7 March 2011 Asia Equities Daily Focus Periodicalimg.jrjimg.cn/2011/03/20110307151241161.pdfAstra...

Asia Pan-Asia Strategy

7 March 2011

Asia Equities Daily Focus Today's research headlines Asian Edition

Deutsche Bank AG/Hong Kong

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, 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. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 007/05/2010

Periodical

Asian Index Closings EQUITIES Close 1D Chg %Chg

SHSZ300 3221.72 -0.67 2.99 HSCEI 12658.18 1.21 -0.27 HSI 23122.42 0.32 0.38 TWSE 8738.37 1.37 -2.61 KOSPI 1970.66 2.20 -3.92 FSSTI 3037.35 0.33 -4.79 KLCI 1506.88 0.51 -0.79 SENSEX 18489.76 0.24 -9.85 NIFTY 5536.20 0.25 -9.75 SET 990.08 0.25 -4.13 JCI 3494.54 0.24 -5.64 PCOMP 3834.05 1.60 -8.74 ASX200 4806.40 0.07 1.29 FOREX (vs US$) Close 1D Chg YTD %Chg Rmb 6.57 0.01 0.53 HK$ 7.79 0.04 -0.19 NT$ 29.50 0.51 -0.67 Won 1119.98 0.74 0.54 S$ 1.27 0.10 1.22 M$ 3.03 0.18 1.06 Rupee 45.05 -0.19 -0.75 Baht 30.47 0.23 -1.35 Rupiah 8808.00 0.05 2.13 Peso 43.38 0.29 0.98 A$ 1.02 -0.12 -0.74

Source: Bloomberg Finance LP

Latest Commodity Prices COMMODITIES Close 1D %Chg YTD %Chg West Texas 101.67 -0.55 11.26 Brent 114.77 -1.03 21.71 CRB 360.56 0.40 8.34 Copper 447.50 -0.11 0.80 Gold (Spot) 1412.53 -1.53 -0.58 Alum. (LME) 2603.00 -0.27 5.39 Baltic Dry 1281.00 1.51 -27.75


DB CORPORATE ACCESS DB Access Thailand Corporate Day - SG 3/3 - 4 DB Access India Conference 2011 - Mumbai 3/7 - 9 DB Access Taiwan LED Corporate Day - TPE 3/31 DB Access Asia Conference 2011 - Singapore 5/23 - 26 DB Access Taiwan Conference 2011 - Taipei 11/7 - 8 DB Access Korea Conference 2011 - Seoul 11/10 - 11

Research Team

Carissa Szeto Equity Focus (+852) 2203 6171 [email protected] Ching-Li Teo, CFA Equity Focus (+852) 2203 6206 [email protected]

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TOP STORIES China Rail Sector CCC decouples from the rest;

upgrading to Buy Phyllis Wang

Page 4

INITIATIONS

Wistron Corp (3231.TW) TWD56.70 Hold Price Target 58.00

Decelerating growth on TV risk; initiating with Hold

Ivy LeePage 5

ESTIMATE & TARGET PRICE CHANGES

ASM Pacific Technology (0522.HK),HKD102.60 Sell Price Target HKD81.00

Core business starts to see slowdown

Michael ChouPage 6

Aurobindo Pharma (ARBN.BO) INR183.55 Buy Price Target INR280.00

US FDA event not as serious as made out to be

Abhay Shanbhag

Page 7

United Tractors (UNTR.JK),IDR23,450.00 Buy Price Target IDR30,000.00

Adjusting for 2010 results Rachman Koeswanto Page 8

STRATEGY/ECONOMICS

Asia Economics Daily Passive monetary policy in Indonesia Taimur Baig Page 9

The Asia Economist Leading indicators turning higher Michael Spencer 3

India Economics Weekly FY11/12 budget review, Oct-Dec'10 GDP, weekly WPI

Taimur Baig Page 14

Commodities Weekly Michael LewisPage 15

Global Commodities Daily Oil, gold and gas Adam Sieminski

Page 17

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7 March 2011 Strategy Asia Equities Daily Focus


ADDITIONAL RESEARCH

China TMT Daily Mobile messaging in China; also, 0941, 0728, 0762

DB CONFERENCE/CORPORATE DAY Alan Hellawell III

Page 19 DB Access Thailand Corporate Day - SG 3/3 - 4 DB Access India Conference 2011 - Mumbai 3/7 - 9 DB Access Taiwan LED Corporate Day - TPE 3/31 Taiwan Financials Pulse Banks' interest spread continued to

expand Nora Hou

Page 20

Insurance Nonghyup reform to pass at National Assembly

Francis Yim Page 21

Malaysian Banks

DB Access Asia Conference 2011 - Singapore 5/23 - 26 DB Access Taiwan Conference 2011 - Taipei 11/7 - 8 DB Access Korea Conference 2011 - Seoul 11/10 - 11

NDRs West China Cement Ltd (2233 HK) - HK 3/7, SG 3/8 - 9 Soho China (410 HK) - SG 3/7 AIA Group Limited (1299.HK) - SG 3/9

Solid trends and selective upside Andrew Hill Page 22

City Developments (CTDM.SI) SGD11.16 Sell Price Target SGD10.67

Moderate take-up for H2O Residences

Gregory LuiPage 23

Lianhua (0980.HK) - HK 3/10 - 11 Krungthai Card Public Company (KTC TB) - SG 3/10 - 11 NEW: China Rongsheng Heavy Industries Group SG 3/14 - 15 SJM Holdings Ltd (880 HK) - HK 3/17 - 18 China Overseas Land & Investment (688 HK) - HK 3/18 Astra Agro Lestari

(AALI.JK),IDR22,600.00 Buy Price Target IDR32,150.00

Adjusting for 2010 results Rachman Koeswanto Page 24

Astra Int'l (ASII.JK),IDR54,900.00 Buy Price Target IDR79,000.00

Still strong four-wheeler sales despite of weaker MoM

Rachman Koeswanto Page 25

Danamon (BDMN.JK) IDR6,400 Hold Price Target IDR5,950

Earnings adjustments post 2010 results

Raymond Kosasih Page 26

Gudang Garam (GGRM.JK),IDR36,150.00 Buy Price Target IDR43,500.00

Good intentions on dividends postponed on technicality

Reggy Susanto

China Resources Power (836 HK) - HK 3/18 & 21 China Longyuan Power Group Corp (916 HK) - SG 3/21 - 22 Sun King Power Electronics Group (580 HK) - HK 3/22 Yuexiu Property (123 HK) - HK 3/22 - 23 Wumart Stores, Inc. (8277 HK) - HK 3/23 Little Sheep Group (968 HK) - HK 3/23 - 24 Winsway Coking Coal Holdings (1733 HK) - HK 3/23 - 24, SG 3/25 China Dongxiang Group (3818 HK) - HK 3/24 Geely Auto (175 HK) - HK 3/25 China SCE Property Holdings (1966 HK) - HK 3/28 - 29, SG 3/30 China High Speed Transmission Equipment (658 HK) - HK 3/28 - 29, SG 3/30

Page 27Nan Ya Printed Circuit Board Corp (8046 TT) - HK 3/30 - 31, Shenzhen 4/1 PT Nippon Indosari Corpindo (ROTI IJ) - HK 4/4 PT Gajah Tunggal Tbk (GJTL IJ) - HK 4/7 - 8 H TC Corporation (2498 TT) - SG 6/21 - 22, HK 6/23 - 24

Aboitiz Power (AP.PS),PHP30.90 Hold Price Target PHP32.50

4Q surprise on hydros Gio Dela-Rosa Page 28

Metro Pacific Investments (MPI.PS),PHP3.56 Hold Price Target PHP3.80

FY10 below expectations on Meralco shortfall

DB ANALYST/SALES ROADSHOWS Sanjeev-R Rana: Korean Auto/Shipbuilding Companies - SG 3/7 - 8, HK 3/9 - 10 Tracy Yu & Sophia Lee: Regional Financial Strategy & HK Banks - HK 3/14 - 15, SG 3/16 - 18

Gio Dela-Rosa

Page 29

GLOBAL RESEARCH

Japan Equities Weekly Limited impact from oil prices Naoki Kamiyama

Ajay Kapurd: Asia: Underperformance to continue? - HK 3/16 - 18 Rachman Koeswanto: Building Materials/Cement/Construction - SG 3/14 - 16, HK 3/17 - 18 Sc Bae: Korean Technology - SG 3/14 - 15, HK 3/16 - 18Taimur Baig: Economic outlook in India/Indonesia/Philippines - SG 3/17 - 18 Sanghi Han: Korea Construction and LS Corp./Utilities - HK 3/28 - 29, SG 3/30 - 31

Page 30

Japan Economics Weekly Population aging and the household savings rate

Mikihiro Matsuoka Page 31

The notes and reports contained in this Daily are all excerpts of previously published documents. Please refer to the published notes on our web site for details on risks, valuations and earnings changes

Srinivas Rao: Telecom & Automotive - SG 3/28 - 29, HK 3/30 & 4/1 Christopher Wane: CROCI Global - HK 3/31 & 4/1, SEL 4/4, SG 4/5 - 6, PEK 4/7

DB INTERNATIONAL PRODUCT ROADSHOWS

Toronto Dominion Bank (TD US) - PEK 3/7, SEL 3/8, HK 3/9 - 10, SG 3/11 Sherri Scribner: Electronics Supply Chain - SG 3/9 Royal DSM (DSM NA) - HK 3/10, SG 3/11 Corning Incorporated (GLW US) - SG 3/14, HK 3/15, PEK 3/16 Repsol-YPF (REP SM) - PEK 3/16, HK 3/17 NEW: TransContainer (TRCN RU) - HK 3/17, SG 3/18 Bill Dreher: Broadline Retailing - SG 3/22, PEK 3/23, SEL 3/24 CIGNA Corp (CI US) - HK 3/25 Continental AG (CON GR) - HK 4/8

Rod Lache: US Auto Industry - PEK 4/11, HK 4/14, SG 4/15

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DAILY REVISIONS: RATING CHANGES

Company Ticker Date New Previous

China Comms Construct 1800.HK 04-Mar ▲ Buy Sell

Wistron Corp 3231.TW 04-Mar Hold NR

TARGET PRICE CHANGES

Company Ticker Date New Previous Chg (%)

ASM Pacific Technology [Sell] 0522.HK 04-Mar ▲ 81.00 59.00 37.3Aurobindo Pharma [Buy] ARBN.BO 04-Mar ▼ 280.00 305.00 -8.2China Comms Construct [Buy] 1800.HK 04-Mar ▲ 8.02 6.01 33.4China Rail Construction [Hold] 1186.HK 04-Mar ▼ 8.87 10.24 -13.4China Railway Group [Hold] 0390.HK 04-Mar ▼ 5.41 6.14 -11.9Danamon [Hold] BDMN.JK 06-Mar ▲ 5,950.00 5,575.00 6.7United Tractors [Buy] UNTR.JK 04-Mar ▲ 30,000.00 27,600.00 8.7Wistron Corp [Hold] 3231.TW 04-Mar 58.00

EPS REVISIONS

Company Ticker Date FY New Previous Chg (%)

ASM Pacific Technology [Sell] 0522.HK 04-Mar Dec 10 ▲ 7.18 6.57 9.3 Dec 11 ▲ 6.71 4.23 58.8 Dec 12 ▲ 6.16 4.33 42.4 Dec 13 6.13 Astra Agro Lestari [Buy] AALI.JK 04-Mar Dec 10 ▲ 1,280.70 1,259.60 1.7 Dec 11 ▲ 1,891.57 1,891.01 0.0 Dec 12 ▲ 2,349.74 2,305.49 1.9 Dec 13 2,518.65 Astra Int'l [Buy] ASII.JK 04-Mar Dec 10 ▲ 3,548.60 3,482.90 1.9 Dec 11 ▲ 4,207.96 4,145.89 1.5 Dec 12 ▲ 4,874.12 4,859.60 0.3 Dec 13 5,401.45 Aurobindo Pharma [Buy] ARBN.BO 04-Mar Mar 11 ▼ 20.05 20.72 -3.2 Mar 12 ▼ 25.75 27.68 -7.0 Mar 13 ▼ 31.10 33.49 -7.1CIMB Niaga [Hold] BNGA.JK 04-Mar Dec 13 0.12 CSR Corp Ltd [Buy] 1766.HK 04-Mar Dec 11 ▲ 0.35 0.34 1.9 Dec 12 ▲ 0.43 0.41 4.4China Comms Construct [Buy] 1800.HK 04-Mar Dec 10 ▲ 0.56 0.54 4.7 Dec 11 ▲ 0.69 0.60 14.2 Dec 12 ▲ 0.81 0.67 20.3China Rail Construction [Hold] 1186.HK 04-Mar Dec 11 ▼ 0.77 0.79 -2.2 Dec 12 ▼ 0.87 0.89 -2.3China Railway Group [Hold] 0390.HK 04-Mar Dec 10 ▲ 0.37 0.37 0.3 Dec 11 ▼ 0.48 0.48 -0.4 Dec 12 ▼ 0.54 0.54 -0.3Danamon [Hold] BDMN.JK 06-Mar Dec 10 ▲ 0.42 0.36 16.6 Dec 11 ▲ 0.41 0.38 7.9 Dec 12 ▲ 0.47 0.43 7.6 Dec 13 0.52 Petronet LNG Limited [Buy] PLNG.BO 04-Mar Mar 11 ▲ 7.48 6.97 7.3 Mar 12 ▲ 8.10 7.51 7.8 Mar 13 ▲ 8.94 8.31 7.6United Tractors [Buy] UNTR.JK 04-Mar Dec 10 ▼ 1,164.13 1,181.16 -1.4 Dec 11 ▼ 1,614.25 1,619.41 -0.3 Dec 12 ▲ 1,932.19 1,927.73 0.2 Dec 13 2,148.13 Wistron Corp [Hold] 3231.TW 04-Mar Dec 09 4.93 Dec 10 6.15 Dec 11 7.08 Dec 12 7.60

Source: Deutsche Bank

Asia China Transportation

4 March 2011

China Rail Sector CCC decouples from the rest; upgrading to Buy Phyllis Wang Research Analyst (+86) 21 3896 2839 [email protected]

Joe Liew, CFA Research Analyst (+852) 2203 6198 [email protected]

CCC – a standout in an uncertain sector China’s rail constructors face a clouded outlook. Railway infrastructure capex appears to be slowing, while a new railway minister may tighten project approvals. The standout in this scenario is CCC, as it is becoming less reliant than its peers on railway investment. We upgrade CCC to Buy and make it our top pick based on its attractive valuation and better growth prospects. Meanwhile, the rest of the sector looks more inexpensive after the recent 11-26% drop in share prices. However, CSR remains our only other Buy due to its healthy outlook.


Recommendation Change

Top picks China Comms Construct (1800.HK),HKD5.76 Buy

Companies featured

China Comms Construct (1800.HK),HKD5.76 Buy2009A 2010E 2011E

P/E (x) 16.1 8.7 7.1EV/EBITDA (x) 9.5 6.7 5.4Price/book (x) 1.8 1.2 1.1CSR Corp Ltd (1766.HK),HKD8.19 Buy

2009A 2010E 2011EP/E (x) 26.6 31.4 19.7EV/EBITDA (x) 13.1 15.7 10.0Price/book (x) 3.4 4.2 3.6China Railway Group (0390.HK),HKD5.04 Hold

2009A 2010E 2011EP/E (x) 16.2 11.5 8.9EV/EBITDA (x) 8.5 5.3 4.4Price/book (x) 1.9 1.4 1.2China Rail Construction (1186.HK),HKD8.36 Hold

2009A 2010E 2011EP/E (x) 18.0 20.5 9.1EV/EBITDA (x) 5.2 3.2 2.5Price/book (x) 2.0 1.5 1.4

Related recent research Date

Close to the peak; CSR is the exception Phyllis Wang, Joe Liew 22 Nov 2010

Our top Buy is CCC on better non-rail business growth, attractive valuation CCC is the biggest beneficiary of the improved global trade outlook and is the least disadvantaged by the decline in railway infrastructure capex. We raise our 2011-12E earnings by 14-20% to better reflect non-railway business growth and margin expansion. Our DCF-based target price rises to HK$8.02 from HK$6.01. We upgrade CCC to Buy from Sell due to the likelihood of a better recovery in its non-railway businesses (such as heavy machinery manufacturing, port construction, water conservation) and attractive valuation. CCC is trading at a PE of 7x 2011E (a 21% discount to CRG’s and CRC’s average) with a 4% dividend yield, which looks attractive. At our target price, CCC would still trade below its historical average PE of 20x. CCC is trading at PBs of 1.1x 2011E and 0.9x 2012E with 16% sustainable ROE. Note that our model removes the backlog from Libya. Market concerns on railway equipment overdone; reiterate Buy on CSR CSR’s share price recently dropped over 20% due to concerns about a potential decrease in Ministry of Railway (MoR) orders. However, we think these fears are overdone as MoR orders for railway trains should stay on track. We maintain our positive view on rail equipment as 1) existing rail projects under construction should be fine, 2) the government should put more focus on cargo lines with additional dedicated passenger lines to be completed in 2011-12, 3) our channel checks reveal the government should continue to support equipment development, and 4) a promising overseas/maintenance market could drive CSR’s long-term growth. Maintain Hold on CRG/CRC based on weak railway infrastructure outlook The new railway minister may impose stricter controls on new project approvals than the market has been expecting, which could curb high expectations and adversely affect the railway sector’s long-term growth. We think market expectations of railway infrastructure capex (Rmb3.5trn) in the 12th Five-Year Plan (to be released at end-March) are too optimistic. Unrest in Africa could further cloud the constructors’ outlook, despite the minimal impact on them in the short term. Hence, we maintain our Hold on CRC and CRG. CRC is our least preferred stock due to its high exposure to Africa and rising risks for its existing projects. DCF still the primary valuation methodology; main risk is government plans Our preferred methodology for Chinese railway companies is a one-year forward FY11E DCF valuation (WACC 7.82% for CRG, 7.61% for CRC, 8.68% for CCC and 8.08% for CSR). Downside risks are unfavourable changes in government plans for railway/rapid transit and country risks (mainly Africa). Upside risks include higher infrastructure spending, better overseas demand and better margins. This report changes ratings, target prices and estimates for several companies under coverage. For a detailed listing of these changes, see Figures 1-2.




Asia Taiwan Technology Hardware & Equipment

4 March 2011

Wistron Corp Reuters: 3231.TW Bloomberg: 3231 TT Exchange: TAI Ticker: 3231

Decelerating growth on TV risk; initiating with HoldIvy Lee Research Analyst (+886) 2 2192 2834 [email protected]

Kc Kao, MBA Research Analyst (+886) 2 2192 2831 [email protected]

Growth in the price; initiating coverage with a Hold Investors like Wistron’s strategy of diversifying beyond NB business. Our research shows the share price factors in favorable TV/NB growth (+35%/15% YoY in 2012E). Our analysis also indicates Wistron's TV shipment growth is likely to decelerate to 35% YoY in 2012E (105% YoY in 2011E) due to its capped outsourcing share in Sony and rising competition. At 9x 2011E EPS (with potential 10% EPS dilution), the stock looks fairly valued given its decelerating EPS growth of 7% YoY in 2012E vs. 21% CAGR over 2006-10E. Wait for a better entry point.

Forecasts and ratios

Year End Dec 31 2008A 2009A 2010E 2011E 2012E

Sales (TWDm) 445,117.7 546,665.7 614,716.5 722,133.3 816,769.9

Reported NPAT (TWDm) 6,877.9 9,134.6 11,977.2 14,020.6 15,045.0

DB EPS FD(TWD) 4.04 4.93 6.15 7.08 7.60

DB EPS growth (%) 0.8 22.2 24.7 15.0 7.3

Yield (net) (%) 2.7 6.0 5.4 5.6 6.0

PER (x) 8.9 9.2 9.2 8.0 7.5Source: Deutsche Bank estimates, company data

1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close


Coverage Change

Hold Price at 4 Mar 2011 (TWD) 56.70Price target - 12mth (TWD) 58.0052-week range (TWD) 64.10 - 45.32TWSE 8,784

Price/price relative

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3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10Wistron Corp

TWSE (Rebased)

Performance (%) 1m 3m 12mAbsolute -0.5 -3.2 6.9TWSE -3.9 1.9 16.0

Stock data

Market cap (TWDm) 111,416Market cap (USDm) 3,776Shares outstanding (m) 1,946.1Major shareholders –Free float (%) 89Avg daily value traded (USDm) 0.0

Key indicators (FY1)

ROE (%) 21.2Net debt/equity (%) -3.7Book value/share (TWD) 30.83Price/book (x) 1.84Net interest cover (x) 102.3Operating profit margin (%) 2.3

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Our neutral thesis hinges on below-consensus EPS estimate for 2012 Our 2012E EPS is 7% below consensus as we factor in more conservative TV growth assumptions (TV shipments of 13m; TV OM of 1.75%) and moderate NB shipment growth (+15% YoY) in light of tablet PC cannibalization risk. Key indicators that support our view: 1) limited room for Sony (Wistron’s biggest TV customer) to increase the TV outsourcing ratio (Sony’s TV outsourcing ratio has increased to 80% in 3Q10 from 13% in 2009); 2) intensifying competition from the Hon Hai Group (Hon Hai/Chimei Innolux’s TV shipments (5.6m) have caught up with TPV (3.3m) in 3Q10; and 3) TPV’s aggressive investment capex suggests potential capex/margin risks for Wistron’s TV business in the medium term.

TPV case study indicates potential margin risk for Wistron’s TV business We learn from TPV’s historical growth pattern that capex requirements for a TV business are high; hence operating margins may be volatile. TPV’s TV capex increased to US$140m in 2010 from US$4m in 2005 and, at the same time, its TV OM was volatile in a range of -0.2% to 2.4%. The case study suggests that Wistron may face potential margin risks in case our expectations for fewer TV outsourcing opportunities and rising competition come true. Wistron currently generates 2% plus OM for its TV business vs. TPV’s 0.9% in 1H10. TPV is the biggest TV ODM globally.

Setting target price at NT$58 based on P/E valuation; risks We are setting our target price at NT$58 based on a target P/E of 8x (vs. Wistron’s midcycle trading P/E of 9x) and Wistron’s average FY11E-12E EPS of NT$7.3. We apply a below-midcycle target P/E to reflect the share dilution risks (likely 10%) from potential fund raising in 1H11. Key upside/downside risks include Wistron’s better/worse-than-expected operating efficiency and TV/NB shipment growth.



Asia Hong Kong Technology Semiconductor & Semiconductor Equipment

4 March 2011

ASM Pacific Technology Reuters: 0522.HK Bloomberg: 522 HK Exchange: HKG Ticker: 0522

Core business starts to see slowdown Michael Chou Research Analyst (+886) 2 2192 2836 [email protected]

Tommy Kuo Research Assistant (+886) 2 2192 2823 [email protected]

Management confirmed flat sales for the core business in 2011 Management guides for flat sales for the company’s core business, LED and semiconductor, in 2011. We maintain our view that the semiconductor equipment business should see a sales decline in 2011 due to market share loss to its competitor in copper equipment and due to customers' scaling back in capex after a robust increase in 2010. Additionally, we believe growth deceleration in LED equipment will likely lead to a continued sales and net profit decline YoY in 2011. We reiterate our Sell rating on an unattractive risk/reward scenario.


Year End Dec 31 2009A 2010A 2011E 2012E 2013E

Sales (HKDm) 4,732 9,515 12,686 12,340 12,550

DB EPS FD(HKD) 2.37 7.18 6.71 6.16 6.13

DB EPS growth (%) -3.9 202.3 -6.5 -8.2 -0.6

PER (x) 18.8 9.8 15.3 16.6 16.7

Price/BV (x) 8.5 7.6 6.9 6.3 5.7

Yield (net) (%) 4.9 6.8 4.6 4.2 4.2

ROE (%) 29.8 66.5 48.2 39.5 35.5Source: Deutsche Bank estimates, company data



Forecast Change

Sell Price at 4 Mar 2011 (HKD) 102.60Price target - 12mth (HKD) 81.0052-week range (HKD) 108.70 - 53.60HANG SENG INDEX 23,122

Key changes

Price target 59.00 to 81.00 37.3%Sales (FYE) 7,465 to 12,686 69.9%Op prof margin (FYE) 25.5 to 23.9 -6.0%Net profit (FYE) 1,665.5 to 2,657.0 59.5%


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3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10ASM Pacific Technolo

HANG SENG INDEX (Rebased)

Performance (%) 1m 3m 12mAbsolute 5.7 27.9 45.5HANG SENG INDEX -3.3 -0.8 10.8

Stock data

Market cap (HKDm) 40,432Market cap (USDm) 5,191Shares outstanding (m) 394.1Major shareholders ASM International (52.6%)Free float (%) 46Avg daily value traded (USDm) 11.5


ROE (%) 48.2Net debt/equity (%) -14.9Book value/share (HKD) 14.9Price/book (x) 6.9Net interest cover (x) –Operating profit margin (%) 23.9

4Q10 results beat our estimate but the outlook is turning more challenging ASM Pacific Technology (ASMP) reported EPS of HK$2.13 in 4Q10 (higher than our estimate: HK$1.53 and consensus: HK$1.76), stemming from better sales and margins. However, management indicated that there may not be sales growth for its current business in 2011, should it strip out the impact of the merger with Siemens’ SMT subsidiary. Our surveys suggest that customers prefer Kulicke & Soffa’s copper turnkey solutions due to higher throughput than ASMP’s solutions. Also, we see a significant slowdown in LED front-end equipment installment, led by China’s cancellation of subsidies. This implies that the growth of LED back-end equipment may further decelerate in 2H11 and 1H12, which does not bode well for ASMP’s outlook in these quarters in light of its 70-80% unit market share.

We raise our estimates to reflect the acquisition’s impact We raise our EPS forecast by 59% to HK$6.71 for 2011 and by 42% to HK$6.16 for 2012 in order to factor in the sales contribution from the acquisition of Siemens’ SMT (surface mount technology) business. However, we expect margin declines in 2011-12 as we anticipate cost-down efforts will not likely translate into significant margin improvement as a result of high labor costs in the European operations and low margins for the mature SMT industry.

Our new HK$81 target price (from HK$59) implies 21% downside potential We shift our target price multiple from 4.3x 2011E PB to 5.2x 2011-12E PB to factor in a revised ROE forecast, in line with the 2003-10 average PB of 5.2x. This means that the 2011-13E average ROE of 41% is roughly in line with the 2003-10 average ROE of 42%. Upside risks: stronger growth of the LED business, better execution in cost reduction, lower ASP contraction, and stronger demand.



Asia India Health Care Health Care

4 March 2011

Aurobindo Pharma Reuters: ARBN.BO Bloomberg: ARBP IN Exchange: BSE Ticker: ARBN

US FDA event not as serious as made out to be Abhay Shanbhag Research Analyst (+91) 22 6658 4035 [email protected]

Mayank Kankaria Research Associate (+91) 22 6658 4358 [email protected]

Only 3% of current revenues and ~5% of EBIDTA could get impacted With ~50% of US FDA inspections failing, 483s and Warning letters (WL) is a way of life for drug suppliers to US. However Import Alert (IA) for Unit VI of Aurobindo (APL), and without the formal letter yet, is a big surprise. Analysis indicates that time gap between date of such letters and their being in public domain is rising. With multiple units, APL has lower concentration risk. Only ~3% of revenue and probably ~5% of EBIDTA is at risk. Cut estimates & TP by upto 8%. Maintain Buy on improving cash flows and attractive valuations.


Year End Mar 31 2009A 2010A 2011E 2012E 2013E

Sales (INRm) 29,348.8 33,777.0 40,335.5 47,608.2 56,180.3

EBITDA (INRm) 3,787.3 6,254.5 7,223.4 9,746.5 12,239.9

Reported NPAT (INRm) 2,698.4 4,809.6 5,854.4 7,516.1 9,077.8

Reported EPS FD(INR) 9.24 16.48 20.05 25.75 31.10

DB EPS FD(INR) 9.24 16.48 20.05 25.75 31.10

OLD DB EPS FD(INR) 9.24 16.48 20.72 27.68 33.49

% Change 0.0% 0.0% -3.2% -7.0% -7.1%

DB EPS growth (%) 13.3 78.2 21.7 28.4 20.8

PER (x) 5.0 8.2 9.2 7.1 5.9

EV/EBITDA (x) 9.4 9.6 9.9 6.8 5.2Source: Deutsche Bank estimates, company data



Forecast Change

Buy Price at 4 Mar 2011 (INR) 183.55Price target - 12mth (INR) 280.0052-week range (INR) 271.85 - 160.84BSE 30 18,490

Key changes

Price target 305.00 to 280.00 -8.2%Sales (FYE) 40,902 to 40,336 -1.4%Op prof margin (FYE) 14.3 to 13.8 -3.3%Net profit (FYE) 6,049.7 to 5,854.4 -3.2%


04080

120160200240280

3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10Aurobindo Pharma

BSE 30 (Rebased)

Performance (%) 1m 3m 12mAbsolute -21.9 -28.8 -4.4BSE 30 2.7 -7.4 8.9

Stock data

Market cap (INRm) 51,145Market cap (USDm) 1,137Shares outstanding (m) 291.9Major shareholders Promoters (56.9%)Free float (%) 43Avg daily value traded (USDm) 7.6


ROE (%) 26.9Net debt/equity (%) 79.7Book value/share (INR) 90.53Price/book (x) 2.0Net interest cover (x) 9.7Operating profit margin (%) 13.8

Surprise US FDA (FDA) Import Alert (IA) raises significant concerns On 23rd Feb, Aurobindo (APL) announced that FDA has issued an IA on its website dated 7th Feb preventing the import of any generics manufactured at APL’s Unit VI. Investor concerns as seen in the 37% drop in stock price centre around (a) Is the issue serious to warrant an IA (b) Was there a delay in disclosures (c) How much is the short term (ST) and Long Term (LT) impact on financials and credibility.

Issue not as serious as seen in ~24% fall in stock price (a) Until the formal FDA letter is delivered and is in public domain, the issue seems serious. But with 50% failure rate for the 10,000 FDA inspections in last decade, cGMP issues are a way of life for any drug supplier to US. (b) Time-lag between issuance of such letters and its availability in public domain has risen to ~2 weeks with most stocks reacting during this time. (c) With 4 FDA approved plants now, APL has lower concentration risk. With only ~4 ANDAs for small drugs pending approvals from Unit VI, growth potential is not impacted. Unit VI exports to US accounted for ~3% of revenues. We estimate ~1-2 years for re-approval at a cost of ~USD 8m. One-time inventory loss would be ~USD 2m. This would constrain EBIDTA & PBT by ~6%. As per press, Pfizer Inc, which has a large sourcing deal with APL, said it would support APL after understanding the issues raised by FDA.

Cut estimates & TP by ~upto 8%; maintain Buy; Risks Cut estimates by <7%. Maintaining 40% discount to Mar’12e sector valuation, cut TP by 8% to INR 280 (10.9x Mar’12e). APL is well-prepared for FCCB redemption of ~USD 205m in May. Risks: (a) Regulatory (FDA) issues (b) execution risks, etc.



Asia ASEAN IndonesiaAutomobiles & Components

04 Mar 2011 - 04:04:11 AM GMT

COMPANY ALERT Forecast Change

United Tractors Buy

Adjusting for 2010 results

Reuters:UNTR.JK Exchange:JKT Ticker:UNTR

Price (IDR) 23,200

Price target (IDR) 30,000

52-week range (IDR) 25,900.00 -16,000.00

Market cap (USDm) 8,765

Shares outstanding (m) 3,326.9

Net debt/equity (%) 17.7

Book value/share (IDR) 5,965

Price/book (x) 3.89

FYE 12/31 2010A 2011E 2012E

Sales(IDRbn)

37,324 44,768 51,952

Net Profit(IDRbn)

3,872.9 5,370.4 6,428.2

DB EPS(IDR)

1,164 1,614 1,932

PER (x) 16.7 14.4 12.0

Yield (net)(%)

2.4 2.8 3.3

PER trading range


Adjustment for 2010 resultsWe have increased our EBIT forecast by 1% to Rp7,215bn in 2011F andmaintained our 2012F EBIT forecast at Rp8,508bn. Overall, our net earningsforecasts in 2011-12F are now 8-9% ahead of market consensus.Reiterate Buy rating with TP of Rp30,000 (from Rp27,600)We have a new target price of Rp30,000 (from Rp27,600), translating into18.6x 2011F earnings to reflect the above-mentioned earnings revisions andlower WACC rate (higher net debt for capex). Our target price is based ona 10-year DCF valuation assuming WACC of 12.8% (from 14.6%) - risk-freerate of 6% (unchanged), risk premium of 9% (unchanged), cost of debt of2.3% (unchanged), equity to capital employed of 85% (from 100%) and betaof 0.96 (unchanged) - and a terminal growth rate of 5% (unchanged - one-third of United Tractors' long-term FCF growth rate).We maintain our Buy rating on the stock given its strong earnings prospectsfollowing (1) buoyant commodity prices, particularly coal, which accountsfor 90% of its consolidated earnings; and (2) the expected weather normal-ization that should lead to sharp earnings and margin improvement at Pama.We view the stock as being still attractive, performing inline with the marketin the past 3-month, trading at 14.4x earnings in 2011F, some 5% discountto the market.

DCF valuation


Rachman KoeswantoPT Deutsche Bank Verdhana In-donesiaResearch Analyst(+62) 21 318 [email protected]



Asia

4 March 2011

Asia Economics Daily

Passive monetary policy in Indonesia


Michael Spencer, Ph.D Chief Economist, Asia (+852) 2203 8303 [email protected]

Jun Ma, Ph.D Chief Economist, Greater China (+852) 2203 8308 [email protected]

Taimur Baig, Ph.D Chief Economist, India (+65) 6423 8681 [email protected]

Juliana Lee Senior Economist (+852) 2203 8312 [email protected]

Kaushik Das Economist (+91) 22 6658 4909 [email protected]

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HIGHLIGHTS

Indonesia – BI leaves policy rate unchanged; adopts a wait-and-see policy Malaysia – Current account surplus widens in Q4'10, to MYR23.9bn Philippines – Inflation surprises on the upside in February; we expect a rate hike in March

UPCOMING RELEASES

Malaysia – Exports (Jan) DB forecast -0.5% (4.6% in Dec) Taiwan – CPI (Feb) DB forecast 0.9% (1.1% in Jan) Taiwan – Exports (Feb) DB forecast 18.0% (16.6% in Jan)

NEWS IN BRIEF

INDONESIA Monetary policy. Bank Indonesia left the benchmark policy rate unchanged in its March policy meeting, just a month after initiating a rate hike cycle when it expressed concern about rising inflation expectations. BI officials had hinted in recent days that they were comfortable with the inflation situation as there were signs of food prices stabilizing or declining. Hence, despite the fact that survey readings show that inflation expectations are heading up, along with core inflation, loan growth, retail sales, and global oil prices, the central bank deemed it appropriate to remain on the sidelines this month. The central bank’s policy statement, however, noted that inflation pressure would likely remain high and the policy stance remained biased toward tightening. We nevertheless believe the authorities are underestimating the threat from higher commodity prices, as well as the strength of demand in the economy.

We find the central bank’s behavior characterized by a reactive, wait-and-see approach. In our opinion, the central bank was motivated to raise the policy rate last month only because the financial market sell-off was substantial and worries about inflation had become a hot-button issue. Our reading is that there is not much faith among the BI officials about the efficacy of interest rates as an instrument to contain inflation. This explains the central bank’s increasing discussion and use of macro-prudential measures, as well as communication about the usefulness of the exchange rate appreciation channel to contain inflation expectations. If our understanding is correct, another round of inflation spikes and market sell-offs would be needed for the central bank to resume tightening. We are expecting the April meeting to face similar pressure, and are calling for a rate hike then (which will take the BI rate to 7%). May and June will likely be pauses, and a rate hike should follow in July (BI rate 7.25%). A fourth quarter rate hike would cap off this episodic policy tightening cycle, in our view, taking the BI rate to 7.5%.



MALAYSIA Current account (Q4). Malaysia posted a current account surplus of MYR23.9bn (equivalent to 11.8% of GDP) in Q4, higher than MYR19.9bn in Q3 as well as our forecast of MYR11.9bn. The increase was primarily led by goods account, surplus of which widened to MYR32.7bnin Q4, from MYR28.1bn in the third quarter. In contrast, services account registered a surplus of MYR0.6bn (+MYR0.7bn in Q3) while deficit in the income account widened to MYR4.0bn (-MYR3.8bn) during the fourth quarter. Meanwhile, the financial account recovered in Q4, with registering a net inflow of MYR1.5bn vs. MYR4.7bn outflow reported in Q3. This development was led by improvement in both portfolio (+MYR3.5bn) and direct (MYR1.5bn) investment segment. In the whole of 2010, the current account posted a surplus of MYR90.5bn lower than MYR112.1bn reported in 2009.

PHILIPPINES CPI inflation (Feb). High oil prices have begun to impact prices substantially in the Philippines. After a remarkably prolonged period of subdued inflation in 2H2010, the trend has decidedly changed in the first two months of this year. February inflation jumped to 4.3%yoy (3.6% in January), driven primarily by one more round of energy-related price increases. Additionally, after remaining virtually flat through the course of 2010, food prices have begun to head up. For the second month in a row, the food and beverage component of the CPI (50% of total weight) rose by over 1%mom. While rice and corn prices are up only modestly (1.3%yoy and 2.7%yoy), their monthly trajectory is worrisome (+1.6% and +5.7% over the past two months, i.e. Feb/Dec). The fruits/vegetable component is rising even more sharply (+3.8%mom, +12.2%yoy). Among other components of the CPI, the increases in fuel/light/water and transportation/communication were unsurprising but substantial (+10%yoy and +6.6%yoy, respectively).

Note that in our last write-up we had flagged that the key risk to our forecast of BSP beginning to raise interest rates in May was that oil prices rise faster than expected. Given the fact that precisely that has transpired over the past few weeks, we are advancing our rate increase call to March 24, when the BSP’s monetary policy board meets. We now see inflation hitting the top of the 3-5% inflation target band by May/June. Our reading is that the BSP is expecting a similar outturn, which would compel it to begin the rate hike cycle as soon as possible.

FINANCIAL MARKETS

Today's % chg vs Today's abs chg vs Today's bps chg vs Today's bps chg vsClosing prev day Closing prev day Closing prev day Closing prev day

China 12845 1.5 6.57 0.0 3.00 0 3.94 0Hong Kong 23418 1.3 7.79 0.0 0.24 1 2.81 -4India 18569 0.4 45.00 -0.1 7.20 5 7.93 -7Indonesia 3527 0.9 8785 18.0 6.73 0 8.94 0Malaysia 1522 1.0 3.03 0.0 3.04 0 4.09 1Philippines 3883 1.3 43.3 0.0 1.71 18 7.44 -8Singapore 3073 1.2 1.27 0.0 0.44 0 2.61 1S. Korea 2005 1.7 1113 7.6 3.27 4 4.70 2Taiwan 8784 0.5 29.4 0.1 0.64 0 1.40 0Thailand 997 0.7 30.5 0.0 3.33 1 2.61 0

US 12258 1.6 na na 1.28 0 3.56 9Japan 10694 1.0 82.4 0.0 0.19 0 1.29 2Euroland na na 1.40 0.0 1.10 0 0.00 0

Stockmarkets FX Markets Money Markets Bond Markets

Sources: DB Global Markets Research, Bloomberg Finance LP and Reuters



ECONOMIC DIARY Country Release Period DB Expected Consensus Actual Previous

Monday, Feb 28India GDP Q4-YoY 8.0% 8.6% 8.2% 8.9%Singapore Bank Credit Jan-YoY 14.3% NA 16.1% 14.8%Sri Lanka CPI Feb-YoY 7.7% 7.4% 7.8% 6.8%Thailand Current Account Balance Jan USD0.8bn USD0.1bn USD1.1bn USD1.8bn

Manufacturing Production Jan-YoY 7.0% 4.1% 3.7% -3.4%

Tuesday, Mar 1India Exports Jan-YoY 30.0% NA 32.4% 36.4%

Imports Jan-YoY 10.0% NA 13.1% -11.1%Trade Balance Jan -USD7.5bn NA -USD8.0bn -USD2.6bn

Indonesia CPI Feb-YoY 7.0% 7.1% 6.8% 7.0%Exports Jan-YoY 20.0% 30.2% 24.7% 26.1%Imports Jan-YoY 25.5% 30.5% 32.2% 27.6%Trade Balance Jan USD2.0bn USD2.7bn USD1.9bn USD3.7bn

South Korea Exports Feb-YoY 20.0% 17.4% 17.9% 45.4%Imports Feb-YoY 22.0% 17.3% 16.3% 32.4%Trade Balance Feb USD1.7bn USD1.8bn USD2.8bn USD2.9bn

Thailand CPI Jan-YoY 2.9% 3.0% 2.9% 3.0%Core CPI Jan-YoY 1.6% 1.5% 1.5% 1.3%

Vietnam Industrial Production (ytd) Feb-YoY 13.8% NA 14.6% 16.1%Retail Sales (ytd) Feb-YoY 22.8% NA 23.5% 22.1%

Events and Meeting:Australia:RBA Meeting (no change in rate)

Wednesday, Mar 2South Korea CPI Feb-YoY 4.4% 4.3% 4.5% 4.1%

Core CPI Feb-YoY 2.7% NA 3.1% 2.6%

Thursday, Mar 3Hong Kong Retail Sales (Value) Jan-YoY 10.5% 20.5% 28.2% 18.5%

Retail Sales (Volume) Jan-YoY 13.0% 18.3% 23.6% 15.9%South Korea Industrial production Jan-YoY 13.0% 12.4% 13.7% 10.6%

Service Industry Output Jan-YoY 5.7% NA 4.6% 2.4%FX Reserves Feb USD297.7bn USD296.0bn

Friday, Mar 4Malaysia Current account balance Q4 MYR11.9bn NA MYR23.9bn MYR19.9bnPhilippines CPI Feb-YoY 3.6% 3.7% 4.3% 3.6%

Core CPI Feb-YoY 3.2% NA 3.5% 3.3%Taiwan FX Reserves Feb USD390.7bn USD387.1bnThailand FX Reserves Feb USD179.2bn USD176.0bnEvents and Meeting:Indonesia:BI Meeting (no change in rate)

Monday, Mar 7Indonesia FX Reserves Feb USD95.3bnMalaysia Exports Jan-YoY -0.5% 4.5% 4.6%

Imports Jan-YoY 1.5% 14.6% 11.5%Trade Balance Jan MYR12.2bn MYR9.4bn MYR9.7bnFX Reserves Feb USD108.1bn

Philippines Gross International Reserves Feb USD63.6bnSingapore FX Reserves Feb USD227.1bnTaiwan CPI Feb-YoY 0.9% 1.1% 1.1%

Core CPI Feb-YoY 0.9% NA 0.8%Exports Feb-YoY 18.0% 16.7% 16.6%Imports Feb-YoY 20.0% 20.0% 21.9%Trade Balance Feb USD0.7bn USD0.8bn USD1.9bn




ECONOMIC DIARY (CONTD.) Count r y Relea s e P er iod DB E xpec t ed Cons ens us Ac t ua l P r evious

Tuesday, Mar 8Events and Meeting:Sri Lanka:CBSL Meeting (no change in rate expected)

Wednesday, Mar 9Events and Meeting:New Zealand:RBNZ MeetingEvents and Meeting:Thailand:BoT Meeting (25bps rate hike expected)

Thursday, Mar 10China Exports Feb-YoY 29.0% 26.0% 37.7%

Imports Feb-YoY 35.0% 32.5% 51.0%Trade Balance Feb USD4.6bn USD5.0bn USD6.5bn

Malaysia Industrial Production Jan-YoY 0.5% 1.2% 4.2%Manufacturing Sales Jan-YoY 3.5% NA 8.4%

Philippines Exports Jan-YoY 15.0% NA 25.3%Events and Meeting:South Korea:BoK Meeting (25bps rate hik expected)

Friday, Mar 11China CPI Feb-YoY 4.8% 4.8% 4.9%

PPI Feb-YoY 6.8% 6.9% 6.6%M2 Feb-YoY 16.9% 17.0% 17.2%Retail Sales Feb-YoY 19.8% 18.9% 19.1%Industrial Production Feb-YoY 13.3% 13.0% 13.5%Fixed Asset Investment (ytd) Feb 23.5% 23.5% 24.5%

India Industrial Production Jan-YoY 3.9% NA 1.6%Events and Meeting:Malaysia:BNM Meeting (no change in rate expected)




Asia

4 March 2011

The Asia Economist Leading indicators turning higher

Economics

Research Team

Michael Spencer, Ph.D Chief Economist (++852) 22038303 [email protected]

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We have spent most of the last month talking and writing about inflation. With that story starting to die down a little, we turn to the growth outlook in this short note.

One of the points we have made about the outlook for 2011 is that even with stronger QoQ(sa) growth YoY growth rates will likely continue to fall due to very challenging “base effects”. For example, the Singapore economy grew at an average annualized rate of nearly 35% in the first half of last year, which it is unlikely to repeat this year. So we have argued that investors should be prepared for annual growth rates to fall in the first half of the year and then to rise as the base effect turns positive in the second half of the year.

Leading indicators exist for most economies and we look to these for guidance on when that turning point on growth is in sight. In the chart below, we compare the normalized YoY change in LEIs against normalized IP growth. With LEIs typically only giving us about two or three months’ notice they’re still signaling falling IP growth through Q1 as we have been expecting.

Leading indicators and industrial production in Asia

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

00 01 02 03 04 05 06 07 08 09 10 11

LEI (-3) IP

Sources: CEIC, OECD and Deutsche Bank. Simple average of normalized YoY changes in leading economic indicators and industrial production for China, India, Indonesia, Malaysia, Singapore, South Korea, Taiwan and Thailand. LEIs are lagged three months.

Indeed, the leading indicators are broadly suggesting that industrial production growth will fall below long-run average growth this quarter. We agree that’s likely.



Asia India

4 March 2011

India Economics Weekly FY11/12 budget review, Oct-Dec'10 GDP, weekly WPI


Economics

Research Team

Taimur Baig, Ph.D Chief Economist (+65) 64238681 [email protected]

Kaushik Das Economist (+91) 22 6658-4909 [email protected]

Key forecasts Year ending 31 March FY09/10 FY10/11F FY11/12F FY12/13FReal GDP (YoY %) 7.5 8.5 8.5 8.5Consolidated fiscal deficit, % of GDP

-9.7 -7.7 -7.4 -6.8

WPI (YoY%) avg 3.6 9.2 7.5 6.8WPI (YoY%) eop 10.2 8.0 6.3 7.1Current account balance, % of GDP

-2.9 -2.9 -3.0 -3.0

2009 2010F 2011F 2012FTrade balance, % of GDP -8.6 -8.7 -8.7 -8.4Current account balance, % of GDP

-2.2 -2.6 -3.0 -3.0

INR/USD, eop 46.7 44.8 43.5 42.5

Source: CEIC, Deutsche Bank

FY11/12 budget review. The FY11/12 budget has been presented under challenging macro circumstances, as high food price inflation, soaring world commodity prices, rising interest rates, and a slew of governance scandals have made macroeconomic management considerably more difficult. Add to this picture the need to implement fiscal consolidation while there is substantial spending demand for infrastructure and social welfare, the authorities had a tough juggling act without doubt.

Against this backdrop we had expected a subdued budget, containing modest steps to present a cohesive picture of fiscal consolidation and expenditure efficiency, but postponing tough measures that would truly alter the fiscal stance. We find the budget documents featuring themes broadly along such lines. The budget is characterized by measures to address the inflation problem by a series of incentives to improve food production, ambitious allocation for infrastructure projects, and broader targets for social spending to reduce poverty. It relies heavily on tax buoyancy; despite not implementing any major tax measures, it is expected that tax revenues would rise by 18.5%yoy. Spending is expected to be kept under check (growth of just 3.4%yoy) by keeping fuel subsides at a minimum.

While the goal to contain spending is commendable, it is hard to reconcile the government’s reluctance in recent months to pass on substantial fuel price increase (particularly diesel and kerosene) against the budget’s implication that they would indeed be passed on. Plans to cut back allocation to some social and economic services also appear unrealistic, in our view.

We are therefore encouraged by the budget’s broad goals but not fully convinced by the details. We believe the central government budget deficit would be about 5% of GDP, 50bps higher than the budget's presentation of 4.6% of GDP. Still, the debt/GDP ratio would decline, and the structure of revenue collection and expenditure allocation would improve somewhat. This budget will not propel the Indian economy to new heights, in our view, but it won’t hurt growth prospects either.

National accounts (Oct-Dec 2010). Real GDP (production side, factor price) grew by 8.2% in the Oct-Dec quarter (Q3 of FY10/11); we had expected 8%. The outturn was led by a rebound in agriculture output (+8.9%), without which growth would have been much lower; non-farm real GDP growth was 8%, compared to 9.5% in the previous quarter. The latest data release does not change our view of the economy; we are maintaining our forecast that growth in FY10/11 would be 8.5%, although there is some downside risk to the forecast as real spending is being reduced by high inflation.

Industrial production forecast (January). We expect IP growth to improve to 3.9% in January, from 1.6% in December, though remaining considerably lower than the long-term trend growth of 8.5%.

Our recent publications on India 2011Living with 100 dollar oil 21-Jan

2010Debt and deficit of India's states 16-Nov

RBI hikes, signals a (temporary) pause 2-Nov

Fiscal impact of the Food Security Act 28-Oct

Rupee and capital controls 21-Oct

India's heterogeneous states 21-Sep

India's food prices: high and sticky 31-Aug

India's population dynamic 13-Jul

Fuel price reform: a potential game changer 28-Jun

Food subsidies: a new fiscal risk 29-Apr

India's changing trade dynamic 12-Apr

India's Budget review 26-Feb

Implementing the GST 28-Jan

2009Privatization outlook 23-Dec

India's debt problem 17-Dec

Surging food prices: drivers & implications 10-Dec

Asian EM currencies: still tied to the Dollar 20-Nov

Assessing monetary stance in India 9-Oct

Education and the private sector 7-Oct



Global

4 March 2011

Commodities Weekly

Deutsche Bank AG/London

Market Update

Table of Contents Commodity Views ............................................. .Page 2Global Trends ............................................... …..Page 3Asset Class Performance ............................. …..Page 9Option Focus .................................................... Page 10Energy Focus .................................................... Page 11Metal Focus ...................................................... Page 14Chartbook ......................................................... Price Forecasts ................................................. Page 19Correlation Matrix ............................................. Page 22

Commodity Price Changes Price %wk %ytd

WTI $101.9 4.8% 11.5% Brent $114.8 3.1% 21.2% Nat Gas $3.78 -0.4% -14.2% Gold $1,416 0.9% -0.3% Aluminium $2,612 2.8% 5.7% Copper $9,915 4.3% 3.3% Corn $7.30 6.4% 16.0% Soybeans $14.06 6.6% 0.8% Wheat $7.91 5.8% -0.5% DBLCI-OY 1407.6 4.0% 10.0% DBLCI 1088.0 4.2% 8.6% DBLCI-MR 1885.5 4.4% 10.1% DBLCI-MRE 433.4 2.2% 1.0% DBLCI-OY Balanced 479.1 3.9% 7.7% DBLCI Allocator 612.8 1.6% 0.8% DB Commodity Harvest 283.6 -0.5% 0.3% DB Commodity Harvest 10%TV 988.4 -1.7% 1.8%as of COB Thursday


Research Team

Michael Lewis Research Analyst (44) 20 7545 2166 [email protected]

Daniel Brebner, CFA Research Analyst (44) 20 7547 3843 [email protected]

Michael Hsueh Research Analyst (44) 20 7547 8015 [email protected]

Xiao Fu Research Analyst (44) 20 7547 1558 [email protected]

Adam Sieminski, CFA Research Analyst (1) 202 662 1624 [email protected]

Soozhana Choi Research Analyst (65) 6423 5261 [email protected]

Mark-C Lewis Research Analyst (33) 1 4495 6761 [email protected]

Isabelle Curien Research Analyst (33) 1 4495 6616 [email protected]

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DBLCI Commodity Returns: So far this year, energy and agriculture have become the engine rooms of performance in terms of commodity index returns. We believe recent events in MENA illustrate the benefits of commodity exposure to capture tail event risks.

Crude Oil: Data out earlier this week from the US DOE/EIA imply that 2009 finding costs support an oil price range near USD55-75/bbl. Correcting for rising costs in 2010-12 and strong gas reserves in the “boe” figure, we still believe that a range of USD75-100/bbl for oil is cost justified. If one adds geopolitical risk into the mix, and current prices can not be considered extreme, in our view.

Refined Products: The divergence of US benchmark WTI from the world’s other crude oil benchmarks has played havoc with refining margins. USGC WTI margins have benefited sharply from the benchmark’s weakness, while refiners in Europe running Brent have suffered. In Asia, margins have generally held up as strong gains in middle distillates offset weakness in naphtha and gasoline.

US Natural Gas: Tighter EPA rules on coal, stronger US GDP, investment shifts away from gas drilling, innovation in promoting natural gas use, and the potential for LNG exports, all point to an eventual recovery in gas prices. We believe the major beneficiary of this development will be index returns on the DBLCI-Mean Reversion Enhanced index.

Precious Metals: Over the past six months silver prices have performed strongly, appreciating by approximately 75%, to exceed USD34/oz. We do not believe that the re-rating of silver relative to gold is a temporary phenomenon. We expect the silver price to continue to outperform in an environment where the precious metals complex moves higher over the next two years.

Industrial Metals: The metals complex has shown impressive resilience despite the ‘risk-off’ pressures resulting from Middle East tensions. We expect prices to remain strong for the balance of the quarter. We believe that copper and nickel could be outperformers near-term.

Agriculture: According to the UN, world food prices rose to an all time high in February. We believe the main risks to even higher prices in the sector are further advances in the oil price and the possible introduction of export bans by key agricultural producing countries.

Gold/silver ratio in context

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Earth's crust

Middle ages

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1972-1984 1985-2001 2002-pres

Gold/silver ratio

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Source: Bloomberg Finance LP, Deutsche Bank


Deutsche Bank AG/Hong Kong Page 15

Commodity Views

Energy

USD Level Δ wk Δ ytd 12M Low 12M High 5Y Avg 3M View

WTI (/barrel) 101.91 4.76% 11.52% 68.01 102.23 76.90

Brent (/barrel) 114.79 3.08% 21.15% 69.55 116.35 77.41

Heating oil (/gallon) 3.05 5.98% 19.88% 1.87 3.06 2.14

Gasoline (RBOB/gallon) 3.03 11.39% 23.36% 1.85 3.03 2.09

US natural gas (/mmBtu) 3.78 -0.40% -14.23% 3.29 5.19 6.18

Coal (API#4/tonne) 119.30 0.46% -4.18% 79.00 130.25 90.70

Uranium (/lb) 67.50 3.85% 9.76% 40.50 67.50 61.63

EUA Cal'12 (EUR/tonne) 16.08 0.63% 9.91% 13.78 17.31 19.80

NGL basket (/mmbtu) 14.62 5.74% 11.13% 9.50 17.17 12.02

Precious Metals

Spot (USD/oz) Level Δ wk Δ ytd 12M Low 12M High 5Y Avg 3M View

Gold 1416.00 0.94% -0.34% 1086.65 1434.50 902.66

Silver 34.31 3.42% 11.01% 1662.60 3482.50 1566.61

Platinum 1828.75 2.62% 3.30% 1501.50 1859.25 1395.79

Palladium 814.00 5.10% 1.53% 416.63 858.50 382.75

Industrial Metals

3M Fwd (USD/tonne) Level Δ wk Δ ytd 12M Low 12M High 5Y Avg 3M View

Aluminium 2612 2.79% 5.75% 1868 2612 2360

Copper 9915 4.35% 3.28% 6101 10160 6861

Lead 2618 4.72% 2.67% 1554 2680 2016

Nickel 28860 4.93% 16.61% 17950 29300 23843

Tin 31650 0.00% 17.66% 15500 32500 15887

Zinc 2512 1.58% 2.36% 1628 2615 2462

Agriculture

1st nearby (USc) Level Δ wk Δ ytd 12M Low 12M High 5Y Avg 3M View

Corn 730 6.42% 16.02% 325 730 408

Lumber 29710 2.77% -1.62% 17790 32680 24012

Soybeans 1406 6.62% 0.84% 926 1451 981

Sugar 31 1.22% -4.76% 14 35 16

Wheat 791 5.79% -0.47% 428 886 605

Source: DB Global Markets Research, Bloomberg Finance LP (Prices as of close of business Thursday)

Figure 1: Commodity returns in comparison Figure 2: 2011 commodity scorecard

0

500

1000

1500

2000

2500

3000

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Deutsche Bank Liquid Commodity Index

DBLCI- Mean Reversion

DBLCI- Optimum Yield

S&PGSCI

Total returns1-Dec-1988=100

23.421.2

19.917.7

16.616.0

11.511.0

9.99.8

5.74.6

3.33.3

2.72.4

1.50.8

-1.6-4.2

-4.8

-25.7-14.2

-0.3-0.5

-1.3

-30 -25 -20 -15 -10 -5 0 5 10 15 20 25

Gasoline (RBOB)Brent

Heating oilTin

NickelCornWTI

SilverEU Emissions Cal 2012

UraniumAluminium

Iron orePlatinum

CopperLeadZinc

PalladiumSoybeans

GoldWheat

SteelLumber

Coal (API#4)Sugar

US natural gasBaltic dry freight

% returns year-to-date

`

Source: Bloomberg Finance LP, Deutsche Bank Source: Bloomberg Finance LP (data as of cob Thursday), Deutsche Bank



Global

4 March 2011

Global Commodities DailyOil, gold and gas

Deutsche Bank AG/London

sThe Day Ahead

Time(EST) Country Event Previous Market View

08:30 US Change in Nonfarm Payrolls (Feb) 36K 195K

08:30 US Unemployment Rate (Feb) 9% 9.1%

10:00 US Factory Orders (Jan) 0.2% 2%

Overview

Equity markets closed higher yesterday as oil prices retreated after the Arab League announced it was attempting to broker a cease-fire in Libya. Most international policy analysts seem to feel that this effort faces severe headwinds. Industrial metals surrendered some of their gains in the afternoon while gold and silver traded lower as risk aversion faded. We believe the next event risk for the industrial metals complex will be the Chinese People’s Political Consultative Conference (CPPCC) which will outline the detailed 12th 5 year plan between 2011 and 2015. The conference will take place in Beijing from 5-14 March.

In UK gas, strong withdrawals continued as prompt spreads over summer widened. Demand was supported by cold weather and Interconnector exports. Meanwhile, Centrica announced that it would idle 4 gas-fired power stations for a year (total capacity of 1.2GW). However, these stations have not run consistently since December so there is no impact on gas demand.

The US DOE/EIA announced a draw of 85bcf in US gas storage for the week ending 25-Feb. This was a larger draw than most of the traditionally reliable forecasters, however, the actual came in close to the median expected forecast near 85bcf. The data suggests a tighter-than-anticipated market. Early indications for next week indicate a smaller overall draw (thus bearish), but, in our view, the underlying trend continues to be towards tightening S/D balances. The markets remain sceptical, selling under USD3.80/mmBtu over the last few trading sessions. With gas and oil selling on completely different dynamics, it is not surprising that the oil/gas ratio is well out of historic norms, but we see room for pullback.

A controversial series of articles in The New York Times newspaper has called attention to alleged dangers associated with wastewater from hydraulic fracturing operations that have been responsible for unlocking production from shale formations. The US Environmental Protection Agency is considering the possibility of federal regulation of hydraulic fracturing activities. The potential for tighter regulations, either state or federal, could slow the growth in US gas output.

Looking at today’s calendar, we believe the US nonfarm payroll data is worth watching for the commodities market as it will provide important guidance for the US labour market, which has been a driver for the US equity market. Although the S&P500 and crude oil correlation has collapsed recently due to heightened geopolitical risks in MENA, we believe the near term trend of the labour data will still be of critical importance to the US economic outlook and monetary policy. We believe further improvement in the non-farm payroll could sustain support for the oil prices in the near term. Our US economics team is expecting a 250k increase in the payroll figure and unemployment rate to fall to 8.9%.

Commodities & Global Markets

Commodities News In Brief • EIA reports natural gas storage drew

85bcf, in line with consensus.

• China may buy 20 bn cubic meters a year of gas in addition to the 40 bn cubic meters a year that Turkmenistan plans to supply by 2015, the First Deputy Prime Minister said.

• Crude oil processing by state-owned Indian Oil rose 9.4% to 4.9 mn tonnes after its plant at Haldia in West Bengal state more than doubled production, the ministry said.

• South African power consumption increased 1.1% in January from a year earlier, while production rose 0.6%, the Statistics South Africa said.

• OAO Severstal, Russia’s largest steelmaker, is targeting production capacity of 20 mn metric tonnes by the end of next year. The company currently has 18 mn tonnes of capacity, the CEO said.

• China produces about 500 mn tonnes of grains, about the same as demand, the State Administration of Grain said.

Global Markets News In Brief

• Germany Feb PMI services dropped to 58.6 in Feb. vs. 60.3

• EZ services PMI declined to 56.8 in Feb vs 57.2 in Jan

• UK PMI services dropped to 52.6 in Feb from 54.5

• EZ GDP s.a. (QoQ) increased to 0.3% in 4Q vs -0.6%; (YoY) up 2.0% from 1.2%

• ECB keeps interest rate unchanged at 1%.

• US Initial Jobless Claims fell by 20,000 to 368,000, better than consensus.

Event Risks • China Trade Balance on 9 Mar

• Australian mineral stats on 10 Mar

• OPEC OMR 2011 release on 11 Mar

• China Actual FDI (YoY) 09-15 Mar

• China New Yuan Loans 10-15 Mar

• IEA OMR 2011 release on 15 Mar

Research Team Adam Sieminski Xiao Fu Research Analyst Research Analyst (1) 202 662 1624 (44)20 7547 1558 [email protected] [email protected]



Figure 1: Gold / Oil ratio near the 1990-2010 average Figure 2: Oil / Natural Gas ratio above the 1990-2010 avg

5

10

15

20

25

30

Jan-90 Jan-95 Jan-00 Jan-05 Jan-10

Oil cheap relative to gold

Average

0

5

10

15

20

25

Jan-90 Jan-95 Jan-00 Jan-05 Jan-10

Gas cheap relative to oil

Average

Source: Bloomberg Finance LP, Deutsche Bank Source: Bloomberg Finance LP, Deutsche Bank

Commodity Price Summary

Energy WTI (bbl) Brent (bbl) Nat Gas (mmBtu) RBOB Gas (g) Heating Oil (g) API 4 (t)

Close (USD) 101.91 114.79 3.78 3.03 3.05 119.30 Daily price change -0.3% -1.3% -1.0% -0.1% -0.3% -0.2% YTD price change 11.5% 21.2% -14.2% 23.4% 19.9% 3.2%

Precious Metals & FX Comex Gold Comex Silver Nymex Platinum Nymex

Palladium EURUSD USDJPY

Close (USD/oz) (level) 1416.00 34.31 1833.00 814.80 1.39 82.41 Daily price change -1.5% -1.5% -1.4% -1.0% 0.5% 0.9% YTD price change -0.4% 11.0% 3.1% 1.4% 4.2% 1.4% Industrial Metals Aluminium Copper Lead Nickel Tin Zinc LME close 3M (USD/t) 2612 9915 2618 28860 31650 2512

LME close 3M (USc/lb) 118.5 449.7 118.8 1309.1 1435.6 113.9

Daily price change 0.3% 0.3% 2.1% 0.9% 0.2% 1.3%

YTD price change 5.7% 3.3% 2.7% 16.6% 17.7% 2.4% LME Stocks (t) 4,598,950 424,050 292,725 130,014 17,780 708,100

Daily change (t) -5,475 500 -700 -402 35 -100

Agriculture & Livestock Corn (bsh) Cotton (lb) Live Cattle (lb) Soybeans (bsh) Sugar (lb) Wheat (bsh) NY close (USc) 736.75 205.70 114.20 1412.00 30.59 823.50 Daily price change 2.1% 2.5% 1.8% 1.3% 0.7% 1.5%

YTD price change 17.1% 42.0% 5.8% 1.3% -4.8% 3.7%

Other prices Baltic Dry Index

Iron Ore Steel US HRC Ethanol EUA (CO2)

Dec12 (Euro) U3O8 USD/lb

Close (level) 1317 177.9 853 2.62 16.08 69.00 Daily change 2.8% -0.1% 0.0% 0.9% -0.9% -1.8% YTD change -25.7% 4.6% 25.4% 10.1% 9.9% 11.1%

Indices DBLCI-OY DBLCI-MRE DB Harvest SPGSCI DJUBS SPWCI NY close (level) 1408 424 284 5445 338 418 Daily change 0.1% -1.9% -0.2% 0.0% 0.2% -0.8% YTD change 10.0% -1.1% 0.3% 10.1% 3.6% 16.9%

Source: Reuters, Bloomberg Finance LP, UxC, Metals Bulletin, Deutsche Bank



Asia China Technology

4 March 2011

China TMT Daily Mobile messaging in China; also, 0941, 0728, 0762

(Please click through to the .pdf version of this document for a full overview of today's

news and views.)


Periodical

TOP CHINA TMT PICKS Company Rating Target Price AsiaInfo-Linkage Buy USD 24.75 China Telecom Buy HKD 5.40 ZTE Buy HKD 42.78

CHINA TMT STOCKS Company Rating Close Price 1D% 3M%

TELCOS as on 03/03China Comm Service Hold 5.2 1.2 6.3China Mobile Hold 73.7 -0.1 -5.5China Telecom Buy 4.7 1.1 17.7China Unicom Hold 12.9 -1.4 21.5 INTERNET/ONLINE GAMING Alibaba.com Hold 14.8 -0.4 11.4Baidu Buy 121.9 2.0 11.6Ctrip.com Int'l Hold 38.9 1.5 -12.2Netease.com Buy 47.2 3.4 19.1Shanda Sell 44.6 1.3 14.3Shanda Games Hold 6.6 -2.9 14.7Sina Corp Sell 79.3 2.7 14.8Sohu.com Hold 79.7 0.7 7.0Tencent Buy 211.6 1.0 23.3 TECHNOLOGY AsiaInfo-Linkage Buy 20.3 3.7 15.2Foxconn Int'l Hldgs Hold 5.4 -0.5 -1.4HiSoft Buy 19.8 -1.2 -38.5Lenovo Group Hold 4.7 -0.4 -15.8Longtop Buy 29.5 3.8 -25.8Synnex Technology Hold 70.0 0.0 -9.8ZTE Buy 35.8 3.2 16.1 Indices Close 1D% 3M% as on 03/03HSI 23122.4 0.3 -0.8HSCEI 12658.2 1.2 -2.2Nasdaq 2798.7 1.8 8.0Sources: DB, Bloomberg Finance LP

CALENDAR OF EVENTS

Research Team

Alan Hellawell III Research Analyst (+852) 2203 6240 [email protected]

Eva Leung, CFA Research Associate (+852) 2203 6190 [email protected]

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FEATURE: One of the more dynamic parts of the rapidly growing mobile apps space is now mobile chat. Applications such as Whatsapp, GroupMe, Textfree, etc are pushing new features that make mobile messaging a richer experience than traditional SMS. In China, mobile chat and instant messaging (IM) are similarly seeing transformation while still largely dominated by companies that have proven success in the PC world.

Major players in China The mobile IM market is dominated by three players. They account for 95.8% of total active accounts. According to Analysys International, the number of mobile instant messenger (IM) accounts in China totaled 463m, while active accounts totaled 241m by end-2010. Tencent’s Mobile QQ took 56% of the market (135m active users), followed by China Mobile’s Fetion mobile with 28.5% (69m active users) and Microsoft’s Mobile MSN with 11.3% (27m active users).

China Mobile’s Fetion China Mobile is the only telco carrier that has successfully launched an IM product that rivals Tencent and MSN. It is currently the second largest mobile IM in China, thanks to CM’s dominance in mobile services. Fetion allows users to send and receive SMS free of charge between PCs and mobile phones. Fetion ties the user’s account with a unique mobile number and supports group voice chat, file sharing, etc. China Telecom and China Unicom have both launched similar products but they have yet to take off.

The king of IM just keeps on innovating: Tencent Weixin On top of Tencent’s dominance in the desktop IM world, Tencent also offers various mobile IM products such as Mobile QQ and SMS-based Super QQ. Its latest innovation, Weixin (“微信”), is a mobile-based IM software for smartphones that launched in Jan 2011. Users can register for the service by QQ account or QQ email. Once connected, the system displays all the friends that are using Weixin. Users can leverage Weixin to send pictures or texts for free through mobile data (WiFi/EDGE/3G). Currently, Weixin supports iOS, Android, and Symbian-based smarphones and free to download.

Weixin vs. Fetion Fetion mainly supports China Mobile’s customers but Weixin breaks the operator barriers by supporting all telco operators. Weixin has another advantage over Fetion in that Weixin charges picture messages as data traffic, whereas Fetion charges RMB0.3 per message.

Weixin vs. Mobile QQ Mobile QQ and Weixin are different in two major aspects. 1) Weixin is specially designed for smartphones whereas mobile QQ can be installed across a broad range of mobile phones. 2) Weixin currently supports chat functions through text and picture only, while mobile QQ also offers video chatting function, file transfer, friends management, QQ game, QQ music, etc.

Continue on the next page



Asia Taiwan Banking/Finance

4 March 2011

Taiwan Financials Pulse Banks' interest spread continued to expandNora Hou Research Analyst (+886) 2 2192 2830 [email protected]

Grace Wang Research Assistant (+886) 2 2192 2864 [email protected]

What to watch for next? Despite no immediate earnings impact, we expect cross-Strait financial liberalization to remain a key catalyst for Taiwan financials this year. Near term, investors should pay more attention to the upcoming signing of the financial supplementary agreement under the ECFA scheme. We suggest investors take advantage of recent corrections to accumulate value stocks. We reiterate Buy on Fubon Financial and Chinatrust Financial.


Industry Update

Top picks Fubon Financial (2881.TW),TWD37.85 BuyChinatrust Financial (2891.TW),TWD24.00 Buy

Companies featured

Fubon Financial (2881.TW),TWD37.85 Buy2009A 2010E 2011E

P/E (x) 12.0 12.9 11.4Div yield (%) 6.6 6.6 7.5Price/book (x) 1.5 1.4 1.3Cathay Financial (2882.TW),TWD48.55 Hold

2009A 2010E 2011EP/E (x) 40.6 49.4 32.1Div yield (%) 1.1 1.1 1.7Price/book (x) 2.7 2.4 2.3Yuanta Financial (2885.TW),TWD20.60 Hold

2009A 2010E 2011EP/E (x) 22.6 22.5 20.5Div yield (%) 4.5 3.3 3.7Price/book (x) 1.7 1.5 1.4Mega Financial (2886.TW),TWD21.95 Hold

2009A 2010E 2011EP/E (x) 12.0 15.7 13.1Div yield (%) 6.4 4.5 5.4Price/book (x) 1.0 1.2 1.1Taishin Financial (2887.TW),TWD16.15 Hold

2009A 2010E 2011EP/E (x) 9.0 11.5 11.3Div yield (%) 0.0 3.5 3.6Price/book (x) 1.0 1.2 1.1Shin Kong Financial (2888.TW),TWD12.45 Hold

2009A 2010E 2011EP/E (x) 82.7 56.4 24.7Div yield (%) 0.0 0.9 2.0Price/book (x) 1.1 1.3 1.2Sinopac Financial (2890.TW),TWD12.95 Hold

2009A 2010E 2011EP/E (x) 76.8 18.4 17.8Div yield (%) 1.3 2.2 2.2Price/book (x) 1.1 1.0 1.0Chinatrust Financial (2891.TW),TWD24.00 Buy

2009A 2010E 2011EP/E (x) 118.7 16.4 14.2Div yield (%) 0.0 1.8 2.1Price/book (x) 1.6 1.8 1.7First Financial (2892.TW),TWD24.85 Hold

2009A 2010E 2011EP/E (x) 41.1 22.6 16.1Div yield (%) 2.8 2.7 3.7Price/book (x) 1.2 1.5 1.4

Related recent research Date

Banking/Finance Alert – Mortgages not a driver, despite mounting increment in Jan-11 Nora Hou 01 Mar 2011

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What happened during 1 March – 4 March? The banking index (TWSEBKI) ended the week 2.3% higher, outperforming the main board (TWSE), which inched up 2.1%. We attribute the strong sentiment mainly to: 1) a rebound subsequent to recent corrections; 2) potential further rate hikes by the central bank at its quarterly meeting (end-March); and 3) a generally positive view toward the inception of the cross-Strait economic cooperation committee. Currently, Taiwan’s financial shares trade at 1.3x P/BV and 12.9x P/PPOP.

M1B growth rebounded in January FSC released credit card statistics as of Jan-2011 Banks’ interest spread continued to expand China Life (Taiwan) plans to issue new shares Chinatrust Financial will ink an MOU with China Development Bank First Bank will sign a cooperative agreement with ABC FSC asked Ruenchen Investment Holding to maintain a below-50% debt ratio New York Life to restart the auction of its Taiwan unit CHB plans to issue a NT$3.3bn worth of sub debt FSC required buyers of Nan Shan Life to provide supplementary documents FEIB plans to issue US$200m worth of overseas convertible bonds Bank SinoPac plans to issue a NT$1bn worth of sub debt Aviva plans to sell its assets Bank of Taiwan is expanding into the cross-Strait trust/custodian businesses Monthly earnings……

Figure 1: Deutsche Bank Taiwan financial services coverage universe Company Ticker Price (NT$) TP (NT$) 11E P/B (x) 11E P/E (x) 11E ROE (%)

Fubon FHC 2881.TW 37.85 48.30 1.3 11.4 12.0

Cathay FHC 2882.TW 48.55 52.37 2.3 32.1 7.3

Yuanta FHC 2885.TW 20.60 20.10 1.4 20.5 7.0

Mega FHC 2886.TW 21.95 22.60 1.1 13.1 9.0

Taishin FHC 2887.TW 16.15 15.40 1.1 11.3 10.5

Shin Kong FHC 2888.TW 12.45 12.25 1.2 24.7 5.1

SinoPac FHC 2890.TW 12.95 11.80 1.0 17.8 5.8

Chinatrust FHC 2891.TW 24.00 26.30 1.6 14.2 12.2

First FHC 2892.TW 24.85 25.50 1.4 16.1 9.0 Source: Bloomberg Finance LP, Deutsche Bank estimates. Price as at 4 March 2011



Asia Korea, Republic ofBanking/Finance Insurance

04 Mar 2011 - 02:37:06 AM GMT

INDUSTRY ALERT Industry UpdateInsurance Nonghyup reform to pass at National Assembly

Focus stocksSamsung F&M(000810.KS),KRW240,000.00 Buy,Price Target KRW260,000.00

Dongbu Insurance(005830.KS),KRW46,400.00 Buy,Price Target KRW57,000.00

Hyundai M&F(001450.KS),KRW29,800.00 Hold,Price Target KRW29,000.00

LIG Insurance(002550.KS),KRW26,000.00 Buy,Price Target KRW27,000.00

Meritz Fire & Marine(000060.KS),KRW10,000.00 Hold,Price Target KRW9,500.00

Korean Reinsurance(003690.KS),KRW11,600.00 Buy,Price Target KRW16,000.00

Samsung Life(032830.KS),KRW108,500.00 Buy,Price Target KRW140,000.00

Korea Life(088350.KS),KRW7,820.00 Buy,Price Target KRW11,000.00

Tong Yang Life(082640.KS),KRW13,150.00 Buy,Price Target KRW16,000.00

According to local news reports, Korea's major political parties agreed topass the Nonghyup reform bill. As such, the Nonghyup reform bill appearsvery likely to pass National Assembly and be enacted in the March 2011session.The reform bill's main changes to Nonghyup are the creation of a non-fi-nancial holding company and a financial holding company. Under the non-financial company, Nonghyup's existing fertilizer, agricultural product pro-cessing, and distribution and trading businesses will be separately incorpo-rated and form subsidiaries. Under the financial holding company,Nonghyup Bank, Nonghyup Investment Securities and NH-CA Asset Man-agement will form subsidiaries. The insurance and card businesses will bespun off and incorporated separately under the financial holding company.The main objective of the reform is to increase the efficiency of Nonghyup'snon-financial businesses, which have been heavily subsidized byNonghyup's financial business. The separate incorporation of non-financialbusinesses will increase the transparency of efficiency, which should even-tually strengthen Korean agricultural businesses' competitiveness. As ex-plained in our previous note, "Strong fundamentals unchanged; Nonghyupreform," dated 24 February 2011, Nonghyup is not newly entering the in-surance business; rather Nonghyup will spin off its existing insurancebusiness and set up a separate insurance company. We believe theNonghyup reform will be neutral to the large insurance companies we cov-er.

Source: Nonghyup, Deutsche Bank

Francis YimResearch Analyst(+82) 2 316 [email protected]

Sin-Young ParkResearch Associate(+82) 2 316 [email protected]



Asia ASEAN SingaporeProperty

06 Mar 2011 - 01:22:24 PM GMT

COMPANY ALERT Company Update

City Developments Sell

Moderate take-up for H2O Residences

Reuters:CTDM.SI Exchange:SES Ticker:CTDM

Price (SGD) 11.16

Price target (SGD) 10.67

52-week range (SGD) 13.70 - 10.08


Shares outstanding (m) 909.3


Book value/share (SGD) 7.66

Price/book (x) 1.5

FYE 12/31 2010A 2011E 2012E

Sales(SGDm)

3,129 3,436 3,616

Net Profit(SGDm)

749.0 685.3 691.2

DB EPS(SGD)

0.65 0.72 0.72

PER (x) 17.9 15.5 15.4

Yield (net)(%)

1.6 1.2 1.2

We visited CityDev's preview of its latest mass market project, H2O Resi-dences in Sengkang, which started on Friday. As of Sunday afternoon, ithas sold approximately 136 units out of a total of 521 units (26% take-up)with a big turnout at the showflat. 13 out of 25 stacks were released, or halfof the total units.The bulk of units taken up were 2BR and 2+1 units, al-though the 4BR units were also popular. Buyers were predominantly localsbuying for owner-occupation.The average price for the project is some S$900-930psf, ranging from c.$880psf for a low-floor 4BR (1,389 sf) to >$1,100psf for a 1BR unit (527 sf),a new benchmark price for the area and about 10% higher than our forecast.Absolute prices range from S$0.55m for a 1BR to S$1.3m for a 4BR. Thisreflects the profile of the project, which caters more to upgraders/ owner-occupiers, smaller 1 and 2BR units comprise <1/4 of total units. As a com-parison, resale prices of Quartz are currently S$830-880psf, while EsparinaEC was launched at S$760 psf at the end of last year. Both projects aremore conveniently situated next to the Buangkok MRT station, unlike H20,which is next to Punggol River and Layar LRT station, a few stops awayfrom Sengkang MRT.In view of the fourth round of tightening measures and higher-than-expect-ed pricing, the take-up is respectable with the number of units sold in thepreview weekend exceeding Canberra Residences and Waterfront Isle al-though slightly lower than the 160 units sold in NV Residences, which waslaunched after the 3rd round of meaures. This reflects the relatively moreresilient demand from owner-occupiers and first-time buyers unaffected bythe latest measures, in our view. CDL acquired the site in Feb 10 at S$365psf GFA with estimated breakeven at S$735psf implying gross marginof around 20%. The higher-than-forecast ASP provides a small 0.3% (or4cts) boost to our S$13.33 NAV. We remain cautious on CDL given its largeexposure to SG residential with share-price performance likely capped bypolicy risk.

Gregory Lui, CFAStrategist(+65) 6423 [email protected]

Elaine Khoo, CFAResearch Analyst(+65) 6423 [email protected]



Asia ASEAN Malaysia Banking/Finance Banks

4 March 2011

Malaysian Banks Solid trends and selective upside Andrew Hill, CFA Research Analyst (+65) 6423 8507 [email protected]

Value emerges post the recent pullback With the recent pullback in share prices we see potential valuation upside for AMMB, CIMB and Hong Leong Bank which remain Buy-rated. Sector fundamentals look solid with December quarter ROE 17% and 4% QoQ loan growth, albeit NIM pressure has returned in the absence of OPR increases (-6bps QoQ). While we see upside potential selectively within the sector (with no near term share-price catalysts for the sector overall), we are neutral relative to the domestic market.


Industry Update

Top picks AMMB Holdings (AMMB.KL),MYR6.26 Buy

Companies featured

AMMB Holdings (AMMB.KL),MYR6.26 Buy2010A 2011E 2012E

P/E (x) 11.7 13.9 11.1Div yield (%) 1.4 2.0 2.5Price/book (x) 1.5 1.7 1.6CIMB Group (CIMB.KL),MYR8.00 Buy

2009A 2010E 2011EP/E (x) 23.0 16.3 13.8Div yield (%) 1.0 3.3 3.6Price/book (x) 4.5 2.6 2.3Hong Leong Bank (HLBB.KL),MYR9.39 Buy

2010A 2011E 2012EP/E (x) 12.3 13.6 12.6Div yield (%) 2.3 2.1 2.3Price/book (x) 2.1 2.1 1.8Malayan Banking (MBBM.KL),MYR8.76 Hold

2010A 2011E 2012EP/E (x) 12.9 14.5 13.5Div yield (%) 5.9 5.2 5.5Price/book (x) 1.9 2.0 1.9Public Bank (PUBMe.KL),MYR13.02 Hold

2010A 2011E 2012EP/E (x) 13.9 13.7 12.4Div yield (%) 3.6 3.4 3.8Price/book (x) 3.6 3.2 –

December quarter earnings beat, mainly due to lower credit costs December quarter results saw the Malaysian banks generally beat our earnings expectations. On average, December quarter earnings were 4% ahead of our forecast. The biggest upside surprises came from Maybank (+10%) and AMMB (+6%) on credit costs, while Public Bank (+7%) also surprised on the upside with a better than expected cost performance. CIMB (-6%) delivered a disappointing 4Q10 result with much higher than expected costs but we suspect much of the additional spend will not be ongoing. CIMB revenues were 3% better than expected, while lending and CASA deposit trends remain very good which leads us to retain a Buy rating on the stock, despite 4Q10 result disappointment.

We prefer AMMB on 1.5x forward PB, rising ROE, strong CASA deposit trends AMMB remains our top pick in the sector given attractive valuation (1.5x PB), robust CASA deposit growth and a trend increase in ROE. We also like CIMB given strong franchise performance and Hong Leong due to the valuation upside implied by surplus capital deployment. In particular, we note that AMMB and CIMB delivered 8-9% sequential CASA deposit growth in Malaysia for the December quarter. Given the importance of CASA deposits as both a profit driver and a franchise indicator we take this as a positive sign. Maybank remains Hold rated; the business has shown solid earnings momentum recently but we are wary of potential dilutive equity issuance. Public Bank is our least preferred bank given capital constraints, a relatively full valuation and above average exposure to price competition in the mortgage market.

Overall sector valuation does not look compelling at 2.1x forward PB With a forward PB of 2.1x compared to the five year average 2.0x, sector valuation does not look compelling. However, we think structural change for our Buy rated stocks suggests historical averages are less relevant. Stock valuations are based on PB=(ROE-g/COE-g) methodology. Key sector downside risks are worse than expected economic outcomes which would likely result in higher than forecast loan losses and weaker non-interest income in our view. Key sector upside risk is a potential valuation premium as investors seek defensive sectors. Figure 1: December quarter result summary RMm DQ09 SQ10 DQ10 DQ10e YoY (%) QoQ (%) vs DBe (%)AMMB 268 333 325 306 21 -2 6 CIMB 803 916 878 938 9 -4 -6 HLBK 225 257 291 270 30 13 8 MAY 994 1028 1132 1029 14 10 10 PBK 678 783 846 794 25 8 7 Total 2968 3317 3472 3336 17 5 4 Source: Deutsche Bank, Company data



Asia ASEAN IndonesiaConsumer Agriculture

04 Mar 2011 - 04:05:16 AM GMT

COMPANY ALERT Forecast Change

Astra Agro Lestari Buy

Adjusting for 2010 results

Reuters:AALI.JK Exchange:JKT Ticker:AALI

Price (IDR) 22,100


52-week range (IDR) 27,100.00 -17,100.00



Net debt/equity (%) -20.3


Price/book (x) 4.14

FYE 12/31 2010A 2011E 2012E

Sales(IDRbn)

8,844 11,081 12,216

Net Profit(IDRbn)

2,016.8 2,978.7 3,700.2

DB EPS(IDR)

1,281 1,892 2,350

PER (x) 17.7 11.7 9.4

Yield (net)(%)

2.3 4.1 4.9

Adjustment for 2010 resultsWe have increased our EBIT forecast by 1% to Rp4,485bn for 2011 and by2% to Rp5,512bn for 2012. Overall, our net earnings forecasts for 2011-12Eare now 8-9% ahead of market consensus.CPO price remained strong despite recent pullbackThe CPO price has rebounded well, rising by 7% to US$1,170/ton from itsrecent low of US$1,100 on 24 February 2011 (15% below its recent high ofUS$1,275/ton on 9 February 2011). Overall, the CPO price is averaging US$1,213/ton, some 43% and 15% higher than average CPO price in 2010 and4Q10, respectively.Maintain Buy rating with TP of Rp32,150The stock is attractive in the light of the high CPO price even though itsunderperformance to the market has been narrowing post its strong 4Q10results. It is now trading at 11.7x 2011E earnings, a 25% discount to itsregional peers.Apart from its strong balance sheet and corporate governance, we see AstraAgro as one of the main beneficiaries of bullish palm oil prices - it derivesalmost all of its earnings from palm oil and is supported by excellent man-agement and a healthy balance sheet, and should deliver strong net earn-ings growth of 26% pa in 2011-13E.Our target price of Rp32,150 is based on the current upcycle in the palm oilprices of 17x earnings in 2011E and is comparable to its regional peers'earnings multiple of 15-20x.

CPO price trend at Rotterdam market - US$/ton (CIF)





Asia ASEAN IndonesiaConglomerates

04 Mar 2011 - 02:22:07 AM GMT


Astra Int'l Buy

Still strong four-wheeler sales despite of weaker MoM

Reuters:ASII.JK Exchange:JKT Ticker:ASII

Price (IDR) 54,550


52-week range (IDR) 60,000.00 -36,050.00





Price/book (x) 4.52

FYE 12/31 2009A 2010E 2011E

Sales(IDRbn)

98,526 132,816 155,103

Net Profit(IDRbn)

10,040.0 14,100.0 16,784.0

DB EPS(IDR)

2,480 3,483 4,146

PER (x) 9.5 15.7 13.2

Yield (net)(%)

3.6 1.9 1.8

Four-wheeler Febuary sales: 69,494 units (+25% YoY; -6% MoM)Febuary 4-wheeler sales remained strong YoY despite of weaker MoM thatwas mainly due to 1) shorter working days in February, and 2) delay in carpurchases adjusting for higher automotive tax implementation by some re-gional governments. Meanwhile, Astra's Febuary 4-wheeler sales was stillresilient, recording 37,794 units (+21% YoY; -11% MoM) mainly on the backof lower MoM performance from Daihatsu who carried out stock adjust-ment that lead to lower wholesale figures.On track to meet our 2011 forecastThe 4-wheeler sales in 2M10 reached 143,343 units, still on course to reachour full year forecast of 862.5k units (+13% YoY) implying 75k units/month.Meanwhile, Astra's 4-wheeler sales reached 80,155 units in 2M10, inlinewith our forecast accounting for 17% of our full year forecast of 474.2k units(+11% YoY) implying 41.2k units/month.Reiterate Buy rating on Astra Int'l with TP of Rp79,000The 4-wheeler sales achievement in 2M10 is certainly encouraging, how-ever, we remain cautious over inflationary pressures and fuel subsidyremoval for private cars starting July 2011. Should demand stay strong andautomotive financing remain abundant, we expect there to be an upside riskto our car sales forecasts and we believe Astra Int'l would be main benefi-ciary from resilient automotive sales given its dominant position in themarket. The stock is attractive trading at 13.2x 2011F earnings, some 12%discount to the market.

Four-wheeler sales summary

Source: Deutsche Bank; Company data




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Banking/Finance

06 Mar 2011 - 02:08:24 AM GMT

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Danamon Hold

Earnings adjustments post 2010 results

Reuters:BDMN.JK Exchange:JKT Ticker:BDMN

Price (IDR) 6,400


52-week range (IDR) 6,950.00 -4,650.00


Shares outstanding (m) 8,455

NPL/total loans (%) 4.1

Price/book (x) 2.7

FYE 12/31 2010A 2011E 2012E

Provisioning(IDRbn)

2,134.1 2,499.6 2,998.7

Pre-provprofit(IDRbn)

6,522 6,831 7,999

EPS (IDR) 342.57 386.14 446.25

PER (x) 16.1 16.6 14.3

Yield (net)(%)

2.5 2.4 2.8

Post 2010 results, we have adjusted our earnings projections for Danamonby 8% for 2011 and 2012 to Rp3.25tr and Rp3.76tr respectively. However,there are marginal changes at PPOP and PBT levels. The upgrades are pri-marily reflecting lower tax rate assumption of 25% (vs previous forecast of31%). These reflect our assumption that all costs are tax-deductable, whichwere not always the case in prior years.Despite the upgrades, we retain our hold rating on the stock. Fundamen-tally, intense lending competition will continue driving lending rate as wit-nessed in 2010 where we estimate that Danamon's blended averagelending rates are down to 18.2% in 4Q10 from 20.5% in 1Q10 (and a highof 22.9% in 4Q09). This would also imply that new loans are yielding lowerrates than the average lending rate in 4Q10. Combined with rising COFtrends, NIMs are coming off to 4Q10 level of 11.05% vs 11.13% in 3Q10and 11.78% in 1Q10. Post our adjustment, we are now forecasting NIM of10.6% in 2011F and 9.9% in 2012F. Upside/downside risks on Danamonare more/less exposures to high-yield loan segments, less/more intensecompeitition risks in its high-yield loan segments, lower/higher COF andcredit costs.

Earnings upgrades are more on lower tax rate assumptions


Raymond Kosasih, CFAPT Deutsche Bank Verdhana In-donesiaResearch Analyst(+62) 21 318 [email protected]

Arinta HarsonoPT Deutsche Bank Verdhana In-donesiaResearch Analyst(+62) 21 318 [email protected]



Asia ASEAN IndonesiaConsumer Alcohol & Tobacco

04 Mar 2011 - 08:08:07 AM GMT


Gudang Garam Buy

Good intentions on dividends postponed on technicality

Reuters:GGRM.JK Exchange:JKT Ticker:GGRM

Price (IDR) 35,850


52-week range (IDR) 52,250.00 -24,750.00



Net debt/equity (%) -3.2


Price/book (x) 3.18

FYE 12/31 2009A 2010E 2011E

Sales(IDRbn)

32,973 36,340 39,525

Net Profit(IDRbn)

3,456.0 4,606.6 5,580.2

DB EPS(IDR)

1,796 2,394 2,900

PER (x) 6.3 15.0 12.4

Yield (net)(%)

3.1 1.8 2.7

Interim dividend of Rp400/share will be postponedThe stock exchange authorities have disallowed the distribution of GGRM'sinterim dividend on a technicality. While this shows management's lack ofunderstanding of capital market rules, it does not derail from their intentionto increase shareholder returns. The interim dividend will now be paid inconjunction with the final dividend determined at the AGM, usually in Junewith dividends paid in July.

Technicality explainedUnder stock exchange rules, companies are only allowed to file an interimdividend in the calendar year from which the dividend is taken out of. InGGRM's case the interim dividend from FY2010 net profit would only havebeen allowed if it was filed by Dec. 31. GGRM filed the dividend on Feb. 28with an ex-date of March 22.

Reiterate Buy on GGRMManagement's intention to pay its first ever interim dividend was a sign ofthe company's strong free cash flow generation. Reiterate Buy on GGRMas it is trading at an attractive 12.4X FY11PER .

Reggy Susanto, CFAPT Deutsche Bank Verdhana In-donesiaResearch Analyst(+62) 21 318 [email protected]

Heriyanto IrawanPT Deutsche Bank Verdhana In-donesiaResearch Analyst(+62) 21 318 [email protected]



Asia ASEAN PhilippinesUtilities Utilities

04 Mar 2011 - 02:26:48 AM GMT

COMPANY ALERT Results

Aboitiz Power Hold

4Q surprise on hydros

Reuters:AP.PS Exchange:PHS Ticker:AP

Price (PHP) 30.10

Price target (PHP) 32.50

52-week range (PHP) 35.80 - 11.00




Book value/share (PHP) 7.38

Price/book (x) 4.1

FYE 12/31 2009A 2010E 2011E

Sales (PH-Pm)

23,174 66,723 68,160

Net Profit(PHPm)

5,658.8 22,479.1 22,970.9

DB EPS(PHP)

0.72 3.05 3.12

PER (x) 8.1 9.9 9.6

Yield (net)(%)

3.5 1.0 4.7

Stellar growth sustained into 4QIn a press release, AP reported FY10 net income of P25bn and recurringincome of P24.4bn, up over four-fold from P5.7bn and P5.3bn last year. Thisis 8% higher than our core profit estimate of P22.5bn. Core earnings in 4Qcame in at P6.4bn (+385% YoY and +25% QoQ) despite a shutdown in oneunit of the 2x364 MW Pagbilao plant for close to three weeks. Pagbilaoaccounted for over 40% of AP's earnings in 9M10.A strong quarter for the hydrosThe generation business continued to drive earnings, accounting for 94%of core income in 4Q (P6bn, +5x YoY and +26% QoQ). Specifically, muchof the outperformance came from Magat and Binga, which contributedP3.2bn (+246% YoY) to FY10 earnings. This is significantly higher than ourforecast of P2bn, with over half of the full-year contribution (P1.8bn) comingin 4Q alone. We believe that the strong performance came from ancillaryservice revenues.Other generation subs likely to have benefited from high WESM pricesOutside of the hydros, the other plants also recorded robust earnings. Webelieve this is due to elevated selling prices at the WESM, which averagedan estimated P5.60/kwh in 4Q (vs the current NPC rate of P4.65/kwh). No-tably, prices in October came in at P7.30/kwh due to shutdowns in bothPagbilao and the 1,200MW Sual coal-fired plant (one of the two largestplants in Luzon). It is apparent that the lofty margins enjoyed by AP's otherplants more than offset the 3-week shutdown in Pagbilao.Dividend yield at 4.4%AP declared a cash div of P1.32/share, roughly in line with our own forecastof P1.40/sh, but higher than consensus estimates of P1.06/sh.

Aboitiz Power Quarterly Results

Source: Deutsche Bank, company data

Gio Dela-Rosa, CFADeutsche Regis Partners, Inc.Research Analyst(+63) 2 894 [email protected]



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Conglomerates

04 Mar 2011 - 03:21:44 AM GMT

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COMPANY ALERT Results

Metro Pacific Investments Hold

FY10 below expectations on Meralco shortfall

Reuters:MPI.PS Exchange:PHS Ticker:MPI

Price (PHP) 3.47

Price target (PHP) 3.80

52-week range (PHP) 4.35 - 2.60




Book value/share (PHP) 2.88

Price/book (x) 1.2

FYE 12/31 2009A 2010E 2011E

Sales (PH-Pm)

16,108 17,836 22,467

Net Profit(PHPm)

2,331.5 4,104.6 6,089.7

DB EPS(PHP)

0.19 0.23 0.32

PER (x) 20.7 14.9 11.0

Yield (net)(%)

0.0 0.0 0.0

Disappointment due to bloated costs at MeralcoMPI reported FY10 core net profit after fair value adjustments of P3.89bn,up 88% YoY. Ex-adjustments, core net profit stood at P4.36bn, up 83% YoY,and came in below our expectations of P4.7bn.The underperformance was largely due to lower-than-expected earningsfrom Meralco (see Meralco Alert: FY10 earnings below expectations onbloated costs, 1 Mar 2011) with O&M costs up +51% in 4Q, offsetting theslightly above profit numbers from Maynilad and MPTC.Maynilad profit boosted by tax; operations in lineMaynilad reported net profit of P4.8bn (+45% YoY), 5% above our expec-tations due to a P200mn tax benefit (i.e. positive tax). Note that we did notexpect any tax expense due to Maynilad's tax incentive. Nevertheless, FY10EBITDA of P7.9bn and NRW of c. 53% was within our forecast. The NRWwas however worse than management's target of 51%.FY11 billed volume growth target of 8-10%Maynilad adjusted its NRW target for FY11 to 48% from 46% previously.With water levels (2,200 MLD) still below normal (2,400 MLD), the companyhopes to grow billed volumes by c. 8-10%.We will need to review our billed volume growth estimate of +20% thisyear, which assumes water levels normalizing to 2,400 MLD and NRW av-eraging at 48%.MPTC: Exceed expectations on lower maintenance costs99.8%-owned MPTC reported FY10 core profit rose 20% YoY to P1.46bn,which was 5% above our forecast. The outperformance was mainly due toa 6% decline in cost of services (in particular, provisions for flood control),which accounts for c. 80% of cash costs.

Quarterly core profit breakdown

Deutsche Bank, Company data

Gio Dela-Rosa, CFADeutsche Regis Partners, Inc.Research Analyst(+63) 2 894 [email protected]

Klyne ResullarDeutsche Regis Partners, Inc.Research Analyst(+63) 2 894 [email protected]



Japan Strategy Update

4 March 2011

Japan Equities Weekly This week’s factor and sector trends Technical factors, fundamentals, and sectors Limited impact from

oil prices

This week’s comments

Naoki Kamiyama, CFA Chief Strategist (+81) 3 5156-6713 [email protected]

Kensuke Isomura Strategist (+81) 3 5156-6704 [email protected]

This week

Price Return

TOPIX 955.59 1.45%

Nikkei 225 10,693.66 1.59%

TPX 30 530.36 1.02%

TPX 100 (Large) 668.51 1.42%

TPX Mid 956.80 1.37%

TPX Small 988.17 2.01%

TPX Value 1,153.14 1.57%

TPX Growth 1,144.30 1.33%

JASDAQ 56.14 3.52%

S&P 500 1,330.97 0.84%

USD/JPY 82.33 0.80%

JGB Yield 1.30 0.055

Oil - WTI 101.91 4.12%Note: Weekly returns of S&P 500 and WTI are calculated as thursdays.

Sector Returns (weekly)

Outperform (%)

1 Rubber Products 5.84

2 Machinery 5.13

3 Oil & Coal Products 4.81

4 Miscellaneous Finance 3.71

5 Textiles & Apparel 3.17

Underperform (%)

29 Steel Products 0.13

30 Electric Power & Gas -0.30

31 Pulp & Paper -0.67

32 Other Products -2.29

33 Air Transport -4.53

Valuation

PEREPS

growth3mthreturn

TOPIX 13.9 19.3% 9.5%

S&P 500 13.2 14.2% 10.4%

STOXX Europe 600 11.0 14.6% 6.2%

Hang Seng 11.6 14.9% -0.6%

TOPIX PER ROE

FY1 16.0 7.5

FY2 13.7 8.7

FY3 12.2 9.8Note: IBES, P/B of 1.2 is used to obtain ROEs above.

Source: DataStream, Nikkei Astra, Deutsche Securities

Note: PER and EPS growth are IBES 12-month forward forecast basis.

Geopolitical risk not always tied to higher oil prices Few supply-side risk events have had an impact comparable to oil shocks. Furthermore, companies appear to have used past experience with oil shocks and other events to bolster their ability to absorb shocks.

Negative scenario: Persistently high oil prices Given the recent steady flow of positive news, including the reopening of the Egyptian stock market, additional measures by Saudi Arabia, and an increase in oil production, we doubt that a negative scenario triggered by persistently high oil prices will materialize.

This week’s focus: Sectors with a high (transportation, electric power) or low (steel, machinery) sensitivity to higher oil prices However, if such a negative scenario does emerge, we forecast a 6-7% drop (which we view as conservative) in TOPIX EPS. Transportation and electric power are sectors with a high sensitivity to higher oil prices, while less sensitive sectors include steel and machinery.

Factor return trends: Positive outcomes for low P/E and earnings estimate revision factors Low P/E stocks delivered strong returns. The Toyo Keizai RP revisions factor also had a positive effect.

7 March 2011 Strategy Asia Equities Daily Focus 7 March 2011 Strategy Asia Equities Daily Focus


Japan

4 March 2011

Japan Economics Weekly

Population aging and the

household savings rate

Economics

Table of Contents

Population aging and the household savings rate

................................................................... Page 02

Overview of the next week ........................... Page 10

The week's key data in pictures ..................... Page 11

DBCSI (Composite surprise index) ................. Page 14

Research Team

Mikihiro Matsuoka

Chief Economist

(+81) 3 5156-6768

[email protected]

Seiji Adachi, CMA

Senior Economist

(+81) 03 5156-6320

[email protected]

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The “Japan crash” thesis can be summed up as follows: a declining household savings rate due to population aging will create a deficit in the current account of the balance of payments. This will make it difficult for Japan to achieve stable financing for its fiscal deficit, forcing the government to rely on high interest rate foreign currency denominated borrowing, culminating in fiscal bankruptcy. We, however, are extremely skeptical of this argument. This report shows, from two different approaches, that population aging at best has only a modest impact on the household savings rate.

The first (microeconomic) approach is to compare financial resources available at age 60 (the total of financial assets and future pension benefits; excluding real assets) and consumption over age 60, to demonstrate that families where the head of the household is 60 years of age possess available financial assets that can last 8-10 years beyond the average life expectancy of 60. The consumption path after age 60 tends to fall, which might indicate that the savings rate for these families does not always undergo a massive decline. In addition, the prolonged stagnation that began in the 1990s seems to have influenced people to adjust (i.e. cut back) their consumption habits to ensure that available financial assets are not exhausted within their lifetime. This household behavior resembles that of the life-cycle hypothesis.

The second (macroeconomic) approach was to seek the determinants of the household savings rate in the major advanced countries using panel data regressions. The household savings rate is generally thought to decline when 1) income levels rise in the process of economic development, 2) the population ages, 3) the income transfer from the government increases, and 4) future income expectations diminish. Our regression results show that #2, the impact of changes in demographics on the household savings rate is either comparatively mild or not statistically significant. Although the household savings rate in Japan has been declining continuously since the 1970s, the majority of this decline was the result of consumption smoothing. This occurred during the rapid process of economic development as the economy matured, transitioning from high to stable then to low growth.

Lifestyle affordability index at age 60

-10

-5

0

5

10

15

20

25

30

35

40

1970 1975 1980 1985 1990 1995 2000 2005 2010

(Years)

Affordable lifestyle years

Affordable lifestyle years minus

life expectancy at age 60

Note: Affordable lifestyle years = (per-capita net financial asset at age 60 + retirement allowance/2 + per-capita pension benefit x life expectancy at

age 60) / per-capita annual consumption at age 60-64

Sources: MIC, MHLW, Cabinet Office, Deutsche Securities

Thematic reports

･ Winds of change in Japanese politics 25 Feb

･ Further upward revision to Japan’s economic

outlook

18 Feb

･ JPY appreciation in 2011:Testing the "three

definites"

15 Feb

･ EM monetary tightening and the Japanese

economy

10 Feb

･ DB Leading Indices: December 2010 4 Feb

･ Demography, general prices and house prices 28 Jan

･ Prices, wages and business cycles 21 Jan

･ New upward revision in economic forecast 14 Jan

･ End of decline in DB leading indices 7 Jan

･ Transformation of the “Global Iron Hexagon” in

2011

24 Dec

･ Upgrade in economic forecast 17 Dec

Corporate earnings forecast for FY2010-2013

･ Politics: 10 Dec

- Inflation target alliance or fiscal reform coalition

･ DB leading indices: Peak in inventory-shipment

ratio?

3 Dec

･ Avg. duration of BoJ's govt. security holdings 29 Nov

･ Slight downward revision 19 Nov

in forecast for 4Q 2010-1Q 2011

･ Reflationary policy; comparing 2001-04 and today 12 Nov

･ Business cycles and relative sectoral return 5 Nov

･ How has the child allowance stimulated

consumption?

29 Oct

･ Population decl ine and deflation 22 Oct

･ Monetary factor in price determination 15 Oct

･ Political economy of inflation targeting 8 Oct

Economic forecasts are included in

18 Feb 2011 14 Jan 2011

17 Dec 2010 19 Nov 2010 17 Sep 2010 20 Aug 2010

Monetary Policy Watch

5 Nov 2010 28 Oct 2010

5 Oct 2010 30 Aug 2010, vol. 2 30 Aug 2010, vol. 1

30 Apr 2010




Appendix 1 Important Disclosures

Additional information available upon request

For disclosures pertaining to recommendations or estimates made on a security mentioned in this report, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr.

Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Ching-Li Teo

Equity rating key Equity rating dispersion and banking relationships Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock. Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. Notes: 1. Newly issued research recommendations and target prices always supersede previously published research.2. Ratings definitions prior to 27 January, 2007 were:

Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12-month period Sell: Expected total return (including dividends) of -10% or worse over a 12-month period

8%

31%

61%

12%13%12%

0

100

200

300

400

500

Buy Hold Sell

Asia-Pacific Universe

Companies Covered Cos. w/ Banking Relationship


http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr



Regulatory Disclosures

1. Important Additional Conflict Disclosures

Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.

2. Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at http://gm.db.com.

3. Country-Specific Disclosures

Australia: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. Brazil: The views expressed above accurately reflect personal views of the authors about the subject company(ies) and its(their) securities, including in relation to Deutsche Bank. The compensation of the equity research analyst(s) is indirectly affected by revenues deriving from the business and financial transactions of Deutsche Bank. EU countries: Disclosures relating to our obligations under MiFiD can be found at http://globalmarkets.db.com/riskdisclosures. Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc. Registration number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA, The Financial Futures Association of Japan. Commissions and risks involved in stock transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying the transaction amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a result of share price fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming from foreign exchange fluctuations. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are not registered as rating agency in Japan unless specifically indicated as Japan entities of such rating agencies. New Zealand: This research is not intended for, and should not be given to, "members of the public" within the meaning of the New Zealand Securities Market Act 1988. Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any appraisal or evaluation activity requiring a license in the Russian Federation.

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International locations

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Deutsche Securities Inc. Deutsche Bank AG Level 55 2-11-1 Nagatacho Cheung Kong Center Sanno Park Tower 2 Queen's Road Central Chiyoda-ku, Tokyo 100-6171 Hong Kong Japan Tel: (852) 2203 8888 Tel: (81) 3 5156 6701

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