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Asia Tech Strategy Underweight

(Unchanged)
Johnny Chen
(886 2) 2175 7059 13 November 2008

B N P P A R I B A S – M A R K E T O U T L O O K

Johnny Chen (886 2) 2175 7059


Don’t expect a V-shaped recovery BNP Paribas Securities (Taiwan) Co Ltd
johnny.c.chen@asia.bnpparibas.com
Sharp share price corrections have led some market watchers to
Christie Lai (886 2) 2175 7058
believe that downside risks of a recession is factored in. However, a BNP Paribas Securities (Taiwan) Co Ltd
protracted downturn driven by consumer de-leveraging should bring christie.lai@asia.bnpparibas.com
down consensus’ 2009 earnings growth outlook significantly for tech.
Compal, Acer, Wistron, HTC, ZTE, Samsung are our top picks. Maintain MSCI Far East ex JP Information Tech Index

UNDERWEIGHT rating for the sector. (index)


400
Watch out for flood of warnings from tech blue chips
The sharp decline in consumer and corporate spending since the 300
financial crisis began has resulted in drastic deterioration in tech 200
demand globally. Over the next three months, we expect to see flurry of
downward outlook revisions for 4Q08 and 2009 by global blue chip tech 100

companies. This will help to bring down optimistic 2009 consensus 0


earnings growth forecast for US and Asian tech companies as analysts 1997 1999 2001 2003 2005 2007
recognise this could be a prolonged U-shape that could last until the end
Sources: Bloomberg; BNP Paribas
of 2009 rather than a quick V-shaped recession. We believe there could
be another 15-20% downside for tech shares in general. MSCI ACWIF Semiconductor & Equip Index

Emerging markets can’t save the day (index)


Some investors are expecting that demand strength in emerging 200
economies will offset the severe weakness in developed markets.
150
Unfortunately, emerging markets’ growth will also come down sharply in
2009. Depreciating currencies in many emerging economies will dampen 100
demands for imported IT products. Lastly, the replacement cycle for
50
some consumer tech products is likely to be lengthened while new
demand will be low due to high saturation rate reached. 0
2003 2004 2005 2006 2007 2008
Notebook PC remains the relative safe bet in tech
Sources: Bloomberg; BNP Paribas
Based on valuation, prospect of demand growth, balance sheet strength,
and earnings downside risks, we believe notebook PC remains the most
Top Picks – Most Defensive
defensive sector within tech. Semiconductor manufacturers and TFT
BBG Share Market
makers are likely to see the most earnings downside due to high code price cap
operating and financial leverages. TSMC’s valuation is becoming more (Lcl ccy) (USD m)
Compal 2324 TT 22.75 2,732
reasonable but substantial downside risks to 2009 earnings remain.
Acer 2353 TT 49.20 3,962
LED remains vulnerable as rising penetration rate of LED in notebook Wistron 3231 TT 28.40 1,312
PCs can’t offset drastic demand cut by second-tier handset makers. HTC 2498 TT 372.00 8,563

Solar energy’s growth outlook will be hurt by cutbacks in European ZTE 763 HK 17.20 3,062
Samsung Elec. 005930 KS 474,500 60,692
governments’ subsidies and rising inventories.
Source: BNP Paribas estimates

DRAM industry consolidation may happen soon


Top Picks – Least Defensive
Second-tier Taiwanese DRAM companies could be pushed into
BBG Share Market
consolidation by the Taiwan government (possibly with a global player) code price cap
within the next three months. Collectively, Taiwan banks have lent (Lcl ccy) (USD m)
~USD13b to Taiwan DRAM makers. We do not see bankruptcy as a Nanya PCB 8046 TT 78.70 1,482
Tata Consultancy TCS IN 546.45 580
likely scenario as the impact on Taiwan’s banking system could be too
Gintech 3514 TT 101.50 461
damaging. However, history has shown that consolidation has not SEMCO 009150 KS 39,000 2,275
solved the industry’s chronic overcapacity problem. Samsung will be the Spreadtrum SPRD US 1.20 57

last survivor standing as it’s the only player capable of spending on Source: BNP Paribas estimates

capex and funding of advanced R&D.

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Please see the important notice on the back page.
JOHNNY CHEN ASIA TECH STRATEGY 13 NOVEMBER 2008

Consumer de-leveraging to weaken tech demand significantly


Despite G7 government’s coordinated rescue plan, global markets will likely remain
unsettled in the near-term thanks to increasing signs that a global economic recession
appears to be unavoidable. The current recession differs from the 2001 recession in
that it’s driven primarily by consumer spending contraction, as highly leveraged
consumers are trying to save more to pay off debts in an economic environment where
credit is becoming less accessible. Latest US 3Q08 GDP data already showed a
contracting consumption with most forecasters expecting dramatic deterioration in
4Q08 spending. Separately, the Federal Reserve’s latest survey of loan officers shows
that financial institutions have turned even more cautious on lending despite drastic
rate cuts by the Fed.

Exhibit 1: US Debt Payment As % Of Disposable Income Exhibit 2: US Consumer Spending Is Coming Down

(%) (y-y %)
15 6

5
14
4

13 3

2
12
1
11
0

10 (1)
1986 1991 1996 2001 2006 2011 1991 1994 1997 2000 2003 2006

Sources: ALFRED; BNP Paribas Sources: Bureau of Economic Analysis; BNP Paribas

Judging by the consensus 2009 earnings growth forecast for US and Asian tech
companies, one would have to conclude that tech analysts are still expecting the
current recession to be short-lived, similar to the last two recessions in 1991 and 2001.
However, with both housing prices and equities tumbling significantly, the ‘wealth
effect’ on consumer spending is likely to be more pernicious and protracted than the
two previous recessions. More importantly, the risks remain high that the de-leveraging
process could turn into a vicious loop between the real economy and financial
institutions if consumer and corporate loan defaults start to rise again, causing fragile
financial institutions to turn even more cautious in lending.

Exhibit 3: 2008 And 2009 Consensus EPS Growth For World Semi And Asia-Ex-JP IT Sectors

(%)
World Semiconductors sector Asia-ex-Japan IT sector
40
32
30

20 14
10

(10)

(20)
(22)
(30) (25)
2008 2009

Sources: irstcall; BNP Paribas

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JOHNNY CHEN ASIA TECH STRATEGY 13 NOVEMBER 2008

Emerging economies can’t fill the gap


Some investors are hoping that stronger growth in key emerging economies may partly
offset the recessions in most developed countries. Unfortunately, latest economic data
released have mostly suggested that economic de-coupling is not possible. The
dramatic slowdown in consumer spending in developed countries has hurt the
exporters in Asia and elsewhere, which in turn will slow domestic consumption growth
in those exporting nations.

As an example, US GDP at USD3.5t is still about 3.8x the size of China’s at USD3.5t.
To offset every one percent of contraction in US consumer activities (making up for
about 70% of US GDP), a nine percent rise in Chinese consumer activities (~30% of
China’s GDP) is needed. For a country with high savings rate like China, a sharp
increase in spending could be quite challenging in an environment where consumer
sentiment is weakening.

In addition, aside from China, which has been running a huge trade surplus against the
US, most other major emerging economies are seeing depreciation in their currencies.
Given that most tech products are made outside of these emerging economies and
transactions are normally denominated in US dollars, the imported price of tech
products have – in effect – been rising rather than declining.

Exhibit 4: Relative Performance Against USD For Brazilian, Indian, And Russian Currencies-
Past Four Months

(%)
Brazilian Indian Rupee Russian Ruble
5

(10)

(25)

(40)
01-Jul 01-Aug 01-Sep 01-Oct 01-Nov

Sources: Bloomberg; BNP Paribas

Finally, certain consumer technology products, most noticeably mobile phones, have
reached very high penetration rates in emerging economies. We would expect
replacement demand to decline as people hold onto their old devices rather than
purchase new ones. This trend should favour tech products, which have low
penetration rates and acceptable prices, such as low-cost notebook PCs.

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JOHNNY CHEN ASIA TECH STRATEGY 13 NOVEMBER 2008

Exhibit 5: PC And Mobile Phones Penetration Rate In Emerging Countries – 2008

(%)
PC Handset
120
108

78
80
58

43
40
20
17 16
8

0
Asia/Pacific Latin America Eastern Europe Worldwide

Sources: Gartner; BNP Paribas

Is there any story left in Asian tech for 2009?


As this consumer-driven recession could last longer than most investors are expecting,
we do not believe the bottom for tech share prices will be reached in the next three
months. A recovery of tech demand in early 2010 would imply that bottom won’t arrive
until mid-2009. With this realistic view in mind, the question is how to choose stocks
within the broader Asian tech industry?

Our preference among different sectors is based on five factors – growth potential,
valuation, operating leverage, consensus 2009 earnings growth expectations, and
financial leverage.

Secular growth potential – Sectors that can grow the top line by 20%+ in the current
environment are likely to see above-average returns in their share prices. Sectors
relying more on new demands instead of replacement demands should have a better
chance to achieve high growth rates, as the replacement cycle will inevitably
lengthened during the downturn. High-priced consumer items such as TFT TVs may
also see depressed demand. We see low-cost NB PC, LED, and smartphones as the
products having the most growth potential in 2009.

Valuation – Tech, in general, is not expensive based on historical terms. However, a


deep and long recession could bring down 2009 earnings expectations substantially,
and makes current P/E less attractive than it seems. Therefore, we prefer companies
that would still look cheap if 2009 earnings were to decline 30%+ y-y. Unsurprisingly,
NB PC names lead the pack, while solar stocks are surprisingly cheap.

Operating leverage – Earnings for sectors with high operating leverage are the most
vulnerable in the downturn. The table below compares depreciation as a percentage of
COGS (cost of goods sold) for the 10 sectors. Foundries, TFT, DRAM, IC backend and
LED are most operationally leveraged. IC design, solar, hardware are the least
leveraged.

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JOHNNY CHEN ASIA TECH STRATEGY 13 NOVEMBER 2008

Exhibit 6: Average Depreciation As % Of Total COGS For Each Sector

(%)
45 42
37

30

21 21 20

15

4
2 0 0
0
Foundry DRAM Packaging LED TFT Solar Handset PC ODM IC design

Sources: Company data; TEJ; BNP Paribas

Financial leverage – Sectors with high gearing or long cash conversion cycles (CCC)
should be avoided during the downturn, particularly with lenders increasingly reluctant
to lend and equity and bond markets becoming difficult to access. The DRAM sector is
in the most serious trouble by far, while risks are also rising for TFT companies.

2009 consensus earnings growth expectation – Companies with exceedingly high


earnings growth expectations are most at risk for missing the guidance. Currently,
Indian IT service companies have very high 2009 expectations.

Based on these five criteria, we come out with our preference among the 10 tech
sectors, also highlighting companies we like or dislike within each sector. The
preference is summarized in the table below:

Exhibit 7: Preference For Sectors And Companies Within Each Sector


Sub-sector Most attractive Least attractive Comments
PC Compal, Wistron, Acer None Low valuation, low NB penetration rate leaves room for growth, 2009
earnings expectation coming down, low operating and financial leverage
Communication HTC, ZTE BYD Electronics, Steer away from handset ODM, EMS or components, go for brand name
Largan and enterprise demand
Fabless MediaTek, Realtek Sunplus, Richtek Lack of catalyst for major product end markets, valuation low for Realtek
and Novatek, low operating and financial leverage, benefit from foundries'
low wafer pricing
Foundry None SMIC Consensus 2009 EPS forecast for TSMC remains too high, utlitilzation
rate could hit ~50% level as demand completely slow down; M&A
possible for second-tier foundries lacking cash
IC assembly & Powertech PPT, Nanya PCB Powertech could benefit from an Elpida-led consolidation. ASE and SPIL
Testing will likely to see further 2009 earning downward revisions.
Solar None Gintech Valuation coming down sharply though 2009 expectation remains high;
US and EU governments' fiscal stimulus will likely include increasing
subsidies for renewable energies; prefer upstream over downstream
LED None Everlight Handset LED demand weakening rapidly, LED penetration in NB rising
but not enough to offset handset weakness, valuation becoming more
reasonable
IT service Infosys TCS High exposure to financial institutions likely to lead to downside 2009
earnings surprises; high valuations
TFT Samsung Chi-Mei Opto Things could get really ugly for the sector, which has high operating and
financial leverages, 2009 earnings will likely be far worse than consensus
DRAM Samsung Everyone else Consolidation of 2nd-tier Taiwan DRA players should happen soon, but
this does not necessarily means a turnaround in the industry
Source: BNP Paribas estimates

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JOHNNY CHEN ASIA TECH STRATEGY 13 NOVEMBER 2008

PC – Shares of major PC vendors and ODMs continue to fall sharply along with the
rest of tech. However, we continue to like notebook PC-related plays because
valuation is extremely attractive and the growth outlook, while not great, remains better
than other consumer-related tech products, due to still low penetration rate of notebook
PCs in emerging markets. Notebook-related companies in general have low operating
and financial leverage. Consensus expectation for 2009 earnings growth has been
recently lowered, though further revision is still possible.

Communication – We continue to like HTC even though valuation is not exactly


cheap, as we believe smartphones will remain the only growth segment within the
handset market. ZTE is another name we like as it will be a prime beneficiary of
Chinese telecoms 2009 ramp up of 3G networks in China. However, despite their
significant share price declines, we remain bearish on handset ODM or EMS makers
because margin contractions will likely to continue in the downturn due to rising
competition.

Fabless – Neutral on this sector. No catalyst as most product-end markets will have
lacklustre growth, if any, in 2009. Valuation remains attractive only for Realtek and
Novatek. Issue for MediaTek is whether its customers can further increase handset
penetration rates in emerging markets outside of China despite the economic downturn.
Most IC design companies are cash rich and should be able to offset some pricing
declines by extracting wafer price concessions from the foundries. Earnings
expectation risk is medium.

Foundry – The sector basically reflects overall tech demand because of the diversity
of its customer base, particularly TSMC. Biggest risk is still high 2009 earnings
expectation for TSMC even after recent adjustments. High operating leverage means
significant drop in fab loading will bring larger-than-expected drops in margins. M&A of
smaller foundries with weak balance sheet is increasingly likely.

IC Assembly & Testing – IC packaging sector demand outlook is consistent with


those of foundries due to its largely overlapping customer base. Powertech, a big
testing service provider to Elpida, could be a key beneficiary under the scenario that
Elpida consolidates Taiwan DRAM makers. Valuation based on P/BB multiple has far
exceeded all previous lows. However, high operating leverage suggests that downside
2009 earnings risks may have yet been factored in consensus earnings forecasts.

Solar – Our channel checks suggest that demand for solar cells is turning weaker
worldwide, due to cutbacks in governments’ subsidies – especially in Europe.
Inventories have been rising and the spot-wafer price has more than halved from the
peak level. Strong supply growth over the past year suggests that pricing could be
under further pressure. The situation may be improved if governments worldwide
increase subsidies on renewable energy as part of overall fiscal stimulus package, as
US president-elect Obama has promised to do.

LED – Valuation has become more attractive and with the LED penetration rate in
notebook PC likely to rise in 2009, we believe risk and reward of investing in LED
companies has turned more neutral. Competition from AUO’s and CMO’s LED
business unit could take time because AUO and CMO are likely to turn more
conservative in expanding their new LED business amid a sharp TFT downturn.

IT services – This sector stands out as having the highest direct revenue exposure to
financial institutions worldwide. Our Indian IT analyst Abhiram Eleswarapu estimates
that 40% of TCS’ sales come from financial institutions, 30% for Infosys, and 20-25%
for Wipro and Satyam. One would have thought that the high sales exposure would
lead to a very conservative forecast for IT service providers’ 2009 earnings growth.
However, the growth expectation at about 10% y-y is higher than all other tech sectors

6 BNP PARIBAS
JOHNNY CHEN ASIA TECH STRATEGY 13 NOVEMBER 2008

in aggregate. Downward revision risk is therefore high especially with sector valuation
remaining at 13x P/E of a high 2009 EPS.

TFT – 50% of panel areas go into TV production; oversupply situation is likely to


deteriorate in 2009 with TV demand falling off sharply. Margins will likely see more
than expected contraction on ASP decline and high operating leverage. Other than
AUO, financial leverage also looks high.

DRAM – Consolidation should take between second-tier Taiwanese players and Elpida.
However, a consolidation may not help solving the chronic oversupply problem. With
PC demand likely to be skewed toward less memory-intensive notebook and netbook
in 2009, memory requirement could fall, exacerbating a devastating oversupply
situation.

DRAM – consolidation likely to happen, but will it help?


Taiwanese DRAM companies have the highest net debt-to-equity ratio among all Asian
tech companies. Widening losses and sharp share-price declines have made it more
difficult for the DRAM makers in Taiwan to access lending. With little cash to fund
capex and R&D and debt payment due soon (not to mention further cash drain
expected in foreseeable quarters), the question of survival is something very much on
investors’ minds.

In total, Taiwanese banks have loaned approximately USD13b to the three major local
DRAM makers, we believe the Taiwan government will not likely jeopardize financial
institutions by having DRAM makers declare bankruptcy. In a recent legislative
session, cabinet members from Ministry of Economic Affairs were asked by legislators
on ways to avoid DRAM companies’ bankruptcies. It appears that, besides providing
the short-term lending to DRAM makers to maintain their daily operations, the longer-
term solution government seeks is to consolidate the industry, either among local
DRAM makers or tie-up with one of large foreign players.

We believe the most sensible solution is to have Powerchip, or both Powerchip and
ProMOS, merge with Elpida in Japan. Elpida has aggressively targeted an increase in
its share in the DRAM market, while maintaining an impressive technology portfolio.
Elpida already has a 50:50 12-inch fab joint venture with Powerchip and had
expressed interests to invest in ProMOS early this year when ProMOS needed the
funding. One of ProMOS’ big shareholders, UMC, has a strong relationship with Elpida,
evidenced by HeJian’s DRAM cooperation with Elpida in China. As much as ProMOS’
and Powerchip’s management would like to retain the independence, time could be
running out for independence to be an option. We believe a two-way or three-way
merger would also require government funding supports (by Taiwanese and Japanese
governments) as Elpida’s own balance sheet is quite weak as well.

If consolidation occurs and the number of DRAM players globally shrink, will this help
DRAM industry’s long-term profit outlook? We remain sceptical as DRAM industry’s
past consolidations have not led to a less competitive and less volatile environment. In
fact, over the years, losses accumulated have probably widened as the capex required
for advanced technologies continue to climb fast while DRAM prices remain distressed
most of the time. There is no sign these trends will change over the next few years.
Even with fewer players in the market, each of the surviving firms will compete
aggressively to gain market share.

7 BNP PARIBAS
JOHNNY CHEN ASIA TECH STRATEGY 13 NOVEMBER 2008

Exhibit 8: Asia Tech Coverage Valuation Table


Rec EPS Net debt

BBG Share Target Mkt Rep — growth — — Rec P/E — – Div yield – –— ROE –— — P/BV — equity

code Rec price price cap curr ‘08E ‘09E ‘08E ‘09E ‘08E ‘09E ‘08E ‘09E ‘08E ‘09E ‘08E
(LC) (LC (m) (%) (%) (x) (x) (%) (%) (%) (%) (x) (%)

Foundry

TSMC 2330 TT Hold 43.2 45 34,096 TWD (4.8) (25.2) 10.9 14.6 6.9 6.9 22.1 14.0 2.0 2.0 (6.6)

UMC 2303 TT Hold 8.4 8.8 3,362 TWD (93.4) 359.6 116.4 25.3 9.1 — 0.4 2.1 0.5 0.5 (10.6)
Vanguard 5347 TT Buy 8.5 13.95 442 TWD (53.7) 16.2 7.3 6.2 20.1 9.7 8.5 9.5 0.6 0.6 (13.0)

Chartered Semiconductor CSM SP Hold 0.2 0.23 389 USD — — — — — — (6.2) (19.7) 0.3 0.3 88.0

SMIC 981 HK Red 0.2 0.36 372 USD — — — — — — (3.8) (1.4) 0.1 0.1 16.9

IC backend

Advanced Semiconductor 2311 TT Hold 11.4 15.3 1,940 TWD (28.3) (8.2) 7.1 7.8 15.3 9.5 11.8 10.7 0.8 0.8 42.1

Siliconware Precision 2325 TT Red 29.9 23 2,867 TWD (47.2) (25.1) 10.0 13.4 15.9 7.5 14.4 11.5 1.5 1.5 (21.4)

Phoenix Precision 2446 TT Red 8.5 15 177 TWD (51.7) 32.0 9.6 7.2 6.6 6.1 5.3 6.8 0.5 0.5 28.2
Nanya PCB 8046 TT Red 78.7 68 1,482 TWD (19.3) (31.7) 7.1 10.3 15.8 11.5 18.5 13.2 1.4 1.4 (17.6)

Powertech Technology 6239 TT Hold 50.9 47.12 978 TWD (10.6) (17.1) 4.8 5.8 4.8 6.2 32.5 22.0 1.4 1.2 37.8

Memory

Samsung Electronics 005930 KS Hold 474,500.0 610,000 60,692 KRW (10.3) 0.0 11.9 11.9 1.5 1.5 12.5 11.6 1.4 1.3 (14.4)

Hynix Semiconductor 000660 KS Buy 11,150.0 21,000 3,848 KRW — — — 7.1 — — (44.0) 13.3 1.0 0.9 81.0
Powerchip Semiconductor 5346 TT Red 3.8 3.16 908 TWD — — — — — — (53.5) (99.0) 0.5 1.5 151.4

Nanya Technology 2408 TT Red 5.7 4.75 804 TWD — — — — — — (65.4) (145.6) 0.8 5.3 202.1

ProMOS 5387 TT Red 2.0 1.69 416 TWD — — — — — — (49.3) (105.8) 0.3 1.0 152.8

IC design

MediaTek 2454 TT Hold 250.5 312 7,963 TWD (34.2) 13.4 11.7 10.3 7.8 5.1 24.4 25.1 2.7 2.5 (53.5)
Realtek 2379 TT Buy 42.0 66 579 TWD 8.5 8.0 9.3 8.6 5.5 6.0 11.9 11.9 1.1 1.0 (29.5)
Novatek 3034 TT Hold 33.8 46 586 TWD (44.4) (8.7) 4.3 4.7 26.6 15.2 27.1 26.6 1.3 1.3 (30.5)

Sunplus Technology 2401 TT Red 13.5 10.2 235 TWD (72.1) 3.4 13.1 12.7 19.3 5.4 4.4 4.3 0.6 0.5 (2.9)

Richtek Technology 6286 TT Red 141.0 140 561 TWD (24.7) 8.5 12.5 11.5 1.3 1.5 33.7 33.0 4.2 3.5 (23.6)
Spreadtrum Communications SPRD US Red 1.2 1 57 USD (83.1) (51.2) 14.1 29.0 — — 1.9 0.7 0.2 0.2 (67.6)

Ralink Technology 3534 TT Buy 91.0 119 288 TWD (30.1) 11.1 10.2 9.1 5.6 3.9 27.1 27.4 2.8 2.3 (60.8)

TFT

LG Display 034220 KS Hold 24,000.0 30,000 6,456 KRW 33.7 — 5.1 — — — 18.8 (10.6) 0.8 0.9 (3.4)
AU Optronics 2409 TT Hold 22.3 30 5,779 TWD (35.5) — 5.0 — 10.4 5.1 12.1 (5.1) 0.6 0.7 33.3
Chi Mei Optoelectronics 3009 TT Hold 11.6 16 2,582 TWD (54.8) — 5.0 — 3.9 3.5 7.9 (13.4) 0.4 0.5 81.3

EMS/ODM
Hon Hai Precision 2317 TT Hold 67.3 78 15,204 TWD (17.9) (7.3) 7.6 8.2 3.8 4.4 16.1 13.5 1.2 1.1 (4.2)
Wistron Corp 3231 TT Buy 28.4 38 1,312 TWD 3.2 (0.1) 5.8 5.8 8.2 8.2 20.3 18.0 1.1 1.0 33.2
Compal Electronics 2324 TT Buy 22.8 25 2,732 TWD (5.1) (8.8) 6.8 7.5 10.3 9.0 16.4 14.3 1.1 1.0 (27.0)
Quanta Computer 2382 TT Hold 37.2 34 4,136 TWD 9.1 (19.7) 6.7 8.3 7.8 8.9 20.4 15.3 1.3 1.3 (33.8)
Foxconn Int'l 2038 HK Buy 2.7 6 2,464 USD (45.3) 44.0 6.2 4.3 — — 11.1 13.8 0.6 0.6 (14.6)
BYD Electronic 285 HK Red 2.8 3 808 RMB (29.2) (4.5) 7.1 7.5 — — 14.1 11.4 0.9 0.8 (29.0)
Samsung SDI 006400 KS Red 67,800.0 72,000 2,405 KRW — — — — 0.9 0.9 (3.7) (2.9) 0.7 0.7 3.1
Humax 028080 KS Red 7,030.0 10,000 148 KRW 30.8 31.3 9.4 7.1 2.1 2.1 5.0 6.3 0.4 0.4 13.2

PC
Acer Inc 2353 TT Buy 49.2 56 3,962 TWD (10.4) 9.3 10.3 9.5 6.7 6.5 15.8 16.4 1.6 1.5 (14.0)
ASUSTeK Computer 2357 TT Buy 43.0 58 5,556 TWD (11.2) (1.4) 7.2 7.3 5.1 5.9 13.4 12.2 0.9 0.9 (20.0)
Simplo Technology 6121 TT Buy 87.0 146 553 TWD 10.7 15.3 7.8 6.7 5.1 5.8 25.2 24.6 1.8 1.5 (38.9)

(Continued on next page)

8 BNP PARIBAS
JOHNNY CHEN ASIA TECH STRATEGY 13 NOVEMBER 2008

Exhibit 8: Asia Tech Coverage Valuation Table (Cont’d)


Rec EPS Net debt
BBG Share Target Mkt Rep — growth — — Rec P/E — – Div yield – –— ROE –— – P/BV– equity
code Rec price price cap curr ‘08E ‘09E ‘08E ‘09E ‘08E ‘09E ‘08E ‘09E ‘08E ‘09E ‘08E
(LC) (LC) (m) (%) (%) (x) (x) (%) (%) (%) (%) (x) (%)
Communication
High Tech Computer 2498 TT Buy 372.0 480 8,563 TWD 25.6 10.1 10.2 9.3 4.0 4.4 42.6 37.0 3.9 3.1 (105.6)
LG Electronics 066570 KS Buy 93,000.0 140,000 11,218 KRW 80.0 (34.7) 6.4 9.8 1.4 1.4 28.4 15.5 1.6 1.4 9.6
Largan Precision 3008 TT Red 306.0 340 1,172 TWD 64.4 14.5 13.5 11.8 5.2 6.0 27.0 28.5 3.5 3.2 (43.0)
ZTE Corp 763 HK Buy 17.2 23 3,062 RMB 28.7 37.1 12.6 9.2 1.5 1.3 12.5 14.7 1.5 1.3 45.4

Components
AAC Acoustic Technologies 2018 HK Buy 3.6 6.3 581 RMB 23.3 15.3 5.8 5.0 — — 23.4 21.7 1.2 1.0 (33.0)
Sunny Optical 2382 HK Buy 0.6 0.8 71 RMB (62.4) 13.4 5.7 5.0 3.5 4.0 6.4 6.8 0.4 0.3 (36.6)

LED
Epistar Corp 2448 TT Red 30.5 30.4 577 TWD (59.8) 3.2 19.0 18.4 3.9 3.6 4.2 4.3 0.8 0.8 (7.9)
Everlight Electronics 2393 TT Red 47.3 43.7 486 TWD (39.3) (19.2) 12.5 15.4 6.2 4.2 12.1 9.3 1.5 1.4 (12.7)
Seoul Semiconductor 046890 KS Buy 10,300.0 19,000 393 KRW (0.6) 133.4 29.1 12.5 0.4 0.4 9.7 19.9 2.7 2.3 (29.0)

Solar
Gintech Energy 3514 TT Red 101.5 195.1 461 TWD 215.6 (25.7) 7.2 9.6 9.9 8.9 30.0 21.0 2.1 2.0 56.4
Motech Industries 6244 TT Hold 85.8 121.4 652 TWD (22.0) 2.9 8.6 8.3 7.0 5.8 17.9 17.0 1.5 1.4 (22.1)
Sino-American Silicon Prod 5483 TT Hold 70.0 162.1 422 TWD 9.9 (11.8) 6.9 7.9 12.9 10.0 32.1 27.0 2.2 2.1 32.2
Solargiga Energy 757 HK Buy 2.3 4.02 458 RMB (51.5) 28.4 7.0 5.5 3.6 5.5 33.3 25.4 1.5 1.3 (50.3)

Software & services


CSE Global CSE SP Buy 0.6 1.09 188 SGD 10.4 7.9 5.6 5.2 6.2 6.9 34.4 31.6 1.8 1.5 41.7
Infosys Technologies INFO IN Buy 1,338.5 1720 16,144 INR 21.0 30.9 16.9 12.9 2.5 2.3 37.2 37.7 5.5 4.3 (59.7)
Satyam Computer Services SCS IN Buy 296.6 380 4,186 INR 17.8 32.0 12.0 9.1 1.2 2.4 26.0 27.6 2.7 2.2 (59.2)
Tata Consultancy Services TCS IN Red 546.5 580 11,288 INR 21.5 14.6 10.7 9.3 2.6 3.2 46.8 39.9 4.3 3.3 (3.3)
Wipro Ltd WPRO IN Hold 269.4 320 8,247 INR 9.7 17.8 12.2 10.3 2.2 2.9 27.9 26.9 3.0 2.6 (7.2)

Others
Uchi Technologies UCHI MK Buy 1.0 2.03 104 MYR (26.7) 4.2 6.4 6.1 15.7 16.3 32.6 33.6 2.1 2.1 (87.4)
SEMCO 009150 KS Red 39,000.0 25000 2,275 KRW (27.1) 63.9 36.8 22.5 1.3 1.3 4.1 6.5 1.5 1.4 18.0
ASM Pacific 522 HK Buy 24.3 33.5 1,222 HKD (9.7) (40.3) 8.3 13.8 9.9 5.8 46.1 25.5 3.6 3.4 (37.2)

Prices are as at 10 November 2008; Red = Reduce


Source: BNP Paribas estimates

9 BNP PARIBAS
JOHNNY CHEN ASIA TECH STRATEGY 13 NOVEMBER 2008

Exhibit 9: 2008 And 2009 Market Consensus


BBG Share
code Curr price —— EPS —— — EPS growth — ——— Sales ——— — Sales growth —
‘08E ‘09E ‘08E ‘09E ‘08E ‘08E ‘08E ‘09E
(LC) (LC) (LC) (%) (%) (LC m) (LC m) (%) (%)
Foundry
TSMC 2330 TT TWD 43.2 4.1 3.4 (0.5) (16.7) 342,676 331,275 6.2 (3.3)
UMC 2303 TT TWD 8.4 0.1 0.0 (91.2) (50.0) 94,843 86,971 (16.3) (8.3)
Vanguard 5347 TT TWD 8.5 1.0 0.7 (59.6) (31.8) 17,689 17,094 10.7 (3.4)
Chartered Semiconductor CSM SP SGD 0.2 (0.0) (0.1) (150.0) 175.0 1,696 1,595 25.1 (5.9)
SMIC 981 HK HKD 0.2 (0.0) (0.0) na (37.5) 1,396 1,320 (9.9) (5.4)

IC backend
Advanced Semiconductor 2311 TT TWD 11.4 1.5 1.1 (34.9) (22.8) 99,260 92,418 (1.9) (6.9)
Siliconware Precision 2325 TT TWD 29.9 3.1 2.8 (46.8) (9.5) 63,794 62,364 (3.6) (2.2)
Phoenix Precision 2446 TT TWD 8.5 0.8 1.0 (53.8) 20.2 13,365 12,923 6.5 (3.3)
Nanya PCB 8046 TT TWD 78.7 11.4 11.6 (18.2) 1.7 39,463 38,841 (1.8) (1.6)
Powertech Technology 6239 TT TWD 50.9 10.5 10.7 na 1.8 31,451 35,617 na 13.2

Memory
Samsung Electronics 005930 KS KRW 474,500.0 41,183.7 39,659.9 (16.8) (3.7) 75,401,335 81,304,370 (23.5) 7.8
Hynix Semiconductor 000660 KS KRW 11,150.0 (7,714.4) (297.7) (1,123.1) (96.1) 7,141,091 7,297,548 (17.4) 2.2
Powerchip Semiconductor 5346 TT TWD 3.8 (5.0) (3.3) 211.8 (33.4) 61,591 66,307 (20.6) 7.7
Nanya Technology 2408 TT TWD 5.7 (6.8) (4.3) 135.5 (37.5) 40,416 47,972 (25.7) 18.7
ProMOS 5387 TT TWD 2.0 (3.8) (2.1) 243.8 (45.3) 35,194 42,390 (26.5) 20.4

IC design
MediaTek 2454 TT TWD 250.5 21.0 23.9 (34.9) 13.8 94,042 104,017 16.6 10.6
Realtek 2379 TT TWD 42.0 3.3 4.3 2.0 29.6 17,866 18,468 13.0 3.4
Novatek 3034 TT TWD 33.8 7.1 5.6 (49.2) (20.1) 27,950 25,801 (22.7) (7.7)
Sunplus Technology 2401 TT TWD 13.5 0.9 0.8 (73.1) (11.4) 7,067 6,458 (64.9) (8.6)
Richtek Technology 6286 TT TWD 141.0 10.8 12.1 (20.6) 12.2 7,172 8,158 18.3 13.7
Spreadtrum Commun SPRD US USD 1.2 0.0 0.1 na 460.0 123 139 na 13.7
Ralink Technology 3534 TT TWD 91.0 8.9 9.0 (23.6) 1.0 4,909 5,504 27.7 12.1

TFT
LG Display 034220 KS KRW 24,000.0 5,221.3 1,643.9 39.0 (68.5) 16,115,949 16,069,911 12.3 (0.3)
AU Optronics 2409 TT TWD 22.3 4.8 (1.2) (30.0) (124.0) 454,958 365,085 (5.3) (19.8)
Chi Mei Optoelectronics 3009 TT TWD 11.6 2.5 (3.4) (50.6) (237.7) 335,151 287,113 10.8 (14.3)

EMS/ODM
Hon Hai Precision 2317 TT TWD 67.3 8.9 9.8 (16.7) 9.1 1,847,007 2,062,852 8.5 11.7
Wistron Corp 3231 TT TWD 28.4 5.1 5.4 10.6 7.7 429,293 522,250 49.7 21.7
Compal Electronics 2324 TT TWD 22.8 3.4 3.4 (5.6) 0.7 430,088 470,081 (13.7) 9.3
Quanta Computer 2382 TT TWD 37.2 5.4 5.1 3.9 (5.3) 844,372 886,996 8.6 5.0
Foxconn Int'l Holdings 2038 HK HKD 2.7 0.1 0.1 (39.8) 1.6 11,086 12,290 3.3 10.9
BYD Electronic Int'l 285 HK HKD 2.8 0.6 0.7 (3.8) 22.9 9,994 14,692 73.3 47.0
Samsung SDI 006400 KS KRW 67,800.0 2,462.2 4,035.0 (117.6) 63.9 5,011,238 4,837,192 (2.7) (3.5)
Humax 028080 KS KRW 7,030.0 740.2 1,286.3 220.4 73.8 600,275 667,441 (18.5) 11.2

PC
Acer Inc 2353 TT TWD 49.2 4.9 5.4 (9.1) 9.8 582,632 652,311 26.1 12.0
ASUSTeK 2357 TT TWD 43.0 6.2 6.1 (9.4) (1.6) 595,598 611,429 (21.2) 2.7
Simplo Technology 6121 TT TWD 87.0 11.1 12.3 5.1 10.8 30,792 37,050 33.4 20.3

(Continued on next page)

10 BNP PARIBAS
JOHNNY CHEN ASIA TECH STRATEGY 13 NOVEMBER 2008

Exhibit 9: 2008 And 2009 Market Consensus (Cont’d)


BBG Share
code Curr price —— EPS —— — EPS growth — ——— Sales ——— — Sales growth —
‘08E ‘09E ‘08E ‘09E ‘08E ‘08E ‘08E ‘09E
(LC) (LC) (LC) (%) (%) (LC m) (LC m) (%) (%)
Communication
High Tech Computer 2498 TT TWD 372.0 38.9 41.4 0.1 6.5 152,580 180,523 29.1 18.3
LG Electronics 066570 KS KRW 93,000.0 10,284.6 10,573.1 34.9 2.8 27,978,321 29,423,020 (47.6) 5.2
Largan Precision 3008 TT TWD 306.0 25.8 27.1 28.7 4.9 8,004 8,891 36.1 11.1
ZTE Corp 763 HK HKD 17.2 1.3 1.7 38.4 34.1 44,925 56,759 29.2 26.3

Components
AAC Acoustic Technologies 2018 HK HKD 3.6 0.6 0.6 29.3 11.0 2,514 2,884 28.8 14.7
Sunny Optical 2382 HK HKD 0.6 0.1 0.1 (62.8) 21.5 1,333 1,543 (3.6) 15.8

LED
Epistar Corp 2448 TT TWD 30.5 1.5 1.9 (60.8) 22.2 11,205 11,742 9.8 4.8
Everlight Electronics 2393 TT TWD 47.3 5.0 4.6 (22.6) (7.0) 11,533 12,316 13.6 6.8
Seoul Semiconductor 046890 KS KRW 10,300.0 271.7 542.0 (23.7) 99.5 300,549 396,742 13.8 32.0

Solar
Gintech Energy 3514 TT TWD 101.5 16.8 22.4 341.1 32.8 18,649 30,812 173.1 65.2
Motech Industries 6244 TT TWD 85.8 10.6 13.5 1.0 27.9 24,446 30,318 55.9 24.0
Sino-American Silicon Prod 5483 TT TWD 70.0 10.2 11.8 16.9 16.1 9,752 12,993 34.5 33.2
Solargiga Energy 757 HK HKD 2.3 0.3 0.4 (54.0) 49.3 1,649 2,725 62.4 65.2

Software & services


CSE Global CSE SP SGD 0.6 0.1 0.1 27.7 10.4 475 490 17.2 3.3
Infosys Technologies INFO IN INR 1,309.5 101.9 112.5 25.0 10.3 217,015 246,085 30.0 13.4
Satyam Computer Services SCS IN INR 294.5 33.1 35.5 31.3 7.3 113,868 128,845 34.4 13.2
Tata Consultancy Services TCS IN INR 536.4 57.7 63.7 12.4 10.4 283,059 321,406 23.8 13.5
Wipro Ltd WPRO IN INR 266.2 26.0 28.8 15.0 10.7 258,655 296,700 29.5 14.7

Others
Uchi Technologies UCHI MK MYR 1.0 0.2 0.2 (16.7) (0.6) 132 131 (15.6) (1.1)
SEMCO 009150 KS KRW 39,000.0 1,082.1 1,661.1 (26.0) 53.5 3,326,185 3,572,391 (5.5) 7.4
ASM Pacific 522 HK HKD 24.3 3.0 2.4 (7.5) (19.1) 5,625 5,030 4.3 (10.6)

Prices are as at 10 November 2008


Source: Bloomberg consensus

11 BNP PARIBAS
JOHNNY CHEN ASIA TECH STRATEGY 13 NOVEMBER 2008

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Recommendation structure

All share prices are as at market close on 10 November 2008 unless otherwise stated. Stock recommendations are based on
absolute upside (downside), which we define as (target price* - current price) / current price. If the upside is 10% or more, the
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Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility
may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation.

*In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst
doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target
price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current
market price and our assessment of current fair value.

© 2008 BNP Paribas Group

12 BNP PARIBAS