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UOBKayHian

Regional Morning Notes


Monday, May 09, 2011
KEY STORY
Singapore 2011 Elections Time for a Re-Think? Page 9 We believe PAP's falling share of popular votes may prompt a review of long-term policies. Nevertheless, we see any major market weakness as a buying opportunity. Malaysia Hong Leong Bank (BUY/RM10.44/Target: RM13.70) Page 6 Raise target price as acquisition is completed. A brand new start as the fourth-largest bank to go for larger market share and earnings.
Key Indices
Prev Close DJIA S&P 500 FTSE 100 AS30 CSI 300 FSSTI HSCEI HSI JCI KLCI KOSPI Nikkei 225 SET TWSE 12638.7 1340.2 5976.8 4816.1 3121.4 3099.5 12848.8 23159.1 3798.6 1515.5 2147.5 9859.2 1050.9 8977.2 1D % 0.4 0.4 1.0 (0.3) (0.2) (0.3) 0.3 (0.4) (0.5) (0.4) (1.5) (1.4) (2.1) (0.5) 2.0 0.8 (0.3) 1W % (1.3) (1.7) (1.5) (1.7) (1.3) (2.7) (3.5) (2.7) (0.6) (1.3) (2.8) 1.9 (4.6) (0.7) 5.6 0.7 (3.5) 1M % YTD % 2.1 0.9 (1.3) (4.4) (6.9) (2.8) (5.9) (5.1) 1.5 (2.7) 0.9 0.9 (2.9) 0.9 (6.3) (0.9) 0.6 9.2 6.6 1.3 (0.6) (0.2) (2.8) 1.2 0.5 2.6 (0.2) 4.7 (3.6) 1.8 0.1 (24.4) (10.1) 19.2

CHINA
Sector Consumer Weekly An update on the watch, jewellery and luxury goods market. Page 3

BDI 1340 CPO (RM/mt) 3380 Nymex Crude (US$/bbl) 109 Source: Bloomberg

Top BUYs/SELLs
Current Price (lcy) 34.55 17.98 13.50 10.34 0.68 9.14 2.80 162.00 347.00 2.16 Target Price (lcy) 49.00 25.00 15.80 12.30 0.90 11.80 3.10 210.00 431.00 1.24 Pot +/(%) 41.8 39.0 17.0 19.0 33.3 29.1 10.7 29.6 24.2 (42.6)

Ticker Top BUYs China Shenhua CNOOC Kunlun Energy Hong Leong Fin Grp Ezion OCBC Starhub Bangkok Bank PTT Top SELLs TMB Bank 1088 HK 883 HK 135 HK HLFG MK EZI SP OCBC SP STH SP BBL TB PTT TB TMB TB

INDONESIA
Sector Consumer Page 5 1Q11 round-up: Performance in line. Further pressure on margins is limited while capex spending will accelerate.

MALAYSIA
Update Hong Leong Bank (BUY/RM10.44/Target: RM13.70) Page 7 Raise target price as acquisition is completed. A brand new start as the fourth-largest bank to go for larger market share and earnings.

Key Assumptions
2010 GDP (% yoy) US EU Japan Singapore Malaysia Thailand Indonesia Hong Kong China Brent Crude Oil (US$/bbl) Aluminium * (US$/mt) Copper * (US$/mt) Gold Price London * (US$/ounce) Iron Ore * (USc/dmtu) CPO (US$/mt) BDI *Bloomberg Source: UOB, UOB Kay Hian 2.8 1.8 4.0 14.5 7.2 7.8 6.1 6.8 10.3 83 2,173 7,543 1,232 179 840 2,758 2011F 3.1 1.7 1.3 5.0 5.6 4.0 6.4 5.0 9.2 95 2,415 9,335 1,457 134 980 1,700 2012F 3.2 1.7 2.0 5.0 5.4 4.5 6.3 4.3 8.6 98 2,464 9,544 1,462 134 900 2,000

SINGAPORE
Strategy 2011 Elections Time for a Re-Think? Page 10 We believe PAP's falling share of popular votes may prompt a review of long-term policies. Nevertheless, we see any major market weakness as a buying opportunity. Sector Property Page 12 Property Nuggets: Positive commercial sentiment offsets residentials. Results Page 14 COSCO Corporation (S) (BUY/S$2.19/Target: S$2.50) 1Q11: Lower shipping earnings but higher core shipbuilding margin despite cost provision. Oxley Holdings (HOLD/S$0.345/Target: S$0.36) Page 17 3QFY11: Savvy switch to industrial and office. United Overseas Bank (NOT RATED/S$18.80) Page 20 1Q11: More fees from growth in loans. Update World Precision Machinery (BUY/S$0.665/Target: S$1.07) Heading up north. Page 23

Corporate Events
Venue China Automation Group Corporate Roadshow Singapore & Malaysia Market Strategy Analyst Presentation Infrastructure/Property Corporate Day Singapore Europe Beg 9 May 9 May Close 10 May 17 May

Singapore

31 May

1 Jun

Refer to last page for important disclosures.

Page 1 of 29

Regional Morning Notes


Monday, May 09, 2011
THAILAND
Results LPN Development (HOLD/Bt10.20/Target: Bt10.84) Page 25 1Q11: Net profit declines qoq from peak in 4Q10 but improves strongly yoy. Selling pace of big projects ranges from 30% to 50%.

Refer to last page for important disclosures.

Page 2 of 29

Regional Morning Notes


Monday, May 09, 2011

Consumer Weekly China


Update on watch, jewellery and luxury goods market
Latest results of international luxury groups beat expectations. International luxury groups have reported better-than-expected results and operating performance so far in 2011, reflecting strong demand for luxury goods, particularly in Asia. Some of the luxury brands have room for higher selling prices. Hong Kong and China Swiss watch markets had a strong month in March. Despite the extremely unfavourable base effect in Mar 10, Swiss watch exports rose 11.1% yoy in Mar 11. The growth was led by Hong Kong, the largest Swiss watch market, up 21.6% yoy. China registered a stunning 63.5% yoy growth in the imports of Swiss watches. We expect Emperor Watch & Jewellery (887 HK/ BUY) and Hengdeli (3389 HK/ BUY) should have strong sales and earnings growth so far this year. Imminent regulatory tightening will increase market concentration. Since 1971, Swiss law has stipulated that local watchmakers can label their products Swiss-made only if non-Swiss parts equal less than 50% of the value of the watch's movement. The Federation of the Swiss Watch Industry asked the government in 2007 to require even more local content. According to the Federation of the Swiss Watch Industry, a final decision may be made in 2012. Makers of luxury watches would benefit from tougher standards because they already get most components from Switzerland. We expect to see consolidation in the Swiss watch industry. China and Hong Kong jewellery markets continued to blossom. Chinas retail sales of gold, silver and jewellery soared 51.7% yoy in Mar 11 to Rmb14.5b. Hong Kong retail sales of jewellery, watches and clocks, and valuable gifts surged 54.1% yoy to HK$6.6b. Windfall gain in gold prices added further earnings momentum for Luk Fook. The recent sharp rise in gold prices has given a headstart to Luk Fook (590 HK/ BUY) in FY12. We forecast LFs pure gold jewellery gross margin in FY11 at 14% (assuming a 4% average three-month increase in gold prices). As the average three-month increase in gold prices was 5.8% in FY11, our forecast of 14% may turn out to be slightly conservative. In addition, the average three-month increase for LFs gold prices was 9.7% so far in FY12 vs our assumption of 0%. Hence, there could be upside to our FY12 earnings forecasts as well. Survey on Chinese millionaires. According to 2010 Hurun Wealth Report released by the Hurun Research Institute, Beijing, Shanghai and Guangdong account for almost half of all millionaires (>Rmb10m) in China. Some 70% of the millionaires are men. US and France are their top international travel destinations. Millionaires in tier-1 cities like cars and watches. Peer Comparison
Company Ticker Hengdeli 3389 HK Emperor Watch & Jewellery 887 HK Luk Fook 590 HK Chow Sang Sang 116 HK Source: UOB Kay Hian, Bloomberg Rec HOLD BUY BUY NOT RATED Price 6 May 11 (HK$) 4.49 1.16 27.7 20.9 Target Price (HK$) 4.30 1.5 45.3 n.a. Market cap (US$m) 2,548 1,006 1,939 1,826

OVERWEIGHT
(Maintained)

Sector Update
Top Sector Picks
Company Top BUYs
Sa Sa China Yurun Luk Fook

Stock Code
178 HK 1068 HK 590 HK

Curr Price (HK$)


4.69 27.65 27.70

Target Price (HK$)


5.20 33.00 45.30

2011F PE (x)
24.7 15.5 17.9

Top SELLs
Parkson 3368 HK 11.90 12.82 23.2

Source: UOB Kay Hian

Last Weeks Top Gainers


Company
Xtep Li Ning Tsingtao Brew Bosideng Convenience Retail

Stock Code
1368 HK 2331 HK 168 HK 3998 HK 8052 HK

Curr Price (HK$)


5.72 14.88 44.20 2.51 3.44

1w chg (%)
8.3 8.0 6.6 5.9 5.5

2011F PE (x)
11.0 15.7 29.4 11.8 n.a.

Source: UOB Kay Hian

Last Weeks Top Losers


Company
Great Wall Wumart Oriental Watch Ming Feng Jewellery Haier Electronics

Stock Code
2333 HK 8277 HK 398 HK 860 HK 1169 HK

Curr Price (HK$)


12.88 17.30 3.97 0.91 9.22

1w chg (%)
(10.6) (8.9) (8.1) (8.1) (6.5)

2011F PE (x)
8.6 27.6 10.4 n.a. 14.0

Source: UOB Kay Hian

Analysts China Consumer Team research@uobkayhian.com.hk +852 2236 6799

--------------PE (x)---------------2010F 2011F 2012F 28.2 24.2 19.0 48.0 15.6 11.1 25.7 17.9 15.3 18.0 15.9 13.3

ROE 2010 15.3 7.7 36.4 15.8

Refer to last page for important disclosures.

Page 3 of 29

Regional Morning Notes


Monday, May 09, 2011
Retail Sales
(% ) 25 20 15 10 5 0
ay 0 ov 0 M 00 ay N 01 ov M 01 ay N 02 ov M 02 ay N 03 ov M 03 ay N 04 ov M 04 ay N 05 ov M 05 ay N 06 ov M 06 ay N 07 ov M 07 ay N 08 ov M 08 ay N 09 ov M 09 ay N 10 ov 10 M N

CPI
(%) 10 8 6 4 2 0 -2 -4

Source: China Statistical Bureau

Source: China Statistical Bureau

PMI Manufacturing Employment Index


60 58 56 54 52 50 48 46 44 42 40
O ct J a 05 n Ap 06 r0 Ju 6 O l 06 ct J a 06 n Ap 07 r0 Ju 7 O l 07 ct J a 07 n Ap 08 r0 Ju 8 O l 08 ct J a 08 n Ap 09 r0 Ju 9 O l 09 ct J a 09 n Ap 10 r1 Ju 0 O l 10 ct J a 10 n 11

PMI Non-manufacturing Employment Index


60 58 56 54 52 50 48 46 44 42 40
M 08 ay 08 Ju l0 Se 8 p 0 N 8 ov 0 Ja 8 n 0 M 9 ar 09 M ay 09 Ju l0 Se 9 p 0 N 9 ov 0 Ja 9 n 1 M 0 ar 10 M ay 10 Ju l1 0 n Ja M ar 08

Source: CICC

Source: CICC

Per Capita Disposable Income


(%)
21 19 17 15 13 11 9 7 5

Per Capita Consumption Expenditure


(%)
15 14 13 12 11 10 9 8 7 6 5
Se pN 08 ov J a 08 nM 09 ar M 09 ay -0 Ju 9 lSe 09 pN 09 ov -0 Ja 9 nM 10 ar M 10 ay -1 Ju 0 l- 1 Se 0 pN 10 ov -1 0

Source: China Statistical Bureau

Ju n D -0 2 ec J u -02 n D -0 3 ec J u -03 n D -0 4 ec J u -04 n D -0 5 ec J u -05 n D -0 6 ec J u -06 n D -0 7 ec J u -07 n D -0 8 ec J u -08 n D -0 9 ec J u -09 n10

Source: China Statistical Bureau

Figure 13: Consumer Confidence Index


115 110 105 100 95 90

Figure 14: Consumer Loans


(%) 70 60 50 40 30 20 10 0

Source: China Statistical Bureau

Source: China Statistical Bureau

Refer to last page for important disclosures.

Page 4 of 29

Regional Morning Notes


Monday, May 09, 2011

Consumer Indonesia
1Q11 round-up: Subsiding cost pressure could be next catalyst
Whats New 1Q11 net profit in line. Results of three (INDF, JPFA, MAPI) of the five companies we covered were in line, while two (KLBF, RALS) were below expectations. KLBFs performance was not overwhelming with net profit yoy growth boosted by non-core operations while qoq decline was larger than usual. RALS continued to disappoint with low same-store sales (SSS) growth. Sector net profit rose 32.5% yoy in 1Q11 but declined 14.8% qoq due to seasonality and rising costs. Their results were broadly in line with consensus. We increased INDFs net profit forecasts by 1.5% to account for strong IFAR results, and MAPIs by 6.9% on stronger-thanexpected SSS growth. 1Q11 Net Profit In line With Expectations
2011F qoq yoy % % Fcast Rev vs (%) Company chg chg Performance vs (%) (%) UOBKH Csus UOBKH Csus INDF 4.3 16.4 In line Inline 1.5 1.1 JPFA (26.2) 58.1 In line n.a.* n.a.* KLBF (17.8) 23.3 Below Below 0.3 MAPI (17.1) 45.2 In line In line 6.9 0.8 RALS (17.2) 19.8 Below Below Average (14.8) 32.5 Source: Bloomberg, Respective companies, UOB Kay Hian *UOB Kay Hian is the only broker covering this stock UOBKH vs Csus (%) 99.3 n.a.* 103.5 107.9 94.7 101.4

OVERWEIGHT
(Maintained)

Sector Update
Top Sector Picks
Company Indofood SM Rec BUY Target Price (Rp) 6,750 Share Price (Rp) 5,700

Source: Bloomberg, UOB Kay Hian

UOBKH Consumer Sectors PE Band


(x) 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 May 06

+2SD +1SD Mean -1SD

May 07

May 08

May 09

May 10

May 11

Source: Bloomberg, UOB Kay Hian

UOBKH Consumer Universe Outperformed JCI And JAKCONS Index


(1 Jan 2011 = 100) 115 110 105 100 95 90 85 Jan 11

Rising cost pressures. On average, gross margin declined 1.8ppt qoq in 1Q11 but was still up 1.1ppt yoy. Subject to seasonality (eg year-end clearance at MAPI and a low shopping season at RALS), INDF and JPFA saw higher-than-average qoq decline in gross margin at -2.0ppt and 6.2ppt respectively despite a stronger Rupiah. INDFs margin was dragged by lower Bogasari margin in the absence of price increases, but we believe it should recover as Bogasari will seek more optimum tradeoff between profitability and market share, while the full-impact of instant noodles price increase in January will take effect in 2Q11. For JPFA, we expect more price increases to counter the high corn and soybean meal prices, while the spin-off of the consumer products division should lift operating margin. Overall, we believe further pressure on margins is limited as we expect more price increases to come, while commodity prices (such as CPO) should cool down in 2H11. 1Q11 Gross Margin: Rising Cost Pressures
Gross Margin (%) 1Q10 2Q10 3Q10 4Q10 INDF 30.0 35.0 32.1 32.8 JPFA 18.6 19.4 22.5 26.5 KLBF 50.2 51.0 52.3 48.7 MAPI 48.3 51.4 49.9 51.9 RALS 31.5 30.6 39.3 33.5 Average 35.7 37.5 39.2 38.7 Source: Respective companies, UOB Kay Hian Company 1Q11 30.9 20.3 51.8 49.5 31.7 36.8

Feb 11

Mar 11 JCI Index

Apr 11

May 11

UOBKH Consumer

JAKCONS Index

Source: Bloomberg, UOB Kay Hian

Analyst Adrian Joezer +6221 2993 3916 adrianjoezer@uobkayhian.com

Peer Comparison
Company Indofood SM Japfa CI Kalbe Farma Mitra Adiperkasa Ramayana LS Ticker INDF IJ JPFA IJ KLBF IJ MAPI IJ RALS IJ Rec BUY BUY HOLD BUY BUY

Price 6 May 11 (Rp) 5,700 3,650 3,475 3,450 730

Target Price (Rp) 6,750 4,175 3,900 3,875 990

Market cap (US$m) 5,829.8 880.8 4,110.9 667.1 603.4

PE (x) 2011F 15.4 9.3 20.9 18.1 12.1

PE (x) 2012F 13.5 8.1 17.8 14.7 11.1

BVPS (Rp) 2,109 2,205 671 1,056 412

P/B (x) 2011F 2.7 1.7 5.2 3.3 1.8

DPS (Rp) 132 6 69 24 26

Yield (%) 2.3 0.2 2.0 0.7 3.6

Source: Bloomberg, UOB Kay Hian

Refer to last page for important disclosures.

Page 5 of 29

Regional Morning Notes


Monday, May 09, 2011
Capex spending mixed. Capex spending was mixed in 1Q11, ranging from 10.6% to 42.0% (mean: 25.6%) of our full-year estimates. The smallest spenders were INDF at 14.6% of our full-year estimate and RALS at 10.6%. Nevertheless, we left our forecasts unchanged and expect spending to accelerate. INDF is confident its spending will catch up, while RALS will open two big stores in May/June vs one smaller-sized store in 1Q11. Overall, we believe companies are generally upbeat on future demand. 1Q11 Capex Spending
Company INDF JPFA KLBF MAPI RALS Simple Average * UOB Kay Hian estimates Source: Respective companies, UOB Kay Hian Capex (Rpb) 1Q11 2011F 740.0 5,084.3 81.7* 194.6 86.9 265.3 87.6 310.9 41.0 385.6 % dev 14.6 42.0 32.8 28.2 10.6 25.6

Balance sheets remained solid. On average, net gearing rose slightly to 12.8% in 1Q11 from 10.9% in 4Q10, and improved 20.1ppt yoy from 32.9% in 1Q10 boosted by the significant reduction in INDFs leverage post ICBPs IPO and JPFA as it repaid the restructured debt. Solid Balance Sheet
Net Gearing (%) 1Q10 2Q10 3Q10 4Q10 INDF 75.4 67.1 91.7 23.2 JPFA 91.7 88.2 63.6 48.6 KLBF (30.2) (28.2) (28.1) (34.9) MAPI 49.1 75.1 64.1 49.1 RALS (21.5) (36.3) (43.4) (31.7) Average 32.9 33.2 29.6 10.8 Source: Respective companies, UOB Kay Hian Company 1Q11 17.6 53.7 (37.2) 55.3 (25.6) 12.8

Action Maintain OVERWEIGHT. We believe the upside potential is justified by the sectors robust outlook. Our consumer universe is now trading at 13.0x 2012F PE, slightly below JCIs 13.2x but higher than its 5-year mean of 10.3x or at +0.9SD. However, we argue that current sector fundamentals are in better shape than before. Maintain INDF as our top pick. We retain INDF as our top pick due to its strong pricing power, while positive catalysts include further increase in selling prices and upcoming IPO of its plantation subsidiary Salim Ivomas Pratama (SIMP) on 9 June. Valuation wise, we also like JPFA which is trading at 9.3x 2011F PE, a 41% discount to Charoen Pokphand Indonesias (CPIN). Lower-than-expected inflation and stronger economic growth. None. We remain positive on the consumer sectors long-term outlook due to its attractive growth potential, supported by a stronger economic growth, swelling disposable income and a burgeoning middle-class. Higher-than-expected inflation, bigger increase in input costs and a smaller rise in selling prices.

Sector Catalysts Assumption Changes Essentials

Risks

Refer to last page for important disclosures.

Page 6 of 29

Regional Morning Notes


Monday, May 09, 2011

Hong Leong Bank Malaysia


A new start
Whats New Hong Leong Bank (HLB) has completed the acquisition of EON Capital (EONC) for RM5.06b. HLB is now the fourth-largest local bank in Malaysia in terms of total assets. We increase our target price to RM13.70, or a 31% upside from RM10.44, pegging it at 2.2x the enlarged HLBs FY12F P/B. Stock Impact Earnings to double by FY13. We project earnings to double from FY10 to RM1.9b by FY13 on a larger loan base (from RM40.8b to RM77.5b) and stronger non-interest income (non-II). We also factor in higher credit cost from 80bp to 106bp for FY12 and 96bp for FY13 as we believe HLB would have more stringent credit criteria to ensure credit quality and high loan loss coverage. Lowest foreign ownership of <10%. HLB has the lowest foreign ownership of 7.44% as at end-Dec 10. The foreign ownership in the past 10 years peaked at 16.56% as at 31 Mar 05. Potential upside from earnings and dividends: - Earnings upside from greater synergies as HLB and ENOC have different clientele base and greater distribution capability with the expanded network of about 300 branches and 1,200 self-service terminals. - Better dividend payout. The enlarge earnings base may lead to higher dividend payout as gross dividend is still fixed at 24sen/share. Earnings Revision/Risk We raise our fully diluted EPS forecasts for FY11 to FY13 by 10%, 23% and 27% to 79.2 sen, RM1.00 and RM1.18 respectively. The upgrade incorporates contribution from the acquisition of EONC. However, we also factor in higher credit cost and operating cost to take into consideration integration expenses. We do not expect staff layoff, thus personnel cost will increase substantially in FY12 but we expect greater efficiency in the medium term. Valuation/Recommendation Maintain BUY with a higher target price of RM13.70 (previous: RM11.90), pegged at 2.2x the enlarged FY12F P/B (1SD from its 10year mean). At RM13.70, we value HLB at 14.4x FY12F PE, below the large banks 15.0-15.5x. The new HLB is likely to leverage on the enlarged network to continue its aggressive and innovative growth strategies to capture a larger market share.
Key Financials
Year to 30 Jun (RMm) 2009 2010 Net interest income 1,353.1 1,382.6 Non-interest income 569.5 489.4 Net profit (rep./act.) 905.3 988.0 Net profit (adj.) 905.3 988.0 EPS (sen) 57.3 62.5 PE (x) 18.2 16.7 P/B (x) 2.9 2.6 Dividend yield (%) 2.3 2.3 Net int margin (%) 1.8 1.8 Cost/income (%) 41.8 44.6 Loan loss cover (%) 109.1 117.4 Consensus net profit UOBKH/Consensus (x) Source: Hong Leong Bank, Bloomberg, UOB Kay Hian 2011F 1,992.2 641.0 1,276.1 1,276.1 79.2 13.2 2.1 2.3 1.8 38.1 114.3 1,094.9 1.17 2012F 2,662.4 783.7 1,611.6 1,611.6 100.0 10.4 1.8 2.3 1.8 43.8 125.3 1,226.3 1.31 2013F 2,945.3 880.9 1,893.8 1,893.8 117.5 8.9 1.6 2.3 1.9 44.2 134.2 1,398.7 1.35

BUY
(Maintained)

Company Update
Share Price Target Price Upside (Previous TP RM10.44 RM13.70 +31.2% RM11.90)

Company Description The fourth-largest bank in terms of asset size focusing on retail banking with presence in China through 20%-owned Bank of Chengdu. Stock Data GICS sector Bloomberg ticker: Shares issued (m): Market cap (RMm): Market cap (US$m): 3-mth avg daily t'over (US$m):

Financials HLBK MK 1,580.1 16,496.3 5,493.3 3.4

Price Performance (%) 52-week high/low RM10.64/RM8.27 1mth 3mth 6mth 1yr YTD 3.4 11.5 12.4 21.3 13.5 % 64.2 9.6 4.96 13.3

Major Shareholders Tan Sri Quek Leng Chan Employees Provident Fund FY11 NAV/Share (RM) FY11 CAR tier-1 (%) Price Chart
(lcy) 11.00
HONG LEONG BANK BERHAD Hong Leong Bank Berhad/FBMKLCI Index

(%) 130 120 110

10.00

9.00 100 8.00 90 80

7.00
4 3 2 1 0

Volume (m)

May 10

Jul 10

Sep 10

Nov 10

Jan 11

Mar 11

May 11

Source: Bloomberg

Analyst Vincent Khoo +603 2143 0829 vincentkhoo@uobkayhian.com Malaysia Research Team +603 2143 1180 research@uobkayhian.com

Refer to last page for important disclosures.

Page 7 of 29

Regional Morning Notes


Monday, May 09, 2011
Essential Fund raising partially done. The debt portion of fund raising for acquisition was completed last week, raising about RM2.4b from the issuances of Tier-2 subordinated debt of RM1b and non-innovative Tier-1 stapled securities of RM1.4b. The outstanding one would be the RM1.6b rights issue with respect to funding plans for the RM5.06b acquisition. We have factored in the enlarged share capital into our fully diluted EPS based on HLBs previous announced rights price of RM8.70 on a 1-for-8.2 basis. Major shareholder Hong Leong Financial Group (HLFG) (63.48% stake) will fully undertake its entitlement, which is about RM1,016m. Significant improvement in market share. Both banks focuses on retail lending with HLB focusing mostly on mass affluent market and EONC on the mass market. The enlarged entity would have larger consumer loan market share of 11.2% after CIMBs 11.8% (vs No. 1 Maybanks 17.1%). Although business loan market share is relatively smaller at 6.4% - ranked No. 6, HLB will focus mainly on small & medium (SME) lending. Lending base to grow. HLB has been delivering better-than-market expected (in line with ours) loan growth for the last two quarters, thanks to its aggressive marketing and innovative products. These strategies are likely to deliver greater impact the enlarged branch network and staff strength. We are maintaining our loan growth target for FY12 and FY13 at 8.0% for now and would like to seek a clearer strategy from management for this larger HLB. Regional contribution rising. HLB's regional strength continues to be driven by Bank of Chengdu (20%-owned), which it expects to grow 20% yoy in FY11-13 and contribute 12% to HLBs pre-tax tax (PBT). Raise HLFGs target price to RM14.95 from RM12.30 after the adjustment to HLBs fair value and imposing a 20% holding company discount. Maintain BUY for its exposure to the fast-growing HLB and improving contribution from the enlarged insurance segment after entering a joint venture with Mitsui Sumitomo Insurance Malaysia. Share Price Catalyst Better-than-expected loan growth domestically and overseas. HLFG RNAV
Price/share (RMm) Shareholder's Funds @ Dec 10 Add: HLB (60.9% stake) Hong Leong Capital (79% stake) Hong Leong Assurance (70% at 2.0x P/B) MSIM (30% stake @ cost) Less: Cost of Investment Cost of investment in HLA Cost of Investment in MSIM Goodwill as at Dec 10 RNAV No. of Shares (m) RNAV/Share (RM) Fair Value (RM) HLFG share price (RM) % discount to Fair Value
Source: UOB Kay Hian

HLB Is Now The Fourth Largest Bank in Malaysia


(RMb)

Total Assets

400.0 350.0 300.0 250.0 200.0 150.0 100.0 50.0 -

* as at end Mar 11 Source: BNM

Immediate Improvement in Loan-toDeposit Ratio


(%)

Loan-to-Deposits Ratio

100.0 90.0 80.0 70.0 60.0 50.0

* As at end Mar 11 Source: BNM

Top Five In Consumer Loans Bank Maybank Public CIMB HLB* AMMB RHBC Market Share (%) 17.1 16.8 11.8 11.2 9.0 7.9

Fair Value (RMm) 7,053 13,199 281 747 619 21,898 (1,254) (354) (619) (631) 19,660 1,052 18.69 14.95 10.34 -30.8%

13.70 1.44

* Enlarged HLBK Source: Respective banks, Bank Negara Malaysia, UOB Kay Hian

Top Five Ranked in Mortgage Loans


Mortgage Loan Market Share (%)

PPB Maybank CIMB HLB* RHBC UOB

17.4 14.1 13.9 10.8 7.8 5.6

* Enlarged HLBK Source: Respective banks, Bank Negara Malaysia, UOB Kay Hian

Refer to last page for important disclosures.

Page 8 of 29

Regional Morning Notes


Monday, May 09, 2011

Profit & Loss


Year to 30 Jun (RMm) Interest income Interest expense Net interest income Fees & commissions Other income Non-interest income Income from islamic banking Total income Staff costs Other operating expense Pre-provision profit Loan loss provision Other provisions Associated companies Pre-tax profit Tax Minorities Net profit Net profit (adj.) 2010 2,552.9 (1,170.2) 1,382.6 300.8 188.7 489.4 184.8 2,056.9 (459.4) (457.0) 1,140.5 (105.0) 6.9 142.9 1,185.3 (197.3) 0.0 988.0 988.0 2011F 3,950.4 (1,958.2) 1,992.2 376.0 265.0 641.0 218.1 2,851.3 (560.5) (526.7) 1,764.1 (369.0) 0.0 200.0 1,595.2 (319.0) 0.0 1,276.1 1,276.1 2012F 5,660.7 (2,998.3) 2,662.4 470.0 313.7 783.7 239.9 3,686.0 (728.7) (884.7) 2,072.6 (298.2) 0.0 240.1 2,014.5 (402.9) 0.0 1,611.6 1,611.6 2013F 6,436.2 (3,490.9) 2,945.3 545.2 335.7 880.9 263.9 4,090.1 (838.0) (968.3) 2,283.8 (204.6) 0.0 288.1 2,367.2 (473.4) 0.0 1,893.8 1,893.8

Balance Sheet
Year to 30 Jun (RMm) Cash with central bank Govt treasury bills & securities Interbank loans Customer loans Investment securities Derivative receivables Associates & JVs Fixed assets (incl. prop.) Other assets Total assets Interbank deposits Customer deposits Derivative payables Debt equivalents Other liabilities Total liabilities Shareholders' funds Minority interest - accumulated Total equity & liabilities 2010 394.0 16,993.4 7,470.6 37,749.1 2,913.1 0.0 1,248.2 332.8 17,604.4 84,705.6 3,876.4 69,712.7 0.0 650.5 4,042.0 78,281.6 6,424.0 0.0 84,705.6 2011F 2,344.9 17,333.3 7,693.5 81,527.2 10,372.0 28.5 1,329.0 695.7 28,056.5 149,380.6 10,660.5 117,329.3 39.0 5,811.4 6,769.1 140,609.3 8,771.3 0.0 149,380.6 2012F 3,256.0 17,680.0 8,001.2 88,028.7 11,410.6 0.0 1,329.0 723.5 29,674.2 160,103.3 12,259.6 124,369.0 0.0 5,811.4 7,658.1 150,098.1 10,005.2 0.0 160,103.3 2013F 3,907.2 18,033.6 8,401.3 95,089.7 12,511.5 0.0 1,329.0 767.0 31,150.5 171,189.8 14,098.5 131,831.2 0.0 5,811.4 8,259.2 160,000.2 11,189.6 0.0 171,189.8

Operating Ratios
Year to 30 Jun (%) Capital Adequacy Tier-1 CAR Total CAR Total assets/equity (x) Tangible assets/tangible common equity (x) Asset Quality NPL ratio Loan loss coverage Loan loss reserve/gross loans Increase in NPLs Credit cost (bp) Liquidity Loan/deposit ratio Liquid assets/short-term liabilities Liquid assets/total assets 54.1 33.6 29.3 69.5 21.0 18.3 70.8 20.8 18.1 72.1 20.4 17.7 1.9 117.4 2.2 (9.2) 83.7 2.3 114.3 2.6 167.2 81.9 2.1 125.3 2.7 (0.7) 106.1 2.0 134.2 2.7 0.1 96.1 15.1 15.1 13.2 13.3 13.3 14.3 17.0 19.7 14.4 15.4 16.0 18.1 15.2 16.3 15.3 17.1 2010 2011F 2012F 2013F

Key Metrics
Year to 30 Jun (%) Growth Net interest income, yoy chg Fees & commissions, yoy chg Pre-provision profit, yoy chg Net profit, yoy chg Net profit (adj.), yoy chg Customer loans, yoy chg Customer deposits, yoy chg Profitability Net interest margin Cost/income ratio Adjusted ROA Reported ROE Adjusted ROE Valuation P/BV (x) P/NTA (x) Adjusted P/E (x) Dividend Yield Payout ratio 2.6 2.6 16.7 2.3 38.4 2.1 2.4 13.2 2.3 30.3 1.8 2.1 10.4 2.3 24.0 1.6 1.9 8.9 2.3 20.4 1.8 44.6 1.2 16.3 16.3 1.8 38.1 1.1 16.8 16.8 1.8 43.8 1.0 17.2 17.2 1.9 44.2 1.1 17.9 17.9 2.2 0.7 (6.7) 9.1 9.1 8.5 3.2 44.1 25.0 54.7 29.2 29.2 116.0 68.3 33.6 25.0 17.5 26.3 26.3 8.0 6.0 10.6 16.0 10.2 17.5 17.5 8.0 6.0 2010 2011F 2012F 2013F

Refer to last page for important disclosures.

Page 9 of 29

Regional Morning Notes


Monday, May 09, 2011

Strategy Singapore
2011 Elections Time for a-rethink?

Strategy
Top Picks
Price Company 6 May 11 (S$) Ascendasreit CDL Htrust Ezion Keppel Corp OCBC OUE StarHub
Source: UOB Kay Hian

Target Price (S$) 2.40 2.50 0.90 13.50 11.80 4.30 2.96 Upside (%) 20.6 22.5 33.3 19.3 29.1 43.8 5.7

Whats New? Falling share of popular votes. As expected, the People's Action Party (PAP) returned to power with a significant majority, winning 81 of the 87 seats. Nevertheless, the incumbent's share of popular votes dipped to 60.1% from 66.6% in the 2006 general election (GE). The decline is notable and is the lowest in record for the incumbent. Notable events in 2011 election. The loss of a Group Representation Constituency (GRC) in Aljunied to the Workers' Party (WP) is unprecedented. The WP managed to cling on to its stronghold Single Member Constituency (SMC) in Hougang although PAP did manage to capture the opposition's Potong Pasir SMC with a slim majority. Otherwise, PM Lee Hsien Loong's Ang Mo Kio GRC won by a larger majority of 69.3% against the Reform Party's (RP) 30.7% (compared to a majority of 66.1% in 2006). Why the weaker share of popular votes? We believe the opposition parties' gain in popular votes is due to several factors, including: a) domestic issues such as rising cost of living, housing and the influx of foreign workers, b) more credible opposition candidates, and c) the proliferation of new media sources such as the internet which has helped highlight issues with the younger voters.

1.99 2.04 0.675 11.32 9.14 2.99 2.80

Results Of Past General Elections


Past PAP Opposition election (seats) (seats) 1968 58 0 1972 65 0 1976 69 0 1980 75 0 1984 77 2 1988 80 1 1991 77 4 1997 81 2 2001 82 2 2006 82 2 2011 81 6 Source: UOB Kay Hian Polling day % of votes for PAP 13-Apr-68 86.7 2-Sep-72 70.4 23-Dec-76 74.1 23-Dec-80 77.7 22-Dec-84 64.8 3-Sep-88 63.2 31-Aug-91 61.0 2-Jan-97 65.0 3-Nov-01 75.3 6-May-06 66.6 7-May-11 60.1

Action A needed review of long-term policies? Despite the expected victory, we think the PAP's falling share of popular votes could prompt a review of long-term policies over issues such as housing and foreign immigration. The government has started addressing some of these issues such as raising the supply of public flats and a push to drive productivity with a less emphasis on the use of foreign labour. As an indication, the number of new permanent residents grew only 1.5% in 2010 compared with at least 6% in 2005-09. Although we think the government may review some of its long-term policies, we do not see a major near-term shift in issues, such as getting in foreign talent. A drastic change could curtail Singapore's drive to be a global city. In addition, Singapore's low birth rate of 1.16 is a historic low and below the replacement rate of 2.1. In summary, we think a fine-tuning is more likely, with the government being more selective with the inflow of foreigners. Sectors with potential impact. In our view, sectors that could see longterm impact from any potential fine-tuning of policies include residential property, land transport, gaming and labour-intensive sectors such as construction and shipyards. However, we do not anticipate any major near-term shift in government policies but a gradual move or tweaks in policies. Limited direct market impact as in previous elections. Looking at previous GEs and the performance of the stock market post elections, we see no discernible patterns. For example, 1991 saw the biggest win of four seats by the opposition parties but the FSSTI rose 4% six months after the election vs a decline of 1.3% prior to the elections. In the last three GEs, the PAP won all but two seats. Despite the steady performance, the stock market registered mixed performances of -3% to +31% over a six-month period after the GE.

Analyst Andrew Chow, CFA +65 6590 6633 andrewchow@uobkayhian.com

Refer to last page for important disclosures.

Page 10 of 29

Regional Morning Notes


Monday, May 09, 2011
Valuation support. The FSSTIs 2011F PE of 14x looks reasonable compared to its long-term mean of 17.4x. On a P/B basis, the markets consensus 2011F P/B of 1.57x is undemanding and at a 23% discount to the regional average of 2.05x. Our end-11 FSSTI target is 3,524, based on FSSTIs long-term average PE of 17.4x. As a sanity check, our bottom-up target prices for the stocks under our coverage imply a target of 3,526. We see any major pull-back on the results of the 2011 GE as a buying opportunity. The current market risk premium is 5.92% and we estimate a 25-50bp rise in risk premium could bring the FSSTI down to 2,900-3,000. Themes to drive outperformance in 2H11. Looking ahead, we see several themes that could offer attractive returns. These include: a) reflation/inflation (banks, commodities, commercial properties), b) capex cycle recovery (shipyards, oil service providers, IT), c) sustainable and high dividend yield, and d) low beta and capital preservation. No change to our assumptions. We forecast market EPS to grow 4.7% yoy in 2011 and 12.0% yoy in 2012. We forecast 2011 GDP growth of 5.0% yoy in 2011 and 4.5% yoy in 2012. Key risks include: a) Eurozone debt contagion, b) geopolitical risks/Middle East unrest, c) further property cooling measures, d) sharper-than-expected global inflation, and e) a faster-than-expected hike in interest rates.

Assumption Changes

Risks

Stock Picks Valuation


Price Company Ticker Rec BUY BUY BUY BUY BUY BUY BUY 6 May 11 (S$) Ascendasreit AREIT SP CDL Htrust Ezion Keppel Corp OCBC OUE CDREIT SP EZI SP KEP SP OCBC SP OUE SP 1.99 2.04 0.675 11.32 9.14 2.99 2.80 Target Price (S$) 2.40 2.50 0.90 13.50 11.80 4.30 2.96 Last Year End 3/11 12/10 12/10 12/10 12/10 12/10 12/10 16.0 21.7 9.3 12.3 13.8 3.8 18.3 2010 PE 2011F (x) 15.3 17.1 7.1 16.4 13.2 19.4 16.6 14.4 15.8 5.9 14.8 11.9 14.4 14.5 2012F Yield 2011F (%) 6.7 6.0 0.2 3.1 3.3 2.6 7.1 ROE 2011F (%) 7.8 7.4 22.4 17.7 12.2 5.3 413.4 Market Cap. (S$m) 4,141.4 1,958.1 482.1 20,227.3 30,537.6 2,935.0 4,808.4 Price/ NTA ps (x) 1.1 1.4 1.8 2.9 2.0 1.0 n.a.

StarHub STH SP Source: UOB Kay Hian

Refer to last page for important disclosures.

Page 11 of 29

Regional Morning Notes


Monday, May 09, 2011

Property Singapore
Property Nuggets: Positive commercial sentiment offsets residentials
Whats New? Residential sector weighs on real estate sentiment index. The Current Sentiment Index, which represents present market conditions vs six months ago, fell to 4.9 in 1Q11 (4Q10: 5.7), according to Redas-NUS. The Future Sentiment Index, which represents the expectations of the property market conditions over the next six months, also slipped to 5.1 (4Q10: 5.8). A score below 5 indicates deteriorating market conditions and vice versa. The survey also showed only 14% of developers polled (4Q10: 62%) expect a moderate price rise while 69% (4Q10: 30%) expect prices to remain flat over next six months. The data indicates that the government measures are slowly taking effect. Positive commercial sentiment offsets weak residential sentiment. The overall outlook for real estate market remains positive with respondents expecting the residential slack to be offset by the favorable outlook for other sectors. They expect the most favourable outook for the office sector (+62%) followed by hotel/serviced apartment (+58%) sector. This is followed by a strong outlook for the business park/high tech (+52%) and industrial/logistics (+48%) as well as a stable retail (+22% for prime retail and +30% for suburban retail sector. Action The sentiments echoed are in line with our favourable stance on the office, industrial and hospitality sectors and a cautious outlook on residential sector. Our top picks are OUE, AREIT and CDL Hospitality Trusts for these segments respectively. Sector Catalysts Positive newsflow on office pre-leasing activity, office conversions and improving liquidity at benchmark levels. Pick-up in industrial rents and capital values, new foreign direct investments and yield-accretive acquisitions. Strong growth in visitor arrivals leading to sustained high occupancies and further pick-up in room rates. Assumption Changes None. We forecast office rental and capital values to increase 15-20% and factory, warehouse and business parks rentals to increase 5-10% in 2011. We forecast hotel RevPAR to grow 17% in 2011 while overall residential prices are expected to fall 5-10% this year. Peer Comparison
Company Developers Allgreen CapitaLand City Devt GuocoLand Ho Bee Keppel Land OUE SC Global Wheelock Wing Tai REITs Ascendasreit AscottREIT CapitaComm CapitaMall CDL Htrust FrasersCT K-REIT Sabana REIT Starhill Gbl Suntec REIT Ticker Rec Price 06 May 11 (S$) Target Price (S$) Upside/ (Downside) to TP (%) Market Cap. (US$m) Curr PE (x) Fwd PE (x) Curr Yield (%)

MARKET WEIGHT
(Maintained)

Sector Update
Top Stock Picks
Company A-REIT OUE CDL Htrust
Source: UOB Kay Hian

Rec BUY BUY BUY

Target Price 2.40 4.30 2.50

Share Price 1.99 2.99 2.04

Key Indicators
Indicator Period Figure GDP Growth yoy 1Q11 8.50% Unemployment Rate 1Q11 1.90% CPI Inflation Mar 11 5.00% Prime Rate Apr 11 5.38% 3-month SIBOR May 11 0.44% Source: Bloomberg, MAS, MTI, UOB Kay Hian

Sector Discount To NAV


(%) 250 200 150 100 50 0 -50 -100 REIT s 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 LT Mean Property Developer = 21% REIT s = 11% Property Developer

Source: Bloomberg, UOB Kay Hian

Upcoming Events
Date
13 May 15 May 23 May

Event
Retail sales index URA monthly statistics Consumer Price Index

Source: Bloomberg, UOB Kay Hian

Analysts
Vikrant Pandey +65 6590 6623 vikrant@uobkayhian.com Vijay Natarajan +65 6590 6626 vijaynatarajan@uobkayhian.com Terence Khi +65 6590 6614 terencekhi@uobkayhian.com
Fwd Yield (%) Book NAV ps (S$) Price/ Book (x) RNAV ps (S$) ROE (%) Net Gearing * (%)

AG SP CAPL SP CIT SP GUOL SP HOBEE SP KPLD SP OUE SP SCGD SP WP SP WINGT SP AREIT SP ART SP CCT SP CT SP CDREIT SP FCT SP KREIT SP SSREIT SP SGREIT SP SUN SP

HOLD HOLD HOLD HOLD HOLD BUY BUY SELL HOLD HOLD BUY BUY BUY SELL BUY HOLD BUY BUY HOLD HOLD

1.11 3.28 11.24 2.53 1.46 4.04 2.99 1.33 1.80 1.54 1.99 1.18 1.40 1.89 2.04 1.47 1.28 0.94 0.62 1.50

1.25 3.70 12.00 2.70 1.60 5.35 4.30 1.50 2.05 2.05 2.40 1.40 1.70 1.90 2.50 1.65 1.65 1.15 0.70 1.65

12.6 12.8 6.8 6.7 9.6 32.4 43.8 12.8 13.9 33.1 20.6 18.6 21.4 0.5 22.5 12.2 28.9 23.0 12.9 10.0

1,428.8 11,334.1 8,272.4 2,423.1 867.9 4,747.7 2,375.5 446.3 1,743.3 989.6 3,352.0 1,072.7 3,204.3 4,873.2 1,584.8 916.7 1,408.4 479.9 975.1 2,687.8

9.5 25.5 15.3 20.8 5.4 13.4 19.4 5.9 8.1 5.8 15.3 18.1 21.5 22.1 17.1 19.1 31.3 12.5 13.8 30.1

9.6 18.9 13.7 8.4 5.6 12.7 14.4 6.0 7.5 5.2 14.4 17.2 20.0 22.0 15.8 17.3 20.0 12.3 13.6 28.7

2.7 2.1 0.9 3.6 1.4 2.5 2.6 1.5 3.3 3.2 6.7 6.8 5.1 5.0 6.0 5.7 5.7 9.3 6.7 6.3

2.7 2.1 0.9 3.6 1.4 2.5 3.5 1.5 3.3 3.2 7.1 7.3 5.4 5.3 6.4 6.1 6.4 9.3 6.8 6.1

1.67 3.27 7.03 2.00 2.08 2.91 2.86 1.56 2.31 2.21 1.76 1.26 1.49 1.55 1.49 1.29 1.49 1.01 0.85 1.80

0.67 1.00 1.60 1.27 0.70 1.39 1.05 0.86 0.78 0.70 1.13 0.94 0.94 1.22 1.37 1.14 0.86 0.92 0.73 0.84

1.78 4.64 13.30 2.92 2.33 5.34 4.30 2.18 2.70 2.72 1.77 1.26 1.57 1.54 1.62 1.28 1.56 0.99 0.87 1.79

7.1 3.8 10.2 6.2 12.6 9.8 5.3 13.6 9.3 11.9 7.8 5.2 4.2 5.5 7.4 6.0 2.7 7.8 5.2 2.8

14.0 19.8 28.7 143.2 35.5 24.0 48.9 182.2 (27.4) 35.1 34.9 39.9 20.1 25.8 18.7 30.2 31.0 19.5 26.0 37.9

* Property Developers: Net Debt to Equity * REITs: Net Debt to Total Assets Source: Bloomberg, UOB Kay Hian

Refer to last page for important disclosures.

Page 12 of 29

Regional Morning Notes


NUS-REDAS sentiment index Monday, May 09,

2011

Risks A weaker-than-expected pick-up in demand depressing rentals and capital values in the office and industrial segments. A delay in the opening of next phase of attractions resulting in lower visitor arrivals. Key Sector and Corporate Updates Residential: URA releases Choa Chu Kang and West coast residential sites. The site at West Coast Link has a maximum permissible gross floor area (GFA) of 381,600sf and can accommodate an estimated 360 units. The second plot at Choa Chu Kang Road has a maximum permissible GFA of 347,800sf and can house 335 units. The tenders for the site close on 23 June and 30 June respectively. Comment: We estimate top bids in the range of S$575-625psfppr for the West Coast site (assuming selling prices of S$1,050psf) and S$525575psfppr for the Choa Chu Kang site (assuming selling prices of S$950psf). The Choa Chu Kang site is expected to attract more developers interest due to its proximity to MRT station and lack of new projects in the area. Office: Singapore rentals rose the third-fastest in Asia-Pacific. According to Jones Lang LaSalle, Singapore office rentals grew 7.9% qoq in 1Q11, the third-fastest in the region. Jakarta recorded the fastest growth of 9.5%. Office capital values increased 4.5% in 1Q11, significantly lower than the 42% jump in office prices in Hong Kong. Comment: Yield compression is reversing as office rentals rise to keep pace with the rapid increase in capital values. Office demand remains positive as firms continue expansion plans and hiring momentum remains strong. Hospitality: Room rates to remain high. Hotel room rates are expected to climb a further 10-15% yoy in 2011 even as the new pipeline of 1,499 rooms comes on stream, according to CBRE Hotels Asia Pacific. Comment: The estimates are in line with our expectation of a 16% growth in hotel RevPAR this year. Growth in visitor arrivals will likely be supported by factors such as the two integrated resorts, the upcoming International Cruise Terminal as well as the recent efforts to rejuvenate Orchard Road. Share Price Performance
d Company Ticker Price Rec 06 May 11 (S$) n.a. n.a. n.a. n.a. HOLD HOLD HOLD HOLD HOLD BUY BUY SELL HOLD HOLD BUY BUY NR BUY NR NR NR NR NR BUY BUY NR NR BUY HOLD SELL NR NR HOLD NR HOLD 3099.52 692.61 713.01 660.70 1.11 3.28 11.24 2.53 1.46 4.04 2.99 1.33 1.80 1.54 1.18 2.04 0.21 1.99 0.945 0.935 0.495 1.11 0.89 0.935 1.4 0.79 0.21 1.28 1.5 1.89 1.27 3.84 1.47 0.54 0.62 --------- Price Performance ---------5D 1M 3M YTD 1Y (%) (%) (%) (%) (%) (2.7) (1.4) (1.9) (0.5) (5.1) (4.1) (4.3) 3.7 (2.0) (2.9) (2.9) (5.7) (2.7) (0.6) (0.8) 0.5 0.0 (1.5) (0.5) (2.6) (2.9) 3.7 (1.7) (1.6) (1.4) (0.6) (4.5) (2.3) 0.0 1.1 0.8 (0.8) (2.6) (2.7) (2.4) (2.2) (1.6) (2.2) (0.3) 0.0 (4.7) (3.4) 2.0 (0.7) (9.1) (6.6) (4.9) (3.7) (2.5) (0.8) 2.0 2.4 0.0 (1.6) (1.6) (1.0) 5.7 (3.3) 0.0 (0.7) 0.0 (12.5) (1.5) (2.6) 1.1 0.8 1.1 (2.6) (3.6) (1.6) (3.5) (4.2) (4.1) (4.4) 1.8 (9.1) (1.4) (4.5) (2.0) (7.7) (9.9) (14.0) (7.2) (8.3) (2.5) (1.4) (4.5) (5.7) (4.1) (4.1) (4.4) 1.8 (5.8) (4.6) (4.8) (9.7) (20.8) (9.9) (6.3) (1.0) 0.0 (6.6) (4.5) (3.6) (2.4) (2.8) (5.1) (6.2) (3.3) (5.9) (11.6) (9.7) (1.9) (9.9) (14.0) (9.1) (18.1) (7.7) (8.9) (3.3) (1.9) (4.5) (3.9) 1.6 (3.1) (5.3) 1.8 (7.8) (4.1) (6.7) (4.2) (22.2) (9.2) 0.0 (3.1) 2.4 (4.0) (2.0) 1.9 (0.8)

Residential Price Indices


4 9=0 Q8 1 0 20 5 20 0 10 5 10 0 5 0 H BR sa P In e D e le rice d x U AP teRsid n l In e R riva e e tia d x

URA Price Indices URA Price Indices


200

Source: Q43QBusiness003Q11Q33Q41Q63Q71Q93Q0 The 51 9 Q81 Times 1 9 Q 21 9 9 Q 73 9 Q 0 0 0 0 0 0 1 Q13 9 Source: URA, UOB Kay Hian 2 50
2 50
150 Res id en

200
10 0

Res id en
Ind us t rial Offic

Ret ail

150
50

Retail 10 0 50
0 1Q0 0

Ind us trial Offic


1Q0 4 1Q0 8

URA Rental Indices 1Q0 0 1Q0 4


250

Source: URA, UOB Kay Hian 0


1Q0 8

URA Rental Indices 200


150 R e ta il

Source: URA, UOB Kay HianOfic e

R e s ide ntia l

100

Indus tria l 50

0 1Q00 1Q04 1Q08

Source: URA, UOB Kay Hian


---- Yield ---Book Net 50-Day 100-Day Curr Fwd Price/ Book Gearing* MA MA (%) (%) (x) (%) 3.1 3.4 1.8 6.4 4.5 1.8 1.6 3.6 2.7 4.5 1.5 3.8 3.3 3.2 6.8 6.0 9.0 6.7 7.6 9.1 8.9 6.6 7.4 9.3 5.1 7.5 n.a. 5.7 6.3 5.0 6.5 6.6 5.7 7.8 6.7 3.4 3.5 1.8 6.7 2.7 2.1 0.9 3.6 1.4 2.5 2.8 1.5 3.3 3.2 7.3 6.4 9.5 7.1 8.5 9.3 9.7 7.4 7.6 9.3 5.4 8.4 n.a. 6.4 6.1 5.3 6.8 7.0 6.1 8.1 6.8 1.57 0.98 0.98 1.00 0.67 1.00 1.60 1.27 0.70 1.39 1.05 0.86 0.78 0.70 0.94 1.37 0.79 1.13 1.19 1.04 0.81 1.17 1.04 0.92 0.94 0.57 0.42 0.86 0.84 1.22 1.13 3.84 1.14 0.63 0.73 n.a. n.a. n.a. n.a. 14.0 19.8 28.7 143.2 35.5 24.0 48.9 182.2 (27.4) 35.1 39.9 18.7 29.1 34.9 11.9 24.8 25.3 31.6 36.7 19.5 20.1 32.6 17.6 31.0 37.9 25.8 30.3 2.8 30.2 1.0 26.0

FSSTI Real Estate Index Property Developers Index Property REITs Index PROPERTY DEVELOPERS Allgreen CapitaLand City Devt GuocoLand Ho Bee Keppel Land OUE SC Global Wheelock Wing Tai HOSPITALITY REITS AscottREIT CDL Htrust INDUSTRIAL REITS AIMSAMPIReit Ascendasreit AscendasIndT CACHE Cambridge MapletreeInd MapletreeLog Sabana REIT OFFICE REITS CapitaComm FrasersComm Indiabulls K-REIT SuntecReit RETAIL REITS CapitaMall Trust CapitaRChina Fortune Reit (HK$) FrasersCT LippoMapleT Starhill Gbl

FSSTI Index FSTRE Index FSTREH Index FSTREI Index AG SP CAPL SP CIT SP GUOL SP HOBEE SP KPLD SP OUE SP SCGD SP WP SP WINGT SP ART SP CDREIT SP AAREIT SP AREIT SP AIT SP CACHE SP CREIT SP MINT SP MLT SP SSREIT SP CCT SP FCOT SP IPIT SP KREIT SP SUN SP CT SP CRCT SP FRT SP FCT SP LMRT SP SGREIT SP

9.2 3089.71 3134.25 8.4 688.67 704.32 8.8 707.50 725.61 7.7 658.96 671.20 (4.3) (8.9) 9.4 18.7 (7.0) 13.4 (12.7) (16.6) (1.6) (12.0) 4.1 9.7 7.1 6.4 (4.5) (1.6) 0.5 19.4 7.8 (11.0) 19.7 9.0 (27.6) 17.4 13.6 (1.6) 5.8 6.4 9.7 11.3 9.7 1.09 3.33 11.25 2.45 1.41 4.23 3.04 1.36 1.87 1.53 1.18 2.00 0.21 1.99 0.94 0.94 0.50 1.05 0.90 0.94 1.41 0.80 0.25 1.30 1.51 1.85 1.26 3.88 1.49 0.54 0.63 1.12 3.48 11.60 2.55 1.47 4.35 3.17 1.46 1.90 1.60 1.20 2.03 0.21 2.04 0.94 0.95 0.51 1.06 0.93 0.96 1.45 0.82 0.26 1.36 1.53 1.88 1.25 3.94 1.50 0.55 0.63

* Property Developers: Net Debt to Shareholder Equity * REITs: Net Debt to Total Assets Source: Bloomberg, UOB Kay Hian

Refer to last page for important disclosures.

Page 13 of 29

Regional Morning Notes


Monday, May 09, 2011

COSCO Corp Singapore


1Q11: Higher core shipbuilding margin despite cost provision
1Q11 Results
1Q10 1Q11 yoy (S$m) (S$m) % chg Turnover 835.0 1,010.7 21 Gross Profit 78.5 112.0 43 EBITDA 80.8 135.8 68 Pre-tax Profit 49.5 75.9 53 Stock Impact Tax (11.3) (17.5) 54 (6.4) (21.3) 232 MI With the latest quarterly core net NetS$20.7m exceptional loss) COSCO Profit 31.7 37.1 17 Gross Margin and 2008s annual profit level of (%) 9.4 11.1 1.7ppt Year to 31 Dec Remarks Shipyard +24%, shipping -46% Gross margin +2.1ppt yoy despite a S$20.3m loss provision and lower shipping earnings

BUY
(Maintained)

Company Results
Share Price Target Price Upside S$2.19 S$2.50 +14.2%

Company Description COSCO Corp (S) owns COSCO Shipyard Group (CSG), the fourth largest shipyard group in China. COSCO Corp also owns a dry bulk shipping business with a fleet of 10 bulk carriers. Stock Data GICS sector Bloomberg ticker: Shares issued (m): Market cap (S$m): Market cap (US$m): 3-mth avg daily t'over (US$m): Price Performance (%) 52-week high/low 1mth 3mth 6mth 0.9 (3.9) 10.1

profit at S$75.8m (adjusted for the (S)s earnings are recovering to 2007 >S$300m. Its earnings are highly Improved shipbuilding lead time sensitive to shipbuilding margin expansion given the current paper-thin net margin (3Q10:5.8%). Every 1ppt increase in 2011s shipyard GP New Building 432.1 505.0 17 Higher shipbuilding turnover Offshore 144.0 307.0 113 Higher a 9% contract wins margin would add S$20m to net profit or offshore increase on our 2010s Conversion (42) Lower ship conversion orderbook projected net 120.0 profit. 69.3
Shiprepair Shipyard Biz Shipping Others Turnover 104.0 800.1 32.0 2.9 835.0 108.9 990.2 17.3 3.2 1,010.7 5 24 (46) 8 21 Stabilised Lower charter rates, as proxied by BDI

Industrials COS SP 2,239.2 4,903.9 3,968.9 27.5

Source: COSCO Corp (S), UOB Kay Hian

COSCO Corp (S) (COSCO (S)) reported a net profit of S$37.1m (+17% yoy) for 1Q11. 1Q is seasonally the weakest quarter because of the winter season and the Chinese New Year holidays. Nonetheless, 1Q11 results were below our expectation because of lower shipping earnings and a cost provision of S$20.3m. Shipping turnover declined 46% yoy given the impact of lower dry bulk shipping charter rates as proxied by a depressed Baltic Dry Index (BDI) at 1,365 in 1Q11 vs 3,027 in 1Q10. The negative impact has kicked in faster than expected. That said, the impact on our fair valuation of COSCO (S) is muted as it is based on P/B instead of PE as we are always cognisant of the volatility of dry bulk shipping earnings. We expect dry bulk freight rates to improve in 2H due to seasonally higher dry bulk trades. COSCO (S) does not provide quarterly earnings breakdown. We estimate the shipping turnover decline of S$14.7m would have filtered to net profit. Moreover, COSCO (S) made a cost provision of S$20.3m for projected cost increases related to contracts secured in the last five months.
Key Financials
Year to 31 Dec (S$m) 2009 2010 2011F Net turnover 2,899.0 3,861.4 4,195.9 EBITDA 369.9 603.4 635.7 Operating profit 216.5 435.0 465.7 Net profit (rep./act.) 110.1 248.8 262.0 Net profit (adj.) 110.1 248.8 262.0 EPS (S$ cent) 4.9 11.1 11.7 PE (x) 44.5 19.7 18.7 P/B (x) 4.5 4.1 3.6 EV/EBITDA (x) 15.2 9.3 8.8 Dividend yield (%) 1.4 1.8 1.8 Net margin (%) 3.8 6.4 6.2 Net debt/(cash) to equity (%) (40.7) 10.4 3.5 Interest cover (x) 40.5 20.6 53.0 ROE (%) 9.9 21.8 20.5 Consensus net profit 275.3 UOBKH/Consensus (x) 0.95 Source: COSCO Corp (Singapore), Bloomberg, UOB Kay Hian 2012F 4,198.0 751.2 581.2 330.0 330.0 14.7 14.9 3.1 7.5 1.8 7.9 (16.5) 62.6 23.7 306.2 1.08 2013F 4,399.4 795.6 625.6 363.0 363.0 16.2 13.5 2.6 7.0 1.8 8.3 (37.3) 66.3 23.8 307.1 1.18

S$2.42/S$1.30 1yr YTD 40.4 2.3 % 53.4 0.61 0.02

Major Shareholders COSCO Group FY11 NAV/Share (S$) FY11 Net Cash/Share (S$) Price Chart
(lcy) 2.60 2.40 2.20 2.00 1.80 1.60 1.40 1.20
80 60 40 20 0 COSCO CORP SINGAPORE LTD Cosco Corp Singapore Ltd/FSSTI Index

(%) 160 150 140 130 120 110 100 90 80 70

Volume (m)

May 10

Jul 10

Sep 10

Nov 10

Jan 11

Mar 11

May 11

Source: Bloomberg

Analyst Nancy Wei (65) 6590 6628 nancy.wei@uobkayhian.com Lawrence Li +8621 5404 7225 ext. 813 lawrenceli@uobkayhian.com

Refer to last page for important disclosures.

Page 14 of 29

Regional Morning Notes


Monday, May 09, 2011
Excluding the impact of the lower shipping earnings and the cost provision, net profit would have more than doubled yoy to S$72.1m. In spite of the lower shipping earnings and the cost provision, group gross profit increased 43% yoy with gross margin improving 1.7ppt yoy to 11.1%. Management said core shipbuilding gross margin (including the cost provision) improved to just under 10% vs 4% a year ago, due to improved shipbuilding lead time. The building of a 57,000-dwt dry bulk carrier has improved to 13 months in 1Q11 vs 18 months a year ago (2010: 15 months). Management sees further improvement as it targets to reduce shipbuilding lead time to 12 months by end-11. Stock Impact Share price will likely weaken in the short term given 1Q11s belowexpectation performance. But, we expect share price to regain strength on offshore contract wins. Ytd, COSCO (S) has won new contracts worth US$300m. Pending new contracts include US$1.05b contracts from Sevan Drilling for two semi-submersible Sevan drillers given that Sevan Drilling has successfully raised the required capital for the rigs in its recent IPO listing on the Oslo exchange. Separately, Upstream reports COSCO Shipyard is in the running to build two Le Tourneau Workhorse 240C-class jack-up rigs for KS Energy. Jasper Investments is also looking to invest in a similar Le Tourneau jack-up rig, according to Upstream. These three rigs could translate into shipyard contracts worth US$540m. We have imputed total contract wins of US$3b for 2011 and S$3.5b each for 2012 and 2013 in our earnings forecasts for COSCO (S). Earnings Revision/Risk We lower our 2011, 2012 and 2013 net profit forecasts by 16%, 8% and 11% respectively. The downside risks to our forecasts are lower-thanexpected contract wins and margins. We maintain our target price of S$2.50 which is at a 5% premium to our sum-of-the-parts valuation of S$2.38/share. Offshore contract wins and sequential shipbuilding margin improvement. Gross Orderbook
US$m 9.0 8.1 8.0 7.0 7.0 6.0 5.2 5.0 4.0 3.2 3.0 2.0 1.0 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 6.6 7.4 7.3 7.0 6.8 6.3 5.6 5.9 5.5 6.1 6.1 5.9

1.3

Source: COSCO (S)

Valuation/Recommendation

Share Price Catalysts Sum-of-the-Parts Valuation


Yardstick Shipyard biz Dry bulk shipping Cash & receivables at holding company level Total net value No. of shares (m) SOTP/share (S$) Source: UOB Kay Hian 18x 2012F PE 1.0x 2012F P/B S$m 4,950.1 337.2 117.0 5,329.6 2,239.2 2.38

Refer to last page for important disclosures.

Page 15 of 29

Regional Morning Notes


Monday, May 09, 2011

Profit & Loss


Year to 31 Dec (S$m) Net turnover EBITDA Deprec. & amort. EBIT Total other non-operating income Associate contributions Net interest income/(expense) Pre-tax profit Tax Minorities Net profit Net profit (adj.) 2010 3,861.4 603.4 168.4 435.0 (3.9) (0.0) (29.2) 401.8 (43.2) (109.8) 248.8 248.8 2011F 4,195.9 635.7 170.0 465.7 5.0 0.0 (12.0) 458.7 (56.5) (140.1) 262.0 262.0 2012F 4,198.0 751.2 170.0 581.2 5.0 0.0 (12.0) 574.2 (70.1) (174.1) 330.0 330.0 2013F 4,399.4 795.6 170.0 625.6 5.0 0.0 (12.0) 618.6 (73.4) (182.2) 363.0 363.0

Balance Sheet
Year to 31 Dec (S$m) Fixed assets Other LT assets Cash/ST investment Other current assets Total assets ST debt Other current liabilities LT debt Other LT liabilities Shareholders' equity Minority interest Total liabilities & equity 2010 2,208.0 296.6 867.2 2,681.6 6,053.3 555.1 3,262.4 437.1 4.3 1,198.6 595.9 6,053.3 2011F 2,338.0 293.0 944.9 3,302.9 6,878.8 555.1 3,865.3 437.1 4.3 1,361.0 656.0 6,878.8 2012F 2,468.0 293.0 1,254.7 3,256.3 7,271.9 655.1 3,933.8 337.1 4.3 1,591.5 750.1 7,271.9 2013F 2,598.0 293.0 1,684.1 3,401.4 7,976.6 355.1 4,272.9 637.1 4.3 1,854.9 852.3 7,976.6

Cash Flow
Year to 31 Dec (S$m) Operating Pre-tax profit Tax Deprec. & amort. Working capital changes Non-cash items Other operating cashflows Investing Capex (growth) Proceeds from sale of assets Others Financing Dividend payments Issue of shares Proceeds from borrowings Loan repayment Others/interest paid Net cash inflow (outflow) Beginning cash & cash equivalent Ending cash & cash equivalent 2010 (265.1) 358.6 (109.2) 168.4 (760.7) 91.8 (14.0) (148.3) (300.0) 11.2 140.5 (172.3) (69.7) 0.0 838.8 (899.9) (41.5) (585.7) 1,545.6 960.0 2011F 382.5 402.1 (56.5) 170.0 (191.6) 58.5 0.0 (80.0) (300.0) 0.0 220.0 (221.6) (179.6) 0.0 300.0 (300.0) (42.0) 81.0 863.9 944.9 2012F 611.3 504.1 (70.1) 170.0 (64.8) 72.1 0.0 (80.0) (300.0) 0.0 220.0 (221.6) (179.6) 0.0 300.0 (300.0) (42.0) 309.8 944.9 1,254.7 2013F 731.1 545.2 (73.4) 170.0 13.9 75.4 0.0 (80.0) (300.0) 0.0 220.0 (221.6) (179.6) 0.0 300.0 (300.0) (42.0) 429.5 1,254.7 1,684.1

Key Metrics
Year to 31 Dec (%) Profitability EBITDA margin Pre-tax margin Net margin ROA ROE Growth Turnover EBITDA Pre-tax profit Net profit Net profit (adj.) EPS Leverage Debt to total capital Debt to equity Net debt/(cash) to equity Interest cover (x) 55.3 82.8 10.4 20.6 49.2 72.9 3.5 53.0 42.4 62.3 (16.5) 62.6 36.7 53.5 (37.3) 66.3 33.2 63.1 125.1 126.1 126.1 126.1 8.7 5.3 14.1 5.3 5.3 5.3 0.0 18.2 25.2 26.0 26.0 26.0 4.8 5.9 7.7 10.0 10.0 10.0 15.6 10.4 6.4 4.0 21.8 15.1 10.9 6.2 4.1 20.5 17.9 13.7 7.9 5.0 23.7 18.1 14.1 8.3 5.2 23.8 2010 2011F 2012F 2013F

Refer to last page for important disclosures.

Page 16 of 29

Regional Morning Notes


Monday, May 09, 2011

Oxley Holdings Singapore


3QFY11: Savvy switch to industrial and office
3QFY11 Results
Year to 30 Jun (S$m) Gross Revenue Gross Profit Profit before Tax PATMI EPS (S$ cent) 3QFY11 22.5 9.0 6.9 5.5 0.37 yoy % chg n.a. n.a. n.a. n.a. n.a. 9MFY11 38.4 14.0 10.2 7.1 0.48 yoy % chg n.a. n.a. n.a. n.a. n.a.

HOLD
(Maintained)

Company Results
Share Price Target Price Upside (Previous TP S$0.345 S$0.36 4.3% S$0.30)

Company Description Oxley Holdings is a developer specialising in affordable luxury residential developments. Oxley is also branching out into commercial and industrial developments.

Source: Oxley Holdings, UOB Kay Hian

Results Oxley Holdings (Oxley) reported 3QFY11 net profit of S$5.5m, bringing 9MFY11 net profit to S$7.1m. 3QFY11 revenue touched S$22.5m, up 275% qoq, due to progressive recognition from more projects and new contributions from Viva Vista. The results were below our expectations, at 25% of our full-year forecast, due to slower-than-anticipated revenue recognition from projects.
Stock Impact Oxley Bizhub 42% sold at S$677psf. Oxley has sold 42% of the total 728 units at its Oxley Bizhub development. The ASP is estimated at S$677psf. Our checks with agents revealed that most were single-level factory units sold at S$550-700psf, while the loft factory units at S$400-500psf and the ramp-up warehouse units at S$700-800psf saw slower demand. Developing freehold industrial projects. Oxley acquired two pieces of industrial land in March and Apr 11. The first parcel, at 124 Lorong 23 Geylang, was acquired for S$9.5m, or S$349psf ppr. The freehold property is zoned for light industrial use and is sited on a 10,890sf site with a plot ratio of 2.5. We estimate the ASP for the project at S$700-800psf.
Key Financials
Year to 30 Jun (S$m) Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (S$ cent) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x) 2009 0.1 0.1 0.1 0.1 0.1 0.0 4,499.2 365.5 7,932.5 0.0 97.0 (37.9) n.a. 8.5 2010 0.7 0.8 0.8 0.5 0.5 0.0 794.7 52.8 1,015.1 0.0 73.8 622.3 n.a. 11.6 2011F 100.6 36.9 36.9 21.3 21.3 1.4 24.2 3.8 20.8 2.1 21.1 188.0 3.5 30.0 2012F 463.0 183.2 183.2 129.2 129.2 8.7 4.0 2.3 4.2 7.5 27.9 27.7 14.7 72.3 2013F 686.6 256.4 256.4 181.9 181.9 12.2 2.8 1.4 3.0 7.1 26.5 (36.8) 20.3 72.3 -

Stock Data GICS sector Bloomberg ticker: Shares issued (m): Market cap (S$m): Market cap (US$m): 3-mth avg daily t'over (US$m):

Financials OHL SP 1,489.0 513.7 415.8 0.3

Price Performance (%) 52-week high/low S$0.415/S$0.305 1mth 3mth 6mth 1yr YTD (1.4) 1.5 (2.8) n.a. (1.4) %

Major Shareholders

Ching Chiat Kwong Low See Ching


FY11 NAV/Share (S$) FY11 Net Debt/Share (S$) Price Chart
(lcy) 0.45
OXLEY HOLDINGS LTD Oxley Holdings Ltd/FSSTI Index

38.6 27.1
0.09 0.17

(%) 120 110 100

0.40

0.35 90 0.30 80 70

0.25
150 100 50 0

Volume (m)

Oct 10

Nov 10

Dec 10

Jan 11

Feb 11

Mar 11

Apr 11

Source: Bloomberg

Analyst Terence Khi +65 6590 6614 terencekhi@uobkayhian.com

n.m. : not meaningful; negative P/E, EV/EBITDA reflected as "n.m."

Source: Oxley Holdings, Bloomberg, UOB Kay Hian

Refer to last page for important disclosures.

Page 17 of 29

Regional Morning Notes


Monday, May 09, 2011

Another record GLS industrial site bid. Oxley also acquired a second 60-year leasehold industrial plot at Ubi Road 1/ Ubi Avenue 4 from a government land sale (GLS) tender for S$72.2m, or S$217psf ppr, a new record price for an industrial site. The psf price is 28% higher than the S$169psf ppr acquisition cost for the Ubi Road 1 site for Oxley Bizhub. Oxley will have a 55% stake in this project. We believe that, with the strong sales demand for Oxley Bizhub, Oxley would be able to maintain ASP of at least S$600-650psf on NLA. Two more residential projects fully sold. Oxley has sold the remaining residential units at Loft @ Stevens and Vibes @ Kovan. This brings the number of sold-out residential projects to 8 out of the 14 residential projects in Oxleys landbank. The Devonshire Residences development launched in Mar 11 is 95% sold at a median price of S$2,505psf. We expect Oxley will continue to launch 2-3 projects per quarter. Savvy switch into industrial and office properties. Oxleys continued focus on acquiring industrial and office sites to build its landbank marks a savvy switch into industrial and office properties, which now form 42% and 26% of its RNAV respectively. Its portfolio diversification across segments reduces the risk of regulatory and government measures. Building a debt mountain. Net gearing rose from 212% in 2QFY11 to 370% in 3QFY11, driven by a 59% qoq increase in debt. This represents the highest net gearing among developers under our coverage. Average gearing for the developers under our coverage is 50%. The high gearing poses the greatest risk to Oxley, especially if interest rates were to rise substantially, or if there are difficulties in selling projects.

RNAV Asset Valuation NPV of Development Profits (1) Net Book Value (2) RNAV (1+2) Fully diluted no. of shares(m) Fully diluted RNAV (S$/share) RNAV at 10% discount (S$/share)
Source: UOB Kay Hian

Cap. Value (S$m) 480.7 119.7 600.4 1,489.0 0.40 0.36

Segmental Breakdown of RNAV Segment Residential Industrial Office


Source: UOB Kay Hian

RNAV (%) 32 42 26

Earnings Revision/Risk We lower our FY11 net profit estimate by 25% to S$21.3m to reflect a slower-than-anticipated project recognition schedule, and raise our FY12-13 estimates by 20-39% to reflect the deferred project revenue recognition and the acquisitions of the two additional industrial sites. Valuation/Recommendation Maintain HOLD and we raise our target price to S$0.36 (from S$0.30). This is based on a 10% discount to our revised RNAV of S$0.40/share (previously S$0.33/share) after factoring in the two additional industrial properties. Entry price is S$0.29. Share Price Catalysts High sales volume (>75%) at its Ubi Road 1 industrial site and its two Robinson Road office sites. Higher-than-expected ASPs and efficiency for its industrial and office sites. Competitively-priced land acquisitions.

Refer to last page for important disclosures.

Page 18 of 29

Regional Morning Notes


Monday, May 09, 2011

Profit & Loss


Year to 30 Jun (S$m) Net turnover EBITDA Deprec. & amort. EBIT Associate contributions Net interest income/(expense) Pre-tax profit Tax Minorities Net profit Net profit (adj.) 2010 0.7 0.8 0.0 0.8 0.0 0.0 0.8 (0.2) 0.0 0.5 0.5 2011F 100.6 36.9 0.0 36.9 0.0 (10.7) 26.2 (4.7) (0.3) 21.3 21.3 2012F 463.0 183.2 0.0 183.2 0.0 (12.5) 170.7 (30.7) (10.8) 129.2 129.2 2013F 686.6 256.4 0.0 256.4 0.0 (12.6) 243.7 (43.9) (17.9) 181.9 181.9

Balance Sheet
Year to 30 Jun (S$m) Fixed assets Other LT assets Cash/ST investment Other current assets Total assets ST debt Other current liabilities LT debt Other LT liabilities Shareholders' equity Minority interest Total liabilities & equity 2010 0.1 6.7 12.9 81.1 100.8 0.0 26.7 64.3 0.0 8.3 1.5 100.8 2011F 3.8 26.7 303.1 442.5 776.2 10.0 83.7 544.3 0.0 133.6 4.6 776.2 2012F 3.8 26.7 592.2 662.0 1,284.7 10.0 398.7 644.3 0.0 224.1 7.7 1,284.7 2013F 3.8 26.7 810.4 804.3 1,645.3 10.0 588.8 664.3 0.0 369.6 12.6 1,645.3

Cash Flow
Year to 30 Jun (S$m) Operating Pre-tax profit Tax Deprec. & amort. Associates Working capital changes Non-cash items Other operating cashflows Investing Capex (growth) Investments Proceeds from sale of assets Others Financing Dividend payments Issue of shares Proceeds from borrowings Loan repayment Others/interest paid Net cash inflow (outflow) Beginning cash & cash equivalent Changes due to forex impact Ending cash & cash equivalent 2010 (79.5) 0.8 0.0 0.0 0.0 (80.3) 0.0 0.0 (0.1) (0.1) 0.0 0.0 0.0 92.1 (1.0) 6.4 64.3 0.0 22.4 12.4 0.5 0.0 12.9 2011F (262.5) 26.2 (4.7) 0.0 0.0 (294.7) 0.0 10.7 (0.0) (1.0) 0.0 0.0 1.0 552.9 (10.6) 85.1 490.0 0.0 (11.6) 290.3 12.9 0.0 303.1 2012F 241.4 170.7 (30.7) 0.0 0.0 88.9 0.0 12.5 0.2 (1.0) 0.0 0.0 1.2 47.5 (38.8) 0.0 100.0 0.0 (13.7) 289.1 303.1 0.0 592.2 2013F 247.2 243.7 (43.9) 0.0 0.0 34.7 0.0 12.6 1.5 0.0 0.0 0.0 1.5 (30.5) (36.4) 0.0 20.0 0.0 (14.2) 218.2 592.2 0.0 810.4

Key Metrics
Year to 30 Jun (%) Profitability EBITDA margin Pre-tax margin Net margin ROA ROE Growth Turnover EBITDA Pre-tax profit Net profit Net profit (adj.) EPS Leverage Debt to total capital Debt to equity Net debt/(cash) to equity Interest cover (x) 660.1 777.9 622.3 n.a. 401.2 414.9 188.0 3.5 282.4 292.0 27.7 14.7 176.4 182.5 (36.8) 20.3 644.0 681.4 679.6 466.2 466.2 466.2 13,424.2 4,771.1 3,369.1 3,769.4 3,769.4 3,187.3 360.1 396.3 550.9 508.2 508.2 508.2 48.3 39.9 42.7 40.8 40.8 40.8 101.9 101.6 73.8 1.1 11.6 36.7 26.1 21.1 4.8 30.0 39.6 36.9 27.9 12.5 72.3 37.3 35.5 26.5 12.4 72.3 2010 2011F 2012F 2013F

Refer to last page for important disclosures.

Page 19 of 29

Regional Morning Notes


Monday, May 09, 2011

United Overseas Bank Singapore


1Q11: More fees from growth in loans
1Q11 Results
Year to 31 Dec (S$m) Net Interest Income 1Q11 871 yoy % chg (3.2) qoq % chg 0.7 Remarks Strong loan growth but affected by lower NIM. Previous quarters boosted by divestment gains.

NOT RATED
(Maintained)

Company Results
Share price Target price Up/downside
Company description United Overseas Bank was founded in 1935 and has a well-established regional presence in Singapore, Malaysia, Indonesia, Thailand and China. In Singapore, UOB is a market leader in credit and debit cards, private residential home loans and loans to SMEs. Stock data GICS sector Bloomberg ticker: Shares issued (m): Market cap (S$m): Market cap (US$m) 3-mth avg daily tover (US$m): Price performance 52-week high/low 1mth (1.6) 3mth (4.6) 6mth 1.6 S$20.06/S$17.80 1yr (2.7) YTD 3.3 % 17.4 5.4 12.51 12.51

S$18.80 n.a. n.a.

Non-Interest Income Total Income Operating Expense Pre-Provision Profit Provisions Net Profit EPS () BVPS (S$)
Key Ratios (%): Net Interest Margin Loan/Deposit Ratio Tier-1 CAR NPL Ratio

551 1,422 (583) 839 (103) 612 38.0 12.94


1Q11 1.90 82.1 14.9 1.6

(8.5) (5.3) 7.6 (12.6) (4.6) (12.6) (6.7) 9.7


4Q10 1.91 79.0 15.3 1.8

(21.3) (9.1) (6.0) (11.2) (42.8) (13.3) 3.4 3.4


1Q10 2.25 81.5 14.9 2.0

Lower revenue-related expenses. Improvement in asset quality.

Low interest rates and keen competition. Higher due to strong growth in loans. Lower due to strong growth in loans.

Source: UOB, UOB Kay Hian

Financials UOB SP 1,530.2 29,330.6 23,739.9 45.0

Results United Overseas Bank (UOB) reported 1Q11 net profit of S$612m (12.6% yoy), in line with consensus of S$623m. Acceleration in loan growth. Loans grew 6.7% qoq and 19.1% yoy, driven mostly by overseas markets (Malaysia +8.0% qoq, Indonesia +11.1% qoq and China +15.2% qoq). From an industry perspective, the acceleration in loan growth was driven by building & construction, general commerce and housing. UOB is likely to have gained market share with loan growth surpassing that of DBS and OCBC in 1Q11. Deposits expanded by a slower 3.0% qoq, thus loan/deposit ratio moved higher to 82.1%. More fees from growth in loans. Fee income grew 6.5% qoq to S$330m, coming mainly from a 59.1% qoq jump in contribution from loan-related activities due to the huge volume of loans approved and disbursed. Other sources of fee income were largely unchanged on a sequential basis. Improvement in asset quality. Provisions were much lower than in 4Q10 due to lower specific provision. NPL ratio improved from 1.8% to 1.6% due to lower NPLs in Thailand.
2007 2,980.3 1,892.0 2,109.5 2,109.5 136.0 13.8 1.7 3.9 2.0 41.4 111.8 2008 3,575.0 1,675.0 1,937.0 1,937.0 125.0 15.0 2.1 3.2 2.3 39.0 110.5 2009 3,674.0 1,732.0 1,903.0 1,903.0 119.0 15.8 1.7 3.2 2.4 38.4 112.5 2010 3,532.0 2,268.0 2,695.0 2,460.0 170.0 11.1 1.5 3.7 2.1 38.9 124.5 -

Major Shareholders
Wee Cho Yaw Wah Hin & Co FY10 NAV/Share (S$) FY10 NAV/Share (S$)

Price Chart
(lcy)
UNITED OVERSEAS BANK LTD United Overseas Bank Ltd/FSSTI Index

Key Financials
Year to 31 Dec (S$m) Net interest income Non-interest income Net profit (rep./act.) Net profit (adj.) EPS (S$ cent) P/E (x) P/BV (x) Dividend yield (%) Net int margin (%) Cost/income (%) Loan loss cover (%) Consensus net profit

(%) 110

21.00 20.00 19.00 18.00 17.00 16.00 15.00


10

100

90

80

Volume (m)
5 0

May 10

Jul 10

Sep 10

Nov 10

Jan 11

Mar 11

May 11

Source: Bloomberg

Analyst
Jonathan Koh, CFA +65 6590 6620 jonathankoh@uobkayhian.com

UOBKH/Consensus (x) Source: United Overseas Bank, Bloomberg, UOB Kay Hian

Refer to last page for important disclosures.

Page 20 of 29

Regional Morning Notes


Monday, May 09, 2011
Stock Impact We consider 1Q11 results lacklustre as the growth in fee income was largely driven by loan growth. UOB will focus on enhancing its regional platform to provide seamless services across the region and to tap on rising intra-regional growth in trade and investment. Loans By Sector
(S$m) Manufacturing Building & Construction Housing Loans General Commerce Transport, Storage & Coms FIs, Invt & Hldg Cos Professional & Individuals Others Total Source: UOB 4Q10 8,617 11,506 33,528 15,094 6,710 18,673 14,907 6,086 115,121 4Q10 7,119 13,180 8,606 20,063 16,542 15,374 35,141 6,828 122,853

Loans By Geographical Region


Greater China 5.0%

Indonesia 3.6% Thailand 5.8% Malaysia 13.4%

Others 7.0%

Fees & Commissions


(S$m) Credit Cards Fund Management Investment Related
Singapore 65.2%

4Q10 52 37 58 66 25 56 16 310

1Q11 50 27 49 105 24 59 16 330

Loans Related Service Charges Trade Related Others Total Source: UOB

Source: UOB

Refer to last page for important disclosures.

Page 21 of 29

Regional Morning Notes


Monday, May 09, 2011
Profit & Loss
Year to 31 Dec (S$m) Interest income Interest expense Net interest income Fees & commissions Other income Non-interest income Total income Staff costs Other operating expense Pre-provision profit Loan loss provision Other provisions Associated companies Pre-tax profit Tax Minorities Net profit Net profit (adj.) 2007 7,370.6 (4,390.3) 2,980.3 1,277.8 614.2 1,892.0 4,872.3 (1,045.9) (972.5) 2,853.9 (300.0) (11.2) 207.3 2,750.1 (573.3) (67.2) 2,109.5 2109.5 2008 6,855.0 (3,280.0) 3,575.0 1,095.0 580.0 1,675.0 5,250.0 (1,082.0) (968.0) 3,200.0 (807.0) (11.0) 103.0 2,485.0 (521.0) (27.0) 1,937.0 1937.0 2009 5,159.0 (1,485.0) 3,674.0 976.0 756.0 1,732.0 5,406.0 (1,116.0) (959.0) 3,331.0 (1,121.0) (10.0) 107.0 2,307.0 (385.0) (19.0) 1,903.0 1903.0 2010 4,994.0 (1,462.0) 3,532.0 79.0 2,189.0 2,268.0 5,800.0 (1,242.0) (1,016.0) 3,542.0 (474.0) (11.0) 139.0 3,196.0 (480.0) (21.0) 2,695.0 2460.0

Balance Sheet
Year to 31 Dec (S$m) Cash with central bank Govt treasury bills & securities Interbank loans Customer loans Investment securities Derivative receivables Associates & JVs Fixed assets (incl. prop.) Other assets Total assets Interbank deposits Customer deposits Derivative payables Debt equivalents Other liabilities Total liabilities Shareholders' funds Minority interest accumulated Total equity & liabilities 2007 17,667.0 12,616.0 15,207.0 92,669.0 19,827.0 0.0 1,261.0 2,081.0 13,624.0 174,952.0 32,091.0 106,967.0 0.0 6,666.0 11,499.0 157,223.0 17,330.0 398.0 174,951.0 2008 20,290.0 11,310.0 15,196.0 99,840.0 15,813.0 0.0 1,096.0 2,094.0 17,302.0 182,941.0 28,452.0 118,171.0 0.0 6,246.0 14,353.0 167,222.0 15,573.0 146.0 182,941.0 2009 18,865.0 20,491.0 14,116.0 99,201.0 16,295.0 0.0 1,212.0 2,174.0 13,223.0 185,577.0 27,751.0 121,502.0 0.0 6,044.0 11,126.0 166,423.0 18,986.0 169.0 185,578.0 2010 30,743.0 24,389.0 13,458.0 112,440.0 16,064.0 0.0 1,198.0 2,144.0 13,342.0 213,778.0 31,862.0 142,299.0 0.0 6,263.0 11,700.0 192,124.0 21,473.0 180.0 213,777.0

Operating Ratios
Year to 31 Dec (%) Capital Adequacy Tier-1 CAR Total CAR Total assets/equity (x) Tangible assets/tangible common equity (x) 10.0 14.5 10.1 13.1 10.9 15.3 11.7 15.7 14.0 19.0 9.8 12.3 15.3 19.8 10.0 12.1 2007 2008 2009 2010

Key Metrics
Year to 31 Dec (%) Growth Net interest income, yoy chg Fees & commissions, yoy chg Pre-provision profit, yoy chg Net profit, yoy chg Net profit (adj.), yoy chg 10.0 27.4 (8.0) (17.9) 7.8 20.5 11.9 2.0 41.4 1.3 12.4 12.4 1.7 2.2 13.8 3.9 54.2 20.0 (14.3) 12.1 (8.2) (8.2) 7.7 10.5 2.3 39.0 1.1 11.8 11.8 2.1 2.5 15.0 3.2 48.0 2.8 (10.9) 4.1 (1.8) (1.8) (0.6) 2.8 2.4 38.4 1.0 11.0 11.0 1.7 1.9 15.8 3.2 50.4 (3.9) (91.9) 6.3 41.6 29.3 13.3 17.1 2.1 38.9 1.3 13.3 13.3 1.5 1.7 11.1 3.7 41.2 2007 2008 2009 2010

Asset Quality NPL ratio Loan loss coverage Loan loss reserve/gross loans Increase in NPLs Credit cost (bp) Liquidity Loan/deposit ratio Liquid assets/short-term liabilities Liquid assets/total assets 86.6 32.7 26.0 84.5 31.9 25.6 81.6 35.8 28.8 79.0 39.4 32.1 1.8 111.8 2.0 (45.8) 35.4 2.0 110.5 2.5 20.4 83.8 2.2 112.5 2.8 9.6 112.6 1.8 124.5 2.6 (4.6) 44.8

Customer loans, yoy chg Customer deposits, yoy chg Profitability Net interest margin Cost/income ratio Adjusted ROA Reported ROE Adjusted ROE Valuation P/BV (x) P/NTA (x) Adjusted P/E (x) Dividend Yield Payout ratio

Refer to last page for important disclosures.

Page 22 of 29

Regional Morning Notes


Monday, May 09, 2011

World Precision Machinery Singapore


Heading up north
Whats New World Precision Machinery (WPM) has secured land use rights for a 3.9m sf plot of industrial land within the Shenyang Economic and Technological Zone. WPM will pay Rmb123.3m for the land use rights, which will last for 50 years. According to management, the land use rights were acquired at below market price. Targeting new customers up North. The rationale behind the expansion was to increase sales activities in Northern China. Existing customers there include Changchun First Auto Works and Dalian Locomotive. The increase in fuel and transportation costs makes it important to be close to customers, especially for high-performance/ high-tonnage stamping machines that are very bulky. It is also cheaper to source for raw materials in Shenyang. 20mm steel plate is priced at Rmb4,880/MT in Shenyang, a 3.8% discount to Rmb5,070/MT in Shanghai. The difference is due to transportation cost. WPM plans to invest Rmb400-500m for its new Shenyang plant over the next 2-3 years. Management expects the new plant, which is likely to focus on high-performance/high-tonnage stamping machines, to commence production in 2H12. It could account for one-third of group revenue when fully equipped and fully ramp-up. Generous tax incentives. WPM was invited by the Liaoning provincial government to invest in Shenyang. The company could secure generous tax exemption for up to 10 years. It could also apply for other government grants and assistance. Realignment in corporate identity. The company has changed its name from Bright World Precision Machinery to World Precision Machinery, which more closely identifies the company with parent company World Group. World Group is an industrial equipment conglomerate involved in the production of agricultural machinery, construction equipment, gantry cranes, horticultural tools and automobile components.
Key Financials
Year to 31 Dec (Rmbm) 2009 2010 2011F 2012F 1,590.9 201.4 254.2 210.2 210.2 52.6 6.6 1.3 7.4 4.6 13.2 9.6 19.4 20.4 206.0 1.02 2013F 1,874.2 248.6 310.6 258.2 258.2 64.5 5.4 1.1 6.0 5.4 13.8 7.5 23.9 21.6 247.0 1.05 Net turnover 560.8 1,038.6 1,352.0 EBITDA 29.8 99.3 178.7 Operating profit 63.2 141.5 227.4 Net profit (rep./act.) 59.8 125.0 187.8 Net profit (adj.) 56.4 121.1 187.8 EPS (Fen) 14.1 30.3 47.0 PE (x) 24.8 11.5 7.4 P/B (x) 1.8 1.7 1.5 EV/EBITDA (x) 49.8 15.0 8.3 Dividend yield (%) 4.3 3.4 4.1 Net margin (%) 10.7 12.0 13.9 Net debt/(cash) to equity (%) 3.0 (4.8) 9.1 Interest cover (x) 10.0 33.6 18.7 ROE (%) 8.2 15.8 21.1 Consensus net profit 175.5 UOBKH/Consensus (x) 1.07 Source: Bright World Precision Machinery, Bloomberg, UOB Kay Hian

BUY
(Maintained)

Company Update
Share Price Target Price Upside (Previous TP
Company description WPM specialises in manufacturing mechanical and hydraulic press metal stamping machines and related components. Stock data GICS sector Bloomberg ticker: Shares issued (m): Market cap (S$m): Market cap (US$m) 3-mth avg daily tover (US$m): Price performance 52-week high/low 1mth 12.7 3mth 17.7 6mth 62.2 S$0.70/S$0.19 1yr 133.3 YTD 31.7 % 77.4 2.39 0.22

S$0.665 S$1.07 +60.9% S$1.10)

Technology BWPM SP 400.0 266.0 215.3 1.5

Major Shareholders
Wang Wei Yao FY11 NAV/Share (Rmb) FY11 Net Debt/Share (Rmb)

Price Chart
(lcy) 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10
20 15 10 5 0 WORLD PRECISION MACHINERY LT World Precision Machinery Lt/FSSTI Index

(%) 320 280 240 200 160 120 80 40

Volume (m)

May 10

Jul 10

Sep 10

Nov 10

Jan 11

Mar 11

May 11

Source: Bloomberg

Analyst Jonathan Koh, CFA +65 6590 6620 jonathankoh@uobkayhian.com

Refer to last page for important disclosures.

Page 23 of 29

Regional Morning Notes


Monday, May 09, 2011
Earnings Revision/Risk According to management, the purchase of land use rights will be funded by internally generated resources. WPM has already injected US$10m or Rmb66m when it incorporated World Precise Machinery (Shenyang) Co Ltd in Dec 10. Steady inflow of new orders. WPM has over 2,000 customers and it receives orders on a daily basis. It currently secures orders at a rate of Rmb100-120m/month, in line with target revenue growth of 30-40% in 2011. WPMs orderbook has increased from Rmb270m in Feb 11 to the current Rmb428m. We reduce our net profit forecast for 2011 by 2.1% due to interest expense and amortisation for land use rights. We also trim our net profit for 2012 by 4.8% due to start-up expenses for the new Shenyang plant in 2H12. Maintain BUY. Valuation is attractive with WPM trading at 7.4x 2011F PE and P/B of 1.5x. Our 12-month target price is S$1.07, based on 12x 2011F PE. Order flows. Contract flow for high-tonnage stamping machines, particularly from automobile customers. Restructuring within World Group. There could be potential asset injection from parent company, World Group. Conventional Stamping Machines
(units) 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2006 2007 2008 Units Sold 2009 ASP 2010 (Rmb) 25,000 20,000 15,000 10,000 5,000 0

Source: BWPM

High-Performance/High-Tonnage Stamping Machines


(units) 5,000 4,000 3,000 2,000 (Rmb) 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 2006 2007 2008 Units Sold 2009 ASP 2010

Valuation/Recommendation

1,000 0

Source: BWPM

Share Price Catalyst

Revenue By Industry (2010)


Others 19% Home Appliances & Consumer Products 34%

Electronics 15%

Automotive 32%

Source: BWPM

Major Customers In Northern China


Source: BWPM DALIAN LOCOMOTIVE AND ROLLING STOCK CO., LTD CHANGCHUN FIRST AUTO WORKS HOLDINGS CO., LTD CHENGDU BRANCH FAW JIEFANG AUTOMOTIVE COMPANY LTD. TANGSHAN RAILWAY VEHICLE CO., LTD. JILIN LIGHT JINHONG AUTOMOBILE PART LIMITED COMPANY LUOYANG LUOLING BEARING SCIENCE AND TECHNOLOGY CO., LTD NANPIXIAN XINGYE AIR-CONDITION CO., LTD DALIAN YUANCHANGXIN DAILY NECESSITY METALWORK MANUFACTURING CO., LTD WAFANGDIAN BEARING CORPORATION LTD. JIU DA SPROCETS MANUFACTURE CO., LTD

Refer to last page for important disclosures.

Page 24 of 29

Regional Morning Notes


Monday, May 09, 2011

Profit & Loss


Year to 31 Dec (Rmbm) Net turnover EBITDA Deprec. & amort. EBIT Total other non-operating income Net interest income/(expense) Pre-tax profit Tax Minorities Net profit Net profit (adj.) 2010 1,038.6 99.3 (42.2) 141.5 5.2 (3.0) 143.7 (18.6) (0.1) 125.0 121.1 2011F 1,352.0 178.7 (48.6) 227.4 4.5 (9.6) 222.3 (33.6) (0.8) 187.8 187.8 2012F 1,590.9 201.4 (52.8) 254.2 4.0 (10.4) 247.8 (37.2) (0.4) 210.2 210.2 2013F 1,874.2 248.6 (62.0) 310.6 4.0 (10.4) 304.2 (45.6) (0.4) 258.2 258.2

Balance Sheet
Year to 31 Dec (Rmbm) Fixed assets Other LT assets LT debt Cash/ST investment Other current assets Total assets ST debt Other current liabilities Other LT liabilities Shareholders' equity Minority interest Total liabilities & equity 2010 432.0 20.0 n.a. 62.1 748.6 1,262.7 22.6 414.0 n.a. 826.0 0.1 1,262.7 2011F 462.3 141.1 n.a. 62.6 948.6 1,614.6 150.0 508.6 n.a. 955.8 0.1 1,614.6 2012F 552.3 138.3 n.a. 43.7 1,118.3 1,852.7 150.0 600.4 n.a. 1,102.1 0.1 1,852.7 2013F 633.1 135.5 n.a. 54.2 1,317.1 2,139.9 150.0 705.5 n.a. 1,284.2 0.1 2,139.9

Cash Flow
Year to 31 Dec (Rmbm) Operating Pre-tax profit Tax Deprec. & amort. Working capital changes Other operating cashflows Investing Capex (growth) Investments Proceeds from sale of assets Others Financing Dividend payments Issue of shares Proceeds from borrowings Loan repayment Others/interest paid Net cash inflow (outflow) Beginning cash & cash equivalent Changes due to forex impact Ending cash & cash equivalent 2010 192.5 143.7 (18.6) 42.2 42.3 (17.1) (71.5) (89.3) 0.0 0.0 17.8 (130.4) (60.0) 0.0 22.6 (80.0) (13.0) (9.3) 55.9 1.4 48.0 2011F 134.8 222.3 (33.6) 48.6 (105.3) 2.9 (200.0) (200.0) 0.0 0.0 0.0 79.8 (47.6) 0.0 0.0 127.4 0.0 14.6 48.0 0.0 62.6 2012F 179.1 247.8 (37.2) 52.8 (77.9) (6.4) (140.0) (140.0) 0.0 0.0 0.0 (58.0) (58.0) 0.0 0.0 0.0 0.0 (18.9) 62.6 0.0 43.7 2013F 214.4 304.2 (45.6) 62.0 (93.8) (12.4) (140.0) (140.0) 0.0 0.0 0.0 (64.0) (64.0) 0.0 0.0 0.0 0.0 10.4 43.7 0.0 54.2

Key Metrics
Year to 31 Dec (%) Profitability EBITDA margin Pre-tax margin Net margin ROA ROE Growth Turnover EBITDA Pre-tax profit Net profit Net profit (adj.) EPS Leverage Debt to total capital Debt to equity Net debt/(cash) to equity Interest cover (x) 2.7 2.7 (4.8) 33.6 15.7 15.7 9.1 18.7 13.6 13.6 9.6 19.4 11.7 11.7 7.5 23.9 85.2 232.7 121.6 109.1 114.8 114.8 30.2 80.0 54.7 50.3 55.2 55.2 17.7 12.7 11.5 11.9 11.9 11.9 17.8 23.4 22.8 22.8 22.8 22.8 9.6 13.8 12.0 10.7 15.8 13.2 16.4 13.9 13.1 21.1 12.7 15.6 13.2 12.1 20.4 13.3 16.2 13.8 12.9 21.6 2010 2011F 2012F 2013F

Refer to last page for important disclosures.

Page 25 of 29

Regional Morning Notes


Monday, May 09, 2011

LPN Development Thailand


1Q11: Net profit declines qoq from peak in 4Q10 but improves strongly yoy
1Q11 Results
Year to 31 Dec (Btm) Condo sales Total revenue Gross profit EBIT Pretax profit Tax Net profit Gross margin (%) SG&A/sales (%) Net margin (%) 1Q11 2,434 2,504 848 548 548 (171) 406 33.9 12.3 6.2 yoy % chg 71.9 68.3 82.4 78.5 78.5 98.8 49.8 qoq % chg (30.4) (29.7) (32.4) (33.7) (33.7) (35.7) (28.9) Remarks
82% from the ownership transfer of Place Rama9 Ph 2, Condotown Ramindra Nawamin building D and Ville Ladprao-Chokchai 4

HOLD
(Maintained)

Company Results
Share Price Target Price Upside Bt10.20 Bt10.84 +6.3%

Company Description Property developer specialising in low-end condominiums.


In line with expectations Declined qoq but improved 2.6ppt yoy Same as in 4Q10 Same as in 4Q10

Source: LPN, UOB Kay Hian

Results LPN Developments (LPN) results were in line with expectations. Condominium sales grew 72% mainly from the ownership transfer of three completed projects. Gross margin declined qoq but improved 3ppt yoy. SG&A expense-to-sales ratio and net margin were stable qoq. 1Q11 net profit of Bt406m (+50% yoy but -29% qoq) accounted for 23% of our full-year forecast. We keep our net profit forecast unchanged. Stock Impact Presales and new launches targets for 2011 under review. LPN targets 2011 realised sales at Bt12b (+25% yoy), presales at Bt16b (+7% yoy) and new launches at Bt16b (+15% yoy). Since all of 2011 condominium sales are already in hand, LPN maintains its full-year forecast. Value of new launches to date was Bt6.4b (40% of its full-year target) and LPN can launch another four projects worth Bt6b. But LPN is still looking to adjust the schedule of new launches. The problematic area is the softer-than-expected selling pace amid a lacklustre market outlook with massive supply in the low-end condominium segment and strict borrowing measures. So far, the take-up in small projects worth less than Bt1b, like Nida-Seri Thai, La-Salle Baring and Pibulsongkram, are still at a healthy 75-100%. But big projects worth over Bt1b each still see soft takeup rate of 30-35%. Its mega Bt5.5b Riverside Rama 3, launched in 4Q10, was 53% sold so far. Presales in 4M11 of around Bt4b accounted for 25% of its full-year target.
Key Financials
Year to 31 Dec (Btm) 2009 2010 Net turnover 8,975 9,941 EBITDA 2,056 2,277 Operating profit 2,022 2,257 Net profit (rep./act.) 1,502 1,637 Net profit (adj.) 1,477 1,583 EPS (Bt) 1.00 1.07 PE (x) 10.2 9.5 P/B (x) 2.9 2.5 EV/EBITDA (x) 7.2 6.5 Dividend yield (%) 4.9 5.5 Net margin (%) 16.7 16.5 Net debt/(cash) to equity (%) (5.7) 10.4 Interest cover (x) 186.9 569.3 ROE (%) 30.9 28.9 Consensus net profit UOBKH/Consensus (x) Source: LPN Development, Bloomberg, UOB Kay Hian 2011F 12,059 2,456 2,436 1,785 1,785 1.21 8.4 2.1 6.0 5.9 14.8 (3.8) 327.5 27.2 1,825 0.98 2012F 13,780 2,827 2,807 2,052 2,052 1.39 7.3 1.8 5.2 6.8 14.9 (13.0) 377.0 26.9 2,080 0.99 2013F 15,150 3,032 3,012 2,202 2,202 1.49 6.8 1.6 4.9 7.3 14.5 (18.3) 404.2 26.8 2,484 0.89

Stock Data GICS sector Bloomberg ticker: Shares issued (m): Market cap (Btm): Market cap (US$m): 3-mth avg daily t'over (US$m): Price Performance (%) 52-week high/low 1mth 3mth 6mth 2.0 19.3 6.2

Financials LPN TB 1,475.7 15,052.1 497.9 4.0

Bt12.10/Bt6.30 1yr YTD 45.7 14.6 % 18.27 4.77 0.18

Major Shareholders Thai NVDR FY11 NAV/Share (Bt) FY11 Net Cash/Share (Bt) Price Chart
(lcy) 14 12 10 8 6 4
60 40 20 0 LPN DEVELOPMENT PCL Lpn Development Pcl/SET Index

(%) 200 180 160 140 120 100 80 60

Volume (m)

May 10

Jul 10

Sep 10

Nov 10

Jan 11

Mar 11

May 11

Source: Bloomberg

Analyst Wanida Geisler +662 659 8302 wanidag@uobkayhian.co.th

Refer to last page for important disclosures.

Page 26 of 29

Regional Morning Notes


Monday, May 09, 2011
All of 2011 sales in hand. Presales for 1Q11 came in at Bt3.6b, driving the current backlog to Bt14.7b. This implies that all of 2011 sales and 40% of 2012 sales are already in hand. 70% of 2011 new launches will come out in 1H11. LPN launched five projects in 1Q11 worth a combined Bt4.7b, and about 67% or Bt3.1b was sold. Last week, LPN launched the Bt1.65b Pattanakarn project and 35% was already sold. Another three new projects worth a total Bt4.8b will be launched in 2Q11. For 2H11, new launches are likely to slow to around Bt4.8b, -57% from 1H11s.
Quarterly Presales
Bt 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1Q07 1Q09 1Q11

Opt for conservative strategies but still firm on upcountry expansion. Source: LPN, UOB Kay Hian This year, LPN turned conservative by reducing the size of its new projects, Quarterly Results collecting higher down-payment and launching each project in phases Bt rather than all at one go. However, LPN is going ahead with its penetration 4000 into the upcountry market for the first time. It will launch two upcountry 3500 projects worth a total Bt2b in Pattaya this quarter. 3000 Limited upside from the governments new incentive. Housing loans with no interest for the first two years will be offered to the first time next week to home buyers who purchase a residential unit priced at less than Bt3m/unit. This scheme is good for buyers of completed condominiums that are ready to be transferred but not for LPN whose projects were mostly sold out two years ago. Buyers of new condominiums launched this year will also not benefit as these projects need another 18-24 months to be developed. However, LPN is looking to launch a special campaign similar to this scheme to spur demand for its new condominiums.
2500 2000 1500 1000 500 0 1Q07 3Q08 1Q10 Sales-LHS Net margin-RHS

% 25.00 20.00 15.00 10.00 5.00 1Q11

Net profit-LHS

Source: LPN, UOB Kay Hian

Quarterly results trend. LPN hints that its results will improve qoq in 2Q11 mainly from the completion of the Bt3.6b Pinklao project. This year, its profitability is likely to peak in 3Q, driven by the remaining portion of Pinklao sales and the full booking of the Bt3.2b Ratchayothin project. On the other hand, 4Q will the weakest quarter this year with around Bt2b of sales from Rama 4 and Nida 1 projects. Earnings Revision None. Valuation/Recommendation Maintain HOLD with a target price of Bt10.84, pegged to its five-year PE mean of 9x. Our entry level is below Bt9.00. The outlook for mid- to lowend condominium segment has not been rosy since 4Q10. With massive new supply coming out at end-10, the industrys average take-up rate has plunged to 30-50% in the past two quarters. It will take at least another six months to absorb the surplus. A rapid rise in development costs and interest rates is also hurting market sentiment.

PE And Standard Deviation


16 14 12 10 8 6 4 2 0 May-06 May-10 Apr-11 -1SD 6x -2SD 3.0x Mean 9x PE

+1SD 12x

Sep-07

Jan-09

Source: Setsmart, UOB Kay Hian

Project Update
Project value (Btm) Ratanathibet 1796 Navamin (A-C) 1727 Ratburana 1284 Bangkae 686 Chokechai 4 1423 Navamin D 576 Rama 9 ph 2 2575 Pinklao 3600 Ratchayothin 3200 Rama 4 1500 New launches in 2011 Nida SeriThai 1 Nida SeriThai 2 Riverside Rama 3 Pibulsongkram Changwattana Pattanakarn Northern Pattaya Mega Bangna Wong-amat Pattaya Petchkasem Source: LPN Sold Complete 92% 94% 83% 74% 100% 100% 90% 100% 100% 100% 2009 2010 2010 2010 2010 2011 2011 2011 2011 2011 2011 2012 2012 2012 2012 2012 2012 2012 2012 2012 Sales Book 2Q09 4Q10 4Q10 4Q10 4Q10 1Q11 1Q11 2Q11 3Q11 4Q11 4Q11 1Q12 2Q12 3Q12 3Q12 2Q12 4Q12 4Q12 4Q12 1Q12

Risks to our forecast are: a) fierce competition as more developers are trying to penetrate the low-end market, b) rising development and marketing costs, c) slow selling pace, and d) pricing pressure. Share Price Catalysts a) Improvement in take-up rate, b) normalisation of interest rates, c) falling crude oil prices, and d) pick-up in consumer confidence.

450 100% 640 53% 5500 53% 900 100% 1850 31% 1650 35% 1200 n.a. 2800 n.a. 800 n.a. 1200 n.a.

Refer to last page for important disclosures.

Page 27 of 29

Regional Morning Notes


Monday, May 09, 2011

Profit & Loss


Year to 31 Dec (Btm) Net turnover EBITDA Deprec. & amort. EBIT Total other non-operating income Associate contributions Net interest income/(expense) Pre-tax profit Tax Net profit Net profit (adj.) 2010 9,941 2,277 20 2,257 23 29 (4) 2,359 (722) 1,637 1,583 2011F 12,059 2,456 20 2,436 50 50 (8) 2,529 (744) 1,785 1,785 2012F 13,780 2,827 20 2,807 53 55 (8) 2,907 (856) 2,052 2,052 2013F 15,150 3,032 20 3,012 55 60 (8) 3,119 (918) 2,202 2,202

Balance Sheet
Year to 31 Dec (Btm) Fixed assets Other LT assets Cash/ST investment Other current assets Total assets ST debt Other current liabilities LT debt Other LT liabilities Shareholders' equity Total liabilities & equity 2010 527 985 1,122 7,746 10,380 890 2,448 863 99 6,080 10,380 2011F 547 968 770 7,730 10,016 0 2,376 500 100 7,040 10,015 2012F 547 968 1,568 8,178 11,261 0 2,443 500 120 8,199 11,261 2013F 547 968 2,217 8,814 12,546 0 2,522 500 150 9,375 12,546

Cash Flow
Year to 31 Dec (Btm) Operating Pre-tax profit Tax Deprec. & amort. Associates Working capital changes Non-cash items Investing Capex (growth) Others Financing Dividend payments Issue of shares Proceeds from borrowings Loan repayment Others/interest paid Net cash inflow (outflow) Beginning cash & cash equivalent Ending cash & cash equivalent 2010 (42) 2,359 (722) 20 (29) (1,634) (36) (120) (132) 12 (35) (767) 0 732 n.a. 0 (197) 1,319 1,122 2011F 1,777 2,529 (744) 20 (50) (23) 45 (50) 0 (50) (2,079) (826) 0 n.a. (1,253) 0 (352) 1,122 770 2012F 1,690 2,907 (856) 20 (55) (381) 54 0 (20) 20 (893) (893) 0 n.a. 0 0 797 770 1,568 2013F 1,665 3,119 (918) 20 (60) (556) 60 10 (20) 30 (1,026) (1,026) 0 n.a. 0 0 650 1,568 2,217

Key Metrics
Year to 31 Dec (%) Profitability EBITDA margin Pre-tax margin Net margin ROA ROE Growth Turnover EBITDA Pre-tax profit Net profit Net profit (adj.) EPS Leverage Debt to total capital Debt to equity Net debt/(cash) to equity Interest cover (x) 28.8 28.8 10.4 569.3 7.1 7.1 (3.8) 327.5 6.1 6.1 (13.0) 377.0 5.3 5.3 (18.3) 404.2 10.8 10.7 12.8 9.0 7.2 7.2 21.3 7.9 7.2 9.1 12.8 12.8 14.3 15.1 15.0 14.9 14.9 14.9 9.9 7.2 7.3 7.3 7.3 7.3 22.9 23.7 16.5 17.7 28.9 20.4 21.0 14.8 17.5 27.2 20.5 21.1 14.9 19.3 26.9 20.0 20.6 14.5 19.5 26.8 2010 2011F 2012F 2013F

Refer to last page for important disclosures.

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Regional Morning Notes


Monday, May 09, 2011

We have based this document on information obtained from sources we believe to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Expressions of opinion contained herein are those of UOB Kay Hian Research Pte Ltd only and are subject to change without notice. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of the addressee only and is not to be taken as substitution for the exercise of judgement by the addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. UOB Kay Hian and its affiliates, their Directors, officers and/or employees may own or have positions in any securities mentioned herein or any securities related thereto and may from time to time add to or dispose of any such securities. UOB Kay Hian and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discussed herein (or investments related thereto) and may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. UOB Kay Hian (U.K.) Limited, a UOB Kay Hian subsidiary which distributes UOB Kay Hian research for only institutional clients, is an authorised person in the meaning of the Financial Services and Markets Act 2000 and is regulated by Financial Services Authority (FSA). In the United States of America, this research report is being distributed by UOB Kay Hian (U.S.) Inc (UOBKHUS) which accepts responsibility for the contents. UOBKHUS is a broker-dealer registered with the U.S. Securities and Exchange Commission and is an affiliate company of UOBKH. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact UOBKHUS, not its affiliate. The information herein has been obtained from, and any opinions herein are based upon sources believed reliable, but we do not represent that it is accurate or complete and it should not be relied upon as such. All opinions and estimates herein reflect our judgement on the date of this report and are subject to change without notice. This report is not intended to be an offer, or the solicitation of any offer, to buy or sell the securities referred to herein. From time to time, the firm preparing this report or its affiliates or the principals or employees of such firm or its affiliates may have a position in the securities referred to herein or hold options, warrants or rights with respect thereto or other securities of such issuers and may make a market or otherwise act as principal In transactions in any of these securities. Any such non-U.S. persons may have purchased securities referred to herein for their own account in advance of release of this report. Further information on the securities referred to herein may be obtained from UOBKHUS upon request. http://research.uobkayhian.com
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