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Outlook: Taiwan’s Container Shipping Industry

Daniel Hsiao

Associate Director Corporate Ratings, Taiwan Ratings Corp.

Sept. 8, 2005

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Characteristics of Container Shipping Industry

• Growing Industry

• Highly Cyclical

• Capital Intensive

• Fragmented Structure

• Low volatility than other shipping industry (Dry bulk carriers)

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Key East-West Container Market Indicators

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Containership Orderbook by Size and Scheduled Delivery Year

Source: Drewry Shipping Consultants Ltd. (March 2005).

7,1623,622223971,0011,289913Total

1231,16001612915251838,000+

1,680921161172682302905,000-7,999

2,8191,12941013653892702,500-4,999

2,54041221877145170<2,500 TEUs

Current global capacity

(Jan. 2005)

Total20092008200720062005Unit: '000 TEUs

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Outlook for Taiwan’s Operators

• Supply: Substantially increase in 2006 and in 2007– Ports and inland transportation Congestion problems in the

west coast of US and in Europe• Demand: Global economic and growth driver in

China• Outlook for Taiwan’s Operators:

– Impact on intra-Asia routes is limited– Volatility in long-haul routes (trans-Pacific routes) are

higher– Financial strengths are strengthened – Capital expenditure remains high

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*Not adjusted for operating leasing ; # Before depreciation and amortization.

50.260.35252.460.651.4Total debt/total capital (%)

39.832.234.135.913.228.4Funds from operations/total debt (%)

14.59.69.810.84.29.3EBITDA/interest (x)

23.928.118.220.610.113.7Operating margin (%)

3,6955,0695,31312,8919,8843,350Capital expenditure

7,0289,84713,52716,69114,50724,593Operating cash flow

22,10939,48136,12848,20561,93055,343Total debt

7,18216,36921,23926,43312,28531,100Cash and short-term investments

4,4306,7826,6499,7973,60512,085Net income

9,15713,11713,22318,26210,84517,874Operating income#

38,08146,67072,63288,572106,941130,489Revenue

200320042003200420032004(NT$ mil.)

twA+/StabletwA/StableNot ratedTaiwan Ratings Corp. credit rating

BBB/Stable/--Not ratedNot ratedStandard & Poor’s credit rating

Wan Hai Lines Ltd.Yang Ming Marine Transport Corp.

Evergreen Marine Corp.*

Peer Comparison of Three Taiwan-based Shipping Companies

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Outlook: Telecom Industry in Taiwan

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Characteristics of Taiwan’s Telecom Market

• Fixed Lines: Monopoly (per se)

• Wireless: – Saturated Market– High Penetration Rate– Dominated by Three Operators– 3G Services and Mobile Number Portability

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40122New start-ups

608898Chunghwa Telecom Co. Ltd.

2004

4292New start-ups

589198Chunghwa Telecom Co. Ltd.

2003

3981New start-ups

619299Chunghwa Telecom Co. Ltd.

2002

International direct dial (%)

Domestic long distance (%)

Local call services (%)

Market Share Comparisons Between Chunghwa Telecom Co. Ltd. and New Fixed-Line Start-Ups

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Taiwan's Mobile Phone Market

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3G: Friend or Foe?

• 2G was revolution, 3G is just evolution.– Non-voice revenue accounted for only 5% of revenue

• Demand Function of 3G = f (Quality, Content, Price)– Quality: Rooms to improve at the start-up phase– Content: 3G are joked as Girls/Games/Gambling– Price: 3G handset still expensive

• Attitude of Major Operators: – Launch the service at the last moment– Targeted 3G subscribers only 50,000 to 120,000

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MNP: Opportunity for New Start-ups

• Experiences from Other Markets in the Region– Hong Kong– Singapore

• Taiwan?– Transfer fee– Three dominated operators equally share the

market– It is an opportunity for new start-ups, but at the

expense of profit

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Trends on Taiwan’s Telecom Industry

• Fixed Lines Market:– Dominated by One Incumbent– Potential Threat from VoIP

• Wireless Market: – Low growth – Limited competition from new entrants

• Outlook: Stable

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236.0 212.0 Net cash Funds from operations/net debt (%)

21.0 39.0 22,654.0 EBITDA interest coverage (x)

13.0 17.0 Net cash Net debt/capital (%)

48.0 47.0 55.0 Operating margin (%)

55.2 65.5 182.6 Total revenue (NT$ bil.)

313435Mobile market share (%)

6.8 6.5 8.2 Mobile subscribers (mil.)

twAA/StabletwAA/StabletwAAA/StableTaiwan Ratings Corp. rating

Not ratedBBB+/Stable/--AA-/NegativeStandard & Poor's rating

--As at Dec. 31, 2004--

Taiwan Mobile Co. Ltd.

Far EasTone Telecommunications Co.

Ltd.

Chunghwa Telecom Co.

Ltd.

Major Telecommunications Operators in Taiwan