Top Down Strategy and Large Cap Stock Picks - the DBS Vickers ...

Top Down Strategy and Large Cap Stock Picks
Investors in Asian equities should walk through the US' sub-prime-related volatility and stay focused on
the region's underlying fundamentals. We believe the volatility offers good opportunities for
accumulation, in anticipation of a year-end rally commencing in November
We recommend Hong Kong / China for liquidity, Singapore for valuations and earnings quality, and
Thailand for accelerating growth in 2008. For sectors, we recommend specialised small caps leveraged
to Asia's structural growth and global business spending, and diversified large caps for all-round economic
expansion
For 4Q07, we upgraded Hong Kong / China and Thailand to Overweight. Hong Kong / China will be
driven by domestic factors (including retail QDII scheme) in the near term, while the longer term
direction will be dictated by Chinese regulatory changes. Thailand is upgraded for its relatively better
market impact from election, higher 2008 GDP growth and greater funds inflow compared to Malaysia.
We remain Overweight on Singapore as fundamentals remain strong
Malaysia is downgraded to benchmark weight in favor of Thailand. Incremental funds flow may be
slow, and there are risks of pump-priming news disappointing domestic and foreign investors. Indonesia
remains benchmark-weighted because it had been the top performing market in the region in the last
five years. And despite infrastructure spending efforts and consumption picking up, inflation is threatening
margins of consumer staples
DBS Group Research
Regional Equity Strategy 4Q 2007
21 September 2007•
"In Singapore, this research report may only be distributed
to Institutional Investors as defined in the Securities
and Futures Act, Chapter 289 of Singapore."

Regional Equity Strategy Q4 2007
Research Team Directory
Research Team Directory
Analyst Sector E-mail
Sanjit Maitra Head, DBS Group Research sanjitmaitra@dbs.com
Regional
Timothy Wong Head, Regional Equity Research timothywongkc@dbsvickers.com
Joanne Goh Regional Equity Strategist Joanne gohsc@dbsvickers.com
Hong Kong / China
Dr Peter So Head of Research, Strategy peter_so@hk.dbsvickers.com
Alice Hui CFA, Dy Head of Research Consumer alice_hui@hk.dbsvickers.com
Gideon Lo CFA, Dy Head of Research Oil & Petrochemicals, gideon_lo@hk.dbsvickers.com
Pharmaceuticals, Shipping
Helen Wang Basic Materials & Power helen_wang@hk.dbsvickers.com
Jasmine Lai Banking & Finance jasmine_lai@hk.dbsvickers.com
Jeff Yau CFA Conglomerates, Property jeff_yau@hk.dbsvickers.com
Johnson Yuen Technical Analysis johnson_yuen@hk.dbsvickers.com
Mavis Hui Media & General Retail mavis_hui@hk.dbsvickers.com
Patricia Yeung Industrials patricia_yeung@hk.dbsvickers.com
Steven Liu Software & Telecom steven_liu@hk.dbsvickers.com
Indonesia
Agus Pramono, CFA Strategy, Banking & agus.pramono@id.dbsvickers.com
Finance, Consumer, Automotive
Herry Dion Mahargono Cement, building materials and herry.mahargono@id.dbsvickers.com
construction; Plantation;
Basic Materials
Devianita Tjandera Consumer devianita@id.dbsvickers.com
Ong Boon Leong, CFA Telecommunications boonleong@hwangdbsvickers.com.my
Malaysia
Wong Ming Tek Head of Research, Strategy mingtek@hwangdbsvickers.com.my
Construction, Concessionaires
Goh Yin Foo CFA Retail/ Technical Product yinfoo@hwangdbsvickers.com.my
Lim Sue Lin Banking suelin@hwangdbsvickers.com.my
Ong Boon Leong CFA Telecommunications, Technology Services boonleong@hwangdbsvickers.com.my
Chong Lee Len Motor, Gaming leelen@hwangdbsvickers.com.my
June Ng Power, Oil & Gas, Conglomerates, REITs june@hwangdbsvickers.com.my
Tan Siang Hing Property, Aviation sianghing@hwangdbsvickers.com.my
Ben Santoso Plantations benedictus.benjamin@id.dbsvickers.com
Azida Nor Azizi Steel azida@hwangdbsvickers.com.my
Kok Chiew Sia Consumer, IPO/ Retail Product chiewsia@hwangdbsvickers.com.my
Juliana Ramli Shipping, Logistic, Manufacturing juliana@hwangdbsvickers.com.my
Iman Zaman Manufacturing iman@hwangdbsvickers.com.my
Singapore
Janice Chua Head of Research, Strategy, janicechua@dbsvickers.com
Industrials
Jesvinder Sandhu, Dy Head of Research Industrials jesvinder@dbsvickers.com
Chong Wee Lee, CFA Industrials weelee@dbsvickers.com
Paul Yong, CFA Consumer paulyong@dbsvickers.com
Andy Sim, CFA Consumer andysim@dbsvickers.com
Tan Ai Teng Electronics aiteng@dbsvickers.com
Ho Pei Hwa Electronics peihwa@dbsvickers.com
Sachin Mittal Electronics, Telecom sachin@dbsvickers.com
Tan Cheng Wee Real Estate chengwee@dbsvickers.com
Ho Zy Sew Real Estate, Financials zysew@dbsvickers.com
Lim Sue Lin Financials suelin@hwangdbsvickers.com.my
Ben Santoso Plantations benedictus.benjamin@id.dbsvickers.com
Thailand
Chanpen Sirithanarattanakul Head of Research chanpens@th.dbsvickers.com
Property
Chirasit Vuttigrai Telecoms, Entertainment chirasit@th.dbsvickers.com
Vichitr Kuladejkhuna CFA Building Materials, Energy, vichitrk@th.dbsvickers.com
Petrochemicals, Chemicals
Sugittra Kongkhajornkidsuk Banks, Securities sugittrak@th.dbsvickers.com
Chaipat Thanawattano Transportation chaipatt@th.dbsvickers.com
Parin Kitchatornpitak Automotive, Commerce, Electronics parink@th.dbsvickers.com
2

Table of Contents Regional Equity Strategy Q4 2007
Table of Contents
Strategy Overview
Market Data 4
Stock Profiles Key Data 5
Strategy Overview: Asian Equity 6
Regional Data Monitor 30
Country Assessments & Stock Profiles
Singapore
Safety first
34
CDL Hospitality Trusts Singapore hotel proxy with regional aspirations 44
F & N Going strongly into its 125 th year 46
SembCorp Industries Growth from Marine and Utilities 48
UOB
Geared for growth domestically and regionally
50
Hong Kong / China
China Mobile
Dongfeng Motor
ICBC
Lee & Man Paper
Investment amidst high inflation
Cementing leadership amidst the 3G turmoil
Strong growth momentum
More room to improve than peers
Paving way for long-term growth
52
70
72
74
76
Malaysia
AMMB Holdings
Bumiputra-Commerce
Resorts World
Window of opportunity
Restructuring and operational upside
More goodies in the bag
Towards a bigger world
78
86
88
90
Thailand
Advance Info Service
Charoen Pokphand Foods
KASIKORNBANK
Improved political outlook
Good election play
Expect significant turnaround in 2H07
Continued loan growth with good asset quality
92
98
100
102
Indonesia
Bank Rakyat Indonesia
Semen Gresik
Stick to fundamentals
Better be safe
Everything coming up roses
104
112
114
DBS Vickers Securities
Singapore l Hong Kong / China l Thailand l Malaysia l Indonesia
3

Regional Equity Strategy Q4 2007
Market Data
Market Data
Relative Valuations & Performance
Stock Market Valuation
Valuation – September 2007
Market Cap EPS Growth (%) PE (x)
(US$ bn) 06 07F 08F 06 07F 08F
Hong Kong 1,161 14.7 29.9 12.5 20.2 16.2 15.4
China 1,261 17.9 30.3 21.7 32.0 25.6 21.1
Singapore 487 20.8 17.0 19.3 20.3 17.3 14.5
Malaysia 274 15.7 26.9 16.0 20.6 16.3 14.0
Philippines 171 8.0 0.1 15.9 18.0 17.4 23.3
Thailand 124 (11.8) (3.1) 11.1 12.7 12.7 11.4
Indonesia 167 19.0 39.7 18.5 23.0 16.8 13.8
Korea 1,001 2.8 12.1 14.9 11.9 11.5 10.1
Taiwan 669 (39.0) 32.6 16.4 13.2 12.5 10.7
Prices are as at 17 September 2007
Market Performance (% change) – 17 September 2007
Singapore (STI)
Hong Kong (HSI)
China (H SCCI/HSCEI)
Kuala Lumpur (KLCI)
Bangkok (SET)
Philippines (PCOMP)
Jakarta (JCI)
Taiwan (TAIEX)
Korea (KOSPI)
Tokyo (Nikkei 225)
New York (Dow Jones)
-20.0 -10.0 0.0 10.0 20.0 30.0 40.0 50.0
1-month ago 3-months ago YTD
4

Stock Profiles Key Data
Regional Equity Strategy Q4 2007
Stock Profiles
Key Data
Bloomberg Code
Company
Price & Index (17
Sep 07)
Mkt Cap
(USDm)
PE
07x
PE
08x
EPS
CAGR
06-08 %
EV/EBITDA
07x
P/BV
07x
ROE
07 (%)
SINGAPORE STI 3,476
CDREIT SP CDL Hospitality Trusts S$2.35 1,275 28.5 19.6 91 25.8 1.8 6.9
FNN SP F & N S$5.25 4,787 19.1 15.8 17 11.9 1.5 8.8
UOB SP UOB S$20.80 20,898 14.2 12.9 (2) n.a. 1.8 13.5
HONG KONG HSI / HSCEI 24,599 / 14,676
941 HK China Mobile HK$106.80 278,821 26.1 19.1 29 10.2 5.6 23.2
489 HK Dongfeng Motor HK$5.59 2,049 # 15.5 13.4 32 7.9 2.9 20.0
1398 HK ICBC HK$5.04 53,740# 20.2 15.1 38 n.a. 3.2 16.5
2314 HK Lee & Man Paper @ HK$32.15 4,691 26.0 17.8 34 22.7 4.7 19.6
# H Market cap only
@ FY 08F 09F; CAGR 07-09
MALAYSIA KLCI 1,278
AMM MK AMMB Holdings@ RM4.14 2,504 17.9 15.3 n.m. n.a. 1.7 9.8
BCHB MK Bumiputra-Commerce RM10.80 10,435 18.1 13.4 28 n.a. 2.6 20.3
RNB MK Resorts World RM3.78 6,271 20.3 17.9 11 11.0 2.8 15.3
THAILAND SET 803
ADVANC TB Advance Info Service Bt89.00 7,676 16.6 14.5 6 6.8 3.5 20.9
CPF TB Charoen Pokphand Foods Bt4.82 1,058 18.4 11.0 22 8.3 0.8 4.3
KBANK TB KASIKORNBANK Bt73.50 5,121 12.0 10.1 13 na 1.7 15.5
INDONESIA JCI INDEX 2,223
BBRI IJ Bank Rakyat Indonesia IDR6,200 8,147 14.8 11.6 24 n.a. 3.8 28.0
SMGR IJ Semen Gresik IDR5,250 3,349 19.7 17.8 17 10.2 4.8 26.4
@ Valuations for these companies are base on prospective FY08 and FY09 estimates respectively
5

Regional Equity Strategy Q4 2007
Strategy Overview: Asian Equity
Asian Equity: Fire walk
with me
• Fire walking, it is said, transforms fear into power. Investors in Asian
equities should walk through the US' sub-prime-related volatility and
stay focused on the region's underlying fundamentals. Investors around
the globe are fixated with three main concerns – the risks to the US
economy, a global liquidity crunch and a contagion impact from US subprime
problems to other asset classes. We believe that the volatility offers
good opportunities for accumulation, in anticipation of a year-end rally
commencing in November
• The bond market has factored in the latest Fed rate cut to alleviate the
liquidity problems in the financial system. This was less so for equity
markets. Equities markets had cheered the latest rate cut, as expected.
We now look for another 25bps cut in October. But if the Fed cut does
not transpire because credit conditions have stabilized and US growth
outlook is intact, there should be more reasons to buy equities.
• We recommend Hong Kong / China for liquidity, Singapore for valuations
and earnings quality, and Thailand for accelerating growth in 2008. We
downgrade Korea and continue to avoid Taiwan due to exposure to the
US consumer. As for sectors, we recommend specialised small caps
leveraged to Asia's structural growth and global business spending, and
diversified large caps for all-round economic expansion. There are also
opportunities to buy Asian financials on lower prices as they become
oversold on the back of current sub-prime concerns
• In our regional allocation, we have upgraded Hong Kong / China and
Thailand at the expense of Malaysia and Korea. We are underweight
Korea and Taiwan, benchmark-weighted in Malaysia, Indonesia and India,
and overweight in Hong Kong /China, Thailand and Singapore
Fig. 1: Who’s afraid of little fire?
Note: The weightings
which we refer to in
our Equity Strategy
outlook are not
necessarily consistent
with the equity
“weightings” being
used in our Asian
Tactical Asset
Allocation. The latter
refer to specifically
constructed
benchmarks for asset
allocation purposes.
4000
3500
3000
2500
2000
1500
1000
500
20
73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 0911
ASIA EX JAPAN-DS Market - PRICE INDEX
Source: DATASTREAM
Joanne Goh • (65) 6878 5233 • joannegohsc@dbs.com
6
"This report has been re-printed with permission from DBS Group Research
(Regional Equity Strategy) of DBS Bank Limited"

Strategy Overview: Asian Equity
Regional Equity Strategy Q4 2007
Markets hit bottom, volatility to last two months
We believe that the market volatility related to the US sub-prime woes is temporary.
Once the dust settles, especially in relation to poor sentiment arising from secondguesses
on how badly banks and other financial institutions are exposed to subprime
mortgages, the Asian markets should return to their upward trajectory.
We expect the market to be range bound in the next two months as investors grapple
with choppy global markets and re-balance portfolios. Timing a market bottom is a
perennial challenge. For all its worth, the markets may well have hit bottom during the
wave of heavy selling on August 17. However, with the rebound in prices in recent
weeks, short-term relative strength indicators are currently in neutral territory, and do
not point to an imminent reversal. Meanwhile, valuations and fundamentals continue
to provide support at current levels; and upcoming market events suggest that early
October may be the most opportune time for aggressive accumulation. Hence, we
recommend building up positions for a year-end rally, which we believe, will commence
in November.
Vulnerability of the US economy
DBS Research believes that while the worst is over for the US economy, the
expectation is for a weak recovery in the US to sub-potential growth rates.
Specifically the forecast is for a paltry 2.0% (QoQ, saar) growth in Q3, after 4%
growth in Q2 and 0.6% growth in Q1. By Q4 and throughout 2008, the economy
should grow at a (saar) pace of 2.5%-3%. This view is premised on expectations
for i) weak consumption growth and ii) that the drag from housing construction
will continue to fade in the coming quarters.
In DBS view, a recession is not on the cards despite growing concerns of the US
housing market slump's impact on consumer spending. The US will still be releasing
expectedly poor economic numbers in the next three months, in terms of job
growth, consumption and housing market expansion, which will induce market
volatility. Commercial paper will remain expensive in the short run. However,
these are not enough to drive the economy into a recession, but sufficient to
lead the Fed to believe that rate cuts are necessary before the economy turns for
the worse.
If the drag from housing does not fade, then GDP growth might continue to
ramble along at about 2%, as it had in the past 5 quarters (2.2% for the past
seven quarters). While plainly not a plus for Asia, weak US growth in the last
two years has not prevented Asia from accelerating modestly and another year
of expectedly weak 2% growth in the US should not make a difference to Asia.
Indeed, the bias should be towards a pick up in growth after this soft patch,
considering the underlying resilience of the US economy over the last eight
quarters. Against the backdrop of a weak US recovery, investors will remain
focused on domestic demand sectors in Asia, while staying vigilant to an inflection
point for recovery in external demand.
7

Regional Equity Strategy Q4 2007
Strategy Overview: Asian Equity
Fig. 2: G3 and Asia GDP Growth forecasts
1Q07 (f) 2Q07 (f) 3Q07 (f) 4Q07 (f) 1Q08 (f) 2Q08 (f) 3Q08 (f) 2006 2007f 2008f
US** 0.7 4.0 2.0 2.5 2.7 2.8 2.8 2.9 2.0 2.7
Japan** 3.2 -1.2 3.2 1.9 1.2 3.2 2.9 2.2 2.1 2.1
Eurozone** 2.4 1.4 1.6 2.9 2.3 2.3 2.2 2.9 2.5 2.3
Indonesia 6.0 6.3 6.2 6.3 6.2 6.4 6.6 5.5 6.2 6.5
Malaysia 5.5 5.7 6.3 6.2 5.4 5.7 5.8 5.9 5.9 5.8
Philippines 6.9 7.5 6.5 6.6 6.6 6.8 6.4 5.4 6.9 6.6
Singapore 6.4 8.6 8.1 7.7 6.4 6.7 6.6 7.9 7.3 6.5
Thailand 4.3 4.4 4.6 4.5 4.4 5.5 6.5 5.0 4.3 5.6
China 11.1 11.9 11.3 11.0 10.5 10.3 10.1 10.7 11.5 10.0
Hong Kong 5.6 6.9 6.0 5.3 5.8 5.3 6.1 6.8 6.0 5.6
Taiwan 4.2 5.1 4.4 4.7 4.6 4.6 4.8 4.7 4.6 4.8
Korea 4.0 5.0 4.8 5.0 4.9 4.7 5.0 5.0 4.7 4.9
India* 9.1 9.3 9.1 8.4 8.1 8.0 8.7 9.4 8.6 9.0
Asia ex-J Average 6.3 7.1 6.7 6.6 6.3 6.4 6.7 6.6 6.6 6.5
Ex-China, India 5.2 5.8 5.5 5.5 5.4 5.6 5.9 5.5 5.5 5.7
* India year refers to fiscal years beginning April of calendar year. Quarterly data are
annualised qtr-on-qtr % change for G3, yr-on-yr % change for Asian economies. Shaded
cells indicate higher growth than previous period
Global liquidity crunch
There are arguments that the recent one year rally in global markets was supported by global excess liquidity
and accelerating deal-related activities that drove up valuations. The bears will have a case by eyeballing the
global M2 and industrial production (IP) charts - if M2 does peak from here and IP deteriorates further due to a
global credit crunch, equities markets could see more downside.
Fig. 3: OECD M2 growth
%
9
8
7
6
5
4
3
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Fig. 4: OECD IP Growh
%
8
6
4
2
0
-2
-4
-6
-8
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
However, true empirical evidence suggests that world equity index performance and money supply growth draw
a weak correlation. Instead, it correlates well with global industrial production growth, which concludes that
strong index gains were due to a rise in global economic activity. Furthermore, it is apparent from the P/E band
chart on the next page that world equity valuations are at the lower end of its historical range and have not
been driven to excessive levels due to strong liquidity.
8

Strategy Overview: Asian Equity
Regional Equity Strategy Q4 2007
As such, we are not convinced that a US credit crunch will affect world equity markets
performance in a sustained manner, premised on the belief that global economic
activity remains strong. However, we believe short-term disruption to liquidity, which
could bottleneck global growth, needs to be resolved. And concerted efforts by
global central banks to pump liquidity into the financial system should ease subprime
problems and calm liquidity concerns.
The last credit crunch in 1998 affected markets for 3 to 6 months; Asian indices
retreated by about 25% before picking up 50% from its low three months after.
Fig. 5: MSCI World: 12m fwd PE Bands (25, 22,19,16,13x)
800
700
600
500
800
700
600
500
Fig. 6: Index performance after Fed cut rate in 1998
180
160
Fed Funds
Asia ex-Japan
(rebase, LHS)
5.75
5.50
400
300
400
300
140
120
5.25
200
200
100
80
c
Dow Jones
(rebase, LHS)
5.00
4.75
100
80
100
80
88 89 9091 92 93 94 95 96 97 98 9900 01 02 03 04 05 06
Source: DATASTREAM
60
Jun-
98
Aug-
98
Oct-
98
Dec-
98
Feb-
99
Apr-
99
Jun-
99
4.50
In terms of long-term investable money in Asia, our view remains that accumulated
foreign reserves from strong trade surpluses are providing a fresh layer of domestic
liquidity, which is gradually being deployed into Asian markets at the sovereign
funds level. Domestic monies from retail savings, financial institutions like insurance
companies and pension funds are providing additional sources of liquidity cushion.
With structural changes like an ageing population and pension fund reforms in
Asian economies, there could be regulatory changes to encourage higher levels
of equities investments for higher returns.
Fig. 7: Foreign reserves
US$bil 1996 2001 2006 2007*
China 105 212 988 1333
Taiwan 88 122 266 261
Korea 33 103 239 255
India 20 45 170 221
Singapore 77 76 137 148
Hong Kong 64 111 133 138
Malaysia 27 29 82 91
Thailand 39 33 65 74
Indonesia 18 27 40 52
Philippines 10 13 23 30
Total 480 771 2142 2603
* China as of June 2007. Others as of August 07 or
latest where available
Fig. 8: Deposit savings size
USDbils
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Note: Aggregate of bank deposits in Asia (8) plus China
and India
9

Regional Equity Strategy Q4 2007
Strategy Overview: Asian Equity
External liquidity, in particular pension and mutual funds subscription into equity funds
have been strong and stable in the last few years. The selling we are seeing in this
correction is in liquid markets to meet the wave of redemptions, and not due to changes
in the growth outlook. Even with this rout, mutual funds subscription into equities is still
relatively better than subscriptions into bond funds. If there is a conspiracy theory, a
weaker outlook for credit bonds and US equities should encourage inflows into emerging
equity funds.
Short-term illiquidity plainly implies short-term volatility. The squeeze on liquidity is
impacting yen-carry positions (they are being unwound), government bond yields (they
are falling) and corporate bond spreads (rising). These will continue to be markers to
watch for signs of improvement in short-term liquidity conditions.
Fig. 9: JPY/USD
126
122
118
114
110
106
Oct-05 Feb-06 Jun-06 Oct-06 Feb-07 Jun-07
Fig. 10: US junk bond spreads
bp
500
450
400
350
300
250
200
Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07
Fig. 11: Flight to quality also means selling in emerging
markets to treasuries, as evident in the 10-year
bond yield movement
5.4
5.2
5
4.8
4.6
4.4
4.2
4
Oct-05 Feb-06 Jun-06 Oct-06 Feb-07 Jun-07
Fig. 12: MSCI Far East ex-japan liquidity model with
yen and bond yields
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
-10.0
Actual
Modelled
Jan-07 Mar-07 May-07 Jul-07 Sep-07
Modelled regression equation: FEXJ weekly return = 1.6 x
Yen / USD weekly change - 0.2 x weekly change in US
bond yield + 0.43 constant (R2 = 60%, data from Jan - Jun
07)
10

Strategy Overview: Asian Equity
Regional Equity Strategy Q4 2007
Our modelling suggests that weekly returns on MSCI Asia ex-Japan index is positively
correlated with a weakening yen and lower bond yields (Fig. 12). Of these two measures,
we are more concerned about the impact of a weakening yen as a proxy for risk
appetite for higher yielding assets. A flight to quality with US lower yields in fact make
Asian equities look attractive in the earnings / bond yield relationship. We would be
more worried about a rising bond yield environment than falling bond yields. Typically,
rising bond yield / equities yield relationships produce negative equity returns 12-month
forward.
Fig. 13: US Bond / Asia Earnings yield
(x)
1.8
Fig. 14: No. of std dev from average vs 12m fwd
performance
3.0
% -150
1.4
2.0
-100
1.0
0.6
0.2
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
1.0
0.0
-1.0
-2.0
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
-50
0
50
100
Fig. 15: US Bond / Asia Dividend yield
(x)
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Fig. 16: No. of std dev from average vs 12m fwd
performance
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
%
-150
-100
-50
0
50
100
11

Regional Equity Strategy Q4 2007
Strategy Overview: Asian Equity
Asset allocation
In our asset allocation for this quarter, we assess the impact of equity risk premium, US
exposure, US interest rate cuts and 2008 growth acceleration on Asia markets.
What price risk?
If there is a re-pricing of risk, equity risk premium (ERP) will have to be a lot higher than
what it is today. Our implied growth model calculates the long-term growth implied by
today's price levels using various ERP rates. These numbers are triangulated against
potential long-term economic growth to determine what ERP the market is pricing in.
Our analysis indicates that Singapore's ERP is at 6%, Malaysia at 10%, Taiwan at 8%,
and Thailand and Asia ex-Japan are at 4%. China and Korea are at 2%, and Hong
Kong, Indonesia and India are at 1% ERP.
Fig. 17:
Implied Long-term growth with different ERPs
LT growth survey
1% ERP 2% ERP 4% ERP 6% ERP 8% ERP 10% ERP 12% ERP Real GDP Inflation Nominal GDP
Singapore 1.8 3.0 5.6 8.1 10.7 13.2 15.8 5.5 1.3 6.9
HongKong 8.5 9.8 12.5 15.1 17.8 20.5 23.2 4.7 2.8 7.6
Malaysia -3.2 -2.0 0.5 2.9 5.4 7.9 10.4 5.2 2.4 7.7
Thailand 3.5 4.8 7.4 10.0 12.5 15.1 17.8 4.4 2.1 6.6
Indonesia 11.1 12.4 15.0 17.6 20.2 22.9 25.5 6.0 5.3 11.6
China 11.1 12.5 15.2 17.9 20.6 23.3 26.1 8.7 3.2 12.2
Korea 4.9 6.2 8.7 11.2 13.8 16.3 18.9 4.4 2.5 7.0
Taiwan -3.3 -2.0 0.5 3.0 5.5 8.0 10.5 4.4 2.1 6.6
India 12.3 13.7 16.3 18.9 21.6 24.2 26.9 7.6 4.5 12.4
Asia ex-Japan 5.1 6.4 8.9 11.5 14.1 16.7 19.3 5.7 2.9 8.8
Shaded cells indicate implied growth which are near long-term nominal GDP growth, and hence determine
correspondingly the level of implied ERP in the price. Long-term forecasts from Consensus Economics Inc, April
edition. Implied from using 10-year DDM with first two years of consensus growth and long-term growth forecasts on
the last column for rest of 3rd - 10th year.
According to this model, Thailand stands in the middle of the pack and is appropriately
valued at 4% ERP together with Asia ex-Japan. Singapore, Malaysia and Taiwan
are discounting higher ERPs of between 6-10%, which means they are cheap by
this measurement. The ranking in terms of relative undervaluation based on ERP
are Malaysia, Taiwan, Singapore, Thailand, Korea, China, Hong Kong, Indonesia,
and India.
Fig. 18:
Improving Decreasing
ERPs (%): 1 2 3 4 5 6 7 8 9 10
Singapore 4,942 4,529 4,156 3,818 3,513 3,236 2,984 2,755 2,547 2,358
HongKong 22,985 21,120 19,432 17,902 16,514 15,252 14,105 13,061 12,110 11,242
Malaysia 2,569 2,363 2,177 2,009 1,856 1,716 1,590 1,475 1,369 1,273
Thailand 971 895 827 765 708 657 610 567 528 492
Indonesia 2,279 2,106 1,948 1,804 1,673 1,553 1,443 1,343 1,251 1,167
China 15,465 14,172 13,002 11,942 10,982 10,111 9,319 8,600 7,945 7,348
Korea 2,091 1,918 1,761 1,619 1,490 1,373 1,267 1,170 1,082 1,001
Taiwan 16,797 15,451 14,233 13,129 12,127 11,217 10,390 9,636 8,950 8,323
India 15,608 14,332 13,174 12,122 11,167 10,298 9,506 8,785 8,127 7,526
Asia ex-Japan 801 735 676 621 572 528 487 450 417 386
Shaded cells indicate current index levels and the inferred ERP accordingly. Long-term growth for 3rd - 10th year uses
long term potential growth forecasts from survey by Consensus Economics Inc., and ERP of 4%.
12

Strategy Overview: Asian Equity
Regional Equity Strategy Q4 2007
Another application of the DDM is to calculate the fair value with different ERPs, as
shown in Figure 18.
From the above analysis, we conclude that one percentage point change in ERP produces
a 9% change in the index. From a risk reduction point of view, from the US sub-prime
fallout, Asia is sold as an emerging asset class, and markets with higher betas will be
affected more. Our base case scenario is that normalcy will return as markets slowly
digest the negative news, and we will look for high beta markets in this rebound. Our
ranking for beta markets is shown below (Fig 19).
Some markets have rebounded strongly since the correction. We believe Asian markets
will recover to previous highs, as other than risk appetite, fundamentals have not deteriorated.
There were also no obvious signs of negative earnings revisions in the past two months.
Once risk appetite returns to normalcy and beta markets rebounded, market specific
drivers will have to be considered. We believe risk appetite in Hong Kong and Thailand
will improve due to positive sentiments although the markets are pricing in higher ERPs,
wherease near-term catalysts for Malaysia and Taiwan are less oustanding although
they are already cheap.
Fig. 19: Beta with MSCI AC World Index
1.2
1
0.8
0.6
0.4
Note: Based on one year of daily data
0.2
H-sh
Fig. 21: Ranking of earnings revisions in last 2 months
%
12
10
8
6
4
2
0
-2
-4
STI
JCI
HSI
KOSPI
Sensex
SET
TWI
PSE
KLCI
2007 2008
Singapore
Korea
China
Indonesia
Thailand
Asia ex-Japan
Malaysia
Taiwan
Hong Kong
India
Philippines
Fig. 20: Ranking of retracement from previous high
%
0.0
-1.0
-2.0
-3.0
-4.0
-5.0
-6.0
-7.0
-8.0
-9.0
-10.0
Thailand
Taiwan
Indonesia
Malaysia
Korea
Singapore
Red-chip
Shanghai
India
Hang Seng
H-share
13

Regional Equity Strategy Q4 2007
Strategy Overview: Asian Equity
Asia's exposure to the US
The uncertainty surrounding US economic growth also makes us cautious about markets
with a higher degree of US exposure. Asia's growth integration with China is one of the
reasons for Asia's resilience against a slowing US economy in the last two years.
The ranking based on percentage of exports to US suggests Malaysia is most susceptible
to a US slowdown since it exports the most to US relative to its total exports. Meanwhile,
its dependence on US has not changed much. And contrary to popular belief, Korea has
become less US export dependent since 2000 and is now exporting less to US (as % of
total exports) than most Asian countries, other than Singapore, Hong Kong and India.
Fig. 22: Asia exports to China have surpassed that
of Asia exports to US in 2003
24%
22%
20%
18%
16%
14%
12%
To USA
To
China
10%
98 99 00 01 02 03 04 05 06 07*
Note: Asian exports to China may include goods for reprocessing
and re-export. Still many exports to China
serve final demand. See "The “two-fer” rules"
Economics-Markets-Strategy, 14 September 2007".
Fig. 23: Exports exposure to US
%
25
20
15
10
5
0
Singapore
Hong Kong
India
Korea
Thailand
Taiwan
Philippines
Indonesia
Malaysia
China
Note: Calculated as % of total exports to USA. IFS data
direction of trade statistics data as of 2006
Fig. 24: % change in exports exposure between
2001 and 2006
-10%
-20%
-30%
-40%
-50%
-60%
14
10%
0%
Hong Kong
Philippines
Singapore
Taiwan
Korea
Thailand
Indonesia
Malaysia
India
China
Fig. 25: Tech and electronics sector as % of total market
cap
%
60
50
40
30
20
10
0
Taiwan
Korea
India
Singapore
Malaysia
Thailand
Hong Kong
China
Philippines
Indonesia
Indices used are Datastream total market index.
Categories included are semiconductors, electronic
components, electricals and electronics equipment

Strategy Overview: Asian Equity
Regional Equity Strategy Q4 2007
Most Asian economies are also relying less on US exports since 2000, except China. But
China's exports to US are only 1% higher than in 2001.
In terms of market cap contribution, tech and electronics are the biggest export items.
The chart in the previous page shows the contribution of these two categories in the
stock market.
Valuation
Our valuation model ranks the following countries on forecast 12-month returns (see
appendix for our Composite Valuation Score). Essentially, the model back-tests six valuation
indicators, and use only those with better predictive power. According to this model,
Indonesia, Taiwan and Malaysia should generate higher returns than the rest of the
markets.
4Q seasonality
The fourth quarter has always been a good quarter for Asian equities (See "Fourth
quarter dash", Economics - Markets-Strategy, September 15, 2006") . In particular,
Hong Kong and Singapore have traditionally been Asia’s top performing markets.
Fig. 26: 12m fwd return – valuation model forecast
Fig. 27: Avg fourth quarter returns since 1988
30%
20%
10%
0%
-10%
-20%
-30%
-40%
Korea
China 'H'
Hong Kong
India
2008 GDP growth acceleration
AXJ
Thailand
Singapore
Taiwan
Indonesia
Malaysia
Going forward into 2008, accelerating GDP growth can be seen in Thailand and India, and deceleration in
China, Singapore and Hong Kong. The deceleration is from a higher 2007 base where growth has been very
strong.
%
8
7
6
5
4
3
2
1
0
HK
Korea
Singapore
Indonesia
Malaysia
Asia ex-Japan
India
Thailand
Taiwan
H-shares
Fig. 28: GDP growth
% point
2007 2008 Change
China 11.5 10 -1.5
Singapore 7.7 6.5 -1.2
Hong Kong 6 5.6 -0.4
Malaysia 5.9 5.8 -0.1
Korea 4.7 4.9 0.2
Taiwan 4.6 4.8 0.2
Indonesia 6.2 6.5 0.3
India 8.6 9 0.4
Thailand 4.3 5.6 1.3
Fig. 29: Earnings growth
% point
2007 2008 Change
Indonesia 41.0 18.0 -23.0
Taiwan 32.3 16.1 -16.2
Hong Kong 29.0 14.0 -15.0
Malaysia 27.0 16.0 -11.0
China 22.0 22.0 0.0
Korea 12.1 14.9 2.8
Singapore 15.0 21.0 6.0
India 9.9 18.5 8.6
Thailand -3.0 11.9 14.9
Philippines 0.1 15.9 15.7
IBES consensus forecasts used for Korea, Taiwan, India
and Philippines. All others are DBSV forecasts
15

Regional Equity Strategy Q4 2007
Strategy Overview: Asian Equity
US interest rate cut ranking
DBS Economics expectations of a further interest rate cut prompts us to favour markets
which would benefit directly from the rate cuts, and markets with exposure to them.
Fig. 30: Average -3m return
SET
HSI
STI
Sensex
KOSPI
KLCI
H-shares
Phisix
JCI
TWI
Utilities
Oil &Gas
Real
Tech S/W
Cons.
Telcos
H/Care
Industrials
B.Mat
Banks
Cons.
Tech H/W
Conclusion
%
-10 0 10 20 30
Fig. 31: Average +3m return
TWI
HSI
STI
SET
JCI
Phisix
Sensex
KLCI
H-shares
KOSPI
Tech H/W
Telcos
Cons. Svcs.
Banks
Oil &Gas
Tech S/W
Industrials
B.Mat
H/Care
Cons. Goods
Utilities
Real Estate
%
-15 -10 -5 0 5 10 15
Fig. 32: Average + 6m return
TWI
Sensex
KLCI
SET
HSI
Phisix
STI
H-shares
JCI
KOSPI
Oil &Gas
Tech H/W
B.Mat
Telcos
Cons. Svcs.
Cons. Goods
Industrials
Utilities
H/Care
Tech S/W
Banks
Real Estate
We tabulate our findings in the following factor ranking matrix. Singapore is ranked
ahead of other markets, especially with regard to its lesser US exposure and scored well
in market earnings and valuations, as well as beta.Taiwan, although inexpensive failed
to attract in areas of US exposure.
%
-10 -5 0 5 10
Fig. 33:
Change in Mkt cap
2008 Growth
Impact from
Retracement Earnings Exports Exports US consumer GDP 2008 Earnings 2008 Fed Cuts 4th qtr Total Overall
ERP Beta from High Revisions to US to US exposure Valuations acceleraion GDP acceleraionearnings 3m 6m perf Score Ranking
Singapore 3 2 6 1 1 2 6 4 8 3.5 3 3.5 7 4 3 57 1
Indonesia 8 3 3 4 7 6 1 2 3 3.5 9 3.5 5 2 4 64 2
Thailand 4 7 1 5 5 5 4 5 1 6.5 1 6.5 6 6 7 70 3
Korea 5 5 5 2 4 4 8 9 5 8 4 8 1 1 2 71 4
China 6 1 9 3 9 9 2 8 9 1 5 1 2 3 9 77 5
Malaysia 1 9 4 6 8 7 5 1 6 5 6 5 3 7 5 78 6
Hong Kong 7 4 8 8 2 1 3 7 7 6.5 7 6.5 8 5 1 81 7
India 9 6 7 9 3 8 7 6 2 2 2 2 4 8 6 81 7
Taiwan 2 8 2 7 6 3 9 3 4 9 8 9 9 9 8 96 9
Finally, our qualitative assessment differentiates the countries ranked in the middle. Near term policy catalysts
leads us to believe Hong Kong and Thailand should be relatively immune from this fallout due to positive
domestic developments and interest rate cuts. We upgraded these two markets on August 20. In Malaysia,
the budget announcement on September 7 should cause near term pump-priming catalysts to fade. Indeed,
Malaysia has shown strong resilience in the sell-off. Hence, we downgrade the market to Benchmark weight.
Our preference in terms of market ranking are Hong Kong / China, Thailand, Singapore, Malaysia, Korea,
Indonesia, India, and Taiwan.
16

Strategy Overview: Asian Equity
Regional Equity Strategy Q4 2007
Hong Kong / China (Upgrade to Overweight)
We reiterate our Hong Kong overweight despite it having returned 17% since we upgraded
it on August 20. Last quarter we identified Hong Kong as the laggard market in Asia,
citing regulatory structural changes in China as a catalyst for outperformance.
Against a backdrop of mixed external signals, in particular Fed cuts in September versus
potentially disappointing US corporate results in October, we believe that domestic
drivers (including retail QDII) will be the main supports for the market in the near term.
The various Chinese regulatory changes aimed at diversifying Chinese liquidity flows
will continue to influence the direction of the Hong Kong market. These include: -
a) Reverse listing in China by China concept stocks in Hong Kong to increase supply of
A share listed companies
b) The setting up of China Investment Corp to manage China's foreign reserves
c) QDII scheme to allow Chinese institutions and corporates to invest in overseas market
d) Retail QDII scheme to allow Chinese individuals to invest in Hong Kong
In the next three to six months, higher inflation risks heighten policy vigilance. We
continue to expect further rate hikes, increases in bank's reserve requirement ratios,
and an appreciating CNY, albeit all occurring in a controlled manner.
With the recent euphoria surrounding the soon to be implemented retail QDII pilot
scheme, we believe it is appropriate to highlight some of the risks. However this does
not change our positive stance on the Hong Kong / China market. In the longer term,
risks revolve around:
a) Overheating risk in the Chinese economy leading to an asset bubble
b) Slowdown in the Chinese economy leading to social problems
c) Accelerated monetary tightening leading to rise in financing costs and demand-side
shocks
d) Accelerating liberalisation of capital accounts leading to uncontrollable external shocks
As with any government measure we believe uncertainty in pace and magnitude is
always a bigger risk than the policy itself. The measured pace and the direction thus far
leaves us comfortable with policy risks in China at the moment. We can look to positive
policy directions in the annual national congress meeting in October.
Will valuations in Hong Kong really catch up with China?
Even with the implementation of the retail QDII scheme, we think it is unrealistic to
believe that valuations in Hong Kong will finally catch up with China. Overseas investors
made up 41% of total cash market trading, whilst in the securities derivatives market,
21% are from overseas institutions and 48% from principal trading. With such openness
in the Hong Kong market, we do not believe the Chinese wall of money will dominate
Hong Kong trading and push valuations up asymmetrically. Given the extent of institutional
participation in the Hong Kong market, valuations are more likely to track fundamental
drivers such as earnings, and company specific risk factors.
17

Regional Equity Strategy Q4 2007
Strategy Overview: Asian Equity
Fig. 34: HKEX: Breakdown of stock trading turnover by investor
group, June 2006
%
100
-
90
80
70
60
50
40
30
20
10
73
63 63
67
32 32 30
22
5 5 5 3 4
56 56 58 57 56
40
37 39
7
3
36 36
53
41
7 8 7
1996/97 1998/99 2000/01 2002/03 2004/05
Local Investor
Exchange Participant
Overseas investor
Fig. 35: HKEX: Breakdown of derivatives trading
by investors group, June 2006
Exchange
Participants'
princial trading
48%
Overseas
institutional
investors
21%
Overseas retail
investors
2%
Local
instituional
investors
8%
Local retail
investors
21%
A more realistic expectation is for Hong Kong and China
valuations to converge. But do not assume that this is
a one-way street. The narrowing of the premium can
also happen if the Chinese market were to correct
from current levels. If this happens, Hong Kong H shares
will not hold up as well. This implies that volatility in
the Hong Kong market will also be higher, but investors
will also be rewarded with higher returns.
We recommend investors to focus on companies with
strong earnings growth and profitability; and sectors
with good structural themes.
Fig. 36: A-share P/E premium over H share
x
10
2
1
Delay in retail QDII possible
0
The recent hype surrounding the pilot retail QDII scheme 94 95 96 97 98 99 00 01 02 03 04 05 06 07
makes us slightly cautious in the near term. We believe
the delay in the retail QDII scheme may reflect the
fact that the foreign capital control system is not yet in place. We do not exclude the possibility of implementation
being pushed back beyond two months. However investors should not view such a delay negatively, especially
if one believes that the long-term policy is to provide outlets for domestic liquidity in China, whilst promoting
Hong Kong as one of the elite Chinese cities. We also do not rule out the possibility that the scheme may
specify a limited list of stocks, which meet minimum requirements, as part of a safeguard for the retail
Chinese investors.
9
8
7
6
5
4
3
18

Strategy Overview: Asian Equity
Regional Equity Strategy Q4 2007
Singapore
We are maintaining our overweight call on Singapore. Barring further external shocks,
the STI looks poised to revisit its previous high after recovering 12% from the bottom on
August 17. We believe the sell down in the STI was over done, and was in part due to
the open and liquid nature of the market. Fundamentals remain strong and we believe
that after languishing over the past quarter, this high quality, laggard market is set to
regain its momentum.
A high beta market
We believe that risk aversion in Singapore is higher than in other markets due to 1)
higher banking sector representation in the STI, which is suffering from negative news
flow; 2) its preferred fund flow destination status means it is over-owned and liquid; 3)
recent rises in property prices which have raised official concerns. In our view these are
about the balance between price and liquidity and not about deteriorating fundamentals.
With an increase in implied ERP, we believe the market should recover as risk appetite
improves.
Singapore valuations are at attractive levels, especially when viewed from the perspective
of historical PE ranges of the past three and a half decades. This is despite near record
stock prices, and is the result of a strong earnings build-up in recent years.
Fig. 37: Market Performance over July 24 - Sep 11 period
%
30
Aug 17 - Sep 11
15
Fig. 38: Regional banks performance vs Singapore banks
Rebase
110
105
AXJ
0
-15
-30
PSE
SET
KLCI
TWI
KOSPI
JCI
STI
SENSEX
HSI
Red Chip
H-share
July 24 - Aug 17
Fig. 39: Consensus earnings estimates for 2007 - 2009
%
33
32
31
30
29
28
27
26
25
24
23
2009
2008
2007
22
Feb Mar Apr May Jun Jul Aug Sep
100
World
95
90
Singapore
85
Jul-07 Aug-07 Sep-07
Fig. 40: Singapore historical P/E valuation
60
50
40
30
20
10
0
73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07
19

Regional Equity Strategy Q4 2007
Strategy Overview: Asian Equity
Falling US bond yields (enroute to 4.3%) is positive for the Singapore market. In the
previous quarter, we highlighted that the rising bond yield was an obstacle to further
upwards re-rating for Singapore. As long as earnings yield remains higher than the
bond yield, it makes sense to borrow to buy back shares or fund M&A, therefore
lending support for equities.
Strong economic fundamentals
Singapore's domestic economic growth story remains intact, in our view. DBS Economics
is again upgrading 2007 GDP forecasts to 7.7% from a previous 7.3%, due to robust
growth in the construction and financial services sectors this year. The question is whether
Singapore can surprise with another near-8% GDP growth performance next year?
The Singapore economy has been on gear since 2003, growing at near 8% for the past
five years. With the structural changes and cyclical forces in place we believe Singapore
should still be able to grow above its potential growth. Indeed the Singapore government
has recently upgraded its potential growth to between 4-6% from an original 3-5%.
Going into 2008, our economist is looking for a slight moderation to 6.5%, which is still
above long-term potential growth. Under-estimation of construction activities and overriding
concerns on a slowdown in financial services due to the US sub prime could
issue, suggest potential upside to GDP forecasts for next year. As in previous years,
exports growth remains the wild card.
Inflation has been creeping up in Singapore due to both demand and supply side pressure
as can be seen in rising housing costs, wages and raw materials. However we see that
various industry demand cycles where Singapore companies are exposed to have yet to
peak and still remain strong. Global industrials like oil & gas services, shipbuilding and
aerospace engineering have strong capex growth requirements. Domestic demand for
construction, building materials, financial services, legal consultation, advertising and
media are driving growth prospects for the services sector. Private consumption with
regard to luxury goods, autos, restaurant receipts, travel and leisure, and transportation
is also bolstered by high job growth and a lower unemployment rate. With the completion
of the integrated resorts going over the next three years, the Formula One race in 2008,
and the transformation towards becoming a world class global city, it is difficult to be
negative towards this market. As it is, Singapore remains a favourite FDI destination in
Asia as can be seen from foreign participation in numerous domestic projects.
Growing integration with China also makes Singapore less susceptible to a US slowdown,
as well as the potential for inflows of liquidity from the Chinese wall of money. In its
simplest form, a Singapore ETF listing of blue chips on the Hong Kong stock exchange
will act as a conduit of sorts for retail QDII money. A change in China policy to include
the Singapore bourse as the next possible destination for domestic Chinese money is
plausible, considering the close ties of Singapore and China.
20

Strategy Overview: Asian Equity
Regional Equity Strategy Q4 2007
So what is in the price?
Implied growth and ERP chart
Implied growth for Singapore is pointing towards a 5.0% growth which is lower than the nominal GDP growth
of 6.5%. This means that the market is being conservative on the growth outlook. The market is also pricing in
an equity risk premium of 5.2%, which is near the post-crisis average from 2000. This implies that the market
believes that ERP is appropriate.
We believe that Singapore has the best growth visibility among all the Asian markets and can hence command
a premium compared to the rest of the region. Earnings revision has shown a peak from the recent data but we
believe the recent data was an aberration considering the strong 1H corporate results. Meanwhile valuation
premium versus the rest of Asia has dropped from 25% to 5%.
Fig. 41: Equity Risk premium
%
14
12
10
8
6
4
2
0
-2
-4
Long term
average
Average
from
2000
-6
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Note: Implied from using 10-year DDM with first two
years of consensus growth and long-term growth of
6.5% for rest of 3rd - 10th year.
Fig. 42: Implied growth
%
24
19
14
9
4
-1
Long term
potential
growth
-6
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Note: Implied long-term growth for 3rd - 10th year using
10-year DDM. Long term potential growth from survey
by Consensus Economics Inc., and ERP of 4%.
Hong Kong is preferred to Singapore as we expect Hong Kong properties to outperform Singapore properties in
an environment of falling US interest rates. Moreover negative news flow will keep the Singapore banks under
pressure for a while although we believe that the selling on the sub prime concerns is done and overdone. We
will see out performance in the banks after the 3Q results.
Fig. 43: Singapore 12m fwd P/E premium over Asia exregion
(x)
1.6
1.5
1.4
1.3
1.2
1.1
1.0
Average
00 01 02 03 04 05 06 07
Fig. 44: Singapore property relative to HK property
vs FED funds rate
Index
%
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
Singapore vs Hong
Kong relative property
Fed Funds
(RHS, reverse)
87 89 91 93 95 97 99 01 03 05 07
c
0
1
2
3
4
5
6
7
8
9
10
21

Regional Equity Strategy Q4 2007
Strategy Overview: Asian Equity
Malaysia (Downgrade to Benchmark weight) vs Thailand (Upgrade to Overweight)
We are downgrading Malaysia in favour of a Thailand upgrade. The trade off is based
on the following changes in the past three months: -
a. Both countries will probably have elections within the next six months. Thailand has
announced the elections date on December 23, but Malaysia has still yet to decide
on one. Our ground checks suggest that Malaysia's elections will probably be next
year. Although we do no rule out the possibility of Thailand's elections to be delayed
due to the King's birthday, and Asian games in December, the elections should be
held in January at the latest.
b. The sentiments toward the elections were different in these two countries; Thailand
is for a change and Malaysia for goodies, or rather, more goodies. Hence elections
in Thailand will be the earlier the better and Malaysia the later the better. As such
we feel that market impact from elections will be greater in Thailand than in Malaysia.
c. Economic and corporate earnings growth in Thailand hit another low in the second
quarter. Meanwhile upgrades for 2008 has emerged. DBS Economics has upgraded
2008 GDP from 5.1% to 5.5% in anticipation of more investment spending to come.
Fig. 45: Thailand: Consensus 12m forward GDP growth
trend vs SET index performance
%
%
8.0
140
7.0
6.0
5.0
4.0
3.0
2.0
02 03 04 05 06 07 08
12m fwd GDP growth (L)
DBS forecast
2008: 5.5%
120
100
-20
-40
d. Thailand has been attracting a fair volume of funds
flow in the last three months prior to the global
equities correction. It is hence difficult to build a
position without bidding up prices. Our sense is
that excesses have been filtered out in this correction
and it will be a good time to build the position
towards the elections. We should see incremental
fund flow as sub-prime concerns recede.
80
60
40
20
0
SET yoy% (R)
Fig. 46: Thailand: Consensus earnings trend for 2007
- 2009 earnings
%
120
2009
116
112
2008
108
104
100
2007
96
Feb Mar Apr May Jun Jul Aug Sep
Fig. 47: Cumulative net foreign buying since beginning
of 2007
US$mil
4500
4000
3500
3000
2500
2000
1500
1000
500
0
-500
Jan-07 Mar-07 May-07 Jul-07
22

Strategy Overview: Asian Equity
Regional Equity Strategy Q4 2007
e. In Malaysia funds flow has been strong since last year in anticipation of positive
elections and pump priming news. We believe incremental funds flow will be quite
slow, with growing risk of outflow should pump priming news disappoint as expectations
from domestic and foreign investors are quite high. Recent budget announcement
turns out to be a non-market event amid sub prime concerns, although it is still an
expansionary budget in our view.
f. In terms of investment spending news, Thailand has yet to unveil its investment
budget for next year. We anticipate the new government next year should
have more fiscal stimulus. We also anticipate that the new government should
have more market friendly measures.
g. In terms of valuations, Thailand trades at a discount to Malaysia, but the
discount is close to its 5-year historical average levels. For Malaysia we recommend
buying into the "elections-beneficiaries" theme for out performance; while
in Thailand we are looking forward to a broad based re-rating in the market.
Re-rating in Thailand can happen from a revival of consumer confidence,
which will boost business and consumer spending. Indeed market has rerated
without earnings joy. We anticipate next year's earnings growth should
be around 13%, markedly up from -3% growth in 2007. A series of interest
rate cuts this year should bolster the case for better earnings growth. Our
Thai research team works out that in the past three instances where there
were rate cuts, P/E has expanded considerably over the same interest rate
downcycle by an average of 147%.
Fig. 48: Thailand vs Malaysia P/E discount
(x)
0.90
0.85
0.80
0.75
0.70
Fig. 49: Thailand: 12-month fwd PER Bands (32, 26, 20,
14, 8x)
1000
900
800
700
600
500
400
300
200
1000
900
800
700
600
500
400
300
200
0.65
100
100
0.60
0.55
Sep-02 Sep-03 Sep-04 Sep-05 Sep-06
40
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Source: DATASTREAM
40
Our top down model is more sensitive to revival of consumer confidence and valuations. Our blue sky
scenario is for Thai consumer confidence to revive to about 80 (currently at 75.8) which was about the same
level when the interim government took over in January 07, 13% earnings growth for 2008 and a PE rerating
to 12x forward PER from 10.8x currently. That should translate to an index target of 1040.
Our economist has pencilled in three interest rate hikes in the second half of next year based on a brighter
growth outlook. While this interest rate view is non-consensus, we believe the markets will not be particularly
phased as such a scenario would imply that growth has been strong enough to spur demand and inflation;
and that central bank would be confident enough of the sustainability of growth. The regional strategy team
believes that the balance of risk lies toward achieving growth targets where expectations are high and needs
to be monitored closely, rather than an overshooting on inflation and hence the tightening bias. With a new
government in place, and when sentiments are beginning to improve, we believe the central bank will stay
vigilant in its policy moves. Our positive stance on the market is premised on a turnaround in sentiments with
the upcoming elections and better growth outlook for 2008.
23

Regional Equity Strategy Q4 2007
Strategy Overview: Asian Equity
Indonesia (Maintain Benchmark weight)
We maintain our Benchmark weight recommendation on Indonesia. IDR/USD at 9400 is
on the higher side of Bank Indonesia's (BI) acceptable range of 8500 - 9500 and hence
bears less risk of sharp depreciation. Our previously more cautious stance on Indonesia
despite a strong growth outlook is due to its large bond holdings. Recall that bond flows
were attracted into Indonesia in 2006 due to a series of rate cuts, and this has helped to
keep the rupiah strong and stable. The risks of bond outflows threatening rupiah stability
are high in our view and we believe the recent correction in rupiah was mainly due to
bond outflows. This also keeps the BI vigilant in its interest rate policy. As such, we
believe that it will be lose-lose situation, regardless of the direction of interest rates. We
believe current rupiah stability can be maintained as spreads between US and Indonesian
rates remain still attractive to bond holders.
Growth wise, Indonesia has not disappointed so far. FDI flows remain short of target but
we don't see that as a risk for Indonesia not achieving its potential growth. Keeping in
mind that Indonesia has already been one of the top performing markets in Asia for the
last 5 years, we are keeping our Benchmark weight in Indonesia. We like the resource
and energy related sectors, as they are the main focus of government infrastructure
spending efforts in Indonesia. Private consumption has picked up but higher inflation is
threatening margins in consumer staples. Consumer discretionary, should however, outperform.
India (Maintain Benchmark weight)
We believe Indian valuations are supported by India's growth story, just like
China. Real GDP in 2Q07 increased 9.3% YoY, close to China's 11.9% growth.
Our full year economic growth forecast for 2008 now stands at 9% and 10% for
India and China respectively.
While inflation and interest rates have gone up considerably in the past six
months, growth has not fallen. Besides GDP, earnings growth also had a strong
showing of 20% for the second quarter. Although this pales against China's
earnings growth of 56%, at least India is cheaper in valuations than China, and
Sensex is up 20% for the year versus 98% for SSE.
To be sure, India was not spared in the latest global equities sell down but the
Sensex has since risen back to within 1% of its all-time high. In fact, the selldown
may have been caused more by political gridlock within the coalition
government over the India - US bilateral civilian nuclear deal. The communist
parties, which had reservations about the agreement, had threatened to resign,
putting the coalition government at risk. Although tensions have eased, uncertainty
remains.
Turning points in India's political cycle usually result in short-term volatility in
the market, but sentiments are quick to recover. Importantly political volatility
does not derail the growth story. We believe in India's growth story and are
maintaining our Benchmark weight for India.
Korea (Downgrade to Underweight)
Korea was one of our favoured markets and we had liked it for two reasons: P/E rerating
in the making and a bottoming of the economic cycle. Foreign investors had
shunned this market for two reasons: poor corporate governance and North Korea. The
recent court verdict of a top executive person in one of the chaebols didn't help much;
and the upcoming verdict on the legality of the previous sale of a local Korean bank to
a foreign investor group will have the final verdict. At the same time, many investors
like to compare North / South Korea with East / West Germany. Until we can be
convinced of a better corporate governance environment, and have a clearer understanding
of the differences between the Berlin wall and the Freedom Bridge, we are downgrading
the market to underweight.
24

Strategy Overview: Asian Equity
Regional Equity Strategy Q4 2007
Our downgrade is also prompted by increasing US growth uncertainty where Korea is
exposed to in terms of exports and market cap exposure. And Korea, being one of the
best performing markets so far this year despite massive foreign selling, could be subject
to more foreign selling to raise cash levels. A trade off is made towards favouring Asean
markets versus Korea and Taiwan.
Foreigners net sold US$15bil in Korea in 2007 in addition to US$22bil in the last two
years. What are they thinking on the best performing market in Asia (other than Chinese
stocks) this year? Trading at 12.1x 12m forward P/E. It is the second cheapest market
outside Thailand in terms of absolute 12m forward P/E. It’s D/Y however is one of the
lowest in the region. P/B, which is the only indicator predictive of 12m fwd return trades
at 2.6x standard deviation above its historical average since 1993. KOSPI's performance
is also heavily skewed towards the deep cyclicals whereas other index heavyweights
like the banks and tech sector had underperformed. We are generally cautious on
these two sectors due to increasing US growth uncertainty and the lack of share price
catalysts for the banks. We believe investors can better out performance by buying
outright Korean deep cyclicals, which are benefiting from the global capex cycle.
Fig. 50: Annual net foreign buying in Korea
US$bil
15
10
5
-
Fig. 51: Korea sector performance vs Kospi
Index
200
Banks
Tech
180
Steel
160
KOSPI
140
(5)
(10)
(15)
1993
1994
1995
1996
1997
1998
1999
2000
2001
Taiwan (Maintain Underweight)
2002
2003
2004
2005
2006
2007
We are maintaining our underweight view on Taiwan. We are positive on the economic
growth prospects as investment had made a comeback to growth contribution and we
expect it to be sustainable. However US uncertainty and the tech sector outlook still
looms. This places risks on the exports and the tech sector where Taiwan has the
highest exposure among the Asian countries. With the elections cycle in January -
March next year (legislative in January, presidential in March) we expect political volatility
to be at its peak towards the end of the year. Hence we do not expect any constructive
address of economic policy issues, which is much needed in Taiwan.
120
100
80
Jan Feb Mar Apr May Jun Jul Aug Sep
25

Regional Equity Strategy Q4 2007
Strategy Overview: Asian Equity
Index Target
Most market indices had surpassed our previous Dec 07 target, despite a mid-quarter
correction. We are upgrading our index targets to reflect our still positive outlook for
Asian markets. We are looking for volatility in the next one month before a year
end rally in November. Event risk surrounding the 3rd quarter results season is quite
high in our view, but markets should not find another bottom as sentiments have
improved after the stock market recovery. Our recommendation is to accumulate
on weak days in order to position for a year end rally.
Chinese retail QDII scheme and 17th National Congress should provide positive
sentiments in Hong Kong in the near term, and we believe our index target
for HSI and H-share for 2008 should have more upside with 2008 being the
China’s Olympics year. Elsewhere sentiments should remain positive as elections
in Thailand, Malaysia, Korea, and Taiwan are occurring by end of this year or
by early next year. Singapore should see 2008 as another construction boom
year and tourist arrivals for the Formula One event, new tourist attraction
the Singapore Flyer; and visitors and training teams for Olympics are transiting
here while enroute to Beijing. Indonesia should also be benefiting from rising
commodity prices and India’s domestic demand continue to soar. Near term
risks we are seeing volatility from subprime concerns but complacency should
see indices surging by early next year before we see another bull market
correction.
Our preference in terms of market ranking are Hong Kong / China, Thailand,
Singapore, Malaysia, India, indonesia, Korea and Taiwan.
Fig. 52: 11-Sep 12-month
Sensitivity
% return
Current Earnings Current Based on Index based on P/E Re-rating Target*
Till Full
Level Growth PE SD Growth to 0 SD to 0.5 SD to 1 SD Dec 07 2008 31-Dec 2008
Hong Kong 23952 13.6 -0.2 27209 24813 26989 29164 26100 28000 9.0 7.3
H-share 14333 22.0 2.5 17486 8191 9440 10690 15800 17000 10.2 7.6
Thailand 801 11.9 0.3 896 547 928 1308 850 1040 6.1 22.4
Singapore 3495 22.0 0.3 4264 3200 3721 4242 3700 4200 5.9 13.5
Malaysia 1286 16.0 0.6 1492 994 1253 1512 1350 1570 5.0 16.3
India 15542 18.5 1.0 18417 12599 14145 15692 16400 18500 5.5 12.8
Indonesia 2211 17.7 0.9 2602 1297 1816 2334 2300 2600 4.0 13.0
Korea 1847 12.1 0.7 2071 1083 1615 2147 1920 2150 4.0 12.0
Taiwan 9003 16.1 0.1 10453 8760 10895 13031 9400 11000 4.4 17.0
*Target index levels derived from top down assumptions may vary from the bottom-up targets specified in the indvidual
country assessments
Note: Sources for all charts and tables are Datastream, CEIC or Bloomberg. Earnings consensus data
are from IBES Aggregate via Datastream.
26

Strategy Overview: Asian Equity
Regional Equity Strategy Q4 2007
Fig. 53: Appendix: Combined Valuation Score
No. of SD
from Trend
Average
R 2 with 12-
month fwd
Performance
Forecast
12m-fwd
return
Valuation Measure 9/12/07
Long-term
Trend Avg
Long-term
Std. Dev.
Singapore 3506.09 4%
P/E 12.7 18.4 5.2 -1.1 8%
D/Y 2.3 2.1 0.5 -0.3 33% 15%
P/B 2.5 1.7 0.4 2.0 26% -23%
12m FWd PER 15.0 16.7 3.0 -0.6 14%
US Bond / Earnings Yield Ratio 0.6 1.0 0.4 -1.1 12%
US Bond / Dividend Yield Ratio 1.9 2.8 1.2 -0.7 21% 20%
Hong Kong 24310.14 -13%
P/E 14.7 15.5 3.8 -0.2 28% 14%
D/Y 2.4 3.0 0.6 1.1 48% -12%
P/B 2.7 1.6 0.3 3.8 50% -73%
12m FWd PER 18.2 14.6 2.8 1.3 21% 8%
US Bond / Earnings Yield Ratio 0.6 0.8 0.3 -0.7 28% 21%
US Bond / Dividend Yield Ratio 1.9 1.9 0.5 0.0 36% -9%
Malaysia 1285.94 30%
P/E 13.8 18.4 6.1 -0.7 11%
D/Y 3.5 2.4 0.8 -1.4 32% 35%
P/B 2.4 2.1 0.7 0.4 0%
12m FWd PER 14.9 16.4 4.1 -0.4 7%
US Bond / Earnings Yield Ratio 0.6 1.0 0.5 -0.8 0%
US Bond / Dividend Yield Ratio 1.3 2.7 1.4 -1.0 22% 24%
Thailand 802.00 3%
P/E 13.1 15.2 8.6 -0.2 0%
D/Y 3.6 2.5 1.1 -0.9 6%
P/B 2.2 2.2 0.7 0.0 25% 3%
12m FWd PER 11.2 20.6 14.4 -0.7 3%
US Bond / Earnings Yield Ratio 0.6 0.8 0.5 -0.5 1%
US Bond / Dividend Yield Ratio 1.2 3.0 2.5 -0.7 14%
Indonesia 2209.93 24%
P/E 20.4 16.2 5.6 0.7 8%
D/Y 2.5 2.1 0.9 -0.4 45% 27%
P/B 3.9 2.0 1.6 1.2 0%
12m FWd PER 13.1 12.8 8.4 0.0 0%
US Bond / Earnings Yield Ratio 0.9 0.9 0.4 0.0 14%
US Bond / Dividend Yield Ratio 1.8 3.1 12.0 -0.1 40% 21%
China 'H' 14450.48 -9%
P/E 23.5 12.0 3.6 3.2 7%
D/Y 1.5 2.7 1.1 1.1 0%
P/B 4.5 1.7 0.5 5.0 0%
12m FWd PER 19.0 12.6 4.9 1.3 32% -9%
US Bond / Earnings Yield Ratio 1.0 0.5 0.2 2.2 2%
US Bond / Dividend Yield Ratio 2.9 2.2 0.8 0.8 2%
Korea 1813.52 -40%
P/E 14.8 14.9 6.4 0.0 5%
D/Y 1.6 1.7 0.5 0.3 9%
P/B 1.9 1.2 0.3 2.6 20% -40%
12m FWd PER 12.1 11.3 4.0 0.2 0%
US Bond / Earnings Yield Ratio 0.7 0.8 0.5 -0.4 10%
US Bond / Dividend Yield Ratio 2.8 3.6 2.0 -0.4 15%
Taiwan 9018.12 20%
P/E 16.4 21.4 6.7 -0.7 23% 19%
D/Y 3.8 1.9 0.9 -2.0 10%
P/B 2.3 2.5 0.8 -0.3 14%
12m FWd PER 12.7 18.6 6.2 -1.0 5%
US Bond / Earnings Yield Ratio 0.7 1.2 0.5 -0.9 21% 20%
US Bond / Dividend Yield Ratio 1.2 3.8 2.1 -1.2 18%
India 15505.36 2%
P/E 19.8 17.9 7.3 0.3 27% 4%
D/Y 1.1 1.5 0.5 0.9 54% -15%
P/B 4.5 2.5 0.9 2.2 3%
12m FWd PER 18.2 13.3 3.0 1.6 15%
US Bond / Earnings Yield Ratio 0.9 1.0 0.6 -0.2 34% 17%
US Bond / Dividend Yield Ratio 4.1 4.3 2.8 -0.1 38% 12%
AXJ 627.56 3%
P/E 16.1 16.8 3.8 -0.2 29% 12%
D/Y 2.1 2.2 0.5 0.1 48% 8%
P/B 2.7 1.8 0.3 2.9 36% -42%
12m FWd PER 14.9 13.7 2.8 0.4 25% 9%
US Bond / Earnings Yield Ratio 0.7 0.9 0.4 -0.6 29% 19%
US Bond / Dividend Yield Ratio 2.1 2.7 1.0 -0.6 36% 20%
Shaded cells are selected valuation indicators which are back-tested to have better predictive power of 12-month
forward performance. Return forecasts are based on regresstion equations of standard deviations from long term
average against historical 12m forward return. Data starts from 1993 except India and China.
27

Regional Equity Strategy Q4 2007
Strategy Overview: Asian Equity
Disclaimer:
The information herein is published by DBS Bank Ltd (the “Company”). It is based on information obtained
from sources believed to bereliable, but the Company does not make any representation or warranty,
express or implied, as to its accuracy, completeness, timeliness orcorrectness for any particular purpose.
Opinions expressed are subject to change without notice. Any recommendation contained hereindoes not
have regard to the specific investment objectives, financial situation and the particular needs of any specific
addressee. Theinformation herein is published for the information of addressees only and is not to be taken
in substitution for the exercise of judgementby addressees, who should obtain separate legal or financial
advice. The Company, or any of its related companies or any individualsconnected with the group accepts no
liability for any direct, special, indirect, consequential, incidental damages or any other loss ordamages of
any kind arising from any use of the information herein (including any error, omission or misstatement
herein, negligent orotherwise) or further communication thereof, even if the Company or any other person
has been advised of the possibility thereof. Theinformation herein is not to be construed as an offer or a
solicitation of an offer to buy or sell any securities, futures, options or otherfinancial instruments or to
provide any investment advice or services. The Company and its associates, their directors, officers and/
oremployees may have positions or other interests in, and may effect transactions in securities mentioned
herein and may also perform orseek to perform broking, investment banking and other banking or financial
services for these companies. The information herein is notintended for distribution to, or use by, any person
or entity in any jurisdiction or country where such distribution or use would be contrary tolaw or regulation.
28

Strategy Overview: Asian Equity
Regional Equity Strategy Q4 2007
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29

Regional Equity Strategy Q4 2007
Regional Data Monitor
Funds Monitor
US Funds Flow into Asian Equities, by Country
US$m 2Q06 3Q06 4Q06 1Q07 2Q07
Hong Kong Net purchase of 45,664 422 11,372 -641 -100
equities by US buyer buyer buyer seller seller
HSI 16,262 17,302 19,083 19,853 20,909
Singapore Net purchase of 4,337 370 1,256 2,789 1,810
equities by US buyer buyer buyer buyer buyer
STI 2,477 2,499 2,842 3,154 3,474
Malaysia Net purchase of 510 218 956 1,170 546
equities by US buyer buyer buyer buyer buyer
KLCI 931 954 1,055 1,211 1,341
Thailand Net purchase of 624 48 242 83 114
equities by US buyer buyer buyer buyer buyer
SET 719 689 714 668 738
Philippine Net purchase of -92 20 237 40 194
equities by US seller buyer buyer buyer buyer
PCOMP 2,248 2,420 2,827 3,170 3,469
Indonesia Net purchase of 415 184 -283 310 211
equities by US buyer buyer seller buyer buyer
JCI 1,368 1,439 1,702 1,776 2,074
Korea Net purchase of 6,946 -764 -586 33 2,244
equities by US buyer seller seller buyer buyer
KOSPI 1,344 1,341 1,410 1,410 1,662
Taiwan Net purchase of 3,681 -1,069 655 108 -71
equities by US buyer seller buyer buyer seller
TWSE 6,908 6,650 7,471 7,829 8,301
Total US
Net purchase of Asian
Equity (US$m)
62,085 -571 13,849 3,892 4,948
US Dow Jones Index 11,229 11,415 12,255 12,415 13,366
US 10-yr bond yield 5.1 4.9 4.6 4.7 4.8
Source: US Treasury
UK Unit Trusts
US$m 3Q06 4Q06 1Q07 2Q07 2Q07
71.2 71.0 68.1 64.9 63.5
% of all Equities (270.2) (285.5) (299.1) (311.2) (300.5)
14.5 14.1 16.1 16.3 16.5
Funds Bonds (55.0) (56.6) (71.3) (78.0) (78.1)
4.5 4.5 4.6 4.8 5.4
% of Asia (x Japan) (12.1) (13.0) (13.7) (15.0) (16.3)
60.9 60.5 60.2 61.1 60.8
Equity Domestic (164.6) (172.7) (180.0) (190.1) (182.7)
34.6 35.0 35.2 34.1 33.8
Funds Others (93.5) (99.9) (105.4) (106.1) (101.5)
Source: Association of unit Trusts and investment funds.
Notes: Figures in parentheses denote value of funds in pounds bn. 'Others' Category include
US, Japan, International and emerging markets funds. 3Q'07 data up to Jul only.
30

Regional Data Monitor
Regional Equity Strategy Q4 2007
Earnings Monitor
Revisions in Earnings Forecast
Forecast revisions during 3Q07
% Increase % Decrease % Net
Singapore 45 35 10
Hong Kong 52 19 32
China 57 14 43
Msia 43 38 4
Thailand 39 36 4
Indonesia 45 9 36
Notes: % increase (decrease) denote the % of companies’ earnings that were raised (lowered) during 3Q07.
Forecast revisions during 2Q07
% Increase % Decrease % Net
Singapore 48 27 20
Hong Kong 46 21 25
China 48 30 19
Msia 69 10 59
Thailand 28 30 -2
Indonesia 27 9 18
Notes: % increase (decrease) denote the % of companies’ earnings that were raised (lowered) during 2Q07.
Revisions in Recommendation
Changes in recommendation during 3Q07
% Up % Down % Net
Singapore 6 14 -8
Hong Kong 10 19 -10
China 21 7 14
Msia 15 4 11
Thailand 20 5 14
Indonesia 45 0 45
Notes: % increase (decrease) denote the % of recommendations that were raised (lowered) during 3Q07.
Changes in recommendation during 2Q07
% Up % Down % Net
Singapore 8 17 -9
Hong Kong 13 21 -8
China 9 13 -3
Msia 14 7 7
Thailand 22 20 2
Indonesia 9 55 -45
Notes: % increase (decrease) denote the % of recommendations that were raised (lowered) during 2Q07.
31

Regional Equity Strategy Q4 2007
Regional Data Monitor
This page has been left blank intentionally
32

Country Assessments & Stock Profiles Regional Equity Strategy Q4 2007
Country Assessments
&
Stock Profiles
33

Regional Equity Strategy Q4 2007
Country Assessment
Singapore
STI Current : 3,476
Safety first STI 3 / 12 mths Target : 3,700 / 4,000
Expected Return : +6.4% / +15%
• Equity markets took a roller coaster ride due to the onslaught of the US Sub-prime
woes. The STI plunged 20% from its peak to a low of 2962 in August, after it hit a record
high of 3665 in July. September saw a swift rebound of the STI, rising 17% from the low
to 3476, following the US Fed’s move to cut the Fed Fund’s rate by 50bp.
• Domestic growth is rosy, driven by three strong pillars of the economy –
manufacturing, services and construction. The DBS economics team has upgraded GDP
Growth for 2007 to 7.7%, but expects growth to slow to 6.5% in 2008. While corporate
earnings growth is robust at 17% for 2007 and 19% for 2008, potential downgrades in
earnings could come from a possible slowdown in the financial services sector and rising
costs which may affect operating margins of companies.
• Key risk in equity markets is the uncertainties caused by the US sub-prime woes. The
market remains vulnerable to newsflow from the US and Europe, creating volatility. At
this stage, it is premature to determine the possibility of a US slowdown affecting
Singapore’s earnings growth, except for the financial sector. The STI is just 5% from its
July peak, trading at 12 month forward P/E of 15x, justified by growth of 2-year eps
cagr of 18% and dividend yield of 2.3%.
• Against this backdrop, we prefer sectors with exposure to domestic sector
growth(Consumer Services including Land Transport and SPH), strong earnings stream
(Telecommunications), good earnings visibility(Offshore and Marine with record order
book). SembCorp Industries will ride on SembCorp Marine’s strong order book and
stability from its Utilities division. FNN is poised for re-rating with the potential to
unlock value, and as an alternative play into mid-tier property, with a land bank of 5m
sq ft. The banking sector remains vulnerable to negative newsflow on the US and
European banks’ exposure to CDOs. However, value has emerged for Singapore Banks,
trading at an average P/B of 1.8x and P/E of 12.7x(FY08F), our top pick is UOB, which has
the least exposure to CDOs, with potential upside for dividends in its final results. We
have picked CDL Hospitality Reit as proxy to the buoyant hotel industry.
Indices
Closed
17 Sep 07
Chng Net
-1 mth
-1 mth
(%)
-3 mth
(%)
-6 mth
(%)
52-Week
-12 mth
(%) High Low
STII 3,476 346 11.0 (2.9) 13.3 38 3,689 2,511
SES Finance 2,357 121 5.4 (10.1) 3.0 26 2,677 1,854
SES Property 1,508 215 16.6 (7.4) 14.4 65 1,678 906
SES Elec 124 15 14.3 (3.1) 2.0 14 134 100
UOB Sesdaq 228 27 13.2 (8.0) 39.8 105 308 110
Transactions:
YTD
Volume (bn) 518
Value (S$ bn) 411
Janice Chua · (65) 6398 7954 · janicechua@dbsvickers.com
34
Refer to important disclosures at the end of this report

Country Assessment
Regional Equity Strategy Q4 2007
MARKET REVIEW
Hit by US sub-prime woes. An escalation of US sub-prime market woes that shook credit
markets halted the STI’s ascent in July, which hit its peak of 3665 before it succumbed to selling
pressures. Regional markets suffered one of the worst declines in recent years on the back of
the sub-prime crisis in the US. Efforts by central banks worldwide to pump in money into the
financial market failed to calm investors. The STI shed more than 400pts during the 3-day period
from 15 Aug to 17 Aug, and briefly breached the 3000 psychological support level to touch an
intra-day low of 2962. The index subsequently rebounded after the US Federal Reserve cut its
discount rate by 0.5% to 5.75% to calm the market. The STI has since rebounded about 17%
from its intra-day low of 2962.
Despite strong domestic newsflow. On the domestic front, the Singapore economy surprised
on the upside in 2Q, revealing a stunning GDP growth rate of 8.6%. This led to the government
raising its forecast for full-year growth to 7-8% this year. Meanwhile, June’s jobless rate
dropped to a 6-year low of 2.4% as the robust economy added a record 64,400 jobs in the
second quarter, up 77% yoy. Sentiment was upbeat with the unemployment rate at a low 2.3%
in June 07 while wages rose 8.5% yoy in 2Q07. August NODX surprised with a 10.9% jump
yoy, its highest since January 2007 on the back of strong growth from pharmaceuticals, while
the slump in electronics sector appears to be bottoming.
China charges ahead, the Shanghai Index was the only market to surge, regardless of the
correction in all major stock markets. This is despite China’s repeated hike in interest rates for
the fifth time since March to cool the economy after inflation surged to a 10-year high at 6.5%
in August. The benchmark one-year lending rate will increase 0.27 percentage point to 7.29%
while the one-year deposit rate will rise 0.27 percentage point to 3.87%. However, SGX listed
China stocks came under profit-taking, partly due to rumours on corporate governance issues
on selected stocks and concerns over cost push inflation pressures on margins, particularly foodrelated
stocks.
ST Index Key Events in 1H07
3,800
3,700
3,600
3,500
3,400
3,300
3,200
3,100
Budget Day - Cut in
Corporate Tax Rates
Global Market
Correction
MAS raises Singapore
07 GDP to 5.7%
Spore secures F1
hosting rights for 5
years starting 2008
2Q Advance
GDP estimates
grew 8.2% yoy
Start of 21%
correction on SSEC
China ups 1-yr
lending/deposite
rate by 27bps
DC charge
for new
building
projects
raised from
50% to
70%
Hit by US
Sub-prime
loan
Biggest 3-day
drop in almost 6
year on concerns
US subprime
mortgage losses
will wosen
Govt raised
LT growth
rate to
upper end
of 4-6%
Briefing by National
Fed cut
Orchard Residences sets
Development Minister on
discount
new benchmark at
3,000
6.5m Population Planning
rate by
above S$4000psf
Estimate
50pbs to
5.75%
2,900
Dec 2006 Jan 2007 Feb 2007 Mar 2007 Apr 2007 May 2007 Jun 2007 Jul 2007 Aug 2007 Sep 2007
Source: DBS Vickers
35

Regional Equity Strategy Q4 2007
Country Assessment
GROWTH
We are upbeat on Singapore’s economic growth, as seen by the recent upgrades this year on
GDP growth in 2007 by DBS Economists, up from 6.3% to 7.7% this year. We have kept our
GDP growth forecast intact at 6.5% in 2008. Growth was broad-based, with all key engines –
manufacturing, construction and services – recording robust growth. Growth in pharmaceutical
output and value add from marine and aerospace engineering more than offset the slack in the
electronics sector.
The macro outlook for Singapore remains bright, barring any slowdown from the U.S. which
may derail growth. Growth will be broad-based. In addition to the twin engines of growth -
construction and services sectors, manufacturing sector is the added pillar. The strong order
book of Singapore’s shipyards will drive growth for the transport engineering sector over next
few quarters and into 2008. Together with output growth from the pharmaceutrical industry,
these will offset weaker exports for Electronics. The wild card lies in financial services sector
which could present downside risk if fee-based and stock broking activities slacken.
Net earnings in 2Q07 grew 28% yoy. Net earnings in 2Q for the basket of stocks under
DBSV’s coverage grew by 28%, vs 20% in 1Q, boosted by strong growth from all major sectors
including property, financial services, consumer services, property and oil and gas sectors.
Growth momentum will slow in 2H, partly due to a high base in 2H06 and margin pressures
kicking in.
No change in earnings growth, downside pending the dust settling in the US. At this
stage, other than potential downside to the financial sector, it is premature to determine if the
impact of a US slowdown could affect earnings growth in other sectors in Singapore. Our
current estimates are for earnings growth to accelerate into FY08 at 19%. Our two-year eps
cagr has been adjusted up from 17% to 18%. This is backed by strong earnings visibility from
pre-booked property sales, delivery of the record order book of shipyards and growth of China
consumption and infrastructure stocks covered in our universe. Even excluding growth from
property and Reits, growth for Singapore equities is fairly decent at 11% in 07 rising to 13% in
FY08.
Potential earnings downside could come from a) Companies with exposure to the US
economy, specifically the Technology and shipping sector in the event of a slowdown in the US
economy b) Financial Services sector due to write-offs and provisions for its CDO exposure and a
slowdown in fee-based income, from investment banking and c) margins pressure due to cost
push inflation in Singapore(wages and rental) and China.
Earnings Estimates by Sector
EPS Growth % CAGR PATMI S$m PE (x)
2006 2007 2008 06-08 2006 2007 2008 2006 2007 2008
Basic Materials 30.5 30.4 62.0 45 150 196 318 18.5 14.2 8.8
Consumer Goods 38.4 76.8 4.5 36 649 1,148 1,199 24.1 13.6 13.0
Consumer Services 14.1 5.7 11.1 8 2,588 2,734 3,038 16.6 15.8 14.2
Financials 37.6 8.5 8.6 9 6,699 7,272 7,897 15.1 13.9 12.8
Health Care 8.6 14.1 7.6 11 146 167 180 32.6 28.6 26.6
Industrials 0.3 14.0 23.7 19 3,804 4,336 5,366 25.5 22.4 18.1
Oil & Gas -24.0 48.7 13.0 30 335 498 563 14.0 9.4 8.3
Real Estate 31.0 54.4 55.1 55 2,381 3,677 5,701 32.0 20.7 13.4
REITS 16.1 58.5 24.8 41 573 908 1,134 40.2 25.4 20.3
Technology 130.9 23.6 20.3 22 1,030 1,272 1,531 19.3 15.6 13.0
Telecommunications 10.5 1.7 8.2 5 4,119 4,189 4,532 16.1 15.9 14.7
Utilities 30.7 -26.7 40.1 1 210 154 216 19.9 27.2 19.4
Grand Total 20.8 17.0 19.3 18 22,685 26,551 31,673 20.2 17.3 14.5
Total Ex Property & Reits 19.8 11.3 13.1 12 19,731 21,966 24,839 18.2 16.4 14.5
Source: DBS Vickers
36

Country Assessment
Regional Equity Strategy Q4 2007
LIQUIDITY
DBS rates strategist projects for SGD money market rates to fall in 4Q07. Furthermore, it is
expected that the local money market curve will steepen in tandem with G3 money market
rates. At the long end, the 10y SGS yield is expected to trade side ways, implying a flattening of
the 2Y/10Y curve in Q4. In terms of US interest rates, DBS expects a further 25bps cut in
October, following the 50bps cut this week.
In terms of currencies, DBS expects the SGD NEER to return to the strong half of its appreciation
band, after spending the third quarter at the weak side of the band. However, the MAS is not
expected to change its “gradual and modest appreciation” stance at the upcoming monetary
review in October.
On a positive note, there is speculation that Singapore may be an eventual beneficiary from
China’s QDII due to its close economic ties with China, a growing representation of China-based
businesses listed on the SGX, and a good basket of blue chips with regional, global and China
presence.
USD - SGD Money Market Yield Trends
3.80
%pa
%pa
5.6
3.60
3.40
3.20
3.00
2.80
2.60
2.40
3M SGD SOR
12M SGD SOR
12M USD Libor (RHS)
5.4
5.2
5
4.8
4.6
4.4
2.20
Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07
4.2
Source: Bloomberg
SENTIMENT
Sentiment has turned cautious since the onslaught of the sharp correction as a result of the U.S.
sub-prime issues. Average daily trading volume on SGX (STI stocks) plunged by 31% in
September to 241m units, following the sharp sell-off in August (348m units). The rebound up is
on lower volume and is focused on big cap blue chip stocks, while small-caps are still lagging
behind.
The market is vulnerable to newsflows from a) interest rates cuts by US Federal Reserve, b) US
economic data releases, and c) progressive disclosures of the extent of exposure of US, European
and Singapore banks to CDOs and other mortgage backed securities.
On the domestic front, newsflow will be neutral, as we expect 3Q GDP to slow from its peak in
2Q07, while all eyes are watching the Singapore governments’ stance in engineering a
moderation/cooling of property prices. Newsflow from the property sector will either be neutral
or negative, as there will be fewer launches in the coming quarter and prices in the prime district
are likely to have peaked.
37

Regional Equity Strategy Q4 2007
Country Assessment
Singapore Stock Market Turnover
10,000
m shrs
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07
Source: Bloomberg, DBS Vickers
VALUATION
At 3476, the STI is trading at a forward P/E of 15x, still decent compared to long term average
P/E of 16.7x and against accelerating EPS growth in 2008. Based on dividend yield, currently at
2.3%, the forecast upside of 15% translates into a STI target of 4000.
Valuation Measure
Valuation Measure 12/09/07
Long-term
Trend Avg
Long-term
Std. Dev.
No. of SD
from Trend
Average
R 2 with
12-month
fwd
Performance
Forecast 12-m
fwd return
Singapore 3,506 4%
D/Y 2.3 2.1 0.5 -0.3 33% 15%
P/B 2.5 1.7 0.4 2.0 26% -2.3%
12m FWd PER 15.0 16.7 3.0 -0.6 14%
US Bond / Earnings Yield Ratio 0.6 1.0 0.4 -1.1 12%
US Bond / Dividends Yield Ratio 1.9 2.8 1.2 -0.7 21% 20%
Source: DBS Group Research
38

Country Assessment
Regional Equity Strategy Q4 2007
INVESTMENT STRATEGY
Defensive stocks shine. On a three month basis, the telecommunications sector led in
performance, outperforming the market by 13%, as investors switched to defensive stocks with
recurrent earnings. We upgraded the sector and our top pick, Singapore Telecoms performed
well over the past month.
Best rebound for shipyard stocks. Best performers in the rebound from the recent low were
the blue chip shipyard stocks in the industrial sector. This points to strong interests from
investors who are ready to bargain hunt in sectors with good fundamentals, strong earnings
visibility and newsflow, supported by high oil prices.
We downgraded the Property sector to Neutral in July on the back of changes in
government policies to moderate the escalation in property prices. In addition to hikes in
development charges from 50% to 70% of the appreciation in land value, increased
government land sales, and changes to the Land Titles (Strata) Act rules related to the en-bloc
sales process. This will slow down enbloc sales which will in turn dampen demand for secondary
sub-sale properties.
Sector Performance (Sorted in Descending Order on 3 month Performance)
Sector 1 Mth Ago (%) 3 Mth Ago (%) 6 Mth Ago (%) 1 yr Ago (%)
Telecommunications 9 10 18 49
Industrials 20 9 37 71
Oil & Gas 10 8 45 44
Health Care 11 -1 26 44
Grand Total 12 -3 13 45
Consumer Services 8 -5 6 32
Utilities 6 -6 -2 8
Real Estate 15 -9 12 66
Consumer Goods 16 -9 4 34
Technology 7 -10 -4 13
Financials 6 -11 4 29
REITS 12 -11 0 40
Basic Materials 25 -22 12 55
Source: DBS Vickers
Index near its previous peak, rotate into laggards. Defensive stocks such as telecoms sector
have outperformed, and with the STI index near its previous peak while uncertainties in the US
linger, we would suggest investors rotate their portfolio into laggards. In terms of upside,
Financial services and Consumer services sectors offer the highest upside.
The banking sector remains vulnerable to negative newsflow on the US and European banks’
exposure to CDOs, which creates volatility in share prices. However, value has emerged for
Singapore Banks, trading at an average P/B of 1.8x and P/E of 12.7x(FY08F). Our top pick is
UOB, which has the least exposure to CDOs, with potential upside for dividends in its final
results.
The Consumer sector offers earnings stability with little exposure to the US, and rides on
domestic consumption spending – land transport and media stocks. Our stock pick in this sector
is FNN which is poised to unlock further value, and is an alternative proxy to ride on the rise in
mass housing market with a landbank of 5m sq ft.
39

Regional Equity Strategy Q4 2007
Country Assessment
Reits are preferred over Property stocks, offering more upside at 21% compared to only 2%
last quarter. The average forward DPU yield is now 4.9%, which compares favorably against low
10 yr bond yield forecasts at 2.9%(+20bp). Meanwhile, the underlying asset upcycle remains
intact, and the rental markets for most asset classes remain firm. Our preferred pick is CDL
Hospitality Reit, which is the largest hotel owner in Singapore, which will benefit from the
tourism theme. It offers a decent yield of 3.8% and strong organic growth on the back of the
rise in hotel room rates.
Singapore REITS
Last Price
DBSV
Price
Yield (%)
17-Sep-07 Target FYE Current Forward Recom'd
Singapore (S$)
A-REIT 2.65 3.16 Mar 4.8% 5.5% B
CapitaCommercial Trust 2.61 2.97 Dec 3.2% 4.3% H
CapitaMall Trust 3.56 4.31 Dec 4.0% 4.3% B
Fortune REIT (HK$) 5.80 6.75 Dec 6.1% 6.2% B
Macquarie MEAG Prime REIT 1.21 1.48 Dec 5.0% 5.9% B
Mapletree Logistics Trust 1.15 1.46 Dec 5.1% 5.4% B
Suntec REIT 1.86 2.20 Sep 4.5% 5.4% B
Allco Commercial Real Estate 1.04 1.45 Dec 6.2% 6.4% B
Ascott Residence Trust 1.74 2.30 Dec 4.1% 4.4% B
K-REIT 2.40 3.70 Dec 3.2% 4.0% B
CDL Hospitality Trust 2.35 2.90 Dec 3.9% 5.5% B
CapitaRetail China Trust* 2.60 NR Dec 2.6% 3.4% NR
Source: DBS Vickers
While we still like the industrial sector, upside is now 12%, after the strong rebound last
month. We would rotate our interests from shipyard stocks into SembCorp Industries, which
offers investors exposure into offshore and marine sector via its stake in SembCorp Marine and
Utilities division.
Expected Returns Next 12 Months by Sector
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Financials
Consumer Services
Consumer Goods
REITS
Grand Total
Real Estate
Industrials
Oil & Gas
Technology
Telecommunications
Health Care
Utilities
Source: DBS Vickers
40

Country Assessment
Regional Equity Strategy Q4 2007
Sector recommendation and stocks for Singapore
SECTOR REMARKS STOCK SELECTION
Consumer Goods
Neutral
Neutral. We maintain our Neutral weightage on the consumer
goods sector. We believe that inflationary concerns in China and the
PRC government's close monitoring and/or expected control on this
issue could limit the ability of companies to pass on cost increases. In
addition, with companies reporting their 3Q earnings - which is
traditionally the weakest quarter - from end-Oct to mid-Nov, we
believe there could be extra close scrutiny on the performance of
such companies. Our preference is thus for good names within the
consumer discretionary segment, with branding power such as Hsu
Fu Chi International and China Lifestyle, that would allow them to
better pass on costs. Our top pick within the consumer discretionary
segment is China Sports International, which is a play on Beijing
Olympics and rising consumption with undemanding valuations.
China Sports
International, Hsu
Fu Chi and China
Lifestyle.
Technology
Neutral
Although the recovery in the electronics industry is gaining grounds,
it is too early to qualify it as sustainable. So far, positive guidance
from leading foundries and upward revisions of tech forecasts (such
as HP, Dell and Seagate) are signs that the electronics industry is
emerging from the trough. However, increases in unit shipment may
be seasonally driven which could lead to another round of
indigestion if prevailing economic woes punctures actual consumer
demand. Meanwhile, the current credit crunch could limit M&A
flows as costlier and more restrictive financing pose new challenges
for private equity firms and financial sponsors. Hence, we advocate a
bottom-up approach in picking stocks with specific growth drivers or
excellent business models with strong management/track records.
Our top picks for the sector are Venture, Unisteel and Meiban.
Venture,
Unisteel,
Meiban
Banks & Finance
Overweight
Overweight. We maintain our overweight stance despite concerns
on the US subprime issue and the respective CDO exposures held by
the banks. We believe that fundamentals of the banks still remain
intact. Growth would emanate from strong loans mainly from the
private residential and construction sectors in view of the strong
domestic macro-economic backdrop. While we expect some hiccups
in the market-related non-interest income, we do not expect a
significant decline. Furthermore, our growth assumptions are not
overly aggressive. We are still estimating average core earnings
growth of 20% y-o-y for FY07 mainly due to strong results attained
up to 1H07. We expect earnings growth to moderate to 8% in FY08
due to the high base effect. We had estimated that the banks' CDO
exposures via investments comprise at less than 6% of shareholders
funds and less than 1% of total assets. As CDO investments by
banks are generally classified as available-for-sale and/or held-tomaturity
securities, mark-to-market losses would be recorded in
reserves rather than P&L unless it is deemed permanently impaired.
Nevertheless, the upcoming release of the 3Q07 results would
clearly reveal how banks' respective CDO investments would be
treated and would ultimately seal back investor confidence over
time.
UOB
41

Regional Equity Strategy Q4 2007
Country Assessment
Sector recommendation and stocks for Singapore
SECTOR REMARKS STOCK SELECTION
Industrials/
Basic Materials
Overweight
Telecommunications
Overweight
The conglomerates are characterised by record order books
which provide good earnings visibility. We believe that the
fundamentals and investment sentiment for oil and gas
plays in Singapore will be positive, as long as oil prices stay
above US$40-50/bbl. The next wave of order flow is
expected to come from the semisubmersibles and floating
production units where the FPSO is the preferred solution;
thus positioning our yards well as both Keppel and SMM
have a combined 70% market share of the global FPSO
conversion market. Elsewhere in the industrial space, we
are positive on the building materials suppliers such as
Hong Leong Asia and Pan United Corp. We expect the
construction sector to see an upward momentum due to a
strong property market and mega development projects
which will underscore prices for cement, steel
reinforcement bars, granite and ready-mixed concrete. We
also like companies that are leveraged on the higher
construction activity such as Tat Hong.
Overweight. We upgrade Singapore’s telecom sector to
overweight, as it is a defensive play with attractive dividend
yield. We project 3.3% cash yield for SingTel, 4.7% yield
for StarHub and 7.3% yield for M1 in the current year.
With investors wary of CDO exposure in the financial
sector, the telecom sector provides a safe heaven in the
current turmoil and is a direct beneficiary of the healthy
growth in the domestic economy. SingTel is our top pick
for the sector, due to better business prospects in
Singapore, spectecular growth of associates and multiple
catalysts in place.
Amongst the oil and gas plays,
our top picks in this sector are
SembCorp Industries, Jaya
Holdings, KS Energy, and
Swiber Holdings.
Elsewhere, we like Hong Leong
Asia, Pan United Corp, Tat
Hong and Epure.
SingTel
42

Country Assessment
Regional Equity Strategy Q4 2007
Sector recommendation and stocks for Singapore
SECTOR REMARKS STOCK SELECTION
Property
Overweight
Recent policy changes such as a significant increase in DC
rate, proposed stricter rules for en-bloc sales, as well as
negative regional economies had a dampening effect for
sentiment in the near future. We expect a slow down in
price hike for the high-end sector. En-bloc sellers will turn
to buy mid-tier properties as their replacement units, which
help to sustain the higher than average growth rate
compared with the other segments. Leasing market,
especially office and residential sectors, enjoy strong take
up due to lack of supply situation. We prefer developers
which are large cap and with a strong regional presence.
For REIT, We continue to like those with high potential of
rental reversion as well as booming sectors such as retail
due to strong local economies and hospitality sector due to
the resurgence of tourist arrivals and business travelers.
Capitaland, Guocoland
REIT: CMT, CDLHT
Consumer Services
Overweight
We maintain our overweight call for Consumer Services.
Our top pick in this sector is SIA, which is riding on robust
global air travel demand with a strong brand position to
help enhance its yield and load factors. In the long-term,
SIA is a beneficiary of the upcoming IRs. We also like SPH,
which is a good proxy for the strong Singapore economy,
with its exposure to print advertising as well as the
commercial and retail property segments (via Paragon).
Within the S-Chips, we favour Raffles Education, which we
like for its growing footprint in the fast-growing private
Chinese education market, led by its premium design
programmes.
SIA, SPH, Raffles Education
43

Regional Equity Strategy Q4 2007
Stock Profile: CDL Hospitality Trusts
BUY S$2.35 STI : 3,476.31
Price Target : 12-Month S$ 2.90
Potential Catalyst: Strong domestic and regional play
ANALYST
Singapore Research Team
research@dbsvickers.com
FORECASTS AND VALUATION
FY Dec (S$ m) 2006A 2007F 2008F 2009F
Gross Revenue 28.2 98.0 120.4 138.3
Net Property Inc 25.9 90.0 110.6 127.0
Total Return 155.8 63.1 100.3 114.1
Distribution Inc 20.2 69.5 107.5 122.0
EPU (S cts) 3.3 8.2 12.0 13.4
EPU Gth (%) N/A 151 45 12
DPU (S cts) 2.9 9.1 12.8 14.4
DPU Gth (%) N/A 214 41 12
NAV per shr (S cts) 102.9 133.5 130.5 128.2
PE (X) 71.7 28.5 19.6 17.5
Distribution Yield (%) 1.2 3.9 5.5 6.1
P/NAV (x) N/A 1.8 1.8 1.8
Aggregate Leverage 34.6 26.1 26.1 26.2
ROAE (%) 3.2 6.9 9.1 10.4
SHARE PRICE CHART
2.80
2.30
1.80
1.30
S$
0.80
Sep-06 N ov-06 Feb-07 A pr-07 Jul-07 Sep-07
CD L H o sp ita lity T ru sts 100-D ay M A
AT A GLANCE
Issued Capital (m shrs) 823
Mkt. Cap (S$m/US$m) 1,933 / 1,275
Major Shareholders
Hospitality Hldg (%) 38.2
Istithmar Hotels FZE (%) 8.2
Siong Lim (%) 8.1
Free Float (%) 45.5
Avg. Daily Vol.(‘000) 1,751
Earnings Rev (%): 2007: - 2008: -
Consensus EPS (S cts): 2007: 7.2 2008: 9.0
Variance vs Cons (%): 2007: 13.9 2008: 33.3
Sector : REITS
Bloomberg/Reuters Code: CDREIT SP/CDLT.SI
Principal Business: CDL REIT is a stapled security consisting of
hospitality trust with initial portfolio of four hotel assets in
Singapore and a business trust
CDL Hospitality Trusts
Singapore hotel proxy with regional aspirations
Story: CDLHT, one of the largest hotel owners in Singapore
in terms of rooms, has been benefiting from the rising RevPAR.
Point: Their Singapore portfolio continues to do well with
increase in tourism, MICE and business travels. Singapore,
being promoted as a destination for mega conferences, business
meetings as well as new major sporting events like Formula One
racing, is expected to provide strong demand for hotel rooms.
CDLHT is also looking into further expanding its portfolio both
domestically and internationally and taking steps to become one
of the key regional hotel REITs in this region.
Relevance: We expect continued strong growth in
occupancy and RevPAR due to the positive outlook for the
Singapore tourism and business travel sectors. CDLHT has plans
to further expand the portfolio and acquire more yield accretive
properties. We maintain our Buy recommendation on CDLHT
with a TP of S$2.90, backed by DCF calculation.
MICE, corporate visitors are key growth drivers. MICE and
business travelers are on the rise due to the increase in business
activities. This has led to a gradual increase in percentage contribution
from high-yielding corporate clients to relatively lower-yielding leisure
clients. Over 70% of the business now is from corporate clients. We
expect this will continue to put increased emphasis on the corporate
side as they will provide a sustainable, regular flow of business with less
fluctuations compared to leisure travelers. In tandem with the increase
in MICE and business travel, CDLHT should continue its trend of strong
performance
The new Singapore F-1 Race, integrated resorts to add further
demand. The demand for rooms will be even greater in 2008 and
beyond particularly in the last few weeks of 3Q and first week of Q4
when Singapore hosts the Formula 1 Race slated for end September
2008 onwards. There should be a sharp increase in demand due to the
increase in tourists and racing-related staff. Two more attractions,
Marina Bay Sands and Resort World at Sentosa which they are
targeting to be open by 2009-2010, will further increase the demand
for hotel rooms in prime areas.
Poised to be a key regional hotel REIT player. With five Singapore
hotels and one New Zealand hotel under its portfolio, CDLHT is poised
to acquire more hotels in the region such as the high-growth countries
including China, India, Vietnam, and the United Arab Emirates. It’s goal
is to achieve a balanced portfolio with 60% in Singapore properties
and 40% in overseas properties.
Maintain Buy, TP S$2.90. With strong demand for hotel rooms as
well as continued growth in the MICE, business and tourism travels, we
strongly believe that CDLHT will benefit from the uptrend in RevPAR for
their Singapore properties. We reiterate the Buy recommendation for
the stock with TP of S$2.90, backed by our DCF calculations.
Refer to important disclosures at the end of this report
44

Stock Profile: CDL Hospitality Trusts
Regional Equity Strategy Q4 2007
Statement of Total Return (S$ m) Balance Sheet (S$ m)
FY Dec 2006A 2007F 2008F 2009F FY Dec 2006A 2007F 2008F 2009F
Gross revenue 28.2 98.0 120.4 138.3 Investment Properties 1,101.9 1,421.1 1,421.1 1,421.1
Property expenses (2.3) (8.0) (9.9) (11.3) Other LT Assets 0.1 0.1 0.1 0.1
Net Property Income 25.9 90.0 110.6 127.0 Cash & ST Invts 9.2 93.9 86.7 78.9
Other Operating expenses (4.4) (8.3) (9.4) (10.2) Other Current Assets 6.8 23.8 29.2 33.5
Other Non Opg (Exp)/Inc 6.1 0.0 0.0 0.0 Total Assets 1,118.0 1,538.9 1,537.1 1,533.6
Net Interest (Exp)/Inc (4.7) (18.6) (0.9) (2.7)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 ST Debt 115.2 10.0 10.0 10.0
Net Income 22.9 63.1 100.3 114.1 Other Current Liabilities 6.9 24.0 29.5 33.9
Tax 0.0 0.0 0.0 0.0 LT Debt 271.4 391.5 391.5 391.5
Minority Interest 0.0 0.0 0.0 0.0 Other LT Liabilities 4.1 4.1 4.1 4.1
Preference Dividend 0.0 0.0 0.0 0.0 Unit holders’ funds 720.4 1,109.3 1,102.0 1,094.1
Net Income After Tax 22.9 63.1 100.3 114.1 Minority Interests 0.0 0.0 0.0 0.0
Total Return 155.8 63.1 100.3 114.1 Total Funds & Liabilities 1,118.0 1,538.9 1,537.1 1,533.6
Non-tax deductible Items (2.7) 6.4 7.3 7.9
Net Inc available for Dist. 20.2 69.5 107.5 122.0 Non-Cash Wkg. Capital (0.1) (0.3) (0.3) (0.4)
Net Cash/(Debt) (377.4) (307.6) (314.8) (322.6)
Revenue Gth (%) N/A 247.8 22.8 14.9
N Property Inc Gth (%) N/A 247.6 22.8 14.9
Net Inc Gth (%) N/A 175.2 58.9 13.8
Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0
Cash Flow Statement (S$ m)
Rates & Ratios
FY Dec 2006A 2007F 2008F 2009F FY Dec 2006A 2007F 2008F 2009F
Pre-Tax Income 22.9 63.1 100.3 114.1 Net Prop Inc Margins (%) 91.8 91.8 91.8 91.8
Dep. & Amort. 0.0 0.0 0.0 0.0 Net Income Margins (%) 81.3 64.4 83.3 82.5
Tax Paid 0.0 0.0 0.0 0.0 Dist to revenue (%) 71.7 70.9 89.3 88.2
Associates &JV Inc/(Loss) 0.0 0.0 0.0 0.0 Managers & Trustee’s fees 15.7 8.5 7.8 7.4
Chg in Wkg. Capital 4.3 0.2 0.1 0.0 to sales (%)
Other Operating CF 1.6 0.0 0.0 0.0 ROAE (%) 3.2 6.9 9.1 10.4
Net Operating CF 28.9 63.3 100.3 114.1 ROA (%) 2.1 4.7 6.5 7.4
Net Invt in Properties (965.5) (203.0) 0.0 0.0 ROCE (%) 2.0 6.5 7.1 8.2
Other Invts (net) 0.0 (116.2) 0.0 0.0 Int. Cover (x) 4.6 4.4 110.8 42.8
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 Current Ratio (x) 0.1 3.5 2.9 2.6
Div from Assoc. & JVs 0.0 0.0 0.0 0.0 Quick ratio (x) 0.1 3.5 2.9 2.6
Other Investing CF 0.3 0.0 0.0 0.0 Aggregate Leverage (%) 34.6 26.1 26.1 26.2
Net Investing CF (965.2) (319.2) 0.0 0.0 Opg CFPS (S cts) 3.5 8.2 12.0 13.4
Distribution Paid 0.0 (89.7) (107.5) (122.0) Free CFPS (S cts) (134.0) (18.2) 12.0 13.4
Chg in Gross Debt 386.1 14.9 0.0 0.0
New units issued 562.5 415.5 0.0 0.0
Other Financing CF (3.2) 0.0 0.0 0.0
Net Financing CF 945.5 340.7 (107.5) (122.0)
Net Cashflow 9.2 84.8 (7.2) (7.9)
Valuation Graph : PE
52.0
47.0
42.0
37.0
32.0
27.0
22.0
17.0
Jul-06 Dec-06 May-07
Source: Company, DBS Vickers
Price & Price Relative to Index
S$
Relative Index
3.00
250
2.50
230
2.00
210
190
1.50
170
1.00
150
130
0.50
110
0.00
90
Jul-06 Dec-06 May-07
CDL Hospitality Trusts (LHS) Relative STI INDEX (RHS)
45

Regional Equity Strategy Q4 2007
Stock Profile: F & N
BUY S$5.25 STI : 3,476.31
Price Target : 12-Month S$ 6.30
Potential Catalyst: Increases in development property
projects and launches, securitisation of investment properties
and M&As from its F&B business
ANALYST
Andy Sim CFA +65 6398 7969
andysim@dbsvickers.com
FORECASTS AND VALUATION
FY Sep (S$ m) 2006A 2007F 2008F 2009F
Turnover 3,795.6 4,277.9 4,768.6 5,417.3
EBITDA 728.9 856.5 1,019.5 1,172.2
Pre-tax Profit 577.2 674.5 844.6 979.5
Net Profit 319.5 365.4 457.5 530.6
Net Pft (Pre Ex.) 285.5 365.4 457.5 530.6
EPS (S cts) 27.1 27.5 33.2 38.5
EPS Pre Ex. (S cts) 24.2 27.5 33.2 38.5
EPS Gth Pre Ex (%) 7 13 21 16
Diluted EPS (S cts) 27.1 27.5 33.2 38.5
Net DPS (S cts) 11.9 11.7 14.6 16.9
BV Per Share (S cts) 305.4 342.6 364.1 388.0
PE (X) 19.4 19.1 15.8 13.6
PE Pre Ex. (X) 21.7 19.1 15.8 13.6
P/Cash Flow (X) 14.9 15.5 13.0 11.2
EV/EBITDA (X) 13.5 11.9 10.4 9.2
Net Div Yield (%) 2.3 2.2 2.8 3.2
P/BV (X) 1.7 1.5 1.4 1.4
Net Debt/Equity (X) 0.6 0.3 0.3 0.3
ROAE (%) 9.5 8.8 9.4 10.2
SHARE PRICE CHART
S$
7.10
6.60
6.10
5.60
5.10
4.60
4.10
3.60
Sep-06 Nov-06 Feb-07 Apr-07 Jul-07 Sep-07
F & N
100-Day M A
AT A GLANCE
Issued Capital (m shrs) 1,383
Mkt. Cap (S$m/US$m) 7,260 / 4,787
Major Shareholders
Seletar Investment (%) 14.9
Great Eastern Limited (%) 5.8
Free Float (%) 79.3
Avg. Daily Vol.(‘000) 2,433
Earnings Rev (%): 2007: - 2008: -
Consensus EPS (S cts): 2007: 26.7 2008: 30.7
Variance vs Cons (%): 2007: 3.0 2008: 8.1
Sector : Industrials
Bloomberg/Reuters Code: FNN SP/FRNM.SI
Principal Business: F&N is in F&B, property and printing and
publishing business.
F & N
Going strongly into its 125 th year
Story: To-date, sales of F&N’s recent launches has been
robust. Its most recent launch, Soleil @ Sinaran, is 95% sold at
ASP of S$1,450 psf. As the Group progressively recognises
contributions from projects sold over the last 12 months, we
should witness good profit growth in the next 1 – 2 years.
Point: The Group has a residential landbank of around 5m sq
ft in Singapore; and we expect these launches, largely targeted at
the mid-tier segments, to continue to meet with keen interest as
they are progressively released over the next one to two years. We
also expect its industrial/office REIT to be launched probably end
07/ early 08. We estimate the initial three properties (Alexandra
Technopark, Alexandra Pt and Valley Point) could return about
S$400m cash assuming it retains a 50% interest in the REIT. The
strong cash flow and profit contribution from its property
divisions, affords if an opportunity to grow its F&B business. While
we have not heard of any specific acquisitions on this front to
date, we believe the Group is actively pursuing opportunities.
Separately, the Group has appointed Mr Lee Hsien Yang, ex-
Singtel chief executive, to be its non-executive Chairman with
effect from 15 Oct 07.
Relevance: Maintain BUY, TP: S$6.30 based on sum-of-theparts
valuation, with a 10% premium on its property RNAV
(potential upside from Singapore and regional landbanks).
Recent sold-out launches should provide good profit growth. With
the various sold-out launches over the last 12 months and better than
expected prices achieved for Soleil and St Thomas Suites, we expect to
see good bottomline growth in the next 1-2 years. To-date, Soleil @
Sinaran is 95% sold achieving ASP of S$1,450 psf. The price was higher
than our previous estimate of S$1,200 – S$1,300 psf. Next, we expect to
see launches of projects at Kim Yam (Far East Mansion), Siglap (Flamingo
Valley), Bedok Reservoir (Waterfront View), Tampines St 11 (Tampines
Court) and Woodsville.
Upcoming office and industrial REIT. We expect its office and
industrial REIT to be launched sometime late 07/early 08. Assuming the
initial three properties are valued at around S$800m and F&N retains
50% interest in the REIT, the exercise could return around S$400m cash
to its balance sheet based on our calculation. This could be used for
further acquisitions to inject into this REIT or to pay down its debt.
Ex-Singtel chief to be new Chairman. Mr Lee brings along his
experience and track record during his time as Chief Executive of
Singtel from 1995 to 2007. Dr Michael Fam has been instrumental in
transforming the Group since assuming chairmanship in 1982. He has
indicated his retirement previously and had transferred his CEO role
to Dr Han Cheng Fong. Dr Fam would remain as an advisor to
facilitate the handover.
Refer to important disclosures at the end of this report
46

Stock Profile: F & N
Regional Equity Strategy Q4 2007
Income Statement (S$ m) Balance Sheet (S$ m)
FY Sep 2006A 2007F 2008F 2009F FY Sep 2006A 2007F 2008F 2009F
Turnover 3,795.6 4,277.9 4,768.6 5,417.3 Net Fixed Assets 1,120.5 1,289.0 1,361.6 1,419.2
Cost of Goods Sold (2,555.8) (2,849.1) (3,124.3) (3,564.0) Invts in Assocs & JVs 384.9 461.9 538.9 615.9
Gross Profit 1,239.7 1,428.8 1,644.3 1,853.3 Invt & Devt Properties 5,191.3 5,363.6 5,591.9 5,886.6
Other Opg (Exp)/Inc (676.6) (737.5) (803.8) (876.2) Other LT Assets 5,584.0 5,945.4 6,361.7 6,743.4
EBIT 563.2 691.4 840.5 977.1 Cash & ST Invts 1,161.6 1,793.8 1,744.3 1,797.0
Other Non Opg (Exp)/Inc 12.0 0.0 0.0 0.0 Dev Props held for sale 178.4 178.4 178.4 178.4
Associates & JV Inc 28.4 39.7 39.7 39.7 Other Current Assets 1,242.4 1,350.1 1,459.6 1,604.4
Net Interest (Exp)/Inc (60.4) (56.6) (35.6) (37.3) Total Assets 9,671.8 11,018.5 11,644.6 12,358.3
Exceptional Gain/(Loss) 34.0 0.0 0.0 0.0
Pre-tax Profit 577.2 674.5 844.6 979.5 ST Debt 988.5 988.5 988.5 988.5
Tax (145.2) (169.7) (212.5) (246.4) Other Current Liab 1,100.0 1,182.5 1,337.3 1,519.2
Minority Interest (112.5) (139.5) (174.6) (202.5) LT Debt 2,834.7 2,834.7 2,834.7 2,834.7
Preference Dividend 0.0 0.0 0.0 0.0 Other LT Liabilities 143.9 143.9 143.9 143.9
Net Profit 319.5 365.4 457.5 530.6 Shareholder’s Equity 3,600.5 4,725.2 5,021.9 5,351.2
Net profit before Except. 285.5 365.4 457.5 530.6 Minority Interests 1,004.1 1,143.6 1,318.2 1,520.7
Total Cap. & Liab. 9,671.8 11,018.5 11,644.6 12,358.3
EBITDA 728.9 856.5 1,019.5 1,172.2
Sales Gth (%) 8.8 12.7 11.5 13.6
EBITDA Gth (%) 13.6 17.5 19.0 15.0 Non-Cash Wkg. Cap 320.8 345.9 300.7 263.6
EBIT Gth (%) 19.6 22.8 21.6 16.3 Net Cash/(Debt) (2,661.6) (2,029.5) (2,078.9) (2,026.3)
Effective Tax Rate (%) 25.2 25.2 25.2 25.2
Cash Flow Statement (S$m)
Rates & Ratios
FY Sep 2006A 2007F 2008F 2009F FY Sep 2006A 2007F 2008F 2009F
Pre-Tax Profit 543.2 674.5 844.6 979.5 Gross Margin (%) 32.7 33.4 34.5 34.2
Dep. & Amort. 125.3 125.4 139.3 155.4 EBITDA Margin (%) 19.2 20.0 21.4 21.6
Tax Paid (102.1) (197.2) (169.7) (212.5) EBIT Margin (%) 14.8 16.2 17.6 18.0
Assoc. & JV Inc/(loss) (28.4) (39.7) (39.7) (39.7) Net Profit Margin (%) 8.4 8.5 9.6 9.8
Chg in Wkg.Cap. (2.2) 2.4 2.4 3.2 ROAE (%) 9.5 8.8 9.4 10.2
Other Operating CF (270.3) (172.3) (228.3) (294.7) ROA (%) 3.6 3.5 4.0 4.4
Net Operating CF 265.6 393.0 548.6 591.2 ROCE (%) 6.1 6.8 7.7 8.4
Capital Exp.(net) (89.8) (283.0) (200.0) (200.0) Div Payout Ratio (%) 44.0 44.0 44.0 44.0
Other Invts.(net) (265.6) (200.0) (200.0) (100.0) Interest Cover (x) 9.3 12.2 23.6 26.2
Invts in Assoc. & JV (250.1) (50.0) (50.0) (50.0) Debtors Turn (avg days) 51.3 43.7 43.9 43.6
Div from Assoc & JV 12.7 12.7 12.7 12.7 Creditors Turn (avg days) 99.9 97.1 99.4 99.0
Other Investing CF (48.1) 0.0 0.0 0.0 Inventory Turn (avg days) 52.9 49.8 50.9 50.2
Net Investing CF (640.9) (520.3) (437.3) (337.3) Current Ratio (x) 1.2 1.5 1.5 1.4
Div Paid (185.7) (140.6) (160.8) (201.3) Quick Ratio (x) 1.1 1.3 1.3 1.2
Chg in Gross Debt 484.4 0.0 0.0 0.0 Net Debt/Equity (X) 0.6 0.3 0.3 0.3
Capital Issues 360.4 900.0 0.0 0.0 Capex to Debt (%) 2.3 7.4 5.2 5.2
Other Financing CF (21.7) 0.0 0.0 0.0 N.Cash/(Debt)PS (S cts) (225.8) (147.1) (150.7) (146.9)
Net Financing CF 637.4 759.4 (160.8) (201.3) Opg CFPS (S cts) 22.7 29.4 39.6 42.6
Net Cashflow 262.1 632.2 (49.5) 52.6 Free CFPS (S cts) 14.9 8.3 25.3 28.4
Valuation Graph : PE
20.0
15.0
10.0
5.0
0.0
2003 2004 2005 2006 2007
Source: Company, DBS Vickers
Price & Price Relative to Index
S$
Relative Index
7.00
159
6.00
149
5.00
139
129
4.00
119
3.00
109
2.00
99
1.00
89
2003 2004 2005 2006 2007
F & N (LHS) Relative STI INDEX (RHS)
47

Regional Equity Strategy Q4 2007
Stock Profile: SembCorp Industries
BUY S$6.00 STI : 3,476.31
Price Target : 12-month S$ 7.50
Potential Catalyst: Contract wins
ANALYST
Jesvinder Sandhu +65 6398 7965
jesvinder@dbsvickers.com
FORECASTS AND VALUATION
FY Dec (S$ m) 2005A 2006A 2007F 2008F
Turnover 7,409.2 8,107.1 8,114.8 9,291.6
EBITDA 589.4 536.0 818.9 934.8
Pre-tax Profit 507.6 1,148.9 795.7 981.6
Net Profit 303.3 1,029.8 465.6 546.4
Net Pft (Pre Ex.) 278.5 379.6 465.6 546.4
EPS (S cts) 17.1 59.0 26.7 31.3
EPS Pre Ex. (S cts) 15.7 21.7 26.7 31.3
EPS Gth Pre Ex (%) 23 39 23 17
Diluted EPS (S cts) 16.9 57.3 25.9 30.4
Net DPS (S cts) 5.2 43.5 13.3 15.6
BV Per Share (S cts) 114.5 161.0 144.1 162.1
PE (X) 35.2 10.2 22.5 19.2
PE Pre Ex. (X) 38.3 27.6 22.5 19.2
P/Cash Flow (X) 26.1 9.7 21.6 21.1
EV/EBITDA (X) 19.2 21.0 14.5 12.9
Net Div Yield (%) 0.9 7.3 2.2 2.6
P/BV (X) 5.2 3.7 4.2 3.7
Net Debt/Equity (X) CASH 0.0 0.2 0.1
ROAE (%) 15.3 42.8 17.5 20.4
SHARE PRICE CHART
S$
6.80
6.30
5.80
5.30
4.80
4.30
3.80
3.30
2.80
Sep-06 Nov-06 Feb-07 Apr-07 Jul-07 Sep-07
SembCorp Industries
100-Day M A
AT A GLANCE
Issued Capital (m shrs) 1,782
Mkt. Cap (S$m/US$m) 10,694 / 7,051
Major Shareholders
Temasek Holdings Pte Ltd (%) 49.0
Lloyd George Investment (%) 4.9
Free Float (%) 46.1
Avg. Daily Vol.(‘000) 4,804
Earnings Rev (%): 2007: - 2008: -
Consensus EPS (S cts): 2007: 28.1 2008: 32.2
Variance vs Cons (%): 2007: (5.1) 2008: (2.8)
Sector : Industrials
Bloomberg/Reuters Code: SCI SP/SCIL.SI
Principal Business: Focus on Integrated Utilities and Energy,
Marine Engineering, Environmental Engineering, Logistics &
Engineering & Construction Services.
SembCorp Industries
Growth from Marine and Utilities
Story: Prospects for SCI’s core divisions of Utilities and
Marine are both positive. Utilities have defensive qualities
while the marine division is riding the cyclical upswing.
Point: Utilities will continue to see growth from
Singapore and UK and increasing contributions from its
overseas investments. Marine is expected to continue to do
well supported by its order book of S$8.6bn. We expect the
order flow momentum to continue with the focus on
semisubmersibles and floating production units as the
industry explores deepwater drilling and moves into oil
production mode.
Relevance: Maintain Buy with a target price of S$7.50
based on RNAV.
Outlook on Utilities. As at 1H07, utilities accounted for 55% of
Group net profit. SCI has set in place the building blocks to
ensure long term growth sustainability of its businesses both in
Singapore, UK and the region. In Singapore, the outlook is strong
with the opportunities to supply utilities and gas supply to new
petrochemical cracker plants and downstream companies and
from new investments in Tembusu/Banyan. The operations in the
UK is expected to continue to perform strongly, underpinned by
favourable supply contracts secured until end 2007/1Q08. In
addition, the 30MW biomass power plant Wilton 10, one of UK’s
largest biomass renewable energy projects, is scheduled to come
onstream in 2H07. China and Middle East operations will not be
significant contributors just yet. The expansion in Nanjing,
Shanghai and Zhangjiagang are on track. Fujairah I, an
independent water and power plant in UAE, in which it has a
40% stake will start to contribute from 2009. The Enviro division
is constructing a 800tpd pre-disposal facility in Singapore with
operations to commence in 2H07.
Strong order flow momentum from SMM. YTD order wins
now amount to S$4.8bn and we expect it to hit S$5bn for this
year. Current order book is S$8.6bn, providing good visibility to
earnings. While the momentum for jackup orders could slow, we
expect a pick up in orders for semis and floating production
systems especially FPSOs. SMM is well placed to leverage on this
through its acquisition of SMOE last year. We expect strong
earnings growth of 32% and 40% over FY07-08. As a
percentage of Group revenue, marine is expected to account for
44% of net earnings in FY07 and 52% in FY08 as earnings from
Marine are rising faster.
Buy, TP S$7.50. Target price for SCI is based on RNAV valuation.
Refer to important disclosures at the end of this report
48

Stock Profile: SembCorp Industries
Regional Equity Strategy Q4 2007
Income Statement (S$ m) Balance Sheet (S$ m)
FY Dec 2005A 2006A 2007F 2008F FY Dec 2005A 2006A 2007F 2008F
Turnover 7,409.2 8,107.1 8,114.8 9,291.6 Net Fixed Assets 2,627.4 2,534.5 2,811.7 3,088.9
Cost of Goods Sold (6,769.6) (7,215.3) (7,100.5) (8,083.7) Invts in Assocs & JVs 726.4 740.9 823.2 975.5
Gross Profit 639.6 891.8 1,014.4 1,207.9 Other LT Assets 444.6 576.0 576.0 576.0
Other Opg (Exp)/Inc (234.6) (526.1) (368.2) (445.9) Cash & ST Invts 1,231.3 1,185.6 714.5 823.8
EBIT 405.0 365.7 646.1 762.0 Other Current Assets 2,289.4 2,548.8 2,551.2 2,920.3
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 Total Assets 7,319.1 7,585.8 7,476.6 8,384.5
Associates & JV Inc 78.3 117.3 152.3 222.3
Net Interest (Exp)/Inc (19.0) (5.1) (2.7) (2.7) ST Debt 149.4 216.2 216.2 216.2
Exceptional Gain/(Loss) 43.3 671.0 0.0 0.0 Other Current Liab 3,067.0 2,369.5 2,383.9 2,744.2
Pre-tax Profit 507.6 1,148.9 795.7 981.6 LT Debt 908.7 1,096.2 1,096.2 1,096.2
Tax (92.4) 10.9 (159.1) (201.2) Other LT Liabilities 349.4 444.1 444.1 444.1
Minority Interest (111.9) (130.0) (171.0) (234.0) Shareholder’s Equity 1,999.6 2,811.6 2,517.0 2,830.6
Preference Dividend 0.0 0.0 0.0 0.0 Minority Interests 845.0 648.2 819.2 1,053.2
Net Profit 303.3 1,029.8 465.6 546.4 Total Cap. & Liab. 7,319.1 7,585.8 7,476.6 8,384.5
Net profit before Except. 278.5 379.6 465.6 546.4
EBITDA 589.4 536.0 818.9 934.8 Non-Cash Wkg. Cap (777.6) 179.3 167.3 176.1
Sales Gth (%) 24.7 9.4 0.1 14.5 Net Cash/(Debt) 173.2 (126.8) (597.9) (488.6)
EBITDA Gth (%) 38.9 (9.1) 52.8 14.2
EBIT Gth (%) 67.3 (9.7) 76.7 17.9
Effective Tax Rate (%) 18.2 N/A 20.0 20.5
Cash Flow Statement (S$m)
Rates & Ratios
FY Dec 2005A 2006A 2007F 2008F FY Dec 2005A 2006A 2007F 2008F
Pre-Tax Profit 507.6 1,148.9 795.7 981.6 Gross Margin (%) 8.6 11.0 12.5 13.0
Dep. & Amort. 184.4 170.3 172.8 172.8 EBITDA Margin (%) 8.0 6.6 10.1 10.1
Tax Paid (45.0) (46.8) (146.8) (159.1) EBIT Margin (%) 5.5 4.5 8.0 8.2
Assoc. & JV Inc/(loss) (78.3) (117.3) (152.3) (222.3) Net Profit Margin (%) 4.1 12.7 5.7 5.9
Non-Cash Wkg.Cap. 275.5 (999.0) (0.3) (50.9) ROAE (%) 15.3 42.8 17.5 20.4
Other Operating CF (16.8) (242.3) 0.0 0.0 ROA (%) 6.8 7.1 11.0 12.8
Net Operating CF 827.4 (86.2) 669.1 722.1 ROCE (%) 12.1 11.5 13.9 0.0
Capital Exp.(net) (329.5) (451.5) (450.0) (450.0) Div Payout Ratio (%) 29.9 73.8 50.0 50.0
Other Invts.(net) 121.8 439.9 0.0 0.0 Interest Cover (x) 21.3 71.7 239.3 282.2
Invts in Assoc. & JV 16.6 0.2 0.0 0.0 Debtors Turn (avg days) 68.8 59.5 57.1 53.5
Div from Assoc & JV 75.7 97.8 70.0 70.0 Creditors Turn (avg days) 107.7 86.1 82.4 77.2
Other Investing CF 15.6 (0.1) 0.0 0.0 Inventory Turn (avg days) 43.1 54.1 65.5 61.7
Net Investing CF (99.8) 86.3 (380.0) (380.0) Current Ratio (x) 1.1 1.4 1.3 1.3
Div Paid (516.1) (423.3) (760.2) (232.8) Quick Ratio (x) 0.8 1.0 0.8 0.8
Chg in Gross Debt (791.2) 343.3 0.0 0.0 Net Debt/Equity (X) CASH 0.0 0.2 0.1
Capital Issues (267.2) 71.1 0.0 0.0 Capex to Debt (%) 31.1 34.4 34.3 34.3
Other Financing CF (21.8) (36.9) 0.0 0.0 N.Cash/(Debt)PS (S cts) 9.9 (7.3) (34.2) (28.0)
Net Financing CF (1,596.3) (45.8) (760.2) (232.8) Opg CFPS (S cts) 31.0 52.3 38.3 44.3
Net Cashflow (868.7) (45.7) (471.1) 109.4 Free CFPS (S cts) 28.0 (30.8) 12.5 15.6
Valuation Graph : PE
24.0
22.0
20.0
18.0
16.0
14.0
12.0
10.0
8.0
6.0
2003 2004 2005 2006 2007
Price & Price Relative to Index
S$
Relative Index
237
6.00
217
5.00
197
177
4.00
157
3.00
137
117
2.00
97
1.00
77
2003 2004 2005 2006 2007
SembCorp Industries (LHS) Relative STI INDEX (RHS)
Source: Company, DBS Vickers
49

Regional Equity Strategy Q4 2007
Stock Profile: UOB
BUY S$20.80 STI : 3,476.31
Price Target : 12-month S$ 27.50
Potential Catalyst: Capital management and regionalisation
ANALYST
Singapore Research Team
research@dbsvickers.com
FORECASTS AND VALUATION
FY Dec (S$ m) 2006A 2007F 2008F 2009F
Operating Inc 4,837 4,677 5,150 5,626
Net Interest Inc 2,710 2,962 3,217 3,436
Pre-prov. Profit 3,088 2,750 3,021 3,283
Net Profit 2,570 2,237 2,450 2,661
Net Pft (Pre Ex.) 2,570 2,237 2,450 2,661
EPS Pre Ex. (S cts) 168.7 146.8 160.8 174.7
EPS Gth Pre Ex (%) 52 (13) 10 9
EPS Gth (%) 52 (13) 10 9
Diluted EPS (S cts) 168.7 146.8 160.8 174.7
PE Pre Ex. (X) 12.3 14.2 12.9 11.9
Net DPS (S cts) 67.3 66.2 72.5 78.8
Div Yield (%) 3.2 3.2 3.5 3.8
ROAE Pre Ex. (%) 12.5 13.5 13.7 13.8
ROAE (%) 17.1 13.5 13.7 13.8
ROA (%) 1.7 1.4 1.3 1.4
BV Per Share (S cts) 1,048 1,128 1,217 1,312
RNAV per shr (S cts) 1,172 1,253 1,341 1,437
P/Book Value (x) 2.0 1.8 1.7 1.6
SHARE PRICE CHART
S$
26.30
24.30
22.30
20.30
18.30
16.30
14.30
Sep-06 Nov-06 Feb-07 Apr-07 Jun-07 Sep-07
UOB
100-Day MA
AT A GLANCE
Issued Capital (m shrs) 1,524
Mkt. Cap (S$m/US$m) 31,694 / 20,898
Major Shareholders
Wee Cho Yaw (%) 16.9
Wee Investment (%) 7.4
Wah Hin & Co Pte (%) 5.3
Free Float (%) 70.2
Avg. Daily Vol.(‘000) 7,253
Earnings Rev (%): 2007: - 2008: -
Consensus EPS (S cts): 2007: 141.6 2008: 157.0
Variance vs Cons (%): 2007: 3.7 2008: 2.4
Sector : Banking
Bloomberg/Reuters Code: UOB SP/UOBH.SI
Principal Business: Financials
UOB
Geared for growth domestically and regionally
Story: We like UOB for its domestic exposure especially
in the housing loan market, complemented by its diversified
regional presence.
Point: We believe UOB is poised to deliver sustainable
earnings from stronger loan growth. Positive surprises could
arise from its regional network especially in Thailand.
Relevance: We maintain our Buy call on UOB with a
target price of S$27.50 based on the Gordon Growth
Model. This yields an implied 2.1x FY08 adjusted book
value, based on peak valuations.
Beneficiary of domestic growth. We believe UOB will gain
from the domestic economic boom and will deliver positive
surprises from stronger loan growth. Complementing its
domestic strength is its diversified regional banking franchises
(Singapore, Malaysia, Indonesia and Thailand), which should
support future profitability. While UOB is strong in Singapore
and Malaysia, we believe there is scope for expansion in UOB
Buana, Indonesia and potential recovery in UOB Thai.
UOB gearing up north-east Asian expansion. UOB made
further inroads in its regionalisation endeavour with a 10%
stake in Southern Commercial Joint Stock Bank in Vietnam
(intention to increase its stake when regulatory authorities
allow), and has started negotiations for a strategic investment
in China’s Evergrowing Bank. There were no further updates on
UOB’s 20% acquisition in China’s Evergrowing Bank. We
understand that UOB is in the midst of obtaining the necessary
approvals for its licence to operate its locally incorporated
subsidiary in China, which could be operational by end of this
year. An organic growth strategy would be adopted and UOB’s
branding would be leveraged for retail products in mortgages
and wealth management.
UOB’s CDO exposure not a major concern. UOB’s total CDO
investments were S$392m, of which S$91m are high-grade
ABS (no downgrades in ratings so far), and S$301m are
corporate CDOs. UOB does not have direct exposures to US
sub-prime mortgages. UOB made up to S$34m provisions as at
end Jun-07 which were charged against its profit and loss
account based on its previous investments and another S$15m
set-off against its reserves in the balance sheet in end Jul-07. At
this juncture, based on guidance from management, we do not
foresee significant provisions to be carried out.
Significant upside to target price. Concerns on CDO losses
had wiped off up to 14% of UOB’s market capitalisation in
Aug-07 which overshadowed possible provisions and
impairment (CDO exposure as a proportion of market
capitalisation is only 4%). Since then, share price has recovered
by some 11%. Comparatively UOB has the least exposure to
CDOs.
Refer to important disclosures at the end of this report
50

Stock Profile: UOB
Regional Equity Strategy Q4 2007
Income Statement (S$ m) Balance Sheet (S$ m)
FY Dec 2006A 2007F 2008F 2009F FY Dec 2006A 2007F 2008F 2009F
Net Interest Income 2,710 2,962 3,217 3,436 Cash/Bank Balance 16,301 17,768 19,012 20,343
Non-Interest Income 2,127 1,715 1,933 2,189 Government Securities 9,429 9,806 10,198 10,606
Operating Income 4,837 4,677 5,150 5,626 Inter Bank Assets 29,004 25,535 27,771 30,254
Operating Expenses (1,749) (1,927) (2,130) (2,343) Total Net Loans & Advs. 76,875 85,118 92,570 100,846
Pre-provision Profit 3,088 2,750 3,021 3,283 Investment 18,090 17,526 19,037 20,713
Provisions (181) (205) (235) (260) Associates 1,184 1,401 1,640 1,902
Associates 271 217 239 262 Fixed Assets 1,857 1,797 1,731 1,656
Exceptionals 0 0 0 0 Goodwill 4,293 4,293 4,293 4,293
Pre-tax Profit 3,178 2,761 3,024 3,285 Other Assets 4,278 4,256 4,629 5,042
Taxation (553) (497) (544) (591) Total Assets 161,312 167,502 180,881 195,657
Minority Interests (55) (28) (30) (33) Customer Deposits 95,552 104,151 111,442 119,243
Preference Dividend 0 0 0 0 Inter Bank Deposits 33,449 34,033 38,401 43,504
Net Profit 2,570 2,237 2,450 2,661 Debts/Borrowings 6,596 6,596 6,596 6,596
Net Profit bef Except 2,570 2,237 2,450 2,661 Others 8,539 4,290 4,635 5,013
Minorities 385 413 443 476
Shareholders' Funds 16,791 18,019 19,363 20,824
Total Liab& S/H’s Funds 161,312 167,502 180,881 195,657
Profitability & Efficiency Ratios (%) Financial Stability Measures (%)
FY Dec 2006A 2007F 2008F 2009F FY Dec 2006A 2007F 2008F 2009F
Margins, Costs &
Balance Sheet Structure
Yld. ffi On i Earnings Assets 5.12 5.11 5.01 4.95 Loan-to-Deposit Ratio 83.1 83.9 84.9 86.0
Avg Cost Of Funds 3.22 3.16 3.10 3.08 Net Loans / Total Assets 47.7 50.8 51.2 51.5
Spread 1.90 1.94 1.90 1.87 Investment / Total Assets 11.2 10.5 10.5 10.6
Net Interest Margin 1.99 2.08 2.09 2.06 Cust . Dep./Int. Bear. Liab. 70.5 71.9 71.2 70.4
Cost-to-Income Ratio 36.2 41.2 41.3 41.6 Interbank Dep / Int. Bear. 24.7 23.5 24.5 25.7
Employees ( Year End) 20,102 22,112 24,323 26,756 Asset Quality
Effective Tax Rate 17.4 18.0 18.0 18.0 NPL / Total Gross Loans 4.0 4.0 4.0 4.0
Business Mix NPL / Total Assets 2.0 2.1 2.1 2.1
Net Int. Inc / Opg Inc. 56.0 63.3 62.5 61.1 Capital Strength
Non-Int. Inc / Opg inc. 44.0 36.7 37.5 38.9 Total CAR 16.3 16.7 16.8 16.6
Fee Inc / Opg Income 20.7 23.4 23.4 23.7 Tier-1 CAR 11.0 12.2 12.4 12.6
Oth Non-Int Inc/Opg Inc 23.2 13.3 14.1 15.2 Growth
Profitability Total Net Loans 14 11 9 9
ROAE Pre Ex. 12.5 13.5 13.7 13.8 Customer Deposits 12 9 7 7
ROAE 17.1 13.5 13.7 13.8
ROA Pre Ex. 1.7 1.4 1.3 1.4
ROA 1.7 1.4 1.3 1.4
Valuation Graph : PE
19.0
17.0
15.0
13.0
11.0
9.0
7.0
2003 2004 2005 2006 2007
Price & Price Relative to Index
S$
Relative Index
26.00
187
24.00
167
22.00
20.00
147
18.00
127
16.00
107
14.00
12.00
87
10.00
67
2003 2004 2005 2006 2007
UOB (LHS) Relative STI INDEX (RHS)
Source: Company, DBS Vickers
51

Regional Equity Strategy Q4 2007
Country Assessment
Hong Kong / China
Investment amidst high inflation
HSI: 24,599 HSCEI 14,676
3 mths Target: 27,500 3 mths Target: 16,600
Expected Return 11.8% Expected Return 13.1%
12 mths Target 30,000 12 mths Target 18,300
Expected Return 22.0% Expected Return 24.7%
• We have upgraded 12-month targets for the Hang Seng Index (HSI) and HSCEI by 22% and 34%
respectively, due to (1) strong interim earnings growth of their component stocks, which has prompted
an upward revision in earnings forecasts for both 2007 and 2008 by c.10 percent, and (2) lower US
interest rates. We see room for further earnings improvement for many China stocks, underpinned by a
robust mainland economy and asset restructuring activities amongst the listed companies and their
respective parent groups.
• Liquidity in Hong Kong’s stock market is expected to surge in the coming six months as China
starts to drive excess liquidity offshore via QDII, individual investors, and financial intermediaries.
Enterprises are also urged to accelerate their overseas expansion plans to alleviate the pressure on
Renminbi (RMB) appreciation. We believe this liquidity will initially flow into Hong Kong, driving up
equity valuation. Stock prices may shoot above market expectation. Hence, it is too early for
investors to be pessimistic and take the sidelines. The excess liquidity will boost stock market
turnover, thus stock price of HK Exchange.
• Rocketing fixed-asset investment and wage growth as well as surging inflation and trade surplus
have been partly caused by the undervalued RMB. China, after resorting to implementing various
austerity measures, needs to accelerate appreciation of RMB and drive liquidity overseas to alleviate
overheating of the economy. Investors should focus on companies with large exposure to RMB assets,
and mainland economy. Property, financial, consumer/automobile, and machinery sectors in
China, remain our favourites. Property developers in Hong Kong will benefit from the liquidity inflow,
low unemployment rate and imported inflation. However, after the recent price surge, we are
concerned about the excessive valuation of selected counters. We have downgraded the Hong Kong
Property Sector to Neutral.
• China Construction Bank (939 HK, Buy), and ICBC (1398 HK, Buy) are good proxies to
China’s strong economic growth, while China Life (2628 HK) and Ping An Life (2318 HK) will gain
from China’s rising interest rate environment and insurance demand. Anticipated restructuring of the
telecom industry and introduction of 3G may enhance interest in the sector. China Mobile (941 HK,
Buy) and China Telecom (728 HK, Buy) should be winners of the major trends in the sector. Fast
rising wages will continue to drive consumption demand (especially for luxury goods, personalised
product and services), which should benefit Lee & Man (2314 HK, Buy), Denway Motor (203 HK,
Buy) and Dongfeng Motor (489 HK, Buy).
Index Close Chng -1 mth -3 mth -6 mth - 12 mth 52-Week
17-Sep-07 Net 1 m (%) (%) (%) (%) High Low
Hang Seng 24,599 4212 21 14 30 41 21,017 15,435
HS China Ent 14,676 3674 33 24 61 111 11,444 6,036
HS China Aff 4,954 1151 30 24 53 92 3,807 2,075
HS Mid Cap 5,083 938 23 10 19 41 4,691 3,010
HS Small Cap 3,086 497 19 12 29 40 2,741 2,077
Transactions:
YTD
Volume (bn shs) 13,076
Value (HK$bn) 12,164
Dr. Peter So · (852) 2820 4619 · peter_so@hk.dbsvickers.com
52
Refer to important disclosures at the end of this report

Country Assessment
Regional Equity Strategy Q4 2007
Review of 3Q: Tragedy for bulls and bears
The strong momentum for HSI and HSCEI came to a halt in 3Q07 with the unveiled
problems in US sub-prime mortgage loans, and reduction of carry-trade activities. HSI fell
4,171 points from a peak of 23,557 points in July to a low of 19,386 points in mid-August.
Fortunately, there have been no signs of significant deterioration (caused by the sub-prime
mess) in earnings for many listed stocks in the Hong Kong market.
China’s announced plans to allow individuals to invest directly in Hong Kong stocks (without
upper limit on investment amount) rekindled investment confidence in the stock market in
August and drove the HSI from the low to 24,599 in mid-Sep, up 5,213 points. Though
investments from individuals need to be channelled from Bank of China’s branches in
Tianjin, we believe more channels will be opened in other cities over the next few months.
We estimate that in the next two years, fund flows from the Mainland to Hong Kong
via individual investment, QDII and other financial intermediaries may exceed
US$150bn, providing voluminous funds for Hong Kong’s capital market. This flow of fund
may eventually find ways to seep into other capital markets such as Singapore and the US.
HSI
27,000
HSI
25,000
23,000
21,000
19,000
17,000
100-day MA
15,000
Sep-06 Dec-06 Mar-07 Jun-07 Sep-07
HSCEI
15,500
14,500
13,500
12,500
11,500
10,500
9,500
8,500
7,500
100-day MA
HSCEI
6,500
5,500
Sep-06 Dec-06 Mar-07 Jun-07 Sep-07
Source: Bloomberg
Inflation – winners of this long-term phenomenon
China’s inflation rate surged rapidly in recent months, reaching 6.5% in August, the highest
in 11 years. The consumer price index (CPI) even exceeded the rise in producer price
index (PPI) from 2Q07, which may mean manufacturers of consumer products may
start to regain pricing power to expand gross margins.
Despite the Government’s attribution of the high inflation rates to the skyrocketing food
prices, which were up by 18.2% y-o-y on average in August, we believe the high inflation
may last longer than expected.
Amongst the different consumer product prices and services, recreation & education,
clothing and transportation and telecom products recorded y-o-y declines of less than 1.5%
in August, while prices for liquors, residence, household facilities and medicine and services
were on the rising trend (up 1.7% to 4.3% y-o-y, and higher than the decline in other
industries). We foresee the fast rising capital value of properties may later drive up rental
value and inflation.
53

Regional Equity Strategy Q4 2007
Country Assessment
CPI vs PPI in China
Yoy, %
10
8
PPI
6
4
2
0
CPI
-2
-4
-6
Jan-01
Jun-01
Nov-01
Apr-02
Sep-02
Feb-03
Jul-03
Dec-03
May-04
Oct-04
Mar-05
Aug-05
Jan-06
Jun-06
Nov-06
Apr-07
Aug-07
Source: CEIC
China’ s CPI components experiencing declines
Yoy, %
4
3
2
1
0
(1)
(2)
(3)
(4)
Jan-03
Jun-03
Nov-03
Apr-04
Sep-04
Feb-05
Jul-05
Dec-05
May-06
Oct-06
Mar-07
Aug-07
CPI - Recreation, Education & Cultural
CPI - Transport & Telecom
CPI - Clothing
Source: CEIC
54

Country Assessment
Regional Equity Strategy Q4 2007
China’ s CPI component prices showing increases
Yoy, %
20
15
10
5
0
(5)
Jan-03
Jun-03
Nov-03
Apr-04
Sep-04
Feb-05
Jul-05
Dec-05
May-06
Oct-06
Mar-07
Aug-07
CPI - Food
CPI - Household Facility
CPI - Medicines & Medical Appliances
CPI - Tobacco, Liquors & Articles
CPI - Residence
Source: CEIC
Unless China’s labour productivity increases rapidly, the rising wages, and falling
unemployment rate, will eventually result in excess demand and pricing inflation. In 1H07,
China’s wages were up by over 20% y-o-y, while factories complained that it was
increasingly difficult to recruit cheap labour. In view of the latter problem, we foresee a
pressing need for many manufacturers to upgrade machinery and production processes in
order to raise productivity. We are optimistic on the future demand growth for
technology, and machinery products in China. Companies like Kingdee (268 HK,
Buy), China Infrastructure Machinery (3339 HK, Buy) and Comba Telecom (2342 HK,
Buy) will benefit.
Rising per capita income in urban household in China
RMB
14,000
25%
12,000
10,000
8,000
20%
15%
6,000
4,000
2,000
10%
5%
0
0%
Jun-03
Sep-03
Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Income Per Capita (YTD)
per capita income growth
Source: CEIC
Negative real interest rates have continued to discourage deposits and stimulate loan
growth. Individual deposits growth has fallen below that of enterprise deposits and total
loan growth in 2006 and 2007. The long term loan growth continued to grow at high rates
of over 20% in view of the soaring inflation in the country. Indeed, the appetite for
spending and investment from individuals has increased sharply. China’s approval for
55

Regional Equity Strategy Q4 2007
Country Assessment
Negative real interest rates have continued to discourage deposits and stimulate loan
growth. Individual deposits growth has fallen below that of enterprise deposits and total
loan growth in 2006 and 2007. The long term loan growth continued to grow at high rates
of over 20% in view of the soaring inflation in the country. Indeed, the appetite for
spending and investment from individuals has increased sharply. China’s approval for
individuals to invest in overseas stocks should generate good response in view of
the high valuation of A shares.
Negative real interest rates
%
8
6
Real lending rate
Real deposits rate
4
2
0
(2)
(4)
Jan-01
Jun-01
Nov-01
Apr-02
Sep-02
Feb-03
Jul-03
Dec-03
May-04
Oct-04
Mar-05
Aug-05
Jan-06
Jun-06
Nov-06
Apr-07
Aug-07
Source: CEIC
China’s deposit growth for individuals and
enterprise
Yoy, %
25%
20%
15%
10%
5%
0%
Source: CEIC
2001 2002 2003 2004 2005 2006 Jun
2007
Enterprises Individual
China’s loan (long term and short term)
growth
Yoy,%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Source: CEIC
Short-term
Long term
Total
2001 2002 2003 2004 2005 2006 Jun
2007
Not only does the rising income in China encourage spending and investment, the
imbalanced distribution of financial assets, which are skewed towards low-risk and lowyielding
assets, also propelled funds to flow to the stock market. Over 70% of the financial
assets are in the form of cash or bank deposits, which suffer from negative real returns,
while equity investments account for less than 20% of the financial assets. We believe the
imbalanced portfolio will be corrected in the future, especially when the unemployment rate
in China falls further. The need to maintain high deposit levels for precautionary purposes
should diminish. Thus, interest rate hikes have not been successful in deterring
investors from equity investment.
56

Country Assessment
Regional Equity Strategy Q4 2007
Estimated financial asset breakdown in China’s household in mid-2007
FX deposits
1.6%
Bonds
4.1%
Insurance
4.0%
RMB deposits
65.5%
Equity
16.8%
Others
0.6%
Cash
7.4%
Source: CEIC, DBS Vickers
Exodus to second tier cities
Investment appetite will stay high amidst the serious negative real interest rate situation in
China. We foresee investment interest in second-tier cities (such as Changsha and
Chengdu), which experience higher inflation, will grow at a faster rate as inflation rate
exceeds post-tax borrowing costs (of 5.46% for 1-year loans). Property companies (such as
Beijing North Star (588 HK), R & F Properties (2777 HK, Buy) and China Overseas
(688 HK, Buy)) that have rapidly diversified their landbank into second-liner cities may
benefit.
Developers may be attracted to China’s second tier cities for their higher inflation trends
Yoy, %
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Xining
Chengdu
Hefei
Zhengzhou
Changsha
Xian
Tianjin
National
Guangzhou
Shenzhen
Ningbo
Shanghai
Beijing
Source: CEIC
57

Regional Equity Strategy Q4 2007
Country Assessment
Hong Kong: Liquidity pump starts
The weak USD (and thus the pegged HKD) may lead to more imported inflation in Hong
Kong, which together with low unemployment rate, and higher wages, have boosted
demand for residential properties in Hong Kong. The situation may continue should USD
weaken further after the US Federal Reserve cuts interest rates. The capital value for
residential properties should show continuous strength in the coming months.
Unemployment Rate in Hong Kong
Capital value index for residential properties
in Hong Kong
%
10
9
8
7
6
5
4
3
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Source: CEIC
250
200
150
100
50
0
Jan-96
Nov-96
Sep-97
Jul-98
May-99
Mar-00
Jan-01
Nov-01
Sep-02
Jul-03
May-04
Mar-05
Jan-06
Nov-06
Jul-07
Source: Jones Lang LaSalle
Rental value for offices however has begun to show limited upside momentum with the
exception of offices in Central. Should the global economy slow in the coming quarters,
demand for offices (even in Central) may weaken further. Within the property sector, we
prefer developers to property investment companies. We like both Sino Land (83 HK,
Buy) and Cheung Kong (1 HK, Buy) amongst the developers.
Rental value index for offices in Hong Kong
200
180
160
140
120
100
80
60
40
20
0
Jan-01
Apr-01
Jul-01
Oct-01
Jan-02
Apr-02
Jul-02
Oct-02
Jan-03
Apr-03
Jul-03
Oct-03
Jan-04
Apr-04
Jul-04
Oct-04
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Central Wanchai/ Causeway Bay Tsim Sha Tsui
Island East
Overall
Source: Jones Lang LaSalle
58

Country Assessment
Regional Equity Strategy Q4 2007
We remain negative on exporters, which are expected to see heavier margin pressure and
slowing revenue growth as the destination countries exhibit lower import demand. The
weaker USD may mean imported fuel and raw materials become more expensive and eat
into margins of these companies. Yue Yuen (551 HK, Fully Valued), TCL (1070 HK), and
TPV (903 HK) may be affected. Utilities may also underperform amidst the rising inflation
rate environment. Hong Kong banks will be hurt by the narrowing interest rate margins and
slowing loan growth (especially related to trade finance).
We expect the stock market turnover in Hong Kong to increase in 4Q07, to be driven by: 1)
arrival of more mainland liquidity in the form of QDII or individual investment, and (2) influx
of overseas capital, which may be attracted by the strong earnings growth of the Chinese
stocks listed in Hong Kong.
China Southern Fund Management’s recent launch of RMB15bn mutual fund for overseas
investment in China was heavily oversubscribed (by as much as RMB50bn) on the first day of
launch, which reflected strong investment interest in Hong Kong stocks from mainland
investors. HK Exchange (388 HK) should be the key beneficiary of the arrival of liquidity from
the Mainland and overseas. The stock price of HK Exchange was highly correlated with the
three-month moving average of Hong Kong stock market turnover, which should advance in
the coming months.
Hong Kong stock market turnover and HK Exchange stock price
HK$bn
HK$
2,000
1,800
160
140
1,600
1,400
120
1,200
100
1,000
80
800
60
600
400
40
200
20
0
0
2000 2001 2002 2003 2004 2005 2006 2007
3-M Mov Ave Turnover (LHS) Share Price - HK Exchange (RHS)
Source: Bloomberg
Valuation : more room to widen
Despite the successive record high of HSI and HSCEI, we believe it is justified by the:
a. strong earnings growth (e.g. of 30% in 2007 and 22% in 2008 for HSCEI);
b. anticipated value enhancing asset re-organisation activities of red chips, H shares,
and parents;
c. issuance of new A shares (such as PetroChina (857 HK, Buy), Zijing Mining (2899
HK, Buy), China Mobile (941 HK, Buy), China Shenhua (1088 HK, Fully Valued),
CNOOC (883 HK, Fully Valued), China Telecom (728 HK, Buy), R&F Properties (2777
HK, Buy), PICC P&C (2328 HK), China Oilfield Services (2883 HK), Beijing Int’l
Airport (694 HK), Gome (493 HK, Buy), China Shipping Container (2866 HK, Fully
Valued)) to be listed on the mainland markets.
59

Regional Equity Strategy Q4 2007
Country Assessment
HSI movement used to lag the movement of the yield spread or earnings yield gap (i.e.
earnings yield of HSI minus 10-year US treasury bonds). For the last 15 years, the gap
averaged around 1.3%. When the gap exceeds 1.3%, investment in HSI stocks is attractive.
Recently, after the upgrade of forecast earnings for HSI, the gap becomes attractive again at
over 3%, which may provide a lift for HSI in the coming months.
Based on the earnings yield analysis, we forecast 12-month targets for HSI and HSCEI to be
30,000 and 18,300 equivalent to PE of 18.8x and 26x for 2008.
Earnings yield gap
25,000
8
20,000
6
15,000
10,000
4
2
0
5,000
-2
0
-4
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2003
2004
2005
2006
2007
Hang Seng Index
Yield Spread (HSI vs US 10-yr bond)
Source: Datastream, DBS Vickers
Recommendation
We believe HSCEI will continue to outperform HSI, due to the former’s stronger earnings
growth and RMB appreciation. The advent of mainland liquidity will also provide strong
demand for H shares (such as Datang Internatinal (991 HK), Beijing North Star (588
HK), Jiangxi Copper (358 HK, Hold) and Air China (753 HK)), which trade at large
discounts to A shares. Some mainland investors may sell A shares to raise funds for investing
in Hong Kong stocks or H shares if the individual’s off-shore investment scheme is exercised.
60

Country Assessment
Regional Equity Strategy Q4 2007
Discounts between “A” and H shares
9/17 9/17 H
Price Price Disc.
H Shares (HK$) A Shs (Rmb) to A
HK1108 Luoyang Glass 0.870 CH600876 8.34 (90%)
HK921 Guangdong Kelon 0.890 CH000921 # 7.88 (89%)
HK1033 Sinopec Yizheng Chm. Fib. 3.660 CH600871 13.50 (74%)
HK338 Sinopec Shai. Petrochem. 5.250 CH600688 18.04 (72%)
HK187 Beiren Printing 2.800 CH600860 8.40 (68%)
HK670 China Eastern Airlines 6.530 CH600115 19.14 (67%)
HK719 Shandong Xinhua Pharm. 2.850 CH000756 8.09 (66%)
HK42 North East Elec. 2.580 CH000585 7.31 (66%)
HK991 Datang Intl Power 8.230 CH601991 22.19 (64%)
HK753 Air China Ltd 9.490 CH601111 24.98 (63%)
HK553 Nanjing Panda 3.570 CH600775 9.31 (63%)
HK2600 Aluminium Corp of China 18.820 CH601600 47.26 (62%)
HK1055 China Southern Airlines 10.900 CH600029 27.32 (61%)
HK1071 Huadian Power Intl 4.690 CH600027 11.39 (60%)
HK358 Jiangxi Copper 18.140 CH600362 42.72 (59%)
HK1065 Tianjin Cap. Environment 4.530 CH600874 10.55 (59%)
HK350 Jingwei Textile Mach. 5.470 CH000666 12.04 (56%)
HK1919 China Cosco Holding 20.000 CH601919 42.00 (54%)
HK1053 Chongqing I & s 4.880 CH601005 10.01 (53%)
HK386 China Petroleum & Chm. 8.270 CH600028 16.91 (53%)
HK588 Beijing North Star 6.920 CH601588 14.11 (53%)
HK902 Huaneng Power Int'l 8.630 CH600011 17.50 (52%)
HK998 China CITIC Bank 5.710 CH601998 11.49 (52%)
HK323 Maanshan Iron & Steel 7.580 CH600808 15.10 (52%)
HK874 Guangzhou Pharm. 8.050 CH600332 14.40 (46%)
HK300 Jiaoda Kunji High-Tech 15.300 CH600806 26.93 (45%)
HK2338 Weichai Power 58.800 CH000338 98.75 (42%)
HK548 Shenzhen Expressway 7.690 CH600548 12.89 (42%)
HK317 Guangzhou Ship 48.600 CH600685 81.29 (42%)
HK525 Guangshen Railway 6.230 CH601333 10.05 (40%)
HK1138 China Shipping Dev 22.000 CH600026 34.93 (39%)
HK3988 Bank of China 3.840 CH601988 6.00 (38%)
HK1171 Yanzhou Coal Mining 13.540 CH600188 21.04 (38%)
HK3328 Bank of Communications 8.900 CH601328 13.59 (37%)
HK763 ZTE Corp 35.300 CH000063 52.68 (35%)
HK1072 Dong Fang Elect. Mch 58.000 CH600875 86.34 (35%)
HK995 Anhui Expressway 6.710 CH600012 9.88 (34%)
HK347 Angang New Steel 26.250 CH000898 38.20 (34%)
HK2628 China Life 38.200 CH601628 55.04 (33%)
HK914 Anhui Conch 57.950 CH600585 83.11 (33%)
HK168 Tsingtao Brewery 25.850 CH600600 36.57 (32%)
HK177 Jiangsu Expressway 8.450 CH600377 11.19 (27%)
HK1398 Ind & Comm Bk of China 5.040 CH601398 6.54 (26%)
HK3968 China Merchant Bank 28.850 CH600036 35.38 (21%)
HK2318 Ping An Insurance 87.650 CH601318 107.46 (21%)
* Total A-share market cap
# As at 3 Sep 2007
Source: Bloomberg
61

Regional Equity Strategy Q4 2007
Country Assessment
Property (Shimao Property (813 HK, Buy), Guangzhou Investment (123 HK, Buy) and
R & F Properties (2777 HK, Buy)) and financial stocks (ICBC (1398 HK, Buy) and China
Construction Bank (939 HK, Buy)) will remain as our favourite picks, which should benefit
from the serious negative real interest rate environment in China. The recent interest rate
hike of 27 basis points in mid-September should benefit the banks (by widening margins)
and the insurance companies in China.
Some consumer stocks (e.g. Li Ning (2331 HK,Buy) , Beijing Jingkelong (8245 HK, Buy),
China Mengniu (2319 HK, Buy), Dongfeng Motor (489 HK, Buy), Denway (203 HK,
Buy), Walker Group (1386 HK, Buy)) will benefit from rising spending power in China,
while pricing power for those with strong brands and distribution networks (esp. those in
household facility, tobacco/liquor, medical, appliances etc.) will emerge as CPI growth rate
exceeded PPI.
Telecom sector – two development scenarios
Our telecom analyst also believes it is a good opportunity to accumulate telco stocks,
especially China Mobile (941 HK, Buy) and China Telecom (728 HK, Buy).
Going into 4Q, we believe China’s telecom industry will continue to be clouded by rumours
and speculations on industry restructuring and 3G licensing. Although restructuring of the
industry should precede the issuance of 3G licenses in our view, there are market voices of
possible restructuring of the telco sector in 4Q.
The Government’s focus would continue to be on the commercial trials of home-grown TD-
SCDMA 3G technology. In view of the Government’s determination, as seen over the years,
to develop a Chinese 3G technology, the success of TD-SCDMA trials would be crucial for
the Government to move further towards 3G licensing.
On the other hand, there have been market rumours of a possible industry restructuring
(which would favour more balanced competition) for some years. However, there has been
no timetable or official announcements on these issues; we believe there is not much time
remaining for the Government to decide, in view of the growing pressure from telecom
operators, other upstream and downstream players as well as the increasing need for realignment
of the industry.
4Q or early 2008 might be latest time for industry restructuring
As the industry structure will be crucial in determining the form and timing of 3G licensing,
we believe industry restructuring, if any, would precede 3G licensing (given the
complications of industry-wide restructuring) by c. 3-6 months, in our view. In this regard,
4Q or early 2008 might be the latest time slots for the Government to decide whether to
restructure.
TD-SCDMA trials networks in 10 cities are expected to be finished in October. Hence the
trials, with a few months of user-level tests, can be finished by year-end, which would
signal some degree of maturity for the issuance of 3G licenses;
The 2008 Olympics is another catalyst for 3G licensing, as the Government had
previously vowed to launch 3G services for the Games;
The longer it delays, the more complicated for an industry-wide restructuring, as
telecom operators have gradually become differentiated in management styles and
strategies, making it more difficult to see business synergies after restructuring;
If the industry restructuring does not materialise by 1H08, the Government might waive
restructuring in the foreseeable future.
62

Country Assessment
Regional Equity Strategy Q4 2007
Two of the closest scenarios on 3G licensing
Given the complexity, there might be a variety of scenarios. Among the many possibilities,
we have derived two scenarios that we believe are of higher possibility among others.
When deriving the scenarios, we have taken into account of the following aspects that
might also be the Government’s major considerations:
i. China’s homegrown TD-SCDMA should be put on an equal-standing basis, if not as
first priority, in competing with the other two 3G standards;
ii.
It should create favourable competition environment for all telecom operators,
removing the unbalanced situation;
iii. Avoid duplicated investments in telecom networks.
Two of the closest scenarios on 3G licensing
Scenario I
Scenario II
Restructuring
Licenses
Considerations
Impact on telcos:
China Mobile
China Telecom
China Netcom
China Unicom
Source: DBS Vickers
China Unicom (CU) sells its CDMA to
CT by 1H08
China Mobile (CM) gets TD-SCDMA;
China Telecom (CT) buy CDMA from
CU and get CDMA2000;
CU merged with CNC and gets
WCDMA
No new network built from scratch;
Create three telcos with comparable
sizes;
TD-SCDMA can be well developed
Major risk is TD-SCDMA being an
unprecedented 3G technology.
However, CM can enjoy lower 3G
license fee and any favourable polices
support. As CM’s parent company is
mainly building the TD-SCDMA
network, there should be no major
negative impact when the company
does obtain a TD-SCDMA 3G license.
We believe CT will benefit the most.
CT can command a re-rating by
entering the wireless business.
Moreover, its growth prospects will be
boosted significantly.
CNC will mainly benefit from re rating
through aligning its valuation with
CU.
CU has to face a spin-off and merger
with CNC, which can jeopardise its
near-term profitability and valuation,
though better competitive
competency in the long run.
No restructuring
CM gets WCDMA;
CT gets TD-SCDMA within its services
areas;
China Netcom (CNC) gets TD-SCDMA
within its services areas;
CU gets CDMA2000
No new network built from scratch;
Lowest degree of impact on listed
telcos;
TD-SCDMA can become a major 3G
standard in China operated by two
telcos;
More intense competition from CT
and CNC, CM faces no major risks.
CM can benefit from the wide
deployment of WCDMA in the global
market. Given a mature 3G license,
CM can also accelerate its overseas
acquisitions.
Major risk lies in the TD-SCDMA and
the company’s lack of experience in
operating a new 3G network.
However, CT can also benefit from rerating
and better growth outlook.
In this case, CNC has similar benefits
to CT: re-rating and better growth
outlook.
CU will be faced with increased
challenges: more competitors and
struggles in operating two networks.
63

Regional Equity Strategy Q4 2007
Country Assessment
Top picks: CM for near-term and CT for longer-term
Given the many uncertainties regarding industry restructuring and 3G licensing, we do not
suggest investors to speculate. Instead, we believe it is more rational and sustainable to
make investments on a selective basis.
We prefer CM (where we see no major near-term downside risks) for near-term investment;
CT will continue to be our long-term top pick, as it will benefit from delays in 3G licensing.
In the long run, CM will have to face more competitors. On the other hand, we believe CM
can continue to be the most competitive player in China’s 3G era in China, given its wellestablished
competitive advantages in the wireless telecom market in China.
For CT, we see limited downside, given its attractive valuation, while any progress in the
industry restructuring and 3G licensing can be a catalyst for the company. In the long run,
CT’s growth outlook will be boosted considerably by entering the wireless business.
64

Country Assessment
Regional Equity Strategy Q4 2007
Economic Indicators
2004A 2005A 2006F 2007F 2008F
China
GDP Growth (%) 9.2 9.9 11.1 11.5 10.0
FDI (US$bn) 60.6 60.0 70.0 48.0 45.0
Exports (yoy %) 35.4 28.0 27.0 27.0 24.0
Retail Sales
(yoy %) 17.7 13.0 13.8 15.0 16.0
CPI (yoy %) 4.0 1.8 1.5 4.0 4.4
Hong Kong
GDP Growth (%) 8.6 7.3 6.9 6.0 5.6
CPI (yoy %) -0.4 1.1 2.0 1.8 3.2
Source: CEIC, DBS Bank
Valuation - HSI
Earnings Growth (%)
PE (x)
Yield (%)
06A 07F 08F 06A 07F 08F 06A 07F 08F
Finance 7.9 29.7 14.3 20.2 15.6 13.6 2.6 3.1 3.6
Power, Infrastructure & Utilities -2.5 -3.2 5.2 14.2 14.7 13.9 3.2 3.1 3.3
Properties 18.6 25.4 -21.5 21.5 17.2 21.9 1.8 2.0 1.9
ex Cheung Kong 11.1 12.9 1.0 26.7 23.6 23.4 1.8 2.0 1.9
Hongs/Conglomerates 28.3 45.2 -41.0 18.0 12.4 20.9 2.2 2.5 2.4
ex Hutchison 21.6 -1.9 -5.1 18.4 18.8 19.8 2.3 2.7 2.6
Comm/Ind 26.1 22.0 20.1 20.3 16.6 13.9 2.0 2.5 2.9
Telecom & Media 14.2 17.5 33.1 27.5 23.4 17.6 1.7 2.0 2.6
HSI 14.7 29.9 12.5 20.2 16.2 15.4 2.3 2.7 3.0
HSI ex Cheung Kong and Hutchison 9.7 19.3 14.3 20.6 17.3 15.1 2.4 2.7 3.1
Source: DBS Vickers
Valuation - HSCEI
Earnings Growth (%) PE (x) Yield (%)
06A 07F 08F 06A 07F 08F 06A 07F 08F
Consumer 33.7 30.9 18.5 21.6 16.6 14.0 1.1 1.6 1.9
Energy 11.7 12.4 7.7 22.8 20.0 18.1 1.5 1.7 1.8
Financials 28.9 55.8 34.4 40.1 27.9 21.0 0.7 0.9 1.3
Industrial Goods 18.3 43.1 -3.5 29.4 20.7 21.4 1.2 1.5 1.5
Materials 68.5 22.3 20.3 41.5 36.7 31.5 0.8 0.9 1.1
Utilities 22.5 13.6 10.8 16.8 19.3 17.3 2.8 2.7 3.0
Property & Construction 80.3 59.7 45.0 71.6 55.1 37.7 0.3 0.5 0.6
Services -27.9 50.5 12.5 38.1 26.1 24.2 0.7 1.1 1.3
Telecom & Technology -4.0 3.4 24.5 14.7 14.3 11.5 1.5 1.6 2.0
HSCEI 17.9 30.3 21.7 32.0 25.6 21.1 0.9 1.1 1.4
Ex oil * 21.9 43.7 29.3 39.7 30.4 24.1 0.7 0.9 1.2
Source: DBS Vickers
65

Regional Equity Strategy Q4 2007
Country Assessment
Chartist’ favourite
1398 HK INDUSTRIAL & COMMERCIAL BANK OF CHINA (ICBC) Weekly Price Chart
5.3
5.2
5.1
5.0
4.9
Thurs 04Jan07
5.22
1398 ICBC (H)
Wave iii
= Up
Fri 27Jul07
5.06
Weekly Price Chart
Tues 04Sept07
5.15
Technical Objective
@
HK$6.10
over 4Q07
5.3
5.2
5.1
5.0
4.9
4.8
4.7
4.6
Significant Support @HK$4.75 over 4Q07
Wave 1
= Up
4.8
4.7
4.6
4.5
4.4
4.3
4.2
4.1
Wave i
= Up
Wave ii
= Down
4.44
Wave 2
= Down
Wave 3
= Up
4.5
4.4
4.3
4.2
4.1
4.0
3.9
3.8
3.7
3.6
3.5
3.4
3.3
90
80
70
60
50
40
30
60000
55000
50000
45000
40000
35000
30000
25000
20000
15000
10000
x100
3.45
03Nov06
TOO MUCH BUYING (Over-bought Region)
3.96
Mon 05Mar07
Stochastic Oscillator
Neutral Region
WEEKLY VOLUME Recorded
Confirmation of a
medium-term
BUY Signal
TOO MUCH SELLING (Over-sold Region)
2006 December 2007 February March April May June July August SeptemberOctober NovemberD
4.00
4.00
Fri 17Aug07
We are HERE NOW
Last Closed
@
HK$5.12
Wed 19Sept07
ICBC (HK$5.12) prevailing range trading scenario of HK$5.00–HK$5.15 in recent weeks is seen as a positive sign of accumulating
strength towards a more sustainable uptrend. Any short-term weakness is a good reloading opportunity towards our technical objective
of HK$6.10 over 4Q07. This stock is currently riding on one of the strongest up waves; Wave 3 = Up. Investors should consider
buying into this mega Chinese banking stock now before missing the boat. ICBC is also one of our highlighted picks over 4Q07 on the
back of its solid fundamentals as well. Relative slow moving as it seems in the share price performance over it’s comparable peers like
939.hk China Construction Bank (CCB), 3988.hk Bank of China (BOC China) and 3328.hk Bank of Communications (BoComm), ICBC is
still the ideal choice for value investing being a laggard among the Chinese banking stocks as of now. Thus, we are advocating a BUY
towards HK$6.10 over 4Q07 around this level.
4.0
3.9
3.8
3.7
3.6
3.5
3.4
3.3
90
80
70
60
50
40
30
60000
55000
50000
45000
40000
35000
30000
25000
20000
15000
10000
x100
Johnson Yuen · (852) 2971 2955 · johnson_yuen @hk.dbsvickers.com
Refer to important disclosures at the end of this report
66

Country Assessment
Regional Equity Strategy Q4 2007
Sector recommendation and stock picks for Hong Kong
SECTOR REMARKS STOCK SELECTION
Property
Neutral
Banking and
Finance
Underweight
Conglomerates
Neutral
Telecom
Underweight
Industrial
Underweight
Consumer
Neutral
The primary market remained active in 3Q07. Recently launched Central Park Towers in
North-western New Territories was well received, reflecting robust demand for mass
residential properties. Year-to-date, home prices in Hong Kong have risen 6-7%. We
expect the housing market to remain in good shape for the coming year. However,
following the recent strong rally, major property developers are now trading at premiums
to their respective NAVs and look fairly valued. Despite strong fundamentals, we have
downgraded the sector to NEUTRAL from Overweight. We have also maintained our
Neutral stance on property investors, amid concerns over rising forthcoming office supply
in decentralised locations.
Most Hong Kong banks have no or minimal US sub-prime mortgage exposure. However,
given the US sub-prime mortgage issue may have some persistently contagious effect on
the debt and credit markets, Hong Kong banks are encountering two risk factors. First,
there is a potential squeeze in NIM with HIBOR continuing to stay high, due to higher
market risk premium (except for big banks like HSBC, BOC HK and Hang Seng Bank,
whose NIM should widen). Second, there may be some marked-to-market losses on debt
securities, given rising bond yields and credit ratings of even highly-rated debt papers may
be downgraded. We therefore remain cautious on the banking sector. ICBC Asia is our
top-pick given it is likely to be a key beneficiary of the “HK Stock Direct Train” program.
Share price movement of Wharf should be range-bound in the near-term, as risks and
opportunities co-exist. New property ventures in China could provide the company with
long-term growth momentum. Potential asset restructuring should remain the key theme
for Wheelock over the next couple of years. Shun Tak is set to benefit from positive
outlook of Macau’s housing market. We take a NEUTRAL stance on the sector.
Since 2H06, we have been seeing intensifying competition in Hong Kong’s 3G market,
with four major telecom operators (including SmarTone, PCCW, CSL and HTIL) launching
3G/3.5G services. Fierce competition entails continued capex on network upgrades and
capacity expansion. In the near-term, we see no major catalysts for the sector. Instead, we
see signs of a possible turnaround in satellite businesses. APT (1045) made a turn from
loss to profit in 1H07, which might draw increasing market attention.
Business prospects of most exporters remain challenging. The sub-prime issue has
certainly clouded US’s economic outlook, which will in turn negatively affect retail sales
figures. This has been reflected in the disappointing results in Top Form and Weiqiao. We
continue to favour those with increasing sales exposure in China to ensure better sales
growth prospects and sustainable margin.
Retail sales in Hong Kong grew 10% y-o-y in 7M07, with growth escalating during the
past few months. The surge in the stock market, together with an improving economy,
has helped. Nevertheless, cost pressure remains relatively high on both labour and rental,
and the recent hike in food costs has also posted a challenge for most food retailers. We
continue to see a declining trend on margin for most retailers. To alleviate the pressure,
some retailers (e.g. Café de Coral) chose to raise product prices more frequently, we have
been seeing an increasing launch of new products or brand revamp (e.g. Giordano).
Overall, cost environment remains difficult, hence we maintain a cautious stance, given
the margin concern.
Cheung Kong (1)
ICBC Asia (349)
Wheelock (20)
Shun Tak (242)
APT Satellite (1045)
Lee & Man Paper (2314)
Esprit (330)
67

Regional Equity Strategy Q4 2007
Country Assessment
Sector recommendation and stock picks for China
SECTOR REMARKS STOCK SELECTION
Banking
Overweight
Commodities
Neutral
Oil & Gas
Overweight
Telecom
Neutral
After the rallies in 3Q07 (due to strong 1H07 results), Chinese banks still offer 9-19% gains
in 12 months, but upside in the short-term may not be significant. The Central Government
is likely to step up austerity measures amid rising inflation. Nonetheless, given the current
inflationary pressure has been driven mainly by high food prices, the Government will not
rely only on tightening monetary policies but also on administrative measures to control
food prices and divert excess liquidity. The three interest rate hikes in May 2007, July 2007
and August 2007 were less positive than before, given hikes in time deposit rates are of a
lower magnitude than those of lending rates. However, this will be mitigated by
strengthened asset-liability management. Further relaxation of QDII quota and so-called “HK
Stock Direct Train” will also benefit share prices of H-share banks. This, coupled with reduction
in corporate tax rate, under-penetration in consumer banking & wealth management,
continued growth in corporate banking and regulatory relaxation for more fee income,
should bode well for the long-term fundamentals.
We view the sound economic growth momentum in Asia Pacific (led by China, which
remains as the single, strongest market in consumption of commodities) should underpin
commodity prices to a certain extent. Besides, rises in investment, fuelled by expectations of
weak USD and higher crude prices, should support prices of precious metals such as gold in
4Q07. Moreover, ongoing industry consolidation along with the Government’s intention to
form several globally competitive enterprises should warrant a sustainable growth story in
those leading companies. Though valuations do not seem cheap across the board, selected
segments such as coal and gold are likely to continue their outperformance. Our top pick
for the sector is Chalco with 12-month target at HK$27.00.
In view of the persistent strong crude price, we believe upstream E&P oil companies such as
PetroChina and CNOOC will continue to outperform in the coming quarter. While Sinopec
remains as our long-term pick in the sector, its short-term performance will lack lustre with
the possible enlarged loss from refineries in 4Q07 amid the tightly controlled product oil
price in China. However, we believe this dominant downstream player will eventually catch
up, as crude price is believed to soften after the hurricane season, especially amid the
increasing risk of economic slowdown in the US in the next 6-12 months. Instead of betting
on the volatile short-term crude price trend, we prefer PetroChina in 4Q07 in view of its
relatively balanced upstream and downstream operations than closest peers as well as
potential technical support from its imminent A-share listing in October.
For 4Q07, uncertainties on industry restructuring and 3G licensing will continue to cloud
the telecom sector. Although we see the chance of issuing 3G licenses in 4Q is still slim, we
believe speculations will continue, possibly resulting in choppy share prices in fixed-line
operators and China Unicom. In this regard, we prefer China Mobile, given its strong
1H07 results and the least amount of uncertainties regarding restructuring and 3G
licensing. Though speculations have also caused significant fluctuations in the equipment
sector, we believe the continued recovery will command re-rating for this sector. We still
favour Comba, given its outstanding 1H07 results, attractive valuation and promising
growth outlook.
ICBC (1398)
CHALCO (2600)
PetroChina (857)
China Mobile (941)
Comba (2342)
China Telecom (728)
68

Country Assessment
Regional Equity Strategy Q4 2007
Sector recommendation and stock picks for China (Cont’d)
SECTOR REMARKS STOCK SELECTION
Automobile
Overweight
The rising income level and spending will sustain robust car sales growth in 2007 (of over
23% in 2007) given the low penetration of passenger cars of c. 2% in China. The
introduction of 2008 Accord model by Denway should boost earnings growth prospects
next year. Recovering margins and strong demand for commercial vehicles should sustain
Dongfeng’s EPS growth at 20%+ in 2007-08. Trading at low teen PERs for 2008, both
stocks are attractive.
Dongfeng Motor (489)
Denway (203)
Property
Overweight
A well-located commercial site in Shanghai fetched record high price in an auction after
fierce competition amongst property developers. This indicates developers’ bullishness on
the commercial property market in Shanghai. In our view, yield compression and
favourable rental growth should support the capital value appreciation of quality
commercial properties in major cities of China. The residential market remains in good
shape, but policy risk remains an overhang.
Shimao Properties (813)
Guangzhou Investment
(123)
Pharmaceutical
and Healthcare
Overweight
China Consumer -
Food &
Beverages
Neutral
China Consumer -
Retail
Overweight
Shipping
Neutral
With the latest interim results of the sector, we believe the worst policy overhangs should
be behind us. This year, we will start to see sector earnings back on a normal growth
track. Some market leaders have also registered strong recovery growth with expanding
market share. With a stabilised policy environment and strong long-term underlying
demand for good pharmaceutical and healthcare products, we recommend investors to
return to this small but vigorous sector. Our picks for the sector include Sino
Biopharmaceutical, Mingyuan and Hua Han.
For most F&B players, 1H07 results showed solid growth in top line and decent margins.
But we are becoming more cautious towards 2H, as cost inflation pressure has started to
surface. With prices of some agricultural commodities (such as wheat) scaling to new
highs, F&B players’ margins are likely to be affected. We prefer players (e.g. Tingyi) with
ability to raise prices or those (e.g. China Mengniu) with strong ability in new product
development.
Retail sales in China have been building momentum; in July and August 2007, sales
jumped 16.4% and 17.1% respectively, and up 15.7% y-o-y for 8M07. The recently
announced corporate results across Chinese retailers have also reaffirmed such positive
consumption trend, while the inflationary environment in China could provide retail
operators with even better pricing power ahead. As overall sector valuation stays rich, we
prefer players that post attractive growth potentials yet offer relatively less demanding
entry levels.
Except for the dry bulk vessels, evidence of market recovery for containers and tankers
markets is not yet strong enough to change our cautious view on the shipping sector,
especially when the sector is trading at historical high cycle-peak valuation. With
increasing risks from the US economic slowdown and rising operating costs, we maintain
our cautiousness on the sector, aside from some stocks in special situation. For instance,
we believe marine services and related industries should benefit from the continuous
expansion of shipping fleets in China – BUY COSCO International and Singamas. We
also like China COSCO on the back of its mega asset injection potential.
Sino Biopharmaceutical
(1177)
China Mengniu (2319)
Walker Group (1386)
Beijing Jingkelong (8245)
COSCO International
(517)
China COSCO (1919)
69

Regional Equity Strategy Q4 2007
Stock Profile: China Mobile
BUY HK$106.80 HSI : 24,599
Price Target: 12-month HK$ 118.00
Potential Catalyst: Further delay in 3G licensing; A-share listing;
strong subscriber growth; potential overseas acquisition
ANALYST
Steven Liu CFA, +852 2971 1780
steven_liu@hk.dbsvickers.com
FORECASTS AND VALUATION
FY Dec (RMB m) 2005A 2006A 2007F 2008F
Turnover
243,04
1
295,358 350,563 406,671
EBITDA
134,36
3
160,388 187,401 216,154
Pre-tax Profit 78,264 96,908 118,787 146,188
Net Profit 53,549 66,026 80,399 110,256
Net Pft (Pre Ex.) 53,549 66,026 80,399 110,256
EPS (HK$) 2.81 3.44 4.16 5.67
EPS Gth (%) 28.0 22.2 21.0 36.5
Diluted EPS (HK$) 2.79 3.40 4.12 5.62
DPS (HK$) 1.10 1.62 1.99 2.72
BV Per Share (HK$) 14.24 16.54 19.32 22.94
PE (X) 38.6 31.6 26.1 19.1
P/Cash Flow (X) 18.8 16.0 13.9 11.4
EV/EBITDA (X) 14.7 12.1 10.2 8.6
Net Div Yield (%) 1.0 1.5 1.8 2.5
P/Book Value (X) 7.6 6.6 5.6 4.7
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 21.2 22.3 23.2 26.9
SHARE PRICE CHART
HK$
116.40
106.40
96.40
86.40
76.40
66.40
56.40
46.40
Sep-06 N ov-06 Feb-07 A pr-07 Jun-07 Sep-07
Ch in a M o b ile 100-D ay M A
AT A GLANCE
Issued Capital (m shrs) 20,013
Mkt. Cap (HK$m/US$m) 2,171,386 / 278,821
Major Shareholders
China Mobile (HK) Group (%) 75.0
Free Float (%) 25.0
Avg. Daily Vol.(m shrs) 39.6
Earnings Rev : FY07: - FY08: -
Consensus EPS: FY07: HK$4.16 ; FY08: HK$5.22
Variance vs Cons: FY07: 0.63% ; FY08: 9.38%
Sector : Telecom
Bloomberg/Reuters Code: 941 HK EQUITY/ 0941.HK
Principal Business: CM is the largest wireless services
provider in China, with more than 65% market share in terms
of subscribers. The company operates a nationwide
GSM/GPRS/EDGE network.
China Mobile
Cementing leadership amidst the 3G turmoil
Story: China Mobile (CM) is cementing its leading position in
China’s telecom market. The 3G turmoil in China has helped CM
boost its competitive advantages.
Point: Although we have maintained our forecast, we see
diminishing risks in policy and operation for CM, implying better
valuation and growth prospects.
Relevance: Trading at 19.1x FY08 PE, current valuation is
undemanding compared with global telcos. Looking ahead, we see
more catalysts for re-rating. Though we have maintained our target
price, we are keeping a close watch on any upgrade factors for this
counter. Maintain BUY.
Mounting competitive advantages. Strong 1H07 results
suggest that China Mobile (CM) continued to gain competitive
advantages in China’s telecom market. We believe this is mainly
attributable to the following aspects: i) higher economies of
scale; ii) dominant in the rural market, thanks to its widespread
network coverage in rural areas; iii) increasing penetration in the
high-end customer market, as it will have its GSM/GPRS
network upgraded to EDGE (2.75G) by end-2007; and iv)
improving corporate governance. Going forward, we believe CM
can sustain strong subscribers growth, stable or increasing
average revenue per user (ARPU) and rising economies of scales,
hence a decent double-digit growth for quite a few years in the
future.
Favourable position in the 3G turmoil. Although we have
seen a variety of rumours and speculations on industry
restructuring and 3G licensing, there is no timetable or guidance
available from the Chinese Government. Notwithstanding that
we believe 4Q or 1H08 is a critical time for industry
restructuring, we see diminishing possibility of restructuring and
possible further delay in the 3G licensing. These uncertainties
have created much speculation for the other three telecoms
companies in China. However, CM will be least impacted by
these uncertainties, compared with its domestic peers.
Moreover, the company is leveraging on the favourable market
environments to enhance its competitive advantages. In the
China’s 3G era, we believe CM will be the most competitive 3G
player, regardless of which 3G license is to be granted to the
company.
Ongoing revaluation. The counter is trading at 19.1x FY08 PE,
which is undemanding as compared with the average valuation
of global telcos’. Without changing our forecasts, we have
maintained our target price of HK$118, based on DCF valuation.
Over the past few weeks, CM’s share price has shot up
substantially, mainly attributed to its strong 1H07 results and
favourable industry environment. Looking ahead, we believe
CM’s share price will continue to find strong support.
Nevertheless, we believe its ‘A’-share listing in the near term will
be a major share catalyst for CM. In the long run, we believe
CM can command a valuation premium over global telcos’ norm
valuation, in view of its promising growth outlook and superior
profitability. Maintain BUY.
Refer to important disclosures at the end of this report
70

Stock Profile: China Mobile
Regional Equity Strategy Q4 2007
Income Statement (RMB m) Balance Sheet (RMB m)
FY Dec 2005A 2006A 2007F 2008F FY Dec 2005A 2006A 2007F 2008F
Turnover 243,041 295,358 350,563 406,671 Net Fixed Assets 216,505 218,274 235,637 253,415
Cost of Goods Sold (169,355 (203,230 (237,343 (267,477 Invts in Assocs & JVs 0 0 0 0
Gross Profit 73,686 92,128 113,220 139,194 Other LT Assets 83,446 104,895 112,119 114,227
Other Opg (Exp)/Inc 4,309 3,686 3,286 2,936 Cash & ST Invts 106,386 153,461 187,871 256,512
EBIT 77,995 95,814 116,506 142,130 Other Current Assets 14,690 18,046 20,755 23,374
Other Non Opg (Exp)/Inc 0 0 0 0 Total Assets 421,027 494,676 556,382 647,528
Associates & JV Inc 0 0 0 0
Net Interest (Exp)/Inc 269 1,094 2,282 4,058 ST Debt 1,427 5,276 2,280 2,280
Exceptional Gain/(Loss) 0 0 0 0 Other Current Liab 108,527 135,331 157,312 176,111
Pre-tax Profit 78,264 96,908 118,787 146,188 LT Debt 12,912 9,941 6,945 6,945
Tax (24,675) (30,794) (38,257) (35,756) Other LT Liabilities 25,054 24,755 14,826 14,874
Minority Interest (40) (88) (131) (175) Shareholder’s Equity 272,824 319,002 374,517 446,641
Preference Dividend 0 0 0 0 Minority Interests 283 371 502 677
Net Profit 53,549 66,026 80,399 110,256 Total Cap. & Liab. 421,027 494,676 556,382 647,528
Net profit before Except. 53,549 66,026 80,399 110,256
EBITDA 134,363 160,388 187,401 216,154 Non-Cash Wkg. Cap (93,837) (117,28 (136,55 (152,73
Sales Gth (%) 26.3 21.5 18.7 16.0 Net Cash/(Debt) 92,047 138,244 178,646 247,287
EBITDA Gth (%) 27.0 19.4 16.8 15.3
EBIT Gth (%) 26.6 22.8 21.6 22.0
Effective Tax Rate (%) 31.5 31.8 32.2 24.5
Cash Flow Statement (RMB m)
Rates & Ratios
FY Dec 2005A 2006A 2007F 2008F FY Dec 2005A 2006A 2007F 2008F
Pre-Tax Profit 78,264 96,908 118,787 146,188 Gross Margin (%) 30.3 31.2 32.3 34.2
Dep. & Amort. 56,537 64,953 70,896 74,024 EBITDA Margin (%) 55.3 54.3 53.5 53.2
Tax Paid (24,585) (30,993) (38,257) (35,756) EBIT Margin (%) 32.1 32.4 33.2 34.9
Assoc. & JV Inc/(loss) 0 0 0 0 Net Profit Margin (%) 22.0 22.4 22.9 27.1
Non-Cash Wkg.Cap. 11,128 10,380 19,319 16,228 ROAE (%) 21.2 22.3 23.2 26.9
Other Operating CF 4,309 5,195 435 (798) ROA (%) 13.6 14.4 15.3 18.3
Net Operating CF 131,709 149,346 175,456 203,928 ROCE (%) 21.1 22.1 22.7 26.1
Capital Exp.(net) (65,895) (76,889) (99,759) (97,952) Div Payout Ratio (%) 39.3 47.2 48.0 48.0
Other Invts.(net) 0 (3,410) 0 0 Interest Cover (x) N/A N/A N/A N/A
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (days) 12.7 11.2 10.7 10.3
Div from Assoc & JV 0 0 0 0 Creditors Turn (days) 129.2 134.1 140.9 141.5
Other Investing CF 440 1,872 3,755 4,888 Inventory Turn (days) 5.2 4.8 5.1 5.3
Net Investing CF (65,455) (78,427) (96,004) (93,064) Current Ratio (x) 1.1 1.2 1.3 1.6
Div Paid (18,894) (26,162) (30,764) (44,324) Quick Ratio (x) 1.1 1.2 1.3 1.5
Chg in Gross Debt (8,066) (104) (15,968) 0 Net Debt/Equity (X) CASH CASH CASH CASH
Capital Issues 3,422 4,093 3,163 2,932 Capex to Debt (%) 459.6 505.3 1,081.4 1,061.8
Other Financing CF (1,743) (1,626) (1,473) (830) N.Cash/(Debt)PS (RMB) 4.8 7.2 9.2 12.7
Net Financing CF (25,281) (23,799) (45,042) (42,223) Opg CFPS (RMB) 6.33 7.23 8.07 9.66
Net Cashflow 40,973 47,120 34,410 68,641 Free CFPS (RMB) 3.46 3.77 3.91 5.45
Valuation Graph : PE
27.0
22.0
17.0
12.0
7.0
2004 2005 2006 2007
Price & Price Relative to Index
HK$
117.00
107.00
97.00
87.00
77.00
67.00
57.00
47.00
37.00
27.00
17.00
2003 2004 2005 2006
Chin a M obile (LH S) Relative H SI IN D EX (R H S)
Relative Index
242
222
202
182
162
142
122
102
82
71

Regional Equity Strategy Q4 2007
Stock Profile: Dongfeng Motor
BUY HK$5.59 HSI: 24,599
Price Target : 1-year HK$6.00
Potential Catalyst: Good response to newly launched models
and margin expansion
ANALYST
Dr. Peter So (852) 2820 4619
peter_so@hk.dbsvickers.com
FORECASTS AND VALUATION
FY Dec (RMB m) 2006A 2007F 2008F 2009F
Turnover 48,264 57,035 67,165 76,443
EBITDA 4,915 6,057 6,915 7,993
Pretax Profit 2,679 3,823 4,828 5,939
Net Profit 2,081 3,110 3,600 4,395
EPS (HK$) 0.24 0.361 0.418 0.510
EPS Gth (%) (6.6) 49.4 15.8 22.1
PE (x) 23.1 15.5 13.4 11.0
P/Cash Flow (x) 13.0 9.5 8.9 7.7
EV/EBITDA (x) 10.3 7.9 7.1 6.0
DPS (HK$) 0.04 0.06 0.08 0.10
Div Yield (%) 0.7 1.2 1.5 1.8
Net Gearing (%) cash cash cash cash
ROE (%) 15.7 20.0 19.7 20.5
Book Value (HK$) 1.66 1.95 2.29 2.70
P/Book Value (x) 3.4 2.9 2.4 2.1
SHARE PRICE CHART
HK$
6.00
5.00
4.00
3.00
2.00
Dongfeng Motor
100-Day MA
Sep-06 Dec-06 Mar-07 Jun-07 Sep-07
AT A GLANCE
Issued Capital - H shares (m shs) 2,856
- Non H shrs (m shs) 5,760
H shs as a % of Total 33
H Mkt Cap (HK$m/US$m) 15,964 / 2,049
Major Shareholders (%)
Dongfeng Motor 66.90
Major H Shareholders (%)
JPMorgan Chase & Co. 16.01
Standard Chartered 9.76
UBS AG 9.13
Templeton Asset Management 5.38
Fidelity International 5.12
H Shares-Free Float (%) 54.60
Avg Daily Volume (m shrs) 29.91
Dongfeng Motor
Strong growth momentum
Story: Strength in the prospering auto industry is poised
to help Dongfeng Motor register more than 20% growth in
passenger cars for the next three years.
Point: Its strong brands provide great competitive
advantages, enabling the company to gain market shares
and enhance profitability.
Relevance: Fast EPS growth of 28% p.a. will be
achieved in 2006-09, and Dongfeng is trading on an
undemanding PE of only 13.4x for 2008.
Impressive performance. We have recently upgraded our
forecast on earnings by 16% to RMB3,110m for 2007 and 10%
to RMB3,600m for 2008. Excluding the write-back of deferred
taxation of RMB367m, 2007 earnings would have been
HK$2,743m. Such impressive performance was underpinned by
strong growth in car sales of 26% to 950,000 units this year
(versus 751,000 units in 2006), improving margins for
commercial vehicles, and benefits of RMB appreciation.
Strong brands. Dongfeng’s strong brands (Nissan, Peugeot and
Honda) have great competitive advantages, enabling it to gain
market shares (9.7% and 10.5% for commercial and passenger
car market in 1H07).
Reduced concerns. Management indicated that despite
Guangzhou Honda’s plan to build a new plant for auto engines,
Honda pledged to ensure high utilisation rate for Dongfeng
Honda Engine plant in the future, which will thus remove
concerns on excess competition for this engine plant.
4Q seasonal strength. The passenger car market in China
shows seasonal strength in 4Q. Stronger sales in the coming
months should improve buying interest in Dongfeng and its
capacity utilisation rate will further rise as demand picks up. We
recommend investors to buy ahead of the seasonal strength in
the coming quarter.
Target price. We have recently revised up our target price for
the stock from HK$5.05 to HK$6.00, based on DCF
methodology, which assumes zero earnings growth post-2009,
a beta value of 1.3 and risk free rate of 4.5%. We see potential
for upgrade in target price given higher than expected demand
growth for cars and ample liquidity.
Earnings Rev : FY707: - FY08: -
Consensus EPS: FY07: HK$0.24 ; FY08: HK$0.33
Variance vs Cons: FY07: 51.02% ; FY08: 27.77%
Sector: Auto
Bloomberg/Reuters Code: 489.HK / 0489.HK
Principal Business : Manufacture and sale of commercial
vehicles and passenger vehicles. The company also
manufactures engines, other auto parts, vehicle
manufacturing equipment, and engages in other
automotive-related businesses such as auto financing.
72
Refer to important disclosures at the end of this report

Stock Profile: Dongfeng Motor
Regional Equity Strategy Q4 2007
Income Statement (RMBm)
FY Dec 2006A 2007F 2008F 2009F
Turnover 48,264 57,035 67,165 76,443
EBITDA 4,915 6,057 6,915 7,993
Depr/Amort (1,634) (1,980) (1,811) (1,828)
Opg Profit 3,281 4,077 5,104 6,165
Associates Inc 61 76 92 111
Interest (Exp)/Inc (411) (330) (368) (336)
Exceptionals - - - -
Pre-Tax Profit 2,679 3,823 4,828 5,939
Tax (428) (406) (873) (1,110)
Minority Interest (170) (308) (356) (435)
Net Profit 2,081 3,110 3,600 4,395
Sales Growth (%) 15.6 18.2 17.8 13.8
Net Profit Gr (%) 30.0 49.4 15.8 22.1
EBITDA Mgn (%) 10.2 10.6 10.3 10.5
Opg Mgn (%) 6.8 7.1 7.6 8.1
Tax Rate (%) 16.0 10.6 18.1 18.7
Cash Flow Statement (RMBm)
FY Dec 2006A 2007F 2008F 2009F
Pre-Tax Profit 2,679 3,823 4,828 5,939
Tax Paid (344) (597) (806) (1,033)
Depr/Amort 1,686 1,980 1,811 1,828
Chg in Wkg Cap 461 1,752 (777) 483
Othr Non-Cash 79 (76) (92) (111)
Operational CF 4,561 6,882 4,964 7,106
Capex (3,914) (3,240) (4,890) (4,890)
Assoc, MI, Invsmt (41) (460) (296) (343)
Investment CF (3,955) (3,700) (5,186) (5,233)
Net Chg in Debt (521) (1,108) (900) (600)
New Capital - - - -
Dividend (37) (453) (684) (872)
Financing CF (558) (1,561) (1,584) (1,472)
Chg in Cash 48 1,621 (1,807) 400
Chg in Net Cash 564 2,847 (771) 1,157
Valuation Graph: PE
Balance Sheet (RMBm)
FY Dec 2006A 2007F 2008F 2009F
Fixed Assets 15,571 16,841 19,810 22,786
Other LT Assets 4,042 4,488 4,892 5,323
Cash/ST Investments 8,227 9,966 8,296 8,853
Other Current Assets 16,273 18,796 19,240 23,907
Total Assets 44,113 50,091 52,238 60,869
ST Debt 5,921 4,900 4,300 3,900
Other Current Liab 18,254 22,768 22,622 27,959
LT Debt 2,087 2,000 1,700 1,500
Other LT Liab 1,029 851 933 1,028
Minority Interests 2,534 2,734 2,965 3,248
Shareholders' Equity 14,288 16,838 19,718 23,234
Total Capital 44,113 50,091 52,238 60,869
Share Capital (m) 8,616 8,616 8,616 8,616
Net Cash/(Debt) 219 3,066 2,296 3,453
Working Capital (1,981) (3,972) (3,382) (4,052)
Net Gearing (%) cash cash cash cash
Segmental Breakdown (RMBm)
FY Dec 2006A 2007F 2008F 2009F
Commercial vehicles 11,471 14,252 16,226 17,349
Passenger vehicles 27,014 31,049 37,122 43,365
Engines & other auto 8,949 10,739 12,672 14,446
parts
Corporate and others 830 996 1,145 1,283
48,264 57,035 67,165 76,443
Sales Volume ('000)
Commercial vehicles 256 322 370 399
Passenger vehicles 495 628 767 905
751 950 1,137 1,304
Price & Price Relative to Index
(x)
21
19
17
15
13
11
9
7
5
Dec-05 Jul-06 Feb-07 Sep-07
HK$
6.0
5.0
4.0
3.0
2.0
Relative Index
300
250
200
150
100
1.0
50
Dec-05 Jul-06 Feb-07 Sep-07
Dongfeng Motor (LHS)
Relative HSI (RHS)
73

Regional Equity Strategy Q4 2007
Stock Profile: ICBC
BUY HK$5.04 HSI : 24,599
Price Target : 12-mth HK$ 6.0
Potential Catalyst: Further relaxation of QDII & announcement of
“HK Stock Direct Train” program
ANALYST
Jasmine Lai +852 2971 1926
jasmine_lai@hk.dbsvickers.com
FORECASTS AND VALUATION
FY Dec (RMBm) 2005A 2006A 2007F 2008F
Pre-prov. Profit 90,035 104,241 144,686 175,058
Pre-prov. Profit Gth (%) 5.5 15.8 38.8 21.0
Pretax Profit 63,026 72,065 114,701 141,575
Net Profit 37,555 49,263 81,302 105,436
EPS (HK$) 0.15 0.17 0.25 0.33
EPS Gth (%) 21.7 16.1 42.8 33.8
PE (x) 33.4 28.8 20.2 15.1
DPS (HK$) 0.01 0.10 0.09 0.12
Div Yield (%) 0.3 2.0 1.7 2.3
Book Value (HK$) 1.03 1.39 1.59 1.86
P/Book Value (x) 4.9 3.6 3.2 2.7
ROA (%) 0.65 0.71 1.00 1.14
ROE (%) (29.4) 13.6 16.5 19.0
ROE (ex exceptional) (%) (29.4) 13.6 16.5 19.0
SHARE PRICE CHART
HK$
5.30
4.80
4.30
3.80
3.30
2.80
50-Day MA
ICBC
Oct-06 Jan-07 Mar-07 May-07 Aug-07
AT A GLANCE
Issued Capital - H shares (m shs) 83,057
- Non H shrs (m shs) 250,962
H shs as a % of Total 25
H Mkt Cap (HK$m/US$m) 418,605 / 53,740
Major Shareholders (%)
Ministry of Finance 35.33
Central SAFE Inv 35.33
Major H Shareholders (%)
Social Security Fund 21.07
Goldman Sachs 20.28
Allianz AG 8.83
Credit Suisse 6.87
Merrill Lynch 6.87
H Shares-Free Float (%) 36.08
Avg Daily Volume (m shrs) 961.9
Earnings Rev : FY07: - FY08: -
Consensus EPS: FY07: HK$0.23 ; FY08: HK$0.29
Variance vs Cons: FY07: 10.04% ; FY08: 15.60%
Sector : Financials
Bloomberg/Reuters Code: 1398.HK / 1398.HK
Principal Business: The largest bank in China offering a range of
financial products and services to retail and corporate customers
ICBC
More room to improve than peers
Story: The above-expected 1H07 results illustrated ICBC’s
strength in transactional banking, investment banking and
cross-selling capabilities to its vast customer base. The bank
also has more room to improve NIM and asset quality than
peers, given they are below average.
Point: Fee income growth will continue to be driven by
wealth management fee, custodian fee, bank card fee,
investment banking and remittance & settlement. Its loan
growth is likely to remain slower than peers, but this is
mitigated by further NIM improvement.
Relevance: With CCB rallying, ICBC is likely to catch up
and is now our top-pick in the sector. Our 12-month target
price of HK$6.00 is based on 3.39x August 2008 BVPS,
derived from a two-stage DDM model. This is equivalent to
18.0x 2008 PE.
Optimising asset-liability management. ICBC’s loan growth is
likely to remain slightly below sector average. However, it has more
room to widen NIM than bank peers. Its 1H07 NIM improved (up
19bps h-o-h) more than bank peers due to strengthened asset-liability
management via: 1) shifting into higher-yielding SME and retail loans
from low-yielding discounted bills and 2) increasing the proportion of
low-cost demand deposits as a result of buoyant stock market. In spite
of the slight negative impact from the last three rate hikes during May
07 and Aug 07, we believe ICBC’s NIM should continue to improve, as
it further optimised loan and deposits structure. Moreover, most of
the low-yielding restructured-related MOF receivable and PBOC
Special bill will mature by 2011 and the excess funds can be
redeployed into higher-yielding assets.
Sustainable fee income momentum. Substantial amount of time
deposits have been channelled to wealth management products. New
fee income initiatives, such as bank card, remittance & settlement,
fund custodian and investment banking are also new growth drivers
for the bank. Given its vast customer base and distribution as well as
niche in e-banking and transactional banking, ICBC has better crossselling
potential than many bank peers. It has signed up with over 80
stockbrokers to offer third-party custodian services in order to attract
low-cost deposits. Not only will this continue to boost custodian fee
income, it would also provide low-cost deposits as funding for the
bank.
Room for asset quality improvement. There also exists ample room
for further improvement in asset quality, given its NPL ratio is still
above bank peers. In 1H07, overall asset quality remains good with
NPLs declining in ratio and absolute amount and provision coverage
rising. Its NPL ratio significantly improved to 3.3% as at June 2007
(December 2006: 3.8%), which was still higher than bank peers’
average of 2.6%.
Minimal US sub-prime mortgage exposure. ICBC has minimal
exposure to US sub-prime mortgage and CDO exposure. As of June
2007, ICBC had only US$1.2bn US sub-prime MBS and US$500m
CDO unrelated to sub-prime mortgage. The former is equivalent to
HK$9.4bn or 8% of our 2007 pre-tax profit. That is, every 10%
decline in market value of sub-prime debt securities amounts to
RMB940m provision charge, representing 0.8% of our 2007 forecast
pre-tax profit or 0.2% of shareholders’ funds.
Refer to important disclosures at the end of this report
74

Stock Profile: ICBC
Regional Equity Strategy Q4 2007
Income Statement (RMB m)
FY Dec 2005A 2006A 2007F 2008F
Net interest income 153,603 163,118 212,479 246,777
Non-interest income 18,017 18,520 32,020 47,382
Operating income 171,620 181,638 244,498 294,160
Operating expenses (81,585) (77,397) (99,812) (119,102)
Pre-provision profit 90,035 104,241 144,686 175,058
Prov. impairment loss (27,014) (32,189) (30,000) (33,500)
Operating profit 63,021 72,052 114,686 141,558
Associates 5 13 15 17
Exceptional 0 0 0 0
Profit before tax 63,026 72,065 114,701 141,575
Taxation & MI (25,471) (22,802) (33,399) (36,139)
Attributable profit 37,555 49,263 81,302 105,436
Balance Sheet (RMB mp
FY Dec 2005A 2006A 2007F 2008F
Cash & interbk. placements 686 910 1,135 1,215
Investments 2,306 2,871 3,508 3,988
Gross loans & advances 3,290 3,631 4,012 4,434
Less: Loan loss allowance (84) (97) (109) (123)
Fixed assets 93 82 91 100
Interests in Associates 0 0 0 0
Other assets 76 72 75 79
Total assets 6,456 7,509 8,784 9,765
Customer deposits 5,737 6,351 7,050 7,826
Interbank dep./borrowings 233 400 881 1,013
CD & wholesale deposits 6 6 7 8
Subordinated debt & LT debt 167 224 265 265
Others & Minorities 58 60 62 65
Shareholders' funds 256 466 519 588
Total liab. & Equity 6,456 7,509 8,784 9,765
Profitability & Efficiency Ratios (%) Financial Stability Measures (%)
FY Dec 2005A 2006A 2007F 2008F
FY Dec
2005A 2006A 2007F 2008F
Margins, costs & efficiency
Yield on earning assets 4.08 3.99 4.37 4.56
Avg cost of funds 1.50 1.70 1.70 1.70
Spread 2.57 2.30 2.68 2.87
Return on free funds 0.04 0.10 0.06 0.01
Net interest margin 2.61 2.40 2.74 2.88
Cost-to-income ratio 47.5 42.6 40.8 40.5
Cost-to-income ratio (adj.) 47.5 42.6 40.8 40.5
Employees (year end) ('000) 362 351 344 338
Effective tax rate 39.7 30.8 28.5 25.0
Business mix
Non-int. inc. / Operating income 10.5 10.2 13.1 16.1
Net fees / Operating income 6.1 9.0 13.2 16.5
Inv. gains / Operating income 2.1 (0.4) (0.0) (0.4)
Other non-int. inc. / Op. inc. 2.3 1.6 (0.1) (0.1)
Profitability
ROE (29.4) 13.6 16.5 19.0
Normalized ROE (%) (29.4) 13.6 16.5 19.0
ROA 0.65 0.71 1.00 1.14
Normalized ROA (%) 0.65 0.71 1.00 1.14
Valuation Graph : PE
Balance sheet structure
Loan-to-deposit ratio (Customer) 57.3 57.2 56.9 56.7
Gross loans / Total assets 51.0 48.4 45.7 45.4
Investments / Total assets 35.7 38.2 39.9 40.8
Individual loans / Gross loans 15.7 15.9 16.7 17.7
Corporate loans / Gross loans 81.2 81.0 80.3 79.5
Other loans / Gross loans 3.2 3.1 2.9 2.8
Customer dep. / Int. bearing liab. 93.4 91.0 85.9 85.9
Interbk dep, CD & Other / IBL 3.9 5.8 10.8 11.2
Subordinated & LT debt / IBL 2.7 3.2 3.2 2.9
Asset quality & provisions
Impaired loan / Total loans 4.7 3.8 3.2 3.0
Collect. loan allow./ Total loans n.a. n.a. n.a. n.a.
Individ. loan allow./ Impaired loans n.a. n.a. n.a. n.a.
Total loan allow./ Impaired loans 54.2 70.6 86.4 92.7
Loan impairment charges / Avg.
loans 0.8 0.9 0.8 0.8
Capital strength
Total CAR 9.9 14.1 13.2 13.2
Tier-1 ratio 8.1 12.2 11.7 11.9
Equity/Assets 4.0 6.2 5.9 6.0
Price & Price Relative to Index
(x)
31
29
27
25
23
21
19
17
15
Oct-06
Nov-06
Dec-06
Jan-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
HK$
5.5
5.0
170
160
150
4.5
140
4.0
130
120
3.5
110
3.0
100
90
2.5
80
Oct-06 Feb-07 May-07 Sep-07
ICBC (LHS)
Relative Index
Relative HSI (RHS)
75

Regional Equity Strategy Q4 2007
Stock Profile: Lee and Man Paper
BUY HK$32.15 HSI : 24,599
Price Target: 1 Year HK$ 36.40
Potential Catalyst: more strategic plans
ANALYST
Patricia Yeung +(852) 2863 8908
patricia_yeung@hk.dbsvickers.com
FORECASTS AND VALUATION
FY Mar (HK$ m) 2006A 2007A 2008F 2009F
Turnover 3,778 5,161 7,931 11,380
EBITDA 795 1,271 1,814 2,684
Pre-tax Profit 626 1,041 1,492 2,212
Net Profit 600 1,010 1,403 2,057
Net Pft (Pre Ex.) 600 1,010 1,403 2,057
EPS (HK$) 0.62 1.01 1.24 1.81
EPS Gth (%) 43.0 61.8 22.9 46.1
Diluted EPS (HK$) 0.62 0.99 1.24 1.81
DPS (HK$) 0.24 0.36 0.50 0.72
BV Per Share (HK$) 3.70 5.87 6.78 8.01
PE (X) 51.7 31.9 26.0 17.8
P/Cash Flow (X) 44.4 27.8 22.8 15.6
EV/EBITDA (X) 41.1 27.0 22.7 15.7
Net Div Yield (%) 0.7 1.1 1.5 2.2
P/Book Value (X) 8.7 5.5 4.7 4.0
Net Debt/Equity (X) 0.5 0.3 0.6 0.6
ROAE (%) 18.1 19.9 19.6 24.4
SHARE PRICE CHART
HK$
37.00
32.00
27.00
22.00
17.00
12.00
Sep-06 Nov-06 Feb-07 Apr-07 Jun-07 Sep-07
Lee and M an Paper 100-Day M A
AT A GLANCE
Issued Capital (m shrs) 1,137
Mkt Cap (HK$m/US$m) 36,541 / 4,691
Major Shareholders (%)
Chairman Lee Wan Keung Family 61.7
Deutsche Bank Aktiengesellschaft 9.5
Free Float (%) 28.8
Avg Daily Vol (m shrs) 3.3
Earnings Rev : 2008: - 2009: -
Consensus EPS : 2008:HK$ 1.25 2009:HK$ 1.79 HK
Variance vs Cons : 2008: (0.7)% 2009: 0.8%
Sector : Paper
Bloomberg/Reuters Code: 2314 HK EQUITY/ 2314.HK
Principal Business: Containerboard manufacturer
Lee and Man Paper
Paving way for long-term growth
Story: While Lee & Man Paper (LMP) will continue to
expand containerboard capacity to become the third largest
containerboard manufacturer in the world in 2010, it is
nurturing wood pulp and forestry businesses as the future
growth engines.
Point: In addition to the Californian pulp plant, LMP is
setting up two more plants in Chongqing and Vietnam, and in
the process of applying for a license for a new pulp mill in
Guangxi. It is also diversifying into forestry business to secure
wood logs.
Relevance: Various growth engines will maintain LMP’s
EPS growth at 35% p.a. Current valuation of 18x FY09 PE is
not demanding at all. We re-iterate our BUY rating with target
price at HK$36.4, based on 20x FY09 PE.
Undersupply of wood pulp in China. China is currently a net
importer of pulp with aggregate annual demand for hardwood
pulp and softwood pulp of 11m tonnes and production of only
2-3 tonnes. This huge shortage is likely to remain in the
following 8-10 years, similar to that in the containerboard
market. This represents a great opportunity for LMP, given its
experience in operating the Californian pulp plant. Thus, it is
establishing paper mills in Chongqing and Vietnam, and in the
process of applying for a license for a new pulp mill in Guangxi.
Not only will this diversification help secure raw materials, this
new line of business will be a new growth driver, sustaining
earnings growth at 35% p.a.
Strategic move to forestry business. LMP has recently
stepped into forestry business via a 19%-owned associated
company (remaining stake is held by Lee family). We view this
strategic move favourably as this diversification can secure
sources of raw materials (i.e. wood logs) at close proximity for
wood pulp operation. As more governments are restricting
exports of natural resources (due to scarcity), any excess wood
logs can be sold to third parties. In addition, LMP has an option
of increasing its stake to 55% within 3-5 years, minimising
operation risk and financial burden. Note that Lee family has
recently placed c.1.76% of existing shares. We believe the funds
raised will be used for forestry business and the placement
should not be a negative sign on LMP’s future business.
Undemanding valuation. We remain positive on LMP’s
business outlook. Addition of new PMs is progressing as
planned with containerboard output expected to jump more
than 60% to 2.65m tonnes in FY08 and over 40% to 3.8 tonnes
in FY09. LMP is on its way to become the third largest
containerboard manufacturer in the world in the coming few
years. Given LMP’s strong market position in its core
containerboard business, its strategic plans for backward
integration and effective strategies in improving margins, we
believe LMP’s high earnings growth of 35% p.a. is sustainable.
Current valuation of 18x FY09 PE is undemanding. We re-iterate
our BUY rating with target price at HK$36.4, based on 20x
FY09 PE.
Refer to important disclosures at the end of this report
76

Stock Profile: Lee and Man Paper
Regional Equity Strategy Q4 2007
Income Statement (HK$ m) Balance Sheet (HK$ m)
FY Mar 2006A 2007A 2008F 2009F FY Mar 2006A 2007A 2008F 2009F
Turnover 3,778 5,161 7,931 11,380 Net Fixed Assets 3,575 5,525 8,326 9,242
Cost of Goods Sold (2,904) (3,799) (5,839) (8,264) Invts in Assocs & JVs 0 0 36 72
Gross Profit 874 1,362 2,092 3,116 Other LT Assets 353 1,281 1,281 1,281
Other Opg (Exp)/Inc (178) (242) (476) (716) Cash & ST Invts 110 215 159 228
EBIT 697 1,120 1,616 2,400 Other Current Assets 1,736 2,825 4,208 5,861
Other Non Opg (Exp)/Inc 0 0 0 0 Total Assets 5,774 9,845 14,009 16,683
Associates & JV Inc 0 0 0 0
Net Interest (Exp)/Inc (71) (78) (124) (188) ST Debt 785 837 537 337
Exceptional Gain/(Loss) 0 0 0 0 Other Current Liab 364 911 1,389 1,814
Pre-tax Profit 626 1,041 1,492 2,212 LT Debt 1,001 1,461 4,297 5,357
Tax (26) (31) (90) (155) Other LT Liabilities 48 65 65 65
Minority Interest 0 0 0 0 Shareholder’s Equity 3,577 6,571 7,720 9,110
Preference Dividend 0 0 0 0 Minority Interests 0 0 0 0
Net Profit 600 1,010 1,403 2,057 Total Cap. & Liab. 5,774 9,845 14,009 16,683
Net profit before Except. 600 1,010 1,403 2,057
EBITDA 795 1,271 1,814 2,684 Non-Cash Wkg. Cap 1,373 1,914 2,818 4,047
Sales Gth (%) 36.3 36.6 53.7 43.5 Net Cash/(Debt) (1,675) (2,083) (4,676) (5,466)
EBITDA Gth (%) 53.0 60.0 42.7 48.0
EBIT Gth (%) 59.8 60.7 44.4 48.5
Effective Tax Rate (%) 4.1 3.0 6.0 7.0
Cash Flow Statement (HK$ m)
Rates & Ratios
FY Mar 2006A 2007A 2008F 2009F FY Mar 2006A 2007A 2008F 2009F
Pre-Tax Profit 626 1,041 1,492 2,212 Gross Margin (%) 23.1 26.4 26.4 27.4
Dep. & Amort. 98 152 198 285 EBITDA Margin (%) 21.0 24.6 22.9 23.6
Tax Paid (7) (16) (90) (155) EBIT Margin (%) 18.4 21.7 20.4 21.1
Assoc. & JV Inc/(loss) 0 0 0 0 Net Profit Margin (%) 15.9 19.6 17.7 18.1
Non-Cash Wkg.Cap. (424) (500) (905) (1,229) ROAE (%) 18.1 19.9 19.6 24.4
Other Operating CF 36 22 124 188 ROA (%) 12.1 12.9 11.8 13.4
Net Operating CF 329 699 820 1,300 ROCE (%) 14.9 15.6 14.4 16.5
Capital Exp.(net) (1,134) (2,730) (3,000) (1,200) Div Payout Ratio (%) 38.7 39.9 40.2 40.0
Other Invts.(net) (1) 0 0 0 Interest Cover (x) 9.8 14.3 13.1 12.8
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (days) 81.0 82.2 84.9 87.2
Div from Assoc & JV 0 0 (36) (36) Creditors Turn (days) 39.2 58.3 67.4 66.4
Other Investing CF (14) (144) 0 0 Inventory Turn (days) 83.1 103.4 100.1 98.1
Net Investing CF (1,149) (2,874) (3,036) (1,236) Current Ratio (x) 1.6 1.7 2.3 2.8
Div Paid (173) (396) (459) (667) Quick Ratio (x) 0.9 0.9 1.3 1.6
Chg in Gross Debt 1,078 1,192 2,536 860 Net Debt/Equity (X) 0.5 0.3 0.6 0.6
Capital Issues 18 1,485 205 0 Capex to Debt (%) 63.5 118.8 62.1 21.1
Other Financing CF (73) (4) (124) (188) N.Cash/(Debt)PS (HK$) (1.7) (1.9) (4.1) (4.8)
Net Financing CF 849 2,279 2,159 5 Opg CFPS (HK$) 0.78 1.20 1.52 2.22
Net Cashflow 29 105 (56) 69 Free CFPS (HK$) (0.84) (2.02) (1.92) 0.09
Valuation Graph : PE
28.0
23.0
18.0
13.0
Price & Price Relative to Index
HK$
38.00
33.00
28.00
23.00
18.00
13.00
8.00
Relative Index
440
390
340
290
240
190
140
8.0
Apr-05 Oct-05 Apr-06 Oct-06 Apr-07
3.00
2003 2004 2005 2006
Lee and Man Paper (LHS) Relative HSI INDEX (RHS)
90
77

Regional Equity Strategy Q4 2007
Country Assessment
Malaysia
Window of opportunity
KLCI Current : 1,278.34
KLCI 3 / 12 mth target : 1,350/ 1,570
Expected Return : 5.6% / 22.8%
• We foresee attractive gains for KLCI over the next 12 months, as we believe the regional
meltdown in August has brought returns to attractive levels. Based on our estimates, major caps
such as Public Bank and Maybank provide net dividend yield in excess of 6%. Banks such as
AMMB, RHB Capital and BCHB may bring about impressive surprises on earnings upon
completion of the recently announced restructurings; they are good high beta plays to ride a
further market rebound.
• Although there could be re-emerging evidence of global systemic risks such as a sharp US
economic slowdown or geopolitical risks resulting in intermittent profit-taking activities, we take
a positive stance on the growing strength of the country’s domestic economy. We believe the
underlying factors indeed support our key sector calls (domestic-driven sectors such as banking,
construction, steel, property, oil & gas) and stock calls.
• Given the overall market correction, we would focus on the more liquid large caps ahead of
the small-mid caps. Apart from the above, other large cap stocks we favour include PPB Group,
KNM Group, PLUS Expressways, Tenaga, MISC and Digi. Among GLCs, our pick is Malaysia
Airports.
52-Week
Indices
Close
17-Sep-07
Chng Net
-1 mth
-1 mth
(%)
-3 mth
(%)
-6 mth
(%)
-12 mth
(%)
High
Low
KLCI 1,278 55 4 (6) 8 35 1,392 957
Main Board 8,626 371 4 (6) 9 41 9,476 6,198
KLCON Index 280 24 9 (7) 12 79 321 160
KLCSU Index 309 21 7 0 11 28 323 244
KLFIN Index 10,359 420 4 (6) 6 37 11,297 7,632
KLIND Index 2,493 117 5 (6) 8 25 2,713 2,015
KLPRO Index 107 4 3 (7) 8 38 123 78
KLPLN Index 5,970 604 11 (0) 31 73 6,435 3,523
KLPRP Index 1,045 62 6 (7) 27 83 1,223 577
KLSER Index 172 3 2 (6) 6 30 191 133
KLTEC Index 25 1 5 (12) (11) (7) 33 21
KL2ND Index 103 3 3 (5) 9 24 120 82
Transactions:
Volume (bn) 292
Value (MYR bn) 434
Malaysia Research · (603) 2711 2222 · general@hwangdbsvickers.com.my
78
Refer to important disclosures at the end of this report

Country Assessment
Regional Equity Strategy Q4 2007
MARKET REVIEW
The third quarter saw a drastic drop on the benchmark Kuala Lumpur Composite Index
(KLCI). During the quarter, the KLCI surpassed its pre-crisis high and hit a new all-time high
of 1,392 before falling 14% amid concerns over the US sub-prime mortgage mess.
However, the KLCI swiftly recovered more than half of the lost points by early-September.
Among the key highlights was the announcement of Budget 2008. On the surface, great
expectations for a pre-general election budget did not fully materialise. On a closer look,
there were positive, thoughtful and forward-looking measures to upgrade infrastructure,
enhance human capital and attract new foreign investments. Highlights included a corporate
tax cut to 25% in 2009, monthly withdrawal from pension funds for housing loan payment,
and incentives to attract Middle East investments. The government forecasts GDP to grow 6-
6.5% in 2008.
Earlier on, Prime Minister launched the Northern Corridor Economic Region (NCER) on 30
Jul. The plan intends to accelerate economic growth and elevate income levels in Perlis,
Kedah, Penang and Northern Perak by focusing on agriculture, manufacturing, tourism and
logistics. The plan sets the foundation for long term results (up to 2025). In the nearer term,
the NCER plans encompass the earlier announced 9MP mega infrastructure projects in
Penang – Second Bridge, Monorail, Penang Outer Ring Road (PORR), upgrades of airport
and seaport – and the double tracking rail project.
On the corporate side, M&A activities slowed from 1H07. However, there were several
significant deals including the following:-
• Resorts World’s selling half of its stake (c.17%) in Star Cruises Ltd (SCL) for
HK$2.6bn (RM1.2bn) cash to an investment holding company owned by Datuk Chua
Ma Yu.
• IJM Corp will sell its property unit to RB Land for RM995m as part of its efforts to
group its property businesses under one roof.
• Sir Richard Branson chairman and founder of the Virgin Group, bought a 20% stake in
Fly Asian Xpress Sdn Bhd (FAX), the operator of AirAsia X.
• Primus Pacific Partners has received regulatory approval to buy up to 15% of Malaysia's
seventh-largest bank, EON Capital.
In the construction sector, a group of Middle Eastern investors has teamed up with a foreign
investment company to transform Putrajaya Perdana into a construction giant in Malaysia
and the Asian region. The Middle East group plans to use Putrajaya Perdana as its vehicle
for global construction projects, with a key focus on Malaysia, Southeast Asia and the
Middle East. WCT Engineering, in partnership with Arabtec Construction, clinched the
contract for the RM4.6b Nal Al Sheba Racecourse in Dubai. This is one of the biggest
contract wins abroad for a Malaysian construction company.
79

Regional Equity Strategy Q4 2007
Country Assessment
GROWTH & VALUATION
We maintain our relatively robust market growth forecast of 26.9% and 16.0% for 2007
and 2008, respectively. Excluding the exceptionally strong growth from Tenaga because of
full-year consolidation of the tariff hike and national carrier MAS’ turnaround, our
projection for 2007 would be 19%. This in turn is driven by anticipated strong performance
from banks (strong Bumiputra-Commerce earnings; absence of exceptional provisions in
AMMB), plantation (higher CPO prices) and motor (lower loss from Proton).
HwangDBS Vickers Research Universe: Earnings Growth by Sector
Earnings growth (%)
PER (x)
Based on revised earnings
2006 2007 2008 2007 2008
Banking 12.9 30.4 21.6 16.2 13.4
Non-bank Financials 32.8 (3.9) 10.3 50.1 45.4
Consumer 15.6 5.5 9.2 15.8 14.4
Mftg/ Industrial 128.9 32.6 27.6 9.9 7.7
Media 11.1 (17.7) 38.1 26.5 19.2
Motor (113.4) (676.7) 45.0 26.7 18.4
Oil & Gas (24.2) 26.5 4.1 18.6 17.9
Conglomerates 22.5 21.9 2.5 11.8 11.5
Construction (12.0) 14.1 34.2 31.3 23.3
Concessionaires 44.6 4.9 3.0 14.3 13.9
Gaming 29.1 (0.5) 15.8 19.0 16.4
Plantation (1.9) 64.5 18.7 21.2 17.9
Power 20.3 94.0 10.6 12.0 10.8
Property 5.4 9.3 27.8 16.8 13.1
Telecommunication 22.0 4.5 15.3 16.2 14.0
Technology 58.7 30.9 9.7 8.9 8.1
Transport 56.2 30.6 11.9 13.9 12.4
Ports (6.9) 10.0 4.1 16.1 15.4
HDBSVR Universe 15.7 26.9 16.0 16.3 14.0
Notes:
(1) Companies with financial year ending Jan – Mar have been classified as preceding year’s results
(2) Earnings excludes most exceptional items
Source: DBS Vickers
80

Country Assessment
Regional Equity Strategy Q4 2007
LIQUIDITY
Net portfolio investments in 2Q07 showed net inflow of RM5.2bn. This is a 71% drop on a
q-o-q basis, on sharply higher outflows of RM58.8bn (+35% q-o-q). Although 3Q07
portfolio data is not yet available, international reserves for August 2007 showed a
contraction of US$1.7bn m-o-m to US$96.8bn. This is the first monthly drop in more than
one and a half years, which may be due to investment outflows. This is consistent with
KLCI’s sharp correction of up to 14% in August, caused by concerns over US sub-prime
loans crisis.
In Budget 2008, the government has provided incentives to attract greater Middle East
investments into the country and establish Malaysia as an Islamic Financial Center. Going
forward, this could help further diversify source of investments into the market.
Malaysia: International Reserves
Malaysia: Portfolio investment by type
MYR b MoM chg (MYR b)
30
25
20
15
10
5
0
-5
-10
-15
-20
Jan-00
Aug-00
Mar-01
Oct-01
May-02
Dec-02
Jul-03
Feb-04
Sep-04
Apr-05
Nov-05
Jun-06
Jan-07
Aug-07
RM b Net portfolio investment by type -
12.0
Shares and corporate securities
10.0
8.0
6.0
4.0
2.0
-
(2.0)
(4.0)
(6.0)
(8.0)
1Q96
2Q97
3Q98
4Q99
1Q01
2Q02
3Q03
4Q04
1Q06
2Q07
Source: BNM
Source: BNM Jul-07 Monthly Statistical Bulletin,
Cash BoP reporting system
SENTIMENT
Concerns over US sub-prime loans and potentially weaker US economic growth have
negatively affected market sentiment in July and August. The prompt action by the Federal
Reserve has provided much needed confidence to markets. However, concerns over such
external issues may continue to result in volatility in the market.
We expect sentiment to improve towards mid-October on potentially more positive news
flow on the domestic front such as – roll out of oil and gas and Ninth Malaysia Plan (9MP)
mega projects, launch of the Eastern Corridor Economic Region (ECER), potential general
elections by 1H08 and M&A activities.
81

Regional Equity Strategy Q4 2007
Country Assessment
INVESTMENT STRATEGY
Although there could be re-emerging evidence of global systemic risks such as a sharp US
economic slowdown or geopolitical risks resulting in intermittent profit-taking activities, we
are reassured by the growing strength of the country’s domestic economy. In our view, the
underlying factors supporting our key sector calls (domestic-driven sectors such as banking,
construction, steel, property, oil & gas) and stock calls remain intact.
Since the August meltdown, we believe there is a window of opportunity for longer-term
investors to accumulate those big cap stocks that provide attractive dividends and could
offer positive surprises in earnings.
Banking on high yields... Specifically, Maybank and Public Bank are turning out to be
dividend plays with net dividend yield in excess of 6%. Upon completion of the sale of its
insurance unit, which could result in net dividend yield of more than 3.1%, BCHB may
surprise investors with impressive dividend payout.
…and high beta for market recovery. Banks such as AMMB, RHB Capital and BCHB may
unveil positive surprises on earnings upon completion of the recently announced
restructurings. They are also good high beta plays to ride a further market rebound.
Anticipation of greater capital market activities to help fund the pump-priming in 2008
could provide further support. In terms of M&A, there could be more news flow on the
potential takeover of EON Capital.
Construction to gather momentum. We maintain our Overweight rating on the
construction and steel sectors on the potential of 9MP. In 2Q07, construction activities grew
4.8%, the highest quarterly growth in four years. The momentum should continue in the
coming quarters. Year-to-date, construction loans approved grew 99% y-o-y.
More private-sector-funded mega projects. In the coming few months, we expect
increased news flow in terms of mega project implementation. In particular, the expected
launch of the Eastern Corridor Economic Region (ECER) could provide some excitement to
the market. Our top picks in the construction sector are IJM, Gamuda and WCT
Engineering, which are also poised to benefit from the construction boom in the Middle
East. In the steel sector, we like Kinsteel and Southern Steel.
Given the overall market correction, we would focus on the more liquid large caps ahead of
the small-mid caps. Apart from the above, other picks include PPB Group, KNM Group,
PLUS Expressways, Tenaga, MISC and Digi. Our top GLC pick is Malaysia Airports. The
approval of a long-overdue restructuring, which could entail hikes in passenger service
charges and landing and parking fees, would be a share price catalyst. Other favourites
include Evergreen Fibreboard, YTL Land, Sunrise and Eastern & Oriental.
82

Country Assessment
Regional Equity Strategy Q4 2007
Sector recommendation and stocks for Malaysia
SECTOR REMARKS STOCK SELECTION
Banks
Overweight
Construction
Overweight
Concessionaires
Overweight
Gaming
Overweight
Transport & logistics
Neutral
Motor
Underweight
We remain positive on the sector, premised on selective better-than-expected
earnings, especially in the non-interest income segments with strong pipeline for
the debt and equity market mandates. We expect loans to grow at a moderate
pace with SMEs outpacing retail growth towards end-2007. We believe the M&A
theme is at its tail end with EON Cap as the final candidate. While 4Q appears to
be more domestic-driven and focus is expected to surround the implementation
of 9MP projects, following the call for more private funding via the capital
markets, it is apparent that the key beneficiaries would be BCHB and AMMB.
We still like Public Bank-F for dividend yields.
We remain optimistic on the outlook for this sector. Construction activities grew
4.8% in 2Q07, the highest level in more than four years. With implementation
of mega projects gaining momentum, we expect growth to increase in
subsequent quarters. Expectations for an early election could provide added
excitement for the sector. We prefer those contractors with strong execution
capability, track record and pipeline of new contracts. Our top pick remains WCT
Engineering, which should also benefit from the construction boom in the
Middle East.
The projected increase in consumer spending is positive for the sector. Year-todate
traffic volume growth for PLUS Expressways has been very encouraging
at 6.3% y-o-y. Based on historical correlation between traffic volume and GDP
growth, there could be upside to our traffic volume assumptions. Although
higher crude oil price has sparked potential reduction in petrol subsidies, we
believe such a reduction would be unlikely in the near term, given the impending
general elections. Litrak would be a key beneficiary of the change in the tax
structure announced in Budget 2008. Without having to accumulate section 108
tax credit, Litrak has the capacity to double dividend payments to 20 sen (5.3%
gross yields), in our opinion. In addition, there is still a chance of special dividend
payment.
Companies conducting the numbers forecast totalisator business (i.e. BToto,
Tanjong and Magnum) are investors’ safe haven, against a backdrop of external
uncertainties. We like the NFO business on the following merits: i) limited
reliance on external economies with top-line growth essentially tracking
domestic consumption (which is expected to remain healthy with a GDP forecast
of c. 6% for 2008); ii) inherent cash and asset-light business model; and iii)
downside supported by high dividend payout. We expect BToto to strive for a
90% payout, implying gross dividend yield of 8% for FY08.
MISC’s near-term outlook has improved with the surge in petroleum tanker
rates, which has increased 17% m-o-m. The Group is also a beneficiary of the oil
& gas industry’s buoyant industry prospects through its offshore and heavy
engineering businesses. For passenger airlines, we expect improved profitability
from MAS resulting from its ongoing business turnaround. However, passenger
airlines may see some volatility in the near-term with sharp increases in jet fuel
prices.
Car sales are beginning to show signs of recovery with August recording 1% y-
o-y and 6% q-o-q increase to 47,585 units. This brings the first eight months of
new vehicles sales to 313,250 units (down 8% y-o-y). We maintain our forecast
of 6-10% y-o-y contraction in new vehicles sales to 442,000 – 460,000 units
for 2007 (FY06: 491,000; FY05: 551,000). Into 2008, we expect a rebound in
total industry volume, possibly testing 2006’s 490,000 units. However, we
believe industry players are likely to report uninspiring earnings, as they
continue to experience intensifying competition (implying higher A&P).
AMMB, BCHB, Public
Bank-F
WCT, IJM, Gamuda
Litrak, PLUS
Resorts World, BToto,
Magnum
MISC, MAS
MBM Resources
83

Regional Equity Strategy Q4 2007
Country Assessment
Sector recommendation and stocks for Malaysia
SECTOR REMARKS STOCK SELECTION
Oil & Gas
Overweight
Plantation
Overweight
Property
Overweight
Steel
Overweight
Telco
Underweight
Power
Overweight
REITS
Overweight
We expect better earnings visibility for oil & gas players with new contract wins
and earnings kickers from rising charter rates and average selling prices, due to
growing demand and limited new builds. Over the longer-term, outlook
remains promising with increased spending by Petronas as well as annual
capex of US$300bn to improve the entire energy chain in Asia.
We expect crude palm oil (CPO) prices to remain strong over the next two
years, although a cyclical decline may start to become apparent (starting in
4Q09), due to higher production from aggressive planting in Indonesia since
2006. To offset the long-term decline in CPO prices, we prefer companies with
significant landbank and aggressive new planting. The US Renewable Fuel
Standard (RFS), which came into effect since 1 September 2007, should limit
the decline in global vegetable oil prices, as we expect the drop in soya bean
acreage to remain permanent in order to meet the renewable fuel volume
obligation going forward. Our top pick is IOI Corp.
Positive measures announced by the Government, namely relaxation of Foreign
Investment Committee (FIC) rulings, scrapping the limit on loans taken by
foreigners, and abolishment of Real Property Gain Tax should support demand
for properties. In the recent Budget 2008, the Government announced more
‘goodies’, including 50% discount to property transfer of less than RM250,000
and monthly withdrawal from EPF Account 2. We expect these broad-based
incentives to increase the affordability of home ownership and help stimulate
demand. Top picks include YTL Land, Sunrise, Eastern & Oriental and
Suncity.
International steel prices for the third and fourth quarters are expected to remain
on the uptrend, supported by the Chinese Government’s recent policies on steel.
We expect strong prices to enhance profit margins for local steel players. In
addition, production has also increased, given the recovery in construction
activities in Malaysia and Singapore. We maintain our Overweight rating on the
sector.
While fixed-line (inclusive of fixed broadband) revenue is expected to remain flat
(under Telekom Malaysia), cellular revenue growth is in sight. Competition has
intensified with cuts in prepaid call rates. However, we believe the price elasticity
of the business would translate into larger subscriber numbers and increasing
revenues. Against this backdrop, we prefer Digi for its branding skills, strong
management capabilities and rising subscriber (and revenue) market shares. We
also like Green Packet for its ability to win more than 2,000 wireless broadband
subscribers since its launch in July 2007 and its regionally diversified earnings
base.
We believe TNB is a defensive proxy to the rising domestic spending. Power
demand growth is estimated at 6% p.a. for 2007-08, supported by a stronger
industrial segment following the implementation of 9MP projects. While
generation cost will rise, due to the commissioning of the second and third
phases of Tanjung Bin, the higher IPP cost will be partially compensated by the
12% net tariff hike and TNB’s ongoing cost saving measures.
We expect MREITs that focus on office space to continue to benefit from rising
rental rates. This results from stronger demand from the services sector and
limited new supply. We prefer those MREITs with attractive underlying assets,
good acquisition pipeline and proven acquisition track record such as QCT and
Axis REIT.
KNM, Wah Seong, Alam
Maritim, Petra Perdana and
Tanjung Offshore.
IOI Corp, KL Kepong, Sime
Darby, TH Plantations, PPB
Group
YTL Land, Sunrise,
Eastern & Oriental,
Suncity
Kinsteel, Southern Steel
Digi.Com, Green Packet
Tenaga
QCT, Axis REIT
84

Country Assessment
Regional Equity Strategy Q4 2007
This page has been left blank intentionally
85

Regional Equity Strategy Q4 2007
Stock Profile: AMMB Holdings
BUY RM4.14 KLCI : 1,278.34
Price Target : 12-month RM 5.75
Potential Catalyst: Upside from earnings accretion post-AIGB
privatisation and ANZ synergies
ANALYST
Sue Lin Lim +603 2711 0971
suelin@hwangdbsvickers.com.my
FORECASTS AND VALUATION
FY Mar (RM m) 2007A 2008F 2009F 2010F
Operating Inc 3,181 3,391 3,530 3,722
Net Interest Inc 1,372 1,479 1,522 1,571
Pre-prov. Profit 1,774 1,843 1,827 1,850
Net Profit (204) 499 583 639
Net Pft (Pre Ex.) (204) 499 583 639
EPS Pre Ex. (sen) (9.6) 23.4 27.4 30.0
EPS Gth Pre Ex (%) (151) (345) 17 10
EPS Gth (%) (151) (345) 17 10
Diluted EPS (sen) (9.4) 23.4 27.4 30.0
PE Pre Ex. (X) (43.7) 17.9 15.3 13.9
Net DPS (sen) 8.6 9.5 10.4 11.1
Div Yield (%) 2.1 2.3 2.5 2.7
ROAE Pre Ex. (%) (4.1) 9.8 10.5 10.5
ROAE (%) (4.1) 9.8 10.5 10.5
ROA (%) (0.1) 0.8 0.9 0.9
BV Per Share (sen) 229 249 273 299
P/Book Value (x) 1.8 1.7 1.5 1.4
SHARE PRICE CHART
RM
5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
Sep-06 Feb-07 Jul-07
AMMB Holdings 100-Day MA
AT A GLANCE
Issued Capital (m shrs) 2,134
Mkt. Cap (RMm/US$m) 8,922 / 2,558
Major Shareholders
AmcorpGroup (%) 18.8
Employee Provident Fund (%) 15.0
ANZ (%) 14.1
Free Float (%) 52.1
Avg. Daily Vol.(‘000) 6,259
AMMB Holdings
Restructuring and operational upside
Story: Privatisation of AIGB is now another step closer
to completion with the approvals granted by the Securities
Commission. The EGM would be held on 26 Sept to obtain
shareholders’ approval for the scheme.
Point: We reiterate our view that AIGB’s privatisation
would benefit AMMB upon completion purely from
earnings consolidation which would be visible in FY09. The
privatisation scheme is expected to be completed by 1Q08.
Relevance: Maintain Buy with target price of RM5.75
based on the Gordon Growth Model which yields an
implied 2.2x CY08 BV, even before accounting for possible
synergies from ANZ with AIGB’s privatisation. As we are
using CY08 as our reference point, we have accounted for a
nine-month proforma of AIGB’s full consolidation in our
estimates. We believe there will be more upside to AMMB’s
non-interest income capabilities given the recent budget call
for more capital raising activities in view of the 9MP
implementation.
Another step closer to completion. AMMB received
approvals from the Securities Commission for its privatisation
scheme for AIGB. We reiterate that the full consolidation of
AIGB into AMMB’s earnings would be meaningful.
No ANZ synergies factored in our estimates. We have not
factored in any potential synergies which could arise with ANZ
in the picture. We do however believe ANZ would be able to
bridge the gap that AMMB lacks especially in the SME
segment. We await the strategic plans to be rolled out by
management in its upcoming 2QFY08 results to give us a better
flavour in terms of quantification of synergistic benefits.
Non-interest income impetus. Aside from the larger balance
sheet that AIGB can ride on for capital market activities, the
recent budget which calls for higher reliance on private capital
raising exercises would aid in higher volumes for bond issuance
alongside bridging loans. We believe AMMB would be one of
the key beneficiaries to ride this wave.
Our loan loss provision assumptions are more
conservative. Our earnings estimates fall short of consensus as
we have conservatively estimated AMMB’s loan loss provisions
to remain high. Our loan loss coverage forecast nevertheless
remains strong at 63% for FY03/08 and further to 65% in
FY03/09. Based on our sensitivity analysis, a 1ppt decline in
loan loss coverage would translate to an increase in earnings by
10%.
Earnings Rev (%): 2008: - 2009: -
Consensus EPS (sen): 2008: 27.8 2009: 32.8
Variance vs Cons (%): 2008: (15.8) 2009: (16.5)
Sector : Banking
Bloomberg/Reuters Code: AMM MK/AMMB.KL
Principal Business: Banking and Finance
Refer to important disclosures at the end of this report
86

Stock Profile: AMMB Holdings Regional Equity Strategy Q4 2007
Income Statement (RM m) Balance Sheet (RM m)
FY Mar 2007A 2008F 2009F 2010F FY Mar 2007A 2008F 2009F 2010F
Net Interest Income 1,372 1,479 1,522 1,571 Cash/Bank Balance 10,574 8,741 8,690 8,398
Non-Interest Income 1,303 1,381 1,450 1,566 Government Securities 0 0 0 0
Operating Income 3,181 3,391 3,530 3,722 Inter Bank Assets 1,640 1,656 1,673 1,690
Operating Expenses (1,407) (1,548) (1,703) (1,873) Total Net Loans & Advs. 47,611 53,035 57,102 61,360
Pre-provision Profit 1,774 1,843 1,827 1,850 Investment 11,087 11,757 12,472 13,236
Provisions (1,813) (992) (804) (735) Associates 2 2 2 2
Associates 1 1 1 1 Fixed Assets 241 246 251 256
Exceptionals 0 0 0 0 Goodwill 588 559 531 531
Pre-tax Profit 23 940 1,090 1,197 Other Assets 5,421 6,019 6,364 6,789
Taxation (73) (282) (327) (359) Total Assets 78,623 83,693 89,014 94,480
Minority Interests (154) (159) (180) (199) Customer Deposits 42,382 45,348 48,523 51,919
Preference Dividend 0 0 0 0 Inter Bank Deposits 17,441 18,488 19,449 20,227
Net Profit (204) 499 583 639 Debts/Borrowings 2,092 2,092 2,092 2,092
Net Profit bef Except (204) 499 583 639 Others 9,172 9,259 9,391 9,482
Minorities 1,202 1,361 1,541 1,740
Shareholders' Funds 4,875 5,311 5,817 6,379
Total Liab& S/H’s Funds 78,623 83,693 89,014 94,480
Profitability & Efficiency Ratios (%) Financial Stability Measures (%)
FY Mar 2007A 2008F 2009F 2010F FY Mar 2007A 2008F 2009F 2010F
Margins, Costs &
Balance Sheet Structure
Yld. On Earnings Assets 5.45 4.95 4.90 4.80 Loan-to-Deposit Ratio 126.1 126.1 126.1 126.1
Avg Cost Of Funds 3.56 3.00 3.00 2.95 Net Loans / Total Assets 60.6 63.4 64.1 64.9
Spread 1.89 1.95 1.90 1.85 Investment / Total Assets 14.1 14.0 14.0 14.0
Net Interest Margin 2.00 2.02 1.96 1.90 Cust . Dep./Int. Bear. Liab. 68.5 68.8 69.3 69.9
Cost-to-Income Ratio 44.2 45.6 48.2 50.3 Interbank Dep / Int. Bear. 28.2 28.0 27.8 27.2
Employees ( Year End) n.a. n.a. n.a. n.a. Asset Quality
Effective Tax Rate 317.4 30.0 30.0 30.0 NPL / Total Gross Loans 10.4 8.0 7.2 6.7
Business Mix NPL / Total Assets 7.0 5.5 5.0 4.6
Net Int. Inc / Opg Inc. 43.1 43.6 43.1 42.2 Capital Strength
Non-Int. Inc / Opg inc. 41.0 40.7 41.1 42.1 Total CAR 12.6 12.8 13.2 13.5
Fee Inc / Opg Income 13.1 12.9 13.0 12.9 Tier-1 CAR 8.7 9.0 9.5 10.0
Oth Non-Int Inc/Opg Inc 27.9 27.8 28.1 29.1 Growth
Profitability Total Net Loans 6 11 8 7
ROAE Pre Ex. (4.1) 9.8 10.5 10.5 Customer Deposits 9 7 7 7
ROAE (4.1) 9.8 10.5 10.5
ROA Pre Ex. (0.1) 0.8 0.9 0.9
ROA (0.1) 0.8 0.9 0.9
Valuation Graph : PE
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
2003 2004 2005 2006
Price & Price Relative to Index
RM
Relative Index
5.50
5.00
181
4.50
161
4.00
141
3.50
121
3.00
101
2.50
81
2.00
61
2003 2004 2005 2006 2007
AMMB Holdings (LHS) Relative KLCI INDEX (RHS)
Source: Company, DBS Vickers
87

Regional Equity Strategy Q4 2007
Stock Profile: Bumiputra-Commerce
BUY RM10.80 KLCI : 1,278.34
Price Target : 12-Month RM 13.00
Potential Catalyst: Capital market activities boost and dividend
surprise
ANALYST
Sue Lin Lim +603 2711 0971
suelin@hwangdbsvickers.com.my
FORECASTS AND VALUATION
FY Dec (RM m) 2006A 2007F 2008F 2009F
Operating Inc 6,393 7,681 8,264 8,808
Net Interest Inc 3,658 3,873 3,879 3,970
Pre-prov. Profit 3,035 4,155 4,828 5,200
Net Profit 1,504 2,703 2,869 3,233
Net Pft (Pre Ex.) 1,504 2,073 2,869 3,233
EPS Pre Ex. (sen) 49.0 59.8 80.8 91.0
EPS Gth Pre Ex (%) 61 22 35 13
EPS Gth (%) 61 59 4 13
Diluted EPS (sen) 44.4 58.4 80.8 91.0
PE Pre Ex. (X) 22.0 18.1 13.4 11.9
Net DPS (sen) 10.2 34.0 34.0 34.0
Div Yield (%) 0.9 3.1 3.1 3.1
ROAE Pre Ex. (%) 14.0 15.6 18.4 18.5
ROAE (%) 14.0 20.3 18.4 18.5
ROA (%) 1.2 1.7 1.7 1.8
BV Per Share (sen) 351 416 463 520
P/Book Value (x) 3.1 2.6 2.3 2.1
SHARE PRICE CHART
RM
13.60
12.60
11.60
10.60
9.60
8.60
7.60
6.60
5.60
Sep-06 Nov-06 Feb-07 Apr-07 Jul-07 Sep-07
Bumiputra-Commerce 100-Day MA
AT A GLANCE
Issued Capital (m shrs) 3,372
Mkt. Cap (RMm/US$m) 36,418 / 10,435
Major Shareholders
Khazanah Nassional (%) 20.5
Employee Provident Fund (%) 7.5
Free Float (%) 72.0
Avg. Daily Vol.(‘000) 6780
Earnings Rev (%): 2007: - 2008: -
Consensus EPS (sen): 2007: 76.5 2008: 81.2
Variance vs Cons (%): 2007: (21.8) 2008: (0.5)
Sector : Banking
Bloomberg/Reuters Code: BCHB MK/BUCM.KL
Principal Business: Banking and Finance
Bumiputra-Commerce
More goodies in the bag
Story: We expect BCHB’s 2H07 capital market activities
to be proportionately lower relative to 1H07 but overall
earnings would be offset by better contribution from
consumer banking. However, with the acceleration of 9MP
projects, which would likely be funded via capital market
activities, we expect non-interest income to remain strong
going into FY08. Separately, we expect BCHB’s appetite to
grow regionally to continue.
Point: We believe that BCHB will continue to ride on
the capital market activity wave. Above that, we expect its
consumer banking to reap fruits from 2H07. Based on
recent news flow, we note that BCHB continues to embark
on its regionalisation ambition with its intention to acquire
an equity interest in ACL.
Relevance: Maintain Buy with target price of RM13.00
based on the Gordon Growth Model which implies a 2.6x
FY08 BV. Further catalysts would be higher than expected
total dividend payout, over and above its minimum 25sen
annual dividend per share. For 2Q07, BCHB already
surprised with a special dividend of 25sen per share,
bringing a minimum FY07 expected dividend of 50sen per
share.
Beneficiary for higher capital market activities. As the
implementation of 9MP projects would likely be funded via
capital market activities - which would in turn entail higher fee
and advisory income - it is apparent that BCHB would be one of
the key beneficiaries.
Regional endeavours continue. It was reported that BCHB is
one of the two financial groups shortlisted to acquire a 20%
stake in Thailand’s ACL Bank from Bangkok Bank. The other
party is Industrial and Commercial Bank of China Ltd (ICBC).
We view this news positively as it is part of BCHB’s expansion
plan to grow regionally. The group already has a stockbroking
arm in Thailand - CIMB-GK Securities (Thailand) - as well as a
commercial bank in Indonesia (Bank Niaga).
Consumer banking to pick up in 2H07. We believe the pickup
in consumer loans in 2H07, especially in mortgages and
credit cards, would strongly aid loan growth. Coupled with
that, bridging loans could also boost BCHB’s loan growth.
Rather than being broad based, we understand that loan
growth would be focused on certain segments.
New dividend policy to add a twist. BCHB now carries an
annual dividend policy of 25sen per share. We believe there is
room for upside in special dividends of at least another 15-
20sen per share from the sale of its insurance units. We are
currently assuming a base case of 50sen per year as dividends,
but potentially raising it to 65-70sen per share giving yields of
c. 5%.
Refer to important disclosures at the end of this report
88

Stock Profile: Bumiputra-Commerce
Regional Equity Strategy Q4 2007
Income Statement (RM m) Balance Sheet (RM m)
FY Dec 2006A 2007F 2008F 2009F FY Dec 2006A 2007F 2008F 2009F
Net Interest Income 3,658 3,873 3,879 3,970 Cash/Bank Balance 21,535 17,970 16,015 13,850
Non-Interest Income 2,635 3,689 4,243 4,667 Government Securities 2,483 2,607 2,737 2,874
Operating Income 6,393 7,681 8,264 8,808 Inter Bank Assets 4,857 5,343 5,877 6,465
Operating Expenses (3,358) (3,526) (3,435) (3,607) Total Net Loans & Advs. 90,335 100,294 110,572 121,977
Pre-provision Profit 3,035 4,155 4,828 5,200 Investment 26,916 28,399 31,609 35,045
Provisions (1,069) (1,023) (830) (699) Associates 287 158 158 158
Associates 36 0 0 0 Fixed Assets 1,144 1,103 1,125 1,148
Exceptionals 0 630 0 0 Goodwill 5,031 5,031 5,031 5,031
Pre-tax Profit 2,002 3,762 3,999 4,501 Other Assets 7,019 7,583 8,727 10,080
Taxation (393) (940) (1,000) (1,125) Total Assets 159,607 168,488 181,852 196,627
Minority Interests (104) (118) (130) (143) Customer Deposits 104,569 115,026 125,378 136,662
Preference Dividend 0 0 0 0 Inter Bank Deposits 7,234 7,724 8,110 8,516
Net Profit 1,504 2,703 2,869 3,233 Debts/Borrowings 11,566 11,566 11,566 11,566
Net Profit bef Except 1,504 2,073 2,869 3,233 Others 23,549 18,484 19,316 20,232
Minorities 605 723 853 996
Shareholders' Funds 13,294 16,411 18,334 20,647
Total Liab& S/H’s Funds 159,607 168,488 181,852 196,627
Profitability & Efficiency Ratios (%) Financial Stability Measures (%)
FY Dec 2006A 2007F 2008F 2009F FY Dec 2006A 2007F 2008F 2009F
Margins, Costs &
Balance Sheet Structure
Yld. ffi On i Earnings Assets 6.54 5.91 5.66 5.51 Loan-to-Deposit Ratio 91.1 91.6 92.8 94.0
Avg Cost Of Funds 3.64 3.31 3.29 3.28 Net Loans / Total Assets 56.6 59.5 60.8 62.0
Spread 2.90 2.59 2.37 2.23 Investment / Total Assets 16.9 16.9 17.4 17.8
Net Interest Margin 2.96 2.61 2.41 2.29 Cust . Dep./Int. Bear. Liab. 84.8 85.6 86.4 87.2
Cost-to-Income Ratio 52.5 45.9 41.6 41.0 Interbank Dep / Int. Bear. 5.9 5.8 5.6 5.4
Employees ( Year End) n.a. n.a. n.a. n.a. Asset Quality
Effective Tax Rate 19.6 25.0 25.0 25.0 NPL / Total Gross Loans 8.9 8.0 7.6 7.0
Business Mix NPL / Total Assets 5.3 5.0 4.9 4.6
Net Int. Inc / Opg Inc. 57.2 50.4 46.9 45.1 Capital Strength
Non-Int. Inc / Opg inc. 41.2 48.0 51.3 53.0 Total CAR 14.8 14.5 14.6 14.8
Fee Inc / Opg Income 15.9 19.9 20.4 21.0 Tier-1 CAR 9.6 10.2 10.7 11.4
Oth Non-Int Inc/Opg Inc 25.3 28.1 31.0 32.0 Growth
Profitability Total Net Loans 31 11 10 10
ROAE Pre Ex. 14.0 15.6 18.4 18.5 Customer Deposits 41 10 9 9
ROAE 14.0 20.3 18.4 18.5
ROA Pre Ex. 1.2 1.4 1.7 1.8
ROA 1.2 1.7 1.7 1.8
Valuation Graph : PE
22.0
20.0
18.0
16.0
14.0
12.0
10.0
Price & Price Relative to Index
RM
13.00
11.00
9.00
7.00
5.00
Relative Index
185
165
145
125
105
8.0
2003 2004 2005 2006 2007
Source: Company, DBS Vickers
3.00
85
2003 2004 2005 2006 2007
Bumiputra-Commerce (LHS) Relative KLCI INDEX (RHS)
89

Regional Equity Strategy Q4 2007
Stock Profile: Resorts World
BUY RM3.78 KLCI : 1,278.34
Price Target : 12-Month RM 4.70
Potential Catalyst: Spearhead a new gaming venture,
stronger than expected domestic consumption, higher
dividend payout
ANALYST
Lee Len Chong +603-2711 2222
leelen@hwangdbsvickers.com.my
FORECASTS AND VALUATION
FY Dec (RM m) 2006A 2007F 2008F 2009F
Turnover 3,808.5 4,285.3 4,430.2 4,856.6
EBITDA 1,358.0 1,713.3 1,842.8 2,032.0
Pre-tax Profit 1,138.7 1,481.0 1,688.6 1,824.3
Net Profit 945.9 1,098.6 1,249.9 1,368.6
Net Pft (Pre Ex.) 945.9 1,035.4 1,249.9 1,368.6
EPS (sen) 17.3 18.6 21.2 23.2
EPS Pre Ex. (sen) 17.3 17.5 21.2 23.2
EPS Gth (%) (2) 8 14 9
Diluted EPS (sen) 17.3 17.5 21.1 23.1
Net DPS (sen) 3.9 4.7 5.6 6.7
BV Per Share (sen) 114.3 137.3 152.9 169.4
PE (X) 21.9 20.3 17.9 16.3
PE Pre Ex. (X) 21.9 21.6 17.9 16.3
P/Cash Flow (X) 14.9 15.9 14.9 13.7
EV/EBITDA (X) 14.7 11.0 9.8 8.5
Net Div Yield (%) 1.0 1.3 1.5 1.8
P/BV (X) 3.3 2.8 2.5 2.2
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 16.0 15.3 14.6 14.4
SHARE PRICE CHART
RM
4.50
3.50
2.50
1.50
Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07
Resorts World
100-Day MA
AT A GLANCE
Issued Capital (m shrs) 5,790
Mkt. Cap (RMm/US$m) 21,887 / 6,271
Major Shareholders
Genting Berhad (%) 56.0
Great Eastern Life (%) 3.0
Free Float (%) 41.0
Avg. Daily Vol.(‘000) 14,774
Earnings Rev (%): 2007: - 2008: -
Consensus EPS (sen): 2007: 20.5 2008: 22.6
Variance vs Cons (%): 2007: (9.3) 2008: (6.2)
Sector : Consumer Services
Bloomberg/Reuters Code: RNB MK/RWBW.KL
Principal Business: Hotels, resorts, casino and recreational
activities
Resorts World
Towards a bigger world
Story: The Group recently highlighted the need to
preserve a healthy cash pile in the near or medium term. We
reckon this will prepare the Genting Group (referring to the
enlarged Lim family business entity) for future investment
considerations, specifically in the gaming context.
Point: We reckon Resorts will likely be the “one” to
undertake Genting Group’s next gaming project, given its
growing cash coffer. We estimate Resorts World will have c.
RM3.3b (or RM0.57 per share) of cash reserves by year end,
driven by strong operating cashflow at the hilltop resort,
disposal of 14% stake in Star Cruises and after accounting for
Resort’s portion of subscription for GIL’s 3-for-5 rights issue.
Relevance: Maintain Buy on Resorts with a RM4.70
RNAV-based price target. We expect the Group to dish out
gross 6.5 sen dividend (+20% y-o-y), implying a yield of
1.7%.
Building a war chest….In a recent briefing, the Group
highlighted the need to build a war chest for future investment
opportunities. Interestingly, no distinction was made as to which
vehicle will undertake the next project. This is a significant
divergence from the Group’s earlier stand where Genting
International (GIL) is touted to undertake all overseas gaming
ventures while Resorts World concentrates on operations at the
hilltop resort.
…..to lead the Group’s next global pursuit. We reckon Resorts
World will likely be the “ideal” candidate to undertake Genting
Group’s next gaming project given its growing cash coffer. We
estimate Resorts will have c. RM3.3b (or RM0.57 per share) of
cash reserves by year end. This excludes the Group’s share
buyback activities and depending on the level of buyback, will
still leave the Group with between RM640m and RM2.2b of cash
reserve.
Inflection point? The Group has traditionally held a minority
stake in Genting’s overseas venture (6% of GIL, 20% of Star
Cruises), rendering it difficult to drive value for shareholders of
Resorts. In our opinion, the discount to regional and global peers
should narrow in the presence of the following catalyst: (i)
Resorts’ ability and capacity to spearhead Genting Group’s future
investment; (ii) which not only inevitably lessens the reliance on
Malaysia going forward but also provide earnings scalability for
Resorts World; and (iii) the initiation of share buyback signals the
Group’s pragmatic move with regards to capital management.
Reiterate our Buy call on Resorts with a RM4.70 RNAV-based
price target.
Refer to important disclosures at the end of this report
90

Stock Profile: Resorts World
Regional Equity Strategy Q4 2007
Income Statement (RM m) Balance Sheet (RM m)
FY Dec 2006A 2007F 2008F 2009F FY Dec 2006A 2007F 2008F 2009F
Turnover 3,808.5 4,285.3 4,430.2 4,856.6 Net Fixed Assets 3,801.8 3,960.9 4,110.4 4,250.9
Cost of Goods Sold (2,302.2) (2,558.0) (2,649.9) (2,826.2) Invts in Assocs & JVs 2,070.6 1,126.9 1,126.9 1,126.9
Gross Profit 1,506.3 1,727.3 1,780.3 2,030.4 Other LT Assets 264.6 264.6 264.6 264.6
Other Opg (Exp)/Inc (171.0) (255.2) (188.0) (257.9) Cash & ST Invts 1,980.7 3,859.3 4,641.5 5,505.2
EBIT 1,335.3 1,472.0 1,592.3 1,772.6 Other Current Assets 254.7 308.7 318.6 347.8
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 Total Assets 8,372.3 9,520.4 10,462.1 11,495.5
Associates & JV Inc (210.8) (62.9) 0.0 0.0
Net Interest (Exp)/Inc 14.2 8.7 96.2 51.8 ST Debt 87.8 100.0 100.0 100.0
Exceptional Gain/(Loss) 0.0 63.2 0.0 0.0 Other Current Liab 620.5 728.4 748.2 806.6
Pre-tax Profit 1,138.7 1,481.0 1,688.6 1,824.3 LT Debt 1,126.9 300.0 300.0 300.0
Tax (193.2) (382.8) (439.0) (456.1) Other LT Liabilities 279.5 279.5 279.5 279.5
Minority Interest 0.4 0.4 0.4 0.4 Shareholder’s Equity 6,249.5 8,104.7 9,027.0 10,002.4
Preference Dividend 0.0 0.0 0.0 0.0 Minority Interests 8.1 7.7 7.4 7.0
Net Profit 945.9 1,098.6 1,249.9 1,368.6 Total Cap. & Liab. 8,372.3 9,520.4 10,462.1 11,495.5
Net profit before Except. 945.9 1,035.4 1,249.9 1,368.6
EBITDA 1,358.0 1,713.3 1,842.8 2,032.0 Non-Cash Wkg. Cap (365.8) (419.6) (429.6) (458.8)
Sales Gth (%) 5 13 3 10 Net Cash/(Debt) 766.0 3,459.3 4,241.5 5,105.2
EBITDA Gth (%) (13) 26 8 10
EBIT Gth (%) 2 10 8 11
Effective Tax Rate (%) 17.0 25.8 26.0 25.0
Cash Flow Statement (RMm)
Rates & Ratios
FY Dec 2006A 2007F 2008F 2009F FY Dec 2006A 2007F 2008F 2009F
Pre-Tax Profit 1,138.7 1,417.8 1,688.6 1,824.3 Gross Margin (%) 39.6 40.3 40.2 41.8
Dep. & Amort. 233.6 240.9 250.5 259.5 EBITDA Margin (%) 35.7 40.0 41.6 41.8
Tax Paid (248.1) (382.8) (439.0) (456.1) EBIT Margin (%) 35.1 34.4 35.9 36.5
Assoc. & JV Inc/(loss) 210.8 62.9 0.0 0.0 Net Profit Margin (%) 24.8 25.6 28.2 28.2
Chg in Wkg.Cap. (11.6) 53.9 9.9 29.2 ROAE (%) 16.0 15.3 14.6 14.4
Other Operating CF 1.6 (45.1) (120.2) (75.8) ROA (%) 12.3 12.3 12.5 12.5
Net Operating CF 1,324.9 1,347.6 1,389.7 1,581.1 ROCE (%) 18.7 15.2 13.7 14.0
Capital Exp.(net) (319.3) (400.0) (400.0) (400.0) Div Payout Ratio (%) 22.7 25.5 26.2 28.7
Other Invts.(net) (263.8) 880.8 0.0 0.0 Interest Cover (x) NM NM NM NM
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 Debtors Turn (avg days) 15.0 17.9 19.7 19.1
Div from Assoc & JV 0.0 0.0 0.0 0.0 Creditors Turn (avg days) 77.8 75.6 84.2 82.2
Other Investing CF 32.3 45.1 120.2 75.8 Inventory Turn (avg days) 8.5 8.0 8.2 8.2
Net Investing CF (550.8) 525.9 (279.8) (324.2) Current Ratio (x) 3.2 5.0 5.8 6.5
Div Paid (204.7) (280.2) (327.7) (393.2) Quick Ratio (x) 3.1 5.0 5.8 6.4
Chg in Gross Debt 687.8 (814.7) 0.0 0.0 Net Debt/Equity (X) CASH CASH CASH CASH
Capital Issues 27.8 1,100.0 0.0 0.0 Capex to Debt (%) 26.3 100.0 100.0 100.0
Other Financing CF (19.2) 0.0 0.0 0.0 N.Cash/(Debt)PS (sen) 14.0 58.6 71.8 86.5
Net Financing CF 491.7 5.1 (327.7) (393.2) Opg CFPS (sen) 24.4 21.9 23.4 26.3
Net Cashflow 1,265.9 1,878.6 782.3 863.7 Free CFPS (sen) 18.4 16.0 16.8 20.0
Valuation Graph : PE
30
25
Price & Price Relative to Index
(RM)
5.00
4.00
Relative Index
150
130
20
3.00
110
15
2.00
90
10
1.00
70
5
2002 2003 2004 2005 2006 2007
Source: Company, DBS Vickers
0.00
2005 2006 2007
Resorts (LHS) Relative KLCI Index (RHS)
50
91

Regional Equity Strategy Q4 2007
Country Assessment
Thailand
Improved political outlook
SET Current : 803
SET 3/12 mths Target : 850 / 1,040
Expected Return : 6% / 30%
• Thailand's equity market performed relatively better than regional peers in 3Q07
as sentiment turned positive with an improved political scene. The draft 2007 constitution
was passed during the 19 August nationwide referendum with 57% voting for the
new constitution vs 41% against. This should pave the way for the general election
to be held on 23 Dec 2007.
• We expect the market to continue its upward momentum in 4Q07. The political
parties should start campaigning soon after the election date is announced, and we
expect a lot of rosy policies to be announced over the next few months. The December
general election should be a strong market re-rating catalyst as political tensions
subside. A new elected government is also perceived to have better economic and
business sense than the current one, domestic demand should pick up, and the positive
impact of a series of interest rate cuts should kick in next year. The direct negative
impact of the US sub-prime meltdown on Thailand should be limited given that
Bank Thai (BT TB) is the only bank in the country with exposure to sub-prime Collateralized
Debt Obligations (only US$50m).
• The Thai market still offers the most attractive valuations in the region, trading
at only 11.4x 2008 P/E (vs. 15x for regional peers) and offers generous 4.2% dividend
yield. The market also offers 11.1% EPS growth and 17.7% ROE for 2008. We recommend
investors overweight Banking, Property, Energy and Entertainment counters. The
interest rate-sensitive Banking and Property counters should be prime beneficiaries
of the interest rate cuts and improving economy next year. For this quarter, we are
upgrading the Energy sector to Overweight from Neutral, given the persistent high
oil price, continued strong demand and capacity expansion by major companies in
the sector. The Entertainment sector still deserves an Overweight rating as we expect
it to benefit from higher advertising spending especially during the election.
• Our top picks for this quarter are Advanced Info Service (ADVANC TB), Charoen
Pokphand Foods (CPF TB), and KASIKORNBANK (KBANK TB) for large caps. For small
caps, we like Amata Corporation (AMATA TB), Asian Property Development, Italian-
Thai Development (ITD TB) and Workpoint Entertainment (WORK TB).
Index Close Net chg -1 m -3 m -6 m -12 m 52 week
17-Sep-07 1 m (%) (%) (%) (%) High Low
SET 803 (10.6) (1.3) 3.3 8.8 17.0 896 588
SET 50 578 (7.9) (1.3) 5.2 10.5 20.4 649 406
SET 100 1,250 (17.6) (1.4) 4.5 10.2 na 1,403 886
SET Banks 279 (14.4) (4.9) (2.7) 4.1 7.9 329 217
SET Construction Materials 6,516 (134.1) (2.0) (3.1) 6.1 11.7 7,385 5,340
SET Communication 82 (3.4) (4.0) (4.3) (5.3) (4.8) 100 62
SET Energy 18,715 189.7 1.0 13.1 19.5 31.1 20,427 11,530
SET Electronics 825 (15.4) (1.8) (6.7) 11.2 20.4 922 626
SET Property 123 (3.4) (2.7) (0.5) 4.8 13.3 206 82
Transactions:
YTD
Volume (bn shares) 465
Value (Btbn) 2,825
Chanpen Sirithanarattanakul · 66 (0) 2657 7824 · chanpens@th.dbsvickers.com
Refer to important disclosures at the end of this report
92

Country Assessment
Regional Equity Strategy Q4 2007
MARKET REVIEW - Continued uptrend despite US sub-prime hiccup
The SET index peaked at 895.63 in late Jul 2007 on easing political risks, but fell in
August on US sub-prime concerns. The Index closed at 802.65 on 17 Sep 2007, up
3.3% QTD. Average daily trading value improved favorably from Bt11.8bn/day in 1Q07
and Bt15.1bn in 2Q07 to as high as Bt21.5bn/day QTD. Foreign investors turned net
sellers of Bt35.4bn worth of shares in August as US sub-prime concerns sparked risk
aversion across the globe and resulted in
Net buy-sell position of foreign investors
global equity sell-off including Thailand.
Btm
SET
QTD, foreign investors are net sellers of Bt8.1bn
80,000
900
Net Foreign
worth of Thai stocks. YTD, foreign investors
60,000 SET Index (RHS)
850
800 net buying amounted to Bt89bn, vs Bt83bn
40,000
750
net buying registered in 2006.
20,000
0
-20,000
-40,000
Jan -05
Mar -05
May -05
Jul -05
Sep-05
Nov -05
Jan -06
Mar -06
May -06
Jul -06
Sep-06
Nov -06
Jan -07
Mar -07
May -07
Jul -07
Sep-07
Source: Stock Exchange of Thailand
As of 17 Sep 2007
700
650
600
550
500
For 2Q07, listed companies reported cumulative
net profit of Bt114.5bn, down 10% from
the same period last year. Meanwhile, 1H07
total net profit fell 17% y-o-y to Bt229.4bn.
The drop in 1H07 net profit was due to (i) higher cost of sales, (ii) lower FX gain due
to the strong baht, (iii) higher loan loss provision by banks to comply with IAS39.
We expect stronger 2H07 results from Thai corporates.
On the economic front, the Thai economy grew 4.4% in 2Q07, a little better than
4.2% growth in 1Q07. 1H07 GDP expanded 4.3%, with exports again the major contributor.
Expansionary fiscal policies also supported the growth momentum, with current spending
and capital expenditures growing 7.4% and 3.1%, respectively. Private consumption
and investment, however, continued to slow in line with falling consumer confidence
and business sentiment index.
On the political front, the draft 2007 constitution was passed during the 19 August
nationwide referendum with 57% voting for the new constitution and 41% against.
His Majesty King Bhumibol Adulyadej endorsed the country's 18th constitution on
24 Aug, and the charter took effect immediately after it was announced in the Royal
Gazette the same day. This is positive news for the market, and should pave the way
for the general election to be held on 23 Dec 2007.
93

Regional Equity Strategy Q4 2007
Country Assessment
LIQUIDITY - Expect another 25bps cut in Oct 2007
The Monetary Policy Committee (MPC) cut policy rates by another 25bps from 3.5%
to 3.25% on 18 Jul, but left it unchanged at 3.25% at 29 Aug meeting. YTD, the
MPC has cut policy rate by 175 basis points. The aggressive rate cuts is attributed
to waning inflationary pressure and higher risk of a slowing economy. Aug 2007
inflation was 1.1% y-o-y, the lowest in 59 months.
With low inflation and still weak domestic
demand, we expect the MPC to cut its
policy rate by another 25bps in 4Q07 when
it meets on 10 Oct 2007.
Domestic rates have peaked
(%)
8.5
6.5
MLR
Fix 3 Mth
Repurchase Rates (% per annum)
The Thai baht (onshore rate) strengthened
further from Bt34.52/US$ at end Jun 2007
to Bt34.26/US$ on 17 Sep 2007. Current
account recorded a surplus of US$6.2bn
in 1H07 (7.0% of GDP), led by a remarkable
Bt5.1bn trade surplus. Official foreign reserves
remained high at US$73.2bn at end July
2007, equivalent to 3.6x short-term foreign
debts or 6.6 months of imports.
4.5
2.5
0.5
Jan-04
Apr-04
Jul-04
Oct-04
Jan-05
Apr-05
Jul-05
Oct-05
Note: The BOT changed the policy rate from 14
Day REPO to 1 Day REPO Rate on 17 Jan 07.
Source: Reuters, BoT
Jan-06
Apr-06
Jul-06
As of 17 Sep 2007
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
GROWTH and VALUATION - Thai market remains relatively cheap
On 27 Jul 2007, The Bank of Thailand raised its GDP growth forecast from 3.8-4.8%
to 4.0-5.0% for 2007, and from 4.3-5.8% to 4.3-6.0% for 2008. Core inflation is estimated
at 0.8-1.5% for 2007 and 1.0-2.0% for 2008. The National Economic and Social Development
Board is maintaining GDP growth for 2007 at 4.0-4.5%.
Thailand's Real GDP Growth Trend
%
9
8
7
6
5
4
3
2
1
0
Dec-99
4Q00
4Q01
4Q02
4Q03
4Q04
4Q05
Source: Bank of Thailand, DBS Vickers
4Q06
4Q07F
FY 08F
DBS recently fine-tuned its 2007 GDP forecast
to 4.3% (from 4.4%) and raised its 2008 forecast
to 5.6% (from 5.1%), as it expects domestic
demand to remain weak in the next two quarters
but rebound from 2Q08 onwards. By that time,
Thailand should be more politically stable and
consumer and business confidence should return.
Given the persistently low inflation number
it has also lowered 2007 CPI forecasts sharply
to 1.7% (from 2.3%) and 2008 forecasts to
2.2% (from 2.6%).
Looking forward, we expect the 59 companies in our Thailand Universe (69% of
the SET market capitalization) to report aggregate net profit growth of 2.8% for
2007 and 11.8% for 2008. We expect EPS to ease 3.1% in 2007 before growing 11.1%
in 2008.
94

Country Assessment
Regional Equity Strategy Q4 2007
Leading growth in 2008 will be the Banking sector, which is expected to register
49.8% y-o-y EPS growth, followed by Vehicles & Parts (+27.2% y-o-y), Transportation
Sector (+26.1% y-o-y), Property (+16.5%), and Commerce (+11.5%).
In terms of valuation, the Thai market is now trading at attractive 2008 PE of 11.4x,
vs about 15x for regional peers. Our 1-year index target is 1,040 (implying 14.7x
2008 PE), suggesting 30% upside from current levels.
Sector EPS Growth and PE Valuation
Sector EPS Growth (%) PE (x)
2006A 2007F 2008F 2006A 2007F 2008F
Banking (17.2) (18.4) 49.8 13.4 15.9 10.6
Construction Materials (8.6) 2.2 (18.7) 10.0 9.8 12.1
Chemicals & Plastics 0.1 74.7 (16.5) 12.6 7.2 8.7
Commerce 14.1 14.6 11.5 17.7 15.4 13.8
Communication (30.6) 46.8 11.0 23.9 16.5 14.9
Electronics Components 3.8 (2.8) 2.3 10.5 10.3 10.0
Energy (3.7) (0.2) 3.0 10.6 10.6 10.3
Entertainment & Recreation 45.2 18.9 2.7 19.8 16.7 16.2
Finance & Securities (35.8) 41.0 (7.0) 14.9 10.6 11.3
Property Development (61.3) 71.8 16.5 30.8 17.7 15.5
Transportation 33.4 (46.3) 26.1 8.3 15.4 12.2
Vehicles & Parts (38.8) (23.4) 27.2 9.5 12.4 9.7
Others (42.2) (8.1) 29.9 15.3 16.6 12.8
DBSV Universe (11.8) (3.1) 11.1 12.7 12.7 11.4
Source: DBS Vickers
INVESTMENT STRATEGY
We expect the market to maintain its upward momentum in 4Q07 as we approach the
general election on 23 Dec 2007. We believe Thailand's domestic conditions are improving,
which should boost consumer confidence and business activities in 4Q07 and 2008. The
anticipated general election on 23 Dec 2007 should be a strong market re-rating catalyst
as political tensions should subside when the military-appointed government steps down
and a new elected government assumes power. Domestic demand should pick up when
political concerns ease and the positive impact of the series of interest rate cuts kick in
during 2H07 and 2008. Investment should also pick up after the elected government is in
place early next year. Over the longer term, investors should focus more on the election
outcome, the faces of coalition parties, and the new cabinet line-up.
Our current investment theme is domestic interest rate downcycle, which should
be a positive factor for banks and property companies. The Energy sector should
continue to benefit from continued strong demand and persistent high oil prices.
Meanwhile, the Media sector should benefit from higher advertising spending especially
during the election campaign.
Prospects for the Banking sector remain positive, based on our assumed 10.8% loan growth
for 2008 (vs 7.6% in 2007), potentially stronger balance sheets due to IAS39, and improving
asset quality. We believe Thailand’s Banking sector will report solid earnings growth of
52% for 2008, supported by higher loan growth, expanding fee-based income, and lower
loan loss provision. Our top picks for the sector are KASIKORNBANK (KBANK TB), Bangkok
Bank (BBL TB), and Krung Thai Bank (KTB TB).
95

Regional Equity Strategy Q4 2007
Country Assessment
The Property sector should be a prime beneficiary of the series of interest rate cuts.
Residential property developers, especially those that focus on the medium to lowerend
markets and those which have large backlogs (unrealized revenue), should continue
to do well in 2H07 and 2008. Our current top pick for the residential property sector
is Asian Property Development (AP TB). Industrial estate developers should also benefit
from rebounding demand for industrial land led by improving foreign direct investment.
Our top industrial property picks are Amata Corporation (AMATA TB) and Rojana
Industrial Park (ROJANA TB). We also like Construction contractors, which should
benefit from rising construction activities in Thailand next year. These companies’
share prices have tumbled after the government delayed tendering out mass transit
projects this year, but are now offering hefty upside to our target prices. Our top
pick in the sector is Italian-Thai Development (ITD TB), Thailand's largest construction
contractor with highest secured backlog.
We are upgrading the Energy sector to Overweight from Neutral, on the back of
persistently high oil prices, continued strong demand and attractive valuation. Our
top picks for the sector are PTT Plc. (PTT TB) and Thai Oil Plc. (TOP TB).
Another sector that we like is Entertainment, which should also benefit from consumption
recovery in Thailand in 2008. Our top pick for the sector is BEC World (BEC TB).
Given (i) strong earnings growth momentum, (ii) easing regulatory concerns, and
(iii) compelling dividend yields of 5.2% for FY07F and 5.7% for FY08F, we reiterate
our BUY rating for BEC. The stock is oversold, and the share price weakness is divergent
to its improving fundamentals. We believe the current share price weakness provides
a great buying opportunity.
Sector recommendation and stock picks for Thailand
SECTOR REMARKS STOCK SELECTION
Banks and Finance
Overweight
We expect the Thai banking sector to register strong 52% earnings growth
for 2008. Growth should be led by (i) higher industry loan growth at 10.8%
vs. an estimated 7.6% for 2007, (ii) wider net interest margin, (ii) expanding
fee-based income, and (iv) lower loan loss provision. The sector is now
trading at 2008 P/BV of only 1.5x vs >2.0x for regional peers. We believe
Thai banks, as the regional laggards, will eventually catch up. Our top
picks for the sector are KASIKORNBANK (KBANK), Bangkok Bank (BBL)
and Krung Thai Bank (KTB).
KBANK,
BBL, KTB
Construction
Materials
Neutral
(upgrade)
We are upgrading Construction Materials to Neutral from Underweight.
Demand for construction materials was weak in 1H07, following a slowdown
in domestic spending and investment, and weak housing sales. Nonetheless,
demand for construction materials should pick up next year, in anticipation
of improving consumer confidence, rising housing demand and more
mega-project construction activities. Our top pick for the sector is Siam
Cement (SCC TB), which now offers 23% upside potential to our target
price of Bt302 (sum-of-parts valuation), plus generous 6.1% dividend yield
for 2008.
SCC
Consumer
Underweight
The Cabinet has approved the Draft Wholesale and Retail Business Act
proposed by the Ministry of Commerce. The Draft Act now needs to be
reviewed by the Office of the Council of State before it is submitted to
the National Legislative Assembly to be enacted into law. Meanwhile,
the Ministry of Interior will depend on existing city planning and building
control laws to limit construction of new stores by modern retail trade
stores. We believe the Act will make modern trade store expansion in certain
areas more difficult in future.
HMPRO
96

Country Assessment
Regional Equity Strategy Q4 2007
Sector recommendation and stock picks for Thailand
SECTOR REMARKS STOCK SELECTION
Communication
Neutral
We are seeing easing competition in Thailand's cellular market. Three
major cellular operators raised their tariff rates in 2Q07 and early 3Q07.
We believe Thai cellular tariff rates are on a continued upward trend,
at least for the rest of the year. We also believe the revenue sharing
rate is unlikely to be raised near term. The Committee set up to look
into the amendment of the concession fee is not expected to come up
with the solution within this year. Hence, the risk of ADVANC having
to raise its concession fee payable to TOT from 20% to 30% of its prepaid
service revenue has also eased. Our top pick for the sector is ADVANC,
which is offering a generous 2008 dividend yield of 7.1%.
ADVANC
Electronics
Components
Neutral
We remain Neutral on the Electronics sector. While we still like the sector's
fundamentals, sentiment should remain weak due to concerns over (i)
potential negative impact of the US economic slowdown, and (ii) the
strong baht against the US dollar. Note that all companies in this sector
export the bulk of their products, and would be negatively affected by
a global economic slowdown and strong baht. Our top pick for the
sector remains Calcomp Electronics (CCET).
CCET
Energy
Overweight
(Upgrade)
We are upgrading the Energy sector to Overweight from Neutral for
three main reasons. First, we expect refining margins to remain healthy
at >US$6/bbl at least until 2008, as demand growth still outpaces new
refining capacity addition. Second, global oil prices are likely to remain
high in the next two years. Lastly, listed companies' expansion plans
are still on track, which means they should benefit from increased capacities
in the next few years. Our top picks for the sector are PTT Plc. (PTT TB)
and Thai Oil Plc. (TOP TB).
PTT, TOP
Entertainment
Overweight
We are positive about Thailand’s Entertainment sector in 4Q07 and 2008,
premised on expectations of rebounding consumer confidence following
an improving political scene. The sector's solid cash flow should ensure
high dividend payouts, and is offering sustainable and attractive 5.7%
average dividend yield for 2008. We remain Overweight on the sector.
Our top picks in the sector are BEC World (BEC TB) and Major Cineplex
(MAJOR TB).
BEC, MAJOR
Property
Development
Overweight
Residential property developers are likely to benefit from the interest
rate cuts and rebounding consumer confidence in 2H07 and 2008. We
prefer residential developers that focus on low-to-mid priced property
development, where demand remains strong. These include Quality Houses
(QH TB), Asian Property Development (AP TB), Preuksa Real Estate (PS
TB). Commercial property developers e.g. retail and office space, are
expected to be less affected by the slowing economy, thanks to their
strong recurring rental income, which are normally fixed for three years.
Nonetheless, rental reversions upon contract renewals could be lower
than expected given the current weak market environment. Construction
contractors should see positive news flow relating to bids for the mass
transit system projects assuming they proceed as planned, although we
expect construction to commence only in 2008. Our top picks for the
sector are ITD and CK.
AMATA, AP,
ITD
Transportation
Neutral
We maintain Neutral rating for Transportation sector in 4Q07 despite
their cheap valuation. Several overhanging issues would continue to
undermine the share price in the short term. Our top pick is Bangkok
Expressway (BECL TB) given its sustainable cash flow.
BECL
97

Regional Equity Strategy Q4 2007
Stock Profiles: Advanced Info Service
BUY Bt89.00 SET:802.65
Price Target : 1-year Bt115.00
Potential Catalyst: Interconnection income and
lower regulatory risks when military-appointed
government steps down in Dec 2007.
ANALYST
Chirasit Vuttigrai · 66 (0) 2657 7836
chirasit@th.dbsvickers.com
FORECASTS AND VALUATION
FY Dec (Btm) 2005A 2006A 2007F 2008F
Turnover 92,517 91,428 91,605 96,718
EBITDA 46,927 41,072 42,195 45,766
Pretax Profit 27,299 23,521 22,874 26,164
Net Profit 18,909 16,256 15,813 18,087
EPS (Bt) 6.41 5.51 5.36 6.13
EPS Gth (%) (6.83) (14.03) (2.72) 14.38
P/E (x) 13.9 16.2 16.6 14.5
P/Cash Flow (x) 9.0 8.3 7.8 7.3
DPS (Bt) 6.30 6.30 6.30 6.30
Div Yield (%) 7.1 7.1 7.1 7.1
EV/EBITDA (x) 5.9 6.9 6.8 6.1
Net Gearing (%) 17.1 26.0 0.3 0.2
ROE (%) 25.8 20.8 20.9 24.5
Book Value (Bt) 26.79 26.08 25.13 24.82
P/Book Value (x) 3.3 3.4 3.5 3.6
SHARE PRICE CHART
Bt
110
100
90
80
70
Advanced Info Service
100-Day MA
60
Sep-06 Nov -06 Jan -07 Mar -07 May -07 Jul -07 Sep-07
AT A GLANCE
Issued Capital (m shrs) 2,956
Mkt Cap (Btm/US$m) 263,066 / 7,676
Major Shareholders (%)
Shin Corporation 42.7
Singtel Strategic Investment 19.2
HSBC (SG) Nominees Pte Ltd 4.9
Free Float (%) 30.6
Avg Daily Vol ('000 shrs) 2,749
Earnings Rev (%) : 2007: - 2008: -
Consensus EPS (Bt): 2007: 5.84 2008: 6.94
Variance vs Cons(%) : 2007: (8.3) 2008: (11.6)
Sector: Telecom
Bloomberg/Reuters Code: ADVANC TB / ADVA.BK
Principal Business : ADVANC is the largest cellular
operator in Thailand with 47% market share. Its
51%-held subsidiary, ADC is a leading data
provider in the country.
Advanced Info Service
Good election play
Story: ADVANC’s prospects have improved substantially.
It is a prime beneficiary of easing competition in Thailand’s
cellular market, with all three cellular operators raising
rates in early 3Q07.
Point: ADVANC is also a good election play after suffering
from a military-appointed government. With the election
expected to happen in Dec 2007, the risk of having to
raise revenue-share (from 20% to 30%) payable to TOT
Corp has subsided. ADVANC may also book Bt1.5-2.0bn/
quarter net interconnection income from next year. This
is higher than the Bt3.0bn p.a. expected earlier.
Relevance: ADVANC offers attractive dividend yields
of 7.1% for FY07F and FY08F. We reiterate our BUY rating
for ADVANC with a DCF-based target price of Bt115, assuming
its prepaid revenue-share rate is maintained at 20% throughout
the concession period. If we include potential interconnection
income of Bt3.0bn a year, our target price would be raised
to Bt123.
Strong net add. ADVANC captured 3.2m net new subscribers
in 1H07, representing 46% market share in terms of net
adds for the period. We estimate its net adds for FY07 at
4.5m with 39% market share, and total subscriber base
at 24.0m at end-2007, representing 47% market share in
subscriber base. This is slightly lower than its internal
50% subscriber base market share target for 2007.
Easing competition. Three major cellular operators raised
rates in 2Q07 and early 3Q07. The hike was especially
crucial for DTAC, which suffered Bt1.5bn net interconnection
(IC) expense in 2Q07. To avoid huge net IC expense in
2H07, DTAC raised rates for existing and new subscribers
in July. Thai cellular tariff rates are on a continued upward
trend, at least for the rest of the year.
Revenue-share rate unlikely to be raised. A committee
comprising ADVANC and TOT Corp has been set up to
look into amending the concession fee. The committee
does not expect the solution to be out within this year.
We believe it is easier for ADVANC to negotiate with the
elected government rather than the current. Hence, the
risk of ADVANC having to raise its concession fee payable
to TOT Corp from 20% to 30% of its prepaid service revenue
has eased substantially.
98
Refer to important disclosures at the end of this report

Stock Profiles: Advanced Info Service
Regional Equity Strategy Q4 2007
Income Statement (Btm)
FY Dec 2005A 2006A 2007F 2008F
Turnover 92,517 91,428 91,605 96,718
EBITDA 46,927 41,072 42,195 45,766
Depr/Amort (18,682) (17,027) (18,351) (19,025)
Opg Profit 28,245 24,044 23,843 26,741
Asso & Other Inc 333 380 403 426
Interest (Exp)/Inc (1,279) (903) (1,372) (1,002)
Pre-Tax Profit 27,299 23,521 22,874 26,164
Tax (8,435) (7,460) (7,205) (8,242)
Minority Interest 5 148 144 165
Extra & Forex 39 48 - -
Net Profit 18,909 16,256 15,813 18,087
Sales Growth (%) (4.1) (1.2) 0.2 5.6
Net Profit Gr (%) (6.7) (14.0) (2.7) 14.4
EBITDA Mgn (%) 50.7 44.9 46.1 47.3
Tax Rate (%) 30.9 31.7 31.5 31.5
Balance Sheet (Btm)
FY Dec 2005A 2006A 2007F 2008F
Fixed assets 87,608 91,944 91,997 84,397
Other LT Assets 20,005 19,464 18,899 18,361
Cash/ST Investments 11,755 12,860 5,231 864
Other Current Assets 8,591 10,032 10,052 10,613
Total Assets 127,960 134,301 126,179 114,236
ST Debt 14,241 7,507 7,000 -
Other Current Liabilities19,501 20,568 21,251 22,235
LT Debt 11,291 25,663 20,159 15,159
Minority Interests 885 661 517 352
Shareholders' equity 79,049 76,938 74,142 73,223
Total Capital 127,960 134,301 126,179 114,236
Share Capital (m) 2,951 2,951 2,951 2,951
Net cash/(debt) (13,696) (20,151) (21,769) (14,136)
Working capital 10,910 10,535 11,199 11,622
Gearing (%) 17.1 26.0 0.3 0.2
Cash Flow Statements (Btm)
FY Dec 2005A 2006A 2007F 2008F
EBITDA 46,927 41,072 42,195 45,766
Change in W/C (3,938) (752) (419) (713)
Taxes paid (12,896) (8,175) (7,422) (8,254)
i) Operating FCF 30,092 32,145 34,354 36,799
Net interest payment (769) (320) (799) (616)
ii) Net FCF 29,323 31,825 33,555 36,184
Investing cashflow (15,940) (19,913) (16,563) (9,545)
iii) Residual cashflow 13,383 11,912 16,992 26,639
Cashflow fr equity (7,193) (18,368) (18,610) (19,006)
Change in net cash 6,190 (6,456) (1,618) 7,633
Ending net cash (13,696) (20,151) (21,769) (14,136)
Gross CF/Shr (Bt) 12.6 11.2 11.4 12.4
CF Opera/Shr (Bt) 13.0 11.3 12.1 12.9
Net FCF/Shr (Bt) 9.9 10.8 11.3 12.2
CF Int. Cover (x) 19.7 20.9 20.5 31.9
Rates & Ratios
FY Dec 2005A 2006A 2007F 2008F
ROE (%) 25.8 20.8 20.9 24.5
ROA (%) 15.2 12.4 12.1 15.0
Net Margin (%) 20.4 17.8 17.3 18.7
Div. Coverage (x) 1.0 0.9 0.9 1.0
Interst Coverage (x) 18.9 16.3 14.7 23.7
Asset Turnover (x) 0.7 0.7 0.7 0.8
Asset/Debt (x) 5.0 4.1 4.7 7.6
Gearing (%) 31.8 42.5 36.2 20.4
Net Gearing (%) 17.1 26.0 0.3 0.2
Debt/EBITDA (x) 0.5 0.8 0.6 0.3
Debt/ Market Cap (x) 0.1 0.1 0.1 0.1
Capex/Debt (x) 0.6 0.6 0.7 0.7
Capex/Sales (x) 0.2 0.2 0.2 0.1
EV (Btbn) 277.2 283.4 284.9 277.1
EV/EBITDA (x) 5.9 6.9 6.8 6.1
Valuation Graph : PE
20
18
16
14
12
10
2004 2005 2006 2007
Price Relative to Index
1.4
Advance Info Service
1.2
1.0
0.8
SET
0.6
2004 2005 2006 2007
99

Regional Equity Strategy Q4 2007
Stock Profiles: Charoen Pokphand Foods
BUY Bt4.82 SET:802.65
Price Target : 1-year Bt6.36
Potential Catalyst: Strong 2H07 earnings recovery
ANALYST
Parin Kitchatornpitak · 66 (0) 2657 7827
parink@th.dbsvickers.com
FORECASTS AND VALUATION
FY Dec (Btm) 2005A 2006A 2007F 2008F
Turnover 113,374 124,958 130,169 137,333
EBITDA 11,070 7,311 8,807 10,503
Pretax Profit 8,421 2,877 2,674 4,054
Net Profit 6,747 2,510 1,881 3,162
EPS (Bt) 0.94 0.35 0.26 0.44
EPS Gth (%) 309.7 (62.8) (25.1) 68.1
P/E Ratio (x) 5.1 13.8 18.4 11.0
P/Cash Flow (x) 12.0 9.1 7.3 8.7
EV/EBITDA (x) 5.9 10.0 8.3 7.1
DPS(Bt) 0.50 0.19 0.13 0.22
Div Yield (%) 10.4 3.9 2.7 4.6
ROE (%) 17.9 5.8 4.3 7.0
Net Gearing (%) 69.8 90.2 85.8 87.3
BVps (Bt) 6.09 5.94 6.18 6.36
P/Book Value (x) 0.8 0.8 0.8 0.8
SHARE PRICE CHART
Bt
6.0
5.5
5.0
Charoen Pokphand Foods
4.5
100-Day MA
4.0
Sep-06 Nov -06 Jan -07 Mar -07 May -07 Jul -07 Sep-07
AT A GLANCE
Issued Capital (m shrs) 7,520
Mkt Cap (Btm/US$m) 36,246 / 1,058
Major Shareholders (%)
Charoen Pokphand Holding 20.2
Charoen Pokphand Group 15.1
Thai NVDR 4.1
Free Float (%) 58.0
Avg Daily Vol ('000 shrs) 13,218
Earnings Rev (%): 2007: - 2008: -
Consensus EPS (Bt): 2007: 0.29 2008: 0.44
Variance vs Cons (%): 2007: (9.8) 2008: (1.0)
Sector: Agribusiness
Bloomberg/Reuters Code: CPF TB / CPF.BK
Principal Business : Thailand's leading agroindustrial
conglomerate that specializes in animal
farming and the manufacture of processed meat
products.
Charoen Pokphand Foods
Expect significant turnaround in 2H07
Story: Charoen Pokphand Foods (CPF)’s operations has
been improving since 2Q07, and should continue into
2H07 and 2008, led by: (i) rebound in its major product
prices; (ii) higher yield from overseas investments; and
(iii) better consumer confidence after the general election
at end-2007.
Point: Product (broiler, pork and egg) prices have been
recovering since 2Q07. And they should continue to rise
in 3Q-4Q07 and next year, due mainly to supply cuts last
year. CPF also diversified its overseas investments several
years ago, which is another long term growth driver.
Relevance: We are retaining FY07F and FY08F earnings,
which reflect CPF's improving performance. Our target
price is Bt6.36 (based on 1.0x 2008 P/BV), implying 32%
upside potential. It also offers 2.7% and 4.6% dividend
yield for FY07F and FY08F. CPF deserves a BUY call.
Recap: 2Q07 results were impressive, with net profit at
Bt954m. It turned around from Bt1.1bn (EPS: -Bt0.16) loss
in 1Q07 to a profit in 2Q07, led by a rebound in prices of
its major products including chicken, pork and eggs. 2Q07
sales and gross margin were also better q-o-q as its three
major business segments recovered from losses. Sales grew
9% y-o-y and 20% q-o-q to Bt34.7bn, while gross margin
widened from 7.9% in 1Q07 to 13.5% in 2Q07 as local
meat prices continued to rebound during the period largely
due to effective supply cuts.
Most of CPF's product prices above breakeven. Broiler
price has rebounded to above breakeven due to supply
cuts; pork and egg price have also recovered to above
breakeven levels. In Aug 2007, broiler price was Bt36.5/
kg (breakeven: Bt30/kg), swine was at Bt46.0 /kg (breakeven
Bt41-4/kg) and fresh egg Bt2.10 each (breakeven: Bt2/
each).
General election at end-2007 will improve domestic sentiment.
Domestic consumption has not improved significantly.
But over the longer-term, it should, premised on improving
sentiment in anticipation of the general election at end-
2007. This would be derived from improving consumer
confidence towards sustainable future income.
100
Refer to important disclosures at the end of this report

Stock Profiles: Charoen Pokphand Foods
Regional Equity Strategy Q4 2007
Income Statement (Btm)
FY Dec 2005A 2006A 2007F 2008F
Turnover 113,374 124,958 130,169 137,333
Cost of Sales (94,485)(108,158) (114,289) (119,479)
Gross Profit 18,889 16,800 15,881 17,853
SGA
(12,167) (14,510) (14,747) (15,145)
Operating Profit 6,722 2,290 1,133 2,709
Other Income 2,903 2,459 3,468 3,316
Interest (Exp)/Inc (1,204) (1,873) (1,927) (1,970)
Pre-Tax Profit 8,421 2,877 2,674 4,054
Tax (1,593) (329) (588) (892)
Minority (118) (37) (205) 0
Net Profit 6,710 2,510 1,881 3,162
Sales Growth % 23.5 10.2 4.2 5.5
Net Profit Gr % 443.1 (62.6) (25.1) 68.1
EBITDA Mgn % 5.1 9.8 5.9 6.8
Opg Mgn % 1.3 5.9 1.8 0.9
Balance Sheet (Btm)
FY Dec 2005A 2006A 2007F 2008F
Fixed assets 38,871 43,233 43,112 42,723
Other LT Assets 10,694 10,143 11,014 11,972
Cash/ST Investments 2,535 1,727 2,098 2,267
Other Current Assets 36,998 40,631 41,264 44,483
Total Assets 89,098 95,735 97,487 101,445
ST Debt 14,865 21,925 21,925 21,925
Other Current Liabilities14,886 14,625 16,835 12,964
LT Debt 15,558 16,505 14,317 20,794
Minority Interests 724 542 542 542
Shareholders' equity 43,065 42,138 43,869 45,220
Total Capital 89,098 95,735 97,487 101,445
Share Capital (m) 7,520 7,520 7,520 7,520
Net cash/(debt) (30,555) (38,491) (38,122) (39,952)
Working capital 9,782 5,808 4,601 11,860
Net Gearing (%) 69.8 90.2 85.8 87.3
Cash Flow Statements (Btm)
FY Dec 2005A 2006A 2007F 2008F
Net profit 6,747 2,510 1,881 3,162
Depr & Amortization 3,200 3,740 4,122 4,388
Associate income, MI (557) (688) (666) (958)
Change in Working Cap(6,943) (3,984) (612) (2,613)
Other Non-Cash 440 2,221 - -
Operational CF 2,888 3,799 4,725 3,980
Capex (6,394) (8,272) (4,000) (4,000)
Investment (855) 407 - -
Investment CF (7,249) (7,865) (4,000) (4,000)
Net chg in Debt 672 5,050 2 2,000
New Capital 7,259 - (0) -
Dividend (2,968) (1,685) (150) (1,810)
Financing CF 4,963 3,365 (149) 190
Translation gain 72 (107) (205) -
Net change in Cash 674 (809) 371 170
Rates & Ratios
FY Dec 2005A 2006A 2007F 2008F
ROE (%) 17.9 5.8 4.3 7.0
ROA (%) 8.4 2.7 1.9 3.2
Net Margin (%) 6.0 2.0 1.4 2.3
Dividend Cover (%) 187.7 183.7 200.0 200.0
Interest Cover (%) 776.5 247.3 233.0 296.7
Asset Turnover (%) 127.2 130.5 133.5 135.4
Asset/Debt (x) 2.7 2.4 2.4 2.4
Gearing (%) 75.6 94.2 90.6 92.3
Net Gearing (%) 69.8 90.2 85.8 87.3
Debt/EBITDA (x) 3.0 5.5 4.6 4.0
Debt/MktCap (x) 1.0 1.2 1.2 1.2
Capex/Sales (x) 0.1 0.1 0.0 0.0
EV (Btm) 65,216 73,152 72,783 74,614
EV/EBITDA (x) 5.9 10.0 8.3 7.1
Div Pay-Out (%) 53.3 54.4 50.0 50.0
Valuation Graph : PE
Price Relative to Index
20
15
10
1.5
1.3
1.1
Charoen Pokphand Foods
5
0
2004 2005 2006 2007
0.9
SET
0.7
2004 2005 2006 2007
101

Regional Equity Strategy Q4 2007
Stock Profiles: KASIKORNBANK
BUY Bt73.50 SET:802.65
Price Target : 1-year Bt94.00
Potential Catalyst: (i) Continued loan growth led
by strong demand from SMEs, and (ii) one of the
highest ROE among Thai commercial banks.
ANALYST
Sugittra Kongkhajornkidsuk · 66 (0) 2657 7825
sugittrak@th.dbsvickers.com
FORECASTS AND VALUATION
FY Dec (Btm) 2005A 2006A 2007F 2008F
Pre-prov. Profit 21,267 22,818 23,963 28,677
Net profit 13,930 13,664 14,675 17,385
Net Pft (Pre Ex.) 13,930 13,664 14,675 17,385
EPS (Bt) 5.87 5.74 6.15 7.28
EPS Pre Ex. (Bt) 5.87 5.74 6.15 7.28
EPS Gth Pre Ex (%) (9.6) (2.3) 7.2 18.5
Diluted EPS (Bt) 5.87 5.74 6.15 7.28
PE Pre Ex. (X) 12.5 12.8 12.0 10.1
Net DPS (Bt) 1.25 1.75 2.00 2.25
Div Yield (%) 1.7 2.4 2.7 3.1
ROAE Pre Ex. (%) 19.2 16.4 15.5 16.2
ROAE (%) 19.2 16.4 15.5 16.2
ROA (%) 1.7 1.5 1.5 1.7
BV Per Share (Bt) 32.91 37.04 42.21 47.49
P/Book Value (x) 2.2 2.0 1.7 1.5
SHARE PRICE CHART
Bt
90
80
70
60
100-Day MA
KASIKORNBANK
50
Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07
AT A GLANCE
Issued Capital (m shrs) 2,388
Mkt Cap (Btm/US$m) 175,489 / 5,121
Major Shareholders (%)
SET 15.7
State Street Bank and Trust 7.2
Thai NVDR 5.0
Free Float (%) 92.1
Avg Daily Vol ('000 shrs) 6,839
Earnings Rev (%) : 2007: - 2008: -
Consensus EPS (Bt): 2007: 5.94 2008: 6.78
Variance vs Cons(%): 2007: 3.4 2008: 7.3
Sector: Banking
Bloomberg/Reuters Code: KBANK TB / KBAN.BK
Principal Business : Banking and financial services
KASIKORNBANK
Continued loan growth with good asset quality
Story: KASIKORNBANK (KBANK) is our top pick among
Thai banks for its prudent management and high degree
of transparency. Prospects remain strong led by stable
loan growth momentum with focus on high yield lending
segments, especially SME. KBANK also has the lowest
NPL ratio in the industry of only 6.7% in 2Q07, and one
of the highest ROE among Thai commercial banks.
Point: We estimate KBANK's loan growth at 8.5% for
FY07F and FY08F, close to its internal target of 8-13%.
Its NPL ratio should improve from 6.7% in 2Q07 to 6.1%
by YE07 and to 5.2% by YE08. We forecast net interest
margin at 4.04% for 2007, and improving to 4.30% in
2008 led by well-managed funding cost.
Relevance: Maintain Buy. We value KBANK at 2.0x
2008 P/BV or Bt94.0. The stock offers 28% upside to our
target price.
Continued loan growth in FY07. KBANK is targeting loan
growth of 8-13% for FY07. The bank remains focused on
high yield lending, especially SME loans that made up
38% of total loans in 1H07. It will also increase lending
to the retail sector in FY07. We estimate its loan growth
at 8.5% for FY07F and FY08F.
Strong SME base. KBANK is among the market leaders
with more than 250,000 SME customers nationwide. It is
ranked 2nd in the SME loan market with 21% market
share (as at 2006), and is expected to grow to 30% by
2008. The bank continues to increase lending to the SME
sector, with 15-20% SME loan growth target for FY07F.
Lowering NPL ratio to 5%+ for YE07. KBANK aims to
lower its NPL ratio from 6.7% (consolidated) currently
to 5%+ by YE07F. It continues to set NPL and NPA strategic
programs and search for opportunities to reduce large
NPLs. We conservatively expect its NPL ratio to improve
from 6.7% in 2Q07 to 6.1 % by YE07 and 5.2% by YE08.
Narrower net interest margin for FY07. KBANK's NIM is
the highest among large and mid-sized banks, due to its
focus on high yield segments (i.e. SME). However, the
bank foresees NIM falling from 4.1% in FY06 to c. 3.9%
this year, following the falling interest rate trend. We
estimate NIM at 4.04% for FY07, and 4.3% for FY08.
Fee income growth target of >20% for FY07. This is close
to our 22.5% p.a. assumption, following its K-Transformation
and channel expansion projects. The bank is focusing on
trade finance, loan related and retail business fees or
transaction fees.
102
Refer to important disclosures at the end of this report

Stock Profiles: KASIKORNBANK
Regional Equity Strategy Q4 2007
Income Statement (Btm)
FY Dec 2005A 2006A 2007F 2008F
Net Interest Income 30,782 34,613 36,602 41,288
Non-Interest Income 11,910 13,771 16,580 18,731
Operating Income 42,693 48,384 53,182 60,018
Operating Expenses (21,426) (25,565) (29,219) (31,341)
Pre-provision Profit 21,267 22,818 23,963 28,677
Provisions (3,662) (5,419) (5,327) (5,200)
Associates (35) 178 194 120
Exceptionals - - - -
Pre-tax Profit 17,997 17,788 20,116 23,897
Taxation (4,003) (4,126) (5,421) (6,452)
Minority Interests (64) 1 (20) (60)
Preference Dividend - - - -
Net Profit 13,930 13,664 14,675 17,385
Net Profit bef Except 13,930 13,664 14,675 17,385
Balance Sheet (Btm)
FY Dec 2005A 2006A 2007F 2008F
Cash/Bank Balance 14,913 17,857 14,671 15,473
Government Sec. 9,500 22,200 9,781 15,473
Inter Bank Assets 65,929 82,842 88,027 72,209
Net Loans & Advs. 591,253 646,580 700,853 758,311
Investment 99,114 101,504 97,318 102,640
Associates 450 482 489 516
Fixed Assets 21,441 22,301 23,227 23,227
Goodwill - - - -
Other Assets 34,709 41,742 43,708 43,708
Total Assets 837,309 935,509 978,073 1,031,557
Customer Deposits 687,781 750,985 774,148 810,148
Inter Bank Deposits 19,508 17,608 18,862 19,741
Debts/Borrowings 27,727 45,793 50,445 52,795
Others 24,177 32,883 33,849 35,488
Minorities 2 0 0 0
Shareholders 78,114 88,238 100,770 113,385
Total Liab& S/H 837,309 935,509 978,073 1,031,557
Profitability & Efficiency Ratio (%) Financial Stability Measures (%)
FY Dec 2005A 2006A 2007F 2008F FY Dec 2005A 2006A 2007F 2008F
Margins, Costs & Efficiency
Yld. On Earnings Assets 4.77 6.16 6.14 6.14
Avg Cost of Funds 0.98 2.20 2.29 2.03
Spread 3.79 3.96 3.86 4.11
Net Interest Margin 3.86 4.12 4.04 4.30
Cost -to-Income Ratio 49.7 52.4 53.5 51.9
Employees (Year End) 10,303 11,219 - -
Effective Tax Rate 22.2 23.2 26.9 27.0
Business Mix
Net Int. Inc / Opg Inc. 72.1 71.5 68.8 68.8
Non-Int. Inc / Opg inc. 27.9 28.5 31.2 31.2
Fee Inc / Opg Income 21.9 22.0 24.6 24.7
Oth Non-Int Inc/Opg Inc 6.0 6.5 6.6 6.5
Profitability
ROAE Pre Ex. 19.3 16.4 15.5 16.2
ROAE Pre Ex. 19.3 16.4 15.5 16.2
ROA Pre Ex. 1.7 1.5 1.5 1.7
ROA 1.7 1.5 1.5 1.7
Valuation Graph : PE
Balance Sheet Structure
Loan-to-Deposit ratio 91.4 90.5 95.2 98.7
Net Loans / Total Assets 70.6 69.1 71.7 73.5
Investment / Total Assets 11.8 10.9 10.0 10.0
Cust. Dep./Int. Bear. Liab. 93.8 94.5 94.5 94.5
Interbank Dep / Int. Bear. 2.7 2.2 2.3 2.3
Asset Quality
NPL / Total Gross Loans 8.9 6.8 6.1 5.2
NPL / Total Assets 6.7 5.0 4.6 4.0
Capital Strength
Total CAR 14.5 14.7 16.1 17.0
Tier-1 CAR 9.5 10.5 11.9 12.5
Growth
Total Net Loans 7.8 9.4 8.4 8.2
Customer Deposits (2.5) 9.2 3.1 4.7
Price Relative to Index
15
13
11
9
1.4
1.2
1.0
KASIKORNBANK
7
5
2004 2005 2006 2007
0.8
SET
0.6
2004 2005 2006 2007
103

Regional Equity Strategy Q4 2007
Country Assessment
Indonesia
JCI Current : 2,223.2
Stick to fundamentals JCI 3 / 12 mths Target : 2,300 /2,600
Expected Return : 3.5% / 17%
• 3Q07 was not a favorable period for financial markets as US sub-prime mortgage
concerns shook world markets in early Aug 2007. The JCI fell 20% from its historic high
in only three weeks. In the last two months, the recent turmoil had caused volatility in
the financial market. We expect a rally in the equity market once investors get a clearer
picture of the impact of sub-prime mortgages on the Indonesian economy.
• From the 2Q07 GDP data, we observe that domestic demand seems to have
benefited from the falling interest rate environment. However, we expect only one
more BI rate cut this year due to inflationary pressures in the last two months, led by
food prices, energy and seasonal factors as we approach the Eid festival and Christmas
in December.
• On the other hand, we expect more fiscal stimulus in 2008, as the 2008 Budget is
more expansionary with a focus on national infrastructure development and welfare
programs. This is the government’s first move to improve national infrastructure, which
had been ignored since the economic crisis. Going forward, we do not expect a slowing
US economy to have a significant impact on Indonesia, as trade between Indonesia and
the US is relatively small.
• For 4Q07, we like sectors with exposure to domestic demand, which will cushion
against a slowdown in the US economy. But in anticipation of continued volatility in the
next two quarters, we will be selective in our stock picks. In addition, the JCI is no
longer cheap compared to regional markets based on equity risk premium (ERP)
analysis. We remain Overweight on Banking, Consumer and Cement & Construction
sectors. We upgraded Automotive and Plantation sectors to Overweight, but remain
Neutral on Property, Basic Material, and Telecommunication sectors.
Chg net % Change 52 wegk
Close
Index 17-Sep- 07 -1mth -1mth -3mth -6mth -12mth High Low
JCI 2,223.2 28.9 1.3 2.6 21.8 44.9 2,401.1 1,500.1
LQ45 465.1 7.2 1.6 3.5 19.4 38.2 499.9 330.9
Consumer 409.0 (6.5) (1.6) (6.4) 6.2 19.0 466.8 338.0
Finance 232.8 (1.6) (0.7) 2.6 18.3 29.1 259.0 174.4
Infrastructure 805.6 (0.7) (0.1) 6.5 10.7 20.9 839.1 643.8
Manufacturing 339.7 3.6 1.1 0.6 24.0 40.2 372.3 240.2
Property 228.6 3.0 1.3 6.3 59.9 172.9 255.5 79.5
Mining 1,799.4 149.6 9.1 5.4 34.2 136.7 1,851.9 752.0
Transactions YTD
Volume (bn) 696.2
Value (IDRtr) 608.5
Source: JSX
Agus Pramono, CFA · (021) 3983 2668· agus.pramono@id.dbsvickers.com
104
Refer to important disclosures at the end of this report

Country Assessment
Regional Equity Strategy Q4 2007
MARKET REVIEW
Following an extended bull run and the JCI having reached a historic of high at 2,401, the Index
plummeted 20% to 1,909 following the sub-prime mortgage crisis. The JCI suffered more than
regional markets, falling >5% for two consecutive days. Risk aversion seemed stronger in 3Q07
than the previous quarter. Big caps outperformed small caps by 4.8% as investors shifted to safe
havens. Furthermore, the declines on 15 and 16 August showed that Indonesia, a peripheral
market, was more volatile than regional markets amidst the global downturn.
Sharper decline and higher volatility – is Indonesia’s market really that bad? No, in our view the
market is still relatively bullish with data showing inflows to mutual funds during the market
downturn. There was a total of Rp2.0tr net inflow to equity mutual funds in the first two weeks
of Aug 2007. This implies investors could have remained sidelined in anticipation of a quick
recovery in the equity market.
Net Subscription In Mutual Fund
Rptr
Fixed Income
Rptr
Rptr
Equity
Rptr
8,000
30,000
8,000
22,000
6,000
27,500
6,000
20,000
18,000
4,000
25,000
4,000
16,000
2,000
14,000
2,000
-
Jan Feb Mar Apr May Jun Jul Aug
22,500
20,000
-
(2,000)
Jan Feb Mar Apr May Jun Jul Aug
12,000
10,000
8,000
Net Subscription (LHS)
Source: Bapepam
NAV (RHS)
Net Subscription (LHS)
NAV (RHS)
SENTIMENT AND LIQUIDITY
We do not expect strong positive sentiment in 4Q07, unlike in early 3Q07, due to sub-prime
related volatility. In the next one or two months, we foresee global sentiment to drive
movement of JCI as the impact of the US sub-prime mortgage crisis remains vague. However,
once global financial markets stabilize, we expect a rally in the equity market.
On the fixed income segment, money flow reversal was visible in Aug 2007, with c. Rp5tr
decline in foreign holdings of government bonds. A widening credit spread and increasing credit
risk premium curbed investors’ appetite for Indonesia government bonds. For the next two
quarters, DBS interest rate strategist expects a widening liquidity premium, with 2Y and 10Y
yield-spreads over BI rates reaching 25bps and 250bps from 18bps and 132bps, respectively.
In the end, the turmoil and money flow reversal resulted in a weaker Rupiah; the currency
weakened from Rp8,670/US$ on 22 Jul 2007 to Rp9,475/US$ on 16 Aug 2007. But whatever
the global sentiment, the driver of this market turmoil is exogenous, unlike the one that caused
the 1997 financial crisis.
105

Regional Equity Strategy Q4 2007
Country Assessment
Foreign Bond Holders vs SBI
Indonesia Bond Yields
IDRtr
90.0
Frg Holders (LHS)
13.0
15.0
14.0
70.0
50.0
30.0
SBI-% (RHS)
11.0
9.0
13.0
12.0
11.0
10.0
9.0
8.0
7.0
May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07
10.0
7.0
Dec-04 Apr-05 Aug-05 Dec-05 Apr-06 Aug-06 Dec-06 Apr-07 Aug-07
Source: BI
Source: Ministry of Finance
2YRS 5YRS 10YRS
GROWTH
We are confident of our 39.6% EPS growth estimate (ex-Property) for FY07F, as 1H07 results of
companies in our universe were encouraging. Average 1H07 EPS growth was 59.8% y-o-y (ex-
Property), led by Basic Materials, Automotive, Plantation and Banking sectors. And although a
low base in 2006 is one of the reasons, low interest rate, a stronger rupiah and the return of
purchasing power are the drivers of the recovery. As such, there could be upside to our FY07
forecast.
EPS growth by sector and 2007 estimates
1H07
12mth07E
Automotive 41.1% 51.2
Building Property 49.2% 252.5
Infrastructure 10.5% 31.7
Consumer 23.5% 23.3
Bank & Finance 33.8% 30.9
Plantation 52.0% 63.6
Basic Materials 357.8% 109.4
Oil, Gas & Energy 3.4% 28.3
Telecommunications 17.3% 15.8
TOTAL (incl property) 59.7% 40.9
TOTAL (excl property) 59.8% 39.6
Source: companies, DBSV estimate
DBS Economic Team believes a slowing US economy will have minimal impact on Indonesia,
because the two countries have relatively small economic links (Indonesian export to the US is
only 13% of total exports). Moreover, Indonesia’s current account surplus and improving FDI,
which rose 16.9% y-o-y in 6M07, should cushion the domestic economy from a global
slowdown. Although the US is the second largest export destination, export to other countries
such as EU and China have increased substantially.
Additionally, Indonesian banks have no exposure to US sub-prime mortgages, which means that
liquidity and earnings asset value depreciation should not be a problem for banks. And the
banking sector now has ample liquidity with 64% LDR. Hence, we do not foresee a banking
crisis in Indonesia the foreseeable future.
106

Country Assessment
Regional Equity Strategy Q4 2007
Meanwhile, we note that the government’s expansionary budget is targeted at quality
development, with emphasis on infrastructure development and welfare programs. The
government still has capacity to use its Rp101.5tr resources to finance infrastructure projects
such as roads, railways, ports and bridges. These infrastructure projects are the basic
requirements for Indonesia to build a foundation for sustainable economic growth and
efficiency. Sectors with exposure to infrastructure, such as cement and construction, are set to
benefit from the country’s infrastructure development.
GDP and Goods & Services Exports
Exports to Japan and USA
Rptr
1,000
875
31.0%
30.0%
25%
20%
Japan
US
750
625
29.0%
15%
500
28.0%
1Q06 2Q06 3Q06 4Q06 1Q07 2Q07
GDP (LHS) Exports of Goods & Services as % of GDP (RHS)
Source: BPS
10%
Source: BPS
2003 2004 2005 2006 YTD Jun07
The main worry on the macro front is inflation. Rising food and energy prices were the main
drivers of inflationary pressure in August. DBS Economics expects inflation of 6.3% for 2007 and
6.5% in 2008. It also expects BI to deliver one more 25 bp rate cut in 4Q07. This will leave real
interest rates at 2% (vs historical average of 1.7%) and the USD/IDR yield differential at 325 bps.
We do not expect the cut to have significant impact on the Banking sector, as investors had
been anticipating one since early 3Q07.
Positive talk in the market includes the possibility of a 5% tax benefit for companies that listed
at least 40% of their shares on the stock exchange, in a bid to increase the market capitalisation
of the exchange, and to increase tax transparency of currently private companies although the
impact on bottom line is only c.7%. There is also talk of cutting corporate and personal tax rates
to make Indonesia more competitive to attract foreign investments – data show that countries
with lower tax rates are more efficient and have stronger economic structures. But in the end,
corruption, legal uncertainties and weak law enforcement remain key obstacles to the business
sector in Indonesia.
107

Regional Equity Strategy Q4 2007
Country Assessment
VALUATION
The JSX is currently trading at 13.8x FY08F PER, at par with regional markets. In addition, our
regional equity strategist indicated that the JCI was no longer cheap relative to the region based
on equity risk premium (ERP) analysis. It is trading at the high end of its historical valuation
range, which means PE expansion is unlikely. Hence, we do not expect a re-rating of the JCI in
the short-term, unless there is a re-rating of markets in the region.
PE Band
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
96 97 98 99 00 01 02 03 04 05 06 07
Source: Bloomberg
19x
17x
15x
13x
11x
9x
7x
5x
PER comparison
15.0 13.8
14.1
14.6
12.0
11.4
9.0
7.4
6.0
3.0
0.6
0.8 0.9
0.0
INA THAI MAL SIN
PEG (x) PE (X)
Source: DBSV
On the other hand, given the strong EPS growth from 2007 onwards, Indonesia should remain
attractive to longer term investors. We forecast average EPS growth of 18.5% for 2008 and
15% for 2009. At PEG of 0.6x, the JCI is also more attractive than markets in the region.
STRATEGY
For 4Q07, we like sectors with greater exposure to domestic demand, but maintain a defensive
strategy by selecting only quality stocks. Our strategy is premised on the following reasons: (i)
Indonesia’s economic growth in 2H07 and beyond will still be driven by domestic consumer
spending and investment, which means the US economic slowdown should have minimal
impact on Indonesia. (ii) The sub-prime crisis might cause volatility in financial markets in the
foreseeable future. (iii) And finally, the JCI is no longer cheap relative to the region based on
equity risk premium (ERP) analysis.
In the banking sector, Bank Rakyat Indonesia remains our top pick for its competitive advantage
in the micro and SME credit markets, as well as its exposure to the domestic market. We value
Bank Rakyat Indonesia at 4x FY08 PBV, implying 25% ROE compared to the bank’s sustainable
ROE of 29%.
For 4Q07, we still like the Consumer sector for its exposure to the domestic market. We also
upgraded the Automotive sector to Overweight, prompted by the strong recovery in auto sales
in 8M07 and expectations of stronger growth going forward. We also upgraded Plantation
sector to Overweight due to the sustained high CPO prices.
We are Overweight on the Cement and Construction sectors also for their exposure to domestic
demand and infrastructure development. Our top pick is Semen Gresik on valuation, and a more
diversified market base. We remain Neutral on the Property, Basic Material, and
Telecommunication sectors.
108

Country Assessment
Regional Equity Strategy Q4 2007
Sector recommendation and stocks for Indonesia
SECTOR REMARKS STOCK SELECTION
Automotive
Overweight
(Upgrade from Neutral)
Property
Neutral
Cement and Construction
Overweight
(Upgrade from Neutral)
Consumer
Overweight
Banking
Overweight
(Upgrade from Neutral)
Plantation
Overweight
We upgraded the Automotive sector to Overweight following evidence of a
recovery in demand, with 8M07 car and motorcycle sales growing 38.9% and
11.0% y-o-y, respectively. Low interest rates and recovering consumer demand
are drivers of improving auto sales. However, competition in the automotive
market is rising and will pressure margins and Astra International’s market share.
But on a net basis, Astra should benefit the most from recovery in national auto
sales.
The Property sector is another beneficiary of low interest rates and recovering
domestic demand. But we remain Neutral on the sector this quarter because the
valuation discounts to RNAVs have been narrowing. In addition, our property
universe consists of small cap stocks that underperformed during periods of
strong volatility and/or market downturns.
The sector is set to benefit from recovering domestic demand and resumption of
infrastructure development in the country. Supported by a falling interest rate
environment and Government’s efforts to encourage investments in
infrastructure, we are positive on prospects for the sector.
For cement producers, we favor SMGR for its diversified market share, less
reliance on diesel fuel (no longer subsidized since 4Q05) compared to its peers,
strong balance sheet and more importantly, undemanding PER valuation.
For construction, our top pick is ADHI, the largest construction company in the
country with a balanced exposure to Government and private projects, and for
which valuation is undemanding.
We remain Overweight on the Consumer sector supported by evidence of
recovering consumer spending. Low interest rates and the 9.5% wage
adjustment this year are strong supporters of consumer spending recovery. In
general, companies in the Consumer sector also focus on domestic rather than
export markets. However, we remain cautious of the impact of rising prices of
wheat, CPO and other commodities on flour and food producers such as INDF
and MYOR. We like KLBF, which was also our top big cap stock pick for 3Q07.
We remain Overweight on the sector following strong loan growth in Jul 2007,
at 20.7% y-o-y. Meanwhile, widening credit spread and volatility in the global
fixed income market, should create room for the Banking sector to tap on
corporates that had to postpone or cancel global bond issues. Furthermore, the
pause in the BI rate cut should make some banks reconsider offering low
mortgage rates so they would not have shift huge SBI portfolio into mortgage
loans. This means the price war in the mortgage segment will subside. We like
Bank Rakyat Indonesia for its strong competitive advantages and its growth
opportunities in the consumer and corporate segments. The stock is also valued
at below its sustainable ROE.
We believe current high CPO prices are sustainable because it supported by
structural changes in demand coupled with a tight supply situation, rather than
speculation. Hence, CPO prices should remain strong in the next two years.
There could be another rally early next year, when production is seasonally low.
Our top picks are Astra Agro Lestari (AALI) the largest plantation company in
Indonesia which has the lowest cost, and we are impressed with UNSP’s growth
strategy.
ASII
-
ADHI, SMGR
KLBF, RALS
BBRI
AALI, UNSP
109

Regional Equity Strategy Q4 2007
Country Assessment
Sector recommendation and stocks for Indonesia
SECTOR REMARKS STOCK
SELECTION
Basic Material
Neutral
Telecommunications
Neutral
We are Neutral on Basic Materials, as global commodity prices remain lofty and
could see corrections. The exceptions are commodities with tight supply
situations, such as tin. We remain upbeat about tin prices, premised on tight
supply outlook coupled with firm demand. As such, our top pick in the sector is
PT TIMAH (TINS), the largest integrated tin producer in the world.
Our Neutral stand on the sector remains unchanged despite the exciting growth
(30-40% subscriber growth this year) of the Indonesian telco sector. This is due
to TLKM’s limited upside potential to our DCF-based price target of Rp10,850.
TLKM is expected to register higher operating expenses as it enters the less
profitable rural areas. In some of these remote areas, TLKM needs to install its
own, and costly, electricity generators. Also, additional costs for backhaul to
link these rural areas to the rest of Indonesia and the world will translate into
higher operating expenses.
We are more excited about ISAT, which offers 20% upside potential to our
DCF-based price target of Rp8,450. The company has turned around (after high
churn early last year), and is firmly on track to winning subscribers in the next
few quarters. This led us to raise FY07F net add by 14% to 6.6m. To cater for
this expansion, ISAT raised its FY07F capex to USD1.21b from USD1.0b
(announced during 2Q07 results briefing). ISAT remains a Buy call for its more
optimistic prospects.
TINS
ISAT
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Country Assessment
Regional Equity Strategy Q4 2007
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111

Regional Equity Strategy Q4 2007
Stock Profile: Bank Rakyat Indonesia
BUY Rp6,200 JCI : 2,223.2
Price Target : 12-Month Rp 7,797
Potential Catalyst: Stronger loan growth
ANALYST
Agus Pramono CFA +6221 3983 2668
agus.pramono@id.dbsvickers.com
FORECASTS AND VALUATION
FY Dec (Rp IDR) 2005A 2006A 2007F 2008F
Pre-prov. Profit 5,713 7,633 8,461 10,285
Net Profit 3,749 4,258 5,148 6,562
Net Pft (Pre Ex.) 3,749 4,258 5,148 6,562
EPS (Rp) 305.0 346.4 418.8 533.8
EPS Pre Ex. (Rp) 305.0 346.4 418.8 533.8
EPS Gth Pre Ex (%) 10 14 21 27
Diluted EPS (Rp) 303.5 344.7 416.7 531.2
PE Pre Ex. (X) 20.3 17.9 14.8 11.6
Net DPS (Rp) 147.8 154.9 173.2 209.4
Div Yield (%) 2.4 2.5 3.0 3.4
ROAE Pre Ex. (%) 29.1 28.2 28.0 30.0
ROAE (%) 29.1 28.2 28.0 30.0
ROA (%) 3.3 3.1 3.2 3.7
BV Per Share (Rp) 1,086 1,373 1,619 1,943
P/Book Value (x) 5.7 4.5 3.8 3.2
SHARE PRICE CHART
Rp
7252.40
6752.40
6252.40
5752.40
5252.40
4752.40
4252.40
Sep-06 Nov-06 Feb-07 Apr-07 Jul-07 Sep-07
Bank Rakyat Indo 100-Day MA
AT A GLANCE
Issued Capital (m shrs) 12,315
Mkt. Cap (Rpbn/US$m) 76,353 / 8,147
Major Shareholders
Govt of Indonesia (%) 59
Free Float (%) 41
Avg. Daily Vol.(‘000) 14,000
Bank Rakyat Indonesia
Better be safe
Story: Like last quarter, BBRI is our top pick for this 4Q07. It
has strong fundamentals and fits into our theme this quarter,
which is quality stocks with domestic exposure.
Point: BBRI has a non-replicable competitive advantage
through its dominance in the micro and SME credit segments.
The bank has an extensive network of branches in rural areas
that are run by officers who can relate to the locals and
understand local cultures. In addition, BBRI exposure to
consumer and corporate lending is still small, which means it still
has room to grow revenue from these segments.
Relevance: We maintain our BUY call for BBRI with a target
price of IDR7,797, or 4x FY08F P/BV.
Better be safe. We believe BBRI is a safe bet on the Indonesian
banking sector in the event of a slowdown in the global economy,
rising interest rates, and a major correction in the equity market.
This is premised on: (i) strong exposure to micro lending; (ii) high
NIM; (iii) its PBV multiple being lower than justified.
Strong competitive advantages. With extensive network of
outlets in rural areas, a strong rural customer base, and its
experience in handling ‘un-bankable’ clients, BBRI has a strong
competitive advantage that is reflected in its high ROE of at least
28% for the last five years, higher than its peers. On the other
hand, the bank has high quality earnings that are independent of a
cyclical sector such as auto loans.
More room to grow. BBRI is starting to look at other segments
such as mortgage loans, consumer and corporate loans. These steps
are growth enhancers, as the bank has a policy to limit exposure in
certain segments e.g. 20% cap on corporate loans. At only 14%
currently, BBRI still has room to grow corporate loans by Rp5.8tr.
On the other hand, BBRI is less affected by the current tight
competition in the consumer segment that has led to a price war.
Unfairly valued. We capped BBRI’s valuation at 4x FY08F PBV,
implying 25% ROE. This is below its sustainable ROE of 29%, which
means our valuation is conservative. On the contrary, some banks
are valued at higher ROE than their sustainable ROE.
Earnings Rev (%): 2007: - 2008: -
Consensus EPS (Rp): 2007: 413.6 2008: 500.6
Variance vs Cons (%): 2007: 1.3 2008: 6.6
Sector : Banks
Bloomberg/Reuters Code: BBRI IJ/BBRI.JK
Principal Business: Banking
Refer to important disclosures at the end of this report
112

Stock Profile: Bank Rakyat Indonesia
Regional Equity Strategy Q4 2007
Income Statement (Rp bn)
Balance Sheet (Rp bn)
FY Dec 2005A 2006A 2007F 2008F FY Dec 2005A 2006A 2007F 2008F
Net Interest Income 12,437 13,770 15,986 18,604 Cash/Bank Balance 21,558 39,899 36,264 33,637
Non-Interest Income 390 1,509 1,045 1,141 Government Securities 17,722 18,647 20,451 22,448
Operating Income 12,827 15,279 17,031 19,745 Inter Bank Assets 2,925 3,901 4,326 3,893
Operating Expenses (7,114) (7,646) (8,571) (9,460) Total Net Loans & Advs. 70,123 83,565 100,118 117,830
Pre-provision Profit 5,713 7,633 8,461 10,285 Investment 4,935 3,223 2,765 2,416
Provisions (401) (1,848) (1,412) (1,076) Associates 0 0 0 0
Associates 0 0 0 0 Fixed Assets 1,910 1,822 1,716 1,591
Exceptionals 0 0 0 0 Goodwill 0 0 0
Pre-tax Profit 5,608 5,907 7,191 9,374 Other Assets 3,603 3,669 3,666 3,864
Taxation (1,859) (1,649) (2,043) (2,812) Total Assets 122,776 154,725 169,305 185,679
Minority Interests 0 0 0 0 Customer Deposits 97,046 124,468 136,611 148,666
Preference Dividend 0 0 0 0 Inter Bank Deposits 1,182 1,868 1,525 1,697
Net Profit 3,749 4,258 5,148 6,562 Debts/Borrowings 4,187 3,996 4,073 4,108
Net Profit bef Except 3,749 4,258 5,148 6,562 Others 7,007 7,514 7,198 7,321
Minorities 0 0 0 0
Shareholders' Funds 13,353 16,879 19,898 23,886
Total Liab& S/H’s Funds 122,776 154,725 169,305 185,679
Profitability & Efficiency Ratios (%) Financial Stability Measures (%)
FY Dec 2005A 2006A 2007F 2008F FY Dec 2005A 2006A 2007F 2008F
Margins, Costs &
Balance Sheet Structure
Yld. ffi On i Earnings Assets 17.39 18.05 16.25 16.63 Loan-to-Deposit Ratio 77.8 72.5 79.3 85.5
Avg Cost Of Funds 5.11 6.36 4.87 5.19 Net Loans / Total Assets 57.1 54.0 59.1 63.5
Spread 12.28 11.69 11.38 11.44 Investment / Total Assets 4.0 2.1 1.6 1.3
Net Interest Margin 12.54 11.80 11.52 11.80 Cust . Dep./Int. Bear. Liab. 95.9 96.9 97.1 97.3
Cost-to-Income Ratio 55.5 50.0 50.3 47.9 Interbank Dep / Int. Bear. 1.2 1.5 1.1 1.1
Employees ( Year End) 0 0 0 0 Asset Quality
Effective Tax Rate 33.2 27.9 28.4 30.0 NPL / Total Gross Loans 4.7 4.8 6.0 5.8
Business Mix NPL / Total Assets 2.9 2.8 3.8 4.0
Net Int. Inc / Opg Inc. 97.0 90.1 93.9 94.2 Capital Strength
Non-Int. Inc / Opg inc. 3.0 9.9 6.1 5.8 Total CAR 22.3 20.0 19.2 19.0
Fee Inc / Opg Income 4.4 5.5 4.5 4.3 Tier-1 CAR 20.0 17.7 17.2 17.3
Oth Non-Int Inc/Opg Inc (1.4) 4.4 1.6 1.5 Growth
Profitability Total Net Loans 23 19 20 18
ROAE Pre Ex. 29.1 28.2 28.0 30.0 Customer Deposits 18 28 10 9
ROAE 29.1 28.2 28.0 30.0
ROA Pre Ex. 3.3 3.1 3.2 3.7
ROA 3.3 3.1 3.2 3.7
Valuation Graph : PE
17.0
15.0
13.0
11.0
9.0
7.0
5.0
3.0
2003 2004 2005 2006
Price & Price Relative to Index
Rp
6,787.00
5,787.00
4,787.00
3,787.00
2,787.00
1,787.00
787.00
2003 2004 2005 2006
Relative Index
Bank Rakyat Indo (LHS) Relative JCI INDEX (RHS)
250
230
210
190
170
150
130
110
90
Source: Company, DBS Vickers
113

Regional Equity Strategy Q4 2007
Stock Profile: Semen Gresik
BUY Rp5,250 JCI : 2,223.2
Price Target : 12-month Rp 5,670
Potential Catalyst: Robust 1H07 results
ANALYST
Herry Dion Mahargono +6221 3983 2668
herry.mahargono@id.dbsvickers.com
FORECASTS AND VALUATION
FY Dec (Rp Bn) 2005A 2006A 2007F 2008F
Turnover 7,532.2 8,727.9 9,828.6 10,724.7
EBITDA 2,091.4 2,370.0 2,901.0 3,207.6
Pre-tax Profit 1,453.1 1,857.0 2,322.2 2,574.3
Net Profit 1,001.8 1,295.5 1,593.0 1,766.0
Net Pft (Pre Ex.) 1,001.8 1,295.5 1,593.0 1,766.0
EPS (Rp) 168.9 218.4 268.6 297.7
EPS Gth (%) N/A 29 23 11
Diluted EPS (Rp) 168.9 218.4 268.6 297.7
Net DPS (Rp) 26.7 65.5 87.4 107.4
BVPer Share (Rp) 756.5 927.2 1,108.4 1,298.7
PE (X) 31.4 24.3 19.7 17.8
P/Cash Flow (X) 20.3 16.7 14.1 12.8
EV/EBITDA (X) 14.9 12.8 10.2 8.9
Net Div Yield (%) 0.5 1.2 1.6 2.0
P/Book Value (X) 7.0 5.7 4.8 4.1
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) N/A 25.9 26.4 24.7
SHARE PRICE CHART
Rp
5885.00
5385.00
4885.00
4385.00
3885.00
3385.00
2885.00
2385.00
Sep-06 Nov-06 Feb-07 Apr-07 Jun-07 Sep-07
Semen Gresik 100-Day MA
AT A GLANCE
Issued Capital (m shrs) 5,932
Mkt. Cap (Rpbn/US$m) 31,437 / 3,349
Major Shareholders
Govt. of Indonesia (%) 51.0
Blue Valley Hold. (%) 24.9
Free Float (%) 24.1
Avg. Daily Vol.(‘000) 900
Earnings Rev (%): 2007: - 2008: -
Consensus EPS (Rp): 2007: 264.7 2008: 309.4
Variance vs Cons (%): 2007: 1.5 2008: (3.8)
Sector : Industrials
Bloomberg/Reuters Code: SMGR IJ/SMGR.JK
Principal Business: Cement and clinker manufacturer
Semen Gresik
Everything coming up roses
Story: National cement demand has been recovering,
and this trend will continue into next year. Fiscal and
monetary policies should remain favorable to support
growth, while sustained consumer spending recovery
should bode well for the sector.
Point: SMGR is a market leader with strong competitive
advantages. Its cost is dictated less by diesel (no longer
subsidized since 4Q05) than peers, and its balance sheet is
strong (Rp.1.8tr net cash at end 1Q07) unlike its peers
which are highly exposed to US$ debt. Amid rising oil prices
and a volatile Rupiah, SMGR is our top pick among cement
producers.
Relevance: SMGR is trading at 17.8x 2008 PER
compared to INTP 19.0x, SMCB 35.4x and broader market
of 13.9x. Our TP of Rp5,670 is derived based on DCF
method, assuming 12% WACC and 6% terminal growth.
Maintain BUY.
Aug07 cement consumption jumped 10.8% m-o-m and
11.6% y-o-y to 3.4m tons. This was driven by robust demand in
Java, with accounts for c. 60% of national cement consumption.
YTD domestic cement consumption growth is robust at 8.7% y-o-y
to 22.1m tons. This is within our expectation of 8-11% cement
demand growth for 2007-08.
Market leader with strong competitive advantage. SMGR
controls 45% national market share. Its plants are strategically
located in Java, Sumatra and Sulawesi, as opposed to major
competitors’ plants that are located mainly in Java. This enables
the company to benefit from broad based cement demand
recovery and offers national coverage at more competitive costs
than peers.
Strong presence in Sumatra. In Sumatra, the second largest
cement market, SMGR controls 48% share. It is the leading
supplier of cement for reconstruction activities in Sumatra
following the recent earthquake.
Running at 95% utilisation. In the short term, SMGR can
overcome this by shifting export sales (3.0m tons in 2006) to
the domestic market, upgrading its production facilities (add
1.5m tons capacity by 2009), and adjusting cement
composition to lower clinker content. In the long run, it will build
two new plants with total capacity c. 5m tons p.a.
Geared up to expand. SMGR plans to invest US$524-612m,
including US$60m for equipment upgrades and the balance for a
new cement plant. The new plant (which will cost US$110-
130/ton) is expected to commence operation in 2011; it will be
financed by equity (30-40%) and debt, including bonds. The new
plant should enable SMGR to tap on Indonesia’s cement demand
growth because it is operating at 95% utilization now.
Refer to important disclosures at the end of this report
114

Stock Profile: Semen Gresik
Regional Equity Strategy Q4 2007
Income Statement (Rp bn)
Balance Sheet (Rp bn)
FY Dec 2005A 2006A 2007F 2008F FY Dec 2005A 2006A 2007F 2008F
Turnover 7,532.2 8,727.9 9,828.6 10,724.7 Net Fixed Assets 3,422.8 3,162.9 3,916.1 4,227.7
Cost of Goods Sold (4,640.4) (5,400.3) (5,922.4) (6,357.4) Invts in Assocs & JVs 0.0 0.0 0.0 0.0
Gross Profit 2,891.8 3,327.5 3,906.2 4,367.3 Other LT Assets 133.5 180.2 161.0 159.0
Other Opg (Exp)/Inc (1,352.6) (1,548.1) (1,651.3) (1,865.7) Cash & ST Invts 1,348.6 1,743.6 2,206.9 3,140.5
EBIT 1,539.2 1,779.4 2,254.8 2,501.6 Other Current Assets 2,392.0 2,409.7 2,520.7 2,582.9
Other Non Opg (Exp)/Inc 6.0 26.4 33.9 38.9 Total Assets 7,297.0 7,496.4 8,804.7 10,110.2
Associates & JV Inc 6.4 6.4 6.7 7.1
Net Interest (Exp)/Inc (98.5) 44.9 26.8 26.8 ST Debt 545.2 77.3 71.1 71.1
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 Other Current Liab 1,595.6 1,382.8 1,820.5 1,952.4
Pre-tax Profit 1,453.1 1,857.0 2,322.2 2,574.3 LT Debt 467.1 391.2 143.2 143.2
Tax (440.4) (546.3) (696.7) (772.3) Other LT Liabilities 132.6 63.9 81.5 90.4
Minority Interest (10.9) (15.2) (32.5) (36.0) Shareholder’s Equity 4,487.2 5,499.6 6,574.3 7,703.1
Preference Dividend 0.0 0.0 0.0 0.0 Minority Interests 69.2 81.6 114.1 150.1
Net Profit 1,001.8 1,295.5 1,593.0 1,766.0 Total Cap. & Liab. 7,297.0 7,496.4 8,804.7 10,110.2
Net profit before Except. 1,001.8 1,295.5 1,593.0 1,766.0
EBITDA 2,091.4 2,370.0 2,901.0 3,207.6 Non-Cash Wkg. Cap 796.3 1,026.9 700.2 630.6
Sales Gth (%) N/A 15.9 12.6 9.1 Net Cash/(Debt) 336.3 1,275.1 1,992.7 2,926.3
EBITDA Gth (%) N/A 13.3 22.4 10.6
EBIT Gth (%) N/A 15.6 26.7 10.9
Effective Tax Rate (%) 30.3 29.4 30.0 30.0
Cash Flow Statement (Rpbn)
Rates & Ratios
FY Dec 2005A 2006A 2007F 2008F FY Dec 2005A 2006A 2007F 2008F
Pre-Tax Profit 1,453.1 1,857.0 2,322.2 2,574.3 Gross Margin (%) 38.4 38.1 39.7 40.7
Dep. & Amort. 552.2 590.6 646.1 706.1 EBITDA Margin (%) 27.8 27.2 29.5 29.9
Tax Paid 0.0 0.0 0.0 0.0 EBIT Margin (%) 20.4 20.4 22.9 23.3
Assoc. & JV Inc/(loss) (6.4) (6.4) (6.7) (7.1) Net Profit Margin (%) 13.3 14.8 16.2 16.5
Chg in Wkg.Cap. (263.8) (230.5) 326.7 69.6 ROAE (%) N/A 25.9 26.4 24.7
Other Operating CF (512.1) (616.7) (740.2) (819.0) ROA (%) N/A 17.5 19.5 18.7
Net Operating CF 1,223.1 1,594.1 2,548.1 2,524.0 ROCE (%) N/A 24.8 25.7 24.1
Capital Exp.(net) (190.8) (190.3) (1,381.6) (1,000.0) Div Payout Ratio (%) 15.8 30.0 32.5 36.1
Other Invts.(net) (75.0) (110.0) (6.7) (7.1) Interest Cover (x) 15.6 NM NM NM
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 Debtors Turn (avg days) N/A 48.0 42.0 38.4
Div from Assoc & JV 0.0 0.0 0.0 0.0 Creditors Turn (avg days) N/A 29.5 27.9 28.0
Other Investing CF (0.8) (5.6) 26.0 9.0 Inventory Turn (avg days) N/A 69.8 66.3 67.0
Net Investing CF (266.6) (305.9) (1,362.4 (998.0) Current Ratio (x) 1.7 2.8 2.5 2.8
Div Paid (158.7) (262.8) (518.2) (637.2) Quick Ratio (x) 1.3 2.1 1.9 2.2
Chg in Gross Debt (376.0) (637.6) (254.2) 0.0 Net Debt/Equity (X) CASH CASH CASH CASH
Capital Issues 0.0 0.0 0.0 0.0 Capex to Debt (%) 18.9 40.6 644.9 466.8
Other Financing CF 18.8 7.3 50.1 44.9 N.Cash/(Debt)PS (Rp) 56.7 215.0 335.9 493.3
Net Financing CF (515.9) (893.2) (722.3) (592.3) Opg CFPS (Rp) 250.7 307.6 374.5 413.8
Net Cashflow 440.5 394.9 463.4 933.6 Free CFPS (Rp) 174.0 236.7 196.7 256.9
Valuation Graph : PE
21.0
19.0
17.0
15.0
13.0
11.0
9.0
Price & Price Relative to Index
Rp
5,675.00
4,675.00
3,675.00
2,675.00
1,675.00
Relative Index
158
138
118
98
78
7.0
Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07
675.00
58
2003 2004 2005 2006 2007
Semen Gresik (LHS) Relative JCI INDEX (RHS)
Source: Company, DBS Vickers
115

Regional Equity Strategy Q3 2007
Country Assessment
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