Thursday, 14 March 2013

Asian Daily (Asia Edition) Top of the pack ...

EPS, TP and Rating changes EPS TP (% change) T+1 T+2 Chg Up/Dn Universal Robina Corp. Initiation 33 Hite Jinro (4) (1) 0 (26) China Resources Gas 3 1 24 (2) E-House China (31) (16) 10 17 Holdings Ltd Cathay Pacific (1) 1 0 18 Aeon Credit Service 1 33 63 16 Universal Robina Corp. Initiation 33 Hite Jinro (4) (1) 0 (26) Compal Electronics 0 (7) 0 (3) Ajisen 0 0 0 15 China Resources Gas 3 1 24 (2) E-House China (31) (16) 10 17 Holdings Ltd Cathay Pacific (1) 1 0 18 Aeon Credit Service 1 33 63 16 Universal Robina Corp. Initiation 33 Hite Jinro (4) (1) 0 (26) Compal Electronics 0 (7) 0 (3)

Rating O (NA) U (U) N (N) O (O) O (O) O (N) O (NA) U (U) N (N) N (N) N (N) O (O)

India Market Strategy New report: India–The silent transformation

Neelkanth Mishra (4)

Universal Robina Corp. (URC.PS) – Initiating Coverage with O New report: Home sweet home INPEX Corporation (1605) – Maintain O New report: Abadi – coming into view

Karim P. Salamatian, CFA (5) David Hewitt (6)

Cathay Pacific (0293.HK) – Maintain O 2012 results: Mind the pennies and pounds take care of themselves

Timothy Ross (7)

O (O) O (N) O (NA) U (U) N (N)

Connecting clients to corporates Hong Kong / China China Mobile Limited (0941.HK) Date Coverage Analyst

15 March, Hong Kong Colin McCallum

Great Wall Motor (2333.HK) Date Coverage Analyst

25-26 March, Hong Kong Jack Yeung

Shenzhou International (2313.HK) Post results Date Coverage Analyst

26 March, Hong Kong Eva Wang

China Medical System Holdings Ltd. (0867.HK) Date Coverage Analyst

27 March, Hong Kong Iris Wang

AAC Technologies Holdings Inc (2018.HK) 4Q12 results Date Coverage Analyst

27-28 March, Hong Kong Yan Taw Boon

Singapore Godrej Consumer Products Ltd (GOCP.BO) Date Coverage Analyst

18-19 March, Singapore Arnab Mitra

Intime Department Store Group Company Ltd (1833.HK) Date Coverage Analyst

21-22 March, Singapore Vivian Zhao

US Infrastructure Development Finance Co Ltd (IDFC.BO) Date Coverage Analyst

19-22 March, New York Ashish Gupta

Europe West China Cement Ltd (2233.HK) Date Coverage Analyst Contact

20-25 March, Europe Trina Chen

[email protected] or Your usual sales representative.

... and the whole pack Australia Treasury Wine (TWE.AX) – Maintain U US wine pricing: Don't rush, we're thinking about it

Larry Gandler (8)

China China Economics Dong Tao (9) Pork price and inflation cycle China Insurance Sector – Maintain OW Arjan van Veen (10) New report: FY12 results preview: any improving signs? (buy on weakness) Agile Property (3383.HK) – Maintain U Jinsong Du (11) Feb sales -28% MoM and -15% YoY on Hainan weakness Ajisen (0538.HK) – Maintain N Vivian Zhao (12) 2012 NP down 56% YoY–16% beat on better cost control; still not a very visible sales trend China COSCO Holdings (1919.HK) – Maintain U Davin Wu (13) What’s next on the COSCO block? China Oilfield Services Ltd (2883.HK) – Maintain N Horace Tse (14) A small book-keeping disposal to CNOOC Ltd China Resources Gas (1193.HK) – Maintain N Edwin Pang (15) Connection backlog supports its valuation premium E-House China Holdings Ltd (EJ.N) – Maintain O Jinsong Du (16) FY12 results beat consensus significantly; guidance of 19% growth for FY13 Kaisa Group (1638.HK) – Maintain O Duo Chen (17) Stock price may be over-penalised; to quantify the impact of potential Shenzhen tightening Hong Kong Hong Kong Property Sector – Maintain MW Buy when others are feared Kerry Properties (0683.HK) – Maintain O Significant increase in land bank

Cusson Leung, CFA (18) Cusson Leung, CFA (19)

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Thursday, 14 March 2013

Asian Daily Asian indices - performance (% change) ASX300 CSEALL Hang Seng H-SHARE JCI KLSE KOSPI KSE100 NIFTY PCOMP RED CHIP SET STI TWSE VNINDEX

Latest 5,064 5,686 22,557 11,037 4,835 1,646 2,000 17,760 5,851 6,777 4,363 1,579 3,289 7,996 473

1D (0.5) (0.3) (1.5) (2.3) (0.4) (0.6) 0.3 (0.6) (1.1) (0.1) (2.4) 0.1 (0.4) 0.0 (0.5)

1W (0.5) 0.4 (1.0) (2.8) 1.8 (0.3) (1.0) (1.3) 0.6 (0.9) (3.0) 1.2 (0.1) 0.6 0.4

3M 11.0 3.0 (0.2) (2.4) 12.2 (0.3) 0.2 5.7 0.0 18.7 (3.2) 16.2 3.8 3.9 20.6

YTD 9.5 0.8 (0.4) (3.5) 12.0 (2.5) 0.1 5.1 (0.9) 16.6 (3.7) 13.4 3.8 3.8 14.4

1W 0.7 0.5 0.0 (0.2) 0.4 0.2 0.0 0.8 0.0 0.6 (1.4)

3M (2.1) 3.4 (0.5) (2.0) 1.2 (0.5) 0.0 0.3 (2.2) 1.6 (2.2)

YTD (0.8) 3.2 (0.5) (2.2) 1.1 (0.8) 1.1 1.3 (2.2) 1.0 (3.0)

Thomson Financial Datastream

Asian currencies (vs US$) (% change) A$ Bt D NT$ P PRs Rp Rs S$ SLRs W

Latest 1.0 29.6 20,945.0 29.7 40.6 97.9 9,689.0 54.3 1.2 126.5 1,097.5

1D 0.5 (0.4) 0.0 0.0 (0.1) 0.0 (0.1) (0.4) (0.2) (0.2) 0.0

Global indices Latest 14,465 1,554 3,246 440 2,695 6,478 7,975 3,839 12,240 1,031 2.05 0.26 1.30 96.1 107.7 1,585.8 12.3

1D 0.1 0.1 0.1 0.5 (0.1) (0.5) 0.1 0.0 (0.6) (0.4) 1.6 1.6 (0.6) (0.1) (1.3) (0.4) (0.2)

1W 1.2 0.8 0.7 1.6 0.7 0.8 0.7 1.7 2.6 2.8 5.7 4.9 (0.3) (2.3) (2.6) 0.1 (9.5)

3M 9.8 9.5 8.5 14.6 3.9 9.2 5.2 5.4 25.7 28.8 18.3 3.2 (0.9) (13.1) 0.2 (6.6) (26.0)

YTD 10.4 9.0 7.5 14.5 4.5 9.8 4.8 5.4 17.7 20.0 16.5 4.5 (1.9) (9.9) (3.8) (5.3) (32.0)

Thomson Financial Datastream

MSCI Asian indices – valuation & perf. MSCI Index Asia F X Japan Asia Pac F X J. Australia China Hong Kong India Indonesia Korea Malaysia Pakistan Philippines Singapore Sri Lanka Taiwan Thailand

Timothy Ross (7)

India India Market Strategy Neelkanth Mishra (4) New report: India–The silent transformation ACC (ACC.BO) – Maintain O Anubhav Aggarwal (20) India: The silent transformation: Increasing prosperity in Rural India should boost cement demand Dish TV India (DSTV.BO) – Maintain O Jatin Chawla (21) India: The silent transformation Best placed to tap rising rural penetration Emami Ltd (EMAM.BO) – Maintain O Arnab Mitra (22) India: The silent transformation a niche play on rural growth HDFC Bank (HDBK.BO) – Maintain O Ashish Gupta (23) India: The silent transformation increasing non-urban presence next engine of growth ITC Ltd (ITC.BO) – Maintain O Arnab Mitra (24) New report: Rural demand fortifies pricing power Shriram Transport Finance Co Ltd (SRTR.BO) – Maintain O Sunil Tirumalai (25) India: The silent transformation enabling small-time entrepreneurs Japan Aeon Credit Service (8570) – Upgrade to O Prospects rising for recovery in cash advances INPEX Corporation (1605) – Maintain O New report: Abadi – coming into view

Takehito Yamanaka (26) David Hewitt (6)

Philippines Philippines Consumer Staples Sector – Assuming Coverage with OW

Thomson Financial Datastream

(% change) DJIA S&P 500 NASDAQ SOX EU-STOX FTSE DAX CAC-40 NIKKEI TOPIX 10 YR LB 2 YR LB US$:E US$:Y BRENT GOLD VIX

Cathay Pacific (0293.HK) – Maintain O 2012 results: Mind the pennies and pounds take care of themselves

EPS grth. 12E 13E 14 12 11 12 (2) 10 10 12 13 10 15 15 13 16 16 13 2 10 12 15 11 11 2 9 15 11 29 12 19 12

P/E (x) 12E 13E 11.8 10.5 12.6 11.3 15.5 14.1 9.8 8.8 15.9 14.4 13.8 12.1 15.6 13.5 8.9 7.8 14.7 13.4 7.4 6.5 19.8 18.6 14.5 13.3 13.9 12.6 15.0 13.4 13.0 11.6

Performance 1D 1M YTD 0.0 (0.4) 0.9 0.0 0.3 3.2 0.0 3.9 10.1 (1.2) (2.9) (1.3) (0.7) 0.0 4.9 (0.4) (0.9) 1.0 0.0 6.3 12.9 (0.7) 1.4 (3.2) 0.0 2.1 (2.7) 1.9 1.2 4.4 0.1 5.1 17.7 0.7 0.2 1.6 1.5 2.5 8.6 (0.4) 0.9 1.6 0.3 5.3 9.5

Consumer staples in the Philippines are cheap Universal Robina Corp. (URC.PS) – Initiating Coverage with O New report: Home sweet home

Karim P. Salamatian, CFA (27)

Karim P. Salamatian, CFA (5)

South Korea Korea Economics Christiaan Tuntono (28) We have revised down Korea's 2013 GDP growth and CPI inflation forecasts Hite Jinro (000080.KS) – Maintain U Sonia Kim (29) Weaker-than-expected 4Q12 SK Innovation (096770.KS) – Maintain O A-Hyung Cho (30) Feedback on non-deal roadshow Taiwan Compal Electronics (2324.TW) – Maintain N 4Q12 / 1Q13 preview

Thompson Wu (31)

Thailand Krung Thai Bank (KTB.BK) – Maintain O New report: Still at a discount, still growing fast

Dan Fineman (32)

* IBES estimates

O=Outperform

N=Neutral

U=Underperform

R=Restricted

OW= Overweight

MW=Market Weight

UW=Underweight

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To make any changes to your existing research mailing details, please e-mail us directly at [email protected] Sales Contact

Hong Kong 852 2101 7211

Singapore 65 6212 3052

London 44 20 7888 4367

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New York 1 212 325 5955

Boston 1 617 556 5634

Thursday, 14 March 2013

Asian Daily SAVE THE DATE

Connecting clients to corporates.

Credit Suisse presents the following Corporate Access events: 16th Asian Investment Conference 18-22 March, 2013, Hong Kong Firmly established as Asia’s premier investment conference, the Credit Suisse Asian Investment Conference (AIC) attracts over 2,000 institutional and high net worth investors from around the globe to Hong Kong, seeking tomorrow’s opportunities today. With access to a buy-side audience representing more than US$3 trillion of assets under management and featuring some of the world’s leading investor names, the AIC is one of the most sought-after events in the industry. Join us at the AIC from 18 March to 22 March 2013 and discover how the power of insight can help you thrive.

Contact [email protected] or your Credit Suisse sales representative credit-suisse.com/ib

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Thursday, 14 March 2013

Asian Daily Top of the pack ...

India Market Strategy -----------------------------------------------------------------------------------------New report: India—The silent transformation

Neelkanth Mishra / Research Analyst / 9122 6777 3716 / [email protected] Ravi Shankar / Research Analyst / 91 22 6777 3869 / [email protected]

● The CS India team undertook numerous field trips and significant secondary research to assess the sustainability of economic growth. ● Productivity growth at the bottom of the pyramid is at unprecedented levels, with dramatic improvements in rural roads, electrification, cellphones, cooking gas and water. Better choice, improved wage discovery and new opportunities are driving significant wage growth. As 40% of urban services are low-skilled, this growth is not just rural, but across the bottom of the pyramid. ● Rural land price not a bubble: low rental yields, the oft-quoted concern, have been falling for more than a century, and not just in India. Supporting land prices are rising agri yields, improved road access that is cutting price disparity and encouraging alternative use of land, clear land titles and lastly, it being seen as a form of saving in rural areas, given few alternatives. ● We highlight with observed examples how these changes are sustainable (see detailed note). We flag six liquid bottom-up stories to benefit from this theme: ITC, Shriram Transport, Emami, ACC, HDFC Bank & Dish TV. We also have a basket CSAPINDR.

Better choice, improved wage discovery and new opportunities are driving significant wage growth (Fig 2). As 40% of urban services are low-skilled, this growth is not just rural, but across the bottom of the income pyramid. Rural land price not a bubble

Low rental yields, the oft-quoted concern, have been falling for more than a century, and not just in India. Four fundamental drivers of land prices are: (1) agricultural yields are rising; (2) improved road access is cutting price disparity and encouraging alternative use of land; (3) clear land titles are making land more monetisable (Figure 3) and (4) land in rural areas is a form of saving, given few alternatives. Figure 3: Significant progress in clear land titles States that have completed records modernization

Started digitzation of cadastral maps (likely to take time till 2017)

States: 20

17

14

Area: 82%

78%

72%

11

8

61%

60%

8 major states: AP, TN, KA, MP, MH, OR, RJ, UP

Figure 1: Increase in new habitations connected by road Habitations Connected ('000)

180

Provided legal sanctitiy to RoRs

120

Hosted RoR data online for citizen access Source: Ministry of Rural Development, Credit Suisse estimates

100

India transforming

160 140

80 60 40 20 0 Pre-2004

2006

2008

2010

2012

Source: PM Gram Sadak Yojana, Ministry of Road Transport

2014

2016

The CS India team undertook numerous field trips and significant secondary research to assess the sustainability of economic growth from a new perspective. The full report can be accessed here. Productivity growth at the bottom of the pyramid

Productivity at the income pyramid’s bottom is growing at unprecedented levels, with dramatic improvements in rural roads (Figure 1), electrification, cell phones, cooking gas and water. Figure 2: Rural wage growth at multi-decade highs

These changes have wide-ranging implications for the society, economy and politics. We highlight with observed examples how these changes are becoming sustainable: poultry for example has created more person days of work than NREGA (Figure 4). Similarly, processed/ packaged food makes food production more efficient, and in the process also creates services jobs in retail and transport. Our surprising finding of clothes shops in villages that had only prestitched garments is also a development along these lines. Figure 4: Jobs created in animal farming similar to that by NREGA 1.6

15 10 5

1.3

3.8 mn jobs created in rural areas

14.9

11.1

8

0

6

2005 People employed in animal farming in rural (mn)

4

2010 Urban (mn)

Source: NSSO, Dept. of Animal Husbandry, Credit Suisse estimates

2 0 1983-94

1994-2000

2000-05 Real Wage Growth (%)

2005-08

2008-13

We flag six liquid bottom-up stories to benefit from this theme: ITC, Shriram Transport, Emami, ACC, HDFC Bank and Dish TV. We also have a basket to play the theme (CSAPINDR).

Source: Labour Bureau, NSSO, Credit Suisse estimates

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Thursday, 14 March 2013

Asian Daily Universal Robina Corp. ------------------------------- Initiating Coverage with OUTPERFORM New report: Home sweet home

EPS: ◄► TP: ◄►

Karim P. Salamatian, CFA / Research Analyst / 852 2101 7996 / [email protected] Rebecca Kwee / Research Analyst / 852 2101 7951 / [email protected] Research Assistant: Aldo Torres, CFA

● Initiating coverage with OUTPERFORM and P130 TP, with 33% potential upside. With a resurgence in consumption trends, we believe the most exciting aspect of URC’s growth story has returned home to the Philippines, leading to accelerated earnings, cash flow growth and further multiple re-rating. Full report. ● Philippine domestic consumption is undergoing a multi-year structural improvement, leading PCE to grow 20% faster than the regional average. We think the market is underestimating the strength of the consumption resurgence and the impact in can have on low ASP, high velocity food products that are the core of URC’s sales. ● Consumer staples in the Philippines are cheap, in our view. The 17% premium for consumer staples relative to the overall market is lower than NJA, ASEAN, GEM and global averages. Further rerating should be fuelled by stronger underlying demand, positive earnings revisions and declining costs of capital. ● URC is in a better operational and financial position today than it has been in many years. Accelerating growth and potential for higher cash distributions limit the downside, in our view. Bbg/RIC URC PM / URC.PS Price (12 Mar 13 , P) 98.00 Rating (prev. rating) O (NA) TP (prev. TP P) 130.00 (NA) Shares outstanding (mn) 2,061.50 Est. pot. % chg. to TP 33 Daily trad vol - 6m avg (mn) 1.9 52-wk range (P) 98.2 - 57.8 Daily trad val - 6m avg (US$ mn) 3.7 Mkt cap (P/US$ bn) 202.0/ 5.0 Free float (%) 37.3 Performance 1M 3M 12M Major shareholders JG Summit Holdings Absolute (%) 8.9 24.4 64.3 (60.52%) Relative (%) 3.8 7.1 28.7 Year 09/11A 09/12A 09/13E 09/14E 09/15E Revenue (P mn) 67,168 71,202 83,877 94,712 106,289 EBITDA (P mn) 10,155 11,220 13,199 16,063 18,710 Net profit (P mn) 4,636 7,736 8,314 10,210 11,935 EPS (P) 2.25 3.69 3.97 4.87 5.69 - Change from prev. EPS (%) n.a. n.a. - Consensus EPS (P) n.a. n.a. 3.83 4.34 4.69 EPS growth (%) (40.1) 64.2 7.5 22.8 16.9 P/E (x) 43.6 26.6 24.7 20.1 17.2 Dividend yield (%) 1.9 1.9 2.4 3.2 4.0 EV/EBITDA (x) 20.3 18.6 14.8 12.1 10.3 P/B (x) 5.0 4.4 4.1 3.8 3.6 ROE (%) 11.3 17.7 17.2 19.7 21.5 Net debt(cash)/equity (%) 10.0 13.4 (13.9) (14.9) (15.2) Note 1: Universal Robina Corporation (URC) is one of the largest branded food product companies in the Philippines, with a growing presence in ASEAN and China. The company is involved in the manufacture and distribution of branded consumer foods.

Click here for detailed financials

Consumption resurrection

Once upon a time, private consumption expenditure (PCE) growth in the Philippines was 60-90% that of the rest of Asia, and Philippines’ historic domestic consumption-to-GDP ratio of >70% (highest in NJA) led investors to conclude that potential for consumption acceleration was limited. Against this backdrop, domestic consumer stocks traded at an 83% valuation discount to the overall market with unexciting EPS growth of 5-10% p.a. This all changed in 2011 as real wage growth exceeded the rest of the region, FDI doubled, and unemployment fell to eight-year lows, leading to PCE growth outperformance relative to regional peers. Over the next two years, we expect PCE to grow 20% and 30% ahead of NJA and ASEAN peers on the back of near-record high consumer

confidence, 12-year high wealth growth, record high inward remittances, low food inflation risk, creation of higher-paying jobs and rising urbanization (not just in Metro Manila) – providing improved earnings growth and visibility for domestic consumer stocks. URC’s strengthened business model

We believe URC’s product portfolio is well positioned to capitalise on the accelerated consumption story as 88% of its domestic branded foods portfolio is exposed to categories with accelerating growth rates over the next four years. With per capita incomes still below US$3,000, low ASP, high velocity food items should benefit first and to the greatest degree. Accelerating top-line growth and moderating input costs (food prices decreasing) should lead to rising margins and three years of the most exciting earnings growth unseen in the past decade (~24% p.a). Figure 1: URC’s strengthened business model to lead to EBITDA and earnings growth of 20% and 24% p.a, respectively (in PHP) EBITDA

Recurring EPS growth

Recurring EBITDA growth

25,000

30% 25%

20,000

20% 15%

15,000

10% 10,000

5% --%

5,000

(5%) 0

(10%) FY11

FY12

FY13E

FY14E

FY15E

FY16E

Source: Company data, Credit Suisse estimates.

URC’s free cash flow growth profile has improved dramatically. Cash on the balance sheet represents 4% of market cap, and both free cash flow and dividends are expected to grow ahead of earnings. After divesting the investment portfolio in January 2013, consistent earnings growth and less capital allocation concerns can push the multiple higher. URC has become a highly cash generative “stable” staples company with higher earnings growth and a superior balance sheet to many other branded food companies in NJA. Staples in the Philippines are cheap

GEM, NJA and ASEAN (ex. Singapore) consumer staple stocks are trading at 35%, 66% and 37% 12-month forward premiums to the overall market. Consumer staples in the Philippines trade at only a 17% premium to the overall market. We believe URC is the best way to capitalise on continued re-rating in the sector because consensus earnings estimates are too low. Our Ps130 target price for URC is based on a 40% premium to the overall market or 27x EPS. Recent precedents in ASEAN suggest this could be too conservative. Our DCF value of Ps138 suggests a premium to the market of 50%. Risks include macroeconomic, commodity and forex risks.

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Thursday, 14 March 2013

Asian Daily INPEX Corporation ---------------------------------------------------------- Maintain OUTPERFORM New report: Abadi – coming into view

EPS: ◄► TP: ◄►

David Hewitt / Research Analyst / 65 6212 3064 / [email protected] Horace Tse / Research Analyst / 852 2101 7379 / [email protected]

● Abadi – a brief history. A series of exploration successes in the last decade led to a reserve base larger than Ichthys (18.5 vs. 12.8Tcf). In 2011 Inpex farmed down 30% to Shell. ● Current plan – Floating LNG. Development challenges have led to a FLNG Plan of Development, and FEED contracts have recently been awarded both for the subsea & FLNG components for a 2.5 MTpa FLNG. ● But something bigger could be brewing. If a 2.5MTpa FLNG requires 2.5Tcf this only represents a fraction of the 18.5Tcf reserve, hence it’s not surprising that Inpex recently send bid documents to contractors for phase 2 project expansion. We believe such an expansion is very unlikely before Ichthys reaches first gas. ● Reiterate OUTPERFORM, TP ¥705,000. Our initiation highlighted both the dislocation to a fundamental valuation, and our view that management is not being recognised for reaching and crossing material milestones. Confirmation that pre planning has started for expansion phases at the Abadi project point to further LNG growth opportunities post Ichthys 1st gas. Full report. Bbg/RIC 1605 JP / 1605.T Price (13 Mar 13 , ¥) 525,000 Rating (prev. rating) O (O) TP (prev. TP ¥) 705,000 (705,000) Shares outstanding (mn) 3.65 Est. pot. % chg. to TP 34 Daily trad vol - 6m avg (mn) 0.0 52-wk range (¥) 582000.0 Daily trad val - 6m avg (US$ mn) 62.5 424000.0 Free float (%) 58.8 Mkt cap (¥/US$ bn) 1,916.7/ 20.0 Major shareholders Minister of Economy, Performance 1M 3M 12M Trade & Industry Absolute (%) 3.3 17.8 (6.9) 18.9% Relative (%) (4.4) (11.2) (28.9) Year 03/11A 03/12A 03/13E 03/14E 03/15E Revenue (¥ bn) 943 1,187 1,090 1,410 1,316 EBITDA (¥ bn) 552.0 731.3 627.1 822.4 751.5 Net profit (¥ bn) 128.7 194.0 202.5 201.0 177.7 EPS (¥) 40,832 53,138 55,453 55,067 48,683 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (¥) n.a. n.a. 51,434 45,648 45,540 EPS growth (%) (10.4) 30.1 4.4 (0.7) (11.6) P/E (x) 12.9 9.9 9.5 9.5 10.8 Dividend yield (%) 1.1 1.3 1.3 1.3 1.3 EV/EBITDA (x) 3.6 2.6 3.1 2.5 2.7 P/B (x) 0.8 0.9 0.8 0.8 0.7 ROE (%) 7.6 9.2 8.9 8.2 6.8 Net debt(cash)/equity (%) 4.3 (0.7) 2.3 4.2 5.1 Note1:ORD/ADR=.00.Note2:INPEX CORPORATION is a Japan-based holding company. The Company, along with its subsidiaries and associated companies, is engaged in the exploration, development, production and sale of natural resources such as petroleum and natural gas..

Virtually nothing in the price: At present, we merely reflect a nominal amount for the Abadi reserves in our SoTP (US$550mn, derived using the consideration Shell paid for its stake), which reflects a mere US$0.27/boe (using 18.5Tcf and 320 mn bbls condensate). Reiterate OUTPERFORM, target price ¥705,000: We continue to view Inpex as a mispriced stock. Our TP of ¥705,000 is derived using US$90/bbl long term (Brent), and only has a marginal valuation for Abadi – despite the potentially massive reserve base to be exploited / booked in the next ten years. For Ichthys, the project financing was executed just prior to the ramp up to key capex expenditures. Figure 1: Inpex—selected capex segmentation FY14-19E (¥ bn) 450 400 350 300 250

200 150

100 50 FY14E

FY15E

FY16E Ichthys

FY17E

Abadi

Prelude

FY18E

FY19E

Other

Source: Credit Suisse estimates.

Figure 2: Abadi—2P reserve vs. exploitation from the phase 1 FLNG PoD (MTpa) 20 18 16 14 12 10 8

6 4 2

2P reserve

2.5 Mtpa Phase 1

Source: Credit Suisse estimates.

Figure 3: Ichthys / Abadi phases 1 & 2 possible timeline Inpex: Ichthys / Abadi phase 1 and 2 – possible timeline…

Click here for detailed financials

Abadi conclusions: Inpex is moving to drive phase 1 of the project, with a FID target (CS view) in the mid of the decade. By running feasibility studies for phase 2, Inpex is signalling the potential size of the resource base in Abadi and is starting the engineering process to be in a position to consider the phase 2 development, as Ichthys comes on line and provides significant incremental cash flow.

Ichthys % complete 1st gas / $$

Shell will be central to the process: We continue to believe FLNG execution is the territory of LNG super-majors. Hence, Shell’s active support and participation will be required to make Abadi phase 1 (and beyond) a reality.

Phase 2 Pre FEED FEED FID (poss)

2013

2014

46

78

Abadi Phase 1 FEED(s) FID (poss)

Source: Credit Suisse estimates

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2015

2016

93

100

2017

2018

Thursday, 14 March 2013

Asian Daily Cathay Pacific ----------------------------------------------------------------- Maintain OUTPERFORM 2012 results: Mind the pennies and pounds take care of themselves

EPS: ▲ TP: ◄►

Timothy Ross / Research Analyst / 65 6212 3337 / [email protected]

● Cathay Pacific Airlines (CX) reported a pre-ex NPAT of HK$1,230 mn, down 83% on last year's NPAT of HK$6,223 mn but ahead of our estimates of HK$660 mn and consensus of HK$620 mn. EBIT matched our estimates (HK$1,244 mn vs. our HK$1,199 mn). ● A HK$541 mn better contribution from associates was the key to the difference from our numbers, representing a HK$975 mn turnaround from 1H12. Unit costs rose 6% for the year, reflecting mostly one-off costs, but were off down 3% in 2H12. ● We have barely changed our estimates, with a better below-theline earnings track offsetting higher ownership expenses and core earnings little changed. We now expect NPAT of HK$3,361 mn and HK$7,357 mn in 2013 and 2014, respectively. ● With negligible change to our cash flow estimates, we have left our TP of HK$16.70 unaltered, along with our OUTPERFORM rating. This result has management’s fingerprints all over it and we believe that the effects of any cyclical recovery will be magnified by the cost structure now in place. Bbg/RIC 293 HK / 0293.HK Price (13 Mar 13 , HK$) 14.20 Rating (prev. rating) O (O) TP (prev. TP HK$) 16.70 (16.70) Shares outstanding (mn) 3,933.84 Est. pot. % chg. to TP 18 Daily trad vol - 6m avg (mn) 3.8 52-wk range (HK$) 15.7 - 11.9 Daily trad val - 6m avg (US$ mn) 7.0 Mkt cap (HK$/US$ mn) 55,860.6/ 7,201.0 Free float (%) 34.7 Performance 1M 3M 12M Major shareholders Swire Pacific - 45%, Absolute (%) (5.5) 3.5 (8.9) Air China - 29.9% Relative (%) (2.6) 3.0 (14.6) Year 12/11A 12/12A 12/13E 12/14E 12/15E Revenue (HK$ mn) 98,406 99,376 100,251 109,405 118,315 EBITDAR 13,047.0 11,433.0 13,761.8 17,077.2 19,722.8 Net profit (HK$ mn) 6,223 1,230 3,361 7,357 9,412 EPS (HK$) 1.58 0.31 0.85 1.87 2.39 - Change from prev. EPS (%) n.a. n.a. (1) 1 - Consensus EPS (HK$) n.a. n.a. 0.78 1.26 EPS growth (%) (43.0) (80.2) 173.2 118.9 27.9 P/E (x) 9.0 45.4 16.6 7.6 5.9 Dividend yield (%) 3.7 0.6 1.8 4.6 6.7 EV/EBITDAR (x) 6.6 8.7 7.7 5.7 4.4 P/B (x) 1.0 1.0 0.9 0.9 0.8 ROE (%) 11.3 2.2 5.8 11.9 14.0 Net debt(cash)/equity (%) 42.4 61.7 75.3 61.1 46.0 Note 1: ORD/ADR=5.00. Note 2: Cathay Pacific Airways Limited operates scheduled airline services. The company also provides related services, including airline catering, aircraft handling, and engineering.

Click here for detailed financials

2H12 cost management was the key

A 3% unit cost saving in 2H paved the way for the improvement in earnings relative to 1H12 loss as unit gains (HoH) were made in most line items. Schedule realignment and reduction, together with better fleet management accounted for much of the gain, as did a lower 2H maintenance expense, reflecting the early retirement of CX’s ageing BCFs and B744s. Unit costs rose YoY (6%), but this understates the gains made on this measure given most of the reduction in capacity was in the freighter business, which has operating costs c50% of the passenger business (where capacity rose 2.6%). It also lacked HK$1,270 mn in hedging gains that CX booked in 2011 and included the effects of accelerated depreciation associated with the early retirement of aircraft and booked mostly in 1H12.

Management commentary belied the direction in which yields performed; while mix declined, currency and a flat average stage length had a leavening effect, with fuel surcharges recouping 70% of the 1.7% average increase in price (although we tend to call these fare increases). Excluding forex and a fuel surcharge, passenger yield declined ~3%. Robust demand to the US, especially in the economy class, saw passenger yield in that market rise by >3% offsetting a weaker (>3% drop) North Asian performance where slower Korean travel and a weakening JPY saw reduced average fares. Figure 1: Operational and financial comparison, 2012A vs. 2012E 2012A 2012E Passenger yield HK$/RPK 0.68 0.66 Freight yield HK$/FTK 2.75 2.66 Unit costs HK$/ATK 3.74 3.65 C/ASK - ex fuel HK$/ATK 2.18 2.17 Airline revenue HK$ mn 94,688 92,355 Other revenue HK$ mn 4,688 4,787 Total revenue HK$ mn 99,376 97,142 EBITDAR HK$ mn 11,433 11,505 EBIT HK$ mn 1,244 1,199 NPAT pre-x HK$ mn 1,230 660 Source: Company data, Credit Suisse estimates.

2011A 0.67 2.69 3.59 2.05 93,758 4,648 98,406 13,047 3,686 6,223

A vs. E 2% 3% 2% 0% 3% -2% 2% -1% 4% 86%

YoY 1% 2% 4% 6% 1% 1% 1% -12% -66% -80%

Looking ahead, of the three factors that affected 2012 adversely (fuel, freight and front-end), the company is most optimistic about a recovery in corporate (and hence premium) traffic. Jet fuel for 1Q13 is likely to average the same price as 2012 (~US$130/bbl) and freight has turned down post CNY (in reflection of its changed timing), but more executives appear to be taking to the skies. CX is cutting is capacity (1.5%), but this is less reduction in service than reconfiguration of aircraft with new (and largely well-received) premium economy seats increasingly deployed and B773s replacing B744s on long-haul sectors. We expect yield improvement of 1% (CX tends to do well also when the USD strengthens) and loads to run in excess of 80%. On the cost side of the equation, staff costs should be flattish, reflecting CX’s hiring freeze and pay offer of <3%, fuel should benefit from slightly reduced prices (we expect into wing costs of US$127/bbl), improved efficiency (2% vs. 2012’s 0.7%) and the 30% of 2013 volumes that are hedged at US$105/bbl for Brent. Avoiding scheduled maintenance for another six B744s as these leave the fleet (as operating leases expire and as a consequence of CX’s recent freighter deal with Boeing) will see this line item descend, however, ownership costs are expected to go up. CX is taking delivery of a further 17 aircraft this year (having received 19 in 2012) and will be spending >HK$20 bn for the second year running, which should drive depreciation and interest costs higher. Debt: equity will also increase (in our view) from 2012’s 62% (itself up from 43% in 2011) to 75%. Better contributions from associates, especially Air China Cargo, will also feature, with the latter expected to narrow its cHK$1.2 bn loss as it cuts capacity and substitutes new aircraft for old gas “guzzlers”.

- 7 of 37 -

Thursday, 14 March 2013

Asian Daily Australia

Treasury Wine ------------------------------------------------------------- Maintain UNDERPERFORM US wine pricing: Don't rush, we're thinking about it

EPS: ◄► TP: ◄►

Larry Gandler / Research Analyst / 61 3 9280 1855 / [email protected] Ruvani Fernando, CFA / Research Analyst / 61 392801754 / [email protected]

Bbg/RIC TWE AU / TWE.AX Price (13 Mar 13 , A$) 5.82 Rating (prev. rating) U (U) TP (prev. TP A$) 3.50 (3.50) Shares outstanding (mn) 647.23 Est. pot. % chg. to TP (40) Daily trad vol - 6m avg (mn) 5.2 52-wk range (A$) 5.85 - 4.05 Daily trad val - 6m avg (US$ mn) 25.3 Mkt cap (A$/US$ mn) 3,766.9/ 3,887.0 Free float (%) — Performance 1M 3M 12M Major shareholders Absolute (%) 18.5 18.8 38.9 Relative (%) 15.3 7.1 18.4 Year 06/11A 06/12A 06/13E 06/14E 06/15E Revenue (A$ mn) 1,738 1,641 1,648 1,785 1,879 EBITDA (A$ mn) 266.0 277.2 280.3 342.6 364.7 Net profit (A$ mn) 114.0 136.5 129.6 163.5 172.7 EPS (A$) 0.33 0.21 0.20 0.26 0.28 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (A$) n.a. n.a. 0.21 0.26 0.29 EPS growth (%) n.a. (35.9) (4.8) 30.9 8.7 P/E (x) 17.8 27.8 29.1 22.3 20.5 Dividend yield (%) 1.0 2.2 2.4 3.1 3.4 EV/EBITDA (x) 14.4 13.7 13.8 11.4 10.7 P/B (x) 1.3 1.3 1.2 1.2 1.2 ROE (%) 4.0 4.7 4.4 5.4 5.7 Net debt(cash)/equity (%) 2.5 1.3 3.0 4.7 4.7 Note1:ORD/ADR=1.00.Note2:Treasury Wine Estates Ltd.Its engaged in international wine business with a portfolio of wines. Its business is structured into four regions: Australia and New Zealand (ANZ); Americas; Europe, Middle East and Africa (EMEA), and Asia Pacific..

Click here for detailed financials

It is interesting to contrast the statements about Australian wine pricing in the United States from three of the big Australia producers. Pernod announces a price increase. Pernod Ricard has been very disciplined in investing behind the Jacobs Creek brand and that has put it in a position from which it can raise prices. First, the brand was developed in China. With Pernod selling 1m cases of Jacobs Creek in China and controlling its distribution in that market, the company can contemplate lost volume in North America without worrying about capacity issues in Australia. Figure 2 shows that the Jacobs Creek volume and price in North America has been fairly steady over the last three years and this would be attributed to steady marketing investment.

Figure 1: Jacobs Creek volume and price 40,000

$90.00 Price US$/case (RHS)

35,000

$80.00

$70.00

30,000

$60.00

Volume 9L cases/ month (LHS)

25,000

$50.00

20,000

$40.00

15,000

$30.00

10,000

$20.00

5,000

$10.00

Feb-13

Oct-12

Dec-12

Jun-12

Aug-12

Apr-12

Feb-12

Oct-11

Dec-11

Jun-11

Aug-11

Apr-11

Feb-11

Oct-10

Dec-10

Jun-10

Aug-10

$0.00

Apr-10

-

Feb-10

● Prices of TWE’s commercial lines have not increased in North America. (Many have already commented upon TWE’s strong price increases on its luxury wines.) Pernod Ricard announced this week a US price increase on Jacobs Creek. Casella Wines stated in January it will not raise Yellowtail prices in the US. TWE is suggesting to investors there is prospect for a price increase. ● We caution investors not to build strong US price increases into TWE valuations after reflecting upon the strength from which Pernod Ricard initiated its latest price increase. ● TWE must invest in A&P and raw material supply to return its North America operation to growth. Price increases are unlikely ahead of sustained investment. We feel TWE’s share price does not reflect the increased level of investment required to develop this business. ● Our DCF-based target price remains A$3.50. No earnings changes applied with this research note. Full report

Source: Company data, Credit Suisse estimates

Casella won’t take a price increase. Casella Wines is likely to be concerned about how price increases affect volume because it operates one single-purpose winery in New South Wales. Casella must protect Yellowtail volumes lest fixed manufacturing overheads go unabsorbed. About 2/3 of Casella’s Yellowtail volume goes to North America. Casella has yet to develop a large China volume base and distribution presence. Figure 4 shows that Yellowtail volumes in North America have been stable but pricing has modestly softened. Also, there are notable volume spikes when pricing is dropped during the holiday season. There is a reasonable degree of seasonality and price elasticity with this brand. TWE discusses the prospect of a price increase. Figure 3 shows the volume/price history of Lindemans. The key difference to the Jacobs Creek chart is that TWE reduced the pricing of Lindemans by about 10% in late 2011 and that seemed to have protected volumes. Prior to that TWE attempted to execute higher prices in 2010 but volumes suffered badly. That TWE is talking about price increases again after reducing prices is not in agreement with John Casella’s approach who said, “there is nothing more destabilising than having prices go up and then go down again.” TWE reduced prices in 2011 because brand equity had waned. The Company had steadily been short-changing the marketing spend as the rising AUDUSD cut into profit margin. Also, like Casella, but unlike Pernod, TWE’s Karadoc production facility does not produce proportionally large volume for the Asia growth market. The big-volume brands produced in Karadoc are predominantly sold into the mature markets US, Europe and Australia. If US volume of Lindemans, Little Penguin, Rosemount and other Australia labels decline because TWE opts to increase US prices, the Company will have a fixed cost absorption issue, albeit not as severe as Casella. This is an extract from Treasury Wine First Edition published on 12 March 2013.

- 8 of 37 -

Thursday, 14 March 2013

Asian Daily China

China Economics ----------------------------------------------------------------------------------------------Pork price and inflation cycle

Dong Tao / Research Analyst / +852 2101 7469 / [email protected] Weishen Deng / Research Analyst / +852 2284 5751 / [email protected]

● Short-term softening in pork prices in the coming months is setting the stage for a much bigger pork price upswing starting from the second half of this year, in our view. ● This means softening of headline inflation in the coming months, but an inflation upswing starting from the third quarter of this year and persisting through 1Q15. The headline inflation may hit 5% in 3Q14. ● We have revised our inflation forecast to 3.2% YoY for 2013. For 2014, we have revised our inflation forecast to 4.3% YoY, from the previous forecast of 3.1% YoY. ● We expect a quiet period of monetary policy for the next six months. But after that, the tightening may surprise in terms of magnitude, as the inflation may exceed the central bank’s and the market’s expectations. We expect both deposit and lending rates to rise three times, 25 bp each quarter, from 2Q14. These should have significant implications for areas such as the property market and shadow banking, as well as local government financing vehicles. Figure 1: The pork price cycle 30

The pork price cycle

Pork price follows cycles, driven by its cobweb production, with a period of around 36 months. Shortage of pork pushes up the price, farms increase capacity which leads to over-supply. Fall in price results in losses, farms reduce breeding herd, leading to shortages. The upswing of the last cycle took place in mid-2010, persisting through the last few months of 2011. We have seen the first trough of the current pork price cycle, and prices have seen a mini rebound since July 2012, 37 months after the trough during the last cycle, matching the periodicity well. During the rebound, the farms have reduced the hog stock, similar to what happened between June 2009 and early 2010. Hog stock in January has already fallen below the January 2010 level. In recent weeks, pork prices have begun to decline sharply, matching the decline in early 2010. Figure 3: “Piglets” are about to fly 30

Previous Cycle (Yuan/Kg)

30

Current Cycle (Yuan/Kg)

CNY Peak & Subsequent decline: Well-Matched

25

25

Pork Price (Yuan/Kg)

25

20

20

20 15

15

15 10

10

10 Jun

37 Months

36 Months

Sep

Dec

Mar

Jun

Sep

Dec

Mar

Jun

Sep

Dec

Mar

Jun

Sep

Source: The ministry of commerce, Credit Suisse estimates

5 Mar-04

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Figure 4: Inflation—short run moderation, medium term upswing

Source: The ministry of commerce, Credit Suisse

10

Figure 2: Farms have fallen into the loss zone 800

The plane is about to take off!

First trough: Well-Matched

CPI Inflation(% yoy) Forecast

8 6

Profit per unit of hog stock (Yuan)

700

4

600

2

500 400

0

300

-2

200

Jan-99

0 -100

Jan-02

45 Months Jan-05

39 Months Jan-08

38 Months Jan-11

Jan-14

Source: NBS, Credit Suisse estimates.

-200

Jul-09

35 Months

-4

100

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Source: Soozhu.com, Credit Suisse

We have revised our inflation and interest rate forecasts The inflation should soften in the coming months, in our view. Pork prices have fallen sharply in recent weeks and we expect the decline to remain until the middle of the year. Short-run softening in pork prices could provide a temporary relief from inflationary pressure, but set the stage for a much bigger and persistent pork price upswing starting from the second half of this year. This means an inflation upswing is likely to kick off in 3Q2013, and persist through 1Q2015. The headline inflation may hit 5% in 3Q2014, in our expectation. As such, we have revised our inflation forecast to 3.2% YoY for 2013. For 2014, we now expect the annual inflation to reach 4.3% YoY, from the previous forecast of 3.1% YoY. With the upswing in inflation, we expect both deposit and lending rates to rise three times, 25 bp each quarter, from 2Q14. These should have significant implications for areas such as the property market and shadow banking, as well as local government financing vehicles.

We expect a softening in pork prices in coming months, driven by the soft demand. The recent sharp drop in prices reveals demand has entered the usual soft period. Farms are now experiencing a loss of 122 yuan per hog stock. This is precisely similar to what happened in March10. Farms falling into the loss zone signal production cycle entering the breeding herd correction phase. With the softening in price, and a resilient corn price, we expect the loss to widen, and farms reducing production capacity, like they did in previous cycles. Once demand increases during the normal high months in the second half, low hog stock should set off the price increase, and the reduced capacity will then drive a persistent large upswing in pork prices into the 2H2014. The Chinese CPI is well known as the “China Pork Index”. An upswing in pork prices should drive the CPI to move on the up-cycle in 2H2013. The headline may hit 5% in 3Q2014, and we expect inflationary pressure to persist into 1Q2015, as rising rents and salaries add to future pricing pressure.

- 9 of 37 -

Thursday, 14 March 2013

Asian Daily China Insurance Sector ----------------------------------------------------- Maintain OVERWEIGHT New report: FY12 results preview: any improving signs? (buy on weakness) Arjan van Veen / Research Analyst / 852 2101 7508 / [email protected] Frances Feng / Research Analyst / 852 2101 6693 / [email protected]

● The Chinese insurers report their FY12 results in mid to late March 2013, where we expect an uninspiring set of numbers. However, given recent share price weakness, we would look at any further weakness as a potential buying opportunity, noting last few results were close to low points for the stocks (Fig 2). ● Value of new business growth weak – we are expecting weak VNB growth, with some negative numbers still likely for 2H12. We expect Ping An to have the best 2H12 trends and China Pacific the best full-year trends. ● Solvency still an issue – despite markets being up 2% in 2H12, we expect solvency positions to generally be weak, with China Pacific the strongest and Ping An and China Taiping the weakest. ● Investment view – we retain our medium-term OVERWEIGHT on the sector, but do not think the results season will be particularly positive for the sector, with outlook statements / commentary also likely remaining subdued. We think Ping An and China Pacific’s operating results will be the stand-outs of the results season.

Taiping to raise capital this year with Ping An being the next weakest, including the convertible bonds announced in 2011 (not yet approved).

Figure 1: Ping An / China Pacific to show the highest VNB growth…

Source: Company data, Credit Suisse estimates.

Figure 2: Results generally low point for stocks recently Ping An share price vs. Hang Seng index 75.00

12 month rtn: -3% 70.00 65.00 60.00

55.00 50.00

3Q12 results

45.00

2011 results

1H12 results

1Q12 results

40.00

HSI

Investment view

40%

While we retain our medium-term OVERWEIGHT on the sector, we do not believe the results season will be particularly positive for the sector – but we would look to buy into weakness. Outlook statements / commentary are also likely to remain subdued.

F'casts

30%

VNB growth (%)

12-Mar-13

26-Feb-13

12-Feb-13

29-Jan-13

15-Jan-13

01-Jan-13

18-Dec-12

04-Dec-12

20-Nov-12

06-Nov-12

Growth in value of new business (% p.a.)

23-Oct-12

09-Oct-12

25-Sep-12

11-Sep-12

28-Aug-12

14-Aug-12

31-Jul-12

17-Jul-12

03-Jul-12

19-Jun-12

05-Jun-12

22-May-12

08-May-12

24-Apr-12

10-Apr-12

27-Mar-12

13-Mar-12

Ping An (H)

20%

We believe China Pacific and Ping An’s operating result will be the stand-outs of the results, with China Taiping being the dark horse – with P&C margins to be stable, ahead of consensus expectations (albeit weaker in 2H12 due to weather impact).

10%

0%

Please click here for our full 30pp report. Ping An reports 14 March, China Taiping 19 March, China Pacific 24 March, PICC P&C and PICC Group 25 March, New China Life 26 March and China Life 27 March.

-10% Dec-09

China Life

Jun-10

Ping An

Dec-10

Jun-11

China Pacific

Dec-11

Jun-12

China Taiping

Dec-12F

Jun-13F

New China Life

Dec-13F

PICC Group

Source: Company data, Credit Suisse estimates.

The Chinese insurers report their FY12 results in mid to late March 2013, where we expect an uninspiring set of numbers. Key areas to look out for: Headline profit irrelevant

We have the least confidence in this part of our forecasts, given the market volatility and differing impairment policies (on equities) which impact recognition. China Life already pre-announced weak profits which implied some further impairment in 4Q12. Value of new business growth weak

We are expecting weak VNB growth, but improving on 1H12, with low single digit growth. We expect China Pacific and China Taiping to stand out on this metric, with 5-6% growth driven by strong agency sales, with Ping An reporting a strong 2H12. Solvency still an issue

The Shanghai Composite index was up 2% in 2H12. As such, we expect balance sheets to strengthen a bit compared with those in 1H12, noting China Pacific remains by far the best capitalised while others’ capital position was supported by Tier 2 sub-debt. We expect China

- 10 of 37 -

Thursday, 14 March 2013

Asian Daily Agile Property ------------------------------------------------------------- Maintain UNDERPERFORM Feb sales -28% MoM and -15% YoY on Hainan weakness

EPS: ◄► TP: ◄►

Jinsong Du / Research Analyst / 852 2101 6589 / [email protected] Duo Chen / Research Analyst / 852 2101 7350 / [email protected]

Bbg/RIC 3383 HK / 3383.HK Price (13 Mar 13, HK$) 9.27 Rating (prev. rating) U (U) [V] TP (prev. TP HK$) 10.20 (10.20) Shares outstanding (mn) 3,449.45 Est. pot. % chg. to TP 10 Daily trad vol - 6m avg (mn) 11.4 52-wk range (HK$) 12.68 - 8.10 Daily trad val - 6m avg (US$ mn) 14.8 Mkt cap (HK$/US$ mn) 31,976.4/ 4,122.1 Free float (%) 36.4 Performance 1M 3M 12M Major shareholders Chen Zhuo Lin Absolute (%) (7.9) (13.0) (1.3) (63.6%) Relative (%) (3.1) (11.6) (0.7) Year 12/10A 12/11A 12/12E 12/13E 12/14E Revenue (Rmb mn) 20,520 22,945 27,724 30,961 34,538 EBITDA (Rmb mn) 7,567 10,585 9,506 9,704 10,790 Net profit (Rmb mn) 3,577 4,033 4,435 4,669 5,106 EPS (Rmb) 1.02 1.12 1.23 1.29 1.41 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rmb) n.a. n.a. 1.21 1.32 1.51 EPS growth (%) 97.2 9.2 10.0 5.3 9.4 P/E (x) 7.3 6.7 6.1 5.7 5.3 Dividend yield (%) 3.3 3.6 3.9 4.1 4.5 EV/EBITDA (x) 4.7 3.8 4.4 4.5 4.2 P/B (x) 1.4 1.2 1.1 0.9 0.8 ROE (%) 21.8 20.0 19.0 17.3 16.6 Net debt(cash)/equity (%) 49.6 61.9 58.8 56.8 55.1

Figure 1: Agile contracted sales (Rmb mn) 8,000

18,000 16,000

6,000

14,000

5,000

12,000

4,000

10,000

3,000

8,000 6,000

2,000

4,000

1,000

2,000

-

-

Source: Company data

Figure 2: Agile contracted sales summary Sales (Rmb mn) Jan Feb YTD Volume (sq m) Jan Feb YTD ASP (Rmb/sq m) Jan Feb YTD Source: Company data

2012

2013

MOM % chg

YOY % chg

2,080 2,100 4,180

2,480 1,790 4,270

-59% -28%

19% -15% 2%

113,000 190,000 303,000

230,000 150,000 380,000

-44% -35%

104% -21% 25%

18,407 11,053 13,795

10,801 11,942 11,252

-26% 11%

-41% 8% -18%

Agile’s February contracted sales were -28% MoM and -15% YoY at Rmb1.79 bn, mainly due to only Rmb570 mn sales in Hainan, down 37% YoY. 2M13 Hainan sales were Rmb1.1 bn, down 54% YoY. Total subscriptions YTD were Rmb2 bn. This confirmed previous Credit Suisse analysis that Hainan weakness should drag Agile’s performance vs peers’. Figure 3: Agile’s monthly contracted sales from Hainan Agile Hainan sales

(Rmb bn) 1.6

Click here for detailed financials

1.2

YTD, contracted sales totaled Rmb4.27 bn, +2% YoY; volumes amounted to 380,000 sq m, +25% YoY; ASP was Rmb 11,252/sq m, -18% YoY.

(Rmb/sqm) 20,000

ASP (RHS)

7,000

Note 1:ORD/ADR=50.00. Note 2: Agile Property Holdings Limited is an investment holding company. The Company, along with its subsidiaries, is engaged in property development, property management, property investment and hotels operation..

February contracted sales were Rmb1.79 bn, -28% MoM and -15% YoY. Volumes were 150,000 sq m, -35% MoM and -21% YoY. ASP was Rmb 11,942/sq m, +11% MoM and +8% YoY.

Value sold

Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13

● Agile’s February contracted sales were -28% MoM and -15% YoY at Rmb1.79 bn, mainly due to just Rmb570 mn sales in Hainan, down 37% YoY. 2M13 Hainan sales were Rmb1.1 bn, down 54% YoY. This confirmed previous Credit Suisse analysis that Hainan weakness should drag Agile’s performance vs peers. ● Feb volumes were 150,000 sq m, -35% MoM and -21% YoY— only one new launch was made in Foshan in February. ASP for the month was Rmb11,942/sq m, +11% MoM and +8% YoY. Agile management told us that they raised ASP of a few projects in Guangzhou and Foshan in February. ● YTD, Agile’s contracted sales amounted to Rmb 4.27 bn, +2% YoY, much lower than most Chinese developers. National average growth was 87% YoY. ● Agile management believe March sales will be better because it had unrecognized subscription sales of Rmb3.79 bn at the end of Feb. Most of this amount will be transferred to contracted sales in March; still, this pace is slower than peers’. We maintain our UNDERPERFORM rating on the stock.

1.500

1.4

1.0

0.900

0.960 0.850

0.8

0.530 0.570

0.6 0.378

0.4

0.241 0.218 0.193 0.179 0.189 0.230

0.2

0.183

0.0 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13

Source: Company data, Credit Suisse Research

- 11 of 37 -

Thursday, 14 March 2013

Asian Daily Ajisen ------------------------------------------------------------------------------------Maintain NEUTRAL 2012 NP down 56% YoY—16% beat on better cost control; still not a very visible sales trend Vivian Zhao / Research Analyst / 852 2101 7472 / [email protected] Kevin Yin / Research Analyst / 852 2101 7655 / [email protected]

● 2012 NP of HK$154 mn, -56% YoY, beat consensus by 16% (core

profit beat by 6%). Sales of HK$3.04 bn, -1% YoY, were 3% below consensus. China SSSG was -12.6%. Store count was flat at 661 (47 closures, 46 openings). EBIT margins fell 10 pp to 6%, driven by a 1.3 pp drop in GP margins, and 3 pp/1.3 pp hike in staff/rental ratios. ● Jan-Feb 2013 SSSG was negative, implying sales/comp store 20% below pre-incident levels, on our analysis. It plans to open 70 and close 10 stores in 2013, targeting a total store count of 1,000 by 2016. ● Management’s 2013 focus: (1) service and food quality, (2) small, high-efficiency stores (average staff/store down from 25 to 21, new store size capped at 150 sqm), (3) continued focus on soup noodles, no further product line extension. Catalyst: faster sales recovery. ● Stay NEUTRAL; maintain DCF-based HK$6.16 TP: We cut 2013/14E EPS by 16/28% on 10-15% lower 2013/14E sales; we also reduce 2013/14/15E capex by 44-48% on smaller-than-expected pipeline and Ajisen’s new small-store strategy. Our TP implies 23.6x 12M forward P/E, 0.9 PEG on a 2Y CAGR of 27%. Our bull:bear (75:25) weighted scenario analysis reveals a similar valuation of HK$6.0, using 1.0 PEG on a 2013-15 CAGR of 27% (bull) and 16% (bear). Bbg/RIC 538 HK / 0538.HK Price (12 Mar 13 , HK$) 5.35 Rating (prev. rating) N (N) [V] TP (prev. TP HK$) 6.16 (6.16) Shares outstanding (mn) 1,074.42 Est. pot. % chg. to TP 15 Daily trad vol - 6m avg (mn) 3.7 52-wk range (HK$) 11.98 - 4.70 Daily trad val - 6m avg (US$ mn) 2.8 Mkt cap (HK$/US$ mn) 5,748.1/ 741.1 Free float (%) 42.4 Performance 1M 3M 12M Major shareholders Wai Poon (47.32%) Absolute (%) 1.3 (28.7) (53.6) Relative (%) 4.2 (28.7) (55.9) Year 12/10A 12/11A 12/12E 12/13E 12/14E Revenue (HK$ mn) 2,681 3,075 3,182 4,004 4,693 EBITDA (HK$ mn) 730.4 610.0 349.0 618.4 832.4 Net profit (HK$ mn) 457.9 327.0 132.3 319.7 459.0 EPS (HK$) 0.43 0.31 0.12 0.30 0.43 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (HK$) n.a. n.a. 0.12 0.19 0.26 EPS growth (%) 49.0 (28.8) (59.6) 141.6 43.5 P/E (x) 12.5 17.5 43.4 18.0 12.5 Dividend yield (%) 2.9 2.0 0.8 1.8 2.6 EV/EBITDA (x) 5.4 6.8 11.6 6.5 4.5 P/B (x) 2.1 2.0 1.9 1.8 1.6 ROE (%) 17.7 11.5 4.4 10.1 13.4 Net debt(cash)/equity (%) (64.2) (53.2) (54.9) (52.0) (54.5) Note1:Ajisen (China) Holdings Limited is an investment holding company. The Company is a fast casual restaurant (FCR) chain operator selling Japanese ramen and Japanese-style dishes in Hong Kong and the People’s Republic of China..

2012: Sales missed by 3%, costs surprised positively

2012 revenue slipped 1% YoY to HK$ 3.04 bn, 3% below consensus. China SSSG was -12.6% (vs 2011’s -6%). Sales recovery: ongoing but pace is slow: Rather than SSSG (YoY ratio on a rolling base), a more meaningful comparison is with the constant base of pre-incident sales (pre-August 2011). We estimate, by 4Q12, average sales from the 441 comparable stores at 20-22% below pre-incident levels; their monthly sales likely ranged HK$0.380.41, vs HK$0.53 pre-incident in July 2011 (by our estimates). Cost control: sole contributor to earnings beat: (1) Gross margin was 66.4%, 133 bp better than our estimate, as Ajisen curbed promotional price cuts in 2H12. (2) Staff and A&P costs: although up 298 bp and 55 bp YoY, respectively, the rises were not as steep as expected, resulting in a 1 pp beat over consensus EBIT margin.

Bull case: 2013-15E EPS CAGR of 27%; 2013E earnings up 84% on 6% SSSG and 4 pp EBIT margin improvement

Jan-Feb SSSG were negative (on Jan-Feb 2012 base) according to the company. This indicates comp stores are still likely c.23-25% below pre-incident level. Full year sales. We expect 18% growth, driven by: (1) sales per comp store—expect to average 19% below pre-incident level, equivalent of 6.2% SSSG on 2012’s low base. (2) 60 net new stores (70 net of 10 closures) and 40 semi-new stores to contribute to another 12% growth. Gross margins. We expect to stabilise at 66.3% (vs 66.4% in 2012), factoring in: (1) 2% ASP hike (price rise in Tier 1 cities, but trial pricecuts in select Tier 2/3 cities) and (2) 5% food CPI (vs 4.8% in 2012). EBIT margins. We expect a 4 pp improvement: (1) staff cost ratio should ease by 2 pp to 22%, as staff per store reduction (from 25 to 22) should carry the full-year effect in 2013 vs half-year effect in 2012 (programme started in mid-2012) and (2) rent ratio should ease by 1 pp to 14.7% on operating leverage from gradually recovering sales (over 60% of rent cost is fixed). Bear case: 2013-15E EPS CAGR of 16%; 2013E earnings up 41% on 3% SSSG; expansion reduced to 15 stores/year

If China SSSG stalls at 3-5% in 2013-15, equivalently, staying impaired at 20-15% below pre-incident levels, new store adds will likely be scaled back (we assume 15/year vs 60-70/year in the bull case. Other key assumptions remain constant. Figure 1: Historical key financial forecasts—bull vs bear case HK$ mn, or %

FY10

FY11

FY12

8.7 -6.0 -12.6 China SSSG % 471 622 624 China Store # Total Sales ($) 2,681 3,075 3,043 69.2 67.8 66.4 GM (%) 17.6 21.2 24.2 Staff cost % 13.2 14.5 15.7 Rental cost % 1.3 0.8 1.3 A&P % 4.8 5.4 5.9 Fuel & utility % 6.2 8.7 9.6 Logistic other % 43.1 50.5 56.8 Total Opex % 4.8 4.7 6 Depr & amort % 22 16 6 EBIT margin % 447 350 154 Net profit ($) 16.7 11.4 5.1 Net margin %

Bull case Bear case YoY b.p. FY13 FY14 FY15 CAGR FY13 FY14 FY15 CAGR 6.2 5.5 5.0 3.5 4.0 5.0 -660 681 743 812 9% 639 654 669 2% -1% 3,579 4,011 4,555 13% 3,343 3,573 3,850 7% 66.5 66.7 66.7 -133 66.3 66.3 66.7 23.0 23.4 23.6 298 22.1 22.4 22.6 15.1 14.6 14.0 127 14.7 14.0 13.3 1.4 1.3 1.2 1.5 1.5 1.4 49 5.4 5.2 5.0 5.6 5.5 5.3 55 8.8 8.5 8.1 9.1 8.9 8.6 94 54.3 53.8 53.0 623 52.3 51.4 50.1 6 5 5 6 6 6 103 10 11 13 8 9 9 -992 -56% 273 336 435 27% 211 243 283 16% 7.6 8.4 9.6 6.3 6.8 7.3 -631

Note: % for costs and margins = % over sales. Source: Company data, Credit Suisse estimates

Stay NEUTRAL; maintain our DCF-based TP of HK$6.16

We cut our 2013/14E EPS by 16/28%, as we tune down our 2013/14E sales by 10-15% on a 7 pp cut in 2013 SSSG. We use the bull case for our DCF analysis, but apply a higher discount rate (14% vs 13.5%) to factor in low earnings visibility. Our TP implies 23.6x 12-month forward P/E, 0.9 PEG on a two-year CAGR of 27%. Probability-weighted analysis: We expect an eventual recovery and management’s dedication, but given the still-slow sales recovery, we take reference from probability weighted analysis (bull:bear 75:25, PEG 1.0x). Figure 2: Probability weighted—HK$6.07 (Bull: Bear 75:25) Probability 12M-fwd EPS 2013 EPS YoY% CAGR 2013-15 PEx (1.0 PEG) TP $ 6.07 Bull 75% $ 0.26 83.5% 26.9% 26.9x $ 7.02 Bear 25% $ 0.20 40.9% 16.4% 16.4x $ 3.23 Source: Credit Suisse estimates based on company data

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Thursday, 14 March 2013

Asian Daily China COSCO Holdings------------------------------------------------ Maintain UNDERPERFORM What’s next on the COSCO block?

Davin Wu / Research Analyst / 852 2101 6917 / [email protected] Timothy Ross / Research Analyst / 65 6212 3337 / [email protected]

● Bloomberg reported that China COSCO could sell more assets to its parent to raise as much as Rmb27 bn. This followed its announced sale of COSCO Logistics on 11 March 2013. ● We believe COSCO will consider divesting more non-core assets in order to boost FY13 profits. CIMC, the box manufacturing associate and box leasing unit, as well as older dry bulk vessels seem likely to be top of the list. Selling the entire loss-making dry bulk unit is unlikely, given the sector’s current low valuation. ● If COSCO were to sell just these assets (together with COSCO Logistics) at market prices, we estimate that it would recognise a total disposal gain of Rmb4.2 bn. The size of the asset sale would likely depend on the magnitude of 1H13 shipping losses. ● If COSCO could produce a small profit for FY13, it should at best trade at its NAV. However, it is trading at 1.4x P/B and 1.25x NAV. COSCO will report (we believe, disappointing) FY12 results on 27 March 2013; this and the impact of correcting container rates in coming months should put the stock under pressure. Bbg/RIC 1919 HK / 1919.HK Price (12 Mar 13 , HK$) 4.08 Rating (prev. rating) U (U) [V] TP (prev. TP HK$) 3.30 (3.30) Shares outstanding (mn) 10,216 Est. pot. % chg. to TP (19) Daily trad vol - 6m avg (mn) 23.1 52-wk range (HK$) 5.19 - 2.76 Daily trad val - 6m avg (US$ mn) 11.5 Mkt cap (HK$/US$ mn) 49,513.1/ 6,382.8 Free float (%) 94.0 Performance 1M 3M 12M Major shareholders COSCO Group 52% Absolute (%) — 9.4 (20.0) Relative (%) 2.9 8.9 (21.4) Year 12/10A 12/11A 12/12E 12/13E 12/14E Revenue (Rmb mn) 96,439 84,639 89,588 94,519 78,113 EBITDAR 10,658.0 (6434.4) (3082.8) 2,912.2 3,675.2 Net profit (Rmb mn) 6,326 (11422) (8671) (2043) (1583) EPS (Rmb) 0.62 (1.12) (0.85) (0.20) (0.15) - Change from prev. EPS (%) n.a. n.a. n.m n.m n.m - Consensus EPS (Rmb) n.a. n.a. (0.72) (0.11) 0.19 EPS growth (%) n.m. n.m. n.m. n.m. n.m. P/E (x) 5.3 n.m. n.m. n.m. n.m. Dividend yield (%) 2.8 0 0 0 0 EV/EBITDAR (x) 5.2 (10.8) (28.0) 31.6 26.8 P/B (x) 0.7 1.0 1.3 1.3 1.4 ROE (%) 14.3 (28.1) (28.5) (8.0) (6.5) Net debt(cash)/equity (%) 25.4 59.9 112.4 129.5 151.2 Note1: ORD/ADR=5.00. Note2: China COSCO Holdings Company Limited is principally engaged in marine cargo transportation services. The Company operates its businesses through container shipping and related business, bulk goods shipping, logistics, harbour and related.

Click here for detailed financials

More assets sales – It was reported by Bloomberg on 13 March 2013 that COSCO is planning to sell more assets to its parent company to raise Rmb27 bn. This followed an earlier announcement that COSCO will sell to its state-owned parent the entire logistics unit, which we estimate will be valued at Rmb7.5 bn and produce a Rmb1.1 bn disposal gain (Disposal of COSCO Logistics is the first step of restructuring, published on 12 March 2013). Despite our expectation of a rebound in dry bulk shipping rates this year, we estimate COSCO is likely to incur Rmb2 bn of recurring losses in FY2013. The company would thus need to sell more assets in order to break even with a small profit and avoid being delisted from the A-share market. We believe selling the entire loss-making dry bulk unit to its parent company is not a preferred option, because a low valuation for the bulk sector today makes it difficult to value the business and achieve a disposal gain, especially when a number of dry bulk vessels were

EPS: ◄► TP: ◄►

acquired when the market was at its peak. CIMC, a 21.8% owned associate involved in box manufacturing business, the container leasing unit and 65 old vessels with negligible book values are likely to be the targets, in our view. 1) CIMC (2039 HK, unrated), 21.8% owned by COSCO Pacific (1199 HK NEUTRAL), is mainly involved in the box manufacturing business. Its current valuation of 50% premium to book value means that a potential disposal at today’s prices could produce a disposal gain to equity shareholders of Rmb848 mn. Figure 1: Estimated gain if CIMC is disposed of Disposal gain to equity Disposal gain P/B shareholders per share Valuation Rmb mn HK$ 1.00 0.00 1.25 424 0.05 1.50 848 0.10 1.75 1,272 0.15 2.00 1,696 0.21 Source: Company data, Credit Suisse estimates.

As % of Today's share price 0.0% 1.3% 2.6% 3.8% 5.1%

2) Floren is a wholly owned container leasing business under COSCO Pacific, a 42.7% owned subsidiary. It is a counter-cyclical cash cow, which we estimate will contribute Rmb992 mn profit in FY12. The business is very stable, because more than half of its business is tied to long-term contracts. A potential disposal at 15x P/E could produce Rmb1 bn in disposal profits to equity shareholders. Figure 2: Estimated gain if Floren (container leasing) is disposed of Disposal gain to equity Disposal gain P/E shareholders per share Valuation Rmb mn HK$ 13.00 300 0.04 14.00 657 0.08 15.00 1,014 0.12 16.00 1,370 0.17 17.00 1,727 0.21 Source: Company data, Credit Suisse estimates.

As % of Today's share price 0.9% 2.0% 3.1% 4.1% 5.2%

3) 65 old dry bulk vessels with negligible book value. We estimate that about 65 dry bulk vessels older than 20 years only carry a negligible book value on the balance sheet. If they were to be sold or be packaged in a sales and lease back deal at market value today, we estimate that COSCO could recognise Rmb1.4 bn in disposal gains. Figure 3: Estimated gain if the old dry bulk vessels are sold 65 fully depreciated dry bulk vessels Book value of vessels Sales Proceed Tax rate Estimated disposal gain Disposal gain per share, HK$ Disposal gain as a % of today's share price Source: Company data, Credit Suisse estimates.

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Rmb mn 1,400 15% 1,190 0.14 3.6%

Thursday, 14 March 2013

Asian Daily China Oilfield Services Ltd -------------------------------------------------------Maintain NEUTRAL A small book-keeping disposal to CNOOC Ltd

EPS: ◄► TP: ◄►

Horace Tse / Research Analyst / 852 2101 7379 / [email protected] David Hewitt / Research Analyst / 65 6212 3064 / [email protected]

● Disposing of a module rig at an Rmb18 mn loss: COSL announced on 13 March that it has disposed of a module rig to CNOOC Ltd at Rmb51 mn; the resulting Rmb18 mn loss will be booked as general working capital in 2013. All in all, this should be immaterial to COSL since the disposal loss only accounts for 0.3% of 2013 net profit. ● 2013 growth should be ok but what next? We expect 2013 to see new capacities driving 15% EPS growth for COSL, but this should well be in consensus numbers and unlikely to have upside surprise. Beyond that there is no major new capacities planned in ‘14; thus, we face a gap year before the next growth phase in ‘15. ● COSL reporting 4Q12 results on 22 March: 4Q traditionally is a weak quarter dragged down by seasonality cost bookings, and the seasonality trend could surprise the market. We forecast Rmb0.16 EPS on a pre-provision basis. We also expect COSL to book a provision for its Norwegian tax dispute which is still unresolved. ● Maintain NEUTRAL and HK$14.5 target price: At c.11x FY13E P/E, the stock is fairly valued relative to history; hence, we remain NEUTRAL and reiterate our HK$14.5 target price. Bbg/RIC 2883 HK / 2883.HK Price (13 Mar 13, HK$) 15.42 Rating (prev. rating) N (N) TP (prev. TP HK$) 14.50 (14.50) Shares outstanding (mn) 4,495.32 Est. pot. % chg. to TP (6) Daily trad vol - 6m avg (mn) 8.5 52-wk range (HK$) 17.5 - 10.1 Daily trad val - 6m avg (US$ mn) 16.8 Mkt cap (HK$/US$ bn) 85.8/ 11.1 Free float (%) 45.3 Performance 1M 3M 12M Major shareholders CNOOC Group Absolute (%) (8.2) (7.8) 20.3 54.7% Relative (%) (3.5) (6.3) 20.8 Year 12/10A 12/11A 12/12E 12/13E 12/14E Revenue (Rmb mn) 17,544 18,426 21,622 24,152 25,238 EBITDA (Rmb mn) 8,494 8,127 9,517 10,885 11,874 Net profit (Rmb mn) 4,127 4,038 3,762 5,307 5,933 EPS (Rmb) 0.92 0.90 0.84 1.18 1.32 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rmb) n.a. n.a. 1.01 1.19 1.27 EPS growth (%) 31.6 (2.2) (6.9) 41.1 11.8 P/E (x) 13.5 13.8 14.8 10.5 9.4 Dividend yield (%) 1.5 1.5 1.7 1.9 2.1 EV/EBITDA (x) 10.9 11.1 9.2 8.1 7.1 P/B (x) 2.2 2.0 1.8 1.6 1.4 ROE (%) 17.2 14.9 12.6 15.8 15.6 Net debt(cash)/equity (%) 92.1 75.8 59.3 55.9 38.2 Note 1: ORD/ADR=20.00. Note 2: China Oilfield Services Limited (COSL) is a solution provider of integrated oilfield services in China. The company's services cover each phase of oil and gas exploration, development and production.

Click here for detailed financials

We forecast Rmb0.16 EPS for 4Q12: One-off expenses ahead of COSL Innovator and Promoter start-ups should be a drag on 4Q12 margins—we forecast 15% EBIT margin for the quarter lower than the 2007-11 4Q average. We also expect COSL to book a provision for its tax dispute with Norwegian tax authorities—on a post-provision basis we forecast a loss of Rmb0.02 in 4Q12.

Figure 1: COSL new capacity additions in 2013-15 – a gap year in 2014

Source: Company data

Figure 2: COSL’s quarterly EBIT margin trend – seasonality cost booking dragging down 4Q earnings 40% 35% 30%

25% 20% 15% 10% 5% 0%

1Q

2Q

3Q 2007-11 avg

4Q

2012

Source: Company data, Credit Suisse estimates

Figure 3: COSL – forward P/E on consensus estimates (x) 20 18 16

+1 S.D. = 13.2x

14 12

Avg. = 10.3x

10

8

-1 S.D. = 7.5x

6 4 2008

2009

2010

2011

Source: Datastream, company data, Credit Suisse estimates

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2012

2013

Thursday, 14 March 2013

Asian Daily China Resources Gas --------------------------------------------------------------Maintain NEUTRAL Connection backlog supports its valuation premium

EPS: ▲ TP: ▲

Edwin Pang / Research Analyst / 852 2101 6406 / [email protected]

2012 4,050 15,541 19,591 2,527 3,492 6,019 62.4 22.5 30.7 2,869 14.6 761 3,630 18.5 (334) 267 2,803 (768) (384) 1,651 0.82 4,993 1,500

*2011 2,954 11,254 14,208 1,799 2,366 4,166 60.9 21.0 29.3 2,120 14.9 564 2,683 18.9 (88) 103 2,135 (563) (396) 1,176 0.61 3,747 900

Gross gas sales (mcm) Gross resi. cust. adds. ('000s)

9,268 3,528

7,215 1,733

28.4% 103.6%

8,306 1,681

11.6% 109.8%

Gas sales margin (RMB/cm) Connec fee margin (RMB/cust.)

0.58 1,405

0.53 1,667

10.7% -15.7%

0.54 1,356

7.8% 3.6%

200%

+2x SD

150%

+1x SD

100%

Avg

0%

-1x SD -50%

-2x SD

Source: Bloomberg, Credit Suisse estimates

Significant P/E premium to market … maintain NEUTRAL

Non-recurring connection fee remaining around 42% of GP is a medium-term concern as it would eventually taper off. That said, its backlog of 2 mn gross connections buy time (one-two years) for CR Gas to raise recurring gas sales revenues and manage the rate of cost increases before connection fee revenues taper off.

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Jan-13

Jul-12

Oct-12

Apr-12

Oct-11

Jan-12

Jul-11

Apr-11

Jan-11

Jul-10

Oct-10

Apr-09

-100%

Jan-09

CR Gas is guiding (1) 16% YoY organic gas sales growth (implies 20% YoY excluding the matured big five cities), (2) around 1.0-1.1 mn gross connections, (3) capex of HK$6-8 bn (inclusive of HK$4-5 bn for M&A, of which Ningbo is ~HK$2.5 bn) and (4) that it will raise debt to fund capex. Net of operating cash flow, we estimate CR Gas will need up to HK$4 bn, which will raise its net gearing to ~10%.

7.7% 8.6%

Figure 2: CR Gas—forward P/E premium to MSCI China

50%

Guidance review

YoY% CS 2012 % CS 12E 37.1% 2,843 42.5% 38.1% 14,120 10.1% 37.9% 16,963 15.5% 40.5% 1,731 46.0% 47.6% 3,177 9.9% 44.5% 4,908 22.6% 60.9 22.5 28.9 35.4% 2,755 4.1% 16.2 35.0% 511 48.9% 35.3% 3,266 11.1% 19.3 280.7% (248) 34.4% 158.3% 142 88.5% 31.2% 2,649 5.8% 36.4% (681) 12.8% -3.1% (366) 4.8% 40.4% 1,602 3.1% 33.8% 0.78 5.5% 33.2% 4,896 2.0% 66.7% 1,065 40.9%

Admin / sales 7.8% 8.2% SG&A / sales 10.5% 9.5% *Restated. Source: Company data, Credit Suisse estimates

Apr-10

Click here for detailed financials

Connection fee Gas distribution Revenue Connection fee Gas distribution Gross profit - Connection fee - Gas distribution Margin (%) EBIT Margin (%) Add: Depreciation EBITDA Margin (%) Finance charges Interest income Profit before tax Tax Minorities Profit after tax EPS (HK$) Attri. gas sales (mcm) Attrib. resi. cust. adds. ('000s)

Oct-09

Note 1: China Resources Gas Group Limited (CR Gas) is principally engaged in city gas distribution business including piped natural or petroleum gas distribution and operating CNG (compressed natural gas) filling stations in the PRC.

Figure 1: CR Gas—FY12 results snapshot

Jan-10

Bbg/RIC 1193 HK / 1193.HK Price (13 Mar 13, HK$) 18.50 Rating (prev. rating) N (N) TP (prev. TP HK$) 18.20 (14.70) Shares outstanding (mn) 2,224.01 Est. pot. % chg. to TP (2) Daily trad vol - 6m avg (mn) 5.3 52-wk range (HK$) 18.9 - 13.3 Daily trad val - 6m avg (US$ mn) 11.5 Mkt cap (HK$/US$ mn) 41,144.2/ 5,303.9 Free float (%) 36.4 Performance 1M 3M 12M Major shareholders CR Holdings 63.3% Absolute (%) 10.0 11.0 37.2 Relative (%) 14.7 12.5 37.8 Year 12/11A 12/12A 12/13E 12/14E 12/15E Revenue (HK$ mn) 13,507 19,591 25,172 29,401 34,517 EBITDA (HK$ mn) 2,614 3,630 4,406 5,251 5,709 Net profit (HK$ mn) 1,200 1,651 2,280 2,749 2,919 EPS (HK$) 0.66 0.82 1.03 1.24 1.31 - Change from prev. EPS (%) n.a. n.a. 3 1 (1) - Consensus EPS (HK$) n.a. n.a. 0.92 1.14 1.43 EPS growth (%) 20.6 24.7 25.2 20.6 6.2 P/E (x) 28.2 22.6 18.0 15.0 14.1 Dividend yield (%) 0.8 0.9 1.1 1.3 1.4 EV/EBITDA (x) 15.6 11.2 9.3 7.5 6.5 P/B (x) 4.2 3.2 3.0 2.6 2.3 ROE (%) 17.2 16.7 18.0 18.7 17.2 Net debt(cash)/equity (%) (3.7) (2.9) (1.9) (7.8) (18.2)

At 18x 2013E P/E and 15x 2014E P/E, the stock trades at around 90100% premium to the China market (FY13E). While the market may be willing to pay this premium, expansion of the premium could be limited, in our view. We maintain our NEUTRAL rating.

Jul-09

● CR Gas’ 2012 net profit came in at HK$1.65 bn, up 38% YoY (before restated for FY11). The result was 3.1% above our forecast. ● The good: GP (+45%) was strong on margin expansion and resilient connection fee GP (still 42% of total). With a 2 mn gross connection backlog, it has the flexibility to keep its connection GP for one-two years with little downside risks. The offset: Strong GP growth did not translate into PAT leverage due to higher SG&A (+42%, with administrative/sales up 150 bp YoY) and interest cost normalisation (up ~200 bp YoY). Management attributed this to the 78 projects (include 23 greenfield) added in 2012. ● We raise our 2013/14E EPS by 3%/1% on its stronger-thanexpected backlog of connections. Rolling forward our DCF, our new target price is now HK$18.2 (up from HK$14.7). This implies a forward P/E of 15x (2014E). With comfortable gearing, equity issue risk appears low. ● While its 90-100% forward P/E premium to the China market may cap significant share price upside, its resilient connection fee revenue allows it time to manage the rate of cost growth. Maintain NEUTRAL.

Thursday, 14 March 2013

Asian Daily E-House China Holdings Ltd --------------------------------------------- Maintain OUTPERFORM FY12 results beat consensus significantly; guidance of 19% growth for FY13

EPS: ▼ TP: ▲

Jinsong Du / Research Analyst / 852 2101 6589 / [email protected] Duo Chen / Research Analyst / 852 2101 7350 / [email protected]

YoY chg.

2012A

YoY chg.

26% 7% -19% 6% 14% 12% 9% 14% 23% -145% -16% -191% -78% -73% -347% -92%

55% 32% -11% 22% 9% 30% 11% 47% -1% -92% -67% 7% 122% -83% -8% -94%

193 16 55 170 30 462 (203) 259 (337) (71) 2 (1) (1) (71) (14) (57)

22% -14% -12% 24% 11% 15% 25% 9% 18% -85% -39% -93% -143% -85% -93% -79%

12% 13% -54% -196% -221% p.p 1 -9 12

30% 42% -152% -132% -152% p.p 5 22 22

462 259 (13) (16) (8) (%) 56 (3) (2)

15% 9% -202% -407% -8% p.p -3 -6 0

Total GFA of new properties sold

(mn sqm) 7

ASP of new properties sold

(Rmb/sqm) 10,000 9,000

6

8,000

5

7,000

4

6,000

3

5,000

2

4,000

Source: Company data

- 16 of 37 -

4Q12

3Q12

2Q12

1Q12

4Q11

2,000

3Q11

0

2Q11

3,000

1Q11

1

4Q10

Revenue from secondary agency business was +32% YoY to US$4.5 mn, mainly due to pick up in secondary housing transaction volumes in 4Q12.

QoQ chg.

Figure 2: Annual GFA and ASP of primary houses sold through E-House

3Q10

Revenue from real estate online services was +22% YoY to US$45.8 mn, due to growth in e-commerce revenue.

GAAP 70 Primary brokerage 5 Secondary brokerage 13 Information and consulting services 56 Real estate online services 8 Others 153 Total revenues (60) Cost of revenues 92 Gross profit (95) SG&A (3) Operating income 0 Interest income 2 Other income, net (5) Taxation (5) Net income (4) MI (2) NI for shareholders Non-GAAP 153 Total revenues 98 Gross profit 9 Non-GAAP operating income 6 Net income 9 NI attributable to shareholders (%) Margins 64 Non-GAAP gross margin 6 Non-GAAP operating margin 6 Non-GAAP net margin Source: Company data, Credit Suisse estimates

2Q10

E-House 4Q12 revenue rose 30% YoY to $153 mn, mainly driven by 53% YoY growth of its primary agency business. Total GFA of new properties sold via E-House was +53% YoY to 6.5 mn sq m. Total value of new properties sold via E-House was +52% YoY to Rmb51.8 bn.

4Q12

1Q10

4Q12 revenue +30% YoY, driven by primary agency business

Figure 1: E-House FY12 results summary

4Q09

Click here for detailed financials

SG&A expenses were $95.3 mn, relatively flat. As a result, operating margin improved significantly YoY. According to the CFO, in 2013, E-House will continue with the cost-control measures and further align employee compensation with overall net profit. She is also confident of further improving profitability in 2013E.

3Q09

Note 1: E-House is a real estate services company in People’s Republic of China. E-House provides primary real estate agency services, secondary real estate brokerage services, real estate information and consulting services.

Operating margin improved significantly due to flat SG&A

2Q09

Bbg/RIC EJ US / EJ.N Price (12 Mar 13 , US$) 4.89 Rating (prev. rating) O (O) [V] TP (prev. TP US$) 5.70 (5.20) Shares outstanding (mn) 119.95 Est. pot. % chg. to TP 17 Daily trad vol - 6m avg (mn) 0.0 52-wk range (US$) 7.49 - 3.01 Daily trad val - 6m avg (US$ mn) 0.2 Mkt cap (US$ mn) 586.6 Free float (%) 40.0 Performance 1M 3M 12M Major shareholders SINA Corporation Absolute (%) 3.8 22.3 (24.3) (25%) Relative (%) 6.7 21.7 (25.7) Year 12/11A 12/12A 12/13E 12/14E 12/15E Revenue (US$ mn) 401.6 462.4 548.8 646.0 761.7 EBITDA (US$ mn) 12.3 (12.5) 40.7 64.1 87.1 Net profit (US$ mn) (9.1) (8.4) 35.5 55.2 73.4 EPS (US$) (0.11) (0.08) 0.33 0.52 0.69 - Change from prev. EPS (%) n.a. n.a. (31) (16) - Consensus EPS (US$) n.a. n.a. 0.33 0.62 EPS growth (%) n.m. n.m. n.m. 55.6 33.0 P/E (x) n.m. n.m. 14.6 9.4 7.1 Dividend yield (%) 5.1 3.1 2.1 3.2 4.2 EV/EBITDA (x) 15.6 (29.8) 10.2 8.2 5.4 P/B (x) 0.7 0.8 0.8 0.8 0.8 ROE (%) (1.2) (1.3) 5.3 8.6 11.6 Net debt (cash)/equity (%) (43.6) (28.7) (24.3) (8.8) (17.4)

Revenue from real estate information and consulting services was -11% YoY to US$13.4 mn due to decline in consulting services from new property development, partially offset by an increase in information services.

1Q09

● E-House recorded US$153 mn revenue (6% above consensus) and non-GAAP EPS of US$0.04 (86% above consensus and 75% above CS estimates) in 4Q12. For FY12, E-House recorded US$462 mn revenue (2% above consensus) and non-GAAP loss of US$0.07 per share (significantly better than the consensus of US$0.11 loss). ● E-House co-Chairman expects 1Q13 performance to be far better than 1Q12, judging from YTD housing transaction and advertising volumes. He says E-House has learned from previous cycles how best to tailor our operations to take advantage of a fluctuating real estate market and will timely adjust operations. ● It guided to FY13 revenue of US$550 mn, a 19% YoY increase, assuming both primary agency business and online segments grow by more than 20% in 2013. ● We reduce our FY13E and FY14E EPS by 31% and 16% on more conservative margin assumptions, but roll over our target price to be based on 2013E EPS instead, and therefore, increase it from $5.2 to $5.7 per share.

Thursday, 14 March 2013

Asian Daily Kaisa Group -------------------------------------------------------------------- Maintain OUTPERFORM Stock price may be over-penalised; to quantify the impact of potential Shenzhen tightening

EPS: ◄► TP: ◄►

Duo Chen / Research Analyst / 852 2101 7350 / [email protected] Jinsong Du / Research Analyst / 852 2101 6589 / [email protected]

● Kaisa’s (6% of land bank located in Shenzhen) stock price dropped 7% on 13 March on possible news that Shenzhen has implemented tightening policy to forbid projects to raise ASP. ● Another news came in the afternoon, saying that Shenzhen’s Urban Planning Land and Resources Commission has denied the earlier news. According to Kaisa, Shenzhen’s govt has been trying to forbid projects’ ASP increase since April 2011 (but no official document) , but the implementation was not very successful. ● Our sensitivity analysis shows that for every 5% fall in 2013E housing price in Shenzhen, Kaisa’s NAV (HK$5.4/share) will fall by 1.33%. For every 5% fall in 2013E transaction volume in Shenzhen, Kaisa’s NAV will decline by 1.26%. Shenzhen’s redevelopment pipeline, that are not included in land bank, will not start selling in 2013, so we maintain conservative estimate of HK$6/share extra NAV for the pipeline. ● We believe city specific housing market measures should also have national impact and therefore Kaisa may have been overpenalised. Kaisa is trading at 62% discount to NAV and the valuation is attractive. Maintain OUTPERFORM. Bbg/RIC 1638 HK / 1638.HK Price (13 Mar 13 , HK$) 2.06 Rating (prev. rating) O (O) TP (prev. TP HK$) 3.00 (3.00) Shares outstanding (mn) 4,908.33 Est. pot. % chg. to TP 46 Daily trad vol - 6m avg (mn) 19.9 52-wk range (HK$) 2.82 - 1.35 Daily trad val - 6m avg (US$ mn) 6.0 Mkt cap (HK$/US$ mn) 10,111.2/ 1,303.4 Free float (%) 29.0 Performance 1M 3M 12M Major shareholders Kwok's Absolute (%) (13.1) (13.8) 17.7 family(62.23%), Relative (%) (8.3) (12.4) 18.3 Carlyle(8.79%) Year 12/11A 12/12A 12/13E 12/14E 12/15E Revenue (Rmb mn) 10,835 11,955 16,045 19,608 22,511 EBITDA (Rmb mn) 2,307 2,715 4,345 4,990 5,289 Net profit (Rmb mn) 1,442 1,626 2,207 2,777 2,946 EPS (Rmb) 0.26 0.29 0.40 0.50 0.53 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rmb) n.a. n.a. 0.44 0.55 0.71 EPS growth (%) (9.1) 13.2 35.8 25.8 6.1 P/E (x) 6.3 5.6 4.1 3.3 3.1 Dividend yield (%) 0 0 0 0 0 EV/EBITDA (x) 7.5 6.7 4.3 3.9 3.9 P/B (x) 0.8 0.6 0.6 0.5 0.4 ROE (%) 13.2 12.4 14.3 15.5 14.2 Net debt(cash)/equity (%) 76.6 66.8 60.3 57.0 54.3 Note1:Kaisa Group Holdings Ltd. is an investment holding co, & its subsidiaries are principally engaged in property development, investment & management. It operates in 4 segments: Property development, consultancy services, investment & agency, & management..

Click here for detailed financials

Figure 1: Kaisa’s debt financing history Date Amount Interest Financial vehicle 2010 Apr 28 US$350 mn 13.50% Senior notes 2010 Dec 20 Rmb1.5 bn 8.00% Rmb denominated US$ settled CB 2011 Mar 15 Rmb2 bn 8.50% US$ settled Rmb senior bonds 2011 Jun 16 US$300 mn 13.50% Senior notes 2012 May 23 US$120 mn 13.50% Exchangeable Term Loan 2012 Sept 18 US$250 mn 12.875% Senior notes 2013 Jan 4 US$500 mn 10.25% Senior notes 2013 Jan 13 US$550 mn 8.875% Senior notes Source: Company data.

Maturity 2015 2015 2014 2015 2014 2017 2020 2018

According to the Kaisa management, Shenzhen’s government has been trying to forbid each project’s ASP increase since April 2011 (No official document is available, but only via negotiations with developers), but the implementation was not very successful. Besides this, the Shenzhen government also controls the whole city’s housing ASP by: (1) controlling the pace of granting pre-sale permission—may slow down the approval of high-ASP projects’ pre-sale permission ; (2) mixing supply of high-ASP projects with that of low-ASP projects in each month to maintain stability of the city’s ASP. Figure 2: Kaisa’s (6% of land bank located in Shenzhen) stock price dropped 7% on 13 March—bigger drop than most peers

2%

0%

0% -2% -4%

-4%

-6%

-3%

-3%

-3%

-3%

-3%

-2%

-2%

-2%

-1%

-6%

-8% -10%

-3%

-7% -10%

-12%

Source: Reuters.

Figure 3: 6% of Kaisa’s landbank is located in Shenzhen, contributing 27% to its 12-month forward GAV Total Land bank GFA GFA (sqm) (sqm) 580,135 735,299 98,241 388,626 143,796 394,663 15,089 105,830 231,572 142,000 142,000 124,479 973,600 973,600 96,941 96,941 130,520 130,520 30,602,608 23,061,895

Woodland Height Mocha Town Kaisa Center Lake View Place Xiangrui Garden Mingcui Garden Jincui Garden Shangpin Garden Kaisa Global Center Metro City Kaisa City Plaza Kaisa Metropolitan Homeland Dapeng Project Total Including Shenzhen pipeline Source: Company data, Credit Suisse estimates.

% of Total Landbank (%) 0.1 0.6 4.2 0.4 0.6 5.9 50.7

% of Total GAV (%) 1.8 2.3 0.5 0.8 0.8 0.9 0.6 0.8 3.0 0.5 11.7 1.6 1.8 27.1 64.6

To quantify the impact of potential tightening policy in Shenzhen Figure 4: Percentage of NAV change with respect to changes in 2013E Shenzhen housing transaction volume and ASP change Shenzhen 2013E housing ASP YoY change -10% -5% 0% 5% 10% Shenzhen -10% -6% -5% -4% -3% -1% 2013E -5% -5% -4% -3% -1% 0% transaction 0% -4% -3% -2% 0% 2% volume YoY 5% -3% -2% 0% 1% 3% change 10% -1% -1% 1% 2% 4% Source: Company data, Credit Suisse estimates.

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15% 0% 2% 3% 4% 6%

20% 1% 3% 4% 6% 7%

Thursday, 14 March 2013

Asian Daily Hong Kong

Hong Kong Property Sector ------------------------------------------ Maintain MARKET WEIGHT Buy when others are feared

Cusson Leung, CFA / Research Analyst / 852 2101 6621 / [email protected] Joyce Kwock / Research Analyst / 852 2101 7496 / [email protected]

● HSBC has announced a 25 bp increase in mortgage rates due to the increase in the risk weighting of the mortgage lending. We also expect other banks to follow. However, given the shrinking mortgage volume on the back of government measures, we don’t think banks will be too aggressively raising rates. ● We believe the increase in the mortgage rate will have limited impact on affordability. The LTV for new mortgage is at about 52% and even assuming mortgage rate to increase to 4.5%, the affordability ratio is still estimated at about 44%. ● With the recent corrections, we believe developers are increasingly attractive with an average discount to NAV of 41% ex-CK. We believe the policy and interest rate risks are largely discounted. ● Developers are not only cheap but are also beneficiary of the shrinking secondary market. The primary sales have been doing well since the last government measures. Apart from one project, there does not seem to be a “price war” going on. We believe it’s time to buy on dips. SHKP and Henderson are our top picks.

Figure 2: Sensitivity of affordability on mortgage rate and LTV

Figure 1: No strong correlation between mortgage rate and share price

Size (sq ft) 650 Household income (HK$) Price (HK$/ sq ft) 7,000 Tenures (yr) Price (HK$ mn) 4.55 Mortgage rate 2.50% 4.50% LTV 70% 70% Monthly payment (HK$) (14,288) (17,703) Affordability ratio 48% 59% LTV 52% 52% Monthly payment (HK$) (10,614) (13,151) Affordability ratio 35% 44% Source: Company data, Credit Suisse estimates

30,000 25 5.50% 70% (19,559) 65% 52% (14,529) 48%

Developers are cheap now (and they are doing well too)

After the recent correction, all the developers have attractive valuation now, with an average of 36% discount to NAV (or 41% discount excluding Cheung Kong). To a very large extent, we believe that the recent correction has already largely factored in both the policy risks and interest rate hike. Historical evidence also showed no strong correlation between developers’ share prices and mortgage rates.

30.0

12.0

25.0

10.0

20.0

8.0

Furthermore, developers are not just cheap, but are actually doing well on their post-measure launches. Both the ASP (except one project by Cheung Kong) and the sales progress momentum have held up well even after the Feb-13 measures, and projects such as Residence 88 (by SHKP) and Green Code (by Henderson Land) were sold substantially within short period of time.

15.0

6.0

Buy on dips

10.0

4.0

5.0

2.0 Jan-97 Dec-97 Nov-98 Oct-99 Sep-00 Aug-01 Jul-02 Jun-03 May-04 Apr-05 Mar-06 Feb-07 Jan-08 Dec-08 Nov-09 Oct-10 Sep-11 Aug-12

-

We believe that the market will soon realise that the developers are in fact the beneficiary of the government measures, when the demand further shift from the secondary market to the primary. Therefore, we believe that this valuation level presents good buying opportunity. Our top picks are SHKP and Henderson, which are trading at 40% and 42% discounts, respectively.

Sino Share Price (LHS)

Figure 3: HK Property valuation summary

W.A. effective mortgage rate (RHS)

Source: Company data, Credit Suisse estimates

Limited impact upon 25 bp rise in mortgage rate

On 13 March 2013, HSBC announced that effective from 14 March 2013, the rate for new mortgages will be raised by 25 bp, upon the increased risk weighting requirement on mortgaged assets by HKMA. After the 25 bp raise, the P-based and H-based mortgage rates would be at P-2.15% to -1.85%, and H+2.55% to +2.95%, respectively. The impact on the affordability from mortgage rate rise should be limited, in our view. According to the sensitivity analysis below, buyers now are only using 52% LTV on new mortgages. Even if mortgage rate goes up by 200 bp, the affordability ratio should still be below the 50% threshold at 44%. Furthermore, since the volume of mortgage is shrinking (along with shrinking volumes and lowered LTV), we believe that banks will be disciplined in raising rates in order to maintain or even trying to gain the market share.

Company Rating RIC Px ($) TP ($) +/- (%) NAV ($/sh) Disc (%) SHKP O 0016.HK 111.6 139.3 25 185.7 (40) CKH O 0001.HK 116.8 140.3 20 156.0 (25) Henderson Ld O 0012.HK 51.25 66.6 30 88.8 (42) Sino Land O 0083.HK 13.4 16.7 24 22.2 (40) Kerry Prop. O 0683.HK 36.7 47.8 30 67.3 (45) Swire Properties O 1972.HK 28.15 30.3 7 35.6 (21) Hang Lung Prop U 0101.HK 30.35 29.0 (4) 41.5 (27) HKLand O HKLD.SI 7.33 8.7 18 10.2 (28) Link REIT U 0823.HK 42.3 31.7 (25) 31.7 34 Hysan O 0014.HK 40.1 42.2 5 55.1 (27) Champion O 2778.HK 3.97 4.7 19 5.9 (33) Great Eagle O 0041.HK 31.95 40.2 26 66.9 (52) Wharf O 0004.HK 65.1 65.0 (0) 92.3 (29) Wheelock O 0020.HK 39.8 46.8 18 58.3 (32) Source: Company data, Credit Suisse estimates

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Thursday, 14 March 2013

Asian Daily Kerry Properties -------------------------------------------------------------- Maintain OUTPERFORM Significant increase in land bank

EPS: ◄► TP: ◄►

Cusson Leung, CFA / Research Analyst / 852 2101 6621 / [email protected] Joyce Kwock / Research Analyst / 852 2101 7496 / [email protected]

● Kerry has won the tender of the Ho Man Tin site for HK$11.69 bn or HK$10,235/sq ft. This is 6.5% higher than our estimates. Although the price is about 19% lower than what SHKP paid for the Fat Kwong street site, we believe it is justified by the difference in location. ● With the addition of the current site, we estimate Kerry’s development land bank in Hong Kong will increase by 48%. Assuming a 25% margin for the project, we estimate the NAV impact to Kerry will be about 2.4%. ● We view the overall trend of increasing land supply in Hong Kong will continue to benefit the smaller developers such as Kerry. However, judging from Kerry’s buying pattern, it has demonstrated a selective approach and has focus on the high-end residential segment. ● Kerry is trading at 45% discount to NAV and we believe its current cheap valuation is unjustified. The launching of the Yuk Yat street and Hing Hon Road projects should be the key catalysts. Bbg/RIC 683 HK / 0683.HK Price (13 Mar 13 , HK$) 36.70 Rating (prev. rating) O (O) TP (prev. TP HK$) 47.76 (47.76) Shares outstanding (mn) 1,439.87 Est. pot. % chg. to TP 30 Daily trad vol - 6m avg (mn) 1.6 52-wk range (HK$) 42.9 - 29.9 Daily trad val - 6m avg (US$ mn) 8.2 Mkt cap (HK$/US$ mn) 52,843.2/ 6,812.1 Free float (%) 45.0 Performance 1M 3M 12M Major shareholders Kerry Group Limited Absolute (%) (6.4) (8.7) 4.3 (55.03%) Relative (%) (3.5) (9.2) (1.4) Year 12/10A 12/11A 12/12E 12/13E 12/14E EBITDA (HK$ mn) 4,581 3,596 7,590 9,090 7,062 Net profit (HK$ mn) 3,419 3,657 5,049 5,643 4,362 EPS (HK$) 2.39 2.54 3.51 3.92 3.03 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (HK$) n.a. n.a. 3.35 3.32 3.23 EPS growth (%) 59.3 6.6 38.1 11.8 (22.7) P/E (x) 15.4 14.4 10.5 9.4 12.1 Dividend yield (%) 2.4 2.4 2.9 3.2 2.5 EV/EBITDA (x) 13.8 17.3 8.2 6.3 7.8 ROE (%) 6.3 6.0 7.7 8.1 6.0 Net debt(cash)/equity (%) 14.4 12.1 11.2 4.6 2.2 NAV per share (HK$) — — — 67.3 — Disc./(prem.) to NAV (%) — — — 45.4 — Note 1: Kerry Properties Limited (KPL) is a property and logistics company with investments throughout Asia. The Company’s property development activities are focused in China and Hong Kong.

Good chance of a decent margin

Assuming a total development cost of HK$14,235/sq ft and 10% inflation ratio for the saleable area, we expect the selling price of the project to be at HK$17,254/sq ft. This is equivalent to about 15% premium to the current secondary price of HK$15,000/sq ft in the area. Given Kerry’s quality product and the location of the project, we believe this is not hard to achieve. Figure 1: Margin analysis of the Ho Man Tin site HK$ / sq ft GFA (sq ft) 1,142,189 Construction costs 3,000 Interest cost 1,000 Land cost 10,235 Total development costs 14,235 Inflated saleable area (%) 10% GSA (sq ft) 1,256,408 Expected margin (%) 25% Expected selling price 17,254 based on GSA Average secondary prices 15,000 Primary / secondary 15% premium Source: Company data, Credit Suisse estimates. Estate

Address

No. 1 Ho Man Tin Hill Road No. 1 Ho Man Tin Hill Road Parc Palais No. 18 King's Park Wylie Road Celestial Heights No. 80 Sheung Shing Street Avg secondary price Source: Company data, Credit Suisse estimates.

25% 21,679

Age

ASP (HK$/sq ft) 11 16,500 9 15,700 4 12,800 15,000

Bigger impact to small developer on increase in land supply

We estimate the NAV impact of the winning of Ho Man Tin site will be about 2.4% of Kerry’s NAV. Similar to other smaller developers such as Sino Land, the overall increase in the land supply in Hong Kong should have a bigger positive impact to them. Although we do not think this will be a significant driver to the stock price, we see this as a positive reaffirmation that Kerry will continue to focus on the Hong Kong market even if their investment in China starts to mature. Figure 3: NPV analysis of the Ho Man Tin site (HK$ mn) Year-0

Kerry Properties has won the tender of the Ho Man Tin site for HK$11.69 bn which is 6.5% higher than our expectation of HK$10.98 bn. This translates into an accommodation value of HK$10,235/sq ft. The price is about 19% lower than the Fat Kwong street site that SHKP bought in 2010 for HK$12,540/sq ft. However, we believe the difference in land cost is largely due to the better location of the Fat Kwong street. Ho Man Tin will add about 1.14m sq ft of GFA to the company’s development land bank in Hong Kong which was only at 2.4m sq ft. This will essentially increase its land bank size by 48%. The So Kwun Wat site was the last that Kerry bought in Hong Kong in last February. This reflects the company’s highly selective approach in Hong Kong and its targeted high-end residential market.

3,427 1,142 11,690 16,259

Figure 2: Secondary market price

Click here for detailed financials

A significant win to Kerry

HK$ mn

Year-1

Sales Proceeds Land costs (11,690) Construction costs (1,142) Finance costs (381) DCF HK$/shr % of NAV Source: Company data, Credit Suisse estimates.

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Year-2

Year-3

10,839

10,839

(1,142) (381)

(1,142) (381)

Present Value 17,897 (11,690) (2,944) (981) 2,283 1.59 2.36%

Thursday, 14 March 2013

Asian Daily India

ACC ------------------------------------------------------------------------------- Maintain OUTPERFORM India: The silent transformation: Increasing prosperity in Rural India should boost cement demand Anubhav Aggarwal / Research Analyst / 9122 6777 3808 / [email protected] Kush Shah / Research Analyst / +91 22 6777 3862 / [email protected] Chunky Shah / Research Analyst / 91 22 6777 3872 / [email protected]

● Cement stocks benefit from prosperity in rural India as rural housing accounts for ~40% of cement demand. Rural wage growth is benefitting from unprecedented productivity growth (see India: The silent transformation) and should result in faster conversion of mud houses (50% of rural houses) to pukka houses. ● FY13 demand growth for cement was weak at 5% as gov’t spending was weak on rural development schemes, with only 70% of the budget spent. FY14 demand growth should improve to 7%, as: (1) FY14 budget allocation is 43% higher than FY13 RE and (2) the gov’t has typically overspent during pre-election years in the past. ● We expect margins to expand for the cement sector over the next two years, as: (1) capacity additions peak out in FY14; (2) 40% of existing capacities are not breaking even on ROIC, and with 40% increase in capex, capacity additions should slow if margins do not improve; (3) cement demand is likely to recover to 7% in FY14. ● We prefer ACC on high profit sensitivity to price and volumes, with low exposure to West and Central India. ACC is trading at a discount to peers despite high returns and comparable EPS CAGR. Bbg/RIC ACC IN / ACC.BO Price (12 Mar 13, Rs) 1,285.40 Rating (prev. rating) O (O) TP (prev. TP Rs) 1,545 (1,545) Shares outstanding (mn) 187.75 Est. pot. % chg. to TP 20 Daily trad vol - 6m avg (mn) 0.4 52-wk range (Rs) 1498.5 - 1124.7 Daily trad val - 6m avg (US$ mn) 9.2 Mkt cap (Rs/US$ bn) 241.3/ 4.5 Free float (%) 49.7 Performance 1M 3M 12M Major shareholders Holcim Pvt Ltd - Absolute (%) 1.9 (7.9) (4.0) 50.3% Relative (%) 1.8 (9.2) (13.4) Year 12/11A 12/12A 12/13E 12/14E 12/15E Revenue (Rs mn) 100,123 111,680 124,424 138,539 154,505 EBITDA (Rs mn) 16,961 20,065 22,955 27,953 32,601 Net profit (Rs mn) 13,008 12,941 15,559 18,553 21,994 EPS (Rs) 69 69 83 99 117 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rs) n.a. n.a. 82.0 97.4 88.0 EPS growth (%) 21.1 (0.5) 20.2 19.2 18.5 P/E (x) 18.6 18.7 15.5 13.0 11.0 Dividend yield (%) 2.2 2.3 2.3 2.5 2.5 EV/EBITDA (x) 12.8 10.3 8.8 7.1 5.8 P/B (x) 3.5 3.3 2.9 2.6 2.2 ROE (%) 19.6 18.0 19.9 21.0 21.6 Net debt (cash)/equity (%) (33.6) (45.7) (46.3) (45.6) (46.4) Note 1: ACC is India's second largest cement company.

Click here for detailed financials

EPS: ◄► TP: ◄►

Cement demand benefits from rural prosperity

Housing-related demand accounts for almost two-thirds of Indian cement demand (Fig 1), with rural housing accounting for ~40%. As per 2011 census data, almost half of rural houses are currently kuccha houses (mud houses), and therefore, growth in rural wages (Fig 2) should translate into faster conversion from kuccha to pukka houses (cement houses). Figure 2: Housing constitutes bulk of Indian cement demand 100%

19% 80%

17%

CAGR 7-8% CAGR 15-18%

18% 21%

60% 40%

65%

CAGR 6-7%

61%

20%

0% FY12 Housing

Infrastructure

FY15 Industrial

Source: Credit Suisse estimates

Demand growth expected to increase to 7% in FY14

FY13 demand growth was weak at 4-5% as government spending was weak, and especially unlike previous years, only 70% of the budget was spent on rural development schemes (rural housing, rural roads and NREGA). We expect pick-up in demand growth to 7% in FY14, as: (1) FY14 budget allocation is 43% higher than FY13 RE and (2) in the past, the government has typically overspent during pre-election years. Figure 3: Government spend increase in FY14 should aid demand 50%

40%

43% increase in FY14 budget

200%

180%

30%

160%

20%

140%

10%

120%

0% -10% -20%

100%

FY13 demand weak as only 70% of Budget was spent

Rural develop. budget increase (Y-o-Y)

80% 60%

Actual vs. budget (RHS)

Source: Union Budget, Credit Suisse estimates

Figure 4: ACC trading at discount to peers despite high returns

Figure 1: Increase in rural wages should help cement demand

Bubble size indicates 2 year forward EPS CAGR; Source: Credit Suisse estimates Source: Labour Bureau, NSSO, Credit Suisse estimates

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Thursday, 14 March 2013

Asian Daily Dish TV India ------------------------------------------------------------------ Maintain OUTPERFORM India: The silent transformation—Best placed to tap rising rural penetration

EPS: ◄► TP: ◄►

Jatin Chawla / Research Analyst / 91 22 6777 3719 / [email protected] Akshay Saxena / Research Analyst / 91 22 6777 3825 / [email protected]

● Our detailed report titled “India: The silent transformation”, talks about the unprecedented productivity growth at the bottom of the pyramid which will support consumer demand. Dish TV is one of the strong plays on this theme. ● As per NSSO, spend on cable TV is amongst the most sensitive to changing consumption deciles; hence, cable ARPUs should see robust growth. India’s TV penetration is also quite low, indicating further growth potential for cable as TV ownership increases. ● Given the sheer breadth and geography of India; it is difficult to lay down cables to smaller villages. Hence, DTH given its lower last mile cost has an inherent advantage over cable TV. With majority of non-TV households in India in rural areas, these untapped areas provide significant opportunities for DTH players. ● Another factor that will push up ARPUs would be digitisation, which will force cable guys to increase prices—allowing room for DTH guys to increase prices. Phase 1 implementation has been moderately successful, with DTH gaining ~25% share and progress on Phase 2 will be the next trigger for stock. Bbg/RIC DITV IN / DSTV.BO Price (12 Mar 13, Rs) 67.20 Rating (prev. rating) O (O) TP (prev. TP Rs) 83.00 (83.00) Shares outstanding (mn) 1,064.89 Est. pot. % chg. to TP 24 Daily trad vol - 6m avg (mn) 4.3 52-wk range (Rs) 83.3 - 53.5 Daily trad val - 6m avg (US$ mn) 6.1 Mkt cap (Rs/US$ mn) 71,560.3/ 1,321.7 Free float (%) 36.0 Performance 1M 3M 12M Major shareholders ZEE GROUP Absolute (%) (8.1) (14.6) 17.8 Relative (%) (8.2) (15.9) 8.4 Year 03/11A 03/12A 03/13E 03/14E 03/15E Revenue (Rs mn) 14,366 19,578 22,004 27,705 34,992 EBITDA (Rs mn) 2,389 4,984 5,775 8,214 11,736 Net profit (Rs mn) (1897) (1589) (682) 401 2,997 EPS (Rs) (1.78) (1.49) (0.64) 0.38 2.82 - Change from prev. EPS (%) n.a. n.a. n.m 0 0 - Consensus EPS (Rs) n.a. n.a. (0.90) 0.39 1.64 EPS growth (%) n.m. n.m. n.m. n.m. 648.0 P/E (x) n.m. n.m. n.m. 178.4 23.8 Dividend yield (%) 0 0 0 0 0 EV/EBITDA (x) 33.2 16.4 14.0 9.7 6.5 P/B (x) 113.8 (76.2) (44.1) (58.6) 40.2 ROE (%) (81.9) 1,022.4 53.3 (28.2) 1,074.7 Net debt (cash)/equity (%) 1,225.4 (1082.0) (563.4) (689.1) 259.8 Note 1: Part of Subash Chandra promoted Essel group, Dish TV is the pioneer in DTH industry in India and is currently the largest player.

Click here for detailed financials

High growth potential on low cable spend, TV ownership

Currently, as per National Sample Survey (NSSO), only 1% of consumer spending in India is for entertainment, compared with ~5% in developed countries. Given the lack of entertainment options for consumers in India, majority of this spending is on cable and satellite TV. Cable TV spend is one of the most sensitive consumption items to changing deciles, hence with sustained strong growth expected at the bottom of the pyramid; cable ARPUs should see robust growth. Moreover, India has ~80 mn non-TV households, which is the largest in the world. India’s TV penetration stands at just 65 per 100 households—quite low even compared to other emerging economies, indicating further growth potential for cable as TV ownership increases.

Figure 1: Average increase of ~50% in monthly spends on cable charges in each transition from deciles 2 to 9 20

16 12 8 4

0 Decile 1

2

3

4

5

6

7

8

9

10

Spend (INR p.m.) on cable charges

Source: NSSO, Credit Suisse estimates

DTH has higher ‘last-mile’ reach

DTH has a distinct advantage in reaching out to far-flung areas, especially rural India where cable has not reached. Laying out cable to each home is very expensive, while the cost of distribution through DTH is a fraction of that through cable. There are many pockets in interior India where cable operators have not reached because it makes poor economic sense. These untapped areas provide significant opportunities for DTH players, which have already shown greater growth from rural areas. And as 70 mn of the 80 mn non-TV households in India are in rural India, DTH clearly has an edge in garnering these new customers. While both TV and C&S penetration rates are higher in urban areas compared to rural areas, the penetration of DTH is higher in rural areas, indicating that many areas not covered by the cable network previously have now been connected through DTH. Figure 2: While TV and C&S penetration is lower in rural areas, DTH penetration is much higher in rural areas because of ‘last mile’ advantage 100% 80% 60% 40% 20% 0% TV penetration

C&S penetration

Urban

Rural

Source: TAM Media Research, Credit Suisse estimates.

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DTH penetration

Thursday, 14 March 2013

Asian Daily Emami Ltd ---------------------------------------------------------------------- Maintain OUTPERFORM India: The silent transformation—a niche play on rural growth

EPS: ◄► TP: ◄►

Arnab Mitra / Research Analyst / 91 22 6777 3806 / [email protected] Akshay Saxena / Research Analyst / 91 22 6777 3825 / [email protected]

● Emami draws over 55% of its revenue from rural areas, one of the highest among FMCG peers. With market-leading positions in niche segments that have appeal among rural consumers and a strong innovation pipeline in skin care, OTC and hair oils, we expect Emami’s top-line growth to sustain. ● Rural direct distribution picking up now: Unlike most of its larger FMCG peers, Emami did not have strong direct distribution due to the lack of scale needed to support a separate rural distribution setup. However, the company is now in ramp-up mode having attained scale by growing consistently over the past 3-4 years. It has doubled direct distribution and sales force over the past three years. ● Margin expansion ahead. Menthol prices have since corrected and are now 10% lower than FY13’s average prices. We expect EBITDA margins to expand by 240 bp over FY13-15E ● Attractive valuations. Emami is the cheapest stock on a P/E and PEG basis among our consumer staple coverage universe, despite having one of the highest net cash positions, dividend payout ratios and ROE among mid-cap peers. Bbg/RIC HMN IN / EMAM.BO Price (12 Mar 13, Rs) 594.65 Rating (prev. rating) O (O) TP (prev. TP Rs) 710.00 (710.00) Shares outstanding (mn) 151.31 Est. pot. % chg. to TP 19 Daily trad vol - 6m avg (mn) 0.1 52-wk range (Rs) 631.6 - 391.3 Daily trad val - 6m avg (US$ mn) 1.3 Mkt cap (Rs/US$ mn) 89,977.5/ 1,661.9 Free float (%) 30.0 Performance 1M 3M 12M Major shareholders Promoter Absolute (%) 0.3 1.1 52.0 Relative (%) (0.2) (0.6) 42.2 Year 03/11A 03/12A 03/13E 03/14E 03/15E Revenue (Rs mn) 12,590 14,535 17,407 20,655 24,538 EBITDA (Rs mn) 2,534 2,968 3,458 4,407 5,451 Net profit (Rs mn) 2,287 2,588 3,220 4,051 4,949 EPS (Rs) 15.1 17.1 21.3 26.8 32.7 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rs) n.a. n.a. 20.6 24.6 29.3 EPS growth (%) 34.8 13.2 24.4 25.8 22.1 P/E (x) 39.3 34.8 27.9 22.2 18.2 Dividend yield (%) 0.6 1.3 1.4 1.8 2.2 EV/EBITDA (x) 35.6 29.9 25.4 19.5 15.3 P/B (x) 13.0 12.7 10.2 8.2 6.6 ROE (%) 34.8 37.1 40.6 41.0 40.3 Net debt (cash)/equity (%) 2.7 (16.2) (25.2) (36.8) (46.4) Note 1: Emami is a player in the fast moving consumer goods company in India with market leadership in niche catgeories like cooling oils, balms and boro creams.

Click here for detailed financials

Our detailed report, titled “India: The silent transformation” talks about unprecedented productivity growth at the bottom of the pyramid, with Emami as a key play to benefit from it. High contribution from rural growth, but distribution ramp-up happening now. Emami derives c.55% of its revenue from rural areas, one of the highest among its FMCG peers for whom the number is 3550%. The company until a few years ago did not have strong direct reach to rural areas as its scale of revenue was much lower than peers. Now, with revenue having grown consistently well for the past 3-4 years, Emami has reached a scale that can support a separate rural distribution system. The company’s direct distribution has expanded from just over 250,000 outlets in FY08 to c.600,000 outlets in FY13—a massive jump of 140% in direct coverage over five years. The company also increased its sales force from 700 employees to 1,600 employees in the same period. The costs of distribution

expansion are reflected in Emami’s employee costs, which have been rising since FY09. Figure 1: Emami’s direct distribution is expanding rapidly Emami direct distribution (outlets) 700,000 600,000 500,000 400,000 300,000 200,000 100,000 -

FY11

FY12

FY13E

Source: Company data, Credit Suisse estimates

Figure 2: Employee costs have risen as sales force has been beefed up Employee costs (Rs mn)

350 300

250 200 150 100 1QFY11

3QFY11

1QFY12

3QFY12

1QFY13

3QFY13

Source: Company data, Credit Suisse estimates

Unique portfolio with appeal in rural areas; innovation track record best in industry. Emami has a unique portfolio of products which operate with high market shares in niche segments, thus largely side-stepping intense competition. Emami’s portfolio also has the benefit of being well diversified with no single segment contributing to more than 25% of revenues. A large part of Emami’s portfolio appeals to rural consumers. We expect cooling oils, skin care and healthcare products to lead company growth. Emami draws over 40% of its revenues today from products that were launched post 2005. We believe there is good potential in the current ramped-up pipeline of Emami which includes its OTC portfolio and skin care extensions. Margin pressures abating, expansion ahead. Menthol prices are now 10% lower than FY13’s average price. The benefit should accrue to Emami from 1Q FY14 as the forward covers it carries expire. Other key inputs, such as packaging material and liquid paraffin, have also seen largely stable pricing YoY. We expect a significant part of the gross margin expansion to flow into EBITDA margins, as the company had not aggressively cut ad spend when raw material costs were rising. Given Emami’s high market share in most categories, we expect the company to continue to take 4-5% annual price increases.

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Thursday, 14 March 2013

Asian Daily HDFC Bank --------------------------------------------------------------------- Maintain OUTPERFORM India: The silent transformation—increasing non-urban presence next engine of growth

EPS: ◄► TP: ◄►

Ashish Gupta / Research Analyst / 91 22 6777 3895 / [email protected] Prashant Kumar / Research Analyst / 91 22 6777 3942 / [email protected]

● HDFC Bank is rapidly transforming its business model. From being primarily urban focused (80% of branches were urban till 2005), it is now rapidly growing (opening 80% of new branches) in non-urban locations. 47% of its 2,800 branches are now nonurban (will reach 55% by FY15). The banks geographic span has also grown 3x in three years to now over 1,560 locations. ● The bank’s experience of expansion into these newer geographies has been profitable. The share of saving deposit for non-urban branches is high (42-50%) vs 15-30% in metro/urban branches. Also with much lower opex per branch, profitability of non-urban branch is similar to an urban branch even though the business throughput is lower. ● Therefore, break-even of non-urban branch at 24-30 months is comparable to those in urban centers. This rural expansion is also aiding bank meeting its priority sector targets. Click here. ● The 20% CAGR in rural wages over the past five years now provides the bank with a larger potential client base for its deposit and retail asset products. This new growth engine for the bank should help it sustain its faster than peer growth rates. We reiterate OUTPERFORM. Bbg/RIC HDFCB IN / HDBK.BO Price (08 Mar 13 , Rs) 657.00 Rating (prev. rating) O (O) TP (prev. TP Rs) 770.00 (770.00) Shares outstanding (mn) 2,375.10 Est. pot. % chg. to TP 17 Daily trad vol - 6m avg (mn) 2.7 52-wk range (Rs) 703.7 - 487.0 Daily trad val - 6m avg (US$ mn) 32.8 Mkt cap (Rs/US$ bn) 1,560.4/ 28.7 Free float (%) 79.6 Performance 1M 3M 12M Major shareholders No major Absolute (%) 1.1 (4.9) 25.7 Relative (%) 0 (6.5) 13.1 Year 03/11A 03/12A 03/13E 03/14E 03/15E Pre-prov Op profit (Rs mn) 77,779.9 91,462.9 109,918.9 140,207.4 179,771.3 Net profit (Rs mn) 38,953 52,568 67,146 83,847 106,538 EPS (CS adj. Rs) 16.7 22.3 28.5 35.6 45.2 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rs) n.a. n.a. 28.4 35.8 44.9 EPS growth (%) 29.3 33.7 27.7 24.9 27.1 P/E (x) 39.4 29.5 23.1 18.5 14.5 Dividend yield (%) 0.5 0.7 0.9 1.0 1.3 BVPS (CS adj. Rs) 109 127 149 177 213 P/B (x) 6.05 5.18 4.41 3.71 3.09 ROE (%) 16.6 19.0 20.6 21.8 23.2 ROA (%) 1.6 1.7 1.8 1.8 1.9 Tier 1 Ratio (%) 12.2 11.6 11.4 10.7 10.3 Note 1: HDFC Bank Limited is an India-based banking company. Its principal business activities consist of retail banking, wholesale banking and treasury operations. The bank has two subsidiaries: HDFC Securities Limited (HSL) and HDB Financial Services.

Figure 1: 80% of incremental branch addition in non-urban geographies

80% 70% 60% 50% 40%

30% 20% 10% 0% Till FY05

Till FY09

FY12

Sector

FY13E

FY15E

HDFC Bank

Source: Company data, Credit Suisse estimates.

Profitability of non-urban branches similar to urban branches

While throughput of non-urban branches remains much lower compared to urban, they provide opportunities to tap large underpenetrated retail market. The bank mostly offers products that are secured in nature such as pre-/post-harvest loans, kisan gold loans and tractor loans in non-urban centres. Also the share of saving deposit for non-urban branches is much higher at (42-50%) vs 1530% vs metro branches giving a boost to CASA. Further with much lower operating cost per branch and initial investment, we estimate profitability and break-even period of rural branch is similar to an urban branch. Increasing penetration to help sustain asset growth momentum

The added advantage of rural branches is in terms of meeting priority sector targets, as reflected in strong growth in retail agri portfolio. We expect the bank to continue opening ~80% of new branches in nonurban areas. Increasing penetration in non-urban regions should drive continued strong growth in its retail assets (~25% CAGR) as well as saving deposits. We maintain OUTPERFORM with TP of Rs770. Figure 2: Share at saving deposits at 42-50% for non-urban branches 350

300

Click here for detailed financials

250

Expanding reach to non-urban geographies

200

HDFC bank has been expanding its network aggressively in nonurban geographies into large under-penetrated retail market. Rural wages have increased at an unprecedented ~20% CAGR in the past five years, with land prices appreciating sharply as well. According to NSSO data, rural consumption growth has accelerated ahead of urban during FY10-12. The acceleration is particularly visible in the higher income group in rural areas, the likely target segment for the bank. For FY09-12, HDFC Bank has incrementally opened 65% of branches in non-urban areas, with the share incrementally increasing to ~80% of branches in 9M13. We have seen a similar strategy being followed by other new private banks such as Axis and ICICI. We expect share of non-urban branches for HDFC Bank to increase to ~55% by FY15E, in line with the overall sector.

Share of non-urban centers in new branches (%)

90%

150 100 50 0 Rural

Semi-urban

Urban

Metro

Deposit per branch (Rs mn)

Source: Company data, Credit Suisse estimates.

- 23 of 37 -

Thursday, 14 March 2013

Asian Daily ITC Ltd --------------------------------------------------------------------------- Maintain OUTPERFORM New report: Rural demand fortifies pricing power

EPS: ◄► TP: ◄►

Arnab Mitra / Research Analyst / 91 22 6777 3806 / [email protected] Akshay Saxena / Research Analyst / 91 22 6777 3825 / [email protected]

● While ITC is perceived as an urban play relative to its FMCG peers, NSSO data show that ~50% of cigarette volumes are consumed in rural areas. Click here for full report. ● The per capita consumption of cigarettes in rural India moves up 15x between the fifth and tenth decile of overall consumption. The ratio of bidi-to-cigarette consumption also sees a major inflection after the fifth decile, dropping sharply from ~100 to ~10. As rural incomes grow, there will be acceleration in the trend. ● Cigarettes need a much higher frequency of distribution compared with other FMCG categories, which make the scale critical in cracking rural distribution. Its PAT for FY12 was 34x that of its nearest competitor. In our view, only ITC can effectively distribute cigarettes in the rural areas and benefit from rural demand. ● Demand growth in rural areas coupled with ITC’s near-monopoly give it very high pricing power to pass on hikes in taxation. The steep 18% hike in cigarette excise duty in FY14 is also likely to be passed on with no decline in volumes. Bbg/RIC ITC IN / ITC.BO Price (12 Mar 13 , Rs) 298.85 Rating (prev. rating) O (O) TP (prev. TP Rs) 340.00 (340.00) Shares outstanding (mn) 7,889.58 Est. pot. % chg. to TP 14 Daily trad vol - 6m avg (mn) 7.4 52-wk range (Rs) 309.2 - 208.5 Daily trad val - 6m avg (US$ mn) 39.5 Mkt cap (Rs/US$ bn) 2,357.8/ 43.5 Free float (%) 100.0 Performance 1M 3M 12M Major shareholders British American Absolute (%) (0.1) 1.3 43.1 Tobacco Relative (%) 0.3 0.5 34.2 Year 03/11A 03/12A 03/13E 03/14E 03/15E Revenue (Rs mn) 211,676 247,984 287,556 330,834 381,422 EBITDA (Rs mn) 71,213 84,732 104,626 124,228 147,061 Net profit (Rs mn) 49,877 61,624 74,622 87,796 104,577 EPS (Rs) 6.4 7.9 9.5 11.2 13.4 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rs) n.a. n.a. 9.4 11.2 13.3 EPS growth (%) 21.2 22.3 21.1 17.7 19.1 P/E (x) 46.4 37.9 31.3 26.6 22.3 Dividend yield (%) 1.5 1.5 1.9 2.3 2.7 EV/EBITDA (x) 32.8 27.5 22.2 18.5 15.5 P/B (x) 14.5 12.4 11.1 9.9 8.7 ROE (%) 33.2 35.5 37.5 39.3 41.5 Net debt(cash)/equity (%) (13.4) (14.5) (19.0) (24.5) (31.1) Note 1: ITC is India’s dominant player in the large cigarette market with over 70% market share. The company also has significant businesses in packaged foods, personal care, hotels, agri commodities and paper.

Click here for detailed financials

Distribution of cigarettes is much more intense compared with other FMCG products as the frequency of servicing is, in most cases, once a day versus once a week for other FMCG products such as soaps, shampoos and skin care. Thus, the scale needed to service rural retail outlets is very large, without which it will not be feasible to distribute. ITC dominates the cigarette category in India. With profits nearly ~34x that of its nearest competitor, we believe only ITC has the scale to service rural distribution of cigarettes in India, giving it a nearmonopoly in the growth phase in the rural areas. This is quite contrary to other FMCG categories where multiple national players have the scale to service rural distribution to varying degrees.

Figure 1: Rural—a substantial contributor to cigarette consumption % share of rural (2010) 60%

40%

20%

0%

Cigarette volume Source: NSSO, Credit Suisse estimates

Cigarette value

Figure 2: Cigarette volumes consumption in rural areas has a very sharp correlation with income increases 5.0

Cigarette consumption (sticks/person/month) (rural)

4.0

3.0 2.0 1.0 0.0 2

3

4

5

6

7

8

9

10

Total Consumption deciles

Source: NSSO, Credit Suisse estimates

Figure 3: Bidi to cigarette conversion sees inflection after decile five 160.0

Bidi:Cigarette ratio rural

120.0 80.0 40.0 0.0

1

2

3

4

5

6

7

8

9

10

Total Consumption deciles Source: NSSO, Credit Suisse estimates

Figure 4: Rural areas are highly penetrated but largely in bidis only Urban penetration

Rural penetration

35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Cigarette

Source: NSSO, Credit Suisse estimates

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Bidi

Thursday, 14 March 2013

Asian Daily Shriram Transport Finance Co Ltd ------------------------------------- Maintain OUTPERFORM India: The silent transformation–enabling small-time entrepreneurs

EPS: ◄► TP: ◄►

Sunil Tirumalai / Research Analyst / 91 22 6777 3714 / [email protected] Chunky Shah / Research Analyst / 91 22 6777 3872 / [email protected]

● In a detailed report titled “India: The silent transformation” CS India strategist Neelkanth Mishra talks about the unprecedented productivity growth at the bottom of the pyramid. One of the likely benefits of this theme is sustainable growth in LCV/SCV demand. We believe Shriram is a good way to play this theme. ● We believe the LCV segment will continue to see strong demand in the coming years. One of the key drivers of this trend could be continued investments into rural road connectivity, thus enabling the LCV/SCV movement. LCV/SCV/cars (commercial usage) account for 48% of Shriram’s book and are expected to grow. ● We expect Shriram to continue to deliver ~18% loan book growth over the next three years. We believe concerns on funding could be misplaced, given the recent significant demand for Shriram’s assets in the securitisation market. ● We believe that at 1.8x/9.4x FY3/14E PB/PE, the stock is attractively valued for RoE/EPS growth of 20%+/16%+ respectively. We reiterate our OUTPERFORM rating on the stock. Bbg/RIC SHTF IN / SRTR.BO Price (12 Mar 13 , Rs) 701.55 Rating (prev. rating) O (O) TP (prev. TP Rs) 840.00 (840.00) Shares outstanding (mn) 226.86 Est. pot. % chg. to TP 20 Daily trad vol - 6m avg (mn) 0.6 52-wk range (Rs) 798.4 - 480.4 Daily trad val - 6m avg (US$ mn) 8.3 Mkt cap (Rs/US$ bn) 159.2/ 2.9 Free float (%) 53.8 Performance 1M 3M 12M Major shareholders Promoters Absolute (%) (7.3) (2.0) 20.6 Relative (%) (7.4) (3.3) 11.3 Year 03/11A 03/12A 03/13E 03/14E 03/15E Pre-prov Op profit (Rs mn) 23,562.6 27,271.5 30,271.6 35,534.9 41,219.2 Net profit (Rs mn) 12,171 13,088 14,515 16,876 19,605 EPS (CS adj. Rs) 53.8 57.8 64.1 74.5 86.6 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rs) n.a. n.a. 61.9 72.7 85.4 EPS growth (%) 31.6 7.4 10.9 16.3 16.2 P/E (x) 13.0 12.1 10.9 9.4 8.1 Dividend yield (%) 1.1 1.1 1.2 1.4 1.6 BVPS (CS adj. Rs) 224 279 335 400 475 P/B (x) 3.13 2.51 2.09 1.75 1.48 ROE (%) 27.3 23.0 20.9 20.3 19.8 ROA (%) 4.1 3.7 3.5 3.2 3.0 Tier 1 ratio (%) 16.5 17.0 16.5 15.6 14.8 Note 1: Shriram Transport Finance Company Limited is a non-banking financial company. It is engaged in financing of pre-owned and new commercial and passenger vehicles, tractors, three wheelers and multi-utility vehicles.

Expect sustained growth in loan book. We expect Shriram to continue to deliver ~18% loan book growth over the next three years. We believe concerns on funding could be misplaced, with recent performance and our discussions with industry watchers indicating significant demand for Shriram’s assets in the securitisation market. Interesting takeaways from our visit to a Shriram branch in South India: Kancheepuram ● Shriram Transport opened a branch in Kancheepuram about six years ago, and now caters to over 2,000 loan customers (average original ticket size of Rs250,000). ● The branch is seeing growth in the range of 40-50% YoY on its portfolio. ● Most of the branch’s customers are from smaller towns/villages in the district (around the main city of Kancheepuram). The customers usually drive the vehicles purchased. These customers are self-employed, and depend on the vehicle for their livelihood ● Shriram faces no major competition from organised players in Kancheepuram except for the small presence of Cholamandalam. ● The branch is not seeing any worrying signs on portfolio quality. Figure 1: 80,000 new habitations to be connected with all-weather roads in the next five years through PMGSY* 400

360,000km of road connecting 88,000 new habitations so far.

350 300 250

Over the next five years: another 250,000km of roads, connecting another 80,000 habitations

200 150 100 50 0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Completed, Cumulative ('000 km)

* Pradhan Mantri Gram Sadak Yojana (Prime Minister’s Rural Roads Plan); Source: PM Gram Sadak Yojana, Ministry of Road Transport

Figure 2: CV penetration in India lags other countries significantly

CVs per 1000 pop

Click here for detailed financials

This is a summary of the detailed report. (Link to the flash report) Riding the LCV growth wave. Given the low Commercial Vehicle (CV) penetration in India, and the low share of LCVs within the CV population, we believe the LCV segment will continue to see strong demand in the coming years. One of the key drivers of this trend could be continued investments into rural road connectivity, thus enabling LCV/SCV movement (ensuring sustainable improvements to the economies of the villages thus connected). Shriram’s focus on smalltime transport entrepreneurs (owner-cum-drivers) fits nicely into this theme, in our view. LCV/SCV/cars (vehicles used for commercial purpose catering to consumption demand) account for over 48% of Shriram’s consolidated book, and could continue to grow.

400 300 200 100 -

354 147

95

77

73

65

55

37

29

4

Source: Road transport authorities of respective countries, SIAM, Credit Suisse est.

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Thursday, 14 March 2013

Asian Daily Japan

Aeon Credit Service ------------------------------------------------------ Upgrade to OUTPERFORM Prospects rising for recovery in cash advances

EPS: ▲ TP: ▲

Takehito Yamanaka / Research Analyst / 813 4550 9150 / [email protected]

Note1:AEON CREDIT SERVICE CO., LTD. is a Japan-based company mainly engaged in the provision of financial services. The Company operates in five business divisions: Credit Card; Consumer Credit; Financing; Business Agency; and Others.

Click here for detailed financials

Cash advances to rebound under bank model

Growth in cash advances should be positive for the stock. Improved disclosures about the banking business should increase investor confidence, in our view. The profit driver of Aeon Credit’s overseas operations appears to be shifting from Hong Kong and Thailand to Malaysia. Over the next three-five years, we expect increasing profit contributions from Indonesia and Vietnam. In the meantime, we look for a boost from yen depreciation in FY3/14. Figure 1: Outstanding cash advances and average loan outstanding (¥bn)

(¥)

450

400,000 Outstanding of cash advance (LHS)

400

350,000

Average loan outstanding (RHS)

350

300,000

300

250,000

250 200,000

200 150,000

150 100

100,000

50

50,000

3/15 E

3/14 E

3/13 E

2/12

11/12

2/11

2/10

2/09

2/08

2/07

2/06

2/05

2/04

2/03

2/02

2/01

2/00

2/99

2/98

0

2/97

0

2/96

Bbg/RIC 8570 JP / 8570.T Price (12 Mar 13 , ¥) 2,400.00 Rating (prev. rating) O (N) TP (prev. TP ¥) 2,790 (1,710) Shares outstanding (mn) 187.24 Est. pot. % chg. to TP 16.3 Daily trad vol - 6m avg (mn) 1.1 52-wk range (¥) 2432.0 - 1247.0 Daily trad val - 6m avg (US$ mn) 21.6 Mkt cap (¥/US$ bn) 437.8/ 4.6 Free float (%) — Performance 1M 3M 12M Major shareholders Absolute (%) 17.0 42.2 77.7 Relative (%) 9.3 13.2 55.6 Year 03/11A 03/12A 03/13E 03/14E 03/15E Pre-prov Op profit (¥ bn) 21.0 24.4 33.3 45.6 52.3 Net profit (¥ bn) 9.8 9.1 14.3 30.0 34.4 EPS (CS adj. ¥) 62 58 87 160 184 - Change from prev. EPS (%) n.a. n.a. 1.4 33.3 33.9 - Consensus EPS (¥) n.a. n.a. 89 127 137 EPS growth (%) n.a. (7.1) 49.6 84.9 14.7 P/E (x) 37.5 40.4 27.0 14.6 12.7 Dividend yield (%) 1.7 1.9 2.1 2.1 2.1 BVPS (CS adj. ¥) 1,015 1,013 1,384 1,351 1,509 P/B (x) 2.30 2.31 1.69 1.73 1.55 ROE (%) — 5.7 7.4 12.5 12.8 ROA (%) — 1.0 0.9 1.2 1.2 Tier 1 Ratio (%) — — — — —

Investment case

2/95

● Post Aeon Credit Service’s shift in April to a bank holding company structure, we expect Aeon will achieve 36% YoY RP growth on a rebound in cash advances and cost reductions at overlapping operations of the former Aeon Credit and the former Aeon Bank in FY3/14. Click here for full report. ● Given the company’s low taxes, we expect FY3/14 fully-diluted EPS to increase 72% YoY to ¥143.9. We raise our target price from ¥1,710 to ¥2,790 (potential return 16%) and upgrade the stock from Neutral to OUTPERFORM. ● One risk is that investors become wary of the stock’s high absolute valuation, which we believe reflects its high ROE. Other risks include delayed growth in the cash advance balance and less transparent disclosures after the move to a bank holding company. ● We derive our ¥2,790 target price by applying fair-value P/B of 2.06x to our FY3/14E fully-diluted BPS of ¥1,356.9. Our fair-value P/B assumes diluted ROE of 11.1% and a discount rate of 5.4%. Our new target price yields imply P/E of 19.4x.

Source: Company data, Credit Suisse estimates

Catalysts/risks

Rising monthly cash advance transactions would indicate the company is more likely to meet our profit forecasts. One risk is that investors become wary of the stock’s high absolute valuation, which we believe reflects its high ROE. Other risks include delayed growth in the cash advance balance and less transparent disclosures after the move to a bank holding company. Valuation

We derive our ¥2,790 target price by applying fair-value P/B of 2.06x to our FY3/14E fully-diluted BPS of ¥1,356.9. Our fair-value P/B assumes diluted ROE of 11.1% and a discount rate of 5.4%. Our new target price yields implied P/E of 19.4x. (We previously based our target price on FY3/13E BPS of ¥1,532.3 and a fair-value P/B of 1.12x, reflecting estimated ROE of 7.3% against a 5.95% discount rate.) (This is an extract from Aeon Credit Service report, “Prospects rising for recovery in cash advances,” published on 13 March 2013. For details, please see the CS Research & Analytics website.)

Aeon Credit Service’s shift in April to a bank holding company (Aeon Financial Service) structure raises the possibility that it will be able to extend credit on the basis of household income. The company plans to establish new cash credit lines for some 500,000 existing customers following the shift. For FY3/14, we expect Aeon will achieve 36% YoY RP growth on a rebound in cash advances and cost reductions at overlapping operations of the former Aeon Credit and the former Aeon Bank. Given the company’s low taxes, we expect FY3/14 fully-diluted EPS to increase 72% YoY to ¥143.9. We raise our target price from ¥1,710 to ¥2,790 (potential return 16%) and upgrade the stock from Neutral to OUTPERFORM.

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Thursday, 14 March 2013

Asian Daily Philippines

Philippines Consumer Staples Sector ----------Assuming Coverage with OVERWEIGHT Consumer staples in the Philippines are cheap

Karim P. Salamatian, CFA / Research Analyst / 852 2101 7996 / [email protected] Rebecca Kwee / Research Analyst / 852 2101 7951 / [email protected] Research Assistant: Aldo Torres, CFA

● We are adding the Philippines to the global debate of whether consumer staples stocks are cheap or expensive. In short, we believe the answer is that staples in the Philippines are cheap. For more details, please refer to our URC initiation report. ● Consumer staples stocks in the Philippines trade at a 17% premium to the overall market, which is lower than NJA, ASEAN, GEM and world averages. Other than the commodity-heavy Singapore market, we are hard-pressed to find any major global market where consumer staples are this cheap. ● The Philippines is the only NJA market where consumer staples have had positive earnings expectation revision over the past 6 months. With a consumption resurgence, declining costs of debt and equity, upward earnings revisions and rising ROEs, the valuation rerating that began in 2012 could continue. ● URC is best positioned to capitalise on the rerating of consumer staples in the Philippines because earnings growth is accelerating, cash flow growth is 2x higher and earnings visibility is much improved as growth catalysts return home. URC trades at a 24% premium to the overall market, and we conservatively believe this should widen to 40%. Valuation metrics Company

Ticker

Rating

Price

Year

P/E (x)

Local Target T T+1 Universal Robina URC.PS O 97.50 130 9/12 24.6 Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM. Source: Company data, Credit Suisse estimates

T+2 20.0

P/B (x) T+1 3.8

The relative 12mf P/E premium of 17% versus the market for consumer staples in the Philippines is lower than Asian peers, global emerging markets, developed markets and all countries combined. With renewed consumption growth, improved earnings visibility, upward earnings revisions, declining costs of capital and rising ROEs, inexpensive staples stocks in the Philippines are unlikely to last. We believe the rerating story still has material upside. Figure 1: PH consumer staples have among the lowest relative valuation we will find anywhere 12mf P/E relative to the overall market 2.28x

2.03x

1.17x

1.22x

1.22x

1.26x

1.30x

1.31x

1.35x

1.37x

0.83x

Source: Company data, Credit Suisse estimates

1.41x

1.66x

1.79x

The Philippines is the only market in NJA where consumer staples earnings expectations for 2013 and 2014 have been revised upwards over the past six months. Figure 2: PH consumer staples have superior earnings revision trend Change in consensus EPS estimates over the past six months 23%

2013E

2014E

11%

Philippines

NJA -3% -6%

ASEAN -5%

Thailand -6%

-4%

-10%

Source: IBES, Credit Suisse estimates.

This trend can continue because earnings expectations remain too low, in our opinion. The market is underestimating the impact of stronger underlying demand, declining costs of capital and operating leverage. We expect URC to lead the way for upward revisions as our EPS estimates are on average 12% ahead of consensus for the next three years. Recent ASEAN precedents suggest more dramatic rerating

Hard pressed to find lower premiums for staples anywhere

1.60x

Upward earnings revisions are key catalyst

Over the past 12 months, consumer staples stock have rerated by 41% versus the overall market from 0.83x to 1.17x; however, the change versus the 10-year historical average is only 8% despite the much stronger outlook for domestic consumption. The Philippines and Thailand have uncanny similarities in terms of recent resurgences in domestic consumption. Today, Thailand consumer staples are trading at 1.79x the overall market, which is 43% higher than the 10-year historical average. ASEAN precedents have shown that it takes a year for relative multiples in consumer staples to move faster than the improvements in consumer confidence. The Philippines is right at that juncture, so the potential for even more dramatic rerating exists. Capitalising on staples rerating

We believe URC presents the best opportunity to benefit from continued rerating of the Philippines consumer staples stocks. URC trades at a 24% premium to the overall market, but when compared with 10 similar-sized branded food companies from across the region, URC’s relative valuation is 39% lower than the average despite having higher forward recurring earnings growth, greater ROE expansion and positive earnings revisions. We believe URC’s relative multiple should expand to a 40% premium or 27x EPS. 12% multiple expansion plus 22% earnings growth leads to our estimate of 34% potential upside in URC. This is enhanced by the company’s very strong cash position and possibility of higher cash returns to shareholders.

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Thursday, 14 March 2013

Asian Daily South Korea

Korea Economics ----------------------------------------------------------------------------------------------We have revised down Korea's 2013 GDP growth and CPI inflation forecasts Christiaan Tuntono / Research Analyst / +852 2101 7409 / [email protected]

● We have revised down our forecast for 2013 GDP growth to 2.7%, down from 3.2% before. We remain cautious on Korea’s growth trajectory this year in view of an uncertain global growth and the weaker-than-expected improvement so far. ● We have revised down our expectation on Korea’s CPI inflation this year upon a sluggish outlook in the domestic economy. We expect CPI inflation to average 2.2% in 2013, lowered from the 2.9% average we anticipated before. ● We think the BoK has room to ease monetary policy a bit further. This would not only help the property sector, it may also help cool the strength seen in the KRW to facilitate some more weakening against the USD and JPY. ● We have set our forecasts for USDKRW at 1070 by end-2013 and 1060 by end-2014, expecting only limited scope for further appreciation of the KRW. Figure 1: Summary of forecast revisions (% YoY) 2010 2011 2012 6.2 3.6 2.0 4.1 2.2 1.8 3.0 2.3 3.6 7.0 -2.1 -1.3 14.5 10.0 3.7 16.9 6.6 2.3

Forecast Previous 2013F 2014F 2012F 2013F 2.7 3.2 3.2 3.2 2.0 2.9 2.7 3.0 3.0 2.9 3.0 2.9 1.6 2.1 1.7 1.8 5.9 6.9 5.8 6.9 4.5 6.7 4.7 6.7

GDP Private consumption Government consumption Gross fixed capital formation Exports of goods & services Imports of goods & services GDP contributors: Domestic demand 7.0 1.8 1.2 1.9 2.4 Net trade -0.9 1.9 0.9 1.2 0.8 Headline CPI 3.0 4.0 2.2 2.2 2.8 Core CPI 1.8 3.2 1.7 n.a. n.a. Current account ($ bn) 28.2 26.1 43.1 38.0 31.9 Source: Source: National Statistics Office, Bank of Korea, Credit Suisse

2.1 1.0 2.9 n.a. 27.6

2.4 0.8 3.2 n.a. 23.6

GDP growth forecast revised down

We remain cautious on Korea’s growth trajectory this year in view of an uncertain global growth outlook and the weaker-than-expected improvement so far. 4Q12 GDP growth only managed to record a 0.4% QoQ seasonally adjusted gain, versus 0.1% in 3Q. Industrial production contracted 1.5% QoQ (sa) in January, not helping to project a more positive picture on its momentum in 1Q13 as well. This has prompted us to take a more conservative expectation on Korea’s growth trajectory this year. We have revised down our forecast for 2013 GDP growth to 2.7%, down from 3.2% before, in reflection of our anticipation of a milder up-trend this year. The recent weakness in JPYKRW, spearheaded by the policy-driven depreciation of the JPY, has triggered investor concern over the competitiveness of Korean exports. However, when comparing Korea’s real merchandise export growth to JPYKRW and USDKRW, we found no correlation between them. Instead, global economic growth, especially that in the advanced economies, poses the strongest correlation with Korea’s export growth. It is important to note that Korea’s global export share has been on the rise through the past decade even when JPYKRW was much lower than the current level. We believe this was driven by the improved competitiveness of Korean export products in the global markets.

Property prices continue to deflate, but we expect more directional policy support from the new government to stabilise the sector. It is widely reported that the Park administration will execute further easing measures on the property market. Cuts on holding and capital gains taxes and the removal of the pricing cap on primary home sales are likely to be introduced, though many of them have already been reviewed by the National Assembly before. We see there is risk for these proposed measures to be approved soon and have an immediate impact on the housing sector. An improved sentiment on the Korean economy and expectation of rising home prices and household income are needed to foster a genuine turnaround in the housing sector, in our view. Weaker inflation expected

We have revised down our expectation on Korea’s CPI inflation this year upon a sluggish outlook in the domestic economy. We expect CPI inflation to average 2.2% in 2013, lowered from the 2.9% average we anticipated before. The weak price pressure seen in January and February, along with our conservative outlook on domestic demand underlie our downward revision. February CPI inflation was at 1.4% YoY, staying flat on a seasonally adjusted basis. Core CPI inflation remained muted at 1.3% YoY, and up only 0.1% MoM (sa). In our view, a rising statistical base and sub-trend growth momentum is likely to keep price pressure at bay this year. With inflation ceasing to be a concern at this juncture, we think the BoK has room to ease monetary policy a bit further. We believe a rate cut will not only help improve sentiment and lower the cost of credit a bit further (to help the property sector), it may also help cool the strength seen in the KRW to facilitate some more weakening against the USD and JPY. This should help support exporters’ margin further, cushioning the impact from an overly rapid strength in the KRW seen before. Unless we see a visible bounce in Korea’s macro-economic data in the near term, we think the chance of a rate cut would still exist for this year. We have set our forecasts for USDKRW at 1070 by end-2013 and 1060 by end-2014, expecting only limited scope for further appreciation in the KRW. The KRW has weakened moderately against the USD since the beginning of this year, as the USD gained strength across the board upon its better-than-expected macro performance lately. As we expect the momentum in the US may slow in the coming months, we think there is still upside risk on KRW strength, though the BoK may try to cap its strength in view of a still sluggish export performance.

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Thursday, 14 March 2013

Asian Daily Hite Jinro -------------------------------------------------------------------- Maintain UNDERPERFORM Weaker-than-expected 4Q12

EPS: ▼ TP: ◄►

Sonia Kim / Research Analyst / 822 3707 3764 / [email protected] Ray Kim / Research Analyst / 822 3707 3776 / [email protected]

● HiteJinro reported its 4Q12 results, which fell well short of consensus. Though the weak FY12 earnings were expected due to one-time ERP expenses, we believe the soju business was worse than thought. ● We lower our FY13E EPS by 3.5% after reflecting on the weak 2012 numbers. We have lowered our soju sales assumption accordingly on lower-than-expected 2012 soju sales. We do not assume the sale of Jinro Japan or sale of its property assets yet. ● Risks: 1) continuous market share gains by foreign brands in the beer market; 2) consensus risk if the anticipated sales of Jinro Japan (Not listed) or property assets do not occur; and 3) uncertainty surrounding the Oriental Brewery (OB) sale. ● We maintain UNDERPERFORM. The valuation is suggesting a strong restructuring ahead. The stock is trading at a historical high range and at a level which is generally higher than its global alcohol peers. We believe the consensus is overly reflective of an organic restructuring, and the valuation may disappoint if the property restructuring stalls. We advise to take profit. Bbg/RIC 000080 KS / 000080.KS Price (13 Mar 13 , W) 34,000 Rating (prev. rating) U (U) TP (prev. TP W) 25,000 (25,000) Shares outstanding (mn) 69.48 Est. pot. % chg. to TP (26) Daily trad vol - 6m avg (mn) 0.2 52-wk range (W) 35050.0 - 20000.0 Daily trad val - 6m avg (US$ mn) 6.6 Mkt cap (W/US$ bn) 2,362.2/ 2.2 Free float (%) 48.3 Performance 1M 3M 12M Major shareholders Hite Holdings: 48.4% Absolute (%) — 17.9 36.0 Relative (%) (2.5) 18.0 37.2 Year 12/11A 12/12A 12/13E 12/14E 12/15E Revenue (W bn) 1,878 2,034 2,169 2,245 2,324 EBITDA (W bn) 287.5 322.0 360.9 387.0 404.3 Net profit (W bn) 95.2 104.0 127.1 141.2 154.7 EPS (W) 1,407 1,538 1,884 2,096 2,299 - Change from prev. EPS (%) n.a. n.a. (4) (1) - Consensus EPS (W) n.a. n.a. 1,977 2,235 EPS growth (%) (39.1) 9.3 22.5 11.3 9.7 P/E (x) 24.2 22.1 18.0 16.2 14.8 Dividend yield (%) 3.7 3.7 4.4 4.4 4.4 EV/EBITDA (x) 12.4 11.2 10.1 9.4 9.0 P/B (x) 1.7 1.7 1.6 1.6 1.6 ROE (%) 6.5 7.3 8.9 9.7 10.4 Net debt(cash)/equity (%) 84.7 88.7 90.1 88.1 84.6 Note1:Hite Jinro engages in manufacture and sale of alcoholic beverages in Korea. It is a merged entity of Jinro and Hite Brewery as of July 2011. Jinro's products mainly include soju, a Korean spirit, whereas Hite specializes in manufacture of beer..

Click here for detailed financials

Lower FY13 EPS

Management had guided for one-time expenses associated with the voluntary lay-off of 200 of its employees in Dec 2012. This resulted in ERP costs of W21 bn. Nevertheless, the results were still worse than expected from weak soju sales. Beer volume also saw a steep drop of 5% YoY. It was largely attributed to cold weather. Hites’s foreign imported beer “Kirin” saw a 500% increase, but was insufficient to offset the fall in its key beer brands. Hite’s M/S remained weak as consumers increasingly turned to foreign brands or “Cass” brand. We lower our FY13 EPS by 3.5%. The key reason for our downward revision is softer soju sales. We expect Hite to see a 5% YoY sales growth and Jinro to grow 8% in 2013. Accordingly, we assume GP margin to rise 85 bp and 300 bp YoY for Hite and Jinro, respectively.

Optimism on earnings and valuations appears to be high

Without showing sign of a turnaround, the shares have outperformed KOSPI by 37% over the past six months. This has come from: 1) the anticipation on synergies from Hite and Jinro consolidation to be seen in 2013; and 2) stronger conviction on asset sales from restructuring its 30% stakes in Pernod-Ricard Korea Incorporated (Not listed) and its Seocho building. This optimism got a further boost when it raised its beer and soju ASP by 6% in 3Q12 and by 9% in 4Q12, respectively. We acknowledge its 11-12% OP margin in 2013 is not a distant scenario. Yet, the market would ask for more than a normal turnaround, since the stock is trading at a historical high range with relatively higher level compared with its global peers. Figure 1: Comparative valuations Company

Ticker

Mkt Cap (USD mil) 199,287 154,176 75,314 82,908 30,711 43,377 34,557 15,733 14,783 10,539 2,153

P/E (x) EV/EBITDA (x) 13E 14E 13E 14E AmBev AMBV4.SA 24.0 22.0 22.9 21.1 A.B. InBev ABI.BR 19.1 16.4 12.6 11.1 Diageo DGE.L 19.7 17.6 14.7 13.3 SABMiller SAB.L 21.5 19.4 16.8 15.2 Moutai 600519.SS 11.8 10.0 7.1 5.7 Heineken HEIN.AS 18.3 16.3 10.4 9.4 Pernod-Ricard PERP.PA 20.6 18.4 15.0 13.8 Carlsberg CARLb.CO 15.1 13.6 8.9 8.1 Kirin Holdings 2503.T 15.2 22.9 6.7 6.2 Asahi Holdings 2502.T 15.4 13.7 7.0 6.6 Hite Jinro 000080.KS 17.4 16.0 9.5 9.0 Average 18.0 16.9 12.0 10.9 Source: Company data, Credit Suisse estimates.

ROE (%) 13E 14E 42.9 45.9 18.7 20.5 33.4 30.2 14.7 14.9 40.9 37.2 16.5 16.8 11.5 11.9 8.2 8.5 9.1 5.6 9.0 9.6 9.0 9.6 19.5 19.1

Figure 2: K-IFRS consolidated result summary (W bn)

4Q12 4Q11 YoY gr QoQ gr

2012 YoY gr *FY12 *% of CSE CSE 2,034 8.3% 2,041 100% 880 10.5% 914 96% 1,052 5.3% 1,024 103% 871 8.1% 884 98% 167 -8.2% 222 75% 136 -2.3% 155 88% 102 17.3% 107 95%

Sales 504 479 5.3% -8.1% Beer 194 210 -7.3% -26.5% Soju 287 247 16.1% 12.3% Gross profit 213 202 5.5% -13.7% ** Operating profit 25 22 15.4% -58.2% Pretax profit -7 0 nm nm NP for majority 1 -12 nm nm Margins & changes GP margin 42.2% 42.1% 0.1pp -2.7pp 42.8% -0.1pp 43.3% OP margin 4.9% 4.5% 0.4pp -5.9pp 8.2% -1.5pp 10.9% PP margin -1.3% 0.0% -1.4pp -9.1pp 6.7% -0.7pp 7.6% NP adj. margin 0.2% -2.5% 2.7pp 0.2pp 0.1% 0.1pp 5.3% * Based on previous estimates. ** Applied accounting changes. Source: Company data, Credit Suisse estimates.

The consensus is factoring in more downside risks. FY12 earnings include W52 bn in one-off gains from sale of its assets. If Hite doesn’t deliver on the sale of its investment or property assets, then there could be consensus and valuation risks. We also highlight the negative environment surrounding the potential “OB” sale. Though it’s too early to foretell the developments, the uncertainty may lead to higher volatility in the stock towards 2H13. 000080 KS 27 Nov, 2012 27 Jul, 2012

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Old rating NEUTRAL NEUTRAL

New rating UNDERPERFORM NEUTRAL

Old TP W25,000 W22,000

New TP W25,000 W25,000

Thursday, 14 March 2013

Asian Daily SK Innovation ----------------------------------------------------------------- Maintain OUTPERFORM Feedback on non-deal roadshow

EPS: ◄► TP: ◄►

A-Hyung Cho / Research Analyst / 822 3707 3735 / [email protected] Jihong Choi / Research Analyst / 82 2 3707 3796 / [email protected]

Note1:SK Innovation is a Korea-based company engaged in oil development business. The Company mainly operates its business under three segments: oil development, asphalt and research and development segments..

Click here for detailed financials

Refining- 2013 to be slightly better than 2012

The current margin is very high on seasonality and on heavier-thanusual scheduled refinery plant shutdown globally. CS refining margin reached an average US$13.9/bbl YTD vs the 1Q12 average of US$11.2/bbl and 4Q12 average of US$10.8/bbl. Investors’ concerns were that the refining margin could correct to normalised levels, given the margin correction we saw in 3Q12 (to US$2.9/bbl) and in 4Q12 (to US$3.1/bbl), and that increasing supply could be a burden in 2H, in addition to the recent volatility in oil price. Management responded that while the current margin may see some correction post the shutdown season, the summer driving season that will kick in soon will likely offset the increasing supply. Management seemed less concerned about sizeable Chinese capacity starting up this year as they should be targeted at meeting domestic demand, and management also expect closure of some teapot refineries.

The company believes that the robust margin is likely to continue despite the recent correction which was due to weaker sentiment on China macro, falling oil price and high base effect (product price spiking earlier on speculative demand). The olefin chain should continue to sequentially improve, but the company seemed more confident on the aromatic chain’s structural improvement. The aromatics chain is likely to remain structurally tight given the increasing input of shale oil by the US refiners. This explains the company’s on-going expansion in the aromatics chain through its JV with JX Energy (Toluene->MX->PX conversion) and the upgrading of the Incheon plant into a condensate refinery. Investors seemed to be concerned about the Korean companies’ aggressive expansions in 2014, but according to SK: 1) PTA capacity addition still remains more aggressive than that of PX, and 2) the sequential closures of Japanese refinery plants is likely to tag along the closure of PX plants in Japan. E&P: Stable with potential news in M&A

E&P production should remain stable at ~65K bbl/day. The company aims to grow production and reserves through M&A, using the proceeds from its earlier sale of its Brazilian E&P asset. The target asset should have more oil than gas, in our view, given SK’s current gearing into gas reserves. Lubricant: Finding an inflection point in 1Q13

Lubricant business margin was softer on weak end-demand. 4Q12 was the bottom. 1Q13 may not show any drastic improvement, but recent indications suggest that the business fundamental has started to bottom. Figure 1: CS 6-2-3-1 refining margin trend (U$/bbl) 21

18 15 12

9 6 3

Weekly

Q average

Jan-13

Mar-13

Nov-12

Jul-12

Sep-12

May-12

Jan-12

Mar-12

Nov-11

Jul-11

Sep-11

May-11

Jan-11

Mar-11

Nov-10

Jul-10

Sep-10

May-10

0

Jan-10

Bbg/RIC 096770 KS / 096770.KS Price (13 Mar 13 , W) 169,000 Rating (prev. rating) O (O) TP (prev. TP W) 206,000 (206,000) Shares outstanding (mn) 92.47 Est. pot. % chg. to TP 22 Daily trad vol - 6m avg (mn) 0.3 52-wk range (W) 182000.0 Daily trad val - 6m avg (US$ mn) 48.0 125500.0 Free float (%) 69.0 Mkt cap (W/US$ bn) 15,626.7/ 14.2 Major shareholders SK Holdings (30.8%) Performance 1M 3M 12M Absolute (%) 0.6 (3.2) (3.2) Relative (%) (1.9) (3.0) (1.9) Year 12/10A 12/11A 12/12E 12/13E 12/14E Revenue (W bn) 53,706 68,367 73,395 70,741 69,667 EBITDA (W bn) 2,781 3,370 2,212 3,127 3,291 Net profit (W bn) 1,264 3,181 1,148 2,028 2,112 EPS (W) 13,804 34,787 12,388 21,901 22,813 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (W) n.a. n.a. 14,536 18,468 21,744 EPS growth (%) 86.3 152.0 (64.4) 76.8 4.2 P/E (x) 12.2 4.9 13.6 7.7 7.4 Dividend yield (%) 1.2 1.7 1.5 1.5 1.5 EV/EBITDA (x) 8.4 6.0 9.8 6.5 5.8 P/B (x) 1.8 1.1 1.0 0.9 0.8 ROE (%) 15.2 27.2 7.7 12.4 11.6 Net debt(cash)/equity (%) 67.0 30.2 37.9 26.5 18.2

Petrochemical: Better than 2012

Mar-10

● We hosted a non-deal roadshow for SK Innovation in the US and Europe. Management’s tone was positive on the overall 2013 outlook. ● The company is less concerned about the increasing global supply and believes that while current high refining margin may see some correction post the shutdown season, demand should be supported by the summer driving season ahead. ● The company believes that the robust margins in aromatics is likely to continue despite the recent correction, given the increasing input of shale oil by the US refiners. Regarding investors’ concern on aggressive regional expansions in PX in 2014, SK believes that PTA capacity addition still remains more aggressive than PX. 4Q12 lubricant business margin bottomed; we believe 1Q13 may not show any drastic improvement, but recent signs suggest that business fundamentals have started bottoming. ● We maintain our OUTPERFORM rating; operational improvement YTD and the likely resilient operations ahead have not been reflected in the below-book valuation.

Source: Bloomberg, Credit Suisse estimates

Figure 2: PX/PE/Benzene margin vs. dubai oil price (U$/MT) 900 800 700 600 500 400 300 200 100 0 Mar-11

Jul-11 PX

Nov-11 PE

Mar-12 Benzene

Jul-12

(U$/bbl) 130 120 110 100 90 80 70 60 50 Mar-13

Nov-12 Dubai spot (RHS)

Source: Company data, Credit Suisse estimates 096770.KS 1-Feb-13

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Old rating New rating OUTPERFORM OUTPERFORM

Old TP (W) 210,000

New TP (W) 206,000

Thursday, 14 March 2013

Asian Daily Taiwan

Compal Electronics -----------------------------------------------------------------Maintain NEUTRAL 4Q12 / 1Q13 preview

EPS: ▼ TP: ◄►

Thompson Wu / Research Analyst / 886 2 2715 6386 / [email protected]

● Following Feb monthly sales data last week, we update our 2013 estimates for Compal. Its 1Q13 notebook volumes are tracking behind, and we lower it to 10.9% QoQ decline, from 9.6% decline. We keep our 2013 notebook forecast of 38.5 mn (+3% YoY), and expect a pick-up in 2H13 from order consolidation. That said, we trim our 2013 EPS by 7% to layer in higher touch/server R&D investments. ● We fine-tune our 4Q12 estimates ahead of results at month-end. Notebook shipments were better in the quarter. Also Compal began restructuring two notebook manufacturing plants, which will increase its opex in both 4Q12 and 1Q13. The cost-saving benefits should begin to emerge in 2H13, driving some operating leverage. ● In 1Q13, Compal recapitalised VIBO Telecom, which has been a drag on its earnings, with a NT$500 mn investment. Further, Taiwan press wrote on M&A potential in VIBO. If that occurs, Compal’s investment losses would narrow, lifting our 2013 EPS by 10% (NT$0.23). ● We see limited downside risk in Compal’s shares trading at 0.7x our 2013 BVPS. However, until its EPS visibility improves, or PC demand recovers, we do not expect Compal to re-rate. Reiterate NEUTRAL. Bbg/RIC 2324 TT / 2324.TW Price (13 Mar 13 , NT$) 20.65 Rating (prev. rating) N (N) TP (prev. TP NT$) 20.00 (20.00) Shares outstanding (mn) 4,412.65 Est. pot. % chg. to TP (3) Daily trad vol - 6m avg (mn) 18.5 52-wk range (NT$) 35.6 - 17.4 Daily trad val - 6m avg (US$ mn) 12.8 Mkt cap (NT$/US$ mn) 91,121.3/ 3,072.7 Free float (%) 90.0 Performance 1M 3M 12M Major shareholders Kinpo Electronics Absolute (%) (0.5) 3.3 (40.5) Relative (%) (1.6) 0.2 (40.0) Year 12/10A 12/11A 12/12E 12/13E 12/14E Revenue (NT$ mn) 887,004 693,127 683,705 740,237 733,316 EBITDA (NT$ mn) 29,535 18,825 15,524 18,588 18,969 Net profit (NT$ mn) 23,272 11,015 6,916 9,975 10,773 EPS (NT$) 5.38 2.53 1.59 2.29 2.47 - Change from prev. EPS (%) n.a. n.a. 0 (7) (2) - Consensus EPS (NT$) n.a. n.a. 1.63 2.02 2.20 EPS growth (%) 9.6 (53.1) (37.2) 44.2 8.0 P/E (x) 3.8 8.2 13.0 9.0 8.4 Dividend yield (%) 13.1 6.8 3.1 4.4 4.8 EV/EBITDA (x) 2.2 2.8 4.0 2.8 2.2 P/B (x) 0.7 0.8 0.8 0.7 0.7 ROE (%) 20.4 9.4 6.0 8.4 8.6 Net debt(cash)/equity (%) (20.4) (33.0) (25.6) (32.7) (38.9) Note 1: Compal Electronics, Inc. is principally engaged in the research, development, design, manufacture and distribution of computer, communication and consumer electronic (3C) products. The Company provides notebook computers, netbook computers, all in one.

Click here for detailed financials

Figure 1: Compal’s consolidated 4Q12 estimate changes (NT$ mn) New Old +/- (%) Revenue 184,485 179,386 2.8 Operating profits 2,422 2,411 0.5 Pre-tax income 2,527 2,529 -0.1 Net income 1,843 1,845 -0.1 GAAP EPS (NT$) $0.42 $0.42 -0.1 GM (%) 4.4% 4.3% Opex/sales (%) 3.0% 3.0% OPM (%) 1.3% 1.3% Source: Company data, Bloomberg, Credit Suisse estimates.

Cons. 178,880 2,206 2,320 1,777 $0.40 4.4% 3.1% 1.2%

+/- (%) 3.1 9.8 8.9 3.7 6.7

Reducing 1Q13/2013E EPS by 18%/7%, respectively

We lower our 1Q13 EPS by 18% as we: (1) reduce our notebook estimate by 1.4% to 9.3 mn, or 10.9% QoQ decline to reflect QTD monthly sales, and comparing to guidance of “slightly over 10%” QoQ decline; and (2) lower our TV/monitor shipment estimate by 31% to 1.0 mn to reflect QTD volume tracking. We maintain 1Q13 GM flat at 4.4% to factor in a combination of better product mix and decreased notebook scale from seasonality. We trim our 2013 EPS by 7% primarily on higher R&D/opex, which we believe reflects continued investments Compal is making in its touch lamination business and servers. This will be offset by cost savings from restructuring plans to close two notebook manufacturing plants. In terms of top-line, we increase tablet volume by 17% to 7 mn from 6 mn to reflect a new customer win in 2H13 from a “content provider”. Its tablet guidance is 6–8 mn. Compal’s notebook and TV units are expected to increase by 3%/1% to 38.5 mn and 4.3 mn, respectively. Our GM increases slightly to 4.6% from 4.5% in 2012E from product mix. We do not expect its OPM to improve meaningfully in 1H13 owing to soft demand and product cycles, but should pick up in 2H13 with better scale and cost savings from its restructuring plan. Figure 2: Compal consolidated its 1Q13/2013 estimate changes (In NT$ mn)

1Q13E 2013E New Old +/-% Cons. New Old +/-% Cons. Revenue 168,199 175,910 -4.4 163,502 740,237 733,779 0.9 723,184 Operating profits 2,240 2,719 -17.6 2,148 12,399 13,306 -6.8 10,758 Pre-tax income 2,451 2,951 -17.0 2,282 13,610 14,570 -6.6 11,156 Net income 1,750 2,141 -18.2 1,681 9,975 10,723 -7.0 8,395 GAAP EPS (NT$) $0.40 $0.49 -18.3 $0.37 $2.29 $2.46 -7.0 $1.90 GM (%) 4.4% 4.4% 4.3% 4.6% 4.6% 4.4% Opex/sales (%) 3.0% 2.9% 3.0% 2.9% 2.8% 2.9% OPM (%) 1.3% 1.5% 1.3% 1.7% 1.8% 1.5% Source: Company data, Bloomberg, Credit Suisse estimates.

VIBO Telecom a drag for now, but maybe a catalyst later?

4Q12 results preview

We are increasing our 4Q12 revenue estimate by 2.8% to NT$184.5 bn reflecting monthly sales data. The upside in the quarter was from notebooks. Compal shipped ~10.4 mn (+7.8% QoQ) notebooks in the quarter, exceeding our previous forecast of 10.1 mn (+4.7% QoQ) as well as its guidance of low-single digit sequential growth. Compal reported the strongest growth in notebook volumes versus peers who registered flat to low-single digit sequential growth in volumes. On increased PC scale and better product mix (i.e. higher touch notebook attach rate), we expect its 4Q12 GM to improve modestly to 4.4% from 4.3% in 3Q12. In the quarter, Compal began its restructuring plans to consolidate its notebook manufacturing plants and reduce its Taiwan R&D team.

Announced on 31 Jan, Compal will participate in VIBO Telecom’s capital raising by acquiring 105.5 mn new shares, or up to NT$500 mn. VIBO (45% owned by Compal) has reported a loss in 2012, and has been a drag on Compal’s 2012 EPS (CS est. ~NT$0.28). Subsequent to the recapitalisation, local press wrote a piece on potential outside interest in VIBO, but refuted later by VIBO. If this transaction was to occur, and Compal sell its 45% stake, the equity investment loss of NT$1.3 bn we currently forecast for VIBO would reverse, driving 10% earnings accretion to our 2013 EPS of NT$2.29.

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Thursday, 14 March 2013

Asian Daily Thailand

Krung Thai Bank ------------------------------------------------------------- Maintain OUTPERFORM New report: Still at a discount, still growing fast

EPS: ◄► TP: ◄►

Dan Fineman / Research Analyst / 662 614 6218 / [email protected] Thaniya Kevalee / Research Analyst / 662 614 6219 / [email protected] Siriporn Sothikul, CFA / Research Analyst / 662 614 6217 / [email protected]

● We examined whether value remains in KTB and conclude that the stock remains inexpensive. Click here for the full report. ● We see several factors that should give KTB superior growth over the next one-two years. Redeployment of low-yielding loans from public sector to private sector borrowers last year should have positive spillover in 2013. High financial and operating leverages give KTB a bottom-line boost in good times like the present. Some tentative signs that the bank is becoming more competitive in fee income and lending to the private sector point to possible structural improvements in operations. ● We see two potential catalysts for the stock this year: First, we expect upgrades from the street; Second, we are hopeful that the new CEO could improve the accessibility of management and raise the profile of the bank with the investment community. ● Despite its outperformance, KTB still looks inexpensive. Even after adjusting for its exposure to SSI, high leverage and low coverage, KTB’s P/E is well below peers’. Bbg/RIC KTB TB / KTB.BK Price (12 Mar 13 , Bt) 26.25 Rating (prev. rating) O (O) TP (prev. TP Bt) 32.50 (32.50) Shares outstanding (mn) 13,976 Est. pot. % chg. to TP 24 Daily trad vol - 6m avg (mn) 36.4 52-wk range (Bt) 27.0 - 13.8 Daily trad val - 6m avg (US$ mn) 25.3 Mkt cap (Bt/US$ bn) 366.9/ 12.4 Free float (%) 44.7 Performance 1M 3M 12M Major shareholders FIDF (55.31%), Absolute (%) 10.8 41.1 59.4 Vayupak Fund Relative (%) 5.0 24.8 22.9 (4.34%) Year 12/11A 12/12A 12/13E 12/14E 12/15E Pre-prov Op profit (Bt mn) 35,578.6 44,463.3 54,514.9 65,804.7 73,817.2 Net profit (Bt mn) 17,027 23,566 35,236 46,953 52,794 EPS (CS adj. Bt) 1.43 1.94 2.52 3.36 3.78 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Bt) n.a. n.a. 2.38 2.72 3.13 EPS growth (%) 14.2 35.8 29.6 33.3 12.4 P/E (x) 18.3 13.5 10.4 7.8 7.0 Dividend yield (%) 2.1 3.3 4.2 5.3 6.1 BVPS (CS adj. Bt) 11.6 12.9 14.3 16.3 18.6 P/B (x) 2.26 2.04 1.83 1.61 1.41 ROE (%) 13.3 15.2 18.5 21.9 21.6 ROA (%) 0.9 1.1 1.5 1.8 1.8 Tier 1 Ratio (%) 8.7 10.2 10.3 10.6 10.9

Figure 1: Fall in government loan exposure improving loan yields (%) 20

(%) 5.9

5.8

15

5.7 10 5.6 5

5.5

0

5.4 1Q12

2Q12

3Q12

Government loans as % of total loans (LHS)

4Q12 Loan yield (RHS)

Source: Company data

Still at a discount

KTB appears cheap on a variety of metrics. KTB’s stated P/E is clearly inexpensive, but even if we introduce conservative adjustments, the P/E remains the most inexpensive of the big banks. Our adjustments punish KTB for its exposure to troubled steelmaker Sahaviriya Steel (SSI.BK, Bt0.66, Not Rated), its low equity base and its low coverage (Figure 2). Our DDM-based target pricing also punishes the stock on these measures but still gives a 24% upside potential. Figure 2: Even adjusting for high leverage, low coverage and SSI, the 2013E P/E still looks inexpensive (x) 13

12

11

10 KBANK

SCB

BBL

KTB

Note 1: Krung Thai Bank Public Company Limited is a Thailand-based commercial bank. It offers services throughout the country and in overseas markets, including Laos, China, the United States and others..

Source: Credit Suisse estimates

Click here for detailed financials

SSI loans remain a risk, but other parts of the loan book appear healthy. Most KTB loans are to low-risk borrowers such as the government, SOEs, large corporates and civil servants. The bank has doubled its NPL coverage over the past three years, and last year’s rights issue added 1.5 pp to tier 1. Although coverage still lags peer big bank levels, we believe that KTB’s NPLs are unusually well collateralised. Our adjusted valuation metrics indicate that the risk of SSI turning NPL is in the price.

Sector’s best hope for an upgrade

We see the best hope for earnings upgrades for KTB among the Thai banks. We forecast fastest earnings growth in the sector for KTB, after TMB, over the next two years, and we are farther above consensus for 2013 EPS for KTB than for any other bank. Last year’s redeployment of government and SOE loans to the private sector will have positive spillover on this year’s loan yields (Figure 1), and the high financial and operating leverages will give KTB superior growth in good times like the present, in our view. Some tentative signs of structural improvement in fee income generation and private sector lending have begun to appear.

Asset quality strong ex-SSI

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Thursday, 14 March 2013

Asian Daily Recently Published Research Date Thu 14 Mar

Thu 14 Mar Wed 13 Mar

Wed 13 Mar Wed 13 Mar

Wed 13 Mar Wed 13 Mar Wed 13 Mar Tue 12 Mar Tue 12 Mar Tue 12 Mar Tue 12 Mar Tue 12 Mar

Title Asian Exchange Watch - Some February volume slowdown (in part due to CNY)

Author(s) Arjan van Veen David Bailey Anantha Narayan Vikash Patwari Greg Main Universal Robina Corp. - Home sweet home Karim P. Salamatian, CFA Rebecca Kwee China Market Strategy - Urbanisation and its limits Vincent Chan Peggy Chan, CFA Trina Chen Jinsong Du Iris Wang Davin Wu Jack Yeung Yang Y. Song Chinese Whispers - Urbanisation survey Vincent Chan India Market Strategy - India: The silent Neelkanth Mishra transformation Ravi Shankar Arnab Mitra Jatin Chawla Ashish Gupta Sunil Tirumalai Anubhav Aggarwal Akshay Saxena Chunky Shah Prashant Kumar Kush Shah ITC Ltd - Rural demand fortifies pricing power Arnab Mitra Akshay Saxena Krung Thai Bank - Still at a discount, still growing Dan Fineman fast Siriporn Sothikul, CFA Shriram Transport Finance Co Ltd - Enabling small- Sunil Tirumalai time entrepreneurs Chunky Shah 21 Vianet Group Inc - A beneficiary of rising Colin McCallum, CA Internet volumes Hyundai Hysco - The organic growth story is now Minseok Sinn imminent Hayoung Chung Longyuan Power - Taking a breather Edwin Pang Singapore/Malaysia Hospitals - What are you Anand Swaminathan paying for? Tan Ting Min Louis Chua Sunny Optical Technology Group Co., Limited Yan Taw Boon Making strides in product mix improvement Manish Nigam

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E-mail [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

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[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Thursday, 14 March 2013

Asian Daily Companies mentioned ACC Limited (ACC.BO, Rs1285.4, OUTPERFORM, TP Rs1545.0) Aeon Credit Service (8570.T, ¥2,400, OUTPERFORM, TP ¥2,790) Agile Property (3383.HK, HK$9.27, UNDERPERFORM[V], TP HK$10.2) Air China (0753.HK, HK$6.45) AmBev (AMBV4.SA, R$87.28) Ambuja Cements Ltd (ABUJ.BO, Rs189.95) Anheuser-Busch InBev (ABI.BR, €73.59) Asahi Group Holdings (2502.T, ¥2,226) Axis Bank Limited (AXBK.BO, Rs1398.95) Bangkok Bank (BBLf.BK, Bt233.0) Carlsberg (CARLb.CO, Dkr590.0) Cathay Pacific (0293.HK, HK$14.26, OUTPERFORM, TP HK$16.7) Champion Real Estate Investment Trust (2778.HK, HK$3.97) Cheung Kong Holdings (0001.HK, HK$116.8) China COSCO Holdings (1919.HK, HK$4.08, UNDERPERFORM[V], TP HK$3.3) China Life (2628.HK, HK$22.1, UNDERPERFORM, TP HK$25.5) China Life (601628.SS, Rmb17.16) China Oilfield Services Ltd (2883.HK, HK$15.42, NEUTRAL, TP HK$14.5) China Pacific (2601.HK, HK$25.95, OUTPERFORM, TP HK$37.5) China Pacific (601601.SS, Rmb18.74, OUTPERFORM, TP Rmb30.0) China Resources Gas (1193.HK, HK$18.5, NEUTRAL, TP HK$18.2) China Taiping (0966.HK, HK$15.0, OUTPERFORM, TP HK$21.0) CIFCL (CHLA.BO, Rs289.4) CIMC (2039.HK, HK$14.34) CNOOC Ltd (0883.HK, HK$14.44) Compal Electronics (2324.TW, NT$20.65, NEUTRAL, TP NT$20.0) Cosco Pacific (1199.HK, HK$12.24) Diageo (DGE.L, 2009.0p) Dish TV India (DSTV.BO, Rs67.2, OUTPERFORM, TP Rs83.0) E-House China Holdings Ltd (EJ.N, $4.89, OUTPERFORM[V], TP $5.7) Emami Ltd (EMAM.BO, Rs594.65, OUTPERFORM, TP Rs710.0) Great Eagle Hdg. (0041.HK, HK$31.95) Hang Lung Properties (0101.HK, HK$30.35) HDFC Bank (HDBK.BO, Rs655.5, OUTPERFORM, TP Rs770.0) Heineken (HEIN.AS, €57.76) Henderson Land Dev (0012.HK, HK$51.25, OUTPERFORM, TP HK$66.6) Hite Jinro (000080.KS, W34,000, UNDERPERFORM, TP W25,000) Hongkong Land Holdings (HKLD.SI, $7.33) Hysan Development Co. (0014.HK, HK$40.1) ICICI Bank (ICBK.BO, Rs1130.05) INPEX Corporation (1605.T, ¥525,000, OUTPERFORM, TP ¥705,000) ITC Ltd (ITC.BO, Rs298.85, OUTPERFORM, TP Rs340.0) Kaisa Group (1638.HK, HK$2.22, OUTPERFORM[V], TP HK$3.0) Kasikornbank (KBANf.BK, Bt215.0) Kerry Properties (0683.HK, HK$36.7, OUTPERFORM, TP HK$47.76) Kirin Holdings (2503.T, ¥1,470) Krung Thai Bank (KTB.BK, Bt26.25, OUTPERFORM, TP Bt32.5) Moutai (600519.SS, Rmb183.83) New China Life (1336.HK, HK$27.4, NEUTRAL, TP HK$34.0) New China Life (601336.SS, Rmb24.5) Pernod Ricard (PDRDY.PK, $26.16) Pernod-Ricard (PERP.PA, €99.9) PICC Group (1339.HK, HK$4.35, UNDERPERFORM[V], TP HK$4.3) PICC P&C (2328.HK, HK$10.82, OUTPERFORM, TP HK$15.0) Ping An (2318.HK, HK$62.1, OUTPERFORM, TP HK$83.0) Ping An (601318.SS, Rmb42.63, OUTPERFORM, TP Rmb66.0) Royal Dutch Shell plc (RDSa.L, 2219.0p) SABMiller (SAB.L, 3475.0p) Sahaviriya Steel (SSI.BK, Bt0.62) Shriram Transport Finance Co Ltd (SRTR.BO, Rs701.55, OUTPERFORM, TP Rs840.0) Siam Commercial Bank (SCB.BK, Bt178.5) Sino Land (0083.HK, HK$13.4, OUTPERFORM, TP HK$16.65) SK Innovation (096770.KS, W169,000, OUTPERFORM, TP W206,000) Sun Hung Kai Properties (0016.HK, HK$111.6, OUTPERFORM, TP HK$139.26) Swire Properties Limited (1972.HK, HK$28.15) TMB Bank Public Co Ltd (TMB.BK, Bt2.68) Treasury Wine (TWE.AX, A$5.85, UNDERPERFORM, TP A$3.5) Ultratech Cement Ltd (ULTC.BO, Rs1905.4) Universal Robina Corp. (URC.PS, P97.5, OUTPERFORM, TP P130.0) Universal Robina Corp. (URC.PS, P98.0, OUTPERFORM, TP P130.0) Wharf Holdings (0004.HK, HK$65.1) Wheelock and Company Limited (0020.HK, HK$39.8)

Disclosure Appendix Important Global Disclosures The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

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Thursday, 14 March 2013

Asian Daily As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector , with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relat ive attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is: Global Ratings Distribution

Rating

Versus universe (%)

Of which banking clients (%)

Outperform/Buy* 43% (54% banking clients) Neutral/Hold* 38% (47% banking clients) Underperform/Sell* 16% (40% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relati ve basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.

Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS-Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

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Thursday, 14 March 2013

Asian Daily Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Taiwanese Disclosures: This research report is for reference only. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. Reports may not be reprinted without permission of CS. Reports written by Taiwan based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Please find the full reports, including disclosure information, on Credit Suisse's Research and Analytics Website (http://www.researchandanalytics.com)

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Important Credit Suisse HOLT Disclosures With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-part data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur. Additional information about the Credit Suisse HOLT methodology is available on request. The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur. CFROI®, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse. For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.creditsuisse.com/researchdisclosures or call +1 (877) 291-2683.

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