MARKET WATCH 3 SEP 2012 - AsianBookie.Com Forums

03-Sep 2012 Monday 10:53 AM (4255 days ago)

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STI       3,025       +14     +0.45%
DOW     13,091      +90    +0.69%
S&P      1,407        +7      +0.51%
FTSE     5,711        -8        -0.14%
DAX       6,971        +75     +1.09%
GOLD     1,689         +32     +1.90%
OIL         96.11        +1.49    +1.58%
PRE-HK OPEN    -46pts

CREDIT SUISSE GLOBAL RISK APPETITE (EQUITY):   -2.24 ( 30Aug 2012)
CREDIT SUISSE GLOBAL RISK APPETITE              :   -1.78 (30 Aug 2012)

03 Sep 2012 08:51

DJ MARKET TALK: Singapore's STI May Stall; 3000-3040 Tipped

0051 GMT [Dow Jones] Singapore's STI may stall amid a China vs Bernanke dilemma, with the Fed chief's clearer signals of potential stimulus going head-to-head against China's weaker-than-expected PMI data; regional markets already trading are mostly offering negative cues so far. "China should win--it's closer to home," says Song Seng Wun, head of research at CIMB; "it painted a picture of quieter factory import activities when we should be seeing factories humming. They're humming a lot less." He says "the U.S. numbers are not looking as bad as feared, but numbers in Asia indicate a further slowdown, which may push Bernanke to do more for the U.S. economy," adding that "it should be a fairly quiet time for the market generally." The STI ended Friday up 0.5% at 3025.46; OCBC technical analysis notes 3000 is key psychological support, while 3040 is support-turned-resistance. Among stocks in focus, Keppel (BN4.SG) said a unit is part of a consortium which won an around US$100 million Polish waste-to-energy project, while CapitaLand (C31.SG) is launching Raffles City Chengdu, to begin operations this month; also, Hi-P (H17.SG) plans to invest US$99.0 million in Hi-P Nantong and Raffles Education (NR7.SG) canceled the interim dividend it declared in February

03 Sep 2012 08:56

DJ MARKET TALK:Keppel Likely Won't React Much To Poland Contract Win

0056 GMT [Dow Jones] Keppel Corp. (BN4.SG) is likely to track market winds, without reacting much to announcing its unit Keppel Seghers Belgium NV is part of a consortium which was awarded a waste-to-energy project in Poland worth around US$100 million; the Keppel unit will execute 49.6% of the project work scope. The contract value is relatively small. "We don't think we'll change our estimates," an analyst says. "It's definitely not as common as the rig contracts," she notes, but WTE is not a new field for the company. The stock ended Friday up 0.4% at S$11.19; its 10-day moving average around S$11.37 may offer near-term resistance, while Friday's low at S$11.02 may offer support.

03 Sep 2012 07:31

*DJ Keppel Corp: Unit, Partners Win 333-Million-Polish-Zloty Waste-to-Energy Contract in Poland

September 02, 2012 19:28 ET (23:28 GMT)
DJ Oversea-Chinese Banking Corp: Doubled Size of Note Program to US$10 Bln

SINGAPORE--Oversea-Chinese Banking Corp. (O39.SG) Monday said it has doubled the size of its global medium-term note program to US$10 billion without stating a reason.
Under the program, OCBC Bank may sell senior or subordinated notes from time to time to qualified institutional buyers, the company said in a statement to the Singapore Exchange where it is listed.
OCBC Bank, J.P. Morgan (S.E.A.) Ltd. and Merrill Lynch (Singapore) Pte. Ltd. are the joint arrangers and dealers for the program, it said.

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03-Sep 2012 Monday 10:54 AM (4255 days ago)

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Daily Review, 03 September 2012 Page 1 of 3

SGX-ST Member, SGX-DT (CNCM)

Daily Review

03 September 2012

LIM & TAN SECURITIES PTE LTD

20 CECIL STREET

#09-00 EQUITY PLAZA

SINGAPORE 049705

TEL: 65330595 FAX: 65332368

www.limtan.com.sg

RCB Reg No. 197301030W

FINANCIAL MARKETS

 Stocks in the US rose 0.5-0.7% while stocks in Europe

rose 1-3% after US Fed Chairman Ben Bernanke

continued to hint that the US Federal Reserve is

closer to doing more monetary policy easing.

 The key events investors have to take note of in the

coming weeks would be (a) ECB monthly meeting on 6

Sept ’12; (b) German court to vote on the

constitutionality of the European Stability Mechanism

on 12 Sept ’12; (c) the next FOMC meeting on 12

Sept’12.

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03-Sep 2012 Monday 10:55 AM (4255 days ago)

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Daily Review, 03 September 2012 Page 2 of 3

SGX-ST Member, SGX-DT (CNCM)

HI-P

S$0.905-HIPS.SI

 Hi-P will be investing S$300mln to increase the

company’s overall production capacity by 50% by mid

2013 in anticipation of more orders from its existing

and new customers such as Apple, Amazon,

Research In Motion, Motorola, Nike, Seagate,

P&G, Colgate and FEI.

 The new manufacturing facility to be located in

Nantong will measure 333,335 sqm and will have land

use rights of 50 years.

 Of the S$300mln total investment outlay, Hi-P expects

to fund S$168mln with existing bank borrowings

while another S$132mln will be via additional bank

borrowings. Last week, Hi-P announced that DBS had

increased their credit facilities from US$60mln to

US$80mln.

 As at June ’12, Hi-P’s cash total S$287mln while debts

total S$168mln.

 Management estimates that their net cash position will

change to a net gearing position of 32% when they

complete the investment by mid-2013.

COMMENTS

1. The S$300mln investment is significant and constitutes

a major transaction (representing 53% of shareholders

funds of S$567mln and 38% of its market cap of

S$791mln) that requires the company to hold an EGM

for shareholders to approve the transaction.

With founder & Chairman Mr Yao HT owning close

to 56% of the company we believe it will be approved.

2. Hi-P spent S$180mln this year to increase their

production capacity by about 30% and will be spending

another S$300mln to further increase capacity by 50%

next year to cope with surging orders from the tablet

and smart-phone business segments. IDC and

Gartner are expecting these 2 product segments to

grow robustly over the next few years.

3. Hi-P is one of the few companies in the technology

space to be well-positioned to benefit from the robust

growth in the tablet and smart-phone business

segment and management is positioning themselves

with significantly increased production capacity to cope

with the bright prospects.

4. We maintain our BUY recommendation on Hi-P.

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03-Sep 2012 Monday 10:58 AM (4255 days ago)

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03-Sep 2012 Monday 10:59 AM (4255 days ago)

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US Monetary Policy - Ringing the bell for more monetary easing

Fed Chairman Ben Bernanke made it clear in his speech at Jackson Hole today that he is prepared to ease monetary policy further, in part to “promote a sustained improvement in labor market conditions.” The only questions are what form the easing will take and whether he can convince the rest of the FOMC to go along. We expect that the FOMC will extend its forward guidance on a 0.0% to 0.25% fed funds rate to mid-2015 from the current projection of “late-2014.” Other easing measures are also possible, including the initiation of a new QE program, possibly aimed at purchases of MBS as well as Treasuries.

ARGUMENTS FOR EASING
Noting that the current state of the economy is “far from satisfactory,” and that the “stagnation of the labor market in particular is a grave concern,” Fed Chairman Ben Bernanke made a strong case today for additional monetary easing. Mr. Bernanke concluded his speech today by saying that it was important to achieve further progress in support of the economy and job creation. In other words, the Fed should not pause in its efforts to promote faster economic growth, but should seek to use the tools at its disposal to foster a lower unemployment rate.

In his remarks, Mr. Bernanke defended the Fed’s use on non-traditional policies such as quantitative easing (QE). He cited studies that provide evidence that the Fed’s asset purchases have lowered long-term interest rates and eased broader financial conditions as well. He suggested that the first two rounds of QE conducted by the Fed have raised GDP by almost 3% and lifted employment by more than two million jobs compared to what would have occurred in the absence of these easing measures.

COSTS OF QE PROGRAMS ARE “MANAGEABLE”
He went on to discuss the costs and benefits of additional QE, concluding that, when carefully considered, the costs of non-traditional policies appear manageable and that one “should not rule out the further use of such policies if economic conditions warrant.” The Chairman argued that to date, the QE programs have not impeded the effective functioning of the fixed-income markets. QE has not caused a rise in inflation expectations; nor does Bernanke see any evidence that the provision of so much liquidity is causing an unsafe increase in market risk or leverage. Finally, he argued that there is little risk that the QE programs will cause any loses of taxpayer money. Instead, he expects that the Fed’s asset purchases will make money for taxpayers.

Having argued that the costs of QE programs are manageable, Mr. Bernanke has opened the door to more quantitative easing “as needed.” The question is whether his colleagues on the FOMC will agree that this is the appropriate time to initiate a new round of asset purchases.

FORWARD GUIDANCE ALSO “EFFECTIVE”
Mr. Bernanke also took the time to discuss the rationale behind the Fed’s “communication policy” regarding the likely timing of policy firming in the future. Currently, the FOMC expects that it will keep the fed funds rate in a 0.0% to 0.25% range until “late-2014.” The Fed chief indicated that this forward guidance was broadly consistent with the recommendations that come from a number of simple monetary policy rules (without mentioning any by name, but the Taylor Rule is the clear benchmark in this regard). He went on to argue, however, that there are a number of considerations that argue for keeping rates low for a longer time than implied by what the policy rules would prescribe during more “normal periods.”

By arguing that forward guidance has been effective in lowering rates and that it helps convince markets that accommodation will be in place for extended periods, Mr. Bernanke may be suggesting that it would be appropriate to extend the forward guidance further at this time. Indeed, if the members of the FOMC lower their economic forecasts for GDP growth in the near term, then the “policy rules” referred to by Mr. Bernanke would almost automatically call for an adjustment in the forward guidance to a later date.

Recent economic data suggest that the economy is growing at a slower pace and unemployment is higher than the members of the FOMC were generally anticipating even as recently as their June forecast round. If the policymakers come to the September meeting with lower forecasts for growth and higher forecasts for unemployment, then the case for a change in the forward guidance will be evident.

At this point, we expect that the FOMC will choose to extend the forward guidance on the near-zero fed funds rate out to mid 2015 form late 2014. We also think there is a good chance that the Committee will also initiate a new QE program. They could, for example, suspend the sales of short-term securities in the current Operation Twist program and turn it into a pure QE program. Alternatively, they might initiate a new purchase program for mortgage securities as a parallel program to Operation Twist.

BOTTOM LINE
Mr. Bernanke gave a strong signal today that he is prepared to ease monetary policy further. The state of the economy is “unsatisfactory,” and “it is important to achieve further progress” in fostering job creation. He defended the use of non-traditional policies such as forward guidance and large-scale asset purchases, arguing that they are effective in promoting economic growth and that the costs of the policies are “manageable” compared to their benefits. He basically argued that the Fed has effective tools at its disposal and that the time to act is now. We expect that, at its upcoming 13 September meeting the FOMC will, at a minimum, extend the forward guidance on the continuation of a near-zero fed funds rate out to mid-2015 from “late-2014.” There is also a good chance that the Committee will initiate a new program of asset purchases, possibly including mortgage-backed securities as well as Treasuries.

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03-Sep 2012 Monday 11:00 AM (4255 days ago)

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03-Sep 2012 Monday 11:01 AM (4255 days ago)

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Today’s Focus

Hi-P - 50% expansion shows confidence. Maintain BUY, TP raised to S$1.06.
SembCorp Marine - Earnings on recovery mode. Maintain BUY and TP S$5.85.

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03-Sep 2012 Monday 11:06 AM (4255 days ago)

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Wired Daily

Page 2

Keppel Corp said its unit Keppel Seghers Belgium NV is part of

a consortium that has been awarded a waste-to-energy project

in Poland worth US$100m. The Keppel unit will execute 49.6%

of the project work scope by value and supply technology for

the combined heat and power project in Bialystok, Poland. The

remaining work will be undertaken by consortium partners

Budimex, one of Poland's largest construction companies and

another Spanish waste management company. Impact to

earnings will be marginal, given the relatively small attributable

contract value of c. S$62m to Keppel Corp and relatively long

lead time commencing from 1Q 2013, with project completion

scheduled for 2015.

Midas Holdings announced that its joint venture company,

Nanjing SR Puzhen Rail Transport (NPRT), together with their

consortium partners, has won an intercity rail project worth

approximately RMB588m. NPRT’s share of the contract is

approximately 76%. Delivery for this contract is slated to take

place from 2013 to 2014 and is expected to contribute

positively to the Group’s financial performance for the financial

years ending 2013 to 2014.

The Development Charge (DC) rates for the period Sep 2012 to

Feb 2013 for land for industrial/warehouse use and

hotel/hospital use have been raised by a higher 14% and 11%

respectively while rates for land for residential and commercial

uses are lifted by a smaller 1% and 9% each. Charges for

industrial purposes in the Ang Mo Kio/Yio Chu Kang area saw

the highest uplift of 23%. In the commercial segment rates for

the Farrer park/Syed Alwi/Balestier Rd/Lavender area were

boosted by 20%. The residential segment saw the least

movement with rates for the non-landed housing land rising

only 1%. The latest news is not unexpected as the active

industrial strata market had resulted in firm prices for these

properties. The slowdown in the residential DC rates growth is

also in tandem with the decelerating momentum in the

residential prices. This news is likely to have an overall neutral

impact on the market as developers have been largely tapping

the GLS programme for residential sites while those that have

not paid DC for commercial sites may see a slight uplift in

development costs.

Bank lending expanded at a slower pace in July as business loan

growth continued to slide amid weakening economic

sentiments. Bank loans rose 1.3% m-o-m to S$458.3bn at the

end of July, below June's 1.7% growth. Over the year, loans

expanded by 20%, also down from June's 20.9% climb. Loans

to businesses at end-July reached $265.7bn, up 1.2% m-o-m

and 23.6% y-o-y. The rise was smaller seen against June's,

when business loans increased by 2% from the previous month

and 25.4% from the previous year. Contributing to the

slowdown in July, loans to firms in the manufacturing, business

services, and transport, storage and communications sectors

shrank month on month. But lending to the building and

construction sector - the biggest business-loan category - rose

1.1% from the previous month to $72.9bn. Consumer loans

displayed slightly more stability in growth. They reached

$192.6bn at end-July, rising 1.3% m-o-m and 15.4% y-o-y.

Housing and bridging loans - the biggest consumer-loan

category - grew 1.2% m-o-m to $141.3bn.

Sentosa Island is ready to open yet another hotel to keep up

with its steady of visitors. The Sentosa Development

Corporation (SDC) is releasing a site that can accommodate up

to 550 rooms, with a public tender to be called later this

month. SDC said the new hotel will be part of a belt of colonial

buildings which have been transformed into heritage hotels.

Currently, the belt consists of Capella Singapore, Amara

Sanctuary Resort and Movenpick Hotel.

China's official factory purchasing managers' index fell to 49.2

in August from 50.1 in July. It marked the lowest reading since

November 2011. The market had expected August official PMI

to slip to 50. A flash PMI published last week by HSBC plunged

to a nine-month low of 47.8 in August, as new export orders

slumped and inventories rose, a signal that a persistent

slowdown in economic growth has extended deeper into the

third quarter.

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03-Sep 2012 Monday 11:07 AM (4255 days ago)

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Page 3

Share Buy-Back

Company D.O.T. Buy/Sell No.of shares S$/shr

Global Testing Corporation Ltd 31-Aug-12 Share Buy-Back 480,000 0.0620

Pan-United Corporation Ltd 31-Aug-12 Share Buy-Back 64,000 0.6200

Second Chance Properties Ltd 31-Aug-12 Share Buy-Back 43,000 0.3900

Food Empire Holdings 31-Aug-12 Share Buy-Back 50,000 0.4200

Anchun International Hldgs Ltd 31-Aug-12 Share Buy-Back 100,000 0.0510

CDW Holding Limited 31-Aug-12 Share Buy-Back 200,000 0.0930

Overseas-Chinese Banking Corp 31-Aug-12 Share Buy-Back 50,000 9.2600

Ryobi Kiso Holdings Ltd 31-Aug-12 Share Buy-Back 412,000 0.1194

Anchun International Hldgs Ltd 30-Aug-12 Share Buy-Back 300,000 0.0501

CDW Holding Limited 30-Aug-12 Share Buy-Back 250,000 0.0920

Food Empire Holdings 30-Aug-12 Share Buy-Back 100,000 0.4200

Macquarie Int'l Infra Fund Ltd 30-Aug-12 Share Buy-Back 2,770,000 0.5250

Memtech International Ltd 30-Aug-12 Share Buy-Back 20,000 0.0770

Osim International Ltd 30-Aug-12 Share Buy-Back 450,000 1.2570

Overseas-Chinese Banking Corp 30-Aug-12 Share Buy-Back 100,000 9.2100

Pan-United Corporation Ltd 30-Aug-12 Share Buy-Back 207,000 0.6186

Ryobi Kiso Holdings Ltd 30-Aug-12 Share Buy-Back 497,000 0.1190

Second Chance Properties Ltd 30-Aug-12 Share Buy-Back 1,528,000 0.3900

Anchun International Hldgs Ltd 29-Aug-12 Share Buy-Back 1,300,000 0.0500

CDW Holding Limited 29-Aug-12 Share Buy-Back 200,000 0.0930

Food Empire Holdings 29-Aug-12 Share Buy-Back 50,000 0.4200

Global Testing Corporation Ltd 29-Aug-12 Share Buy-Back 785,000 0.0621

Macquarie Int'l Infra Fund Ltd 29-Aug-12 Share Buy-Back 726,000 0.5250

Memtech International Ltd 29-Aug-12 Share Buy-Back 1,000,000 0.0730

Overseas-Chinese Banking Corp 29-Aug-12 Share Buy-Back 100,000 9.2100

Pan-United Corporation Ltd 29-Aug-12 Share Buy-Back 57,000 0.6193

Second Chance Properties Ltd 29-Aug-12 Share Buy-Back 287,000 0.3900

CDW Holding Limited 28-Aug-12 Share Buy-Back 200,000 0.0930

Food Empire Holdigns Limited 28-Aug-12 Share Buy-Back 50,000 0.4200

Global Testing Corporation Ltd 28-Aug-12 Share Buy-Back 420,000 0.0616

HG Metal Manufacturing Ltd 28-Aug-12 Share Buy-Back 265,000 0.0800

Macquarie Int'l Infra Fund Ltd 28-Aug-12 Share Buy-Back 460,000 0.5250

Overseas-Chinese Banking Corp 28-Aug-12 Share Buy-Back 100,000 9.2000

Pan-United Corporation Ltd 28-Aug-12 Share Buy-Back 170,000 0.6200

Second Chance Properties Ltd 28-Aug-12 Share Buy-Back 36,000 0.3900

Wee Hur Holdings Ltd 28-Aug-12 Share Buy-Back 1,121,000 0.2800

Source: SGX Masnet

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03-Sep 2012 Monday 11:07 AM (4255 days ago)

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Page 4

Substantial Shareholders’ Transactions: 23 Aug – 30 Aug 2012

Stock Transacted Date Substantial Shareholder/ Director

Buy/Sell/

Conv

No of

('000)

Price Per

Share $

%Issued Cap

Before

Change

%Issued Cap

After Change

Jiutian Chemical 30-Aug-12 Anyag Longyu (HK) Dev * Buy 550 an 28.49 28.52

Swing Media Tech 30-Aug-12 Hui Yan Moon Buy 220 0.09 0.46 0.52

Swing Media Tech 30-Aug-12 Janies Ip * Buy 220 na 23.78 23.84

BRC Asia 29-Aug-12 Lingco Hldgs Buy 1826 0.13 5.28 5.49

Hartawan Hldgs 29-Aug-12 Cynthia Tan * Buy 268 0.14 22.94 22.97

Hartawan Hldgs 29-Aug-12 Winstedt Chong Buy 268 0.14 0.05 0.08

Hersing Corp 29-Aug-12 Harry Chua Buy 125 0.23 0.27 0.29

Raffles Education 29-Aug-12 Doris Chung * Buy 39 na 14.05 14.06

Raffles Education 29-Aug-12 Chew Hua Seng Buy 39 0.35 32.15 32.15

San Teh 29-Aug-12 Gui Kim Young * Buy 150 0.29 0.17 0.21

Swing Media Tech 29-Aug-12 Janies Ip * Buy 860 na 23.55 23.78

Swing Media Tech 29-Aug-12 Hui Yan Moon * Buy 860 0.09 0.23 0.46

TMC Education 29-Aug-12 Chin Kon Yuen * Buy 1 0.07 16.17 16.17

TMC Education 29-Aug-12 Yeow Cheng Khim Buy 1 0.07 16.17 16.17

BRC Asia 28-Aug-12 Sia Ling Sing * Buy 1826 0.13 27.37 27.58

BRC Asia 28-Aug-12 Lingco Marine * Buy 1826 na 5.28 5.49

Hartawan Hldgs 28-Aug-12 Cynthia Tan * Buy 314 0.14 22.9 22.94

Hartawan Hldgs 28-Aug-12 Winstedt Chong Buy 314 0.14 0.01 0.05

JB Foods 28-Aug-12 Tey How Keong Buy 500 0.29 0.13 0.25

KS Energy 28-Aug-12 Richard James Wiluan Buy 43 na 55.35 55.36

KS Energy 28-Aug-12 Rija Holdings * Buy 43 na 55.35 55.36

KS Energy 28-Aug-12 Kris Taenar Wiluan * Buy 43 0.72 55.35 55.36

KS Energy 28-Aug-12 Pacific One Energy Buy 43 na 55.35 55.36

LMA Int'l 28-Aug-12 Porter Olin LLC * Sell 1500 na 14.12 13.64

M Development 28-Aug-12 Value Capital Asset Mgmt Sell 130476 na 12.9 0

Pacific Healthcare 28-Aug-12 Pacific Investments Buy 1 na 7.53 7.53

Pacific Healthcare 28-Aug-12 William Cheong * Buy 1 0.1 11.9 11.9

Raffles Education 28-Aug-12 Doris Chung * Buy 261 na 14.02 14.05

Raffles Education 28-Aug-12 Chew Hua Seng Buy 261 0.35 32.12 32.15

Sakari Resources 28-Aug-12 PTT Mining , PTT Pub Co, PTT Int'l Buy 73158 na 0 6.43

Swing Media Tech 28-Aug-12 Janies Ip * Buy 850 na 23.32 23.55

Swing Media Tech 28-Aug-12 Hui Yan Moon Buy 850 0.09 0 0.23

Tung Lok Restaurants 28-Aug-12 Goi Seng Hui * Buy 1412 0.21 16.86 17.87

Tung Lok Restaurants 28-Aug-12 Tee Yih Jia Buy 1412 0.21 16.86 17.87

C&G Env 27-Aug-12 C&G Hldgs (HK) Buy 16800 na 77.87 79.6

C&G Env 27-Aug-12 Lam Chik Tsan * Buy 16800 na 77.87 79.6

C&G Env 27-Aug-12 Lin Yan * Buy 16800 0.11 77.87 79.6

Giken Sakata 27-Aug-12 Tan Kay Guan Buy 250 7.5 0.06 0.25

JB Foods 27-Aug-12 Tey How Keong Buy 500 0.29 0 0.13

Sri Trang Agro-Industry 27-Aug-12 Prasit Panidkul Sell 500 0.59 0.67 0.63

Teledata 27-Aug-12 Tsai Feng-An * Buy 14105 na 13.49 14.27

Teledata 27-Aug-12 Viktoria Capital * Buy 14105 na 13.49 14.27

Teledata 27-Aug-12 Meritus Resources Buy 14105 na 13.49 14.27

AEM Hldgs 24-Aug-12 Orion Phoenix Buy 560 na 23.87 24

AEM Hldgs 24-Aug-12 Novo Tellus PE Fund 1 * Buy 560 na 23.87 24

CordLife Group 24-Aug-12 Yee Pinh Jeremy Buy 100 0.53 0.66 0.7

CSE Global 24-Aug-12 Amundi Group * Sell 56 na 6 5.99

CSE Global 24-Aug-12 Amundi S A * Sell 56 na 6 5.99

Intraco 24-Aug-12 Melanie Chew Ng Fung Ning * Buy 1769 na 22.28 24.07

Intraco 24-Aug-12 Chew Leong Chee * Buy 1769 na 22.28 24.07

Intraco 24-Aug-12 Resource Pacific Hldgs * Buy 1769 na 22.28 24.07

Intraco 24-Aug-12 Aisa Resource Corp * Buy 1769 na 22.28 24.07

Intraco 24-Aug-12 Representations Int'l * Buy 1769 na 22.28 24.07

Intraco 24-Aug-12 Macondray & Co * Buy 1769 na 22.28 24.07

Intraco 24-Aug-12 Amtrek Investment Buy 1769 na 22.28 24.07

M Development 24-Aug-12 Value Capital Asset Mgmt Sell 17874 na 14.7 12.9

Sri Trang Agro-Industry 24-Aug-12 Prasit Panidkul Sell 200 0.58 0.7 0.7

CapitaRetail China Trt 23-Aug-12 AIA Group * Buy 404 1.48 4.95 5.01

China Jishan 23-Aug-12 Jin Guan Liang * Buy 4 0.08 71.31 71.31

China Jishan 23-Aug-12 Jin Cheng Int'l Hldgs Buy 4 0.08 71.31 71.31

Pacific Healthcare 23-Aug-12 William Cheong * Buy 12 0.1 11.9 11.9

Sri Trang Agro-Industry 23-Aug-12 Prasit Panidkul Sell 200 0.59 0.7 0.7

SunPower Group 23-Aug-12 Artur Jurczakowski Sell 400 na 7.57 7.45

*Deemed Interest

Source: Business Times; SA: Share Allotment; ST: Share Transfer, B/R: Bonus/Rights Issue; OE: Option Exercise; PL: Placement Shares

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Singapore

Wired Daily

Page 5

Announced Dividends and Capital Issues: 31 Aug 2012 – 31 Oct 2012 (by Ex-Date)

Company Type Particulars Ex Date Paid/ Payable

HIAP HOE LIMITED DIVIDEND SGD 0.005 ONE-TIER TAX 03-Sep-12 21-Sep-12

HONG LEONG ASIA LTD. DIVIDEND SGD 0.01 ONE-TIER TAX 03-Sep-12 20-Sep-12

ISHARES ASIA LC 1-3Y BOND ETF DIVIDEND USD 0.06 03-Sep-12 27-Sep-12

ISHARES ASIA LOC CUR BOND ETF DIVIDEND USD 0.08 03-Sep-12 27-Sep-12

ISHARES USD ASIA BOND ETF DIVIDEND USD 0.12 03-Sep-12 27-Sep-12

ISHARES USD ASIA HY BOND ETF DIVIDEND USD 0.22 03-Sep-12 27-Sep-12

PETROCHINA ADR 10 DIVIDEND APPROXIMATE USD 2.140294 03-Sep-12

UOB 5.05%NCPS 100 DIVIDEND 150312 - 140912 5.05% ONE-TIER TAX 03-Sep-12 17-Sep-12

XMH HOLDINGS LTD. DIVIDEND SGD 0.01 ONE-TIER TAX 03-Sep-12 14-Sep-12

CHINAMOBILE ADR 10 DIVIDEND APPROXIMATE USD 0.94735 04-Sep-12 09-Oct-12

DESIGN STUDIO FURNITURE MFRLTD DIVIDEND SGD 0.0075 ONE-TIER TAX 04-Sep-12 21-Sep-12

KINGSMEN CREATIVES LTD DIVIDEND SGD 0.015 ONE-TIER TAX 04-Sep-12 24-Sep-12

MULTI-CHEM LIMITED DIVIDEND SGD 0.0055 ONE-TIER TAX 04-Sep-12 20-Sep-12

OCBC CAP 3.93% S$400M NCPS 10 DIVIDEND 200312 - 190912 3.93% 04-Sep-12 20-Sep-12

OCBCCAPCORP(2008) 5.1%NCPS 100 DIVIDEND 200312 - 190912 5.1% 04-Sep-12 20-Sep-12

SAKAE HOLDINGS LTD. DIVIDEND SGD 0.005 ONE-TIER TAX 04-Sep-12 20-Sep-12

CAPITARETAIL CHINA TRUST DIVIDEND 010112 - 300612 SGD 0.0482 05-Sep-12 26-Sep-12

DIAGEO ADR 10 DIVIDEND APPROXIMATE USD 1.708365 05-Sep-12 26-Oct-12

ASTI HOLDINGS LIMITED DIVIDEND SGD 0.0015 ONE-TIER TAX 06-Sep-12 26-Sep-12

KOON HOLDINGS LIMITED DIVIDEND SGD 0.005 ONE-TIER TAX 06-Sep-12 25-Sep-12

PEOPLE'S FOOD HOLDINGS LIMITED DIVIDEND CNY 0.01 06-Sep-12 25-Sep-12

MEGACHEM LIMITED DIVIDEND SGD 0.003 TAX EXEMPT 07-Sep-12 28-Sep-12

POPULAR HOLDINGS LIMITED DIVIDEND SGD 0.008 ONE-TIER TAX 07-Sep-12 26-Sep-12

LUNG KEE (BERMUDA) HLDGS LTD DIVIDEND HKD 0.06 10-Sep-12 27-Sep-12

NOVO GROUP LTD. DIVIDEND SGD 0.01 ONE-TIER TAX 10-Sep-12 04-Oct-12

SURFACE MOUNT TECH (HLDGS) LTD ENTITL. SHARE CONSOL OFFER OF 1 FOR 15 10-Sep-12

POH TIONG CHOON LOGISTICS LTD DIVIDEND SGD 0.005 ONE-TIER TAX 12-Sep-12 28-Sep-12

RIVERSTONE HOLDINGS LIMITED DIVIDEND MYR 0.022 ONE-TIER TAX 12-Sep-12 05-Oct-12

FRAGRANCE GROUP LIMITED BONUS OFFER OF 1 FOR 1 14-Sep-12

TOTAL ADR 10 DIVIDEND APPROXIMATE USD 0.587795 19-Sep-12 18-Oct-12

GP INDUSTRIES LIMITED DIVIDEND SGD 0.015 ONE-TIER TAX 20-Sep-12 04-Oct-12

N507101E 121001 INTEREST 2.50% 20-Sep-12 01-Oct-12

N507101E 121001 ENTITL. REDEMPTION 100% 20-Sep-12 01-Oct-12

N508100V 130401 INTEREST 1.63% 20-Sep-12 01-Oct-12

N509100N 141001 INTEREST 1.38% 20-Sep-12 01-Oct-12

N511100W 160401 INTEREST 1.13% 20-Sep-12 01-Oct-12

N710100Z 170401 INTEREST 2.38% 20-Sep-12 01-Oct-12

NA12100N 420401 INTEREST 2.75% 20-Sep-12 01-Oct-12

SHANGRI-LA ASIA LIMITED DIVIDEND HKD 0.1 25-Sep-12 10-Oct-12

SINGAPORE EXCHANGE LIMITED DIVIDEND SGD 0.15 TAX EXEMPT 26-Sep-12 12-Oct-12

TPV TECHNOLOGY LIMITED DIVIDEND USD 0.0046 01-Oct-12 12-Oct-12

LIAN BENG GROUP LTD DIVIDEND SGD 0.01 ONE-TIER TAX 03-Oct-12 19-Oct-12

SELECT GROUP LIMITED DIVIDEND SGD 0.005 ONE-TIER TAX 04-Oct-12 22-Oct-12

FRAGRANCE GROUP LIMITED DIVIDEND SGD 0.0005 ONE-TIER TAX 05-Oct-12 18-Oct-12

GENTING SPS$500M5.125% PERPSEC BONDS INT 180412 - 171012 5.125% 11-Oct-12 18-Oct-12

UMS HOLDINGS LIMITED DIVIDEND SGD 0.01 ONE-TIER TAX 11-Oct-12 31-Oct-12

YUEXIU PROPERTY CO LIMITED DIVIDEND HKD 0.042 12-Oct-12 15-Nov-12

UNITED OVERSEAS AUSTRALIA LTD DIVIDEND UNFRANKED,DRP AUD 0.005 15-Oct-12 01-Nov-12

GLOBAL PREMIUM HOTELS LIMITED DIVIDEND SGD 0.002 ONE-TIER TAX 16-Oct-12 30-Oct-12

GUOCOLAND LIMITED DIVIDEND SGD 0.05 ONE-TIER TAX 18-Oct-12 15-Nov-12

GUOCOLEISURE LIMITED DIVIDEND SGD 0.02 22-Oct-12 08-Nov-12

CORDLIFE GROUP LIMITED DIVIDEND SGD 0.018 ONE-TIER TAX 24-Oct-12 14-Nov-12

ELLIPSIZ LTD DIVIDEND SGD 0.0016 ONE-TIER TAX 24-Oct-12 15-Nov-12

BRITISH & MALAYAN TRUSTEES LTD DIVIDEND SGD 0.027 TAX EXEMPT 29-Oct-12 12-Nov-12

KARIN TECHNOLOGY HLDGS LIMITED DIVIDEND HKD 0.071 29-Oct-12 15-Nov-12

BOARDROOM LIMITED DIVIDEND SGD 0.02 ONE-TIER TAX 30-Oct-12 23-Nov-12

SIN GHEE HUAT CORPORATION LTD. DIVIDEND SGD 0.02 ONE-TIER TAX 30-Oct-12 14-Nov-12

AUSGROUP LIMITED DIVIDEND SGD 0.0036 ONE-TIER TAX 31-Oct-12 21-Nov-12

AUSGROUP LIMITED DIVIDEND SGD 0.0064 ONE-TIER TAX 31-Oct-12 21-Nov-12

GEMS TV HOLDINGS LIMITED DIVIDEND SGD 0.0095 31-Oct-12 15-Nov-12

K1 VENTURES LIMITED DIVIDEND SGD 0.005 ONE-TIER TAX 31-Oct-12 14-Nov-12

KIAN ANN ENGINEERING LTD DIVIDEND SGD 0.0082 ONE-TIER TAX 31-Oct-12 14-Nov-12

RYOBI KISO HOLDINGS LTD. DIVIDEND SGD 0.003 ONE-TIER TAX 31-Oct-12 14-Nov-12

AMTEK ENGINEERING LTD DIVIDEND SGD 0.022 ONE-TIER TAX 01-Nov-12 23-Nov-12

ASL MARINE HOLDINGS LTD DIVIDEND SGD 0.0175 ONE-TIER TAX 01-Nov-12 19-Nov-12

SINGAPURA FINANCE LTD DIVIDEND SGD 0.06 ONE-TIER TAX 01-Nov-12 15-Nov-12

SPINDEX INDUSTRIES LIMITED DIVIDEND SGD 0.018 ONE-TIER TAX 02-Nov-12 19-Nov-12

CHOSEN HOLDINGS LIMITED DIVIDEND SGD 0.0066 ONE-TIER TAX 05-Nov-12 23-Nov-12

F J BENJAMIN HOLDINGS LTD DIVIDEND SGD 0.01 ONE-TIER TAX 05-Nov-12 27-Nov-12

HUPSTEEL LTD DIVIDEND SGD 0.005 ONE-TIER TAX 05-Nov-12 20-Nov-12

EU YAN SANG INTERNATIONAL LTD DIVIDEND SGD 0.01 ONE-TIER TAX 06-Nov-12 23-Nov-12

MICRO-MECHANICS (HOLDINGS) LTD DIVIDEND SGD 0.02 ONE-TIER TAX 06-Nov-12 22-Nov-12

OLAM INTERNATIONAL LIMITED DIVIDEND SGD 0.04 ONE-TIER TAX 06-Nov-12 20-Nov-12

PARKSON RETAIL ASIA LIMITED DIVIDEND SGD 0.03 ONE-TIER TAX 06-Nov-12 23-Nov-12

SILVERLAKE AXIS LTD DIVIDEND SGD 0.008 ONE-TIER TAX 07-Nov-12 28-Nov-12

ACE ACHIEVE INFOCOM LIMITED DIVIDEND CNY 0.003 09-Nov-12 28-Nov-12

NX09100W 190601 INTEREST 2.50% 22-Nov-12 03-Dec-12

NX11100X 210601 INTEREST 2.25% 22-Nov-12 03-Dec-12

Source: SGX

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Monday, 3 September 2012

Top Quant Alphas

CHINA MINSHENG BKG.CRL. (1988 HK)

BANK OF CHINA LTD. (3988 HK)

PRADA SPA (1913 HK)

TENCENT HOLDINGS LTD. (700 HK)

PETROCHINA COMPANY LTD. (857 HK)

Bottom Quant Alphas

GCL-POLY ENERGY HDG.LTD. (3800 HK)

BAYAN RESOURCES TERBUKA (BYAN ID)

GUDANG GARAM TERBUKA (GGRM ID)

NINE DRAGONS PAPER HLTD. (2689 HK)

AU OPTRONICS CORP. (2409 TW)

Source: Macquarie Research.

Data as at 28/08/2012.

Screening for all stocks in Asia with Market Cap over

US$2bn.

STX OSV (Initiating coverage with Outperform) 3

Gold, for the price of silver Somesh Kumar Agarwal

We initiate coverage on STX OSV, a Norwegian builder of Offshore Support Vessels (OSV), with an

Outperform rating and a S$2.16 target price which offers a strong 41% upside potential plus 4-5% dividend

yield.

Indonesia strategy 4

Weak rupiah reaffirms higher rates Nicolaos Oentung

Rupiah has continued to weaken reaching Rp9,595/US$ as of end of Aug 2012, higher than the level

reached during volatility in May. Meanwhile, Asian currencies with ADXY Index as a proxy have remained

fairly stable.

China Railway Construction Corporation (Outperform) 5

Exceeding peers on contracts growth Shuwei Quek

While CRC reported a relatively weaker result among infrastructure constructors, the result is still in-line,

as 1H EPS formed 40% of our 2012E estimates and 42% of consensus. Having delivered the top contracts

growth of 37% and achieving 51% of its full-year target, we are positive on CRC‘s strategy of diversifying

its construction operations into faster-growing areas of China's infrastructure.

Singapore property 6

Key themes at our Asean conference Tuck Yin Soong

At our second annual Asean Conference in Singapore held on 28-30 August, there were senior

managements from 17 property companies and SREITs presenting their views on the key sectors. Notes

from the individual companies are in this report.

The Asian Capital Compass 7

Navigating the tactical cross currents Aniel Mahtani

Fund subscriptions in North Asia, notably China, surge. Data from EPFR shows a surge in fund

subscription activity in North Asian equities, notably China, for the week ending 30th August. China fund

subscriptions totalled US$500mn, the highest since mid-January 2012, while Korean fund subscriptions

totalled US$337mn, the highest level in our three-year record.

Chailease Holding Co. Ltd. (Outperform) 8

China Glass Holdings (Outperform) 9

Compal (Neutral) 10

Far Eastern Department Store (Underperform) 11

GOME Electrical Appliances (Underperform) 12

Hon Hai Precision (Upgrade to Outperform) 13

Hyundai Marine & Fire (Neutral) 14

LG U+ (Outperform) 15

CC Land Holdings Ltd. (Outperform) 16

Fujitsu (Outperform) 17

Green Dragon Gas (Outperform) 18

MacVisit: Bonjour Holding 19

MacVisit: Philodrill Corp 20

MacVisit: Yamaha Corp 21

Mitra Adiperkasa (Outperform) 22

Director’s Cut 23

Eye on India 24

Japan: CPI 25

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Japan: Industrial Production 26

Macro Mantra 27

Korea non-life insurance 28

Malaysia Banks 29

Taiwan material sector 30

Macquarie Commodities Comment 31

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SINGAPORE

SOH SP Outperform

Price (at CLOSE#, 30 Aug 2012) S$1.53

12-month target S$ 2.16

Upside/Downside % 41.6

Valuation S$ 2.16

- DCF

GICS sector Capital Goods

Market cap S$m 1,800

30-day avg turnover US$m 7.2

Market cap US$m 1,435

Number shares on issue m 1,180

Investment fundamentals

Year end 31 Dec 2011A 2012E 2013E 2014E

Revenue m 12,401 12,506 13,335 13,867

EBITDA m 2,355 1,751 1,734 1,803

EBITDA growth % 77.1 -25.7 -1.0 4.0

Adjusted profit m 1,594 1,164 1,191 1,241

EPS adj kr 1.35 0.99 1.01 1.05

EPS adj growth % 54.6 -27.0 2.3 4.2

PER adj x 5.3 7.2 7.0 6.7

Total DPS kr 0.71 0.63 0.33 0.33

Total div yield % 10.0 8.9 4.6 4.6

ROA % 17.6 12.5 11.6 11.1

ROE % 54.1 31.3 27.5 24.0

EV/EBITDA x 3.4 4.5 4.6 4.4

Net debt/equity % -12.0 -21.4 -31.1 -39.9

P/BV x 2.4 2.1 1.8 1.5

Source: FactSet, Macquarie Research, August 2012

(all figures in NOK unless noted)

SX OSV stock price chart

Source: Bloomberg, Macquarie Research, Aug 2012

Analyst(s)

Somesh Kumar Agarwal

+65 6601 0840 [email protected]

31 August 2012

Macquarie Capital Securities

(Singapore) Pte. Limited

STX OSV

Gold, for the price of silver

We initiate coverage on STX OSV, a Norwegian builder of Offshore Support

Vessels (OSV), with an Outperform rating and a S$2.16 target price which offers a

strong 41% upside potential plus 4-5% dividend yield. Listed in Singapore in Nov

2010, the stock is used as a second derivative to rig builders KEP and SMM.

Market leader in the high growth high-spec OSV segment

The OSV market is increasingly bifurcated towards high-spec OSV (AHTS

>10,000 BHP and PSV >2,000 DWT), a segment in which STX OSV is the global

market leader. Buyers of high-spec OSVs are mostly Norwegian, and these

OSVs are mainly deployed in Northwest Europe and Brazil. With 10 yards in four

countries which are the hotbed of OSV activity and long-lasting relationships with

all top Norwegian contractors, STX OSV is in a sweet spot.

Robust industry dynamics; OSV demand to intensify

While global OSV demand has rebounded from GFC lows (252 OSVs ordered in

2011 and 145 in 1H12 vs 110 in 2009), Ultradeepwater oil exploration has led to

an increase in complexity and vessel intensity, which is why we think that the

OSV building cycle has legs despite short-term concerns on oversupply.

Only 44% of the current 2,973 OSV fleet is high-spec, while the delivery

schedule of high-spec AHTS in particular is very weak (only 79 to be delivered

from 2013-15). 150 new and more complex oil rigs are to be supplied to the

market over the next three years, which, we think, will require more OSVs and

hence the current ratio of 2,973 OSV / 769 oil rigs will expand further.

Beneficiary of market bifurcation and increasing intensity

Driven by more demand for high-spec OSVs, we expect STX OSV’s order

inflows to improve to NOK12.5bn in 2012 vs NOK11bn in 2011 and further

improve to NOK14bn in 2013. Excluding the exceptional returns in 2011 (due to

high margin orders from 2008), sustainable margins have improved from 5% in

2009 to 12-14% now. We expect a steady 5% earnings CAGR from 2010-14E.

High-return cash rich business model

STX OSV has an exceptionally strong balance sheet (-0.4x net debt / equity) and

a robust FCF generation (13% FCF yield) and high return (ROE ~25% and ROIC

~35%) business model, much superior to listed OSV peers in Singapore and

even better than the large-cap rig builders. Shareholders have also benefitted via

high dividend yields of 9-10% each in 2011 and 2012, which could be moderated

to a 4-5% yield to preserve cash for funding future growth, in our view.

Valuations ignoring premium positioning plus high returns

We think STX OSV deserves to trade more in line with the rig builders, given that

the listed OSV players in Singapore target the low-end, low-return segment of

the market and have much inferior balance sheet and return profiles.

STX OSV is currently trading at a ~50% discount to SG yards on EV/EBITDA

and P/E multiples. It is also surprisingly trading at a ~50% discount on EV /

EBITDA and a ~15% discount on P/E compared with listed OSV peers despite

much superior market share, balance sheet and return profile.

0.7

0.9

1.1

1.3

1.5

1.7

1.9

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

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INDONESIA

Rupiah weakening relative to peers

Source: Bloomberg, Macquarie Research, August 2012

Current account as % of GDP

Source: BI, Macquarie Research, August 2012

Avg. thermal coal price, US$/ton

Source: Bloomberg, Macquarie Research, August 2012

Analyst(s)

Nicolaos Oentung, CFA

+62 21 2598 8366 [email protected]

31 August 2012

PT Macquarie Capital Securities

Indonesia

Indonesia strategy

Weak rupiah reaffirms higher rates

Event

 Rupiah has continued to weaken reaching Rp9,595/US$ as of end of Aug

2012, higher than the level reached during volatility in May. Meanwhile, Asian

currencies with ADXY Index as a proxy have remained fairly stable. We

believe concern on the rupiah is also the main driver for weakness in the JCI

in the past few days.

Impact

 Pressure on the rupiah is building as current account deficit has widened

further in 2Q12 to 3.2% of GDP, up from 1.5% in 1Q12, with FX reserves

down to US$106bn, from US$110bn in 1Q12. Despite expectations of an

improved current account position in subsequent quarters, the reality is that

this could be difficult to achieve as prices of key commodity exports such as

coal, palm oil, and rubber continue to trend down.

 Meanwhile, the policy response to bring the current account to a more

sustainable level has been very measured with only 25bps hike in interest

rates via the narrowing of the interest rate corridor. Hence, the adjustment in

the current account will likely take longer than expected with BI in the

meantime having to defend the rupiah using its stock of FX reserves.

 The question that arises is until what level of FX reserves BI will continue to

defend the rupiah. It is hard to know, but we can make a reasonable

assumption that BI will be reluctant to see FX reserves drop significantly from

the current level. This can be confirmed by weakening of the rupiah relative to

other Asian currencies YTD. Full support of the currency would have resulted

in a much more stable rupiah tracking the performance of its regional peers.

 However, we also do not think rupiah will weaken much further from current

levels especially as it approaches the psychological Rp10,000/US$ mark. This

means the only policy option available for BI is to increase the pace of

tightening. Hence, we expect a more aggressive move in the next BI policy

meeting with a 50bps rate hike. The way to play the theme of rising rates is to

own banks with a strong deposit franchise and assets leveraged to rising

overnight rates such as BCA, Mandiri, and BRI.

Outlook

 Is it a good time to own banks during the start of the tightening cycle? We

think so as fundamentals are likely to remain strong similar to previous

tightening cycles in 2005 and 2008. Our preferred bank picks are BRI and

Mandiri.

 BRI is our current top bank pick in Indonesia. Among the large banks, BRI is

the only one currently trading below the average PBV valuation during the

previous two tightening cycles. BRI is also currently one of the cheapest

banks in ASEAN trading at 8.2x 2013 PE, which is unjustified in our view

given its strong track record of 24% CAGR deposit growth in last five years.

8,800

9,000

9,200

9,400

9,600

9,800

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

113

114

115

116

117

118

Rp/US$ ADXY Index

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

100

110

120

130

140

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 Jul-

Aug

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HONG KONG

1186 HK Outperform

Price (at 20:07, 30 Aug 2012 GMT) HK$5.75

12-month target HK$ 8.00

Upside/Downside % 39.1

Valuation HK$ 8.00

- Price To Book

GICS sector Capital Goods

Market cap HK$m 11,937

30-day avg turnover US$m 11.1

Market cap US$m 1,539

Number shares on issue m 2,076

Investment fundamentals

Year end 31 Dec 2011A 2012E 2013E 2014E

Revenue bn 457.4 435.8 472.7 506.9

EBIT bn 11.9 12.3 13.9 15.0

EBIT growth % 87.6 3.6 12.4 8.5

Reported profit bn 7.9 7.9 8.3 9.0

Adjusted profit bn 7.9 7.9 8.3 9.0

EPS rep Rmb 0.64 0.64 0.67 0.73

EPS rep growth % 85.0 1.1 4.4 8.5

EPS adj Rmb 0.64 0.64 0.67 0.73

EPS adj growth % 85.0 1.1 4.4 8.5

PER rep x 7.4 7.3 7.0 6.5

PER adj x 7.4 7.3 7.0 6.5

Total DPS Rmb 0.10 0.10 0.12 0.13

Total div yield % 2.1 2.1 2.5 2.9

ROA % 3.1 2.8 3.0 3.1

ROE % 12.9 11.7 11.1 11.0

EV/EBITDA x 3.2 3.2 3.0 2.7

Net debt/equity % 4.8 34.7 36.9 35.8

P/BV x 0.9 0.8 0.7 0.7

1186 HK rel HS China Enter

performance, & rec history

Note: Recommendation timeline - if not a continuous line, then there was no

Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, August 2012

(all figures in Rmb unless noted)

Analyst(s)

Shuwei Quek

+852 3922 3576 [email protected]

Janet Lewis, CFA

+852 3922 5417 [email protected]

31 August 2012

Macquarie Capital Securities Limited

China Railway Construction

Corporation

Exceeding peers on contracts growth

Event

 While CRC reported a relatively weaker result among infrastructure

constructors, the result is still in-line, as 1H EPS formed 40% of our 2012E

estimates and 42% of consensus. Having delivered the top contracts growth

of 37% and achieving 51% of its full-year target, we are positive on CRC‘s

strategy of diversifying its construction operations into faster-growing areas of

China’s infrastructure. We continue to prefer CRC to CRG (390 HK, HK$2.88,

Neutral, TP: HK$3.68) for the former’s balance sheet quality and superior

contracts growth strategy.

Impact

CRC 1H12 result

1H12 1H11 %YoY % of MQ

(RMBm) Actual Actual change 2012E

Revenue (IFRS) 179,290 205,160 -13% 42%

Gross Profit (IFRS) 13,997 14,408 -3% 42%

Operating profit 5,229 5,099 3% 42%

Net interest income -1,710 -635 169% 77%

Pretax income 4,010 4,512 -11% 39%

Net income 3,223 3,626 -11% 40%

EPS (RMB) 0.26 0.29 -12% 40%

Source: Company data, Macquarie Research, August 2012

 1H12 saw limited scope of margins expansion. Compared to peers, CRC

benefited less from raw materials cost savings, as gross margin of 7.8% only

grew 80bps YoY (peers ≥150bps). Also, CRC was affected by interest

expenses that spiked 169% YoY due to costlier debt refinancing in 2H11.

 Well ahead of peers with total contracts growth of 37% YoY. Construction

contracts grew an impressive 48% YoY, mainly driven by buildings, municipal

facilities and hydropower contracts. That help to overcome the weaker

performance from rail (-9%) and roads (-30% YoY). Total contract backlog

was up 8% HoH to RMB1.3bn, equivalent to 2.8 revenue-years.

 Unrivalled balance sheet strength. CRC continues to hold the least levered

balance sheet compared to peers and very strong cashflow management, as

net operating outflow fell 74% YoY to only RMB3.3bn and receivables-days

maintained at a very low 77 days (peers at >130 days).

Earnings and target price revision

 No change in this update.

Price catalyst

 12-month price target: HK$8.00 based on a Price to Book methodology.

 Catalyst: New orders announcement and 3Q result

Action and recommendation

 We will provide more updates after CRC’s results teleconference at 4pm HKT

today (31 Aug). Outperform maintained.

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SINGAPORE

Top picks

Bbg

code

Mkt

Cap Rec

Last

price

Target

price

Upside

Avg

Daily

Vol

(20d)

(US$m) ($) ($) (%) (US$m)

CapitaCom

mercial

Trust

CCT 3,195 O 1.41 1.66 17.7 7.7

K-REIT

Asia

KREIT 2,312 O 1.13 1.35 19.5 0.7

CapitaMall

Trust

CT 5,152 O 1.94 2.26 16.5 10.0

Suntec

REIT

SUN 2,594 O 1.45 1.65 13.8 6.9

Mapletree

Logistics

Trust

MLT 1,929 O 1.09 1.17 7.3 3.2

CapitaLand CAPL 10,251 O 3.01 3.76 24.9 23.7

CapitaMalls

Asia

CMA 5,070 O 1.635 2.10 28.4 6.7

Source: Company data, Bloomberg, Macquarie Research,

August 2012; pricing as of 30 August 2012

Analyst(s)

Tuck Yin Soong

+65 6601 0838 [email protected]

Brandon Lee

+65 6601 0024 [email protected]

31 August 2012

Macquarie Capital Securities

(Singapore) Pte. Limited

Singapore property

Key themes at our Asean conference

Views from the top

At our second annual Asean Conference in Singapore held on 28-30 August,

there were senior managements from 17 property companies and SREITs

presenting their views on the key sectors. Notes from the individual companies

are in this report.

Developers - Low gearing but acquisitions prove difficult

A common theme in Singapore residential is the keen competition for land bids

under the Government Land Sales (GLS) Programme and the increase in

number of players in the space, on the adoption of a faster asset turnover model

to minimise price and policy risks. Developers have ample debt headroom given

the sector gearing of 28% but the success rate in land bids has been low.

Office - Broad-based demand

Landlords see a stabilising office rental market as demand from energy and

resources, shipping, legal and media firms offset the weaker demand from

financial institutions. Cost management also plays a big part in mitigating the

negative impact of DPU given negative rent reversions.

Industrial - Good rent growth, concerns on the horizon

The sector saw above average rent growth in the past 6 months on limited

supply. Logistics rents seem to be near the top and could correct in 2 years’ time

as new supply filters through. Firms with R&D activities may be affected by head

offices’ cut-back. REITs with master leases or built-in rent escalations remain

confident.

Retail - Managing slowdown in retail sales

Tenant sales were a little weak in the first two months in the current quarter and

cost management initiatives helped to protect NPI margins. Rent reversions in

the mid-single digit range could be challenging, although helped by a low base

year in 2009 which was affected by the GFC. Exception is Mapletree

Commercial Trust (MCT SP, Non-Rated) which saw a +37.4% increase.

Key ideas

We maintain a preference for office and retail SREITs, as well as developers

with little exposure to Singapore residential.

We like CCT, KREIT, CT, SUN and MLT amongst the SREITs, as well as CAPL

and CMA amongst the developers.

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ASIA

China fund subscriptions not well timed

(US$mn)

Source: EPFR, Macquarie Research, August 2012

Incredible Indonesia – ongoing

currency weakness and CA deficit

Source: Bloomberg, Macquarie Research, August 2012

Analyst(s)

Aniel Mahtani, CFA

+65 6601 0016 [email protected]

Emil Wolter

+65 6601 0538 [email protected]

31 August 2012

Macquarie Capital Securities

(Singapore) Pte. Limited

The Asian Capital Compass

Navigating the tactical cross currents

China fund subscriptions not well timed

 Fund subscriptions in North Asia, notably China, surge. Data from EPFR

shows a surge in fund subscription activity in North Asian equities, notably

China, for the week ending 30th August. China fund subscriptions totalled

US$500mn, the highest since mid-January 2012, while Korean fund

subscriptions totalled US$337mn, the highest level in our three-year record.

With our recent downgrade on China, we believe the surge in fund

subscriptions may not be well-timed, given increasing risks in the banking

system. Still, for investors looking for China exposure, we continue to believe

that a number of attractive opportunities exist across the Telecoms and

Utilities sectors while there are also selective stock-level areas of interest

within Industrials and Insurance. Chinese small-caps are also an attractive

risk-reward proposition, in our view.

 Net-buying/selling broadly flat. Following several weeks of solid market

performance across the region, investors appear to have taken a pause

ahead of the crucial Jackson Hole event on 31st August. For the week ending

30th August, data for the six Asian markets we track showed aggregate netbuying

of just US$5mn for the week, with net-buying activity in India offsetting

net-selling activity in TIP markets, Taiwan, and Korea.

Technical talk: Speculative positions in Oil increasing

 Speculative positions in Oil have risen to a 16-week high, based presumably

on tensions in Syria, according the recent Commitment of Traders report.

Short positions in the Euro meanwhile fell to their lowest level in 15 weeks.

 The Asian ITRAXX index rose for the first time since July, while short sales in

HK remain at 12%, largely unchanged in recent weeks. Implied volatility on

KOSPI options hit a 9-week high.

The week ahead: Jackson Hole to dominate headlines

 Corporate earnings: With much of Asia ex-Japan-based corporates

essentially through earnings season, our Quant team has published a report

highlighting the recent spate of profit warnings.

 Economics data: As the recent rally seems to have stalled, investor attention

will gravitate towards today’s Jackson Hole Symposium of central bankers.

PMI data in the US, China, India, Korea and Taiwan are among next weeks

important data.

Chart of the week: Incredible Indonesia

 Our chart of the week highlights the continued weakness in the Indonesian

Rupiah and its strong relationship with MSCI Indonesia. Owing to a stronger

domestic economy to offset weak exports, Indonesia is currently seeing the

largest current account deficit in 15 years. This is extraordinary, not only in

terms of the magnitude, but also in the duration in which Indonesia went from

having a current account surplus (US$686mn in 09/2011) to a current account

deficit (US$2,185mn in 12/2011).

 MSCI Indonesia is down 5% since last week and down 2% year-to-date (both

USD total returns). It is the worst-performing market in MSCI Asia ex-Japan.

Our asset allocation preference holds an Underweight stance on Indonesia.

-600mn

-400mn

-200mn

0mn

200mn

400mn

600mn

800mn

May/11

Jul/11

Oct/11

Jan/12

Apr/12

Jun/12

4000

4200

4400

4600

4800

5000

5200

08-11 11-11 02-12 05-12 08-12

104

106

108

110

112

114

116

118

MSCI Indonesia

IDR spot rate (inverse x 1000000) (rhs)

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TAIWAN

5871 TT Outperform

Price (at 11:24, 31 Aug 2012 GMT) NT$50.50

12-month target NT$ 56.00

Upside/Downside % 10.9

Valuation NT$ 46.00-

60.70

- PER

GICS sector Diversified

Financials

Market cap NT$m 39,658

30-day avg turnover US$m 9.3

Market cap US$m 1,323

Number shares on issue m 785.3

Investment fundamentals

Year end 31 Dec 2011A 2012E 2013E 2014E

Net interest Inc m 6,744 10,358 13,386 17,164

Non interest Inc m 1,912 2,437 2,634 2,757

Underlying profit m 4,586 7,267 9,289 11,597

PBT m 3,839 5,770 7,165 8,570

Reported profit m 2,448 3,785 4,835 5,811

EPS rep NT$ 3.12 4.13 5.28 6.35

EPS rep growth % 1.3 32.7 27.8 20.2

PER rep x 16.2 12.2 9.6 8.0

Total DPS NT$ 2.30 1.65 2.11 2.54

Total div yield % 4.6 3.3 4.2 5.0

ROA % 2.1 2.5 2.6 2.5

ROE % 17.4 19.1 19.1 20.1

Equity to assets % 11.8 14.2 12.8 12.1

P/BV x 2.5 2.0 1.7 1.5

5871 TT rel TAIEX performance, & rec

history

Note: Recommendation timeline - if not a continuous line, then there was no

Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, August 2012

(all figures in NT$ unless noted)

Analyst(s)

Jemmy Huang, CFA

+886 2 2734 7530 [email protected]

Shirley Hsu

+886 2 2734 7511 [email protected]

31 August 2012

Macquarie Capital Securities Limited,

Taiwan Branch

Chailease Holding Co. Ltd.

2Q12 slightly ahead of expectations

Event

 Chailease held its 1H12 analyst meeting on Friday afternoon. The Q&A

session focused more on business growth momentum and asset quality in

China. We retain our positive view on Chailease with a TP of NT$56.0.

Impact

 Our impression: 2Q12 net profit of NT$1.0bn was up 59% YoY and 30%

QoQ and implies 25% ROE. Earnings from its China operation grew 151%

YoY in 2Q12 with its contribution to the group increasing to 35% in 1Q12 from

27% in 1Q12.

 What is positive: Asset growth regained momentum in 2Q12, up 8% QoQ

from 1% in 1Q12. Cost to income ratio declined to 43% in 2Q12 from 47% in

1Q12. Management guided that both China and Taiwan showed better

operating efficiency but expects the ratio to trend up in 2H12 in China due to

its new four offices. Meanwhile, spread in China also improved slightly as a

result of migration of client mix toward more domestic demand-oriented

corporates, which in general are less price-sensitive.

 What is negative: Group delinquent ratio was up to 3.2% in 2Q12, higher

than the 3.0% in 1Q12 and 2.7% in 4Q11, which was mostly attributable to

China, as we expected. However, management attributed the deterioration to

slower than expected portfolio growth in 1H12 while new delinquent flow is

within expectations, and thus the delinquent ratio should be stable or even

slightly down along with more robust portfolio growth in 2H12.

 What is interesting: Management tried to reconcile the discrepancy between

their cautiously optimistic view on business growth momentum/asset quality

outlook vs. economic slowdown/SME credit issues in China during the

conference by citing that their Wenzhou operation is ahead of expectations

because all SME clients there are facing difficulty getting funding from banks

while only export-oriented corporates are in deep water. Meanwhile, bank

lending in China, which targets SOE and large corporates, will still fail to fulfil

the funding demand for SMEs.

Earnings and target price revision

 No Change.

Price catalyst

 12-month price target: NT$56.00 based on a Price to Book methodology.

 Catalyst: Stronger portfolio growth and stable credit costs.

Action and recommendation

 Reiterate Outperform: We expect an upgrade of consensus earnings after its

solid 2Q12 results. Upcoming GDR issuance, which is expected to be

completed in Oct/Nov, will remain the key uncertainty for share price

performance in the near future but we believe the fundamentals will limit

downside and would view any material pullback as a good buying opportunity.

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HONG KONG

3300 HK Outperform

Price (at 06:59, 31 Aug 2012 GMT) HK$0.70

12-month target HK$ 0.93

Upside/Downside % 32.9

Valuation HK$ 0.93

- Other

GICS sector Materials

Market cap HK$m 1,085

30-day avg turnover US$m 0.6

Market cap US$m 140

Number shares on issue m 1,550

Investment fundamentals

Year end 31 Dec 2011A 2012E 2013E 2014E

Revenue m 2,946.1 2,444.5 3,231.8 4,047.1

EBIT m 93.2 -121.2 -80.4 341.8

EBIT growth % -83.9 nmf 33.6 nmf

Reported profit m 181.7 -157.5 -177.2 136.5

Adjusted profit m -31.5 -173.5 -177.2 136.5

EPS rep Rmb 0.12 -0.10 -0.11 0.09

EPS rep growth % -62.1 nmf -12.6 nmf

EPS adj Rmb -0.02 -0.11 -0.11 0.09

EPS adj growth % nmf -619.1 -2.2 nmf

PER rep x 4.7 nmf nmf 6.6

PER adj x nmf nmf nmf 6.6

Total DPS Rmb 0.01 0.00 0.00 0.00

Total div yield % 1.7 0.0 0.0 0.0

ROA % 1.7 -2.0 -1.4 5.5

ROE % -1.7 -8.0 -8.9 6.9

EV/EBITDA x 5.8 11.5 8.4 2.9

Net debt/equity % 41.8 70.5 72.7 71.7

P/BV x 0.4 0.4 0.5 0.4

3300 HK rel HSI performance, & rec

history

Note: Recommendation timeline - if not a continuous line, then there was no

Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, August 2012

(all figures in Rmb unless noted)

Analyst(s)

Jake Lynch

+86 21 2412 9007 [email protected]

Yi Chen

+86 21 2412 9081 [email protected]

31 August 2012

Macquarie Capital Securities Limited

China Glass Holdings

No sign of a dawn

Event

 China Glass reported poor 1H12 results, but in line with our forecasts.

Revenue fell 23% YoY and Net loss attributable was RMB89m (vs our

forecast of RMB94m). That said, we are boosting our FY12 loss assumptions

by 14%. For FY13, we now forecast a net loss of RMB177m vs. former

forecast of a recovery to a NP of RMB241m. We cut our TP by 39%

 However, we retain an Outperform rating. At 0.42x FY12E and 0.46x FY13E

P/Bk, and a 63% discount to estimated replacement cost, we think the still

dismal near term prospects and general malaise in illiquid small caps are

leading the market to over-discount the long term value. While we see little

hope of a positive catalyst over the next 6 months, we think the assets –

particularly the Low E lines – will see rising returns as and when a) industry

overcapacity is rationalised and/or b) the PRC government starts requiring

more residential developers to use Low E glass.

Impact

 No recovery in sight: At the analyst meeting today, management’s guidance

was somber. While they argue that smaller glass producers are starting to go

under, there has not yet been a meaningful reduction in installed capacity.

While glass prices seem to have bottomed (and have even seen something of

a rebound in Guangdong), there is not yet any strength in the recovery. We

remain concerned that any pickup in demand will be met with re-activation of

currently idle lines (see our detailed report April 16 2012) . As such we are

pushing back any price recovery into 1H14 – in line with our China team’s

generally bearish view on property construction in FY13.

 Cash Flow and Balance sheet better than expected: While an industry

recovery looks far off, CG is doing a good job of managing cash flows during

a very difficult period. They generated RMB344m in OpCF by keeping AR and

Inventory expansion to minimum and extending AP. Capex this year should

half from FY11 levels. We are allowing for WC deterioration in 2H12, but still

max out on ND/E below 75% - a manageable number in our view.

Earnings and target price revision

 FY12 losses deepened 14%. FY13 forecasts from profit to loss. Cut TP 39%

Price catalyst

 12-month price target: HK$0.93 based on a Other methodology.

 Catalyst: Government implementation of Low E requirements would be a

major positive catalyst, but timing highly uncertain.

Action and recommendation

 Our new target price is based on global P/BK comps – 0.56x. CG now trades

at a 63% discount to replacement cost and we think it will eventually return to

that level. However, for this year, we think (depressed) global P/Bk average is

likely to make the best valuation comparable.

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TAIWAN

2324 TT Neutral

Price (at 06:32, 31 Aug 2012 GMT) NT$26.25

12-month target NT$ 26.00

Upside/Downside % -1.0

Valuation NT$ 26.00

- PER

GICS sector

Technology Hardware & Equipment

Market cap NT$m 115,789

30-day avg turnover US$m 9.0

Market cap US$m 3,863

Number shares on issue m 4,411

Investment fundamentals

Year end 31 Dec 2011A 2012E 2013E 2014E

Revenue bn 693.1 697.6 769.0 836.3

Reported profit bn 11.0 10.4 12.2 14.4

Adjusted profit bn 10.8 10.4 12.2 14.4

EPS rep NT$ 2.50 2.37 2.77 3.26

EPS rep growth % -52.4 -5.4 17.0 17.8

EPS bonus exp NT$ 2.50 2.37 2.77 3.26

EPS bonus growth % -52.4 -5.4 17.0 17.8

PER rep x 10.5 11.1 9.5 8.0

PER bonus exp x 10.5 11.1 9.5 8.0

Total DPS NT$ 1.50 1.42 1.66 1.96

Total div yield % 5.7 5.4 6.3 7.5

ROA % 4.4 4.6 5.3 5.8

ROE % 9.8 9.7 10.8 12.0

EV/EBITDA x 4.4 4.6 3.8 3.2

Net debt/equity % -33.0 -40.6 -40.3 -41.1

P/BV x 1.1 1.1 1.0 0.9

2324 TT rel TAIEX performance, & rec

history

Note: Recommendation timeline - if not a continuous line, then there was no

Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, September 2012

(all figures in NT$ unless noted)

Analyst(s)

Andrew Chang

+886 2 2734 7526 [email protected]

Daniel Chang

+886 2 2734 7516 [email protected]

Judy Lin

+886 2 2734 7523 [email protected]

31 August 2012

Macquarie Capital Securities Limited,

Taiwan Branch

Compal

Earnings recovery takes longer

Event

 Compal hosted its 2Q12 analyst meeting and conference call on 31 Aug.

2Q12 EPS (NT$0.36) came in below expectations (NT$0.5-0.6), due to its

lower OPM (1.6%) and higher FX loss (NT$507m). While 3Q12 NB shipment

guidance (+5-10% QoQ) was slightly lower than the consensus forecast

(+10% QoQ), the company also cut its 2012 NB sales target from 48m units to

40-42m (+0-5% YoY), implying +15-20% QoQ growth in 4Q12. We believe its

rising NB sales can help OPM to improve, but we expect its recovery back to

2010’s >2.5% may take longer given our concerns about the weak global

economy, tablet cannibalization and Win 8 uncertainty. We maintain our N

rating with a TP of NT$26 (from NT$27) based on our 10x avg 2012/13E EPS.

Impact

 Overall impression: 2Q12 OPM (1.6%) was lower than 1Q12’s 1.7%, due to

higher R&D expense (for new projects) and labour cost hikes in China. 3Q12

guidance was slightly below expectations but the co believes the new Win 8

OS can help its NB shipment momentum from 4Q12. The CEO also said he

expected the company’s 2013 NB growth to outpace peers’, and we believe

his confidence mainly comes from its recent Dell and Lenovo order gains.

 What was positive: Despite rising labour costs in China from April, 2Q12 GM

(4.6%) remained at the 1Q12 level. The CEO said the vertical integration

investment on touch and casings would help Compal win more OEM orders

as he expected supply of these components to be tight in the coming quarters.

 What was negative: 2Q12 FX loss of NT$507m was larger than expected,

mainly due to Brazilian Real depreciation (10%). Management said it would

adopt new hedge strategies to reduce the risks. With its weak 3Q12 guidance

and the low visibility for NB demand in 4Q12, our view on its OPM

improvement has turned cautious.

 What was interesting: The CEO has conservative views on the penetration rates

of the Ultrabook (5-10% in 4Q12, 20% in 2013) and Win 8 with touch design (<5%

in 4Q12, <20% in 2013) in NBs given their higher cost. He also indicated that Win

8 tablets would likely be mostly adopted by commercial users first and believed

the ASP of Surface tablets would not be easy to price under US$200.

Earnings and target price revision

 We cut our 2012/13E EPS by 5%/18% to reflect its 2Q12 results and our

lower OPM assumptions with our lower TP of NT$26 (from NT$27).

Price catalyst

 12-month price target: NT$26.00 based on a PER methodology.

 Catalyst: NB, or tablet order gains/loss from OEMs, currency movement

Action and recommendation

 We believe its ~1x Book (NT$25.4) can be a support to its share price.

However, we suggest investors to wait for more clear visibility in PC demand

and strong evidence that Compal can improve its earnings growth. In the

ODM space, we prefer Pegatron (4938 TT, NT$38.00, Outperform, TP:

NT$46.00) given its multiple growth sources and Apple story.

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TAIWAN

2903 TT Underperform

Price (at 05:30, 31 Aug 2012 GMT) NT$29.90

12-month target NT$ 22.00

Upside/Downside % -26.4

Valuation NT$ 22.00

- Sum of Parts

GICS sector Retailing

Market cap NT$m 40,959

30-day avg turnover US$m 7.4

Market cap US$m 1,367

Number shares on issue m 1,370

Investment fundamentals

Year end 31 Dec 2011A 2012E 2013E 2014E

Revenue m 27,641 40,924 42,755 45,313

Reported profit m 2,143 1,593 2,000 2,377

Profit bonus exp m 2,143 1,593 2,000 2,377

Adjusted profit m 2,143 1,593 2,000 2,377

EPS rep NT$ 1.57 1.17 1.47 1.75

EPS rep growth % -16.5 -25.8 25.7 19.1

EPS bonus exp NT$ 1.57 1.17 1.47 1.75

EPS bonus growth % -16.5 -25.8 25.7 19.1

PER rep x 19.0 25.6 20.4 17.1

PER bonus exp x 19.0 25.6 20.4 17.1

Total DPS NT$ 0.96 0.71 0.87 1.00

Total div yield % 3.2 2.4 2.9 3.4

ROA % 2.2 1.9 1.9 2.1

ROE % 8.1 5.9 7.2 8.3

EV/EBITDA x 21.7 27.7 24.3 20.8

Net debt/equity % 73.4 80.3 78.0 76.6

P/BV x 1.5 1.5 1.4 1.4

2903 TT rel TAIEX performance, & rec

history

Note: Recommendation timeline - if not a continuous line, then there was no

Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, August 2012

(all figures in NT$ unless noted)

Analyst(s)

Macquarie Capital Securities Limited, Taiwan

Branch

Darren Wang

+886 2 2734 7527 [email protected]

Macquarie Capital Securities Limited

Linda Huang, CFA

+852 3922 4068 [email protected]

31 August 2012

Far Eastern Department Store

2Q in loss

Event

 FEDS recorded a net loss of NT$0.05/sh in 2Q. We lower our 2012E earnings

to reflect the 2Q earnings. We reiterate Underperform on continued tough

industry outlook in 2H.

Impact

 2Q in loss. FEDS recorded a net loss of NT$63m, or NT$0.05/sh in 2Q, down

131% YoY and lower than our and market expectation of NT$0.20/sh and

NT$0.26/sh in profits. This is mainly due to recognition of surtax on

undistributed earnings from Sogo (who was unable to hold its shareholder

meeting to distribute earnings due to the legal dispute) as well as a loss from

Oriental securities. Meanwhile, operating profits (NT$148m, or NT$11/sh)

were down 48% YoY, and was 40% and 50% lower than our and market

estimates, suggesting a difficult department store space in Taiwan.

 2H outlook continues to be tough. In 2H12, we expect Taiwan department

store profits will continue to face head winds from cannibalization and slower

macros. FEDS’s July SSS declined by 16% YoY, much lower than 2Q

average of 11% due to cannibalization from its new stores. We estimate

existing stores’ profit could decline 50% YoY in 2H, as they suffer operating

deleverage and lower revenue base. Meanwhile, slower consumption and

weaker product mix (slower apparel/cosmetic sales) could further weigh on

store performance and the gross margin.

 China business underperforming peers. The company’s department stores

in China posted 5-6% decline in SSS in 1H, falling behind peers’ low-to midsingle

digit YoY growth. We believe aging stores and intensifying competition

are key reasons for the underperformance. The Chinese peers’ 1H12 results

also suggest a more challenging industry space, with generally weaker SSSg

and lower commission rates, while major department store players tone down

their 2H SSSg guidance (generally to low-to mid- single digit YoY growth).

Hence, we estimate China department store earnings could decline by 40%

YoY in 2H.

Earnings and target price revision

 We lower 2012E/13E earnings by 14.5% and 4.5% to reflect 2Q loss and

weaker than expected department store earnings. We lower TP to NT$22

(from NT$23) on lower department store contribution.

Price catalyst

 12-month price target: NT$22.00 based on a Sum of Parts methodology.

 Catalyst: Weak 3Q earnings; slower SSSg

Action and recommendation

 We reiterate Underperform on difficult department store business in Taiwan

and China in 2H12E. Our 2012/13E EPS are 35%/26% below Bloomberg

consensus. We expect downward earnings revision from the market ahead.

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HONG KONG

493 HK Underperform

Price (at CLOSE#, 31 Aug 2012) HK$0.67

12-month target HK$ 0.58

Upside/Downside % -13.4

Valuation HK$ 0.58

- 0.5x Price To Book

GICS sector Retailing

Market cap HK$m 11,306

30-day avg turnover US$m 14.2

Market cap US$m 1,458

Number shares on issue m 16,875

Investment fundamentals

Year end 31 Dec 2011A 2012E 2013E 2014E

Revenue m 59,821 54,584 61,736 68,988

EBIT m 2,321 -247 665 701

EBIT growth % -15.8 nmf nmf 5.3

Reported profit m 1,838 -226 531 548

Adjusted profit m 1,847 -226 531 548

EPS rep Rmb 0.11 -0.01 0.03 0.03

EPS rep growth % -17.1 nmf nmf 3.2

EPS adj Rmb 0.11 -0.01 0.03 0.03

EPS adj growth % -17.0 nmf nmf 3.2

PER rep x 5.0 nmf 17.4 16.9

PER adj x 5.0 nmf 17.4 16.9

Total DPS Rmb 0.06 0.00 0.01 0.01

Total div yield % 10.4 0.0 1.5 1.5

ROA % 6.3 -0.7 1.8 1.8

ROE % 12.0 -1.4 3.3 3.4

EV/EBITDA x 1.6 26.3 3.9 3.8

Net debt/equity % -37.5 -31.5 -26.4 -26.4

P/BV x 0.6 0.6 0.6 0.6

493 HK rel HS China Enter performance,

& rec history

Note: Recommendation timeline - if not a continuous line, then there was no

Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, August 2012

(all figures in Rmb unless noted)

Analyst(s)

Linda Huang, CFA

+852 3922 4068 [email protected]

Terence Chang

+852 3922 3581 [email protected]

1 September 2012

Macquarie Capital Securities Limited

GOME Electrical Appliances

Opaque 2H12

Event

 GOME announced 1H12 results with a net loss of Rmb501m, better than our

projection of a loss of Rmb918m but worse than consensus of Rmb73m gain.

Post the analyst meeting, we raise our earnings forecasts due to the company's

cost rationalization measurement. However, we maintain our Underperform

rating with a target price of HK$0.58 as earnings visibility is still low, especially

as the ecommerce share of GOME sales keeps climbing up to 11%.

Impact

 SSSg showed sequential improvement, but the industry outlook is still

opaque. GOME recorded a 28.72% decline YoY in SSSg, of which 2Q

improved to -18.7% from -34% in 1Q. The company sees a continuous

sequential improvement in 3Q and 1H12 should be the worst in terms of

profitability and SSSg. Even so, we think the home appliance industry outlook

is still opaque due to severe ecommerce cannibalization, and earnings

visibility is still low due to margin compression. As at the end of 1H12, the

company had a cash balance of Rmb8.2bn, so this should be sufficient to

Rmb2bn of convertible bond redemption in September.

 Shutting down inefficient stores. GOME rationalized 46 stores or the

equivalent of 44k sqms operating area in 1H12. It targets scaling back 5%, or

150k sqms, operating floor space this year. We believe the company still has

to incur leasing contract early termination compensation and staff expense in

3Q. Hence, the benefit from shutting down stores will not emerge until 4Q12

or early 2013, in our view.

 Ecommerce taking shares. GOME generated Rmb1.92bn of ecommerce

revenue in 1H12, and ecommerce to total revenue increased from 4% in 1Q

to 11% in 2Q. Gross margin also improved from -4.9% in 2011 to +4.6% in

1H, with net profit margin at -13.9%. The company believes that ecommerce

revenue could reach Rmb6bn, with a net profit margin at -10% this year and

increasing further to breakeven in 2013/2014. In our view, this target may be

aggressive given that the pricing war is still severe in the online industry.

Earnings and target price revision

 We reduce our loss in 2012 from Rmb788m to Rmb226m as we slightly

change our SSSg assumption from -21% to -19%. Meanwhile, the operating

deleverage could slightly improve in 2H given that the company has scaled

back its store expansion.

Price catalyst

 12-month price target: HK$0.58 based on a 0.5x Price to Book methodology.

 Catalyst: Quarterly update, SSSg.

Action and recommendation

 We reiterate our Underperform rating with target price of HK$0.58, based on

0.5x 2012E P/BV, its historical trough valuation multiple and in line with global

peers’ trough P/BV multiple. The market may have expectation on the

company's profit turnaround in 4Q or 2013. However, we would wait for better

industry visibility due to fierce industry competition.

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TAIWAN

2317 TT Outperform

Price (at 12:49, 31 Aug 2012 GMT) NT$84.80

12-month target NT$ 117.00

Upside/Downside % 38.0

Valuation NT$ 106.00-

127.00

- PER

GICS sector

Technology Hardware & Equipment

Market cap NT$m 997,078

30-day avg turnover US$m 104.7

Market cap US$m 33,268

Number shares on issue m 11,758

Investment fundamentals

Year end 31 Dec 2011A 2012E 2013E 2014E

Revenue bn 3,452.7 4,147.7 4,744.7 5,316.2

Reported profit bn 81.6 88.2 124.7 138.8

Profit bonus exp bn 81.6 88.2 124.7 138.8

Bon exp/rep profit % 0.0 0.0 0.0 0.0

Adjusted profit bn 81.5 83.5 124.7 138.8

EPS rep NT$ 7.63 7.50 10.60 11.80

EPS rep growth % -1.7 -1.8 41.3 11.3

EPS bonus exp NT$ 7.63 7.50 10.60 11.80

EPS bonus growth % -1.7 -1.8 41.3 11.3

PER rep x 11.1 11.3 8.0 7.2

PER bonus exp x 11.1 11.3 8.0 7.2

Total DPS NT$ 1.91 1.87 2.65 2.95

Total div yield % 2.3 2.2 3.1 3.5

ROA % 5.3 5.5 7.5 7.7

ROE % 15.4 13.6 17.9 17.5

EV/EBITDA x 7.5 5.7 4.3 3.9

Net debt/equity % 8.8 -0.6 -8.9 -17.1

P/BV x 1.7 1.5 1.3 1.2

2317 TT rel TAIEX performance, & rec

history

Note: Recommendation timeline - if not a continuous line, then there was no

Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, August 2012

(all figures in NT$ unless noted)

Analyst(s)

Daniel Chang

+886 2 2734 7516 [email protected]

Judy Lin

+886 2 2734 7523 [email protected]

3 September 2012

Macquarie Capital Securities Limited,

Taiwan Branch

Hon Hai Precision

Major concern removed, strong

earnings momentum ahead

Event

 We upgrade Hon Hai (HH) from Neutral to Outperform and raise our TP from

NT$98 to NT$117 on better 2Q12 results and strong sales from the new

iPhone launch.

Impact

 Strong 2Q12 results – HH’s consolidated sales came in at NT$891bn (-11%

QoQ and +13% YoY) with GPM recovering strongly to 7.9% (1Q12: 6.6%) and

even higher than 2Q11’s 7.3%. OPM also expanded to 2.4% from 1Q12’s

1.5%. We believe HH enjoyed a strong iPad (improving yield rate and scale)

and iPhone margin recovery (better pricing and strong efficiency), which offset

FIH’s loss impact (-0.4ppt). As we previewed, HH did book a NT$6.1bn

revaluation loss from its Sharp investment in 2Q12. Net profit came in at

NT$12.6bn or EPS of NT$1.07; both are significantly higher than our and

consensus numbers.

 Strong revenue momentum ahead and driven by the highest margin

product – While we agree that in-cell touch supply remains tight and may

constrain iPhone shipments near term, we believe the supply is improving and

the new iPhone should be launched on time. The new iPhone will be HH’s key

earnings driver from Sept as it contributes the highest OPM margin of 4-5%+ vs

its group average of 2-3%. While the market may be concerned about an iPad

volume slowdown, we believe upside from the iPad mini should offset this.

 HH/Sharp – Two outcomes most likely to happen – Based on HH’s public

statement, since the investment was not approved by the government, HH

has booked back the 1H12 loss of NT$4.5bn to its July 31st P/L. We believe

HH is trying to imply that they can book back the loss because they won’t

receive government approval not because of negotiation failure. This means

HH is able to walk away from the deal because they are not satisfied with the

new terms from Sharp. Hence, there are only 2 outcomes likely – either Sharp

accepts a lower price or HH drops the deal. Both results will allow HH to book

back the loss in 3Q12. In any case, investors should expect a good outcome

from this investment.

Earnings and target price revision

 We raise our 2012 and 2013 EPS by 10% and 11%.

Price catalyst

 12-month price target: NT$117.00 based on a PER methodology.

 Catalyst: Strong sales momentum and new iPhone launch

Action and recommendation

 In our last preview note, we highlighted that we expect the stock to begin to

perform post its 2Q12 results driven by its expected strong sales momentum

led by the new iPhone launch and margin recovery trends. We now turn

positive on the stock as we believe we have walked away from Sharp’s

uncertainty with strong earnings momentum in coming quarters. Our TP of

NT$116 is based on 11x of 2013E EPS (our last TP was based on 11x

forwarded EPS). Among Hon Hai group, we also like Foxconn Tech (2354 TT,

NT$114, OP, TP: NT$140.6, Tammy Lai) for its strong metal casing business

from the new iPhone.

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KOREA

001450 KS Neutral

Price (at 10:42, 31 Aug 2012 GMT) Won32,700

12-month target Won 34,500

Upside/Downside % 5.5

Valuation Won 34,500

- Price To Book

GICS sector Insurance

Market cap Wonb

2,923

30-day avg turnover US$m 9.1

Market cap US$m 2,578

Number shares on issue m 89.40

Investment fundamentals

Year end 31 Mar 2012A 2013E 2014E 2015E

NEP bn 8,358 9,128 10,214 11,336

Underwriting Result bn 30 -89 -123 -146

Investment Income bn 530 640 745 858

PBT bn 536 531 602 693

Net Op Income bn 399 402 456 525

EPS adj Won 4,462 4,501 5,105 5,872

PER adj x 7.3 7.3 6.4 5.6

DPS Won 1,350 1,400 1,550 1,650

Dividend yield % 4.1 4.3 4.7 5.0

Total SH Funds bn 1,744 2,076 2,461 2,904

BV/S Won 19,508 23,227 27,527 32,484

ROE % 25.4 21.1 20.1 19.6

ROA % 2.6 2.1 2.0 2.0

P/BV x 1.7 1.4 1.2 1.0

001450 KS rel KOSPI performance, &

rec history

Note: Recommendation timeline - if not a continuous line, then there was no

Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, July 2012

(all figures in Won unless noted)

Analyst(s)

CJ Yun

+82 2 2095 7222 [email protected]

31 August 2012

Macquarie Securities Korea Limited

Hyundai Marine & Fire

July results, calm before the storm

Event

 Hyundai Marine & Fire (HMF) reported July 2012 net profit of Won37bn, a

decline of 6.6% YoY.

Impact

 Single payment savings products jump again. During July, HMF posted

17.9% YoY growth in direct premiums, with 24% YoY growth coming from the

long-term line. However, this was partly due to big sales of less profitable

single payment savings products in July of Won21bn vs. Won6bn in July last

year. Excluding for this impact, direct premium growth would have been

slower at 15.9%. We believe that the jump in sales of single payment products

during July is a balloon effect from Samsung F&M’s tightening of single

payment sales through bancassurance during the same month.

 But long-term new business remains solid. The company’s long-term new

business for July amounted to Won15.2bn (up 5.7% YoY), of which protection

products (excluding property) accounted for Won6.4bn. The company has

been continuing solid new business trends for the past three months on the

back of new product launches; management seems confident that new

product effects will last through August.

 Lower underwriting profits during July.

Auto loss ratio improved by 1.8ppt YoY due to high base in effect in July

last year, which was burdened by heavy flooding.

But the 2ppt YoY deterioration in loss ratio for the long-term line due to

bigger portion of single payment savings products more than offset the

improvements in the auto line.

Lower expense ratio of 17.7% is also a result of distortion of denominator

which is inflated by single payment savings products.

 Investment yield in the doldrums. HMF posted an investment yield of 4.4%

during July, which is the lowest in the sector. Given the company’s more

conservative investment strategy, the challenge to maintain investment yields

should continue amidst a low interest rate environment.

Earnings and target price revision

 We raise our FY3/13E net profit by 2.3% on revisions after the release of

detailed 1QFY3/13 financials. Our target price is unchanged at Won34,500.

Price catalyst

 12-month price target: Won34,500 based on a Price to Book methodology.

 Catalyst: Clearing of uncertainty for auto premium cuts. Solid new business

growth for the long-term line with profitable product mix.

Action and recommendation

 We expect HMF’s results for August to also be pressured from unfavourable

weather conditions. We reiterate our Neutral rating on the stock.

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KOREA

032640 KS Outperform

Price (at 08:32, 31 Aug 2012 GMT) Won7,600

12-month target Won 9,500

Upside/Downside % 25.0

Valuation Won 9,500

- DCF

GICS sector

Telecommunication Services

Market cap Wonb

3,912

30-day avg turnover US$m 18.0

Market cap US$m 3,450

Number shares on issue m 514.8

Investment fundamentals

Year end 31 Dec 2011A 2012E 2013E 2014E

Revenue bn 9,256 10,787 11,341 11,731

EBIT bn 286 201 678 876

EBIT growth % -56.5 -29.7 237.5 29.3

Reported profit bn 85 32 432 628

Adjusted profit bn 85 32 432 628

EPS rep Won 196 74 1,000 1,451

EPS rep growth % -85.2 -62.3 1,252.7 45.2

EPS adj Won 196 74 1,000 1,451

EPS adj growth % -85.1 -62.3 1,255.3 45.2

PER rep x 38.8 102.9 7.6 5.2

PER adj x 38.8 103.0 7.6 5.2

Total DPS Won 150 20 300 440

Total div yield % 2.0 0.3 3.9 5.8

ROA % 2.9 1.8 5.7 6.9

ROE % 2.2 0.8 10.5 12.9

EV/EBITDA x 5.3 4.9 3.8 3.5

Net debt/equity % 97.0 105.3 86.9 67.1

P/BV x 1.0 1.0 0.9 0.7

032640 KS rel KOSPI performance, &

rec history

Note: Recommendation timeline - if not a continuous line, then there was no

Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, August 2012

(all figures in Won unless noted)

Analyst(s)

Macquarie Securities Korea Limited

Eugene Jung

+82 2 3705 8686 [email protected]

Macquarie Capital Securities (Japan) Limited

Nathan Ramler, CFA

+81 3 3512 7875 [email protected]

31 August 2012

LG U+

Welcome back, GROWTH!

Event

 After our recent visit to the company, we have turned more confident on its

fundamental improvement as a result of rapid LTE migration and mobile

ARPU increase. Moreover, we welcome the company’s decision to cancel its

treasury shares, which significantly eliminates the overhang risk, and

therefore expect the share price to start reflecting the earnings turnaround

momentum.

Impact

 Faster migration to LTE than expected - bigger upside on ARPU: LGU+

took the lead in the LTE transition race, outpacing competitors by far with over

30% as of August. Given the pace, we increase our LTE subs forecasts to

4.3m and 6.6m by end 2012/13, from 4.1m and 6.5m respectively. With the

revision, we become more bullish on the mobile ARPU turnaround, expecting

a 15%YoY and 10%YoY increase in mobile ARPU in FY12/13E respectively.

 Heated marketing to continue, but is an inevitable investment: Although

we expect the competition intensity to ease in 2H12, we still expect it to

remain high as all three operators will aggressively compete over securing

more LTE subs. That said, we believe the company’s focus should be on

securing LTE subs as much as and as fast as possible in 2012 which will lead

to robust ARPU growth in 2013 when marketing costs are likely to ease.

 Treasury share cancellation is a bold and smart move: This not only

significantly minimizes the overhang risk which has been putting downward

pressure on the share price, but also signals positive intentions by

management to focus on shareholder interests. Of note, the impact of

cancellation on our EPS forecast is limited, as we already excluded the

treasury shares from our calculation.

 Increase in capex guidance is already reflected in our valuation: We

were not surprised by the increase in FY12E capex guidance from Won1.4tr

to Won1.6tr which was already reflected in our valuation, as we were

concerned about the company’s focus on improving its LTE network for the

new VoLTE service. Moreover, we remain conservative on FY13E capex as

well, and assume Won1.4tr vs. the company’s target of Won1.2tr.

Earnings and target price revision

 We cut our FY12E EPS by 44%, reflecting the heated competition expected in

2H12, but increase our FY13E/14E EPS by 4%/6% as a result of the better

ARPU outlook. We increase our target price to Won9,500 from Won8,200.

Price catalyst

 12-month price target: Won9,500 based on a DCF methodology.

 Catalyst: Faster-than-expected LTE sub increase, easing marketing costs.

Action and recommendation

 With the overhang risk out of the way, we expect the shares to start fully

reflecting the robust earnings turnaround from FY13E. We stand by our

conservative stance to FY12E results due to heated marketing competition,

but believe this is an inevitable investment to secure stronger ARPU growth

going forward. Outperform.

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HONG KONG

1224 HK Outperform

Price (at CLOSE#, 28 Aug 2012) HK$1.68

12-month target HK$ 2.99

Upside/Downside % 78.0

Valuation HK$ 6.54

- DCF

GICS sector Real Estate

Market cap HK$m 4,348

30-day avg turnover US$m 0.2

Market cap US$m 561

Number shares on issue m 2,588

Investment fundamentals

Year end 31 Dec 2011A 2012E 2013E 2014E

Revenue m 4,857 7,271 9,022 11,653

EBIT m 630 1,502 1,888 2,409

EBIT growth % nmf 138.2 25.7 27.6

Reported profit m 301 600 842 875

Adjusted profit m 63 600 842 875

EPS rep ¢ 11.7 23.4 33.1 34.4

EPS rep growth % 15.2 100.2 41.6 3.9

EPS adj ¢ 2.4 23.5 33.1 34.4

EPS adj growth % nmf 862.8 41.1 3.9

PER rep x 14.4 7.2 5.1 4.9

PER adj x 69.0 7.2 5.1 4.9

Total DPS ¢ 4.0 4.7 5.0 5.2

Total DPS growth % 0.0 17.9 5.3 3.9

Total div yield % 2.4 2.8 3.0 3.1

ROA % 2.0 4.0 4.4 5.2

ROE % 0.5 4.5 6.1 6.0

EV/EBITDA x 7.9 3.2 2.4 1.9

Net debt/equity % 2.8 9.2 -4.7 -23.5

P/BV x 0.3 0.3 0.3 0.3

1224 HK rel HSI performance, & rec

history

Note: Recommendation timeline - if not a continuous line, then there was no

Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, August 2012

(all figures in HKD unless noted)

Analyst(s)

David Ng, CFA

+852 3922 1291 [email protected]

Jeffrey Gao, CFA

+86 21 2412 9026 [email protected]

Raymond Liu, CFA

+852 3922 3629 [email protected]

31 August 2012

Macquarie Capital Securities Limited

CC Land Holdings Ltd.

Back on its feet

Event

 We raise our target price of CC Land Holdings (CCLN) from HK$2.64 to

HK$2.99 and its NAV from HK$6.51 to HK$6.54 due to gradually improving

sales, better medium-term visibility and lack of negative impact from the

political turmoil in its home town of Chongqing. New projects are key to its

growth, in our view, as organic growth of existing saleable resources is tough

under current home purchase restrictions. New acquisitions as well as

recycling certain sites within the current land bank in exchange for projects

easier to sell should be the focus over the next few months.

 1H12 revenue was up 251% YoY to HK$3.7bn while net profit was up 35% to

HK$0.2bn with gross profit margin deteriorating 1ppt to 31%. Although ASP of

the booked sales was up 5% to Rmb6.99k/sqm, contracted sales ASP

dropped 16% to Rmb7.6k/sqm. This should impact 2012 and 2013 margin.

Impact

 High lock-in. At the end of July, presales have secured 83% of 2012

bookings already and 47% of 2013 bookings. Thus, earnings certainty is high

for this year. During the first seven months, contracted sales were Rbm3.4bn,

50% of the company’s full-year target, but the ratio is lower than the sector

average of 63%. Management is confident of seeing a catch up in sales in

upcoming months with new launches.

 Abundant saleable resources. About 43% of the company’s total land bank,

or close to 5m sqm of GFA, is under development and can be launched over

the next two years. This represents a jump from only 1m of GFA completion

each in 2012 and 2013. The six new sites bought in 2011 and the over

Rmb6bn of construction spending help ensure sufficient resources in 2014.

 A new page. Disposal of all non-core assets, the first year of material booking

of property development profits in 2012 and resumption of contracted sales

growth in 2013 finally position CCLN as a real developer. We estimate total

saleable resources of Rmb65bn based on its existing land bank (excluding

Chongqing Jiangbei JV).

Earnings and target price revision

 We cut 2012 and 2013F earnings estimates by 46% and 10% respectively,

due to lower margin assumption. TP increased to from HK$2.64 to HK$2.99

due to faster asset churn and better sales than expectation.

Price catalyst

 12-month price target: HK$2.99 based on a Sum of Parts methodology.

 Catalyst: Strong property sales in Chongqing

Action and recommendation

 CCLN has the smallest market capitalization and earnings among the 22

China property developers under coverage. However, its 0.3x PB indicates

the significant upside from its current land bank. We reiterate our Outperform

rating. The stock currently trades at 5.1x 2013 PE and 74% discount to NAV.

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03-Sep 2012 Monday 11:33 AM (4255 days ago)

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Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our

website www.macquarie.com.au/disclosures.

JAPAN

6702 JP Outperform

Price (at CLOSE#, 30 Aug 2012) ¥322

12-month target ¥ 450

Upside/Downside % 39.8

Valuation ¥ 450

- Price To Book

GICS sector

Technology Hardware & Equipment

Market cap ¥m 666,546

30-day avg turnover US$m 43.9

Market cap US$m 8,465

Foreign ownership %

Number shares on issue m 2,070

Investment fundamentals

Year end 31 Mar 2012A 2013E 2014E 2015E

Revenue bn 4,467.6 4,549.2 4,669.7 4,772.5

EBIT bn 105.3 135.5 165.6 182.7

EBIT growth % -20.6 28.7 22.2 10.3

Recurring profit bn 91.1 124.7 154.3 173.2

Reported profit bn 42.7 70.2 90.3 99.6

EPS rep ¥ 20.6 33.9 43.7 48.2

EPS rep growth % -20.1 64.3 28.8 10.3

PER rep x 15.6 9.5 7.4 6.7

Total DPS ¥ 10.0 10.0 12.5 15.0

Total div yield % 3.1 3.1 3.9 4.7

ROA % 3.5 4.7 5.8 6.3

ROE % 8.1 8.1 13.3 19.5

EV/EBITDA x 2.6 2.2 2.2 2.2

Net debt/equity % 11.1 15.5 8.0 -5.4

P/BV x 0.8 0.8 1.4 1.2

6702 JP vs TOPIX, & rec history

Note: Recommendation timeline - if not a continuous line, then there was no

Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, August 2012

(all figures in JPY unless noted)

Analyst(s)

Damian Thong, CFA

+81 3 3512 7877 [email protected]

Claudio Aritomi

+81 3 3512 7858 [email protected]

31 August 2012

Macquarie Capital Securities (Japan)

Limited

Fujitsu

Cashflow potential being ignored

Conclusion

 We met up with Fujitsu on 23 August. Following a review of our estimates, we

reiterate our Outperform rating, but trim our 12-month TP to ¥450/sh from ¥490.

 Our TP is supported by a DCF-valuation exercise. We see a strong basis for

expanding dividends, and nearer-to-hand, the existing dividend yield of over 3%.

 Our estimates reflect our current understanding of the effects of IFRS pension

accounting standards changes on the overseas subsidiaries.

 We believe excessive market fixation on the uncertainty introduced by the

pension accounting standards change, opens up an opportunity in the shares.

Impact

 No change to the basic outlook: The company sees solid IT demand in

Japan, and weakness overseas, notably in Europe, where server sales in

FY1Q were poor (down ~20% YoY). In Japan, firms are investing to replace

obsolescent systems and to support overseas growth including via M&A. We

expect Fujitsu to receive orders for the Mizuho integration project.

 Solidly cash-generative: Fujitsu has historically been cash-generative; even

with the burden of capital-intensive cyclical businesses (e.g. LCDs, PDPs,

HDDs), the company managed to deliver an average of ~¥60bn in FCF over

two decades. With these businesses largely shed, we expect the company to

deliver an annual mean FCF of ¥105bn in FY3/12-FY3/16E. We believe this

steady cashflow will allow Fujitsu to cut debt and raise dividends.

 Market concerns about the pension accounting changes are overdone: As

a result to changes to JGAAP and IFRS accounting rules, Fujitsu will recognise

the full unfunded pension liability on the balance sheet in FY3/14, which we

estimate will reach ~¥640bn (above market consensus). We assume that this

will be accompanied by a ~¥470bn one-time charge to net assets. Also we

assume that the changes to IAS 19 (IFRS) will lead to a net increase in pension

expenses of ~¥10bn per year. We point out that there is no cash-flow impact.

 Market concerns should be counterbalanced by potential adoption of

IFRS group-wide, instead of just for the overseas subsidiaries: If Fujitsu

does so, we estimate that OP may be boosted by ~¥35bn, due to elimination

of ¥15bn/yr of goodwill amortisation (at end-FY3/12 there was 4-5 years left)

and elimination of ~¥20bn in amortisation of unrecognised pension actuarial

gains/losses. We have not assumed this in our estimates as Fujitsu has not

indicated when they will adopt IFRS firm-wide.

Earnings and target price revision

 We have trimmed our NP estimates by 3.5%, 8.0% and 8.3% respectively for

FY3/13E–15E. We have lowered our TP to ¥450 from ¥490 in tandem.

Price catalyst

 12-month price target: ¥450 based on a Price to Book methodology.

 Catalyst: We expect Fujitsu to attain its FY1H guidance.

Action and recommendation

 Fujitsu's shares have underperformed the Nikkei by ~17% over 12 months.

We believe this is overdone given the defensiveness of cashflows and the

growing strength of the balance sheet. The shares are at 1.1x P/NAV FY3/14

even after accommodating the pension accounting change, vs a mean

FY3/13E-FY3/17E ROE of 11.5% and 10% in FY3/14E.

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