Investment Daily Contents Top Calls

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Citigroup Global Markets

Top Calls

IRB Infrastructure Developers (IRBI.BO) — Initiate at Sell: Strong

Macro + Pure Play = Perfectly Priced

Target price Rs278 — We use a sum-of-the-parts methodology to value IRB: 1) BOT assets are valued at Rs164 on a discounted FCFE basis; 2) The EPC business is valued at Rs84 (11x Dec 2011E P/E), a 25-30% discount to its E&C peers given the captive nature of its order book; 3) Other investments and cash on books are valued at Rs13 (book value); 4) Probability adjusted value of future projects is at Rs17, based on our market-share estimates in the projects awarded. p3 Deepal Delivala Fun with Flows — A Broad-based Recovery of Inflows to EM Equity

Funds

Investors still prefer emerging to developed markets — As per EPFR, net cash taken in by all emerging market equity funds rocketed to US$3.1b in the week ended last Wednesday vs. US$783m/week on average in the prior two weeks. This contrasts the continuous redemptions from Global equity funds as well as Japan funds. That said, outflows from the former have died gradually from US$3.2b at peak in the 2nd quarter to just US$26m last week. p4 Elaine Chu China Vanadium Titano-Magnetite Mining (0893.HK) — Management

Call Highlights Value Gap, Core DCF at HK$3.5/s

What’s new? – We held a call with the Chairman Jiang, CFO Hong and CIO Yu this morning, to provide us with the latest insights into the business performance and Sichuan market and update us on business developments. p5Thomas P Wrigglesworth

Asia Pacific

Investment Daily

19 July 2010 28 pages

Contents

Companies in this issue: page Ascendas REIT (AEMN.SI) 12 Bursa Malaysia (BMYS.KL) 13 CapitaCommercial Trust (CACT.SI) 14 Chicony Electronics (2385.TW) 15 China Steel (2002.TW) 16 China Vanadium Titano-Magnetite Mining (0893.HK)

5

Daelim Industrial (000210.KS) 18 Hong Leong Bank (HLBB.KL) 19 IRB Infrastructure Developers (IRBI.BO) 3 MobileOne (MONE.SI) 20 NetEase.com (NTES) 21 Samsung C&T (000830.KS) 22 Samsung Life (032830.KS) 23 Tenaga Nasional (TENA.KL) 24 Xingda International Holdings (1899.HK) 25

Other topics: Citi Global Quant Research Digest 6 Commodities/Currencies Dislocation 17 Fun with Flows 4 India Iron Ore Industry 7 Korea Memory Beat 8 Korea Non-life Insurance 9 Malaysia Macro Flash 10 Taiwan Financials 11

See Appendix A-1 for Analyst Certification, Important Disclosures and non-US research analyst disclosures.

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Daily Earnings Changes Report - AsiaCompany Changes 16-Jul-2010

Global Data ServicesCindy Chu, CFA(+852-2501-2487)

[email protected]

EPS P/E Rating/ Target Last ETR 2011 Market2010 2011 2012 2010 2011 2012 Risk Price Price Div Yield Cap (M)

Bursa Malaysia MYRBURSA MK - New 0.23 0.25 0.27 30.7 28.4 26.5 2L MYR 7.25 MYR 7.02 6.3% 3.2% MYR 3,730 - Old 0.24 0.25 0.27 29.8 27.6 26.2 2L MYR 7.55 USD 1,164 - Change -2.9% -2.6% -0.9% 3.0% 2.7% 0.9%Chicony TWD2385 TT - New 6.14 7.15 7.65 11.8 10.1 9.4 1M TWD 88.00 TWD 72.20 27.2% 6.3% TWD 44,824 - Old 6.58 7.64 na 11.0 9.5 na 1M TWD 93.33 USD 1,395 - Change -6.7% -6.4% 7.2% 6.8%IRB Infrastructure Devel INRIRB IN - New 11.60 14.53 15.32 23.9 19.1 18.1 3M INR 278.00 INR 277.10 0.3% 0.0% INR 92,098 - Old na na na na na na na USD 1,971 - ChangeMobileOne SGDM1 SP - New 0.18 0.19 0.21 12.2 11.6 10.4 1L SGD 2.50 SGD 2.17 21.2% 6.9% SGD 1,949 - Old 0.17 0.17 0.16 13.1 13.0 13.2 1L SGD 2.50 USD 1,416 - Change 7.9% 12.5% 27.2% -7.3% -11.1% -21.4%

end

dataCentral is Citi Investment Research & Analysis's proprietary database that includes Citi Investment Research & Analysis estimates, data from company reports, and feeds from Reuters and Datastream.

Covered by Fiona Leong +60-3-2383-2942 (Note: Last Actual FY 2009)

Company / Bloomberg Ticker

Explanation

Trimming our target price as we slightly reduce our earnings estimates based on our reduced ADV assumptons.

Target price unchanged but estimates revised post 2Q results.

Covered by Ravi Sarathy +852-2501-2773 (Note: Last Actual FY 2009)

Reducing our target price and earnings estimates to factor in more conservative revenue/margin forecast for 2H

Covered by Eve Jung +852-2501-2783 +886-2-8726-9098 (Note: Last Actual FY 2009)Initiating coverage: IRB is one of very few listed pure plays on roads in India and hence attracts a scarcity premium, limiting upside from current levels. IRB is trading at an average P/E of ~19x FY11E, in line with mid-cap E&C peers but at a 31% premium to its global peers.

Covered by Deepal Delivala +91-22-6631-9857 (Note: Last Actual FY 2009)

Investment Daily — 19 July 2010

Citigroup Global Markets 3

IRB Infrastructure Developers (IRBI.BO)

Initiate at Sell: Strong Macro + Pure Play = Perfectly Priced

Deepal Delivala +91-22-6631-9857 [email protected]

Sell/Medium Risk 3M Price (15 Jul 10) Rs274.05 Target price Rs278.00 Expected share price return 1.4% Expected dividend yield 0.0% Expected total return 1.4%Market Cap Rs91,084M US$1,949M

2009 2010E 2011E EPS new(Rs) 5.29 11.60 14.53 EPS Old(Rs) na na na EPS Growth 54.4 119.2 25.3 P/E 51.8 23.6 18.9 EV/EBITDA 24.7 14.4 10.6 Consensus Data na na 14.41

Price Performance (RIC: IRBI.BO, BB: IRB IN)

Target price Rs278 — We use a sum-of-the-parts methodology to value IRB: 1)

BOT assets are valued at Rs164 on a discounted FCFE basis; 2) The EPC business is valued at Rs84 (11x Dec 2011E P/E), a 25-30% discount to its E&C peers given the captive nature of its order book; 3) Other investments and cash on books are valued at Rs13 (book value); 4) Probability adjusted value of future projects is at Rs17, based on our market-share estimates in the projects awarded.

Pure play on roads, making it expensive — IRB is one of very few listed pure plays on roads in India and the scarcity premium it has already attracted would likely limit its upside potential. IRB is trading at an average P/E of ~19x FY11E, in line with mid-cap E&C peers but at a 31% premium to its global peers. We might get constructive on the stock at lower levels or better than expected order wins.

Leading player, looks well positioned to benefit from strong macro tailwinds… —

NHAI intends to award 12,000km of road contracts in FY11 (~4x the FY10 level). IRB has a portfolio of 16 road assets covering ~1,250km. It has a market share of 7% in GQ projects and ~12% in NHAI FY10 project awards. While we do not expect IRB to maintain its current market share in future projects given larger rollouts, it looks well positioned to win a reasonable share of projects based on its technical qualification and net worth. IRB recently tied up with Reliance Infra to bid for the US$1bn Kishangarh-Udaipur-Ahmedabad highway.

PAT CAGR estimated at 15% over the next 2 years — 1) A revenue CAGR of 46% over the next 2 years due to project ramp-ups; 2) An EBITDA margin decline of 745bp due to a higher percentage of lower-margin EPC revenues. In its FY10 investor meeting, management indicated that another Rs60-80bn-worth of projects can be funded without resorting to dilution. Our sense is that if the order flow is strong and faster than expected, there could be dilution.

https://www.citigroupgeo.com/pdf/SAP38175.pdf�



Fun with Flows

A Broad-based Recovery of Inflows to EM Equity Funds

Elaine Chu +852-2501-2768 [email protected]

Investors still prefer emerging to developed markets — As per EPFR, net cash taken

in by all emerging market equity funds rocketed to US$3.1b in the week ended last Wednesday vs. US$783m/week on average in the prior two weeks. This contrasts the continuous redemptions from Global equity funds as well as Japan funds. That said, outflows from the former have died gradually from US$3.2b at peak in the 2nd quarter to just US$26m last week.

Inflows were widespread — US$3.1b of inflows to EM funds were not only the biggest recorded since mid-April but also the broadest in terms of the breadth of flows. In particular, LatAm equity funds which faced sustained redemptions in previous three months reported inflows of US$122m last week. Asian funds beat Latin American and took in 65% more if we normalize flows by AUM. GEM funds remain the star and attracted US$2.1b of new money last week.

Half of the inflows to Asia target Greater China equities — Of the US$827m inflows to all Asian dedicated funds, 29% went to China funds, 27% to AxJ regional funds, 14% India funds and 10% Greater China funds. While the majority of Asian funds enjoyed inflows, Philippine country funds were the lone one recorded mild outflows. YTD, net inflows to all Asian funds have totaled US$4.9b, far less than the US$15.8b taken in by GEM funds.




China Vanadium Titano-Magnetite Mining (0893.HK)

Management Call Highlights Value Gap, Core DCF at HK$3.5/s

Thomas P Wrigglesworth +852-2501-2747 [email protected]

Buy/Low Risk 1L Price (16 Jul 10) HK$2.28 Target price HK$5.10 Expected share price return 123.7% Expected dividend yield 2.2% Expected total return 125.9%Market Cap HK$4,731M US$608M

2008 2009E 2010E EPS new(Rmb) 0.166 0.164 0.279 EPS Old(Rmb) 0.166 0.164 0.279 EPS Growth 363.2 -0.9 69.5 P/E 12.0 12.1 7.1 EV/EBITDA 11.5 6.6 3.0 Consensus Data na na 0.262

Price Performance (RIC: 0893.HK, BB: 893 HK)

What’s new? – We held a call with the Chairman Jiang, CFO Hong and CIO Yu this

morning, to provide us with the latest insights into the business performance and Sichuan market and update us on business developments.

Sichuan steel mills to add 10Mt capacity by 2012 vs 18.4Mt output in’09 – Management guided to 3.8Mtpa post July-10: 1.1Mt from Desheng, 1.2Mt from Dazhou and 1.5Mt from Chongqing I&S. Panzhihua I&S is to add 4Mtpa by end-’11 and the parent company mill, Chuan Wei, is to add 2.2Mt in 2012. These mills will use vanadium bearing iron ore.

Tightness growing in the market, ASPs 3% above contract floor at RMB605/t – ASP did not increase in 1H10, in contrast to Hebei prices which rose 40% in May and retreated to end the half just up 11%.

Production and capacity update are inline with our expectations – The company aims to produce 1.15Mt of concentrate and 800ktpa in 2010 vs CIRA’s 1.2Mt and 760ktpa of conc. and pellet respectively. Concentrate capacity will be 2.6Mtpa by Sept-10 and a new pellet plant (capacity of 1.5Mtpa) starts June 2011.

Resource and M&A update – The company has announced the extension to the Jinzhi asset which currently ends in May-’11. Current resources at 366Mt could increase to 476Mt given the M&A potential.

Value Gap; our DCF valuation is HK$3.5 at static floor price of RMB589/t – We draw only positive conclusions from the call. We see core value for the shares inline with our DCF valuation at current prices, which incorporates no incremental value for M&A. We see the shares pricing in a 36% discount to this level.




Citi Global Quant Research Digest

A Compendium of Our Work (July 2010)

Puneet Singh +65-6-432-1172 [email protected]

Research Digest — This is the seventh edition of the Citi Global Quant Research

Digest. With this publication we aim to highlight the various thematic pieces that have been published by Citi’s global quant team over the past month.

Main aim — Our main aim is to provide a concise document to familiarize investors with thought pieces/processes and model outputs/performance from across the globe.

Asia — We show how switching between a raw signal and a signal conditioned on macro effects can enhance signal performance in times of stress (and otherwise). We also look at current analyst biases in terms of styles and find that they are overweight Value, and underweight Risk and Size.

Australia — Our preferred style: Growth continues to perform strongly. We do not expect the recent value rally to last long, as key indicators such as PE spread remain narrow.

Europe — Style factor analysis reveals that the market has still not totally abandoned economic recovery hopes.

US — Rising index implied volatility measures and falling historical volatility measures indicate that the market expects a rough ride ahead.

https://www.citigroupgeo.com/pdf/SGL01558.pdf�



India Iron Ore Industry

Melting Mines

Raashi Chopra, CFA +91-22-6631-9862 [email protected]

Lower iron ore exports; Sesa Goa at risk — We remain cautious on Sesa Goa as

falling PRC steel production and higher PRC iron-ore output are likely to exacerbate its pricing problems by impacting its volumes − 85-90% to China. India’s exports are unlikely to grow in CY10 and its share of Chinese imports should trend down – as it has over the last 5 years. There is downside risk to our FY11 volume growth estimate of +17% for Sesa Goa (20-25% indicated by the company). We reiterate our Sell on Sesa Goa, TP Rs327.

China: Lower steel and higher iron ore output – a bad mix — Our PRC steel analysts expect steel production for CY10 to be ~620mt (+9% yoy). Chinese iron ore production has been rising since Mar10 due to strong prices (until Jun10) and hit a record high of 102mtpa in Jun10. Even with lower domestic ore production for the rest of the year, iron ore imports into China should post a yoy decline in CY10 after several years of strong growth. Lower PRC steel output or higher domestic ore production than estimated would further reduce India’s iron ore exports.

India: Supply-side issues; ports not a constraint — India’s share of Chinese imports has been declining every year, 25% in CY05 to 17% in CY09. Iron-ore exports out of India to China have grown at a slower rate of 12% (CAGR CY05-09) vs. Chinese imports at 23%. India’s total ore exports have grown at a 5% CAGR (FY07-10), while port traffic (major ports) has grown 7% and share of iron ore in the port traffic has remained constant (17-18%) − indicating that duties/taxes, road/rail logistics, government measures and domestic consumption could have constrained exports.

India-specific risk factors — 1) A potential ban on iron-ore exports − we believe this is unlikely to come through, but the government could potentially increase the export duty further (currently 15% on lumps, 5% on fines). 2) The government is trying to aggressively crack down on illegal mining − which could hurt volumes.

Upside risks — Higher PRC steel volumes, higher ore prices, lower duties, more reserves and competitive acquisitions for Sesa Goa.




Korea Memory Beat

Moderate adjustment even under uncertain demand outlook

Henry H Kim, CFA +82-2-3705-0720 [email protected]

Slight DRAM contract price correction and firm NAND pricing — According to

DRAMexchange, 1H July mainstream DDR3 and legacy DDR2 prices both declined by 3%. However, spot prices have shown stabilization over the past month after earlier correction in May. On the other hand, mainstream 32Gb MLC NAND contract price declined slightly by 1% in 1H July. 16Gb contract price and spot prices have shown some uptick and stabilization.

Stronger demand in NAND and lower supply in DRAM — We expect NAND price to remain stable or move up until year-end thanks to competitive new product launches in smartphones/tablet PCs amid strong seasonality. NAND flash makers cannot meet the demand growth with limited supply capacity in 2H10E, in our view. We also expect tight DRAM supply to continue into 2H10E given (1) Still lower inventories across the food chain; (2) seasonal, somewhat subnormal, demand growth for back-to-school and year-end sales; (3) priority capacity allocation for specialty DRAM applications like corporate server, smartphone, graphic card, smart TV and other consumer products; (4) some prioritized capacity allocation (conversion) for customized/embedded NAND products to meet much stronger demand growth in 2H10E; (5) still relatively constrained supply growth from bumpy executions in technology migration. We expect DRAM price could increase from mid-3Q given the conservative production plan and strict inventory control under limited visibility about peak season demand.

Buy Samsung, Hynix under very negative sentiment: The winners in industry’s triple

transition — SEC(005930.KS; W805,000; 1L) and Hynix(000660.KS; W23,800; 1M) are industry leaders in triple transition (3x/4x/5x nm geometry, DDR3 and 2Gb). The lagging DRAM makers are still at the customer sampling stage on 5x/4x nm or at legacy 6x/7x nm node. Samsung and Hynix should continue to enjoy a leading-edge premium with positive volume share gains thank to relatively smooth technology upgrade process. We believe the market is still underestimating high operating leverage of the memory business in an upcycle, as it did in the downcycle. We see upside revision risk even in our Street-high forecasts given the conservative US$ memory pricing expectation (flattish in 3Q10E and -15% in 4Q10E under the very conservative FX assumption of W1,080/$ in 3Q and W1,090/$ in 4Q, respectively.




Korea Non-life Insurance

Auto Premium Hikes Could Be Coming Sooner Than Expected

Jinsang Kim +82-2-3705-0769 [email protected]

Earlier-than-expected auto premium hikes look likely — According to local news

reports, the Korea Insurance Development Institute (KIDI) has guided an average 6.7% premium hike as a reference. This will likely enable non-life insurers to raise auto premiums by around the reference rate in the next months, though a risk of delay remains. Our channel checks reveal most non-life insurers are preparing premium hikes in August and September. This is quicker than our original expectation of year-end 2010.

Lifting implicit regulatory barrier — The KIDI’s guidance for premium hikes implies the regulatory risk on auto premium hikes is dissipating, as Financial Supervisory Services (FSS) has implicitly pushed KIDI and non-life insurers not to raise auto premium hikes. Note KIDI technically has the authority to evaluate and approve proposals for new auto premiums without the consent of FSS.

6.7% premium hikes implies 3~4% real premium hikes — We view that the 6.7% nominal rise translates into a real 3~4% rise, given that a 3.4% loss ratio hike in rising auto repair costs offsets partly. News reports explained that the 5.7% rise comes from auto repair cost hikes and the remaining 1% comes from a premium surcharge exemption standard.

Expecting around 10% earnings upside on earlier premium hikes — We believe around 10% earnings upside risk in our rough estimate, as we initially reflected 3~4% auto premium hikes around year-end into our earnings forecasts.

HM&F benefits most in the sector — Our sensitivity analysis shows Hyundai M&F benefits the most in the sector. We expect HM&F to improve its auto loss ratio at a gradual pace, without premium hikes, as its efforts to enhance claim management and reserving structure will enable HM&F to narrow the widest gap between the historical 10 year avg. and loss ratios in recent months.




Malaysia Macro Flash

Limited Impact from Announced Subsidy Cuts

Wei Zheng Kit +65-6328-5079 [email protected]

Prime Minister's Office announces ‘subsidy rationalization’ starting 16 July —

Subsidies for fuel and sugar will be reduced as follows: 1) RON95: RM5sen/litre, 2) Diesel: RM5sen/litre, 3) LPG: -RM10sen/kg, 4) sugar prices will increase by RM25sen/kg, and 5) RON97 will no longer be subsidized (current price RM2.05), and instead be on a managed float using an automatic pricing mechanism.

Direct inflation impact manageable, negligible influence on monetary policy — Based on our analysis, prices of RON95, diesel and LPG will rise between 2.8 - 5.7% immediately, while sugar prices will be up 16.7%. We estimate that petrol accounts for half of the 10.3% weight of the ‘operation of personal transport equipment’ component in the CPI basket, and that LPG accounts for only a small portion out of the 3.5% allotted to ‘electricity, gas and other fuels’. Similarly, we assume that sugar comprise about slightly more than half of 0.7% weight given to ‘sugar, jam, honey, chocolate and confectionery’. Altogether, we estimate that the direct impact of the hikes would add between 0.2-0.3%-pts to July MoM inflation, bringing YoY inflation to 2% (assuming June inflation of 1.8%YoY as we expect). Without this adjustment, inflation would probably hit 2% only towards 4Q. Gov. Zeti had earlier mentioned that Bank Negara will only be concerned about inflation if it exceeds 3% and is primarily demand-pull driven. With output near potential presently, demand-side inflation pressures are absent. We therefore think the price hikes will have little relevance for monetary policy.

Fiscal savings of >RM750m small vs. projected 2010 deficit of RM40-42bn — The announced cuts were still far smaller than plans presented at the Subsidy Lab Open Day. The Open Day called for an initial petrol prices hike of RM15sen/litre followed by an RM10sen/litre hike every six months up to 2014, and increased sugar prices of RM20sen/kg every six months up to 2012. Earlier plans projected RM1.8bn of savings out of fuel (before RM526mn cash rebates), RM1.1bn from gas and RM0.1bn from sugar. Altogether, savings for 2010 were supposed to amount to RM2.6bn vs. currently estimated savings of >RM750mn. This is small compared to the projected fiscal deficit of RM40-42bn next year.

Were such cost savings previously factored in? — Recall that Budget 2010 already envisaged a RM3.6bn cut in subsidies. Hence, given smaller hikes than planned, the fiscal deficit could even see small upside risks.

Move largely symbolic, but still a positive — With the government signaling that this is merely a first step in a ‘broader rationalization effort’, this should be a positive. It may have been more desirable if a specific timeline for future hikes was announced, though this would have been politically difficult, and may have led to other problems such as hoarding and unintended price increases.




Taiwan Financials

Marketing Takeaways: Postcard from Singapore & HK

Bradford Ti +852-2501-2772 [email protected]

Still cautious, but interest reviving — After two weeks in Singapore and HK, we felt

interest in Taiwanese financials was reviving, albeit slowly, as the mood remains cautious. Although structural issues and low ROEs remain a core concern, expectations have toned down along with P/B valuations and foreign ownership and we see opportunities emerging with banks finally allowed to access China under ECFA and rising interest rates helping to stabilize NIMs.

Singapore vs. HK; long vs. fast money — We hit Singapore first the week after ECFA was signed and client interest was strong. The HK leg was a week later and interest was evidently lower week-on-week. Fast money believes the financials trade may have run its course for now. Long money is selectively more optimistic, but remains concerned on structural issues and low ROE.

Taiwan angle on ECFA more meaningful — General agreement with our view that ECFA is not about what Taiwanese FIs can do in China. Eventually, this may be significant longer term, but for now the more meaningful impact will likely come domestically if ECFA translates into a sustained improvement in capital spending and that in turn translates to a sustained recovery in loan demand. Domestic bank loans have already started to recover in May ‘10 +7% YoY, led by SME +11% and on base effects.

Rising rates good for banks, bad for insurers — We argue that higher rates is a positive catalyst for banks, helping to stabilize NIMs. Although NIM recovery will likely be capped by over-competition and excess liquidity, we could see a 3-5bps pass through for every 12.5bps hike in benchmark. On the other hand, rising ST rates are a headwind to life insurers, if it results to a flatter yield curve, stronger NT$, and weaker property market. While it could help resolve negative spread LT, we note EV forecasts are already baking in a 300bps rise.

Buy banks, Sell insurers — We continue to push our Buys on banks, particularly Chinatrust (2891.TW; NT$19.90; 1L) and Taishin (2887.TW; NT$14.50; 1M). Interest in Yuanta is reemerging as a laggard and a market proxy given trough P/B. Into 2Q10 results, insurers could be vulnerable. We reiterate that the IBES 2010E forecast for Cathay still looks too high and should come down. And, we see downside risk for Fubon, as the market focuses on AFS declines and moves in shareholders’ equity over profitability.

Risks to our view — Key risks highlighted in our meetings were: [1] structural issues could take longer to fix; [2] pullback in real estate prices could result to higher delinquencies disrupting benign credit cost environment; [3] ECFA benefits will take time; [4] opposition party getting more traction in upcoming Nov elections; and [5] overall bearish tone on markets globally.




Ascendas REIT (AEMN.SI)

Buy: Occupancy Has Improved for First Time Since March 09

Wendy M Koh, CFA +65-6-432-1171 [email protected]

Buy/Low Risk 1L Price (16 Jul 10) S$2.00 Target price S$2.28 Expected share price return 14.0% Expected dividend yield 6.9% Expected total return 20.9%Market Cap S$3,746M US$2,722M

2010 2011E 2012E EPS new(S$) 0.13 0.14 0.14 EPS Old(S$) 0.13 0.14 0.14 EPS Growth -12.8 11.2 2.3 P/E 15.9 14.3 14.0 EV/EBITDA 18.0 16.5 16.4 Consensus Data na 0.13 0.13

Price Performance (RIC: AEMN.SI, BB: AREIT SP)

1QFY11 DPU in-line with consensus and our estimates — A-REIT reported DPU of

3.37 cents for 1QFY11, annualized 13.5 cents. A-REIT has retained S$2.2m interest income from a finance lease granted to a tenant, pending tax clearance from IRAS. If included, it would contribute another 0.12 cents to the DPU, translating into an annualized approximately 14.0 cents, in line with consensus and our estimates.

Revenue +9.3%, NPI +13.8% QoQ — Helped by an enlarged portfolio (DBS Asia Hub and 31 Joo Koon), revenue managed to grow 9.3% QoQ. NPI managed a 13.8% QoQ increase, as operating expenses declined due to lower maintenance and conservancy costs, offset by higher property tax, land rentals and utilities.

Occupancy improved for first time since FY09 — A total of 71,538 sq m of space was leased in 1QFY11, with renewals accounting for >50% of the space. Occupancy rate for the multi-tenanted properties improved slightly to 91.5% from 91.2% in 4QFY10, its first improvement since 4QFY09. Renewal rates were up 3.4% for Business & Science Park space and up 3.7% for Hi-Tech space, but flat for Light Industrial and Logistics space.

Industrial Prices and Rentals on upward Trend — According to URA 1Q10 statistics, the price and rental indices of industrial space continued on an upward trend, increasing 1.5% and 1.7% respectively, while rental rates for business parks increased 11.1% to S$3.70 in 1Q10 from S$3.33psf in 4Q09.

Maintain Buy, TP at S$2.28 — We maintain our Buy on A-REIT as it offers one of the highest sustainable yields of over 7% among the large-cap REITs.




Bursa Malaysia (BMYS.KL)

2QFY10 Results Hit by Euro Debt Crisis

Fiona Leong +60-3-2383-2942 [email protected]

Hold/Low Risk 2L Price (16 Jul 10) RM7.02 Target price RM7.25

from RM7.55 Expected share price return 3.3% Expected dividend yield 3.0% Expected total return 6.3%Market Cap RM3,730M US$1,164M

2009 2010E 2011E EPS new(RM) 0.19 0.23 0.25 EPS Old(RM) 0.19 0.24 0.25 EPS Growth -3.1 18.6 8.1 P/E 36.4 30.7 28.4 EV/EBITDA 9.4 12.0 11.8 Consensus Data na 0.26 0.30

Price Performance (RIC: BMYS.KL, BB: BURSA MK)

2Q10 earnings RM27.5m, 1H10 RM55.5m — Bursa Malaysia’s 2Q10 net profit

dipped 2% QoQ while 1H10 was up 10% YoY. The 1H10 earnings is 45% of our full year estimate of RM124m and 41% of consensus’ RM135m.

Equities trading revenue –7% QoQ — With investor sentiment hurt by the Euro debt crisis in 2Q10, average daily value (ADV) traded –16% QoQ to RM1.29bn. Effective clearing fee +2bps to 2.42bps due to slightly higher retail participation of 29% (1Q10: 28%) and higher average value per share traded. Trading velocity fell to 28% (1Q10: 35%) as increase in ADV did not keep pace with the 28% rise in market capitalization to RM1,044bn. Equities trading revenue was key income driver and accounted for 49% of 1H10 total revenue.

Derivatives trading revenue +6% QoQ — Derivative volumes +2% QoQ mainly on +30% QoQ increase in FKLI contracts which compensated for the 8.6% QoQ drop in CPO contracts as CPO prices moved within a narrow range in 2Q10. Derivatives revenue provided 11% of total revenue.

Dividend of 9.5 sen declared — Bursa declared an interim dividend of 9.5 sen per share (single-tier), up from FY09 interim’s of 5 sen. Dividend payout at half time was 91%. The interim dividend will be payable on 13 Aug 2010.

FY10E-11E forecast trimmed 3% — We have fine-tuned our ADV assumptions to RM1.46bn (from RM1.52bn) for FY10E and RM1.69bn (from RM1.70bn) for FY11E. Effective clearing fee is maintained at 2.5bps for both years. Overall, earnings lowered by 3% to RM120.5m for FY10E and RM130.3m for FY11E.

Maintain Hold rating — Pegging revised FY10E EPS of 23 sen at 31.5x historical mean P/E, our target price is lowered to RM7.25 (from RM7.55). ETR of 6.3% is in line with our expectations of a 6.4% rise in the KLCI to 1,420.




CapitaCommercial Trust (CACT.SI)

Alert: Sale of Starhub Centre

Chun Keong Tan +65-6-432-1164 [email protected]

Selling Starhub Centre for $380m – The sale consideration is at a 42.5% premium

or $113.3m above its latest valuation of $266.7m as at Jun-10. Net proceeds amount to approximately $375.8m, taking into account divestment fees and relative costs. The estimated gain is about $109.1m, which will add $0.04 to CCT’s NAV. Management stated that the net proceeds will be used for potential acquisitions and/or used to repay debt.

Buyer is Frasers Centrepoint Ltd – The sale is expected to take place on or around 16-Sep-10 or a later date agreed between the Buyer and the Trustee. Based on the existing GFA of 332,766sq ft, the price works out to about $1,142psf ppr, excluding lease top-up. Assuming 80% of the GFA is used for residential, Buyer could potentially develop a 270-unit condo (avg size 1,000sqft) as well as a retail mall with an NLA of ~50,000 sq ft.

Subject to approval from Head Lessor – The sale is subject to and conditional on the Trustee obtaining approval of the Head Lessor, which in this case, is the President of the Republic of Singapore. Aside from this, the sale is not subject to any additional planning or redevelopment approval or approval for the extension of the lease. However, CCT has already received an In-principle Lease Upgrade Approval on 13-Jul-10 from the SLA.

DPU Impact – Assuming the sale of Starhub Centre is completed as scheduled and proceeds are kept for future acquisitions and not used to pay down debt, DPU would fall by 2% in 10E and 4-6% in 11/12E. However, if we assume all the net proceeds of $577.5m from both the sale of Robinson Pt and Starhub Centre will be used to pay down debt, DPU would rise by 5-7%.

CapitaCommercial Trust (CACT.SI; S$1.32; 1L)




Chicony Electronics (2385.TW)

Solid 3Q Outlook Ahead; Look Beyond Weak 2Q results

Eve Jung +852-2501-2783 +886-2-8726-9098 [email protected]

Buy/Medium Risk 1M Price (16 Jul 10) NT$72.20 Target price NT$88.00

from NT$93.33 Expected share price return 21.9% Expected dividend yield 5.3% Expected total return 27.2%Market Cap NT$44,824M US$1,395M

2009 2010E 2011E EPS new(NT$) 5.37 6.14 7.15 EPS Old(NT$) 5.40 6.58 7.64 EPS Growth 13.5 14.4 16.4 P/E 13.5 11.8 10.1 EV/EBITDA 9.3 7.9 6.3 Consensus Data na 6.90 7.89

Price Performance (RIC: 2385.TW, BB: 2385 TT)

What's New — Chicony announced preliminary 2Q results with net profit of

NT$806mn, which was 15% lower than our forecasts due to unfavorable product mix and labor cost increase. Chicony’s 2Q GM dropped to 14% vs. 16% in 1Q given strong growth in power supply business. Power supply sales grew 66% YoY in 1H with sales mix rising to 39% in 2Q. Due to raw material price hike, Chicony’s GM in the power supply business was squeezed in 2Q. However, as it already increased its power supply pricing starting from May, we expect profitability in power supply business to improve in 3Q.

Solid 3Q revenue growth and recovering margin trend — We expect Chicony’s 3Q revenue to grow by 20% QoQ, on the back of solid NB peripheral sales growth, increasing shipments of DV and strong sales pick-up in power supply and peripheral sales of Microsoft’s Xbox and Kinect. With stabilizing pricing of raw materials and Chicony’s efforts to pass on cost increase to customers and cost reduction, management expects 3Q op. margin to rebound to 7.5%, from 2Q’s 6%.

Weakness creates enhanced opportunities — We cut our 10E/11E earnings forecasts by 6%/6% to factor in more conservative revenue/margin forecast for 2H. We also lower our target price to NT$88 (from NT$93.33). Though Chicony’s 2Q earnings were weaker-than-expected on margin contraction, we expect its margin to rebound in 3Q given lowering sales mix from low-margin power supply business and better pricing. We retain Buy on Chicony as we believe current share price weakness has factored in market concerns on lackluster 2Q margins. Chicony’s valuation remains low, trading at 12/10x 10/11E EPS. We believe the company’s strong 3Q revenue growth momentum and recovering margin trend should be the catalysts to drive the share price near term.




China Steel (2002.TW)

Alert: 2Q10 Prelim Beats Expectation

Peter Kurz +886-2-8726-9088 [email protected]

CSC reported NT$14.3bn 2Q10 pre-tax income, 8% higher than Citi forecast. 1H10 pre-tax income reached NT$27.5bn vs. Citi forecast of NT$26.3bn. 1H10shipments reached 4.91 million tons vs. Citi 4.86 million.

Price cuts for September shipments are well-received by domestic downstream makers. Therefore, 3Q10 shipments could be better than we expected. CSC expects 3Q10 shipments to reach 2.2 - 2.4 million tons vs. our forecast of 2.2 millions.

China Steel (2002.TW; NT$30.20; 1M)




Commodities/Currencies Dislocation

Oil, Copper and Aluminium Lagging AUD

Daniel Lam, CFA +852-2501-2718 [email protected]

How to trade — 1) Long Futures, 2) Buy 12M worst-of calls on the three

commodities at 8.3% premium for spot underlyings, 3) Through stocks that would benefit. Standouts in Pan-Asia are CNOOC, BHP Billiton and Rio Tinto. With cheapening implied volatility and skew still above average, we recommend investors buy upside calls on these stocks.

AUD leads commodities — Risk-on indicator, AUD rallied 55% from its 2010 trough, while Crude Oil, Copper and Aluminium have only recovered 45%/33%/28% from this year’s bottom. With EURUSD rallying past technical resistance at 1.2730, stabilising currency market means more potential upside for AUD, and room for commodities to catch up.

Commodities at discount to spot — Current AUD level implies all three commodities are trading at discount to spot, on average at 9%. There is an average 11% upside to CIRA 12M forecast. We remain bullish in the medium term given EM demand.

Futures Contango for Crude Oil and Aluminium — Jul-11 futures are 6% and 4.3% above spot for Crude Oil and Aluminium respectively, while it is flat for Copper. On average, CIRA’s 12M forecast is 8% above Jul-11 futures levels for the three commodities.

CNOOC, BHP Billiton and Rio Tinto to benefit — CNOOC (883 HK) is oversold in the short term by FTSE Xinhua 25 Index weighting downgrade. Our analyst sees 32% upside for the next 12M. 29-Sep-10 115% calls cost 1.17% premium. BHP Billiton (BHP AU) is leveraged to all three commodities, while Rio Tinto (RIO AU) benefits from the rise in aluminium and copper. Both Australian stocks trade at <9x P/E for 2011E. Our analyst sees 32% and 50% upside to 12M target price respectively. 23-Sep-10 110% calls cost 1.20% premium for BHP Billiton and 1.95% for Rio Tinto, with IVOL <30% for both.




Daelim Industrial (000210.KS)

Hold: 2Q10 Results – In Line Results but Concerns Remain

Sungmee Park, CFA +82-2-3705-0767 [email protected]

Hold/Medium Risk 2M Price (16 Jul 10) W68,000 Target price W86,000 Expected share price return 26.5% Expected dividend yield 0.7% Expected total return 27.2%Market Cap W2,366,400M US$1,966M

2009 2010E 2011E EPS new(W) 8,184 7,642 9,532 EPS Old(W) 8,184 7,642 9,532 EPS Growth 211.3 -6.6 24.7 P/E 8.3 8.9 7.1 EV/EBITDA 3.2 2.9 2.1 Consensus Data na 8,901 11,511

Price Performance (RIC: 000210.KS, BB: 000210 KS)

Maintain Hold — Daelim’s 2Q10 OP rebounded strongly QoQ, in line with our

expectation. The recovery, however, came from one-off margin expansions at the overseas projects while revenue is weaker than expected, particularly for housing and overseas projects. We see downside risks to our revenue forecasts, given a sharp decline in housing project launches and the company’s high exposure to projects in Iran (45% of overseas backlog). Despite undemanding valuations, we would maintain a Hold.

2Q10 OP in line — 2Q10 OP of W114bn (-21% YoY, +76% QoQ) fell in line with our and consensus estimates. Revenue of W1.5trn (-1% YoY) fell short of our estimate by 10% due to a sharp decline in housing projects but GPM of 15.1% (+1.8ppt QoQ) surpassed our estimate of 11.4%, offsetting the revenue loss. The strong GPM was largely driven from overseas projects which posted GPM of 29.4% (+10.9ppt YoY) vs. our estimate of 14% on gains from unused contingency. The Petrochemical division contributed OP of W19bn (+8%, -55% QoQ), slightly higher than our estimate of W15bn.

NP boosted by equity income — 2Q NP of W115bn (0% YoY, +11% QoQ) surpassed our estimate with a wide margin mainly due to strong equity method gain from its petrochemical affiliates (W542bn, +41% YoY). Management expects equity income from petrochemical affiliates to slow in 2H and to represent 60-70% of 1H equity income.

New order intake disappoints — 1H10 order intake amounts to W1,95trn (-50% YoY), totaling only 18% of 2010 guidance of W10.95trn. But management is less concerned given secured projects worth W5.5trn including projects for which the company received LOIs such as US$1.7bn Yanbu refinery package 3&4 and US$0.9bn Kuwait LPG train 4. Order intake including secured projects amounts to W7.5trn, representing 68% of 2010 guidance.

Potential cancellation of Iran Esfahan Refinery project — Daelim has W1.5trn order backlog exposure to Iran, representing 45% of overseas order backlog as of 2Q10. Among several projects in Iran, management sees risks of contract cancellation for Esfahan Refinery project (backlog of W534bn) due to the US sanctions against Iran. We expect slower-than-expected revenue recognition of overseas projects.

Unsold inventory rose on new project launches — Unsold inventory increased to 4,319 units in 2Q10 from 3,074 units in 2009 due to an unsatisfactory presale ratio of newly launched projects. PF loan guarantee slightly declined to W2.5trn in 2Q10 from W2.8trn in 2009. The company expects PF loan guarantee to fall to W2trn by the end of 2010




Hong Leong Bank (HLBB.KL)

Extends Deadline for EON Cap

Fiona Leong +60-3-2383-2942 [email protected]

Sell/Low Risk 3L Price (15 Jul 10) RM8.83 Target price RM8.11 Expected share price return -8.2% Expected dividend yield 3.1% Expected total return -5.1%Market Cap RM13,952M US$4,353M

2009 2010E 2011E EPS new(RM) 0.62 0.62 0.69 EPS Old(RM) 0.62 0.62 0.69 EPS Growth 20.8 0.4 11.4 P/E 14.3 14.2 12.8 Consensus Data na 0.61 0.68

Price Performance (RIC: HLBB.KL, BB: HLBK MK)

Extends deadline yet again – Hong Leong Bank (HLBank) has decided to extend its

deadline for EON Capital to accept its offer to acquire the assets and liabilities of EON Cap from 20 Aug to 30 Nov 2010. In its revised letter of offer dated 15 Jul, HLBank also required EON Cap to obtain shareholder approval by 20 Aug.

Increases probability of a successful takeover – By shifting its deadline to 30 Nov, HLBank is keeping alive the possibility of merger between the country’s sixth and seventh largest banking groups. With the High Court having fixed commencement of the trial brought against certain directors of EON Cap by Primus on 20 Sept 2010, EON Cap would be hard-pressed to secure all the required approvals by 20 Aug. Furthermore, in its decision to table HLBank’s offer for shareholder approval in an Extraordinary General Meeting, the directors of EON Cap included the High Court’s final decision as a condition on whether to accept HLBank’s offer.

What does this tell us? – This is the second time HLBank has revised its deadline and we see this as a strong indication of management’s determination to acquire EON Cap. Besides potential synergies to be reaped over the long-term from having an enlarged banking operation, we believe EON Cap is possibly one of the best acquisition targets currently available. Earlier, HLBank management had indicated interest to venture into Indonesia. However, given how high P/B multiples of Indonesian banks have reached, the HLBank offer to pay 1.4x P/B for EON Cap certainly looks attractive.

A protracted trial could be the deal-breaker – In our view, the main obstacle to this deal is the possibility of a protracted trial between Primus, the directors of EON Cap, and EON Cap. Meanwhile, the ongoing boardroom tussle could be disruptive for EON Cap’s operations. For HL Bank, a longer wait for an outcome of its M&A proposal could affect management’s near-term business plans. No change in our Sell/Low Risk (3L) rating on HL Bank.




MobileOne (MONE.SI)

Reiterate Buy: In-Line Q2; Medium-Term Catalysts Expected

Ravi Sarathy +852-2501-2773 [email protected]

Buy/Low Risk 1L Price (15 Jul 10) S$2.16 Target price S$2.50 Expected share price return 15.7% Expected dividend yield 6.0% Expected total return 21.8%Market Cap S$1,940M US$1,409M

2009 2010E 2011E EPS new(S$) 0.17 0.18 0.19 EPS Old(S$) 0.17 0.17 0.17 EPS Growth -0.0 6.0 5.2 P/E 12.9 12.1 11.5 EV/EBITDA 6.9 6.7 6.4 Consensus Data na 0.18 0.18

Price Performance (RIC: MONE.SI, BB: M1 SP)

Reiterate Buy and price target of S$2.50 — M1 has a PE of 12.1x 2010E with 6%

earnings growth and an 09-12E earnings CAGR of 8%. Management commitment to an 80% payout ratio gives yield support at 6.5% for 2010E, rising to 6.9% in 2011E with medium term potential for special dividends/share buyback. Further valuation support comes from an 8% unlevered FCF yield. Revisions to our estimates post results take our DCF-based strategic value to S$3.12, to which we apply a 20% discount given the longer term nature of the cashflow drivers.

Near-term stock catalysts — (1) Further wireless data acceleration; (2) NBN allowing for the company to overcome “fixed only” bundling and marketing constraints; and (3) The MDA content-sharing ruling which favors “attackers”, such as M1.

Q2: In-line headline financials — Headline numbers were in line with consensus. Total service revenues, EBITDA and net income of S$182m (+4.3% YoY), S$79.2m (+1.4% YoY) and S$40.8m (+10.0% YoY) compared well with our forecasts of S$180m, S$78m and S$40m, respectively.

Positive surprise on revenue mix — Data revenues made a larger-than-expected contribution. This offset increased price pressure on international revenues (down 4% YoY). Data (ex SMS) represented 17.8% of service revenues vs 10.9% last year and vs. our expectation of 15.5%. This drove a 2.2% YoY increase in mobile service revenues, continuing the return to growth seen in Q1.

Scope for special dividend but not in the near term: Management reiterated a comfort level with up to 1.5x Debt/EBITDA (versus 0.9x currently), giving scope for shareholder returns from balance sheet restructuring over the medium term. Management noted, however, that there were no plans for this in the near term.




NetEase.com (NTES)

Alert: Will WLK Arrive at ChinaJoy? WoW’s Advs on MSN China

Alicia Yap, CFA +852-2501-2794 [email protected]

According to a number of recent news reports, such as 21cn.com and eNet.com.cn, NetEase has submitted the floor plan design for the upcoming ChinaJoy to the organizing committee. This year, NetEase has selected exhibition hall #3 compared to previous years’ selection of hall #1. The floor plan includes a focus on and sizable area for Blizzard’s WoW’s Wrath of Lich King (WLK). There has been speculation that WLK expansion pack could be approved by the government prior to this year’s ChinaJoy (which will be held from July 28 to Aug 1).

This is inline with our previous channel checks that there is a likelihood that WLK will be showcased at ChinaJoy. Nonetheless, until we hear the official announcement, there is still a possibility that NetEase may not receive the approval on time and end up having to just display the WLK video demo rather than providing actual testing terminals.

Besides WLK, the floor plan suggests that the key thematic focus for NetEase’s exhibition this year remains on Fantasy Westward Journey and TianXia II. In addition, new games such as Ghost and Heroes of Tang Dynasty will be presented as well.

Separately, according to a number of news reports, such as duowan.com and itxinwen.com, NetEase invested Rmb4.47 million marketing dollars in WoW itself during the month of June while over the past 5 months in 2010, the total marketing amount spent on WoW was only Rmb860k, with Rmb48.9k in Jan, Rmb2.3k in Feb, Rmb324.7k in Mar, Rmb219.9k in Apr and Rmb264.5k in May, respectively.

Coincidently, the news reports mentioned that MSN had received a total amount of more than Rmb4 million advs budget from NetEase on WoW for the month of June. We checked on MSN’s China site today and confirmed that WoW’s advertisement showed up on MSN’s China home page. The reported news suggested that this could indicate either: 1) WLK is likely to be approved soon and NTES wanted to put more marketing budget on the game and/or 2) the previous speculation about the potential partnership between MSN China and NetEase could materialize and both parties are trying different ways of cooperation.

We are positive on any potential MSN/NTES JV or partnership and believe this could strengthen NetEase’s competitive position on its portal and possible collaboration with MSN’s Bing Search engine.

NetEase.com (NTES.O; US$33.00; 1L)




Samsung C&T (000830.KS)

2Q10 Results: Upbeat Earnings Reaffirm Our Positive View

Sungmee Park, CFA +82-2-3705-0767 [email protected]

Buy/Medium Risk 1M Price (16 Jul 10) W53,500 Target price W64,000 Expected share price return 19.6% Expected dividend yield 0.9% Expected total return 20.6%Market Cap W8,357,651M US$6,944M

2009 2010E 2011E EPS new(W) 1,864 2,366 2,909 EPS Old(W) 1,864 2,366 2,909 EPS Growth -0.5 27.0 22.9 P/E 28.7 22.6 18.4 EV/EBITDA 5.9 -0.2 -1.2 Consensus Data na 2,134 2,494


Maintain Buy — Samsung C&T reported stronger-than-expected 2Q results as

group projects have started boosting revenue strongly. We expect earnings to outperform on a sharp rebound in group projects and upbeat overseas order intakes. We project 3-year EPS CAGR of 22%. We also find valuations attractive. 2011E core P/E stands at only 6.2x vs. a historical average of 10.0x and sector average of 8.1x. Samsung C&T is one of our top buys, with Samsung Engineering and Hyundai E&C.

Upbeat 2Q10 results above expectations — 2Q10 OP of W113bn (+45% YoY, +99% YoY) surpassed ours and street estimates by 20% and 18% respectively largely due to stronger construction OP of W101bn (+91% YoY, +122% QoQ). Construction revenue grew 34% YoY to W1.9trn on architecture (+216% YoY) boosted by group projects, civil (+19% YoY) and housing (9% YoY). Construction OPM rose 1.6ppt YoY to 5.3% in line with our estimate. Trading OP of 12bn (-53% YoY, +6% QoQ) was in line with our estimate. NP of W113bn (+15 YoY, -53% QoQ) exceeded expectations in line with stronger OP.

Outperforming order intakes — 1H10 total new order intake amounts to W7.8trn (+354% YoY) with strong overseas order intake of W4.1trn (vs. W45bn in 1H09) and group orders of W1.4trn (+175% YoY). 1H10 order intake totals 50% of our full-year forecast of W15.5trn and Samsung C&T should meet our 2010 forecasts. We expect Samsung C&T to outperform in order intakes given support from Samsung Group projects and upbeat overseas order flows.

TP of W64,000 — We maintain our W64,000 target price with a Buy/Medium Risk rating. Our target price is based on an SOTP analysis with investment asset value representing 62%.




Samsung Life (032830.KS)

Low EV Contribution from VIF Reaffirms Our Dull Growth Outlook

Jinsang Kim +82-2-3705-0769 [email protected]

Hold/Medium Risk 2M Price (16 Jul 10) W107,500 Target price W118,000 Expected share price return 9.8% Expected dividend yield 0.4% Expected total return 10.1%Market Cap W21,500,000M US$17,865M

2010 2011E 2012E EPS new(W) 4,530 7,604 6,326 EPS Old(W) 4,530 7,604 6,326 EPS Growth 701.7 67.8 -16.8 P/E 23.7 14.1 17.0 Consensus Data na na na


Lower than our EV estimate on conservative assumption change — Samsung Life

(SLI) posted FY10 EV of W17.6tn, lower than CIRA estimate of W18.3tn, mainly due to lowering net investment yield assumption to 5.4% (from 5.6%). We feel that Samsung Life leaves room for EV improvement by raising investment yield assumption alongside rising market rates going forward. Value of new business (VNB) of W1,074bn (20.6% YoY) is in line with our estimate of W1,089bn. We view 20.6% YoY growth as cyclical recovery process of new premium sales, not structural growth in demand.

Marked sector-high VNB margin in FY10 — We attribute SLI’s sector-high VNB margin (VNB/APE) of 29.2% to its efforts of profit-focused underwriting. We see three key reasons from the conference. These are: 1) better product mix toward higher margin products; 2) M/S expansion of protection insurance market (by 1.1ppt); and 3) loading margin expansion on new premium written in 2HFY10. But on the flip side, we expect marginal VNB growth in next years, given matured traditional protection life insurance market. Note we expect 6% VNB growth in FY11.

Low EV contribution from operation (VIF) mirroring low growth outlook — Reading from QoQ EV change, higher EV contribution from net worth (equity) increase (86.2% of total QoQ change) in our view implies slower growth in EV, unless large scale valuation gains on Samsung affiliates and/or bond holdings. Given low possibility of valuation gains on bond holdings in the upcoming up-cycle of interest rate, value of Samsung affiliates will be the swing factor going forward. Lower VNB to EV(6.1%) and VIF to EV(22.2%) mirror slow growth potential of SLI. We maintain HOLD rating unless we see meaningful growth in new business opportunities, such as variable annuities and corp pension.




Tenaga Nasional (TENA.KL)

Will Government Adjust Gas And Electricity Tariff Next?

Yong Yin Ng, CFA +60-3-2383-2939 [email protected]

Buy/Low Risk 1L Price (15 Jul 10) RM8.60 Target price RM10.10 Expected share price return 17.4% Expected dividend yield 2.9% Expected total return 20.3%Market Cap RM37,392M US$11,665M

2009 2010E 2011E EPS new(RM) 0.50 0.60 0.64 EPS Old(RM) 0.50 0.60 0.64 EPS Growth -15.8 20.9 6.5 P/E 17.3 14.3 13.4 EV/EBITDA 7.9 7.0 6.5 Consensus Data na 0.65 0.71

Price Performance (RIC: TENA.KL, BB: TNB MK)

Reiterate our Buy rating on Tenaga – Negative price pressure from the absence of

any adjustment of gas subsidy and electricity tariff in the government’s first subsidy rationalization programme announced should be viewed as an enhanced buying opportunity. Tenaga’s valuation at 14.3x ‘10E P/E and 1.3x ‘10E P/B and at 1.0sd below historical average is undemanding. A gradual subsidy rationalization move could see natural gas and electricity rates adjusted next, possibly in 3 months time or by the end of the year following reading of the Budget 2011 in October (with a people budget – offering a social safety net for the poor – likely to be tabled).

First step of a gradual subsidy rationalization programme – The government has decided that, effective 16 July 2010, subsidies for fuel, specifically petrol, diesel and liquefied petroleum gas (LPG), as well as sugar, will be reduced. Thus, retail prices for RON 95 and diesel will be raised by 5 sen to RM1.80 and RM1.75/liter receptively. The price of LPG will be raised by 10 sen to RM1.85/kg. RON 97 will no longer be subsidized and will be subject to a managed float, where price will be determined by the automatic pricing mechanism (RM2.10 from RM2.05/liter). For sugar, the upward price adjustment will be 25 sen to RM1.90/kg.

There is no mention of natural gas or electricity tariff – However, there is no mention on adjustment to the natural gas and electricity tariff, which could send a negative signal to the market and put pressure on the Tenaga share price.

Gas and electricity tariff to be next? – There is a risk that a gas and electricity review would take a back seat as the government tries to keep price impact to a minimum. We believe these subsidized resources are perhaps less susceptible to smuggling and would likely be reviewed next as the government adopts a “gradual” subsidy rationalization programme. Therefore, we would view any dip in the Tenaga share price as an enhanced buying opportunity given that its valuation remains undemanding and our view that little is priced in for tariff adjustment.




Xingda International Holdings (1899.HK)

1H10 Positive Profit Alert

Gerwin Ho +852-2501-2728 [email protected]

Buy/Medium Risk 1M Price (16 Jul 10) HK$4.59 Target price HK$6.25 Expected share price return 36.2% Expected dividend yield 2.2% Expected total return 38.3%Market Cap HK$6,363M US$818M

2009 2010E 2011E EPS new(Rmb) 0.393 0.558 0.520 EPS Old(Rmb) 0.393 0.558 0.520 EPS Growth 39.9 42.0 -6.7 P/E 10.2 7.2 7.7 EV/EBITDA 6.2 4.9 5.3 Consensus Data na 0.535 0.562

Price Performance (RIC: 1899.HK, BB: 1899 HK)

What's new — Xingda issued a positive profit alert on 16 July after market close.

Based on preliminary review, Xingda expects 1H10 revenue and net profit to increase over 60% YoY and over 130% YoY respectively.

What’s behind the positive profit alert? — 1H10 profit growth is driven by 1) sales volume increase, 2) gross margin improvement and 3) gain on disposal of available-for-sale investment of RMB186mn.

1H10 profit guidance — According to Xingda's profit guidance, 1H10 revenue should increase at least 60% YoY to RMB2.4bn and net profit should increase at least 130% YoY to RMB464mn, making up 60% of our 10E forecast. Excluding gain on disposal contribution, we estimate net profit should increase at least 74% YoY to RMB351mn.

1H10 results preview — We estimate Xingda to post 1H10 net profit of RMB467mn driven by sales volume increase, gross margin improvement and gain on disposal of available-for-sale investment of RMB186mn. We expect Xingda to report 1H10 results in mid August.

Investment thesis — Xingda is an indirect play on China's autos fleet growth and freight and passenger traffic growth. We note that globally 83% of truck tire and 72% of passenger car and light truck tire demand are driven by replacement demand according to Michelin. We therefore believe replacement demand is a more important driver than new vehicle demand in influencing tire demand.

Valuation — Our HK$6.25 target price is based on 10E P/E of 9.9x based on 30% premium to P/E since IPO.


Investment Daily 19 July 2010


Appendix A-1 Analyst Certification

The research analyst(s) primarily responsible for the preparation and content of all or any identified portion of this research report hereby certifies that, with respect to each issuer or security or any identified portion of the report with respect to an issuer or security that the research analyst covers in this research report, all of the views expressed in this research report accurately reflect their personal views about those issuer(s) or securities. The research analyst(s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that research analyst in this research report.

IMPORTANT DISCLOSURES

For full disclosures please see original research reports.

Rohini Malkani has in the past worked with the India government or its divisions in her personal capacity.

Analysts' compensation is determined based upon activities and services intended to benefit the investor clients of Citigroup Global Markets Inc. and its affiliates ("the Firm"). Like all Firm employees, analysts receive compensation that is impacted by overall firm profitability which includes investment banking revenues.

For important disclosures (including copies of historical disclosures) regarding the companies that are the subject of this Citi Investment Research & Analysis product ("the Product"), please contact Citi Investment Research & Analysis, 388 Greenwich Street, 28th Floor, New York, NY, 10013, Attention: Legal/Compliance. In addition, the same important disclosures, with the exception of the Valuation and Risk assessments and historical disclosures, are contained on the Firm's disclosure website at www.citigroupgeo.com. Valuation and Risk assessments can be found in the text of the most recent research note/report regarding the subject company. Historical disclosures (for up to the past three years) will be provided upon request.

Citi Investment Research & Analysis Ratings Distribution Data current as of 30 Jun 2010 Buy Hold SellCiti Investment Research & Analysis Global Fundamental Coverage 54% 35% 12%

% of companies in each rating category that are investment banking clients 47% 45% 40% Guide to Citi Investment Research & Analysis (CIRA) Fundamental Research Investment Ratings: CIRA's stock recommendations include a risk rating and an investment rating. Risk ratings, which take into account both price volatility and fundamental criteria, are: Low (L), Medium (M), High (H), and Speculative (S). Investment ratings are a function of CIRA's expectation of total return (forecast price appreciation and dividend yield within the next 12 months) and risk rating.

For securities in developed markets (US, UK, Europe, Japan, and Australia/New Zealand), investment ratings are:Buy (1) (expected total return of 10% or more for Low-Risk stocks, 15% or more for Medium-Risk stocks, 20% or more for High-Risk stocks, and 35% or more for Speculative stocks); Hold (2) (0%-10% for Low-Risk stocks, 0%-15% for Medium-Risk stocks, 0%-20% for High-Risk stocks, and 0%-35% for Speculative stocks); and Sell (3) (negative total return).

For securities in emerging markets (Asia Pacific, Emerging Europe/Middle East/Africa, and Latin America), investment ratings are:Buy (1) (expected total return of 15% or more for Low-Risk stocks, 20% or more for Medium-Risk stocks, 30% or more for High-Risk stocks, and 40% or more for Speculative stocks); Hold (2) (5%-15% for Low-Risk stocks, 10%-20% for Medium-Risk stocks, 15%-30% for High-Risk stocks, and 20%-40% for Speculative stocks); and Sell (3) (5% or less for Low-Risk stocks, 10% or less for Medium-Risk stocks, 15% or less for High-Risk stocks, and 20% or less for Speculative stocks).

Investment ratings are determined by the ranges described above at the time of initiation of coverage, a change in investment and/or risk rating, or a change in target price (subject to limited management discretion). At other times, the expected total returns may fall outside of these ranges because of market price movements and/or other short-term volatility or trading patterns. Such interim deviations from specified ranges will be permitted but will become subject to review by Research Management. Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the stock's expected performance and risk. Guide to Citi Investment Research & Analysis (CIRA) Corporate Bond Research Credit Opinions and Investment Ratings: CIRA's corporate bond research issuer publications include a fundamental credit opinion of Improving, Stable or Deteriorating and a complementary risk rating of Low (L), Medium (M), High (H) or Speculative (S) regarding the credit risk of the company featured in the report. The fundamental credit opinion reflects the CIRA analyst's opinion of the direction of credit fundamentals of the issuer without respect to securities market vagaries. The fundamental credit opinion is not geared to, but should be viewed in the context of debt ratings issued by major public debt ratings companies such as Moody's Investors Service, Standard and Poor's, and Fitch Ratings. CBR risk ratings are approximately equivalent to the following matrix: Low Risk Triple A to Low Double A; Low to Medium Risk High Single A through High Triple B; Medium to High Risk Mid Triple B through High Double B; High to Speculative Risk Mid Double B and Below. The risk rating element illustrates the analyst's opinion of the relative likelihood of loss of principal when a fixed income security issued by a company is held to maturity, based upon both fundamental and market risk factors. Certain reports published by CIRA will also include investment ratings on specific issues of companies under coverage which have been assigned fundamental credit opinions and risk ratings. Investment ratings are a function of CIRA's expectations for total return, relative return (to publicly available Citigroup bond indices performance), and risk rating. These investment ratings are: Buy/Overweight the bond is expected to outperform the relevant Citigroup bond market sector index (Broad Investment Grade, High Yield Market or Emerging Market), performances of which are updated monthly and can be viewed at https://fidirect.citigroup.com/ using the "Indexes" tab; Hold/Neutral Weight the bond is expected to perform in line with the relevant Citigroup bond market sector index; or Sell/Underweight the bond is expected to underperform the relevant sector of the Citigroup indexes.

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