19 April 2011 Asia Equities Daily Focus Periodicalimg.jrjimg.cn/2011/04/20110419144012485.pdf19 April 2011 Asia Equities Daily Focus Today's research headlines Asian Edition FSSTI

Asia Pan-Asia Strategy

19 April 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) 007/05/2010

Periodical

Asian Index Closings EQUITIES Close 1D Chg %Chg

SHSZ300 3359.44 0.02 7.39 HSCEI 13410.90 -0.91 5.66 HSI 23830.31 -0.74 3.45 TWSE 8714.48 -0.04 -2.88 KOSPI 2137.72 -0.13 4.23 FSSTI 3144.38 -0.28 -1.43 KLCI 1527.92 0.39 0.59 SENSEX 19091.17 -1.53 -6.91 NIFTY 5729.10 -1.64 -6.61 SET 1090.67 0.53 5.61 JCI 3727.07 -0.09 0.64 PCOMP 4269.19 0.41 1.62 ASX200 4861.90 0.20 2.46 FOREX (vs US$) Close 1D Chg YTD %Chg Rmb 6.53 0.04 1.20 HK$ 7.78 -0.04 -0.05 NT$ 29.09 -0.21 0.73 Won 1088.40 0.13 3.45 S$ 1.25 -0.33 2.89 M$ 3.02 -0.02 1.32 Rupee 44.46 -0.27 0.56 Baht 30.11 0.10 -0.17 Rupiah 8678.00 -0.12 3.66 Peso 43.30 -0.13 1.17 A$ 1.05 -0.50 2.76

Source: Bloomberg Finance LP

Latest Commodity Prices COMMODITIES Close 1D %Chg YTD %Chg West Texas 107.24 -2.21 17.36 Brent 122.03 -1.64 29.41 CRB 359.42 -0.93 8.00 Copper 419.40 -1.39 -5.53 Gold (Spot) 1495.90 0.62 5.29 Alum. (LME) 2694.00 1.93 9.07 Baltic Dry 1296.00 -0.99 -26.90

Source: Bloomberg Finance LP

DB CORPORATE ACCESS DB Access Asia Conference 2011 - Singapore 5/23 - 26 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] Ching-Li Teo, CFA Equity Focus (+852) 2203 6206 [email protected]

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TOP STORIES Shangri-La Asia (0069.HK) HKD21.30 Buy Price Target HKD25.40

Holiday mood; reiterate Buy Karen Tang Page 5

LG Display (034220.KS),KRW36,100.00 Buy Price Target KRW43,000.00

1Q11 earnings review Sc Bae Page 6

ESTIMATE & TARGET PRICE CHANGES

Aban Offshore Limited (ABAN.BO),INR683.35 Buy Price Target INR1,000.00

New contracts indicate low day rates for older jack-up rigs

Harshad Katkar

Page 7

HDFC Bank (HDBK.BO) INR2,315.70 Buy Price Target INR2,610.00

In a sweet spot - stable NIM & declining credit costs

Dipankar Choudhury Page 8

Infosys Technologies (INFY.BO),INR2,905.20 Buy Price Target INR3,600.00

Target price cut 10%; long-term value still intact

Aniruddha Bhosale Page 9

STRATEGY/ECONOMICS

Asia Economics Daily Policy tightening continues in China Taimur BaigPage 10

CNH Market Monitor Gauging Singapore's potential as an offshore RMB hub

Mirza BaigPage 13

Global Commodities Daily Still bullish on precious metals Adam SieminskiPage 14

Global Economic Perspectives Emerging Asia's Growth Surge

(Revised) Peter Hooper

Page 16

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19 April 2011 Strategy Asia Equities Daily Focus

Page 2 Deutsche Bank AG/Hong Kong

ADDITIONAL RESEARCH DB CONFERENCE/CORPORATE DAY

China TMT Daily Explaining failure; also 0941.HK, 0728.HK

Alan Hellawell IIIPage 18

DB Access Asia Conference 2011 - Singapore 5/23 - 26 DB Access Taiwan Conference 2011 - Taipei 11/7 - 8 DB Access Korea Conference 2011 - Seoul 11/10 - 11 AIA (1299.HK),HKD25.70

Buy Price Target HKD26.49

AIA releases positive 1Q New Business momentum

Bob LeungPage 19

DB Access Indonesia Conference 2011 - Jakarta 11/29 - 12/1

NDRs

China Healthcare China Edge P19: Takeaways from expert teleconference

Jack HuPage 20 CapitalMalls Asia - SG 4/25

New Oriental Education & Technology Group (EDU US) - HK 4/28 DBS Group Holdings (DBS SP) - SG 5/3 Indofood CBP Sukes Makmur (ICBP IJ) & PT Indofood Sukses Makmur (INDF IJ) - HK 5/18 - 19 LG Chem (051910 KS) - HK 5/23 - 24

China Healthcare China Edge P20: 1Q11 govt healthcare spending up 56%

Jack HuPage 21

China IPPs Tariff hike: too little vs fuel cost rise Michael TongPage 22 HTC Corporation (2498 TT) - SG 6/21 - 22, HK 6/23 - 24

P T Adaro Energy Tbk (ADRO IJ) - HK 5/23 - 24

DB ANALYST/SALES ROADSHOWS

China Department Stores Good start in 1Q11 with strong same store sales growth

Mabel WongPage 23

Cherie Khoeng: Indonesian Coal & PGAS - SG 4/19 - 20China Dongxiang (3818.HK),HKD2.56 Hold Price Target HKD2.38

1Q11 SSS records low single digit decline

Chen FengPage 24

Harrish Zaveri: India Consumer & Media - SG 4/19, HK 4/20 - 21 Kevin Chong: Singapore O&M & Chinese Building - HK 4/19, SG 4/20 - 21 Michael Chou: Asian Foundry & OSAT Marketing - HK 4/19, SG 4/20 - 21 Joe Liew & Sky Hong: Latest Shipping Trends - SG 4/25 - 26, KL 4/27

China Prop Weekly Monitor Volume rebound after Qin Min

Festival Tony Tsang

Page 25

Consumer Channel checks on beverages: promotions, packaging changes

Mabel WongPage 26

Poly HK (0119.HK) HKD6.83 Buy Price Target HKD10.95

Europe NDR takeaways: look beyond the gearing risk

DB INTERNATIONAL PRODUCT ROADSHOWS

Venant ChiangPage 27

Property Secondary market volume fell but primary volume picking up

Givaudan SA (GIVN VX) - SG 4/26 Fedex Corp. (FDX US) - HK 5/5, SG 5/6 Diageo (DGE LN) - HK 5/9, SG 5/10, PEK 5/11 Visa Inc. (V US) - PEK 5/23, HK 5/24 Tony Tsang

Page 28

Sun.King (0580.HK),HKD1.83 Hold Price Target HKD1.60

Announces acquisition of 56% stake in Jiujiang Rectifier

L'Oreal (OR EP) - PEK 5/23, SHA 5/24

Eugene YeohPage 29

China Steel (2002.TW) TWD34.85 Hold Price Target TWD35.00

1Q unaudited result ahaead of consesus

NEW: Justin Yageman: Transportation & Shipping - SG 5/30, HK 5/31, PEK 6/2 SEL 6/3

James KanPage 30

Realtek Semiconductor (2379.TW),TWD58.60 Hold Price Target TWD55.00

Market expectations beyond reach Jessica Chang

Page 31

Taiwan Tech Monitor The Japan effect Kishore SuratkalPage 32

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Deutsche Bank AG/Hong Kong Page 3

Public Bank (PUBMe.KL),MYR13.06 Hold Price Target MYR13.50

1Q11 in line; solid result but fairly priced

Andrew Hill

Page 33

Ascendas Real Estate (AEMN.SI),SGD1.97 Buy Price Target SGD2.28

Muted 4Q; growth outlook more promising

Gregory LuiPage 34

United Phosphorus Ltd (UNPO.BO),INR153.90 Buy Price Target INR210.00

Syngenta reports improving price environment

Abhay Shanbhag

Page 35

Astra Int'l (ASII.JK),IDR54,400.00 Buy Price Target IDR79,000.00

Bracing for the impact from Japan's catastrophe

Rachman Koeswanto Page 36

Banking/Finance DB Indo Banking : Off to strong profits in 2011

Raymond KosasihPage 37

Kalbe Farma (KLBF.JK),IDR3,675.00 Hold Price Target IDR2,300.00

Proposing record dividend payout ratio of 50%

Reggy Susanto

Page 38

Telkom (TLKM.JK),IDR7,350.00 Buy Price Target IDR8,800.00

Rising cashflows Raymond Kosasih

Page 39

GLOBAL RESEARCH Japan Truck Sector Initiating coverage of Isuzu and Hino

with Buy Takeshi Kitaura

Page 40

Keihin (7251.T),¥1,494 Buy Price Target ¥2,200 Recovery in sight for auto parts

production Takashi Moriwaki

Page 41

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

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DAILY REVISIONS: TARGET PRICE CHANGES

Company Ticker Date New Previous Chg (%)

Aban Offshore Limited [Buy] ABAN.BO 18-Apr ▼ 1,000.00 1,050.00 -4.8BRI [Buy] BBRI.JK 15-Apr ▲ 7,900.00 7,000.00 12.9Catcher Technology [Buy] 2474.TW 17-Apr ▲ 175.00 120.00 45.8HDFC Bank [Buy] HDBK.BO 18-Apr ▲ 2,610.00 2,525.00 3.4ITC [Buy] ITC.BO 15-Apr ▲ 210.00 196.00 7.1Infosys Technologies [Buy] INFY.BO 18-Apr ▼ 3,600.00 4,000.00 -10.0Shangri-La Asia [Buy] 0069.HK 18-Apr ▼ 25.40 27.00 -5.9Singapore Telecom [Hold] STEL.SI 15-Apr ▲ 3.36 3.31 1.5Telkom [Buy] TLKM.JK 18-Apr ▼ 8,800.00 9,000.00 -2.2

EPS REVISIONS

Company Ticker Date FY New Previous Chg (%)

Aban Offshore Limited [Buy] ABAN.BO 18-Apr Mar 12 ▼ 150.43 154.28 -2.5 Mar 13 ▼ 154.62 164.54 -6.0Ascendas Real Estate [Buy] AEMN.SI 18-Apr Mar 11 ▼ 0.13 0.13 -5.1 Mar 12 ▼ 0.13 0.13 -0.3 Mar 13 ▼ 0.14 0.14 -0.1 Mar 14 0.14 BRI [Buy] BBRI.JK 15-Apr Dec 10 ▲ 465.23 361.09 28.8 Dec 11 ▲ 521.98 433.77 20.3 Dec 12 ▲ 609.06 506.77 20.2 Dec 13 707.98 Catcher Technology [Buy] 2474.TW 17-Apr Dec 10 ▲ 6.22 5.57 11.7 Dec 11 ▲ 10.92 7.96 37.1 Dec 12 ▲ 12.81 9.12 40.5HDFC Bank [Buy] HDBK.BO 18-Apr Mar 11 ▼ 85.08 85.98 -1.0 Mar 12 ▼ 111.76 112.60 -0.8 Mar 13 ▲ 147.45 147.18 0.2 Mar 14 192.09 Hana FG [Buy] 086790.KS 17-Apr Dec 10 0.00 nm Dec 11 0.00 nm Dec 12 0.00 nm Dec 13 0.00 ITC [Buy] ITC.BO 15-Apr Mar 12 ▲ 8.44 8.13 3.9 Mar 13 ▲ 9.65 9.40 2.7Infosys Technologies [Buy] INFY.BO 18-Apr Mar 11 ▼ 119.46 121.49 -1.7 Mar 12 ▼ 146.98 155.91 -5.7 Mar 13 ▼ 177.01 189.51 -6.6 Mar 14 202.39 Shangri-La Asia [Buy] 0069.HK 18-Apr Dec 10 ▼ 0.04 0.07 -34.6 Dec 11 ▲ 0.11 0.10 1.3 Dec 12 ▲ 0.14 0.13 5.7 Dec 13 ▲ 0.17 0.15 12.5Singapore Telecom [Hold] STEL.SI 15-Apr Mar 10 ▲ 0.24 0.24 0.1 Mar 11 ▲ 0.24 0.24 0.2 Mar 12 ▲ 0.25 0.25 1.6 Mar 13 ▲ 0.29 0.28 1.3Telkom [Buy] TLKM.JK 18-Apr Dec 10 ▼ 583.02 605.60 -3.7 Dec 11 ▼ 623.13 646.54 -3.6 Dec 12 ▼ 677.47 713.35 -5.0 Dec 13 721.08

Source: Deutsche Bank

Asia Hong Kong Consumer Hotels/Leisure/Gaming

18 April 2011

Shangri-La Asia Reuters: 0069.HK Bloomberg: 69 HK Exchange: HSI Ticker: 0069

Holiday mood; reiterate Buy

Karen Tang Research Analyst (+852) 2203 6141 [email protected]

Twin growth drivers With its strong brands, Shangri-La benefits from both the recovering corporate travel market and emerging leisure travel trends. Mgmt said RevPAR for its hotel portfolio has risen 20% yoy in 1Q11, driven primarily by higher room rates (+18% yoy) and secondarily by higher occupancy (+2ppt to 61%). 1Q is a low season, so this solid level of occupancy bodes well for room rates in the rest of the year. We raise 2011-13E net profit by 9-21% but marginally cut our TP by 6% to HK$25.4 to reflect the recent issues of rights & CBs. We still see upside potential: Buy.

Forecasts and ratios

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

Sales (USDm) 1,230.0 1,575.1 1,938.4 2,251.4 2,655.6

Reported NPAT (USDm) 255.5 287.1 326.5 427.4 517.9

Reported EPS FD(USD) 0.09 0.10 0.11 0.14 0.17

DB EPS FD(USD) 0.02 0.04 0.11 0.14 0.17

OLD DB EPS FD(USD) 0.02 0.07 0.10 0.13 0.15

% Change 0.0% -34.6% 1.3% 5.7% 12.5%

DB EPS growth (%) -75.9 151.1 142.3 30.9 21.2

PER (x) 89.1 47.6 25.9 19.8 16.4

EV/EBITDA (x) 17.0 12.7 14.9 13.0 13.1

Yield (net) (%) 1.0 1.2 0.9 0.9 1.0Source: 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


Forecast Change

Buy Price at 18 Apr 2011 (HKD) 21.30Price target - 12mth (HKD) 25.4052-week range (HKD) 22.55 - 13.34HANG SENG INDEX 23,830

Key changes

Price target 27.00 to 25.40 -5.9%Sales (FYE) 1,897 to 1,938 2.2%Op prof margin (FYE) 21.6 to 19.7 -8.9%Net profit (FYE) 299.9 to 326.5 8.9%

Price/price relative

8

12

16

20

24

4/09 7/09 10/09 1/10 4/10 7/10 10/10 1/11Shangri-La Asia

HANG SENG INDEX (Rebased)

Performance (%) 1m 3m 12mAbsolute 11.5 -3.8 39.9HANG SENG INDEX 6.9 -1.3 9.0

Stock data

Market cap (HKDm) 66,668Market cap (USDm) 8,576Shares outstanding (m) 3,130.0Major shareholders Kerry Group (50%)Free float (%) 50Avg daily value traded (USDm) 8.4

Key indicators (FY1)

ROE (%) 6.4Net debt/equity (%) 32.0Book value/share (USD) 1.77Price/book (x) 1.6Net interest cover (x) 11.1Operating profit margin (%) 19.7

Business travel: bright prospects Given Shangri-la’s focus on 4-5 star hotels, business travellers account for 65-70% of its business. According to a survey by American Express (Amex), more than half of the Chinese corporate respondents expect to increase travel budgets this year. On average, they expect travel budgets to be 17% higher. This is positive for airlines and high-end hotels. Amex thinks that upper-range hotels in China can raise room rates by 7-12% this year. For Shangri-La’s portfolio in China, we have factored in 14% higher room rates and 5ppt higher occupancy.

Leisure travel: Any plans for the Labour Day long weekend (May 1-3)? Leisure travel, both domestic and overseas, is a new phenomenon. The trends, however, have been very strong. Over the past Chinese New Year, the no. of domestic leisure travelers has risen 22% yoy to 153m. For overseas travel, the no. has risen 16% yoy to 16m in 1Q11. Among the top 10 overseas destinations, Shangri-La already has hotels in 6 of them. For some destinations, e.g. Maldives, mainland Chinese already account for over 30% of Shangri-La’s room nights.

Target price of HK$25.4 suggests 19% upside potential The stock is trading on 26x 2011 PE, or 1.0x PEG (vs China consumer peers 1.0-1.2x). As Shangri-La is developing more mix-used projects, we change our valuation methodology from EV/EBIDA to SOTP. Our new TP assumes 16x 2011E EV/EBITDA for hotels and 20% discount to investment property NAV. Key risks include slow RevPAR recovery, and execution risks for hotels outside China.



Asia Korea, Republic ofTechnology Hardware & Equipment

18 Apr 2011 - 11:52:09 AM GMT

COMPANY ALERT Results

LG Display Buy

1Q11 earnings review

Reuters:034220.KS Exchange:KSC Ticker:034220

Price (KRW) 36,100

Price target (KRW) 43,000

52-week range (KRW) 47,900.00 -33,250.00

Market cap (USDm) 11,854

Shares outstanding (m) 357.8

Net debt/equity (%) 18.5

Book value/share (KRW) 30,843

Price/book (x) 1.17

FYE 12/31 2009A 2010E 2011E

Sales (KR-Wbn)

20,614 25,512 26,005

Net Profit(KRWbn)

1,027.5 1,156.3 1,140.5

DB EPS(KRW)

2,872 3,232 3,187

PER (x) 11.0 11.2 11.3

Yield (net)(%)

0.0 1.4 1.4

1Q11 operating loss of W239bn in line1Q11 OP loss of W239bn was in line with both our estimates and consen-sus. Main reason for the weaker-than-expected earnings was sharper-than-expected shipment decrease of 15% QoQ vs. management's previousguidance of high single-digit decline, due to the set makers' conservativeinventory stance.2Q guidance stronger than expectedFor 2Q, management guided high-teen percentage of shipment growth andgradual increase of ASP. Management expects strong 2Q demand due to:1) completion of inventory correction of its major customers - LGE and Vizio,2) strong demand pickup for FPR 3D panel, 3) some signs of end demandrecovery in the US market, and 4) sharp recovery of iPad panel shipment.Given that we are assuming 7% QoQ shipment increase and a 1% QoQASP increase in 2Q, the guidance implies meaningful upside to our 2Q OPestimate of W70bn.Strong confidence in FPR 3D TV demandDuring the earnings call management showed strong confidence in FPR 3Dpanel sales. It stressed that FPR's market share in China reached 40% levelin late March and its market share among local set makers now exceedsthe 70% level. For the full-year outlook, management guided that FPRwould account for 15% of the total TV shipment in 2Q and 50% in 2H,implying roughly 20mn units in 2011. We believe management's expecta-tion is bullish but not totally groundless given that 1) FPR could lower theprice premium of 3D TVs to roughly 20% level vs. the current premium of60-70%, 2) it seems eye-friendly and requires simple glasses. Given thatFPR should have higher margin compared to conventional TV panels, wethink stronger FPR sales could lead to stronger profit recovery in 2H.Still upside outweighs downside, Buy on current weaknessWe reiterate our Buy on LGD believing that upside outweighs downside,given: 1) bottoming out LCD cycle in the long term due to TV demand priceelasticity and potential CAPEX cuts at the panel makers; 2) rising earningscontribution from non-commodity panels, mainly Apple, 3) potential M/Sgains in TV leveraging FPR technology, and 4) attractive valuation with 1.1xP/B vs. historical average of 1.6x. Our target price of W43,000 is derivedfrom 1.4x P/B on 2011E BVPS. (For details, please refer to “Upside potentialoutweighs downside risk" published on 1 April.)

Sc BaeResearch Analyst(+82) 2 316 [email protected]

Hoyer JeongResearch Associate(+82) 2 316 [email protected]



Asia IndiaEnergy Oil & Gas

18 Apr 2011 - 04:05:27 PM IST

COMPANY ALERT Forecast Change

Aban Offshore Limited Buy

New contracts indicate low day rates for older jack-up rigs

Reuters:ABAN.BO Exchange:BSE Ticker:ABAN

Price (INR) 693.65

Price target (INR) 1,000.00

52-week range (INR) 1,231.65 -528.85

Market cap (USDm) 681



Book value/share (INR) 468.15

Price/book (x) 1.5

FYE 3/31 2010A 2011E 2012E

Sales (INRm) 33,587 34,882 33,098

Net Profit(INRm)

2,831.2 1,950.3 6,545.1

DB EPS(INR)

69.64 44.83 150.43

PER (x) 16.4 15.5 4.6

Yield (net)(%)

0.3 0.4 1.1

Aban secures firm 3-yr contracts from ONGC for 2 jack-up rigsAban Offshore has announced that it has received firm orders valuing cUS$138 mn from ONGC for the deployment of jack-up rigs Aban III and AbanIV for a period of 3 years each. The rigs have been contracted at a day rateof US$63,000 each and are expected to be deployed over the next 3months. These contracts have increased Aban's total unearned contractedrevenue by about 10% to cUS$1.6bn. We now have visibility for about 85%of Aban's FY12 estimated revenues.

Cut in earnings and valuationWe incorporate these contracts in our earnings estimates for Aban. Abanis presently marketing three more old jack-ups (Aban II, Aban V and AbanVII) which we expect to get contracted at similar day rates in the mediumterm and, hence, cut our FY12 day rate assumption for old rigs to US$63,000. This leads to a 2% and 6% cut in our EPS estimate for FY12 andFY13 respectively and a 5% reduction in valuation to INR1000/sh.

Reiterate Buy on revival in jack-up environmentWe reiterate Buy on Aban with a price target of INR1000. We expect dayrates to firm up especially for high specification jack up rigs driven by risein E&P spending. We also expect better utilisation going ahead for Abanwith long-term contracts (more than one year) in place for 13 out of 18 rigsin its portfolio. The drillship Aban Abraham has reached the contract siteand is expected to start the long delayed contract by the end of this month.

International oil services peer valuations

Source: Deutsche Bank, CY11 = 12mth-end Mar 2012 for Aban

Harshad KatkarResearch Analyst(+91) 22 6658 [email protected]

Amit MurarkaResearch Associate(+91) 22 6658 [email protected]



Asia India Banking/Finance Banks

18 April 2011

HDFC Bank Reuters: HDBK.BO Bloomberg: HDFCB IN Exchange: BSE Ticker: HDBK

In a sweet spot - stable NIM & declining credit costsDipankar Choudhury Research Analyst (+91) 22 6658 4212 [email protected]

Manish Shukla Research Analyst (+91) 22 6658 4211 [email protected]

Premium franchise and consistent growth at an attractive valuation We maintain our Buy on HDFC Bank, one of our top picks, and raise our TP to INR2,610 from INR2,525. We expect HDFC Bank to continue to benefit from strong retail loan momentum. One of the highest low-cost (CASA) ratios in the industry should enable the bank to maintain NIM above 4% and sustain its premium in the current high interest rate environment. We expect credit costs to remain low given the improvement in retail asset quality. We believe that with consistent earnings growth of ~30%, valuation at 20.8x FY12E P/E looks attractive.


Year End Mar 31 2010A 2011A 2012E 2013E 2014E

Pre-prov profit (INRm) 62,280.7 72,517.7 93,798.9 122,862.1 159,286.0

Net profit (INRm) 29,487.0 39,264.1 51,992.0 68,599.6 89,367.9

EPS (INR) 68.03 85.08 111.76 147.45 192.09

EPS growth (%) 28.7 25.1 31.4 31.9 30.3

PER (x) 22.7 25.2 20.7 15.7 12.1

Price/book (x) 4.11 4.30 3.69 3.06 2.49

Yield (net) (%) 0.8 0.6 0.6 0.7 0.7

ROE (%) 16.1 16.7 19.0 21.3 22.7Source: Deutsche Bank estimates, company data



Forecast Change

Buy Price at 18 Apr 2011 (INR) 2,315.70Price target - 12mth (INR) 2,610.0052-week range (INR) 2,499.40 - 1,803.15BSE 30 19,387

Key changes

Price target 2,525.00 to 2,610.00 3.4%Provisioning (FYE) 22,726.7 to 17,340.1 -23.7%Net int margin (FYE) 4.12 to 4.11 -0.3%Net profit (FYE) 51,542.9 to 51,992.0 0.9%


800

1200

1600

2000

2400

2800

4/09 7/09 10/09 1/10 4/10 7/10 10/10 1/11HDFC Bank

BSE 30 (Rebased)

Performance (%) 1m 3m 12mAbsolute 7.5 9.8 18.3BSE 30 8.4 1.5 10.2

Stock data

Market cap (INRm) 1,077,333Market cap (USDm) 24,234Shares outstanding (m) 354.4Major shareholders HDFC Ltd (23.8%)Free float (%) 76Avg daily value traded (USDm) 49.2


ROE (%) 19.0Loan/deposit ratio (%) 79.0Book value/share (INR) 627.93Price/book (x) 3.7NPL/total loans (%) 0.9Net int margin (%) 4.11

DB vs Consensus FY12E (INR/share)

EPS TPMean 108.4 2420High 115.9 2850Low 93.3 1900DB 111.8 2610

BUYs HOLDs SELLs32 14 4

Source: Bloomberg Finance LP, DB

4QFY11 results – improved profitability, NPLs decline Net profit at INR11.1bn was in line in our estimates and ~2% ahead of the street. Loan growth was moderate at 0.5% QoQ as the bank sold ~INR15bn of loans. NIMs remained flat sequentially at 4.2%, while the CASA ratio was maintained at above 50%. Asset quality improvement continued with Gross NPL declining 4.9% QoQ, and the GNPL ratio is now at a multi-year low of 1.05%. Fee income growth was strong at 23% YoY driven partly by third-party product distribution.

High CASA to buffer NIM, no negative surprises on asset quality likely Like several 4Qs in the past, HDFC Bank has chosen to grow the loan book very little QoQ in 4QFY11, thereby demonstrating its commitment to maintaining its high margins. The fact that CASA was not disturbed, despite meaningful deposit growth, in a quarter where term deposit rates had shot up, validates the quality of the deposit franchise, in our opinion. Since the bank has a buffer of a high specific provision coverage and retail credit quality is stable if not improving, we believe negative surprises on credit costs are unlikely.

1-stage Gordon growth valuation; already elevated margins the key risk We value HDFC Bank on a premium to the single-stage Gordon growth model. Assumptions for the single-stage model: sustainable RoE = 18.0%, FY12E RoE = 19.0%, cost of equity of 13.2% (using DB estimates), perpetual growth = 5%. Key risks are a reduction in the bank’s strong sources of low-cost deposits due to lower float funds or slowdown in branch expansion, which would hurt funding costs, and rising delinquencies from a large, unsecured retail loan book. (Please see page 3 for details on valuation and risks.)



Asia India Technology Software & Services

18 April 2011

Infosys Technologies Reuters: INFY.BO Bloomberg: INFO IN Exchange: BSE Ticker: INFY

Target price cut 10%; long-term value still intactAniruddha Bhosale Research Analyst (+91) 22 6658 4037 [email protected]

Earnings cut but demand outlook still solid We cut our FY12E revenue and earnings estimates for Infosys by 2.6% and 5.6% respectively. We expect near-term performance to reflect the double whammy of dismal financials and the impending management transition. However, our conservative estimates show that the company can still report an earnings CAGR of 22%+ over FY11-13E, making it attractive for longer-term investors. Our checks suggest the management transition is likely to have a positive effect on performance. Maintain Buy with a revised INR3,600 target price.



Sales (INRm) 227,420.0 275,010.0 338,529.2 408,873.5 478,465.9

EBITDA (INRm) 78,610.0 89,640.2 110,944.4 132,736.7 151,750.9

Reported NPAT (INRm) 61,860.0 68,230.2 84,526.6 101,799.8 116,391.8

Reported EPS FD(INR) 108.30 119.46 146.98 177.01 202.39

DB EPS FD(INR) 108.30 119.46 146.98 177.01 202.39

OLD DB EPS FD(INR) 108.30 121.49 155.91 189.51 –

% Change 0.0% -1.7% -5.7% -6.6% –

DB EPS growth (%) 5.9 10.3 23.0 20.4 14.3

PER (x) 19.9 24.7 20.3 16.9 14.8

EV/EBITDA (x) 13.8 16.9 13.6 11.0 9.3

DPS (net) (INR) 23.06 60.03 73.49 88.51 101.19

Yield (net) (%) 1.1 2.0 2.5 3.0 3.4Source: Deutsche Bank estimates, company data



Forecast Change

Buy Price at 15 Apr 2011 (INR) 2,988.80Price target - 12mth (INR) 3,600.0052-week range (INR) 3,475.85 - 2,533.30BSE 30 19,387

Key changes

Price target 4,000.00 to 3,600.00 -10.0%Sales (FYE) 347,527 to 338,529 -2.6%Op prof margin (FYE) 30.0 to 29.5 -1.4%Net profit (FYE) 89,665.7 to 84,526.6 -5.7%


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4/09 7/09 10/09 1/10 4/10 7/10 10/10 1/11Infosys Technologies

BSE 30 (Rebased)

Performance (%) 1m 3m 12mAbsolute -1.3 -6.7 6.7BSE 30 6.7 2.8 9.9

Stock data

Market cap (INRm) 1,707,232Market cap (USDm) 38,512Shares outstanding (m) 575.1Major shareholders Narayan Murthy & Asso (4.5%)Free float (%) 81Avg daily value traded (USDm) 78.4


ROE (%) 29.1Net debt/equity (%) -63.6Book value/share (INR) 536.08Price/book (x) 5.6Net interest cover (x) –Operating profit margin (%) 29.5

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FY12 EPS guidance seems unduly conservative Infosys’ FY12E EPS guidance of INR128.2 and operating margin decline of 300bps yoy seems unduly conservative. Under reasonable assumptions of (a) volume growth, (b) utilisation, and (c) pricing, there could be 15% potential upside to the EPS guidance. Moreover, based on the historical performance, our estimates are conservative on (1) employee addition and (2) pricing. In our view, the outlook for these two key variables will be revised upward in the following quarters with a consequent increase in guidance and upside to our estimates.

What will reverse the negative sentiment? A smooth management transition with clear communication on the succession plan and executive responsibilities will be paramount to restoring investor confidence. The company is likely to make announcements in this regard after 30 April, and our checks suggest these will be positive. Infosys will need to outperform its 1QFY12 US$ revenue growth guidance by at least 2-3ppts. Pending these events, TCS will likely continue to trade at a 17-20% premium to Infosys.

Maintain Buy with revised target price of INR3,600 (+29% potential upside) We value Infosys at 25xFY12E and a PEG of 1.1. Key downside risks: (a) greater-than-expected appreciation of the rupee, (b) global vendor competition, and (c) stronger political rhetoric against outsourcing affecting client spending.



Asia

18 April 2011

Asia Economics Daily

Policy tightening continues in China


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

China - RRR hike; proposal for income tax cut submitted for NPC first reading Singapore – Non-oil domestic exports rise by 10%yoy in March, above expectations

UPCOMING RELEASES

Hong Kong – Unemployment rate (sa) (Mar) DB forecast 3.5% (3.6% in Feb)

NEWS IN BRIEF

CHINA Monetary policy (Apr). The PBOC announced the fourth reserve requirement hike today, bringing the reserve requirement ratio (RRR) to 20.5% for large banks. This hike will be effective from April 21. The timing of this RRR hike -- which appears to be somewhat earlier than market expectations -- has to do with the large amount of maturing bills, inflows from the capital account (including hot money), as well as difficulties in conducting open market operations (as evidenced by the recent PBOC consideration for primary dealers to commit to underwriting a minimum amount of PBOC bills). Nevertheless, we are not worried about over-tightening. The current interbank rates remain quite low (e.g., 7-day repo rate at 2.4%), indicating that liquidity remains sufficient in the banking system. In addition, readers should note that for the moment PBOC's OMO or RRR hikes largely aim at soaking up newly created liquidity in the banking system. In other words, they are to prevent a re-acceleration of monetary growth, rather than to engineer a sharp decline in monetary growth.

Looking forward, we expect one more RRR hike and one more rate hike in the coming three months. For the second half of this year, monetary tightening should become much less aggressive as yoy inflation will most likely decline to below 4% in December from its peak in June at around 5.8%. Note that despite the acceleration of yoy CPI inflation -- a lagging indicator -- in March to 5.4%, mom inflation already declined to negative 0.2% in March from its peak of 1.2% in February.



On personal income tax, it was reported by China broadcast network that the government proposal for tax reform has been submitted for the first reading by the Standing Committee of the National People's Congress (NPC) during April 20-22. If it passes the second reading at the end of June, the new tax law will likely be implemented from the second half of this year. According to China Securities Daily, the proposed tax changes include: 1) an increase in the minimum exemption threshold to RMB3000/month from the current RMB2000/month; 2) a reduction in the number of tax brackets from nine to seven. As a result, 90% of wage earners will see a reduction in their tax liabilities, and the number of income tax payers will likely fall by half (currently 28% of urban employees pay taxes, while rural residents do not pay income taxes). Under the new (reformed) system, for a middle income urban employee with a monthly salary of RMB4500, he/she will only need to pay RMB75, vs the current tax liability of RMB175. In other words, his/her effective personal income tax rate will fall to only 1.7%. As we pointed out earlier, this tax reform will help improve the disposable income and thus the spending power of the low-and middle-income segments of the population, and will help reduce income disparity.

SINGAPORE External trade (Mar). Non-oil domestic exports surprised to the upside in March, rising by 10.0%yoy (6.9% in Feb), above the consensus as well as our forecast of 5.0% and 8.8% respectively. However, seasonally adjusted, non-oil domestic exports fell by 2.9%mom in March, against 2.0% growth reported in February. The yoy acceleration was led by non-electronic exports, which surged by 24.5% in March following 18.3% growth in February. In contrast, electronics exports continued to fall, by 13.8% in March vs. 12.8% decline in February. By destination, exports to emerging markets rose at a faster pace of 95.3% in March, as compared to 21.2% in February. Exports to the US (3.7% in Mar vs. 20.1% in Feb), China (10.1% vs. 13.5%) and EU (3.1% vs. 14.1%) all witnessed slowdown during March. Total exports (consisting of oil and re-exports) growth accelerated to 12.8%, up from 10.1% in February. With imports rising at a faster pace of 17.2% in March vs. 2.1% in February, the trade surplus narrowed from SGD4.8bn to SGD3.8bn during the month.

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 13431 -0.8 6.53 0.0 3.25 0 3.85 0Hong Kong 23868 -0.6 7.78 0.0 0.26 0 2.79 -4India 19232 -0.8 44.33 -0.1 7.26 0 8.07 8Indonesia 3725 -0.2 8670 -10.0 7.09 0 8.32 -5Malaysia 1530 0.5 3.02 0.0 3.07 0 4.09 0Philippines 4269 0.4 43.2 0.0 0.98 -1 7.01 -2Singapore 3143 -0.3 1.24 0.0 0.44 0 2.40 0S. Korea 2138 -0.1 1089 -2.3 3.40 0 4.49 -1Taiwan 8714 0.0 29.1 -0.1 0.74 0 1.36 0Thailand 1091 0.6 30.1 0.0 3.21 2 2.82 0

US 12342 0.0 na na 1.28 0 3.41 -8Japan 9557 -0.4 83.0 0.2 0.20 0 1.29 -1Euroland na na 1.44 0.0 1.33 0 0.00 5

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

Friday, Apr 15China GDP Q1-YoY 9.5% 9.4% 9.7% 9.8%

CPI Mar-YoY 5.1% 5.2% 5.4% 4.9%PPI Mar-YoY 7.0% 7.2% 7.3% 7.2%Retail Sales Mar-YoY 17.0% 16.5% 17.4% 11.6%Industrial Production Mar-YoY 14.3% 14.0% 14.8% 14.9%Fixed Asset Investment (ytd) Mar 24.0% 24.8% 25.0% 24.9%

India WPI Mar-YoY 8.5% 8.4% 9.0% 8.3%Singapore Retail Sales (nominal) Feb-YoY 0.0% 0.3% -12.1% 3.2%

Retail Sales (real) Feb-YoY -3.0% NA -0.4% -0.1%

Monday, Apr 18Singapore Exports Mar-YoY 15.0% NA 12.8% 10.1%

NODX Mar-YoY 8.8% 4.0% 10.0% 6.9%Imports Mar-YoY 12.3% NA 17.2% 2.1%Trade Balance Mar SGD6.5bn NA SGD3.8bn SGD4.8bn

Tuesday, Apr 19Hong Kong Unemployment rate (sa) Mar 3.5% 3.5% 3.6%

Wednesday, Apr 20Malaysia CPI Mar-YoY 2.9% 3.1% 2.9%Taiwan Export Orders Mar-YoY 10.5% 4.7% 5.3%Thailand Exports Mar-YoY 20.0% 17.3% 31.0%

Imports Mar-YoY 19.0% 19.8% 22.5%Trade Balance Mar USD1.4bn USD0.9bn USD1.8bn

Events and Meeting:Thailand:BoT meeting (25bps rate hike expected) .Thursday, Apr 21Hong Kong CPI Mar-YoY 4.4% 4.2% 3.7%Philippines Fiscal Balance Mar -PHP10.0bn NA -PHP21.5bn

Friday, Apr 22Taiwan Unemployment rate (sa) Mar 4.6% 4.5% 4.6%

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



Asia China

18 April 2011

CNH Market Monitor Gauging Singapore's potential as an offshore RMB hub

Market Update

Research Team

Mirza Baig Strategist (+65) 64235930 [email protected]

Linan Liu Strategist (+852) 2203 8709 [email protected]

Dennis Tan Strategist (+65) 6 423-5347 [email protected]

Gauging Singapore’s potential as an offshore RMB hub: Singapore and China are in talks to develop the next offshore renminbi trading hub in the city state. This would certainly promote the renminbi’s internationalization, but can a “CNS” market compete with the established CNH market?

We feel that Singapore is at a competitive disadvantage relative to Hong Kong due to the absence of a clear convergence trend, comparatively less China trade intermediation done by Singapore, and the absence of a PBoC appointed settlement bank that can provide Singapore with direct access to onshore RMB. In the areas of capital market framework and offshore fundraising, the two financial centers are probably on par.

As such, we believe that the development of a CNS market will NOT be a threat to Hong Kong’s leadership in the offshore renminbi business. We think Singapore will play a smaller, complementary role in the initial years of China’s experimentation with offshore RMB markets. As an analogy, if RMB is the product, then think of Mainland as the factory, Hong Kong as the main wholesale market, and Singapore as a retail outlet.

But once RMB becomes fully convertible, electronic brokering will make national borders irrelevant. Then Singapore – as an established FX trading hub – could see its importance increase substantially.

To keep track to the asset growth in the CNH market, we add a new table – CNH market asset tracker -- to this report where we provide aggregate size as well as the breakdown of CNH assets by issuers.

FX turnover in Singapore and Hong Kong*

BIS survey - HK

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Global

18 April 2011

Global Commodities DailyStill bullish on precious metals

Deutsche Bank AG/London

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. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 007/05/2010

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The Day Ahead

Time(EST) Country Event Previous Market View

10:00 US NAHB Housing Market Index (Apr) 17 17

10:00 EZ Consumer Confidence (Apr) -10.6 -11

16:00 US USDA crop progress report

Overview

Gold and silver continued their impressive climb to hit new all time high and fresh multi decades high on renewed peripheral European debt fears after Moody’s cut Ireland’s sovereign rating by two notches on Friday. The Euro was under pressure, which demonstrates that precious metals can rally even when the US dollar is rising. We maintain our bullish outlook for the complex.

Industrial metals ended mixed with aluminium outperforming the rest of the complex, supported by elevated energy prices. Figure 2 shows aluminium price vs. marginal production costs over time. During cycle peaks the metal has traded at a premium of up to 50% over this fair value metric. With cost pressures pushing up marginal costs we calculate that a 40% premium could lift prices to USD3,200/t.

We expect the metals complex to remain range-bound over the next month or so, particularly as the summer-slowdown period approaches (begins late May). We also expect that spot iron ore could be under some downward pressure after a sharp recovery over the past month.

China’s new RMB loans in March was relatively strong at CNY679 billion, up from RMB 535 billion last month. Q1 GDP was also higher than market expectation, a function of strong manufacturing activities. CPI rose to 5.4% YoY in March. Our China economics team remains confident that YoY CPI will peak in the middle of this year at close to 5.8%.

Upside risk in the oil markets could come from further losses of light sweet crude oil exports from two key suppliers: Nigeria and Algeria. The good news for the global economy is that recent events in these two countries suggest that the risk may not materialize.

Nigerian President Goodluck Jonathan appeared to be the strong winner of elections according to a Reuters survey across 33 of 36 states. Observers called the election the fairest for decades. According to Reuters, an outright win for Jonathan could ease worries over potential disruptions to crude exports.

Meanwhile, Algerian President Abdelaziz Bouteflika pledged Friday to reform the constitution and to ensure both free elections and press freedom. According to Al Arabia News, Algerians have demonstrated against rising prices for sugar, olive oil and flour, which consume a large portion of household budgets. So far, however, protests in Algeria have been small compared to events in Tunisia, Egypt, and Bahrain.

Looking at today’s calendar, in Europe market will focus on the April consumer confidence report for the Eurozone. In the US, NAHB housing market index will shed light on the housing sector.

Commodities & Global Markets

Commodities News In Brief

• China’s refined copper production hit a record of 470Kt in March, up nearly 6% from previous peak in Dec 2010, says the National Bureau of Statistics.

• Crude oil production in China rose 4.2% to 17.57 mn tonnes in Mar from a year ago, says National Bureau of Statistics.

• The OPEC crude oil production plunged by 630,000 (b/d) in March to an average 29.17 mn b/d a new survey revealed.

• Oil fell in early trading Monday in Asia after Saudi oil minister Naimi said the markets were “well supplied.”

• Copper stockpiles monitored by the Shanghai Futures Exchange dropped to a two-month low, losing 6,578 tonnes to 147,651 tonnes, exchange data showed.

• Ivory Coast’s government has lifted a ban on cocoa and coffee exports and said the nation’s ports will reopen soon.

• The global economy is “one shock away” from a crisis in food supplies and prices according to World Bank president Zoellick, quoted by Bloomberg News.

Global Markets News In Brief

• Japan IP (MoM) (Feb) increased to 1.8% from 0.4% in Jan.

• EU Consumer Price Index (MoM) increased to 1.4% in Mar from 0.4%in Feb; (YoY) 2.7% vs. 2.6%.

• EU trade deficit (s.a) narrows to. €2.4 bn in Feb against a deficit of €3.3 bn in Jan.

• NY Empire Manufacturing Index (Apr) rose to 21.7 in April from 17.5 in Mar. .

• US Industrial Production (MoM) (Mar) climbed 0.8% after a 0.1% gain in Feb.

• U. of Michigan/Reuters preliminary Consumer Confidence (Apr) rose to 69.6 from 67.5 in March.

Event Risks

• Japan Machine Tool Orders on Apr 19.

• US Housing Starts on Apr 19.

• Euro-Zone PMI manufacturing on Apr 19.

• China Leading Economic Index Apr 19.

• Germany IFO - Business Climate Apr 21.

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



Figure 1: Gold price vs peripheral Europe CDS Figure 2: Aluminium: Valuation in context

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If the market were to award a premium of 40% over marginal; it would equate to USD3,200/t

Source: Bloomberg Finance LP, Deutsche Bank

Source Deutsche Bank

Commodity Price Summary

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

Close (USD) 109.66 123.45 4.20 3.29 3.22 124.75 Daily price change 1.4% 0.9% -0.2% 1.7% 1.1% 1.2% YTD price change 20.0% 30.3% -4.6% 34.1% 26.8% 7.9%

Precious Metals & FX Comex Gold Comex Silver Nymex Platinum Nymex

Palladium EURUSD USDJPY

Close (USD/oz) (level) 1485.30 42.57 1797.80 768.10 1.44 83.13 Daily price change 0.9% 2.2% 0.0% -0.8% -0.4% -0.4% YTD price change 4.5% 37.7% 1.1% -4.4% 7.8% 2.3% Industrial Metals Aluminium Copper Lead Nickel Tin Zinc LME close 3M (USD/t) 2694 9405 2651 26155 33100 2398

LME close 3M (USc/lb) 122.2 426.6 120.2 1186.4 1501.4 108.8

Daily price change 1.9% -0.1% 1.4% 1.4% 2.7% 0.0%

YTD price change 9.1% -2.0% 4.0% 5.7% 23.0% -2.3% LME Stocks (t) 4,566,375 450,425 287,075 120,480 18,990 764,250

Daily change (t) -2,750 -375 3,225 -702 -35 525

Agriculture & Livestock Corn (bsh) Cotton (lb) Live Cattle (lb) Soybeans (bsh) Sugar (lb) Wheat (bsh) NY close (USc) 742.00 195.52 117.40 1331.75 24.59 744.25 Daily price change -1.6% -0.3% -1.2% 0.1% 0.6% 0.5%

YTD price change 18.0% 35.0% 8.8% -4.4% -23.4% -6.3%

Other prices Baltic Dry Index

Iron Ore Steel US HRC Ethanol EUA (CO2)

Dec12 (Euro) U3O8 USD/lb

Close (level) 1296 181.5 877 2.62 17.95 58.00 Daily change -1.0% -1.0% 0.0% -0.8% 2.1% -0.9% YTD change -26.9% 6.7% 29.0% 10.1% 22.7% -6.6%

Indices DBLCI-OY DBLCI-MRE DB Harvest SPGSCI DJUBS SPWCI NY close (level) 1464 447 287 5637 343 433 Daily change 1.1% 0.5% 0.0% 0.9% 0.5% 0.9% YTD change 14.4% 4.2% 1.5% 14.0% 5.1% 21.1%

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



Global

18 April 2011

Global Economic PerspectivesEmerging Asia's Growth Surge (Revised)

Deutsche Bank Securities Inc.

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) 007/05/2010

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Economics

Table of Contents Key Economic Forecasts .................................... Page 2

Emerging Asia’s Growth Surge .......................... Page 3

Central Bank Watch.......................................... Page 11

Global Data Monitor ......................................... Page 15

Charts of the Week .......................................... Page 16

Global Week Ahead.......................................... Page 17

Financial Forecasts .......................................... Page 19

Main Deutsche Bank Global Economics Publications ...................... Page 20

Research Team

Peter Hooper (+1) 212 250-7352 [email protected]

Thomas Mayer (+49) 69910-30800 [email protected]

Michael Spencer (+852) 220-38303 [email protected]

Torsten Slok (+1) 212 250-2155 [email protected]

The external impulse to growth in Asia is remarkably strong. We estimate that in Q1 exports rose at their fastest QoQ(saar) pace in 18 years except for the 2009Q4 rebound from the recession.

For a region of very open economies – particularly the emerging markets – this surge in exports is likely to push Q1 GDP above consensus expectations leading to another round of forecast upgrades. We have already seen this in China and Singapore.

But this also means that output gaps are closing faster than expected and with commodity prices still pushing inflation higher the risks of a significant rise in core inflation in the months ahead is surely rising.

Asian central banks have been setting interest rates with a view to core inflation rather than headline, we think. But even measured against core inflation real policy rates are well below levels that were reached during 2006-07 suggesting that even if core inflation doesn’t rise significantly from here there is much more upside potential to interest rates than is currently forecast.

The situation in the developed markets is markedly different. Natural disasters in Australia, New Zealand and Japan have not only interrupted the recovery they have in New Zealand and Japan knocked back growth in 2011 significantly. We now forecast a substantial decline in 2011 GDP in Japan. In Australia and New Zealand, the shocks to growth are likely to be temporary – growth later this year is likely to be higher than we previously forecast. In Japan, though, we see a much longer lasting drag on growth from the earthquakes and radiation leaks.

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Key Economic Forecasts

Real GDP

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Consumer Prices

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Fiscal Balance

% of GDP

2010F 2011F 2012F 2010F 2011F 2012F 2010F 2011F 2012F 2010F 2011F 2012FUS 2.9 3.5 3.9 1.6 2.3 2.6 -3.2 -4.0 -4.2 -8.7 -9.7 -6.9

Japan 4.0 -2.1 1.9 -0.7 0.5 -0.5 3.6 1.4 1.7 -8.7 -8.7 -9.2

Euroland 1.8 1.5 1.5 1.6 2.5 1.9 -0.6 -0.9 0.0 -5.9 -4.5 -3.4

Germany 3.5 2.5 1.6 1.2 2.0 1.7 5.6 4.8 4.1 -3.7 -2.8 -2.0

France 1.5 1.4 1.7 1.7 2.1 1.7 -2.1 -2.0 -2.3 -7.3 -6.2 -4.8

Italy 1.2 0.9 1.2 1.5 2.4 2.0 -3.6 -2.6 -2.1 -4.6 -3.8 -2.8

Spain -0.1 0.8 1.2 1.8 3.2 1.7 -4.5 -4.0 -3.4 -9.2 -6.5 -4.8

UK 1.3 1.8 2.0 3.3 4.2 2.0 -4.6 -4.6 -4.2 -10.0 -7.6 -5.6

Sweden 5.3 4.5 2.8 1.3 2.5 2.0 6.3 6.5 6.0 -0.1 0.5 1.5

Denmark 2.1 2.0 2.0 2.3 2.5 2.0 5.3 4.0 3.5 -5.3 -4.0 -2.5

Norway 0.4 2.5 2.5 2.4 1.9 2.2 13.0 13.5 14.0 6.5 7.5 9.0

Poland 3.8 3.9 3.5 2.6 3.8 3.1 -3.3 -3.6 -4.0 -7.9 -5.8 -4.7

Hungary 1.2 3.0 3.2 5.0 3.8 3.3 1.5 0.5 -0.1 -3.8 -2.9 -3.6

Czech Republic 2.2 2.2 3.6 1.5 1.9 2.1 -3.9 -3.7 -3.9 -4.7 -4.3 -3.6

Australia 2.7 2.9 3.9 2.9 3.0 2.8 -2.6 -1.4 -2.3 -4.5 -3.5 -2.2

Canada 3.1 3.2 3.4 1.8 2.5 2.3 -3.1 -2.7 -2.4 -2.5 -1.0 -0.4

Asia (ex Japan) 9.5 8.0 7.6 4.6 5.6 4.3 4.1 2.8 2.4 -2.8 -2.8 -2.4

India 10.4 8.2 8.6 9.6 8.0 7.0 -3.2 -3.3 -3.3 -8.0 -7.6 -6.8

China 10.3 9.4 8.6 3.3 5.0 3.5 5.2 3.5 3.0 -2.5 -2.0 -1.5

Latin America 6.1 4.2 4.0 8.8 8.9 8.4 -0.8 -1.2 -1.8 -2.5 -2.5 -2.4

Brazil 7.5 3.6 4.4 5.9 6.0 5.0 -2.3 -2.5 -3.2 -2.5 -2.8 -3.0

EMEA 4.7 4.4 5.0 7.6 7.7 7.2 0.3 0.6 0.0 -4.7 -2.2 -1.5

Russia 4.0 5.4 5.5 6.9 9.5 8.1 4.9 6.8 5.2 -3.9 1.3 2.0

G7 2.8 2.1 2.9 1.4 2.1 1.9

World 4.9 4.1 4.4 3.2 4.0 3.4

(a) Euroland forecasts as at the last forecast round on 25/03/11. Bold figures signal upward revisions, bold, underlined figures signal downward revisions. (b) GDP figures refer to working day adjusted data. (c) HICP figures for euro-zone countries and the UK (d) Current account figures for Euro area countries include intra regional transactions

Forecasts: G7 quarterly GDP growth

% qoq saar/annual: % yoy Q1 10 Q2 10 Q3 10 Q4 10 2010 Q1 11F Q2 11F Q3 11F Q4 11F 2011F 2012F

US 3.7 1.7 2.6 3.1 2.9 3.8 4.2 4.1 4.3 3.5 3.9

Japan 6.1 2.1 3.3 -1.3 4.0 -5.2 -8.1 2.2 3.8 -2.1 1.9

Euroland 1.6 4.0 1.4 1.1 1.8 2.0 0.9 1.1 1.4 1.5 1.5

Germany 2.6 9.2 2.8 1.5 3.5 2.8 2.2 1.4 1.3 2.5 1.6

France 1.1 2.4 1.0 1.4 1.5 1.9 0.5 1.5 1.7 1.4 1.7

Italy 2.1 2.1 1.3 0.5 1.2 1.3 0.6 0.8 0.0 0.9 1.2

UK 0.8 4.3 2.9 -1.9 1.3 3.3 2.2 2.0 1.7 1.8 2.0

Canada 5.5 2.2 1.8 3.3 3.1 4.0 3.4 3.5 2.6 3.2 3.4

G7 3.5 2.8 2.5 1.6 2.8 1.9 1.3 2.9 3.1 2.1 2.9

Sources: National authorities, DB Global Markets Research

For more details of our latest global economic forecast see our interactive maps on www.dbresearch.com



Asia China Technology

18 April 2011

China TMT Daily Explaining failure; also 0941.HK, 0728.HK

(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 24.75 China Telecom Buy HKD 5.40 ZTE Buy HKD 42.78

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

TELCOS as on 15/04China Comm Service Hold 4.8 -0.4 -1.7China Mobile Hold 72.8 -0.3 -6.6China Telecom Buy 4.8 -1.2 11.4China Unicom Hold 15.0 1.5 29.8 INTERNET/ONLINE GAMING Alibaba.com Hold 14.6 -0.8 -11.9Baidu Buy 146.8 -0.1 36.3Ctrip.com Int'l Hold 45.6 1.0 8.3Netease.com Buy 52.8 -1.0 36.3Shanda Sell 44.0 0.8 9.1Shanda Games Hold 7.4 7.2 14.0Sina Corp Sell 124.6 0.7 41.3Sohu.com Hold 95.4 -0.8 36.7Tencent Buy 200.8 0.1 -0.1 TECHNOLOGY AsiaInfo-Linkage Buy 19.0 -2.3 -1.6Foxconn Int'l Hldgs Hold 4.8 0.6 -16.4HiSoft Buy 20.0 -1.0 -33.4Lenovo Group Hold 4.5 0.0 -9.7Longtop Buy 28.4 -4.1 -17.1Synnex Technology Hold 71.8 -0.6 -7.8ZTE Buy 28.5 2.3 8.7 Indices Close 1D% 3M% as on 14/04HSI 24008.1 0.0 -0.6HSCEI 13533.6 0.4 4.4Nasdaq 2764.7 0.2 0.3Sources: DB, Bloomberg Finance LP

CALENDAR OF EVENTS

Research Team

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

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

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FEATURE:

Some new angles on why foreign internet companies fail in China Having become all-too familiar with the mainstream litany of reasons as to why foreign Internet companies fail in China, we recently came across a very thoughtful and more nuanced set of explanations in a piece titled "10 Reasons for American Internet Companies' Failure in China" appearing on www.america.im. We profile the first five of the ten reasons below. We find these explanations if not controversial, at least interesting new contributions to the dialog.

Know your audience The writer observes that western websites tend to target a white-collar audience instead of the broader population. The non-local management of a foreign website operator in China therefore usually has limited contact with people outside of their immediate social network in China, and thus naturally overlook popular interests of the masses, especially those of internet users in small cities and internet cafes.

"More cautious" working style hinders product development The writer also believes that employees at US web companies, for instance, being paid much more than their counterparts at Chinese companies, are more conservative and cautious in product development. They would rather postpone the delivery of results rather than bring risk to their job by making mistakes in their first few attempts.

Short-term versus long-term Overseas website companies often focus their projects on longer-term strategies, whereas Chinese websites are willing to seek "quick wins." We view the rapid rise of Sina's weibo product as a great example of the success of a breakneck and more risk-taking approach toward product development. The slower pace of development amongst some western web giants often does not work in China's internet industry.

China's sites less structured in pursuit of goals The stricter performance criteria and guidelines that foreign web companies often institute (from the perspective of the blog on www.america.im) are viewed as obstacles to development in the rapidly evolving Chinese market. Chinese websites often assign primacy to the objective itself, and are willing to try all kinds of tactics to realize their goals, whereas US websites are viewed as much more concerned with protecting their brand images by setting strict rules and performance criteria to achieve these goals. We seek to profile some of the other potential reasons for failure amongst foreign web companies in China in subsequent installments of the DB China TMT Daily.



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Banking/Finance Life Insurance

18 Apr 2011 - 08:13:35 AM HKT

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COMPANY ALERT Breaking News

AIA Buy

AIA releases positive 1Q New Business momentum

Reuters:1299.HK Exchange:HSI Ticker:1299

Price (HKD) 25.05

Price target (HKD) 26.49

52-week range (HKD) 25.05 - 21.10

Market Cap (USDm) 38,809

Shares outstanding (m) 12,044.0

Book value/share (USD) 1.83

Price/book (x) 1.8

FYE 11/30 2010A 2011E 2012E

Net premi-ums written(USDm)

11,154.0 12,041.3 12,942.1

Net profit(USDm)

2,700.6 2,327.5 2,630.9

EPS (USD) 0.22 0.19 0.22

PER (x) 13.3 16.7 14.8

Yield (net)(%)

0.0 0.0 0.0

Positive Start into 2010: AIA has released its new business highlights forthe quarter ended Feb 2011. The group has a reported a Value of NewBusiness (VONB) of US$182 mn for 1Q, up 21% YoY. Annualised New Pre-mium (ANP) is also up 17% YoY to US$512 mn, with Total WeightedPremium Income (TWPI) up 12% to US$3,303 mn.Margin improves in key markets:Group VoNB margin increased 130bps to 35.2% YoY in 1Q11 or 3ppt vs4Q10 as a result of the company's focused efforts to improve its overallproduct mix. The group has seen margin improvements (reversing marginfalling trends in 4Q) in key markets such as HK, Singapore, China and Thai-land where AIA continues to optimise its product offerings by increasingprotection products and riders, replacing lower margin/older series tradi-tional and investment-linked products. We expect this trend to continue into2011.Cashflow continues to be reinvested at over 20% "IRR": AIA reiterates itsgoal in reinvesting its free cashflow into growth opportunities that generateover 20% IRR. While the group did not report an Operating profit for 1Q,with TWPI growing at 12%, we expect AIA to be on track in delivering over10% operating profit growth in 2011.AIA is on track, back to Asian growth trajectory: In our view, AIA is recov-ering fast since its IPO last year and on track in getting back to an "Asiangrowth trajectory". With margin improvement continuing, growth momen-tum picking up, we expect overall VoNB growth for AIA to remain as oneof the fastest amongst listed HK/Chinese life insurers in 2011. Buy main-tained

Bob LeungResearch Analyst(+852) 2203 [email protected]



Asia China Health Care Health Care

18 April 2011

China Healthcare China Edge P19: Takeaways from expert teleconferenceJack Hu, Ph.D Research Analyst (+852) 2203 6208 [email protected]

Raymond Yang Research Associate (+852) 2203 6139 [email protected]

Imminent expansion of centralized procurement We recently held two teleconferences with a top policy expert. The most important takeaway is that centralized procurement plans to expand its scope to include more drugs and devices. We also interpret it as the Essential Drug List (EDL) likely will be expanded in the near term. In contrast to the situation two years ago, we have learned that corporate executives may have started lobbying efforts to prevent their drugs to be included in EDL expansion.


Industry Update

Companies featured Sinopharm Group (1099.HK),HKD27.60 Buy

2010A 2011E 2012EP/E (x) 50.4 33.6 24.9EV/EBITDA (x) 21.7 11.9 9.0Price/book (x) 4.6 4.1 3.0Shandong Weigao (1066.HK),HKD21.40 Buy

2010A 2011E 2012EP/E (x) 41.8 36.7 26.6EV/EBITDA (x) 40.9 33.7 24.5Price/book (x) 11.4 8.3 6.4The United Laboratories (3933.HK),HKD14.22 Buy

2010A 2011E 2012EP/E (x) 13.8 14.7 11.0EV/EBITDA (x) 8.9 9.6 7.7Price/book (x) 3.9 3.1 2.7Mindray Medical (MR.N),USD26.90 Buy

2010A 2011E 2012EP/E (x) 21.8 16.8 14.7EV/EBITDA (x) 15.8 10.4 8.3Price/book (x) 3.1 2.8 2.4China Medical Tech (CMED.OQ),USD12.56 Buy

2010A 2011E 2012EP/E (x) 15.8 8.2 7.9EV/EBITDA (x) 12.8 8.7 7.0Price/book (x) 1.4 1.0 0.9China Shineway (2877.HK),HKD18.84 Hold

2010A 2011E 2012EP/E (x) 19.2 15.0 13.4EV/EBITDA (x) 13.4 9.4 8.4Price/book (x) 5.0 3.4 2.9WuXi PharmaTech (WX.N),USD16.61 Buy

2010A 2011E 2012EP/E (x) 15.0 13.8 11.9EV/EBITDA (x) 8.6 6.7 5.3Price/book (x) 2.9 2.3 2.0

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Implications of new GMP implementation Our Beijing consultant said the government likely wants to reduce the number of pharmaceutical manufacturers to 1,500 from 4,800 currently. The consultant said that the implementation of the last version of GMP (good manufacturing practice) decreased the number of manufacturers from 6,300 to 3,700. The current version of GMP requires large capital expenditure and will likely incur much higher expenses after implementation. As the products require aseptic preparation, the deadline for new GMP implementation is December 2013, while the rest will have a deadline of 2015. While the consultant cautioned that the cost of goods sold would significantly increase under the new GMP, the government may implement a mechanism to offset cost increases.

EDL/Anhui model implementation is more likely to advance in next 2-3 years Even with his pro-industry status and prediction that quality issues may emerge, the consultant said the EDL/Anhui model implementation is likely to continue for the next 2-3 years, perhaps with certain flexibilities on minor details. However, he indicated that margin pressure should be widely expected for almost all drugs under the EDL, and that it is likely the government prefers to allow these companies to have a 5% net margin on EDL drugs. Despite his conservative view on EDL, he said the majority of the space would continue to enjoy healthy growth.

Our take – focus on innovation and first-to-market generics We would capitalize on experts’ opinions on the following fronts: 1) focus on companies with innovative drugs and first-to-market generics because they should continue to enjoy exclusive pricing power; we highlight that Hengrui (600276.SS) has a Lapatinib in Phase 3 and Sutininib going into Phase 2; 2) positioning with industry bellwethers, as they are more likely to benefit from consolidation; and 3) dodge names with large EDL exposure, or drugs that will be included in the EDL expansion.

Multiples-based valuation preferred; risks relate mainly to policy/regulations To reach the target prices for the stocks that we cover in the sector, we use a multiples-based valuation approach, given the sustainable growth in the sector. Industry risks relate primarily to government policies and regulatory changes in China, particularly healthcare reforms. We have a Hold rating on China Shineway with a target price of HK$21. We highlight that Shineway is one of the few pharmaceutical companies with large exposure to the EDL.



Asia China Health Care Health Care

18 April 2011

China Healthcare China Edge P20: 1Q11 govt healthcare spending up 56%Jack Hu, Ph.D Research Analyst (+852) 2203 6208 [email protected]

Raymond Yang Research Associate (+852) 2203 6139 [email protected]

Government spending up 56% YoY in 1Q11 Government spending on healthcare was RMB76.9bn in 1Q11, representing 56% YoY growth. It was the highest 1Q YoY growth since 2008 vs. 41%/43%/6% in the 1Qs of 2008-10, respectively. We believe that the fiscal surplus in 2010 was deferred to 2011, which we stated in January as being the most likely explanation for the weak December data.


Industry Update

Companies featured The United Laboratories (3933.HK),HKD14.22 Buy

2010A 2011E 2012EP/E (x) 13.8 14.7 11.0EV/EBITDA (x) 8.9 9.6 7.7Price/book (x) 3.9 3.1 2.7Shandong Weigao (1066.HK),HKD21.40 Buy

2010A 2011E 2012EP/E (x) 41.8 36.7 26.6EV/EBITDA (x) 40.9 33.7 24.5Price/book (x) 11.4 8.3 6.4China Shineway (2877.HK),HKD18.84 Hold

2010A 2011E 2012EP/E (x) 19.2 15.0 13.4EV/EBITDA (x) 13.4 9.4 8.4Price/book (x) 5.0 3.4 2.9Sinopharm Group (1099.HK),HKD27.60 Buy

2010A 2011E 2012EP/E (x) 50.4 33.6 24.9EV/EBITDA (x) 21.7 11.9 9.0Price/book (x) 4.6 4.1 3.0China Medical Tech (CMED.OQ),USD12.56 Buy

2010A 2011E 2012EP/E (x) 15.8 8.2 7.9EV/EBITDA (x) 12.8 8.7 7.0Price/book (x) 1.4 1.0 0.9Mindray Medical (MR.N),USD26.90 Buy


Higher healthcare spending growth versus overall spending growth We note that the 56% YoY growth in healthcare spending in 1Q11 is much higher than overall government spending growth of 26% in the same period. Healthcare spending grew 18.8% in 2010 compared with overall government spending growth of 17.4%. We believe that the government is inclined to spend more on healthcare after the Two Sessions guidance to advance healthcare reform.

We still expect 20-25% spending growth for 2010-14 We maintain our estimate that government healthcare spending will post a CAGR of 20-25% in 2010-14. The 2011 budget was RMB173bn, up 24% from the previous year’s budget and 16% above the actual 2010 spending level. Furthermore, 2010 actual spending vs. the budget was 107%, vs. 110% and 117% for 2008 and 2009, respectively. The annual growth rates for healthcare spending were 39%, 45% and 19% for 2008, 2009 and 2010, respectively. Even with this much higher-than-expected growth rate, we maintain our aforementioned expectation.

Multiples-based valuation preferred; risks relate mainly to policy/regulations We use a multiples-based valuation approach, given the sustainable growth in the sector. Industry risks mainly relate to government policies and regulatory changes in China, particularly regarding healthcare reforms.



Asia Hong Kong Utilities Utilities

18 April 2011

China IPPs Tariff hike: too little vs fuel cost rise Michael Tong, CFA Research Analyst (+852) 2203 6167 [email protected]

Eric Cheng, CFA Research Analyst (+852) 2203 6202 [email protected]

Kai-Ting Wong Research Associate (+852) 2203 6235 [email protected]

Small on-grid tariff hike with end-user tariff frozen The Chinese IPPs have confirmed to us the provincial on-grid tariff hike reported by the media. We are not surprised by this given the IPPs' difficult financial positions. Based on geographic capacity mix, we estimate a 3.3%, 2.4%, 2.0%, 1.7%, and 1.1% tariff hike for Huadian, CPI, Datang, Huaneng and CR Power respectively. Our models have factored in another 3% on-grid tariff hike by the end of the year, the prospect of which largely depends on the inflation situation in 2H11. We maintain our current ratings on the IPPs.


Breaking News

Top picks China Resources Power (0836.HK),HKD14.02 BuyLongyuan Power (0916.HK),HKD8.08 Buy

Companies featured

China Resources Power (0836.HK),HKD14.02 Buy2009A 2010E 2011E

P/E (x) 14.2 13.3 12.7EV/EBITDA (x) 11.7 10.3 9.0Price/book (x) 1.9 1.6 1.5Huaneng Power Intl (0902.HK),HKD4.58 Hold

2009A 2010E 2011EP/E (x) 11.4 11.2 20.7EV/EBITDA (x) 10.0 10.1 8.4Price/book (x) 1.1 1.1 1.0Datang Int'l Power (0991.HK),HKD2.87 Hold

2009A 2010E 2011EP/E (x) 27.0 13.8 12.5EV/EBITDA (x) 11.3 10.4 8.9Price/book (x) 1.3 1.0 0.9Huadian Power (1071.HK),HKD1.71 Hold

2009A 2010E 2011EP/E (x) 10.3 – 33.9EV/EBITDA (x) 9.1 13.2 9.2Price/book (x) 0.7 0.6 0.6China Power Int'l (2380.HK),HKD1.76 Hold

2009A 2010E 2011EP/E (x) 12.8 12.2 13.5EV/EBITDA (x) 13.3 9.8 9.7Price/book (x) 0.7 0.6 0.6Longyuan Power (0916.HK),HKD8.08 Buy


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Tariff hike in our models already; valuation not attractive enough Our channel checks suggest several provinces like Shanxi, Shandong, Hainan, Shaanxi, Gansu received higher than average adjustments (>=Rmb2cent/KWh) (see details in Figure 1). We calculate a simple average hike of Rmb+8/MWh, or +2.1%, for the nation, effective from 10 April. However, as we have assumed a 4~6% tariff hike for 2011, we would expect earnings downside risk if this is the only on-grid tariff hike by the year end. Even with another 3% hike in 2H11 once inflation is under good control, IPPs do not look attractive at current valuations given the lack of fuel tariff pass-through mechanism (low-teen FY12E P/E on assumed 4~6% coal price hike in 2011E and flat yoy in 2012E).

Watch out for coal price movement Due to the Rmb150/ton gap between spot and contract coal prices, we suspect coal producers may seek to circumvent the contract coal price freeze imposed by the government after the tariff hike. For every 1ppt unit fuel cost increase, IPPs’ earnings would be reduced by 74~5.5% (Huadian: 74% CPI: 16% Huaneng: 28%, Datang: 7%, CR Power: 5.5%). We also note Qinhuangdao spot coal price (Shanxi, 5,500Kcal) has risen by Rmb15/ton wow to Rmb795/ton since early April.

Financing costs on uptrend After the four interest rate hikes, our economist Jun Ma expects another 25bps hike by end of the year. Moreover, we would like to remind investors that the effective rate hike for IPPs would be more than the magnitude of benchmark rate hike, as IPPs used to enjoy a 10% discount to the benchmark rate, which is no longer available this year given credit tightening. Some power plants even need to pay a premium interest rate due to their deteriorating financial position. In 2011, the sector will be suffering from rising financing costs in addition to a fuel cost hit.

Buy Longyuan Power and CR Power We retain our Buy rating on Longyuan Power, the wind IPP. Longyuan’s earnings growth is much more visible and reliable. Declining wind turbine price bodes well for higher project IRRs. We still like CR Power, which is a more resilient play on higher dark spread, lower gearing and diversification into the coal mining and wind power businesses. Huaneng, Datang, Huadian and CPI we rate as Hold as we believe a P/E valuation is not attractive enough despite low P/B providing a floor to prevent further share price declines.

DCF-based target prices; major risk is uncertainty over tariff hike/coal prices We value the sector on DCF, assuming WACCs of 6.9-9.8%. Key risks include volatility in coal prices, utilization rates, capacity addition plans, interest rates and tariff hikes, value-accretive or destructive M&As.



Asia Hong Kong Consumer

18 April 2011

China Department Stores Good start in 1Q11 with strongsame store sales growthMabel Wong, CFA Research Analyst (+852) 2203 6178 [email protected]

Anne Ling Research Analyst (+852) 2203 6177 [email protected]

Strong same store sales growth in 1Q11 Our round of checks show department stores enjoyed a good 1Q11 with strong same store sales (SSS) growth ranging from low-teens to 30%+. Key factors driving SSS were (1) consumers' growing purchasing power and confidence about the future and (2) stronger SSS pickup in young and rebranded stores for some companies (e.g. NWDS and Maoye). In spite of a strong 1Q11, all maintain FY11 SSS targets for now. Our sector top Buy picks are Lifestyle and NWDS.


Industry Update

Top picks Lifestyle International (1212.HK),HKD20.40 BuyNWDS (0825.HK),HKD6.55 Buy

Companies featured

Lifestyle International (1212.HK),HKD20.40 Buy2010A 2011E 2012E

P/E (x) 22.3 21.4 18.3EV/EBITDA (x) 15.1 15.6 12.9Price/book (x) 4.6 4.3 3.8NWDS (0825.HK),HKD6.55 Buy

2010A 2011E 2012EP/E (x) 27.6 22.5 17.3EV/EBITDA (x) 9.7 8.5 6.9Price/book (x) 2.6 2.2 2.0Golden Eagle Retail (3308.HK),HKD22.10 Hold

2010A 2011E 2012EP/E (x) 31.4 30.7 24.4EV/EBITDA (x) 20.3 19.9 15.7Price/book (x) 8.8 8.0 6.5Parkson Retail Group (3368.HK),HKD11.86 Hold


1Q11/March 2011: most companies report strong SSS growth HK-listed Chinese department stores reported strong SSS in 1Q11. SSS was strong even in March (a typical slack month), ranging from low-teens to 30%+. NWDS, Intime, Golden Eagle and Maoye all reported better SSS in March vs. January and February. Lifestyle said SSS for its stores in China was quite evenly spread among 1Q11, but HK stores’ SSS momentum was unexpectedly strong in March.

Factors driving strong SSS Most department stores believe consumers’ rising purchasing power and growing confidence about the future of the economy are the key macro factors driving strong SSS. On company-specific factors, NWDS and Maoye said strong pickup of new/rebranded stores have significantly lifted overall SSS. Increases in both per ticket size and foot traffic fuelled SSS growth. Note that c.70% of Golden Eagle’s SSS was due to a per ticket size increase.

Best-selling items Gold/jewelry items remain bestsellers as consumers buy for inflation hedge and investment. Cosmetics/apparel sales were good, sportswear sales were still poor.

Has the level of promotions gotten worse? Though Belle said that the level of department stores’ promotions was higher, all department stores said their overall level of promotions have not declined in 1Q11, similar to that in 1Q10. As such, commission rates are not under pressure.

Companies maintain FY11 SSS targets In spite of a strong 1Q11 (exceeding full-year SSS targets), all department stores maintain their FY11 SSS targets as some expect 2Q/3Q to be slower. Thus, all want to monitor a few more months of sales before adjusting targets.

Not without risks: rising staff salaries, new stores dilute blended comm rate The department store industry is in a land-grabbing phase now. Operators such as Parkson and Golden Eagle are speeding up their store expansion. Hence, retail talents (especially seasoned store managers) are in hot demand. To retain/attract staff, department stores need to offer higher salary (this may increase staff cost ratio). Also, new store additions will dilute the blended commission rate.

Valuation and risks We continue to like Lifestyle (sustainable strong earnings growth momentum in particular for its stores in HK) and NWDS (cheap valuations, sequential SSS improvement). We use DCF as the primary tool to value China’s department stores and use PE/G as a sanity check. Key industry risks are changes in the macro and consumption environment in China, competition, and difficulty in securing good store locations and retail talents.



Asia ChinaConsumer Textiles & Apparel

18 Apr 2011 - 09:08:36 AM HKT

COMPANY ALERT Company Update

China Dongxiang Hold

1Q11 SSS records low single digit decline

Reuters:3818.HK Exchange:HKG Ticker:3818

Price (HKD) 2.57


52-week range (HKD) 5.68 - 2.39



Net debt/equity (%) -90.9

Book value/share (CNY) 1.38

Price/book (x) 1.6

FYE 12/31 2010A 2011E 2012E

Sales(CNYm)

4,262 2,858 3,714

Net Profit(CNYm)

1,463.7 1,008.1 1,170.3

DB EPS(CNY)})

0.26 0.18 0.21

PER (x) 16.0 12.1 10.5

Yield (net)(%)

4.4 5.8 6.7

China Dongxiang announced that it recorded a low single-digit decline in1Q11 same-store-sales (SSS) compared to 1Q10.The company's new CEO, Ms. Sandrine Zerbib, said that the decline wasmainly due to retailers clearing accumulated inventory. In order to improveits operations, Dongxiang (DX) is offering distributors more training and giv-ing better resources to the better-performing distributors.Management believes that the company performance will improve after theinventory-clearing process.Source: 17 April 2011, company announcement

Deutsche Bank view: The decline in SSS will not be a surprise to the marketgiven the mid-teens decline in the 3Q11 trade fair orders (announced in the2010 Annual Results). The company's target this year is to improve its in-ventory ratio from more than 9x in Mar-2011 to 6x by the end of the year.We believe that the inventory-clearing process will be a key focus of thecompany's operations throughout 2011. The situation certainly will behelped by the company actively taking back old inventories from distributors(the company provisioned RMB155m in 2010). According to our forecast,the inventory take-back could be as much as RMB1bn. Taking back old in-ventories should give distributors more confidence in DX's commitment toimproving the retail situation. The company's brand equity should also beimproved when customers are presented with newer products rather thanold inventories.DX management will likely provide investors with more updates about thecompany's performance in May or June as it receives feedback about theinitial results of the new initiatives from distributors and customers.We maintain our Hold recommendation on DX.

Chen FengResearch Analyst(+852) 2203 [email protected]

Anne LingResearch Analyst(+852) 2203 [email protected]



Asia China Property Property

18 April 2011

China Prop Weekly Monitor Volume rebound after Qin Min Festival Tony Tsang Research Analyst (+852) 2203 6256 [email protected]

Venant Chiang Research Analyst (+852) 2203 6183 [email protected]

Jason Ching, CFA Research Analyst (+852) 2203 6205 [email protected]

Transaction volume rebounds again Overall weekly volumes for 35 major cities rebounded again last week, by 32.4% WoW, after a three-week rebound and one-week setback due to the Chinese Qin Min Festival. In the next couple of weeks, we expect the number of new launches to rise further before the 1st May Labor Day and volumes are likely to continue their rebounding trend, especially as developers start to offer more price cuts/discounts for stronger cash positions.


Industry Update

Companies featured China Vanke (000002.SZ),CNY8.96 Buy

2010A 2011E 2012EP/E(x) 12.9 10.0 9.8EV/EBITDA(x) 7.5 5.1 4.7Price/book(x) 2.0 1.9 1.6Poly HK (0119.HK),HKD6.83 Buy

2010A 2011E 2012EP/E (x) 22.4 10.0 7.2EV/EBITDA (x) 15.8 8.8 5.7Price/book (x) 1.2 1.0 0.9Yuexiu Property (0123.HK),HKD1.65 Buy

2009A 2010E 2011EP/E(x) – 10.3 8.0EV/EBITDA(x) 12.6 9.7 4.6Price/book(x) 1.0 0.7 0.7Minmetals Land Limited (0230.HK),HKD1.45 Buy

2010A 2011E 2012EP/E(x) 5.2 10.1 4.1EV/EBITDA(x) 11.5 0.4 -1.8Price/book(x) 0.9 0.8 0.6Shui On Land Ltd (0272.HK),HKD3.64 Buy

2010A 2011E 2012EP/E(x) 22.5 19.7 9.2EV/EBITDA(x) 17.9 15.2 7.5Price/book(x) 0.7 0.6 0.5China Resources Land (1109.HK),HKD14.16 Buy

2010A 2011E 2012EP/E (x) 19.4 12.9 9.8EV/EBITDA (x) 11.9 9.5 6.7Price/book (x) 1.7 1.5 1.4KWG Property (1813.HK),HKD5.89 Buy

2009A 2010E 2011EP/E(x) 10.8 11.8 7.1EV/EBITDA(x) 9.2 7.5 3.9Price/book(x) 1.5 1.2 1.1Country Garden Holdings (2007.HK),HKD3.35 Sell

2009A 2010E 2011EP/E(x) 22.2 18.0 15.4EV/EBITDA(x) 12.6 10.1 9.7Price/book(x) 2.0 2.0 1.8Guangzhou R&F Prop (2777.HK),HKD11.44 Hold

2008A 2009E 2010EP/E(x) 21.5 13.9 9.9EV/EBITDA(x) 14.6 10.4 6.9Price/book(x) 1.6 1.8 1.6Agile Property (3383.HK),HKD13.22 Buy

2010A 2011E 2012EP/E(x) 8.3 9.1 7.1EV/EBITDA(x) 6.0 5.9 4.2Price/book(x) 1.9 1.7 1.5SOHO China (0410.HK),HKD7.01 Buy

2010A 2011E 2012EP/E(x) 6.9 26.5 11.6EV/EBITDA(x) 1.3 9.9 2.7Price/book(x) 1.4 1.5 1.4Evergrande (3333.HK),HKD5.23 Buy

2010A 2011E 2012EP/E(x) 7.3 8.0 6.4EV/EBITDA(x) 5.5 5.8 4.6Price/book(x) 2.4 2.5 1.9Franshion (0817.HK),HKD2.45 Buy

2009A 2010E 2011EP/E(x) 14.3 19.2 15.7EV/EBITDA(x) 12.6 13.3 9.5Price/book(x) 1.5 1.0 1.0

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Volumes in Tier-1 cities up 16.3% WoW Total sales volume in Tier-1 cities rebounded 16.3% WoW last week. Volumes in Beijing, Shanghai, Shenzhen and Guangzhou rose by 59%, 12%, 42% and 7% WoW, respectively. Overall volume is now 55% below the peak of April 2010. Transactions in Tier-1 cities now account for about 17% of the total sales volume of the 35 major cities. Average ASP for Tier-1 cities edged down 1.3% WoW to RMB17,278/sqm.

Volumes in Tier-2/3 cities (excl. non-comparable cities) up 36.2% WoW Total sales volume in Tier-2/3 cities also rebounded by 36.2% WoW. Overall volume is now 60% below the April 2010 peak. Of the 35 major cities, Dalian, Haikou, Xiamen, and Qingdao registered highest WoW increases at 725%, 210%, 127%, and 123% respectively while Nanjing, Nanchang and Guiyang were the only cities with WoW declines, of 19%, 29% and 9% respectively. Average ASP for tier-2/3 cities fell 2.8% WoW to RMB9,148/sqm.

Central government raises RRR again China's central bank announced Sunday that it will raise the required reserve ratio (RRR) by 50bps on 21 April. This is the fourth time this year and the tenth time since last year that the central bank has raised RRR. For big/medium-sized financial institutions, the RRR should hit a historical high of 20.5%. We believe the credit tightening cycle will last for an extended period of time and developers with fast asset turnover and healthy cash positions will be able to benefit from a suppressed market in terms of market share expansion, cheaper land acquisition, etc.

Property price growth slowed in March The National Statistics Bureau (NSB) published March property prices for 70 major cities. Among the 70 cities, 12 saw MoM declines, eight stayed level and 50 posted MoM growth. There were more cities with ASP declines in March than in February while 29 cities saw lower price growth rates in March. YoY, two cities saw ASP decline in March (one in February) and 46 cities had lower ASP growth (30 in February). This has reconfirmed our view that more and more developers are offering price cuts/discounts to boost sales in the face of strict purchase restriction orders and dampened market sentiment, in order to liquidate their stock and improve their cash positions.

Our top picks are COLI, COGO, CSCI, CR Land, Vanke, Evergrande, SOHO The China property sector is now trading at an NAV discount of 46%, deeper than the historical average of 25%, yet better than the "-1SD" level (59%) of the historical range. In addition, the sector is now trading at 2010A 10.8x P/E and 1.4x P/B, both close to the "-1SD" level. Our target prices are based on NAV. Key sector risks include government policies and unexpected fluctuations in the economy.



Asia Hong KongConsumer

18 Apr 2011 - 01:36:22 PM HKT

INDUSTRY ALERT Industry UpdateConsumer Channel checks on beverages: promotions, packaging

changesFocus stocksTingyi (0322.HK),HKD20.10 Hold,Price Target HKD20.20

China Mengniu Dairy(2319.HK),HKD24.40 Buy, Price Tar‐get HKD27.00

Based on our recent visits to supermarkets in Shanghai, we have noticedthat some beverage brands have started promotional campaigns (e.g.lucky draws, freebies).* Four companies are conducting lucky draws: (1) Tingyi (Master Kongbrand) is hosting its third year of "One More Bottle" lucky draw campaignfor its RTD tea/juice products; the winning rate is 12‐15% (slightly lowerthan last year); (2) Uni‐President is running a "One More Bottle" campaignon green/jasmine/chrysanthemum tea (5% winning rate) and 450ml orangejuice (6% winning rate); (3) Kirin has lucky draws on the "afternoon black tea500ml" and "fire latte coffee 350ml/500ml); and (4) Libaojian is conductinga lucky draw for consumers who collect a certain number of bottle caps.* Freebies are also commonly being used as marketing tactics to woo cus‐tomers: (1) Wanglaoji is giving away two 250ml units of Chinese herbal teawhen the customer buys a box of the tea (16 x 250ml); (2) COFCO's LohasJuice is including a free gift with the purchase of a gift package of three280ml bottles; (3) Coca Cola is giving away a McDonald's coupon for amedium‐sized Coca Cola beverage upon the purchase of a promotionalpackage of Minute Maid juice; and (4) Tenwow's Tieguanyin tea is offeringa buy‐one‐get‐one‐free deal.Given that fierce competition and high‐profile selling increases are discour‐aged by the government, some beverage companies are digesting inputcost pressure by changing their product packaging. For example, Tingyihas reduced the bottle size of Daily C juice products from 500ml to 450ml.The new packaging for "Master Kong" brand juice and other tea products islighter and in a round shape (vs. the previous square/octagon shape), andthe contents remain at 500ml.Deutsche Bank view: As the summer approaches, we expect more bever‐age brands to join the race to launch more promotions as well as newproducts. Cost pressure remains the key challenge for beverage compa‐nies. Changing the packaging size is a way to digest costs; the effect willlikely take a longer time to flow through than a price increase.

Mabel Wong, CFAResearch Analyst(+852) 2203 [email protected]



Asia Hong Kong Property Property

19 April 2011

Poly HK Reuters: 0119.HK Bloomberg: 119 HK Exchange: HSI Ticker: 0119

Europe NDR takeaways: look beyond the gearing riskVenant Chiang Research Analyst (+852) 2203 6183 [email protected]

Tony Tsang Research Analyst (+852) 2203 6256 [email protected]

Jason Ching, CFA Research Analyst (+852) 2203 6205 [email protected]

Steep discount reflects gearing risk concerns We reiterate Buy on Poly Hong Kong; we believe the stock is an unjustifiable laggard despite its strong parent background, trading at a 50%+ discount to NAV, much higher than other major developers with slightly lower net gearing. Downside risks look limited as Poly can utilize the parent's credit line for financing at cheaper rates and, more importantly, Poly is on the right track to demonstrate its execution. We expect sales momentum to turn stronger from May when new projects are launched. Sales in 1Q beat management expectations.


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

Sales (HKDm) 7,196.9 8,514.1 15,103.5 24,517.3 29,638.6

EBITDA (HKDm) 1,033.0 2,738.7 4,534.4 7,115.8 9,076.1

Reported NPAT (HKDm) 662.1 1,838.4 2,466.9 3,404.2 5,839.0

Reported EPS FD(HKD) 0.22 0.51 0.68 0.94 1.62

DB EPS FD (HKD) 0.16 0.38 0.68 0.94 1.62

DB EPS growth (%) 112.1 132.9 80.5 38.0 71.5

PER (x) 34.4 22.4 10.0 7.2 4.2

EV/EBITDA (x) 13.7 15.8 8.8 5.7 4.7

DPS (net) (HKD) 0.04 0.16 0.00 0.00 0.00Source: Deutsche Bank estimates, company data



Company Update

Buy Price at 18 Apr 2011 (HKD) 6.83Price target - 12mth (HKD) 10.9552-week range (HKD) 9.51 - 6.13HANG SENG INDEX 23,830


2

46

8

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12

14

4/09 7/09 10/09 1/10 4/10 7/10 10/10 1/11Poly HK

HANG SENG INDEX (Rebased)

Performance (%) 1m 3m 12mAbsolute 5.9 -13.9 -20.2HANG SENG INDEX 6.9 -1.3 9.0

Stock data

Market cap (HKDm) 24,646Market cap (USDm) 3,170Shares outstanding (m) 3,608.4Major shareholders China Poly Group (54.06%)Free float (%) 37Avg daily value traded (USDm) 9.6


ROE (%) 10.6Net debt/equity (%) 53.3Book value/share (HKD) 6.77Price/book (x) 1.0Net interest cover (x) 29.5Operating profit margin (%) 29.4

Parent advantage: more than just an asset injection We think investors have been paying too much attention to Poly HK’s growth through asset injections by its parent. In our view, the company now has a proven track record in increasing land bank more efficiently by using China Poly Group as an intermediary to negotiate lower land prices with different local governments. This model is more long-lasting and saves the time required to go through the asset injection process which potentially involves external funding needs.

Achievable sales target + high earnings visibility = potential re-rating Ambitious growth (80%) in the company’s 2011 contracted sales target is based on the strong foundation that it has built since its restructuring. In 2011, significant resources are available for pre-sale (c.3m sqm), including 15 new projects (vs. only 7 in 2010). Two-thirds of the projects are located in Tier 2/3 cities, where we believe healthy end-user demand should support sales. Given the strong unbooked sales and contracted sales achieved until end-March, we estimate over 70% of FY11 sales to be locked in, in line with other major developers.

Our target price is based on our estimated NAV of HKD13.68/share; risks Our HKD10.95 target price is based on a 20% discount to our estimated NAV of HKD13.68, which conservatively factors in a 0-20% decline in property prices vs. the end-2010 level and full payment of land appreciation tax (LAT). Stronger momentum in generating property sales and lower net gearing ratio suggest a lower valuation discount. Key event: asset injection by parent company. Risks: execution in earnings delivery and stronger-than-expected tightening in policies.



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Property Property

18 Apr 2011 - 10:36:54 AM HKT

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INDUSTRY ALERT Breaking NewsProperty Secondary market volume fell but primary volume picking up

Focus stocksSHK Properties Ltd(0016.HK),HKD125.30 Buy, PriceTarget HKD157.00

Sino Land Co (0083.HK),HKD14.06Buy, Price Target HKD19.84

Hang Lung Properties(0101.HK),HKD35.70 Buy, Price Tar‐get HKD41.87

With the latest increase in mortgage interest rates in Hong Kong and theincrease in new launches in the primary market, transaction volume in thesecondary market in Hong Kong has fallen quite remarkably during the pastweekend. According to Midland Realty, in the Top 10 housing estates in thesecondary market, there were only 23 transactions, down 42.5% week‐on‐week, and there were 3 housing estates (The Kornhill, Whampoa Garden,and Metrocity) recording zero transactions during the weekend.In addition, there were also more cases of price cuts in the secondary mar‐ket. For example, a 528sf unit at Metrocity in Tseung Kwan O was sold atHK$2.95mn after the seller lowered the asking price by 4%. The transactedprice was about 3% lower than prevailing market prices for the estate. Sep‐arately, a 1,970sf unit at Regal Garden in Shatin was sold at HK$10.8mnafter the seller cut the asking price by about 2%.On the other hand, the primary market fared better given more new launch‐es and more reasonable pricing by the developers. About 150‐160 unitswere over weekend, mainly from Yuen Long Uptown (80 units) and OneRegent Place (50 units). About 90% of the buyers were local users and 90%of the buyers chose cash payment plans.In our view, the decreases in asking prices in the secondary market were inthe share prices and property stocks like Sino Land, SHKP, Hang LungProperties are attractive at current valuations. The more reasonable pricingby the developers and the secondary market sellers should help attractmore homebuyers back to the market, and the potential recovery in salesvolume should present catalysts to share prices.

Tony TsangResearch Analyst(+852) 2203 [email protected]

Venant ChiangResearch Analyst(+852) 2203 [email protected]

Jason Ching, CFAResearch Analyst(+852) 2203 [email protected]



Asia ChinaIndustrials Manufacturing

18 Apr 2011 - 04:09:45 PM HKT

COMPANY ALERT Breaking News

Sun.King Hold

Announces acquisition of 56% stake in Jiujiang Rectifier

Reuters:0580.HK Exchange:HSI Ticker:0580

Price (HKD) 1.83


52-week range (HKD) 2.80 - 1.59




Book value/share (CNY) 0.79

Price/book (x) 1.9

FYE 12/31 2010A 2011E 2012E

Sales(CNYm)

428 757 957

Net Profit(CNYm)

37.6 105.5 155.1

DB EPS(CNY)

0.03 0.08 0.11

PER (x) 68.7 19.9 13.5

Yield (net)(%)

0.0 0.0 0.0

Sun.King to acquire a 56% stake in Jiujiang RectifierSun.King Power Electronics has announced plans to acquire a 56% stake inJiujiang Jiuzheng Rectifier from Rui Hua Ying Investment Holdings forRMB63.7m (~HK$75.8m) in cash. The acquisition effectively raisesSun.King's overall equity stake in Jiujiang Rectifier to 61%, making JiujiangRectifier a subsidiary of Sun.King. This move is complementary toSun.King's existing product portfolio as it already makes rectifier valves, andhighlights management's ongoing endeavour to expand the product port-folioSun.King to reap synergistic benefits in R&D and market share gainsJiujiang Rectifier is a top-tier manufacturer of electrical rectifier devices andlow voltage electrical appliances and components. The company has strongR&D capabilities with 9 patents in China. As such, Sun.King's managementexpects the acquisition to provide synergies in product development andmarket share gains. While we estimate the deal is accretive, the actualearnings contribution should be small.

Eugene YeohResearch Analyst(+852) 2203 [email protected]



Asia TaiwanResources Metals & Mining

19 Apr 2011 - 12:20:16 AM HKT


China Steel Hold

1Q unaudited result ahaead of consesus

Reuters:2002.TW Exchange:TAI Ticker:2002

Price (TWD) 34.85

Price target (TWD) 35.00

52-week range (TWD) 35.25 - 29.30




Book value/share (TWD) 20.45

Price/book (x) 1.7

FYE 12/31 2009A 2010E 2011E

Sales(TWDm)

165,409 237,302 262,263

Net Profit(TWDm)

19,602.5 37,309.1 36,903.1

DB EPS(TWD)

1.53 2.85 2.82

PER (x) 18.1 12.2 12.4

Yield (net)(%)

3.7 5.7 5.7

*China Steel has announced its March/1Q unaudited result. 1Q sales was3% below consensus and 6% below our forecast. However, 1Q gross prof-it, operating profit, and pre-tax profit were 9%, 27%, and 17% ahead ofconsensus respectively, while they were 20%, 22%, and 16% below ourforecast. We attribute the great miss of our forecast to lower-than-expectedshipment volume and higher-than expected unit cost due to unexpectedhigh freight for coal/ore and hiking alloy cost.*March result improved MoM significantly vs. Feb/Jan. March gross marginexpanded to 14.8% vs. 10-11% in Jan/Feb due to increased ASP yet flatunit cost. With the back-loaded investment income booked, March singlemonth pre-tax profit almost doubled vs. Jan/Feb.*We believe China Steel will be able to carry on this better gross margin inMarch into April and May, as it will see ASP hike greater enough to covercost hike. We're forecasting 14.2% gross margin for 2Q and we're slightlyahead of consensus (13.7%).*China Steel guided that it sees a greater chance for the raw materials pricesto be sustained going into 2H11, if not rise. We believe the steel price willget support under a cost hike scenario and along with the gradual demandrecovery. Steel mills should have a good opportunity to expand EBITDA pertonne/ margins and to improve profitability.*China Steel's P/B valuation of 1.6x is higher than regional peers' average1.1x. Meanwhile, we expect its EPS growth this year (-1.1%) will lag behindregional median 16%. We maintain our Hold rating for China Steel.

Source: Deutsche Bank, company data, Bloomberg Finance, LPJames KanResearch Analyst(+852) 2203 [email protected]

Yvonne TsaiResearch Analyst(+886) 2 2192 [email protected]



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Technology Semiconductor & Semicon‐ductor Equipment

18 Apr 2011 - 09:00:10 PM CST


Realtek Semiconductor Hold

Market expectations beyond reach

Reuters:2379.TW Exchange:TAI Ticker:2379

Price (TWD) 58.60

Price target (TWD) 55.00

52‐week range (TWD) 87.10 - 51.60




Book value/share (TWD) 35.34

Price/book (x) 1.7

FYE 12/31 2009A 2010E 2011E

Sales(TWDm)

20,272 22,271 24,601

Net Profit(TWDm)

2,094.6 1,670.6 2,065.3

DB EPS(TWD)

4.33 3.46 4.25

PER (x) 14.6 16.9 13.8

Yield (net)(%)

2.5 6.6 5.2

Event: Realtek share price rebounded by ~8% in the past three tradingdays. The Street may expect 1Q11 a departure from 2010 earnings weak‐ness with a positive spin into 2Q11.

DB's view: We expect YoY earnings momentum to remain weak into 2Q11and think Street's expectation on Realtek might have been too optimistic.Realtek's 1Q11 gross margin is likely to be impacted by continued pricecompetition as well as an unfavorable product mix shift toward lower‐mar‐gin wireless broadband products. As such, Realtek's 1Q11 bottom‐lineperformance may bear a brunt despite of generally good top‐line. Goingforward, we expect limited GM improvement in 2Q11, casting downside toStreet's optimistic earnings recovery expectation.According to unconfirmed reports, there has been bullish talk on Realtek'srevenue upside from a potential breakthrough of the WiDi (wireless display)technology. We found this unlikely after our checks with management. Ourchecks suggested that the WiDi technology is still premature as its speci‐fications are not finalized yet. We would thus suggest investors to stayconservative on Realtek in the near‐term. We are currently reviewing ourmodel. HOLD maintained.

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



Asia Technology

18 April 2011

Taiwan Tech Monitor The Japan effect

Kishore Suratkal Research Analyst (+852) 2203 6150 [email protected]

Lorraine Kuo Research Analyst (+852) 2203 5926 [email protected]

March aggregates roll higher There was a sharp acceleration seen in March sales growth yoy for Taiwan tech. While this may look positive for tech and could be interpreted as a sign of a recovery, the impact of the earthquake in Japan on bookings of components, capacity and pricing cannot be discounted. Heading into 2Q11, we have already seen a raft of downgrades across the sector. We prefer to track earnings revisions in tech and while we are in downgrade territory in Taiwan, we haven't seen capitulation. Hardware looks close, but we note semis are only just starting.


Industry Update

Top picks Hon Hai Precision (2317.TW),TWD105.00 BuyEpistar (2448.TW),TWD106.50 BuyPowertech (6239.TW),TWD93.80 BuySiliconware Precision (2325.TW),TWD34.25 BuySynnex Technology (2347.TW),TWD72.10 Hold

Companies featured

TSMC (2330.TW),TWD69.00 Buy2010A 2011E 2012E

P/E (x) 9.9 11.5 9.5EV/EBITDA (x) 6.1 6.1 4.9Price/book (x) 3.2 2.7 2.3Hon Hai Precision (2317.TW),TWD105.00 Buy

2009A 2010E 2011EP/E (x) 12.9 14.4 12.8EV/EBITDA (x) 6.8 6.5 5.7Price/book (x) 3.3 2.2 2.0Epistar (2448.TW),TWD106.50 Buy

2009A 2010E 2011EP/E (x) 34.3 16.1 16.7EV/EBITDA (x) 12.2 10.2 9.2Price/book (x) 2.6 1.9 1.8Synnex Technology (2347.TW),TWD72.10 Hold

2009A 2010E 2011EP/E (x) 17.1 18.8 15.2EV/EBITDA (x) 21.3 20.0 15.5Price/book (x) 3.3 3.2 3.0Powertech (6239.TW),TWD93.80 Buy

2010A 2011E 2012EP/E (x) 9.6 8.6 6.7EV/EBITDA (x) 4.7 3.6 2.9Price/book (x) 2.1 1.7 1.5MediaTek (2454.TW),TWD320.00 Sell

2009A 2010E 2011EP/E (x) 12.1 11.3 20.6EV/EBITDA (x) 8.8 7.4 12.6Price/book (x) 5.6 3.1 3.3HTC (2498.TW),TWD1,220.00 Hold


Taiwan Monthly Sales YoY

150

200

250

300

350

400

450

-40%

-20%

0%

20%

40%

60%

80%

100%

Mar-06

Jun-06

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Taiwan Tech Monthly Sales YoY TWSEELEC Index

Global Semiconductor Inventory

Inv Days Q1 Q2 Q3 Q42007 78.2 74.8 69 74.82008 81.6 84 79.1 832009 80.7 73.4 68.1 69.92010 72 77.9 78.1 83.6

Sources: Company data, Bloomberg Finance LP

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Taiwan tech revenue aggregates looking for higher ground In March, Taiwan tech monthly revenues on aggregate showed a semblance of recovery. Aggregate Taiwan tech monthly sales rose by 12% YoY in March 2011, increased from +3% YoY in January -3% YoY in February. This could be attributed to the fears of component shortages arising out of the earthquake in Japan and pricing increases seen in certain components.

Production optimism starting to fade As of 4Q10, inventory days for global semiconductor companies hit a near term record of 83.6 days and in all likelihood, given the weakness in the PC sector, aggregate inventory days would most likely see higher numbers in 1Q11. On the other hand, companies have started to tone down expectations for 2011. While we haven’t seen any indications of a major demand risk for handsets and tablets in 2011, the risk is production forecasts, which most likely exceed 130% of actual demand, should start to see reductions. We expect to see this risk hitting forecasts for 2Q11 Taiwan tech guidance. This will likely also force earnings revisions to head lower, dragging down the TWSEELEC index.

Semis should continue to underperform near term While the longer term case for foundries remains strong, despite potential risks of capacity expansion, from a near term strategy perspective we see risks to the next 1-2 quarters revenue expectations out of this sector. Earnings revisions are not supportive either ie expectations need to be brought down. As the front-end brings down forecasts, the OSAT sector is not immune as well. Given the relatively tighter capex cycle at the back-end, going into 2H11 we should expect to see OSAT companies outperform the front-end. This is after what we believe will be a disappointing 2Q11.

DRAM still remains the most surprising outlier, PC hardware getting close It would be a strange time in tech when DRAM pricing improves in what turned out to be a weak PC cycle. Supply tightness as capex growth in memory slowed, as well as migration into mobile DRAM and NAND, apart from aggressive inventory management by large module makers was the most likely reason. We are still seeing a stable pricing environment for DRAM in the near term, and in our view as Sandybridge based notebooks start making it into production and shelf offerings, we see additional support for DRAM prices in 2Q11.

The good and the bad We note stocks with significant positive yoy sales momentum in March are Quanta, HonHai, Simplo, CMI and Epistar. On the flip side significantly slower momentum was seen at KYEC, Richtek, Nanya PCB, HTC and Wintek.



Asia ASEAN MalaysiaBanking/Finance Banks

18 Apr 2011 - 07:04:42 AM GMT

COMPANY ALERT Results

Public Bank Hold

1Q11 in line; solid result but fairly priced

Reuters:PUBMe.KL Exchange:KLS Ticker:PUBMe

Price (MYR) 13.10

Price target (MYR) 13.50

52-week range (MYR) 13.56 - 11.30


Shares outstanding (m) 3,532

NPL/total loans (%) 1.0

Price/book (x) 3.2

FYE 12/31 2010A 2011E 2012E

Provisioning(MYRm)

664.8 742.1 821.7

Pre-provprofit(MYRm)

4,738 5,256 5,822

EPS (MYR) 0.87 0.95 1.05

PER (x) 13.9 13.8 12.5

Yield (net)(%)

3.6 3.4 3.8

NPAT broadly in line, no change to our forecasts1Q11 profit of RM828m was down 2% QoQ and 2% below DBe. Revenuesfell 1% QoQ while expenses increased 2% leaving pre-provision profitdown 3% QoQ. Asset quality remains very good (impaired ratio 1%) andcredit costs were flat QoQ leaving net profit down 2%. With the resultbroadly in line, our 2011e net profit of RM3.4bn is unchanged and in linewith consensus. Given fair valuation we maintain a Hold rating.Rate rises could provide NIM relief in 2H11Net interest income was flat 1Q11 despite 3% QoQ loan growth. While theestimated NIM was +1bps QoQ to 2.22%, underlying margins are not dis-closed and Public Bank indicated a NIM decline due to competitive pres-sures and rising funding costs. Recent pricing trends in the mortgagemarket suggest competitive pressures will continue to impact upcomingresults, but with DB economists now expecting 75bps OPR increases byyear-end we suspect 2H11 will see NIMs well supported.Basel III uncertainty not yet resolvedAlthough management indicated comfort on Basel III we note the rules havenot yet been finalised. The key uncertainty remains the systemic risk chargeand we continue to await Bank Negara's directions in this respect. But in-dustry feedback suggests some form of systemic risk charge will be put inplace for the Malaysian banks. While we don't anticipate Public Bank willneed to raise equity anytime soon we think such an outcome cannot beruled out in the medium term. In our view this would imply a lower sustain-able ROE than is currently reflected in market expectations.

1Q11 result summary

Source: Deutsche Bank, Company data

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



Asia ASEAN Singapore Property Property

18 April 2011

Ascendas Real Estate Reuters: AEMN.SI Bloomberg: AREIT SP Exchange: SES Ticker: AEMN

Muted 4Q; growth outlook more promising Gregory Lui, CFA Strategist (+65) 6423 5958 [email protected]

Elaine Khoo, CFA Research Analyst (+65) 6423 6435 [email protected]

4Q results below DB and consensus forecast but growth picking up AREIT’s FY11 results were slightly below DB on higher operating and interest expenses. However, organic growth trends continue to improve with occupancy rates recovering and rents firming. The recent pick-up in acquisitions, resumption in build-to-suit projects and ongoing AEIs should help support a faster growth profile after having lagged peers last year. AREIT is also well positioned for further acquisitions given its solid balance sheet post-equity raising. Maintain Buy.



Sales (SGDm) 413.7 447.6 478.9 515.2 535.1

Reported NPAT (SGDm) 148.0 585.0 268.9 293.2 303.1

Reported EPS FD(SGD) 0.08 0.31 0.13 0.14 0.14

PER (x) 22.1 6.5 15.3 14.1 13.6

DPU (SGD) 0.13 0.13 0.13 0.14 0.15

Yield (%) 7.5 6.5 6.7 7.3 7.5Source: Deutsche Bank estimates, company data



Results

Buy Price at 18 Apr 2011 (SGD) 1.97Price target - 12mth (SGD) 2.2852-week range (SGD) 2.29 - 1.82Straits Times Index 3,153

Key changes

Sales(FYE) 476 to 479 0.6%Op prof margin (FYE) 69.8 to 69.8 -0.1%Net profit(FYE) 269.9 to 268.9 -0.4%

Price/price relative Performance (%) 1m 3m 12mAbsolute 4.2 -8.4 -1.0Straits Times Index 7.4 -3.0 4.9

Stock data

Market cap (SGDm) 4,105Market cap (USDm) 3,300Shares outstanding (m) 2,083.1Major shareholders Ascendas (20.6%)Free float (%) 65Avg daily value traded (USDm) 8.6


ROE (%) 7.7Net debt/equity (%) 52.7Book value/share (SGD) 1.77Price/book (x) 1.1Net interest cover (x) 5.1Operating profit margin (%) 69.8

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4QFY 11 DPU of 3.27 cts (+20% YoY,-1% QoQ); FY11 DPU of 13.23cts (+1%) 4Q revenue rose 8.7% YoY on the completion of new acquisitions and development driving a 9.5% and 20% increase in NPI and DPU respectively. For FY11, DPU growth was relatively flat, dampened by higher operating expenses (expiry of property and land rent rebates and higher utilities cost) and performance fee payable. Underlying trends continue to improve; occupancy rate for MTBs rose from 91.1% to 92.1% (overall portfolio at 96%) with positive rental reversions (2.1%-6.7%) across most segments. New take-up rates have also improved (+0.6%-19% QoQ) with total new leases growing 46% YoY. AREIT has committed S$376m of investments during the year which should help enhance its growth profile. A year-end revaluation was conducted, resulting in a S$345m gain.

Fine-tuning DPU forecasts; potential upside from acquisitions Our DPU forecasts are broadly unchanged; we forecast FY12e DPU of 13.2cts (-0.4% YoY),, dampened by the dilution from the recent EFR and staggered timing of income contribution from the various initiatives. 14.4% of property income is due for renewal this year and we expect slightly positive rental reversions. With its strengthened balance sheet post fund raising (gearing of 31.1%), it has debt capacity to fund an additional S$0.8bn of acquisitions before breaching 40%. Mgmt is seeing a more active deal pipeline this year and has submitted bids for the two tranches of industrial properties being divested by JTC (c.S$0.6bn in size).

Maintain Buy with DDM-pegged TP of S$2.28 (CoE of 7.25%; 1% tgr); risks AREIT is trading at 1.12x P/B (vs LT avg of 1.32x) and offering FY11 and FY12e yield of 6.7% implying a 427bps spread over the 10-year bond. Risks: sharp slowdown in growth affecting leasing demand, credit risk from tenants on long sale and leaseback, deterioration in credit markets and acquisition risk and AREIT seeks opportunities in Singapore and China.



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Energy Chemicals

18 Apr 2011 - 12:52:57 PM IST

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United Phosphorus Ltd Buy

Syngenta reports improving price environment

Reuters:UNPO.BO Exchange:BSE Ticker:UNPO

Price (INR) 153.00

Price target (INR) 210.00

52-week range (INR) 216.15 -126.55




Book value/share (INR) 84.84

Price/book (x) 1.8

FYE 3/31 2010A 2011E 2012E

Sales (INRm) 54,602 57,397 65,011

Net Profit(INRm)

5,297.2 5,962.2 7,939.6

DB EPS(INR)

12.03 12.89 17.17

PER (x) 12.8 11.9 8.9

Yield (net)(%)

0.9 1.0 1.3

Trends for Syngenta are relevant for UNTP: Syngenta's revenue profileis - Crop Protection (CP, 70%) and Seeds (30%). Geographical breakup forCP is - Europe & Africa (40%), North America (25%), Asia Pac (18%) andLatam (17%). For UNTP, 100% revenues are from CP and 4Q10 were splitas Europe (25%), North America (26%) and RoW (including India, 49%). Wehave tried to address for the sharp volatility in prices of glyphosate - a keyproduct for Syngenta, but not for UNTP - by excluding it from price variance.We believe that the historical trends in revenues (volumes and price, asseen in the table below) for the 2 companies seem broadly comparabledespite differences in product-mix (UNTP is a generic company unlike Syn-genta) and market-mix. A key divergence for Syngenta's sharp volumecontraction from Apr'09 (Q1'10) was its deliberate reduction in sales vol-umes in emerging markets to reduce risk levels, leading to higher growth ayear later.

Key takeaways from Syngenta's 1Q sales numbers: (a) Only 3 of past 13quarters recorded volume declines and these were largely driven by poorweather in FY10. (b) Continual positive volume momentum from Apr'10 (c)Deceleration in price declines to 3% (from 10% in Apr-Jun'10) was mainlyin North America and on the high base of Jan-Mar'10. It raised prices by <10% in the end of CY10. It states that competitors, including generics, havealso been raising prices. Thus, the negative impact on revenues sinceApr'09 - first by volumes and then by prices - now seems to be getting over.

Should help drive leverage for UNTP as UNTP records high EBITDAmargins in quarters of strong revenues. With both CP volumes and pricesturning positive, we remain positive on the near-term outlook of UNTP.

Improving outlook for Syngenta to drive leverage for UNTP

Source: Company, DB; # excludes Glyphosate

Abhay ShanbhagResearch Analyst(+91) 22 6658 [email protected]

Mayank KankariaResearch Associate(+91) 22 6658 [email protected]



Asia ASEAN IndonesiaConglomerates

18 Apr 2011 - 02:51:48 AM GMT

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Astra Int'l Buy

Bracing for the impact from Japan's catastrophe

Reuters:ASII.JK Exchange:JKT Ticker:ASII

Price (IDR) 55,100

Price target (IDR) 79,000

52-week range (IDR) 60,000.00 -36,400.00




Book value/share (IDR) 15,151

Price/book (x) 3.64

FYE 12/31 2010A 2011E 2012E

Sales(IDRbn)

129,991 149,672 166,577

Net Profit(IDRbn)

14,366.0 17,035.3 19,732.2

DB EPS(IDR)

3,549 4,208 4,874

PER (x) 13.2 13.1 11.3

Yield (net)(%)

2.7 1.8 2.3

Some 20-25% production loss due to component shortfallJapanese automotive makers have started to feel the impact from compo-nent shortfall following Japan's catastrophe. Daihatsu and Toyota, whichsold 32,275 units and 10,186 units in March, expect to lose 20-25% of theirproduction output in April. There are no details as to when these componentsupplies will normalize. Nevertheless, this production cut is not the sameacross all Japanese producers such as Suzuki that claims it could maintainits April production output given its plants are far away from the earthquakeepicenter and component replacement.Maintain Buy rating with TP of Rp79,000We expect above production loss at Daihatsu and Toyota presents head-wind to Astra's share price following lower sales volumes and market share.Assuming the industry monthly sales volumes in April-December 2011 tofall by 20% from March sales of c. 82k units, we estimate the 4-wheelersales in 2011 to reach 769k units (vs. 2010: 765k units; DB 2011: 863k units).Based on our sensitivity, every 10% decline in our 4-wheeler sales assump-tions would result in a 2% decline in Astra's consolidated net earnings.Overall, we still maintain our Buy rating on the stock despite above head-wind as we expect it would be temporary awaiting normalization in com-ponent supplies. We believe automotive demand remains strong supportedby abundant affordable automotive financing, and poor infrastructure andexpensive public transportation.

Rachman KoeswantoPT Deutsche Bank Verdhana In-donesiaResearch Analyst(+62) 21 318 [email protected]



Asia ASEAN IndonesiaBanking/Finance

18 Apr 2011 - 02:29:29 PM GMT

INDUSTRY ALERT Industry UpdateBanking/Finance DB Indo Banking : Off to strong profits in 2011

Focus stocksBCA (BBCA.JK),IDR7,400.00 Buy,Price Target IDR7,675.00

BNI (BBNI.JK),IDR4,000.00 Buy,Price Target IDR5,000.00

BRI (BBRI.JK),IDR6,250.00 Buy,Price Target IDR7,900.00

Bank Mandiri(BMRI.JK),IDR6,700.00 Buy, PriceTarget IDR8,000.00

Collectively, major Indonesian banks in our universe are off with strongprofits in 2011. Combined Jan-11 net profit reached Rp3.4tr (+34%yoy) or8% of our FY11 projections. These are better than rest of the sector's re-sults. Refer to table below for details.BCA stands out. Its Jan-11 NP reached Rp960bn (+55% yoy) or 10% of ourFY11 NP of Rp9.5tr. In addition to strong operating results, we believe thisis largely due to lower charges related to loan impairments of Rp22bn (vsJan-10 of Rp191bn). Having said this, the bank may choose to allocate high-er provision charges to beef up its dynamic reserves.Mandiri had a Jan-11 NP of Rp881bn (+39% yoy) or 8% of our FY11 NP ofRp10.7tr. The strong trend continued into YTD-Feb-11 with NP of Rp2.8tr -the strong MoM jump reflected gain from Garuda loans, which should offsetlower yields for the bank's VR govt bonds.BRI also had strong Jan-11 NP of Rp910bn (+38% yoy - largely due to ac-counting changes). Indicative provision charges for Jan-11 is coming downsuggesting lower credit costs (as % of loans). Taking into account the sea-sonality, the bank should be on track to deliver 1Q11 NP of Rp3tr.BNI reported Jan-11 NP of Rp360bn (-4% yoy) largely due to higher provi-sion charges of Rp681bn (vs Jan-10's Rp237bn). This may relate to frontloading write-offs for medium segment loans in 1H11. We expect the bank'searnings growth would become more visible in 2H11.Danamon had a strong Jan-11 results with NP of Rp282bn (+15% yoy). Thistracked our FY11 NP of Rp3.3tr.Maintain O/W Indo banking sector BBNI/BMRI/BBRI/BBCA as top picks.

Off to strong start in 2011

Source: Deutsche Bank and BIRaymond Kosasih, CFAPT Deutsche Bank Verdhana In-donesiaResearch Analyst(+62) 21 318 [email protected]

Arinta HarsonoPT Deutsche Bank Verdhana In-donesiaResearch Analyst(+62) 21 318 [email protected]



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Health Care Pharmaceuticals/Biotechnolo‐gy

18 Apr 2011 - 09:41:31 AM GMT


Kalbe Farma Hold

Proposing record dividend payout ratio of 50%

Reuters:KLBF.JK Exchange:JKT Ticker:KLBF

Price (IDR) 3,675


52‐week range (IDR) 3,775.00 -1,680.00




Book value/share (IDR) 552

Price/book (x) 6.65

FYE 12/31 2009A 2010E 2011E

Sales(IDRbn)

9,087 10,130 11,240

Net Profit(IDRbn)

929.0 1,214.7 1,416.3

DB EPS(IDR)

105 134 152

PER (x) 9.3 27.5 24.2

Yield (net)(%)

1.3 0.7 0.9

Management is planning to propose a 50% dividend payout ratio on 2010profits or equivalent to Rp68.5/sh (1.8% yield) during its AGM tentativelyscheduled in May. This is the highest payout ratio in KLBF's history and issignificantly higher than the Rp25/sh dividend paid out on 2009 profit (26%payout ratio) and Rp12.5/sh paid out on 2008 profit (17% payout ratio). Go‐ing forward management aims to continue to increase the dividend payoutratio as long as free cash flow generation remains strong. In 2010, KalbeFarma delievered a 35% surge in free cash flow to Rp1tr, largely reflectinglower capex in the absence of acquisitions. We project FCF to increasefurther to Rp1.1tr in 2011F driven by higher sales. However, we maintainour Hold on KLBF as it is the second most expensive consumer stock underour coverage trading at 24.2x PER FY11F.

Reggy Susanto, CFAPT Deutsche Bank Verdhana In‐donesiaResearch Analyst(+62) 21 318 [email protected]



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Telecommunications

18 Apr 2011 - 08:23:45 AM GMT

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Telkom Buy

Rising cashflows

Reuters:TLKM.JK Exchange:JKT Ticker:TLKM

Price (IDR) 7,250


52-week range (IDR) 9,800.00 -6,600.00




Book value/share (IDR) 2,876

Price/book (x) 2.52

FYE 12/31 2010A 2011E 2012E

Sales(IDRbn)

68,629 71,221 77,485

Net Profit(IDRbn)

11,086.5 12,332.8 13,368.9

DB EPS(IDR)

560 623 677

PER (x) 15.0 11.6 10.7

Yield (net)(%)

3.4 4.0 4.3

Telkom had not had good results in 2010, which led to 4% and 6% reduc-tions in our earnings projections for 2011F and 2012F to Rp12.3tr andRp13.4tr respectively - refer to table below for further details of the earningschanges. Our revised target price is now Rp8,800.However, in 2010, TLKM delivered a 36% surge in FCF to Rp9.4tr, largelyreflecting declining capex to Rp15tr in 2010 (from Rp20.5tr in 2009). Webelieve FCF should further improve in 2011F driven by declining in costsassociated with spectrum fees (as have been seen in 4Q10) and moderatingcapex. Changes in 2G spectrum fee charges would mean much more mod-erating growth trend in operations and maintenance costs. In 4Q10, Tselbooked a operation and maintenance costs as % of sales of 18% (downfrom a high of 23%). This year, Telkom guides a capex of Rp15-17tr, but islooking to keep capex at max Rp15tr. Based on these, we project FCF torise to Rp10tr in 2011 and Rp16tr in 2012F.Going forward, with its approximately 16,000 shareable towers, TLKM isproactively pursuing tower leasing businesses. In 2010, it has added 733new tenants, with 2,000 more coming in 2011.At 11.8x 11F earnings and 4.0% 11F dividend yield, the stock offers limiteddownside.

Source: Deutsche Bank

Raymond Kosasih, CFAPT Deutsche Bank Verdhana In-donesiaResearch Analyst(+62) 21 318 [email protected]

William BrattonResearch Analyst(+852) 2203 [email protected]



Japan

Automobiles Autos

18 April 2011

Japan Truck Sector

Initiating coverage of Isuzu and

Hino with Buy Takeshi Kitaura Research Associate

(+81) 3 5156-6738

[email protected]

Kurt Sanger, CFA Research Analyst

(+81) 3 5156-6692

[email protected]

Our preferred name is Isuzu on fundamentals and valuation We rate the Japan Truck sector Overweight. We initiate coverage of Isuzu with a Buy rating and TP of ¥450, and Hino with a Buy rating and TP of ¥500. Both Isuzu and Hino have high exposure to demand growth in emerging markets and we think both are capable of capitalizing on emerging market growth opportunities once current supply chain issues are resolved. Our preferred name is Isuzu based on higher margins; Isuzu’s FY3/13e OPM is high at 6.5% compared to Hino at 3.2%. Our TPs for Isuzu and Hino suggest upside of 42% and 31%, respectively.

Deutsche Securities Inc.

Coverage Change

Top picks

Isuzu Motors (7202.T),¥317 Buy

Companies featured

Isuzu Motors (7202.T),¥317 Buy

Hino Motors (7205.T),¥382 Buy

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Expect a sharp recovery in FY3/13 We expect a sharp recovery in FY3/13, though in the short term truck makers should struggle with issues regarding supply chains and energy constraints after the Tohoku Pacific earthquake. The state of the supply chain continues to lack absolute clarity but truck makers have already restarted some production to resume business (although at low utilization rates), and forecast a scenario where production normalizes by 2H FY3/12. As bottlenecks are resolved, we see Isuzu and Hino’s OP in FY3/13 up 88% and 216%YoY, respectively, with continued stable demand growth in emerging markets and sufficient affordable financing.

Isuzu – Highly geared to overseas growth, with a renewed balance sheet Isuzu has high exposure to commercial vehicle (CV) demand growth in emerging markets with its most important single market being Thailand. The company has diverse businesses in Asia and Other regions and gains over 70% of its profits in overseas related businesses, on our estimates. While historically there have been concerns over Isuzu’s balance sheet, it has improved over the past 10 years as evidenced in the equity ratio improving from 2.6% in FY3/03 to 30% in FY3/11e. We expect the company to continue to reduce total debt through further cash generation, from ¥308bn in FY3/10 to ¥239bn by FY3/13.

Hino – Increasing exposure to overseas markets while realigning production Hino is also a Japan-based truck maker with high exposure to overseas CV markets. We estimate 60-70% of profits to be from overseas businesses, mainly Asia. Its two core markets in Asia are Indonesia and Thailand where for the latter Hino also supplies Toyota chassis parts for the IMV (Innovative International Multipurpose Vehicle) project. The company has a stable position within the group and gains from its parent’s strong balance sheet. As Hino makes efforts to realign its domestic production plant to enable further growth abroad, we forecast the proportion of Toyota-related business to gradually decline.

Valuation/Risk We set our target prices on FY3/13e PER 12x. Our base year is in line with our global team while our target multiple is in line with FY3/13e TOPIX PER. We detail our valuation methodology for both companies on page 8 of the report as well as in individual company sections (Isuzu p. 42, Hino p. 59). Sector risks include longer-than-expected impact from supply constraints in Japan, slower-than-anticipated growth in commercial vehicle demand, and worse-than-expected availability of affordable financing in core emerging markets. Changes in government policies can also affect the sector negatively. (Please see company-specific risks on p. 12.)



Japan Automobiles Auto Parts & Tires

18 April 2011

Keihin Reuters: 7251.T Bloomberg: 7251 JT Exchange: TYO Ticker: 7251

Recovery in sight for auto parts production

Takashi Moriwaki, CMA Research Analyst (+81) 3 5156-6314 [email protected]

Reaffirm Buy rating; TP now ¥2,200 (previously ¥2,400) We lower our FY3/12 and FY3/13 forecasts for Keihin in view of a decline auto production following the recent quake. Although we expect production to remain depressed through 1H FY3/12, we look for a return to normalcy from 2H and leave our FY3/13 forecasts unchanged. We also expect FY3/13 ROE to reach 13% thanks to growing emerging-market demand for motorcycle parts. Presently, the shares are trading at just 0.9x the end-December 2010 BPS, well below our ¥2,200 target price, and so we reaffirm our Buy rating.


Year End Mar 31 2010A 2011E 2011CoE 2012E 2013E

Sales (¥bn) 255.9 276.0 279.2 251.4 317.0

YoY (%) -11.2 7.8 9.1 -8.9 26.1

Operating profit (¥bn) 13.7 21.0 21.2 12.3 30.9

YoY (%) 18.2 53.1 54.6 -41.4 151.2

Recurring profit (¥bn) 15.4 21.0 21.0 13.0 31.8

Net profit (¥bn) 7.6 13.1 12.1 6.0 18.0

EPS (¥) 103 177 164 81 243

P/E (x) 13.4 8.5 9.2 18.7 6.2

EV/EBITDA (x) 2.3 1.8 – 2.1 1.0

CFPS (¥) 313 366 – 277 446

P/CFPS (x) 4.4 4.1 – 5.5 3.4Source: Deutsche Securities Inc. estimates, company data

Forecast Change

Buy Price at 15 Apr 2011 (¥) 1,513Price target - 12mth (¥) 2,20052-week range (¥) 1,980 - 1,251

Key changes

Target price (¥) 2,400 to 2,200 -8.3%EPS (¥) 203 to 177 -12.7%OP (¥bn) 23.5 to 21.0 -10.6%RP (¥bn) 23.5 to 21.0 -10.6%


1000

1200

1400

1600

1800

2000

4/09 10/09 4/10 10/10

Keihin TOPIX (Rebased)

Performance (%) 1m 3m 12mAbsolute 20.9 -22.4 -14.2TOPIX 9.7 -9.6 -15.8

Stock data

Market cap (¥bn) 112Shares outstanding (m) 74Foreign shareholding ratio (%) 20.5TOPIX 841


ROE (%) 10.9BPS (¥) 1,662P/B (x) 0.9EPS growth (%) 71.6Dividend yield (%) 1.7

FY3/11: Substantial losses on fixed-asset disposal unlikely We now expect FY3/11 OP of ¥21.0bn, up 53% YoY. We lower our sales and OP forecasts by ¥5.5bn and ¥2.5bn respectively since domestic production has idled due to the quake. For 4Q, we expect sales of ¥62.8bn (-12% YoY), and OP of ¥2.1bn (-59%). Though Keihin’s main domestic factories are in Miyagi Prefecture, its buildings only had modest quake damage and equipment merely toppled over or shifted position. We thus anticipate no major losses on fixed-asset disposal. Lowering our FY3/12 forecasts: Motorcycle parts could buoy earnings For FY3/12, we now forecast sales of ¥251.4bn (-9% YoY) and OP of ¥12.3bn (-41%). Our sales estimate is 16% lower and our OP estimate 56% lower than our previous estimate. We expect the decline in auto production to have an especially large impact on Japanese and North American operations and think both regions could see operating losses in 1H FY3/12 (Figure 1). Separately, while Asia ex-Japan could also see a decline in auto production owing to a shortage of parts imports from Japan, motorcycle parts were unaffected by the quake and could buoy earnings amid growth in the Indian and Indonesian markets. We leave our FY3/13 forecasts unchanged on expectations for auto production to return to normal. We expect record profits in FY3/13 and look for ROE to reach 13%. Valuation and risk We assign a ¥2,200 TP. Our TP is 9x our FY3/13 EPS forecast, referencing the average P/E of leading Japanese auto parts makers (11x based on our forecast and FY3/12 IFIS consensus) and Keihin’s competitive environment. We previously used a P/E of 11x our FY3/12 forecast but now use a lower multiple to reflect uncertainty caused by shifting the base year forward. Key risks: 1) delays before production returns to normal at key customer Honda Motor; 2) customer demands for price cuts; and 3) a contraction in the motorcycle market in emerging markets.




Appendix 1 Important Disclosures

Additional information available upon request

For disclosures pertaining to recommendations or estimates made on a security mentioned in this report, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr.

Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Ching-Li Teo

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:

Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12-month period Sell: Expected total return (including dividends) of -10% or worse over a 12-month period

7%

33%

60%

11%11%13%

0

100

200

300

400

500

Buy Hold Sell

Asia-Pacific Universe

Companies Covered Cos. w/ Banking Relationship


http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr



Regulatory Disclosures

1. Important Additional Conflict Disclosures

Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.

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Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at http://gm.db.com.

3. Country-Specific Disclosures

Australia: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. Brazil: The views expressed above accurately reflect personal views of the authors about the subject company(ies) and its(their) securities, including in relation to Deutsche Bank. The compensation of the equity research analyst(s) is indirectly affected by revenues deriving from the business and financial transactions of Deutsche Bank. EU countries: Disclosures relating to our obligations under MiFiD can be found at http://globalmarkets.db.com/riskdisclosures. Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc. Registration number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA, The Financial Futures Association of Japan. Commissions and risks involved in stock transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying the transaction amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a result of share price fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming from foreign exchange fluctuations. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are not registered credit rating agencies in Japan unless “Japan” is specifically designated in the name of the entity . New Zealand: This research is not intended for, and should not be given to, "members of the public" within the meaning of the New Zealand Securities Market Act 1988. Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any appraisal or evaluation activity requiring a license in the Russian Federation.

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International locations

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