摩根大通-Top Stories-101018

Asia Pacific Equity Research 18 October 2010 Top Stories Quanta Computer Inc (OW), Taiwan Less (revenue growth) is more (share price return)? (Alvin Kwock) We believe the market is awarding a higher multiple for right management decision to allocate capital to maximize shareholder value, but not to maximize market share. The market should appreciate that Quanta now allocates more resources from the low-return HP business to high-value Apple/Sony or cloud computing business. Golden Eagle Retail Group (OW), China Lifestyle International Holdings (N), Hong Kong Upgrading Golden Eagle to OW； Downgrading Lifestyle to Neutral Golden Eagle Retail Group； Lifestyle International Holdings (Ebru Sener Kurumlu) We believe the recent share price weakness in Golden Eagle offers a buying opportunity. We raise our EPS estimates & upgrade the stock to OW (from N) with a new PT of HK$23.5. We downgrade Lifestyle to N (from OW), as we believe the strong performance is priced in at current levels Swire Pacific (OW), Hong Kong Raise PT by 10.7% to HK$128.2； valuation undemanding (Benjamin Lo, CFA) Swire Pacific is a beneficiary of the pick-up in decentralised office rentals. Given the tight supply, Central office rental remains robust, growing 8.6% Q/Q in 3Q10 (+27% YTD). Also, falling office vacancy at Kowloon East is good news for Island East office rental, which saw a strong pick-up in September. SKS Microfinance (UW), India New contrarian UW, with Sep-11 PT of Rs1,000 (Seshadri K Sen, CFA) SKSs basic business model appears sound, but the economies of scale will be limited by risk-taking abilities. We differ significantly from the consensus, especially on asset quality and costs .Larger bank stocks & niche agri NBFCs would be better. Banpu Public (OW), Thailand Raise PT to Bt902.00 from Bt740.00, add to our Analyst Focus List (Sukit Chawalitakul) Banpu has completed its acquisition of Australias Centennial Coal (CEY), which we see as a good fit. We raise our FY11E-FY13E core EPS by 9%-36% to reflect CEY. We note the impact on farther years are more pronounced, as we forecast CEYs profits to steadily rise, while Banpus pre-CEY profits stagnate. Sunil Garg (852) 2800-8518 Send me your feedback! AM perspective Adrian Mowat, Chief Equity Strategist UW Commodities Source: Bloomberg, 30 September 2010. Note: Chart shows three-year correlation of monthly returns of MSCI US vs JPMCI Energy, Precious Metals and Industrial Metals. Correlation for JPM Industrial metals index is shown in color black, JPM Precious Metals Index in grey and JPMCI Energy in blue. Our underweight call on commodities and energy is driven by a combination of long-term economic cycles and a potential inflection point in the growth of Chinese material demand. The correlation of commodities to risk assets (equities) is high today. Momentum in a world of zero-interest rates is an attractive attribute. However, we think an UW on commodities at this point is unlikely to work. When it does eventually, the correction may prove to be violent as financial investors exit. Please see Reassuringly Expensive, Perspectives and Portfolios, Mowat et al, 12 October 2010. Click below for the: J.P. Morgan Daily Valuations Latest Weekly AP Banks Analyzer (.xls) Daily Global Economic Briefing Link to Other FTMs page Link to Morgan Markets page See the end pages of each individual note for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan 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. Recommendation and Forecast Changes Adaro Energy (Underweight), TIP Markets (Stevanus Juanda) Indonesia Coal Mining: Raise price targets on the back of higher coal price assumptions Banpu Public (Overweight), TIP Markets (Sukit Chawalitakul) Incorporating CEY: Raising PT, adding to AFL China Steel Corp (Neutral), Taiwan (Nick Lai) 3Q10 preliminary results no major surprise Golden Eagle Retail Group Ltd (Overweight), China (Ebru Sener Kurumlu) Recent weakness offers buying opportunity Hana Financial Group (Neutral), South Korea (Scott YH Seo) 3Q10 review - Improved, but details seem less exciting Lifestyle International Holdings (Neutral), Hong Kong (Ebru Sener Kurumlu) Strong performance priced in, downgrade to Neutral PT Indo Tambangraya Megah (Overweight), TIP Markets (Stevanus Juanda) Indonesia Coal Mining: Raise price targets on the back of higher coal price assumptions SKS Microfinance (Underweight), India (Seshadri K Sen, CFA) Scalability is a challenge Swire Pacific (Overweight), Hong Kong (Benjamin Lo, CFA) Beneficiary of a pick-up in decentralised office rentals Tambang Batubara Bukit Asam (Overweight), TIP Markets (Stevanus Juanda) Indonesia Coal Mining: Raise price targets on the back of higher coal price assumptions Strategy Market Strategy, Global (Adrian Mowat) Herd Instinct: Key Emerging Markets and Developed Asia Fund Flow Weekly, 7 October 13 October 10 Market Strategy, Malaysia (Hoy Kit Mak) 2011 Budget - Pragmatic yet pro-growth Economics Economy, India (Sajjid Z Chinoy) September inflation remains sticky； primary articles are the primary culprit Economy, Malaysia (Sin Beng Ong) A conservative 2011 budget but with larger issuance Economy, Singapore (Sin Beng Ong) Electronics and cars bump up August retail sales Economy, TIP Markets (Sin Beng Ong) Philippines: soft August remittances reflects payback Results and Company Views China Airlines (Overweight), Taiwan (Corrine Png) September Traffic Monitor - ALERT Daelim Industrial (Overweight), South Korea (Jinmook Kim) 3Q10 preview； Dont miss the inflection point of Daelims valuation re-rating Dalian Port (Neutral), China (Karen Li, CFA) Update on the A share listing and asset injection - ALERT Home Product Center Pcl (Overweight), TIP Markets (Maria Lapiz) Looking for a strong 2H； 3Q10E net profit up by 57%Y/Y Infosys Technologies (Overweight), India (Viju K George) 2QFY11 - A good quarter on many counts - ALERT PLUS Expressways (Neutral), Malaysia (Karen Li, CFA) Update on share suspension and potential privatization - ALERT Singapore Airlines (Overweight), Singapore (Corrine Png) September Traffic Monitor - ALERT Tata Motors (Overweight), India (Aditya Makharia) Sep10 JLR unit sales grew +17% yoy and +20% mom - ALERT Wilmar International Limited (Overweight), Singapore (Ying-Jian Chan) Set to raise China cooking oil prices - ALERT Sector Research Airlines, China (Corrine Png) Chinese Airline Sector: September Traffic Monitor - China Southern Airlines - ALERT Banks, South Korea (Scott YH Seo/ MW Kim) Korea FIG Roundup: Takeaways from a Seminar on Koreas Private Sector Debts and Governments Financial Liabilities eBusiness/IT Services； Digital Media； Internet, Asia Pacific (Dick Wei) Regional Internet Newsflow - Week Ending Oct 15: Alibaba Group launched eCommerce-focused search engine eTao； Games shares moved up； Changyou launched TLBB upgrade and MORE. Wireless Services, India (Malvika Gupta) India Telecoms: New entrants drive Q/Q growth in net GSM adds； Sept GSM market net adds down 8pp M/M - ALERT Analyst Trading/Focus list Asia Analyst Trading/Focus List (Sunil Garg) Asia Analyst Focus List Company Name Ticker Analyst RatingMkt. Cap (MM) Mkt. Cap (US$ MM)Focus List Add DateFocus List Add Price Close 10/15/10Target Price Date Target Price Set Australia Aristocrat Leisure Limited (A$) ALL AU Stuart Jackson, CFA OW 1864 1852 30-Oct-09 4.52 3.49 5.00 15-Sep-10 iiNet (A$) IIN AU Laurent Horrut OW 413 411 2-Aug-10 2.78 2.72 3.33 2-Aug-10 Intoll Group (A$) ITO AU Kirsty Mackay-Fisher, CFA OW 3370 3350 17-Apr-09 1.35 1.49 1.80 3-Feb-10 Westfield Group (A$) WDC AU Rob Stanton OW 28501 28330 27-Jan-10 12.91 12.35 13.96 18-Aug-10 China AAC Acoustic (HK$) 2018 HK Charles Guo OW 22276 2871 8-Sep-09 6.91 18.14 18.50 30-Aug-10 Air China (HK$) 753 HK Corrine Png OW 174511 22492 27-Aug-08 3.93 10.84 7.8 23-May-10 Bank of China H (HK$) 3988 HK Sunil Garg OW 1066787 137495 4-Mar-09 2.16 4.49 5.4 27-Aug-10 Baoshan Iron & Steel A (HK$) 600019 CH Nathan M. Zibilich, CFA OW 127312 19127 12-Oct-10 7.11 7.27 10.00 12-Oct-10 China Citic Bank - H Share (HK$) 998 HK Samuel Chen OW 247016 31837 23-Nov-09 6.73 5.55 7.70 30-Apr-10 China High Speed Transmission (HK$) 658 HK Boris Kan OW 23596 3041 6-May-10 18.42 17.16 24.30 6-May-10 China Merchants Bank Co., Ltd - A (HK$) 600036 CH Samuel Chen OW 333010 50030 29-Apr-10 13.82 14.53 20.60 14-Apr-10 China Unicom H Share (HK$) 762 HK Lucy Liu OW 269080 34681 2-Aug-10 10.22 11.42 13.20 2-Aug-10 Focus Media (US$) FMCN Dick Wei OW 3501 3501 3-Jun-10 15.44 24.45 28.00 29-Sep-10 Industrial and Commercial Bank of China - A (Rmb) 601398 CH Samuel Chen OW 1551677 233118 30-Oct-09 4.95 4.38 6.1 27-Aug-10 Shenzhen Expressway H Share (HK$) 548 HK Karen Li, CFA OW 11922 1537 8-Sep-10 3.90 4.35 8.1 8-Sep-10 Zhejiang Expressway (HK$) 576 HK Karen Li, CFA OW 32704 4215 20-Apr-10 6.83 7.53 8.5 30-Aug-10 Hong Kong Cosco Pacific (HK$) 1199 HK Karen Li OW 31725 4089 26-Aug-08 10.64 11.70 15.30 8-Jul-10 HSBC Holdings plc (HK$) 5 HK Sunil Garg OW 1479202 190650 24-May-10 71.65 84.00 115.00 22-Apr-10 K Wah International Holdings (HK$) 173 HK Amy Luk, CFA OW 7779 1003 13-Apr-10 2.98 3.05 3.8 25-Aug-10 India Apollo Hospitals Enterprise Ltd. (Rs) APHS IN Princy Singh OW 67957 1540 5-Oct-10 463.15 549.95 575.0 5-Oct-10 Dish TV (Rs) DITV IN Princy Singh OW 60839 1379 13-Sep-10 56.30 57.20 70.0 13-Sep-10 Japan Dainippon Screen Mfg. () 7735 JT Hisashi Moriyama OW 110733 1358 22-Jun-10 478 436.00 720.00 11-Aug-10 FUJIFILM Holdings () 4901 JT Hisashi Moriyama OW 1453303 17828 26-Jan-10 2,942 2824.00 4,500.00 28-May-10 Hitachi () 6501 JT Yoshiharu Izumi OW 1585872 19454 29-Jul-09 293 351.00 590.00 23-Apr-10 Honda Motor () 7267 JT Kohei Takahashi OW 5443343 66773 19-Jan-10 3,370 3005.00 3,300.00 30-Aug-10 Inpex Corporation () 1605 JT Brynjar Eirik Bustnes OW 1661565 20382 1-Sep-10 389,000 454500.00 630,000.00 31-Aug-10 Philippines International Container Terminal Services, Inc. ICT PM Jeanette Yutan OW 78013 1802 8-Sep-10 35.2 40.30 44.00 8-Sep-10 Philippine Stock Exchange Inc (Php) PSE PM Harsh Wardhan Modi OW 12569 290 9-Oct-07 820 410.00 605.00 4-Oct-10 Singapore CapitaLand (S$) CAPL SP Christopher Gee OW 17731 13681 29-Sep-08 3.26 4.16 5.30 18-Jan-10 DBS Group (S$) DBS SP Harsh Wardhan Modi OW 33703 26004 8-Aug-08 14.36 14.60 18.00 1-Aug-10 Genting Singapore (S$) GENS SP Kenneth Fong OW 24962 19260 10-May-10 0.96 2.05 1.55 13-Aug-10 Noble Group Ltd (S$) NOBL SP Ajay Mirchandani OW 11978 9242 12-Nov-09 2.83 1.99 2.00 13-Aug-10 Olam International (S$) OLAM SP Ajay Mirchandani OW 6860 5293 2-Oct-08 1.80 3.23 3.70 10-Aug-09 Singapore Airlines (S$) SIA SP Corrine Png OW 19362 14939 23-May-10 14.60 16.18 17.00 2-Feb-10 Singapore Exchange (S$) SGX SP Harsh Wardhan Modi OW 10390 8017 22-Jul-09 7.62 9.70 9.7 4-Oct-10 Wilmar International Limited (S$) WIL SP Ying-Jian Chan OW 40983 31621 25-Jan-10 6.69 6.41 7.80 6-Oct-10 South Korea LG Display (W) 034220 KS JJ Park OW 14241070 12817 15-Mar-10 35900.00 39800.00 55,000.00 16-Sep-10 LG Innotek (W) 011070 KS JJ Park OW 2685732 2417 23-Mar-10 115000.00 133500.00 240,000.00 15-Jul-10 Samsung SDI (W) 006400 KS JJ Park OW 6879310 6191 23-Jun-09 96100.00 151000.00 240,000.00 20-Jun-10 SK Energy Co Ltd (W) 096770 KS Brynjar Eirik Bustnes OW 13962300 12566 5-Oct-07 147,500 151000.00 165,000.00 13-Sep-10 Taiwan Quanta Computer Inc. (NT$) 2382 TT Alvin Kwock OW 193540 6305 13-Oct-10 48.05 50.50 62.00 13-Oct-10 Chinatrust Financial Holdings (NT$) 2891 TT Dexter Hsu OW 217809 7096 24-Aug-09 18.75 20.30 22.00 1-Sep-10 Chimei Innolux Corporation (NT$) 3481 TT JJ Park OW 331794 10809 10-Jan-10 54.1 41.25 63.00 10-Jan-10 First Financial Holding Co Ltd (NT$) 2892 TT Dexter Hsu OW 134718 4389 3-Sep-10 18.45 20.80 24.00 Aug-10 Pegatron Corp (NT$) 4938 TT Gokul Hariharan OW 87670 2856 24-Aug-10 40.15 38.35 52.00 24-Aug-10 Powertech Technology Inc (NT$) 6239 TT Cynthia Chou OW 68170 2221 2-Aug-10 101.5 96.80 130.00 2-Aug-10 E Ink Holdings Inc (NT$) 8069 TT JJ Park OW 58479 1905 4-Mar-10 63.6 54.40 85.00 28-Nov-09 Tripod Technology Corp (NT$) 3044 TT Christopher Ma OW 54455 1774 18-Apr-10 106.0 115.00 160.00 18-Apr-10 Unimicron Technology Corp. (NT$) 3037 TT Christopher Ma OW 74430 2425 18-Apr-10 40.75 48.10 60.00 18-Apr-10 Thailand PTT Public Company (Bt) PTT TB Sukit Chawalitakul OW 890741 29871 23-Mar-10 256.00 313.00 395.00 15-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 or contact your J.P. Morgan salesperson/the covering analyst. Your feedback can help us to make the FTM better. Please take a moment to tell us what you think. Click here to send comments Click here for the Blackberry version Click here to unsubscribe Asia Pacific Equity Research 15 October 2010 Quanta Computer Inc. Overweight 2382.TW, 2382 TT Less (revenue growth) is more (share price return)? Price: NT$50.50 Price Target: NT$62.00 Taiwan Computer Hardware Alvin KwockAC (852) 2800-8533 J.P. Morgan Securities (Asia Pacific) Limited Gokul Hariharan (852) 2800-8564 J.P. Morgan Securities (Asia Pacific) Limited William Chen (886-2) 2725-9871 J.P. Morgan Securities (Taiwan) Limited. Ashish Gupta (91-22) 6157-3284 J.P. Morgan India Private Limited 456075NT$Oct-09 Jan-10 Apr-10 Jul-10 Oct-10Price Performance2382.TW share price (NT$TSE (rebased)YTD 1m 3m 12mAbs -26.7% 3.8% -19.1% -25.5%Rel -26.8% 2.8% -25.6% -32.3%Our recent upgrade on Quanta has generated a lot of investor discussions. In this report, we address a few FAQs. Apple/ Sony gains able to offset HP/ Dell/ Acer loss? A short answer is no - we model 8% revenue growth in 2011, which implies share loss. Question is, does it matter after all? Empirical studies suggest not. In 2007, revenue grew 56% Y/Y as former President Michael Wang slashed price to gain orders, and the stock underperformed TWSE by 25%. In 2008/09, revenue grew 7%/3% Y/Y as current President CC Leung led the effort in price hike, and the stock outperformed TWSE by 75% in two years. In 2010, we expect revenue to grow 35% Y/Y, but the strategic partnership with HP have proved to hurt margins, and the stock underperformed TWSE by 24% YTD. We believe the market is awarding higher multiple for right management decision to allocate capital to maximize shareholder value, but not to maximize market share. Applying to the current situation, the market should appreciate that Quanta now allocates more resources from the low-return HP business to high-value Apple/ Sony or cloud computing business. How certain is iPad 2 win, and what if they dont? That we put it in our official estimates reflects our view that there is 80% probability for Quanta to win iPad 2 second source, based on a number of signs we list in our report Quanta: iPad 2 possibly a game changer - from tablet victim to Apple play published on Oct 13. In fact, we upgraded Quanta even before such signs on improved use of capital as explained above； therefore iPad 2 has only strengthened our OW case. If the win does not come through, we value the stock at NT$54 - still, we believe the downside is limited at 7% cash dividend yield and company has not cut cash dividend dollar since 2004. If this win turns out to be true, then the stock may further re-rate up to NT$70-77, or 11-12x P/E, or even higher given higher PEG multiple for Apple plays. Is iPad win at the expense of notebook business? If we count iPad as notebook, we believe the notebook market growth prospect is stronger than if there was no iPad, as iPad proliferates laptop-per-person trend in developed world and comes with higher value than Netbook. Cannibalization concern surfaces only because Notebook and iPad supply chain is now distinctly different. If Quanta has similar market share for both markets, we believe the whole iPad trend is additive to Quantas growth profile. Bloomberg 2382 TT, Reuters 2382.TW (Year-end Dec, NT$mn) FY09 FY10E FY11E FY12E FY09 FY10E FY11E FY12E Sales 839,791 1,130,763 1,216,779 1,430,604 Y/E BPS (NT$) 28.2 30.8 33.4 38.0 52-Week range 45.40 - 72.30Operating Profit 22,024 17,117 21,866 32,988 New TW GAAP ROE(%) 23.2 18.3 19.7 22.1 Market Cap US$ 6,363 MMEBITDA 26,783 21,933 26,666 37,788 New TW GAAP Core ROIC(%) 15.1 8.2 8.8 11.9 Avg daily val US$ US$19.2 MMPre-Tax Profit 28,415 26,611 31,098 41,972 Cash Div (NT$/Share) 3.5 3.7 3.8 4.0 Shares Outstg Com 3,832.5 MMNet profit 22,313 20,525 24,309 32,689 Quarterly EPS (NT$) 1Q 2Q 3Q 4Q Avg daily vol 10.8 MMMV of employee bonus 1,985 1,971 2,339 3,145 EPS (FY10) E 1.41 1.34 1.14 1.49 Avg daily val (NT$) 590.9 MM New TW GAAP NI 22,313 20,525 24,309 32,689 EPS (FY11) E 1.20 1.04 1.82 2.27 Free float 57.1%New TW GAAP EPS (NT$) 6.09 5.38 6.33 8.45 EPS (FY12) E 1.57 1.61 2.26 2.99 Div Yield 2009 (%) 6.9%New TW GAAP P/E (x) 8.4 9.5 8.1 6.0 New TW GAAP EPS growth (%) 8.7% -11.6% 17.7% 33.4% Exchange rate 30.7/ US$Cash 101,777 147,355 162,629 186,128 P/BV (x) 1.8 1.7 1.5 1.3 Index (TWSE) 8,232Gross Debt 72,989 131,757 156,100 182,949 Fair Value (12/2011) NT$64 QFII Holdings (%) 29.9%Equity 106,619 117,975 129,063 147,945 Target Price (12/2011) NT$62 Source: J.P. Morgan estimates, Company data, Bloomberg. Asia Pacific Equity Research 15 October 2010 Golden Eagle Retail Group Ltd Overweight Previous: Neutral 3308.HK, 3308 HK Recent weakness offers buying opportunity Price: HK$19.46 Price Target: HK$23.50 Previous: HK$21.00 China Broadlines/Department Stores Ebru Sener KurumluAC (852) 2800-8521 J.P. Morgan Securities (Asia Pacific) Limited 101622HK$Oct-09 Jan-10 Apr-10 Jul-10 Oct-10Price Performance3308.HK share price (HK$MSCI-Cnx (rebased)YTD 1m 3m 12mAbs 22.5% -4.1% 12.9% 49.7%Rel 13.9% -13.6% -2.3% 39.2% Upgrade to OW: Golden Eagles share price has been relatively weak for the past month. However, the company is not seeing any slowdown in SSSG trend. We believe the recent weakness offers a buying opportunity. We raise our 2010 and 2011 earnings estimates by 2% and 3%, respectively, and upgrade the stock to OW with a new Dec-11 PT of HK$23.5. Solid SSS performance: Golden Eagle reported 25% SSSG for 1H10. While we were expecting some slowdown in 3Q10 and 4Q10 due to the strong base, management notes that sales performance has been strong so far, showing no slowdown. This is pretty much in line with the feedback we are getting from other retailers in the space as well. We are now modeling stronger sales for 2H10 and lifting up our 2010 and 2011 earnings estimates on the back of that by 2% and 3%, respectively. Our top pick among department stores: Golden Eagle is our preferred stock among department stores given its: i) balanced approach in expansion, using both self-owned and leased properties； ii) young store profile enabling the company to deliver relatively strong SSSG (as of Jun-10, c.40% of existing stores were less than two years old)； iii) self-owned properties, providing operating leverage (70% of the stores are self-owned properties with no rent expense)； and iv) strong presence in Jiangsu province backed by loyal VIP customers, boosting the performance of mature stores which are the companys “cash cows” supporting expansion. PT raised to HK$23.5: In view of the store expansion and strong SSSG we expect Golden Eagle to post a 33% GSP CAGR and 28% earnings CAGR in 2010-2012. Our PT of HK$23.5 is based on a 1.2x PEG ratio and corresponds to 32x 2011E earnings. Our PT is increased due to our earnings estimate revisions and the rolling forward of our timeframe to Dec-11. A key risk to our PT is execution risk at opening new stores. Bloomberg: 3308 HK, Reuters: 3308.HK Rmb MM, YE Dec. FY09 FY10E FY11E FY12E Revenue 1,850 2,460 3,287 4,325 52-wk range (HK$) 10 - 23.2 Net profit 251 972 1,227 1,579 Mkt cap. (HK$ MM) 37,804 EPS (Rmb) 0.14 0.50 0.63 0.81 Mkt cap. (US$ MM) 4,873 DPS (Rmb) 0.11 0.25 0.32 0.41 Shares O/S (MM) 1,943 Sales growth (%) 31.1% 33.4% 34.7% 32.1% Free float (%) 31.9% Net profit growth (%) -59.1% 38.9% 26.3% 28.7% Avg daily volume (MM) 2.8 Recurring net profit growth (%) 44.0% 38.9% 26.3% 28.7% Liquidity (US$ MM) 7.1 EPS growth (%) -59.5% 265.5% 26.3% 28.7% Exchange rate 7.8 ROE (%) 11.0% 30.7% 33.1% 35.8% Index (HSI) 23,758 P/E (x) 123.6 33.8 26.8 20.8 Year-end December P/BV (x) 10.6 9.7 8.2 6.8 Price Date 15 October 2010 EV/EBITDA (x) 28.8 21.7 17.0 13.0 Dividend yield (%) 0.7 1.5 1.9 2.4 Source: Bloomberg, J.P. Morgan estimates Asia Pacific Equity Research 15 October 2010 Lifestyle International Holdings Neutral Previous: Overweight 1212.HK, 1212 HK Strong performance priced in, downgrade to Neutral Price: HK$19.28 Price Target: HK$20.00 Previous: HK$18.70 Hong Kong Broadlines/Department Stores Ebru Sener KurumluAC (852) 2800-8521 J.P. Morgan Securities (Asia Pacific) Limited 101622HK$Oct-09 Jan-10 Apr-10 Jul-10 Oct-10Price Performance1212.HK share price (HK$HSI (rebased)YTD 1m 3m 12mAbs 33.3% 3.2% 21.7% 47.0%Rel 24.4% -6.2% 4.4% 39.0% Downgrade to Neutral: Lifestyles recent sales performance across its stores in Hong Kong and China has been strong, generally in line with the 1H10 SSSG trends. While we increase our 2010 and 2011 earnings estimates by 3% and 2%, respectively, we believe strong performance is priced in at these levels, given that the share price is up 26% over the past three months. We downgrade the stock to Neutral and recommend investors be buyers on declines. In the LT, we are positive on the name: Lifestyles China exposure is increasing and we expect China to account for c.40% of sales by 2012. Secondly, we believe Lifestyles strategy of opening bigger-size department stores that replicate the shopping mall concept will gain share over small-sized department stores in China in the long run. Strong performance in CWB store: Following 14% sales growth in 1H10, CWB store continues to see strong sales growth of high single digits during 3Q10 and low teens during the Golden Week in October. We believe these figures are quite strong, especially given that by Golden Week we have moved onto a strong base. Shanghai store performance holding up: Shanghai store reported 19% SSSG in 1H10 and during 3Q10 and Golden Week SSSG has been around mid to high teens, respectively. Dec-11 PT of HK$20: We increase our 2010 and 2011 earnings estimates by 3% and 2%, respectively, mainly as we now model stronger sales growth at CWB store. We now have a Dec-11 SOTP-based PT of HK$20. Our PT is revised up due to earnings revision and rolling forward the time frame. Main risks to our PT are a sudden and sharp slowdown in retail sales and better-than-expected turnaround at new stores. Reuters: 1212.HK, Bloomberg: 1212 HK HK$ in millions, year-end December FY09 FY10E FY11E FY12E Revenue 3,756 4,292 4,678 5,206 52-week range (HK$) 12.26 - 20.95Net profit 1,142 1,297 1,431 1,515 Market cap (HK$ MM) 32368EPS (HK$) 0.68 0.77 0.86 0.91 Market cap (US$ MM) 4172DPS (HK$) 0.28 0.31 0.34 0.36 Shares outstanding (Mt) 1679Revenue growth (%) 7% 14% 9% 11% Free float (%) 30.3%Earnings growth (%) 24% 13% 10% 6% Avg. daily volume (MM) 1.0Recurring earnings growth (%) 0% 29% 16% 6% Avg daily value (US$ MM) 2.3EPS growth (%) 25% 15% 10% 6% Index (HSI) 23,758Recurring EPS growth (%) 1% 30% 16% 6% Exchange rate (HK$/US$) 7.8ROE (%) 18% 18% 18% 17% Pricing Date October 15, 2010P/E (x) 28.5 24.9 22.5 21.3 P/BV (x) 4.9 4.2 3.7 3.3 Dividend yield (%) 1.5% 1.6% 1.8% 1.9% Source: Bloomberg, Company data and J. P. Morgan estimates. Asia Pacific Equity Research 15 October 2010 Swire Pacific Overweight 0019.HK, 19 HK Beneficiary of a pick-up in decentralised office rentals Price: HK$112.50 Price Target: HK$128.20 Previous: HK$115.80 Hong Kong Conglomerates & Multi-industry Benjamin Lo, CFAAC (852) 2800-8598 Sylvia Chan (852) 2800-8593 J.P. Morgan Securities (Asia Pacific) Limited 8095110HK$Oct-09 Jan-10 Apr-10 Jul-10 Oct-10Price Performance0019.HK share price (HK$HSI (rebased)YTD 1m 3m 12mAbs 18.2% 6.7% 26.1% 20.8%Rel 8.9% -3.2% 10.1% 12.4% Robust Central rental and falling vacancy is driving a pick-up in decentralised rental: Given the tight supply, Central office rental remains robust, growing 8.6% q-q in 3Q10 (+27% Ytd) (Table 2). This bodes well for Swires Pacific Place with current asking rents at mid-HK$90s psf for One/Two Pacific Place. Moreover, falling office vacancy at Kowloon East (down to 9.2% at end-Aug) is good news for Hong Kong Island East office rental, which saw a strong pick-up in Sept (+3.4% m-m, faster than Centrals +1.7% see Table 3). We raise Swires Island East rental growth to 12.5% y-y in 2011E (from 5%). Increased exposure to Island East via acquiring 80% interest in PCCW Tower, which is a 43-storey Grade-A office building with total GFA of 620k sqft located within Swires Island East office area. Swire already owns the remaining 20% interest, hence the property is now wholly owned by Swire. The acquisition price of HK$6,452psf ($3.2bn in total) represents a 13% discount to JLLs estimated 3Q10 capital value of HK$7,403psf for Island East offices (see Table 2). No timetable yet for Swire Properties IPO: Hong Kong Economic Times on Sep 28, 2010 quoted Swire Properties Chief Executive Martin Cubbon as saying that there was no clear timetable for the IPO which was stopped in May due to unfavorable market conditions at the time. They would only consider reviving the IPO plan if capital market conditions remain stable for a sustained period. We have raised NAV by 6% to factor in 12.5% Island East rental growth in 2011E (from 5%), PCCW Tower acquisition, the disposal of Crown Beverage Cans (details inside), and mark-to-market the values of its listed aviation businesses. PT up by 10.7% to HK$128.2: Valuation remains undemanding at 39% discount to Dec-2011E NAV of HK$183.2. PT upgrade reflects a higher NAV and roll forward from Jun-11 to Dec-11. Basis of our PT remains a historical average NAV discount of 30%. Key downside risks are: (1) weaker-than-expected office leasing demand； (2) earlier-than-expected expansion of cap rates which would reduce NAV. Reuters: 0019.HK, Bloomberg: 19 HK HK$ in millions, year-end December FY08 FY09 FY10E FY11E FY12E Sales 24,670 24,909 25,481 33,645 40,707 52-week range A HK$79.95 - 112.8 52-week range B HK$14.82 - 20.80Core net profit 3,488 8,477 10,030 11,782 14,607 Market cap A HK$101,878MM Market cap B HK$62,151MMEPS (HK$) A (reported) 3.90 13.24 13.20 7.83 9.71 Market cap A US$13,131MM Market cap B US$8,011MMEPS (HK$) A (recurring) 2.30 5.63 6.67 7.83 9.71 Shares outstanding A 906MM Shares outstanding B 2,995MMDPS (HK$) A 2.38 2.80 3.33 3.92 4.85 EPS growth (%)A (recurring) (60) 144 18 17 24 Avg daily value -A HK$183.41MM Avg daily value B HK$9.8MMP/E (x) A (recurring) 48.8 20.0 16.9 14.4 11.6 Avg daily value -A US$24MM Avg daily value B HK$1.3MMP/E (x) B (recurring) 45.0 18.4 15.6 13.2 10.7 Avg daily volume - A 1.8MM shares Avg daily volume - B 0.5MM sharesDiv yield (%) A 2.1 2.5 3.0 3.5 4.3 Div yield (%) - B 2.3 2.7 3.2 3.8 4.7 Source: Bloomberg, Company, J.P. Morgan estimates. Pricing as of 15 October 2010 Asia Pacific Equity Research 17 October 2010 SKS Microfinance Initiation Underweight SKSM.BO, SKSM IN Scalability is a challenge Price: Rs1,135.90 Price Target: Rs1,000.00 India Specialty Finance Seshadri K Sen, CFAAC (91-22) 6157-3575 J.P. Morgan India Private Limited Adarsh Parasrampuria (91-22) 6157-3576 J.P. Morgan India Private Limited Sunil Garg (852) 2800-8518 J.P. Morgan Securities (Asia Pacific) Limited 8001,1001,400RsOct-09 Jan-10 Apr-10 Jul-10 Oct-10Price PerformanceSKSM.BO share price (Rs)BSE30 (rebased)YTD 1m 3m 12mAbs 15.3% -19.1% 15.3% 15.3%Rel 0.7% -22.3% 2.9% -1.7% Initiate with a contrarian UW, Sep-11 PT of Rs1,000: Our key concern is stretched valuations. The basic business model appears sound, in our view, but economies of scale will be limited by risk-taking abilities. Regulatory risk and disruptive competition remain additional risks. We think the risk-reward ratio is more favorable in larger bank stocks and niche agri NBFCs. Our price target is based on our 3-stage dividend discount model. Blue-sky consensus estimates. We differ significantly from consensus, especially asset quality and costs. Wholesale funding will make NIMs volatile across the cycle, which is being ignored at current multiples. Current valuations build in unrealistic BV growth of 36% for FY10-18, especially as potential ROEs should be impacted by limitations on leverage. Significant challenges to scalability. The microfinance business walks a tightrope and an overly aggressive push for growth could undermine the balance and quality. Scalability outside home geographies of South India will be a challenge. Regulatory risks and, potentially, disruptive competition are additional headwinds. Unfavorable risk-reward. Even within Indias expensive financials universe, SKS valuations ignore key operating risks. We find better relative value in stocks like Kotak, IndusInd, and HDFCB, which are growth stocks with a broader base and less volatility. Risks to our view: SKS has hitherto managed the business well, and there are certain operating features that could beat our expectation, notably: 1) scale economies offsetting NIM compression in the short term, and 2) repeat business from existing customers acting as a stronger growth tailwind than anticipated. Figure 1: SKS Microfinance (Reuters: SKSM.BO, Bloomberg: SKSM IN) FY09 FY10 FY11E FY12E FY13E Revenues 3,806 6,882 11,709 17,181 22,713 Shares o/s 72.93 Net Profit 797 1,739 3,483 5,324 6,637 Market cap (Rs mn) 83140 EPS (Rs) 16.6 27.0 48.4 73.0 90.1 Market cap ($ mn) 1877 BPS (Rs) 136.7 147.3 282.2 343.7 412.4 Price (Rs) 1136 Revenue Growth (%) 223% 81% 70% 47% 32% Date of Price 15 Oct 2010 EPS Growth (%) 344.8% 62.1% 79.4% 50.9% 23.5% Free Float (%) 88.4% ROA (%) 4.5% 5.1% 6.4% 6.8% 5.9% 3mnt daily vol (mn) 1.5 ROE (%) 18.4% 21.7% 23.4% 23.5% 23.9% 3mnt daily turnover ($mn) 40.5 P/E 68.54 42.29 23.57 15.62 12.65 Exchange 44.51 P/B 8.34 7.74 4.04 3.32 2.76 BSE30 20498 Source: Bloomberg, Company, J.P. Morgan estimates. Asia Pacific Equity Research 15 October 2010 Banpu Public Overweight BANP.BK, BANPU TB Incorporating CEY: Raising PT, adding to AFL Price: Bt724.00 Price Target: Bt902.00 Previous: Bt740.00 Thailand Mining Sukit ChawalitakulAC(66-2) 684-2679 JPMorgan Securities (Thailand) Limited 400550700BtOct-09 Jan-10 Apr-10 Jul-10 Oct-10Price PerformanceBANP.BK share price (Bt)SET (rebased)YTD 1m 3m 12mAbs 25.7% 12.8% 17.9% 72.4%Rel -10.5% 4.5% -3.6% 28.5%Banpu Public (Reuters: BANP.BK, Bloomberg: BANPU TB)Bt in mn, year-end Dec FY09A FY10E FY11E FY12ERevenue 53,076 48,296 58,330 64,179Net Profit 14,229.0 21,644.3 18,270.2 20,280.1EPS (Bt) 52.36 79.65 67.23 74.63DPS (Bt) 16.00 16.00 18.00 20.00Revenue growth (% ) 14.5% -8.0% 19.0% 9.6%EPS growth (% ) 54.2% 52.1% -15.6% 11.0%ROCE 27.5% 17.8% 22.2% 23.6%ROE 32.0% 37.9% 25.2% 23.3%P/E (x) 13.8 9.1 10.8 9.7P/BV (x) 4.1 3.0 2.5EV/EBITDA (x) 5.4 7.1 4.7 4.1Dividend Yield 2.2% 2.2% 2.5% 2.8%Adjusted EPS (Bt) 45.42 43.50 67.14 74.63Adjusted P/E 15.94 16.65 10.78 9.70Shares O/S (mn) 272Market cap (Bt mn) 196,746Market cap ($ mn) 6,591Price (Bt) 724.00Date Of Price 15 Oct 10Free float (% ) 50.0%3mth Avg daily volume 2,004,979.003M - Average daily Value (Bt mn) 1,365.19Average 3m Daily Turnover ($ mn) 45.73SET 997Exchange Rate 29.85Fiscal Year End DecSource: Company data, Bloomberg, J.P. Morgan estimates. We are bullish on CEY: BANPU has completed its acquisition of Centennial Coal (CEY, covered by our Australian analyst Alistair Reid) in Australia. The company spent c.A$2.4B (Bt72B) for the 98.5% stake. Around 80% of transaction cost is debt-financed while remainder comes from BANPUs partial divestment of ITMG stakes. We see CEY as a good fit for BANPU: (1) An immediate production addition of 14MMtpa addresses BANPUs previously soft growth outlook and (2) CEYs 386MM tons reserves represent an 87% increment for BANPUs base. CEYs key attraction is that its existing domestic coal contracts (with New South Wales power generators) will steadily expire. These coals sell at about 50% discount to export market prices (FY10, JPMe). As these contracts expire, they will be negotiated at higher, market-based prices or moved into exports, providing rising ASP outlook for CEY. EPS raised: With 2 months of consolidation, CEY would have limited impact on BANPUs FY10E core EPS (this excludes ITMG divestment gain of Bt36/share). However, we raise our FY11E-FY13E core EPS by 9%-36% to reflect CEY. We note the impact on farther years are more pronounced, as we forecast CEYs profits to steadily rise while BANPUs pre-CEY profits stagnate (decline in power earnings). PT upgrade: We roll over our PT to Dec-11, setting it at Bt902/share. The PT upgrade is due to incorporation of CEYs coal reserves and resources value, and the change in our coal teams LT coal price assumptions from US$85/ton to US$90. Our PT is based on SOTP valuation (see p.2 pie chart for breakdown). Key risks: (1) Weakness in coal prices hurting LT cash flows, (2) Major production problem that could suspend cash flows from a mine for a sustained period and (3) Regulatory risks such as domestic market obligations and resources taxes that could hurt LT earnings and cash flow. We add BANPU to our Analyst focus list (AFL). Asia Pacific Equity Research 15 October 2010 Indonesia Coal Mining Raise price targets on the back of higher coal price assumptions Indonesia Mining Stevanus JuandaAC (62-21) 5291 8574 PT J.P. Morgan Securities Indonesia Equity Ratings and Price Targets Mkt Cap Rating Price Target Company Symbol (Rp bn) Price(Rp) Cur Prev Cur PrevAdaro Energy ADRO.JK 69,569 2,175 UW n/c 2,100 1,700PT Indo Tambangraya Megah ITMG.JK 6 45,100 OW n/c 58,000 45,000Tambang Batubara Bukit Asam PTBA.JK 46,543 20,200 OW n/c 27,000 22,000Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 14 Oct 10. 20,00035,00050,000RpOct-09 Jan-10 Apr-10 Jul-10 Oct-10Price PerformanceITMG.JK share price (Rp)JCI (rebased)13,00016,00019,000RpOct-09 Jan-10 Apr-10 Jul-10 Oct-10Price PerformancePTBA.JK share price (Rp)JCI (rebased)1,2001,8002,400RpOct-09 Jan-10 Apr-10 Jul-10 Oct-10Price PerformanceADRO.JK share price (Rp)JCI (rebased) We incorporate higher coal price assumptions: We raise the June-11 price targets on Indonesia coal companies under our coverage to reflect the recent upgrade in coal price assumption by J.P. Morgans global coal team. The coal price forecast for FY10E remains unchanged at US$95/ton, but the FY11E/12E/13E coal prices of US$95/US$100/US$105 per ton are raised to US$101/ton in FY11E, US$105/ton in FY12E, and FYUS$105/ton in FY13E. The long-term coal price assumption starting in FY14 is raised from US$85/ton (which is an inflation adjusted price based on FY10 price) to US$90/ton. We also slightly tweaked the oil price assumptions. 20-30% increases in our June-11 price targets: Our model revisions resulted in 20-30% increases in our June-10 price targets. For Adaro, we raise our price target by 23.5%, from Rp1,700 to Rp2,100, but we maintain UW on the back of downwards earnings revision in FY11E and expensive FY11E P/E valuation. For ITMG, we raised our price target by 28.9%, from Rp45,000 to Rp58,000. For PTBA, we raise our price target by 22.7%, from Rp22,000 to Rp27,000. We maintain OW on both ITMG and PTBA. Our estimates on BRAU have incorporated the most recent coal price assumption. Rising coal price in FY11E: J.P. Morgan global coal team expects that coal price will continue to rise from the current US$96.65/ton to US$105/ton by Q3-11. With rising coal price, we view that it should bode well for the Indonesia coal companies profitability and their share prices. For PTBA, the progress on Transpacific railway which is expected to start in 1H11 could re-rate the stock upwards. The realization of 5.6GW out of 10GW generating capacity should lead to the tightening of Indonesia thermo coal supply into the seaborne market. 20% to 35% upside potential； we maintain positive view on the sector. Our top picks are PTBA and ITMG: We see potential 20-35% upside to our current price targets. With the expectation of rising coal price, we continue to maintain our positive view on the Indonesia coal mining sector, as evidenced by the OW ratings on four out of five companies we cover within the sector. Our top picks are PTBA and ITMG. Asia Pacific Equity Research 15 October 2010 China Steel Corp Neutral 2002.TW, 2002 TT 3Q10 preliminary results no major surprise Price: NT$31.35 Price Target: NT$33.00 Taiwan Steel Nick LaiAC (886-2) 2725-9864 J.P. Morgan Securities (Taiwan) Limited. 273135NT$Oct-09 Jan-10 Apr-10 Jul-10 Oct-10Price Performance2002.TW share price (NT$TSE (rebased)YTD 1m 3m 12mAbs -5.0% -2.6% 3.1% 2.8%Rel -5.2% -3.1% -3.4% -3.6%China Steel Corp (Reuters: 2002.TW, Bloomberg: 2002 TT)NT$ in mn, year-end Dec FY09A FY10E FY11E FY12ERevenue 165,409 221,690 214,085 211,260Net Profit 19,602.5 38,563.7 39,756.1 40,683.3EPS (NT$) 1.48 2.91 3.00 3.07DPS (NT$) 1.30 1.01 1.86 1.92Revenue growth (%) -35.5% 34.0% -3.4% -1.3%EPS growth (%) -22.6% 96.7% 3.1% 2.3%ROCE 6.7% 13.4% 13.1% 13.1%ROE 8.1% 15.1% 14.5% 14.1%P/E (x) 21.2 10.8 10.4 10.2P/BV (x) 1.7 1.5 1.5 1.4EV/EBITDA (x) 14.1 8.4 8.2 7.9Dividend Yield 4.1% 3.2% 5.9% 6.1%Shares O/S (mn) 13,566Market cap (NT$ mn) 425,299Market cap ($ mn) 13,864Price (NT$) 31.35Date Of Price 15 Oct 10Free float (%) 55.0%3mth Avg daily volume 21,633,780.003M - Average daily Value (NT$ mn) 672.52Average 3m Daily Turnover ($ mn) 21.92TSE 8,205Exchange Rate 30.68Fiscal Year End DecSource: Company data, Bloomberg, J.P. Morgan estimates. 3Q10 highlights: China Steel (CSC) reported its preliminary 3Q10 results today, with accumulated PBT at NT$38.0bn on revenue of NT$177.5bn, both significantly higher than the same period in 2009 due to low base effect (i.e. the company suffered a loss in 1H09 and only turned profitable in 3Q09). Sequentially, while CSCs revenue increased by 10% QoQ to NT$65.0bn in 3Q10, PBT fell by 27% QoQ to NT$10.5bn as a result of margin contraction and declined steel contract prices in Sep-10. In brief, the results are broadly in line with expectations given the company had already released its steel contract prices in 3Q10. Earnings revised up marginally by 6-7%: We raise CSCs 2010/11E earnings estimates by 6-7% to incorporate the latest results. This however does not change our investment thesis on the company: The stocks share price performance tends to discount underlying steel cycle by 3-4 months historically. Following a flattish Dec-10 contract price announcement on Oct 12, we expect steel prices to stay around flat in 1Q10 with limited upside or downside surprise. Slow end demand in the US, EU and China is a challenge facing the steel industry in our view. CSCs latest contract price is set at US$630 for HRC (hot rolled coil) and US$760 for CRC (cold rolled coil), both similar to regional spot market. PT and risks: We maintain our Neutral rating on CSC and Jun-11 PT of NT$33, based on the lower end of the mid-cycle trading average of 1.4x forward P/B. Within the region, our China metals and mining analyst Nathan Zibilichs top picks are Baoshan and Angang. (Please refer to Nathan Zibilichs report, “Steel prices likely higher from here, published on October 12, 2010, for further discussion on Chinese steel stocks). Risks to our analysis and PT for CSC are worse-than-expected steel price and raw material costs in 4Q10-2011 and CSCs ability to pass increased cost to customers. Asia Pacific Equity Research 17 October 2010 Hana Financial Group Neutral 086790.KS, 086790 KS 3Q10 review - Improved, but details seem less exciting Price: W37,300 Price Target: W40,000 South Korea Banks/Bank-centric FHCs Scott YH SeoAC (82-2) 758 5759 Jaehee Kim (82-2) 758-5733 J.P. Morgan Securities (Far East) Ltd, Seoul Branch 28,00034,00040,000WOct-09 Jan-10 Apr-10 Jul-10 Oct-10Price Performance086790.KS share price (WKOSPI (rebased)YTD 1m 3m 12mAbs 11.8% 17.7% 6.6% -0.1%Rel -0.4% 13.4% -2.0% -14.8%Bloomberg JPMA SEO Hana Financial Group (HFG) reported 3Q10 earnings after market close on October 15th, with net profit of W265 billion (+10.5% Y/Y and +52.3% Q/Q) coming above our forecast (W209 billion) and Bloomberg consensus (W255 billion). Quarterly NIM declined by 16bps, driven by the fall in the 90-day CD rates in 2Q10 that continued to lead to narrowing of net interest spread. Improvement in reported credit cost: HFGs 3Q10 credit cost was W111.9 billion； as % of total credits (reported basis, annualized) the figure was 63bps, vs. 76bps in 2Q10 and 60bps in 1Q10. 3Q10 credit cost appears to have benefited from loan sales； HFG recognized provision write-backs related to loan sales of W62.9 billion (lessening the credit cost), while also recognizing W35.7 billion of loss from loan sales (impacting the non-interest income). Of note, the credit cost impact from PF-related exposures was W48.8 billion for 3Q10, of which W10.1 billion was directly due to the strengthened guidelines by the FSS. Meaningful earnings contributions from non-bank subsidiaries still far off: Except for Hana Daetoo Securities (W49 billion), earnings contribution from non-bank subsidiaries stayed minimal in 3Q10. Hana SK Card, HFGs 51%-owned JV with SK Telecom (017670 KS, OW), remained in the negative territory (net loss of W23.3 billion for the quarter) due to continued marketing cost pressures； during the earnings conference call, management guided for around W30 billion of net loss from Hana SK Card for 4Q10. PT, valuation, and key risks: With minor changes to our earnings estimates (FY11E and FY12E NP estimates adjusted by +1.9% and -1.3%, respectively), we maintain our DDM-based PT of W40,000 (implying 0.7x FY11E BVPS and 8.2x FY11E EPS) and roll-over our PT time frame to Jun-11 (from Dec-10). Major risks to our PT are unexpected regulatory changes that could affect our view on the company, as well as unexpected announcement(s) related to HFGs inorganic growth strategy(s). Reuters: 086790.KS； Bloomberg: 086790 KS Won in billions, Year-end December FY09 FY10E FY11E FY12E ADR Reported net profit (W in billions) 306 951 1,018 1,083 52-week range W39,200-28,000 Reuters n.a. Attrib. net profit (W in billions) 306 951 1,018 1,083 Market cap W7,902B Bloomberg n.a. Fully Diluted EPS (attrib NP) (Won) 1,463 4,542 4,864 5,174 Market cap US$7,110MM 52-wk range n.a. Cash adj. EPS (Won) 1,463 4,542 4,864 5,174 Shares issued (mn) 212MM Ratio n.a. Cash DPS (Won) 400 800 900 1,000 Free float 80.7% Avg daily volume n.a. EPS (attrib NP) growth (%) (36.1) 210.4 7.1 6.4 Fiscal Year End Dec Current prem (%) n.a. Cash adj. EPS growth (%) (36.1) 210.4 7.1 6.4 Price W37,300 13-wk avg disc (%) n.a. ROE (%) 3.3 9.4 9.2 9.1 Date of Price 10/15/2010 52-wk avg disc (%) n.a. Cash adj. ROE (%) 3.3 9.4 9.2 9.1 Avg daily value W37.1B P/E (x) 25.5 8.2 7.7 7.2 Avg daily value US$33.4MM P/E (cash adj.) (x) 25.5 8.2 7.7 7.2 Avg daily volume 1.1MM shares BVPS (Won) 45,205 50,019 54,037 58,272 KOSPI 1902.29 P/BV (x) 0.8 0.7 0.7 0.6 Exchange rate W1,111/US$1 Div. Yield (%) 1.1 2.1 2.4 2.7 Source: Company data, Bloomberg, J.P. Morgan estimates. Emerging Markets Equity Research 15 October 2010 Herd Instinct Key Emerging Markets and Developed Asia Fund Flow Weekly, 7 October - 13 October 10 Emerging Market Equity Strategy Adrian MowatAC (852) 2800-8599 J.P. Morgan Securities (Asia Pacific) Limited Ben Laidler (1-212) 622-5252 J.P. Morgan Securities Inc. Deanne Gordon (27-21) 712-0875 J.P. Morgan Equities Ltd. Rajiv Batra (91-22) 6157-3568 J.P. Morgan India Private Limited Sanaya Tavaria (91-22) 6157-3312 J.P. Morgan India Private Limited Faheem S Desai (91-22) 6157-3329 J.P. Morgan India Private Limited During the week to 13 October, there were net inflows into all emerging market equity funds except BRIC Equity funds. The net flows by mandate were: Total EM equity funds US$ 4.1 billion subscription. GEMs Equity funds US$ 2.1 billion subscription. Developed Europe equity funds US$ 279 million subscription. US equity funds US$ 5.2 billion subscription. US bond market US$ 4.4 billion subscription. US money market US$ 1.7 billion redemption. Net foreign buying/selling activity: Japan Inflows of US$ 503 million. YTD inflows at US$ 20.2 billion higher than 2009 aggregate at US$ 17.1 billion Inflows in all emerging markets except Brazil, Taiwan and Indonesia: India US$ 1.6 billion inflows. 20 consecutive weeks of inflows Thailand US$ 225 million inflows. 12 consecutive weeks of inflows Brazil US$ 725 million outflows. Highest weekly outflow since week ending 26 January 2010 For countries that do not publish official foreign transactions in their equity markets, we use the monthly data from EPFR Global (they cover 12,000 international, EM and US funds with total net assets greater than US$ 6 trillion). During the month of August, funds were net buyers in Australia, China, Turkey and Poland. Funds were net sellers in Singapore, Hong Kong, Malaysia, Mexico, Chile and Russia. Please see page 13 for global portfolio weightings and household equity weights. Also see page 14 for the consensus overweight and underweight markets for August 2010. Table 1: Market data & net foreign investment, 7 October 13 October 2010 Index Net MTD 2010 2009 12M chg Flows YTD Agg. Avg. (%) US$M US$M US$M US$M (x). Stock Exchange Investors Trading Data Japan (2 wk lag) -1.0 503 1472 20219 17078 0.2 South Africa 1.2 162 300 3602 8979 0.9 Brazil* -0.5 -725 -168 1395 10028 -1.9 Taiwan -2.4 -184 467 3709 13720 -0.2 Korea -2.1 46 2149 12870 24827 0.1 India 0.7 1670 3273 22552 17626 2.3 Thailand 1.5 225 517 1872 1141 1.4 Indonesia -0.7 -71 91 2376 1385 -0.9 Philippines -1.9 42 210 873 132 1.1 Monthly Tracking of Cross Border Funds (August)* Australia -2.2 112 - 250 2197 0.2 Singapore -1.8 -458 - -776 -315 -1.9 Hong Kong 0.9 -7 - -937 586 0.0 China -2.6 316 - -185 8656 0.3 Malaysia 4.7 -112 - 57 157 -1.6 Mexico -1.1 -189 - -864 708 -0.8 Russia -2.6 -291 - -714 2825 -0.9 Chile 3.3 -59 - -364 48 -0.6 Poland -1.4 21 - 418 92 0.2 Turkey -0.4 43 - 100 43 0.7 Regional & US Mutual Fund Flows Total EM Equity* 1.0 4111 - 57900 64373 2.1 Global EM Equity* 1.0 2157 - 38926 29058 1.8 LatAm Equity* 2.8 204 - 417 8786 0.9 EMEA Equity* 1.8 382 - 4047 2017 2.1 Asia ex-Japan Equity* 0.4 1389 - 13686 19108 2.2 BRIC Equity* 2.1 -22 - 823 5404 -0.4 Japan Equity Funds -1.2 -113 - -1315 -5461 -0.5 Developed Europe* 1.9 279 - -12066 2506 0.3 International Equity* 1.1 774 - 968 18727 0.9 US Equity* 1.6 5213 - 3799 -8290 1.3 US Bond* 2.4 4411 - 134504 180622 1.2 US Money Market* 0.1 -1784 - -399276 -466143 -0.1 Source: Bloomberg, J.P. Morgan, I:Net, MKK, Lipper FMI, MSCI, Datastream. *EPFR Global data. *Data for Brazil is from 6 October 12 October 10. *Data from Lipper FMI. BRIC Funds separated from EM Funds from 11 May 07. The final column is designed to show the scale of net subscriptions or redemptions - the calculation is if net inflows (This weeks net subscription/(average of weeks with net subscriptions)( or if net redemptions /(This weeks net redemptions/(average of weeks with net redemptions). *Total EM Equity includes Global EM, LatAm, EMEA, Asia ex Japan and BRIC equity funds. Asia Pacific Equity Research 16 October 2010 Malaysia Strategy 2011 Budget - Pragmatic yet pro-growth Malaysia Hoy Kit MakAC (60-3) 2270-4728 JPMorgan Securities (Malaysia) Sdn. Bhd. (18146-X) Sriyan Pietersz (662) 684 2670 JPMorgan Securities (Thailand) Limited Figure 2: Malaysias budget deficit as a % of GDP -6% -4% -2% 0% 2%1993 1995 1997 1999 2001 2003 2005 2007 2009 2011ESource: Economic Report Key highlights: Budget 2011, in our view, is a pragmatic plan, which delivers infrastructure spending yet reflects modest fiscal consolidation relative to 2010. Key highlights include: 1) the development of a KL Mass Rapid Transit (MRT) project (estimated private investment of M$40B) and M$12.5B projects under Public-Private Partnership (PPP), 2) first-time home buyers with income less than M$3,000 per month will be able to obtain a 100% loan without having to pay a 10% downpayment for houses below M$220,000； 3) blending target (B5) of 5% to be introduced by Jun-11 to promote the bio-diesel industry； 4) National Wage Consultation Council will determine the rate and mechanism of the minimum wage； 5) service tax increase from 5% to 6% (raises government revenues)； and 6) toll rates for four highways owned by PLUS Expressways will not be raised for the next five years, effective immediately. Economic highlights: 2011 budget assumes a deficit of 5.4% of GDP from the 5.6% of GDP in 2010, which reflects a modest consolidation relative to 2010 but still below the initial expectation of a 4.5% of GDP deficit. That said, the consolidation of the budget is more gradual than expected and this reflects some changes in the revenue structure which has not been fully offset by a trimming of expenditures. The macro forecasts underlying the budget fall within broad expectations embedded in both consensus and J.P. Morgans forecasts. The budget assumes 1.1% contraction in revenues arising from lower investment contribution. The relative subsidy cost is expected to decline to 2.8% of GDP from 4.2% in 2010. Equity market implications: We expect rising investor confidence in the construction sector that should see incremental construction order flows in the coming months. For the property sector, the big positive was that there was no increase in Real Property Gains Tax (RPGT) announced. Also, the much-expected reduction in the loan-to-value ratio (LVR) for mortgages from 90% to potentially 70-80% was not announced. Lower-end mass residential developers will also benefit from measures to assist first-time home buyers. Meanwhile, for PLUS Expressways, the impact from the toll rate freeze is muted as this is likely to be offset by government compensation. Moreover, PLUS Expressways has received a takeover offer from UEM Group and EPF at M$4.60/share for all its assets and liabilities. Asia Pacific Equity Research 17 October 2010 China Airlines Overweight 2610.TW, 2610 TT September Traffic Monitor - ALERT Price: NT$23.80 15 October 2010 Transportation, Airlines Corrine PngAC (65) 6882-1514 J.P. Morgan Securities (Asia Pacific) Limited Passenger traffic growth decelerated in September, up 2% y/y versus the YTD y/y growth rate of 6%. In comparison, EVA Airways passenger traffic was flat y/y in Sep vs. its ytd growth of 9% y/y. On a m/m basis, CALs traffic fell 9% (adjusted for the shorter month of September vs. August) as the peak season had ended but this is better than its historical average of 13% decline for the month of Sep in the last 10 years while EVAs fell 13%. Compared to the pre-downturn levels in September 2007, passenger traffic was still 4% lower. Passenger load factor (PLF) rose 5ppts y/y but fell 3ppts m/m to 81% as CAL cut capacity by 4% y/y. In comparison, EVAs PLF declined 3ppts y/y and 8ppts m/m to 75% in September. Passenger revenue fell 12% m/m (as passenger yield fell 3% m/m) but rose 36% y/y in Sep, ahead of its Jan-Sep growth of 29%. This was mainly driven by the 33% y/y improvement in passenger yield to NT$2.42/RPK. Jan-Sep passenger yield was NT$2.32/RPK, +21% y/y. Compared to pre-downturn levels in September-08 (when yields surpassed Sep-07 levels), CALs passenger yield was already 4% higher. In comparison, EVAs passenger revenue grew 33% y/y in Sep driven by a similar increase in passenger yields (+33% y/y but -2% m/m) to NT$2.56/RPK. Cargo traffic growth decelerated, up 14% y/y in September versus its Jan-Sep growth rate of 53% y/y. Cargo traffic was still 7% below its pre-downturn levels in September-2007. On a m/m basis, cargo traffic rose 2% m/m but this is weaker than its historical average of 6% growth for the month of Sep in the last 10 years. In comparison, EVAs cargo traffic rose 37% y/y but was flat m/m vs. its historical average 6% m/m growth in Sep. Cargo load factor (CLF) declined 4ppts y/y and was flat m/m at 68% as CALs increased capacity of 20% y/y outpaced its demand growth. In comparison, EVAs Sep CLF was flat y/y at 82% as its 31% y/y increase in demand was in line with its 31% y/y increase in capacity. CALs cargo yield rose 25% y/y and 1% m/m to NT$8.70/FTK in Sep but still 17% below its pre-downturn levels in September-08. Cargo revenue rose 42% y/y compared to EVAs 68% y/y increase. CALs cargo revenue in Sep2010 was 10% below its pre-downturn levels in Sep 2007. Overall revenue for CAL surged 37% y/y but fell 6% m/m to NT$11.3B in Sep. In comparison, EVAs overall revenue rose 47% y/y but fell 7% m/m to NT$8.9B. Separately, CAL has agreed to plead guilty to price-fixing for international air cargo shipments to/from USA from at least as early as January 2001, until at least Feb. 14, 2006, and will pay a US$40MM criminal fine and cooperate with the US Department of Justices ongoing antitrust investigations. Other airlines that have pleaded or agreed to plead guilty include British Airways, Korean Air, Qantas, Japan Airlines, Martinair, Cathay Pacific, SAS Cargo, Air France/KLM, Israel Airlines, LAN Cargo, ABSA Cargo, Cargolux, Nippon Cargo, Northwest and Asiana. Asia Pacific Equity Research 17 October 2010 Daelim Industrial Overweight 000210.KS, 000210 KS 3Q10 preview； Dont miss the inflection point of Daelims valuation re-rating Price: W94,400 Price Target: W124,000 South Korea Construction Jinmook KimAC (82-2) 758-5729 J.P. Morgan Securities (Far East) Ltd, Seoul Branch 50,00070,00090,000WOct-09 Jan-10 Apr-10 Jul-10 Oct-10Price Performance000210.KS share price (WKOSPI (rebased)YTD 1m 3m 12mAbs 10.7% 17.7% 40.3% 21.6%Rel -1.5% 13.4% 31.7% 6.9% 3Q10 preview: In our view, sales is expected to rise 11% YoY to W1.6tn and operating profit to edge up 24%YoY to W70bn. However, we forecast downside risk in 3Q earnings at both top-line as well as operating profit for the following three reasons； 1) weak seasonality； 2) too early to recognize its record-high overseas new orders in 3Q； 3) the company may deploy more preemptive measures to accelerate its disposal of unsold housing units. Impact on our PT looks minimal: We slashed our OP estimates by 22% in 2010E mainly due to 1) 22% lowered housing revenue and 2) 2%pt cut in housing GP margin. However, we revised up our OP estimates by 0.4% in 2011E reflecting 24% more revenue from overseas. We believe the companys strong overseas new orders flow in 2H10 should provide strong top-line growth from 2Q11. Therefore, net impact on our Mar-11 price target of W124,000 was minimized. Inflection point of re-rating: We recommend investors not missing the inflection point of Daelims valuation re-rating on one-off quarterly earnings for three reasons； 1) changed strategy in overseas business will bring up 2.2x higher new orders for the next 3 years； 2) this will lead average 38% of top-line growth as well as 19% of GP growth of its overseas division until 2012E； 3) overseas GP contribution to total GP will rise 40% by 2012E, a good reason to reduce Daelims conventional discount in valuation over peers. One of our top-picks: Daelim Industrial is one of two top-picks in Korea construction with Samsung Engineering. In our view, Korea construction sector is likely to face slowing growth in both domestic and overseas market for the next 3 years. Therefore, we prefer construction companies who are likely to scale-up its overseas client base in terms of 1) quality (Samsung Engineering on its diversification out of Middle East hydrocarbon) and 2) quantity (Daelim Industrial on its scaled up new orders in 2010E). Daelim Industrial - Bloomberg: 000210 KS； Reuters: 000210.KS WB, year-end Dec FY09 FY10E FY11E FY12E Sales (W Bn) 6,275 6,447 8,273 9,407 52-week range W95,600-51,300 Net profit (W Bn) 343 432 496 539 Market cap W3,285B EPS (W) 8,891 11,187 12,852 13,952 Market cap US$2,956MM DPS (W) 100 500 500 500 Shares issued 34.8MM Sales growth (%) 6.5 2.7 28.3 13.7 Free float 72.9% EPS growth (%) 238.2 25.8 14.9 8.6 Price (W) 94,400 ROE (%) 9.8 10.7 11.0 10.8 Date of Price 16-Oct-10 ROIC (%) 10.9 9.1 12.6 14.2 Avg daily value W26.2B P/E (x) 10.6 8.4 7.3 6.8 Avg daily value US$23.6MM P/B (x) 1.0 0.9 0.8 0.7 Avg daily volume 0.3MM shares EV/EBITDA (x) 8.2 9.4 5.9 4.4 KOSPI 1,902.29 Div yield (%) 0.1 0.5 0.5 0.5 Exchange Rate W1,111.5/US$ Source: Company reports, Bloomberg and J.P. Morgan estimates. Asia Pacific Equity Research 15 October 2010 Dalian Port Neutral 2880.HK, 2880 HK Update on the A share listing and asset injection - ALERT Price: HK$3.28 14 October 2010 Infrastructure Karen Li, CFAAC (852) 2800-8589 J.P. Morgan Securities (Asia Pacific) Limited Table 1: Valuation Summary for the enlarged group Version 1 (Note 1) P/E (x) 19.7 P/B (x) 1.7 Dividend yld 2.0% Version 2 (Note 2) P/E (x) 18.8 P/B (x) 1.7 Dividend yld 2.1% Source: Company reports. Note (1) The profit for the existing assets is based on Companys forecasts； Note (2) The profit for the existing assets has been adjusted for J.P. Morgan estimates. Dalian Port (“DP) announced that it has submitted a draft of the A shares prospectus to the China Securities Regulatory Commission (CSRC) on its A-share listing plan in China. The CSRC is scheduled to review the A-share listing plan on Oct.18. DP plans to issue a maximum total of 2.4 billion new shares, half of which are A shares and the other half to the controlling shareholder - PDA. The listing price will not be less than 90% of the average trading price of the H shares during the last 20 trading days prior to the publication of the prospectus, or HK$3.22 based on our calculation (refer to tables 1-3). JPM comments: According to the prospectus, the injected assets generated lower return with an ROE of 5.9%, compared to 9.4% of the existing assets for FY10E. Based on the profit forecasts, the enlarged group is expected to make a pro-forma consolidated net profit of Rmb779MM for FY10E (under the HK GAAP), including a net profit of Rmb637MM from the existing assets (JPM est: Rmb675MM) and Rmb142MM from the injected assets. Valuation multiples of the enlarged group work out at 19.7x P/E, 1.7x P/B, while offering a dividend yield of 2.0% on FY10E profit forecasts, which appears fair compared to the sectors average. We maintain our Neutral rating. Table 2: Dalian Port1HFY10 financial figures for the existing assets, injected assets and enlarged group Existing assets Injected assets Enlarged group JPM remarks 1H10 Actual (Rmb in MMs) Revenue 904 692 1,596 Gross profit 412 215 627 Operating profit 365 128 493 PBT 403 128 530 Net profit 313 75 388 Total assets 12,457 5,909 18,366 Equity (Book value) 6,599 2,564 9,163 # of shares 2,926 2,400 5,326 Based on the maximum A share issuance EPS (Rmb/shr) 0.11 0.03 0.07 BVPS (Rmb/shr) 2.26 1.07 1.72 1H10 Margin & return analysis: Gross margin % 46% 31% 39% Operating margin % 40% 19% 31% PBT margin % 45% 18% 33% Net margin % 35% 11% 24% ROA % 2.5% 1.3% 2.1% ROE % 4.7% 2.9% 4.2% FY10E profit forecasts: Version 1: Profit forecasts (Rmb in MMs) 637* 142 779 *Based on Companys projections, prepared under IFRS EPS (Rmb/shr) 0.22 0.06 0.15 DPS (Rmb/shr) 0.09 0.02 0.06 Based on the target payout ratio of 40% Version 2: Profit forecasts (Rmb in MMs) 675 * 142 817 *Based on JPM projections, prepared under IFRS EPS (Rmb/shr) 0.23 0.06 0.15 DPS (Rmb/shr) 0.09 0.02 0.06 Based on the target payout ratio of 40% Source: Company reports, J.P. Morgan estimates. Asia Pacific Equity Research 15 October 2010 Home Product Center Pcl Overweight HMPR.BK, HMPRO TB Looking for a strong 2H； 3Q10E net profit up by 57%Y/Y Price: Bt9.75 Price Target: Bt14.00 Thailand Hardlines Retailing Maria LapizAC (66-2) 684-2683 JPMorgan Securities (Thailand) Limited 369BtOct-09 Jan-10 Apr-10 Jul-10 Oct-10Price PerformanceHMPR.BK share price (Bt)SET (rebased)YTD 1m 3m 12mAbs 145.5% 16.7% 63.3% 174.9%Rel 109.8% 8.8% 42.0% 131.4%Home Product Center Pcl (Reuters: HMPR.BK, Bloomberg: HMPRO TB) Bt in mn, year-end Dec FY08A FY09A FY10E FY11E FY12ERevenue 18,540 20,329 23,825 27,348 31,681Net Profit 959.4 1,142.9 1,892.3 2,301.4 2,840.6EPS (Bt) 0.50 0.31 0.44 0.53 0.66DPS (Bt) 0.35 0.21 0.31 0.37 0.46Revenue growth (%) 16.5% 10.0% 17.3% 14.8% 15.8%EPS growth (%) 34.5% -37.8% 41.7% 21.6% 23.4%ROCE 17.7% 17.7% 19.0% 21.3% 43.5%ROE 20.7% 22.3% 33.2% 34.7% 36.7%P/E (x) 19.7 31.6 22.3 18.3 14.9P/BV (x) 3.8 6.8 6.9 5.9 5.1EV/EBITDA (x) 10.8 17.4 18.1 16.2 6.8Dividend Yield 3.6% 2.2% 3.1% 3.8% 4.7%Shares O/S (mn) 4,350Market cap (Bt mn) 42,413Market cap ($ mn) 1,421Price (Bt) 9.75Date Of Price 15 Oct 10Free float (%) 37.4%3mth Avg daily volume 14,018,200.003M - Average daily Value (Bt mn) 113.02Average 3m Daily Turnover ($ mn) 3.79SET 997Exchange Rate 29.85Fiscal Year End DecSource: Company data, Reuters, J.P. Morgan estimates. Reaffirm OW, Dec-11 PT of Bt14: Our FY10 net profit forecast is 21% higher than consensus and we remain confident that HMPRO will deliver to our expectations. We are projecting 3Q10 net profit to post 57%Y/Y growth. With Willingness to Own - New House Index rising and catchment area enlarged by the increasing store network penetration nationwide, we are optimistic on HMPROs earnings outlook. Maintain OW with Dec-11 price target of Bt14 based on Gordon growth. 3Q10E up by 57%Y/Y. We are projecting total revenues to rise by 21%Y/Y and merchandising sales to grow 20%Y/Y with the underlying same store sales growth (SSSG) of 14%Y/Y. Overall gross margins are expected to rise to 30.5% vs 29.2% in 3Q09 (29.6% in 2Q10). Watering down the effect of the higher margin is the 19%Y/Y hike in SG&A up to 22.6% of sales vs 21.86% in 2Q10. The spike in the SG&A is mainly due to the pre-operating expenses on the three new stores scheduled to open from Sep-Dec10 (Store 38 opened in 18 Sept). At 29% tax rate, we expect HMPROs net profit to reach Bt401mn, +57%Y/Y. 7%Q/Q. On track to meet our FY10 target. If HMPRO meets our 3Q10E, the 9M10 net profits could reach Bt1.11B, 59% of our forecast. We expect a very strong 4Q10, driven by new store contribution, buoyant SSSG and sustained margin expansion on both direct sourcing and third party merchandise. Positive outlook: The Oct HomePro Expo starts today and the reception is promising with about 600 vendors participating. We maintain our hypothesis that HMPRO will benefit from strong property uptake (confirmed by the rise in Willingness to Own New Home Index) as well as on the increasing home renovation activities, and this will support our projected 23% average growth in FY11/12 net profit. Asia Pacific Equity Research 15 October 2010 Infosys Technologies Overweight INFY.BO, INFO IN 2QFY11 - A good quarter on many counts - ALERT Price: Rs3,185.25 14 October 2010 eBusiness/IT Services Viju K GeorgeAC (91-22) 6157-3597 Nishit Jasani (91-22) 6157-3578 J.P. Morgan India Private Limited Infosys declared 2QFY11 results that were ahead of our and consensus expectations. The highlight of the quarter was the strong revenue growth of 10.3% Q/Q (to USD 1.49 bn, driven by volume growth of 7.2% and pricing uptick of 3.2%), which clearly indicates that business remains in excellent shape for the big players in the industry. Concern on pricing addressed. Pricing, which was a concern in 1QFY11, showed a nice sequential uptick moving up 2.5% Q/Q (constant currency blended), with onsite pricing moving up 2.4% Q/Q and offshore pricing declined 0.4% Q/Q. EBIT growth of 20% Q/Q also exceeded expectations on the back of expected margin performance (30.2%, up 190 bps Q/Q). Multiple verticals and growth engines fire. Europe grew 18% Q/Q (15.5% Q/Q in constant currency), very creditable in the face of concerns from Europe. While BFSI expectedly held its own (8% growth Q/Q and 7.4% growth in constant currency), smaller verticals such as retail, energy and utilities and services saw vigorous growth of upwards of 15% Q/Q. In terms of horizontals, growth was led by Consulting and PI (up 14% Q/Q), implying that discretionary spends are coming back into the system. ADM saw stable growth of 6% Q/Q. Sequential volume growth for the quarter at 7.2% Q/Q and revenue guidance other bright spots: Infosys revised revenue growth guidance for FY11 is now 24-25% (4% points up from 19-21% issued at 1QFY11). Rupee EPS guidance remained unchanged at Rs.117 primarily due to rupee appreciation against USD (Rs44.5/US$). We believe this will move up to the range of Rs.120-121 over the course of FY11. Attrition for Q2FY11 higher than trend. Quarterly attrition (annualized) at 23% is high but has moderated from Q1FY11 level of 27%. Implications for the sector: Infosys revised FY11 US$ revenue guidance is a positive for the large caps in sector, pointing to a continued, robust recovery. Attrition and wage inflation concerns have eased, and are likely to accompany top-line expansion which is likely to impact margins and we will watch out for how firms manage salary costs and margins amid the recovery. Investment view: Consensus revenue expectations (USD) will be reset upwards but the rupee appreciation will limit EPS upside. Hence, we do not expect upgrades in consensus FY11 EPS estimates (already Rs122-Rs123). Valuations are not cheap (FY11E P/E 26x) and Infosys needs to consistently beat on earnings to drive up share price, in our view, which seems difficult. As such, we expect share price upside over the next 9-12 months to be capped to single digits in percentage terms. Asia Pacific Equity Research 15 October 2010 PLUS Expressways Neutral PLUE.KL, PLUS MK Update on share suspension and potential privatization - ALERT Price: M$4.46 13 October 2010 Infrastructure Karen Li, CFAAC (852) 2800-8589 J.P. Morgan Securities (Asia Pacific) Limited Hoy Kit Mak (60-3) 2270-4728 JPMorgan Securities (Malaysia) Sdn. Bhd. (18146-X) Company background: PLUS owns 60% of Malaysias tollroads, with a total of 973 km in operation, including - PLUS Expressway (North-South Exy), - ELITE (NSE Central Link), - LINKEDUA (Malaysia-Singapore Second Crossing) and - BKE (Butterworth-Kulim Exy). PLUS is 55.2% owned by Khazanah and its wholly owned subsidiary UEM Group (38.5% owned by UEM, 16.7% owned by Khazanah), and 11.5% owned by Employee provident fund (EPF). We spoke to management of PLUS this morning, regarding the share suspension: Here is what we were told, albeit very limited disclosure from them: (1) UEM, the controlling shareholder which holds 38.5% stake in PLUS, requested the stock be suspended for a total of two days (i.e. trading will still be suspended today). That said, mgmt stressed that UEM could have made the request on behalf of other major shareholders (e.g. EPF). (2) Mgmt hinted that the timing of an announcement may be today or over the weekend. Key highlights from our last discussion with mgmt two weeks ago, as well as the major recent newsflow: Cash cow business with excellent track record of payout: PLUS Expressway is the major asset, forming 90% of the groups revenue, 88% of the groups EBITDA and 96% of the groups net profit). PLUS Exys concession right has been extended once by an additional 20 years. The original concession right was for a period of 30 years, which ends in 2018. Based on the current terms, the concession right ends in December 2038, a total of 50 years. 1) With 20 years of operation, the major tollroad PLUS Expressway is a mature asset, generating strong cash flow. The groups EBITDA margin has been consistently in the range of 8385%. 2) PLUS traffic performance has been rather steady at 4% CAGR over 2001-2009. In addition, the government also put in place an automatic tariff adjustment scheme for a 10% increase every 3 years, in the form of actual tariff hikes as well as government compensation, allowing pricing increase on the back of inflation rates. 3) With solid cash generation, PLUS has also been generous with payout. The payout ratio has been rising, from c50% in 2003-2004, rising to c60% in 2005-2007 and to 70% in 2008-2009. At present, the groups policy is to payout a minimum 70% of the groups net profit. Based on our estimate, PLUS offers a forward dividend yield of c6% (FY11E). What is the debate now?: PLUS started operation in 1988 with total cost of RM3.2 billion； there have been debates whether the roads should be privatized into a national infrastructure trust as costs may have been recouped a few times over. The Employees Provident Fund and Khazanah will offer to buy all the assets and liabilities of PLUS Expressways for around RM23 billion or RM4.60 per share, the Edge Financial Daily reported, which implies an EV of MK31.4 billion, including net debt of MK8.4 billion (as of 1H10). At the price of Rmb4.6 as suggested by the Edge paper, the privatization price works out at 13.9x P/E and 9.3x EV/EBITDA (FY11E) based on J.P. Morgan estimates. . Asia Pacific Equity Research 17 October 2010 Singapore Airlines Overweight SIAL.SI, SIA SP September Traffic Monitor - ALERT Price: S$16.22 15 October 2010 Airlines Corrine PngAC (65) 6882-1514 J.P. Morgan Securities (Asia Pacific) Limited Passenger traffic rose 1% y/y (vs. its Jan-Sep y/y growth rate of 6%) and was 3% higher m/m in September (adjusted for the shorter month of September vs. August). This was better than Augusts performance (when traffic was flat y/y and fell 6% m/m due to the earlier timing of the Ramadan vs. last year). In the past 20 years, SIAs daily passenger traffic in September tended to be 4% lower vs. August on average. In comparison, Cathays passenger traffic rose by 15% y/y but fell 4% m/m in September. Compared to its pre-downturn levels in Sep-08, SIAs traffic was still 7% y/y lower, while Cathays traffic was already 15% higher. System-wide passenger load factor declined 1ppt y/y but rose 2ppts m/m to 80%: Weaker loads on West Asia/Africa (down 4ppts y/y to 67%) and European routes (down 2ppts y/y to 85%) offset higher loads in the other major route regions. In comparison, Cathays PLF for the month stood at 82%, up 2ppts y/y but down 3ppts m/m. South West Pacific routes reported the highest utilization with load factors running at 86% (flat y/y), while loads on Americas and North and SE Asian routes improved to 81% (+1ppt y/y) and 78% (+2ppts y/y) respectively. Cargo traffic rose 9% y/y, in line with the Jan-Sep run rate of 9% y/y and was 3% higher m/m. However, in the past 20 years, SIAs daily cargo traffic in September tended to be 7% higher vs. August on average. Compared to its pre-downturn levels in Sep-07, SIAs cargo traffic was still 7% lower. In comparison, Cathays cargo traffic growth rose 18% y/y in September and was already 14% higher than its pre-downturn levels. SIAs system-wide cargo load factor (CLF) remained flat y/y at 64% as demand growth was in line with SIAs 9% capacity increase. In comparison, Cathays CLF declined 5ppts y/y to 70%. SIAs cargo load factors improved the most on South West Pacific routes, +4ppts y/y to 58%, followed by Americas (+2ppts y/y to 64%) and West Asia & Africa (+1ppt y/y to 63%). Utilization on European routes remained the highest with load factors at 69% (-1ppt y/y) while loads on North and SE Asian routes declined the most, down 4ppts y/y to 60%. Other developments: 1) SIA Cargo will be launching two new freighter services a week between Singapore and Tokyo via Taipei from Oct 19. A third weekly freighter service via Taipei to Narita will start on Nov 6. 2) SIA will also be operating new twice-daily passenger services between Singapore and Tokyo Haneda airport from Oct 31, in addition to its existing twice-daily passenger services to Tokyo Narita. 3) SIA has contracted OnAir to provide Wi-Fi internet and mobile services on its A380, A340-500 and B777 aircraft from 2011. 4) A SIA plane flying from Moscow to Singapore had to make an emergency landing in Kolkata (India) on Oct 4 following a bomb scare. Asia Pacific Equity Research 17 October 2010 Tata Motors Overweight TAMO.BO, TTMT IN Sep10 JLR unit sales grew +17% yoy and +20% mom - ALERT Price: Rs1,156.05 15 October 2010 Automobile Manufacture Aditya MakhariaAC (91-22) 6157-3596 Bharat Iyer (91-22) 6157-3600 J.P. Morgan India Private Limited JLR sales at 19,528 units grew +17% yoy & 20% mom: Jaguar sales at 4,861 units were up +10% yoy and Land Rover sales at 14,667 units were up +19% yoy. Sales grew +20% mom given that August is a seasonally weak month. Retail sales came in at close to 24,000 units (+7% yoy) as the company witnessed strong growth in the Chinese and UK markets. Sales in USA were muted though. For 2Q, JLR sales now stand at 55,134 units (as compared to 59,200 units in 1Q). Global luxury segment growth was healthy: Luxury brands BMW, Mercedes-Benz, and Audi saw worldwide sales increase by 20%, 13% and 16%, respectively, y/y in September. All three brands cited higher sales in the US and China for the performance. Sales growth in Europe was muted BMW reported 7% y/y growth in September sales in the continent while Mercedes and Audi reported 2% and 8% respective y/y growth there. Management is guiding for sales of 240,000 units in FY11E, which implies that sales will likely grow at 10% in 2H (after growing at 40% in 1H). However, the base effect turns more demanding over 2H. Also, Jaguar Land Rover has decided to keep all its three plants in the UK (earlier they had decided to close one of the facilities in the Midlands) given healthy demand as well as new product launches in the future - the Evoque. Figure 3: Land Rover Sales (in unit nos) 10,00012,50015,00017,50020,000Nov -09 Jan-10 Mar-10 May -10 Jul-10 Sep-10Source: Company Figure 4: Jaguar Sales (in unit nos) 2,5003,4004,3005,2006,1007,000Nov -09 Jan-10 Mar-10 May -10 Jul-10 Sep-10Source: Company Table 3: Tata Motors Luxury Car Sales (in unit nos) Sep-10 Sep-09 %YoY Aug-10 %MoM FY11YTD FY10YTD % YTD Land Rover 14,667 12,325 19 12,432 18 82,505 56,842 45 Jaguar 4,861 4,419 10 3,788 28 29,780 23,392 27 Total Sales 19,528 16,744 17 16,220 20 112,285 80,234 40 Source: CompanyAsia Pacific Equity Research 15 October 2010 Wilmar International Limited Overweight WLIL.SI, WIL SP Set to raise China cooking oil prices - ALERT Price: S$6.41 14 October 2010 Plantations Ying-Jian ChanAC (65) 6882-2378 J.P. Morgan Securities Singapore Private Limited Aditya Srinath, CFA (62-21) 5291-8573 PT J.P. Morgan Securities Indonesia Approval to raise cooking oil prices: According to Bloomberg, Y and other news sources, the China government has approved the application of cooking oil producers, including Wilmar, China Corn Co., and Shandong Luhua, to raise cooking oil prices. The price hike may be as high as 10%. Cost pressures partially alleviated: This price hike approval comes after steep rise in soybean feedstock prices in the last 3 months (CBoT: +22%； Dalian: +15%), and is expected to help Wilmar ease its higher raw material costs. The government has, last month, asked vegetable oil producers in China not to raise prices ahead of the Mid-Autumn and National Day holidays. The Y article also cited that the government is expected to release 300k tons of vegetable oil stock into the market to ease cost pressure on producers and manage inflation, with plans to release more if prices keep rising. It is believed that the government holds c.2MM tons of vegetable oil in its inventory. China vegetable oil consumption stands at c.26 MM tons. Recent lifting of Argentina soybean oil import ban may also help margins: Furthermore, China has recently lifted its ban on soybean oil from China. The pick-up in China soybean oil import would also help to alleviate cost pressure. We expect Wilmar to also benefit from this as we estimate that it is only 85-90% self-sufficient in its cooking oil supply from its oilseeds crushing operations. JPM view: This latest news is expected to remove the overhang on Wilmars share price. We estimate that this 10% price hike, if fully implemented, may lift consumer pack margin to US$48/MT based on our estimates, taking into accounting the higher feedstock cost. However, the actual margin improvement is expected to be observed only in 4Q10 and not the upcoming 3Q10 results where we think could still post weak consumer product margins. We are already forecasting US$50/MT consumer pack margin for FY10, implying US$50/MT for 2H10 but could turn out to be around US$42/MT based on our calculations below, which could still see a slight 0.8% downside to our group earnings estimates for FY10. Table 4: ASP and PBT/MT margin trend and forecast US$ 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 ASP 894 545 1,496 1,994 1,675 1,655 1,551 1,318 1,261 1,223 1,206 1,203 1,264 1,216 1,216 1,338 Av. soybean price per MT 326 348 395 490 598 623 613 430 430 474 466 468 450 431 451 487 Other exp incl. crushing 547 162 1,037 1,439 1,059 1,014 910 853 725 662 706 672 759 740 730 803 PBT/MT 20.3 34.7 63.9 64.7 18.4 17.6 27.2 36.0 106.4 87.8 34.5 61.9 54.7 44.8 35.8 48.0 % ASP growth (Y/Y) 87% 204% 4% -34% -25% -26% -22% -9% 0% -1% 1% 11% Soybean px gr. (Y/Y) 83% 79% 55% -12% -28% -24% -24% 9% 5% -9% -3% 4% Other costs % ASP 61% 30% 69% 72% 63% 61% 59% 65% 57% 54% 59% 56% 60% 61% 60% 60% PBT/MT growth (Y/Y) -9% -49% -57% -44% 479% 399% 27% 72% -49% -49% 4% -22% Source: J.P. Morgan estimates, Company data. 3Q10 and 4Q10 margins are estimated. Asia Pacific Equity Research 17 October 2010 Chinese Airline Sector September Traffic Monitor - China Southern Airlines - ALERT Airlines Corrine PngAC (65) 6882-1514 J.P. Morgan Securities (Asia Pacific) Limited Passenger traffic growth accelerated in September, up 25% y/y vs. the Jan-Sep y/y growth of 22% y/y. On m/m basis (adjusted for the shorter month of September vs. August), passenger traffic declined 8%. International routes had the strongest traffic growth, up 34% y/y (but fell 6% m/m) while traffic on domestic and regional (HK, Macau, Taiwan) routes grew by 24% and 18% y/y respectively. Compared to the pre-downturn levels in September-07, China Southerns passenger traffic was already 31% higher as domestic traffic recovered earlier and regional routes were boosted by direct China-Taiwan flights liberalization. System-wide passenger load factor rose 8ppts y/y and 1ppts m/m to 80% as demand growth outstripped its 13% y/y capacity increase. PLFs on domestic and regional routes both rose by +8ppts y/y to 81% and 73% respectively while PLF on international routes rose 5ppts y/y to 75%. Jan-Sep system-wide PLF for CSA was 79%, +4ppts y/y. Septembers PLF was already 2ppts higher than its load factor in September-07 (pre-downturn) Cargo traffic growth slowed but still a strong result, up 68% y/y and 8% m/m compared to its Jan-Sep y/y run rate of 86%. International cargo traffic surged 186% y/y while domestic and regional routes reported a 10% and 42% y/y rise in traffic respectively. Compared to the pre-downturn levels in September-07, CSAs cargo traffic was already 69% higher. Cargo load factor improved 1ppt y/y and 4ppts m/m to 52% as strong demand outstripped the 65% y/y and 1% m/m injection in capacity. Recent developments: 1) CSA will start services connecting Brisbane to Guangzhou three times a week starting next month. In addition, it will increase frequencies on Melbourne Guangzhou and Sydney Guangzhou route to one daily and twice daily respectively. 2) CSA will also start daily flights between Guangzhou and Moscow by end October. 3) CSAs subsidiary Xiamen Airlines ordered 10 B737s scheduled for delivery in 2015-16. (Source: China Economic Review) The Big 3 Chinese carriers passenger traffic growth accelerated in September (+34% y/y) vs. their ytd y/y growth of 29% but down 8% m/m. On a m/m basis, CEA posted the weakest growth in passenger traffic (-10%) vs. CSA and Air Chinas 8% and 6% decrease. Passenger load factors remained high, at 82% for Air China followed by CSAs 80% and 79% for CEA, all above their ytd averages. CSA cut passenger capacity the most, down 5% in September, followed by Air China and CEAs 4% and 3% reductions. The 3 Chinese carriers cargo traffic growth y/y decelerated in September, up 41% y/y (but rose 9% m/m) vs. ytd y/y growth of 61%. Air Chinas cargo traffic rose 14% m/m while CSA and CEA reported 8% and 6% growth respectively. Figure 1: Air China: Price to Book trading range since listing 1.992.571.41x0.001.002.003.004.005.006.00Dec-04Jun-05Dec-05Jun-06Dec-06Jun-07Dec-07Jun-08Dec-08Jun-09Dec-09Jun-10Current P/BV: 2.84xSource: Bloomberg, Company reports, J.P.Morgan estimates. Figure 2: China Eastern: Price to Book trading range since listing 1.04x(30.0)(20.0)(10.0)0.010.020.030.0Feb-97Feb-98Feb-99Feb-00Feb-01Feb-02Feb-03Feb-04Feb-05Feb-06Feb-07Feb-08Feb-09Feb-10Source: Bloomberg, Company reports, J.P. Morgan estimates. Figure 3: China Southern: Price to Book trading range since listing 1.22x2.12x0.33x0.002.505.007.50Sep-97May-98Jan-99Sep-99May-00Jan-01Sep-01May-02Jan-03Sep-03May-04Jan-05Sep-05May-06Jan-07Sep-07May-08Jan-09Sep-09May-10Current P/BV: 2.34xSource: Bloomberg, Company reports, J.P. Morgan estimates. Asia Pacific Equity Research 17 October 2010 Korea FIG Roundup Takeaways from a Seminar on Koreas Private Sector Debts and Governments Financial Liabilities Korea FIG Team Scott YH SeoAC (82-2) 758 5759 MW KimAC (82-2) 758 5724 J.P. Morgan Securities (Far East) Ltd, Seoul Branch Bloomberg JPMA SEO Korean financial indicesOne-year performance relative to KOSPI Oct 15, 2009 = 100 707580859095100105Oct-09 Feb-10 Jun-10 Oct-10B anks Insurance Securit iesSource: Bloomberg. We attended Koreas Private Sector Debts and Governments Financial Liabilities Seminar, jointly hosted by Korea Institute of Finance, Korea Economic Association, and Bank of Korea. Korea is often referred as a heavily-leveraged country； the governments debt level is officially tallied at 35% of GDP, or half the OECD average, yet the figure is believed to be close to 80% when the “quasi-public” companies liabilities are included. Adding on to this is the household debt, which amounts to close to 80% of GDP (vs. OECD countries average of 65%). Koreas debt level has been a continuing source of questions from investors, especially in regard to the rapid pace of its increase. In our view, the Seminars stance could have been a bit too pessimistic, especially on the household debt side in terms of the property market outlook. As noted in the last weeks J.P. Morgans Heart & Seoul: Misplaced apprehension on housing-price deflation (05-Oct-2010), J.P. Morgan Korea Strategys Team view on the property market is significantly more positive, and we do not believe a meaningful pressure on the household debt situation is likely to emerge from that segment. Nonetheless, we introduce some interesting figures and data points from the Seminar. BoK on hold again: On October 14th, Bank of Koreas Monetary Policy Committe once again stayed on hold for the month, leaving the policy rate unchanged at 2.25%. J.P. Morgan Economic Research Team (Jiwon Lim and James Lee) had guided for the BoKs possible action this month as a close call, and suggested the external environment (including Koreas hosting of G20 Summit in November 11-12th) could have played a significant role in the BoKs decision to leave the policy rate unchanged. Our Economic Research Team continue to guide for another 25bp hike before the year-end； please refer to their comment Bank of Korea on hold today, 14-Oct, for more details. 3Q10 earnings season for Korean banks/bank-centric FHCs kicked off this week with HFG (15-Oct)； the company posted NP of W265 billion, with NIM declining by 16bps. The upcoming week has BSB (21-Oct) and SSCs (22-Oct) 3Q10 results announcements. J.P. Morgans Korean banks/bank-centric FHC coverage universeSummary valuation Company JPM Stock Code JPM Price (W) Mkt Cap P/BV (x) P/E (x) ROE (%) Name Acronym (Bloomberg) Rec 15-Oct-2010 (WB) FY10E FY11E FY10E FY11E FY10E FY11E Shinhan Financial Group SFG 055550 KS OW 45,500 21,576 1.2 1.1 9.3 8.0 13.4 13.0 KB Financial Group KBF 105560 KS OW 54,300 20,979 1.0 1.0 19.2 8.7 5.7 11.3 Industrial Bank of Korea IBK 024110 KS N 17,200 9,391 1.2 1.0 9.3 8.4 14.1 13.5 Korea Exchange Bank KEB 004940 KS N 13,300 8,577 1.0 1.0 7.9 9.2 13.4 11.0 Hana Financial Group HFG 086790 KS N 37,300 7,902 0.8 0.7 8.1 7.9 9.7 9.2 Busan Bank BSB 005280 KS OW 15,100 2,819 1.2 1.0 8.8 8.8 14.9 13.3 Daegu Bank DGB 005270 KS OW 16,150 2,134 1.0 0.9 7.3 6.7 15.3 14.5 Samsung Card SSC 029780 KS OW 58,500 7,193 1.2 1.1 15.9 14.9 9.4 8.3 Sector average (weighted by market cap) 1.1 1.0 11.7 8.2 11.0 12.6 Source: Company, Bloomberg, J.P. Morgan estimates. Asia Pacific Equity Research 17 October 2010 Regional Internet Newsflow - Week Ending Oct 15 Alibaba Group launched eCommerce-focused search engine eTao； Games shares moved up； Changyou launched TLBB upgrade and MORE. Head of Internet and New Media Dick WeiAC (852) 2800-8535 J.P. Morgan Securities (Asia Pacific) Limited Ritesh Gupta (91-22) 6157 3307 J.P. Morgan India Private Limited Korea Internet Sungmin Chang, CFA (82-2) 758-5719 J.P. Morgan Securities (Far East) Ltd, Seoul Branch Telecom, Internet, and New Media Strategist James R. Sullivan, CFA (65) 6882-2374 J.P. Morgan Securities Singapore Private Limited Global Internet Imran Khan (1-212) 622-6693 J.P. Morgan Securities Inc. Figure 5: Relative Performance - Jan 2010 to Oct 2010 Online Advertising/ E-commerce/ Portal 2.32.5Jan-10 Feb-10 Mar-10 Apr-10 May -10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10Alibaba Baidu Sohu SinaTencent Hangseng NASDAQsSource: Bloomberg. In this newsletter, please find our internet sector valuation comparison table, 3Q10 earnings calendar, and key regional internet news. Online games stocks finally moved up last week. After a good run in advertising stocks over the past month, investors started to look at the lower valuation game sector. We expect selected game companies shares offer good long-term value, given solid cash flow and estimated market growth of around 20% over the next few years. However, in the near-term, we believe 3Q10 game companies results to be just inline with guidance. We expect game companies could see some upside surprises in 1H11, after new games are launched. We still suggest investors to slowly accumulate NetEase and Sohu on potential dips. We also revised up Tencents price target last week. Alibaba Group launched eCommerce-focused search engine eTao, partly using Microsofts Bing technology. We note that the cooperation with Microsoft is non-binding. Given Alibaba acquired 15% of Sogou this year, Sogous search technology could also be used in eTao as well. The top 3 performers last week were Kongzhong, 51jobs, and Perfect World. The top 3 decliners last week were NHN, Alibaba, and VisionChina. Table 5: Price Performance - China Internet Stocks Company Name Price (LC) Price Change 15 Oct, 2010 1 Wk Chng. 1 Mth Chng. YTD KongZhong 7.84 24.1% 30.7% -36.7% 51jobs 43.40 14.0% 47.2% 144.1%Perfect World 29.20 12.3% 15.1% -26.0% China Finance Online 7.89 10.3% 10.3% 8.1%Shanda Games 6.52 8.3% 23.0% -36.0% Ctrip 49.74 8.1% 15.5% 38.4%NCSoft 236,000 7.0% 7.3% 57.9%Tencent 184.00 6.7% 19.8% 9.2% Changyou 30.82 6.6% 15.3% -7.2%Sina 54.06 6.3% 17.8% 19.7%AirMedia 5.70 4.2% 53.6% -24.1% Sohu 61.59 4.1% 11.8% 7.5%Linktone 1.40 3.7% -2.8% -18.1% Giant Interactive 6.48 3.5% 5.4% -7.7% Shanda Interactive 39.96 2.9% 4.0% -24.0%The9 5.26 1.9% -7.7% -27.1%Netease 38.95 0.6% -0.8% 3.5% Netease 38.95 0.6% -0.8% 3.5%Focus Media 24.00 0.3% 9.4% 51.4% Baidu 98.66 0.0% 14.3% 139.9%Globalsources 8.48 -0.2% 16.5% 35.7% eLong 17.96 -0.8% -1.9% 62.5%Daum Communication 80,400 -0.9% 7.6% 14.4% Kingsoft 4.10 -1.9% 7.3% -36.1%Netdragon 3.82 -3.3% 5.5% -5.4%NHN 204,500 -3.5% 4.6% 6.5% Alibaba 15.20 -3.7% 3.1% -15.6%VisionChina 4.25 -6.8% 12.4% -61.1% Source: Bloomberg. 1 week close is based on Oct 8, 2010 closing price. 1 Month change is based on Sep 15, 2010 closing price. Asia Pacific Equity Research 15 October 2010 India Telecoms New entrants drive Q/Q growth in net GSM adds； Sept GSM market net adds down 8pp M/M - ALERT Wireless Services Malvika GuptaAC (91-22) 6157 3595 J.P. Morgan India Private Limited James R. Sullivan, CFA (65) 6882-2374 J.P. Morgan Securities Singapore Private Limited Figure 1: Monthly GSM net-adds in Mn*051015Sep-09Oct-09Nov-09Dec-09Jan-10Feb-10Mar-10Apr-10May-10Jun-10Jul-10Aug-10Sep-10Source: COAI. *excluding Reliance and Tata DoCoMo GSM subs Figure 2: Net add share of “new” players increasing 0%20%40%60%80%100%Jun Jul Aug SepEstablished NewSource: coai, JP Morgan After a very strong August, Indias 12.4m GSM net adds in September are down 8pp M/M, with a slowdown seen across almost all of the teclos. For the quarter to September, however, market net adds are up 8%. Driving this was a 1.5x increase in net adds at the new telcos (as a result of rollouts). GSM market share of new telcos is now 4.3% vs. 2.8% in June. Bharti loses 1pp of GSM market share in the quarter: While in Q1 Bharti delivered 26% net add share, in the qtr to September its share of net subscriber additions dipped 8pp to 18%. The impact on its GSM market share is a reduction of 1pp. In September, Bhartis net adds were flat M/M at 2.0m, implying a monthly run rate of 2.2m for the quarter vs. 3.0m for Q1FY11 (to June-2010). Vodafone, Idea lose 2.8pp share of net adds in Sept: Of the GSM data available, Vodafone and Idea reported a decline in net add share, while the net add share of Bharti, BSNL, Aircel and Uninor increased. For the quarter, VOD lost 60bp of market share, while Ideas share is down a modest 10bp. Table 6: Monthly GSM subs summary* Operators Net-adds (000) Net-add market share Sub base Sep-10 M/M Y/Y Sep-10 M/M Y/Y (000) Bharti Airtel 2,041 0.5% -18.8% 16.4% 1.4 -12.6 143,292 Vodafone Essar 1,779 -23.0% -9.8% 14.3% -2.8 -8.4 115,553 IDEA 1,478 -25.6% 5.8% 11.9% -2.8 -4.2 74,214 BSNL 2,336 1.9% 68.9% 18.8% 1.8 2.9 72,693 Aircel 1,609 -0.1% 22.5% 13.0% 1.0 -2.2 46,515 Uninor 2,174 -2.1% 17.5% 1.1 17.5 11,268 MTNL 35 -15.5% 110.2% 0.3% 0.0 0.1 5,025 Loop Mobile 16 -24.4% -79.7% 0.1% 0.0 -0.8 2,984 Videocon 817 -7.9% 6.6% 0.0 6.6 4,482 Stel 123 27.3% 1.0% 0.3 1.0 1,642 Etisalat 13 -5.9% 0.1% 0.0 0.1 57 All India 12,419 100.0% 477,725 Source: COAI, J.P. Morgan. * Note these data exclude Reliance and Tata DoCoMo GSM subs. Asia Pacific Equity Research 18 October 2010 Asia Analyst Trading/Focus List Performance for week ending 15 October 2010 ATL Relative Performance (LTM) 80100120140160Oct-09Oct-09Nov-09Nov-09Dec-09Dec-09Dec-09Jan-10Jan-10Feb-10Feb-10Mar-10Mar-10Apr-10 Apr-10May-10May-10Jun-10Jun-10Jul-10Jul-10Jul-10Aug-10 Aug-10 Sep-10 Sep-10Oct-10ATL perf MSCIxJSource: Bloomberg and J.P. Morgan. ATL - Weekly perf. (11 - 15 October) Ideas Number of Ideas Total Return (%) Long 8 8.45%Short 1 -0.62% Pair 5 2.36%Total 14 4.35% Source: Bloomberg and J.P. Morgan. *Returns include adjustments for dividends. AFL Relative Performance (LTM) 8090100110120130Oct-09Oct-09Nov-09Nov-09Dec-09Dec-09Jan-10Jan-10Feb-10Feb-10Mar-10Mar-10Apr-10 Apr-10 Apr-10May-10May-10Jun-10Jun-10Jul-10Jul-10Aug-10 Aug-10 Sep-10 Sep-10 Sep-10Oct-10Rel Indx perf Rel MSCxJSource: Bloomberg and J.P. Morgan. AFL - Weekly perf. (11 - 15 October) All Stocks (Open and Closed) 1.4%Source: Bloomberg and J.P. Morgan. Relative Performance Synopsis for Team: Asia Focus List (11 - 15 October) (Existing Stocks). Closing price as of October 15, 2010 *Returns include adjustments for dividends AFLs Avg. rel. performance is the average of the AFL ideas relative performances against their respective local indexes for the period stated, weighted by the number of OW vs. UW stocks in the list. ATL Recent Changes Analyst Name BBG Ticker Company Name Type Add Date Add VWAPCurrent / Closed Date Current / Closed VWAP Total Return % Time Horizon MSCI AsiaX Japan return (%) Additions (11 - 15 October) Stevanus Juanda INDF IJ Equity Indofood Short 11-Oct-10 4965.27 15-Oct-10 5098.35 -2.99 1 month -1.70 Deletions (11 - 15 October) Jasmine Bai,Frank Li 1068 HK Equity China Yurun Food Group Long 9-Aug-10 26.54 11-Oct-10 30.15 13.66 3 months 9.18 Nick Lai,JJ Park TWSE Index Taiwan Taiex Index Long 25-Mar-10 7845.70 12-Oct-10 8117.72 6.37 3 months 12.22 Nick Lai,JJ Park 2448 TT Equity Epistar Corporation Short 25-Mar-10 107.74 12-Oct-10 93.53 10.75 3 months -10.89 Pair Trade 17.13 Nathan Zibilich 323 HK Equity Maanshan Iron and Steel - H Long 9-Aug-10 4.23 12-Oct-10 4.94 16.85 3 months 8.03 Nathan Zibilich 347 HK Equity Angang Steel Company Limited - H Short 9-Aug-10 12.04 12-Oct-10 13.55 -12.61 3 months -7.43 Pair Trade 4.24 Source: Bloomberg and J.P. Morgan. Sunil GargAC(852) 2800-8518 J.P. Morgan Securities (Asia Pacific) Limited 29 Asia Pacific Equity Research 18 October 2010Sunil Garg (852) 2800-8518 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 analysts 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 Market Maker: JPMS makes a market in the stock of Netease, Sohu.Com. Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Axis Bank Ltd, Hana Financial Group, Hitachi (6501), Honda Motor (7267), Inpex Corporation, PT Berau Coal Energy Tbk, Tata Motors 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 Axis Bank Ltd: Bijay Kumar. The following analysts (and/or their associates or household members) own a long position in the shares of Banpu Public: Sukit Chawalitakul. The following analysts (and/or their associates or household members) own a long position in the shares of ComfortDelgro: Christopher Gee. The following analysts (and/or their associates or household members) own a long position in the shares of HDFC Bank: Bijay Kumar. The following analysts (and/or their associates or household members) own a long position in the shares of Infosys Technologies: Bijay Kumar. The following analysts (and/or their associates or household members) own a long position in the shares of Kotak Mahindra Bank: Bijay Kumar. The following analysts (and/or their associates or household members) own a long position in the shares of PLUS Expressways: Chris Oh. The following analysts (and/or their associates or household members) own a long position in the shares of Tata Motors: Bijay Kumar. The following analysts (and/or their associates or household members) own a long position in the shares of Wilmar International Limited: Ying-Jian Chan. Client of the Firm: Adaro Energy is or was in the past 12 months a client of JPM. Axis Bank 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. Banpu Public 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. Baoshan Iron & Steel - A is or was in the past 12 months a client of JPM. China Airlines 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. China Shineway Pharmaceutical Group Limited is or was in the past 12 months a client of JPM. China Steel Corp is or was in the past 12 months a client of JPM. ComfortDelgro 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. Daelim Industrial 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. 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. Geely Automobile Holdings 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. Hana Financial Group 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. HDFC Bank 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. Indofood is or was in the past 12 months a client of JPM. IndusInd Bank 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. Infosys Technologies 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. 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. IOI Corp. is or was in the past 12 months a client of JPM. Keppel Corporation is or was in the past 12 months a client of JPM. Kotak Mahindra Bank 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. Kuala Lumpur Kepong is or was in the past 12 months a client of JPM. Lenovo Group Limited is or was in the past 12 months a client of JPM. 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. LG Electronics 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. Netease is or was in the past 12 months a client of JPM. PetroChina is or was in the past 12 months a client of JPM. PLUS Expressways is or was in the past 12 months a client of JPM. Powertech Technology Inc is or was in the past 12 months a client of JPM. PT Berau Coal Energy Tbk 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. Quanta Computer Inc. is or was in the past 12 months a client of JPM； during the past 12 months, JPM provided to the company non-investment 30 Asia Pacific Equity Research 18 October 2010Sunil Garg (852) 2800-8518 banking securities-related service. Samsung Engineering 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. Samsu