Top Storiesimg.jrjimg.cn/2011/01/20110112165938605.pdf · · 2013-07-11Top Stories Hutchison...

Asia Pacific Equity Research

12 January 2011

Top Stories

Hutchison Whampoa (OW), Hong Kong New Dec-11 PT of HK$98 implies a blended 13% NAV discount; 2010 results to support near term (Benjamin Lo, CFA) The driver behind the share price momentum has shifted from the mean-reversion of then undervalued traditional assets previously to a growing optimism of improving cash flows profile that should result in potentially more M&A and higher dividends. We broadly agree with this, but caution against a comparison to the ‘90s.

Dialog Group Bhd (OW), Malaysia Tank farming to prosperity (Hoy Kit Mak) We assume coverage with a new Dec-11 PT of M$2.80 (was M$1.20). The government has just endorsed Dialog’s M$5B Pengerang ind deepwater petroleum terminal project in its investor update on the M$1.4T ETP. We reiterate our OW, noting Dialog’s unique business model as the largest ind tank farm owner in Asia.

REITs, Singapore Downgrade CapitaCommercial Trust to UW, CapitaMall Trust to N; upgrade Suntec to N (Joy Wang) S-REITs are trading at a forward dividend yield of 6.0%, P/B of 1.1x, and 7.5% premium to our NPV estimates, a level that is slightly above long-term average and is no longer compelling. We believe 2011 will likely be volatile for the sector, with a total return expectation of 8.0%, dominated largely by the dividend yield.

SMID Caps, Hong Kong XYG, CSC best plays in affordable housing, followed by niche players KBC, Haitian, Skyworth (Leon Chik, CFA) Our theme that has been strong since Aug-10 is that affordable housing would provide sufficient demand to offset the restraints on the private property sector. The latest news of the government lifting the units for affordable housing from 6m to 10m in 2011 appears to have given some life to this sector.

Suzlon Energy Ltd (OW), India Upgrade to OW from UW, PT revised to Rs64 from Rs41 (Shilpa Krishnan) After a gap of almost 5 years, India is set to become the primary market for Suzlon in FY12. Given the strong growth outlook for wind investments in India, Suzlon’s leadership position in 1MW+ segment in the domestic market, and potential improvement in operating profit margins, the shift in focus has positives in store. .

Sunil Garg (852) 2800-8518 [email protected] Send me your feedback! AM perspective Adrian Mowat, Chief Equity Strategist

Consensus Asset Allocation Country >2% OW <2% UW

Russia 15 (15) 9 (9) Indonesia 8 (10) 4 (4) Mexico 9 (7) 6 (5) Brazil 10 (11) 9 (9) India 11 (12) 11 (7) China+HK 12 (13) 14 (13) South Africa 5 (5) 20 (20) Malaysia 1 (1) 16 (16) Korea 6 (4) 21 (23) China 4 (6) 23 (21) Taiwan 2 (1) 32 (30)

Source: EPFR Global, November 2010.

Russia and Indonesia retained the highest net overweights. The net overweights in Brazil reduced to one. We are neutral on all three markets. The net overweights in India reduced from five to zero. Fund managers increased their net underweights in China from zero to two. We are overweight on India and neutral on China. The net overweights in Mexico increased from two to three. Managers remain underweight the Asian export economies of Taiwan, Korea and Malaysia. For more, please see ‘Consensus Asset Allocation – Emerging Markets Equity Strategy’, Mowat et al, 27 December 2010.

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Recommendation and Forecast Changes Anhui Conch Cement- A (Overweight), China (Nick Lai)

We upgrade H share to OW; supplier discipline to be a main theme in 2011

Anhui Conch Cement- H (Overweight), China (Nick Lai)


A-REIT (Neutral), Singapore (Joy Wang) Steady yield

CapitaCommercial Trust (Underweight), Singapore

(Joy Wang) Locking in profit

CapitaMall Trust (Neutral), Singapore (Joy Wang) A challenging year for the stock

CDL Hospitality Trusts (Overweight), Singapore (Joy

Wang) Supply squeeze

Dialog Group Bhd (Overweight), Malaysia (Hoy Kit Mak)

Tank-farming to prosperity

Hutchison Whampoa (Overweight), Hong Kong (Benjamin

Lo, CFA) Back to M&A mode? Yes, but not the 90's way

Mapletree Logistics Trust (Neutral), Singapore (Joy

Wang) Better growth

Suntec REIT (Neutral), Singapore (Joy Wang) Upgrade to Neutral

Suzlon Energy Ltd (Overweight), India (Shilpa

Krishnan) Welcome home: Upgrade to OW

Strategy

Market Strategy, Malaysia (Hoy Kit Mak) 19 more ETP projects announced

Economics

Economy, China (Qian Wang) M2 picked up modestly; total new loan creation reached 7.95 trillion by December

Economy, India (Sajjid Z Chinoy) honey, it's not just onions!

Results and Company Views Baoshan Iron & Steel - A (Overweight), China (Nathan M.

Zibilich, CFA) 2010 Net Income In-Line with Prior Guidance; Raises Feb Steel Prices - ALERT

Bulk Shipping (Overweight), Asia Pacific (Corrine Png) Adding China Cosco and Pacific Basin Shipping to AFL

CapitaRetail China Trust (Neutral), Singapore (Joy

Wang) Stable return

CIMB Group Holdings (Neutral), Malaysia (Harsh

Wardhan Modi) Indonesia Banks Sell-off a Pre-cursor to CIMB Stock Price Decline - ALERT

Frasers Centrepoint Trust (Overweight), Singapore (Joy

Wang) Looking beyond the next 12 months

Mando (Overweight), South Korea (Wan Sun Park) Auto parts JV with Geely another evidence of successful customer diversification; earnings impact to start from 2012E

Tata Steel Ltd (Neutral), India (Pinakin Parekh, CFA) FPO announced (6% dilution); Q3 commentary on prices and volumes in line with estimates; Corus guided down for Q3 - ALERT

Tisco Financial Group Pcl. (Neutral), TIP Markets (Anne

Jirajariyavech) 4Q10 in-line: strong loan volume but offset by substantial NIM decline

Sector Research

Banks, TIP Markets (Anne Jirajariyavech) Plenty of liquidity to support loan growth

Engineering, India (Shilpa Krishnan) Indian capital goods and E&C:Dec-q earnings preview and order flow tracker

Oil & Gas, Asia Pacific (Brynjar Eirik Bustnes) Crude Reality:Rig space looking expensive

Property, Hong Kong (Lucia Kwong, CFA) Hong Kong Property 2010 Wrap:Office rental showed biggest positive surprises

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Asia Analyst Focus List

Company Name Ticker Analyst RatingMkt. Cap

(MM) Mkt. Cap (US$ MM)

Focus List Add Date

Focus List Add Price

Close 01/11/11

Target Price

Date Target Price Set

Australia Campbell Brothers Limited (A$) CPB AU Alexander Mees, ACA OW 2692 2656 9-Sep-09 24.33 39.88 39.18 30-Nov-10 iiNet (A$) IIN AU Laurent Horrut OW 441 435 2-Aug-10 2.78 2.90 3.33 2-Aug-10 China Baoshan Iron & Steel – A (Rmb) 600019 CH Nathan M. Zibilich, CFA OW 117330 17729 12-Oct-10 7.11 6.70 10.00 12-Oct-10 China Cosco Holdings, Ltd. 1919 HK Corrine Png OW 110303 14182 11-Jan-11 8.63 8.70 11.80 29-Oct-10 China Minsheng Banking - A (Rmb) 600016 CH Samuel Chen OW 141382 21363 27-Nov-10 5.13 5.12 8.10 27-Nov-10 China Minsheng Banking - H (HK$) 1988 HK Samuel Chen OW 166155 21363 27-Nov-10 6.90 6.82 9.80 27-Nov-10 Industrial and Commercial Bank of China - A (Rmb) 601398 CH Samuel Chen OW 1552074 234523 30-Oct-09 4.95 4.26 6.70 27-Nov-10 Hong Kong AAC Acoustic (HK$) 2018 HK Charles Guo OW 25604 3292 8-Sep-09 6.91 20.85 22.00 2-Nov-10 China High Speed Transmission (HK$) 658 HK Boris Kan OW 16941 2178 6-May-10 18.42 12.32 24.30 6-May-10 China Unicom (Hong Kong) Limited (HK$) 762 HK Lucy Liu OW 259655 33385 2-Aug-10 10.22 11.02 12.90 1-Nov-10 Cosco Pacific (HK$) 1199 HK Karen Li OW 38395 4937 26-Aug-08 10.64 14.16 16.10 10-Nov-10 Geely Automobile Holdings Ltd. (HK$) 175 HK Frank Li OW 27456 3530 15-Oct-10 3.79 3.69 6.20 15-Oct-10 HSBC Holdings plc (HK$) 5 HK Sunil Garg OW 1457339 187377 24-May-10 71.65 82.40 115.00 22-Apr-10 K Wah International Holdings (HK$) 173 HK Amy Luk, CFA OW 8392 1079 13-Apr-10 2.98 3.29 3.80 25-Aug-10 Longfor Properties Co. Ltd. (HK$) 960 HK Ryan Li OW 64644 8312 18-Nov-10 9.44 12.54 13.50 18-Nov-10 Mongolian Mining Corporation (HK$) 975 HK Nathan M. Zibilich, CFA OW 37421 4811 15-Nov-10 8.68 10.10 11.45 9-Jan-11 Pacific Basin Shipping 2343 HK Corrine Png OW 9737 1252 11-Jan-11 5.01 5.04 7.00 3-Aug-10 Shenzhen Expressway H Share (HK$) 548 HK Karen Li, CFA OW 12184 1567 8-Sep-10 3.90 5.01 8.70 2-Dec-10 The United Laboratories (HK$) 3933 HK Leon Chik, CFA OW 18794 2416 5-Nov-10 15.52 14.44 24.00 7-Jan-11 Wheelock & Company Ltd (HK$) 20 HK Benjamin Lo, CFA OW 65832 8464 19-Nov-10 28.85 32.40 38.10 19-Nov-10 Zhejiang Expressway (HK$) 576 HK Karen Li, CFA OW 32964 4238 20-Apr-10 6.83 7.59 9.10 21-Nov-10 India Apollo Hospitals Enterprise Ltd. (Rs) APHS IN Princy Singh OW 58527 1296 5-Oct-10 463.15 469.30 575.00 5-Oct-10 Ballarpur Industries Ltd (Rs) BILT IN Princy Singh OW 23985 531 20-Oct-10 35.20 36.50 50.00 20-Oct-10 IndusInd Bank (Rs) IIB IN Seshadri K Sen, CFA OW 108533 2404 19-Nov-10 265.15 233.45 350.00 11-Oct-10 Spicejet Ltd (Rs) SJET IN Princy Singh OW 29820 660 2-Dec-10 82.15 73.65 115.00 2-Dec-10 Japan Dainippon Screen Mfg. (¥) 7735 JT Hisashi Moriyama OW 161528 1946 22-Jun-10 478.00 636.00 790.00 2-Dec-10 FUJIFILM Holdings (¥) 4901 JT Hisashi Moriyama OW 1559316 18787 26-Jan-10 2942.00 3030.00 4500.00 28-May-10 Hitachi (¥) 6501 JT Yoshiharu Izumi OW 2064797 24877 29-Jul-09 293.00 457.00 590.00 23-Apr-10 Honda Motor (¥) 7267 JT Kohei Takahashi OW 5914314 71257 19-Jan-10 3370.00 3265.00 3600.00 22-Oct-10 Inpex Corporation (¥) 1605 JT Brynjar Eirik Bustnes OW 1776723 21406 1-Sep-10 389000.00 486000.00 630000.00 31-Aug-10 Nikon (¥) 7731 JT Hisashi Moriyama OW 733208 8834 4-Jan-11 1747.00 1829.00 2500.00 4-Jan-11 Malaysia RHB Capital (M$) RHBC MK Harsh Wardhan Modi OW 18412 5998 18-Nov-10 7.80 8.55 10.60 16-Nov-10 Philippines International Container Terminal Services, Inc. (Php) ICT PM Jeanette Yutan OW 83046 1883 8-Sep-10 35.20 42.90 49.00 20-Oct-10 Philippine Stock Exchange Inc (Php) PSE PM Harsh Wardhan Modi OW 11197 254 9-Oct-07 407.50 365.00 605.00 4-Oct-10 Singapore CapitaLand (S$) CAPL SP Christopher Gee OW 16240 12546 29-Sep-08 3.26 3.81 5.30 18-Jan-10 DBS Group (S$) DBS SP Harsh Wardhan Modi OW 34032 26290 8-Aug-08 14.36 14.74 18.00 1-Aug-10 Global Logistic Properties Ltd (S$) GLP SP Christopher Gee OW 9689 7485 18-Nov-10 2.18 2.15 2.90 18-Nov-10 Noble Group Ltd (S$) NOBL SP Ajay Mirchandani OW 14110 10901 12-Nov-09 1.83 2.34 2.50 10-Nov-10 Olam International (S$) OLAM SP Ajay Mirchandani OW 6866 5304 2-Oct-08 1.80 3.23 3.70 10-Aug-09 Singapore Airlines (S$) SIA SP Corrine Png OW 18271 14115 23-May-10 14.60 15.26 20.00 10-Nov-10 South Korea LG Chem Ltd (W) 051910 KS Samuel Lee, CFA OW 27535640 24474 14-Oct-10 327000.00 415500.00 430000.00 14-Oct-10 LG Display (W) 034220 KS JJ Park OW 13793800 12260 15-Mar-10 35900.00 38550.00 55000.00 16-Sep-10 LG Innotek (W) 011070 KS JJ Park OW 2676888 2379 23-Mar-10 115000.00 133000.00 240000.00 15-Jul-10 Samsung SDI (W) 006400 KS JJ Park OW 7699360 6843 23-Jun-09 96100.00 169000.00 220000.00 28-Oct-10 SK Energy Co Ltd (W) 096770 KS Brynjar Eirik Bustnes OW 17429760 15492 5-Oct-07 147500.00 188500.00 165000.00 13-Sep-10 CJO Shopping (W) 035760 KS Jinah Lee OW 1539033 1368 11-Jan-11 250500.00 248700.00 277000.00 11-Jan-11 Taiwan E Ink Holdings Inc (NT$) 8069 TT Narci Chang OW 62679 2149 4-Mar-10 63.60 58.30 85.00 28-Nov-09 First Financial Holding Co Ltd (NT$) 2892 TT Dexter Hsu OW 168398 5775 3-Sep-10 18.45 26.00 33.00 8-Jan-11 Formosa Chemicals and Fibre Corp (NT$) 1326 TT Samuel Lee, CFA OW 541164 18558 9-Dec-10 93.20 95.10 109.00 9-Dec-10 Novatek Microelectronics Corp (NT$) 3034 TT Cynthia Chou OW 57198 1962 3-Dec-10 98.50 96.00 120.00 3-Dec-10 Pegatron Corp (NT$) 4938 TT Gokul Hariharan OW 89578 3072 24-Aug-10 40.15 39.70 52.00 24-Aug-10 Powertech Technology Inc (NT$) 6239 TT Cynthia Chou OW 70321 2412 2-Aug-10 101.50 98.30 130.00 3-Aug-10 Quanta Computer Inc. (NT$) 2382 TT Alvin Kwock OW 236869 8123 13-Oct-10 48.05 61.80 68.00 29-Oct-10 Unimicron Technology Corp. (NT$) 3037 TT Christopher Ma OW 87428 2998 18-Apr-10 40.75 56.50 60.00 18-Apr-10 Thailand Banpu Public (Bt) BANPU TB Sukit Chawalitakul OW 221746 7267 15-Oct-10 724.00 816.00 906.00 15-Dec-10 PTT Public Company (Bt) PTT TB Sukit Chawalitakul OW 908844 29784 23-Mar-10 256.00 319.00 395.00 15-Sep-10 United States Focus Media (US$) FMCN Dick Wei OW 3230 3230 3-Jun-10 15.44 22.56 28.00 29-Sep-10

Source: Bloomberg, J.P. Morgan estimates. *Under applicable law and/or JPMorgan Chase & Co policy, all J.P. Morgan ratings and estimates for this company have been removed. For details on the AFL methodology, please see the Asia Cash Equities page on mm.jpmorgan.com or contact your J.P. Morgan salesperson/the covering analyst.

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Asia Pacific Equity Research 11 January 2011

Hutchison Whampoa

Overweight 0013.HK, 13 HK

Back to M&A mode? Yes, but not the 90's way ▲

Price: HK$89.00

Price Target: HK$98.00 Previous: HK$94.80

Hong Kong Conglomerates & Multi-industry

Benjamin Lo, CFAAC

(852) 2800-8598 [email protected]

Sylvia Chan (852) 2800-8593 [email protected]

J.P. Morgan Securities (Asia Pacific) Limited

40

60

80

HK$

Jan-10 Apr-10 Jul-10 Oct-10 Jan-11

Price Performance

0013.HK share price (HK$)HSI (rebased)

YTD 1m 3m 12m

Abs 11.2% 10.3% 17.5% 56.7%

Rel 9.1% 8.7% 15.0% 51.7%

• Following 44% share price rally since August (outperforming Hang Seng Index by 32%), the driver behind this momentum has shifted from previously the mean-reversion of the then undervalued traditional assets, to a growing optimism of improving cash flows profile that should result in potentially more M&A and higher dividends. We broadly agree with this (as we also project growing cash flows and dividends), but we caution against a comparison to the 90's when Hutch had a strong M&A track record and enjoyed premiums to NAV. Nevertheless, in the near term, we expect the stock to be well supported ahead of the 2010 final result release on March 29.

• A straight comparison with the 90’s might not be warranted due to: (1) ports are unlikely to repeat the secular growth since the 90’s, so new acquisitions might not be as NAV-accretive; (2) Hutch’s net gearing (49% end-10E versus average 15% in the 90's) might limit its flexibility to make new sizeable investments; (3) investment decisions have been made easier by the low cost of debt now, but Hutch is exposed to the risk of rate hike given its high gearing. (4) we think 3G’s recovery track is unlikely to be smooth, on some potential medium-term concerns: (i) intensifying tariff competition from European operators as they move on to fight for lower-end smart-phone users; (ii) UK/Italy spectrum auctions which would reduce 3G’s FCF.

• We raise our Dec-11 NAV by 3% to HK$112.7 (from HK$109.4) on recent purchases of port stakes (+$2) and MTM listed entities (+$1). EPS estimates were little changed. Hutch now trades at a 21% NAV discount, and 19x/15x 11E/12E P/E, which looks reasonable when compared with 2009-2012E EBIT and EPS CAGR of 24% and 21% respectively.

• PT and risks: Our new Dec-11 PT of HK$98 (from HK$94.8) is based on the sum of: (1) HK$85 representing a 10% discount to the NAV of traditional assets (HK$94); and (2) HK$13 being a 30% discount to 3G’s DCF value (HK$18). Our PT implies a blended 13% NAV discount. Downside risks are delay to 3G turnaround and higher interest rates.

Reuters: 0013.HK; Bloomberg: 13 HK

HK$ in millions, year-end December

FY08 FY09 FY10E FY11E FY12E

Revenue 235,478 208,808 212,351 229,445 245,093 52-week range (HK$) 46.25 - 90.75 Recurring net profit (540) 307 13,069 19,716 25,207 Market cap (HK$MM) 379,440 EPS (HK$) 2.97 3.32 3.79 4.62 5.91 Market cap (US$MM) 48,803 Recurring EPS (HK$) (0.13) 0.07 3.07 4.62 5.91 Shares outstanding (MM) 4,263 DPS (HK$) 1.73 1.73 1.91 2.31 2.96 Average daily value (HK$MM) 1,260.5 Recurring EPS growth (%) nm nm nm 51 28 Average daily value (US$MM) 162.1 P/E (x) 30.0 26.8 23.5 19.2 15.1 Average daily volume (MM shares) 15.6 Recurring P/E (x) nm nm 29.0 19.2 15.1 Exchange rate 7.78 Div yield (%) 1.9 1.9 2.1 2.6 3.3 Index (HSI) 23,527.26 P/B (x) 1.4 1.3 1.3 1.3 1.2 Recurring ROE (%) nm 0.1% 4.5% 6.6% 8.2%

Source: Bloomberg, J.P. Morgan estimates. Pricing is as of 10 January 2011.


Dialog Group Bhd

Overweight DIAL.KL, DLG MK

Tank-farming to prosperity ▲

Price: M$2.16

Price Target: M$2.80 Previous: M$1.20

Malaysia Oil Services & Equipment

Hoy Kit MakAC

(60-3) 2270-4728 [email protected]

JPMorgan Securities (Malaysia) Sdn. Bhd. (18146-X)

0.8

1.4

2.0

M$


Price Performance

DIAL.KL share price (M$)FBMKLCI (rebased)

YTD 1m 3m 12m

Abs 15.5% 33.3% 81.5% 129.1%

Rel 13.6% 29.8% 76.4% 108.4%

Dialog Group Bhd (Reuters: DIAL.KL, Bloomberg: DLG MK) M$ in mn, year-end Jun FY09A FY10A FY11E FY12E FY13E

Revenue 1,105 1,139 1,270 1,559 1,741 EBITDA 113 137 158 200 243 Net Pro fit 91.9 118.3 144.9 183.3 217.5 EPS (M$) 0.05 0.06 0.07 0.09 0.11 DPS (M$) 0.03 0.03 0.03 0.04 0.04 Revenue growth (%) 39.7% 3.1% 11.5% 22.7% 11.7% EPS growth (%) 21.6% 28.5% 22.5% 26.5% 18.7% ROCE 21.7% 22.7% 23.0% 24.3% 24.5% ROE 22.4% 25.8% 27.8% 29.6% 29.4% P/E 46.5 36.2 29.5 23.3 19.7 P/BV 6.9 9.0 7.6 6.3 5.3 EV/EBITDA 36.7 30.0 25.6 20.2 16.5 Dividend Yield 1.5% 1.3% 1.4% 1.7% 2.0%

Shares O/S (mn) 1,989 Market Cap (M$ mn) 4,295 Market Cap ($ mn) 1,395 Pr ice (M$) 2.16 Date Of Price 11 Jan 11 Free float (%) 59.6% 3-mth trad ing value (M$ mn) 5.5 3-mth trad ing value ($ mn) 1.8 3-mth trad ing volume (mn) 3.6 FBMKLCI 1,563 Exchange Rate 3.08 Fiscal Year End Jun

Source: Company data, Bloomberg, J.P. Morgan estimates.

• Raise PT to M$2.80: We assume coverage of Dialog with a new Dec-11 PT of M$2.80. The government has just announced/endorsed Dialog’s M$5B Pengerang independent deepwater petroleum terminal project in its investor update on the M$1.4T Economic Transformation Programme (ETP). We reiterate our OW rating on Dialog, and raise our Dec-2011 PT to M$2.80 from our Dec-10 target of M$1.20, after incorporating Dialog’s 46% effective stake in the Pengerang project, which adds M$1.11 or 34% to our SoTP. High FY12E P/E is justified, in our view given Dialog’s: 1) unique business model as the largest independent tank farm owner in Asia; a 2) robust FY11-13E CAGR of 23%; 3) large proportion of recurring earnings at 84% of group earnings, and 4) superior FY11E ROE of 27.8%. Key re-rating catalysts include: 1) regulatory approvals for the Pengerang; 2) EPCC contract wins; 3) the announcement of favorable tax breaks for Pengerang; and 4) positive earnings surprises.

• Pengerang – two bites of the cherry: The 5MM m3 Pengerang independent deepwater petroleum terminal will increase Dialog’s effective tank farm capacity by 4x to 2.3MM m3 over the next seven years. Apart from rising recurring tank farm earnings, it will lead to a 10-fold increase in Dialog’s current outstanding EPCC order backlog of over M$500MM. The Pengerang investment proposition with Vopak (the world’s largest independent tank farm owner/operator) as a 44% partner is a solid one, capitalizing on rising Asian oil storage needs.

• Robust 23% FY11-13E EPS CAGR: We raise FY11-12E EPS by 7.6%-25.1%, and introduce our FY13E EPS of M$0.11. We forecast a healthy FY11-13 CAGR of 23% p.a. Core growth drivers for the next three years are: 1) EPCC, likely to commence in 2Q 2011 (upon obtaining the necessary approvals for the Pengerang proejct); 2) higher earnings growth from Tanjung Langsat with commissioning of 520,000 m3 (+300%) new capacity; and 3) growth from the catalyst-handling business as Dialog narrows in on its targetted US$100MM revenue per year (by 2014).


Singapore REITs

Embracing a volatile 2011

Singapore REITs

Joy WangAC


Christopher Gee, CFA (65) 6882-2345 [email protected]

J.P. Morgan Securities Singapore Private Limited

S-REITs Index Vs Shape of yield cuve

Index (LHS) / % (RHS)

0

100

200

300

Jul-02 Jan-05 Jul-07 Jan-10

-2%

0%

2%

4%

SREITs Index

Shape of Yield Curv e

Source: Bloomberg, J.P. Morgan calculation.

• 2011 a busy but challenging year. We believe that 2011 will likely be a volatile year for S-REITs sector with a total return expectation of 8.0%, dominated largely by the dividend yield. This compares with our return expectation for FTSE STI Index of about 15%. Whilst rental growth expectation for most commercial segments remains positive and physical market transactions would continue to pick up, the potential supply in the equity market through both primary and secondary issuance would keep share price in check, in our view.

• Valuation no longer compelling. S-REITs are trading at forward dividend yield of 6.0%, price to book of 1.1x and 7.5% premium to our NPV estimates, a level that is slightly above long-term average and is no longer compelling, in our view. Therefore, we believe that arbitrage any valuation anomalies during the year would be more effective than buy and hold strategies in generating outperformance from the sector.

• Our key stock calls for 2011. We downgrade CapitaCommercial Trust to Underweight on the back of lack of growth, deteriorating portfolio quality and rich valuation. We also downgrade CapitaMall Trust to Neutral as we believe that constant cash calls from the sector would put pressure on the stock. We upgrade Suntec to Neutral and believe that a potential EFR would act as a share price catalyst.

• Key risks to the sector. Whilst we do not expect significant rate changes in the year, any potential upward shift in rates and rate expectations would be the key downside risks. Key upside risk comes from relative valuation in comparison with other markets as S-REITs’ yield spread over 10-year government bond is still the 2nd highest.

S-REITs sector valuation

Share price Current Price Prem / (disc) to NPV Dividend yield P/B ratio Gearing 11-Jan-11 Mkt Cap Rating target Current Forward FY11E FY12E FY10E FY10E (S$) (S$ MM) (S$) (%) (%) (%) (%) (x) (%) A-REIT 2.17 4,067 N 2.20 6% -2% 6.2% 6.4% 1.38 31% CapitaCommercial Trust 1.50 4,235 UW 1.35 19% 11% 5.0% 4.8% 1.06 22% CapitaMall Trust 1.93 6,146 N 2.00 -8% -13% 4.9% 5.5% 1.23 36% CapitaRetail China Trust 1.25 782 N 1.30 3% -6% 6.9% 7.2% 1.12 35% CDL Hospitality Trust 2.06 1,973 OW 2.35 -6% -13% 6.0% 6.0% 1.30 20% Frasers Centrepoint Trust 1.52 1,167 OW 1.80 -10% -17% 5.5% 6.4% 1.18 31% Mapletree Logistics Trust 0.95 2,305 N 1.00 2% -6% 6.7% 6.8% 1.10 37% Suntec REIT 1.56 3,440 N 1.60 6% -2% 5.6% 5.7% 0.92 42%

Source: Bloomberg, J.P. Morgan estimates.


SMID Cap Ideas

Key takeaways from J.P. Morgan's SMID-Cap Corporate Access Day with 16 company notes

SMID Caps

Leon Chik, CFAAC


Andrew Hsu (852) 2800-8572 [email protected]


One year small cap performance

-1 5%

-1 0%

-5%

0%

5%

1 0%

1 5%

2 0%

1/7/10

4/7/10

7/7/10

10/7/10

1/7/11

M S C I A P x J A P x J S m a l l Source: Bloomberg

3 month small cap performance

-4%

-2%

0%

2%

4%

6%

8%

10/8/10

10/23/10

11/7/10

11/22/10

12/7/10

12/22/10

1/6/11

M SC I A PxJ A PxJ Smal l

Source: Bloomberg

• Changes and News: The higher target for affordable housing starts from 6m units to 10m units for 2011 is one of the more prominent signs that economic activity could be more robust in 2011 than 2010. Our favourite SMID Caps are those that are operating under a short supply situation today but where the share price reflects an over supply situation that may not materialize.

• High conviction ideas: Our high conviction call is Skyworth, one of the largest makers of flat panel in China. We highlight in this report our findings from the company’s recent corporate day. Sales to rural areas are skewed towards the second half of the fiscal year and profitability is much greater for rural sales. We also highlight Xinyi glass and China State which we see as winners from more affordable housing construction..

• Company visits and updates: After our SMID-Cap corporate access day on 7th Jan, we highlight our findings from the following 16 companies:

• Skyworth Digital (751 HK; OW) • United Laboratories (3933 HK; OW) • Lonking (3339 HK; OW) • NVC Lighting (2222 HK; OW) • Sihuan pharma (460 HK; OW) • China State Construction (3311 HK; OW) • Dah Chong Hong (1828 HK; OW) • Kingboard Chemical (148 HK; OW) • Fufeng Group (546 HK; OW) • Techtronics Industries (669 HK; OW) • Haitian International (1882 HK; OW) • Lee & Man Paper Manufacturing (2314 HK; OW) • Xinyi Glass (868 HK; OW) • Fook Woo (923 HK; NR) • Kingdee (268 HK; NR) • Sparkle Roll (970 HK; NR) Regional SMID Cap Highlights of the week

Company Name Code Price (TP) MCAP US$m

Vol US$m 1W Chg 3M Chg

10e PE (x)

11e PE (x)

10e EV/ EBITDA

10e ROE (%)

P/B (x)

10e Yld (%)

ND/E (%)

KINGBOARD CHEM (OW)* 148 HK 46.9 (65) 5,108 11.4 2.2 23.7 9.9 8.8 5.9 17.5 1.4 2.9 24.8

LM PAPER (OW)* 2314 HK 5.83 (10.2) 3,516 5.4 (4.9) (14.3) 14.6 11.5 10.5 19.7 2.8 2.2 63.5 XINYI GLASS HOLD (OW)* 868 HK 6.7 (8.8) 3,021 10.7 3.2 30.4 15.3 9.4 10.9 26.7 3.3 3.7 16.5 CHINA STATE CONS (OW)* 3311 HK 7.64 (9) 2,918 7.2 (3.2) 29.7 24.2 15.6 16.3 21.0 3.9 2.0 37.3 TECHTRONIC INDS (OW)* 669 HK 10.36 (15) 2,134 6.9 0.8 36.0 18.8 9.7 8.8 10.7 1.8 1.6 24.1 SKYWORTH (OW)* 751 HK 4.46 (6.5) 1,474 9.6 (4.7) (15.4) 10.5 8.5 6.4 24.6 1.9 1.7 78.5 FUFENG (OW)* 546 HK 7.3 (9) 1,609 4.6 (1.6) 21.5 10.5 8.1 7.7 36.1 3.5 2.5 15.1 NVC Lighting (OW)* 2222 HK 4.08 (5.3) 1,158 4.3 (3.8) 1.0 27.4 20.9 39.0 19.9 3.7 0.0 (58.5) LONKING (OW)* 3339 HK 4.8 (6) 1,741 9.3 8.4 13.5 12.0 10.2 3.2 31.4 2.8 1.8 46.3 UNITED LAB (OW)* 3933 HK 14.52 (24) 2,423 11.2 (6.7) 0.7 19.9 15.1 13.0 18.5 3.1 2.1 (1.0) SIHUAN (OW)* 460 HK 5.59 (8.4) 3,295 7.0 (1.6) na 46.1 31.0 21.6 29.1 9.5 0.0 (72.7) DCH (OW)* 1828 HK 8 (12) 1,862 5.1 (3.5) (13.3) 10.9 10.7 8.4 22.1 2.5 1.5 10.6 Source: Bloomberg; * J.P. Morgan estimates for stocks under coverage. (Prices as of 11 Jan 2011 intraday).


Suzlon Energy Ltd ▲ Overweight

Previous: Underweight

SUZL.BO, SUEL IN

Welcome home: Upgrade to OW ▲

Price: Rs47.50

Price Target: Rs64.00 Previous: Rs41.00

India Engineering

Shilpa KrishnanAC


Sumit Kishore (91-22) 6157-3581 [email protected]

Deepika Belani (91-22) 6157-3582 [email protected]

J.P. Morgan India Private Limited

40

70

100

Rs


Price Performance

SUZL.BO share price (Rs)NIFTY (rebased)

YTD 1m 3m 12m

Abs -12.4% -4.2% -18.8% -49.9%

Rel -6.2% -2.4% -12.6% -59.5%

• Upgrade to OW, Dec-11 PT of Rs64: After 5 years, we estimate in FY12 India will once again be the primary market for Suzlon. The shift has positives: (1) India wind additions @ 3-3.5GW/year likely given favorable regulatory changes, pick-up in IPP investments in wind and positive steps towards trading in renewable energy; (2) Suzlon remains the dominant player in 1MW+ WTG market and has ~45% overall market share in India. We forecast sales volume of 1.5GW from India; (3) Logistics-related variable expenses could fall by ~Rs1-1.5mn/MW.

• Healthy operating leverage gains possible in FY12: We forecast a domestic market-led recovery in sales volumes to 2250MW in FY12 (750MW overseas), coupled with stable fixed costs and flat employee expenses. We forecast a capacity utilization-led EBITDA margin improvement to ~12.8% in FY12- the street could be underestimating this, in our view. We raise our FY12 estimates by ~30%.

• Oil slated to boil; renewable plays could be back in favor: Wind stocks have strong positive correlation to oil prices (0.73x historically for Vestas vs. Brent crude prices). J.P. Morgan Global Commodities Research expects crude oil prices on a spot basis to breach US$100/bbl in 1H 2011 (up 35% YoY) and to reach US$120 / bbl by end 2012.

• Risks to our contrarian call: (1) Little room for volume dip; ~490MW of overseas inflows needed to meet FY12 overseas sales est. of 750MW; we draw comfort from track record over FY08-10; (2) Famine of overseas orders continues, only 330MW overseas over last 6 quarters, (3) Step up in domestic competition, as global players want to set up shop in India.

• Revised SOTP based Dec-11 PT of Rs64 (vs. Mar-11 PT of Rs41 earlier): PT includes- (1) ~Rs35 for wind business at 12x FY12 EPS, @35% discount to Vestas' multiple, (2) Rs25.6 for REpower (RPW GR) stake at 20% discount to current price (CP), (3) Rs3.3/share for Hansen (HSN LN) at 20% discount to CP. Suzlon has underperformed Sensex by ~21% since Aug'10. With a moratorium for debt repayment through FY12, and absence of capex needs, we think Suzlon has time to mend operations.

Suzlon Energy (Bloomberg: SUEL IN; Reuters: SUZL.BO)

Rs. in millions, year-end March

FY09 FY10 FY11E FY12E

Sales 260,817 206,197 179,506 238,300 52-week range (Rs) 43-95.6 PAT 11,329 (11,945) (6,181) 8,470 Market cap (Rs B) 84 EPS (Rs) 7.3 (7.7) (3.5) 4.8 Market cap (US$ B) 1.9 Net sales growth (%) 90.7 NM NM 32.8 Shares o/s (MM) 1777.4 Net profit growth (%) NM NM NM NM Free float (%) 37 EPS growth (%) NM NM NM NM Avg daily value (Rs MM) 1023.9 ROE (%) 13.6 (15.8) (9.1) 11.4 Avg daily value (US$ MM) 22.7 P/E (x) 6.5 (6.2) (13.7) 10.0 Avg dly volume (MM shs) 19.1 P/BV (x) 0.9 1.1 1.2 1.1 BSE Sensex 19,196 EV/EBITDA (x) 7.3 17.4 15.3 6.6 Exchange Rate 45.2

Source: Bloomberg, J.P. Morgan estimates, Company data. Priced as on 11th Jan 2011.


Anhui Conch Cement- H and A 600585.SS, 600585 CH

Overweight Rmb29.07

Price Target: Rmb40.00


0914.HK, 914 HK Upgrade to: Overweight Previous: Neutral HK$37.30

Price Target: HK$46.00

China Cement

Nick LaiAC



Share price performance relative to the index since 2009 (Conch-H &-A, rebased)

-40%

-30%

-20%

-10%

0%

10%

Jan-09 Jul-09 Jan-10 Jul-10

Conch - A Conch - H

Source: Bloomberg.

Share price performance analysis

H-share YTD 1M 3M 12M

Abs (%) 2% 14% 11% 51% Rel (%) -1% 11% 9% 42% A-share Abs (%) -2% 4% 18% 29% Rel (%) -2% 6% 18% 48%

Source: Bloomberg.

• Profit alert supports our 2011 theme—(1) supplier discipline; and (2) consolidation: Anhui Conch (Conch) issued a profit alert last night indicating that 2010 preliminary earnings growth had grown by over 50% (ahead of our previous forecast of 29%). Based on our discussions with management, we believe the surprise alert was primarily driven by the solid cement prices since Aug-10 when the Chinese government imposed restrictions on power usage, which led to supply shortages, followed by the 4Q peak season and supplier discipline. Our positive views on China for 2011 include:

1. From government- to supplier-driven price in 2011: The power control-led price rise since Aug-10 will not last long and cement prices will weaken again in the 1Q11 low season, in our view. However, on a Y/Y basis, regional leaders are emerging quickly and supplier discipline could drive cement prices. We forecast full-year prices will grow by ~10% this year with a major regional differential—northwest still being the area with the highest prices.

2. Consolidation to continue: 2010 was the year with the highest level of M&A activity due to NDRC’s ruling in Sept-09 on capacity control. This restriction is unlikely to ease, and hence M&A could be an ongoing theme as it looks to be the only solution for volume growth.

3. 12th Five-Year Plan kicks off: In the first two-three years of the past two Plans (2000-2005 and 2006-2010), Conch-H and A shares both outperformed respective markets (H and A share indices) substantially – by 200%-300% – due to strong FAI and cement consumption. 2011 is the first year of the 12th Five-Year Plan; we forecast FAI will stand solid at 20-25% CAGR in the next 2-3 years.

• Raising our earnings estimates: We raise our 2010/11 forecasts for Conch by 18%/28% as we incorporate our higher ASP and margin assumptions. Our Dec-11 PTs are accordingly raised to HK$46 (from HK$35)/Rmb40 (from Rmb35) based on a mid-cycle average of 2.9x P/BV. Risks include worse-than-expected cement prices and Conch’s margin expansion in China.

Anhui Conch financial summary (H share: 914 HK, 0914.HK) (A share: 600585 CH, 600585.SS) Rmb MM, year-end Dec. 2009 2010E 2011E 2012E Company data

Sales 24,998 35,545 45,279 51,528 52-wk range (HK$) 21.5 - 40.9 Net profit- after minority 3,506 5,352 6,992 8,143 Mkt cap. (HK$B) 123.4 EPS- adj (RMB/shr) 1.98 1.51 1.98 2.30 Mkt cap. (US$MM) 15,868 EPS- fully diluted (RMB/shr) 1.59 2.02 1.98 2.30 Shares O/S (MM) 866 P/E (x)- H 16.0 21.0 16.1 13.8 Free float (%) 54 P/B (x)- H 2.5 2.3 2.6 2.2 Avg. daily volume 7M M P/E (x)- A 14.7 19.2 14.7 12.6 Avg. daily value (HK$MM) 225 ROE 13.1% 16.3% 17.7% 17.7% Avg. daily value (US$MM) 28.9 Earnings growth 34.5% 52.6% 30.7% 16.5% Exchange rate (HK$/US$1) 7.8 Gross margin 28.1% 28.9% 29.6% 30.3% Index (HSI) 23,760 Net margin 14.0% 15.1% 15.4% 15.8% Year-end December

Source: Company, Bloomberg, J.P.Morgan estimates. The decline in EPS in 2010E is due to the rise in outstanding shares after stock dividend. Price is as of Jan 11, 2011.


A-REIT

Neutral AEMN.SI, AREIT SP

Steady yield ▲

Price: S$2.17

Price Target: S$2.20 Previous: S$2.18

Singapore REITs

Joy WangAC




1.8

2.1

2.4

S$


Price Performance

AEMN.SI share price (S$)FTSTI (rebased)

YTD 1m 3m 12m

Abs 3.8% 3.3% 2.4% 6.4%

Rel 3.6% 1.5% -0.1% -4.1%

Unit data

52-week range S$1.81 - 2.29 Market cap (S$MM) 4,067 Market cap (US$MM) 3,139 Share price (S$) 2.17 Date of price 11-Jan-11 Shares outstanding (MM) 1,874 Avg daily value (S$MM) 12.4 Avg daily value (US$MM) 9.6 Avg daily volume (shares) 5.9 STI 3,241 Exchange rate S$1.296/US$

Source: Bloomberg

• A relatively safe haven. A-REIT is trading at 6.4% FY12E yield with 2.8% DPU growth. Whilst valuation at current level is not compelling for the trust, the relatively stable high yield, a subdued market expectation on growth and the late cyclical characteristic makes the stock one of the safer places to hide, in our view. Amongst all large-cap REITs, A-REIT is our preferred pick.

• Overseas expansion plan articulated. A-REIT management announced in late November that it has set up a representative office in Shanghai, China and will be actively exploring investment opportunities in China. We believe that with the Singapore industrial investment market getting increasingly saturated, A-REIT's expansion overseas should help to create a new avenue for potential long-term growth. The trust is likely to announce an acquisition within the next 6 -12 months, in our view.

• Balance sheet immune to interest rate hikes. The weighted average borrowing cost for A-REIT is 3.95%, one of the highest amongst all S-REITs under our coverage with 100% of its debt fixed for an average of 3.4%. In fact, potential debt renewal would be a positive kicker to A-REITs' DPU estimates. We estimate that every 50 bps change in the trust's borrowing cost would increase DPU estimates by 3%.

• We retain our Neutral rating on A-REIT , with Dec-11 DDM based price target at S$2.20/unit. Key upside risks include a better-than-expected execution on its overseas expansion and a stronger-than-expected pick up in Singapore GDP growth and hence demand for industrial space. Key downside risk includes an unexpected deterioration in operating fundamentals.

Reuters: AEMN.SI; Bloomberg: AREIT SP

S$ in millions, year-end March

FY09 FY10 FY11E FY12E FY13E

Revenue 396.5 413.7 445.5 454.3 478.0 Net property income 296.6 320.0 340.4 345.7 363.1 Distributable profit 210.9 234.9 253.4 260.8 271.7 EPU (S¢) 14.4 12.6 13.3 13.6 14.2 DPU (S¢) 15.2 13.1 13.5 13.9 14.5 BVPU (S$) 1.6 1.6 1.7 1.7 1.8 Sales growth (%) 23.0 4.3 7.7 2.0 5.2 DPU growth (%) 7.4 (13.7) 3.3 2.8 4.0 P/E (x) 15.0 17.3 16.4 15.9 15.3 P/B (x) 1.4 1.4 1.3 1.3 1.2 Dividend yield (%) 7.0 6.0 6.2 6.4 6.7 Gearing (%) 34.9 31.2 32.1 32.1 31.1

Source: Company data, J.P. Morgan estimates. Priced as of 11 January 2011.


CapitaCommercial Trust ▼ Underweight

Previous: Neutral

CACT.SI, CCT SP

Locking in profit

Price: S$1.50

Price Target: S$1.35

Singapore REITs

Joy WangAC




1.0

1.3

1.6

S$


Price Performance

CACT.SI share price (S$)FTSTI (rebased)

YTD 1m 3m 12m

Abs -0.7% 2.7% 4.2% 29.3%

Rel -0.9% 0.9% 1.7% 18.8%

Unit data

52-week range S$1.00 - 1.57 Market cap (S$MM) 4,235 Market cap (US$MM) 3,268 Shares outstanding (MM) 2,823 Date of price 11-Jan-11 Avg daily value (S$MM) 10.0 Avg daily value (US$MM) 7.7 Avg daily volume (shares) 6.9 STI 3,241 Exchange rate S$1.296/US$ 52-week range S$1.00 - 1.57

Source: Bloomberg

• We downgrade CCT to Underweight, and maintain our Dec-11 DDM-based price target of S$1.35/unit. CCT’s current portfolio consists mainly of traditional Grade A office space, a segment that is gradually being marginalized as a result of the new generation super Grade office space in the Marina Downtown, and is of a lower quality compared to the other office REITs. With the stock trading at a 5% FY11E yield and 1x book, a premium valuation to the other listed office REITs, we would be looking to lock in profit at current level.

• Carrying heavier equity loads. The trust is currently sitting on S$731million cash as of 30 Sep with gearing of 31.5%. Whilst management will continue to “seek new opportunities to further strengthen CCT’s market position”, we see high risk of the trust carrying heavier equity loads for a prolonged period, especially given that a number of the "available for sale" assets have been transacted. We have assumed the trust to pay down debt at 4.0%.

• Relative preference towards Suntec REIT, on the back of a better portfolio quality, a better earnings growth profile and a relatively more attractive valuation. In fact, we would argue that the historical valuation relativity of CCT trading at a premium valuation should no longer hold given a shift in Suntec’s portfolio quality.

• Key upside risks to our rating and price target include (1) a stronger-than-expected growth of rents, (2) a successful deployment of the excess capital to upgrade portfolio quality and (3) a re-initiation of Market Street Car Park conversion plan, which we estimate could potentially add about S$0.05 – 0.06/unit in the long run.

Reuters: CACT.SI; Bloomberg: CCT SP

S$ in millions, year-end December

FY09 FY10E FY11E FY12E

Revenue 403.3 396.6 356.2 356.9 Net property income 300.2 288.7 266.2 259.4 Distributable profit 198.5 212.3 211.8 205.0 EPU (S¢) 7.76 6.71 5.93 6.46 DPU (S¢) 8.53 7.53 7.49 7.22 BVPU (S$) 1.41 1.42 1.47 1.47 Sales growth (%) 22.8 3.7 (9.3) 0.1 DPU growth (%) (21.5) (7.2) (0.4) (3.4) P/E (x) 19.3 22.4 25.3 23.2 P/B (x) 1.07 1.06 1.02 1.02 Dividend yield (%) 5.69 5.02 4.99 4.81 Gearing (%) 35.1 21.7 21.4 21.6



CapitaMall Trust ▼ Neutral

Previous: Overweight

CMLT.SI, CT SP

A challenging year for the stock ▼

Price: S$1.93


Singapore REITs

Joy WangAC




1.6

1.9

2.2

S$


Price Performance

CMLT.SI share price (S$)FTSTI (rebased)

YTD 1m 3m 12m

Abs -1.5% -0.5% -9.8% 3.8%

Rel -1.7% -2.3% -12.3% -6.7%

Unit data

52-week range S$1.64 - 2.16 Market cap (S$MM) 6,146 Market cap (US$MM) 4,742 Share price (S$) 1.93 Date of price 11-Jan-11 Shares outstanding (MM) 3,184 Avg daily value (S$MM) 11.8 Avg daily value (US$MM) 9.1 Avg daily volume (shares) 5.5 STI 3,241 Exchange rate S$1.296/US$

Source: Bloomberg

• We downgrade CMT to Neutral, and reduce our Dec-11 price target to S$2.00/unit. FY11 DPU growth is likely to be flattish on our estimates as a result of one-off charges from CB redemption and as the organic growth from major AEIs has yet to kick in. With the stock already trading at 4.9% yield, we believe CMT is unlikely to outperform the sector. In addition, being the most liquid S-REITs, the strong EFR pipeline would in our view put added pressure on its share price performance.

• Long-term growth strategy still intact. Whilst we believe that 2011 would be a challenging year for CMT’s share price, we do expect the trust to continue to generate positive rental reversions. We also expect the trust to continue executing on its major AEIs at J-Cube and Atrium @ Orchard, which will be completed in 2012 and 2013 respectively. We highlight the fact that the trust is well capitalized for any potential inorganic deals.

• Dec-11 price target of S$2.00/unit, reduced from S$2.20/unit. Whilst our NPV valuation remains unchanged at S$2.20/unit, our new price target is based on a 10% discount to our 1-year forward NPV estimates, a discount that is to take into account the risk of CMT potentially being the key funding source for the various cash calls in the pipeline. At S$2.00, stock will be trading at 4.7% yield and 1.25x price to book based on our FY11 estimates.

• Key upside risks to our rating and price target include (1) trust’s ability to undertake sizable deals that could help to uplift the near-term growth potential; (2) potential savings from debt renewals and retiring using surplus capital on balance sheet. Key downside risk includes the potential shift in interest rate expectation for the sector.

Reuters: CMLT.SI; Bloomberg: CT SP


FY09 FY10E FY11E FY12E Revenue 552.70 585.52 618.37 661.22 Net property income 376.77 396.65 415.91 445.28 Distributable profit 281.97 309.12 293.08 341.88 EPU (S¢) 7.56 9.06 8.50 9.94 DPU (S¢) 8.85 9.39 9.49 10.66 BVPU (S$) 1.56 1.57 1.59 1.72 Sales growth (%) 8.18 5.94 5.61 6.93 DPU growth (%) -38.07 6.07 1.06 12.37 P/E (x) 25.52 21.30 22.72 19.41 P/B (x) 1.24 1.23 1.21 1.12 Dividend yield (%) 4.59 4.86 4.92 5.52 Gearing (%) 31.27 35.96 32.36 30.79



CDL Hospitality Trusts

Overweight CDLT.SI, CDREIT SP

Supply squeeze ▲

Price: S$2.06


Singapore REITs

Joy WangAC




1.5

1.8

2.1

S$


Price Performance

CDLT.SI share price (S$)FTSTI (rebased)

YTD 1m 3m 12m

Abs -1.4% 1.0% -2.4% 15.8%

Rel -2.6% -0.4% -4.8% 5.7%

Unit data

52-week range S$1.60 – 2.24 Market cap (S$MM) 1,973 Market cap (US$MM) 1,522 Shares outstanding (MM) 958 Avg daily value (S$MM) 3.9 Avg daily value (US$MM) 3.0 Avg daily volume (shares) 1.9 FSSTI 3,241 Exchange rate S$1.296/US$

Source: Bloomberg

• Setting a new record high. Despite a 23% jump in room rate in 2010, Singapore hotels are running at close to 90% occupancy rate, a level that is considered full utilization in hospitality sector. Whilst Singapore hotel room rate is only 9% away from its peak level, we are likely to see new record high room rate given the limited amount of supply in 2011 coupled with new initiatives to be introduced by the integrated resorts. We estimate that an increment of only 450,000 visitors in 2011 will continue to fill Singapore hotels with 90% occupancy.

• Calibrating our estimates. Given our bullish view on Singapore room rates, we have further increased our rate growth to 25% YoY, versus 20% previously. Our new RevPAR for Singapore hotels under CDREIT portfolio is S$228/day, 11% above the previous peak in 2008. As a result, we have raised our earnings estimates by about 7% and our Dec-11 DDM based price target to S$2.35/share (S$2.30/share previously).

• Inorganic growth on the cards. We believe that Singapore and Japan would likely be the trust's main target markets given the deal flow and the pricing. We see likely accretion of 2 - 4% to FY11E distributable income assuming a S$300million acquisition. The trust's sponsor M&C currently owns Studio M Hotel in Singapore.

• Key risks to our rating and price target: CDREIT's estimates are extremely sensitive to earnings changes given the high operating leverage in the business. We estimate that every 10% change in our RevPAR assumptions would change our earnings estimates by about 15% and our valuation by about 18%.

Reuters: CDLT.SI; Bloomberg: CDREIT SP



Revenue 91.8 122.1 154.9 157.3 Net property income 85.9 112.5 140.3 142.5 Distributable profit 71.8 89.6 118.5 120.5 EPU (S¢) 7.90 9.59 11.97 12.10 DPU (S¢) 8.57 9.98 12.32 12.46 BVPU (S$) 1.43 1.59 1.75 1.79 Sales growth (%) (20.0) 33.0 26.9 1.5 DPU growth (%) (19.3) 16.4 23.5 1.1 P/E (x) 26.1 21.5 17.2 17.0 P/B (x) 1.4 1.3 1.2 1.1 Dividend yield (%) 4.16 4.84 5.98 6.05 Gearing (%) 19.0 20.4 18.9 18.6



Mapletree Logistics Trust

Neutral MAPL.SI, MLT SP

Better growth ▲

Price: S$0.95


Singapore REITs

Joy WangAC




0.70

0.85S$


Price Performance

MAPL.SI share price (S$)FTSTI (rebased)

YTD 1m 3m 12m

Abs -1.0% 2.7% 8.6% 18.7%

Rel -1.2% 0.9% 6.1% 8.2%

Unit data

52-week range S$0.75 - 0.97 Market cap (S$MM) 2,305 Market cap (US$MM) 1,779 Shares outstanding (MM) 2,426 Date of price 11-Jan-11 Avg daily value (S$MM) 1.6 Avg daily value (US$MM) 1.2 Avg daily volume (shares) 1.6 FSSTI 3,241 Exchange rate S$1.296/US$

Source: Bloomberg

• Better physical market outlook. Rental growth and demand for space for logistics segments tend to lag 12 - 18 months of economic growth; we believe that the physical market is likely to pick up in 2011 with better rental growth and increase in occupancy expected. In fact, the pick-up in demand for logistics space across the region was evident in the trust's last quarterly results and we expect the momentum to continue with the trust likely to delivering stronger DPU growth.

• Inorganic growth the key focus. The trust is currently trading at a much more competitive cost of equity and with the sponsor pipeline assets likely to be stabilized in the next 6 - 12 months, we see inorganic growth to be the key focus for 2011. In addition, we also expect the trust to gradually move into the BTS market given its now meaningful asset based of S$3.3billion.

• Raising our growth expectation. We raise our Dec-11 DDM - based price target to S$1.00/unit (S$0.95/unit previously) as we raise our LT growth expectation from 1.5% to 2.0%. At S$1.00/unit, the stock will be trading S$6.4% FY11E yield and 1.1x FY11E book.

• We retain our Neutral rating on MLT . Key upside risks to our rating and price target include better-than-expected operating performance and management's ability to announce sizable accretive deals. Key downside risks include currency fluctuations as well as a potential increase in borrowing cost from the current 2.3% level.

Reuters: MAPL.SI; Bloomberg: MLT SP


FY09 FY10E FY11E FY12E Revenue 206.8 231.0 258.8 262.6 Net property income 180.8 202.0 226.5 229.8 Distributable profit 117.9 129.9 154.9 156.0 EPU (S¢) 4.85 6.05 6.38 6.43 DPU (S¢) 6.04 6.05 6.38 6.43 BVPU (S$) 0.85 0.86 0.93 0.95 Sales growth (%) 11.8 11.7 12.1 1.5 DPU growth (%) (16.6) 0.2 5.6 0.7 P/E (x) 19.6 15.7 14.9 14.8 P/B (x) 1.11 1.10 1.02 1.00 Dividend yield (%) 6.35 6.37 6.72 6.77 Gearing (%) 37.5 36.5 35.1 32.7



Suntec REIT ▲ Neutral

Previous: Underweight

SUNT.SI, SUN SP

Upgrade to Neutral ▲

Price: S$1.56


Singapore REITs

Joy WangAC




1.20

1.40

1.60

S$


Price Performance

SUNT.SI share price (S$)FTSTI (rebased)

YTD 1m 3m 12m

Abs 3.3% 4.0% 5.4% 9.9%

Rel 3.1% 2.2% 2.9% -0.6%

Unit data

52-week range S$1.22 - 1.56 Market cap (S$MM) 3,440 Market cap (US$MM) 2,655 Shares outstanding (MM) 2,205 Date of price 11-Jan-11 Avg daily value (S$MM) 12.0 Avg daily value (US$MM) 9.3 Avg daily volume (shares) 8.1 FSSTI 3,241 Exchange rate S$1.296/US$

Source: Bloomberg

• We upgrade Suntec REIT to Neutral, with our Dec-11 price target raised to S$1.60. While we retain our view that one more round of re-capitalization is required for the trust, the stock is trading at a discount to our NPV and book value estimates on a fully diluted basis. In fact, as with the share price performance post the previous EFR exercise, we think a potential re-capitalization would help to fully lift the fundraising overhang and could be the share price catalyst.

• Re-calibrating our estimates: We fine-tune our earnings estimates to factor in the equity fundraising completed in Dec. 2010. Our Dec-11 price target of S$1.60, up from our Jun-11 price target of S$1.35, is based on our fully diluted NPV valuation with a lower discount rate assumption of 7.7% and assuming another round of equity capital-raising of S$313 million shares at S$1.40/share. At S$1.60/unit and on a fully diluted basis, we estimate the stock would trade at a 5% FY11 yield and 5% discount to book value.

• Suntec REIT the preferred office REIT: While we retain our cautious stance on office, we prefer Suntec REIT over CCT for the office exposure on the back of a better portfolio quality, better earnings growth profile and a more attractive valuation. In fact, we would argue that the historical valuation relativity of CCT trading at a premium should no longer hold given a shift in Suntec’s portfolio quality.

• Key upside risks to our rating and price target include 1) stronger-than-expected rental reversions; 2) a turnaround in Suntec City retail mall operations. Key downside risks lie within the trust’s capital structure. An inability to recapitalize or a sharp increase in short-term interest rates would adversely impact the trust’s share price performance, in our view.

Reuters: SUNT.SI; Bloomberg: SUN SP


FY09 FY10E FY11E FY12E Revenue 253.1 253.7 255.3 257.3 Net property income 192.2 190.9 192.1 193.6 Distributable profit 189.6 175.8 186.4 190.8 EPU (fully diluted) (S¢) 11.70 9.56 8.70 8.83 DPU (S¢) 1.64 1.69 1.72 1.72 BVPU (S$) 5.4 0.2 0.6 0.8 Sales growth (%) 6.1 (18.3) (9.1) 1.5 DPU growth (%) 20.9 24.3 22.1 21.7 P/E (x) 0.9 0.9 0.9 0.9 P/B (x) 7.50 6.13 5.58 5.66 Dividend yield (%) 34.2 42.4 42.0 41.7 Gearing (%) 253.1 253.7 255.3 257.3



Malaysia Strategy

19 more ETP projects announced

Malaysia

Hoy Kit MakAC



Sriyan Pietersz (662) 684 2670 [email protected]

JPMorgan Securities (Thailand) Limited

Adrian Mowat (852) 2800-8599 [email protected]


• -19 more entry point projects announced: Prime Minister Najib announced 19 more Entry Point Projects (EPPs) under the M$1.4T Economic Transformation Programme (ETP). Combined, they will contribute almost US$21B in investments, US$11.3B in GNI and 35,000 new jobs. Four projects were from the Oil, Gas & Energy sector, Business Services (three), Greater Kuala Lumpur/Klang Valley (three), Healthcare (two) and Business Services (two), and Electrical & Electronics, Agriculture, Communications Content & Infrastructure, Wholesale & Retail and Education (one each). Details in Table 1. This brings the total to 28 projects announced since Dec 2010, with combined investments of US$19.5B.

• Oil & gas and construction projects dominated: Notable investments in the oil and gas sector include: 1) ExxonMobil Malaysia’s >US$3B investment in new oil and gas assets to rejuvenate mature facilities and undertake enhanced oil recovery activities in the Tapis field; 2) Shell Malaysia’s US$1.6B projects including the expansion of the Shell MDS wax plant in Bintulu, a new diesel processing unit at the Shell Refinery in Port Dickson, and the Gumusut deepwater development offshore Sabah; 3) Dialog’s M$5B independent deepwater petroleum terminal project at Pengerang, Johor (see our Dialog Note dated 11 January entitled “Tank farming to prosperity”, and 4) US$11.4B MRT project that will benefit the construction sector. Please refer to our construction sector piece dated 23 December entitled “Government negotiating MRT project delivery partner fees.”

• Recommendation and action: While some of the announced projects are already known to the market, the endorsement by the Prime Minister reflects greater government commitment to kick-start the ETP. While there may be some level of private sector buy in as indicated above, we would be more comfortable to play the ETP-theme through the contractors, as rolling out infrastructure projects, mainly public funded, will be the government’s top priority to kick-start the ETP, in our view. In our Malaysia Strategy report dated 26 October - "Economic transformation takes shape", we recommended investors gain exposure to the ETP through contractors, properties & banks (both secondary beneficiaries of infrastructure development and transportation linkages) and oil & gas. Our top picks in those sectors are IJM Corporation (OW), RHB Capital (OW), IJM Land (OW), and Dialog (OW).


Baoshan Iron & Steel - A

Overweight 600019.SS, 600019 CH

2010 Net Income In-Line with Prior Guidance; Raises Feb Steel Prices - ALERT

Price: Rmb6.70

11 January 2011

Metals & Mining

Nathan M. Zibilich, CFAAC *

(852) 2800 8570

[email protected]

Wenwen Wang


* Registered/qualified as a research analyst under NYSE/NASD rules

• 2010 EPS of Rmb0.73 tops consensus of Rmb0.71. Today Baoshan reported preliminary full year 2010 EPS of Rmb0.73 vs. JPMe of Rmb0.81 or a 123% increase over 2009 EPS of Rmb0.33. Total sales revenue in 2010 increased 36% to Rmb202 billion, which is in line with our forecasts of Rmb203 billion. Operating profit stood at Rmb16.6 billion, up 129% from the previous year vs. our forecasts of Rmb19.0 billion, which implies a 139% y/y rise.Net margin for the whole year 2010 reached 6.3% vs. our forecasted net margin of 7.0%.

• Raises February HRC and CRC prices another Rmb100/t. After raising January prices by Rmb300/t last month, today Baoshan again raised prices by another Rmb100/t for February deliveries. Indeed, domestic HRC spot market prices in China have been on a roll, rising 8% over the past six straight weeks to Rmb4,705/t ($713/t) to the highest levels since last April. We believe the floods and supply constraints on met coal from Australia will likely lead to Bao's competitors in Japan and Korea who source as much as 50-60% of their coking coal needs from Australia to raise steel prices in the coming months. Given that Bao gets less than 5% of its coking coal from Australia we believe the company is well positioned to benefit from higher steel prices without seeing its costs rise as much.

Table 1: Baoshan Iron & Steel 2010 income statement results summary

Unit: Rmb billion except for per share data

2010

Unaudited y/y change JPM forecast

Revenue 202.4 36% 203.2

Operating profit 16.6 129% 19.0

Profit before tax 17.0 133% 18.5

Net profit attribute to shareholders 12.8 120% 14.2

EPS (Rmb) 0.73 123% 0.81

Source: J.P. Morgan estimates, Company data.

Table 2: Baoshan Iron & Steel 2010 balance sheet results summary

Unit: Rmb billion except for per share data

2010 2009 y/y change

Total asset 216.3 201.1 7.6%

Shareholder's Equity 104.7 95.1 10.0%

BVPS (Rmb) 6.0 5.4 10.1%

ROE 12.9% 6.3% +6.6 percentage

points

Source: Company reports.


Bulk Shipping 1919.HK, 1919 HK

Overweight HK$8.63


Adding China Cosco and Pacific Basin Shipping to AFL

2343.HK, 2343 HK Overweight HK$5.01


China Hong Kong Conglomerates & Multi-industry

Corrine PngAC

(65) 6882-1514

[email protected]


Equity Ratings and Price Targets Mkt Cap Rating Price Target Company Symbol (HK$ mn) Price(HK$) Cur Prev Cur Prev China Cosco Holdings, Ltd. 1919.HK 19,001 8.63 OW n/c 11.80 n/c Pacific Basin Shipping 2343.HK 1,245 5.01 OW n/c 7.00 n/c Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 10 Jan 11.

• The recent collapse in freight rates is more weather-related than structural. The recent correction in freight rates was not caused by a huge surge in supply. The global dry bulk shipping capacity rose only 1% in Dec-10, raising the total capacity increase to 76MM dwt or 16.5% in Jan-Dec 2010. Floods in Australia caused Aus-China’s share of shipping demand to drop, accounting for only 21% of the Capesize ships chartered during the week.

• We believe that the sector’s persistent oversupply is already widely known and priced in. Also, delivery shortfalls could continue in 2011 as financing challenges remain, especially if freight rates remain depressed.

• Position for the rebound: The global industrial production outlook is healthy in 2011 (+10.9% for Emerging Asia; +5.5% Global according to JPM Economics team). Although the bad weather will continue to stall shipping volumes and depress freight rates near term, we expect rates to rebound as shipments normalize and see this as an opportunity for patient long-term investors to revisit this unloved sector.

• Investment rationale:

• China Cosco (1919 HK): Following its share price correction and underperformance vs. the market, China Cosco’s current valuations are c.25% below their historical average and c.80% below previous peak levels. There is also a scarcity premium for this largest bulk shipper globally which we believe will be one of the most leveraged plays to the bulk shipping sector’s longer-term recovery.

• Pacific Basin Shipping (2343 HK): Following its share price correction and underperformance vs. the market, Pacific Basin Shipping’s current valuations are c.46% below their historical average and c.77% below previous peak levels. PacBas has secured cargo cover for 46% of its combined Handysize and Handymax revenue days in 2011 (as at 27 Oct 2010), which provides downside support to earnings. In addition, the outlook in other segments is improving - PB towage benefited from the pick-up in infrastructure/offshore construction focused on Australia; the Euro-centric RoRo market is improving with monthly European trailer volumes rising y/y.

• We reiterate our Overweight ratings for Pacific Basin and China Cosco and are adding them to the Asia Analyst Focus List.


CapitaRetail China Trust

Neutral CRCT.SI, CRCT SP

Stable return

Price: S$1.25


Singapore REITs

Joy WangAC




1.0

1.3

1.6

S$


Price Performance

CRCT.SI share price (S$)FTSTI (rebased)

YTD 1m 3m 12m

Abs 0.8% 4.2% 0.0% -6.0%

Rel -0.4% 2.8% -2.4% -16.1%

Unit data

52-week range S$1.06 - 1.33 Market cap (S$MM) 782 Market cap (US$MM) 603 Shares outstanding (MM) 625 Avg daily value (S$MM) 1.2 Avg daily value (US$MM) 0.9 Avg daily volume (shares) 0.9 FSSTI 3241 Exchange rate S$1.296/US$

Source: Bloomberg

• China retail exposure with stable return. CRCT has been de-rated over the last 12 months as a result of the listing of a number of stocks that offer exposures to China retail including CapitaMalls Asia (CMA SP; OW). With potentially more stocks to be introduced into the space, competition for equity capital would be more intense, in our view. That said, we continue to see CRCT as a vehicle that provides pure China retail exposure with a stable total return of about 10%.

• Momentum for rental reversion should continue. Rental reversion for the portfolio has been improving over the last 3 quarters on the back of strong SSS growth. With Qibao Mall being repositioned last year and Saihan Mall AEI being progressively completed, we should see the positive rental reversion to continue in 2011.

• Lack of catalyst in the near term. Whilst we retain our view that the underlying portfolio valuation will eventually be unlocked upon a potential listing in China, we are unlikely to see meaningful inorganic growth from the trust in the near term given its relatively high cost of capital compared to the market’s underlying asset yield of about 5%.

• We retain our Neutral rating on CRCT, with Dec-11 DDM based price target unchanged at S$1.30/unit. Key upside risks to our rating and price target include management’s ability to grow the portfolio substantially and better-than-expected operating fundamentals. Key downside risk mainly stems from negative earnings surprises.

Reuters: CRCT.SI; Bloomberg: CRCT SP


FY09 FY10E FY11E FY12E Revenue 120.3 121.7 125.0 129.9 Net property income 77.1 79.3 82.0 86.0 Distributable profit 51.2 52.3 53.7 56.2 EPU (S¢) 7.07 8.28 8.51 8.91 DPU (S¢) 8.14 8.41 8.61 8.96 BVPU (S$) 1.10 1.11 1.17 1.27 Sales growth (%) 10.5 1.1 2.7 3.9 DPU growth (%) 8.1 3.4 2.3 4.1 P/E (x) 17.7 15.1 14.7 14.0 P/B (x) 1.1 1.1 1.1 1.0 Dividend yield (%) 6.51 6.73 6.89 7.17 Gearing (%) 35.1 34.9 33.8 32.2



CIMB Group Holdings

Neutral CIMB.KL, CIMB MK

Indonesia Banks Sell-off a Pre-cursor to CIMB Stock Price Decline - ALERT

Price: M$8.83

10 January 2011

Malaysia Banks

Harsh Wardhan ModiAC

(65) 6882- 2450 [email protected]


Sunil Garg (852) 2800-8518 [email protected]


Hoy Kit Mak (60-3) 2270-4728 [email protected]


• We believe its time to trim CIMB positions and re-enter at levels closer to M$7.50. CIMB has performed almost in lock-step with Indonesia banks in 2010, but has massively outperformed (by 14%) in last ten days as Indonesia banks were sold off, as per chart below.

• In last 12 to 18 months, CIMB stock has traded as a proxy to Indonesian banks due to one-third contribution from CIMB Niaga (34% of net profits in 9M10). This business is now under pressure as margins are due to contract from 6.6% to sub-6% over next 2-3 quarters. The compression coming from competition on both sides of balance sheet (loan and deposit pricing).

• While we hold a positive medium term view on the stock, we believe tactically, now is the right time to trim positions, as we have previously flagged in our research (CIMB Group Holdings: The Preeminent Asean Bank, 17 November 2010, click here for report).

• Maintain Neutral on the stock. Risks to this view include a significant pick-up in ETP related activity, where CIMB will be a key beneficiary in terms of lending as well as related capital market activities.

Figure 1: CIMB vs. Indonesia Banks - Since Jan 2010

80%

100%

120%

140%

160%

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

CIMB (Rebased) Indonesia Banks (Rebased)

Source: Bloomberg


Frasers Centrepoint Trust

Overweight FCRT.SI, FCT SP

Looking beyond the next 12 months

Price: S$1.52


Singapore REITs

Joy WangAC




1.25

1.40

1.55

S$


Price Performance

FCRT.SI share price (S$)FTSTI (rebased)

YTD 1m 3m 12m

Abs 0.7% 4.9% 0.0% 7.9%

Rel -0.5% 3.5% -2.4% -2.2%

Unit data

52-week range S$1.22 - 1.60 Market cap (S$MM) 1,167 Market cap (US$MM) 900 Shares outstanding (MM) 768 Avg daily value (S$MM) 1.4 Avg daily value (US$MM) 1.1 Avg daily volume (shares) 0.9 FSSTI 3,241 Exchange rate S$1.296/US$

Source: Bloomberg

• Rental reversion to remain strong. Given passing rents for properties under FCT’s portfolio is below the market and with occupancy cost for its tenants still at a relatively low level of about 13- 15%, we expect the trust to continue with the positive rental reversions. Full year rental reversion for 2010 was 7.2% versus preceding rents.

• Growth prospects remains strong. In addition to AEI and organic growth through positive rental reversions, FCT is likely to acquire Bedok Point in first half 2011. We believe that with the trust's portfolio still relatively under-rented, gain from Causeway Point AEI yet to kick in and a still strong sponsor pipeline, we see growth prospects for the trust to remain strong in the medium - long term.

• Near-term volatility expected. Whilst we continue to favor FCT, the near term supply in stock with Singapore retail exposure through IPOs could trigger near-term volatility and underperformance. The potential weak 1QFY11 results as a result of the distortion from Causeway Point AEI could also put added pressure to the stock.

• We reiterate our Overweight rating, with Dec-11 DDM - based price target unchanged. Key risks to our rating and price target include an unexpected deterioration in the operating performance and a reversal of liquidity inot the capital market that could potentially require a larger discount to be applied in valuing small-cap stocks.

Reuters: FCRT.SI; Bloomberg: FCT SP

S$ in millions, year-end September


Revenue 114.7 122.5 132.8 139.5 Net property income 80.1 83.4 93.6 99.6 Distributable profit 59.2 64.8 75.8 80.1 EPU (S¢) 7.98 7.77 9.07 9.51 DPU (S¢) 8.22 8.42 9.78 10.26 BVPU (S$) 1.29 1.35 1.42 1.54 Sales growth (%) 32.5 6.8 8.4 5.1 DPU growth (%) 9.2 2.5 16.1 5.0 P/E (x) 19.0 19.6 16.8 16.0 P/B (x) 1.2 1.1 1.1 1.0 Dividend yield (%) 5.4 5.5 6.4 6.8 Gearing (%) 30.8 31.1 31.4 29.5



Mando

Overweight 060980.KS, 060980 KS

Auto parts JV with Geely another evidence of successful customer diversification; earnings impact to start from 2012E

Price: W144,500

Price Target: W170,000

South Korea Auto Parts

Wan Sun ParkAC

(82-2) 758-5722

[email protected]

Gon Suk Lee (82-2) 758 5710

[email protected]

J.P. Morgan Securities (Far East) Ltd, Seoul Branch

70,000

110,000

150,000

W


Price Performance

060980.KS share price (W)KOSPI (rebased)

YTD 1m 3m 12m

Abs 8.2% 8.6% 0.3% 74.1%

Rel 7.3% 4.0% -10.2% 50.8%

Bloomberg JPMA WPARK <GO>

Figure 2: Expected revenue from JV

Wbn

0200400

6008001000

2012E 2013E 2014E 2015E 2016E

Source: Company, J.P. Morgan estimates.

• Mando announced auto parts JV with Geely Automobile in China. We believe this is continuing evidence of Mando’s product competitiveness and ability to penetrate into global OEMs.

• Total investment of W62B by Mando. New joint venture will be owned 65% by Mando and 35% by Geely. As of 3Q10, Mando has W260B in consolidated cash and debt to equity is low at 24%.

• Product and volume. The JV will produce brakes, steering, suspension and BCM (brake corner module) for Geely’s compact to mid-size PV models. First year (2012E) production will be very sizable, equivalent to meet 800,000 units of Geely’s PV production. Geely’s 2012 production capacity is around 830,000 units, meaning that the JV will meet nearly 100% of the chassis parts demand by Geely. Geely targets to raise production to 2M units by 2015. It has agreed to guarantee at least 60% of JV production on any given year.

• Revenue and earnings impact to start from 2012E. The company guided that the JV will be able to record low-single-digit OPM right from the first year of operation, due to the large volume mandate. We estimate 2012E revenue from the JV would be equivalent to us raising our 2012E consolidated revenue by 5%.

• Maintain OW and PT of 170,000. Our Jun-11 PT of W170,000 is based on the average of EV/sales (80%) and P/E (20%). Downside risks include cost reduction pressure from OEMs and potential overhang from 3.1M shares owned by KCC. Upside risks include further potential customer acquisitions and faster-than-expected solidification in its relationship with recently penetrated customers.

Bloomberg: 060980KS; Reuters: 060980.KS

Won in billions, year-end December

FY09A FY10E FY11E FY12E

Sales (W Bn) 2,727 3,637 4,257 4,862 52-week range W156,500-83,000 Net profit (W Bn) 107 186 227 258 Market cap W2,632B EPS (W) 6,657 10,901 12,556 14,283 Market cap US$2,339MM Sales growth (%) 12.4% 33.4% 17.1% 14.2% Shares issued 18.2MM Net profit growth (%) 156.9% 73.6% 21.7% 13.8% Free float 41.1% ROE (%) 12.9% 17.6% 17.0% 16.5% Avg daily value W15.9B ROA (%) 13.3% 15.8% 15.3% 15.4% Avg daily value US$14.1MM P/E (x) 21.7 12.8 11.1 9.8 Avg daily volume 0.1MM shares P/B (x) 2.6 1.9 1.7 1.5 KOSPI 2,088.3 EV/EBITDA (x) 7.8 6.6 5.6 4.9 Exchange Rate W1,125.1/US$

Source: Company data, J.P. Morgan estimates. Price as of January 11, 2011


Tata Steel Ltd

Neutral TISC.BO, TATA IN

FPO announced (6% dilution); Q3 commentary on prices and volumes in line with estimates; Corus guided down for Q3 - ALERT

Price: Rs650.70

10 January 2011

Steel

Pinakin Parekh, CFAAC

(91-22) 6157-3588

[email protected]

Neha Manpuria (91-22) 6157-3589

[email protected]


• Volumes across divisions in line with estimates: TATA, for the first time, gave consolidated volume details for the quarter, pre results. India sales at 1.637MT (+3% y/y, -1% q/q) are in line with our estimates of 1.64. India crude steel production at 1.75MT was marginally ahead of our estimates of 1.7MT. Europe steel sales (Corus) at 3.5MT (+8% y/y, -1% q/q) were marginally higher than JPM estimate of 3.4MT. South East Asia sales volumes at 0.776MT (-14% y/y, -2% q/q) are in line with our estimates.

• Pricing trends details also hold no surprises: The press release highlights that pricing environment in India was mixed with flat product prices lower q/q, while some long products were up q/q (in line with our estimates, please see our Metals earnings preview dated 7th Jan, 2011 for more details). There was no commentary on pricing trends in Europe for the Dec quarter.

• Management guides to weak Europe earnings, though no comment on profitability: The press release, in our view, is guiding down to European profitability in the Dec quarter saying ‘the improvements in the financial performance of the first half of FY11 could not be maintained as higher raw material prices and reduced apparent demand due to seasonal slow down, amongst other factors, adversely affected margins at TATA Steel's European Operations'. While Dec is expected to be a weak quarter for the European operation, we believe investors would want to see EBITDA/MT positive results for Corus. We expect Dec-10 EBITDA/MT at $29/MT v/s $56/MT in the Sept quarter. JPM Consolidated EBITDA estimate for TATA is Rs32.8bn (-11% q/q) and PAT at Rs20bn (-45% q/q). We expect a sharp recovery in the March quarter in both India and Europe as the company benefits from steel price increases of Jan/Feb but the cost pressure would flow through in the June/Sept quarter.

• Update on fund raising: TATA also announced a Further Public Issue (FPO) of 57mn new shares (6% equity dilution on current JPM estimated fully diluted share count of 974mn shares). The pricing band is yet to be decided. At current price of Rs646, it would imply Rs37bn ($818mn) of new equity issuance. However, the dates of issuance have not yet been finalized and hence the price would be decided closer to issue date. TATA had taken approval to raise up to Rs70bn ($1.5bn) in new equity. Given that the current equity issuance is just above half of the approved limit, we are not very clear as to whether the company would consider another round of equity raising at a later date. As of now the current issue is a plain vanilla equity issue and not DVR.


Tisco Financial Group Pcl.

Neutral TISCO.BK, TISCO TB

4Q10 in-line: strong loan volume but offset by substantial NIM decline

Price: Bt36.50

Price Target: Bt36.00

Thailand Banks

Anne JirajariyavechAC (66-2) 684-2684 [email protected]




25,000

40,000

55,000

Rp

Jul-09 Oct-09 Jan-10 Apr-10 Jul-10

Price Performance

ASII.JK share price (Rp)JCI (rebased)

YTD 1m 3m 12mAbs 5.3% 8.1% 9.9% 233.8%Rel 4.1% 9.9% 6.8% 138.4%

Company data52 Wk Range 45.50-21.00Market cap (Bt mn) 26,568Market cap (USD MM) 866Share O/S (MM) 728Free Float (%) 80.0Ave. daily volume (MM) 5.1Ave. daily Value (Bt MM) 78.8Exchange rate 30.67Index 1,018Year-end DecSource: Bloomberg. Price date 10 January 2011

• TISCO’s 4Q10 NP came in at Bt682 million (+31% Y/Y but -7% Q/Q), in-line with our expectation but below the market.

• Strong loan growth +6.7% Q/Q in 4Q10 (+4.8% in Dec10 alone). TISCO achieved 32% loan growth for FY10 which is the highest record post 1997 crisis. While auto loan was the key driver for most part of the year, corporate loans (15% of portfolio) also grew well (+51% Y/Y).

• NIM, however, declined substantially in 4Q10 to 4.49% (-40bp Q/Q). TISCO’s NIM peaked out in 1Q10 at 5.10%. This is driven by both declines in yield (increasing impact of low-yield fixed-rate auto loans, loan mixes, and competition) as well as increase in funding cost (shorter duration of liabilities and hence being impacted from increase in interest rate).

• Asset quality remains in good health with low NPL ratio at 1.7% and strong coverage ratio at 157%. Credit cost dipped a slight Q/Q to 161bp (from 172bp in 3Q10) but that remains higher than the bank’s normalized level at 100bp suggesting there remains significant room to release provision.

• High B/S leverage. There will be an analyst meeting tomorrow which we will touch base with management especially on the bank’s leverage. Equity/asset ratio at 8.8% is lowest in the record. This highlights the bank’s strong efficiency (having less non-earning assets) but, at the same time, could mean limited growth capability going forward.

• We maintain Neutral on TISCO with Dec11 PT at Bt36. In our view, there is upside risk on volume growth but already high B/S leverage as well as NIM pressure are two key factors that could limit earnings upside. Our PT is DDM based with 15.0% ROE, 12.8% COE, and 7.5% growth. Risks are credit quality deterioration and fiercer than expected market competition. Upside risk is loan growth.

TISCO earnings results summary (Bloomberg: TISCO TB Reuters:TISCO.BK) Earnings revision and valuation Bt millions (per sh. data in Bt) 4Q10 4Q09 Y/Y 4Q10 Q/Q 2011E 2012ELoan growth 6.7% 1.4% 9.5% Old EPS (Bt) 4.09 3.97NIM 4.49% 4.97% 4.89% New EPS (Bt) 4.09 3.97PPOP 1,560 1,294 21% 1,564 -0.3% % change 0.0% 0.0%Net profit 682 520 31% 731 -6.6% P/E (x) 8.9 9.2EPS 0.94 0.71 31% 1.00 -6.6% ROE (%) 19.4% 16.8%Credit cost (basis point) 161 202 172 P/B (x) 1.6 1.5NPL 1.7 2.3 1.8 Dec11 PT 36.0Source: Company, J.P. Morgan estimates; Price date 10 Jan 2011.


Thai banks

Plenty of liquidity to support loan growth

Thailand Banks

Anne JirajariyavechAC (66-2) 684-2684 [email protected]




• Credit growth is accelerating in Thailand. Questions are 1) Will Thai banks have enough liquidity to support loan growth given high LDRs? And 2) Will mobilizing of new deposits to support loan growth cause NIM pressure? Our view is excess liquidity remains plenty despite Thai banks having high LDRs. Therefore, NIM could still expand along with the rising loan growth and interest rates. However, changes in loan mix (more corporate loan growth) could limit scope of NIM expansion.

• Loans growing in all area, corporate loans providing upside surprises. We have highlighted in our recent note (Thai banks: Credit cycle coming back, 5 Jan11) that loan growth is accelerating in Thailand. The sector loan growth was 10% Y/Y as of Nov10. Feedback from banks indicates that the growth is even stronger in Dec10 compared to Nov10. While the growth was seen in all area, corporate loan is where the growth exceeds management and market’s expectation.

• Will Thai banks have enough liquidity to support growth? Thai banks’ LDRs appear to be higher than regional peers. This has concerned some investors that Thai banks will not have enough liquidity to support growth and mobilization of new deposits could cause NIM pressure.

o Switching of deposits to B/E to save costs – LDR with B/E still low indicating plenty of excess liquidity.

o Deposit taking is more profitable in rising interest rate environment. High LDR in low interest environment is normal and is a wise strategy as yields in interbank and investment assets are low. Going forward, with interest rates turning upward, we believe banks will take more deposits. Taking deposits is also more profitable as interest rises because higher yield on interbank or investment assets.

o It is more the mixes of loan growth than high LDR that will likely limit scope of NIM expansion. As we believe corporate will drive loan growth, NIM expansion could therefore be limited. It is more volume driven than NIM driven for 2011.

Valuation summary Div yield

2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E(%)

BAY 6.5 5.5 4.8 17.0 13.3 10.1 1.3 1.58 1.47 1.34 9.6 11.5 13.9 46.8 17.1 14.6 37.0 28.0 31.5BBL 8.2 7.3 6.5 13.2 12.3 10.9 2.5 1.44 1.34 1.24 11.3 11.3 11.9 5.1 13.0 12.0 11.0 7.6 13.1KBANK 8.3 6.9 5.7 15.5 12.5 10.1 2.0 2.36 2.14 1.91 15.9 18.0 20.0 19.0 20.1 21.1 27.1 23.7 24.2KTB 7.5 6.0 5.1 12.8 10.1 8.4 2.3 1.62 1.45 1.28 13.1 15.1 16.1 15.2 24.3 18.3 26.5 26.8 19.9SCB 9.1 7.8 6.5 13.8 12.2 10.1 2.6 2.12 1.90 1.66 16.2 16.3 17.5 12.0 17.0 19.7 16.4 12.3 20.7TMB 23.4 18.5 14.2 31.3 28.6 19.9 0.0 2.02 1.93 1.80 6.6 6.9 9.4 12.9 26.5 30.5 56.5 9.6 43.4TCAP 3.6 2.6 2.1 9.4 8.6 6.9 2.8 1.25 1.13 1.01 14.0 13.8 15.5 32.3 36.6 22.8 (4.1) 9.4 24.7KK 5.1 5.0 4.6 6.9 7.3 7.1 5.4 0.98 0.92 0.86 14.8 13.0 12.5 21.6 2.0 7.6 24.9 (5.5) 2.7TISCO 4.5 4.1 4.0 9.0 8.1 8.2 4.7 1.87 1.61 1.42 22.3 21.4 18.4 25.7 10.1 2.9 50.4 11.3 (1.2)Sector 7.9 6.7 5.7 14.1 12.2 10.1 2.2 1.77 1.62 1.46 13.1 13.9 15.2 17.7 18.9 17.5 20.7 16.1 20.6

(x)(x)(x)

ROE PPOP Growth Net profit growth

(%)(%)(%)

P/PPOP P/E P/BV

Source: J.P. Morgan. Pricing are as of 11 Jan11.


Indian capital goods and E&C

Dec-q earnings preview and order flow tracker

Engineering

Shilpa KrishnanAC


Sumit KishoreAC

(91-22) 6157-3581

[email protected]

Deepika Belani (91-22) 6157-3582

[email protected]


Capital goods: Revenue est.

Rs. in millions

Dec-10 Dec-09 % YoY

LT 100,892 80,714 25.0 BHEL 86,941 71,023 22.4 Suzlon 47,100 56,084 (16.0) Siemens 22,586 18,666 21.0 ABB 20,234 18,852 7.3 CG 24,415 22,464 8.7 Punj 23,000 29,040 (20.8) Sector 278,068 240,759 15.5

Source: J.P. Morgan estimates, Company data.

Capital goods: Adj. PAT est.

Rs. in millions

Dec-10 Dec-09 % YoY

LT 8,524 6,963 22.4 BHEL 12,371 10,726 15.3 Suzlon 984 (2,297) (142.8) Siemens 1,881 2,364 (20.4) ABB 854 1,096 (22.1) CG 2,169 1,996 8.6 Punj [a] 491 125 293.4 Sector 26,289 23,270 13.0

Source: J.P. Morgan estimates, Company data. [a]

Dec-09 reported PAT, adjusted PAT of Rs1775MM.

• Execution expected to remain strong for both L&T and BHEL in Dec-q. We est. 25% rev. growth for L&T in Dec-q, on a weak base of 3QFY10 (revenue de-grew 6% YoY), stable margins (~12.5%) and 22% PAT growth. In comparison, BHEL's Dec-q PAT growth (15% YoY est.) is slower but impacted by an exceptionally strong base qtr of material cost reductions.

• BHEL / L&T did not report any power plant orders in Dec-q ; both would need to report very strong orders in next 3 months to meet market expectations: BHEL would need to report Rs285B orders in Mar-q to meet its guidance of flat order inflows in FY11 (~Rs570B): this figure includes assured NTPC-DVC turbine award for 4x660MW (~Rs29B) and potential boiler awards. We est. L&T 's order inflows at ~Rs160B in Dec-q (incl. reported orders of ~Rs118B). The implied ask for 4Q is Rs350B, for L&T to meet FY11 guidance of 25% YoY growth in order inflows. In the event of a spillover of L&T's captive Hyderabad metro order (~Rs95B) or NTPC-DVC 11x660MW boiler awards to FY12, inflow guidance for both BHEL and L&T would be at risk, in our view.

• The implied execution expectation for 4QFY11 is high, as well: Implied revenue growth ask for L&T is 30% on a high base quarter, while that for BHEL is 23%, backed by the latter's enhanced capacity to 15GW.

• T&D plays – mixed P/L trend but potential transmission ordering pick-up the silver lining: We expect moderate growth (8.7%) and stable margins est. for CG. Strong execution expected to continue in Siemens (21%), though one-off 19.5% margins of Dec-q last year unlikely. We expect PAT de-growth to continue in ABB in Dec-q, in 9MCY09 sales have dipped 2.7%. So far, PGCIL awards have been tepid, but pick up expected. PGCIL awarded ~Rs14.6B of transmission contracts, substation orders were just ~Rs3.1B. A pick up led by High Capacity Power Transmission contract awards of ~Rs580B is expected thru FY12.

• Punj Lloyd - We est. 2HFY11 revenue decline of 2.7%, contrary to consensus. Suzlon’s domestic order run intact: YTD inflows of 1.21GW inspire confidence in domestic growth for FY12. We est. a loss for wind business at Rs719MM; but a profit of Rs984MM in Dec-q at consol level.

Table 1: Capital goods and E&C: Key valuation metrics

Year-end March

Company Rating CMP PT Mkt Cap P/E (x) EV/EBITDA (x) Key risk (Rs) (Rs) (US$ bn) FY11E FY12E FY11E FY12E

Suzlon UW 49 41 1.9 (10.7) 13.3 15.2 6.6 Strong order inflows Larsen & Toubro OW 1,782 2,140 23.6 23.5 19.8 16.7 14.5 Substantial delays in new ordering Punj Lloyd N 100 116 0.7 11.6 8.4 7.7 6.6 Concentration risk in slow moving orders BHEL OW 2,182 2,780 23.5 19.1 15.9 12.4 9.6 Low realization on new private sector orders ABB UW 741 720 3.5 56.3 28.7 40.6 18.3 Weak execution, order inflows Siemens N 772 695 5.7 29.7 25.2 17.1 14.1 Potential margin risk for shared jobs Crompton Greaves N 297 350 4.3 20.8 17.6 13.3 11.2 Margin risk; delay in Avantha Power IPO

Source: J.P. Morgan estimates, Company data. Note: Price on market close of 7 October 2010. ABB (Dec-YE) and Siemens (Sep-YE) numbers have been fiscalized (Mar-YE).


Crude Reality

Rig space looking expensive

Asia Oil & Gas

Brynjar Eirik BustnesAC



Sukit Chawalitakul (66-2) 684-2679 [email protected]


Samuel Lee, CFA (852) 2800-8536 [email protected]


Pradeep Mirchandani, CFA (91-22) 6157-3591 [email protected]


Stevanus Juanda (62-21) 5291 8574 [email protected]

PT J.P. Morgan Securities Indonesia

Akhil Handa (91-22) 6157 3255 [email protected]


Newbuild Jackup contract status

0

2

4

6

8

10

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13

Contracted Uncontracted

Source: Riglogix, J.P. Morgan.

Rig space looking expensive – Brynjar BustnesAC, CFA, Hong Kong There was little New Year cheer for the rig space, especially for the jackups, which are facing continued headwinds into 2011 with utilization rates dropping across the board. For the week ending Jan 07, 2011, the premium/low-end segment utilization dropped 14%/6% over a year ago and the day rates dropped up to 5% Y/Y. We believe the uncontracted newbuilds (see right chart, total 45 JUs over 2010-12E) would further pressurize the market and thereby see little upside from current levels for jackups. In addition, the renewed newbuild cycle, partially driven by elevated oil prices, makes the market oversupplied well into 2012, in our view.

For stock-specific recommendations, we’ve put out a fresh UW on COSL (2883 HK) with a HK$12.5 PT, implying 25% downside potential from current levels. In all, for the offshore drillers space, our house view is negative with one OW, three N, and three UW (including COSL) stock recommendations.

Click on the links below for the latest news, research, energy events and share price movements from Asian Oil & Gas Team.

Oil Markets Weekly – Global perspective

Error! Reference source not found.

Latest research






Utilization rates since Jan 2009 (Jack-ups >300’ and <300’)

70%

75%

80%

85%

90%

95%

100%

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

JU <300' JU >300'

Source: Riglogix, J.P. Morgan.


Hong Kong Property 2010 Wrap

Office rental showed biggest positive surprises

Hong Kong Property

Lucia Kwong, CFAAC


Amy Luk, CFA (852) 2800 8524 [email protected]

Suzy Tian (852) 2800 8552 [email protected]


Figure 3: HK developers vs landlords

50

70

90

110

130

150

170

190

Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan-11

Index

Rebased Jan 07Prop. Developers

Prop. Investors

Source: Bloomberg, J.P. Morgan

• Residential price up 20.7% in secondary market: We saw housing market stabilizing towards the last week of 2010, six weeks after the announcement of Special Stamp Duty. In 2010 secondary prices went up by 20.7% vs. 29% growth in 2009, with the Centaline Index reaching 88.4 at year end, just 14% below the historical peak. This was slightly above our 15% Y/Y growth expectation. The government finally showed determination to cool down the housing market with the heaviest dose being the introduction of Special Stamp Duty in Nov-10.

• Secondary volume a record high in past 10 years: The secondary price growth in 2010 came along with strong turnover. We estimate secondary transactions to have increased by 17% Y/Y in 2010 to 121,732 units, the highest in the past 10 years. Meanwhile, the primary market experienced a volume decline. Towards the end of the year, developers were holding back new launches as more potential buyers stayed on the sideline after the new measures. We estimate primary volume to be 12,215 units for 2010, down 25% Y/Y.

• Central office rental growth leading other districts: Driven by business expansion and new startups, office rental market fared better than our expectation. According to Jones Lang LaSalles (“JLL”), the overall Grade A office rents went up 28.5% Y/Y in 2010 while growth in Central was leading other districts, up 33% in 2010, way above our expectation of 20% growth. Rents in decentralized areas were catching up in 4Q10 as vacant spaces were gradually filled up.

Table 2: Valuation summary

Price NAV Dis. to PER Div. Yield P/B Stock 11-Jan-11 Dec-11 Dec-11 NAV FY10E FY11E FY10E FY11E FY10E FY11E Rating code (HK$) (HK$) (%) (X) (X) (%) (%) (X) (X) Cheung Kong OW 0001.HK 132.4 170.2 -22% 15.5 14.3 2.3 2.3 1.2 1.2 Henderson Land OW 0012.HK 56.9 79.3 -28% 25.3 23.2 1.4 1.8 0.9 0.7 New World Development OW 0017.HK 16.0 28.9 -45% 10.0 12.4 2.4 2.4 0.7 0.7 Sun Hung Kai Properties OW 0016.HK 138.1 181.0 -24% 25.6 17.8 2.0 2.1 1.4 1.3 Sino Land N 0083.HK 16.2 21.2 -24% 22.3 14.8 2.5 2.8 1.1 1.1 K Wah International OW 0173.HK 3.3 8.8 -62% 15.8 8.1 3.3 3.3 0.9 0.8 Great Eagle OW 0041.HK 25.4 50.7 -50% 11.8 12.2 2.1 2.1 0.7 0.7 Hang Lung Group N 0010.HK 52.4 63.2 -17% 19.0 17.9 1.5 1.5 1.4 1.3 Hang Lung Properties N 0101.HK 36.2 34.9 4% 22.5 21.5 2.0 2.1 1.7 1.8 Hong Kong Land (US$) OW HKLD.SI 7.3 9.9 -26% 20.7 21.4 2.5 2.5 1.2 1.2 Hysan Development OW 0014.HK 37.9 50.2 -25% 33.6 32.4 1.8 1.8 1.1 1.1 Kerry Properties OW 0683.HK 43.5 74.1 -41% 15.0 14.7 2.3 2.8 1.2 1.1 Swire Pacific OW 0019.HK 129.6 183.2 -29% 9.8 16.6 2.6 3.0 1.2 1.1 Wharf Holdings OW 0004.HK 60.5 76.3 -21% 21.6 20.0 1.3 1.5 1.4 1.3 Link REIT N 0823.HK 25.0 27.0 -8% 25.0 22.8 3.9 4.3 1.4 1.3 Champion REIT N 2778.HK 5.0 4.1 22% 45.3 39.3 4.3 4.1 0.9 0.8 Fortune REIT OW FRT.SP 4.0 4.9 -19% 20.2 16.8 6.0 6.5 0.8 0.7 Developers' Average -25% 20.8 16.6 2.1 2.2 1.2 1.2 Investors' Average -22% 17.0 19.0 2.1 2.4 1.3 1.3 REITs' Average 0% 30.4 27.0 4.2 4.4 1.2 1.1

Source: Company reports, Bloomberg, J.P. Morgan estimates.

30



Companies Recommended in This Report (all prices in this report as of market close on 11 January 2011) Tisco Financial Group Pcl. (TISCO.BK/Bt37.00/Neutral)

Analyst Certification: The research analyst who is primarily responsible for this research and whose name is listed first on the front cover certifies (or in a case where multiple research analysts are primarily responsible for this research, the research analyst named first in each group on the front cover or named within the document individually certifies, with respect to each security or issuer that the research analyst covered in this research) that: (1) all of the views expressed in this research accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst in this research.

Important Disclosures

• Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for CapitaMall Trust, CIMB Group Holdings, Honda Motor (7267), Husky Energy, Hutchison Whampoa, Inpex Corporation, Mando, Tata Steel Ltd within the past 12 months.

• Analyst Position: The following analysts (and/or their associates or household members) own a long position in the shares of A-REIT: Adrian Mowat. The following analysts (and/or their associates or household members) own a long position in the shares of CapitaRetail China Trust: Adrian Mowat. The following analysts (and/or their associates or household members) own a long position in the shares of China Cosco Holdings, Ltd.: Adrian Mowat. The following analysts (and/or their associates or household members) own a long position in the shares of Pacific Basin Shipping: Adrian Mowat.

• Beneficial Ownership (1% or more): J.P. Morgan beneficially owns 1% or more of a class of common equity securities of Nikon (7731).

• Client of the Firm: Anhui Conch Cement Company Limited - A is or was in the past 12 months a client of JPM. Anhui Conch Cement Company Limited - H is or was in the past 12 months a client of JPM. A-REIT is or was in the past 12 months a client of JPM. Baoshan Iron & Steel - A is or was in the past 12 months a client of JPM. CapitaMall Trust is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company investment banking services. CapitaRetail China Trust is or was in the past 12 months a client of JPM. China Cosco Holdings, Ltd. is or was in the past 12 months a client of JPM. CIMB Group Holdings is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company investment banking services, non-investment banking securities-related service and non-securities-related services. Dialog Group Bhd is or was in the past 12 months a client of JPM. FUJIFILM Holdings (4901) is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company non-investment banking securities-related service and non-securities-related services. Hitachi (6501) is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company investment banking services, non-investment banking securities-related service and non-securities-related services. Honda Motor (7267) is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company investment banking services, non-investment banking securities-related service and non-securities-related services. Husky Energy is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company investment banking services. Hutchison Whampoa is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company investment banking services, non-investment banking securities-related service and non-securities-related services. IJM Corporation is or was in the past 12 months a client of JPM. Inpex Corporation is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company investment banking services and non-investment banking securities-related service. LG Chem Ltd is or was in the past 12 months a client of JPM. LG Display is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company investment banking services and non-investment banking securities-related service. Mando is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company investment banking services. Mapletree Logistics Trust is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company non-securities-related services. Nikon (7731) is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company non-investment banking securities-related service. Pacific Basin Shipping is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company non-investment banking securities-related service. RHB Capital is or was in the past 12 months a client of JPM. Samsung SDI is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company non-investment banking securities-related service. SK Energy Co Ltd is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company non-investment banking securities-related service and non-securities-related services. Suzlon Energy Ltd is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company investment banking services. Tata Steel Ltd is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company investment banking services, non-investment banking securities-related service and non-securities-related services.

• Investment Banking (past 12 months): J.P. Morgan received, in the past 12 months, compensation for investment banking services from CapitaMall Trust, CIMB Group Holdings, Hitachi (6501), Honda Motor (7267), Husky Energy, Hutchison Whampoa, Inpex Corporation, LG Display, Mando, Suzlon Energy Ltd, Tata Steel Ltd.

31



• Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Baoshan Iron & Steel - A, CapitaMall Trust, CIMB Group Holdings, FUJIFILM Holdings (4901), Hitachi (6501), Honda Motor (7267), Husky Energy, Hutchison Whampoa, Inpex Corporation, LG Chem Ltd, LG Display, Mando, Samsung SDI, Suzlon Energy Ltd, Tata Steel Ltd.

• Non-Investment Banking Compensation: JPMS has received compensation in the past 12 months for products or services other than investment banking from CIMB Group Holdings, FUJIFILM Holdings (4901), Hitachi (6501), Honda Motor (7267), Hutchison Whampoa, Inpex Corporation, LG Display, Nikon (7731), Pacific Basin Shipping, Samsung SDI, SK Energy Co Ltd, Tata Steel Ltd. An affiliate of JPMS has received compensation in the past 12 months for products or services other than investment banking from CIMB Group Holdings, Dialog Group Bhd, FUJIFILM Holdings (4901), Hitachi (6501), Honda Motor (7267), Hutchison Whampoa, Inpex Corporation, LG Chem Ltd, LG Display, Mapletree Logistics Trust, Nikon (7731), Pacific Basin Shipping, SK Energy Co Ltd.

• J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of LG Chem Ltd and owns 10,671,310 as of 11-Jan-11.

• J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of LG Display and owns 15,538,700 as of 11-Jan-11.

• J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of Samsung SDI and owns 14,019,210 as of 11-Jan-11.

• J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of SK Energy Co Ltd and owns 6,866,330 as of 11-Jan-11.

• MSCI: The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an 'as is' basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates.

Important Disclosures for Equity Research Compendium Reports: Important disclosures, including price charts for all companies under coverage for at least one year, are available through the search function on J.P. Morgan’s website https://mm.jpmorgan.com/disclosures/company or by calling this U.S. toll-free number (1-800-477-0406)

Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] J.P. Morgan Cazenove’s UK Small/Mid-Cap dedicated research analysts use the same rating categories; however, each stock’s expected total return is compared to the expected total return of the FTSE All Share Index, not to those analysts’ coverage universe. A list of these analysts is available on request. The analyst or analyst’s team’s coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe.

J.P. Morgan Equity Research Ratings Distribution, as of December 31, 2010

Overweight (buy)

Neutral (hold)

Underweight (sell)

J.P. Morgan Global Equity Research Coverage

46% 42% 12%

IB clients* 53% 50% 38% JPMS Equity Research Coverage 43% 49% 8% IB clients* 71% 63% 59%

*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.

Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on any securities recommended herein. Research is available at http://www.morganmarkets.com , or you can contact the analyst named on the front of this note or your J.P. Morgan representative.

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Analysts’ Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.

Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US affiliates of JPMS, are not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of JPMS, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.

Other Disclosures

J.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. Morgan Cazenove is a marketing name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries.

Options related research: If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation’s Characteristics and Risks of Standardized Options, please contact your J.P. Morgan Representative or visit the OCC’s website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf.

Legal Entities Disclosures U.S.: JPMS is a member of NYSE, FINRA and SIPC. J.P. Morgan Futures Inc. is a member of the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC and is authorized and regulated in the UK by the Financial Services Authority. U.K.: J.P. Morgan Securities Ltd. (JPMSL) is a member of the London Stock Exchange and is authorized and regulated by the Financial Services Authority. Registered in England & Wales No. 2711006. Registered Office 125 London Wall, London EC2Y 5AJ. South Africa: J.P. Morgan Equities Limited is a member of the Johannesburg Securities Exchange and is regulated by the FSB. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd, Seoul Branch, is regulated by the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (ABN 52 002 888 011/AFS Licence No: 238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (ABN 61 003 245 234/AFS Licence No: 238066) is a Market Participant with the ASX and regulated by ASIC. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited, having its registered office at J.P. Morgan Tower, Off. C.S.T. Road, Kalina, Santacruz East, Mumbai - 400098, is a member of the National Stock Exchange of India Limited (SEBI Registration Number - INB 230675231/INF 230675231/INE 230675231) and Bombay Stock Exchange Limited (SEBI Registration Number - INB010675237/INB010675237) and is regulated by Securities and Exchange Board of India. Thailand: JPMorgan Securities (Thailand) Limited is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Philippines: J.P. Morgan Securities Philippines Inc. is a member of the Philippine Stock Exchange and is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission. Singapore: This material is issued and distributed in Singapore by J.P. Morgan Securities Singapore Private Limited (JPMSS) [MICA (P) 025/01/2011 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the MAS. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission in Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia Ltd. is authorized by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and custody, with respect to securities business under licence number 35-07079 and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi Arabia. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE.

Country and Region Specific Disclosures U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMSL. Investment research issued by JPMSL has been prepared in accordance with JPMSL's policies for managing conflicts of interest arising as a result of publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a policy. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to “wholesale clients” only. JPMSAL does not issue or distribute this material to “retail clients.” The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms “wholesale client” and “retail client” have the meanings given to them in section 761G of the Corporations Act 2001. Germany: This material is

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distributed in Germany by J.P. Morgan Securities Ltd., Frankfurt Branch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end data from two months’ prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider/market maker for derivative warrants, callable bull bear contracts and stock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: http://www.hkex.com.hk. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, and that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd., Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan. Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of the securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures section above. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money. JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978. The recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA rules.

General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.

“Other Disclosures” last revised January 8, 2011.

Copyright 2011 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan.#$J&098$#*P

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