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