16 June 2011 Asia Equities Daily Focus Periodicalimg.jrjimg.cn/2011/06/20110616135813199.pdf · 16 June 2011 Asia Equities Daily Focus ... DISCLOSURES AND ANALYST CERTIFICATIONS ARE

Asia Pan-Asia Strategy

16 June 2011

Asia Equities Daily Focus Today's research headlines Asian Edition

Deutsche Bank AG/Hong Kong

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 146/04/2011.

Periodical

Asian Index Closings EQUITIES Close 1D Chg %Chg

SHSZ300 2963.12 -1.02 -5.28 HSCEI 12397.60 -0.73 -2.32 HSI 22343.77 -0.68 -3.00 TWSE 8831.45 0.03 -1.57 KOSPI 2086.53 0.47 1.73 FSSTI 3054.82 -0.08 -4.24 KLCI 1556.19 0.50 2.45 SENSEX 18132.24 -0.96 -11.59 NIFTY 5447.50 -0.96 -11.20 SET 1030.31 -0.45 -0.24 JCI 3794.25 0.56 2.45 PCOMP 4201.38 1.48 0.01 ASX200 4566.80 -0.40 -3.76 FOREX (vs US$) Close 1D Chg YTD %Chg Rmb 6.48 -0.03 1.93 HK$ 7.79 -0.07 -0.22 NT$ 28.82 0.01 1.65 Won 1083.00 -0.04 3.97 S$ 1.24 -0.65 3.63 M$ 3.03 -0.01 1.02 Rupee 44.77 -0.07 -0.15 Baht 30.55 -0.29 -1.60 Rupiah 8548.00 -0.16 5.24 Peso 43.49 -0.28 0.71 A$ 1.06 -1.22 3.15

Source: Bloomberg Finance LP

Latest Commodity Prices COMMODITIES Close 1D %Chg YTD %Chg West Texas 94.78 -4.62 3.72 Brent 114.08 -4.57 20.98 CRB 338.96 -2.32 1.85 Copper 412.15 -0.78 -7.16 Gold (Spot) 1531.20 0.49 7.77 Alum. (LME) 2627.00 1.43 6.36 Baltic Dry 1400.00 -0.85 -21.04

Source: Bloomberg Finance LP

DB CORPORATE ACCESS

DB 15th Annual South Africa Conference 2011 - London 6/24 DB Access Thailand & Malaysia Corporate Days - London 7/7 - 8 DB Access Taiwan Conference 2011 - Taipei 11/7 - 8 DB Access Korea Conference 2011 - Seoul 11/10 - 11 DB Access Indonesia Conference 2011 - Jakarta 11/29 - 12/1

Research Team

Carissa Szeto Equity Focus (+852) 2203 6171 [email protected]

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TOP STORIES China Banks Sector tumbles; buy large banks on

ex-growth prices Tracy Yu Page 5

Dry Bulk Shipping Oversupply persists; unexciting outlook

Joe Liew Page 6

RECOMMENDATION CHANGES

Bakrie Telecom (BTEL.JK),IDR360.00 Sell Price Target IDR235.00

Beyond its fundamentals; downgrading to Sell

Raymond Kosasih Page 7

ESTIMATE & TARGET PRICE CHANGES

United Tractors (UNTR.JK),IDR22,900.00 Buy Price Target IDR32,000.00

Pleasant surprise: greater supply commitment

Rachman Koeswanto Page 8

STRATEGY/ECONOMICS

Asia Economics Daily Singapore retail sales surprise to the upside

Kaushik DasPage 9

Global Commodities Daily

Brent rent? Adam Sieminski Page 11

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ADDITIONAL RESEARCH

DB CONFERENCE/CORPORATE DAY

China TMT Daily More on LBS; also 0700.HK, QIHU Alan Hellawell IIIPage 13 DB 15th Annual South Africa Conference 2011 - London

6/24 Alibaba.com Limited (1688.HK),HKD11.42 Hold Price Target HKD14.08

2011 DB Internet tour. Alibaba Alan Hellawell IIIPage 14

DB Access Thailand & Malaysia Corporate Days - London 7/7 - 8 DB Access Taiwan Conference 2011 - Taipei 11/7 - 8 DB Access Korea Conference 2011 - Seoul 11/10 - 11 DB Access Indonesia Conference 2011 - Jakarta 11/29 - 2/1

CSR Corp Ltd (1766.HK),HKD7.81 Buy Price Target HKD10.70

Proposal of A-share private placement Phyllis WangPage 15 1

NDRs Digital China (0861.HK) HKD13.06 Buy Price Target HKD19.00

Decent March quarter result Lorraine KuoPage 16

Ramky Infrastructure (RMKY IN) - SG 6/16, HK 6/17 PT Bakrie & Brothers Tbk (BNBR:IJ) - SG 6/16 Petronas Chemicals Group (PCHEM MK) - SG 6/16 - 17 Digital China Holdings (861 HK) - HK 6/17

Software & Services 2011 DB Internet tour. Shanghai, Day 1

Alan Hellawell IIIPage 17

Sri Trang Agro Industry PCL (STA TB) - SG 6/18 Tencent (0700.HK),HKD203.20 Buy Price Target HKD240.00

2011 DB Internet tour. Tencent Alan Hellawell IIIPage 18

Huabao International Holdings (0336 HK) - HK 6/20, SG 6/22 HTC Corporation (2498 TT) - SG 6/21 - 22, HK 6/23 – 24 L uk Fook Holdings (Int'l) (0959 HK) - HK 7/6

DB ANALYST/SALES ROADSHOWS Hardware & Equipment Taiwan Semi Strategy - A tougher

game in 3G handset chips Michael Chou

Page 19 John Kim: Korea Telecom/Internet - SG 6/16 - 17 Carl Sy & Rafael Garchitorena: Philippine Property - SG 6/16 - 17 Michael Tong & Eric Cheng: China Utilities & Alternative Energy - HK 6/17

Kepco (015760.KS),KRW27,050.00 Buy Price Target KRW35,600.00

Company visit key takeaways Sanghi Han

Page 20

Tracy Yu & Judy Zhang: China Banking - HK 6/17, SG 6/28 - 30 Korea Rates Strategy Pay conditional steepeners

Page 21 Tony Tsang & Jason Ching: China /HK Property Marketing - SHA 6/16 – 17 Su-Yin Teoh & Andrew Hill: Malaysia Strategy - Growing Pains/Malaysia & Singapore Financials - HK 6/20 - 22 Karen Tang: Asian Gaming Marketing in HK - HK 6/3, 21 – 22 Abhay Laijawala & Anuj Singla: Metals & Mining & Strategy - HK 6/21 - 22

Shipbuilding update May global orders down 33%; orders at Korean yards up 49%

Sanjeev RanaPage 22

Property SG new home sales moderate in May Elaine KhooPage 23

RHB Capital (RHBC.KL),MYR9.86 Buy Price Target MYR10.50

More activity on the RHB share register

Andrew HillPage 24

India Media Sector

Francis Yim: Insurance & Brokerage - SG 6/20 - 21, HK 6/22 - 23 KC Kao: Buy Selective PC Stocks: Neutralize on Smartphone - HK 6/23 Abhay Shanbag: Real Estate - HK 6/27 - 28, SG 6/29 - 30 Sanghi Han: Korea Construction/Machinery/Utilities - SG 7/18 - 19, HK 7/20 - 21

DB INTERNATIONAL PRODUCT ROADSHOWS

Broadcaster-DTH axis to squeeze cable

Harrish ZaveriPage 25

Tata Motors Ltd (TAMO.BO),INR993.40 Buy Price Target INR1,365.00

May-11 volumes: Land Rover strong, Jaguar soft; maintain Buy

Srinivas Rao

Page 26

Sino-Thai Engineering (STEC.BK),THB12.40 Buy Price Target THB17.00

STEC JV named lowest bidder for new mass transit project

Sansanee Srijamjuree Page 27

GLOBAL RESEARCH Daikin Industries (6367.T),¥2,885 Buy Price Target ¥3,200

Johnathan Goldberg: Telco Equipment - HK 6/16 Banco Bilbao Vizcaya Argentaria SA (BBVA SM) - SG 6/16Legal & General Group plc (LGEN LN) - KUL 6/20, SG 6/21 - 22, PEK 6/23 - 24 PPG Industries (PPG US) - HK 6/21, SG 6/22 John Perry: Real Estate - HK 6/20, SG 6/21, PEK 6/22, SEL 6/23 British American Tobacco PLC (BATS LN) - SG 6/23 - 24 RWE AG (RWE GR) - PEK 6/30, SG 7/1 African Minerals (AMI LN) - HK 7/14

FY3/12 guidance, medium-term plan announced; Hit targets in two out of previous three medium-term plans

Toshiharu Morota Page 28

Chiyoda (6366.T),¥947 Hold Price Target ¥850

Share price discounts FY3/14 earnings; raising TP; Hold

Toshiharu Morota Page 29

The notes and reports contained in this Daily are all excerpts of previously published documents. Please refer to the published notes on our web site for details on risks, valuations and earnings changes

Arjun Shetty

16 June 2011 Strategy Asia Equities Daily Focus

Page 2 Deutsche Bank AG/Hong Kong

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Deutsche Bank AG/Hong Kong Page 3

DAILY REVISIONS: RATING CHANGES

Company Ticker Date New Previous

Allgreen Properties AGRN.SI 14-Jun ▼ Hold Buy

Bakrie Telecom BTEL.JK 15-Jun ▼ Sell Hold

Longfor 0960.HK 14-Jun Buy NR

TARGET PRICE CHANGES

Company Ticker Date New Previous Chg (%)

Bakrie Telecom [Sell] BTEL.JK 15-Jun 235.00 China Shipping Development Co. Ltd. [Buy] 1138.HK 15-Jun ▼ 10.60 12.00 -11.7Dish TV India Ltd [Buy] DSTV.BO 15-Jun ▲ 87.00 77.00 13.0First Philippine Hldgs [Buy] FPH.PS 14-Jun ▲ 80.00 66.00 21.2Longfor [Buy] 0960.HK 14-Jun 15.00 Pacific Basin Shipping Ltd [Buy] 2343.HK 15-Jun ▼ 5.30 6.30 -15.9STX Pan Ocean [Hold] 028670.KS 15-Jun ▼ 7,550.00 11,300.00 -33.2Semen Gresik [Buy] SMGR.JK 14-Jun ▼ 10,250.00 10,400.00 -1.4Shinsegae [Hold] 004170.KS 14-Jun ▲ 355,000.00 278,000.00 27.7United Tractors [Buy] UNTR.JK 15-Jun ▲ 32,000.00 30,000.00 6.7

EPS REVISIONS

Company Ticker Date FY New Previous Chg (%)

Bakrie Telecom [Sell] BTEL.JK 15-Jun Dec 10 ▼ 0.34 4.56 -92.6 Dec 11 -7.06 Dec 12 -6.15 Dec 13 -4.60 China Shipping Development Co. Ltd. [Buy] 1138.HK 15-Jun Dec 10 ▲ 0.50 0.50 0.0 Dec 11 ▼ 0.54 0.62 -12.2 Dec 12 ▼ 0.70 0.88 -20.6 Dec 13 0.83 Dish TV India Ltd [Buy] DSTV.BO 15-Jun Mar 11 ▲ -1.78 -2.16 17.2 Mar 12 ▼ -0.45 -0.11 -310.0 Mar 13 ▲ 1.18 1.06 11.8 Mar 14 2.80 First Philippine Hldgs [Buy] FPH.PS 14-Jun Dec 10 ▼ 1.52 5.07 -70.1 Dec 11 ▼ 3.03 5.22 -42.1 Dec 12 ▼ 4.60 6.49 -29.0 Dec 13 3.71 Longfor [Buy] 0960.HK 14-Jun Dec 10 0.50 Dec 11 0.83 Dec 12 1.21 Dec 13 1.61 Pacific Basin Shipping Ltd [Buy] 2343.HK 15-Jun Dec 10 ▲ 0.06 0.05 12.2 Dec 11 ▼ 0.04 0.06 -21.7 Dec 12 ▼ 0.06 0.09 -32.5 Dec 13 0.09 STX Pan Ocean [Hold] 028670.KS 15-Jun Dec 10 ▼ 0.32 0.43 -25.7 Dec 11 -0.01 0.57 nm Dec 12 -0.07 0.72 nm Dec 13 0.06 Semen Gresik [Buy] SMGR.JK 14-Jun Dec 10 ▲ 612.53 609.33 0.5 Dec 11 ▼ 653.34 696.93 -6.3 Dec 12 ▼ 793.94 823.05 -3.5 Dec 13 944.00 Shinsegae [Hold] 004170.KS 14-Jun Dec 10 ▼ 35,268.13 35,699.86 -1.2 Dec 11 ▲ 20,697.62 20,002.75 3.5 Dec 12 ▲ 27,051.44 22,332.09 21.1 Dec 13 31,204.53 Sun TV Network Limited [Buy] SUTV.BO 15-Jun Mar 14 36.98



DAILY REVISIONS: RATING CHANGES

Company Ticker Date New Previous Chg (%)

United Tractors [Buy] UNTR.JK 15-Jun Dec 10 ▼ 1,038.28 1,164.13 -10.8 Dec 11 ▼ 1,441.10 1,614.25 -10.7 Dec 12 ▼ 1,725.53 1,932.19 -10.7 Dec 13 ▼ 1,991.63 2,148.13 -7.3Zee Entertainment [Buy] ZEE.BO 15-Jun Mar 11 ▲ 5.99 5.48 9.3 Mar 12 ▲ 6.74 6.40 5.3 Mar 13 ▲ 7.85 7.84 0.1 Mar 14 9.25

Source: Deutsche Bank

Asia Hong Kong Banking/Finance Banks

16 June 2011

China Banks Sector tumbles; buy large banks on ex-growth pricesTracy Yu Research Analyst (+852) 2203 6191 [email protected]

Judy Zhang Research Analyst (+852) 2203 6193 [email protected]

Sector tumbles to reflect higher perceived risks; time to buy large banks We expect the Chinese banking sector to perform in line with the market as the low valuation has discounted the uncertainty over the likely changes in the risk weighting by the CBRC. Our analysis shows that the proposed changes in risk weighting for selected loan segments as reported by the local press would lower the sector’s tier 1 ratio by 75bps and future ROE by 2.8%, thus encouraging consolidation of market share that benefits the large banks. Our top picks are ICBC, ABC and CCB, and we consider their current prices to be solid entry points.

Industry Update

Top picks ICBC (1398.HK),HKD5.93 BuyAgri. Bank of China (1288.HK),HKD4.18 BuyChina Construction Bank (0939.HK),HKD6.98 Buy

Companies featured

ICBC (1398.HK),HKD5.93 BuyShenzhen Dev Bank (000001.SZ),CNY16.26 HoldBank of Ningbo (002142.SZ),CNY10.77 SellChina Construction Bank (0939.HK),HKD6.98 BuyChina CITIC Bank (0998.HK),HKD5.13 BuyAgri. Bank of China (1288.HK),HKD4.18 BuyChina Minsheng Bank (1988.HK),HKD7.25 HoldBank of Communications (3328.HK),HKD7.42 BuyChongqing Rural Bank (3618.HK),HKD4.87 BuyChina Merchants Bank-H (3968.HK),HKD18.82 HoldBank of China (3988.HK),HKD3.94 BuyShanghai Pudong Bank (600000.SS),CNY9.72 HoldBank of Nanjing (601009.SS),CNY8.88 BuyIndustrial Bank (601166.SS),CNY13.16 BuyBank of Beijing (601169.SS),CNY9.85 HoldChina Everbright Bank (601818.SS),CNY3.45 Hold

Uncertainty over changes in risk weighting to limit sector performance We believe the uncertainty relating to the timing and implementation details of the new set of risk weights will limit the share price performance of the sector before the regulators manage to clarify their policy stances after the Basel Committee finalizes the related regulations by the end of this year.

Increase in risk weighting to raise perceived risks of the sector The CBRC’s likely decision to raise the risk weighting (see below) for loans ahead of the credit cycle might raise the perceived risk of the Chinese banking sector. For investors who consider the move a response to expected deterioration in asset quality instead of prudence alone, the proposed changes in risk weighting imply an NPL ratio of 12% for non-commercial LGFV loans, 5.87% for property loans (which is 39x higher than the historical charge-off of 15bps in the US from 1985-2010) and 2.02% (4.5x higher than 45bps in the US) for infrastructure loans, compared with the sector’s NPL ratio of 1.15% in 2010. In contrast, the reduction in risk weighting from 100% to 75% for non-mortgage consumer loans would suggest an NPL ratio of almost zero, compared with the historical charge-off of 4.4% and 1.2% for credit cards and other consumer loans in the US over 1985-2010.

Manageable impact on large banks that would gain market share Our analysis shows that the proposed changes in risk weighting for property loans (150% from 100%), infrastructure loans (110% from 100%), non-mortgage consumer (75% from 100%), inter-bank assets (50% from 20%) and loan commitment under off-balance-sheet assets (75% from 50%) would lower the tier 1 ratio of the listed banks by 75bps and their future ROE by 2.8%. The estimated negative impact is smaller for the large banks such as CCB (-1.8%), ICBC (-2.2%) and ABC (-2.7%), compared with the midsize banks that generate returns by taking more risks. The banks that would be more affected include BONB (-10.4%), INDB (-7%) and SPDB (-6.4%). We expect this development to result in market share gains for large banks, which happened over 1990-2010 in the US.

Sector is trading at 8.8x 2011E P/E and 1.8x 2011E P/B On our estimates, the H-share Chinese banks are trading at 8.8x 2011E P/E and 1.8x 2011E P/B. These two multiples are respectively 27% and 19% lower than historical valuations, and we believe the low valuation is not justified, even taking into account the likely reduction in future ROE by 2.8% to 17.2%, given the changes in risk weighting. Our top picks are ICBC, ABC and CCB, and their ex-growth prices from 2014 onwards are HK$5.9, HK$4.1 and HK$6.4, respectively. Risks to the sector: vulnerability to economic slowdown, asset quality deterioration and policy risks, which could translate into lower loan spreads, and higher standards on capital, provisioning and other operating parameters.



Asia Hong Kong Transportation Marine

15 June 2011

Dry Bulk Shipping Oversupply persists; unexciting outlook Joe Liew, CFA Research Analyst (+852) 2203 6198 [email protected]

Sky Hong, CFA Research Analyst (+852) 2203 6131 [email protected]

Buy China Shipping Development because of locked in contracts Dry bulk shipping rates YTD have been weak because of the newbuild supply that has come onstream. We continue to expect supply growth to outstrip demand growth over 2011-2012E despite a recent uptick in scrapping numbers. We have cut earnings forecasts to reflect the lower rate environment. Our only high conviction Buy at this stage is CSD as we think its locked-in contracts will drive exciting earnings growth. Our top Sell is China Cosco because we think P/B valuations are high relative to peers and earnings prospects.

Forecast Change

Top picks China Shipping Dvlpmt (1138.HK),HKD7.18 BuyChina Cosco Hldgs (1919.HK),HKD6.46 Sell

Companies featured

STX Pan Ocean (028670.KS),KRW7,160.00 Hold2010A 2011E 2012E

P/E (x) 33.4 – –EV/EBITDA (x) 20.5 18.4 19.8Price/book (x) 1.0 0.6 0.6China Shipping Dvlpmt (1138.HK),HKD7.18 Buy

2010A 2011E 2012EP/E (x) 20.0 11.1 8.6EV/EBITDA (x) 14.3 10.4 8.8Price/book (x) 1.4 0.9 0.8China Cosco Hldgs (1919.HK),HKD6.46 Sell

2010A 2011E 2012EP/E (x) 11.9 263.5 37.9EV/EBITDA (x) 8.9 30.7 18.1Price/book (x) 1.6 1.2 1.2Pacific Basin Shipping Ltd (2343.HK),HKD4.50 Buy

2010A 2011E 2012EP/E (x) 12.5 13.0 9.4EV/EBITDA (x) 7.3 6.8 5.6Price/book (x) 0.8 0.7 0.7

Related recent research Date

Asian Container Shipping : Earnings downside not fully discounted; cautious by Sky Hong & Joe Liew 10 Jun 2011

Cutting earnings and TP We are reducing earnings forecasts for stocks under coverage to take into account the weak 1Q results and poor rate environment we have seen YTD. Besides some seasonal pickup in 4Q, the outlook for dry bulk shipping remains challenging. Go to page 7 for a full list of earnings forecast and TP changes.

Newbuild orders last year mean there is likely to be oversupply in 2012 too As a result of the low rate environment, 1.2% of the fleet has been scrapped YTD and delivery slippage has increased from 33% last year to 46% YTD. As a result, we have reduced our supply growth forecast for 2011E from 15.9% to 14.4%. But this is not enough to offset the 6.4% demand growth we are projecting this year. Next year, we forecast supply growth of 11.7% and demand growth of 6.7%. The oversupply in the Capesize vessel segment has been most noticeable this year.

Buy CSD – below book value and high growth The cautious dry bulk shipping outlook contrasts with our positive view on China Shipping Development. It is a beneficiary of government policy meant to encourage a domestic shipping champion. We expect it to grow capacity in its international crude oil and dry bulk businesses to cater to the growing need of its SOE customers. We also see a gradual improvement in global tanker rats over the coming 12 months. This will drive earnings growth of around 20% p.a. on average over 2011-2013E. At 11.0x 2011E P/E and 0.8x P/B, valuations are attractive in our view. P/B valuations are close to lows of the global financial crisis in 2008.

Sell China Cosco – high valuations for poor earnings outlook Earnings outlook this year for both dry bulk shipping and container shipping is poor. In container shipping, we expect a decline in rates and an increase in costs to result in sector earnings to collapse in 2011E. As a result, we expect a 97% y/y decline in China Cosco’s 2011E earnings. At 1.2x 2011E P/B, we think there is downside to share price and would recommend investors Sell the stock.



Asia ASEAN Indonesia Telecommunications

15 June 2011

Bakrie Telecom Reuters: BTEL.JK Bloomberg: BTEL IJ Exchange: JKT Ticker: BTEL

Beyond its fundamentals; downgrading to SellRaymond Kosasih, CFA PT Deutsche Bank Verdhana Indonesia Research Analyst (+62) 21 318 9525 [email protected]

William Bratton Research Analyst (+852) 2203 6186 [email protected]

Downgrading to Sell; we re-instate target price of Rp235 Bakrie Telecom has been the best-performing Indonesian telco in 2011. The stock has appreciated 50% YTD (vs. JCI’s 3%). However, we believe the company's weak fundamentals do not warrant current valuations. For the past 18 months, BTEL has seen declining market share vis a vis GSM-based operators, resulting in a largely flat revenue trend in the past 2 years (2009-10). We think the trend is likely continue as data surge will largely go to GSM-based operators. A high debt burden also translates into core earnings losses. Downgrade to Sell from Hold.

Forecasts and ratios

Year End Dec 31 2009A 2010A 2011E 2012E 2013E

Sales (IDRbn) 2,743 2,765 2,903 3,294 3,764

EBITDA (IDRbn) 1,268 1,335 1,336 1,431 1,579

Reported NPAT (IDRbn) 98.4 10.0 -208.9 -182.0 -136.2

Reported EPS FD(IDR) 3.33 0.34 -7.06 -6.15 -4.60

DB EPS FD(IDR) 3 0 -7 -6 -5

DB EPS growth (%) -28.0 -89.9 – 12.8 25.2

PER (x) 33.4 524.7 – – –

EV/EBITDA (x) 5.0 7.2 10.2 9.9 9.0Source: Deutsche Bank estimates, company data

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

Recommendation Change

Sell Price at 13 Jun 2011 (IDR) 350Price target - 12mth (IDR) 23552-week range (IDR) 395 - 147Jakarta Comp. Index 3,773.27

Key changes

Rating Hold to Sell Price target NA to 235.00

Price/price relative

100

200

300

400

6/09 9/09 12/09 3/10 6/10 9/10 12/10 3/11Bakrie Telecom

Jakarta Comp. Index (Rebased)

Performance (%) 1m 3m 12mAbsolute -5.3 20.0 109.3Jakarta Comp. Index-1.5 7.1 33.3

Stock data

Market cap (IDRbn) 9,969Market cap (USDm) 1,168Shares outstanding (m) 28,482.4Major shareholders Bakrie & Brothers (50.35%)Free float (%) 29Avg daily value traded (USDm) 1.483

Key indicators (FY1)

ROE (%) -4.1Net debt/equity (%) 73.6Book value/share (IDR) 175Price/book (x) 2.00Net interest cover (x) 0.2Operating profit margin (%) 1.8

Pricing no longer appeals BTEL’s pricing positioning is increasingly unattractive to many new (and price-sensitive) users. We estimate that BTEL’s RPM of Rp151/mnt are in line with Tsel/ISAT RPM of Rp150-160/mnt and well above XL’s Rp102/mnt. Consequently, we expect BTEL to continue to lose more market share to GSM-based operators. Also, in data business, CDMA operators are losing to GSM-based operators due to coverage and/or equipment.

No value creation Based on our forecasts, the company will likely deliver negative FCF during our forecast years. We project gearing ratios to continue to rise. Combined with the stock’s strong performance, we downgrade BTEL to Sell.

Downgrading to Sell from Hold We are downgrading our rating from Hold to Sell with target price of Rp235 per share. We believe that the stock is trading far above its fundamentals. We have derived our target price using DCF (WACC 11%, TGR 2.5%, similar to other telcos reflecting the industry’s mature stage/penetration levels of 100%). Risks are price recovery and cost efficiencies. See pages 6&7 for more details on valuation and risks.



Asia ASEAN Indonesia Automobiles & Components

15 June 2011

United Tractors Reuters: UNTR.JK Bloomberg: UNTR IJ Exchange: JKT Ticker: UNTR

Pleasant surprise: greater supply commitmentRachman Koeswanto PT Deutsche Bank Verdhana Indonesia Research Analyst (+62) 21 318 9524 [email protected]

Reiterating Buy on strong earnings prospects We maintain our Buy on UNTR, given its strong earnings prospects on the back of: (1) buoyant commodity prices, particularly coal, which accounts for 90% of consolidated earnings; and (2) the expected weather normalization, which should lead to sharp earnings and margin improvement at Pama. We view the stock as still attractive, performing in line with the market YTD, and trading at 13.3x earnings in 2012F, on a par with the market.


Year End Dec 31 2009A 2010A 2011E 2012E 2013E

Sales (IDRbn) 29,242 37,324 46,090 54,699 63,519

EBITDA (IDRbn) 7,373 7,738 10,267 12,281 14,344

Reported NPAT (IDRbn) 3,817.5 3,872.9 5,375.5 6,436.5 7,429.0

Reported EPS FD (IDR) 1,023.43 1,038.28 1,441.10 1,725.53 1,991.63

DB EPS FD (IDR) 1,023 1,038 1,441 1,726 1,992

OLD DB EPS FD (IDR) 1,147 1,164 1,614 1,932 2,148

% Change -10.8% -10.8% -10.7% -10.7% -7.3%

DB EPS growth (%) 43.5 1.5 38.8 19.7 15.4

PER (x) 10.4 18.7 15.9 13.2 11.5

EV/EBITDA (x) 5.5 9.8 8.1 6.8 5.8

DPS (net) (IDR) 442 466 648 776 896

Yield (net) (%) 4.1 2.4 2.8 3.4 3.9Source: Deutsche Bank estimates, company data

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

Forecast Change

Buy Price at 14 Jun 2011 (IDR) 22,850Price target - 12mth (IDR) 32,00052-week range (IDR) 25,900 - 18,150Jakarta Comp. Index 3,773.27

Key changes

Price target 30,000.00 to 32,000.00 6.7%Sales (FYE) 44,768 to 46,090 3.0%Op prof margin (FYE) 16.1 to 15.7 -2.5%Net profit (FYE) 5,370.4 to 5,375.5 0.1%


8000

12000

16000

20000

24000

28000

6/09 9/09 12/09 3/10 6/10 9/10 12/10 3/11United Tractors

Jakarta Comp. Index (Rebased)

Performance (%) 1m 3m 12mAbsolute 1.8 2.0 21.5Jakarta Comp. Index-1.5 5.7 33.5

Stock data

Market cap (IDRbn) 85,234Market cap (USDm) 9,989Shares outstanding (m) 3,730.1Major shareholders Astra International (59.5%)Free float (%) 40Avg daily value traded (USDm) 13.284


ROE (%) 25.6Net debt/equity (%) -7.2Book value/share (IDR) 6,930Price/book (x) 3.30Net interest cover (x) 33.3Operating profit margin (%) 15.7

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Upgrade in Komatsu sales and updates on acquisitions and the rights issue In contrast to earlier concerns over the impact of Japan’s catastrophe, UNTR is raising its heavy equipment target to 7,000 units (from 6,000) in 2011F, following Komatsu’s larger supply commitment. In addition, UNTR expects to complete the acquisition of Asmin Bara plus another coal asset in the next 1-2 months. Finally, it successfully raised US$6.1tr from the rights issue, to mainly be used for acquisitions, growing the mining contracting business and coal infrastructure. Raising EBIT by 2-8% for 2012-13F We raise earnings in 2012-13F to reflect the bigger heavy equipment commitment from Komatsu and higher coal price assumptions. Nevertheless, we lower our EBIT margin to adjust for a stronger Rupiah. Raising our target price to Rp32,000 (from Rp30,000) Our new target price, which reflects our earnings revision, the rights issue proceeds and the change in the WACC rate, is based on a 10-year DCF valuation using a WACC of 14.6% (from 12.8%) and TG of 5% (unchanged). Risks: upward integration at coal companies and a sharp decline in coal prices (see page 5).



Asia

15 June 2011

Asia Economics Daily

Singapore retail sales surprise to the upside

Michael Spencer, Ph.D Chief Economist, Asia (+852) 2203 8303 [email protected]

Jun Ma, Ph.D Chief Economist, Greater China (+852) 2203 8308 [email protected]

Taimur Baig, Ph.D Chief Economist, India (+65) 6423 8681 [email protected]

Juliana Lee Senior Economist (+852) 2203 8312 [email protected]

Kaushik Das Economist (+91) 22 6658 4909 [email protected]

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HIGHLIGHTS

Singapore – Retail sales surprise to the upside in April South Korea – Unemployment rate eases further in May Philippines – Remittances rise by 6.3%yoy in April

UPCOMING RELEASES

Hong Kong – Unemployment Rate (May) DB forecast 3.4% (3.5% in Apr) India – We expect the RBI to hike rates by 25 bps Philippines – We expect the BSP to hike rates by 25bps Sri Lanka – GDP (Q1) DB forecast 7.8% (8.6% in Q4’10)

NEWS IN BRIEF

SINGAPORE Retail sales (Apr). Retail sales (in current prices) grew at a faster pace of 8.1%yoy in April (1.1% in Mar) and was well above the consensus as well as our expectation of 3.6%. Even on a mom (sa) basis, retail sales posted a strong growth of 5.7% in April, as compared to 4.6% in March. By category, motor vehicle sales rose by 2.2%yoy in April, as against 15.3% decline in March, while ex auto, sales growth accelerated from 7.4% to 10.1% in April. Looking ahead, we expect rising income and employment to support sustained retail sales growth ahead.

SOUTH KOREA Unemployment rate (sa) (May). South Korea's unemployment rate (sa) eased further in May, to 3.3% from 3.6% in April and the outturn was better than our (3.6%) as well as consensus (3.7%) expectation. This was led by 0.5%mom (+0.1%mom in Apr) rise in employment rate, which offset 0.2%mom (-0.3%) rise in the labor force participation rate in May. Going forward, we expect strong economic activities will guide lower unemployment rate of 3.3% (avg) in 2011 vs. 3.7% in 2010.

PHILIPPINES Remittances(Apr). April overseas remittances came in at USD1.6bn (up 6.3%yoy), largely unchanged from the March outturn. In the first four months of 2011, remittances flow was USD6.2bn, up 6.0% from the same period last year. We expect strong remittance flow to continue through 2011, thereby supporting private consumption and investment growth.



FINANCIAL MARKETS

Today's % chg vs Today's abs chg vs Today's bps chg vs Today's bps chg vsClosing prev day Closing prev day Closing prev day Closing prev day

China 12398 -0.7 6.48 0.0 3.25 0 3.95 0Hong Kong 22344 -0.7 7.79 0.0 0.26 0 2.28 2India 18164 -0.8 44.72 0.0 7.15 0 8.33 9Indonesia 3788 0.4 8545 -12.0 7.15 0 7.68 3Malaysia 1555 0.4 3.03 0.0 3.27 2 3.96 0Philippines 4201 1.5 43.4 0.0 3.25 4 6.48 -2Singapore 3057 0.0 1.23 0.0 0.44 0 2.29 2S. Korea 2087 0.5 1083 -2.5 3.56 0 4.26 1Taiwan 8831 0.0 28.8 0.0 0.73 0 1.54 -1Thailand 1031 -0.4 30.5 -0.1 3.56 1 3.21 0

US 12076 1.0 na na 1.28 0 3.10 12Japan 9574 0.3 80.7 -0.2 0.20 0 1.15 1Euroland na na 1.44 0.0 1.48 0 0.00 -3

Stockmarkets FX Markets Money Markets Bond Markets

Sources: DB Global Markets Research, Bloomberg Finance LP and Reuters

ECONOMIC DIARY Country Release Period DB Expected Consensus Actual Previous

Monday, June 13China M2 May-YoY 15.6% 15.5% 15.1% 15.3%

Tuesday, June 14China CPI May-YoY 5.5% 5.5% 5.5% 5.3%

PPI May-YoY 6.3% 6.5% 6.8% 6.8%Industrial Production May-YoY 12.5% 13.1% 13.3% 13.4%Fixed Asset Investment (ytd) May-YoY 25.3% 25.2% 25.8% 25.4%

Retail Sales May-YoY 17.3% 17.0% 16.9% 17.1%India WPI May-YoY 8.8% 8.8% 9.1% 8.7%Events & Meeting:Japan:BoJ Meeting (no change in rate)Events & Meeting:Sri lanka:CBSL Meeting (no change in rate)

Wednesday, June 15Singapore Retail Sales (nominal) Apr-YoY 3.6% 3.6% 8.1% 1.1%

Retail Sales (real) Apr-YoY 0.6% NA 5.8% -1.3%South Korea Unemployment Rate (sa) May 3.6% 3.7% 3.3% 3.6%

Thursday, June 16Hong Kong Unemployment Rate (sa) May 3.4% NA 3.5%Sri Lanka GDP Q1-YoY 7.8% NA 8.6%Events & Meeting:India:RBI Meeting (25bps rate hike expected)Events & Meeting:Philippines:BSP Meeting (25bps rate hike expected)

Friday, June 17Singapore NODX May-YoY 4.0% 5.0% -1.8%

Exports May-YoY 6.8% NA 5.0%Imports May-YoY 12.0% NA 4.5%Trade balance May SGD4.0bn NA SGD4.4bn

Sources: DB Global Markets Research, Bloomberg Finance LP and Reuters



Global 15 June 2011

Global Commodities DailyBrent rent?

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The Day Ahead

Time(EST) Country Event Previous Market View

04:30 UK ILO Unemployment Rate (3M) (Apr) 7.7% 7.7%

05:00 EZ Industrial Production s.a. (MoM) (Apr) -0.2% -0.2%

07:00 US MBA Mortgage Applications (Jun 10) -0.4%

08:30 US NY Empire State Manuf. Index (Jun) 11.88 12

08:30 US Consumer Price Index (MoM) (May) 0.4% 0.1%

09:15 US Industrial Production (MoM) (May) 0% 0.2%

10:00 US NAHB Housing Market Index (Jun) 16 16

10:30 US EIA crude inventories -5512K

Australia Crop report

Australia Mineral stats

Overview

Industrial metals moved higher across the board on better-than-expected Chinese industrial production and dollar weakness. Also helping create positive sentiment, the PPI inflation data came in close to market expectations and US retail sales fell less than the consensus had feared.

The metals markets are showing impressive resilience in the face of a meltdown in the bond market and further tightening by the PBOC, in our view. In Europe, Greece, Portugal and Irish 10 year bond yield rose to record highs. In China, the PBOC raised reserve requirement ratio by 50 basis points to new record highs after the May CPI climbed to 5.5%, Figure 1. Our China economics team maintains their view that y-o-y inflation will peak in June and expects the last interest rate hike this year to take place in mid-July. China also released production data for May. Despite ongoing power shortages, aluminium and steel production continued to rise by 5.3% and 2.1% m-o-m respectively. Meanwhile, copper production declined by 3.3% m-o-m for a second consecutive month.

The WTI-Brent spread widened to all time high, Figure 2. We believe too much Canadian, Bakken, and Mid-Continent oil is still pouring into Cushing with no easy way out. The spread could widen further unless the geopolitical forces pushing Brent up are removed, or somebody builds a pipeline to move crude oil from Oklahoma to the Gulf Coast. In theory, rail-car and truck transportation of crude to Texas refineries would set an upper limit in the spread at about USD10-15/bb, but there is not enough capacity to deal with the overflow. Producers are reluctant to commit to a pipeline-- everyone is waiting for someone else to pay. We note that for the first time in a year and a half, the LLS spread (which is not subject to the same land-locked problems impacting WTI) has turned negative.

Looking at today’s calendar, in Europe market will focus on industrial production for the Eurozone. In the US, NY Empire State manufacturing index and industrial production will provide guidance on the health of manufacturing sector.

Commodities & Global Markets

Commodities News In Brief

• API inventories fell 3.0mmb, distillates fell 0.4mmb, gasoline rose 1.1mmb.

• Gold output in China jumped 21% to 63.5 tonnes, according to the statistic bureau today.

• Crude-steel production from China, the world’s biggest steel producer rose 7.8% to 60.25 mn tonnes in May from a year earlier, according to data released today by the Beijing-based National Bureau Statistics.

• China’s power generation rose 12% from a year earlier to 377.5 bn kilowatt-hours, the highest since March. Output for the first five months gained 13% to 1.8 tn khw, said Nat’l Bureau of Stat.

• China Coal Energy Co Ltd. produced 9.19 mn tonnes of commercial coal in May, reflecting a YoY increase of 11.5% from 8.24 mn tonnes, said the Shanghai Stock Exchange.

• Consumption of stainless steel ingredient molybdenum jumped to a record high of 474 mn lbs in 2010, the International Molybdenum Assoc. said.

• Saudi Aramco has offered additional crude supplies to customers in Asia and Europe, according to Bloomberg News.

Global Markets News In Brief

• Japan Jun 14 BoJ interest rate decision remains unchanged at 0.1%.

• Japan Apr industrial production (MoM) up to 1.6% vs 1%.

• UK CPI (MoM) grew by 0.2% in May from 1.0%; (YoY) unchanged at 4.5%.

• US PPI (MoM) (May) rose 0.2%, about in line with consensus.

• US Retail sales (MoM) (May) fell 0.2%, better than the -0.7% consensus.

Event Risks

• China Actual FDI (YoY) 13-15 June.

• IEA OMR on June 16.

• U. of Michigan Confidence on June 17.

• Germany ZEW Survey (Econ. Sentiment) on June 21.

• EZ PMI Services on June 23.

Research Team Adam Sieminski Xiao Fu Research Analyst Research Analyst (1) 202 662 1624 (44) 20 7547 1558 [email protected] [email protected]



Figure 1: Chinese CPI vs RRR Figure 2: WTI-Brent spread; Louisiana L/S- Brent spread

0

5

10

15

20

25

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011-3

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China required reserve ratio (%) China CPI yoy% (RHS)-25

-20

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-5

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Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11

WTI-Brent

LA L/S - Brent

USD/bbl

Source: Bloomberg Finance LP, Deutsche Bank Sources: Bloomberg Finance LP, Deutsche Bank

Commodity Price Summary

Energy WTI (bbl) Brent (bbl) Nat Gas (mmBtu) RBOB Gas (g) Heating Oil (g) API 4 (t)

Close (USD) 99.37 120.16 4.58 3.06 3.13 121.00 Daily price change 2.1% 0.9% -1.4% 2.3% 0.6% 0.0% YTD price change 8.7% 26.8% 4.0% 24.9% 22.9% 4.6% Precious Metals & FX Comex Gold Comex Silver Nymex Platinum Nymex Palladium EURUSD USDJPY Close (USD/oz) (level) 1523.80 35.41 1794.90 790.90 1.44 80.49 Daily price change 0.6% 1.9% -0.7% -0.9% 0.2% 0.3% YTD price change 7.2% 14.6% 0.9% -1.5% 7.9% -1.0% Industrial Metals Aluminium Copper Lead Nickel Tin Zinc LME close 3M (USD/t) 2627 9169 2580 22315 25650 2280

LME close 3M (USc/lb) 119.2 415.9 117.0 1012.2 1163.5 103.4

Daily price change 1.4% 2.9% 1.8% 0.2% 3.4% 1.5%

YTD price change 6.4% -4.5% 1.2% -9.8% -4.6% -7.1% LME Stocks (t) 4,631,200 473,675 321,725 112,506 21,930 865,350

Daily change (t) -5,725 -2,075 -100 -30 -300 -125

Agriculture & Livestock Corn (bsh) Cotton (lb) Live Cattle (lb) Soybeans (bsh) Sugar (lb) Wheat (bsh) NY close (USc) 755.50 155.54 104.28 1368.00 25.15 731.25 Daily price change -3.5% 3.0% 1.0% -1.1% -1.7% -1.6%

YTD price change 20.1% 7.4% -3.4% -1.8% -21.7% -7.9%

Other prices Baltic Dry Index

Iron Ore Steel US HRC Ethanol EUA (CO2)

Dec12 (Euro) U3O8 USD/lb

Close (level) 1400 172.8 757 2.75 17.21 55.00 Daily change -0.8% 0.3% -2.1% -0.9% -1.0% -0.9% YTD change -21.0% 1.6% 11.3% 15.7% 17.6% -11.4%

Indices DBLCI-OY DBLCI-MRE DB Harvest SPGSCI DJUBS SPWCI NY close (level) 1388 439 290 5325 330 422 Daily change 0.4% -0.1% -0.1% 0.9% 0.3% 0.5% YTD change 8.5% 2.2% 2.6% 7.7% 1.2% 18.0%

Source: Reuters, Bloomberg Finance LP, UxC, Metals Bulletin, Deutsche Bank



Asia China Technology

15 June 2011

China TMT Daily More on LBS; also 0700.HK, QIHU

(Please click through to the .pdf version of this document for a full overview of today's

news and views.)

Periodical

TOP CHINA TMT PICKS Company Rating Target Price AsiaInfo-Linkage Buy USD 26.30 China Telecom Buy HKD 5.40 ZTE Buy HKD 35.65

CHINA TMT STOCKS Company Rating Close Price 1D% 3M%

TELCOS as on 14/06China Comm Service Hold 4.9 2.3 -1.2China Mobile Hold 70.0 -0.6 -3.1China Telecom Buy 4.7 0.0 3.6China Unicom Buy 16.4 0.4 25.2 INTERNET/ONLINE GAMING Alibaba.com Hold 11.3 -1.2 -20.8Baidu Buy 124.8 5.8 0.6Ctrip.com Int'l Hold 41.6 3.6 6.7Netease.com Buy 42.6 2.5 -6.7Shanda Sell 37.6 3.4 -18.3Shanda Games Hold 6.6 4.8 -6.3Sina Corp Sell 91.6 6.4 -4.3Sohu.com Hold 71.9 6.4 -15.2Tencent Buy 201.4 -2.5 -5.9 TECHNOLOGY AsiaInfo-Linkage Buy 14.7 1.5 -27.3ChinaCache Buy 7.6 7.6 -57.7Foxconn Int'l Hldgs Hold 3.5 -1.9 -30.4SouFun Buy 18.2 3.9 2.6Synnex Technology Buy 66.5 0.6 1.1ZTE Buy 27.7 3.2 -2.2 Indices Close 1D% 3M% as on 14/06HSI 22496.0 -0.1 -0.8HSCEI 12488.3 0.4 -0.5Nasdaq 2678.7 1.5 -0.8Sources: DB, Bloomberg Finance LP

Research Team

Alan Hellawell III Research Analyst (+852) 2203 6240 [email protected]

Eva Leung, CFA Research Analyst (+852) 2203 6190 [email protected]

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FEATURE:

Location-based services worth US$10bn by 2016 Research firm Strategy Analytics, in a recent report titled “The $10 Billion Rule: Location, Location, Location," forecast that location-based services will generate revenue of US$10bn by 2016, despite the widely debated issues involving privacy and the general usage of location-specific data by a company.

Location-based advertising likely to account for over 50% of total LBS revenue Strategy Analytics meanwhile estimated that over 50% of total LBS revenue will be derived from location based search advertising. The company believes that customers are increasingly demanding services such as content search and navigation, for which location information is fundamental to track a person’s interest and daily activities, resulting in higher appeal. Strategy Analytics asserts strongly that consumer demand for LBS will grow in line with rising smartphone sales and data plan penetration. Company analyst Nitesh Patel also noted that Google recently announced that 40% of all Google Map usage can be traced to mobile phones, further supporting the assertion that much of this demand will come from users accessing location based services through mobile phones.

AutoNavi favorite technology provider, Sina, Bidu, Tencent driving mobile advertising initiatives As we have profiled several times through our China TMT Daily, we expect location based services to generate successively higher advertising rates for ad distributors by guiding customers to local shops, all the while improving ad effectiveness with targeted ad viewing. We fortuitously had the opportunity to speak with private company Dianping during our China internet tour. The company in our mind represents some of the most sophisticated application of LBS in the China market, offering a wide range of location-based services from basic check-in to "lifestyle search" (finding restaurants, clubs, etc in a city) to group-buy. While we see exciting prospects across a wide range of private companies engaged in areas such as targeted mobile advertising, we view Sina, Baidu and Tencent as offering the most sophisticated mobile advertising options to their customers and their agencies. Many players in the industry meanwhile will need to rely upon geospatial information systems (GIS) and digital mapping solutions provider AutoNavi for updated maps with point-of-interests.



Asia ChinaTechnology Software & Services

15 Jun 2011 - 03:18:06 PM HKT

COMPANY ALERT Company Update

Alibaba.com Limited Hold

2011 DB Internet tour. Alibaba

Reuters:1688.HK Exchange:HKG Ticker:1688

Price (HKD) 11.28

Price target (HKD) 14.08

52-week range (HKD) 17.50 - 11.28

Market cap (USDm) 7,329

Shares outstanding (m) 5,055.6

Net debt/equity (%) -62.3

Book value/share (CNY) 1.41

Price/book (x) 6.7

FYE 12/31 2010A 2011E 2012E

Sales(CNYm)

5,558 6,684 8,269

Net Profit(CNYm)

1,475.6 1,797.1 2,387.3

DB EPS(CNY)

0.36 0.42 0.56

PER (x) 38.4 22.2 16.9

Yield (net)(%)

1.4 0.0 0.0

Major org changes largely complete. We had the opportunity to gain anupdate from senior management at Alibaba.com. Take-aways from themeeting were generally neutral to our thesis. We emerged believing thatchanges to most of the co's leadership structure are largely settled, al-though there are possibly some further middle mgmt modifications. The coupdated investors on other key initiatives.

Focus #1: Customer quality over quantity: Regarding paying the ~100K GoldSuppliers on the Intl marketplace, net adds may go negative for 1-2 Q's.Stricter criteria for the nearly 700K China Trustpass membership on the do-mestic China Marketplace may also result in negative net adds over the nextcouple Q's. Ali meanwhile seeks to enhance quality of information they get.

Focus #2: Transaction models. Mgmt indicated that all 3 transaction modelsare "growing well," with Wu Ming Liang Pin alone having tripled over past3 mos. The co spoke of a USD600m-1b '11 GMV target on the last quarterlycall. Mgmt now expects to exceed this range. We note that AliPay has beenfully integrated these platforms, and will be more actively used once Ali'srelationship with PayPal lapses in August. Ali seeks to become a Top 3transaction platform in 2-3 yrs. Thirdly, Ali-Express, both by # of suppliersand Alexa ranking, has now become the largest player in the space.1688.com meanwhile is still in trials.

VAS. Amongst other fast growers is the pay-for-performance keyword bid-ding engine Ali-Advance was launched on the international platform in1Q2011. Ot represents a majority of domestic VAS revs, and more than10% international marketplace.

We expect Ali to achieve 2011 35% pre-SBC EBITDA margins, despiteheavier investment in its transaction platform. Responding to concerns overcorporate governance across Chinese internet cos, mgmt emphasized boththe relative simplicity of the co's financial story (50% of assets cash, 80%of liabilities are deferred revs), and its commitment to corp governance.

Although the company is rolling out multi-linguistic capabilities, Ali seemsto have turned focus back from overseas initiatives toward domestic de-velopment.

Alan Hellawell IIIResearch Analyst(+852) 2203 [email protected]

Alex YaoResearch Analyst(+86) 21 3896 [email protected]



Asia ChinaTransportation Road/Rail

15 Jun 2011 - 11:38:04 AM CST


CSR Corp Ltd Buy

Proposal of A-share private placement


Price (HKD) 7.62


52-week range (HKD) 11.34 - 5.33





Price/book (x) 3.3

FYE 12/31 2010A 2011E 2012E

Sales(CNYm)

63,912 95,922 114,682

Net Profit(CNYm)

2,531.4 4,161.9 5,141.6

DB EPS(CNY)

0.21 0.35 0.43

PER (x) 27.1 18.0 14.6

Yield (net)(%)

0.7 1.1 1.4

CSR plans to issue 1.83bn new A shares (with an aggregate subscriptionamount of Rmb11bn) to its parent and the country's social security fund(NSSF). The 1.83bn A shares account for 15% of CSR's existing number ofshares. The placement price (Rmb6.02) is currently at a 6% discount toCSR's H share price and 13% discount to A share price. The lock-up periodfor CSR's parent and NSSF is three years. Placement proceeds will bemainly used for production capacity expansion in high-speed trains/rapidtransit vehicles, R&D and capacity expansion for maintenance. The place-ment still needs the approval of shareholders and CSR. CSR expects theprivate placement to be completed in 4Q11.

Deutsche Bank view: The news could hurt CSR's share price, but thedownside risks could be limited. CSR's H share price has dropped 20% inthe past four months, so we think the news has been partly factored intothe price. In addition, we think the proposal looks better than market ex-pectation as it would only sell the new shares to its parent and NSSF andthe lock-up period is 36 months. Based on our rough estimates, we expect2012 EPS to be diluted by 12% if the placement is completed at end-2011.We still like CSR on the back of its continued healthy medium-to-long termoutlook. The catalysts would be the resuming of MoR's new orders.

Phyllis WangResearch Analyst(+86) 21 3896 [email protected]

Joe Liew, CFAResearch Analyst(+852) 2203 [email protected]



Asia ChinaTechnology Hardware & Equipment

16 Jun 2011 - 01:46:50 AM HKT


Digital China Buy

Decent March quarter result


Price (HKD) 13.06


52-week range (HKD) 16.96 - 11.76




Book value/share (HKD) 4.67

Price/book (x) 2.80

FYE 3/31 2009A 2010E 2011E

Sales(HKDm)

50,178 56,193 66,930

Net Profit(HKDm)

858.4 860.0 953.4

DB EPS(HKD)

0.86 0.84 0.93

PER (x) 4.1 15.6 14.0

Yield (net)(%)

8.0 2.1 2.3

Stronger 4QFY10 result due to IT channel business' higher marginDigital China (DC) reports its 4QFY10 sales (quarter March 2011) at HK$14.4bn (-2.7% QoQ, 17% YoY), slightly higher than DB forecast at HK$13.8bn. The company's gross profit came in at HK$1.02bn (-9.3% QoQ,+18% yoy), beating DB estimate by 11%. Its 4QFY10 OP income at HK$75m vs. our forecast of HK$35m loss. We attribute the b-t-e profitabilityto higher margins from its channel business, particularly the IT distributionand System segments, while IT service performance is largely in line.IT Channel business - Cost cutting leads to profitability improvementAlthough there are not many surprises from DC's IT distribution sales andgross margin, the company's stringent op cost saving efforts help tocounter the flat-to-downward margin trend of the sector. As a result, its OPmargin % increases by 130bps from previous quarter. Meanwhile, Systembusiness also contributes through more exposure to regional clients, whichis good to GM%, and a cost cutting efforts, which leads to OPEX declineby 80bps from 3QFY10.Consequently, Digital China's 2010 annual result beats our numbers. Thecompany reported its FY2010 OP income at HK$815m, up 50% YoY and16% higher than our forecast.Guidance on FY2011Without specifying too much in numbers, the company states that...PC demand outlook in China is still healthy, especially notebook PC.At the same time, the company is seeing a structural change on end de-mand favoring smartphones and tablet PCs. Digital China is catching up thetrend by working with three major telecom operators in China and smart-phone brands, and aiming to become the #1 smartphone distributor. How-ever, they admit that it may take some time for the company to adjust theirproduct portfolio.400 more @port outlets are planned to open in FY2011 with lower tier citiesas the focus.Smart city remains as the highlight of the company's long-term develop-ment plan.The company targets to further cut OPEX in %. But they also agree it canbe a challenging task due to higher labor costs and inflation in China.We have a buy rating on Digital China. Our target price at HK$19 im-plies 43% potential upside.

Lorraine KuoResearch Associate(+852) 2203 [email protected]

Eva Leung, CFAResearch Analyst(+852) 2203 [email protected]




15 Jun 2011 - 05:46:41 AM HKT

INDUSTRY ALERT Industry UpdateSoftware & Services 2011 DB Internet tour. Shanghai, Day 1

Focus stocksBaidu (BIDU.OQ),USD118.03 Buy,Price Target USD174.00

Renren Inc (RENN.N),USD8.00Hold, Price Target USD8.42

Sina Corp (SINA.OQ),USD86.15Sell, Price Target USD54.00

Sohu.com Inc(SOHU.OQ),USD67.55 Hold, NA

Netease.com(NTES.OQ),USD41.59 Buy, PriceTarget USD54.00

Shanghai, Day 1: growth to the upside. In the first day of the Shanghaileg of our annual internet trip, we met with Allyes, one of the largest onlinead service providers in China. Allyes mgmt expect online ads to remainstrong in 2Q despite the impact from Japan earthquake. Mgmt expects theoverall online ad market to grow 40-45% in 2Q. Two segments are growingrelatively faster: search ads and video ads. From mgmt's perspective, videoads benefit from the following factors: 1) a small base 2) sharp increases infast TV commercial ad ratecards and 3) limited prime online inventory andprime time TV ad slots. Search ad growth remains strong due to Baidu'sstrong execution and improving algorithm. Across advertiser categories, e-commerce continues to demonstrate strong growth momentum. However,mgmt was cautious with regard to the sustainability of group-buy driven adspend.

Micro-blogs. Discussion with mgmt of CIC, a leading social business in-telligence provider in China, revealed that Sina maintains its leadershipposition in China's micro-blog market in terms of user activity. Nonetheless,mgmt claims that Tencent Weibo is stronger in lower tier cities. Mgmt alsohighlighted that celebrities and advertisers would likely choose betweenSina and Tencent Weibo platforms based on their specific target audiences.CIC expects micro-blogging to become a ubiquitous social platform in Chi-na, although long term competitive positioning is not clear at this stage.

Ad market still robust - Buy Baidu. We expect online ads to deliver stronggrowth in 2011, driven by 1) a booming ecommerce mkt 2) increasing adspend on online video and 3) robust search ad growth. However, we high-light that China's online ad might slow down in 2012 as e-commerceconsolidates and rationalizes. We meanwhile believe micro-blog monetiza-tion is not a near term focus of any of the major players in China's micro-blog market.






15 Jun 2011 - 06:17:23 AM HKT


Tencent Buy

2011 DB Internet tour. Tencent


Price (HKD) 201.40


52-week range (HKD) 225.00 -124.90





Price/book (x) 9.5

FYE 12/31 2010A 2011E 2012E

Sales(CNYm)

19,646 28,338 36,218

Net Profit(CNYm)

8,053.6 11,273.2 14,447.7

DB EPS(CNY)

4.59 6.42 8.23

PER (x) 29.8 26.1 20.4

Yield (net)(%)

0.4 0.3 0.4

Senior management meetings reveal company in multiple competitivemodes. We finished our day in Shenzhen with a visit to the offices of leadingChinese internet company Tencent. Despite maintaining its usual conser-vative demeanor in communicating with investors, the company spentsignificant time addressing the ever-changing internet-based communica-tions, media and entertainment landscape.

Micro-blogging: growth and application devpt key; no short-termmonetization. While recognizing the game-changing nature of micro-blog-ging in China, management contended that integration of micro-blogginginto a much wider portfolio of communications tools (eg - QQ instant mes-saging, SNS, etc) would appeal increasingly to many users. It seems clearto us that Tencent will remain steadfast in growing its share against com-petitor Sina.

SNS - blurring of real-name and non-real-name. Management chal-lenged characterizations of Qzone as being purely non-real-name based,suggesting that with time, users become nearly as aware of the identitiesof contacts as they would on a pureplay real-name platform such as Pengy-ou or Renren. As we mention in our launch piece on Renren earlier thisweek, we feel its exclusive focus on real-name puts it in good stead tobecome the dominant player on the front.

Ads an upside risk, gaming growth unclear. Tencent addressed the rel-atively sparse presence of ads across its properties. We view this piece ofthe business (8-9%) as carrying potential upside, while characterizations of2Q gaming growth left investors unclear whether there might be slightweakness relative to past years.





Asia TaiwanTechnology Hardware & Equipment

15 Jun 2011 - 06:55:00 PM CST

INDUSTRY ALERT Industry UpdateHardware & Equipment Taiwan Semi Strategy - A tougher game in 3G handset chips

Focus stocksTSMC (2330.TW),TWD77.00 Buy,Price Target TWD85.00

MediaTek (2454.TW),TWD304.00Sell, Price Target TWD233.00

MStar Semiconductor(3697.TW),TWD191.50 Hold, PriceTarget TWD243.00

Intensified pricing competition in 3G handset chips - Our latest channelchecks suggest that Qualcomm (Buy, 55.57 USD) continues to cut the ASPof its 3G smartphone chips aggressively to prevent the other chip vendorsfrom gaining market share. We expect the ASP of its smartphone chips tofall 30% over the next 9-12 months based on its accelerated migration to40nm in TSMC. In addition, Qualcomm is providing more turnkey solutionsfor China handset makers to reduce time to market for product introduction.Our surveys also indicate that global top-tier handset makers could usemore Qualcomm's mid/low-end 3G smartphone single-chip solutions to im-prove the price performance of their new smartphones over the next 12months. We believe this will benefit TSMC in 2H11 and 1H12 due to therising penetration of mid/low-end smartphones. We anticipate the ordersof 3G handset chips for foundries (mainly TSMC) to grow 20-25% QoQ in3Q11. In our view, this should ease the concerns over potential downsiderisks to TSMC's 3Q11 sales. We maintain our sales forecast of a 7-9% QoQgrowth for TSMC in 3Q11, which is slightly higher than the latest consensusestimate of a 5% QoQ increase. We reiterate Buy on TSMC as we view thecurrent risk/reward profile as attractive.

Asian chip vendors may face more challenges - Our colleague, JessicaChang, considers that due to the tough competitive landscape for 3G hand-set chips, MediaTek, MStar, and the other Asian handset chip vendors mayface more headwinds in their ramp of 3G smartphone chips. We maintainsSell on MediaTek and Hold on MStar.

Michael ChouResearch Analyst(+886) 2 2192 [email protected]

Jessica ChangResearch Analyst(+886) 2 2192 [email protected]

Kevin WangResearch Associate(+886) 2 2192 [email protected]



Asia Korea, Republic ofUtilities Utilities

15 Jun 2011 - 09:21:07 AM GMT


Kepco Buy

Company visit key takeaways

Reuters:015760.KS Exchange:KSC Ticker:015760

Price (KRW) 27,050

Price target (KRW) 35,600

52-week range (KRW) 34,100.00 -25,600.00


Shares outstanding (m) 622.6

Net debt/equity (%) 86.7

Book value/share (KRW) 67,011

Price/book (x) 0.40

FYE 12/31 2010A 2011E 2012E

Sales (KR-Wbn)

39,426 44,361 48,779

Net Profit(KRWbn)

-19.9 1,450.2 2,391.5

DB EPS(KRW)

-56 1,900 4,120

PER (x) – 14.2 6.6

Yield (net)(%)

0.0 1.8 2.8

We have visited Kepco and got a conviction on a new tariff system and acolor on 2Q11E earnings. We maintain a Buy rating on Kepco with a targetprice of W35,600.

Electricity tariff hike imminentBased on the visit, Kepco was fully prepared to implement a fuel cost passthrough system from next month. We believe the company will most likelyadopt the fuel cost pass-through system in July along with an additionaltariff hike. The fuel price based tariff is expected to fall 1% due to decreasingoil prices from February to May. However the additional tariff hike, expectedat 5%, will offset any decrease in the fuel cost adjusted tariff. Overall, weexpect electricity tariff hike to increase by 4%. Implementation of electricitytariff hike and the electricity price Road Map to be announced by Ministryof Knowledge Economy are expected to reflect positively to Kepco's long-term earnings.

Lessening net loss in 2Q11Based on our analysis and channel checks, we believe 2Q11 net losses willbe smaller than the figure of 2Q10. We attribute this to three factors; 1) thevolume growth from external IPP that reached 43% in 1Q11 fell down to26% in April. 2) The YoY growth of electricity sales seems to be slowingdown; according to the company, electricity sales volume growth in April-May 2011 decreased to 4.9% YoY from 11.0% YoY in April-May 2010. 3)Shingori nuclear power plant #1, a 1,000MW plant, started operation lastMarch. Considering that nuclear power plants yield cheaper electricity cost,Kepco's electricity cost is expected to fall which will act positively to 2Q11earnings.

Sanghi Han, CFAResearch Analyst(+82) 2 316 [email protected]

Dianna KangResearch Associate(+82) 2 316 [email protected]



Asia Korea, Republic of

15 June 2011

Korea Rates Strategy Pay conditional steepeners

Market Update IRS curve has aggressively flattened

driven by global growth concerns

120d rolling realized vols have been

higher in the 5Y tenor than in the 2Y

40%

50%

60%

70%

80%

90%

100%

110%

120%

J-09 D-09 J-10 D-10 J-11

2Y IRS Realized Vol

5Y IRS Realized Vol

PnL profile of a 6M 2Y/5Y

conditional steepener

Source for all charts above: Deutsche Bank, CEIC, Bloomberg Finance LP,

Research Team

Arjun Shetty Research Analyst (+65) 6423 5925 [email protected]

Sameer Goel Strategist (+65 ) 64236973 [email protected]

Str

ateg

y

We recommend clients put on 6M 2Y/5Y ATMF conditional steepeners by buying the 6M5Y ATMF+5bp payers and selling the 6M2Y ATMF payers (Zero cost) as a hedge in the portfolio against improvement in global macro data in 2H of this year.

Over the past few weeks, a combination of weak economic data globally and sticky and elevated inflation pressures at home has caused curves to flatten all over Asia. Despite the recent soft patch in economic data, DB economics believes that this weakness is transitory and growth should bounce back in 2H of the year.

The Korean IRS curve has become very flat over the last few months (Chart 1). Even though the BOK hike last week was not expected by market players, IRS curve hardly flattened on the announcement suggesting that we might have reached a support level. It is true that the curve was flatter in 2007-2008, however it was driven mainly by 1) Aggressive tightening by BOK to quell commodity/oil price inflation 2) Massive unwinding of steepener hedges on CMS range accrual positions 3) Huge inflation pressures in Asia and weakening growth outlook in the developed world. Given the cautious stance of BOK (they have allowed negative real rates to persist for some time now) and our constructive view on the outlook for global growth, we think we are in a different environment currently and it is unlikely that the curve inverts to level seen during 2H 2008. We think in the near term market is entering a range trading environment. However, we continue to look for cheap option strategies that can be used as a hedge in the portfolio against an improvement in economic data going forward and at the same time limits the downside if data weakens further. Most Asian curves should steepen if the global data does improve (our house view), and we think Korea specifically provides good entry levels for putting on conditional steepeners.

With front end rates anchored to policy rate expectations, it’s the backend rates that are likely to have a higher realized vol in response to global macro risk events (For e.g. End of QE2, policy response to debt crises in Europe). Indeed since the beginning of this year, as we saw commodity prices fluctuate and Japan catastrophe impacting the markets, realized vols in the 5Y IRS have outperform that in the 2Y (Chart 2), and we expect this trend to be maintained.

We recommend clients put on 6M 2Y/5Y ATMF conditional steepeners by buying the 6M5Y payers and selling the 6M2Y payers. This can be made zero cost by choosing ATMF+5bp strike on the 5Y payer. Looking at the PnL profile (Chart 3) of this trade, there are 2 major risks to this trade 1) Bear flattening of the IRS curve- Given the cautious nature of BOK on impact of rising rates on household debt, national election in 2012 and global headwinds confronting policy makers, we see this as an unlikely scenario. 2) Bull flattening of the curve – Given that this is a 6M position, any bullish move in rates away from the strikes will make the MTM of this position insensitive to a move in the underlying.



Asia Korea, Republic of Transportation Marine

15 June 2011

Shipbuilding update May global orders down 33%; orders at Korean yards up 49%Sanjeev Rana Research Analyst (+82) 2 316 8910 [email protected]

Shipyards still upbeat on order prospects; DSME is our top pick Despite YTD global ship orders declining 15% YoY (CGT terms), orders at Korean yards are up 32% YoY, thanks to their continued dominance of container and LNG ship orders, which accounted for 52% of global orders in 5MYTD. Including offshore and non-shipbuilding orders, we estimate YTD orders to be up 62% YoY in USD terms for the four major Korean shipyards (HHI, SHI, DSME and Mipo). Big shipyards are upbeat on the order prospects for LNG and offshore plants; we expect DSME, SHI and HHI to exceed their order guidance for 2011.

Industry Update

Top picks Hyundai Heavy (009540.KS),KRW465,500.00 BuyDSME (042660.KS),KRW46,950.00 Buy

Companies featured

Hyundai Heavy (009540.KS),KRW465,500.00 Buy2009A 2010E 2011E

P/E (x) 6.9 9.9 8.7EV/EBITDA (x) 5.6 9.4 8.3Price/book (x) 1.34 2.69 2.08Samsung Heavy (010140.KS),KRW46,950.00 Buy

2009A 2010E 2011EP/E (x) 9.4 11.4 11.7EV/EBITDA (x) 7.5 9.0 9.5Price/book (x) 1.97 2.95 2.42DSME (042660.KS),KRW46,950.00 Buy

2009A 2010E 2011EP/E (x) 6.6 10.6 10.1EV/EBITDA (x) 6.5 8.3 7.2Price/book (x) 1.03 2.26 1.90Hyundai Mipo (010620.KS),KRW173,000.00 Buy


Global shipbuilding orders down YTD but orders at Korean yards up YoY According to Clarkson, global shipbuilding orders for May were down 33% YoY in CGT terms (64% YoY in dwt terms), driven by continued weakness in bulk and tanker orders. Among the major shipbuilding countries, Korea was the only country to report a YoY increase in new orders (49% YoY). Korea’s market share in May was 65%, versus China’s 13%. Orders for bulk and tanker ships (the mainstream business of small and mid-size shipyards in China and Korea) were down 73% and 65% YoY respectively and together accounted for just 27% of global orders, compared to 81% in May-10. On a YTD basis, global ship orders are down 15% YoY, but here too, Koreans have defied the trend with orders up 32% YoY thanks to their complete dominance of global containership and LNG ship orders (container and LNG ships accounted for 52% of global orders YTD). As a result, the YTD market share of Korean yards stands at 54% versus 28% for Chinese yards. Despite orders for bulk and tanker ships being down significantly YTD, we expect overall investment in new builds to exceed last year’s US$94.6bn by 8-10%, on the back of robust container and LNG ship orders.

Factors that could continue to drive order flow at shipyards In relation to concerns about yard overcapacity and ship oversupply, we believe investors need to keep in mind that: 1) many small and mid-size players in Korea and China continue to face difficulties in receiving refund guarantees and funding from banks, which makes the yard overcapacity argument invalid in our view; 2) although in theory there is oversupply in certain shipping segments (dry bulk and tanker), we believe the “right kind” of ships – i.e., fuel efficient and environmentally-friendly – are still in short supply, meaning owners may continue to order ships that can help them achieve their cost-saving targets; 3) thanks to rising fuel costs and very low freight rates, we believe slow steaming, which until now has been limited to containerships, is likely to spread to the tanker and bulk sector. If that happens, it should be able to absorb some of the new supply.

Order weakness in 3Q due to seasonal factors could be a buying opportunity We expect a slowdown in shipbuilding order flow in 3Q due to seasonal factors, but believe any weakness in share prices would ultimately turn out to be a good buying opportunity in select shares, as order prospects in 4Q11 and 2012, particularly for offshore plants and LNG ships, remain strong. Strong orders YTD for offshore rigs, platforms and LNG ships clearly demonstrate Korean shipyards’ success in diversifying away from the cyclical ship-building business and into high value-added segments where the competitive landscape is still favorable. We maintain a positive sector view; DSME is our top pick. We value shipbuilding stocks using a mix of SOTP and P/B multiples derived from Gordon Growth Models. Key risks include lower-than-expected new orders and weak freight rates.



Asia ASEAN SingaporeProperty Property

15 Jun 2011 - 06:52:08 AM GMT

INDUSTRY ALERT Industry UpdateProperty SG new home sales moderate in May

Focus stocksAllgreen Properties(AGRN.SI),SGD1.60 Hold, Price Tar‐get SGD1.60

CapitaLand Ltd (CATL.SI),SGD2.91Buy, Price Target SGD4.22

City Developments(CTDM.SI),SGD10.70 Hold, PriceTarget SGD12.22

Keppel Land (KLAN.SI),SGD3.67Buy, Price Target SGD5.30

Wing Tai Hldgs (WTHS.SI),SGD1.51Hold, Price Target SGD1.70

Slowing momentum. May new home sales fell 13% MoM to 1,575 units(+45% YoY) on the back of a 41% decline in the number of units launchedbut would have declined a smaller 5% to 1,825 units including ExecutiveCondos (EC). Annualized sales of 12,960 units are trending slightly abovethe 5‐year average of 12,240 units (vs. 14,688 units in 2010).

Mass market sales still dominate, prices generally stable. Sales wereunderpinned by firm take‐up for new launches. The top 3 selling projects inMay were Terrasse by MCL Land (184 units @ S$994psf), Belysa EC (162units @ S$691psf) and Wing Tai's Foresque Residences with 141 units soldat a benchmark price of S$1,108psf. Other popular mass market projectssuch as 8 Courtyards and Hedges Park also saw strong buying interest. Newlaunches continue to be skewed towards small units (eg. Interweave, Vibes)with healthy take‐up. High‐end sales remain comparatively sluggish with thebright spot being the new record price of S$5,842psf (S$17.5m) for a 4BRunit in The Marq. A handful of units were also taken up in Tomlinson Heights,The Orange Grove, Boulevard Vue & Urban Resort at prices between S$2,475‐ 3,724.

Moderating sales could ease policy risk. With the sector trading at a 32%discount after the recent de‐rating, we believe a lot of policy uncertainty isalready in the price and moderating sales could ease the risk of furthertightening. We expect the next round of policy intervention to be focusedon the public housing market targeted at enhancing housing affordabilityand this could dampen demand from the low‐end of the private market andsignal the end of the tightening cycle. Our preferred picks amongst the de‐velopers are KepLand and Capl with valuations attractive after recent un‐derperformance.

Details of new launches in May (projects with >50 units)

Source: Deutsche Bank, URA

Elaine Khoo, CFAResearch Analyst(+65) 6423 [email protected]

Gregory Lui, CFAStrategist(+65) 6423 [email protected]



Asia ASEAN MalaysiaBanking/Finance Banks

15 Jun 2011 - 10:24:16 AM GMT


RHB Capital Buy

More activity on the RHB share register

Reuters:RHBC.KL Exchange:KLS Ticker:RHBC

Price (MYR) 9.86

Price target (MYR) 10.50

52-week range (MYR) 9.98 - 5.80


Shares outstanding (m) 2,153

NPL/total loans (%) 4.0

Price/book (x) 1.8

FYE 12/31 2010A 2011E 2012E

Provisioning(MYRm)

512.2 539.3 576.3

Pre-provprofit(MYRm)

2,411 2,725 3,207

EPS (MYR) 0.66 0.73 0.83

PER (x) 9.9 13.5 11.9

Yield (net)(%)

3.0 2.2 2.8

ADCB stake sale doesn't derail merger discussionsBloomberg today reported that the 25% RHB stake owned by Abu DhabiCommercial Bank will be sold to the Abu Dhabi pension fund Aabar Invest-ments. No price details were disclosed. This transaction is separate to themerger negotiations RHB is conducting with CIMB/Maybank and doesn'tpreclude a full merger. Separately, we note the June 13th Bloomberg articlewhich cited the Maybank Chairman indicating the bank would make a merg-er proposal to RHB by the end of this month. On May 31st, CIMB andMaybank were granted a three-month period to conduct due diligence andmerger negotiations.If anything, this makes a full scale merger easier to executeIn effect, we think this development actually makes an RHB merger easierto execute for both CIMB and Maybank. ADCB was seeking to exit its stake,implying it wanted cash, whereas presumably Aabar is prepared to becomea shareholder in a post-merger entitiy and would accept stock as consider-ation. This means the acquirer could do an all stock deal, which we believewould eliminate any subsequent need for a right issue.M&A pressures could see RHB trade above fundamental valuationOur fundamental RHB valuation is unchanged at RM10.50/share. But wepreviously estimated that both CIMB and Maybank could acquire RHB at>RM11/share and still deliver EPS accretion in the second year (see 'Con‐solidation pressures picking up', 2 June). As a result we think RHB couldeasily trade above our target price and given the due diligence period is justthree months the potential upside catalyst is relatively short-dated.

Andrew Hill, CFAResearch Analyst(+65) 6423 [email protected]



Asia India Media

15 June 2011

India Media Sector Broadcaster-DTH axis to squeeze cable Harrish Zaveri Research Analyst (+91) 22 6658 4209 [email protected]

Gaurav Bhatia Research Associate (+91) 22 6658 4055 [email protected]

Broadcasters divorcing cable, embracing DTH as new partners India's TV distribution industry continues to transition from cable to DTH at an accelerating pace (90% of incremental subs are now DTH). Dish TV remains a strong beneficiary of this evolving trend, and we expect revenue and EBITDA to rise at a CAGR of 33% and 81%, respectively (FY11-13E). The strategic shift has also benefited incumbent broadcasters in diversifying pay revenues and should allow them to pressure cable operators for higher subscription revenues. Raising EBITDA forecast for Dish by 18% for FY12. Maintain Buy on Zee and Sun TV.

Forecast Change

Top picks Sun TV Network Limited (SUTV.BO),INR307.10BuyZee Entertainment (ZEE.BO),INR139.95 BuyDish TV India Ltd (DSTV.BO),INR83.85 Buy

Companies featured

Dish TV India Ltd (DSTV.BO),INR83.85 Buy2011A 2012E 2013E

P/E (x) – – 70.9EV/EBITDA (x) 26.2 17.7 12.9Price/book (x) 113.7 578.1 63.2Zee Entertainment (ZEE.BO),INR139.95 Buy

2011A 2012E 2013EP/E (x) 23.4 20.8 17.8EV/EBITDA (x) 15.3 13.1 10.8Price/book (x) 2.7 2.8 2.6Sun TV Network Limited (SUTV.BO),INR307.10Buy


Will this change finally allow broadcasters to get their due? India’s USD5bn pay television industry (in our view, still in its infancy) stands at the cusp of change, and we expect returns for operators to rise impressively. Broadcasters receive a fixed fee from multisystem operators (MSOs), which receive subscription revenues from local cable operators (LCOs). However, a lack of transparency on home pass data and leakage of revenues has resulted in broadcasters being unable to fully capture their legitimate share of the addressable market. This has resulted in flat ARPUs and, hence, a lack of incentives for the operators to upgrade the network.

Incumbent broadcasters remain the most profitable and free cash flow- generating sub-segment within the industry We believe that India’s broadcast market is largely consolidated, a view that is contrary to popular belief. In a country with 1.2bn people, 29 provinces, 16 languages and 100 dialects, three TV groups (Star, Zee and Sun TV) control ~40% TV ad market share. This seems eerily similar to Brazil, Russia and Indonesia, which are not as diverse in language and dialect. We believe that this, together with the inefficiencies within the distribution system, has created huge barriers for new entrants in mass-market programming, creating a scarcity premium in the listed broadcasting sector. Four of the six new entrants within the Hindi mass-market segment have either collapsed or sold out to existing players in the past two years. Incumbent broadcasters remain the most profitable and free cash flow-generating subsegment within the industry.

Bundling is important and niche content works within bouquets None of the broadcasters believe that cable declarations would improve dramatically. The higher the number of channels that the bouquet offers, the higher the charge to the local cable operator. With DTH charges being 42% of the charges that the broadcasters charge cable, broadcasters have a continuing incentive to price their cable bouquets higher. As cable bouquet charges can only be raised by introducing new channels, we will likely see new niche channels only from existing bouquets. Standalone news, sports, travel and leisure channels remain uneconomical unless they are part of the existing top three broadcasters. Risks: Implementation of government regulation legislating cable addressability and the entry of new players within the general entertainment segment.



Asia IndiaAutomobiles & Components

15 Jun 2011 - 04:22:36 PM IST

COMPANY ALERT Breaking News

Tata Motors Ltd Buy

May-11 volumes: Land Rover strong, Jaguar soft; maintainBuy

Reuters:TAMO.BO Exchange:BSE Ticker:TAMO

Price (INR) 984.00

Price target (INR) 1,365.00

52-week range (INR) 1,365.60 -750.90


Shares outstanding (m) 634.7

Net debt/equity (%) 112.5

Book value/share (INR) 302.06

Price/book (x) 3.3

FYE 3/31 2010A 2011E 2012E

Sales (INRm) 904,568 1,224,270 1,494,484

Net Profit(INRm)

-5,698.4 88,113.5 120,244.1

DB EPS(INR)

17.10 136.95 180.82

PER (x) 31.1 7.2 5.4

Yield (net)(%)

3.0 2.0 2.2

Jaguar and Land Rover (JLR) volumes for May 2011 at 22,296 units (+17%YoY) are strong and in line with our expectations. Land Rover continues tobe the driver of volume growth whereas Jaguar volumes have continued toremain soft. YTD volumes at 41,727 (+13% YoY) are running a tad behindour full year FY12E estimate of 285K units (+18% YoY). We expect themonthly run-rate to increase in 2HFY12 post the launch of the "Evoque"which significantly expands the addressable market size of Land Rover.We continue to maintain our Buy rating on Tata Motors with a target priceof Rs 1365. The stock currently trades at 4xFY12E EV/EBITDA. Our positiveoutlook on Tata Motors is based on continued volume momentum and im-provement in profitability at JLR even as the domestic business continuesto face demand and cost pressures.

Key highlights (see table below):* Jaguar volumes were 4,221 units (-18% YoY) in May 2011 and 7,300 (-16%YoY) YTD.* Land Rover volumes were 18,075 units (+30% YoY) in May 2011 and34,427 (+22% YoY) YTD.

Jaguar Land Rover - volume trends

Source: Company, Deutsche Bank

Srinivas Rao, CFAResearch Analyst(+91) 22 6658 [email protected]

Amyn PiraniResearch Analyst(+91) 22 6658 [email protected]



Asia ASEAN ThailandTransportation Infrastructure

15 Jun 2011 - 05:06:19 AM GMT


Sino-Thai Engineering Buy

STEC JV named lowest bidder for new mass transitproject

Reuters:STEC.BK Exchange:SET Ticker:STEC

Price (THB) 12.50

Price target (THB) 17.00

52-week range (THB) 14.80 - 6.65

Market cap (USDm) 487



Book value/share (THB) 4.10

Price/book (x) 3.0

FYE 12/31 2010A 2011E 2012E

Sales(THBm)

9,291 14,023 18,399

Net Profit(THBm)

443.8 707.7 828.5

DB EPS(THB)

0.37 0.60 0.70

PER (x) 23.1 21.0 17.9

Yield (net)(%)

2.2 2.4 2.8

SUJV (a joint venture between STEC and UNIQ) was the lowest bidder forthe first contract to construct the Dark Red Line mass transit project (Bang-sue-Rangsit). The project value is Bt34,650m with a construction period ofaround 4 years.

Backlog grows to Bt69bn, 5x of our projected 2011 revenueIncluding this project in the backlog, STEC's backlog of orders would riseto Bt69,267m, 5x higher than our projected construction revenue for 2011.Due to the general election on July 3, we expect the contract signing won'ttake place until late 2011, implying that revenue contributions from thisproject will not start until next year. This is good for STEC as it will be ableto optimize its precast yard given that the contractor now has three masstransit projects on hand.We expect its backlog to grow bigger as STEC has a good chance to winupcoming power plant and mass transit projects, of which bidding resultsshould be known in the next few months. As most of our revenue projectionof Bt14bn for this year is mainly from existing projects on hand, success inbidding for these projects should provide upside to our forecasts.Existing resources are sufficient for the expected expansion in STEC's back-log as it can undertake construction revenue worth Bt20bn p.a. Any needfor additional equipment can be sourced on leasing contracts while enlarg-ing its workforce should not be a cause of concern. The expected rise inlabour costs (12% of total costs in 1Q11) will be controlled by increasingusage of equipment to limit the size of the workforce. The rest will be cov-ered by the escalation clause (K factor).Although the market expects that STEC will be affected if the governmentchanges, we believe that its huge backlog plus potential upcoming powerplants would help to secure its revenue stream at least over the next 3 years.Hence, any weakness in share price should be an opportunity to Buy thestock. Our target price is Bt17 which is based on a 2011F P/BV of 4x.

Source: Deutsche Bank

Sansanee SrijamjureeTisco Securities Co, LtdResearch Analyst(+66) 2 633 [email protected]



Japan Machinery

15 Jun 2011 - 11:24:58 PM JST


Daikin Industries Buy

FY3/12 guidance, medium-term plan announced; Hit tar-gets in two out of previous three medium-term plans

Reuters:6367.T Exchange:TYO Ticker:6367

Price (¥) 2,885

Price target - 12mth (¥) 3,200

52-week range (¥) 3,315 - 2,199

Market cap (¥bn) 841

Shares outstanding (m) 292

Foreign shareholding ratio (%) 28.0

TOPIX 823

FYE 3/31 2011A 2012E 2013E

Sales (¥bn) 1,160.3 1,200.0 1,300.0

OP (¥bn) 75.5 85.0 110.0

RP (¥bn) 74.8 84.0 109.0

NP (¥bn) 19.9 44.0 57.5

EPS (¥) 68 151 198

P/E (x) 44.0 19.1 14.6

FY3/12 OP ¥85.0bn, FY3/14 ¥130.0bn, final-year of new plan ¥200.0bnDaikin Industries announced guidance for FY3/12, and targets for FY3/14(mid-point of new plan) and FY3/16, the final year of Fusion 15, on 15 June.The main forecasts are outlined below.FY3/12 guidance: Sales ¥1.310trn, OP ¥85.0bn, EPS ¥140.6.FY3/14: Sales of ¥1.60trn, OP of ¥130.0bn, and EPS of close to ¥220.Final year of Fusion 15 (FY3/16): Sales above ¥2trn, OP above ¥200bn, andEPS close to ¥340Our overall impression is that the targets are within the expected range.FY3/12 OP guidance is in line with our forecast, and the FY3/14 target is alsoclose to our forecast (¥125.0bn). However, sales and final-year targets areahead of our forecasts. With a start year of FY3/11, Daikin's targets call foraverage annual sales growth of 11.5% and OP growth of 21.5% over fiveyears.

OP guidance factors in quake-impact and higher raw materials prices.No large acquisitions factored inDaikin has said that it should be able to keep production at levels able togenerate 1H FY3/12 sales growth of 10.3% and full-year sales growth of12.9%. The rebound in demand appears to be weak in Europe and the USbut strong in Japan, China, and Asia. The projected ¥9.5bn rise in OP ap-pears small versus a forecast ¥149.6bn increase in sales, but Daikin hasfactored in a ¥10bn hit to OP due to the earthquake and impact from higherraw materials costs. Assuming the firm reaches its sales target, the profittarget appears conservative.Daikin indicated that the ¥2trn Fusion 15 sales target is likely to be achievedthrough organic growth; it is not planning any major acquisitions. At thispoint there is little to back up the Fusion 15 targets. However, we shouldbear in mind that Daikin has only failed to reach its targets in one of theprevious three five-year plans—the most recent one as a result of theLehman Shock.

Toshiharu Morota, CMAResearch Analyst(+81) 3 [email protected]

Tomonori OhataResearch Analyst(+81) 3 [email protected]



Japan Plant Engineering & Shipbuilding

15 June 2011

Chiyoda Reuters: 6366.T Bloomberg: 6366 JP Exchange: TYO Ticker: 6366

Share price discounts FY3/14 earnings; raising TP; Hold

Toshiharu Morota, CMA Research Analyst (+81) 3 5156-6721 [email protected]

Yukiko Nagatomo Research Associate (+81) 3 5156-6722 [email protected]

Tomonori Ohata Research Analyst (+81) 3 5156-6342 [email protected]

Raising TP from ¥700 to ¥850 but maintaining Hold rating We think it is vital to ascertain Chiyoda's competitiveness. Its strength – which enabled it to build the world's largest LNG plant in Qatar – is among the world's top in our view. However, Chiyoda lost a bid to France's Technip to construct a floating liquefied natural gas (FLNG) facility for Shell and further lost to JGC in its bid to build gas processing facilities for the Barzan onshore project in Qatar. Although we expect LNG market to grow, we reiterate Hold as we view Chiyoda shares as having discounted its prospective earnings growth through FY3/14.


Year End Mar 31 2011A 2012E 2012CoE 2013E 2014E

Sales (¥bn) 247.1 260.0 250.0 350.0 450.0

YoY (%) -21.1 5.2 1.2 34.6 28.6

Operating profit (¥bn) 17.5 11.5 11.0 15.5 24.0

YoY (%) 930.8 -34.5 -37.3 34.8 54.8

Recurring profit (¥bn) 15.7 12.5 12.0 17.0 26.0

Net profit (¥bn) 8.0 8.3 8.0 11.0 17.0

EPS (¥) 31 32 31 42 66

P/E (x) 23.5 29.6 30.7 22.3 14.4

EV/EBITDA (x) 3.3 8.7 – 6.1 3.5

CFPS (¥) 41 40 – 50 73

P/CFPS (x) 17.8 23.8 – 19.0 13.1Source: Deutsche Securities Inc. estimates, company data

Forecast Change

Hold Price at 15 Jun 2011 (¥) 947Price target - 12mth (¥) 85052-week range (¥) 979 - 550

Key changes

Target price (¥) 700 to 850 21.4%EPS (¥) 26 to 32 23.9%OP (¥bn) 10.5 to 11.5 9.5%RP (¥bn) 11.0 to 12.5 13.6%


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6/09 12/09 6/10 12/10Chiyoda

TOPIX (Rebased)

Performance (%) 1m 3m 12mAbsolute 14.6 53.2 29.9TOPIX -1.8 7.6 -6.2

Stock data

Market cap (¥bn) 245Shares outstanding (m) 259Foreign shareholding ratio (%) 24.0TOPIX 825


ROE (%) 5.3BPS (¥) 618P/B (x) 1.5EPS growth (%) 4.0Dividend yield (%) 1.1

FY3/12 gross margin estimated at 10.0% (1H:11.8%; 2H: 8.4%); expect subsequent decline Chiyoda's gross margin rose from 4.5% in FY3/10 to 12.8% in FY3/11, due to forex, positive "change orders"(contract upward revision), construction contingencies being recorded as earnings, and improved margins. In FY3/12, guidance is for gross margin of 10.0% (1H: 11.8%; 2H: 8.4%). (See page 3 for more)

Expect growth in small/medium-sized LNG and FLNG orders. Can Chiyoda capitalize on its strength? LNG plants constructed by Japanese engineering companies account for nearly 70% of the global total, with Chiyoda and JGC each accounting for half of the above figure. Based on its winning bids in Qatar, we estimate Chiyoda's global share has exceeded 40% since 2007. However, we expect the share of Chiyoda and JGC will even out again as they diversify regionally. (See page 3 for more)

Valuation and risks We base our TP of ¥850 on a P/E of 18.2x (previously 16.2x) our average three-year EPS forecast of ¥46.7. In light of its topical nature as an LNG-related stock and substantial changes expected in earnings from FY3/13, we assigned a P/E of 18.2x (S&P500 average P/E of 16.2x over the past five years + standard deviation of 1 (2.0x)). Downside risks include the loss of prospective orders and the emergence of additional costs. Upside risks include winning large project orders and a sharp increase in crude oil prices.




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Equity rating key Equity rating dispersion and banking relationships Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock. Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. Notes: 1. Newly issued research recommendations and target prices always supersede previously published research.2. Ratings definitions prior to 27 January, 2007 were:

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