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Energy 120106


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  • 1. Global StrategyEquity Research Asia Sector StrategyJanuary 6, 2012 China Oil & Gas: Windfall Relief2012 GDP ESTIMATES:China: 7.7%-8.2% Tax threshold adjusted We are positive on the NDRC’s adjustment in the adjusted:Hong Kong: 2.5%-3.0% windfall tax threshold to USD55/bbl from USD40/bbl, effective Nov. 1, 2011.India: 6.8%-7.3% This confirms our view following our December 2011 company visits that theIndonesia: 6.0%-6.5% NDRC was likely to increase the threshold to offset the impact of theJapan: 1.5%-2.0% nationwide resource tax, which incidentally also came into effect from Nov.Korea: 2.8%-3.3% 1, 2011.Malaysia: 4.4%-4.9%Singapore: 2.0%-2.5% Positive impact on all fronts: All three Chinese energy companies shouldTaiwan: 2.3%-2.8% benefit from the adjustment, and we expect analyst earnings upgrades overThailand: 3.5%-4.0% the next week to drive a positive share price reaction to the news. Our initialU.S.: 1.8% estimates indicate in absolute terms that PetroChina (00857, HKD10.60)Eurozone: 0.4% should benefit the most from the adjustment (2012 EPS impact: + 14%), which is unsurprising given its upstream dominance, followed by CNOOC Ltd (00883, HKD15.06) at +10% and Sinopec (00386, HKD8.80) at +7%. Recall2012 INDEX TARGETS: that our forecasts already factor in a 4%-5% resource tax burden for the O&GS&P 500: 1,400 companies.S&P Euro 350: 1,050S&P Asia 50: 3,500 Reiterate preference for Sinopec & CNOOC Ltd: Valuations for Sinopec Corp and CNOOC Ltd - both at 4-STARS (Buy) - are attractive, while Sinopec also offers reform leverage and significant injection opportunities (e.g. Addax, Daylight). PetroChina’s unexciting valuations lead us to a 3-STARS (Hold) call.Energy Net- Net - net, Sinopec wins: We concede that in the short term, investors may flock to PetroChina and CNOOC Ltd given their bigger, and more visible,Overweight upstream profiles. However, in our calculations, the change in the windfall tax regime would only be enough to fully offset the resource tax impact forOil & Gas the two companies. When taking both the resource tax and the windfall tax threshold adjustment, on a net basis Sinopec would be the biggest gainer, asOverweight the resource tax was expected to add some CNY7 bln in taxes, while the threshold adjustment should save the company some CNY9.1 bln. Acquisition appetite remains strong While 2011 acquisitions by Chinese strong: NOCs shrank to some USD14.0 bln, based on IHS Herold data, this came on aAhmad Halim, CFA record USD24.7 bln spent in 2011 acquiring large-scale resources fromEquity Analyst majors undertaking divestitures (e.g. BP) in a loose monetary environment. We note 2011 spending by Chinese NOCs is still ahead of 2005-2008 levels and only slightly below 2009. Acquisition appetite appears to remain strong, with both CPC - parent of Hong Kong-listed Sinopec - and PetroChina announcing deals to take stakes in North American and Canadian plays this week. PetroChina increased its exposure to the Canadian oil sands space by purchasing the remaining 40% stake in Athabasca Oil Sands Corp’s Mackay River project for USD666 mln (CNY4.19 bln), while CPC purchased a one-third stake in five Devon Energy oil shale exploration projects in the US for USD900 mln (CNY5.66 bln). This report is for information purposes and should not be considered a solicitation to buy or sell any security.Standard & Poor’s Neither Standard & Poor’s nor any other party guarantees its accuracy or makes warranties regarding resultsEquity Research Services from its usage. Redistribution is prohibited without written permission. Copyright © 2012. All required17th Floor, Prudential Tower d i s c l o s ur e s a nd an a l y st c er t if i c a t io n ap p e ar s o n t he la s t 3 p a g e s of t h i s r epo r t . A dd i t io n a l i nf or m a t io n i s30 Cecil Street, Singapore a v a i l a b le on r eq u e st .
  • 2. January 6, 2012 Global Strat egy CPC will also fund future drilling costs to the tune of USD1.6 bln (CNY10.07 bln), in order to drill some 125 wells. 2 Differing strategies CNOOC Ltd appears to focus on unconventional plays strategies. in continental North America (tight oil and oil shale plays in U.S., and oil sands in Canada) while also pursuing conventional plays in South America and Africa. For Sinopec, most of the significant deals related to the company are done at the parent CPC level - probably a reflection of Sinopec’s more stretched balance sheets - and are also more focused on South American conventional and deepwater assets (with the exception of the Devon deal). The sole deal of significant size over recent years done at the Sinopec Corp level was unsurprisingly the injection of CPC’s deepwater Angolan operations in 2010. We believe CPC will continue to acquire assets and inject into the listed entity at a later time, providing further avenue for growth. PetroChina, like CNOOC Ltd, is also focused on unconventional assets, with coal seam gas plays in Australia and oil sands assets in Canada. Standard & Poor’s Equity Research
  • 3. January 6, 2012 Global Strat egy Select Integrated Oil & Gas and E&P Performance and Key Capital IQ Consensus Ratios as at Oct. 11, 2011 3 Price Performance PER (x) PAT Growth Market Trading Cap (USD Company Name CIQ Ticker Ccy Share Price mln) 1 Mth 3 Mths 6 Mths FY2011 FY2012 FY2011 FY2012 Integrated O&G Exxon Mobil Corporation NYSE:XOM USD 85.76 411,066 6.1% 16.1% 5.1% 10.0x 10.2x 36.9% -6.1% PetroChina Co. Ltd. SEHK:857 HKD 10.60 279,534 6.2% 14.0% -8.0% 10.8x 9.7x 5.5% 12.0% Royal Dutch Shell plc LSE:RDSA GBP 23.52 231,245 3.6% 14.4% 4.5% 7.8x 7.6x 32.8% 5.0% Chevron Corporation NYSE:CVX USD 109.10 217,271 4.5% 15.3% 3.8% 7.9x 8.3x 44.0% -6.8% BP plc LSE:BP. GBP 4.77 139,236 2.4% 21.4% 4.8% 6.5x 6.4x NM 2.0% China Petroleum & Chemical Corp. SEHK:386 HKD 8.80 100,866 8.1% 15.3% 11.8% 8.0x 7.5x 10.3% 8.2% ConocoPhillips NYSE:COP USD 73.23 97,230 1.0% 13.8% -3.7% 8.4x 8.6x 6.3% -8.7% PTT Public Co. Ltd. SET:PTT THB 324.00 29,587 0.6% 17.8% -4.7% 9.3x 8.4x 22.3% 9.8% Average 4.07% 16.01% 1.72% 8.6x 8.3x 22.6% 1.9% Production Exploration & Production (E&P) CNOOC Ltd. SEHK:883 HKD 15.06 84,169 -1.1% 22.4% -17.7% 7.7x 7.9x 32.1% -2.3% Statoil ASA OB:STL NOK 156.40 82,770 4.4% 21.7% 13.9% 9.8x 8.8x 36.7% 7.7% Suncor Energy Inc. TSX:SU CAD 31.46 48,566 1.9% 9.7% -18.6% 9.3x 9.7x 49.5% 0.1% Anadarko Petroleum Corporation NYSE:APC USD 80.80 40,236 -0.9% 21.5% 2.6% 26.0x 24.0x 104.8% 4.6% Apache Corp. NYSE:APA USD 97.17 37,319 -0.2% 12.7% -21.5% 8.3x 7.8x 53.4% 5.7% Woodside Petroleum Ltd. ASX:WPL AUD 31.04 25,669 -7.3% -9.6% -24.1% 14.7x 13.6x 9.3% 12.5% Hess Corporation NYSE:HES USD 57.60 19,287 -4.7% 5.3% -22.6% 9.2x 8.3x 0.1% 10.0% PTT Exploration and Production Public Co. Ltd. SET:PTTEP THB 176.50 18,506 7.3% 18.5% 1.4% 13.3x 10.8x 5.1% 24.0% Average -0.06% 12.78% -1 0.82% 12.3x 11.4x 36.4% 7.8% EV/EBITDA PBV ROE Gross Margin Div Yield Company Name FY2011 FY2012 FY2011 FY2012 FY2011 FY2012 FY2011 FY2012 FY2011 FY2012 Integrated O&G Exxon Mobil Corporation NYSE:XOM 4.6x 4.8x 2.5x 2.3x 25.3% 21.8% 46.40% 47.50% 2.16% 2.27% PetroChina Co. Ltd. SEHK:857 6.1x 5.6x 1.5x 1.4x 14.2% 14.5% 36.40% 36.64% 3.98% 4.36% Royal Dutch Shell plc LSE:RDSA 4.0x 3.9x 1.4x 1.2x 17.4% 15.9% 22.20% 21.90% 4.69% 4.95% Chevron Corporation NYSE:CVX 3.3x 3.5x 1.8x 1.6x 23.8% 19.2% 45.20% 46.00% 2.82% 3.02% BP plc LSE:BP. 3.7x 3.7x 1.2x 1.1x 20.5% 18.1% 18.90% 19.80% 3.77% 4.15% China Petroleum & Chemical Corp. (Sinopec) SEHK:386 5.0x 4.6x 1.3x 1.1x 16.8% 16.0% 16.72% 17.11% 3.26% 3.58% ConocoPhillips NYSE:COP 3.8x 3.9x 1.5x 1.4x 17.6% 15.6% 28.30% 29.40% 3.55% 3.82% PTT Public Co. Ltd. SET:PTT 6.8x 5.9x 1.7x 1.5x 19.4% 18.6% 9.06% 9.59% 3.85% 4.12% Average 4.7x 4.5x 1.6x 1.5x 19.4% 17.5% 27.90% 28.49% 3.51% 3.78% Exploration & Production (E&P) CNOOC Ltd. SEHK:883 4.0x 4.0x 2.0x 1.8x 28.6% 22.9% 59.33% 53.10% 4.31% 4.13% Statoil ASA OB:STL 2.2x 2.1x 1.9x 1.7x 24.6% 19.8% 47.05% 48.85% 4.17% 4.42% Suncor Energy Inc. TSX:SU 5.0x 5.1x 1.3x 1.1x 14.4% 12.0% 60.80% 62.40% 1.39% 1.47% Anadarko Petroleum Corporation NYSE:APC 6.9x 5.8x 2.1x 1.9x 5.3% 8.3% 70.70% 71.30% 0.45% 0.45% Apache Corp. NYSE:APA 3.7x 3.4x 1.3x 1.1x 17.0% 15.9% 78.10% 79.30% 0.65% 0.64% Woodside Petroleum Ltd. ASX:WPL 9.6x 7.5x 2.0x 1.8x 13.9% 13.6% 69.90% 68.60% 3.64% 3.81% Hess Corporation NYSE:HES 3.5x 3.1x 1.0x 0.9x 12.4% 11.4% 25.10% 25.30% 0.73% 0.72% PTT Exploration and Production Public Co. Ltd. SET:PTTEP 5.7x 4.8x 2.9x 2.5x 23.2% 24.3% 52.31% 50.76% 2.93% 3.58% Average 5.1x 4.5x 1.8x 1.6x 17.4% 16.0% 57.91% 57.45% 2.28% 2.40% Source: S&P Capital IQ Standard & Poor’s Equity Research
  • 4. January 6, 2012 Global Strat egy EV- Enterprise ValueGlossary FCF- Free Cash Flow FFO- Funds From Operations 4 FY- Fiscal YearS&P STARS - Since January 1, 1987, Standard & Poor’s Equity Research Services P/E- Price/Earningshas ranked a universe of U.S. common stocks, ADRs (American Depositary Receipts), PEG Ratio- P/E-to-Growth Ratioand ADSs (American Depositary Shares) based on a given equity’s potential for PV- Present Valuefuture performance. Similarly, Standard & Poor’s Equity Research Services has used R&D- Research & DevelopmentSTARS® methodology to rank Asian and European equities since June 30, 2002. ROE- Return on EquityUnder proprietary STARS (STock Appreciation Ranking System), S&P equity analysts ROI- Return on Investmentrank equities according to their individual forecast of an equity’s future total return ROIC- Return on Invested Capitalpotential versus the expected total return of a relevant benchmark (e.g., a regional ROA- Return on Assetsindex (S&P Asia 50 Index, S&P Europe 350® Index or S&P 500® Index)), based on a SG&A- Selling, General & Administrative Expenses12-month time horizon. STARS was designed to meet the needs of investors looking WACC- Weighted Average Cost of Capitalto put their investment decisions in perspective. Data used to assist in determiningthe STARS ranking may be the result of the analyst’s own models as well as internal Dividends on American Depository Receipts (ADRs) and American Depositoryproprietary models resulting from dynamic data inputs. Shares (ADSs) are net of taxes (paid in the country of origin).S&P Quality Rankings (also known as S&P Earnings & Dividend Rankings Rankings)-Growth and stability of earnings and dividends are deemed key elements inestablishing S&P’s earnings and dividend rankings for common stocks, which are Disclosures/Disclaimersdesigned to capsulize the nature of this record in a single symbol. It should be noted, Required Disclosureshowever, that the process also takes into consideration certain adjustments andmodifications deemed desirable in establishing such rankings. The final score foreach stock is measured against a scoring matrix determined by analysis of the scores In contrast to the qualitative STARS recommendations covered in this report, whichof a large and representative sample of stocks. The range of scores in the array of are determined and assigned by S&P equity analysts, S&P’s quantitativethis sample has been aligned with the following ladder of rankings: evaluations are derived from S&P’s proprietary Fair Value quantitative model. InA+ Highest B+ Average C Lowest particular, the Fair Value Ranking methodology is a relative ranking methodology,A High B Below Average D In Reorganization whereas the STARS methodology is not. Because the Fair Value model and theA- Above Average B- Lower NR Not Ranked STARS methodology reflect different criteria, assumptions and analytical methods, quantitative evaluations may at times differ from (or even contradict) an equityS&P Issuer Credit Rating - A Standard & Poor’s Issuer Credit Rating is a current analyst’s STARS recommendations. As a quantitative model, Fair Value relies onopinion of an obligor’s overall financial capacity (its creditworthiness) to pay its history and consensus estimates and does not introduce an element of subjectivityfinancial obligations. This opinion focuses on the obligor’s capacity and willingness as can be the case with equity analysts in assigning STARS meet its financial commitments as they come due. It does not apply to any specificfinancial obligation, as it does not take into account the nature of and provisions ofthe obligation, its standing in bankruptcy or liquidation, statutory preferences, or the S&P Global STARS Distributionlegality and enforceability of the obligation. In addition, it does not take into account In North Americathe creditworthiness of the guarantors, insurers, or other forms of credit As of September 30, 2011, research analysts at Standard & Poor’s Equity Researchenhancement on the obligation. Services North America recommended 42.2% of issuers with buy recommendations, 54.2% with hold recommendations and 3.6% with sellS&P Core Earnings - Standard & Poors Core Earnings is a uniform methodology for recommendations.adjusting operating earnings by focusing on a companys after-tax earningsgenerated from its principal businesses. Included in the Standard & Poors definition In Europeare employee stock option grant expenses, pension costs, restructuring charges from As of September 30, 2011, research analysts at Standard & Poor’s Equity Researchongoing operations, write-downs of depreciable or amortizable operating assets, Services Europe recommended 34.4% of issuers with buy recommendations, 49.4%purchased research and development, M&A related expenses and unrealized with hold recommendations and 16.2% with sell recommendations.gains/losses from hedging activities. Excluded from the definition are pension gains,impairment of goodwill charges, gains or losses from asset sales, reversal of prior- In Asiayear charges and provision from litigation or insurance settlements. As of September 30, 2011, research analysts at Standard & Poor’s Equity ResearchS&P 12 Month Target Price – The S&P equity analyst’s projection of the market Services Asia recommended 48.4% of issuers with buy recommendations, 45.7%price a given security will command 12 months hence, based on a combination of with hold recommendations and 5.9% with sell recommendations.intrinsic, relative, and private market valuation metrics, including S&P Fair Value. GloballyStandard & Poor’s Equity Research Services – Standard & Poor’s Equity Research As of September 30, 2011, research analysts at Standard & Poor’s Equity ResearchServices U.S. includes Standard & Poor’s Investment Advisory Services LLC; Services globally recommended 41.5% of issuers with buy recommendations,Standard & Poor’s Equity Research Services Europe includes Standard & Poor’s LLC- 52.6% with hold recommendations and 5.9% with sell recommendations.London; Standard & Poor’s Equity Research Services Asia includes Standard & Additional information is available upon request.Poor’s LLC’s offices in Singapore, Standard & Poor’s Investment Advisory Services(HK) Limited in Hong Kong, Standard & Poor’s Malaysia Sdn Bhd, and Standard &Poor’s Information Services (Australia) Pty Ltd. Other Disclosures This report has been prepared and issued by Standard & Poor’s and/or one of itsAbbreviations Used in S&P Equity Research ReportsCAGR- Compound Annual Growth Rate affiliates. In the United States, research reports are prepared by Standard & Poor’sCAPEX- Capital Expenditures Investment Advisory Services LLC (“SPIAS”). In the United States, research reports are issued by Standard & Poor’s (“S&P”); in the United Kingdom by Standard &CY- Calendar YearDCF- Discounted Cash Flow Poor’s LLC (“S&P LLC”), which is authorized and regulated by the FinancialEBIT- Earnings Before Interest and Taxes Services Authority; in Hong Kong by Standard & Poor’s Investment Advisory Services (HK) Limited, which is regulated by the Hong Kong Securities FuturesEBITDA- Earnings Before Interest, Taxes, Depreciation and Amortization Commission; in Singapore by Standard & Poor’s LLC, which is regulated by theEPS- Earnings Per Share Standar d & Poor’s Equity Research
  • 5. January 6, 2012 Global Strat egyMonetary Authority of Singapore; in Malaysia by Standard & Poor’s Malaysia Sdn format. Standard & Poor’s ratings should not be relied on and are not substitutesBhd (“S&PM”), which is regulated by the Securities Commission; in Australia by for the skill, judgment and experience of the user, its management, employees, 5Standard & Poor’s Information Services (Australia) Pty Ltd (“SPIS”), which is advisors and/or clients when making investment and other business decisions.regulated by the Australian Securities & Investments Commission; and in Korea by Standard & Poor’s rating opinions do not address the suitability of any security.SPIAS, which is also registered in Korea as a cross-border investment advisory Standard & Poor’s does not act as a fiduciary. While Standard & Poor’s hascompany. obtained information from sources it believes to be reliable, Standard & Poor’s does not perform an audit and undertakes no duty of due diligence or independentThe research and analytical services performed by SPIAS, S&P LLC, S&PM, and SPIS verification of any information it receives.are each conducted separately from any other analytical activity of Standard &Poor’s. Standard & Poor’s keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respectiveStandard & Poors or an affiliate may license certain intellectual property or provide activities. As a result, certain business units of Standard & Poor’s may havepricing or other services to, or otherwise have a financial interest in, certain issuers of information that is not available to other Standard & Poor’s business units.securities, including exchange-traded investments whose investment objective is to Standard & Poor’s has established policies and procedures to maintain thesubstantially replicate the returns of a proprietary Standard & Poors index, such as confidentiality of certain non-public information received in connection with eachthe S&P 500. In cases where Standard & Poors or an affiliate is paid fees that are tied analytical the amount of assets that are invested in the fund or the volume of trading activityin the fund, investment in the fund will generally result in Standard & Poors or an Standard & Poor’s Ratings Services did not participate in the development of thisaffiliate earning compensation in addition to the subscription fees or other report. Standard & Poor’s may receive compensation for its ratings and certaincompensation for services rendered by Standard & Poor’s. A reference to a particular credit-related analyses, normally from issuers or underwriters of securities or frominvestment or security by Standard & Poor’s and/or one of its affiliates is not a obligors. Standard & Poor’s reserves the right to disseminate its opinions andrecommendation to buy, sell, or hold such investment or security, nor is it considered analyses. Standard & Poor’s public ratings and analyses are made available on itsto be investment advice. Web sites, (free of charge), and and (subscription), and mayIndexes are unmanaged, statistical composites and their returns do not include be distributed through other means, including via Standard & Poor’s publicationspayment of any sales charges or fees an investor would pay to purchase the and third-party redistributors. Additional information about our ratings fees issecurities they represent. 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Advice should be sought from a financial adviser regarding thecosts, expenses, legal fees, or losses (including, without limitation, lost income or suitability of an investment, taking into account the specific investment objectives,lost profits and opportunity costs) in connection with any use of the information financial situation or particular needs of any person in receipt of thecontained in this document even if advised of the possibility of such damages. recommendation, before the person makes a commitment to purchase theCapital IQ is a business of Standard & Poors investment product.Ratings from Standard & Poor’s Ratings Services are statements of opinion as of thedate they are expressed and not statements of fact or recommendations to purchase, For residents of Malaysia - All queries in relation to this report should be referred tohold, or sell any securities or to make any investment decisions. 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  • 6. January 6, 2012 Global Strat egyFor residents of Indonesia - This research report does not constitute an offeringdocument and it should not be construed as an offer of securities in Indonesia, and 6that any such securities will only be offered or sold through a financial institution.For residents of the Philippines - The securities being offered or sold have not beenregistered with the Securities and Exchange Commission under the SecuritiesRegulation Code of the Philippines. Any future offer or sale thereof is subject toregistration requirements under the Code unless such offer or sale qualifies as anexempt transaction.Canadian investors should be aware that any specific securities discussed in thisresearch report can only be purchased in Canada through a Canadian registereddealer and, if such securities are not available in the secondary market, they can onlybe purchased by eligible private placement purchasers on a basis that is exempt fromthe prospectus requirements of Canadian securities law and will be subject to resalerestrictions.For residents of Australia – This report is distributed by Standard & Poor’sInformation Services (Australia) Pty Ltd (“SPIS”) in Australia.Any express or implied opinion contained in this report is limited to "General Advice"and based solely on consideration of the investment merits of the financial product(s)alone. The information in this report has not been prepared for use by retail investorsand has been prepared without taking account of any particular persons financial orinvestment objectives, financial situation or needs. Before acting on any advice, anyperson using the advice should consider its appropriateness having regard to theirown or their clients objectives, financial situation and needs. You should obtain aProduct Disclosure Statement relating to the product and consider the statementbefore making any decision or recommendation about whether to acquire theproduct. Each opinion must be weighed solely as one factor in any investmentdecision made by or on behalf of any adviser and any such adviser must accordinglymake their own assessment taking into account an individuals particularcircumstances.SPIS holds an Australian Financial Services Licence Number 258896. Please refer tothe SPIS Financial Services Guide for more information & POOR’S, S&P, S&P 500, S&P Europe 350 and STARS are registeredtrademarks of Standard & Poor’s Financial Services LLC. Standar d & Poor’s Equity Research
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