoY
Source: Company, Daiwa forecasts
Asia Pacific Daily
21

9 February 2010
Silitech Technology (3311 TT) 1Q10 sales should be ahead of traditional seasonality Capital goods: Taiwan Andrew Chang (886) 2 8789 5341 (andrew.chang@daiwacm-cathay.com.tw) Price (5 Feb) Reuters code ADR/GDR code Shares per ADR/GDR
Rating: 2
Target price: NT$123.00 → NT$128.00 (+4.1%)
NT$104.00 3311.TW n.a. n.a.
What has changed? ? Silitech recorded January consolidated sales of NT$913m, up 5% MoM. After a disappointing 4Q09 of only flat QoQ sales, we forecast 1Q10 sales to decline by 12% QoQ, ahead of traditional seasonality of a 15%+ QoQ decline.
Market data TWSE Index Market cap EV 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate 7,217.83 (US$m) 570.50 (US$m; 09E) 508.95 (US$m) 5.19 (m) 176 (%) 53.6 Lite-On Technology (46.4%) NT$/US$ 32.066 3M 0.0 2.8 6M 41.4 34.1
Impact ? We forecast 4Q09 EPS of NT$2.43. We look for the 4Q09 sales disappointment to be due mainly to Nokia’s earlier inventory adjustments in November and December. We forecast the gross-profit margin to fall by 0.3 of a percentage point to 24% for 4Q09. ? We forecast sales to decline by 12% QoQ for 1Q10. With better-thanexpected consolidated sales for January, we expect Silitech to record less of a seasonal sales decline than Largan (down 14% QoQ) and Merry (near a 15% QoQ decline). Apparently, handset OEM customers are seeing stronger sellthrough at their retail ends, and the supply chain has turned more bullish on the sell-through and started to increase its handset keypad orders. ? Growth drivers of keypad market-share gains and hybrid keypad growth remain intact. We forecast Silitech to expand its global handset market share further to 25% for 2010 from 21% for 2009. Also, we estimate shipments of hybrid keypads (touchscreens plus Qwerty keypads) to rise further to 20-25% of Silitech’s overall keypad shipments in 2010, led by strong growth of smartphone shipments in 2010. Automotive stereo housing monthly sales have also recovered to over NT$70m per month since 4Q09.
Performance (%)* 1M Absolute (11.5) Relative 0.7 Source: Daiwa Note: *Relative to TWSE Index
Investment indicators 2009E 2010E 2011E PER (x) 13.9 11.3 10.5 PCFR (x) 10.3 9.6 7.6 EV/EBITDA (x) 8.8 6.7 5.8 PBR (x) 3.4 2.9 2.5 Dividend yield (%) 2.6 3.5 3.8 ROE (%) 26.9 27.3 25.3 ROA (%) 13.4 14.6 14.1 Net debt equity (%) net cash net cash net cash Relative to peers In line Relative to history In line Source: Daiwa forecasts
Income summary (NT$m) Yr to 31 Dec 2008 2009E 2010E 2011E Revenue 9,106 10,819 12,750 14,353 YoY (%) 2.2 18.8 17.8 12.6 EBITDA 1,349 1,852 2,354 2,587 YoY (%) (23.1) 37.3 27.1 9.9 Net profit 1,115 1,321 1,612 1,741 YoY (%) (13.5) 18.4 22.1 8.0 EPS (NT$) 6.506 7.508 9.164 9.899 YoY (%) (24.0) 15.4 22.1 8.0 CFPS (NT$) 8.981 10.101 10.783 13.678 DPS (NT$) 2.280 2.702 3.665 3.960 Source: Company, Daiwa forecasts
Valuation ? We maintain our 2 (Outperform) rating, but have raised our six-month target price slightly to NT$128 from NT$123, based on a higher target PER of 14x, from 13.5x previously. We have raised our target PER due to: 1) the steady margin trend supported by rising shipments of higher-ASP hybrid keypads, and 2) market-share gains through further project wins from Nokia and Samsung Electronics.
Price and relative performance (NT$) 200.0 150.0 100.0 50.0 0.0 07/2 Rel to TWSE Index
07/8
08/2
08/8
09/2
09/8
125 106 88 69 50 10/2
Catalysts and action ? We have fine-tuned our FY09 and FY10 net-profit forecasts to NT$1.3bn and NT$1.6bn, respectively. We expect a better seasonal outlook in 1Q10 and a continuing increase in higher ASP hybrid keypads in smartphones to lead to an improvement in the ROE during 2010. Silitech: earnings-forecasts revisions (NT$m) Revenue Gross profit Operating profit Pre-tax income Net income EPS, ex-dividend (NT$) Gross margin (%) Operating margin (%) Net margin (%) 4Q09E 4Q09 Diff 1Q10E 1Q10E New Old New E Old (%) 3,103 3,290 (5.7) 2,737 2,598 745 797 (6.5) 616 548 507 549 (7.7) 385 284 530 572 (7.3) 391 298 427 462 (7.5) 315 242 2.43 2.63 1.79 1.38 24.0 16.3 13.8 24.2 16.7 14.0 22.5 14.1 11.5 21.1 10.9 9.3 Diff (%) 5.4 12.4 35.7 31.3 30.2 2009E New 10,819 2,466 1,532 1,669 1,320 7.51 22.8 14.2 12.2 2009E Old 11,008 2,517 1,574 1,711 1,354 7.70 22.9 14.3 12.3 Diff (%) (1.7) (2.0) (2.7) (2.5) (2.5) 2010E 2010E New Old 12,750 12,628 2,951 2,939 1,925 1,910 1,997 1,982 1,612 1,599 9.16 9.09 23.1 15.1 12.6 23.3 15.1 12.7 Diff (%) 1.0 0.4 0.8 0.8 0.8
Source: Bloomberg, Daiwa
Forecasts revisions (%) Revenue change Net profit change EPS change Source: Daiwa forecasts FY09E FY10E FY11E (1.7) 1.0 0.0 (2.5) 0.8 (0.5) (2.5) 0.8 (0.5)
Fair value Valuation (NT$/shr) Methodology Key assumption Source: Daiwa forecasts 128.00 PER 14x 2010E EPS
Source: Daiwa forecasts
Asia Pacific Daily
22

9 February 2010
Company background Silitech Technology had a more than 20% share of the global handset keypad market in 1H09. Nokia, Samsung Electronics and Motorola are its major customers for handset keypads. Lite-On Tech is Silitech’s largest shareholder, with a 46% stake. Through joint development with Lite-On Tech, Silitech plans to increase its exposure to the handset metal-casing business.
Silitech Technology – financial summary Profit and loss (NT$m) Year to 31 Dec Keypad Auto Parts Other revenue Total revenue Other income COGS SG&A Other op. expenses EBIT Net-interest inc./(exp.) Assoc/forex/extraord./others Pre-tax profit Tax Min. int./pref. div./others Net profit (reported) Net profit (adj.) EPS (reported) (NT$) EPS (adj.) (NT$) DPS (NT$) EBIT (adj.) EBITDA (adj.) 2007 7,306 1,268 332 8,906 0 (6,500) (568) (218) 1,620 (36) 30 1,614 (325) 0 1,289 1,289 8.554 8.554 3.480 1,620 1,755 2008 2009E 2010E 2011E 7,586 9,620 11,282 12,746 1,094 716 943 994 426 483 525 613 9,106 10,819 12,750 14,353 0 0 0 0 (11,141 ) (7,018) (8,353) (9,799) (671) (609) (617) (665) (329) (324) (408) (444) 1,089 1,533 1,925 2,103 (60) (47) (64) (74) 299 183 136 128 1,327 1,669 1,997 2,157 (220) (338) (380) (410) 8 (11) (6) (6) 1,115 1,321 1,612 1,741 1,115 1,321 1,612 1,741 6.506 7.508 9.164 9.899 6.506 7.508 9.164 9.899 2.280 2.702 3.665 3.960 1,089 1,533 1,925 2,103 1,349 1,852 2,354 2,587
Balance sheet (NT$m) As at 31 Dec 2007 2008 2009E 2010E 2011E Cash & short-term investment 3,020 2,584 2,797 3,364 4,229 Inventory 381 492 552 729 742 Accounts receivable 1,978 2,404 2,748 3,352 3,565 Other current assets 275 349 343 343 343 Total current assets 5,653 5,828 6,440 7,788 8,879 Fixed assets 2,990 3,471 3,660 3,766 3,911 Goodwill & intangibles 36 38 36 36 36 Other non-current assets 95 157 151 151 151 Total assets 8,774 9,494 10,287 11,741 12,977 Short-term debt 0 260 0 0 0 Accounts payable 1,647 1,834 1,989 2,298 2,472 Other current liabilities 1,396 1,932 1,781 1,908 2,035 Total current liabilities 3,043 4,025 3,770 4,206 4,507 Long-term debt 1,233 778 750 750 750 Other non-current liabilities 273 199 305 305 305 Total liabilities 4,549 5,003 4,825 5,261 5,562 Share capital 1,507 1,714 1,759 1,759 1,759 Reserves/R.E./others 2,642 2,704 3,630 4,648 5,583 Shareholders' equity 4,150 4,418 5,389 6,407 7,342 Minority interests 76 73 73 73 73 Total equity & liabilities 8,774 9,494 10,287 11,741 12,977 Net debt/(cash) (1,786) (1,546) (2,047) (2,614) (3,479)
Cash flow (NT$m) Year to 31 Dec 2007 2008 2009E 2010E 2011E Profit before tax 1,614 1,327 1,669 1,997 2,157 Depreciation and amortisation 429 484 581 631 592 Tax paid (325) (220) (338) (380) (410) Change in working capital 608 (350) (250) (471) (52) Other operational CF items 25 299 114 119 119 Cash flow from operations 2,350 1,539 1,777 1,897 2,406 Capex (1,394) (691) (580) (550) (550) Net (acquisitions)/disposal 34 26 (12) 0 0 Other investing CF items (184) (144) 0 0 0 Cash flow from investing (1,544) (810) (592) (550) (550) Change in debt 754 (80) (288) 0 0 Net share issues/(repurchases) 0 0 0 0 0 Dividends paid (582) (756) (568) (664) (876) Other financing CF items 58 (197) 0 0 0 Cash flow from financing 231 (1,033) (857) (664) (876) Forex effect/others (35) (132) 0 0 0 Change in cash 1,002 (436) 328 683 980
Key ratios Year to 31 Dec Sales – YoY % EBITDA (adj.) – YoY % Net profit (adj.) – YoY % EPS (adj.) – YoY % EBITDA margin % (adj.) EBIT margin % (adj.) Net-profit margin % (adj.) ROAE (%) ROAA (%) ROCE (%) ROIC (%) Net debt to equity (%) Effective tax rate (%) Accounts receivable (days) Payables (days) Net interest cover (x) Net dividend payout (%) 2007 23.3 28.2 22.8 9.9 19.7 18.2 14.5 34.4 16.7 34.2 58.2 net cash 20.1 80.7 58.2 45.0 40.7 2008 2.2 (23.1) (13.5) (24.0) 14.8 12.0 12.2 26.0 12.2 19.8 33.7 net cash 16.6 87.8 69.8 18.0 35.0 2009E 18.8 37.3 18.4 15.4 17.1 14.2 12.2 26.9 13.4 26.1 38.4 net cash 20.2 86.9 64.5 33.0 36.0 2010E 17.8 27.1 22.1 22.1 18.5 15.1 12.6 27.3 14.6 28.6 42.8 net cash 19.0 87.3 61.4 30.1 40.0 2011E 12.6 9.9 8.0 8.0 18.0 14.7 12.1 25.3 14.1 27.3 43.7 net cash 19.0 88.0 60.7 28.4 40.0
Chart: PER bands (NT$) 180 130 80 30 Jan-07 Source: Company, Daiwa forecasts
18.5x 15.2x 11.9x 8.5x 5.2x Dec-07 Dec-08 Dec-09
Asia Pacific Daily
23

9 February 2010
CapitaMalls Asia (CMA SP) CMA acquires new mall in Chengdu Construction & real estate: Singapore David Lum, CFA/Boon Aun Phua (65) 6329 2102 (david.lum@sg.daiwacm.com) Price (5 Feb) Reuters code ADR/GDR code Shares per ADR/GDR
Rating: 5
Target price: S$2.02 → S$2.03 (+0.7%)
S$2.25 CMAL.SI n.a. n.a.
What has changed? ? CapitaMalls Asia (CMA) announced on 4 February 2010, that it had entered into an agreement with Chengdu Vanke Property Co. Ltd to acquire Meili Mall in Chengdu, China, for Rmb520m (S$109.5m), including fitting-out work.
Market data FSSTI Market cap EV 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate 2,683.56 (US$bn) 6.14 (US$bn; 10E) 3.58 (US$m) 43.07 (m) 3,884 (%) 34.5 Capitaland (65.5%) S$/US$ 1.422 S$/US$ 1.422 3M 6M
Impact ? The mall will be 100%-owned by CMA and will add about 4.3% of gross rentable area (GRA) to its China mall portfolio. Meili Mall will have a total GRA of 58,350 square metres. ? We have only made negligible adjustments to our earnings forecasts to account for the lower acquisition for the period from 2013 onwards, when it is expected to open.
Performance (%)* 1M Absolute (10.0) Relative (2.1) Source: Daiwa Note: *Relative to FSSTI
Investment indicators 2010E PER (x) 28.6 PCFR (x) n.m. EV/EBITDA (x) 29.3 PBR (x) 1.5 Dividend yield (%) 0.4 ROE (%) 5.5 ROA (%) 4.6 Net debt equity (%) 2.0 Relative to peers Relative to history Source: Daiwa forecasts 2011E 28.8 n.m. 27.6 1.5 0.4 5.2 4.5 3.7 2012E 22.1 107.5 23.1 1.4 0.4 6.4 5.6 7.0 Above Above
Valuation ? We have raised our target price to S$2.03 from S$2.02, as the mall should add about S$55m to CMA’s NAV after it is completed in 2013, based on our current assumptions. ? We have assumed a rental rate of Rmb12.60/sq ft per month, an NPI margin of 60%, a vacancy rate of 80%, and annual rental growth of 5%.
Income summary (S$m) Yr to 31 Dec 2009 2010E 2011E Revenue 229 276 303 YoY (%) 11.6 20.4 9.8 EBITDA 38 174 188 YoY (%) (76.6) 361.8 8.1 Net profit 388 305 304 YoY (%) 235.8 (21.4) (0.4) EPS (S$) 0.100 0.079 0.078 YoY (%) 166.2 (21.4) (0.4) EPS (S$) 0.100 0.079 0.078 CFPS (S$) 0.026 0.006 0.005 DPS (S$) 0.000 0.010 0.010 DPS (S$) 0.000 0.010 0.010 Source: Company, Daiwa forecasts 2012E 386 27.4 234 24.1 396 30.2 0.102 30.2 0.102 0.021 0.010 0.010
Catalysts and action ? We maintain our 5 (Sell) rating because we believe CMA is still expensive in relation to our NAV-based valuation. Previous Previous S$m S$ per share 1,771 1,631 187 184 1,263 136 1,338 1,096 128 544 (431) 7,846 5,459 New New S$m S$ per share 0.47 0.42 0.05 0.05 0.33 0.03 0.35 0.28 0.03 0.14 (0.11) 2.03 1.41 Var Var Var % Var %
NAV summary China malls CapitaMall Trust (29.83%) CapitaRetail China Trust (26.98%) Other malls held in funds 50% of Orchard Turn ION Orchard (50% interest) The Orchard Residences (50% interest) Net profit from fee based revenue Investment properties directly held* Properties under development Cash Financial liabilities
0.46 1,823 0.42 1,631 0.05 187 0.05 184 0.33 1,263 0.03 136 0.34 1,340 0.28 1,096 0.03 128 0.14 544
52 2 54.7 -
0 0 0 -
2.96 0.17 0.70 -
2.96 0.17 0.70 -
Price and relative performance (S$) 4.00 3.50 3.00 2.50 2.00 07/2 Rel to FSSTI
07/8
08/2
08/8
09/2
09/8
140 128 115 103 90 10/2
Source: Bloomberg, Daiwa
Forecasts revisions (%) Revenue change Net profit change EPS change Source: Daiwa forecasts FY10E FY11E FY12E 0.0 0.0 0.0 0.0 (0.2) (0.1) 0.0 (0.2) (0.1)
Fair value Valuation (S$/shr) Methodology Key assumption Source: Daiwa forecasts 2.03 Sum of parts Sum of parts
(0.11) (431) 2.02 7,901 1.41 5,459
NAV Book value as at 31 December 2009
Source: Company, Daiwa estimates Note: * Excluding majority-held China malls, which we have included on the first line
Asia Pacific Daily
24

9 February 2010
Company background Listed on 25 November 2009, CMA is an Asian shopping-mall owner, developer and manager. It has interests in 86 retail properties across 48 cities in Singapore, China, Malaysia, Japan and India, with a total property value of S$20.6bn and total gross floor area of 66.5m sq ft, as at 31 December 2009.
CapitaMalls Asia – financial summary Profit and loss (S$m) Year to 31 Dec Fee based income Property and related income Other revenue Total revenue Other income COGS SG&A Other op. expenses EBIT Net-interest inc./(exp.) Assoc/forex/extraord./others Pre-tax profit Tax Min. int./pref. div./others Net profit (reported) Net profit (adj.) EPS (reported) (S$) EPS (adj.) (S$) DPS (S$) EBIT (adj.) EBITDA (adj.) 2008 109 96 0 205 120 (81) (87) (1) 156 (158) 144 141 (23) (3) 116 116 0.038 0.038 0.019 156 161 2009 2010E 2011E 2012E 135 132 142 164 92 143 161 222 2 0 0 0 229 276 303 386 85 52 47 42 (100) (121) (133) (169) (70) (39) (36) (32) (112) 0 0 0 32 168 182 227 (111) (24) (24) (24) 490 244 229 298 410 388 387 501 (16) (78) (77) (100) (6) (6) (6) (6) 388 305 304 396 388 305 304 396 0.100 0.079 0.078 0.102 0.100 0.079 0.078 0.102 0.000 0.010 0.010 0.010 32 168 182 227 38 174 188 234
Balance sheet (S$m) As at 31 Dec Cash & short-term investment Inventory Accounts receivable Other current assets Total current assets Fixed assets Goodwill & intangibles Other non-current assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Other non-current liabilities Total liabilities Share capital Reserves/R.E./others Shareholders' equity Minority interests Total equity & liabilities Net debt/(cash) 2008 138 0 307 0 445 16 0 4,664 5,125 1,355 454 32 1,841 1,648 51 3,540 1,533 0 1,533 52 5,125 2,865 2009 544 0 436 0 980 15 0 5,501 6,496 72 378 49 499 431 54 984 5,459 0 5,459 53 6,496 (41) 2010E 456 0 412 0 868 130 0 5,670 6,668 72 281 0 353 500 30 883 5,726 0 5,726 59 6,668 116 2011E 348 0 453 0 800 229 0 5,859 6,889 72 231 0 303 500 30 833 5,991 0 5,991 65 6,889 224 2012E 125 0 577 0 702 223 0 6,398 7,323 72 303 0 375 500 30 905 6,348 0 6,348 70 7,323 447
Cash flow (S$m) Year to 31 Dec Profit before tax Depreciation and amortisation Tax paid Change in working capital Other operational CF items Cash flow from operations Capex Net (acquisitions)/disposal Other investing CF items Cash flow from investing Change in debt Net share issues/(repurchases) Dividends paid Other financing CF items Cash flow from financing Forex effect/others Change in cash 2008 141 5 (23) 0 (68) 55 (9) (662) 18 (653) 744 0 (59) (72) 613 0 16 2009 2010E 2011E 2012E 410 388 387 501 6 6 6 6 (16) (78) (77) (100) 49 (73) (90) (52) (346) (220) (205) (274) 102 23 21 81 (5) (121) (106) 0 (463) (114) (113) (159) (168) 99 110 125 (637) (136) (109) (34) 1,057 141 43 (207) 0 0 0 0 0 (39) (39) (39) (116) (24) (24) (24) 941 79 (20) (270) 0 0 0 0 406 (34) (108) (222)
Key ratios Year to 31 Dec Sales – YoY % EBITDA (adj.) – YoY % Net profit (adj.) – YoY % EPS (adj.) – YoY % EBITDA margin % (adj.) EBIT margin % (adj.) Net-profit margin % (adj.) ROAE (%) ROAA (%) ROCE (%) ROIC (%) Net debt to equity (%) Effective tax rate (%) Accounts receivable (days) Payables (days) Net interest cover (x) Net dividend payout (%) 2008 20.9 10.1 (37.7) (42.9) 78.3 76.0 56.3 10.4 2.4 3.7 3.2 186.9 16.5 677.5 972.1 1.0 51.1 2009 11.6 (76.6) 235.8 166.2 16.5 13.8 169.5 11.1 6.7 0.6 0.6 net cash 3.9 592.0 662.7 0.3 0.0 2010E 20.4 361.8 (21.4) (21.4) 63.1 60.9 110.7 5.5 4.6 2.7 2.4 2.0 20.0 561.3 435.6 7.0 12.7 2011E 9.8 8.1 (0.4) (0.4) 62.1 60.1 100.3 5.2 4.5 2.8 2.4 3.7 20.0 521.1 308.3 7.6 12.8 2012E 27.4 24.1 30.2 30.2 60.5 58.9 102.5 6.4 5.6 3.3 2.8 7.0 20.0 486.8 252.7 9.5 9.8
Key assumptions Year to 31 Dec Interest cover ratio (%) 2008 98.6 2009 2010E 2011E 2012E 28.4 702.1 761.2 950.6
Chart: PBR bands (S$) 4.0 3.5 3.0 2.5 2.0 1.5 1.0 Nov-09
2.1x 2.0x 1.8x 1.7x 1.5x
Source: Company, Daiwa forecasts
Asia Pacific Daily
25

9 February 2010
8 February 2010 (No. of pages: 12)
DBS Group (DBS SP) Banks: Singapore
6-mth rating: 4
→3
Target price: S$13.37 → S$13.94 (+4.3%) Share price: S$14.04 (5 Feb)
David Lum, CFA (65) 6329 2102 david.lum@sg.daiwacm.com
New CEO rides the recovery Rating upgraded to 3 (Hold) from 4 (Underperform) We have upgraded our rating for DBS Group (DBS) to 3 (Hold) from 4 (Underperform) after its 4Q09 results announcement on 5 February 2010. Target price raised to S$13.94 (from S$13.37) DBS looks closer to fully-valued instead of overvalued after our target-price upgrade, based on our Gordon-Growth model valuation, to S$13.94 from S$13.37. We have revised up our EPS forecasts by 0.3% for FY10 and 4.6% for FY11. We expect DBS to enjoy the sharpest earnings recovery in the sector, with EPS growth of 18.7% YoY for FY10 and 15.4% YoY for FY11, underpinned by declining credit costs and rising interest rates. Too premature to expect wonders from Gupta We expect CEO Piyush Gupta to close DBS’s ROE gap with his Singapore competitors, but at this stage, and without any concrete evidence except for his inaugural presentation, we believe it would be too optimistic to expect that DBS’s sustainable ROE could come close to or surpass those of its peers in the foreseeable future. 4Q09 net profit 28% below forecast DBS’s 4Q09 net profit of S$493m was 28% below our forecast. The biggest negative variance came from allowances of S$384m compared with our estimate of S$199m. Income summary Year to 31 Dec 2008 2009 2010E 2011E 2012E Source: Company, Daiwa forecasts
Reuters code
DBSM.SI 2,683.56 (US$bn) 23.45 (US$m) 53.55 (m) 2,376 (%) 71.3 DBS Nominees (24.7%) S$/US$ 1.422 1M (9.4) (1.4) 3M 8.2 6.0 6M 4.8 1.8
Market data FSSTI Market cap 3-mth avg daily T/O Shares outstanding Free float Major shareholder Exchange rate Performance (%)* Absolute Relative Source: Daiwa Note: *Relative to FSSTI
Investment indicators PER PBR Dividend yield ROE ROA Source: Daiwa forecasts
(x) (x) (%) (%) (%)
2010E 13.2 1.3 4.0 9.7 1.0
2011E 11.5 1.2 4.0 10.6 1.0
2012E 10.7 1.1 4.3 10.7 1.0
Price and relative performance (S$) 30.00 22.50 15.00 7.50 0.00 07/2 Rel to FSSTI
07/8
08/2
08/8
09/2
09/8
110 98 85 73 60 10/2
Source: Bloomberg, Daiwa
Operating profit (S$m) (%) 2,510 (14.3) 2,447 (2.5) 3,185 30.2 3,650 14.6 3,901 6.9
Pre-tax profit (S$m) (%) 2,585 (14.9) 2,513 (2.8) 3,251 29.4 3,716 14.3 3,973 6.9
Net profit (S$m) (%) 2,056 (17.3) 2,064 0.4 2,522 22.2 2,912 15.5 3,124 7.3
EPS (S$) 1.100 0.894 1.062 1.225 1.314 (%) (13.4) (18.7) 18.7 15.4 7.2
DPS (S$) 0.650 0.560 0.560 0.560 0.600
This is an excerpt from our report issued yesterday. Please contact us for further details.
Asia Pacific Daily
26

9 February 2010
Company background Established in 1968, DBS Group is the largest bank by total assets and market capitalisation in Singapore. Its primary operations are in Singapore and Hong Kong. For FY09, DBS’s total income came from Singapore (60%), Hong Kong (21%), rest of greater China (6%), South and Southeast Asia (8%), and rest of the world (5%).
DBS Group – financial summary Profit and loss (S$m) Year to 31 Dec Net-interest income Net fees & commission Trading and other income Net insurance income Total operating income Personnel expenses Other expenses Total expenses Pre-provision operating profit Total provision Operating profit after prov. Non-operating income Profit before tax Tax Min. int./pref. div./other items Net profit Adj. net profit EPS (S$) EPS (adjusted) (S$) DPS (S$) 2008 4,301 1,274 478 0 6,053 (1,301) (1,354) (2,655) 3,398 (888) 2,510 75 2,585 (446) (210) 1,929 2,056 1.040 1.100 0.650 2009 2010E 2011E 2012E 4,455 4,797 5,338 5,797 1,394 1,302 1,339 1,398 754 411 412 440 0 0 0 0 6,603 6,509 7,089 7,635 (1,292) (1,381) (1,520) (1,623) (1,312) (1,395) (1,526) (1,621) (2,604) (2,776) (3,046) (3,244) 3,999 3,733 4,044 4,391 (1,552) (548) (393) (490) 2,447 3,185 3,650 3,901 66 66 66 73 2,513 3,251 3,716 3,973 (285) (522) (596) (637) (187) (208) (208) (212) 2,041 2,522 2,912 3,124 2,064 2,522 2,912 3,124 0.884 1.062 1.225 1.314 0.894 1.062 1.225 1.314 0.560 0.560 0.560 0.600
Balance sheet (S$m) As at 31 Dec Cash & equivalent Investment securities Net loans and advances Fixed assets Goodwill Other assets Total assets Customers deposits Borrowing Debentures/subordinated debt Other liabilities Total liabilities Share capital Reserves & others Shareholders' equity Minority interests Total equity & liabilities Avg interest-earning assets Avg risk-weighted assets BVPS (S$) 2008 36,257 46,980 125,841 1,604 5,847 40,189 256,718 163,359 18,744 0 50,612 232,715 1,579 18,240 19,819 4,184 256,718 210,460 182,685 12.55 2009 44,718 52,948 129,973 1,532 5,847 23,626 258,644 178,448 17,223 0 33,474 229,145 2,375 22,998 25,373 4,126 258,644 220,645 177,222 10.69 2010E 44,099 55,749 138,151 1,553 5,847 24,765 270,165 186,733 17,578 0 35,078 239,388 2,376 24,275 26,650 4,126 270,165 229,383 187,961 11.22 2011E 43,536 58,666 154,275 1,572 5,847 25,952 289,847 202,379 18,311 0 36,747 257,437 2,377 25,908 28,284 4,126 289,847 243,802 206,749 11.90 2012E 42,565 61,736 172,267 1,591 5,847 27,198 311,204 219,348 19,102 0 38,499 276,949 2,378 27,752 30,129 4,126 311,204 263,086 227,541 12.67
Growth (YoY %) Year to 31 Dec Net-interest income Non-interest income Total operating income Total expenses Pre-provision operating profit Total provisions Operating profit after provisions Profit before tax Net profit (reported) Net profit (adjusted) EPS (reported) EPS (adjusted) Gross loans Deposits Total assets Total liabilities Shareholders' equity Avg interest-earning assets Avg risk-weighted assets 2008 4.7 (14.7) (1.8) 1.4 (4.1) 43.9 (14.3) (14.9) (15.3) (17.3) (18.1) (13.4) 16.9 12.9 10.2 10.9 (3.2) 11.3 (1.0) 2009 3.6 22.6 9.1 (1.9) 17.7 74.8 (2.5) (2.8) 5.8 0.4 (15.0) (18.7) 3.9 9.2 0.8 (1.5) 28.0 4.8 (3.0) 2010E 7.7 (20.3) (1.4) 6.6 (6.7) (64.7) 30.2 29.4 23.6 22.2 20.1 18.7 5.9 4.6 4.5 4.5 5.0 4.0 6.1 2011E 11.3 2.3 8.9 9.7 8.3 (28.1) 14.6 14.3 15.5 15.5 15.4 15.4 11.5 8.4 7.3 7.5 6.1 6.3 10.0 2012E 8.6 4.9 7.7 6.5 8.6 24.6 6.9 6.9 7.3 7.3 7.2 7.2 11.6 8.4 7.4 7.6 6.5 7.9 10.1
Key ratios (%) Year to 31 Dec Liquidity Loan/deposit Capital adequacy ratios (CAR) Tier-1 CAR Total CAR Asset quality NPLs/gross loans Total loan-loss prov./NPLs Profitability ROAA ROAE Efficiency Net-interest margin Gross yield Cost of funds Net-interest spread Total cost/total income Others Effective tax Dividend-payout ratio 2008 78.6 10.1 14.0 1.5 98.9 0.8 10.2 2.0 3.9 n.a. n.a. 43.9 17.3 62.5 2009 74.8 13.1 16.7 2.9 75.6 0.8 9.1 2.0 2.8 n.a. n.a. 39.4 11.3 63.3 2010E 75.6 13.1 16.5 2.7 81.5 1.0 9.7 2.1 2.9 n.a. n.a. 42.7 16.0 52.7 2011E 77.8 12.7 15.8 2.4 87.1 1.0 10.6 2.2 2.9 n.a. n.a. 43.0 16.0 45.7 2012E 80.1 12.3 15.2 2.2 90.8 1.0 10.7 2.2 2.9 n.a. n.a. 42.5 16.0 45.7
Key assumptions Year to 31 Dec Credit cost (bps) NPL (%) Loan growth (%) Deposit growth (%) Loan to deposit ratio (%) Earning-asset growth (%) Fee to income ratio (%) Expense to income ratio (%) 2008 2009 65.84 112.00 1.5 2.9 16.9 3.9 12.9 9.2 78.6 74.8 11.3 4.8 21.0 21.1 43.9 39.4 2010E 39.77 2.7 5.9 4.6 75.6 4.0 20.0 42.7 2011E 26.22 2.4 11.5 8.4 77.8 6.3 18.9 43.0 2012E 29.30 2.2 11.6 8.4 80.1 7.9 18.3 42.5
Chart: PBR bands (S$) 24 19 14 9 4 Feb-05 Feb-06 Feb-07 Jan-08 Jan-09 1.9x 1.6x 1.2x 0.9x 0.5x Jan-10
Source: Company, Daiwa forecasts
Asia Pacific Daily
27

9 February 2010
8 February 2010 (No. of pages: 9)
India Banks Banks: India
Positive Punit Srivastava (91) 22 6622 1013 punit.srivastava@in.daiwacm.com
Dhiren Shah (91) 22 6622 1015 dhiren.shah@in.daiwacm.com
3Q FY10 results: NPLs rose, NIMs expanded, better loan growth for PSBs Summary The 3Q FY10 results of the Indian banks were generally disappointing in terms of the fresh formation of NPLs, with most recording quarter-on-quarter rises. The treatment of some agriculture loans eligible for debt waiver and fresh slippages of restructured loans were the main reasons for the pick-up in NPLs during the quarter. The provisioning coverage of most banks improved substantially, as they added technically written-off NPLs when calculating their provision coverage, as per the new Reserve Bank of India (RBI) norms. Some of the banks that recorded substantial jumps in provision coverage as a result of the inclusion of technically written-off NPLs include State Bank of India (SBI), ICICI Bank, Canara Bank (Not rated) and Oriental Bank of Commerce (Not rated). Almost all banks saw their net-interest margins (NIM) pick up on a quarter-on-quarter basis, due to the positive impact of the downward repricing of high-cost deposits. We expect the impact of this to continue to be felt for another quarter, but expect the pace to moderate, as the bulk has already been done, in our opinion. Some public-sector banks (PSBs) recorded strong loan growth on both year-on-year and quarteron-quarter bases. SBI, Bank of Baroda (BOB) and Punjab National Bank (PNB) (Not rated) recorded strong year-on-year growth of 19%, 23% and 20.3%, respectively, for 3Q FY10, driven by retail loans, international loans, and loans to medium- and large-sized corporations. Our top picks: Out top picks in the sector are BOB, Axis Bank and HDFC Bank. India Banks: valuation summary Company name State Bank of India Bank of Baroda ICICI Bank HDFC Bank Axis Bank Share price Daiwa 6M Bloomberg 5 Feb target price +/- Year (local curr.) Rating (Rs) (%) end code SBIN IN 1,897.80 2 2,463 29.8 Mar BOB IN 559.80 1 704 25.8 Mar ICICIBC IN 798.15 3 816 2.2 Mar HDFCB IN 1,573.35 1 1,910 21.4 Mar AXSB IN 1,025.70 1 1,364 33.0 Mar 2009 11.3 9.4 24.5 28.1 20.7 PER (x) 2010E 2011E 10.6 9.8 6.9 5.9 23.3 20.3 23.2 17.9 16.0 14.1 EPS growth (% YoY) 2009 2010E 2011E 11.8 6.3 7.6 55.2 33.5 16.7 (18.3) 5.4 14.7 22.0 18.0 29.2 51.2 26.5 13.8 PBR ROE (x) (%) 2009 2010E 2009 2010E 1.7 1.5 16.4 15.1 1.8 1.5 21.3 23.5 1.9 1.8 7.8 7.8 4.6 3.4 16.9 16.3 3.7 2.7 19.1 18.7 Yield (% p.a.) 2009 2010E 1.5 1.4 1.6 1.9 1.3 1.3 0.6 0.7 1.0 1.1
Source: Company, Daiwa forecasts
This is an excerpt from our report issued yesterday. Please contact us for further details. Asia Pacific Daily
28

9 February 2010
Korea: share prices and Daiwa recommendation trends CJ Internet Date Target price Rating 2/8/10 20,000 2 7/31/09 18,000 2 5/21/09 22,100 2 4/29/09 19,500 2 2/4/09 18,100 2 11/3/08 13,000 2 10/14/08 13,700 2 8/8/08 17,500 2 4/29/08 18,400 3
25,000 20,000 15,000 10,000 5,000 0 18,400 17,500 13,700 13,000 18,100 22,100 19,500 20,000 18,000
Nov-09
May-09
Nov-08
Dec-08
Dec-09 Dec-09
May-08
Jan-09
Jun-09
Jun-08
Feb-08
Feb-09
Mar-08
Mar-09
Aug-09
Aug-08
Sep-08
Target price (W) Source: Daiwa
Closing price (W)
Daewoo Shipbuilding & Marine Engineering Date Target price Rating Date Target price Rating 2010/02/08 17,000 4 2008/04/07 53,000 2 2009/07/30 19,000 4 2008/02/13 45,000 2 2009/05/13 23,000 4 2009/02/03 18,000 4 2008/11/17 13,000 4 2008/11/10 14,000 4 2008/09/25 41,000 2 2008/05/08 52,000 2
60,000 50,000 40,000 30,000 20,000 10,000 0 45,000
53,000 52,000 41,000
14,000 13,000 18,000 23,000 19,000 17,000
Sep-09
Nov-08
Dec-08
May-08
May-09
Nov-09
Jan-09
Feb-08
Jun-08
Jun-09
Mar-08
Mar-09
Feb-09
Aug-09
Aug-08
Sep-08
Target price (W) Source: Daiwa
Closing price (W)
Sep-09
Jan-10
Jul-08
Jul-09
Oct-08
Apr-08
Apr-09
Oct-09
Jan-10
Jul-08
Jul-09
Oct-08
Apr-08
Apr-09
Oct-09
Asia Pacific Daily
29

9 February 2010
Samsung Electronics Date Target price (W) Rating Date Target price (W) Rating 2010-01-29 970,000 2 2009-01-16 500,000 2 2009-10-30 920,000 2 2008-12-04 520,000 2 2009-09-29 960,000 2 2008-10-27 540,000 2 2009-09-02 940,000 2 2008-08-27 670,000 2 2009-07-24 800,000 2 2008-07-28 740,000 2 2009-07-03 720,000 2 2008-06-13 820,000 2 2009-04-24 560,000 3 2008-04-28 780,000 2 2009-01-29 480,000 3 2008-03-21 660,000 2
1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 780,000 660,000 820,000 940,000 740,000 670,000 540,000 520,000 480,000 500,000 560,000 800,000 720,000 960,000 920,000
970,000
Nov-09
May-08
May-09
Nov-08
Dec-08
Dec-09 Dec-09
Jun-09
Jun-08
Jan-09
Feb-08
Feb-09
Mar-08
Mar-09
Aug-09
Aug-08
Sep-08
Target price (W) Source: Daiwa
Closing price (W)
LG Display Date Target price (W) Rating Date Target price (W) Rating 2010-01-21 40,000 3 2008-07-10 45,000 2 2009-10-15 35,000 3 2009-07-09 42,000 2 2009-04-17 38,000 2 2009-04-03 36,000 2 2009-01-19 32,000 2 2008-11-14 22,000 3 2008-10-15 30,000 3
60,000 50,000 40,000 30,000 20,000 10,000 0 45,000 30,000 22,000 32,000 36,000 38,000 42,000 35,000 40,000
Sep-09
May-09
Nov-08
Dec-08
Nov-09
May-08
Jun-08
Jan-09
Jun-09
Feb-08
Jan-10
Jul-08
Jul-09
Apr-09
Oct-08
Oct-09
Jan-10 Feb-10
Jul-08
Jul-09
Oct-08
Apr-08
Apr-08
Feb-09
Mar-08
Mar-09
Apr-09
Aug-09
Aug-08
Sep-08
Target price (W) Source: Daiwa
Closing price (W)
Sep-09
Oct-09
Asia Pacific Daily
30

9 February 2010
Doosan Infracore Date Target price Rating 04/02/2010 20,000 2 03/11/2009 21,000 1
40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 21,000 20,000
Nov-09
May-09
Nov-08
Dec-08
Dec-09 Dec-09
May-08
Jan-09
Jun-09
Jan-08
Jun-08
Feb-09
Feb-08
Mar-08
Mar-09
Aug-09
Aug-08
Sep-08
Target price (W) Source: Daiwa
Closing price (W)
Webzen Date Target price Rating Date Target price Rating 2/8/2010 14,500 2 5/13/2008 10,000 3 12/2/2009 15,000 2 2/18/2008 11,000 3 8/12/2009 12,500 3 5/15/2009 13,000 3 2/16/2009 6,300 3 11/14/2008 5,300 3 8/14/2008 8,200 4 7/10/2008 8,400 4
25,000 20,000 15,000 10,000 5,000 0 11,000 13,000 10,000 8,400 8,200 5,300 6,300 12,500 15,000 14,500
Sep-09
Nov-08
Dec-08
May-08
May-09
Nov-09
Jan-09
Feb-08
Jun-08
Jun-09
Mar-08
Mar-09
Feb-09
Aug-09
Aug-08
Sep-08
Target price (W) Source: Daiwa
Closing price (W)
Sep-09
Jan-10
Jul-08
Jul-09
Oct-08
Apr-08
Apr-09
Oct-09
Jan-10
Jul-08
Jul-09
Oct-08
Apr-08
Apr-09
Oct-09
Asia Pacific Daily
31

9 February 2010
Analyst company visits/results announcements/analyst meetings Date 9 Feb 11 Feb 11 Feb 12 Feb 17 Feb 18 Feb 18 Feb 19 Feb 22 Feb 23 Feb 23 Feb 24 Feb 25 Feb 25 Feb 26 Feb 26 Feb 26 Feb 26 Feb 26 Feb 26 Feb 1 Mar 1 Mar 3 Mar Company SMIC Bank of East Asia Capitaland Olam International ST Engineering Oversea-Chinese Banking Corp Hyflux IOI Corp Sembcorp Marine Kencana Agri Noble Group Oceanus Group City Developments Sembcorp Industries First Resources Wilmar International Indofood Agri Resources Golden Agri_resources Sime Darby Bhd United Overseas Bank HSBC Hang Seng Bank Chong Hing Bank Event Announcements (T) Announcements (M) Announcements Announcements# Announcements# Announcements # Announcements# Announcements# Announcements Announcements# Announcements Announcements# Announcements Announcements Announcements# Announcements# Announcements# Announcements# Announcements# Announcements Announcements (M) Announcements (M) Announcements (M) Time +
Remarks 4Q09 results FY09 results FY09 results 2Q10 results 1Q09 results FY09 results 1Q09 results 2Q10 results 1Q09 results 1Q09 results 1Q09 results 1Q09 results FY09 results 1Q09 results 1Q09 results 1Q09 results 1Q09 results 1Q09 results 2Q10 results FY09 results FY09 results FY09 results FY09 results
Analyst Pranab K. Sarmah Steven Chan David Lum Chris Sanda Chris Sanda David Lum Chris Sanda Chris Sanda Chris Sanda Chris Sanda Chris Sanda Chris Sanda David Lum Chris Sanda Chris Sanda Chris Sanda Chris Sanda Chris Sanda Chris Sanda David Lum Steven Chan Steven Chan Steven Chan
TBA 17:15 17:15 12:30 (SG) 17:30 (Aft. Mkt) -
Note: AU = Australia, CN = China, HK = Hong Kong, JA = Japan, KR = Korea, SG = Singapore, TW = Taiwan, MY = Malaysia, US = United States, EU = Europe M = Meeting T = Teleconference # Pending/tentative + Local time
Asia Pacific Markets Closed
Hong Kong
China
Singapore Malaysia Korea
Taiwan Australia
New Zealand
India
Thailand Philippines Indonesia
Feb 10
15-16
15-19
15-16
1, 15-16
15
15-19
1
26
Asia Pacific Daily
32

9 February 2010
Rating and target-price information Bloomberg Company name Doosan Infracore DBS Group CapitaMalls Asia Silitech Technology Megastudy Kangwon Land Wharf Holdings Busan Bank Lenovo Group StarHub China Unicom Far Eastern Department Stores United Microelectronics CapitaMalls Asia Esprit Insurance Australia Group AAC Acoustic Technology code 042670 KS DBS SP CMA SP 3311 TT 072870 KS 035250 KS 4 HK 005280 KS 992 HK STH SP 762 HK 2903 TT 2303 TT CMA SP 330 HK IAG AU 2018 HK Country Korea Singapore Singapore Taiwan Korea Korea Hong Kong Korea China Singapore China Taiwan Taiwan Singapore Hong Kong Australia China 6M rating Previous 1 ↓ 4 ↑ 5 – 2 – 2 – 2 – 2 ↑ 2 – 2 – 3 – 4 – 3 ↓ 2 – 5 – 2 – 3 – 1 – 6M target price* Latest Date 20,000 08-Feb-10 13.94 08-Feb-10 2.03 08-Feb-10 128 08-Feb-10 265,000 05-Feb-10 17,000 05-Feb-10 50.3 05-Feb-10 14,800 04-Feb-10 5.95 04-Feb-10 1.92 04-Feb-10 8.08 04-Feb-10 22.00 04-Feb-10 19.2 04-Feb-10 2.02 04-Feb-10 66.6 03-Feb-10 4.2 03-Feb-10 15.1 03-Feb-10 Latest Previous 2 21,000 ↓ 3 13.37 ↑ 5 2 2.02 ↑ 123 ↑
2 290,000 ↓ 2 18,400 ↓ 1 2 2 3 4 5 2 5 2 3 1 46.8 ↑ 15,300 ↓ 5.93 ↑ 1.99 ↓ 8.68 ↓ 33.70 ↓ 19.1 ↑ 2.00 ↑ 60.5 ↑ 3.9 ↑ 12 ↑
Note: Daiwa’s 18 most recent rating/target-price changes *Local currency; T: terminated
Recently published reports Subtitle Research reports* India Banks Doosan Infracore China Consumer Sector DBS Group Ess Dee Aluminium Wharf Holdings Ebbs and Flows Asia Focus China Unicom Far Eastern Department Stores CapitaMalls Asia Housing Development Finance Reliance Capital Asia LED Quarterly China Tech Tracker Tulip Telecom India Strategy Larsen & Toubro India Auto Sector Reliance Communications 3Q FY10 results: NPLs rose, NIMs expanded, better loan growth for PSBs Earnings improvement expected to start from FY10 Preview of the Lunar New Year shopping season in China New CEO rides the recovery Good 3Q results; on track for strong growth, in our view Attractive price for premier assets, and a solid re-rating in the making Turning cautious again Feedback from North America marketing trip Three potential negative catalysts MoEA reverses FEDS’ capital injection into PDI Maximum patience required Earnings-growth momentum likely to continue, despite the sale of loans Key businesses showing encouraging bottom-line trends Watching the popularisation of LED-TVs February: buy on weakness Data connectivity segment drives strong 3Q FY10 results 3Q FY10 results review: better than we expected We remain positive despite near-term disappointments Sales momentum continues 3Q FY10 results: non-mobile segments disappoint No. of Date of pages publication 9 13 8 12 7 32 6 9 10 9 10 9 10 38 14 9 31 12 7 8 08-Feb-10 08-Feb-10 08-Feb-10 08-Feb-10 05-Feb-10 05-Feb-10 05-Feb-10 05-Feb-10 04-Feb-10 04-Feb-10 04-Feb-10 03-Feb-10 03-Feb-10 03-Feb-10 03-Feb-10 03-Feb-10 03-Feb-10 02-Feb-10 02-Feb-10 02-Feb-10
*The 20 most recent reports published by Daiwa
Asia Pacific Daily
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9 February 2010
DAIWA’S ASIA PACIFIC RESEARCH DIRECTORY Hong Kong Regional Research Head Regional Research Co-head Macro Economy (Hong Kong, China) Strategy (Regional) All Industries (China) Automobiles (China) Banking (Hong Kong, China), Insurance (China) Consumer/Retail (Hong Kong, China) Consumer/Retail (China) IT/Electronics – Semiconductor and Solar (Regional, Taiwan, Singapore, Hong Kong and China) IT/Electronics – Tech IT Services (Hong Kong, China) Materials/Energy (Regional) Oil & Gas (China, Korea) Property Developers (Hong Kong) Property Developers (China), Small/Medium Caps (Hong Kong, China) Telecommunication (Regional, Greater China, Korea and Singapore) Transportation – Marine, Capital Goods – Infrastructure Construction (Hong Kong, China) Transportation – Aviation and Expressway (Hong Kong, China, Singapore) China – Shanghai Strategy (Regional) Singapore Head of Research Macro Economy (Regional) Banking, Property and REITs (Singapore) Conglomerates, Soft Commodities, Energy and Small/Medium Caps (Singapore) Taiwan Head of Research Co-head of Research Consumer/Retail IT/Technology Hardware (PC) IT/Technology Hardware (Handsets and Components) IT/Technology Hardware Materials, Small/Medium Caps South Korea Banking/Finance Automobiles, Shipbuilding, Steel Capital Goods (Construction and Machinery) Consumer/Retail Industrials IT/Electronics (Tech Hardware and Memory) IT/Electronics IT/Electronics, Software (Internet/On-line Game) Materials (Chemicals) Australia Banking/Insurance Resources/Mining/Petroleum India Strategy/Capital Goods/Industrials/Utilities Automobiles Banking/Finance Materials Oil & Gas, Construction, Small/Medium Caps Pharmaceuticals and Healthcare, Consumer Software (Tech IT Services), Telecommunications Nagahisa MIYABE Craig IRVINE Kevin LAI Mun Hon THAM Hongxia ZHU Ricon XIA Steven CHAN Peter CHU Nicolas WANG Pranab Kumar SARMAH (Regional Head of IT/Electronics) Joseph HO Alexander LATZER (Regional Head of Materials) Andrew CHAN Jonas KAN (Head of Hong Kong Research) Kevin LEUNG Marvin LO Geoffrey CHENG Kelvin LAU (852) 2848 4971 (852) 2848 4485 (852) 2848 4926 (852) 2848 4426 (852) 2848 4460 (852) 2848 4923 (852) 2848 4468 (852) 2848 4430 (852) 2848 4963 (852) 2848 4441 (852) 2848 4443 (852) 2848 4463 (852) 2848 4964 (852) 2848 4439 (852) 2848 4489 (852) 2848 4465 (852) 2848 4024 (852) 2848 4467 nagahisa.miyabe@hk.daiwacm.com craig.irvine@hk.daiwacm.com kevin.lai@hk.daiwacm.com munhon.tham@hk.daiwacm.com hongxia.zhu@hk.daiwacm.com ricon.xia@hk.daiwacm.com steven.chan@hk.daiwacm.com peter.chu@hk.daiwacm.com nicolas.wang@hk.daiwacm.com pranab.sarmah@hk.daiwacm.com joseph.ho@hk.daiwacm.com alexander.latzer@hk.daiwacm.com andrew.chan@hk.daiwacm.com jonas.kan@hk.daiwacm.com kevin.leung@hk.daiwacm.com marvin.lo@hk.daiwacm.com geoffrey.cheng@hk.daiwacm.com kelvin.lau@hk.daiwacm.com
Hirokazu YUIHAMA (Head of Research) Tatsuya TORIKOSHI Prasenjit K BASU (Chief Economist, Asia Ex-Japan) David LUM (Regional Head of Banking/Finance) Chris SANDA
(86) 21 5840 1338 (65) 6321 3050 (65) 6321 3069 (65) 6329 2102 (65) 6321 3085
h.yuihama@dirsh.com.cn tatsuya.torikoshi@sg.daiwacm.com p-k.basu@sg.daiwacm.com david.lum@sg.daiwacm.com chris.sanda@sg.daiwacm.com
Hirokazu MITSUDA Alex YANG Yoshihiko KAWASHIMA Calvin HUANG Andrew CHANG Mitsuharu WATANABE Albert HSU Chang H LEE (Head of Research) Sung Yop CHUNG Mike OH Sang Hee PARK Naoki IEIRI Jae H LEE Steve OH Thomas Y KWON Daniel LEE Johan VANDERLUGT David BRENNAN Jaideep GOSWAMI (Head of Research) Hitesh GOEL Punit SRIVASTAVA Vishal CHANDAK Atul RASTOGI Kartik A. MEHTA R. RAVI
(886) 2 2758 8754 (886) 2 2345 3660 (886) 2 8780 5987 (886) 2 2758 8805 (886) 2 8789 5341 (886) 2 2758 9437 (886) 2 8786 2212 (82) 2 787 9177 (82) 2 787 9157 (82) 2 787 9179 (82) 2 787 9165 (82) 2 787 9184 (82) 2 787 9173 (82) 2 787 9195 (82) 2 787 9181 (82) 2 787 9121 (61) 3 9916 1335 (61) 3 9916 1323 (91) 22 6622 1010 (91) 22 6622 1060 (91) 22 6622 1013 (91) 22 6622 1006 (91) 22 6622 1020 (91) 22 6622 1012 (91) 22 6622 1014
h.mitsuda@daiwacm-cathay.com.tw alex.yang@daiwacm-cathay.com.tw y.kawashima@daiwacm-cathay.com.tw calvin.huang@daiwacm-cathay.com.tw andrew.chang@daiwacm-cathay.com.tw m.watanabe@daiwacm-cathay.com.tw albert.hsu@daiwacm-cathay.com.tw chlee@kr.daiwacm.com sychung@kr.daiwacm.com mike.oh@kr.daiwacm.com sanghee.park@kr.daiwacm.com ieiri@kr.daiwacm.com jhlee@kr.daiwacm.com steve.oh@kr.daiwacm.com yskwon@kr.daiwacm.com daniel.lee@kr.daiwacm.com johan.vanderlugt@au.daiwacm.com david.brennan@au.daiwacm.com jaideep.goswami@in.daiwacm.com hitesh.goel@in.daiwacm.com punit.srivastava@in.daiwacm.com vishal.chandak@in.daiwacm.com atul.rastogi@in.daiwacm.com kartik.mehta@in.daiwacm.com ravi.r@in.daiwacm.com
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9 February 2010
DAIWA SECURITIES GROUP INC OFFICE / BRANCH / AFFILIATE HEAD OFFICE ADDRESS Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6753 Financial Square, 32 Old Slip, New York, NY10005, U.S.A. One Evertrust Plaza, Jersey City, NJ 07302, U.S.A. 5 King William Street, London EC4N 7JB, United Kingdom TEL (03) 5555 3111 FAX (03) 5555 0661
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DAIWA CAPITAL MARKETS LIMITED OFFICE / BRANCH / AFFILIATE HEAD OFFICE ADDRESS Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6753 5 King William Street, London EC4N 7AX, United Kingdom Trianon Building, Mainzer Landstrasse 16, 60325 Frankfurt am Main, Federal Republic of Germany 112, Avenue Kléber, 75116 Paris, France 50 rue du Rhône, P.O.Box 3198, 1211 Geneva 3, Switzerland Via Senato 14/16, 20121 Milan, Italy 25/9, build. 1, Per. Sivtsev Vrazhek, Moscow 119002, Russian Federation 7th Floor, The Tower, Bahrain Commercial Complex, P.O. Box 30069, Manama, Bahrain The Gate village Building 1, 1st floor, Unit-6, DIFC, P.O.Box-506657, Dubai, UAE. Level 26, One Pacific Place, 88 Queensway, Hong Kong 6 Shenton Way #26-08, DBS Building Tower Two, Singapore 068809, Republic of Singapore Level 34, Rialto North Tower, 525 Collins Street, Melbourne, Victoria 3000, Australia 18th Floor, Citibank Tower, 8741 Paseo de Roxas, Salcedo Village, Makati City, Republic of the Philippines 14/F, 200, Keelung Road, Sec 1, Taipei, Taiwan, R.O.C. 6th Floor, Hana Daetoo Securities Bldg 27-3, Yeouido-Dong, Yeongdeungpo-Gu, Seoul, Republic of Korea Room 3503/3504, Capital Tower Beijing, No.6 Jia Jianguomen Wai Avenue, Chaoyang District, Beijing 100022, People’s Republic of China Room 011, 45F HSBC Tower, 1000 Lujiazui Ring Road, Pudong New Area, Shanghai 200120, People’s Republic of China Level 8 Zuellig House, 1 Sliom Road, Bangkok 10500, Thailand 10th Floor, 3 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra East, Mumbai – 400051, India Suite 405, Pacific Palace Building, 83B, Ly Thuong Kiet Street, Hoan Kiem Dist. Hanoi, Vietnam TEL (03) 5555 3111 FAX (03) 5555 0661
Daiwa Capital Markets Europe Limited Daiwa Capital Markets Europe Limited, Frankfurt Branch Daiwa Capital Markets Europe Limited, Paris Branch Daiwa Capital Markets Europe Limited, Geneva Branch Daiwa Capital Markets Europe Limited, Milan Branch Daiwa Capital Markets Europe Limited, Moscow Representative Office Daiwa Capital Markets Europe Limited, Bahrain Branch Daiwa Capital Markets Europe Limited, Dubai Branch Daiwa Capital Markets Hong Kong Limited Daiwa Capital Markets Singapore Limited Daiwa Capital Markets Australia Limited DBP-Daiwa Capital Markets Philippines, Inc Daiwa-Cathay Capital Markets Co Ltd Daiwa Securities Capital Markets Co Ltd, Seoul Branch Daiwa Securities Capital Markets Co Ltd, Beijing Representative Office Daiwa SMBC-SSC Securities Co Ltd, Shanghai Office Daiwa Capital Markets Co. Ltd, Bangkok Representative Office Daiwa Capital Markets India Private Ltd Daiwa Capital Markets Co. Ltd, Hanoi Representative Office
(44) 20 7597 8000 (49) 69 717 080 (33) 1 56 262 200 (41) 22 818 7400 (39) 02 763 271 (7) 495 617 1960 (973) 17 534 452 (971) 47 090 401 (852) 2525 0121 (65) 6220 3666 (61) 3 9916 1300 (632) 813 7344 (886) 2 2723 9698 (82) 2 787 9100 (86) 10 6500 6688
(44) 20 7597 8600 (49) 69 723 340 (33) 1 47 550 808 (41) 22 818 7441 (39) 02 763 27250 (7) 495 244 1977 (973) 17 535 113 (971) 43 230 332 (852) 2845 1621 (65) 6223 6198 (61) 3 9916 1330 (632) 848 0105 (886) 2 2345 3638 (82) 2 787 9191 (86) 10 6500 3594
(86) 21 6859 8000 (66) 2 231 8381 (91) 22 6622 1000 (84) 4 3946 0460
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DAIWA INSTITUTE OF RESEARCH LTD OFFICE / BRANCH / AFFILIATE HEAD OFFICE DIR America Inc DIR Europe Ltd DIR Hong Kong Ltd Paris Representative Office Shanghai Representative Office ADDRESS 15-6, Fuyuki, Koto-ku, Tokyo, 135-8460, Japan 11th Floor, Financial Square, 32 Old Slip, NY, NY 10005-3504, U.S.A. 1/F, 5 King William Street, London, EC4N 7AX, United Kingdom Level 26, One Pacific Place, 88 Queensway, Hong Kong 112 Avenue Kleber, 75116 Paris, France Room 011, 45F HSBC Tower, 1000 Lujiazui Ring Road, Pudong New Area, Shanghai 200120, People’s Republic of China TEL (81) 3 5620 5100 (1) 212 612 6100 (44) 207 597 8000 (852) 2536 9332 (33) 156 26 2272 (86) 21 5840 1181 FAX (81) 3 5620 5603 (1) 212 612 7103, 7104 (44) 207 597 8654 (852) 2845 2190 (33) 156 26 2270 (86) 21 5840 1178
Asia Pacific Daily
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9 February 2010
DISCLAIMER This publication is produced by Daiwa Securities Capital Markets Co. Ltd. and/or its non-U.S. affiliates, and distributed by Daiwa Securities Capital Markets Co. Ltd. and/or its non-U.S. affiliates, except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Securities Capital Markets Co. Ltd. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication may not necessarily reflect those of Daiwa Securities Capital Markets Co. Ltd., and/or its affiliates except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. Daiwa Securities Capital Markets Co. Ltd., its parent, holding, subsidiaries or affiliates, or its or their respective directors, officers and employees from time to time have trades as principals, or have positions in, or have other interests in the securities of the company under research including derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures. Japan Daiwa Securities Capital Markets and Daiwa Securities Group Daiwa Securities Capital Markets and Daiwa Securities Group: Daiwa Securities Capital Markets is a subsidiary of Daiwa Securities Group. Investment Banking Relationship Within the preceding 12 months, The Affiliates of Daiwa Securities Capital Markets Co. Ltd.* has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: China Zhongwang Holdings Ltd (1333 HK); Sundart International Holdings (2288 HK); China Automation Group (569 HK); China Kangda Food Co Ltd (834 HK); Glorious Property (845 HK); Tong Yang Life (082640 KS); China Kangda Food Co Ltd (CKANG SP); Great Group Co., Ltd (GGH SP); Patel Engineering (PEC IN); Greens Holdings Ltd (1318 HK); China High Precision Automation Group (591 HK); Mingfa Group (846 HK); Fantasia Holding Group (1777 HK); Hontex International Holding (946 HK). *Affiliates of Daiwa Securities Capital Markets Co. Ltd. for the purposes of this section shall mean any one or more of: ? Daiwa Capital Markets Hong Kong Limited ? Daiwa Capital Markets Singapore Limited ? Daiwa Capital Markets Australia Limited ? 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Daiwa Capital Markets Europe Limited and its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.
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9 February 2010 This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FSA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available. Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-and-regulatory. Regulatory disclosures of investment banking relationships are available at http://www.daiwausa.com/. Germany This document has been approved by Daiwa Capital Markets Europe Limited and is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany. United States This report is distributed in the U.S. by Daiwa Securities America Inc. (DSA). It may not be accurate or complete and should not be relied upon as such. It reflects the preparer’s views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DSA’s views at any time. Neither DSA nor the preparer has any obligation to update this report or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives, financial situation and needs. This report does not recommend to U.S. recipients the use of any of DSA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should contact DSA: Daiwa Securities America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (telephone 212-612-7000). Ownership of Securities For “Ownership of Securities” information please visit BlueMatrix disclosure Link at http://www.daiwausa.com/report_disclosure.html. Investment Banking Relationships For “Investment Banking Relationships” please visit BlueMatrix disclosure link at http://www.daiwausa.com/report_disclosure.html. DSA Market Making For “DSA Market Making” please visit BlueMatrix disclosure link at http://www.daiwausa.com/report_disclosure.html. DSA made a market in securities or ADRs of the following issuers at the time this report was published. Research Analyst Conflicts For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at http://www.daiwausa.com/report_disclosure.html. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DSA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions. Research Analyst Certification For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at http://www.daiwausa.com/report_disclosure.html. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report. The following explains the rating system in the report as compared to relevant local indices, based on the beliefs of the author of the report. "1": the security could outperform the local index by more than 15% over the next six months. "2": the security is expected to outperform the local index by 5-15% over the next six months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next six months. "4": the security is expected to underperform the local index by 5-15% over the next six months. "5": the security could underperform the local index by more than 15% over the next six months. Additional information may be available upon request. Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Capital Markets Co. Ltd.) If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items. In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan. For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements. There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements. There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us. Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. * The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc. When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us. Corporate Name: Daiwa Securities Capital Markets Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.109 Memberships: Japan Securities Dealers Association, Financial Futures Association of Japan
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