China 060209 Csfb

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China 060209 Csfb

  1. 1. Tuesday, 02 June 2009 Asian Daily (Asia Edition) EPS, TP and Rating changes EPS TP Top of the pack ... (% change) T+1 T+2 Chg Up/Dn Rating Hopewell Holdings (1) 0 5 14 O (O) Asian Equity Strategy: Leading Indicator Watch Sakthi Siva (3) Hutchison Telecoms HK Initiation 20 O (NA) Marginal decline in China PMI; well above the 50 threshold for expansion Sun Pharma 8 31 4 17 O (O) AirAsia 0 0 36 46 O (O) China Market Strategy – Maintain OW Vincent Chan (4) Olam 0 4 38 25 O (N) May PMI: have the fundamental drivers of the Chinese economy changed? No Daelim Industrial 0 1 0 (3) N (N) NHN Corp. 2 (3) 24 40 N (O) Hutchison Telecoms HK – Initiating coverage with O Terry Chan, CFA (5) Credit Suisse forthcoming events New report: An attractive dividend play Delta Electronics (2308.TW) NDR Date 01-02 June, Singapore / Hong Kong NHN Corp. (035420 KS) – Downgrade to N Jeff Kahng (6) Coverage Analyst Pauline Chen New report: V-shaped recovery may take time Contact minna.chiu@credit-suisse.com or your usual sales representative China Green (0904.HK) NDR ... and the whole pack Date 03 June, Hong Kong Regional Coverage Analyst Kenny Lau Contact minna.chiu@credit-suisse.com or your usual Asia Pacific Strategy Kin Nang Chik (7) sales representative Credit Suisse GEM valuation snapshot International Game Technology (IGT) NDR Asia Pacific Strategy Kin Nang Chik (8) Date 04-05 June, Hong Kong Credit Suisse valuation snapshot Coverage Analyst Gabriel Chan Contact minna.chiu@credit-suisse.com or your usual Asian Equity Strategy: Leading Indicator Watch Sakthi Siva (3) sales representative Marginal decline in China PMI; well above the 50 threshold for expansion quot;A Date with Davidquot; - Wasion Meters (3393.HK) Asian Equity Strategy: Net Foreign Buying Sakthi Siva (9) Date 09 June, 2:30-3:25pm (1-1 Meeting) / 3:30- Reached US$9.8 bn in May; biggest month ever for net foreign buying 4:25pm (1-1 Meeting) / 4:30-5:30pm (Group Meeting) Room A, 23/F, 3 Exchange Square Asia Ex. Japan Memory Sector MS Hwang (10) Contact minna.chiu@credit-suisse.com or your usual May IT export data for Korea: memory advances further sales representative quot;A Date with Davidquot; - Luks Group (0366.HK) China Date 16 June, 2:30-3:25pm (1-1 Meeting) / 3:30- China Economics Dong Tao (11) 4:25pm (1-1 Meeting) / 4:30-5:30pm (Group PMI for May dropped, but only slightly Meeting) Room A, 23/F, 3 Exchange Square Speaker Monsie Luk - Investor Relations Director China Market Strategy – Maintain OW Vincent Chan (4) Contact minna.chiu@credit-suisse.com or your usual May PMI: have the fundamental drivers of the Chinese economy changed? No sales representative China Oil and Gas Sector – Maintain UW Prashant Gokhale (12) Asian indices - performance Price hike in China, finally – 2Q09 margins secure, key is 3Q09; maintain trading preference for (% change) Latest 1D 1W 3M YTD Sinopec ASX300 3,891 2.0 4.2 20.2 5.0 CSEALL 2,210 (0.3) 4.2 32.2 47.0 Hong Kong Hang Seng 18,889 3.9 10.7 53.3 31.3 Hong Kong Economics Dong Tao (13) H-SHARE 10,938 4.9 11.7 66.2 38.6 Fall in real retail sales narrowed to 5.5% YoY in April, but we do not expect a quick recovery JCI 1,999 4.3 5.7 59.1 47.5 Hopewell Holdings (54 HK) – Maintain O Cusson Leung, CFA (14) KLSE 1,062 1.7 0.8 21.1 21.1 Indirect beneficiary of strong China passenger car sales KOSPI 1,415 1.4 1.0 38.9 25.8 KSE100 7,210 (0.9) 0.5 26.0 22.9 Hutchison Telecoms HK – Initiating coverage with O Terry Chan, CFA (5) NIFTY 4,530 1.8 6.9 63.9 53.1 New report: An attractive dividend play PCOMP 2,459 2.9 5.3 32.4 31.3 MPEL – Maintain N Gabriel Chan, CFA (15) RED CHIP 4,021 6.2 11.2 44.4 22.1 City of Dreams - a good opening but improvement is needed to keep customer traffic SET 580 3.5 5.4 39.2 28.9 STI 2,380 2.2 5.0 55.2 35.1 India TWSE 6,954 0.9 3.5 57.1 51.5 Sun Pharma (SUNP IN) – Maintain O Neelkanth Mishra (16) VNINDEX 426 3.6 1.1 72.2 35.1 Results confusing and Caraco problems disappointing, but base business still strong Thomson Financial Datastream Malaysia AirAsia (AIRA MK) – Maintain O Annuar Aziz (17) Upgrade target price to reflect improving outlook DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/ researchdisclosures or call +1 (877) 291-2683. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Customers of Credit Suisse in the United States can receive independent, third party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at www.credit-suisse.com/ir or call 1 877 291 2683 or email equity.research@credit-suisse.com to request a copy of this research.
  2. 2. Tuesday, 02 June 2009 Asian Daily CS NJA strategy top ten Pakistan Stock Rating CP TP Pot up/dn Pakistan Equity Strategy Farid Khan (18) CCB N 5.2 4.2 (18) We think it is now time for the brave souls to dip their toes in the market China Mobile O 80.3 78.0 (3) China Shenhua N 27.3 19.0 (30) Singapore ICBC N 5.1 4.0 (22) Hersing Corporation (NOT RATED) Tricia Song (19) HSBC N 70.8 60.0 (15) The only listed real estate broker in Singapore SHKP N 99.9 85.5 (14) Olam (OLAM SP) – Upgrade to O Su Tye Chua (20) INFOSYS O 1,676.5 1,825.0 9 Reactivating M&A pipeline, accelerating growth again POSCO O 418,500.0 490,000.0 17 TSMC O 59.0 64.0 8 SingPress – Maintain O Sean Quek (21) * Prices in local currency; Credit Suisse estimate Further signs that newspaper ad demand is bottoming Asian currencies (vs US$) South Korea (% change) Latest 1D 1W 3M YTD A$ 1.2 1.9 4.3 28.1 17.5 Korea Economics Joseph Lau (22) Bt 34.1 (0.4) 0.8 6.3 1.7 May trade declined faster than expected, reinforcing the “L-shaped” recovery profile but also KRW D 17,778.5 0.0 0.0 (1.7) (1.6) strength NT$ 32.4 0.0 0.8 8.7 1.4 Korea Economics Joseph Lau (23) P 47.2 (0.4) (0.2) 4.0 0.5 Sharp decline in May's CPI inflation helps defer the risk of policy rate hikes for a while PRs 81.2 0.2 (0.9) (1.6) (2.5) Korea Auto Sector – Maintain MW Henry Kwon (24) Rp 10,235.0 (0.1) (0.2) 18.0 6.5 Rs 47.0 (1.0) 0.7 10.4 3.6 Tax incentives – will the government cut it short? S$ 1.4 (0.7) 0.4 7.9 0.2 Daelim Industrial (000210 KS) – Maintain N Minseok Sinn (25) SLRs 114.9 0.0 0.0 (0.6) (1.6) Recent improvements ease concerns about weak liquidity W 1,236.0 (0.8) 1.3 27.2 1.9 Dongbu Insurance (005830 KS) – Maintain N Seok Yun, CFA, CA (26) Thomson Financial Datastream April results summary Global indices (% change) Latest 1D 1W 3M YTD NHN Corp. (035420 KS) – Downgrade to N Jeff Kahng (6) DJIA 8,731 2.7 5.5 23.6 (0.5) New report: V-shaped recovery may take time S&P 500 946 2.9 6.6 28.7 4.7 Thailand NASDAQ 1,829 3.1 8.1 32.8 16.0 SOX 286 5.5 14.3 43.9 34.9 Thailand Energy Sector – Maintain UW Paworamon (Poom) Suvarnatemee, CFA (27) EU-STOX 2,186 2.9 4.1 23.5 4.9 How much is upside? FTSE 4,506 2.0 3.2 17.7 1.6 LPN Development – Maintain O Chai Techakumpuch (28) DAX 5,143 4.1 4.6 33.8 6.9 Very strong interest for a condo project to be launched this weekend CAC-40 3,379 3.1 4.4 25.1 5.0 NIKKEI 9,678 1.6 3.5 32.9 9.2 TOPIX 913 1.6 3.3 24.2 6.2 10 YR LB 3.71 7.3 7.6 23.2 67.9 2 YR LB 0.96 5.2 9.0 (0.8) 25.9 US$:E 1.42 0.9 1.7 12.9 1.1 US$:Y 96.5 (0.7) (1.5) 0.6 (6.5) BRENT 67.6 4.1 13.0 50.6 62.0 GOLD 977.8 (0.9) 3.6 2.8 12.9 VIX 29.2 0.8 (10.6) (37.1) (27.1) Thomson Financial Datastream MSCI Asian indices – valuation & perf. EPS grth. P/E (x) Performance MSCI Index 09E 10E 09E 10E 1D 1M YTD Asia F X Japan (5) 30 17.8 13.6 0.0 15.6 34.9 Asia Pac F X J. (10) 22 16.8 13.8 0.0 14.4 30.1 Australia (18) (7) 13.4 14.4 3.1 14.5 21.5 China 6 17 16.1 13.7 5.0 21.9 37.0 Hong Kong (18) 14 19.9 17.4 2.5 20.0 38.3 India (3) 20 17.9 14.9 2.2 39.7 64.2 Indonesia (3) 10 12.5 11.4 5.5 17.1 54.4 Korea 5 48 15.2 10.3 2.7 6.8 27.8 Malaysia (19) 11 15.8 14.3 2.4 9.5 22.1 Pakistan 10 2 6.9 6.8 (1.0) (0.9) 43.4 Philippines 19 13 14.1 12.4 3.4 20.1 33.6 Singapore (24) 15 16.4 14.3 2.5 27.3 33.9 Taiwan (20) 128 43.5 19.1 2.0 17.5 49.4 Thailand 3 17 11.9 10.2 5.4 23.1 35.3 * IBES estimates O=Outperform N=Neutral U=Underperform R=Restricted OW= Overweight MW=Market Weight UW=Underweight Research mailing options To make any changes to your existing research mailing details, please e-mail us directly at asia.research@credit-suisse.com Sales Contact Hong Kong 852 2101 6218 Singapore 65 6212 3052 London 44 20 7888 4367 New York 1212 325 5955 - 2 of 33 -
  3. 3. Tuesday, 02 June 2009 Asian Daily Top of the pack ... Asian Equity Strategy: Leading Indicator Watch----------------------------------------------------- Marginal decline in China PMI; well above the 50 threshold for expansion Sakthi Siva / Research Analyst / 65 6212 3027 / sakthi.siva@credit-suisse.com Kin Nang Chik / Research Analyst / 852 2101 7482 / kinnang.chik@credit-suisse.com ● The China PMI fell slightly in the month of May from 53.5 in April Figure 2: China PMI New Orders Index to 53.1 in May (see Figure 1). There was also a marginal decline in the China PMI’s New Orders component – from 56.6 in April to 70 56.2 in May (see Figure 2). ● While this was the first fall in the China PMI and New Orders component since it bottomed in November 2008, the fact that the 60 fall was small, coupled with continued rises in other leading indicators (see our “Leading Indicator Watch” of 27 May for 50 details) such as US consumer confidence, German IFO business 32.3 Nov, 37.3 Dec, expectations and the BDI (now close to 3,500, see Figure 3) 45 in Jan, 50.4 in Feb continues to support our positive call on Asia and cheap cyclicals. 54.6 in Mar, 56.6 in Apr, 40 ● Our revised target for MXASJ (MSCI Asia ex. Japan) is 425 for 56.2 in May the year-end. The cyclicals trading on the biggest discounts are Indonesian coal, drybulk shippers, Indonesian palm oil, regional 30 steel, Chinese oil and Korean industrials. Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 ● The next key data points are US ISM (due 1 June) and US retail sales (11 June). New Orders Source: CLCC, Credit Suisse estimates. Marginal decline in China PMI Our revised target for MXASJ (MSCI Asia ex. Japan) is 425 for the The China PMI fell slightly in the month of May from 53.5 in April to year-end from 370 previously. 53.1 in May (see Figure 1). There was also a marginal decline in the China PMI’s New orders component – from 56.6 in April to 56.2 in The cyclicals trading on the biggest discounts are Indonesian coal, May (see Figure 2). drybulk shippers and Indonesian palm oil. On our P/B versus ROE valuation model, the biggest discounts among cyclicals continue to be Figure 1: China PMI – headline index in Indonesian coal (165%), drybulk shippers (86%), Indonesian palm oil (76%), regional steel (41%), Chinese oil (39% discount) and 60 Korean industrials (27%). While these discounts are based on estimates of current ROE, implied 55 ROE is between 25% (Chinese oils) and 50% (Indonesian coal) lower than current ROE. 50 Figure 3: BDI Index 12000 45 38.8 Nov, 41.2 Dec, 45.3 in Jan, 49 in Feb, 52..4 in Mar, 10000 53.5 in April, 53.1 in May 40 8000 6000 35 Latest 3494 4000 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 2000 Low 663 early Dec Chinese PMI 0 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Source: CLCC, Credit Suisse estimates. Baltic Dry Index While this was the first fall in the China PMI and New Orders component since it bottomed in November 2008, the fact that the fall Source: Bloomberg, Dryships.com, Credit Suisse estimates. was small, coupled with continued rises in other leading indicators The nine global leading indicators that we watch are the China PMI, (see our “Leading Indicator Watch” of 27 May for details) such as US German IFO business expectations, BDI, OECD Leading Indicator, consumer confidence, German IFO business expectations and the US consumer confidence, US ISM, Chicago PMI, Philly Fed and US BDI (now close to 3500), continues to support our positive call on Asia mortgage applications. Of the nine, there has been some softening in and cheap cyclicals. May in the China PMI and US mortgage applications. - 3 of 33 -
  4. 4. Tuesday, 02 June 2009 Asian Daily China Market Strategy------------------------------------------------------- Maintain OVERWEIGHT May PMI: have the fundamental drivers of the Chinese economy changed? No Vincent Chan / Research Analyst / 852 2101 6568 / vincent.chan@credit-suisse.com Peggy Chan, CFA / Research Analyst / 852 2101 6305 / peggy.chan@credit-suisse.com ● The PMI dropped slightly in May, due mainly to strong export willing to reduce the requirement for equity capital for infrastructure orders and strength in export-oriented industries. The machinery projects, we think this shortage of capital issue could be alleviated, at sector, which had helped trigger the PMI rebound, weakened. least in near term, when savings in China’s economy remains so high. ● We think that from a cyclical point of view, this is consistent with Figure 2: General weakness in investment goods industries the improvements in global economic data. However, we still do 20 PMI New Orders (30% ) not think that exports could again be a major driver of the Chinese economic structurally. 15 % point change from last month 10 ● We still recommend investors focus on domestic-oriented 5 industries. However, as high beta stocks grossly outperformed 0 earlier this year, we recommend investors focus more on the large -5 cap laggard stocks. Our top picks are China Mobile, ICBC, CCB, CRCC, China Life and Ping An Insurance. -10 -15 -20 PMI Wood & furniture etc. Paper & printing etc. Transport equipment Electrical machinery & equipment Food Beverage Tobacco Oil refining & coking Pharmaceutical Chemicals Chemical fiber, rubber & plastics Non-metal minerals Smelting of ferrous metals Smelting of non-ferrous metals Metal products General machinery Specialized machinery Communication & electronics Garment & footwear etc. Textile Figure 1: Export sector led the way 80 70 60 New Orders 50 Source: CLIC, Credit Suisse estimates. So, what is the base case for the economy, and how investors should 40 position themselves for it? 1) Infrastructure investment demand, probably followed by property 30 and consumption, are still the major drivers of China’s economy. We still hold the view that going into the second half of the year, 20 investment demand will have a meaningful impact on steel and Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 electricity demand. The improvement in the steel sector in May Inv estment goods industries Ex port-oriented industries provides a silver lining to this sector. Food & Bev erage 2) From such a low base, export growth from China should rebound. Source: CLIC, Credit Suisse estimates. However, the role of exports as a structural driver of China’s The PMI dipped from 53.5 to 53.1 in May 2009. Indeed, if this were economy has fundamentally ended. We think that domestic not supported by a surge in PMI/orders for key export industries like demand will be a much more important story ahead. electronics and garments, the PMI could have dropped further, as the 3) Therefore, we still recommend investors focus on domestic- PMI/orders for the machinery sector – which have driven the overall oriented industries. However, as high beta stocks grossly PMI rebound in past few months – have also dropped. Also, after outperformed earlier this year, we recommend investors focus staying below 50 for ten months, export orders have started to rise more on the large cap laggard stocks. Our top picks are China above 50. The only investment goods industry to stage a rebound was Mobile, ICBC, CCB, CRCC, China Life and Ping An Insurance. steel, though coming from a low base and lifted by the gradual price rise in the past few weeks. The “revival” in exports is consistent with the current improvement in global economic data. However, does it indicate a fundamental change in China’s demand drivers from domestic to external? We think it is still way too early. 1) Global demand is still in an early stage of stabilisation and recovery; there will still be a lot of uncertainties here. 2) Even if the US economy rebounds, it is difficult to see the US economy getting back to its pre-crisis leverage level and being such a strong source of demand for China products. 3) The weakness in investment goods industries is probably due to some slowdown in infrastructure spending, as local governments are having problems with a shortage in equity capital. But with the central government now - 4 of 33 -
  5. 5. Tuesday, 02 June 2009 Asian Daily Hutchison Telecoms HK ------------------------------ Initiating coverage with OUTPERFORM New report: An attractive dividend play EPS: ◄► TP: ◄► Terry Chan, CFA / Research Analyst / 852 2101 7040 / terry.chan@credit-suisse.com Jeffrey Tan / Research Analyst / 852 2101 6569 / jeffrey.tan@credit-suisse.com ● We are initiating coverage on HTHK (Hutchison Telecom HK) with segment, in particular on bandwidth-demanding corporate and carrier an OUTPERFORM rating and a target price of HK$1.20, implying customers. 20% upside. HTHK is a spin-off of HTIL’s HK/Macau operations Stable operational track record and is generating strong FCF and stable dividend. As such, we Despite stiff competition, HTHK has shown a set of steady financial believe it is an attractive dividend play for investors. performance with an 11% CAGR (FY06-08) on both revenue and ● While HTHK has shown solid growth rates in revenue and EBITDA. EBITDA margin was maintained stable at about 33-34% and EBITDA at 11% (FY06-08), we expect growth rate to soften to 3- achieved a net income CAGR of 21% (FY06-08). We do not expect to 4% (FY09-12) due to competition and a weak economic outlook, see dramatic changes in the competitive landscape in the HK mobile which we believe are the key risks for HTHK. market. We believe that the competition remains intense. We forecast ● That said, intense competition is not new and should already be HTHK’s total revenue and EBITDA to grow at a lower pace of 4% and well expected by the market. Also, our FY09 earnings forecast is 3% FY09-12, respectively. about 10-15% above consensus. Given HTHK’s solid operation Sustainable dividend payout and attractive yield and stabilising competitive landscape, we expect an upgrade in On the back of stable operation, management has indicated its consensus earnings which could be a potential catalyst. intention of aiming at up to 75% dividend payout policy, positioning ● We believe HTHK’s valuation is attractive at 9x FY09E P/E with HTHK as a dividend play stock in contrast to HTIL, which holds growth an 8% dividend yield, compared with the NJA integrated average assets in the emerging markets. Assuming 75% dividend payout, we of 12x P/E and a 5% dividend yield. OUTERPERFORM. are forecasting HTHK FY09 DPS at HK$0.08 (including HK$0.01 Bbg/RIC 215 HK / 0215.HK Price (01 Jun 09 , HK$) 1.00 interim DPS guided in the Listing Document), implying an 8% dividend Rating (prev. rating) O (NA) [V] TP (Prev. TP HK$) 1.20 (NA) yield compared with 5% of Asian peers. Shares outstanding (mn) 4,814.35 Est. pot. % chg. to TP 20 Daily trad vol - 6m avg (mn) 44.4 52-wk range (HK$) 32.62 - 0.00 Figure 1: HTHK – dividend yield forecast Daily trad val - 6m avg (US$ mn) 5.3 Mkt cap (HK$/US$ mn) 4,814.3/ 621.0 Free float (%) 32.0 Performance 1M 3M 12M 12% 9.6% 9.8% Major shareholders Hutchison Whampoa Absolute (%) — — — 10% 9.0% 9.4% 8.3% Relative (%) — — — 8% Year 12/07A 12/08A 12/09E 12/10E 12/11E 6% Revenues (HK$ mn) 7,249 8,124 8,786 9,249 9,580 4% EBITDA (HK$ mn) 2,490 2,753 2,915 3,043 3,116 Net profit (HK$ mn) 267.0 430.0 533.2 580.2 602.7 2% EPS (HK$) 0.06 0.09 0.11 0.12 0.13 0% - Change from prev. EPS (%) n.a. n.a. FY09F FY10F FY11F FY12F FY13F - Consensus EPS (HK$) n.a. n.a. 0.10 0.11 0.13 EPS growth (%) (7.9) 61.1 24.0 8.8 3.9 Source: Company data, Credit Suisse estimates. P/E (x) 18.0 11.2 9.0 8.3 8.0 Dividend yield (%) 0 0 8.3 9.0 9.4 We believe that DCF is the most appropriate way to value HTHK EV/EBITDA (x) 3.7 3.5 3.2 3.0 2.9 given it has a stable track record of operations. Based on a 10.6% P/B (x) — — 0.5 0.5 0.5 WACC, our DCF valuation derives HK$1.20 target price. Trading at 9x ROE (%) (8.1) (15.2) 5.5 5.8 5.9 Net debt (net cash)/equity (%) — — 45.5 42.5 39.8 FY09E P/E with an 8% dividend yield, HTHK’s valuation is attractive, Note1:Ord/ADR=15.0000.Note2:HTHK is the listing arm of HTIL's HK operations. It is an integrated compared with 12x P/E and a 5% dividend yield for its peers. Our operator principally engaged in mobile and fixed line business.. HK$1.20 target price implies 20% upside. OUTPERFORM. Solid player in a highly competitive market Figure 2: Valuation at current price and target price We are initiating coverage on HTHK with an OUTPERFORM rating At current price At target price and a target price of HK$1.20. HTHK is a spin-off of the HK and FY09F FY10F FY11F FY09F FY10F FY11F Macau telcos operations from HTIL and was listed on the HK Stock P/E 9.0 8.3 8.0 10.8 10.0 9.6 Exchange by the introduction of dividend in specie of shares from Dividend yield 8.3% 9.0% 9.4% 6.9% 7.5% 7.8% HTIL. EV/EBITDA 3.2 3.0 2.9 3.6 3.3 3.2 FCF yield 12.4% 12.1% 12.3% 10.4% 10.1% 10.3% HTHK has been maintaining its solid position in the market well, Adj. EV/EBITDA* 3.5 3.3 3.2 3.9 3.6 3.5 although the market landscape in Hong Kong is highly intensive. On Adjusted FCF yield* 10.5% 10.2% 10.4% 9.0% 8.7% 8.9% the mobile front, with 2.7 mn subscribers, HTHK is the second largest * Adjusted for minority interest operator capturing about 24% market share with a 14% CAGR in Source: Company data, Credit Suisse estimates. mobile revenue in FY06-08. In the fixed-line segment, HTHK owns about 13% market share and revenue grew at 12% in FY06-08. Its self-owned fiber optical network provides HTHK with competitive advantage on the fixed-line front, allowing it to avoid competition in the crowded residential segment, and focus on the corporate business - 5 of 33 -
  6. 6. Tuesday, 02 June 2009 Asian Daily NHN Corp. ----------------------------------------------------------------------Downgrade to NEUTRAL New report: V-shaped recovery may take time EPS: ▼ TP: ▲ Jeff Kahng / Research Analyst / 852 2101 7480 / jeff.kahng@credit-suisse.com ● We believe the recent rally in NHN’s share price was not fully Higher expectation for new game publishing supported by its fundamentals. We are, in particular, concerned Despite a higher expectation for 2H launch of major publishing titles, we that the market’s optimism is based on: 1) an earlier-than- remain cautious about NHN’s game outlook. Given an already expected recovery in the online ad market, and 2) the higher competitive gaming market and NHN’s previous underperformance on expectation for 2H09 launch of new games. game publishing operation, it is difficult to expect how new publishing titles will drive the company’s top-line growth. Simply because NCsoft ● Despite the company’s indication that its core online ad revenue is has had a big hit with Aion does not guarantee others to have similar on track to make a full recovery in 2Q09 on a YoY basis, we are success. In fact, NC Soft’s success would make it more difficult for doubtful about online ad’s earlier-than-expected V-shaped NHN’s new games to be successful given the limited size of the Korean recovery. In particular, we are sceptic whether the pricing of game market. Based on our new estimates, we are already assuming search ads will show continuous growth on the back of an NHN’s game revenue to growth 18.2% and 20.7% for 2009-10E, economic recovery. respectively. ● Based on more conservative assumptions, particularly related to Figure 1: NHN – quarterly estimates search ad revenue and operating profit margin, we cut our FY10- (W bn) 1Q09A 2Q09E 3Q09E 4Q09E 2Q09E 3Q09E 4Q09E 11E revenues by 1.1% and 4.8% and lower FY10-11E operating Revenue 322.4 320.3 315.0 375.5 5.1% 7.5% 19.2% profits by 6.1% and 11.1%, respectively. Display Ad 41.6 48.8 46.0 55.4 -2.3% -0.8% 7.1% ● Given our new target P/E multiple set at 20x, we raise our target Search Ad 161.8 168.5 166.0 198.4 6.0% 4.9% 21.0% price from the previous W170,000 to W210,000, but at the same Games 116.4 100.0 100.0 117.1 7.0% 15.7% 21.5% time, cut our rating to NEUTRAL from Outperform. Others 2.6 3.0 3.0 4.7 27.9% 63.0% 49.6% Op. profit 128.3 129.7 126.0 153.1 0.8% 13.1% 23.8% Bbg/RIC 035420 KS / 035420.KS Price (1 Jun 09, W) 149,500.00 EBITDA 140.4 129.7 126.0 153.1 -6.2% 3.2% 13.2% Rating (prev. rating) N (O) [V] TP (W) (prev. TP) 210,000 (170,000) Pretax profit 136.5 132.9 129.2 151.2 2.9% 12.9% 2.8% Shares outstanding (mn) 46.35 Est. pot. % chg. to TP 40 Daily trad vol–6m avg (mn) 52-wk range (W) 213100 - 94100 Net profit 104.3 100.5 96.8 118.7 7.9% 16.6% 20.2% Daily trad val–6m avg (US$ mn) Mkt cap (W/US$ bn) 6,929.1/ 5.6 OP margin 39.8% 40.5% 40.0% 40.8% Free float (%) 81.4 Performance 1M 3M 12M Source: Company data, Credit Suisse estimates. Major shareholders Mirae Asset (8.4%) Absolute (4.8) 12.4 (28.4) Figure 2: NHN – 2009-11E earnings adjustments Relative (8.7) (14.4) (5.6) New CS est. Prev. CS est. Consensus Year 12/07A 12/08A 12/09E 12/10E 12/11E (W bn) 09F 10F 11F 09F 10F 11F 09F 10F 11F Revenues (W bn) 920 1,208 1,333 1,557 1,804 Sales 1,333 1,557 1,804 1,335 1,574 1,896 1,362 1,573 1,794 EBITDA (W bn) 419.7 531.3 581.1 681.1 788.7 Display Ad 192 214 246 195 222 252 Net profit (W bn) 280.1 363.1 420.3 494.6 573.1 Search Ad 695 801 912 692 822 1,017 EPS (W) 5,947 7,566 8,733 10,278 11,908 Games 433 523 612 433 511 590 - Change from prev. EPS (%) n.a. n.a. 2 -3 -6 Others 13 18 34 13 19 37 - Consensus EPS (W) n.a. n.a. 8,875 10,638 12,413 EPS growth (%) 81.4 27.2 15.4 17.7 15.9 OP 537 630 729 538 671 821 551 644 753 P/E (x) 25.1 19.8 17.1 14.5 12.6 EBITDA 581 681 789 582 723 883 601 700 809 Dividend yield (%) 0.0 0.0 0.6 0.7 0.8 Pretax profit 550 646 748 532 662 811 571 675 794 EV/EBITDA (x) 15.7 12.4 11.7 10.0 8.6 NP 420 495 573 402 502 616 426 508 597 P/B (x) 15.3 11.6 7.6 5.5 4.2 OP margin 40.3% 40.4% 40.4% 40.3% 42.6% 43.3% 40.5% 41.0% 42.0% ROE (%) 59.7 58.7 44.6 38.1 33.4 Source: Bloomberg, Credit Suisse estimates. Net debt/equity (%) net cash net cash net cash net cash net cash Figure 3: NHN – key earnings assumptions Note 1: NHN Corp. provides Internet site with web portal services such as serach engine, online game and content development. The company also offers marketing service through text and New assumptions Prev. assumptions banner advertisement. 09E 10E 11E 09E 10E 11E Question marks on the recovery of search ads Search ad assumptions NHN indicated that the sluggish performance of search ad revenue in Monthly search queries (mn) 4,417 4,948 5,416 4,223 4,645 5,061 the last few quarters has been driven by slower growth of PPC (Price Search rev per queries (W) 13.1 13.5 14.0 13.7 14.8 16.7 Per Click). The company indicates that the ‘Q’ side of search ad Display ad assumptions revenue has been growing steadily with rising search queries and a Monthly PV - Avg (mn) 26,096 26,777 27,875 26,582 27,476 28,349 higher number of search advertisers. However, the ‘P’ side of search Display rev per million PV (W 000) 612 668 734 612 674 741 ad revenue has been weak on the back of the poor economy as Game Operating Data advertisers are looking for cheaper ways to lower overall search ad Game UV - Avg (000) 8,999 9,441 9,835 8,874 9,259 9,600 costs. Hence, the company has been arguing that a full economic Monthly Game Rev per UV (W) 4,014 4,618 5,190 4,071 4,596 5,120 recovery would also drive up PPC and, hence, spur the company’s Source: Credit Suisse estimates. search ad revenue growth to +20%. Rating history Old rating New rating Old TP New TP Feb 6, 2009 OUTPERFORM OUTPERFORM W190,000 W170,000 We, however, believe the company’s search ad outlook will be overly Jun 1, 2009 OUTPERFORM NEUTRAL W170,000 W210,000 optimistic. Although the poor economy is one of key culprits for weaker search ad pricing, we, at the same time, believe search advertisers are becoming more knowledgeable and constantly working to improve effectiveness of their search ads. We believe such efforts will continue to put pressure on the average pricing of search ads and make it difficult for PPC to show double-digit growth regardless of the economic recovery. - 6 of 33 -
  7. 7. Tuesday, 02 June 2009 Asian Daily Regional Asia Pacific Strategy------------------------------------------------------------------------------------------- Credit Suisse GEM valuation snapshot Kin Nang Chik / Research Analyst / 852 2101 7482 / kinnang.chik@credit-suisse.com Figure 1: Historical valuations Figure 2 (continued): Forecast valuations (IBES estimates) 29 May 09 12M P/E (x) Trailing P/B (x) Trailing DY (%) EPS growth (%) 3M chg. in est. (%) P/E (x) Current 5-yr avg. Current 5-yr avg. Current 5-yr avg. 2008 2009 2010 2009 2010 2008 2009 2010 Argentina 5.4 12.1 0.9 2.6 2.6 1.4 Taiwan -68.8 -19.8 127.8 41.0 4.7 34.4 43.0 18.9 Brazil 12.3 8.2 2.0 2.3 3.8 3.4 Thailand -22.0 2.9 17.1 -1.4 -0.2 11.8 11.4 9.7 Chile 16.2 16.0 2.0 2.1 2.1 2.4 Turkey -8.7 -18.8 20.9 -12.9 -8.8 7.9 9.8 8.1 China 14.3 12.8 2.3 2.6 2.4 2.2 Cons. Discretionary -11.9 9.3 25.9 1.2 1.7 15.9 14.6 11.6 Czech Republic 9.6 14.4 1.9 2.4 6.4 3.5 Consumer Staples -2.1 6.6 17.4 2.3 0.4 17.2 16.1 13.7 Egypt 9.8 11.8 2.0 4.4 6.5 2.8 Energy 8.2 -26.7 15.1 -10.7 -6.5 8.4 11.8 10.2 Hungary 8.5 9.7 1.0 2.5 3.8 2.6 Financials -15.1 -4.7 21.1 -5.2 -4.1 13.3 14.2 11.7 India 17.3 15.3 3.4 4.1 1.2 1.3 Health Care 13.5 9.0 21.9 0.6 1.5 16.1 14.9 12.2 Indonesia 12.0 10.9 3.2 3.6 4.0 3.1 Industrials -42.0 35.4 29.1 -7.8 -3.1 20.5 15.3 11.8 Israel 11.9 13.2 2.1 2.4 2.6 2.0 Info Technology -61.1 -18.0 133.5 116.3 11.0 32.1 38.5 16.5 Korea 12.7 9.8 1.2 1.6 1.6 2.0 Materials -25.3 -27.8 33.3 -20.2 -14.3 11.3 15.6 11.7 Malaysia 14.8 13.7 1.8 2.0 3.3 2.7 Telecoms 11.6 -5.4 10.9 -4.3 -3.5 10.8 11.5 10.4 Mexico 11.8 12.5 2.5 2.9 2.5 1.9 Utilities -30.6 50.0 26.2 -6.3 -8.5 18.5 12.2 9.7 Morocco 14.2 15.5 5.0 4.3 3.2 3.3 EMF -16.2 -10.1 26.1 -5.7 -4.6 13.1 14.7 11.7 Pakistan 6.9 10.1 1.7 2.9 8.6 5.9 EM Asia -30.9 0.0 33.8 2.3 0.9 17.6 17.7 13.2 Philippines 13.3 13.0 2.3 2.2 3.4 2.5 EM Europe -3.5 -34.0 21.6 -14.7 -15.0 6.5 9.8 8.1 Poland 11.6 11.8 1.2 2.1 6.0 3.6 EM Latin America -2.8 -11.7 19.4 -12.8 -8.0 12.1 13.7 11.5 Russia 8.6 9.0 1.1 1.9 2.2 1.8 South Africa 10.3 10.4 2.0 2.8 4.0 3.0 Figure 3: Index U$ performance Taiwan 28.1 13.6 1.7 1.9 5.2 4.2 29 May 09 1W 1M 3M YTD 12M Thailand 10.6 9.9 1.4 2.0 4.2 3.9 Argentina -14.4 7.5 11.5 -7.0 -66.8 Turkey 9.0 9.3 1.4 1.8 3.3 3.0 Brazil 7.4 22.6 59.9 62.2 -41.8 Chile 1.1 17.4 29.9 42.7 -16.6 Con Discretionary 13.2 11.1 1.9 2.1 1.7 2.1 China 6.0 19.2 46.9 30.4 -23.8 Consumer Staples 14.9 15.1 3.2 3.2 2.6 2.5 Colombia 5.5 19.7 44.6 26.3 -20.7 Energy 11.2 8.5 1.7 2.2 2.6 2.6 Czech Republic -5.2 6.8 48.1 4.2 -46.1 Financials 13.1 11.1 1.8 2.1 2.6 2.6 Egypt -1.5 12.9 50.6 15.8 -49.4 Health Care 13.6 16.5 2.7 3.5 0.9 0.9 Hungary -1.4 27.6 80.7 13.3 -55.4 Industrials 13.6 12.0 1.7 2.0 2.1 2.3 India 4.8 36.6 83.2 60.7 -21.6 Info Technology 24.8 14.0 2.0 2.3 3.1 2.3 Jordan -1.9 6.6 11.7 2.0 -37.2 Materials 13.7 9.0 1.8 2.2 4.2 3.6 Indonesia 1.0 20.3 75.2 46.3 -32.4 Telecoms 11.0 12.3 2.4 2.9 3.8 2.9 Israel 1.6 9.6 14.8 19.9 -22.6 Utilities 11.0 12.6 1.3 1.1 3.7 3.0 Korea -0.5 11.3 59.5 24.4 -38.9 EMF 13.3 10.9 1.9 2.2 2.9 2.6 Malaysia -0.7 11.0 23.8 19.2 -23.1 EM Asia 15.6 11.7 1.9 2.1 2.7 2.6 Mexico 1.4 13.3 51.6 14.7 -40.9 EM Europe 9.0 9.6 1.2 2.0 2.9 2.4 Morocco -2.9 3.4 6.2 0.8 -32.2 EM Latin America 12.7 9.9 2.3 2.4 3.1 2.8 Pakistan 0.3 -0.7 30.5 44.9 -56.2 Peru 5.3 17.5 51.2 26.8 -31.3 Figure 2: Forecast valuations (IBES estimates) Philippines 3.4 19.6 32.0 29.1 -17.3 29 May 09 EPS growth (%) 3M chg. in est. (%) P/E (x) Poland -2.4 6.6 50.0 -10.3 -59.0 2008 2009 2010 2009 2010 2008 2009 2010 Russia 6.7 29.6 91.1 67.4 -58.6 Argentina 14.8 -36.1 79.0 -26.0 6.4 4.5 7.2 4.0 South Africa 3.6 16.2 50.5 22.7 -24.8 Brazil -7.2 -8.7 19.1 -14.4 -8.5 12.1 13.2 11.1 Taiwan 2.6 25.1 56.7 46.5 -29.4 Chile 17.3 3.7 31.1 -5.3 -2.3 18.5 18.3 14.0 Thailand 0.2 19.9 40.5 28.4 -36.4 China -12.7 5.8 17.0 -2.0 -2.1 16.2 15.3 13.1 Turkey -0.8 17.1 57.3 26.6 -29.8 Czech Republic 15.7 -2.3 -0.3 -3.4 -4.7 9.4 9.6 9.6 Consumer Discretionary 4.7 20.5 70.8 46.2 -27.7 Egypt 5.2 -23.2 28.9 -14.3 -7.4 8.6 11.0 8.5 Consumer Staples 1.0 11.7 33.9 16.7 -26.2 Hungary 13.4 -43.5 16.1 -15.7 -12.4 5.1 9.1 7.8 Energy 5.0 25.8 66.2 57.7 -42.8 India -2.6 -3.0 19.7 -0.8 2.3 16.8 17.9 14.9 Financials 3.9 22.7 66.0 33.1 -30.7 Indonesia -1.5 -2.9 9.6 2.0 2.9 12.2 12.5 11.4 Health Care 1.8 6.6 10.5 11.1 -5.0 Israel -15.3 23.0 26.5 -2.8 -0.3 16.3 13.3 10.5 Industrials 2.9 20.6 65.0 36.2 -38.3 Korea -36.7 5.3 48.1 2.8 2.2 16.0 15.2 10.3 Information Technology 2.7 17.3 53.8 47.9 -29.6 Malaysia -14.0 -19.3 10.8 -2.0 -1.9 12.6 15.6 14.1 Materials 5.2 25.4 62.6 49.9 -45.7 Mexico 12.6 -20.5 15.5 -9.6 -9.9 9.9 12.6 10.9 Telecommunication Services 1.4 9.3 29.9 9.2 -34.6 Morocco 12.7 17.1 14.4 -0.4 -1.2 20.0 17.1 13.2 Utilities 2.9 14.6 37.4 25.9 -23.2 Pakistan 8.2 9.5 1.6 1.1 1.7 6.3 6.9 6.8 Philippines -16.0 18.6 13.4 0.8 2.9 16.7 14.1 12.4 EMF 3.6 19.8 54.8 36.3 -35.7 Poland -11.0 -32.7 13.2 -21.4 -23.6 8.2 12.2 10.8 EM Asia 3.0 20.2 54.9 35.3 -29.3 Russia -3.9 -37.4 25.1 -14.9 -15.9 6.0 9.5 7.6 EM Europe 3.6 23.6 77.9 40.9 -55.2 South Africa 9.3 -2.6 12.2 -7.1 -5.8 10.7 10.9 9.8 EM Latin America 5.6 20.0 55.1 46.5 -40.1 Source for all figures: MSCI, IBES Aggregates. Note: Sectors are EMF sectors. - 7 of 33 -
  8. 8. Tuesday, 02 June 2009 Asian Daily Asia Pacific Strategy------------------------------------------------------------------------------------------- Credit Suisse valuation snapshot Kin Nang Chik / Research Analyst / 852 2101 7482 / kinnang.chik@credit-suisse.com Figure 1: Country – DDM-based valuations Figure 4: Forecast valuations (IBES estimates) 29 May 09 Implied discount rate (IDR) (%) Equity risk premium (ERP) (%) 29 May 09 3-mth chg. in Current 5Y avg. Std Dev. Current 5Y avg. Std Dev. EPS growth (%) EPS est. (%) P/E (x) Australia 12.7 11.3 1.5 7.4 5.7 0.4 2008 2009 2010 2009 2010 2008 2009 2010 China 12.2 12.0 0.6 8.3 7.8 1.0 Australia -5.4 -18.0 -6.8 -4.2 -7.5 10.8 13.2 14.1 Hong Kong 9.4 9.5 0.7 6.6 5.9 0.7 China -12.7 5.8 17.0 -2.0 -2.1 16.2 15.3 13.1 India 12.8 13.0 0.7 6.1 5.7 1.2 Hong Kong -28.1 -18.1 14.2 -1.8 1.1 15.8 19.4 17.0 Indonesia 14.3 15.3 1.8 2.2 3.6 1.4 India -2.6 -3.0 19.7 -0.8 2.3 16.8 17.9 14.9 Korea 11.8 12.6 0.7 6.7 7.5 1.2 Indonesia -1.5 -2.9 9.6 2.0 2.9 12.2 12.5 11.4 Malaysia 11.1 10.9 0.3 7.3 6.6 0.6 Japan 1.3 -111.3 nm -153.7 -19.8 10.5 -94.5 37.8 Singapore 10.5 10.1 0.3 7.9 7.2 0.7 Korea -36.7 5.3 48.1 2.8 2.2 16.0 15.2 10.3 Taiwan 10.4 11.5 0.6 8.9 9.3 0.9 Malaysia -14.0 -19.3 10.8 -2.0 -1.9 12.6 15.6 14.1 Thailand 13.8 14.4 1.0 10.4 9.7 1.1 Philippines -16.0 18.6 13.4 0.8 2.9 16.7 14.1 12.4 Asia ex Japan 10.9 11.2 0.4 7.5 7.0 0.7 Singapore -13.0 -23.9 14.8 -0.4 0.7 12.3 16.1 14.0 Taiwan -68.8 -19.8 127.8 41.0 4.7 34.4 43.0 18.9 Thailand -22.0 2.9 17.1 -1.4 -0.2 11.8 11.4 9.7 Figure 2: Sector – DDM-based valuations 29 May 09 Market implied growth rate (MIGR) (%) Cons. Discretionary -11.2 -3.8 21.6 0.8 1.7 14.9 12.2 10.8 Current 5-year average Std Dev. Consumer Staples 0.0 3.0 3.7 0.0 -0.3 14.9 14.4 12.8 Cons. Discretionary 5.0 7.6 3.7 Energy -7.7 -9.0 20.1 -1.6 -2.1 15.3 12.8 10.8 Consumer Staples 4.8 8.6 3.3 Financials -17.5 -10.5 11.8 -1.4 -2.2 15.0 13.4 11.2 Energy 2.6 4.1 4.1 Health Care 6.7 29.2 18.3 -1.2 -2.1 17.2 14.5 12.7 Financials 6.7 9.3 3.9 Industrials -42.5 -9.4 41.0 -10.2 -3.3 19.3 13.7 11.4 Health Care 4.8 11.5 3.4 Information Tech -62.6 -19.7 140.8 128.4 11.0 40.0 16.6 11.9 Industrials 7.1 9.2 4.1 Materials -17.4 -27.1 12.6 -8.4 -8.1 17.0 15.1 12.4 Information Tech 13.2 11.9 2.8 Telecom Services 4.4 0.1 5.3 -3.7 -3.9 12.2 11.6 10.9 Materials 8.0 6.6 3.8 Utilities -43.9 30.3 23.0 -0.8 1.9 18.4 15.0 13.6 Telecom Services 6.8 9.0 3.2 Utilities 6.3 6.5 2.2 Asia Pacific -67.1 47.1 45.2 -6.6 -2.6 33.5 22.8 15.7 Asia F X Japan -29.1 -4.7 30.2 1.6 0.9 16.9 17.8 13.6 Asia Pac F X Japan -23.4 -10.0 21.8 -0.2 -1.5 15.1 16.8 13.8 Note: PE and EPS growth numbers for Australia and Japan corresponds to Jun 08-10 and Mar 08- Figure 3: Historical valuations 10; and EPS change numbers correspond to Jun 09-10 and Mar 09-10, respectively. 29 May 09 12M forward Trailing Trailing dividend Figure 5: Index performance P/E (x) P/B (x) yield (%) Current 5-yr avg. Current 5-yr avg. Current 5-yr avg. (29 May 09) US$ – price index 1W 1M 3M YTD 12M Australia 14.0 13.6 1.7 2.4 6.2 4.2 MSCI Australia 3.3 13.9 42.5 17.8 -42.6 China 14.3 12.8 2.3 2.0 2.4 2.2 MSCI China 6.0 19.2 46.9 30.4 -23.8 Hong Kong 18.1 15.7 1.4 1.6 3.2 3.1 MSCI Hong Kong 9.2 22.2 41.1 34.9 -25.6 India 17.3 15.2 3.4 3.2 1.2 1.3 MSCI India 4.8 36.6 83.2 56.4 -21.6 Indonesia 12.0 10.9 3.2 2.6 4.0 3.1 MSCI Indonesia 1.0 20.3 75.2 46.3 -32.4 Japan 31.8 16.9 1.2 1.8 2.0 1.4 MSCI Japan 1.7 12.3 22.3 -0.1 -29.7 Korea 12.7 9.8 1.2 1.3 1.6 2.0 MSCI Korea -0.5 11.3 59.5 24.4 -38.9 Malaysia 14.8 13.7 1.8 1.8 3.3 2.7 MSCI Malaysia -0.7 11.0 23.8 19.2 -23.1 Philippines 13.3 13.0 2.3 1.7 3.4 2.5 MSCI Philippines 3.4 19.6 32.0 29.1 -17.3 Singapore 15.2 13.8 1.5 1.7 4.3 2.9 MSCI Singapore 2.8 29.2 55.9 30.6 -31.7 Taiwan 28.1 13.6 1.7 2.1 5.2 4.2 MSCI Taiwan 2.6 25.1 56.7 46.5 -29.4 Thailand 10.6 9.8 1.4 1.9 4.2 3.9 MSCI Thailand 0.2 19.9 40.5 28.4 -36.4 Cons. Discretionary 14.7 12.5 1.8 2.1 2.5 2.6 Cons. Discretionary 3.8 18.2 58.1 42.4 -29.0 Consumer Staples 16.0 16.1 2.5 3.1 3.6 3.0 Consumer Staples 0.7 8.8 28.1 15.4 -30.1 Energy 14.5 11.0 2.3 2.8 2.6 2.8 Energy 3.6 24.1 62.9 44.2 -31.7 Financials 15.0 13.3 1.5 1.9 4.2 3.8 Financials 4.5 22.6 56.9 29.2 -31.1 Health Care 16.6 20.4 3.0 4.0 1.8 1.7 Health Care -1.5 5.1 13.8 2.6 -33.9 Industrials 17.1 13.9 1.5 1.8 2.9 2.9 Industrials 3.8 22.1 60.2 31.3 -38.0 Information Tech 37.3 14.3 1.9 2.3 3.1 2.4 Information Tech 2.7 17.7 55.9 49.1 -30.1 Materials 17.2 10.3 2.1 2.5 4.3 3.3 Materials 5.3 21.7 59.9 38.1 -42.6 Telecom Services 12.3 12.8 2.1 2.7 4.1 3.6 Telecom Services 2.1 9.6 18.5 2.3 -32.3 Utilities 17.7 13.5 1.6 1.5 3.0 3.3 Utilities 0.9 8.2 17.2 11.8 -16.6 Asia Pacific 20.4 14.7 1.5 1.8 2.8 2.2 MSCI AC Asia Pacific 2.7 15.8 35.7 13.8 -31.4 Asia ex Japan 15.8 12.3 1.8 1.8 2.9 2.7 MSCI AC Asia ex JP 3.7 21.0 53.1 34.6 -29.0 Asia Pac ex Japan 15.5 12.7 1.8 1.9 3.6 3.2 MSCI AC Asia Pacific ex JP 3.6 19.1 50.2 29.8 -33.0 Source for all figures: MSCI, Factset, Thomson Financial Datastream, Credit Suisse. Note: All sectoral data refers to Asia Pacific ex Japan. - 8 of 33 -
  9. 9. Tuesday, 02 June 2009 Asian Daily Asian Equity Strategy: Net Foreign Buying ------------------------------------------------------------ Reached US$9.8 bn in May; biggest month ever for net foreign buying Sakthi Siva / Research Analyst / 65 6212 3027 / sakthi.siva@credit-suisse.com Kin Nang Chik / Research Analyst / 852 2101 7482 / kinnang.chik@credit-suisse.com ● Figure 1 highlights that net foreign buying in Emerging Asia was As a result of the strong net foreign buying in April (US$8.2 bn) and US$9.77 bn in May. This was the single biggest month ever for May, YTD net foreign buying has reached US$14 bn. This compares net foreign buying since our data started in 1996. with net foreign selling of US$70 bn in 2008. ● As a result of the strong net foreign buying in April (US$8.2 bn) While we are surprised at the huge degree of net foreign buying in and May, YTD net foreign buying has reached US$14 bn. This May, Figure 2 highlights that on a rolling 12-month basis, foreigners compares with net foreign selling of US$70 bn in 2008. are still net sellers to the tune of 1.4% of emerging Asia’s market ● The biggest market for net foreign buying in May was India, which capitalisation. attracted US$4.15 bn or 42% of all net foreign buying in emerging Figure 2: Cumulative net foreign buying in Emerging Asia as a % of Asia. After India was Korea, which attracted US$3.2 bn of net market cap foreign buying in May. ● While we are surprised at the huge degree of net foreign buying in 6% +4% May 2004 May, Figure 2 highlights that on a rolling 12-month basis, 4% foreigners are still net sellers to the tune of 1.4% of emerging Asia’s market capitalisation. 2% ● On a rolling 12-month basis, the two most under-owned markets 0% in emerging Asia are Thailand (net foreign selling 3.3% of market cap), followed by Korea (at 2.3% of market cap). -2% -1.4% currently -4% Year-to-date net foreign buying reaches US$14 bn versus US$70 bn of selling last year -6% Figure 1 highlights that net foreign buying in emerging Asia was Jan-97 Jan-00 Jan-03 Jan-06 Jan-09 US$9.77 bn in May. This is the single biggest month ever for net Source: Various stock exchanges, Credit Suisse estimates. foreign buying since our data started in 1996. Figure 1: Net foreign buying in Emerging Asia (except China and Malaysia), US$ mn Monthly data India Indonesia Korea Philippines Taiwan Thailand EM Asia ex. China & Malaysia Jan-08 -3,232 90 -9,474 -281 -1,421 -1,156 -15,473 Feb-08 430 217 -2,192 -30 3,248 1,008 2,681 Mar-08 -2,570 -293 -3,496 -77 -579 -321 -7,335 Apr-08 267 159 -1,051 -101 -1,025 -2 -1,754 May-08 -1,242 462 889 50 313 5 476 Jun-08 -2,503 972 -5,001 78 -3,899 -1,100 -11,453 Jul-08 -455 -98 -4,954 2 -3,656 -1,070 -10,232 Aug-08 -300 51 -3,000 -112 -932 -336 -4,629 Sep-08 -2,052 288 -2,491 -148 -2,943 -804 -8,151 Oct-08 -3,805 418 -3,698 -202 -3,594 -453 -11,333 Nov-08 -644 553 -1,672 63 -1,740 -273 -3,713 Dec-08 434 73 611 -303 484 -343 955 Jan-09 -1,052 -104 512 -52 -1,599 -121 -2,416 Feb-09 -604 -47 -878 24 -475 -98 -2,077 Mar-09 132 153 -83 -128 396 60 529 Apr-09 1,301 236 2,944 412 3,216 108 8,216 May-09 4,145 190 3,179 -37 2,058 234 9,769 Annual data 2009 (YTD) 3,921 428 5,674 219 3,597 182 14,021 2008 -15,674 2,893 -35,531 -1,060 -15,743 -4,845 -69,960 2007 17,236 3,531 -29,294 1,243 2,066 1,610 -3,609 2006 8,006 1,823 -12,657 1,351 16,611 1,857 16,991 2005 10,546 -1,741 -3,584 355 24,389 2,976 32,940 Last update: 29 May 2009 Source: Various stock exchanges, Credit Suisse estimates. - 9 of 33 -

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