Regional Industry Focus

Asian Consumer Digest
DBS Group Research . Equity 29 April 2010
STI HSI KLCI SET JCI KOSPI : : : : : : 3,002.62 21,587.06 1,340.07 764.34 2,944.71 1752.20

Cyclical Plays & Currency Winners
• In our inaugural Asian Consumer Digest, we scan through and feature 7 sub-sectors ranging from consumer goods (food, autos, personal/ household) to services (media, healthcare, retail). Asian consumers will have stronger purchasing power as currencies appreciate. We also look for stocks that will outperform on company specific or event driven catalysts. Top picks – Kia Motors, Dongfeng, Gome, Beijing Jingkelong, Hengan, HTL Int’l, China Foods, Wilmar, Faber Grp, Pico.

SUB-SECTOR PICKS
Mkt Price LCY Mkt Cap US$m Tgt Price LCY Rating Upside %

Auto Kia Motors Dongfeng Motor* Retailers Gome Elec Appliances Beijing Jingkelong* Household/Pers Gds Hengan HTL International F&B China Foods Up/Midstream Food Wilmar International Healthcare Faber Group Media Pico Far East

KR HK

26,400 11.76

9,295 4,326

33,000 14.9

Buy Buy

25% 27%

Cyclical Plays. In our inaugural issue of the Asian Consumer Digest, we survey the landscape and highlight the sub-sectors which will benefit from improved consumer sentiment on the back of robust Asian economic growth. Currency winners? Strong Asia currencies will benefit some companies more than the rest. Winners tend to be those companies that have high domestic revenue content, source its materials in foreign currencies (such as USD), and/or with reporting currency in USD. Our top Buys on this theme are Wilmar and Hengan. Picks across universe. Within auto, we expect Kia Motor and Dongfeng to benefit from heightened demand and to outperform peers. HTL In’tl is in turnaround mode and is less vulnerable to USD currency strength than commonly assumed. Our media pick is Pico Far East which will benefit from the Shanghai World Expo, and increased brand building activities in the longer term. We like Beijing Jingkelong as a food retail play and Gome as it is projected to benefit from increased demand in home appliances in China. In the F&B space, we expect beverage players such as China Food to be in key focus with the summer peak season coming. Faber Group is our pick in the Healthcare space, with catalysts from GLC restructuring in Malaysia.
“In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com Refer to important disclosures at the end of this report sa: TW

HK HK HK SG HK

2.69 9.16 55.80 0.845 6.23

5,218 487 8,764 256 2,241

3.66 10.34 72.00 1.09 7.90

Buy Buy Buy Buy Buy

36% 13% 29% 29% 27%

SG

6.90

32,127

8.33

Buy

21%

MK

2.31

262

3.55

Buy

54%

HK

1.58

244

2.00

Buy

27%

*H-shares mkt cap Source: DBS Vickers

Regional Industry Focus Asian Consumer Digest

Andy SIM Ben SANTOSO Mavis HUI Jay KIM Patricia YEUNG Titus WU

+65 6398 7969 andysim@dbsvickers.com +65 6398 7976 bensantoso@dbsvickers.com +852 2863 8879 mavis_hui@hk.dbsvickers.com +852 2971 1921 jay_kim@hk.dbsvickers.com +852 2863 8908 patricia_yeung@hk.dbsvickers.com +852 2820 4611 titus_wu@hk.dbsvickers.com

Table of Contents
Stock Picks Key Data Investment Summary Sector performance review Theme #1: Currency Winners Theme #2: Cyclical Plays Regional Indices Rolling Fwd PE and Standard deviations Rolling forward PB trading band Sub-sector Automobiles & Parts Food & Beverages Healthcare Media Personal HouseholdGoods Retailers Up/Midstream Food Producers Company Profiles Auto Kia Motors Dongfeng Motor F&B China Foods Want Want 3 4 6 8 11 14 15 16 17 25 33 39 46 51 65

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6398 7954 in respect of any matters arising from or in connection with this report.”

72 76 80 84 88 92 96 100 104 108 112

Healthcare Faber Group Household Goods Hengan HTL International Retailers Gome Electric Beijing Jingkelong Media Pico Upstream Food Wilmar
Prices as of 22 Apr 2010

MICA (P) 043/10/2009

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Regional Industry Focus Asian Consumer Digest

STOCK PICKS Key Data
Company Exch Sub-Sector Price (LCY) 22 Apr 2010 Target Price (LCY) Upside (%) Mkt Cap (US$m) 6mths Avg Daily T/O US$m PE (x) 10F P/B (x) 10F Div Yield (%) 10F

Kia Motors Dongfeng Motor* Gome Elec Appliances Beijing Jingkelong* Hengan HTL International China Foods Wilmar International Faber Group Pico Far East

KR HK HK HK HK SP HK SP MK HK

Auto Auto Retailers Retailers Household/Pers Gds Household/Pers Gds F&B Up/Midstream Food Producers Healthcare Media

26,400 11.76 2.69 9.16 55.80 0.845 6.23 6.90 2.31 1.58

33,000 14.90 3.66 10.34 72.00 1.09 7.90 8.30 3.55 2.00

25 27 36 13 29 29 27 20 54 27

9,295 4,326 5,218 487 8,764 256 2,242 32,127 262 244

83.1 37.0 27.2 0.6 16.4 0.7 3.6 31.1 0.9 0.3

6.1 12.6 22.1 18.7 28.4 6.2 22.6 16.1 9.7 10.6

1.1 2.7 2.6 2.7 6.8 1.3 2.8 2.6 1.8 1.8

0.9 0.8 1.1 2.2 2.3 4.8 1.6 1.2 2.0 4.7

* H-shares mkt cap Source: DBS Vickers

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Regional Industry Focus Asian Consumer Digest

Investment Summary
Asian consumer companies to benefit from currency appreciation. We see consumer companies benefiting as purchasing power of the Asian consumers improves along with local currency appreciation. Who are the winners… Winners tend to be those companies that have high domestic revenue content, source its materials in foreign currencies (such as USD), and/or with reporting currency in USD. Examples are Hengan, Wilmar, China Foods, Tingyi, SPH, etc. Our top Buys on this are Wilmar and Hengan. …and losers? The reverse is true for losers. They are the net exporters, whose cost base are in local currencies, such as autos, plantation and manufactured goods exporters tend to lose more. Examples are Kia Motor, Hyundai Motor, Yue Yuen, etc. Firm economic recovery bodes well for Airlines, Healthcare, Personal Goods and Autos. As the economic recovery in the region continues to firm, we saw focus shift towards late cyclical consumer sectors. The sub-sector outperformance in the last 3 months came from airlines, healthcare services, and household/personal goods, beating DBSV consumer coverage benchmark return by 10.8% 8.8% and 8.0%. GDP growth translates into better consumer sentiment, lower unemployment. We are seeing strong GDP growth coming out from regional economies. Countries are revising up their 2010 forecasts. Singapore, for instance, revised up its official forecasts to 7%-9%, from 4.5%-6.5% previously, after a very strong 1Q10 growth of 13.1%. Consumer sentiment, especially for those countries affected more by the downturn, is trending up. Unemployment, on the other hand, is trending down. Focus on selected companies riding on stronger economies, and China. We like companies that will continue to benefit from continued spending and those that will outperform peers operationally. We see Kia Motor [000270 KS] benefiting from heightened demand, outperforming peers. YTD utilization is at a high of 96% (vs 82% in 2007-08). The recession has also shifted consumer preference to economy cars. In the PRC, Dongfeng Motor [489 HK] will continue to ride on the positive stimulus policy by government to promote auto consumption in the country.

For direct consumption picks, our focus is on China-related plays. Amongst retailers, Gome [493 HK] is projected to benefit from increased demand in home appliances. Beijing Jingkelong [814 HK] stand poised to post growth and narrow its valuation gap against its major peers. HTL International [HWA SP] is one of our pick as a proxy for improved demand in the US and Europe. With the summer peak season coming, we see China Food [506 HK] being the main beneficiary as a key beverage player. Want Want [151 HK] is also our preferred pick as it has successfully expanded its presence in the beverage segment as a niche player. Also focus on RMB revaluation candidates. As highlighted above, RMB revaluation, when it happens, will be positive for Hengan and Wilmar. Hengan [1044 HK], a leading player for personal hygiene products in the PRC, will benefit as its costs are in US$ while revenue in RMB. Wilmar [WIL SP] should also benefit, as its processing margins would expand further from RMB strengthening, on top of cheaper imported feedstock prices. Wilmar, as a processor, is also expected to see margins expand arising from the disparity between international and China-domestic soybean prices. Key highlights for the various sub-sectors: Autos. We expect regional growth of auto demand to slow from 2Q from last year’s high base, returning to more rational but still solid growth rates of 11-16% for the full year. We believe earnings growth trend for automakers will start to diverge. While we expect 1H earnings to shape future share price performances for the sector, we seek out attractive value plays with near term earnings heading beyond pre-crisis levels. Our picks are Kia Motors and Dongfeng Motor. F&B. We focus on China in the F&B space as the summer peak season draws near; and soaring beverage sales will be growth propellers for the sector. Intense competition is expected to help enlarge the total beverage market size. We continue to favour China Foods for its Coke beverage business. Leveraging on its leading share and extensive market presence, it would be a key beneficiary of the soaring demand in China. Retail. This year, a macro recovery and improving purchasing power should hold up overall consumption in the region. Department stores and discretionary retailers have already recorded strong year-to-date performance in same-store sales (SSS). Severe promotion that was seen in 1H09 has also gradually normalizes to a more reasonable level. Outlook for the sector should stay positive in 2010. Gome is our pick for department stores and discretionary retailers. For food retailers,

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Regional Industry Focus Asian Consumer Digest

we like Beijing Jingkelong for its undemanding valuation vs peers, addition growth through M&A and potential for earnings upside surprise as margins expand on rising inflation for food items. Up/Midstream Food Producers. Our key pick is Wilmar. This year, declining soybean price trends would create temporary gains for processors such as Wilmar, as lower feedstock prices would have lagged impact on end product prices. The domestic price situation is more resilient in China, as domestic soybean prices are already priced higher than imported ones. Rising global soybean supplies mean rising disparity between domestic and imported bean prices. Personal and Household Goods. We believe domestic household / personal goods manufacturers will continue to benefit from supportive government policy in boosting domestic consumption as well as accelerating urbanization. This, coupled with robust domestic economic growth, will enhance overall living standards, leading to stronger demand on household / personal goods. Hengan is our key pick for household / personal goods sector which is a market leader in personal care products (including sanitary napkins, diapers and tissue). We also like HTL International as it rides on recovery in global spending. Media. Media is expected to trend up with growth in GDP. We expect media spending to pick up steam in the different countries in ensuing quarters. For Singapore, it is backed by a stronger GDP, as well as more media-worthy activities such as opening of the second integrated resort (Marina Bay Sands), Great Singapore Sale, Youth Olympics, additional retail space, property launches etc. Adspend in Hong Kong is also expected to post a solid rebound, growing by double-digit y-o-y rate in 1H10 along with economic recovery on a low base. Pico Far East is our preferred pick as it benefits from events such Shanghai World Expo, new integrated resort facilities in Singapore and other mega events.

Healthcare. Healthcare performed well YTD on Fortis Healthcare taking a substantial stake in Parkway Holdings at a 14% premium to the prior closing price, which spur interest in the healthcare sector in Singapore. Coupled with a strong set of operating results in 4Q09, this garnered interest for this subsector. On the other hand, Bumrungrad Hospital took some beating in the past few weeks with the political unrest in Thailand, as over 50% of its patients are from overseas. Our key pick is Faber Group, which is an underappreciated, wellmanaged GLC. It trades at CY11F PE of 7.6x (ex-cash) on the back of 10.6% 3-year EPS CAGR in spite of a regulated concession business, 1.3x FY11F BV, with ROEs of c.19-20% and strong balance sheet (net cash 34.5 sen per share).

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Regional Industry Focus Asian Consumer Digest

Sector performance review
As the economic recovery in the region continues to firm, we saw focus shift towards late cyclical consumer sectors. The subsector outperformance in the last 3 months came from airlines, healthcare services and household & personal goods beating DBSV consumer coverage benchmark return by 10.8%, 8.8% and 8.0%. Airlines was the star. Airlines have generally done well, outperforming our Consumer coverage by 10.8%, as demand across the board have showed solid signs of recovery, and carriers reported higher carriage, better load factors as well as stronger yields. Hence, earnings have also turned around and many airlines have reported moving back firmly into the black. As a late cyclical, airlines should continue benefitting as the economic recovery continues. Healthcare services (outperformed by 8.8% in the last 3 months) thanks to Parkway, which saw Fortis Healthcare taking a substantial stake in the former at a 14% premium to the Sub-sectors YTD performance (since 1 Jan 2010)
125 120 115 110 105 100 95 90 85 Mar-10 Mar-10 Mar-10 Mar-10 80 Jan-10 Jan-10 Jan-10 Jan-10 Jan-10 Feb-10 Feb-10 Feb-10 Feb-10 Apr-10 Apr-10

prior closing price. This spurred interest in the healthcare sector in Singapore and coupled with a strong set of operating results in 4Q09 for Raffles Medical, it garnered interest for this sub-sector. Household & Personal Goods fared well. The strong performance largely came from Li & Fung which signed an agreement to supply clothing and other consumer goods to Walmart. Autos outperformed by 7.1% as sales were robust being closely correlated with the economic cycle. Within this, Kia Motors was the significant outperformer due to its high utilization rate of 95% (vs 82% during 2007-08). Gaming the biggest loser. Gaming performance was down 10% on an absolute 3-month performance, largely coming from Genting Singapore and Genting Berhad as the opening of Resorts World Sentosa did not meet expectations, coupled with stricter than expectation junket rules in Singapore.

Airlines F ood & Bev erages Media

Automonbiles & Parts Healthcare Retailers

F arming & F ishing Household/Personal Goods

Source: Bloomberg, DBS Vickers

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Regional Industry Focus Asian Consumer Digest

Sub-sector performance
# of Companies Automobiles & Parts Food Beverages Healthcare Equipment & Svs Household / Personal Goods Media Airlines Gambling Retail Up/ Midstream Food Producers Consumers 12 14 4 11 9 9 4 21 13 97 Market Cap 68,975 49,182 4,202 40,146 12,420 35,332 22,503 43,790 78,419 354,969 Weight 19.4 13.9 1.2 11.3 3.5 10.0 6.3 12.3 22.1 100.0 1M 6.2 3.7 -2.6 3.8 4.8 3.8 -2.3 1.2 4.1 3.5 Return 3M 18.3 11.1 20.0 19.2 12.5 22.1 -10.0 11.0 4.6 11.2 Excess Return 6M 15.6 26.4 28.7 17.8 11.4 24.3 -11.8 15.7 6.6 13.6 12M 94.1 99.3 122.8 88.1 44.5 65.7 27.8 70.7 60.4 72.7 1M 2.7 0.2 -6.1 0.2 1.3 0.3 -5.8 -2.3 0.6 3M 7.1 -0.1 8.8 8.0 1.3 10.8 -21.3 -0.2 -6.6 6M 2.0 12.8 15.1 4.1 -2.3 10.7 -25.5 2.1 -7.0 12M 21.3 26.6 50.0 15.4 -28.2 -7.1 -44.9 -2.0 -12.3 BETA 1.0 0.7 1.1 1.0 0.9 1.1 1.0 0.8 1.2 0.9 Target Return % Change 19.3 3.6 (1.3) 28.4 9.4 (4.4) 28.1 6.1 12.0 12.5

*Note: Excess returns measures the out/underperformance of individual sub-sectors vs DBSV consumer coverage

Sub-sector Valuations
PE 2010F (x) 9.1 21.9 20.1 21.3 15.7 28.3 22.3 19.3 17.2 16.3 2011F 7.8 18.4 14.7 17.1 16.3 14.6 16.7 16.3 15.6 13.5 EPS Growth 2010F 2011F (%) 12.2 15.4 20.4 19.1 21.0 37.1 20.6 24.7 19.8 -3.3 47.1 93.2 12.7 33.3 16.7 18.4 23.1 10.2 18.4 20.6 P/B 2010F (x) 1.4 4.3 2.5 4.0 3.2 1.6 1.9 3.9 2.5 2.3 2011F 1.2 3.8 2.2 3.6 3.1 1.5 1.7 3.5 2.3 2.0 ROE 2010F (%) 16.1 21.1 12.9 19.7 20.9 5.9 8.9 21.6 15.7 15.1 2011F 16.0 21.9 15.9 22.1 19.4 10.7 10.7 22.9 15.2 16.1 EV/EBITDA 2010F 2011F (x) 4.1 3.4 11.8 9.8 12.7 9.7 14.8 11.9 8.9 9.0 7.4 7.0 8.8 6.9 9.2 7.5 11.5 10.2 8.2 7.1 Dividend Yield 2010F 2011F (%) 1.1 1.3 2.2 2.6 2.5 3.5 2.8 3.6 4.9 5.0 0.9 1.7 1.1 1.3 3.6 4.1 1.9 1.9 2.0 2.4

Automobiles & Parts Food Beverages Healthcare Equipment & Svs Household / Personal Goods Media Airlines Gambling Retail Up/ Midstream Food Producers Consumers

Amongst the subsectors under our coverage, Autos offer the lowest PE and EV/EBITDA multiples at 9.1x and 4.1x. DBSV Sub-sector target return (%)
30 25 20 15 10 5 0

G oo Au ds to m ob il e s& Up Pa /M rts id st re am Fd Pr d Co ns um er A vg

ed ia

Re ta il

er a

M

-5

ge s

/P er

HH

Source: DBSVickers

He al th

ca r

e

Eq ui pm en t

so na l

Fo od

Be v

&

Sv

s

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Regional Industry Focus Asian Consumer Digest

Theme #1: Currency Winners
Asian currency appreciation: Winners vs Losers Asia consumer to benefit from stronger purchasing power Stronger currencies augurs well for the purchasing power of the Asian consumer. Asian currencies are widely expected to continue strengthening. This is largely the consensus view, though the view on magnitude and timeframe varies. We see consumer companies benefiting from this trend as purchasing power of the Asian consumers improves along with local currency appreciation. How to position on this long term trend? We look to sectors that have high domestic revenue content and source its materials in foreign currencies (such as USD). Net exporters, whose cost base are in local currencies, such as autos, plantation and manufactured goods exporters tend to lose more. Our picks are Wilmar and Hengan. Winners – F&B, Retailers, Media; Losers – Autos, Plantation. Broadly, the sub-sector beneficiaries are food and beverages producers, retailers, media (to a certain extend), while losers tend to be net exporters like autos, plantation companies. Winners benefit from low raw material costs and translation impact. For F&B producers such as Tingyi and Want Want, the positives are two-folds. First, such F&B manufacturers are likely to benefit from lower raw material prices which are usually priced in USD (such as palm oil, milk powder, PET and other packaging materials), while revenues are recognized in RMB. Secondly, as profits are translated into reporting currencies such as USD or HKD, the appreciation of RMB against those currencies will flow through. Traditional media companies like SPH will also benefit partly from lower newsprint, which is priced in USD. Newsprint charge-out in local currency term will decline along currency appreciation against USD, assuming prices stay constant. We estimate that every 5% depreciation in USD against SGD improve SPH’s bottomline by 1%, all else remain constant. Losers are export oriented companies such Autos and household manufacturers. Exports at Korean car manufacturers, like Hyunda Motor and Kia Motor, account for 75%-80% of global unit sales. As such, appreciation of KRW will affect the exporters’ bottomline arising from changes in export ASPS, and income. On the

other hand, Chinese and Malaysian auto players are relatively less affected as exports are relatively insignificant. Companies with high revenue content for export will stand to lose, such as Yue Yuen and Ming Fai, given its production are largely based in China, while goods are exported. …and upstream food producers (plantation) counters. Planters are losers if local currencies (i.e. Malaysian Ringgit and Indonesian Rupiah) strengthen against the USD, as their ASP in local currency terms and revenues would be booked lower. Focus on RMB appreciation and interest rate hikes. Our China economist, Chris Leung, indicates that expectation of rate hikes and currency appreciation will continue to remain despite growth in sequential terms will trend lower. He expects a mild rate hike in the magnitude of 27bps in each quarter (2Q, 3Q and 4Q). As our bank’s currency strategist, Philip Wee wrote, in 2Q10 Economics Market Strategy (11 Mar 2010), the key question on China letting CNY appreciate is “not if, but when”. Our house view is that we “do not discount a move in 2Q10, though we think the odds are higher for appreciation in 3Q10”. We are forecasting a gradual appreciation of CNY against USD to reach CNY6.68/USD by 4Q10. USD/CNY forecast
USD/CNY forecast, eop Close 2Q10f 3Q10f 4Q10f 1Q11f 6.83 6.81 6.74 6.68 6.60

Source: DBS (Economics Market Strategy 2Q10, 11 Mar 2010)

Hengan is one of our top picks for its strong sales growth (>25%), ability to protect margins, and its strong balance sheet. At end-FY09, Hengan had over HK$2bn net cash, the bulk in RMB. It will benefit from an interest rate hike and RMB appreciation as its revenue stream is in RMB but purchases are in US$. Wilmar We like it for its unique business model with high entry barriers. Inclusion of rice and flourmills and lower prospective international soybean prices should boost Wilmar’s earnings prospects. A potential RMB revaluation would expand processing margins even further.

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Regional Industry Focus Asian Consumer Digest

Sub-sectors Winners & Losers from local currency appreciation
Sub-sector Automobiles and Parts Positive/ Neutral/ Negative Mixed Comments The Korean car makers are exporters par excellence - at Hyundai and Kia, exports make up C.75-80% of global unit sales, respectively. Currency swings affect car exporters' bottom lines by changing export ASPs and equity-method income. Forex counts as much here as anywhere. Meanwhile Chinese and Malaysian auto manufacturers are better positioned as their general exposure to export is relatively insignificant. In fact, many Chinese and Malaysian auto companies are JPY dependent. Planters (upstream food producers) are losers if local currencies (i.e. Malaysian Ringgit and Indonesian Rupiah) strengthen against the USD, as their ASP in local currency terms and revenues would be booked lower. Though most of the sales of F&B companies are from Chinese market, appreciated RMB would reduce a certain part of their costs of material imported from overseas market; meanwhile there would be an elevation of their net profit denominated in currencies other than RMB Revenue and cost substantially in local currency, so minimal impact from USD depreciation. Depreciation in USD will make Asian healthcare more costly to US patients seeking treatment in Asia and may impact medical tourism. At this point, the difference is treatment cost is still very huge, hence depreciation of USD impact is negligible. Impact of this sector is mixed, depending on where the products are made and sold. Those that target at domestic market with RMB revenue stream will win but exports oriented companies usually will loss on higher procurement costs. Impact is also more substantial on thin margin operations, such as trading business. The impact on media industry should be negligible as cost and revenue are in similar currencies. Publishing houses such as SPH should see slight positive impact since newsprint are priced in USD . All China-based companies that are listed outside of China (e.g. in Hong Kong) could see a positive impact on valuation terms, as the gradual appreciation in RMB would translate into a stronger EPS on non-RMB currency basis. Besides, retailers with certain profitable operations in China could also be beneficiaries as positive earnings impacts could be seen along with the rise in RMB.

Up/Midstream Food Producers

Negative

Food & Beverage (Downstream Food Producers)

Positive

Gaming Healthcare

Neutral Neutral

Household and Personal Goods

Mixed

Media

Neutral - Mildly positive Positive

Retailers

Source: DBS Vickers

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Regional Industry Focus Asian Consumer Digest

Earnings sensitivity from currency appreciation vs USD (ceterus paribus) For Individual Companies
Assuming a 10% appreciation in LCY vs USD over the next 3 years, applied to FY11F earnings as a baseline Company SPH Pico Far East China Foods Want Want Tingyi Yurun Hyundai Motor Co. Kia Motors Positive/ (Negative) as % of net profit (FY11F) 2.50% 3.0% 2% in RMB earnings + 10% in reported HK$ earnings=12% 1% in RMB earnings + 10% in reported US$ earnings=11% 3% in RMB earnings + 10% in reported US$ earnings=13% 10% in reported HK$ earnings -9.2% -13.8% Comments Newsprint cost will become cheaper for SPH as it is priced in USD, assuming price do not rise in tandem with fall in USD Over 30% revenue from China, and will likely benefit as profits gets translated back into HKD, and if it remains pegged to USD. Some of the raw materials like cocoa, grape juice, orange juice are purchased from overseas suppliers Want Want purchase a certain amount of milk power and packaging materials from overseas market Benefit from the lower prices of PET and palm oil denominated in RMB Most of sales and material sourcing are in China Assuming 20% appreciation of LCY against USD, in our estimates, for every KRW1% change in KRW/USD rate, this will shave off Hyundai's FY11F earnings by 0.9% Assuming 20% appreciation of LCY against USD, in our estimates, for every KRW1% change in KRW/USD rate, this will shave off Kia's FY11F earnings by 1.4% Geely's exports accounted for about 6% of total sales last year, hit by the global financial crisis. We project it will rise to 15% of total sales by FY11 and maximum impact on net earnings is 3%. The focus is more on JPY fluctuations. 100% earnings from China 100% earnings from China 100% earnings from China 100% earnings from China c.80% earnings from China 100% earnings from China 100% earnings from China 100% earnings from China Estimated to capture c.60% earnings from China. c.70% revenue from exports. Higher revenue from China offset negative impact from higher production cost in China from stronger RMB Gain from lower raw materials costs and FX Higher revenue from China offset negative impact from higher production cost 95% of Pelikan's revenue and costs are denominated/quoted in USD and EURO as its manufacuring facilities are based in Germany and EU countries. The effect is largely unrealised translation losses at Group level.

Geeley Auto

nm

Beijing Jingkelong Lianhua Wumart Parkson (3368.HK) Parkson Holdings (PKS.MK) Golden Eagle New World Dept Store Gome Glorious Sun Yue Yuen

10% in reported HK$ earnings 10% in reported HK$ earnings 10% in reported HK$ earnings 10% in reported HK$ earnings 8% in reported RM earnings 10% in reported HK$ earnings 10% in reported HK$ earnings 10% in reported HK$ earnings 6.0% -8.9%

Hengan Ming Fai Pelikan International

17.1% -6.0% -17.0%

Source: DBS Vickers

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Regional Industry Focus Asian Consumer Digest

Strong GDP reinforces consumer confidence and consumption within Asia GDP forecasts
GDP growth, % YOY 2008 US Eurozone Indonesia Malaysia Singapore Thailand China Hong Kong 0.4 0.5 6.0 4.6 1.4 2.5 9.6 2.1

Theme #2: Asian Cyclical Plays

2009 -2.4 -4.0 4.5 -1.7 -2.0 -2.3 8.7 -2.7

2010F 3.3 1.1 5.5 5.7 9.0 6.0 9.5 5.5

2011F 2.8 1.5 5.5 5.5 5.5 4.9 9.0 4.5

1Q10F 2.8 0.7 5.8 9.2 13.1 7.9 11.9 6.5

2Q10F 3.7 1.2 5.9 6.7 8.1 6.6 9.5 6.0

3Q10F 3.9 1.1 5.5 4.6 6.2 6.0 8.8 5.0

4Q10F 3.1 1.4 5.0 2.4 8.7 3.8 8.5 4.5

Source: DBS

GDP growth strong. We are seeing strong GDP growth coming out from regional economies. Singapore reported an above expectations 1Q10 GDP growth of 13.1%, while China 1Q10 numbers advanced 11.9% YoY in 1Q10, slightly higher than consensus estimate of 11.7%. Of course, this was a result of a low base effect last year at the height of the financial crisis. But, it speaks volumes that recovery is indeed strong. Translating into better consumer sentiment. Consumer sentiment in China has sustained at a sound level throughout the financial crisis amid strong economic stimuli and favourable government policies. This probably explains why China’s domestic demand continued to be strong. For more matured economies like HK and Malaysia, consumer confidence is normalizing from the trough.

Retail sales growth is picking up. As can be seen in the chart below, retail sales across the region rebounded in early 2010. For an open economy like Singapore, retail sales registered 4.8% in Feb. We believe this suggest that consumer are on the mend, especially for the matured markets which were more affected by the financial crisis. Retail sales growth
% 40 35 30 25 20 15 10 5 0

Singapore*

140 120 100 80 60 40 20 Sep-08 Mar-09 Mar-08 Sep-09 0 Dec-09 Dec-08 Feb-10 Jun-08 Jun-09

Source: CEIC, DBSVickers

China - Consumer confidence Hong Kong - Consumer confidence Malay sia - Consumer sentiment
Source: CEIC

China domestic consumption has been strong. Our economist estimates that China has put in US$180 bn of domestic demand over the past 4 quarters, twice more than US$91bn from the US (David Carbon, “China: Two growth myths with one stone”, 14 April 2010). In addition, China’s trade surplus has fallen by 90% over the past year, and with an estimated GDP growth of 11.5% over four quarters, he highlights the fact that China’s growth is driven by domestic demand.

Malaysia**

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Vietnam

Consumer confidence index – China, HK, Malaysia

China

Hong Kong

Regional Industry Focus Asian Consumer Digest

China domestic demand vs US
Domestic demand creation over past 4 quarters
USD bn, sa, real terms, 2009P 200 180 160 140 120 100 80 60 40 20 0 China US 91 180

Unemployment
% 6 5 4 3 2 1 Mar-08 Mar-09 Sep-08 Dec-08 Sep-09 Hong Kong Malaysia 0 Dec-09 Jun-09 Jun-08

China Singapore
Source: DBS

Source: DBS

China – exports and imports
China – exports and imports
US$b/month, sa 140 130 120 110 100 90 80 70 60 50 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Imports Exports
Surplus vanishes due to China's stro ng do mestic demand and weak demand in the G7

Source: DBS

Unemployment rate declining. The Chinese employment market stayed resilient throughout the global financial crisis, seeing unemployment rate sustaining at c.4% throughout. Other Asian markets saw rising unemployment rate right after the crisis in 4Q08, while Malaysia started to see improvement in 2Q09, and Hong Kong and Singapore saw improving employment since 4Q09.

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Regional Industry Focus Asian Consumer Digest

Amongst the sub-sectors, our focus is on (i) those with potential operational outpeformance or surge in earnings; (ii) names which will continue to benefit from China’s domestic consumption; (iii) along with beneficiary of commodity price movements. 1) Go for beneficiaries of stronger economy, sentiment. Against the backdrop that the regional economy has bounced back up (except for China which was largely unscathed), we advocate counters that can ride on stronger economy and sentiment. Amongst this, we like Kia Motors. The recession has caused consumers to increasingly prefer value-focused Korean car brands. Kia’s YTD utilization rate of 96% (vs. 82% in 200708) indicates that demand for its cars has reached unprecedented heights. We recommend investors to accumulate Kia shares as we believe its 1H earnings will beat consensus estimate by a considerable amount. Dongfeng will continue to ride on the positive stimulus policy by government to promote auto consumption in the country. We like Gome for its solid recovery from the trough as well as direct benefits from government subsidy programs. These include (i) “go rural” policy, which has recently increased price caps for various product categories (from 25% to a double), as well as (ii) “exchange old for new” program that has been launched in Aug09 and will contribute to a full-year impact in 2010. Additionally, with c.70% of properties sold in China during 2H09 to be delivered by 2H10, their demand for home appliances should likely see a strong support throughout this year. 2) Continue to ride China consumption. This year, a macro recovery and improving purchasing power should hold up overall consumption in the region. Chinese operators could see even better prospects amid sustainable household income growth, as the government’s economic stimulus packages support employment, while an upward adjustment of 10% or more in minimum wage for various provinces will be seen this year. Leverage on summer peak season in China. We would still go for staple consumer companies with focus in China. We believe China’s promising beverage market should remain the focus of most investors, and with the summer peak season drawing near, the expect beverage sales to soar, which will benefit counters like China Foods (506 HK). Beijing Jingkelong (814 HK) is also expected to benefit through expansion of margins arising from food inflation.

…and demand for personal goods. We believe domestic household / personal goods manufacturers will continue to benefit from supportive government policy in boosting domestic consumption as well as accelerating urbanization. This, coupled with robust domestic economic growth, will enhance overall living standards, leading to stronger demand on household / personal goods. Such view is echoed with the continuous uptrend in retail sales of daily use goods. In fact, retail sales growth of daily use goods has always been stronger than the overall retail sales growth in China. Hengan is our key pick for household / personal goods sector which is a market leader in personal care products (including sanitary napkins, diapers and tissue). 3) Beneficiaries of commodity price movements Wilmar to benefit from lower soybean price. This year, we expect that declining soybean price trends would create temporary gains for processors such as Wilmar, as lower feedstock prices would have lagged impact on end product prices. The domestic price situation is expected to be more resilient in China, as domestic soybean prices are already priced higher than imported ones. Rising global soybean supplies will mean even greater disparity between domestic and imported bean prices. Impact from potentially stronger RMB. In the event of RMB revaluation, Wilmar should benefit even more. Any efforts by the Chinese government to protect its soybean farmers mean that domestically produced soybean prices would remain steady. On the other hand, cheaper imported feedstock prices should expand Wilmar’s processing margins. Already highly efficient with large economies of scale, this would make Wilmar more competitive in the Chinese vegetable oil market.

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Regional Industry Focus Asian Consumer Digest

Regional Indices
Singapore
200 180 160 140 120 100 80 60 40 2005 2005 2006 F STCG Index STI Index 2007 2008 2009 F STCS Index F STAS Index 2010

Thailand
250 200 150 100 50 2005

2006

2007

2008

2009

2010

SETCNSP Index

SETCOM Index

Hong Kong
250 210 170 130 90 50 2005

Indonesia
350 300 250 200 150 100 50 2005

2005 HSCIC Index

2006

2007

2008

2009 HSCI Index

2010

2006

2007

2008

2009

2010

HSCISV Index

J AKCONS Index

J CI Index

Malaysia
260 220 180 140 100 60 2005

South Korea
120 100 80 60 40 2007

2006

2007

2008

2009 F BMKLCI Index

2010

2008

2008

2009

2009

2010

KLCSU Index

KOSPI Index

KRXCONS Index

Source: Bloomberg, DBS Vickers

Source: Bloomberg, DBS Vickers

Page 14

Regional Industry Focus Asian Consumer Digest

Rolling Fwd PE and Standard deviations Airlines
80 70 60 50 40 30 20 10 0 J un-09 Aug-09 Oct-09 Dec-09 -1sd -2sd F eb-10 +2sd +1sd Av g

Healthcare
30 25 20 15 -1sd 10 5 2006 -2sd +2sd +1sd Av g

2007

2008

2009

2010

Automobiles & Parts
12 +2sd

Household/ Personal Goods
70 60 50 +2sd +1sd Av g -1sd -2sd 2007 2008 2009 2010

10

8

+1sd Av g

40 30 20 10 0 2006

6 -1sd 4 -2sd 2 2006

2007

2008

2009

2010

Up/Midstream Food Producers
35 30 25 20 15 10 5 0 2006 -2sd 2007 2008 2009 2010 Av g -1sd +2sd +1sd

Media
26 24 22 20 18 16 14 12 10 8 2006 2007 2008 2009 2010 -2sd -1sd +2sd +1sd Av g

Food & Beverages
30 28 26 24 22 20 18 16 14 12 10 8 6 2006 +2sd +1sd Av g -1sd -2sd 2007 2008 2009 2010

Retailers
35 30 +1sd 25 20 15 10 5 2006 Av g -1sd -2sd +2sd

2007

2008

2009

2010

Source: Bloomberg, DBS Vickers

Source: Bloomberg, DBS Vickers

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Regional Industry Focus Asian Consumer Digest

Rolling forward PB trading band Airlines
200 175 150 125 100 75 50 2006 1.8x 1.6x 1.3x 1.1x 0.8x

Healthcare
270 240 210 180 150 120 90 60
2007 2008 2009 2010

2.8x 2.4x 2.0x 1.6x

1.2x

30 2006

2007

2008

2009

2010

Automobiles & Parts
170 145 120 95 70 0.3x 45 20 2006 1.1x 0.9x 0.7x 0.5x

Household/ Personal Goods
280 250 220 190 160 130 100 70 40 10 2006 2007 2008 2009 2010F 2010 4.2x 3.6x 3.0x 2.4x 1.8x

2007

2008

2009

2010

Up/Midstream Food Producers
1,200 3.4x 3.0x 900 2.6x 2.2x 600 1.8x

Media
120 110 100 90 3.2x 80 2.7x 2.2x 4.2x

3.7x

300

70 60

0 2006

2007

2008

2009

2010

50 2006 2007 2008 2009 2010

Food & Beverages
480 420 360 300 240 180 120 60 2006 1.8x 4.2x 3.6x 3.0x 2.4x

Retailers
320 260 200 140 80 20 2006 7.6x 6.3x 5.0x 3.7x 2.4x

2007

2008

2009

2010

2007

2008

2009

2010F 2010

Source: Bloomberg, DBS Vickers

Source: Bloomberg, DBS Vickers

Page 16

Asian Consumer Digest Auto

SUB SECTOR - AUTO

Page 17

Asian Consumer Digest Auto

AUTOS
Jay Kim, jay_kim@hk.dbsvickers.com Rachel Mui, rachel_miu@hk.dbsvickers.com Malaysia Research Team • We expect regional growth of auto demand to slow from 2Q, returning to more rational but still solid growth rates of 11-16% for the full year. As industry demand enters into a slower but more rational growth stage, we believe earnings growth trends for automakers will start to diverge. 1H10 earnings results (particularly on 2Q10) would be the first informant on how each company’s earnings will be affected and differentiated from each other in subsequent periods. While we expect 1H earnings to shape future share price performances for the sector, we seek out attractive value plays with near term earnings heading beyond pre-crisis levels. Our top picks: Kia Motors & Dongfeng Motor

region to maintain double-digit growth of 14% for 2010, implying total sales of 20.5m vehicles. Going into 2Q, we believe sales volume growth to start trending down as momentum eases from the last year’s high base effect. Also, we note that the strong growth in the first three months of this year was in part due to spillover effect from orders made late last year. And a tighter monetary policy will drive up lending rates and restrain growth to some extent. Meanwhile, on a q-o-q basis, we expect the absolute demand for the region to edge up 9%, and this is mainly due to strong seasonal demand coupled with continued recovery in consumer spending. Against the backdrop of slower growth from 2Q and expectation of a more rational growth of 11 – 16% for the full year, we advocate a more selective investment approach for the sector. History indicates that some competitive car manufacturers had successfully taken advantage of previous economic downturns to strengthen their business framework (i.e. improve market share, successful introduction of cost control measures, and effective adjustment of product offerings to meet new consumer demands) and eventually reaped superior returns when the economy recovers. With the comeback of rational growth stage, we believe earnings growth trends for automakers will start to diverge and a few real winners from the last recession will differently be awarded. We believe 1H10 earnings results (particularly on 2Q10) would be the first informant on how each company’s earnings will be affected and differentiated from each other as the regional industry demand comes to a slower but more rational growth stage. While we expect 1H earnings results to shape future share price performances for the sector, we seek out attractive value plays with near term earnings heading beyond pre-crisis levels.

Performance review: The share prices of Chinese, Korean, and Malaysian auto stocks under our coverage, on weighted average basis, have outperformed their respective indices (Hang Seng, KOSPI, and KLCI Index) by 15%, 3%, and 10%, respectively, in 1Q. We believe the outperformance was largely due to the industry’s intrinsic characteristic that correlates closely with economic cycle. Across the region, we saw either the expiry or reduction of government incentives for car buyers. Despite less support from stimulus packages, regional auto demand remained robust. For Asian Pacific region ex Japan & Australia, we estimate total quarterly car sales at 5.9 m units in 1Q10, up 63% from last year. We believe this strong growth resulted from a combined effect of 1) low comparative base from last year, 2) particularly aggressive new model releases, and 3) continued motorization growth. Industry outlook: Like 2009, we believe emerging markets, especially the Asia Pacific region, will remain the main growth engine for the global auto industry. The low levels of car ownership, rising household disposable income and growing middle class population should continue to provide a rapid growth platform for carmakers. In fact, auto stocks under our coverage have either sole or the largest sales exposure to the region. Accordingly, we believe these companies are predominantly well positioned to benefit from the region’s continued motorization process and relatively higher rates of economic growth for this year. We expect Asia-pacific

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Asian Consumer Digest Auto

Action/ Key Pick: Kia Motors Kia’s y-t-d global utilization rate of 96% (vs. 82% during 2007-08) indicates that demand for its cars has reached unprecedented heights. In fact, we expect Kia’s consolidated sales volume growth to expand by 26% y-o-y to 1.9 m cars for this year, much higher than our projected growth of 14% for the region. The growing demand for Kia cars is due to a paradigm shift of consumer preference towards cost effective Korean car brands as a result of the recession. Consumers’ growing demand for models that are low-cost and fuel-efficient leading them towards brands associated with practicality. We believe this trend has helped Kia Motors to remarkably widen scope of market penetration. On the back of a stronger won, it appears that the market still has ongoing concerns over the carmakers’ earnings prospects for this year. However, we believe the rise in demand is the most decisive factor in determining the carmakers’ earnings prospects and intrinsic value. On the earnings front, alongside with continued cost saving measures, we expect Kia’s FY10 net profit to grow by a strong 15% y-o-y to a record high KRW1.7tn this year. (More details is discussed in stock profile section). We expect Kia Motors to be re-rated upward, in view of its (1) solid earnings prospects ahead, (2) improving balance sheet, (3) fast turnaround at its Georgia plant and (4) attractive valuations. Catalyst: Strong 1H earnings growth As discussed earlier, we expect 1H earnings release to shape share price performance for the sector. Accordingly, we strongly recommend investors to accumulate Kia shares as we believe Kia’s 1H10 earnings are on track to surge 86% vs. a year earlier and to beat consensus estimates by a considerable amount. While we believe that the market will gradually realize that demand growth is a more decisive factor in determining the carmaker’s earnings than any potential impact from the appreciation of the local currency, we think the full impact of the rise in demand has not been fully reflected in the share price. In fact, our forecast net profit of KRW826bn in 1H10 is 12% higher than consensus of KRW738 for now. We expect consensus estimates to move higher over the coming periods, a key positive stimulus for its share price.

Action/ Key Pick: Dong Feng Motor Dongfeng Motor is our top pick in the Chinese auto market. The company will continue to ride on the positive stimulus policy by government to promote auto consumption in the country. Due to a low vehicle penetration rate in China, the mid-term prospect is positive, hence benefitting strong vehicle manufacturers like Dongfeng Motor. The company has three foreign joint ventures with a wide product range and launched its own brand, Fengshen recently to capture the growing interest for Chinese brand automobiles. The consistent release of new models is an important strategy for the Chinese auto industry as consumers have a growing appetite for new cars in the market. Since Dongfeng Motor’s products spread across a wide spectrum of displacements, the company will benefit from the mass market and high-end demand, underpinned by rising disposal income trend. Catalyst: New model releases to capture sales The 1Q strong orders should be positive on 1H earnings performance, despite normalization of sales momentum in 2Q, while 1Q has a low base effect. The company has 10 new models in the pipeline for this year new launches, all under its three foreign JVs. The turnaround of its Dongfeng Peugeot-Citroen JV is another plus factor, as this company was slow in the past to bring new models into the market. A change in strategy has improved its performance last year. For FY10, net profit is estimated to grow by 13%, after a high base effect in FY09. In terms of PE valuation, Dongfeng Motor shares are trading in line with the HK listed auto companies’ average at around 13x FY10 EPS. However, being one of the top three auto groups in China, we believe DFG should command a premium to its pees (as it was the case in the past). We priced DFG at 16x forward PE, translating into TP of HK$14.9. We maintain BUY rating on the counter.

Page 19

Asian Consumer Digest Auto

Earnings Valuation
Market Cap (US$m): 68,975 Operating Profit (US$ m) 2,535 3,265 4,538 6,225 7,006 7,860 OP Chng (1Q) (%) -7.9 -6.7 Pre-tax Profit (US$ m) 3,883 4,296 3,883 8,846 10,872 12,398 Net Profit Bef EI (US$ m) 2,695 2,887 3,387 6,787 7,617 8,794 EPS Chng (1Q) (%) 0.4 -1.7

2006A 2007A 2008A 2009E 2010F 2011F

Sales (US$ m) 64,796 68,793 73,211 80,073 87,442 94,337

YoY (%) 6.2 6.4 9.4 9.2 7.9

YoY (%) 28.8 39.0 37.2 12.6 12.2

YoY (%) 10.6 -9.6 127.8 22.9 14.0

EPS (US$) 0.04 0.04 0.05 0.10 0.11 0.13

YoY (%) 7.1 17.3 100.4 12.2 15.4

2006A 2007A 2008A 2009E 2010F 2011F

EBITDA (US$ m) 6,530 7,034 7,682 12,978 13,684 15,224

OP Margin (%) 3.9 4.7 6.2 7.8 8.0 8.3

ROE (%) 9.1 9.6 16.7 16.1 16.0

Interest Cover (x) -237.8 -74.9 -305.6 57.1 211.9 -115.1

Net Debt / Equity (x) -0.1 0.0 0.0 -0.2 -0.3 -0.3

FCF (US$ m) 130 1,557 2,765 10,106 8,766 8,034

BPS (US$) 1.2 1.3 1.4 1.7 2.0 2.3

Dividend Yield (%) 1.16 0.96 0.94 1.01 1.09 1.25

PE (x) 25.6 23.9 20.4 10.2 9.1 7.8

P/B (x) 2.3 2.1 1.9 1.6 1.4 1.2

EV/EBITDA (x) 10.3 9.6 8.8 4.7 4.1 3.4

Stock Performance
Market Cap (US$) Auto Parts APM Automotive Denway Motors Hyundai Mobis UMW Hldgs Tires Hankook Tire Automobiles Brilliance China Dongfeng Motor Group - H Geely Automobile Hyundai Motor Kia Motors MBM Resources Proton Automobiles & Parts 281 4,272 14,494 2,282 3,090 1,609 4,327 3,336 24,947 9,295 217 825 68,975 Weight 1M Return 3M Excess Return 6M 12M 1M 3M 6M 12M BETA

0.4 6.2 21.0 3.3 4.5 2.3 6.3 4.8 36.2 13.5 0.3 1.2 100.0

12.9 7.4 9.0 1.9 4.0 6.7 -13.2 -12.7 13.4 4.6 4.1 6.0 6.2

42.5 0.7 17.4 1.9 13.8 12.7 13.3 2.0 21.2 41.7 4.9 21.8 18.3

93.1 17.5 3.4 1.9 -6.6 114.3 11.5 29.2 15.4 41.3 13.3 18.2 15.6

154.9 43.3 78.5 15.7 57.4 281.0 106.3 272.9 97.2 157.1 19.6 56.9 94.1

6.7 1.2 2.8 -4.3 -2.2 0.4 -19.4 -18.9 7.1 -1.7 -2.2 -0.3

24.2 -17.7 -1.0 -16.4 -4.5 -5.7 -5.0 -16.3 2.9 23.3 -13.5 3.5

77.5 1.9 -12.3 -13.7 -22.2 98.7 -4.1 13.6 -0.3 25.7 -2.3 2.6

60.8 -50.8 -15.6 -78.4 -36.7 186.9 12.3 178.8 3.1 63.0 -74.5 -37.2

0.7 1.0 0.8 0.8 0.9 1.1 1.2 1.1 1.0 1.2 0.6 1.3 1.0

Financial Ratios
PE 2010F (x) Auto Parts APM Automotive Denway Motors Hyundai Mobis UMW Hldgs Tires Hankook Tire Automobiles Brilliance China Dongfeng Motor Group - H Geely Automobile Hyundai Motor Kia Motors MBM Resources Proton Automobiles & Parts 11.3 12.5 8.8 16.3 10.6 15.4 12.6 14.9 8.6 6.1 8.7 11.6 9.1 2011F EPS Growth 2010F 2011F (%) 15.9 10.4 12.2 10.2 -1.8 -32.7 13.3 23.3 10.7 14.6 19.8 nm 12.2 6.0 10.5 14.2 13.9 12.9 20.5 13.4 14.4 13.9 9.7 10.0 19.5 15.4 P/B 2010F (x) 1.3 1.8 1.8 1.8 1.6 1.9 2.7 3.1 1.1 1.1 0.7 0.5 1.4 2011F ROE 2010F (%) 11.8 15.2 21.6 11.5 15.3 13.2 23.3 23.1 13.5 20.3 8.5 4.3 16.1 2011F EV/EBITDA 2010F 2011F (x) 4.6 9.7 5.9 6.0 5.4 6.8 5.0 9.0 3.2 4.2 5.2 2.7 4.1 4.1 8.2 5.2 5.4 4.6 5.9 4.2 8.0 2.5 4.4 4.7 2.2 3.4 Dividend Yield 2010F 2011F (%) 2.3 1.3 0.7 3.5 0.6 0.0 0.8 1.4 0.9 0.9 2.7 1.0 1.1 2.3 1.3 0.8 3.5 0.6 0.0 0.9 1.6 1.2 0.9 0.0 1.0 1.3

10.7 11.3 7.7 14.3 9.4 12.8 11.1 13.0 7.5 5.6 8.0 9.7 7.8

1.2 1.6 1.4 1.7 1.4 1.7 2.2 2.6 0.9 0.9 0.7 0.5 1.2

11.5 14.8 20.6 12.4 15.8 13.9 21.6 21.9 13.3 18.3 8.7 5.0 16.0

Source: DBS Vickers

Page 20

Asian Consumer Digest Auto

Section B
Chart 1: Region – SAAR monthly vehicle sales 1Q10 sales volume for the region, at one point, was headed to reach nearly over 2.5 m cars, on a seasonally adjusted annual rate (SAAR). We believe it is important to remember that the first quarter of this year was largely influenced by the spillover effect from orders made late last year. Thus, it’s been different from the other traditionally slow first quarters. We expect regional growth of auto demand to slow from 2Q returning to more rational but still solid growth rate of 11-16% for the full year.

3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0

S AAR Auto S ales

ct -0 8 O

ct -0 6

ct -0 4

ct -0 5

O

3-month M oving avg.

O

O

O

S eas onally Adjus ted

Chart 2: China - monthly vehicle sales in (PV & CV)
'000 units 1,800 1,600 1,400 1,200 1,000 800 600 400 200 F eb Mar May S ep Oct 0 J an J un J ul Aug Apr Nov Dec

O

ct -0 9

ct -0 7

From Jan to Mar09, total vehicle sales reached c.4.61m units, up from c.2.67m units in 1Q09, an increase of c.73% y-o-y. The dip in Feb10 was due to the Chinese New Year effect. Total car sales accounted for 3.52m units, up c.77% from previous quarter. The main driver came from small capacity vehicles, which are enjoying lower purchase tax benefits. Last year, China achieved 13.6 m units of vehicle sales under a favorable tax environment (cut from 10% to 5%) and the government has extended that policy to this year, albeit at a slightly higher tax rate of 7.5%. We forecast vehicle sales to reach 15.2 m units (up 12% y-o-y) this year, which we believe is achievable with the y-t-d vehicle sales at 4.61m units.

2005 2009

2006 2010

2007

2008

Chart 3: China - Sedan sales by country mix

'000 units 350 300 250 200 150 100 50 0 J un-08 Oc t-08 J un-09 Dec -08 Oc t-09 Dec -09 F eb-09 Aug-08 Aug-09 F eb-10 Apr-08 Apr-09

The policies to encourage small-capacity vehicle sales are benefiting domestic auto manufacturers. The home-grown brands are usually low-priced small capacity vehicles which target the broad consumer market. In 2010, self-developed brands will continue to lead sales volume, despite the reduction of government incentives.

S elfbrand German Brands Korean Brands

Japanes e Brands Americ an Brands Frenc h Brands

Page 21

Asian Consumer Digest Auto

Chart 4: China – domestic made PV’s sales breakdown by displace’m
100% 80% 60% 40% 20% 0% 2005 <=1L 2.5<-<=3L 2006 2007 2008 1.6<-<=2L >4L 2009 2M 10

Small capacity cars of 1.6L and below have continued to be the mainstream vehicles for China market. The segment used to account for about 60% of total PV sales volume, but had surged to 71% in 2009. Coming into 2010, it climbed further up to 73%.

1<-<=1.6L 3<-<=4L

2<-<=2.5L

Chart 5: China - domestic made automobile price index
Jan 2004 = 100 105 100 95 90 85 80 75 70 65 60 M ay-05 M ay-07 M ay-09 J an-04 J an-06 J an-08 Sep-04 Sep-06 Sep-08 J an-10

The mass-market cars, mainly the small and mid-size capacity are very affordable as competition in this market is more intense. Hence, automobile manufacturers are keeping prices low to maintain their market shares. However, in the luxury segment, the price index has been trending upward as this segment faces less competitions and automakers have more flexibility for premium price strategy.

PV S mall High c las s

M ini M edium c las s Luxury

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Asian Consumer Digest Auto

Chart 6: Korean brands – global utilization rates
% 100 95 90 85 80 75 70 1H07 2H07 1H08 HM C 2H08 1H09 2H09 Kia 1Q

Korean car brands’ y-t-d global utilization rate of +90% indicated that demand for its cars has reached unprecedented heights. In our view, the growing demand for Korean cars is due to a paradigm shift of consumer preference towards cost efficient brands as a result of the recession. Consumers’ growing tendency is now for models that are low-cost and fuel-efficient leading them towards brands associated with practicality. We believe this trend has helped Korean automakers to remarkably widen scope of market penetration. And this has been translated into record high utilization rates.

Chart 7: Korea – unit export price
US $ 16,000 15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 1997 1998

Korea's unit export pric e

Despite a stronger won, Korean auto export prices in the US$ terms have continued to climb well since the 5-year low in 2009. We believe Korean brands’ aggressive product launch has been the key factor in driving their export prices. Indeed, we estimate over 65% of the export ASP hike (forex unadjusted) came from price hikes associated with the launch of new or redesigned models. In addition, the recovery of SUV demand also led to a better product mix.

Unit export pric e

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

S KAM A Chart 8: Korea – SAAR monthly vehicle sales

2010

160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 07

S AAR Auto S ales

Total domestic car sales rose 39% y-o-y to 357K units in 1Q10. Despite the expiry of government incentives for car buyers, we see domestic demand remaining strong for Korea. Other than the spillover effect from orders made late last year, industry sales also benefited from new model effects. In fact, during 1Q10, new model sales accounted for 33% and 28% for HMC and Kia Motors, respectively. Considering that new launches accounted for nearly one third of total sales volume for both companies, this indicates the new model effect is much stronger than what market has previously anticipated. Also, replacement demand in Korea appears to be kicking in and should grow through this year. Although government had actively

08

09

10

provided incentives to scrap old cars in 2009, we notice the number of cars that are at least 10 years old has increased by 6% y-o-y or 4,769 K units.

3-month M oving avg.

S eas onally Adjus ted

Page 23

Asian Consumer Digest Auto

Chart 9: Kia Motors – global utilization rates vs. OP

% 120 100 80 60 40 20 0 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09

Bn KRW 500 400 300 200 100 0 (100) (200) 4Q09

On the back of a stronger won, investors are still concerned over Korean car exporters’ earnings prospects for this year. While uncertainties persist, we believe that market will gradually realize the growth in demand is a more decisive factor in determining Kia’s earnings, than any potential impact from the appreciation of the local currency. As seen from the chart, tracking Kia’s OP on a quarterly basis against the utilization rates, it is clear that the two rise and fall almost hand in hand. In fact, the weakening KRW has been a primary gauge of Kia’s earnings over the years, a driver of auto stock prices in South Korea.

Utilization(LHS ) Operating inc ome(RHS )
Chart 10: Malaysia – SAAR monthly vehicle sales

70,000 60,000 50,000 40,000 30,000 20,000 10,000 0

S AAR Auto S ales

DBS bank is projecting 5% GDP growth for Malaysia in 2010 vs. 2.8% contraction in 2009. This augurs well for consumer spending, and Malaysian auto companies are likely beneficiaries. However, TIV (total industry vehicle) had already rebounded since 2Q09, and had set a higher base in 2009, for 2010. After the strong sales volume growth of more than C.15% in 1Q10, we expect growth to slow from 2Q10. For the full year, we estimate a conservative TIV growth of 2.4%, bringing total vehicle sales to 533K.

Ja n07

Ja n06

Ja n05

3-month M oving avg.

S eas onally Adjus ted

Page 24

Ja n10

Ja n08

Ja n09

Asian Consumer Digest Food & Beverage

SUB SECTOR - FOOD & BEVERAGE

Page 25

Asian Consumer Digest Food & Beverage

FOOD & BEVERAGE
Titus Wu, titus_wu@hk.dbsvickers.com Alice Hui, alice_hui@hk.dbsvickers.com Nalyne Viriyasathien, nalynev@th.dbsvickers.com • As the peak season draws near, we expect soaring beverage sales to be growth propellers for the F&B sector Intense competition helps to expand the market size for beverages We like market leaders and niche-players in China Top picks: China Foods (506 HK, TP HK$7.9); Want Want (151 HK, TP HK$6.5).

• • •

In terms of concerns on material prices, we do not expect substantial cost pressures in 2010. Given sufficient supply from Brazil, concerns on sugar price increase should ease. As prices of PET and aluminum are likely to stay stable, increase in packaging material costs would also be limited. Hence, we think that the possibility of margin squeeze from higher material costs should be low for most F&B players in 1H10. Top picks: China Foods (506 HK) and Want Want (151 HK) We believe China’s promising beverage market should remain the focus of most investors. Our preference is for the leaders or niche-players among beverage operators. We continue to favour China Foods for its Coke beverage business. Leveraging on its leading share and extensive market presence, it would be a key beneficiary of soaring demand in China. Its established capacity and brand awareness would also provide stronger bargaining power with suppliers and customers, which should help to maintain margins. We like Want Want for its smart niche-positioning in the beverage market and expect its distinctive pocket-sized drinks products to further drive market share. More importantly, Want Want should continue to enjoy a higher profitability against peers attributable to its more effective marketing spending (c.3% A&P/sales compared to c.1015% of others). Hence, our top picks are China Foods and Want Want, with BUY ratings and target prices of HK$7.90 and HK$6.50 respectively. Catalyst: Drought in China might help beverage sales With a lower exposure in terms of manufacturing facilities in Southwestern China, the production of major F&B players should seldom be affected by the drought in that region. On the other hand, the worsening drought affecting 60m people there could possibly drive market demand for beverages, hence providing more room for growth among F&B players. Despite sympathy for the disaster, the beverage market could be a beneficiary in Q2 2010.

Peformance review: Look out for peak season beverage sales in Q2 In the latest result season, most F&B companies posted decent FY09 performances for both topline growth and margin improvements. However, share price performances were relatively lackluster in recent months as valuations were thought to be rich. Nevertheless, as the peak season for beverage sales in Q2 draws near, the booming beverage market, especially the China market, would be in focus. Meanwhile, the beverage businesses are already sustainable key growth drivers for certain leading F&B players like Tingyi (322 HK), China Foods (506 HK) and Want Want (151 HK). Industry outlook-Competition helps enlarge the pie We expect the beverage players to deliver strong topline growth in 1H10 given swelling market demand as well as relatively low base in 1H09. Meanwhile, competition is intensifying stemming from rising budgets on advertising & promotions and distribution network expansion of major players for market share in Asia. Additionally, it’s noticed that more F&B players are expanding their product lines, and competing more extensively across various sub-segments of the beverage market. For example, Coke launched the “Pulpy Super Milky” products, targeting the prosperous dairy juice market in China, currently dominated by Wahaha. Huiyuan (1886 HK) also launched a hybrid sparkling juice product in an effort to expand its market share in China’s juice drink market. More players and products help to accelerate market size expansion, which should benefit all players.

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Asian Consumer Report Food & Beverage

Earnings Valuation
Market Cap (US$m): 49,182 Operating Profit (US$ m) 1,101 1,426 1,485 2,580 3,101 3,710 OP Chng (1Q) (%) -2.9 -3.1 Pre-tax Profit (US$ m) 1,200 1,449 1,448 2,636 3,128 3,789 Net Profit Bef EI (US$ m) 823 1,032 1,000 1,862 2,241 2,670 EPS Chng (1Q) (%) -2.0 9.2

2006A 2007A 2008A 2009E 2010F 2011F

Sales (US$ m) 16,251 20,130 25,163 27,397 31,695 36,530

YoY (%) 23.9 25.0 8.9 15.7 15.3

YoY (%) 29.5 4.1 73.8 20.2 19.6

YoY (%) 20.7 -0.1 82.1 18.7 21.1

EPS (US$) 0.02 0.02 0.02 0.04 0.05 0.06

YoY (%) 25.4 -3.1 86.1 20.4 19.1

2006A 2007A 2008A 2009E 2010F 2011F

EBITDA (US$ m) 1,815 2,205 2,319 3,510 4,115 4,780

OP Margin (%) 6.8 7.1 5.9 9.4 9.8 10.2

ROE (%) 15.0 13.3 20.9 21.1 21.9

Interest Cover (x) 10.5 12.2 10.1 19.2 24.6 44.0

Net Debt / Equity (x) 0.3 0.2 0.2 0.0 -0.1 -0.2

FCF (US$ m) -35 249 540 2,093 1,497 2,792

BPS (US$) 0.1 0.1 0.2 0.2 0.2 0.3

Dividend Yield (%) 1.00 3.40 1.65 1.95 2.16 2.64

PE (x) 59.8 47.7 49.2 26.4 21.9 18.4

P/B (x) 7.4 6.9 6.2 5.0 4.3 3.8

EV/EBITDA (x) 28.3 23.0 22.0 14.0 11.8 9.8

Stock Performance
Market Cap Brewers Kingway Brewery Tsingtao Brewery - H Food Products Charoen Pokphand Foods China Food China Green China Yurun Minor International Petra Foods Thai Union Frozen Products Thai Vegetable Oil Tingyi Holding Want Want China Soft Drinks China Mengniu Vitasoy Food Beverages Weight 1M Return 3M Excess Return 6M 12M 1M 3M 6M 12M BETA

375 3,435 3,447 2,242 1,139 5,088 957 415 1,039 367 14,152 10,111 5,607 808 49,182

0.8 7.0 7.0 4.6 2.3 10.3 5.4 0.8 2.1 0.7 28.8 20.6 11.4 1.6 100.0

6.9 4.1 2.0 -10.4 7.1 1.5 -12.4 -19.7 7.0 -4.6 4.3 9.0 8.5 -1.4 3.7

8.9 10.6 28.0 -9.3 7.7 12.5 -12.4 1.9 15.0 -2.4 10.6 14.4 13.2 15.5 11.1

30.5 30.4 65.9 5.0 48.9 53.0 -14.0 19.1 31.9 2.5 12.7 37.3 24.2 28.6 26.4

83.9 124.2 363.2 65.6 64.4 142.5 41.5 112.0 91.3 40.7 114.1 60.1 87.4 75.1 99.3

3.1 0.3 -1.7 -14.2 3.4 -2.3 -16.1 -23.4 3.3 -8.3 0.6 5.3 4.7 -5.2

-2.2 -0.5 16.8 -20.4 -3.4 1.4 -23.5 -9.2 3.9 -13.5 -0.5 3.3 2.0 4.3

4.1 4.0 39.5 -21.4 22.4 26.6 -40.4 -7.3 5.5 -24.0 -13.8 10.9 -2.3 2.1

-15.4 24.9 263.9 -33.7 -34.9 43.2 -57.8 12.7 -8.0 -58.6 14.8 -39.2 -11.9 -24.2

0.7 0.7 0.7 0.8 0.7 0.7 1.1 0.6 0.6 1.0 0.6 0.5 0.9 0.6 0.7

Financial Ratios
PE 2010F (x) Brewers Kingway Brewery Tsingtao Brewery - H Food Products Charoen Pokphand Foods China Food China Green China Yurun Minor International Petra Foods Thai Union Frozen Products Thai Vegetable Oil Tingyi Holding Want Want China Soft Drinks China Mengniu Vitasoy Food Beverages 42.0 33.6 10.5 22.6 14.5 20.6 15.3 17.0 8.6 7.2 31.1 26.0 23.5 22.4 21.9 2011F EPS Growth 2010F 2011F (%) 124.2 11.7 11.2 35.4 18.1 9.7 43.7 13.9 29.6 78.1 18.8 24.2 22.3 28.7 20.4 37.7 12.3 9.0 43.3 18.8 22.1 15.2 12.3 10.6 22.3 18.0 26.0 19.8 12.6 19.1 P/B 2010F (x) 0.9 5.1 1.9 2.8 2.6 4.0 2.2 2.0 1.6 2.1 8.2 8.6 3.7 4.7 4.3 2011F ROE 2010F (%) 2.3 16.3 19.3 13.2 19.4 21.1 16.2 12.2 20.5 31.4 28.5 35.8 17.1 21.3 21.1 2011F EV/EBITDA 2010F 2011F (x) 9.0 7.3 7.4 12.4 9.2 15.2 8.7 8.8 6.6 5.4 14.1 19.1 12.2 11.9 11.8 7.5 6.2 6.5 8.7 7.4 12.1 8.2 7.8 5.5 4.4 11.9 14.9 9.8 10.6 9.8 Dividend Yield 2010F 2011F (%) 0.0 0.5 5.2 1.6 1.8 1.3 2.0 3.2 5.7 7.3 1.6 3.2 0.8 4.0 2.2 0.0 0.6 5.7 2.4 2.1 1.6 2.3 3.2 6.4 8.9 1.9 4.1 1.0 4.2 2.6

30.5 30.0 9.6 15.8 12.2 16.9 13.3 15.1 7.8 5.9 26.4 20.7 19.6 19.9 18.4

0.9 4.5 1.7 2.5 2.3 3.4 1.9 1.9 1.4 1.8 7.0 7.6 3.2 4.4 3.8

3.1 15.9 18.8 16.8 19.9 22.0 15.5 12.9 19.1 33.4 28.5 38.9 17.7 22.9 21.9

Source: DBS Vickers

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Asian Consumer Digest Food & Beverage

Section B: Macro radar
Chart 01: F&B Sales Above Designated Size Enterprise* in China
RMB mn 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 Sep-07 Sep-08 Mar-07 Mar-08 Mar-09 Sep-09 Mar-10 0 Dec-07 Dec-08 Dec-09 Jun-07 Jun-08 Jun-09 Yoy growth 60% 50% 40% 30% 20% 10% 0% -10% -20%

Positive expectations on sales growth in 1H10. Growth for F&B retail sales grew solidly by 18.4% in Q110 in China. We expect a decent sales y-o-y growth in 1H10 partly due to the lower base in 1H09.

F &B

y -o-y Growth

Source: National Bureau of Statistics of China *Note: Refers to enterprises with sales revenue of >RMB5m.
Chart 02: Beverage sales Above Designated Size Enterprise in China

RMB mn 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Feb-07 May-07 Feb-08 May-08 Feb-09 May-09 Aug-07 Nov-07 Aug-08 Nov-08 Aug-09

Yoy growth 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% Nov-09 Feb-10

Growth momentum intact. Beverage sales growth remained strong in FY09, and expected to be sustainable in coming years.

Bev erage

y -o-y Growth

Source: National Bureau of Statistics of China
Chart 03: CPI of Food Items in China
Index 140 120 100 80 60 40 20 Mar-07 Mar-08 Mar-09 Mar-10 Sep-07 Sep-08 Dec-07 Dec-08 Sep-09 0 Dec-09 Jun-07 Jun-08 Jun-09

5.1% increase in 1Q10. CPI for food continued to post higher yo-y growth than the other categories in 1Q10, partly driven by abnormal weather this year.

Source: National Bureau of Statistics of China

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Asian Consumer Report Food & Beverage

Chart 04: Food Items sales in HK
HKD mn 3,000 2,500 2,000 1,500 1,000 500 0 Feb-07 Feb-08 Feb-09 May-07 May-08 May-09 Nov-07 Nov-08 Aug-07 Aug-08 Aug-09 Nov-09 Feb-10 Yoy 50% 40% 30% 20% 10% 0% -10% -20%

16% surge in Jan-Feb10. Food retail sales increased by 16% y-o-y in Jan-Feb10, which could be a positive indication of improving consumer sentiment in Hong Kong

F ood, Alcoholic Drinks and Tobacco y -o-y Growth

Source: Census & Statistics Dept, HKSAR
Chart 05: Soda beverage sales in Thailand
m liter 250 200 150 100 50 0 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 y -o-y growth 20% 15% 10% 5% 0% -5% -10% -15% -20%

Stagnant sales trend. Soda beverage sales in Thailand were relatively flat YTD.

Sales v olume

growth

Source: Ministry of Commerce and Department of Internal Trade of Thailand
Chart 06: Food & Beverage sales index in Singapore

Index 200 180 160 140 120 100 80 60 40 20 0 Feb-06 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10

Decline in Jan due to high base from Chinese New Year in 2009. F&B sales index in Singapore declined by 33% yoy in Jan. This occurred as Chinese New Year fell in mid-Feb in 2010. We believe F&B sales index should deliver a strong yoy surge like back in 2007 in subsequent months, which was proven by the 72% surge in Feb10. Looking forward, we expect to see growth resulting from better economic outlook, higher tourist arrivals and a low base last year.

Source: CEIC

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Asian Consumer Digest Food & Beverage

Section C: Raw Materials prices
Chart 07: Sugar (ZCE) 10% drop since its peak. Sugar price dropped by over 10% from its peak in Feb10 due to increasing production in Brazil. Thus the impact of drought in Southwestern China should be offset by sufficient global supply. Going forward, we expect limited upside for sugar prices.

RMB/ton 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10

Source: CEIC
Chart 08: Crude Palm oil ( KLCE )

MYR/ton 4,800 4,200 3,600 3,000 2,400 1,800 1,200 600 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10

Remained stable. The price of crude palm oil remained largely stable since 1H09. Give still sufficient supply, we expect the price to stay around 2400 MYR/ton in FY10, which would benefit instant noodle players like Tingyi.

Source: CEIC
Chart09: Orange Juice ( NYCE )

USD/ton 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09

Still tight supply. Price of orange juice had more than doubled since the beginning of FY09, due to the decreased production in US and Brazil. Given still tight supply this year, the price of orange juice might continue to climb up in FY10, affecting juice producers like Huiyuan, Tingyi and China Foods.

Source: CEIC

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Asian Consumer Report Food & Beverage

Chart 10: Consumer-pack Rice in China

RMB/KG 4.8 4.6 4.4 4.2 4.0 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10

Mild incline trend. Price of rice has been climbing up mildly in the past several years. Given a relatively stable and sufficient domestic supply, the uptrend is largely due to Government’s intention to raise the income of farmers, and is anticipated to continue to rise in the coming years, affecting some snack players like Want Want. However, as the absolute leader in rice cracker market, Want Want is expected to be able to pass on the cost to consumers.

Source: CEIC
Chart 11: Wheat in China ( ZCE)

RMB/ton 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10

Similar uptrend to that of rice. We believe it is almost the same case for wheat prices to that of rice in China and we expect the mild uptrend to sustain in coming years and affecting bakery producers like Tingyi. However, given the small portion of bakery to its business portfolio (3%), we believe the impact on Tingyi would be minimal.

Source: CEIC
Chart 12: Pork in China

RMB/KG 30 25 20 15 10 5 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10

Relatively stable pork price. The pork price in China remained largely stable since mid-09. Given healthy livestock levels nationwide, we do not expect a substantial surge in pork prices in FY10. In fact, the pork price declined by more than 15% since the beginning of this year, and the government has just decided to purchase 50k tons of frozen pork from the market to help stabilize the pork price. Thus, the relative stable to lower price of pork this year should be positive for meat processors like Yurun (1068 HK).

Source: Ministry of Commerce of China

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Asian Consumer Digest Food & Beverage

Chart 13: PET & Crude Oil

US cents/LB 100 95 90 85 80 75 70 65 60 55 50 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10

US/B 160 140 120 100 80 60 40 20

PET prices remained stable. PET prices move largely in tandem with the trend of crude oil. As we expect crude oil price to stay around 80 US$/barrel in FY10, PET prices would remain largely stable this year.

PET & Intermediates DOM SBM DEL C/LB Crude Oil-Brent Cur. Month F OB U$/BBL

Section D: Regional Comparisons
Chart 14:: F&B sales growth in China, HK, and Singapore
80% 60% 40% 20% 0% -20% -40% Oct-08 Oct-09 Jan-08 Jan-09 Apr-08 Apr-09 Jan-10 Jul-08 Jul-09

Source: CEIC

Strong growth momentum for all markets. China, HK, and Singapore all posted strong growth of F&B sales in Jan-Feb10. However, the trend clearly shows that growth in China has superseded more mature markets like Singapore and HK in the past several years.

China

HK

Singapore

Chart 15:: CPI of food in China, HK, Thailand and Singapore
125 120 115 110 105 100 95 90 Oct-08 Oct-09 Jan-08 Apr-08 Jan-09 Apr-09 Jan-10 Jul-08 Jul-09

Soaring CPI in China. Since mid-09, CPI of food in China posted the strongest growth amongst major markets in Asia partly due to extremely abnormal weather conditions during that period. For Singapore, the CPI should creep up to follow the other countries given that it imports most of its food items. CPI of food in Thailand is rising led by the meat products price hike due to supply cut and recovering consumption.

HK Thailand

Singapore China

Source: CEIC

Page 32

Asian Consumer Digest Healthcare

SUB SECTOR - HEALTHCARE

Page 33

Asian Consumer Digest Healthcare

HEALTHCARE
Andy Sim, andysim@dbsvickers.com Juliana Ramli, juliana@hwangdbsvickers.com.my Nalyne Viriyasathien, nalynev@th.dbsvickers.com • Singapore counters outperformed on Fortis Healthcare’s premium valuation paid for 23.8% stake in Parkway Operations should continue to pick up on rising visitor arrivals, economic recovery Positives priced in with Singapore counters trading near or above average valuations Key pick – Faber Group (TP: RM$3.55)

drawn foreign patients back. We expect strong earning growth from Bumrungrad in 1Q10 as patient volumes is expected to grow 5% y-o-y, while revenue per head increased 6% y-o-y in 1Q10, led by higher intensity treatments (+4%) and an increase in average price (+2%) since the beginning of the year. However, we expect 2Q10 to contract due to rising political uncertainties in Thailand, but the degree would depend on how long the demonstration lasts. Action/ Key Pick: Faber Group is our key pick. Faber is an underappreciated, well-managed GLC which is 34%-owned by Khazanah Nasional. It trades at CY11F PE of 7.6x (ex-cash) on the back of 10.6% 3-year EPS CAGR in spite of a regulated concession business, 1.3x FY11F BV, with ROEs of c.19-20% and strong balance sheet (net cash 34.5 sen per share). It is also a proxy to the resilient healthcare industry where the renewal of its concession in Oct 2011 will give another 15 years of solid earnings visibility, in our view. Meanwhile, its strong franchise locally has enabled it to export its expertise overseas to two key markets – Middle East and India. Maintain FV on Parkway on premium valuations. Valuation gap has widened on optimism of Singapore counters with FHG’s investment in Parkway. On the other hand, political concerns in Thailand continue to cap gains for Thai players. We believe valuations for Parkway have priced in its positives, along with strong response to the sale of its medical suites. We maintain our Fully Valued call and TP at S$2.. FHG has increased its stake in Parkway to 24.8%, from 23.8%, from open market purchase. We believed this could be the support for Parkway’s share price in recent weeks. At this point, a move towards a general offer looks remote in our view. Catalyst: In 2Q, we should see lots of market talk on the strong take up of Parkway’s medical suites and the expected launch of subsequent phases. We have assumed an ASP of S$4,000 psf for the whole project. The market is generally expecting a price of about S$3,800 psf, which we believe has been priced in. However, if this exceeds expectations by a wide margin (ie north of S$4,000 psf), we will be proven wrong and will be a positive catalyst to the share price. Rising political tension in Thailand remains the key risk for Bumrungrad Hospital as over 50% of its top line contribution is from foreign patients. Local patients volume is also impacted, as the red shirts demonstration in central of Bangkok is where the Bumrungrad hospital is located, causing local patients to seek treatment at other hospitals. Entering Apr10, patient volume is starting to soften with a slight negative y-o-y growth.

• • •

Performance review: Boosted by new substantial shareholder paying premium valuations for Parkway. Singapore Healthcare players posted strong share price gains, with Fortis Healthcare’s (FHG) acquisition of Texas Pacific Group’s (TPG) 23.8% stake in Parkway at S$3.56/share or 14% premium to last closing price before the announcement. This lifted optimism on other healthcare players, such as Raffles Medical, which together with its strong 4Q09 results rose c.25% in Mar. We had upgraded Raffles Medical to Buy with a TP of S$1.75 on 2 Mar. Share price of Bumrungrad Hospital, on the hand, stayed relatively flat versus its Singapore peers due to political concerns arising from rally by the “red shirts”. Industry outlook: Admissions expected to trend up, but within estimates. Private hospital admissions in Singapore saw a strong surge in Jan with a 10.7% yoy growth, which seems to be backed by the recovering economy as well as a low base effect in Jan’09. Lunar New Year occurred in Jan last year. Traditionally, locals shun hospitals during the festive season. Operationally, we expect to see continued uptick in hospital admissions along with firmer signs of the economic recovery. Earnings growth in 2Q but do not expect significant upward earnings forecast revision, if any. We expect to see earnings growth for Parkway Holdings and Raffles Medical, especially in 1Q10 results. But, we believe it should fall within our expectations. We expect newsflow on strong sales of Parkway’s Novena medical suites, but we believe this has been largely priced in. 1Q10 patient volume in Thailand remains strong, but 2Q10 should weaken. Patient volume has been improving during Jan-Mar10 due to recovering economy and easing political uncertainties at the beginning of the year have

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Asian Consumer Digest Healthcare

Earnings Valuation
Market Cap (US$m): 4,202 Operating Profit (US$ m) 197 208 202 225 272 369 OP Chng (1Q) (%) 16.8 -11.2 Pre-tax Profit (US$ m) 173 375 173 243 280 378 Net Profit Bef EI (US$ m) 119 170 150 173 209 286 EPS Chng (1Q) (%) -8.3 -14.1

2006A 2007A 2008A 2009E 2010F 2011F

Sales (US$ m) 1,162 1,233 1,298 1,415 1,584 1,880

YoY (%) 6.1 5.3 9.0 12.0 18.6

YoY (%) 5.6 -3.1 11.7 20.6 35.8

YoY (%) 116.8 -53.9 40.7 15.3 34.8

EPS (US$) 0.03 0.04 0.04 0.04 0.05 0.07

YoY (%) 43.4 -11.7 14.8 21.0 37.1

2006A 2007A 2008A 2009E 2010F 2011F

EBITDA (US$ m) 269 304 274 312 360 462

OP Margin (%) 17.0 16.9 15.5 15.9 17.1 19.6

ROE (%) 24.7 14.0 11.9 12.9 15.9

Interest Cover (x) 10.8 11.3 18.0 44.4 52.9 73.0

Net Debt / Equity (x) 0.5 0.1 0.4 0.3 0.2 0.2

FCF (US$ m) 108 456 -849 169 68 181

BPS (US$) 0.2 0.3 0.5 0.6 0.6 0.7

Dividend Yield (%) 2.97 3.99 1.22 1.10 2.47 3.50

PE (x) 35.4 24.7 27.9 24.3 20.1 14.7

P/B (x) 7.3 5.3 3.1 2.7 2.5 2.2

EV/EBITDA (x) 16.6 14.0 17.1 14.7 12.7 9.7

Stock Performance
Market Cap (US$) 677 262 2,636 627 4,202 Weight 16.1 6.2 62.7 14.9 100.0 1M -3.2 0.4 -3.5 0.6 -2.6 Return 3M 3.4 42.3 21.9 25.2 20.0 Excess Return 6M 7.1 125.2 31.0 24.3 28.7 12M 24.5 139.2 195.6 83.7 122.8 1M -0.6 3.0 -0.9 3.2 3M -16.5 22.3 1.9 5.2 6M -21.6 96.5 2.3 -4.4 12M -98.3 16.4 72.8 -39.1 BETA 0.8 1.7 1.2 0.6 1.1

Bumrungrad Hospital Faber Group Parkway Raffles Medical Healthcare Equipment & Svs

Financial Ratios
PE 2010F (x) 15.6 9.7 25.1 18.9 20.1 2011F 15.0 8.8 15.4 15.5 14.7 EPS Growth 2010F 2011F (%) 17.2 4.0 14.2 9.9 24.9 62.5 20.0 21.9 21.0 37.1 P/B 2010F (x) 3.5 1.8 2.3 3.1 2.5 2011F 3.1 1.6 2.1 2.7 2.2 ROE 2010F (%) 23.9 20.3 9.4 17.2 12.9 2011F 22.1 19.0 14.0 18.6 15.9 EV/EBITDA 2010F 2011F (x) 8.7 8.2 4.3 3.6 17.3 11.8 12.3 9.6 12.7 9.7 Dividend Yield 2010F 2011F (%) 3.3 3.5 2.0 2.2 2.3 3.7 2.0 2.3 2.5 3.5

Bumrungrad Hospital Faber Group Parkway Raffles Medical Healthcare Equipment & Svs

Source: DBS Vickers

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Asian Consumer Digest Healthcare

Section B: Charts
Chart 1: Share price performance YTD
70% 60% 50% 40% 30% 20% 10% 0% J an-10 -10% -20% Parkway Raffles Medical Bumrungrad Faber

Faber the star, up >40% YTD. The market has started to realize Faber's potential following its sterling 4Q09 results, which was driven by the overseas business. This had led in share price to jump by 41% YTD. However, we think it is still early days. It still trades at compelling CY11F PE of 7.3x (ex-cash) and 1.3x FY11F BV. The announcement of Fortis Healthcare Group as a new substantial shareholder at S$3.55/share on 12 Mar provided catalyst for the Parkway and Singapore healthcare players. Bumrungrad has underperformed, in part due to political uncertainty, which is expected to affect foreign patient admissions. Recently, we noticed more interest
F eb-10 Mar-10 Apr-10

in smaller hospital players such as Raffles Medical given its robust growth profile, and as investors look for alternatives to Parkway due to its high valuations.

Source: Bloomberg

Chart 2: Singapore Private Hospital Admission & yoy growth (%)
Adm (000's) 10 Singapore Priv ate Hospital Admission & y oy growth (%)

10.7% growth in Jan on low base. Private hospital admissions in
y oy gth (%) 15% 10%

Singapore surged by 10.7% in Jan on recovering outlook, coupled with a low-base effect last year. The Lunar New Year fell in Jan in 2009, but was in Feb in 2010. Traditionally, locals avoid hospital admissions during the festive season. Going forward, we expect to see some moderation in Feb, but upside trend is expected to continue. In recent discussions with local healthcare operators, they continue to remain optimistic and believed the worst is over .

9 5% 8 0% -5% 7 -10% 6 J an-05 -15% J an-10

J an-06

J an-07

J an-08

J an-09

Pte Sector Hospital Adm (000's)

Source: Singstats

Pte Hos Adm y oy gth (%) [RHS]

Chart 3: Singapore & Thailand Visitor Arrivals
V isitor arriv als (000s) 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0
Ja n06 ay -0 6 Se p06 Ja n0 M 7 ay -0 7 Se p0 Ja 7 n08 M ay -0 8 Se p08 Ja n0 M 9 ay -0 9 Se p09 Ja n10

y oy gth (%) 60% 50% 40% 30% 20% 10% 0% -10% -20% -30%

Strong growth in Jan, but could see moderation in Thailand in 1Q’10. Visitor arrivals are picking up from the low achieved in May’09. Based on Jan’10 figures, visitor arrivals continued its uptrend. We believe the strong surge in Singapore’s visitor arrivals resulted partly from the opening of the Resorts World Sentosa (RWS). In Thailand, visitor arrivals started to turnaround since Sep 09 along with pick up in travel demand amid economic recovery and also resulting from a low base effect in 4Q08 where there were yellow shirts rally and forced airport closure. Feb10 visitor arrivals continued to improve, jumping 41% y-oy to 1.6m. But, with the red shirts rally now ongoing again, we expect a moderation of visitor arrivals into Thailand at least in Apr-May10, which may impact international patient admissions in 2Q10.

M

SGP visitor arrivals (000's) SGP visitor arrivals y oy gth (%)

TH visitor arrivals (000's) TH visitor arrivals yoy gth (%)

Source: CEIC, Bank of Thailand, STB, DBSV ickers

Page 36

Asian Consumer Digest Healthcare

Chart 4: Quarterly revenue growth
Gth y oy (%) 35% 30% 25% 20% 15% 10% 5% 0% -10% -15% -20% Raffles Medical Parkway Bumrungrad Hospital
1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 4Q 09

Rev enue growth y oy (%)

Revenue growth picking up on sequential basis. We are witnessing yoy revenue growth for the companies picking up speed since 4Q09, as a result of further signs of economic recovery and due to low base effect in 4Q08 (during the onset of the financial crisis). Noteworthy is the pick up in revenue growth by Raffles Medical and Bumrungrad, which registered a 4Q growth of above 10%, as a result of a pick up in their respective domestic markets. Parkway’s revenue also grew by c.9% in 4Q, led by its international operations and Singapore healthcare division.

-5%

Source: Companies, DBSV ickers

Chart 5: PBIT trends, 4qtrs moving average
PBIT margin (%) 25.0 20.0 15.0 10.0 5.0 0.0
1Q 05 3Q 05 1Q 06 3Q 06 1Q 07 3Q 08 3Q 07 1Q 09 1Q 08 3Q 09

PBIT margin (%) Mov ing Av erage (4qtrs)

Margins show stable or upward trend, with Raffles Medical outperforming others. The moving average operating margins trend shows divergence in margin trend, particularly between Parkway and Raffles Medical. Raffles Medical continued their upward moving average trend in 4Q09 as operations grew and the Group registered a robust 4Q topline growth of 13%. Parkway’s margins, on the other hand, dipped slightly with stronger contributions from its international hospital and Singapore healthcare operations, which have lower margins vis-à-vis its Singapore hospital operations.

Raffles Medical

Parkway

Bumrungrad Hospital

Source: Companies, DBSV ickers

Chart 6: Parkway Revenue per Adjusted Patient Day
Net rev enue PAPD (S$) 2,000 1,500 1,000 500 0
09 08 08 07 07 07 07 08 08 09 09 2Q 1Q 2Q 3Q 4Q 1Q 3Q 4Q 1Q 2Q 3Q 4Q 09

Parkway’s PAPD relatively stable yoy. In 4Q09, Parkway’s revenue per adjusted patient day (PAPD) in Singapore dipped marginally by 5% on a qoq basis to S$1,811, but registered a marginal increment of 0.6% on a yoy basis. The qoq drop probably reflects the seasonality where doctors scale back on higher revenue intensity surgeries during the year-end holiday season. Going forward, we believed PAPD should show some upward trend as the economy recovers.

SGP Net Rev enue PAPD (S$) SEA Net Rev enue PAPD (S$) South Asia Net Rev enue PAPD (S$)

Source: Company, DBSV ickers

PAPD = Per Adjusted Patient Day

Page 37

Asian Consumer Digest Healthcare

Chart 7: Parkway SGP Admissions, Day cases, Avg Occupancy
Cases 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 Occupancy (%) 68% 66% 64% 62% 60% 58% 56% 54% 52%

Inpatient admissions offset partially by day cases. Occupancy for Parkway’s Singapore hospitals reached c.58% in 4Q09. This arose from seasonality, as doctors, and patients alike, scaled back on nonurgent surgeries in view of the holiday season. This was however partially offset by higher day surgeries performed.

Source: Company, DBSV ickers
Chart 8: Bumrungrad Hospital Inpatient & Outpatient Admissions

1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 4Q 09
Parkway SGP admissions Av g Occupancy (%) [RHS] No. of day cases

'000 patients 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09

'000 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0

Higher international patient volume. International patient volumes had been falling y-o-y since the start of 2009 amid the global downturn and political tension in Thailand. But it grew y-o-y for the first time in 4Q09 following six consecutive quarters of declines. Foreign outpatient volume jumped 10% y-o-y and 5% q-o-q to 101,820 patients, while inpatient volume jumped 13% and 12% qo-q to 3,346 patients, in 4Q09. This was attributed to easing political tension in Thailand, while the global economic recovery also triggered a recovery in the number of patients. However, Thai patient volume remained flat in 4Q09. But we expect volume of Thai patients to improve gradually following BH’s ongoing marketing campaign and exhibitions, and the success of its ‘Healthy Living Club’ customer loyalty program.

OPD

IPD (RHS)

Chart 9: Bumrungrad Hospital Revenue per patient head

'000 patients 46,000 44,000 42,000 40,000 38,000 36,000 34,000 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09

'000 5,400 5,200 5,000 4,800 4,600 4,400 4,200

Growing revenue per patient. Revenue per head at Bumrungrad grew 8% y-o-y for Outpatient and 9% for Inpatient in 4Q09, led by higher intensity treatments (+6%) and an increase in average price (+2%) since the beginning of the year (Medical service fee is set to increase 2% p.a.).

Inpatient

Outpatient (RHS)

Page 38

Asian Consumer Digest Media

SUB SECTOR - MEDIA

Page 39

Asian Consumer Digest Media

MEDIA
Andy Sim, andysim@dbsvickers.com Mavis Hu, mavis_hui@hk.dbsvickers.com Chirasit Vuttigrai, chirasit@th.dbsvickers.com • General expectation is for advertising revenue to pick up further during the year on the back of economic recovery • Events such as the World Cup, World Expo and Integrated Resort opening in Singapore should fuel spending • Escalation of political tension in Thailand could weigh down on consumer sentiment there • Pico Far East is our top pick for its earnings rebound and potential re-rating Performance review: Astro outperformed on privatization offer. Share price of the regional media counters under coverage were generally flat YTD. The significant outperformance was from Astro, which received a privatization offer at RM4.30/share from its major shareholders and parties acting-in-concert. Industry outlook. In Singapore, we expect media spending to pick up steam in ensuing quarters. This is on the back of further recovery in the economy, coupled with more media-worthy activities ahead. In particular, we have the opening of the second integrated resort (Marina Bay Sands), Great Singapore Sale, Youth Olympics, additional retail space, property launches etc. The upward revision of Singapore Ministry of Trade & Industry’s (MTI) official GDP forecast to 7%-9%, following a strong 1Q10 growth, should spur consumer sentiment and further add to media spend. Following the economic recovery, Thailand’s overall monthly ad spending growth has turned positive since Aug 2009. The y-o-y growth accelerated in 4Q09 due to a low base effect. The momentum remained strong with ad spending growth of 9% in 2M10. This is pretty much in line with our forecast of 8-10% in 2010, after a contraction of 1.9% in 2008 and 0.7% in 2009. In our view, the market focus is now on companies which are likely to report strong 1Q10F results. MCOT’s 1Q10F earnings should be outstanding.

Adspend in Hong Kong is expected to post a solid rebound, growing double-digit y-o-y in 1H10 along with economic recovery from a low base. However, operating environment for the print sector could stay competitive, amid more players from free newspaper operations since a few years back as well as the rise of successful free dailies such as "Headline Daily" operated by Sing Tao [1105 HK]. China has seen relatively more resilient performance in the media sector, with adspend rising c.13.5% y-o-y in 2009 and continues to grow at a double-digit rate YTD, amid government stimulus packages to sustain domestic consumption, thus prompting advertisements. Action/ Key Pick: Our top pick is Pico Far East on the back of its earnings rebound and potential re-rating opportunity. We believe the market has yet to fully price in its strong earnings growth. We expect to see a 44% jump in earnings in FY10F after a 27% decline in FY09. The impending World Expo in Shanghai, new integrated resort facilities in Singapore and numerous mega events should spur growth. Over the years, Pico’s share price has peaked at >20x forward rolling PE and c.4x P/B. Currently, the stock is trading at c.11x PE and offers a 5% yield underpinned by its c.HK$500m net cash position, and see ample room for re-rating of our TP of HK$1.97. Catalyst: Tension in Thailand, World Expo in Shanghai The political tension in Thailand could weigh as a negative catalyst. A prolonged tension in the current episode could weigh down further on sentiment, and in turn, affect media spend in 2Q, which is traditionally a high season. Impending Expo event in China, which last for 6 full months from May to Oct 2010, should drive adspend growth in Shanghai and peripheral areas this year. On the other hand, the situation was a replicate of 2008 Beijing Olympics, whereby selective outdoor media such as billboard and LED advertisements have been cleared and banned from operations as the government cleans up the streets of clutter in Shanghai.

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Asian Consumer Digest Media

Earnings Valuation
Market Cap (US$m): 12,420 Operating Profit (US$ m) 816 913 985 944 1,077 1,068 OP Chng (1Q) (%) 13.9 11.7 Pre-tax Profit (US$ m) 907 994 907 650 1,033 994 Net Profit Bef EI (US$ m) 695 823 810 659 790 764 EPS Chng (1Q) (%) 0.0 11.7

2006A 2007A 2008A 2009E 2010F 2011F

Sales (US$ m) 3,124 3,385 3,739 3,744 4,000 4,165

YoY (%) 8.3 10.5 0.1 6.8 4.1

YoY (%) 11.9 7.9 -4.2 14.1 -0.8

YoY (%) 9.6 -8.7 -28.3 59.0 -3.8

EPS (US$) 0.06 0.07 0.07 0.05 0.06 0.06

YoY (%) 18.4 -1.5 -18.7 19.8 -3.3

2006A 2007A 2008A 2009E 2010F 2011F

EBITDA (US$ m) 1,015 1,132 1,224 1,206 1,377 1,357

OP Margin (%) 26.1 27.0 26.3 25.2 26.9 25.6

ROE (%) 21.1 20.3 17.3 20.9 19.4

Interest Cover (x) -16.1 -8.0 -22.3 16.4 231.9 43.2

Net Debt / Equity (x) -0.2 -0.3 -0.2 -0.1 -0.1 -0.1

FCF (US$ m) 646 802 728 460 618 799

BPS (US$) 0.3 0.4 0.3 0.3 0.3 0.4

Dividend Yield (%) 5.49 5.39 5.57 4.66 4.92 5.04

PE (x) 17.9 15.1 15.3 18.9 15.7 16.3

P/B (x) 3.3 3.1 3.1 3.4 3.2 3.1

EV/EBITDA (x) 11.5 9.9 9.5 10.0 8.9 9.0

Sto ck Perfo rm an ce
M a rk e t Cap (U S $ ) B ro a d ca stin g & E n te rta in m e n t A stro TV B BEC W orld M COT M ajor C ineplex M e d ia A g e n c ie s Pico Far East W orkpoint Ente rtainm ent P u b lish in g N e xt M edia SPH M e d ia 2,592 2,176 1,418 487 234 244 41 435 4,793 1 2 ,4 2 0 W e ig h t 1M R e tu rn 3M E xc e ss R e tu rn 6M 12M 1M 3M 6M 12M BETA

20.9 17.5 11.4 3.9 1.9 2.0 0.3 3.5 38.6 1 0 0 .0

-0.2 3.3 -2.5 -1.7 -5.0 13.4 -2.2 34.8 9.7 4 .8

30.9 5.3 -1.3 -2.6 -7.1 -1.2 -2.2 39.8 13.8 1 2 .5

24.0 1.6 10.3 0.4 12.6 5.2 0.8 46.6 9.5 1 1 .4

61.8 31.7 24.3 64.0 33.9 93.0 33.0 39.8 46.5 4 4 .5

-5.1 -1.6 -7.3 -6.6 -9.9 8.6 -7.0 29.9 4.8

18.4 -7.2 -13.8 -15.1 -19.6 -13.7 -14.7 27.3 1.3

12.6 -9.7 -1.0 -10.9 1.2 -6.1 -10.6 35.2 -1.9

17.3 -12.8 -20.2 19.5 -10.7 48.5 -11.5 -4.7 2.0

1.1 0.6 0.9 1.0 1.1 1.1 0.8 0.9 0.6 0 .9

Fin an cial R atio s
PE 2010F (x) B ro a d ca stin g & E n te rta in m e n t A stro TV B BEC W orld M COT M ajor C ineplex M e d ia A g e n c ie s Pico Far East W orkpoint Ente rtainm ent P u b lish in g N e xt M edia SPH M e d ia 29.3 16.8 14.9 11.1 16.5 10.6 11.5 12.5 13.4 1 5 .7 2011F E P S G ro w th 2010F 2011F (% ) 78.0 11.8 11.6 8.0 94.9 44.4 58.1 4.7 15.6 1 9 .8 -9.2 13.1 11.3 6.3 41.5 23.1 9.3 5.3 -17.3 -3 .3 P /B 2010F (x) 9.3 2.7 6.5 2.0 1.4 1.8 1.3 1.0 3.1 3 .2 2011F ROE 2010F (% ) 33.3 16.8 43.2 18.6 8.7 17.8 11.5 8.3 23.2 2 0 .9 2011F E V /E B IT D A 2010F 2011F (x) 11.1 8.8 6.7 5.0 5.4 4.7 4.0 6.3 10.4 8 .9 11.8 7.8 6.2 4.5 4.6 3.6 3.4 5.0 12.5 9 .0 D ivid e n d Y ie ld 2010F 2011F (% ) 2.4 3.7 5.9 9.3 5.5 4.8 5.8 0.0 6.5 4 .9 2.6 4.2 7.3 8.1 7.8 5.9 6.4 0.0 6.0 5 .0

32.3 14.8 13.4 10.4 11.6 8.6 10.5 11.9 16.2 1 6 .3

8.9 2.5 6.3 2.0 1.4 1.6 1.2 0.9 3.1 3 .1

28.1 17.7 47.8 19.2 12.2 19.9 12.0 8.0 18.9 1 9 .4

Source: DBS Vickers

Page 41

Asian Consumer Digest Media

Section B: Charts
Chart 1: GDP yoy growth
15.0 10.0 5.0 0.0 CN ID MY HK

Positive GDP growth a key proxy for media spending. After registering negative yoy growth for most part of 2009, all the countries shown are expected to revert back to positive growth. This reflects an improving economy and growing consumer sentiment.
TH

We expect the media industry to benefit from this trend as companies will look to increase their marketing budget in line with the growing optimism. Going forward, we expect confirmation of the sustainability of the recovery to further fuel media spending.

-10.0 -15.0 CN HK

Source: DBS

Chart 2: SGP - Newspaper Ad Spend chg (%) & GDP chg (%)
y-o-y chg (%) 30 Adex 20 10 0
1Q

ar -0 8 Ju n08 Se p08 De c08 M ar -0 9 Ju n09 Se p09 De c09 M ar -1 0 Ju n10 Se p10 De c10
-5.0 CN SG ID MY SG TH

M

Expect further rises in newspaper ad spend. With the strong GDP growth in 1Q10 and the government’s full year revision on growth, we expect newspaper ad revenue to pick up further from 1Q and register a high-teen yoy growth in 2Q before normalizing back nearer in 4Q.
GDP

(10) (20) (30)

Source: Singstats, Nielsen Media Research, DBS, DBSV ickers

Chart 3: SGP - Ad Spend by media types
S$m 250 200 150 100 50 0 J an08 Apr08 J ul08 Oct08 J an09 Apr09 Radio Cinema J ul09 Oct09 J an10

9 1Q 3 9 1Q 4 9 1Q 5 96 1Q 9 1Q 7 98 1Q 9 1Q 9 00 1Q 0 1Q 1 0 1Q 2 0 1Q 3 0 1Q 4 0 1Q 5 0 1Q 6 0 1Q 7 0 1Q 8 1Q 0 9 10 f

Adex yoy growth (%)

GDP yoy growth

Total Ad spend in Singapore should pick up. While total ad spend on all media types seems to be in state of decline after crossing S$200m mark in Nov’09, this is largely due to seasonality effects – companies tend to pace their marketing spend during the earlier parts of the calendar year. As expected, total ad spend grew by 17% yoy in Mar.

Newspapers Posters

TV Bus/Taxi

Magazines Internet

Source: Nielsen Media Research, DBSV ickers

Page 42

Asian Consumer Digest Media

Chart 4: SGP - Nielsen Media Display & Classified AdEx (excl. Today)
70 65 60 AdEx (S$m) . 55 50 45 40 35 30 Sep Oct Nov Dec J an F eb Mar Apr May J un J ul Aug Month F Y99 F Y09 F Y10 F Y99 (Trough) F Y09 F Y10

23% yoy growth for Mar

Display classifieds AdEx continue to register growth, in line with GDP. Singapore’s newspaper ad expenditure (AdEx) for display and classifieds for SPH papers in Mar'10 amounted to S$65m, a 23% increase yoy. The dip in Feb after the strong 26% yoy growth in Jan, was due to the Chinese New Year seasonality. Traditionally, ads do taper off during the CNY week. CNY fell on 14 Feb this year, while it occurred on 26 Jan in 2009. YTD (Sep-Mar period), AdEx registered a 8.9% growth. Seasonality aside, we expect to see sequential growth in AdEx in the ensuing months on the back of media activities (IR), Youth Olympic Games, property launches, and pick up in employment.

Source: Nielsen Media Research, DBSV ickers

Chart 5: SPH and FOEX newsprint costs
US$/mt 1000 900 800 700 600 500 400 300 J an-06

Newsprint creeping up towards US$600/mt. Newsprint spot price is
1000 900 800 700 600 500 400 300 J an-07 J an-08 J an-09 J an-10

rising from the low under US$500/mt towards US$580/mt due to rise in pulp price. This is, however, nowhere near the US$800/mt levels we saw back in late 2008. Newsprint accounts for c.16% of SPH’s total cost. Based on our model, a US$50 change in newsprint costs (all other assumptions constant) will impact SPH's bottomline in FY10F/11F by c.1.6%. We have assumed newsprint price of US$580/mt for FY10F and US$600/mt for FY11F. Note that SPH does 3-6 month forward purchase for its newsprint.

SPH newsprint charge out rate (US$/mt) FOEX Newsprint Spot Index (US$/mt)

Source: Bloomberg, Company

Chart 6: HK - Share of Ad Spend by Media types
Magazine 1 5% Outdoor 1% 1 Radio 5%

Steady ad spend growth in HK in 2010. Total adspend in Hong Kong went up 5.9% y-o-y to US$26.5bn in 2009. HK4As forecasted that media agencies would slowly increase their rate cards in 2010 and give less discounts after this year’s economic bounce. The association believes that 1H10 could see a double-digit adspend increase on a low base, while a steady growth could be seen for the full year of 2010.

Newspapers 30% Television 35% Digital 4%

Source: Association of Accredited Advertising Agencies (HK4As)

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Asian Consumer Digest Media

Chart 7: HK - 2009 Ad revenue growth by media types
%y-o-y 35 30 25 20 15 10 5 0 -5 -10
D ig ita N l ew sp ap er s Te le vi si on M ag az in e ut do or R ad io

Outdoor adspend registered strong 32% growth due to lower cost (in absolute terms) of advertising. In 2009, outdoor and radio adspend saw the best growth, up 32.4% and 27.0% respectively, followed by television (up 7%) and digital (up 7%). All figures include discounts offered by media agencies. The growth in outdoor and radio adspend was mainly attributable to budget cuts of marketers due to the high cost of other media including television.

Source: Association of Accredited Advertising Agencies (HK4As)

Chart 8: Thailand Consumer Confidence Index

O

120 110 100 90 80 70 60 50 40 2001 2002 2003 2004 CCI of Overall economy CCI of future employment CCI of future income 2005 2006 2007 2008 2009 2010
% 15 10 5 7 0 6 5 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Jan-07 Jan-08 Jan-09 Jan-10 Jul-07 Jul-08 Jul-09 -5 -10

Thailand’s Consumer Confidence Index (CCI) dropped from 79.3 in Jan 2010 to 78.4 in Feb, and further to 77.3 in Mar due to a concern on (i) political tension, (ii) high oil price and (iii) perceived high cost of living. In our view, the consumer confidence should soften further in Apr due to the escalated political tension.

Chart 9: Thailand Monthly Ad Spending

Btbn 9 8

Ad spending Growth y-o-y (RHS)

Thailand’s overall monthly ad spending continued to rise in Jan 2010 (5.7%) and Feb (10.7%). The overall ad spending growth of 9% in 2M10 is pretty much in line with our forecast of 8-10% in 2010. Although the ad spending would soften in Apr 2010 due to the escalated political tension, following the demonstration, we believe the growth y-o-y would remain in positive territory due to the low base effect.

Source: Nielsen Media Research, DBSV ickers

Page 44

Asian Consumer Digest Media

Chart 10: Thailand Ad spend market share by Channels

100% 80% 60% 40% 20% 0% Sep-07 Sep-08 May-07 May-08 May-09 Sep-09 Jan-07 Jan-08 Jan-09 Jan-10 TPBS NBT Ch9 Ch7 Ch5 Ch3

In line with the audience market share figures, the ad spending market share of BEC’s Ch3 improved in Jan and Feb 2010, while Ch7’s ad spending share softened during the same period. Also in line with the audience share numbers, ad spending market share of MCOT’s Ch9 softened slightly in Jan and Feb 2010.

Source: Nielsen Media Research, DBSVickers
Chart 11: Thailand Audience Market Share by Channels

100% 80% 60% 40% 20% 0% S e p-07 S e p-08 M a y-07 M a y-08 M a y-09 S e p-09 Ja n-07 Ja n-08 Ja n-09 Ja n-10 TPBS NBT Ch9 Ch7 Ch5 Ch3

BEC’s Ch3 gained audience market share in Jan and Feb to 32.2% and 30.0%, respectively. This was at the expense of Ch 7. Audience market share of MCOT’s Ch9 slightly softened in Jan (9.9%) and Feb (9.8%) 2010.

Source: Nielsen Media Research, DBSVickers

Page 45

Asian Consumer Digest Personal/Household Goods

SUB SECTOR – PERSONAL/ HOUSEHOLD GOODS

Page 46

Asian Consumer Digest Personal/Household Goods

PERSONAL/ HOUSEHOLD GOODS
Patricia Yeung, patricia_yeung@hk.dbsvickers.com Alice Hui, alice_hui@hk.dbsvickers.com Patrick Xu, patrickxu@dbsvickers.com • Urbanization and rising living standards will boost demand for high quality products with strong brand names Market leaders should be able to sustain margins on better cost control measures and bargaining power Prefer stocks with high cash levels in RMB and RMB revenue streams to benefit from interest rate hikes and RMB appreciation Action: BUY Hengan for its leading market position, strong balance sheet and sustainable profitability; HTL is another key pick.

to improvement in store performance. More effort is expected to be put in building brand equity, market positioning / differentiation and distribution network management. Business outlook for the broader export oriented household / personal goods manufacturers will hinge on various factors, including consumer sentiment in the US, economic recovery in the EU, raw material prices and appreciation of RMB. Action/ Key Pick: Our key pick for household / personal goods sector is Hengan, a market leader in personal care products (including sanitary napkins, diapers and tissues). Despite over 40% jump in wood pulp prices in the past year, Hengan was able to capitalize on its strong balance sheet and has stockpiled low cost inventory for production for at least 5 months. To further alleviate margin pressure from hike in raw material prices, sales promotion and discount activities will be reduced. In the light of rising living standards and disposable incomes in China, Hengan is launching more high end products to enrich its product portfolio and enhance its earnings quality. We also like HTL International for its exposure to the global recovery of consumer spending, especially in Europe and the US. With high correlation to housing starts, we expect sofa sales in Europe and the US to have bottomed out and are now on an upward trend, underpinning the company's earnings growth going forward. We appreciate the management's rich experience in the business, as evidenced by their nimble restructuring during the downturn, where less efficient operations were timely disposed of and business segments were vertically integrated. The counter is trading at 6x current P/E, whilst offering a decent yield of 5%. Catalysts: In 2Q, we expect market attention will shift to interest rate hikes in China and RMB appreciation. Investors may look for cash rich companies with upside from the RMB appreciation. Hengan is certainly on this list. It had net cash of over HK$2bn, a large part in RMB as at end-FY09. In addition, procurement of wood pulp is settled in US$. Hence, Hengan is a beneficiary of RMB appreciation. Hengan has underperformed the market by 10.2% in the past quarter. We believe it will catch up in 2Q given its solid fundamentals.

• •

Performance review: Share price performance of household / personal goods companies under our universe was a mixed bag in the past quarter. Most of the counters were driven by results, such as Li & Fung (up 18.4%), Li Ning (+27% from the trough) and Yue Yuen (up 20%). Texwinca also performed well with 18.2% gain on expectation of strong upcoming results after stronger-than-expected results from Giordano. On the other hand, worse-than-expected results from China Hongxing and China Sports International triggered selling pressure, pushing down their share prices by 43.7% and 45.8% respectively from recent peaks. Industry outlook. We believe domestic household / personal goods manufacturers will continue to benefit from supportive government policy in boosting domestic consumption as well as accelerating rate of urbanization. These, coupled with robust domestic economic growth, will enhance overall living standards, leading to stronger demand for household / personal goods. This view is enforced through the continuous uptrend in retail sales of daily use goods. In fact, retail sales growth of daily use goods has always been stronger than the overall retail sales growth in China. While rising raw material prices and labour costs are possible concerns, we believe market leaders with stronger bargaining power are in a better position to adjust selling prices. For sportswear brands in China, the market’s focus will likely be on the pace in which inventory within the distribution channels are cleared. This build up in inventory was the key problem for the slower growth by brand owners last year. After aggressive discounts, Nike is understood to have solved most of this problem, but Adidas is apparently still sitting on relatively high inventory. As for local players, market attention has now shifted from network expansion

Page 47

Asian Consumer Digest Personal/Household Goods

Earnings Valuation
Market Cap (US$m): 40,146 Operating Profit (US$ m) 1,042 1,346 1,470 1,753 2,159 2,701 OP Chng (1Q) (%) -0.8 -5.6 Pre-tax Profit (US$ m) 1,086 1,352 1,497 1,725 2,144 2,708 Net Profit Bef EI (US$ m) 963 1,135 1,227 1,560 1,881 2,347 EPS Chng (1Q) (%) 5.0 5.6

2006A 2007A 2008A 2009E 2010F 2011F

Sales (US$ m) 15,679 20,134 24,332 24,028 28,790 34,299

YoY (%) 28.4 20.9 -1.2 19.8 19.1

YoY (%) 29.2 9.2 19.3 23.1 25.1

YoY (%) 24.6 10.7 15.2 24.3 26.3

EPS (US$) 0.06 0.08 0.08 0.10 0.12 0.16

YoY (%) 17.8 8.1 27.1 20.6 24.7

2006A 2007A 2008A 2009E 2010F 2011F

EBITDA (US$ m) 1,367 1,659 1,906 2,253 2,686 3,281

OP Margin (%) 6.6 6.7 6.0 7.3 7.5 7.9

ROE (%) 20.3 17.6 18.7 19.7 22.1

Interest Cover (x) 18.6 13.7 12.2 19.2 19.6 25.4

Net Debt / Equity (x) 0.1 0.1 0.1 0.0 -0.1 -0.1

FCF (US$ m) -76 -204 -184 1,754 1,180 1,720

BPS (US$) 0.2 0.2 0.2 0.2 0.3 0.3

Dividend Yield (%) 1.38 1.75 1.80 2.22 2.80 3.56

PE (x) 41.7 35.4 32.7 25.7 21.3 17.1

P/B (x) 8.4 6.3 5.3 4.4 4.0 3.6

EV/EBITDA (x) 29.7 24.6 21.6 17.7 14.8 11.9

Stock Performance
Market Cap Clothing & Accessories Li & Fung Texwinca Durable Household Products HTL International Neo-Neon Footwear China Hongxing China Sports International Li Ning Yue Yuen Non-durable Household Products Hengan Ming Fai Pelikan International Household / Personal Goods Weight 1M Return 3M Excess Return 6M 12M 1M 3M 6M 12M BETA

18,578 1,467 256 657 316 89 3,911 5,694 8,764 209 205 40,146

46.3 3.7 0.6 1.6 0.8 0.2 9.7 14.2 21.8 0.5 0.5 100.0

4.8 1.9 -0.6 -2.9 0.0 3.7 8.0 0.9 2.0 62.9 -1.5 3.8

25.4 29.3 90.9 -11.2 -28.2 -24.3 29.0 8.0 14.0 103.4 2.3 19.2

14.7 17.3 100.0 6.2 -30.0 -22.2 37.8 25.5 14.1 150.4 4.2 17.8

94.8 87.8 441.9 197.8 3.7 45.8 97.7 58.5 90.1 209.2 51.8 88.1

1.1 -1.8 -4.4 -6.7 -3.8 -0.1 4.2 -2.9 -1.8 59.1 -5.3

6.2 10.1 71.7 -30.4 -47.4 -43.6 9.8 -11.2 -5.3 84.1 -16.9

-3.0 -0.4 82.2 -11.6 -47.8 -40.0 20.1 7.8 -3.7 132.7 -13.6

6.6 -0.3 353.8 109.6 -84.4 -42.3 9.5 -29.6 1.9 121.0 -36.3

0.8 0.7 1.0 1.2 1.5 1.3 0.9 0.6 0.6 0.8 1.7 1.0

Financial Ratios
PE 2010F (x) Clothing & Accessories Li & Fung Texwinca Durable Household Products HTL International Neo-Neon Footwear China Hongxing China Sports International Li Ning Yue Yuen Non-durable Household Products Hengan Ming Fai Pelikan International Household / Personal Goods 28.5 11.7 6.2 25.5 18.2 4.5 23.2 11.7 28.4 16.5 9.2 21.3 2011F EPS Growth 2010F 2011F (%) 45.6 13.5 14.9 43.0 -9.4 10.0 21.7 2.0 11.2 16.1 104.6 20.6 38.9 14.1 15.3 77.1 36.4 8.9 22.6 8.6 22.7 28.0 25.3 24.7 P/B 2010F (x) 7.5 2.5 1.3 1.5 0.5 0.5 7.3 1.7 6.8 1.9 0.8 4.0 2011F ROE 2010F (%) 27.3 22.4 21.9 6.0 2.8 12.7 35.3 15.3 25.2 12.0 10.3 19.7 2011F EV/EBITDA 2010F 2011F (x) 23.3 7.3 4.5 13.0 -3.9 -0.6 13.9 8.0 19.5 8.3 7.5 14.8 17.3 6.3 3.9 9.2 -3.1 -0.9 11.2 7.1 15.6 6.5 6.3 11.9 Dividend Yield 2010F 2011F (%) 2.8 5.7 4.9 1.0 1.8 0.0 1.6 3.8 2.2 2.1 1.8 2.8 3.8 6.5 5.7 1.8 2.5 0.0 2.0 4.2 2.7 2.7 2.2 3.6

20.5 10.2 5.4 14.4 13.3 4.1 18.9 10.8 23.1 12.9 7.3 17.1

6.6 2.2 1.1 1.4 0.5 0.5 5.8 1.6 6.0 1.8 0.7 3.6

34.3 23.1 22.0 10.0 3.7 11.7 34.2 15.1 27.6 14.3 10.4 22.1

Source: DBS Vickers

Page 48

Asian Consumer Digest Personal/Household Goods

Chart 1: China retail sales for enterprises above designated size* - Daily Use Goods
RMB mn 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 May-09 May-07 May-08 Feb-07 Feb-08 Feb-09 Aug-08 Aug-09 Aug-07 Nov-07 Nov-08 Nov-09 Feb-10 Yoy growth 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

Section B: Charts

Sales growth of daily use goods remained strong at 36.7% in Feb10, compared with overall retail sales growth of just 22.1%. To eliminate the impact from CNY, retail sales of daily use goods of Jan-Feb registered a decent growth of 20%. We expect the sales uptrend to continue going forward.

Daily Use Goods

y -o-y Growth

*Note: Refers to enterprises with sales revenue of >RMB5m.
Chart 2: China retail sales of footwear (top 200 enterprises)

RMB m 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Jan-08 Jan-09 Apr-07 Apr-08 Apr-09 Oct-07 Oct-08 Oct-09 Jan-10 Jan-07 Jul-07 Jul-08 Jul-09

% 100 80 60 40 20 0 (20) (40)

Retails sales of footwear in China dropped 12.2% in Jan 10 due to a high base last year and distortion from CNY sales. We expect a stronger growth in Feb sales figure. Going forward, World Cup in this summer may also stimulate footwear sales, particularly athletic shoes.

China Retail Sales: F ootwear (LHS) Yoy growth (RHS)
Chart 3: China retail sales of sports and recreation articles (top 200 enterprises)

RMB m 700 600 500 400 300 200 100 0 Oct-07 Oct-08 Oct-09 Jan-07 Jan-08 Jan-09 Apr-07 Apr-08 Apr-09 Jan-10 Jul-07 Jul-08 Jul-09

% 60 50 40 30 20 10 0 (10) (20) (30)

The retail sales trend of sports and recreational articles is not as apparent as that of daily use goods. We reckon that it is more sensitive to economic growth as it showed a slight slowdown during 2008. We believe sales trend should look positive in 2010 amid strong GDP growth in China and Asian Games in Guangzhou.

China Retail Sales: Sports and Recreation Articles (LHS) Yoy growth (RHS)

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Asian Consumer Digest Personal/Household Goods

Chart 4: Sportswear brand order book growth

35% 30% 25% 20% 15% 10% 5% 0% Q209 Li Ning
Chart 5: Wood pulp prices

Decent growth has been recorded for most major sports brands in China during the Q2/10 trade fair, indicating the worst should be over for the industry. As the base effect wanes, further acceleration in order book growth is likely in 2H10. In fact, initial indications for the Q3/10 order book for major players have appeared to confirm our view.

Q309 Anta

Q409

Q110 Dongxiang

Q210 Xtep

USD/ton 1,000 900 800 700 600 500 400 300 Feb-07 Feb-08 Feb-09 May-07 May-08 May-09 Nov-06 Nov-07 Nov-08 Aug-06 Aug-07 Aug-08 Aug-09 Nov-09 Feb-10

After hitting the bottom in Q12009, wood pulp prices rebounded substantially along with the economic recovery. The earthquake in Chile also pushed up prices further. Despite this, tissue paper manufacturers, such as Hengan and Vinda, have accumulated some inventory when prices were low. This should help these manufacturers to partly alleviate margin pressure.

NBSK ( Long fiber )

BHKP ( Short fiber )

Page 50

Asian Consumer Digest Retailers

SUB SECTOR – RETAILERS

Page 51

Asian Consumer Digest Retailers

FOOD RETAILERS
Mavis Hui, mavis_hui@hk.dbsvickers.com • An inflationary environment strengthens pricing power for potential margin enhancement. • The worsening drought in China could provide further room for retailers to justify price hikes. • Major players also likely to boost growth via acquisitions as industry consolidates further. • We like Beijing Jingkelong (814.HK) for its attractive valuation vs peers Performance review: China plays outperformed Share prices of grocery retailers saw a good rally in 1Q10 along with an upward pricing trend across various food items. Broadly speaking, major retailers in China outperformed the region amid their swift recovery and strong outlook, with share prices of Wumart (8277.HK), Beijing Jingkelong (814.HK) and Lianhua Supermarket (980.HK) rising by 30-40% for the quarter. Selective operators in other regions also saw decent share price performance, which included CP ALL (CPALL.TB, up 14%) and Big C Supercenter (BIGC.TB, up 18%). Regional players like Dairy Farm (DFI.SP) saw a mild performance, rising 11% in 1Q10. Overall, share prices of major food retailers in the region outperformed the 2.6% average increase across regional indices for Hong Kong, Singapore, Malaysia, Thailand and Vietnam. Industry outlook: better growth momentum for 2Q10 We remain positive on the food retail industry as regional economic recovery continues to phase in. Recent results have already revealed solid pick-up of various operators since 4Q09, with management guiding for a broadly optimistic outlook for 2010. The uptrend in food prices should also prompt operators to stock up for sale at higher prices later on, potentially locking in better margins for the rest of the year. Specifically, favourable government policies to drive consumption and a relatively lower penetration rate of leading food retailers in China should underpin growth momentum of major Chinese operators. We currently expect their same-store sales growth to reach 5-10% in 2010, partly driven by higher food prices. Coupled with

solid plans for sales network expansion, leading Chinese food retailers should see good earnings this year. Their earlier efforts on store renovation and supply chain enhancement should also start paying off, allowing further room to lift overall operating efficiency. Key Pick: Beijing Jingkelong for value and growth Despite the recent share price rally across the region, we continue to like the food retail sector for its strong growth catalysts. We prefer Beijing Jingkelong for its valuation discount versus close peers. Given the significant portion of revenue coming from its wholesale operations, we believe the company is in a better position versus pure retailers to take advantage of rising food prices by stocking up for sale at higher prices later on. Catalyst: potentially repeating 1H08’s sound growth We continue to see ample room for food retailers to grow in China underpinned by robust domestic consumption and low market penetration of food retailers. In 2Q10, we expect food retailers to report a good set of 1Q results due to an improving operating environment and strengthening pricing power. Rising food prices in coming months should help to boost topline growth and profitability, as food retailers & wholesalers operating on cost-plus strategies could largely pass on additional costs to end-customers. This happened during 1H08 and the situation could repeat itself, although not as severe, as price increase for certain items such as oil and pork have been relatively gradual vis-à-vis the surge experienced in early 2008. The upcoming Expo in Shanghai in May will last six full months up to Oct 2010. Official estimates have projected the event to boost overall tourist spending in Shanghai by c.50% this year. The expected boom in consumption in the city could potentially trigger investors’ focus on Shanghai based operators. From this perspective, Lianhua Supermarket could likely see positive share price performance in near-term. Industry consolidation could continue to accelerate, as modern chain store operators become increasingly competitive, thus gradually phasing out smaller players. Leading food retailers in China have also placed merger & acquisitions as high priorities to boost growth. These might trigger some positive inflexion points should favourable terms on acquisitions be realized.

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Asian Consumer Digest Retailers

DEPARTMENT STORES & DISCRETIONARY RETAILERS
Mavis Hui, mavis_hui@hk.dbsvickers.com Kok Chiew Sia, chiewsia@hwangdbsvickers.com.my • Regional economic recovery should support a gradual pick-up in overall consumer sentiment. • In China, rising affordability and events such as Shanghai Expo 2010 should stimulate tourist spending and further support discretionary consumption. • Government subsidy programs for selective product categories will stimulate growth. • We like Gome for its positive growth prospects from favourable policies & strong demand in the sector. Performance review: performance upswing from low-base Overall, share prices of selective discretionary retailers have outperformed in 1Q10, as demand for the respective merchandise continues to pick up from a low base. Automobile retailers such as Dah Chong Hong (1828.HK) and SMC Motors (SMC.TB) saw their share prices surging 59% and 71%, respectively. Recent IPOs and valuation laggards in the wearing apparel sector also performed well, with share prices up 86% for Trinity (891.HK), 42% for Peak Sports (1968.HK), 42% for Bossini (592.HK), and 37% for Giordano (709.HK). Furniture retailers such as Home Product Centre (HMPRO.TB) saw a 31% price surge. Tourist plays and watch / jewellery retailers also saw decent share price performance, including Sa Sa (178.HK, up 20%), Hengdeli (3389.HK, up 18%), Oriental Watch (398.HK, up 17%), Hour Glass (HG.SP, up 18%) and Jubilee (JUBILE.TB, up 21%). Industry outlook: macro recovery drives growth This year, macro recovery and improving purchasing power should hold up overall consumption in the region. Department stores and discretionary retailers have already recorded strong year-to-date performance in same-store sales (SSS). Severe price discounting that was seen in 1H09 is also gradually normalizing to a more reasonable level. Outlook for the sector should stay positive in 2010. Chinese operators could see even better prospects amid sustainable household income growth, as the government’s economic stimulus packages to support

employment, where an upward adjustment of 10% or more in minimum wages in various provinces will be seen this year. Mega events in China, including the Shanghai Expo & Guangzhou Asian Games, should also help to boost consumption. Additionally, industry specific subsidy programs will continue to drive consumer spending. In 2010, total retail sales in China is well poised for a 17.5% expansion this year. Major department stores and discretionary retail players should achieve 10-20% y-o-y SSS growth on average, benefiting from their first-mover advantage to lock up prime locations allowing a better grip on rising domestic consumption and tourist spending. Key Pick: Gome as a direct policy beneficiary We like Gome for its strong recovery and as a direct beneficiary from the government subsidy programs. These include (i) “go rural” policy, which has recently increased price caps for various electrical applicances (from 25% to double that of the previous price caps), as well as (ii) “exchange old for new” program that was launched in Aug09, and will contribute a full-year impact in 2010. Given that c.70% of properties sold in China during 2H09 will be delivered by 2H10, demand for home appliances should be strong throughout this year. In addition, the low penetration of home appliances in China versus more developed countries should also mean ample growth potential for dominant retailers in the sector over the medium-term. Catalyst: Prospects in China to stay rosy in Q2 Traditionally, Q2 is a low season for most Asian markets, except for China, which should do better in view of its Labour Day Holiday in May. This year is especially so given that the World Expo will be launched in Shanghai this May. As tourist spending mounts, discretionary retailers, department stores and tourist plays should continue to be in the spotlight. In view of the satisfactory year-to-date performances of most operators in the sector, we expect the sector to deliver strong results during 2Q10, which should help to sustain interest. While valuation for the sector remains fairly reasonable given the sound pick-up in business operations, players with strong fundamentals could be re-rated further in the coming months. We remain broadly positive on the sector.

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Asian Consumer Digest Retailers

Earnings Valuation
Market Cap (US$m): 43,790 Operating Profit (US$ m) 1,551 2,174 2,712 2,698 3,159 3,732 OP Chng (1Q) (%) 3.2 3.4 Pre-tax Profit (US$ m) 1,651 2,262 2,855 2,847 3,312 3,945 Net Profit Bef EI (US$ m) 1,172 1,667 2,030 1,949 2,274 2,693 EPS Chng (1Q) (%) -2.8 -1.4

2006A 2007A 2008A 2009E 2010F 2011F

Sales (US$ m) 20,365 25,816 29,664 29,789 33,380 36,483

YoY (%) 26.8 14.9 0.4 12.1 9.3

YoY (%) 40.1 24.8 -0.5 17.1 18.1

YoY (%) 37.0 26.2 -0.3 16.3 19.1

EPS (US$) 0.03 0.04 0.05 0.05 0.05 0.06

YoY (%) 42.2 21.8 -4.0 16.7 18.4

2006A 2007A 2008A 2009E 2010F 2011F

EBITDA (US$ m) 2,096 2,832 3,431 3,514 4,087 4,774

OP Margin (%) 7.6 8.4 9.1 9.1 9.5 10.2

ROE (%) 25.9 25.1 20.8 21.6 22.9

Interest Cover (x) -52.6 -66.9 -85.9 -189.9 -83.9 -48.8

Net Debt / Equity (x) -0.5 -0.5 -0.4 -0.5 -0.6 -0.7

FCF (US$ m) 900 1,975 1,971 1,945 2,602 3,181

BPS (US$) 0.2 0.2 0.2 0.2 0.3 0.3

Dividend Yield (%) 2.26 2.87 3.56 3.26 3.59 4.06

PE (x) 37.3 26.3 21.6 22.5 19.3 16.3

P/B (x) 8.0 5.9 5.0 4.4 3.9 3.5

EV/EBITDA (x) 10.0 14.1 11.7 11.1 9.2 7.5

Source: DBS Vickers

Page 54

Asian Consumer Digest Retailers

Earnings Valuation
Stock Performance
Market Cap Department Stores Aeon Stores Esprit Holdings Lifestyle New World Dept Stores Parkson Parkson Holdings Ajisen China Discretionary Retailers Giordano Glorious Sun Golden Eagle Oriental Watch Sa Sa Food Retailers & Wholesalers Beijing Jingkelong - H Big C Supercenter Café de Coral CP ALL Lianhua Supermarket - H Little Sheep Wumart - H Home Products Center Home Improvement Retailers Gome Elec Appliances General Retailers Weight 1M Return 3M Excess Return 6M 12M 1M 3M 6M 12M BETA

422 10,066 3,100 1,477 4,718 1,877 1,167 669 420 3,793 92 1,113 215 1,135 1,343 3,896 777 556 1,067 666 5,218 43,790

1.0 23.0 7.1 3.4 10.8 4.3 2.7 1.5 1.0 8.7 0.2 2.5 0.5 2.6 3.1 8.9 1.8 1.3 2.4 1.5 11.9 100.0

-4.9 -3.7 5.0 -7.3 -4.1 -0.7 10.4 28.8 17.8 5.7 -0.5 6.4 13.6 -9.5 -0.6 4.6 13.9 -3.7 15.6 6.4 3.8 1.2

-5.6 12.4 12.6 -2.0 -1.5 3.1 20.0 60.2 16.1 14.0 17.0 30.5 30.6 6.4 9.6 20.8 35.9 8.5 32.5 36.7 2.3 11.0

-7.0 10.6 15.6 -3.2 3.0 10.5 25.1 78.3 28.0 11.0 22.2 72.2 49.7 8.3 6.7 55.7 81.2 -4.1 24.7 33.0 11.1 15.7

24.6 31.7 94.1 52.1 35.8 29.2 111.8 126.3 59.3 148.1 79.9 157.3 157.4 11.0 24.2 139.5 228.6 35.9 179.9 148.1 168.8 70.7

-6.1 -4.9 3.8 -8.5 -5.4 -1.9 9.2 27.6 16.5 4.5 -1.7 5.2 12.3 -10.7 -1.8 3.4 12.7 -4.9 14.4 5.2 2.6

-16.6 1.4 1.6 -13.0 -12.5 -7.9 9.0 49.2 5.1 3.0 6.0 19.5 19.6 -4.6 -1.4 9.8 24.9 -2.5 21.5 25.7 -8.7

-22.8 -5.1 -0.2 -19.0 -12.7 -5.2 9.4 62.6 12.2 -4.8 6.4 56.5 34.0 -7.4 -9.1 40.0 65.5 -19.8 8.9 17.2 -4.7

-46.1 -39.0 23.4 -18.6 -34.9 -41.5 41.0 55.5 -11.4 77.4 9.2 86.6 86.7 -59.7 -46.5 68.8 157.9 -34.8 109.2 77.4 98.1

0.6 0.8 1.1 1.1 1.0 1.1 0.8 0.8 0.6 0.8 1.0 1.0 0.9 0.7 0.5 0.8 0.7 0.6 0.7 0.7 0.9 0.8

Financial Ratios
PE 2010F (x) Department Stores Aeon Stores Esprit Holdings Lifestyle New World Dept Stores Parkson Parkson Holdings Ajisen China Discretionary Retailers Giordano Glorious Sun Golden Eagle Oriental Watch Sa Sa Food Retailers & Wholesalers Beijing Jingkelong - H Big C Supercenter Café de Coral CP ALL Lianhua Supermarket - H Little Sheep Wumart - H Home Products Center Home Improvement Retailers Gome Elec Appliances General Retailers 15.6 15.6 21.2 19.7 28.4 19.7 24.0 15.9 11.2 27.6 7.4 23.0 18.7 11.2 20.6 20.1 25.4 18.1 33.1 16.8 22.1 19.3 2011F EPS Growth 2010F 2011F (%) 10.6 5.6 17.8 15.8 24.5 15.0 20.0 13.1 12.2 31.6 -2.8 18.7 20.0 13.7 14.3 24.9 23.9 34.9 22.0 11.9 30.3 16.7 na 15.2 15.5 23.2 29.2 22.7 31.6 10.3 12.0 28.5 31.1 20.3 -2.2 8.6 16.5 13.0 19.1 33.3 26.3 12.5 29.8 18.4 P/B 2010F (x) 2.9 4.9 3.5 2.3 7.1 3.1 3.4 2.4 1.5 7.2 0.5 7.4 2.7 1.8 4.0 5.9 5.5 3.2 5.2 3.5 2.6 3.9 2011F ROE 2010F (%) 20.0 33.1 17.5 12.5 26.8 16.4 14.9 15.4 13.7 28.7 7.6 32.9 12.7 16.5 20.4 31.1 23.5 19.0 19.0 22.6 15.5 21.6 2011F EV/EBITDA 2010F 2011F (x) 2.4 10.1 12.9 8.9 16.4 5.8 11.3 8.6 3.7 16.8 6.9 15.6 9.0 4.6 12.0 8.9 0.1 10.0 5.6 7.8 7.6 9.2 na 8.6 10.2 6.7 12.4 4.2 8.4 7.5 3.3 12.9 6.0 13.1 9.2 4.1 10.3 7.7 -1.3 7.2 3.9 7.0 5.0 7.5 Dividend Yield 2010F 2011F (%) 2.8 4.8 1.8 1.5 1.6 2.1 1.9 4.9 5.8 1.0 2.2 3.8 2.2 4.5 3.9 3.5 1.3 2.2 1.2 4.1 1.2 3.6 na 5.6 2.1 1.9 2.1 2.5 2.5 5.4 6.5 1.3 2.9 4.6 2.6 4.9 4.5 4.0 1.6 2.9 1.5 4.7 1.5 4.1

na 13.5 18.4 16.0 22.0 16.0 18.2 14.5 10.0 21.5 5.6 19.2 19.2 10.3 17.7 17.8 21.3 13.6 26.2 14.9 17.0 16.3

na 4.4 3.1 2.1 6.0 2.7 3.1 2.3 1.4 5.7 0.5 7.2 2.5 1.6 3.8 5.2 4.7 2.8 4.6 3.3 2.3 3.5

na 34.3 18.1 13.8 29.6 18.0 17.7 16.3 14.6 29.6 9.2 38.1 13.5 16.4 22.0 31.1 24.0 22.0 18.6 22.7 17.5 22.9

Source: DBS Vickers

Page 55

Asian Consumer Digest Retailers

Macro radar
Retail Sales Growth for Jan-Mar 10 Retail sales growth across the region rebounded in early 2010. Less matured markets such as China and Vietnam saw y-o-y growth rates of 18% and 36% respectively during 1Q10, while more matured markets like Hong Kong, Singapore and Malaysia saw a recovery from a low base.

Singapore*

* Jan-Feb 10 yoy growth ** 4Q09 yoy growth (latest available)
Consumer Confidence / Sentiment Index

Malaysia**

Vietnam

% 40 35 30 25 20 15 10 5 0 China Hong Kong*

140 120 100 80 60 40 20 Sep-08 Mar-08 Mar-09 Dec-08 Sep-09 0 Jun-08 Dec-09 Jan-10 Feb-10 Jun-09

Consumer confidence in China was resilient throughout the global financial crisis amid strong economic stimuli and favourable government policies to support domestic consumption. Smaller markets such as Hong Kong and Malaysia also saw their consumer confidence normalizing from the trough.

China - Consumer confidence Hong Kong - Consumer confidence Malay sia - Consumer sentiment
CPI for Feb-10

China*

% 10 9 8 7 6 5 4 3 2 1 0

An Inflationary environment started to kick-in again in the region. In Feb10, most markets saw a mild CPI inflation in the range of 1-3% (this also applied to China for Mar10), while Vietnam’s inflation problem had been much more severe, seeing CPI up significantly by 9.5% in Mar10.

*Mar-10 figure

Page 56

S ingapore

Vietnam*

Hong Kong

Malay s ia

Asian Consumer Digest Retailers

Household Income Growth for Dec-09

% 12 10 8 6 4 2 0 (2) (4) (6) China* Hong Kong Singapore

Unlike most parts of the world where household income was affected by the global financial crisis, income growth in China sustained a solid y-o-y expansion of >10% up to Mar10 amid massive economic stimuli launched by the government to indirectly support overall income growth. Plans for a 10% or higher increase in minimum wage levels across various provinces of China this year should sustain household income growth further in 2010.

* Mar-10 figure
Unemployment Rate

% 6 5 4 3 2 1 0 Mar-08 Mar-09 Mar-10 Sep-08 Dec-08 Sep-09 Dec-09 Jun-08 Jun-09

The Chinese employment market stayed resilient throughout the global financial crisis, seeing unemployment rate sustaining at c.4% throughout. Other Asian markets saw rising unemployment rate right after the crisis in 4Q08, while Malaysia started to see improvement in 2Q09, and Hong Kong and Singapore saw employment improving from 4Q09.

China Singapore

Hong Kong Malay sia

Page 57

Asian Consumer Digest Retailers

Sector performance - China i) Food retailers China Retail Sales – Food & Beverage
RMB mn 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Mar-07 Mar-08 Mar-09 Dec -07 Dec -08 Dec -09 S ep-07 S ep-08 S ep-09 Mar-10 J un-07 J un-08 J un-09 Y oy grow th 60% 50% 40% 30% 20% 10% 0% -10% -20%
Growth for F&B retail sales accelerated from 15.1% y-o-y growth in Jan-Feb10 to 19.3% growth in Mar10.

F &B

y -o-y Grow th

China Retail Sales - Daily Use Goods
RMB mn 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Mar-07 Mar-08 Mar-09 Dec -07 Dec -08 Dec -09 S ep-07 S ep-08 S ep-09 Mar-10 J un-07 J un-08 J un-09 Y oy grow th 40% 35% 30% 25% 20% 15% 10% 5% 0%
Sales growth of daily use goods accelerated from 20.1% y-o-y growth in Jan-Feb10 to 32.8% growth in Mar10.

Daily Us e Goods
China CPI for food

y -o-y Grow th

Index 130 120 110 100 90 80 Mar-08 Mar-09 May-08 May-09 Nov-08 Nov-09 Mar-10 Sep-08 Sep-09 Jan-08 Jan-09 Jan-10 Jul-08 Jul-09

Food prices, which accounts for about a third of the CPI in China, gained 5.1% y-o-y in Mar10 and is expected to post an upward trend.

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Asian Consumer Digest Retailers

ii) Department stores & discretionary retailers China Retail Sales – Clothing
RMB mn 60,000 50,000 40,000 30,000 20,000 10,000 0 Mar-07 Mar-08 Mar-09 Dec -07 Dec -08 Dec -09 S ep-07 S ep-08 S ep-09 Mar-10 J un-07 J un-08 J un-09 Y oy grow th 70% 60% 50% 40% 30% 20% 10% 0% -10%
Retail sales growth for clothing reached 27.4% y-o-y in Jan-Feb10 and 25.8% in Mar10.

Clothing

y -o-y Grow th

China Retail Sales – Cosmetics
RMB mn 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Mar-07 Mar-08 Mar-09 Dec -07 Dec -08 Dec -09 S ep-07 S ep-08 S ep-09 Mar-10 J un-07 J un-08 J un-09 Y oy grow th 40% 35% 30% 25% 20% 15% 10% 5% 0%
Cosmetics sales grew by 20.7% y-o-y in Jan-Feb10, and accelerated to 23.7% in Mar10.

Cos metic s

y -o-y Grow th

China Retail Sales – Gold, Silver and Jewellery
RMB mn 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Mar-07 Mar-08 Mar-09 Dec -07 Dec -08 Dec -09 S ep-07 S ep-08 S ep-09 Mar-10 J un-07 J un-08 J un-09 Y oy grow th 80% 70% 60% 50% 40% 30% 20% 10% 0%
Sales growth of luxury items such as jewellery skyrocketed by 43.4% y-o-y in Jan-Feb10 and picked up even stronger by 55.2% in Mar10, indicating sustained recovery in the overall consumer sentiment of China.

Gold, S ilv er and J ew elry

y -o-y Grow th

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Asian Consumer Digest Retailers

China Retail Sales – Electric Appliance

RMB mn 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Mar-07 Mar-08 Mar-09 Dec -07 Dec -08

Y oy grow th 50% 40% 30% 20% 10% 0% -10% -20% Dec -09 S ep-07 S ep-08 S ep-09 Mar-10 J un-07 J un-08 J un-09

Sales of electric appliances grew 28% y-o-y in Jan-Feb10 and 19.2% in Mar10, maintaining a decent momentum given benefits from supportive government policies for the segment.

Elec tric Applianc e
China CPI by Category for Mar 10

y -o-y Grow th

Recreational and educational

Transportation and communication

Cosmetics

Yoy , % 0.4 0.2 0.0 (0.2) (0.4) (0.6) (0.8) (1.0) (1.2)

In Mar10, CPI for cosmetics edged up slightly while other discretionary items such as clothing continued to see a mild decline in prices. According to the historic trend, it is expected that discretionary broadbase items should likely see a more moderate increase in their prices versus other products, such as food items.

Prime retail rental
RMB psm 1,600 1,400 1,200 1,000 800 600 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09
Retail rentals in first-tier cities such as Beijing and Shanghai remained largely stable in 4Q09, but stayed at relatively high levels.

Beijing

Page 60

Household facility

Shanghai

Clothing

Asian Consumer Digest Retailers

Sector performance – Hong Kong
Hong Kong Retail Sales Growth by Segment Sales growth of all consumer goods rebounded strongly to the positive territory in Feb10, mainly attributable to the seasonality impact from Chinese New Year holidays.

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Consumer Durable Goods Other Consumer Goods

Clothing, Footwear and Allied Products

F eb10 y -o-y growth
Hong Kong Rental Index

Food, Alcoholic Drinks and

120 110 100 90 80 O c t-00 May -01 Dec -01 J ul-02 F eb-03 S ep-03 Apr-04 Nov -04 J un-05 J an-06 Aug-06 Mar-07 O c t-07 May -08 Dec -08 J ul-09 F eb-10

Retail rentals continued to surge in Feb10, boosted by the strong property market of Hong Kong.

Property Rental Index of Retail Premis e
Hong Kong Tourist Arrivals

Pers ons 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0

Y oy grow th 40% 30% 20% 10% 0% -10% -20% F eb-07 Apr-07 J un-07 Aug-07 O c t-07 Dec -07 F eb-08 Apr-08 J un-08 Aug-08 O c t-08 Dec -08 F eb-09 Apr-09 J un-09 Aug-09 O c t-09 Dec -09 F eb-10

Tourist arrivals grew strongly by >30% y-o-y in Feb10, mainly due to seasonality impact from the “Spring Move” of Mainland tourists.

V is itor Arriv als : Inc V ia Mac au V is itor Arriv als Grow th

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Asian Consumer Digest Retailers

Sector performance – Singapore
Singapore Retail Sales Growth by Segment for Feb-10 Retail sales across various categories of merchandise picked up healthily in Feb10 amid the New Year holiday and a low base. Nonetheless, this could also be a sign of consumption pick-up in Singapore.

Yoy , % 80 70 60 50 40 30 20 10 0

Supermarkets

Food & Beverages

Dept Stores

Singapore Property Rental Index – Shop

Watches & Jewellery

Wearing Apparel & Footwear

4Q98=100 130 120 110 100 90 80 70 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09

Average shop rentals in Singapore peaked in 2Q08 and fell sharply thereafter amid negative impacts from the global financial crisis. In recent months, shop rentals picked up gradually but still remained far below the peak level in 2008. (Note that latest rental data for 2010 is yet to be available.)

Singapore Tourist Arrivals

m persons 1.2 1.0 0.8 0.6 0.4 0.2 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 0.0

% 30 25 20 15 10 5 0 (5) (10) (15) (20)

Tourist arrivals in Singapore surged substantially by c.25% y-o-y in Feb10 amid seasonality impact from the Chinese New Year and a gradual economic recovery in the region. This could also partly be buoyed by the opening of Resorts World Sentosa (RWS). The Singapore Tourism Board has projected tourist arrivals in Singapore for 2010 could be between 11.5m-12.5m. A further boost in the arrival numbers could also be expected following the opening of Marina Bay Sands in late Apr this year.

V isitor arrivals (LHS)

Yoy growth (RHS)

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Asian Consumer Digest Retailers

Sector performance – Malaysia
Malaysia Retail Sales – Non-Specialised Stores Sales of non-specialised stores, which included department stores, supermarkets, provision shops and others stayed resilient, with quarterly sales growth maintained at a high-double digit rate in 2009. Sales in 1Q10 are expected to show a healthy growth trend led by holidays and festivities. Going forward, we expect lower double-digit growth rate on the back of a growing consumption base.

RM bn 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Retail Sales: Non-Specialised Stores
Malaysia CPI

Yoy 120% 100% 80% 60% 40% 20% 0%

% chg y oy

Index 180.0 160.0 140.0 120.0 100.0 80.0 Sep-07 Sep-08 Sep-09 Jan-07 Jan-08 Jan-09 May-07 May-08 May-09 Jan-10

Prices for personal effect products (e.g. jewelleries and watches) was the only category that showed an uptrend since 2007 among three CPI indices in the chart, whereas prices of clothing & footwear and household appliances were relatively more stable. The rising CPI index of personal effect products may suggest growing wealth of the population and hence demand for higher value discretionary goods. This should poise well for middle to higher end retailers such as Parkson, Metro Jaya, Robinson, Isetan, and Debenham in Malaysia.

CPI: Clothing and F ootwear CPI: F H: Household Appliances CPI: MG: Personal Effects nec
Malaysia Tourist Arrivals

in billion 2.5 2.0 1.5 1.0 0.5 0.0 Jan-07 Jan-08 Jan-09 Oct-07 Oct-08 Oct-09 Apr-07 Apr-08 Apr-09 Jan-10 Jul-07 Jul-08 Jul-09 35% 30% 25% 20% 15% 10% 5% 0% -5% -10%

Visitor arrivals in Malaysia had been quite stable with average monthly visitor numbers of 1m people. However, visitor flow tends to be higher in conjunction with the ‘Visit Malaysia Programme’ organised by the Ministry of Culture, Arts and Tourism. For example, total visitor arrivals surged 19.5% y-o-y to 21m people in 2007 due to the Visit Malaysia Year 2007. The Malaysian government is targeting 24m visitor arrivals in 2010, implying 1.7% y-o-y growth. However, the slower growth in visitor arrivals should not pose significant impact on retailers in Malaysia as sales have mainly been dominated by domestic consumption.

Tourist Arriv al

% chg y oy

Page 63

Asian Consumer Digest Retailers

Sector performance – Vietnam
Vietnam Retail Sales – Domestic Sector: Private & Household Demand for private labels and household products were on the rise,

V ND trillion 120 100 80 60 40 20 0 Jan-07 Jan-08 Jan-09 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Jan-10 Jul-07 Jul-08 Jul-09

45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

buoyed by improved sentiment on economic outlook since 4Q09. Sales growth in Feb10 surged to 41.8%, partly due to a low base effect. If excluding the seasonality effect, sales would have grown by c.33%. Sales growth in Mar10 remained buoyant at 30.5%. The Feb sustainable growth trend showed that demand is on recovery towards the pre-crisis level. Going forward, such momentum is expected to hold up well.

Retail sales: Domestic: Priv ate & Household % chg y oy
Vietnam CPI

Index 140.0 130.0 120.0 110.0 100.0 90.0 80.0 Sep-06 Sep-07 Sep-08 Sep-09 Jan-07 Jan-08 Jan-09 May-06 May-07 May-08 May-09 Jan-10

Inflation indices for consumer discretionary products continue to trend upwards on a gradual basis. This suggests sustainability of prices and should support well for demand going forward.

CPI: Garment, Hats and Footwear CPI: Household Equipments and Appliances
Vietnam Tourist Arrivals

million 0.6 0.5 0.4 0.3 0.2 0.1 0.0 Jan-07 Jan-08 Jan-09 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Jan-10 Jul-07 Jul-08 Jul-09

The number of visitors going into Vietnam dropped 11.3% y-o-y in

80% 60% 40% 20% 0% -20% -40% -60%

2009. However, the number marched up strongly in 1Q10 (+36.2% yo-y). More visitors are expected to drop by this year, both for vacation and business trips as more people are exploring opportunities in the country which is still under-developed.

V isitor Arrival

% chg y oy

Page 64

Asian Consumer Digest Up/Midstream Food Producers

SUB SECTOR – UP/MIDSTREAM FOOD PRODUCERS

Page 65

Asian Consumer Digest Up/Midstream Food Producers

UP/MIDSTREAM FOOD PRODUCERS
Ben Santoso , bensantoso@dbsvickers.com • 1QCY10 planters’ earnings to seasonally weaken, as 11-13% stronger prices is offset by c.6-50% volume drops • CPO prices forecast to hover US$750-850 (FOB Malaysia) over the long run • Stronger MYR, IDR to negatively impact planters’ earnings. Potentially stronger RMB may benefit Wilmar • We prefer China processors and volume plays: Wilmar, First R, IndoAgri, and Sampoerna A. Performance review In the quarter ending 31 March 2010, CPO prices (FOB Malaysia) averaged US$760/MT – up by 12.7% q-o-q and 43.3% y-o-y (low-base effect). We expect Malaysian planters to book weaker 1QCY10 earnings as higher prices would not be enough to offset c.20% qo-q volume drop nationwide. Indonesian planters should book even lower earnings q-o-q, given expectations of c.28-50%% q-o-q volume drop. Industry outlook Price expectations. Rather than a near-term drop, we expect palm oil prices to trade sideways for the remainder of the year on lower global inventory y-o-y. Recent trade spat between China and Argentina over soybean oil imports may temporarily boost China’s soybean crushing and palm oil demand, until domestic soybean inventory levels recede. Longer term, we expect palm oil prices (FOB Malaysia) to remain range-bound between US$750850/MT on relatively flat stock/usage ratios. Impact from declining soybean prices. This year, declining soybean price trends would create temporary gains for processors such as Wilmar, as lower feedstock prices would have lagged impact on end product prices. We view the domestic price situation is more resilient in China, as domestic soybean prices are already priced higher than imported ones. Rising global soybean supplies mean rising disparity between domestic and imported bean prices. Impact from potentially stronger RMB. In the event of RMB revaluation, Wilmar should benefit even more. Any efforts by the Chinese government to protect its soybean farmers mean that domestically produced soybean prices would remain steady. On the other hand, cheaper imported feedstock prices should expand Wilmar’s

processing margins. Already highly efficient with large economies of scale, this would make Wilmar more competitive in the Chinese vegetable oil market. Focus on volume growths of upstream planters. Over the next few years, we expect a relatively flatter rise in palm oil prices compared to previous forecasts. Our key selection criterion for upstream planters remains their ability to grow volumes faster than peers (i.e. own FFB volume CAGR over the next 5 years, derived from plantable reserves and aggressive planting targets). Our recommended list 1. First Resources: Lowest cost producer and simple upstream business model. Aggressive planting relative to its size and large plantable reserve should fuel 15.8% earnings CAGR between 2009 and 2014F. 2. IndoAgri: Sugar prices in Indonesia have skyrocketed and are expected to remain elevated going forward. This, and jump in rubber prices have not yet been factored in current share prices. 3. Sampoerna Agro: Strong yield recovery story and aggressive planting make this stock an undervalued small-cap upstream player. Ability to produce high yield seeds and large plantable reserves are a plus in an industry running out of land suitable for planting. 4. Wilmar International: Unique business model with high entry barrier. Inclusion of rice and flour mills and lower prospective international soybean prices should boost Wilmar’s earnings prospects. A potential RMB revaluation would expand processing margins even further. Catalyst We should see earnings pick up in 2QCY10 onwards, as prices should continue to trade sideways; while volumes seasonally pick up. Our key selection criterion for upstream planters remains their ability to grow volumes faster than peers (i.e. own FFB volume CAGR over the next 5 years, derived from plantable reserves and aggressive planting targets). We prefer processors such as Wilmar over upstream planters. If exposure to upstream planters is a must, we recommend volume plays such as First Resources, Sampoerna Agro and IndoAgri. Our top pick is Wilmar.

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Asian Consumer Digest Up/Midstream Food Producers

Earnings Valuation
Market Cap (US$m): 78,419 Operating Profit (US$ m) 1,418 3,852 6,208 5,284 6,202 6,964 OP Chng (1Q) (%) 28.0 27.9 Pre-tax Profit (US$ m) 1,370 3,672 1,370 5,138 6,096 6,658 Net Profit Bef EI (US$ m) 946 2,475 4,379 3,709 4,564 5,030 EPS Chng (1Q) (%) -2.0 9.2

2006A 2007A 2008A 2009E 2010F 2011F

Sales (US$ m) 15,300 36,548 56,752 50,143 58,643 66,041

YoY (%) 138.9 55.3 -11.6 17.0 12.6

YoY (%) 171.7 61.1 -14.9 17.4 12.3

YoY (%) 168.1 -62.7 275.1 18.6 9.2

EPS (US$) 0.01 0.03 0.06 0.05 0.06 0.06

YoY (%) 161.5 76.9 -15.3 23.1 10.2

2006A 2007A 2008A 2009E 2010F 2011F

EBITDA (US$ m) 1,833 4,635 7,091 6,189 7,338 8,211

OP Margin (%) 9.3 10.5 10.9 10.5 10.6 10.5

ROE (%) 18.5 19.3 14.3 15.7 15.2

Interest Cover (x) 6.0 9.2 10.7 11.7 16.6 13.5

Net Debt / Equity (x) 0.4 0.3 0.2 0.3 0.2 0.1

FCF (US$ m) -457 -6,531 2,697 -994 3,470 2,565

BPS (US$) 0.2 0.6 0.8 0.9 1.0 1.1

Dividend Yield (%) 0.47 1.02 2.32 1.52 1.86 1.91

PE (x) 82.9 31.7 17.9 21.1 17.2 15.6

P/B (x) 12.8 3.8 3.2 2.9 2.5 2.3

EV/EBITDA (x) 44.3 18.3 11.8 14.1 11.5 10.2

Stock Performance
Market Cap (US$) 1,405 1,198 1,641 637 2,489 11,445 236 5,638 3,795 817 16,733 258 32,127 78,419 Weight 1.8 1.5 2.1 0.8 3.2 14.6 0.3 7.2 4.8 1.0 21.3 0.3 41.0 100.0 1M 10.1 1.8 -4.0 -0.8 14.7 1.5 13.8 3.4 1.5 14.5 1.4 -1.5 6.4 4.1 Return 3M 19.8 8.4 8.4 3.7 25.8 1.1 20.0 1.9 11.3 19.7 0.1 -5.2 5.6 4.6 Excess Return 6M 71.7 23.4 6.7 -7.1 39.9 3.2 17.9 11.2 -4.6 49.1 -2.8 7.0 9.2 6.6 12M 217.6 139.2 36.0 6.5 164.9 28.1 32.0 46.8 63.8 164.4 32.3 18.5 91.8 60.4 1M 6.0 -2.3 -8.1 -4.9 10.7 -2.6 9.7 -0.7 -2.6 10.4 -2.7 -5.6 2.3 3M 15.1 3.8 3.8 -0.9 21.1 -3.5 15.4 -2.7 6.6 15.1 -4.5 -9.9 0.9 6M 65.0 16.8 0.1 -13.7 33.3 -3.4 11.2 4.6 -11.3 42.4 -9.4 0.4 2.6 12M 157.2 78.7 -24.4 -53.9 104.5 -32.3 -28.4 -13.7 3.4 104.0 -28.1 -42.0 31.4 BETA 1.3 1.4 1.4 1.2 1.4 1.5 1.0 1.1 1.1 1.0 1.3 1.0 1.2

China Fishery Group First Resources Genting Plantations IJM Plantation Indofood Agri IOI Corporation Kencana Agri KL Kepong Olam International Pacific Andes Sime Darby TSH Resources Wilmar Up/ Midstream Food Producers

Financial Ratios
PE 2010F (x) 9.0 10.8 19.3 24.4 17.0 19.2 19.6 20.6 23.3 6.1 19.8 12.1 16.1 17.2 2011F 8.3 9.6 19.1 18.3 14.2 17.5 12.0 19.2 18.2 5.4 17.5 11.0 15.1 15.6 EPS Growth 2010F 2011F (%) 65.0 9.4 -14.4 12.7 16.5 1.0 -32.6 33.7 -13.5 19.3 93.2 9.8 -27.7 62.6 30.6 7.7 29.9 28.0 42.5 11.9 17.9 13.0 20.9 10.1 16.3 6.9 23.1 10.2 P/B 2010F (x) 2.6 1.7 1.9 1.7 2.1 3.4 1.5 3.0 3.0 0.9 2.3 1.1 2.6 2.5 2011F 2.1 1.5 1.8 1.5 1.8 3.1 1.4 2.8 2.7 0.8 2.2 1.0 2.3 2.3 ROE 2010F (%) 32.5 17.2 10.2 8.2 13.1 20.0 8.1 14.9 16.1 16.5 12.1 9.0 17.0 15.7 2011F 28.0 16.6 9.6 8.8 13.6 18.5 12.0 15.1 15.6 16.0 12.8 9.2 15.9 15.2 EV/EBITDA 2010F 2011F (x) 6.0 5.7 6.5 5.8 13.2 12.8 12.8 10.6 8.3 6.9 12.5 11.4 11.1 8.3 12.5 11.6 15.9 12.9 2.8 2.7 11.2 10.1 10.1 9.6 12.6 10.9 11.5 10.2 Dividend Yield 2010F 2011F (%) 3.0 3.3 2.0 2.4 1.2 1.2 1.2 1.1 0.0 0.0 2.7 2.3 0.0 0.0 2.5 2.7 1.8 1.3 2.1 2.4 2.5 2.9 1.8 1.7 1.2 1.3 1.9 1.9

China Fishery Group First Resources Genting Plantations IJM Plantation Indofood Agri IOI Corporation Kencana Agri KL Kepong Olam International Pacific Andes Sime Darby TSH Resources Wilmar Up/ Midstream Food Producers

Source: DBS Vickers

Page 67

Asian Consumer Digest Up/Midstream Food Producers

Section B: Charts
Chart 1: CPO price and stock/usage ratio forecasts
US$/MT (CIF) 1,000 900 800 700 600 500 400 300 200 5.0% 100 0 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 0.0% 15.0% Stock/usage ratio (RHS)

Palm oil prices to remain resilient. Drop in yields in the first two
35.0%

months of this year had prompted us to cut our Malaysian production forecast by 250k MT to 17.7m MT. On top of lower yields, in Indonesia we also adjusted our oil extraction rate (OER) slightly to 20.2% from 20.3% to account for dilution from newly matured trees. These changes reduced combined production forecast from Indonesia and Malaysia to 39.7m MT from 40.0m MT. We expect both countries to account for 84.5% of global supply this year, as production from Thailand, Colombia and Nigeria are expected to increase by 0.18m MT (Oil World). Rather than a significant nearterm drop in palm oil prices, we now expect palm oil prices continue to trade sideways (with some negative drag from soybean prices) for the remainder of CY10F

30.0% CPO price (LHS)

25.0%

20.0%

10.0%

Source: Oil World, DBS Vickers estimates

Chart 2: Soybean price and stock/usage ratio forecasts
35.0%
US$/MT (FOB)

Soybean prices still have more downside. In their recent reports, Oil World and USDA expect global soybean supply to reach 255 – 257m MT in current season, as harvests coming from all three main producing countries (US, Brazil and Argentina) have jumped since last season. Soybean demand, according to Oil World and USDA, are now forecast to reach between 234m MT and 236m MT. In turn, Oil World now expect global soybean inventory to jump to 68m MT by end of 09/10F season. We currently expect global soybean supply to reach 256m MT in CY10F and to 248m MT in CY11F. Consumption is forecast at 235m MT for CY10F and 245m MT for CY11F.

500 450

30.0%

Soybean price (RHS)

400 350

25.0% Stock/usage ratio (LHS)

20.0%

300 250 200 150 100

15.0%

10.0%

5.0%

50 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

0.0%

Source: Oil World, USDA, DBSV estimates

Chart 3: Malaysian palm oil stock/usage ratio
14.0% 13.0% 12.0% 2008 11.0% 10.0% 2006 9.0% 8.0% 7.0% 6.0% 2007 2009 2010

Seasonally increasing supply. Earlier this year dry spell from the El Nino has caused yields in Malaysia to drop in Jan-Feb10, prompting renewed supply concerns. Both National Oceanic and Atmospheric Administration (NOAA) and Australian Bureau of Meteorology (BOM) recently indicated that transition to neutral conditions should happen by May-July 2010. While Sabah “dry” season should take place during May-Sep, we understand occasional rains are still expected during this period. The stock/usage ratio for Malaysian palm oil on the left shows rising trend for the remainder of this year, in line with seasonal trend.

March

April

September

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November

December

February

May

June

July

August

October

January

Asian Consumer Digest Up/Midstream Food Producers

Chart 4: Soybean oil price vs. palm olein (cooking oil) price
1,600 1,500 1,400 1,300 1,200 1,100 1,000 900 800 700 600 500 400 Nov-07 Mar-08 May-08 Sep-08 Jan-08 Jul-08 Nov-08 Mar-09 May-09 Sep-09 Jan-09 Jul-09 Nov-09 Mar-10 Jan-10 Palm olein price (US$/MT) Soybean oil price (US$/MT)

Palm oil discount has narrowed. Palm oil and soybean oil prices have historically moved parallel to each other, as they are mostly substitutable. While palm oil is now the world’s largest vegetable oil, it is traded at a discount to soybean oil, because palm oil is substitute for native oils in China (soybean oil), India (soybean oil) and Europe (rapeseed oil). The difference in price between palm oil and soybean oil also relates to palm’s cheaper cost of production; but mostly importantly, due to their substitution, the differential is principally explained by stock/usage ratio between the two competing oils. Historically, palm oil prices may be priced at a premium to soybean oil, but these instances are normally short-lived (i.e. unsustainable) due to substitution.

Source: Bloomberg

Chart 5: Spot soybean crushing and palm oil processing margins Spot processing margins still trending down. Our estimates based on
120.0
US$/MT

Spot processing margins, 3-month moving average

daily spot prices showed that soybean crushing margins in the quarter ending 31 March 2010 have come down to US$39/MT from
Soybean spot crushing margin

100.0

US$52/MT and palm oil refining margin to US$19/MT from US$21/MT. Given seasonally lower palm oil production and steady soybean volumes q-o-q, we expect Wilmar’s Merchandising and Processing (M&P) pretax profit to come down q-o-q.

80.0

Palm oil spot processing margin

60.0

40.0

20.0

0.0 Sep-08 Mar-08 May-08 Mar-09 May-09 Sep-09 Mar-10 Jul-08 Jan-09 Jul-09 Nov-08 Nov-09 Jan-10

Source: Bloomberg, DBSV estimates

Chart 6: Global palm and soybean oil supplies forecasts
'000 MT 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Palm oil is increasingly dominant. Over the years, palm oil has grown exponentially, thanks to lower borrowing costs (it normally takes three years for oil palm trees to start to bear fruit from planting) as well as
Global palm oil supply

improvements in research and infrastructure to boost yields. This trend will continue and we expect palm oil price discount to soybean oil would remain narrow in the foreseeable future due to palm oil’s increasing share in world’s vegetable oil supplies and consumption.

Implied soybean oil supply (all crushed)

Source: Oil World, USDA, DBSV estimates

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Asian Consumer Digest Up/Midstream Food Producers

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Asian Consumer Digest

STOCK PROFILES

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6398 7954 in respect of any matters arising from or in connection with this report.”

Page 71

Asian Consumer Digest

Kia Motors
Bloomberg: 000270 KS | Reuters: 000270.KS

BUY KRW26,400 KOSPI : 1,740
Price Target : 12-Month KRW 33,000 Potential Catalyst: (i) strong earnings growth despite stronger won, (ii)expanding market share in key markets of Korea, China, US and (iii)improvement of balance sheet. Analyst Jay Kim +852 2971 1921 jay_kim@hk.dbsvickers.com

Revving up growth
• • • The recession has caused consumers to increasingly prefer value-focused Korean car brands Expect stronger earnings for Kia given unprecedented rise in demand Maintain Buy; KRW33,000 TP offers 28% upside potential

Price Relative
KRW Relative Index 211 25,265 20,265 15,265 10,265 5,265 2006 191 171 151 131 111 91 71 51 2007 2008 2009 31 2010

Kia Motors (LHS)

Relative KOSPI INDEX (RHS)

Forecasts and Valuation
FY Dec (KRW bn) Turnover EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Diluted EPS (KRW) EPS Gth (%) DPS (KRW) BV Per Share (KRW) PE (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net debt ROAE (%) Earnings Rev (%) Consensus EPS (KRW) 2009A 18,416 1,827 1,700 1,450 1,450 3,578 990.4 250 18,200 7.4 4.3 4.4 0.9 1.5 (2,632) 22.1 2010F 20,300 2,002 2,078 1,662 1,662 4,102 14.6 250 22,291 6.1 6.0 4.2 0.9 1.1 (1,717) 20.3 Nil 3,606 2011F 21,827 2,104 2,385 1,824 1,824 4,501 9.7 250 26,881 5.6 7.4 4.4 0.9 0.9 (1,007) 18.3 Nil 3,971 2012F 23,035 2,339 2,650 2,027 2,027 5,001 11.1 250 31,771 5.0 6.7 4.4 0.9 0.8 38 17.1 Nil 4,184

Investment points. Kia’s YTD utilization rate of 96% (vs. 82% in 2007-08) indicates that demand for its cars has reached unprecedented heights. Despite market concerns about a strong won, we believe the rising demand is more crucial in determining the carmaker’s earnings prospects. Given persistent uncertainty about Korean car exporters’ earnings, we expect 1H results to shape share price performance in the sector. We recommend investors to accumulate Kia shares as we believe its 1H earnings will beat consensus estimate by a considerable amount. We forecast 1H FY10 net profit of KRW826bn (vs. Bloomberg consensus estimate of KRW738bn). Expect record high KRW1.7tn net profit this year. We expect Kia to register strong earnings growth this year, led by (i) volume expansion; (ii) higher ASP and cost savings associated with higher sales contribution from new model launches; (iii) lower marketing costs; and (iv) stronger equity income. Re-rating ahead. We recently raised net profit by 36% to KRW1,662bn for FY10F, and by 35% to KRW1,824bn for FY11F, after imputing higher sales volume and blended ASP assumptions on the back of improving product mix; and faster than expected turnaround at Kia’s Georgia plant. Consequently, we raised target price to KRW33,000. Looking ahead, we expect positive news flow regarding its growth prospects with the release of 1HFY10 result, and continued re-rating led by the aforementioned factors and its attractive valuation.
At A Glance Issued Capital (m shrs) Mkt. Cap (KRWm/US$m) Major Shareholders Hyundai Motor (%) Free Float (%) Avg. Daily Vol.(‘000)

390 10,306,753 / 9,295 34.4 100.0 4,483

ICB Industry: Consumer Goods ICB Sector: Automobiles & Parts Principal Business: Auto manufacturing

Source of all data: Company, DBSV, Bloomberg, HKEX

Page 72
www.dbsvickers.com Refer to important disclosures at the end of this report ed-GC / sa- AH GL

Asian Consumer Digest Kia Motors

Company Background Having claimed 26% of the domestic market in the past five years, Kia is the second largest carmaker in Korea with an annual global capacity of xx m units, and is a major part of the Hyundai Automotive Group. It is known for its global competence in the small capacity, affordable passenger vehicle market, and it has been a leading SUV manufacturer in the domestic market. Earnings Drivers & Risks Bolstered by heightened demand, we expect Kia’s FY10 net profit to grow by a strong 15% y-o-y to a record high KRW1.7tn this year. Growth would be led by (i) 13% volume expansion (parent); (ii) higher ASP and cost savings associated with higher sales contribution from new model launches; (iii) lower marketing costs; and (iv) stronger equity income. Among its four main earnings drivers, the one that bodes particularly well for Kia, compared to regional peers under our coverage, is its cost saving ability. Kia sees potential for substantial cost cutting measures in the near term with further integration of its manufacturing platforms, which should offer higher degree of modularization and lower component count. This means new models will not only help to lift ASP, but also help to keep costs in check. With a more integrated platforms, Kia has made significant progress in this area. This has helped to cap input costs as sales per platform rise, and more vehicles use common components. In other words, not only will higher unit shipment per platform generate cost savings from lower fixed costs (i.e. spreading R&D and re-tooling costs over a larger sales base), but further cost innovations should accrue from enhanced component commonality between platforms. Outlook Its Georgia plant may offer a positive surprise. We believe this year’s earnings for the plant could beat market expectations, and the facility might reach break-even as early as end-2010. Although Hyundai Motor’s previous facility in Alabama, US, took 6 operational quarters to meet breakeven, we believe Kia’s Georgia plant may diverge from Hyundai’s precedent. Unlike Hyundai’s first set up, the Georgia plant has not had major problems securing key suppliers for its production as the plant uses many in-house suppliers from Hyundai’s US
(KRW bn) 25,000 20,000 15,000 10,000 5,000 0

Sales Trend

2008A 2009A Rev enue (LHS)

2010F

2011F

Yoy ,% 14 12 10 8 6 4 2 0 2012F

Rev enue growth (RHS)

Asset Trend

KRWbn 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2008A 2009A 2010F 2011F 2012F Net F ixed Assets (Tangible)
Profitability Trend

Total Current Assets

KRWbn 3,000 2,500 2,000 1,500 1,000 500 0 2008A EBIT 2009A 2010F 2011F 2012F Pre tax profit
Margin Trends (%)

Net Profit

% 12 10 8 6 4 2 0 2008A 2009A 2010F 2011F 2012F
Page 73

EBITDA margin Net income margin

EBIT margin

Asian Consumer Digest Kia Motors

Leverage & Asset Turnover (x)

KRW bn 25,000 20,000 15,000 10,000 5,000 0 2008A 2009A 2010F Total Assets (LHS) Asset Turnover (RHS)
ROE (%)

x 1.20 1.18 1.16 1.14 1.12 1.10 2011F 2012F Total Equity (LHS)

base, and is also using most of its external suppliers. In fact, Kia’s initial production ramp-up for the Sorento R (mid-size SUV) was better than Hyundai’s Alabama experience. Production went smoothly without any supply bottleneck. Also, unlike Hyundai’s Alabama plant, Kia’s Georgia facility does not produce car engines, which reduces the plant’s break even revenue and utilization levels compared to Hyundai’s. In addition, the first product launched by the Georgia plant was one of the most highly priced models based on the company’s portfolio. With Sorrento R’s ASP in the market being 30% higher than Kia’s average export ASP, it estimates sales of 130K vehicles will enable it to breakeven. In fact, sales of Sorrento R in the US market have been impressive enough to draw strong attention from the media. Sales of its redesigned SUV vehicle reached 24.8K units, far exceeding Kia’s monthly sales target of 6,000. Assuming Sorento R continues to rack up robust sales this year, we believe Kia’s goal for its US production unit to breakeven in the first year of full operation is within reach. And if this happens, it could accelerate its balance sheet restructuring. Financials and Valuation We recently raised net profit by 36% to KRW1,662bn for FY10F, and by 35% to KRW1,824bn for FY11F, after imputing higher sales volume and blended ASP assumptions on the back of improving product mix; and faster than expected turnaround at Kia’s Georgia plant. Accordingly, we raised target price from KRW21,000 to KRW33,000, based on 8x FY10F P/E (average of 2000-05 high P/E mutiples during its normal earnings cycle). The counter is currently traidng at 6.1x FY10F and 5.6x FY11F P/E, which are discounts of 62% and 50% to global peers’ averages, and 41% and 42% to Korean companies in the KOSPI200. We believe the counter is substantially undervalued given that its fundamentals are turning around and its solid earnings growth prospects. Looking ahead, we expect positive newsflow regarding its growth prospects with the release of 1HFY10 result, and continued re-rating led by the aforementioned factors and its attractive valuation.

% 25 20 15 10 5 0 2008A 2009A 2010F 2011F 2012F

PE (x)
255.0 205.0 155.0 105.0 55.0 5.0 2006

2007

2008

2009

P/Book Value (x)
1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 2006 2007 2008 2009

Page 74

Asian Consumer Digest Kia Motors
Income Statement (KRW bn) Balance Sheet (KRW bn)

FY Dec Turnover Cost of Goods Sold Gross Profit Other Opg (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Sales Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Effective Tax Rate (%) Cash Flow Statement (KRW bn)

2009A

2010F

2011F

2012F

FY Dec Total Fixed Assets Invts Other LT Assets Cash & ST Invts Other Current Assets Total Assets ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholder's Equity Minority Interests Total Cap. & Liab. Chg. in Wkg. Cap Net Debt

2009A 12,633 4,948 7,685 1,912 2,397 16,942 1,816 4,030 2,728 991 7,376 16,942 925 (2,632)

2010F 12,641 4,871 7,770 2,294 2,684 17,620 1,420 3,758 2,592 953 9,034 17,757 (245) (1,717)

2011F 13,107 5,255 7,852 2,684 3,308 19,099 1,350 3,766 2,342 1,016 10,895 19,368 (679) (1,007)

2012F 13,734 5,931 7,803 2,980 3,940 20,654 900 3,764 2,042 1,071 12,877 20,653 (689) 38

18,416 20,300 21,827 23,035 (13,824) (15,374) (16,555) (17,369) 4,591 4,926 5,273 5,666 (3,447) (3,625) (3,908) (4,102) 1,144 1,301 1,364 1,563 (46) 99 115 69 813 805 988 1,086 (212) (127) (83) (69) 0 0 0 0 1,700 2,078 2,385 2,650 (249) (416) (560) (623) 0 0 0 0 0 0 0 0 1,450 1,662 1,824 2,027 1,450 1,662 1,824 2,027 1,827 12.4 78.7 270.9 14.7 2,002 10.2 9.6 13.7 20.0 2,104 7.5 5.1 4.9 23.5 2,339 5.5 11.2 14.6 23.5

Rates & Ratios

FY Dec Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc Chg. in Wkg. Cap Other Operating CF Net Operating CF Capital Exp. (net) Investments Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Net Cashflow Beginning cash End Cash

2009A 1,700 682 (249) (813) 925 254 2,499 (313) (269) (647) (1,229) (1,009) 250 19 (740) 530 809 1,340

2010F 2,078 701 (416) (805) (245) 465 1,778 (345) 77 (503) (771) (97) (533) (0) (630) 378 1,340 1,717

2011F 2,385 740 (560) (988) (679) 484 1,381 (345) (384) (436) (1,165) (97) (320) (417) (201) 1,717 1,516

2012F 2,650 776 (623) (1,086) (689) 499 1,527 (345) (676) (351) (1,372) (97) (750) (847) (692) 1,516 824

FY Dec Gross Margin (%) Opg Profit Margin (%) Net Profit M argin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Interest Cover (x) Asset Turnover (x) Debtors Turn (days) Creditors Turn (days) Inventory Turn (days) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Capex to Debt (%) Opg CFPS (KRW) Free CFPS (KRW)

2009A 24.9 6.2 7.9 22.1 9.0 7.7 0.0 5.4 1.1 23.6 76.0 24.1 0.7 0.6 0.4 (0.1) 6,166 5,393

2010F 24.3 6.4 8.2 20.3 9.6 7.7 0.0 10.2 1.2 23.2 75.9 20.7 1.0 0.8 0.2 (0.1) 4,387 3,536

2011F 24.2 6.3 8.4 18.3 9.9 7.1 0.0 16.4 1.2 24.7 70.9 21.9 1.2 1.0 0.1 (0.1) 3,407 2,556

2012F 24.6 6.8 8.8 17.1 10.2 7.4 0.0 22.6 1.2 28.3 66.9 24.5 1.5 1.2 Cash (0.1) 3,767 2,916

Source: Company, DBS Vickers

Page 75

Asian Consumer Digest

Dongfeng Motor
Bloomberg: 489 HK | Reuters: 0489.HK

BUY HK$11.76 HSI : 21,455
Price Target : 12-month HK$ 14.90 Potential Catalyst: Positive sales volume growth with new model launches Analyst Rachel Miu +852 2863 8843 rachel_miu@hk.dbsvickers.com

Sustainable growth ahead
• • Launching new models to sustain business growth. Self-brand to complement existing brand portfolio Solutions to industry challenges in place: prudent capacity expansion, inventory monitoring and better cost control to mitigate rising material costs Maintain BUY, TP of HK$14.9

Price Relative
HK$ Relative Index 296 13.20 11.20 9.20 7.20 5.20 3.20 1.20 2006 96 46 2010 246 196 146

Staying competitive to maintain market position. Dongfeng Motor Group (DFG) is staying competitive by leveraging on its operating efficiency with a flexible product mix strategy. DFG will focus on launching more products under its own and the foreign joint ventures’ brands. DFG plans to have 8 new PV and 2 CV models this year, including enhancing its Fengshen self-brand product range. Last year, its overall market share in China was 10.5%. Prudent approach to ensure steady growth. DFG is monitoring three key issues closely; capacity expansion, inventory levels and steel prices. Given its roadmap on new models in the coming years, DFG will raise capacity by 19.5% to 1.7m units by end Dec10. DFG has always adopted a prudent approach to expand capacity. Currently, its inventory level at the distribution channels is within the healthy range of 1-1.5 months. The higher steel prices will impact 2H more as DFG is still consuming some low price steel inventory. During the previous metal price peak cycle in 2007-08, DFG managed to keep a stable GP margin of 17%. Consistent strong performance, our top pick. DFG’s strong management quality and proactive business strategy are key to its consistent strong performance. DFG is trading on FY10PE of 13x. Being a strong market player, we believe DFG’s earnings prospect will remain robust this year. In our opinion, the market has factored in the concerns and there is upside in valuation. Maintain BUY rating.
At A Glance Issued Capital - H shares (m shs) - Non H shrs (m shs) H shs as a % of Total H Mkt. Cap (HK$m/US$m) Major Shareholders Dongfeng Motor Corp. (%) Major H Shareholders (%) JPMorgan Chase & Co. (%) UBS AG (%) H Shares-Free Float (%) Avg. Daily Vol.(‘000)

2007

2008

2009

Dongfeng Motor (LHS)

Relative HSI INDEX (RHS)

Forecasts and Valuation FY Dec (RMB m) Turnover EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (RMB) EPS (HK$) EPS Gth (%) Diluted EPS (HK$) DPS (HK$) BV Per Share (HK$) PE (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Consensus EPS (HK$): 2008A 70,569 7,477 4,807 3,955 3,955 0.46 0.52 4.9 0.52 0.05 2.91 22.5 14.5 11.6 0.4 4.0 CASH 19.9 2009A 2010F 2011F

91,758 108,179 120,516 12,470 12,583 14,220 8,409 9,642 11,216 6,250 7,084 8,032 6,250 7,084 8,032 0.73 0.82 0.93 0.82 0.93 1.06 58.0 13.3 13.4 0.82 0.93 1.06 0.10 0.09 0.11 3.60 4.43 5.40 14.3 12.6 11.1 9.0 9.5 8.7 5.6 5.0 4.2 0.9 0.8 0.9 3.3 2.7 2.2 CASH CASH CASH 25.3 23.3 21.6 0.97 1.08

2,856 5,760 33 33,583 / 4,326 66.9 6.0 5.1 88.9 23,867

ICB Industry: Consumer Goods ICB Sector: Automobiles & Parts Principal Business: A leading automaker with strong foreign partnerships in the passenger and commercial vehicle segment

Source of all data: Company, DBSV, Bloomberg, HKEX

Page 76
www.dbsvickers.com Refer to important disclosures at the end of this report ed-SGC / sa- DC

Asian Consumer Digest Dongfeng Motor

Company Background
RMB m

Sales Trend
120,000 30.8% 100,000 80,000 60,000 40,000 20,000 0 2007A 2008A 2009A 2010F 2011F
Total Revenue Revenue Growth (%) (YoY)

Dongfeng Motor Group (DFG) assembles passenger and commercial vehicles in China. It has three foreign ventures with Nissan, Honda and Peugeot-Citroen. The group is based in Wuhan, Hubei Province. Currently, DFG has about 1.42m units of production capacity spread across Hubei, Guangxi, Guangdong and Henan for its vehicle assembly operation. DFG plans to raise capacity to 1.7m units by end Dec10 to meet future growth Industry Overview, Earnings Drivers & Risks

25.8%

20.8%

15.8%

10.8%

Asset Trend
RMB m 100,000 80,000 60,000 40,000 20,000

The auto industry posted record level of vehicle sales of 13.6m units, rising 45% y-o-y, under a favourable purchase tax policy to stimulate demand. The government continued this policy on 1.6L and below displacement vehicles to encourage more domestic consumption. We have projected total vehicle sales to grow 12% to 15.2m this year. For 1Q10, total vehicle sales were 4.6m units, about 30% of our full year forecast. DFG launched its own brand, Fengshen recently to capture the growing interest for Chinese brand automobiles. The consistent release of new models is an important strategy for the Chinese auto industry as consumers have a growing appetite for new cars. Since Dongfeng Motor has a wide range of products, the company benefits from the mass market and high-end demand, underpinned by rising disposal incomes. DFG sold 1.43m vehicles last year, c.35% increase from 2008. DFG is targeting to sell about 1.7m units of vehicles this year, a growth of 19%, supported by 8 new PV and 2 CV model launches. There are three areas of emphasis for DFG; prudent capacity expansion, close monitoring of inventory, and tight cost control in view of rising steel prices. The company is adopting a prudent approach in expanding its production capacity to ensure high utilisation rate. It plans to raise capacity by about 20% to meet the new model launches. Auto makers enjoyed rather stable margins last year due to low raw material and component costs. This year, it is anticipated there could be some increase in costs, but management is confident of keeping GP margins steady.

2007A

2008A

2009A

2010F

2011F

Net Fixed Assets (Tangible)

Total Current Assets

Profitability Trend
RMB m 10,770 9,770 8,770 7,770 6,770 5,770 4,770 3,770 2007A 2008A Operating EBIT 2009A Pre tax Profit 2010F Net Profit 2011F

Margin Trends (%)
20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2007A EBITDA Margin % 2008A 2009A 2010F 2011F EBIT Margin % Net Income Margin %

Page 77

Asian Consumer Digest Dongfeng Motor

Leverage & Asset Turnover (x)
1.3 0.5 0.4 0.3 0.2 0.1 0.0 2007A 2008A 2009A 2010F 2011F Financial Leverage (LHS) Asset Turnover (RHS) 1.3 1.3 1.2 1.2 1.2 1.2 1.2 1.1 1.1 1.1

The potential earnings risks are a sharp retraction in vehicle demand and sharp increases in cost of materials and components. Outlook The sales target for FY10 is about 1.7m units, up 19% yoy. DFG sold about 472K units of vehicles in 1Q10, 28% of the full year forecast. Revenue is expected to increase c.18% to c.RMB108.2bn. However, due to a change in product mix, GP margin is projected to hold around the 19% range. For FY10, net profit is estimated to grow by 13%, after a high base effect in FY09. The turnaround of its Dongfeng Peugeot-Citroen JV is another plus factor, as this company was slow in the past to bring new models into the market. A change in strategy has improved its performance last year. Financials and Valuation

ROE (%)
40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 2007A 2008A 2009A 2010F 2011F

PE (x)
18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 2006 2007 2008 2009

DFG is our top pick in the Chinese auto market. The company will continue to ride on the positive stimulus policy by government to promote auto consumption in the country. Due to a low vehicle penetration rate in China, the medium term prospects are positive, hence benefitting strong vehicle manufacturers like DFG. The strong management team and solid business strategy are factors we consider very favorable. DFG is trading on 13x FY10 earnings. Being one of the top three auto groups in China, we believe DFG should command a premium to its peers listed in HK. We priced DFG at 16x forward PE, translating into TP of HK$14.9. We maintain BUY rating on the counter.

P/Book Value (x)
3.4 2.9 2.4 1.9 1.4 0.9 0.4 2006

2007

2008

2009

Page 78

Asian Consumer Digest Dongfeng Motor
Income Statement (RMB m) FY Dec Turnover Cost of Goods Sold Gross Profit Other Opg (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net profit before Except. EBITDA Sales Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Effective Tax Rate (%) Cash Flow Statement (RMB m) FY Dec 2008A 70,569 (58,688) 11,881 (6,776) 5,105 0 95 (393) 0 4,807 (647) (205) 0 3,955 3,955 7,477 19.0 20.1 23.6 13.5 2008A 2009A 91,758 (74,274) 17,484 (9,025) 8,459 0 195 (245) 0 8,409 (1,671) (488) 0 6,250 6,250 12,470 30.0 66.8 65.7 19.9 2009E 8,409 2,409 (647) (109) (195) 11,608 0 21,475 (5,000) 0 (797) 0 354 (5,443) (388) 0 0 1,304 916 16,948 2H2008 32,673 (27,331) 5,342 (3,415) 1,927 0 62 (183) 0 1,806 (284) (39) 1,483 1,483 1,989 7.1 5.5 3.9 (18.7) 16.3 5.9 4.5 2010F 108,179 (88,054) 20,126 (10,311) 9,815 0 234 (407) 0 9,642 (2,025) (533) 0 7,084 7,084 12,583 17.9 0.9 16.0 21.0 2010F 9,642 2,534 (1,671) (33) (234) 3,584 0 13,821 (5,500) 0 0 0 441 (5,059) (776) 0 0 (407) (1,183) 7,578 1H2009 39,046 (32,071) 6,975 (3,451) 3,524 0 77 (143) 0 3,458 (643) (209) 2,606 2,606 3,601 3.0 12.1 10.9 5.4 17.9 9.0 6.7 2011F 120,516 (97,501) 23,015 (11,614) 11,401 0 281 (466) 0 11,216 (2,580) (605) 0 8,032 8,032 14,220 11.4 13.0 16.2 23.0 2011F 11,216 2,538 (2,025) (89) (281) 1,826 0 13,186 (8,000) 0 0 0 554 (7,446) (708) 0 0 (466) (1,174) 4,566 2H2009 52,712 (42,203) 10,509 (5,574) 4,935 0 118 (102) 0 4,951 (1,028) (279) 3,644 3,644 5,053 61.3 154.0 156.1 145.7 19.9 9.4 6.9 Balance Sheet (RMB m) FY Dec Net Fixed Assets Invts in Assocs & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab. Non-Cash Wkg. Cap Net Cash/(Debt) Rates & Ratios FY Dec 2008A 2009A 2010F 18.6 9.1 6.5 23.3 7.7 16.9 10.0 24.1 1.2 58.7 182.7 39.2 1.2 1.1 CASH 47.2 3.3 3.9 1.35 1.10 2010F 24,331 82,845 1,003 108,179 2011F 19.1 9.5 6.7 21.6 7.6 16.5 10.0 24.5 1.1 58.6 186.0 38.8 1.3 1.1 CASH 68.7 3.3 4.5 1.50 0.68 2011F 26,506 92,906 1,104 120,516 Gross Margin (%) 16.8 19.1 Opg Profit Margin (%) 7.2 9.2 Net Profit Margin (%) 5.6 6.8 ROAE (%) 19.9 25.3 ROA (%) 7.0 8.6 ROCE (%) 14.1 17.7 Div Payout Ratio (%) 9.8 12.4 Interest Cover (x) 13.0 34.5 Asset Turnover (x) 1.3 1.3 Debtors Turn (days) 65.5 58.5 Creditors Turn (days) 151.5 168.5 Inventory Turn (days) 54.8 46.9 Current Ratio (x) 1.1 1.2 Quick Ratio (x) 0.8 1.0 Net Debt/Equity (X) CASH CASH Capex to Debt (%) 50.2 43.0 Z-Score (X) 2.2 2.2 N.Cash/(Debt)PS (RMB) 0.7 2.9 Opg CFPS (RMB) 0.87 1.30 0.50 2.17 Free CFPS (RMB) Segmental Breakdown (RMB m) / Key Assumptions FY Dec 2008A 2009A Revenues Commercial vehicles Passenger vehicles Corporate and others Total Key Assumptions Vol sales - CV (units) Vol sales - PV (units) GP margin - CV (%) GP margin - PV (%) 20,980 48,660 929 70,569 21,982 68,864 912 91,758 2008A 18,390 787 4,972 14,134 9,356 12,389 421 60,449 6,919 26,538 1,781 319 22,055 2,837 60,449 (4,372) 5,434 2009A 18,703 896 5,845 33,911 8,741 17,001 592 85,689 7,217 43,219 4,424 274 27,284 3,271 85,689 (16,885) 22,270 2010F 21,951 1,130 5,563 41,489 9,615 17,771 592 98,112 7,217 48,801 4,424 274 33,592 3,804 98,112 (20,822) 29,848 2011F 27,695 1,411 5,281 46,056 10,577 20,907 592 112,518 7,217 55,279 4,424 274 40,915 4,409 112,518 (23,204) 34,415

Pre-Tax Profit 4,807 Dep. & Amort. 2,277 Tax Paid (693) (Pft)/ Loss on disposal of FAs 92 Assoc. & JV Inc/(loss) (95) Non-Cash Wkg.Cap. 1,546 Other Operating CF 219 Net Operating CF 8,153 Capital Exp.(net) (4,364) Other Invts.(net) (9) Invts in Assoc. & JV 14 Div from Assoc & JV 0 Other Investing CF (3,421) Net Investing CF (7,780) Div Paid (485) Chg in Gross Debt 570 Capital Issues 0 Other Financing CF 2,431 Net Financing CF 2,516 Net Cashflow 2,889 Interim Income Statement (RMB m) FY Dec Turnover Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA Sales Gth (%) EBITDA Gth (%) Opg Profit Gth Net Profit Gth (%) Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%) 1H2008 37,896 (31,357) 6,539 (3,361) 3,178 0 33 (210) 0 3,001 (363) (166) 2,472 2,472 3,211 31.5 38.8 39.6 27.1 17.3 8.4 6.5

330,530 727,392 11.5 18.2

371,900 1,058,800 14.2 20.7

427,685 1,270,560 11.5 19.0

453,346 1,410,322 11.5 18.5

Source: Company, DBS Vickers

Page 79

Asian Consumer Digest

China Foods
Bloomberg: 506 HK | Reuters: 0506.HK

BUY HK$6.23 HSI : 21,455
Price Target : 12 months HK$ 7.90 Potential Catalyst: M&A and asset injections Analyst

BUY for potential
• • • • We like China Foods for the potential of its branded F&B products Beverage and wine segments continue to act as the key growth engines Positive, in our view, to dispose the volatile edible oil business Maintain BUY, TP HK$7.90

Titus Wu +852 2820 4611 titus_wu@hk.dbsvickers.com
Alice Hui CFA, +852 2971 1960 alice_hui@hk.dbsvickers.com

Price Relative
HK$ 8.40 7.40 6.40 5.40 4.40 3.40 2.40 1.40 2006 Relative Index 219 199 179 159 139 119 99 79 2007 2008 2009 59 2010

Beverages the star performer. We expect China Foods to continue to enjoy the fruits of a booming beverage market in China, especially still beverages. The 44% volume growth of “Minute Maid” juice in FY09 further strengthens our confidence on its beverage business in FY10.Coupled with further capacity expansion, sales growth should remain robust at 28% CAGR in FY09-11, underpinned by brand leadership and more intense marketing efforts of Coca-Cola. Quality-focus wine to win. China Foods’ branded “Greatwall” wine adopts a quality-focused strategy by utilizing high quality vineyards in West China, and overseas like Chile. We believe this is a more solid cornerstone for the equity of a wine brand compared with Changyu’s emphasis on its brand history as Chinese wine market is on the way to turning mature. BUY for potential. We still like China Foods as we believe its wine, beverage and confectionery businesses are among the segments that hold the most potential in the F&B market. We maintain BUY rating and target price of HK$7.90 (22% upside to current counter), translating into 0.5X PEG11F, towards the lower end among HK listed peers. Our valuation points to a 20X PE11F, still at around 20% discount to leading players like Tingyi (322 HK).
At A Glance Issued Capital (m shrs) Mkt. Cap (HK$m/US$m) Major Shareholders COFCO Corporation (%) Free Float (%) Avg. Daily Vol.(‘000)

China Foods (LHS)

Relative HSI INDEX (RHS)

Forecasts and Valuation FY Dec (HK$ m) Turnover EBITDA Pre-tax Profit Net Profit EPS (HK$) EPS Gth (%) Diluted EPS (HK$) DPS (HK$) BV Per Share (HK$) PE (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Consensus EPS (HK$): 2008A 14,240 858 756 483 0.17 (38.9) 0.17 0.06 1.82 36.0 30.5 20.2 1.0 3.4 CASH 10.0 2009A 16,823 1,222 950 568 0.20 17.5 0.20 0.07 1.96 30.6 21.6 14.4 1.2 3.2 CASH 10.7 2010F 20,379 1,465 1,242 769 0.28 35.4 0.28 0.10 2.20 22.6 17.6 12.4 1.6 2.8 CASH 13.2 -10% 0.27 2011F 25,462 2,065 1,808 1,102 0.39 43.3 0.39 0.15 2.50 15.8 12.8 8.7 2.4 2.5 CASH 16.8 -2% 0.34

2,792 17,397 / 2,241 74.3 25.8 3,787

ICB Industry: Consumer Goods ICB Sector: Food Producers Principal Business: F&B branch of COFCO Group

Source of all data: Company, DBSV, Bloomberg, HKEX

Page 80
www.dbsvickers.com Refer to important disclosures at the end of this report ed-GC / sa- DC

Asian Consumer Digest China Foods

Company Background
HK$ m

Sales Trend
25,000 52.2% 47.2% 42.2% 15,000 10,000 5,000 22.2% 0 17.2% 2007A 2008A 2009A 2010F 2011F
Total Revenue Revenue Growth (%) (YoY)

A basket of leading F&B brands. We still like China Foods for its basket of leading F&B brands in four high growth potential divisions - wine, beverage, kitchen food and confectionery, most of which are still in early expansion or fast growing stage in China. Industry Overview, Earnings Drivers & Risks Catfish effect in wine market. The rising popularity of imported wines would continue to threaten domestic wineries, but also help to accelerate the growth of the market and ultimately benefit all players. We believe the wine market in China is stepping into the take-off stage. Rising income levels will underpin consumers’ affordability and generate interest in wines. Their increasingly enriched knowledge and improving palate for wines should boost the popularity of high quality wines. Booming beverage market. As one of the top 10 bottlers of Coca-Cola globally, China Foods will continue to enjoy the fruit of the booming soft drink market in China. While demand for sparkling beverage is still expected to grow steadily, still beverages should be the key growth engine ahead. Outlook Quality-focused Greatwall wines. China Foods’ branded “Greatwall” wine has been making considerable progress recently with a more refined product portfolio and a more integrated distribution platform. More importantly, Greatwall adopts a quality-focused strategy by utilizing high quality vineyards in West China, and overseas like Chile. We believe this is a more solid cornerstone for the equity of a wine brand compared with Changyu’s emphasis on its brand history as Chinese wine market is on the way to turning mature. Capacity expansion + Backup from Coca-Cola. The beverage business will be driven by on-going capacity expansion for sparkling beverages. Meanwhile, the expected commencement of still beverage production should improve China Foods’ margins led by cost savings in logistics. Additionally, the brand leadership of Coca-Cola as well as greater marketing efforts expected should drive growth further.

20,000

37.2% 32.2% 27.2%

Asset Trend
HK$ m 12,000 10,000 8,000 6,000 4,000 2,000

2007A

2008A

2009A

2010F

2011F

Net Fixed Assets (Tangible)

Total Current Assets

Profitability Trend
HK$ m 1,683

1,483

1,283

1,083

883

683

483 2007A 2008A Operating EBIT 2009A Pre tax Profit 2010F Net Profit 2011F

Margin Trends (%)
20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2007A EBITDA Margin % 2008A 2009A 2010F 2011F EBIT Margin % Net Income Margin %

Page 81

Asian Consumer Digest China Foods
Leverage & Asset Turnover (x)
0.3 1.8 0.2 0.2 0.1 0.1 0.0 2007A 2008A 2009A 2010F 2011F Financial Leverage (LHS) Asset Turnover (RHS) 1.6 1.4 1.2 1.0 0.8 0.6

Strong turnaround in Confectionery. The management team had been making efforts in product innovation, brand marketing, inventory management, as well as a restructuring of its distribution strategy, and generated 43% sales growth in FY09. However, we do not expect the business to be profitable until 2H10-1H11, given that material prices, A&P spending, as well as competition from foreign brands remain high. Positive to dispose oil business. The disposal of edible oil business seems to be up on the cards especially considering the comments from CEO of China Agri (606 HK)-the sister company of China Foods. Despite the high sales contribution (36% in FY09), the oil business is quite volatile and is even loss making in certain years. Hence we believe it is positive for China Foods to dispose this segment and focus more on discretionary F&B products which hold higher potential. Asset injection. If the disposal of oil business comes true, we believe more F&B assets could be injected into China Foods, which is the only listed platform for branded F&B products of COFCO. The potential candidates are”Wugudaochang” instant noodle as well as “Lohas” juice, which may take place in one or two years Financials and Valuation Investing for the future. Though there are rising concerns on increasing material prices for F&B companies, we don’t expect too much pressure on China Foods’ gross margin, as most of its products are discretionary products with leading market presence, hence, less-price sensitive. Meanwhile its relatively low EBITDA margin (7.3% in FY09) was largely due to heavy marketing and distribution spending, which we believe was necessary for the company to gain more market share in the fast-growing wine and beverage market. More confidence on beverages. The 44% volume growth of “Minute Maid” juice in FY09 further strengthens our confidence on its beverage business in FY10. In early10, the company also started a vineyard expansion plan of 30k mu (2k h.a.) in Xinjiang, as a part of COFCO’s “Complete Industrial Chain” strategy. We firmly believe this strategy would drive China Foods into a highly-competitive top F&B player in future.

ROE (%)
20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2007A 2008A 2009A 2010F 2011F

PE (x)
38.0 33.0 28.0 23.0 18.0 13.0 8.0 2006

2007

2008

2009

P/Book Value (x)
4.1 3.6 3.1 2.6 2.1 1.6 1.1 0.6 2006

2007

2008

2009

BUY for potential. We still like China Foods as we believe its wine, beverage and confectionery businesses are among the segments that hold the most potential in the F&B market. We maintain BUY rating and target price of HK$7.90 (22% upside to current counter), translating into 0.5X PEG11F, towards the lower end among HK listed peers. Our target price points to a 20X PE11F, still at around 20% discount to Tingyi (322 HK).

Page 82

Asian Consumer Digest China Foods
Income Statement (HK$ m) FY Dec Turnover Cost of Goods Sold Gross Profit Other Opg (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit EBITDA Sales Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Effective Tax Rate (%) Cash Flow Statement (HK$ m) FY Dec 2008A 14,240 (10,742) 3,498 (2,852) 646 0 125 (15) 0 756 (136) (137) 0 483 858 46.2 (16.3) (26.0) 18.0 2008A 2009A 16,823 (12,122) 4,701 (3,775) 926 0 60 (37) 0 950 (229) (152) 0 568 1,222 18.1 42.3 43.3 24.2 2009A 950 296 (136) 0 0 (222) 172 1,060 (874) (430) 513 0 19 (772) (368) 555 38 (118) 108 396 2H2008 6,085 (4,262) 1,822 (1,530) 292 0 63 (8) 0 348 (53) (53) 242 395 11.7 (41.4) (50.5) (41.6) 29.9 4.8 4.0 2010F 20,379 (14,585) 5,794 (4,607) 1,187 0 60 (5) 0 1,242 (273) (199) 0 769 1,465 21.1 19.9 28.2 22.0 2010F 1,242 278 (229) 0 0 (1,344) 0 (54) (367) 254 (50) 0 0 (163) (295) 147 0 (52) (200) (417) 1H2009 8,191 (5,853) 2,338 (1,862) 476 0 67 (38) 0 505 (111) (93) 301 608 0.4 31.4 34.6 24.5 28.5 5.8 3.7 2011F 25,462 (18,129) 7,333 (5,585) 1,748 0 65 (5) 0 1,808 (416) (290) 0 1,102 2,065 24.9 41.0 47.3 23.0 2011F 1,808 317 (273) 1 0 (664) (1) 1,188 (500) (3) 0 0 0 (503) (567) 0 0 0 (567) 119 2H2009 8,632 (6,269) 2,363 (1,914) 450 0 (6) 1 0 445 (119) (59) 267 609 41.9 54.1 53.8 10.5 27.4 5.2 3.1 Balance Sheet (HK$ m) FY Dec Net Fixed Assets Invts in Assocs & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab. Non-Cash Wkg. Cap Net Cash/(Debt) Rates & Ratios FY Dec 2008A 2009A 27.9 5.5 3.4 10.7 5.0 9.6 36.0 25.3 1.5 21.3 53.5 82.4 1.3 0.8 CASH 108.8 CASH 0.4 0.46 0.07 2009A 6,008 3,197 520 7,098 16,823 583 1,854 254 2,010 4,701 9.7 58.0 48.9 28.3 27.9 2010F 28.4 5.8 3.8 13.2 6.0 11.2 36.0 237.3 1.6 22.2 52.9 78.1 1.5 0.8 CASH 38.6 CASH 0.2 0.46 (0.15) 2010F 7,062 3,750 624 8,944 20,379 791 2,194 305 2,504 5,794 11.2 58.5 48.9 28.0 28.4 2011F 28.8 6.9 4.3 16.8 8.1 14.9 38.0 349.6 1.9 22.5 56.1 75.2 1.6 0.8 CASH 52.6 CASH 0.3 0.66 0.25 2011F 8,606 4,480 748 11,627 25,462 1,033 2,643 367 3,291 7,333 12.0 59.0 49.0 28.3 28.8 Gross Margin (%) 24.6 Opg Profit Margin (%) 4.5 Net Profit Margin (%) 3.4 ROAE (%) 10.0 ROA (%) 5.0 ROCE (%) 8.3 Div Payout Ratio (%) 36.0 Interest Cover (x) 43.6 Asset Turnover (x) 1.5 Debtors Turn (days) 24.1 Creditors Turn (days) 57.0 Inventory Turn (days) 78.1 Current Ratio (x) 1.4 Quick Ratio (x) 0.7 Net Debt/Equity (X) CASH Capex to Debt (%) 185.2 Z-Score (X) CASH N.Cash/(Debt)PS (HK$) 0.5 Opg CFPS (HK$) 0.45 0.15 Free CFPS (HK$) Segmental Breakdown (HK$ m) FY Dec 2008A Revenues Kitchen food Wine Confectionery Beverages Total Gross Profit Kitchen food Wine Confectionery Beverages Total Gross Profit Margins Kitchen food Wine Confectionery Beverages Total 6,512 2,790 365 4,574 14,240 514 1,599 139 1,247 3,498 7.9 57.3 38.0 27.3 24.6 2008A 2,434 412 2,035 1,559 2,629 1,364 15 10,448 248 3,763 0 112 5,092 1,233 10,448 245 1,311 2009A 3,101 447 2,357 1,989 2,846 1,727 28 12,496 303 4,626 500 182 5,483 1,402 12,496 (24) 1,186 2010F 3,193 447 2,149 1,573 3,397 2,216 28 13,002 450 4,364 500 130 6,156 1,402 13,002 1,276 623 2011F 3,379 447 2,149 1,691 4,073 2,594 28 14,361 450 4,897 500 130 6,981 1,402 14,361 1,797 741

Pre-Tax Profit 756 Dep. & Amort. 212 Tax Paid (168) (Pft)/ Loss on disposal of FAs 0 Assoc. & JV Inc/(loss) 0 Non-Cash Wkg.Cap. (371) Other Operating CF 446 Net Operating CF 876 Capital Exp.(net) (459) Other Invts.(net) (47) Invts in Assoc. & JV (188) Div from Assoc & JV 97 Other Investing CF 40 Net Investing CF (557) Div Paid (230) Chg in Gross Debt (172) Capital Issues 0 Other Financing CF 234 Net Financing CF (168) Net Cashflow 150 Interim Income Statement (HK$ m) FY Dec 1H2008 Turnover Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit EBITDA Sales Gth (%) EBITDA Gth (%) Opg Profit Gth Net Profit Gth (%) Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%) 8,156 (6,479) 1,676 (1,322) 354 0 62 (7) 0 408 (83) (84) 242 463 89.9 6.6 25.1 (36.0) 20.6 4.3 3.0

Source: Company, DBS Vickers

Page 83

Asian Consumer Digest

Want Want China
Bloomberg: 151 HK | Reuters: 151.HK

BUY HK$5.94 HSI : 21,455
Price Target : 12 months HK$ 6.5 (Prev HK$6.0) Potential Catalyst: Better-than-expected growth of rice crackers Analyst Titus Wu +852 2820 4611 titus_wu@hk.dbsvickers.com Alice Hui CFA, +852 2971 1960 alice_hui@hk.dbsvickers.com

Play niche
• • • • “Big year” for rice crackers. Successful niche play in beverage market. Improving supply chain management. Better earnings outlook; Maintain BUY, TP raised to HK$6.5.

Price Relative
HK$ 6.30 5.80 5.30 4.80 4.30 3.80 3.30 2.80 2.30 Mar-08 Sep-08 Mar-09 Sep-09 19 Mar-10 69 119 219 169 Relative Index

“Big year” for rice crackers. We expect Rice crackers to resume growth in FY10, on the back of its dominant market position, restructured and more efficient distribution network, strong track record in launching successful products and effective marketing strategy. With well-diversified product portfolio, Want Want would continue to explore new market opportunities and outperform in the F&B market. Beverage as key growth engine. Want Want has successfully expanded its presence in the beverage segment as a niche player. Its pocket drink has been gaining popularity since its launch in 2009, and has already contributed 8.1% of its total beverage sales in 2009. We believe Want Want would continue to gain share in the beverage share given its effective and innovative production and strong brand awareness. Maintain BUY. Cash position remained strong (US$348m net cash) with sustainable payout at a high 89% in FY09. We expect its robust beverage sales to further drive growth ahead. With improving outlook and projected FY09-11 core earnings CAGR of 30%, we expect the valuation gap with F&B leaders like Tingyi to narrow. Premised on 21x FY11 PE, or c.0.9x PEG, we raised TP to HK$6.5. Maintain BUY.

Want Want China (LHS)

Relative HSI INDEX (RHS)

Forecasts and Valuation FY Dec (US$ m) Turnover EBITDA Pre-tax Profit Net Profit EPS (US$) EPS (HK$) EPS Gth (%) Diluted EPS (HK$) DPS (HK$) BV Per Share (HK$) PE (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Consensus EPS (HK$): 2008A 1,554 352 310 263 0.02 0.16 45.5 0.16 0.15 0.55 38.3 32.7 28.2 2.6 10.9 CASH 32.4 2009A 1,711 408 360 313 0.02 0.18 18.3 0.18 0.16 0.58 32.3 27.8 23.9 2.7 10.2 CASH 32.6 2010F 2,282 512 460 388 0.03 0.23 24.3 0.23 0.19 0.69 26.0 22.9 19.1 3.3 8.6 CASH 35.8 0.23 2011F 2,975 654 598 489 0.04 0.29 26.0 0.29 0.24 0.79 20.6 18.4 14.9 4.1 7.5 CASH 38.9 2% 0.27

ICB Industry: Consumer Goods ICB Sector: Food Producers Principal Business: Major snack food company in China

At A Glance Issued Capital (m shrs) Mkt. Cap (HK$m/US$m) Major Shareholders Tsai Eng-Meng (%) Free Float (%) Avg. Daily Vol.(‘000)

13,211 78,492 / 10,111 48.8 51.2 12,029

Source of all data: Company, DBSV, Bloomberg, HKEX

Page 84
www.dbsvickers.com Refer to important disclosures at the end of this report ed-GC / sa- AH GL

Asian Consumer Digest Want Want China

Company Background
US$ m

Sales Trend
3,000 44.6% 39.6% 34.6% 29.6% 24.6% 1,000 500 0 2007A 2008A 2009A 2010F 2011F
Total Revenue Revenue Growth (%) (YoY)

Market leader in the rice crackers, flavored milk and soft candies segments. This puts Want Want well ahead of its competitors, especially in rice crackers. Its strong brand and competitive advantages provide a natural entry barrier amid heightened food safety concerns in China. Successful product rollout, innovative marketing. Strong brand reputation aside, we believe Want Want’s success was attributed to its strong product offerings, both in terms of varieties and in terms of innovation, as well as its effective marketing strategy. The company has over the years developed a well-diversified product portfolio, with revenue spread evenly across rice crackers, beverages and snack food. Industry Overview, Earnings Drivers & Risks Stable growth for rice crackers and snacks. We expect rice crackers and snack food market to sustain solid growth. It was noted that the company’s sales have been leaning increasingly towards core brands and gift packs, indicating a shift to higher-margin product categories in the past several years. We expect the consumption upgrade to continue to drive rice crackers market ahead. Booming beverage market. While the bulk of Want Want’s beverage revenue comes from flavored milk, contributions from other beverages have been increasing over the past few years. On the back of rising non-dairy beverage sales, Want Want achieved solid beverage sales CAGR of 43% in FY04FY09. Outlook Beverage as key engine. Want Want has successfully expanded its presence into the beverage as a niche player, making it the key growth engine. Its pocket drink has been gaining popularity since its launch in 2009, and has already contributed 8.1% of total beverage sales in 2009. We believe Want Want would continue to gain market share in beverage sales through its effective and innovative production and strong brand awareness. “Big year” for Rice cracker. Following the disappointing performance in FY09, we expect rice crackers to resume growth in FY10 as inventory normalizes and restructuring in

2,500 2,000 1,500

19.6% 14.6% 9.6%

Asset Trend
US$ m 2,000 1,500 1,000 500

2007A

2008A

2009A

2010F

2011F

Net Fixed Assets (Tangible)

Total Current Assets

Profitability Trend
US$ m 576 526 476 426 376 326 276 226 176 2007A 2008A Operating EBIT 2009A Pre tax Profit 2010F Net Profit 2011F

Margin Trends (%)
30%

25%

20%

15%

10% 2007A EBITDA Margin % 2008A 2009A 2010F 2011F EBIT Margin % Net Income Margin %

Page 85

Asian Consumer Digest Want Want China

Leverage & Asset Turnover (x)
0.5 0.4 0.4 0.3 0.3 0.2 0.2 0.1 0.1 0.0 2007A 2008A 2009A 2010F 2011F Financial Leverage (LHS) Asset Turnover (RHS) 1.6 1.5 1.4 1.3 1.2 1.1 1.0

distribution channel starts to take effect. Seasonality should also be more favourable this year with the CNY falling in February (instead of January in FY09 where sales were pushed forward to previous year hence creating higher base). All-in, we expect rice crackers to resume a strong double-digit growth in FY10 (vs 18% expected decline in FY09). Expansion into noodle – limited impact. Want Want plans to expand into rice-based instant noodle market this year. While it is too early to gauge the impact, we believe risk should be limited considering its relatively small initial investment (c.US$20m). Financials and Valuation Limited pressures from materials. We don’t expect too much pressure from price increase of raw materials for Want Want as its business is more discretionary. Leveraging on its strong market position, the company is anticipated to increase its ASP in 1H10 to pass on the cost hike of certain materials like rice and sugar. Effective A&P spending. Want Want is arguably the most effective in its A&P efforts among all F&B players, with its A&P of sales being relatively stable around 3% in the past five years. Looking forward, the company would inch up that ratio to 3.2-3.3% as competition in beverage market intensifies. Again, beverage sales are expected to remain strong for Want Want and higher sales from newer products should benefit margins as a whole.

ROE (%)
60.0% 55.0% 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 2007A 2008A 2009A 2010F 2011F

PE (x)
31.0 29.0 27.0 25.0 23.0 21.0 19.0 17.0 Mar-08

Sep-08

Mar-09

Sep-09

Mar-10

P/Book Value (x)
9.5 8.5 7.5 6.5 5.5 4.5 Mar-08

Improving supply chain management. Following the rice crackers hiccup in 2008-2009, the company has restructured its distribution network to enhance the efficiencies and control on channels. The incorporation of SAP system would also help improve the supply chain management. Hence we expect the improvement on cash conversion cycle to sustain in the coming years (92 days in FY08 to 85 days in FY09). Valuations. Cash position remained strong (US$348m net cash) with payout maintained at a high 89% in FY09, which should be sustainable in the future. We expect its robust beverage sales to further drive growth ahead. With improving outlook and projected FY09-11 core earnings CAGR of 30%, we expect the valuation gap with F&B leaders like Tingyi to narrow. Premised on 23x FY11 PE, or c.0.9x PEG, we raised TP to HK$6.5. Maintain BUY.

Sep-08

Mar-09

Sep-09

Mar-10

Page 86

Asian Consumer Digest Want Want China
Income Statement (US$ m) FY Dec Turnover Cost of Goods Sold Gross Profit Other Opg (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit EBITDA Sales Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Effective Tax Rate (%) Cash Flow Statement (US$ m) FY Dec 2008A 1,554 (957) 597 (290) 307 0 1 2 0 310 (47) 0 0 263 352 42.0 26.1 34.7 15.1 2008A 2009A 1,711 (1,019) 692 (336) 356 0 0 4 0 360 (47) (1) 0 313 408 10.1 15.9 16.1 13.0 2009A 360 52 (47) 0 0 236 0 600 (127) (2) 0 0 17 (111) (259) 190 39 (38) (68) 421 1H2008 709 (445) 264 (114) 150 0 0 (1) 0 149 (20) 0 129 176 41.8 47.7 57.2 71.2 37.2 21.1 18.2 2010F 2,282 (1,368) 915 (456) 459 0 0 2 0 460 (71) (1) 0 388 512 33.4 25.5 28.8 15.5 2010F 460 54 (47) 0 0 (176) 0 291 (98) (2) 0 0 (8) (109) (198) (127) 0 0 (325) (143) 2H2008 844 (512) 333 (176) 157 0 1 3 0 161 (27) 0 134 176 42.1 10.0 18.5 31.8 39.4 18.6 15.8 2011F 2,975 (1,790) 1,185 (591) 594 0 0 4 0 598 (108) (1) 0 489 654 30.4 27.8 29.5 18.0 2011F 598 61 (71) 0 0 (124) 0 462 (116) (4) 0 0 0 (120) (330) (60) 0 0 (390) (47) 1H2009 798 (490) 308 (170) 138 0 0 1 0 139 (18) 0 121 163 12.5 (7.6) (8.0) (6.4) 38.6 17.3 15.1 Balance Sheet (US$ m) FY Dec Net Fixed Assets Invts in Assocs & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab. Non-Cash Wkg. Cap Net Cash/(Debt) Rates & Ratios FY Dec 2008A 2009A 40.5 20.8 18.3 32.6 19.6 25.3 88.7 N/A 1.1 18.3 35.2 101.9 1.7 1.4 CASH 35.6 9.0 0.2 0.21 0.28 2009A 468 798 435 10 1,711 206 287 198 1 692 44.1 36.0 45.5 5.8 40.5 2010F 40.1 20.1 17.0 35.8 21.4 28.0 85.0 N/A 1.3 13.6 34.0 82.7 2.3 1.5 CASH 42.8 10.4 0.2 0.27 0.11 2010F 566 1,140 557 20 2,282 250 415 247 3 915 44.1 36.4 44.4 15.0 40.1 2011F 39.8 20.0 16.4 38.9 24.9 33.3 85.0 N/A 1.5 13.8 34.3 93.4 2.3 1.3 CASH 68.1 12.1 0.2 0.35 0.20 2011F 663 1,554 683 76 2,975 292 566 306 21 1,185 44.1 36.4 44.8 28.0 39.8 Gross Margin (%) 38.4 Opg Profit Margin (%) 19.7 Net Profit Margin (%) 16.9 ROAE (%) 32.4 ROA (%) 20.5 ROCE (%) 26.3 Div Payout Ratio (%) 98.7 Interest Cover (x) N/A Asset Turnover (x) 1.2 Debtors Turn (days) 19.5 Creditors Turn (days) 31.8 Inventory Turn (days) 104.9 Current Ratio (x) 2.5 Quick Ratio (x) 1.4 Net Debt/Equity (X) CASH Capex to Debt (%) 42.4 Z-Score (X) 9.0 N.Cash/(Debt)PS (US$) 0.1 Opg CFPS (US$) 0.19 0.07 Free CFPS (US$) Segmental Breakdown (US$ m) FY Dec 2008A Revenues Rice crackers Dairy products and beverages Snack foods Others Total Gross Profit Rice crackers Dairy products and beverages Snack foods Others Total Gross Profit Margins Rice crackers Dairy products and beverages Snack foods Others Total 561 536 448 9 1,554 223 177 195 2 597 39.7 33.0 43.6 17.7 38.4 2008A 555 2 50 284 346 181 7 1,425 2 323 165 0 931 4 1,425 211 118 2009A 624 3 56 705 223 147 1 1,758 217 408 140 0 988 5 1,758 (38) 348 2010F 670 3 57 562 397 186 1 1,876 30 462 200 0 1,179 5 1,876 122 332 2011F 727 3 60 515 519 234 1 2,057 20 543 150 0 1,338 6 2,057 210 345

Pre-Tax Profit 310 Dep. & Amort. 45 Tax Paid (39) (Pft)/ Loss on disposal of FAs 0 Assoc. & JV Inc/(loss) (1) Non-Cash Wkg.Cap. (131) Other Operating CF (2) Net Operating CF 182 Capital Exp.(net) (71) Other Invts.(net) (20) Invts in Assoc. & JV 0 Div from Assoc & JV 0 Other Investing CF 0 Net Investing CF (91) Div Paid (200) Chg in Gross Debt (18) Capital Issues 131 Other Financing CF 9 Net Financing CF (77) Net Cashflow 14 Interim Income Statement (US$ m) FY Dec 2H2007 Turnover Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit EBITDA Sales Gth (%) EBITDA Gth (%) Opg Profit Gth Net Profit Gth (%) Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%) 594 (353) 241 (109) 132 0 0 0 (16) 116 (14) (1) 101 160 N/A N/A N/A N/A 40.6 22.3 17.1

Source: Company, DBS Vickers

Page 87

Asian Consumer Digest

Faber Group
Bloomberg: FAB MK EQUITY | Reuters: FBMS.KL

BUY RM2.31 KLCI : 1,337.01
Price Target : 12-Month RM 3.55 Potential Catalyst: More contracts secured from overseas, upward revision of concession rates Analyst Chong Tjen-san, CFA +603 2711 2222 juliana@hwangdbsvickers.com.my Juliana Ramli +603 2711 2222 juliana@hwangdbsvickers.com.my

Underappreciated GLC
• Underappreciated, well-managed GLC trading at CY11F PE of 7.6x (ex-cash) with a cash-rich balance sheet. Also an excellent play on our anchor market theme – relisting of GLCs • Proxy to resilient healthcare industry where local facilities management (FM) concession is cash cow • Overseas expansion and potential JVs with other GLC developers will provide incremental growth • Reiterate Buy and RM3.55 SOP-derived TP. Faber is an underappreciated, well-managed GLC which is 34%-owned by Khazanah Nasional. It’s core business is providing FM services to the local healthcare industry. It trades at CY11F PE of 7.6x (ex-cash) on the back of 10.6% 3-year EPS CAGR in spite of a regulated concession business, 1.3x FY11F BV, with ROEs of c.19-20% and has a cash-rich balance sheet (net cash 34.5 sen per share). It is also a proxy to the resilient healthcare industry where the renewal of its concession in Oct 2011 will give another 15 years of solid earnings visibility, in our view. Kicker will be a potential tariff increase which will be margin and ROE accretive, where a 10% increase in the total concession revenue will raise our DCF valuation by 5% and SOP by 15 sen. Overseas expansion to drive growth. Faber’s strong franchise locally (consistently ranked no. 1) has enabled it to export its expertise overseas to two key markets – Middle East and India. It has c.RM216m p.a. (25% of FY10F revenue) and c.RM20m p.a. contracts in the Middle East and India respectively. Size of the FM industry in UAE is estimated to be worth US$704bn while pre-tax margins are higher at c.24%. We estimate every RM50m increase in contract value p.a. from UAE will lift FY10F-11F EPS by 7-8%. Reiterate Buy call and RM3.55 SOP-derived TP, implying 13.6x CY11F EPS and 2.4x CY11F BV. We believe the stock is grossly undervalued considering its good earnings visibility from the longterm cash-generating FM concession, potential growth coming from the overseas expansion particularly UAE, and strong balance sheet. Faber is an excellent play on our anchor market theme – relisting of GLCs. In our view, Khazanah will use Faber as the listed vehicle to monetise the embedded value of Pantai's concession whilst also giving the listed entity immediate enlargement in market capitalisation, scale and market penetration.
At A Glance Issued Capital (m shrs) Mkt. Cap (RMm/US$m) Major Shareholders Khazanah Nasional (%) Universal Trustee (Malay) (%) Free Float (%) Avg. Daily Vol.(‘000)

Price Relative
RM Relative Index 440 2.40 1.90 1.40 0.90 0.40 2006 390 340 290 240 190 140 2007 2008 2009 90 2010

Faber Group (LHS)

Relative KLCI INDEX (RHS)

Forecasts and Valuation
FY Dec (RM m) 2009A 2010F 2011F 2012F

Turnover EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (sen) EPS Pre Ex. (sen) EPS Gth Pre Ex (%) Diluted EPS (sen) Net DPS (sen) BV Per Share (sen) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Consensus EPS (sen):

805 163 141 83 75 22.8 20.8 24 22.8 4.5 107.2 10.1 11.1 8.1 4.8 1.9 2.2 CASH 23.4

890 173 148 86 86 23.7 23.7 14 23.7 4.7 126.5 9.7 9.7 7.6 4.3 2.0 1.8 CASH 20.3 27.2

952 189 162 95 95 26.1 26.1 10 26.1 5.2 147.9 8.8 8.8 6.9 3.6 2.2 1.6 CASH 19.0 28.8

1,002 202 174 102 102 28.0 28.0 7 28.0 5.5 170.7 8.3 8.3 6.4 3.0 2.4 1.4 CASH 17.6 28.0

363 839 / 262 34.3 23.4 42.3 1,429

ICB Industry : Health Care ICB Sector: Health Care Equipment & Servic Principal Business: An integrated facilities management service provider and a property developer

Source of all data: Company, DBS Vickers, Bloomberg

Page 88
www.dbsvickers.com Refer to important disclosures at the end of this report sa: WMT

Asian Consumer Digest Faber Group

Company Background
RM m

Sales Trend
1,000 800 600 9.8% 400 200 0 2008A 2009A 2010F 2011F 2012F
Total Revenue Revenue Growth (%) (YoY)

A key player in Facilities Management. Faber Group was incorporated in May 1963, when Merlin Hotels Malaysia was first incorporated. It merged with Faber Union Sdn Bhd to form Faber Merlin Malaysia Bhd and then changed its name to Faber Group Bhd in Nov 1990 with core businesses in hospitality and property. Faber then expanded its portfolio after being awarded a 15-year concession in Oct 1996 for hospital support services to government hospitals in the northern states of Peninsular Malaysia and in East Malaysia. Faber had undergone a series of restructuring exercises since 2000 after it was hit by the Asian Financial Crisis in 1997-98. It was then re-listed on the Main Board of Bursa Malaysia in Nov 2004 and exited the hotel sector in 2008. It is currently 34.3%-owned by Khazanah via UEM Group. Outlook, Earnings Drivers & Risks Renewal of the concession is a given. The current 15-year hospital support service concession is due to expire in Oct 2011. We believe that the renewal of the concession is not an issue considering Faber is a GLC and has the largest market share of 50%. Faber is also ranked no.1 by the Ministry of Health for overall service performance compared to the other two concessionaires, Pantai Medivest Sdn Bhd and Radicare (M) Sdn Bhd. Kicker will be a potential tariff increase, in which a 10% increase in the concession revenue will raise our TP by 15 sen. The concession alone contributed c.64% to group revenue and c.53% to PBT in FY09. Growth from overseas expansion. Faber’s strong franchise locally has enabled it to export its expertise overseas i.e. the Middle East and India. It has c.RM216m p.a. (25% of FY10F revenue) and c.RM20m p.a. contracts in the Middle East and India respectively. We expect FY10F-12F earnings growth to be mainly driven by the overseas FM business in UAE. The FM industry is growing rapidly in the Middle East as the number of completed buildings increases following the construction boom over past few years. FM industry in UAE alone is estimated to be worth US$704bn over 25 years. We project revenue from UAE to grow by 60% in FY10F and 17% in FY11F assuming 91% and 86% of the total contracts secured are recognized respectively. We have also assumed additional new c.RM50m p.a. contract in FY11 and expect a portion of this to be recognized during the year. Committed to expand property business. Faber remains committed to expanding its property business (15% of FY10F

19.8% 14.8%

4.8% -0.2%

Asset Trend
RM m 1,000 800 600 400 200

2008A

2009A

2010F

2011F

2012F

Net Fixed Assets (Tangible)

Total Current Assets

Profitability Trend
RM m 202

182

162

142

122

102

82 2008A 2009A 2010F Pre tax Profit 2011F 2012F Net Profit

Operating EBIT

Margin Trends (%)
30% 25% 20% 15% 10% 5% 0% 2008A EBITDA Margin % 2009A 2010F 2011F 2012F EBIT Margin % Net Income Margin %

Source: Company, DBS Vickers

Page 89

Asian Consumer Digest Faber Group

Leverage & Asset Turnover (x)
1.0 0.6 0.5 0.4 0.3 0.2 0.1 0.0 2008A 2009A 2010F 2011F 2012F Financial Leverage (LHS) Asset Turnover (RHS) 1.0 1.0 0.9 0.9 0.9 0.9 0.9 0.8 0.8 0.8

revenue and 21% of FY10F pre-tax profit) with land bank of just 43 acres, where its strong cash in its kitty will enable it to acquire more land bank. We also do not discount potential JVs with other Khazanah-owned developers. At the moment, we expect that the property business to perform better this year with total GDV of RM495m for the projects to be launched. An excellent play on one of our anchor market theme – relisting of GLCs. The wildcard for Faber is potential M&As where the most obvious candidate is another FM concessionaire, Pantai Medivest Sdn Bhd (Pantai Holding’s subsidiary), given the common shareholding in Khazanah. While we acknowledge management’s view that more players are healthy for competition, the appeared willingness of Pantai’s shareholders to exit the business (believed to be in its effort to focus on growing its hospital business) may prove to be an ideal fit for Faber. In our view, Khazanah will use Faber as the listed vehicle to monetise the embedded value of Pantai's concession whilst also giving the listed entity immediate enlargement in market capitalisation, scale and market penetration to other states. Key risks to our forecasts and views include failure to renew concession, which we believe is highly unlikely, and changes in concession rates. Slower progress billings and failure to renew contracts in UAE could also affect earnings. Financials and Valuation Overseas business to drive growth. We project earnings to grow by 14% to RM86.2m in FY10F and 10% to RM94.8m in FY11F, driven by overseas business particularly in UAE. We expect FM overseas share of pre-tax contribution to expand to 34-36% in FY10F-11F (from 25% in FY09) as more contracts are recognized going forward. Nonetheless, FM concession will still remain the key contributor to earnings. We have a Buy call and RM3.55 SOP-derived TP, implying 13.6x FY11F EPS and 2.4x FY11F BV. We believe the stock is grossly undervalued considering its long-term cash-rich FM concession and potential growth from the overseas expansion. The stock is only trading (ex-cash) at 7.6x FY11F EPS and 1.3x FY11F BV. We value the FM business based on DCF method (WACC: 11.6%; terminal growth: 1.0%) given the long-term earnings visibility. Meanwhile, the property segment is valued based in 10x CY11F EPS, consistent with the average small-mid cap property peers’ valuation.

ROE (%)
40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 2008A 2009A 2010F 2011F 2012F

PE (x)
11.0 9.0 7.0 5.0 3.0 1.0 2006

2007

2008

2009

2010

P/Book Value (x)
2.2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 2006 2007 2008 2009 2010

Source: Company, DBS Vickers

Page 90

Asian Consumer Digest Faber Group
Income Statement (RM m)
FY Dec 2009A 2010F 2011F 2012F

Balance Sheet (RM m)
FY Dec 2009A 2010F 2011F 2012F

Turnover Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Sales Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Effective Tax Rate (%)
FY Dec

805 (561) 245 (102) 142 0 0 (1) 0 141 (35) (23) 0 83 75 163 20.5 25.8 33.7 (46.9) 24.7
2009A

890 (625) 265 (117) 149 0 0 (1) 0 148 (37) (24) 0 86 86 173 10.5 5.6 4.4 4.3 25.0
2010F

952 (661) 291 (129) 162 0 0 0 0 162 (41) (27) 0 95 95 189 7.0 9.5 9.0 9.9 25.0
2011F

1,002 (689) 313 (141) 172 0 0 2 0 174 (43) (29) 0 102 102 202 5.2 7.0 6.3 7.2 25.0
2012F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab. Non-Cash Wkg. Capital Net Cash/(Debt)

146 0 44 305 4 354 38 891 2 249 178 6 389 67 891 117 125

172 0 43 381 5 391 38 1,029 2 276 184 16 459 92 1,029 128 195

195 0 41 469 5 418 38 1,167 2 292 191 26 537 119 1,167 140 276

215 0 40 378 5 440 38 1,115 2 304 5 37 620 147 1,115 150 370

Cash Flow Statement (RM m)
Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Net Cashflow

Rates & Ratio
FY Dec 2009A 2010F 2011F 2012F

141 21 (35) 0 (71) 9 64 (36) 0 0 0 5 (30) (29) (10) 0 (2) (41) (7)

148 24 (37) 0 (10) 7 131 (50) 0 0 0 5 (45) (16) 7 0 0 (10) 76

162 27 (41) 0 (12) 7 144 (50) 0 0 0 5 (45) (17) 7 0 0 (10) 88

174 30 (43) 0 (10) 7 158 (50) 0 0 0 5 (45) (19) (186) 0 0 (204) (92)

Quarterly / Interim Income Statement (RM m)
FY Dec 1Q2009 2Q2009 3Q2009 4Q2009

Segmental Breakdown / Key Assumptions
FY Dec 2009A

Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x) Asset Turnover (x) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X) N. Cash/(Debt)PS (sen) Opg CFPS (sen) Free CFPS (sen)

30.4 17.7 10.3 23.4 10.0 17.6 19.8 124.9 1.0 127.1 141.2 6.8 2.8 2.6 CASH (0.3) 19.9 NA 34.5 37.2 7.7

29.8 16.7 9.7 20.3 9.0 16.0 19.8 142.4 0.9 152.6 154.4 2.7 2.9 2.8 CASH (0.4) 26.9 NA 53.7 38.9 22.3
2010F

30.6 17.0 10.0 19.0 8.6 14.9 19.8 NM 0.9 155.0 158.7 2.8 3.2 3.0 CASH (0.5) 25.9 NA 76.1 42.9 25.8
2011F

31.2 17.2 10.1 17.6 8.9 15.3 19.8 NM 0.9 156.3 160.3 2.8 2.8 2.7 CASH (0.6) 676.8 NA 102.0 46.2 29.7
2012F

Turnover Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA Sales Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

141 (101) 40 (25) 16 0 0 (2) 0 14 (5) (2) 7 7 21 (6.2) (43.1) (48.9) (59.3) 28.6 11.1 5.2

170 (119) 52 (24) 28 0 0 (2) 0 26 (8) (4) 14 14 33 21.0 58.6 79.4 90.6 30.2 16.5 8.1

198 (138) 60 (24) 36 0 0 (2) 0 34 (9) (6) 19 19 41 16.0 25.0 27.6 37.2 30.3 18.1 9.6

304 (208) 96 (29) 68 0 0 (2) 1 66 (13) (10) 43 42 73 53.7 78.1 89.1 124.1 31.7 22.3 14.0

Revenues (RM m) Facilities Mgmt Properties Others Total Pre-tax profit (RM m) Facilities Mgmt Properties Others Total Pre-tax profit Margins (%) Facilities Mgmt Properties Others Total Key Assumptions FM-concession revenue % of UAE contracts Property operating margin

667 122 16 805 114 28 (2) 141 17.2 22.9 (10.0) 17.5 0.0 57.0 22.9

755 135 0 890 131 31 (14) 148 17.3 23.0 N/A 16.6 3.0 91.1 23.0

804 148 0 952 141 34 (13) 162 17.6 23.0 N/A 17.0 3.0 86.5 23.0

839 163 0 1,002 148 37 (12) 174 17.7 23.0 N/A 17.4 3.0 93.4 23.0

Source: Company, DBS Vickers

Page 91

Asian Consumer Digest

Hengan International
Bloomberg: 1044 HK | Reuters: 1044.HK

BUY HK$55.80 HSI : 21,455
Price Target : 12m HK$ 72.00 Potential Catalyst: Lower raw material prices Analyst Patricia Yeung +(852) 2863 8908 patricia_yeung@hk.dbsvickers.com

Sustainable profitability
• • Inventory cost of wood pulp at below market price will alleviate margin pressure Strong product development in high-end sanitary napkins and diapers segments will sustain margins and sales growth Strong balance sheet will enable Hengan to benefit from interest rate hike and RMB appreciation Maintain Buy and HK$72.00 TP


Price Relative
HK$ Relative Index 382 60.10 332 50.10 282 40.10 30.10 20.10 10.10 2006 232 182 132 82 2010

2007

2008

2009

Hengan International (LHS)

Relative HSI INDEX (RHS)

Stock of low cost inventory. Although wood pulp prices have risen by over 40% from the trough, Hengan has accumulated 193,000 tons of wood pulp at more than 20% discount to current market prices. The inventory would be sufficient for production until August this year. Margin pressure may be further alleviated by cutting marketing expenses and promotional activities. Enhanced product mix. Positive market response to its super absorbent series of baby diapers is a reflection of Hengan’s success in product development. It plans to introduce more high-end disposable diapers and sanitary napkins in FY10. We expect these new products to help Hengan to achieve 25-30% sales growth, as well as offset the negative impact of climbing costs of petrochemical-related raw materials. Maintain Buy, HK$72 target price. With the bulk of its revenue generated in China and given high cash level of over HK$2bn (mostly RMB), Hengan will benefit from a stronger RMB or interest rate hike. Despite weaker gross margin (due to a rebound in wood pulp prices), it is expected to register decent net profit growth of 13% in FY10F, followed by over 20% in FY11F. Our HK$72 target price is based on 30x FY11F PE for its leading market position, comprehensive product portfolio, and high earnings quality.
At A Glance Issued Capital (m shrs) Mkt. Cap (HK$m/US$m) Major Shareholders Sze Man Bok (%) Hui Lin Chit (%) Free Float (%) Avg. Daily Vol.(‘000) 1,219 68,038 / 8,764 19.8 19.7 60.6 2,178

Forecasts and Valuation FY Dec (HK$ m) Turnover EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (HK$) EPS (HK$) EPS Gth (%) Diluted EPS (HK$) DPS (HK$) BV Per Share (HK$) PE (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Consensus EPS (HK$): 2008A 8,002 1,817 1,511 1,341 1,341 1.17 1.17 27.1 1.17 0.72 5.64 47.6 39.2 35.4 1.3 9.9 0.0 20.7 2009A 10,834 2,943 2,583 2,118 2,118 1.77 1.77 51.0 1.77 1.10 7.40 31.5 27.1 22.2 2.0 7.5 CASH 27.3 2010F 13,238 3,428 2,965 2,399 2,399 1.97 1.97 11.2 1.97 1.28 8.25 28.4 23.9 19.6 2.3 6.8 CASH 25.2 2.07 2011F 16,462 4,246 3,682 2,944 2,944 2.41 2.41 22.7 2.41 1.57 9.27 23.1 19.4 15.7 2.8 6.0 CASH 27.6 2.48

ICB Industry: Consumer Goods ICB Sector: Personal Goods Principal Business: Manufacturer of sanitary napkins, disposable diapers and tissue

Source of all data: Company, DBSV, Bloomberg, HKEX

Page 92
www.dbsvickers.com Refer to important disclosures at the end of this report ed-SGC / sa- DC

Asian Consumer Digest Hengan International

Company Background
HK$ m

Sales Trend
16,000

Fast moving consumer goods manufacturer with strong brands. Hengan mainly manufactures, distributes, and sells personal hygiene products in the PRC. Its three main product lines are tissue, sanitary napkins, and disposable diapers (for both babies and adults). Its brands, including “Anerle”, “Anle” and “Hearttex”, are either China Top Brands or China Renowned Brands. In late 2008, it stepped into the fast moving consumer goods segment by acquiring 51% stake in Qin Qin Group, a reputable confectionery manufacturer in China with its own brands, “QinQin” and “Xianggeli”. Both brands are recognized as Famous Chinese Food. Industry Overview, Earnings Drivers & Risks Tissue market – rising demand. According to data from China Paper Association, sales of household paper amounted to 5m tons in 2008 (up 5.7% from last year). We estimate that tissue sales volume reached 4.3m tons in 2008, up 9.3% from last year. Such up trend has been very consistent with China’s strong GDP growth. With increasing living standard, volume growth momentum in tissue production is expected to continue. China National Household Paper Industry Association (CNHPIA) estimated that top 15 players in the household paper market accounted for 35.7% of market share by volume and 44.8% by revenue, up 5.8ppt from last year. Ranked the first by revenue with about 9% market share, Hengan is also gaining market share. Sanitary napkin market – relatively mature. With sales volume of 77bn pieces in 2008, the annual growth rate of the sanitary napkins and panty liners market was 10.3% in the year. But given the relatively mature market, volume growth is expected to slow to high single digit. However, higher living standards have given rise to stronger demand for higher quality products. The sanitary napkins and panty liners market is less fragmented than the tissue market, as the top 15 players account for over 60% market share, according to CNHPIA. Again, Hengan is ranked 1st by revenue with an estimated market share of 11%. Baby diapers market – low penetration rate. About 10.3bn pieces of baby diapers were sold in 2008, a growth of 23.7% y-o-y. Penetration rate has also climbed to 21.1% from 17.3% in 2007. However, this is still low compared to 44% globally and 96% in the US in 2004. The rising penetration rate is expected to be a major growth driver for the market. With an estimated market share of 23.4%, Hengan was

14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2007A 2008A 2009A 2010F 2011F
Total Revenue Revenue Growth (%) (YoY)

41.1% 36.1% 31.1% 26.1% 21.1%

Asset Trend
HK$ m 14,000 12,000 10,000 8,000 6,000 4,000 2,000 2007A 2008A 2009A 2010F 2011F

Net Fixed Assets (Tangible)

Total Current Assets

Profitability Trend
HK$ m 3,505

3,005

2,505

2,005

1,505

1,005 2007A 2008A Operating EBIT 2009A Pre tax Profit 2010F Net Profit 2011F

Margin Trends (%)
30%

25%

20%

15%

10% 2007A EBITDA Margin % 2008A 2009A 2010F 2011F EBIT Margin % Net Income Margin %

Page 93

Asian Consumer Digest Hengan International

Leverage & Asset Turnover (x)
0.5 0.4 0.4 0.3 0.3 0.2 0.2 0.1 0.1 0.0 2007A 2008A 2009A 2010F 2011F Financial Leverage (LHS) Asset Turnover (RHS) 0.6 0.7 0.9 0.8 1.0 1.1

ranked 2nd by revenue in 2008. Outlook High inventory level to preserve margin. Following the over 40% rebound in wood pulp prices, there is growing concern about gross margins of the tissue division. Hengan’s 193,000 tons of wood pulp inventory that was secured at relatively low costs (estimates at 20-25% discount to current market prices) is sufficient for production until Aug10, which should partly alleviate margin pressure for the tissue segment this year. In addition, it will cut promotional activities and sales discounts. We believe the ratio of marketing, advertising and promotion expenses to sales will drop by 0.3-0.5ppt. More new products. Prices of petrochemical-related and other raw materials only climbed by single digits from 2009. Hence, gross margins for sanitary napkins and disposal diapers may be easily maintained through enhanced product mix and new product development. In particular, following the success of its super absorbent series, a new high-end disposable diaper product will be introduced to boost sales growth to 25%. We expect sanitary napkin sales growth to stay strong at 31% amid the market consolidation and enhanced product mix. Expanding tissue capacity. For tissue products, 120,000 tons and 60,000 tons of new capacity will be added in FY10F and FY11F, respectively, bringing total capacity to 540,000 tons. With the bulk of its tissue sales being high end products (such as box tissue and packet handkerchief), we estimate these new capacities will keep tissue sales growth at 23-26% for these two years. Financials and Valuation

ROE (%)
40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 2007A 2008A 2009A 2010F 2011F

PE (x)
37.0 32.0 27.0 22.0 17.0 2006

2007

2008

2009

P/Book Value (x)
8.2 7.7 7.2 6.7 6.2 5.7 5.2 4.7 4.2 3.7 3.2 2006 2007 2008 2009

Solid balance sheet. At end-FY09, Hengan had over HK$2bn net cash, the bulk in RMB. It will benefit from an interest rate hike and RMB appreciation as its revenue stream is in RMB but purchases are in US$. Maintain Buy, HK$72 target price. We have conservatively assumed a 4ppt drop in gross margin for the tissue division for FY10F. Despite this, overall gross margin is expected to drop only 1.4ppt and earnings growth will remain decent at 13.3%, and accelerate to 22.7% in FY11F as margins normalize. Our HK$72 target price is based on 30x FY11F PE. We like the counter for its leading market position, comprehensive product portfolio. and good earnings quality. Maintain BUY.

Page 94

Asian Consumer Digest Hengan International
Income Statement (HK$ m) FY Dec Turnover Cost of Goods Sold Gross Profit Other Opg (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net profit before Except. EBITDA Sales Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Effective Tax Rate (%) Cash Flow Statement (HK$ m) FY Dec 2008A 8,002 (4,799) 3,203 (1,672) 1,531 0 0 (20) 0 1,511 (166) (4) 0 1,341 1,341 1,817 40.7 24.2 21.9 11.0 2008A 2009A 10,834 (5,853) 4,981 (2,380) 2,601 0 0 (18) 0 2,583 (416) (50) 0 2,118 2,118 2,943 35.4 62.0 69.9 16.1 2009E 2,583 343 (295) 6 0 (137) 17 2,516 (951) 0 0 0 (367) (1,318) (1,096) 2,387 0 350 1,641 2,839 2H2008 4,246 (2,515) 1,731 (935) 796 0 0 (3) 0 793 (78) (2) 713 713 942 44.3 25.7 25.3 33.2 40.8 18.7 16.8 2010F 13,238 (7,338) 5,900 (2,917) 2,983 0 0 (18) 0 2,965 (507) (59) 0 2,399 2,399 3,428 22.2 16.5 14.7 17.1 2010F 2,965 424 (507) 0 0 (1,055) 39 1,867 (900) 0 0 0 0 (900) (1,355) (72) 0 (18) (1,445) (478) 1H2009 5,113 (2,811) 2,302 (1,090) 1,212 0 0 (28) 0 1,184 (191) (27) 967 967 1,383 36.1 58.1 64.8 54.1 45.0 23.7 18.9 2011F 16,462 (9,170) 7,292 (3,611) 3,681 0 0 0 0 3,682 (666) (71) 0 2,944 2,944 4,246 24.4 23.9 23.4 18.1 2011F 3,682 543 (666) 0 0 (625) 21 2,954 (900) 0 0 0 0 (900) (1,701) (1,028) 0 0 (2,729) (675) 2H2009 5,721 (3,043) 2,679 (1,290) 1,389 0 0 10 0 1,399 (225) (23) 1,151 1,151 1,560 34.8 65.6 74.5 61.3 46.8 24.3 20.1 Balance Sheet (HK$ m) FY Dec Net Fixed Assets Invts in Assocs & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab. Non-Cash Wkg. Cap Net Cash/(Debt) Rates & Ratios FY Dec 2008A 2009A 2010F 44.6 22.5 18.1 25.2 16.3 19.5 65.0 167.3 0.9 36.2 101.1 138.2 2.2 1.4 CASH 33.9 18.4 1.1 2.40 0.79 2010F 5,506 3,350 2,700 1,036 646 13,238 922 1,236 556 172 N/A 2,887 16.8 36.9 20.6 16.6 0.0 21.8 2011F 44.3 22.4 17.9 27.6 18.7 22.6 65.0 N/A 1.0 36.7 94.3 144.9 2.6 1.5 CASH 55.2 16.8 1.4 2.94 1.68 2011F 6,946 4,127 3,629 1,243 517 16,462 1,150 1,531 769 138 N/A 3,588 16.6 37.1 21.2 11.1 0.0 21.8 Gross Margin (%) 40.0 46.0 Opg Profit Margin (%) 19.1 24.0 Net Profit Margin (%) 16.8 19.5 ROAE (%) 20.7 27.3 ROA (%) 13.3 17.5 ROCE (%) 15.9 21.0 Div Payout Ratio (%) 61.6 63.3 Interest Cover (x) 75.0 146.1 Asset Turnover (x) 0.8 0.9 Debtors Turn (days) 45.1 36.1 Creditors Turn (days) 111.5 106.5 Inventory Turn (days) 172.1 142.5 Current Ratio (x) 2.7 1.9 Quick Ratio (x) 1.5 1.3 Net Debt/Equity (X) 0.0 CASH Capex to Debt (%) 82.4 34.8 Z-Score (X) 7.5 7.5 N.Cash/(Debt)PS (HK$) (0.2) 1.4 Opg CFPS (HK$) 1.46 2.22 (0.15) 1.31 Free CFPS (HK$) Segmental Breakdown (HK$ m) / Key Assumptions FY Dec 2008A 2009A Revenues Tissue Sanitary napkins Disposable diapers Food & snack Others Total Segment profit Tissue Sanitary napkins Disposable diapers Food & snack Others Total Segment profit Margins Tissue Sanitary napkins Disposable diapers Food & snack Others Total 3,875 2,016 1,874 63 174 8,002 404 683 298 81 N/A 1,466 10.4 33.9 15.9 129.0 0.0 18.3 4,456 2,546 2,160 863 808 10,834 951 921 421 192 N/A 2,486 21.4 36.2 19.5 22.3 0.0 22.9 2008A 3,320 0 1,984 1,611 2,128 989 17 10,049 297 1,461 1,511 65 6,484 232 10,049 1,673 (197) 2009A 3,933 0 2,412 4,450 2,175 1,153 25 14,148 2,175 2,000 555 121 9,017 280 14,148 1,353 1,720 2010F 4,410 0 2,390 3,971 3,045 1,476 31 15,323 1,675 2,144 983 121 10,061 339 15,323 2,408 1,313 2011F 4,766 0 2,369 3,297 3,786 1,835 38 16,092 875 2,627 755 121 11,304 411 16,092 3,033 1,667

Pre-Tax Profit 1,511 Dep. & Amort. 286 Tax Paid (167) (Pft)/ Loss on disposal of FAs 2 Assoc. & JV Inc/(loss) 0 Non-Cash Wkg.Cap. (348) Other Operating CF 41 Net Operating CF 1,324 Capital Exp.(net) (1,490) Other Invts.(net) 0 Invts in Assoc. & JV 0 Div from Assoc & JV 0 Other Investing CF 321 Net Investing CF (1,169) Div Paid (732) Chg in Gross Debt (12) Capital Issues 0 Other Financing CF 39 Net Financing CF (705) Net Cashflow (549) Interim Income Statement (HK$ m) FY Dec Turnover Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA Sales Gth (%) EBITDA Gth (%) Opg Profit Gth Net Profit Gth (%) Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%) 1H2008 3,756 (2,284) 1,472 (736) 735 0 0 (18) 0 718 (89) (2) 628 628 875 36.9 22.5 18.5 33.4 39.2 19.6 16.7

Source: Company, DBS Vickers

Page 95

Asian Consumer Digest

HTL International
Bloomberg: HWA SP | Reuters: HTLH.SI

BUY S$0.845 STI : 2,980.69
Price Target : 12-Month S$ 1.09 Potential Catalyst: Demand growth Analyst Patrick XU +65 6398 7957 patrickxu@dbsvickers.com

Gaining market share
• HTL has restructured and refocused its business to capture growth • Earnings to grow by c. 15% p.a. over FY09-FY12, driven by market share gains and demand rebound • BUY, TP S$1.09 Firm turnaround in 2009, aided by restructuring. After slipping into losses in FY08, HTL has rebounded strongly into the black with net profit of S$48m for FY09. This turnaround was achieved through the closing down of inefficient or non-performing units and a refocus on customers and higher margin business. Earnings prospects bright and projected to grow further. We project revenue to grow by 11% in FY10 and by 12% in FY11, driven by market share gains initially and a rebound in demand from Europe and the US later on. With the home furnishings business looking to at least breakeven this year and with improving operating leverage, we also project net margins to improve, driving earnings to grow by 16% in FY10 and 15% in FY11.
2011F

Price Relative
S$ 1 .5 0 1 .3 0 1 .1 0 0 .9 0 107 0 .7 0 0 .5 0 0 .3 0 0 .1 0 2006 7 2010 57 157 R e la tiv e In d e x 207

2007

2008

2009

H T L In t e r n a t io n a l (L H S )

R e la t iv e S T I IN D E X (R H S )

Forecasts and Valuation
FY Dec (S$ m) 2008A 2009A 2010F

Turnover EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Consensus EPS (S cts):

646 4 (16) (20) (20) (4.9) (4.9) (299) (4.9) 0.0 51.3 nm nm nm 110.0 0.0 1.6 0.2 (9.2)

605 74 57 48 48 11.8 11.8 (343) 11.5 6.0 59.4 7.2 7.2 5.7 5.1 7.1 1.4 0.1 21.1

672 86 67 56 56 13.6 13.6 15 13.5 4.1 65.3 6.2 6.2 5.0 4.5 4.8 1.3 0.1 21.9 8.2

751 97 77 65 65 15.6 15.6 15 15.5 4.7 76.9 5.4 5.4 4.4 3.8 5.6 1.1 0.1 22.0 9.4

Capacity expansion to capture growth. Capacity utilization averaged c. 83% in 2009, with utilization hitting above 90% during the peak season. To prepare for an upturn in demand, HTL has secured new land & buildings for a new plant in China, with preferential terms granted by local government, such as waiver of rental & income tax for the initial period. Currency risks well managed. The company hedges up to 80% of its foreign currency sales and purchases to its operating currency – USD on a twelve months rolling basis, thus minimizing foreign exchange risks. Additionally, a significant percentage of its COGS and Opex are denominated in USD and Euro. BUY, TP S$1.09 (7x FY11 PER), which is based on its historical normalized current PE trading range. The stock could further re-rate towards 9x-10x PE as HTL delivers on earnings and sentiment on the export sector improves.
At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders Bem Holdings (%) Fidelity Management (%) Brandes Inv Partner (%) Free Float (%) Avg. Daily Vol.(‘000) 417 352 / 256 46.6 7.1 4.8 41.5 2,365

ICB Industry : Consumer Goods ICB Sector: Household Goods Principal Business: Leading Original Design sofa-upholstery manufacturer and leather tanner in Asia.

Source of all data: Company, DBS Vickers, Bloomberg

Page 96
www.dbsvickers.com Refer to important disclosures at the end of this report ed: JS / sa: JC

Asian Consumer Digest HTL International

Company Background Founded in 1976 and listed on SGX since 1993, HTL Int’l is engaged in manufacture of upholstered furniture, leather tanning and finishing, and provision of home furnishing and design solutions. With its production facilities located in the Yangtze River Delta (YRD) in east China, its products are marketed to over 40 countries, through distributors and retailers. Core business –sofas Capacity. HTL has sofa manufacturing plants in Kunshan and Changshu, in east China’s YRD, with total production capacity of c. 2,000 containers per month currently. Each container is loaded with c. 18 sets of sofas on average, and each set usually consists of 6 seats. Most of the sofas produced are exported to Europe, North America, Australia & New Zealand, and other countries in Asia.
S$ m

Sales Trend
800 700 600 500 400 300 200 100 0 2007A 2008A
Total Revenue

12.3%

7.3%

2.3%

-2.7%

-7.7% 2009A 2010F 2011F
Revenue Growth (%) (YoY)

Asset Trend
S$ m 500 400 300 200 100

Capacity utilization averaged c. 83% in 2009, with utilization hitting above 90% during the peak season. To prepare for an upturn in demand, HTL has secured new land & buildings for a new plant in Huai’an, with preferential terms granted by local government, such as waiver of rental & income tax for the initial period.
Main costs & expenses. Raw leather hide is the primary raw material in sofa, accounting for >50% of the costs, which is mostly imported from Australia, the US and Brazil. Freight rates have substantial impact on the company’s distribution expenses when it sells on CIF, DDU or CFR terms, as HTL relies on shipping companies to ship its products from its plants in China to its customers around the globe. Home Furnishing Business Unit This BU, which was acquired in 2005, is primarily engaged in the global franchising of the luxury home furniture brand – Domicil. In Germany, Domicil sells home furniture in the form of creative and customized solutions to furnishings and indoor décor, a similar business model as IKEA. Outside Germany, Domicil franchisees sell HTL’s upholstered furniture in more than 200 retail points of shop-in-shop stores in Europe, Asia and Australia, as of end 2009. HTL well poised for growth HTL poised to ride on the recovering demand. As Europe, North America and Asia (excl Greater China) together account for >85% of the company’s sales revenue, we expect HTL’s top line to return to growth in 2010 after reporting

2007A

2008A

2009A

2010F

2011F

N e t F ix e d A s s e t s (T a n g ib le )

T o ta l C u rre n t A sse ts

Profitability Trend
S$ m 79

59

39

19

(1) 2007A (21) Operating EBIT Pre tax Profit Net Profit 2008A 2009A 2010F 2011F

Margin Trends (%)
20 % 18 % 16 % 14 % 12 % 10 % 8% 6% 4% 2% 0% 2007A E B IT D A M a rg in % 2008A 2009A 2010F 2 01 1 F E B IT M a rg in % N e t In co m e M a rg in %

Source: Company, DBS Vickers

Page 97

Asian Consumer Digest HTL International

Leverage & Asset Turnover (x)
1.7 0 .6 0 .5 0 .4 0 .3 0 .2 0 .1 0 .0 2007A 20 0 8 A 20 0 9 A 2010F 2011F Fin a n cia l Le ve ra g e (LH S) A sse t T u rn o ve r (R H S) 1.3 1.2 1.6 1.5 1.4

declines since 2007, benefiting from the recovering demand in the key markets. Winning over market share. As some competitors, for instance those in south China, went bust or substantially cut their capacity during the crisis, HTL emerged as a reliable supplier and successfully took over the market share lost by its competitors, especially in Europe. This is evidenced by the resilience in its sales to Europe, which dipped by only 1.5% in 2008 yet rebounded by 2% to a new high of S$348m in 2009, while the whole industry was still in a downtrend. Expanding customer base. HTL has >1,500 customers in Europe and is also seeking to expand its customer base in the US after the crisis. The stable increase in its customer bases in the key markets during the downturn should lay a solid foundation for HTL’s revenue growth in FY10 and more sustainable revenue growth in FY11 and beyond from organic increases in same-customer sales.

ROE (%)
40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 2007A 2008A 2009A 2010F 2011F

PE (x)
2 4 87 .0 1 4 87 .0 4 87 .0 -5 13 .0 0 0 6 2 -1 5 13 .0 -2 5 13 .0 -3 5 13 .0 -4 5 13 .0 2007 2008 2009

Capacity expansion underway. HTL is setting up another sofa plant in Huai An, in east China’s YRD as well, which would expand the company’s total capacity to 2,600 containers per month by mid 2010. The production capacity of the company’s leather tanneries precisely matches its capacity of the sofa plants, i.e. can support the production of maximum 2,600 containers of sofas per month, and hence should be able to fully satisfy HTL’s demand for leather hides. 80% currency exposure hedged. The company hedges up to 80% of foreign currency sales and purchase to its operating currency – USD by forex forwards on a twelve months rolling basis, thus minimizing its foreign exchange risk. About 55% of COGS and 77% of opex expenses are denominated in USD, whilst 25% of COGS is in Euro.

P/Book Value (x)
2 .6 2 .1 1 .6 1 .1 0 .6 0 .1 2006

FY09-12 earnings CAGR of 15%, driven by growing external demand and internal synergies. We are expecting 11% and 12% growth of revenue in FY10 and FY11 respectively, underpinned by revival of sales to the US as well as recovery in other markets. Higher synergies between leather tannery and sofa plants are expected to improve HTL’s net margin % from 8.0% in FY09 to 8.3% in FY10 and eventually to 8.6% in FY11.
2007 2008 20 0 9

Valuation & Recommendation
Source: Company, DBS Vickers

Buy, TP at S$1.09, based on 7x FY11 earnings, in line with the counter’s historical trading average. Valuations are still attractive, with 15% FY09-12 earnings CAGR and backed by 5% yield.

Page 98

Asian Consumer Digest HTL International
Income Statement (S$ m)
FY Dec 2008A 2009A 2010F 2011F

Balance Sheet (S$ m)
FY Dec 2008A 2009A 2010F 2011F

Turnover Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Sales Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Effective Tax Rate (%)
FY Dec

646 (442) 204 (213) (9) (1) 0 (7) 0 (16) (4) 0 0 (20) (20) 4 (7.0) (88.5) (141.0) (298.6) N/A
2008A

605 (382) 224 (162) 62 0 0 (5) 0 57 (9) 0 0 48 48 74 (6.3) 1,954.5 (823.9) (338.4) 15.2
2009A

672 (404) 269 (196) 73 0 0 (6) 0 67 (11) 0 0 56 56 86 11.0 15.6 17.3 16.2 16.0
2010F

751 (449) 302 (220) 83 0 0 (6) 0 77 (12) 0 0 65 65 97 11.7 12.8 14.1 15.3 16.0
2011F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab. Non-Cash Wkg. Capital Net Cash/(Debt)

76 0 28 75 198 59 12 447 113 112 9 0 214 0 447 156 (46)

66 0 29 94 196 87 15 487 95 115 34 0 243 0 487 183 (35)

67 0 26 95 208 96 15 506 95 107 34 0 271 0 506 211 (34)

66 0 23 106 231 108 15 547 95 100 34 0 318 0 547 253 (23)

Cash Flow Statement (S$ m)
Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Net Cashflow

Rates & Ratio
FY Dec 2008A 2009A 2010F 2011F

(16) 13 (4) 0 (5) 22 10 (9) 0 0 0 0 (9) 0 38 0 0 38 39

57 13 (9) 0 (22) (15) 25 (3) 0 0 0 0 (3) (8) 8 (3) 0 (3) 19

67 13 (5) 0 (34) 0 41 (11) 0 0 0 0 (11) (25) 0 (4) 0 (29) 1

77 14 (11) 0 (43) 0 37 (10) 0 0 0 0 (10) (17) 0 0 0 (17) 11

Quarterly / Interim Income Statement (S$ m)
FY Dec 1Q2009 2Q2009 3Q2009 4Q2009

Segmental Breakdown / Assumptions
FY Dec

Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x) Asset Turnover (x) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X) N. Cash/(Debt)PS (S cts) Opg CFPS (S cts) Free CFPS (S cts)

31.6 (1.3) (3.1) (9.2) (4.6) (2.7) N/A (1.2) 1.5 39.8 87.6 167.2 1.5 0.6 0.2 0.2 7.2 2.5 (11.1) 3.4 0.2
2008A

37.0 10.2 8.0 21.1 10.3 14.9 51.1 13.6 1.3 43.9 95.1 195.0 1.9 0.9 0.1 0.1 2.1 2.5 (8.5) 11.4 5.3
2009A

40.0 10.8 8.3 21.9 11.3 15.8 30.0 12.5 1.4 49.6 87.5 188.9 2.1 0.9 0.1 0.1 8.5 3.0 (8.1) 18.2 7.2
2010F

40.3 11.0 8.6 22.0 12.3 16.4 30.0 14.3 1.4 49.5 69.2 184.2 2.4 1.1 0.1 0.1 7.8 0.0 (5.6) 19.4 6.6
2011F

Turnover Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA Sales Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

126 (84) 42 (25) 17 0 0 (1) 0 16 (1) 0 15 15 20 (23.4) (315.0) (233.3) (193.9) 33.2 13.3 11.8

160 (105) 55 (47) 8 0 0 (2) 0 7 (2) 0 5 5 12 26.8 (41.5) (49.6) (68.6) 34.5 5.3 2.9

149 (92) 57 (44) 13 0 0 (2) 0 11 (2) 0 8 8 16 (6.8) 35.2 47.6 73.6 38.2 8.4 5.4

170 (101) 70 (46) 24 0 0 (1) 0 23 (3) 0 21 21 27 14.4 72.6 92.4 155.4 41.0 14.1 12.1

Source: Company, DBS Vickers

Revenues (S$ m) Sofa Leather Cut n Sew Home Furnishing Others Total EBIT (S$ m) Sofa Leather Cut n Sew Home Furnishing Others Total EBIT Margins (%) Sofa Leather Cut n Sew Home Furnishing Others Total Key Assumptions Rev growth - Asia ex G.C. Rev growth - Greater China Rev growth - Europe Rev growth - US Rev growth - ANZ

550 39 0 57 N/A 646 (14) 9 0 (3) (1) (9) (2.6) 24.5 N/A (5.7) N/A (1.3) (0.1) 0.1 0.0 (0.3) 0.0

531 14 0 60 N/A 605 42 26 0 (1) (5) 62 7.9 181.6 N/A (2.0) N/A 10.2 0.0 (0.3) 0.0 (0.3) 0.0

571 0 0 102 N/A 672 77 0 0 1 (5) 73 13.5 N/A N/A 1.0 N/A 10.8 0.1 0.1 0.1 0.3 0.0

629 0 0 122 N/A 751 85 0 0 4 (6) 83 13.5 N/A N/A 3.0 N/A 11.0 0.1 0.1 0.1 0.2 0.1

Page 99

Asian Consumer Digest

Gome Elec Appliances
Bloomberg: 493 HK | Reuters: 0493.HK

BUY HK$2.69 HSI : 21,455
Price Target : 12-Month HK$ 3.66 Potential Catalyst: Full-year benefits from “exchange old for new program” of the government and potential M&As.

Multiple growth drivers
• • Robust sales momentum for 1Q10 on a lower base. Government’s subsidy programs, strong property deliveries, a low penetration of home appliances and gradual macro recovery should all fuel growth. Trading at 0.7x PEG and 27% discount to our target price of HK$3.66, maintain BUY.

Analyst Mavis Hui +852 2863 8879 mavis_hui@hk.dbsvickers.com

Price Relative
HK$ 4.90 4.40 3.90 3.40 2.90 2.40 1.90 1.40 0.90 2006 2007 2008 2009 Relative Index 204 184 164 144 124 104 84 64 44 2010

Sound recovery trend. Following gradual macro recovery from the trough in 2H08 and Gome’s successful streamlining of its retail network, the company rides on satisfactory sales momentum in 1Q10, recording double-digit same-store sales growth from a low base. It also stays well on track to sustain a healthy expansion and decent margin enhancement. Gome plans to add 80 stores this year, with special focus on network expansion in high-growth 2nd-tier cities. Favourable growth drivers. China’s various subsidy programs to prompt sales of the home appliance sector, including the “go rural” policy and “exchange old for new” program should continue to support Gome’s performance. Sales of home appliances could continue to see further support as c.70% of properties sold in 2H09 are expected to deliver by 2H10. Rising disposable income and stronger demand for better quality of living should also propel overall consumer spending for home appliances. Better times ahead. Management stays confident for a better performance in FY10F. More efforts on optimizing its network structure and suppliers’ relationship should help to lift overall profitability. Trading at 22.1x prospective PE, 0.7x PEG and 27% discount to our target price of HK$3.66, we maintain BUY.
At A Glance Issued Capital (m shrs) Mkt. Cap (HK$m/US$m) Major Shareholders Mr. Wong Kwong Yu (%) Bain Capital Investors, LLC (%) JPMorgan Chase & Co. (%) Morgan Stanley (%) Free Float (%) Avg. Daily Vol.(‘000)

Gome Elec Appliances (LHS)

Relative HSI INDEX (RHS)

Forecasts and Valuation 2008A 45,889 2,250 1,534 1,048 1,687 0.08 0.09 (7.3) 0.09 0.03 0.76 31.3 22.4 11.7 1.1 3.5 CASH 11.1 2009A 42,668 2,282 1,833 1,409 1,496 0.10 0.12 25.5 0.09 0.00 0.91 30.9 18.4 10.2 0.0 2.9 CASH 13.8 2010F 47,461 2,749 2,554 1,968 1,968 0.13 0.15 30.3 0.12 0.03 1.05 22.1 15.2 7.6 1.1 2.6 CASH 15.5 0.13 2011F 54,082 3,392 3,310 2,554 2,554 0.17 0.20 29.8 0.16 0.04 1.21 17.0 12.0 5.0 1.5 2.2 CASH 17.5 0.17

FY Dec (RMB m) Turnover EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (RMB) EPS (HK$) EPS Gth (%) Diluted EPS (HK$) DPS (HK$) BV Per Share (HK$) Fully Diluted PE (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Consensus EPS (HK$):

15,055 40,512 / 5,218 35.6 10.8 9.0 7.0 37.6 79,050

ICB Industry: Consumer Services ICB Sector: General Retailers Principal Business: Among the leading home appliance retailers in China.

Source of all data: Company, DBSV, Bloomberg, HKEX

Page 100
www.dbsvickers.com Refer to important disclosures at the end of this report ed-GC / sa- DC

Asian Consumer Digest Gome Elec Appliances

Company Background
RMB m

Sales Trend
50,000 40,000 30,000 20,000 10,000 0 2007A 2008A 2009A 2010F 2011F
Total Revenue Revenue Growth (%) (YoY)

Among the leaders in China. Gome is among the leading home appliance retailers in China. As of Dec09, it runs a total of 726 stores across 198 cities, including 76 flagship stores, 625 standard stores and 25 specialized stores. For FY09, its revenue breakdown include 14% from Shanghai, 11% from Beijing, 10% from Guangzhou and Shenzhen respectively, 6% from Tianjin and Chengdu respectively, 4% from Fuzhou, and the remaining from other cities. Industry Overview, Earnings Drivers & Risks

72.3% 62.3% 52.3% 42.3% 32.3% 22.3% 12.3% 2.3% -7.7%

Asset Trend
RMB m 35,000 30,000 25,000 20,000 15,000 10,000 5,000 2007A 2008A 2009A 2010F 2011F

Decent macro trend. During 2002-08, sales CAGR of household appliances for urban and rural areas reached 17% and 28%, respectively. Rising disposable income, strengthening Renminbi, stronger demand for better quality of living and recovering consumer sentiment in China should all lure consumers to spend, especially on the home appliance merchandise given it lower penetration rate in China versus more developed countries. Supportive industry policies. Since 2007, China has introduced in a roll the “go rural” policy and “exchange old for new” program, aiming to boost consumption in the home appliance sector. Both programs have already channelled sales that contributed >10% of Gome’s FY09 revenue. These favourable programs should likely continue to fuel decent growth in the medium-term. Further room for margin enhancement. Gome plans to enhance growth and profitability through expanding and refining its product offerings, upgrading shop environment of existing stores, strengthening overall operational efficiency and reinforcing suppliers’ relationship. Besides, Government subsidies derived from sales that channel through both “go rural” policy and “exchange old for new” program should also help to lift overall margins. Risks and concerns. The home appliance retail sector of China remains fragmented and competitive. Potential execution risks could also be incurred upon Gome’s expansion into 2nd and 3rd-tier cities that it has yet to commence operations.

Net Fixed Assets (Tangible)

Total Current Assets

Profitability Trend
RMB m 3,048

2,548

2,048

1,548

1,048 2007A 2008A Operating EBIT 2009A Pre tax Profit 2010F Net Profit 2011F

Margin Trends (%)
10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 2007A EBITDA Margin % 2008A 2009A 2010F 2011F EBIT Margin % Net Income Margin %

Page 101

Asian Consumer Digest Gome Elec Appliances

Leverage & Asset Turnover (x)
1.7 0.5 1.6 0.4 0.3 0.2 0.1 0.0 2007A 2008A 2009A 2010F 2011F Financial Leverage (LHS) Asset Turnover (RHS) 1.5 1.4 1.3 1.2

Outlook Positive business prospects. Gome currently targets to lift overall profitability by improving individual store efficiency and implementation of new ERP system this year. Favourable government policies, including the extended “exchange old for new” program to cover more cities starting from May 10 should also help to drive its growth over the medium-term. Looking ahead, Gome will focus more on network expansion, especially in high-growth 2nd-tier cities including Greater Shanghai, Shandong, Tianjin, Greater Sichuan and Guangdong. Its gross margin should also sustain an improving trend amid rising economies of scale and positive impact from refined suppliers’ contracts. All in all, the company’s five-year blueprint include i) establishing regional dominance, ii) improving overall operating efficiency, iii) improving consumer & vendor relationships, iv) strengthening infrastructure, and v) developing new business including its e-commence platform. Management stays confident on the overall business outlook of Gome. Financials and Valuation Gome’s operating cashflow for FY09 turned into a small negative number of RMB0.2m (FY08: RMB3.6bn inflow). Apart from its inventory stock-up towards the end of 2009 in the lead to strong sales momentum for 2M10, the company raised its pledged deposit ratio by usage of guaranteed letter of credit as a method of bill payables to deploy excess off-shore cash in Hong Kong. Should impact from the latter be excluded, operating cashflow would be a positive inflow of RMB62m for FY09. Given its improving business prospects, we expect operating cashflow to stay at a healthy level ahead The counter is currently trading at merely 0.7x PEG and 22% discount to our target price of HK$3.66. We maintain BUY.

ROE (%)
20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2007A 2008A 2009A 2010F 2011F

PE (x)
50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 2006 2007 2008 2009

P/Book Value (x)
6.2 5.2 4.2 3.2 2.2 1.2 2006

2007

2008

2009

Page 102

Asian Consumer Digest Gome Elec Appliances
Income Statement (RMB m) FY Dec Turnover Cost of Goods Sold Gross Profit Other Opg (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net profit before Except. EBITDA Sales Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Effective Tax Rate (%) Cash Flow Statement (RMB m) FY Dec 2008A 45,889 (41,381) 4,508 (2,564) 1,944 0 0 229 (639) 1,534 (435) (51) 0 1,048 1,687 2,250 8.0 8.8 7.8 28.4 2008A 2009A 42,668 (38,408) 4,260 (2,332) 1,927 0 0 (8) (87) 1,833 (406) (17) 0 1,409 1,496 2,282 (7.0) 1.4 (0.8) 22.2 2009A 1,833 346 (244) 29 0 1,811 (3,607) 167 (200) 0 0 0 0 (200) 0 4,388 1,670 (3,047) 3,011 2,978 2H2008 21,016 (18,882) 2,133 (1,534) 599 0 0 69 (554) 113 (202) (13) (102) 453 N/A N/A N/A 10.2 2.9 (0.5) 2010F 47,461 (42,604) 4,857 (2,432) 2,425 0 0 129 0 2,554 (566) (19) 0 1,968 1,968 2,749 11.2 20.5 25.8 22.2 2010F 2,554 324 (272) 0 0 2,910 (1,006) 4,510 (355) 0 0 0 0 (355) (394) 0 0 (26) (419) 3,736 1H2009 20,463 (18,456) 2,008 (1,235) 772 0 0 56 (78) 750 (165) (5) 580 658 (17.7) (42.6) (49.5) 9.8 3.8 2.8 2011F 54,082 (48,453) 5,629 (2,577) 3,052 0 0 258 0 3,310 (734) (22) 0 2,554 2,554 3,392 14.0 23.4 25.9 22.2 2011F 3,310 340 (309) 0 0 1,684 (1,487) 3,537 (325) 0 0 0 0 (325) (511) 0 0 (142) (653) 2,559 2H2009 22,204 (19,952) 2,252 (1,097) 1,155 0 0 (63) (9) 1,082 (241) (12) 829 838 5.7 92.8 (916.0) 10.1 5.2 3.7 Balance Sheet (RMB m) FY Dec Net Fixed Assets Invts in Assocs & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab. Non-Cash Wkg. Cap Net Cash/(Debt) Rates & Ratios FY Dec 2008A 2009A 10.0 4.5 3.3 13.8 4.5 10.0 0.0 248.4 1.3 N/A 137.8 57.6 1.1 0.7 CASH 3.5 2.8 0.7 (0.14) 0.00 2009A 42,134 96 437 0 42,668 2010F 10.2 5.1 4.1 15.5 5.2 10.2 20.0 N/A 1.3 N/A 144.0 59.5 1.2 0.9 CASH 6.2 3.3 1.1 0.12 0.32 2010F 42,560 7 4,894 0 47,461 2011F 10.4 5.6 4.7 17.5 6.1 11.6 20.0 N/A 1.3 N/A 142.2 58.7 1.3 0.9 CASH 5.7 3.5 1.4 0.14 0.25 2011F 48,299 9 5,773 0 54,082 Gross Margin (%) 9.8 Opg Profit Margin (%) 4.2 Net Profit Margin (%) 2.3 ROAE (%) 11.1 ROA (%) 3.7 ROCE (%) 10.5 Div Payout Ratio (%) 32.9 Interest Cover (x) N/A Asset Turnover (x) 1.6 Debtors Turn (days) N/A Creditors Turn (days) 117.6 Inventory Turn (days) 48.2 Current Ratio (x) 1.2 Quick Ratio (x) 0.5 Net Debt/Equity (X) CASH Capex to Debt (%) 31.1 Z-Score (X) 2.8 N.Cash/(Debt)PS (RMB) 0.4 Opg CFPS (RMB) 0.31 0.22 Free CFPS (RMB) Segmental Breakdown (RMB m) FY Dec 2008A Revenues Traditional Stores Mega Stores Digital Stores China Paradise Total 45,316 135 438 0 45,889 2008A 3,720 0 5,293 7,892 5,473 0 5,117 27,495 170 14,977 3,570 78 8,560 140 27,495 (4,386) 4,152 2009A 3,392 0 9,099 14,827 6,532 0 1,913 35,763 2,530 18,152 3,175 103 11,802 0 35,763 (9,706) 9,122 2010F 3,645 0 8,893 19,524 7,246 0 202 39,510 2,530 20,137 3,175 114 13,554 0 39,510 (12,689) 13,819 2011F 3,629 0 8,893 23,423 8,241 0 196 44,382 2,530 22,902 3,175 125 15,649 0 44,382 (14,465) 17,717

Pre-Tax Profit 1,534 Dep. & Amort. 314 Tax Paid (263) (Pft)/ Loss on disposal of FAs 87 Assoc. & JV Inc/(loss) 0 Non-Cash Wkg.Cap. 154 Other Operating CF 1,784 Net Operating CF 3,610 Capital Exp.(net) (1,165) Other Invts.(net) (661) Invts in Assoc. & JV 0 Div from Assoc & JV 0 Other Investing CF (2,689) Net Investing CF (4,515) Div Paid 0 Chg in Gross Debt (130) Capital Issues 0 Other Financing CF (2,185) Net Financing CF (2,315) Net Cashflow (3,219) Interim Income Statement (RMB m) FY Dec 1H2008 Turnover Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. Sales Gth (%) Opg Profit Gth Net Profit Gth (%) Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%) 24,874 (22,499) 2,375 (1,030) 1,345 0 0 160 (84) 1,420 (233) (37) 1,150 1,234 N/A N/A N/A 9.5 5.4 4.6

Source: Company, DBS Vickers

Page 103

Asian Consumer Digest

Beijing Jingkelong
Bloomberg: 814 HK | Reuters: 0814.HK

BUY HK$9.16 HSI : 21,455
Price Target : 12-Month HK$10.34 (Prev HK$8.84) Potential Catalyst: Accelerated expansion & potential M&As Analyst Mavis Hui +852 2863 8879 mavis_hui@hk.dbsvickers.com

Still a bargain
• • • Beijing Jingkelong (BJKL) continues to ride on an inflationary environment for decent growth ahead. We estimate its potential acquisition of Shoulian to boost sales by another c.10%. Target price upgraded to HK$10.34 to close valuation gap versus peers. At 18.7x prospective PE, maintain BUY.

Price Relative
HK$ 9.50 8.50 7.50 6.50 5.50 4.50 3.50 2.50 1.50 2006 19 2007 2008 2009 69 119 169 Relative Index 219

Decent growth momentum. BJKL remains on track to achieve c.5% increase in same-store sales (SSS) for 2010. Rising inflation should boost SSS growth slightly further this year. The company also stays well in line to achieve c.20% sales increase for its wholesale division given sound recovery in 2010. Potential acceleration in expansion. Apart from a sound organic expansion, BJKL continues to seek suitable acquisition opportunities to potentially boost growth further. This would include its possible acquisition of Shoulian retail chain by end2010. The company will also seek shareholders' approval for its A-share listing proposal (i.e. to issue <120m A shares) on 4 May 10, and potentially submit its application to relevant authorities by Jun 2010. We currently expect BJKL to target at raising RMB800-RMB1bn from its proposed A-share listing to accelerate expansion in China. Upgrade target to HK$10.34. We currently expect BJKL to post an 18% CAGR on recurring earnings for 2009-11. FY10F earnings might also surprise on the upside should rising inflation on food items pick up a faster pace ahead, amid further room for margin enhancement. Following a good run of the Chinese food retail sector, its major peers including Lianhua (980.HK) and Wumart (8277.HK) now trade at an average of 1.2x PEG. We upgrade our target price to HK$10.34 for BJKL, based on 21x FY11 fully-diluted PE* (previous: 18x PE) to close the valuation gap by normalizing its PEG versus peers. Trading at 18.7x prospective PE, maintain BUY.
At A Glance Issued Capital - H shares (m shs) - Non H shrs (m shs) H shs as a % of Total Total Mkt. Cap (HK$m/US$m) Major Shareholders Chaoyang Auxillary (%) Other domestic shareholders (%) Major H Shareholders (%) JPMorgan Chase & Co. (%) Value Partners Limited (%) Genesis Asset Managers (%) H Shares-Free Float (%) Avg. Daily Vol.(‘000) 182 230 44 3,777 / 487 40.6 15.2 15.2 11.3 7.0 66.6 585

Beijing Jingkelong (LHS)

Relative HSI INDEX (RHS)

Forecasts and Valuation 2008A 6,684 474 280 157 157 0.38 19.3 0.43 0.24 3.66 21.2 11.8 9.1 2.6 2.5 0.5 12.2 2009A 6,691 453 254 148 161 0.36 (5.7) 0.41 0.20 3.83 22.5 11.5 10.1 2.2 2.4 0.7 10.9 2010F 7,715 529 316 190 190 0.43 20.0 0.49 0.20 3.43 18.7 10.2 9.0 2.2 2.7 0.6 12.7 0.28 2011F 8,874 600 367 224 224 0.42 (2.2) 0.48 0.24 3.66 19.2 10.7 9.2 2.6 2.5 0.6 13.5 0.57

FY Dec (RMB m) Turnover EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (RMB) EPS Gth (%) Diluted EPS (HK$)* DPS (HK$) BV Per Share (HK$) PE (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Consensus EPS (HK$):

(* Assume successful A-share listing by 2011.)
ICB Industry: Consumer Services ICB Sector: Food & Drug Retailers Principal Business: One of the leading retailer and distributor of daily consumer products in the Greater Beijing Region, operating a chain of supermarkets, hypermarkets and convenience stores.

Source of all data: Company, DBSV, Bloomberg, HKEX

Page 104
www.dbsvickers.com Refer to important disclosures at the end of this report ed-GC / sa- DC

Asian Consumer Digest Beijing Jingkelong

Company Background A strong regional play. BJKL, a state-owned enterprise, is one of the leading retailers and distributors of daily consumer products in the Greater Beijing Area. The company operates the second largest supermarket chain in Beijing and ranks 36th amongst top retail-chain operators in China. As of December 2009, BJKL operates a total of 246 outlets in Beijing, including two department stores, nine hypermarkets, 72 supermarkets and 163 convenience stores, the majority of which are located in Beijing’s central business district. Solid track record. BJKL has delivered a healthy performance in the past few years. Revenue and core earnings recorded 13% and 27% CAGR respectively in 2003-09. Core margins also improved significantly, as seen in the 1.1ppt improvement in recurring net margin, from 1.3% in 2003 to 2.4% in 2009. On the back of a positive macro outlook and its solid expansion plans, BJKL should post a healthy growth ahead. Industry Overview, Earnings Drivers & Risks Ample room to expand. Retail sales in China grew 18% y-o-y in 1Q10. We believe swift income growth in both urban & rural areas should continue to support overall domestic consumption in China. Specifically, the on-going establishment of new residential districts in the Greater Beijing Area along with improving living standards should also translate into rising demand for modern retail chains, providing ample room for major food retailers to expand sales network in the region. Sound organic growth. BJKL is on track to open 20 selfoperated stores and 22 franchised stores in each of 2010 and 2011. As the company leverages on its well-equiped logistic facilities to accelerate retail expansion, we believe it will continue to stay among the best regional players to grow at the expense of smaller, traditional operators to strengthen its market share. M&A potentials. BJKL currently stays on schedule to potentially acquire 100% stake of Shoulian retail chain by the end of 2010, with a minimal cash outlay. Management also remains open-minded to seek suitable M&A opportunities to boost expansion further.
RMB m

Sales Trend
8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2007A 2008A 2009A 2010F 2011F
Total Revenue Revenue Growth (%) (YoY)

25.1% 20.1% 15.1% 10.1% 5.1% 0.1%

Asset Trend
RMB m 5,000 4,000 3,000 2,000 1,000

2007A

2008A

2009A

2010F

2011F

Net Fixed Assets (Tangible)

Total Current Assets

Profitability Trend
RMB m 424 374

324

274

224

174

124 2007A 2008A Operating EBIT 2009A Pre tax Profit 2010F Net Profit 2011F

Margin Trends (%)
10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 2010F 2011F

2007A 2008A 2009A Potential risks. Growing competition in the Chinese retail EBITDA Margin % EBIT Margin % industry could lay pressure on BJKL’s operating costs. Its longterm leases (mostly >15 years) for directly-operated stores could help mitigate potential costs impact. Other concerns include execution risks for longer-term expansion outside of Greater Beijing Area.

Net Income Margin %

Page 105

Asian Consumer Digest Beijing Jingkelong

Leverage & Asset Turnover (x)
1.7 1.0 0.8 0.6 0.4 0.2 0.0 2007A 2008A 2009A 2010F 2011F Financial Leverage (LHS) Asset Turnover (RHS) 1.7 1.6 1.6 1.5 1.5 1.4

Outlook Unique business structure. BJKL is unique among its retail competitors in having both sizeable wholesale and retail operations. These two divisions complement each other by ensuring stable product supplies, extensive product selection, competitive pricing, and a lower stock-out likelihood, which are all crucial for a smooth on-going performance and better brand image. Additionally, as a state-owned enterprise, BJKL is well positioned to secure strategic locations in Beijing on potentially more favourable terms. Exceptionally strong regional market. Beijing is among the major cities of China with highest growth in both retail sales and annual disposable incomes. Last year, retail sales in Beijing sustained sound y-o-y grow of 16%. Together with sizeable infrastructural projects including the Beijing-Shanghai Highspeed Railway to further stimulate economic growth, consumption in Beijing is expected to remain robust. BJKL’s strong presence in Chaoyang District of Beijing, the most affluent district in the city, also places the company in a good position to benefit from the rosy consumer environment in Beijing. Financials and Valuation Still a bargain versus peers. Chinese chain store food retailers have broadly been attracting better valuations in recent months, given their advantage to benefit from an inflationary environment in China. Recent droughts and abnormal weather in the region also exert potential pressure on further price hikes for food items. Following a good run of the sector, its major peers including Lianhua (980.HK) and Wumart (8277.HK) currently trades at an average of 1.2x PEG. We upgrade target price of BJKL to HK$10.34 on 21x FY11 fully-diluted PE to run in line with its close peers. Trading at 18.7x prospective PE, it is a BUY.

ROE (%)
20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2007A 2008A 2009A 2010F 2011F

PE (x)
33.0 28.0 23.0 18.0 13.0 8.0 3.0 2006

2007

2008

2009

P/Book Value (x)
2.9 2.4 1.9 1.4 0.9 0.4 2006

2007

2008

2009

Page 106

Asian Consumer Digest Beijing Jingkelong
Income Statement (RMB m) FY Dec Turnover Cost of Goods Sold Gross Profit Other Opg (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit EBITDA Sales Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Effective Tax Rate (%) Cash Flow Statement (RMB m) FY Dec 2008A 6,684 (5,760) 924 (576) 348 0 0 (68) 0 280 (77) (47) 0 157 474 18.5 36.2 27.6 27.3 2008A 2009A 6,691 (5,759) 932 (619) 312 0 0 (59) 0 254 (65) (41) 0 148 453 0.1 (4.4) (10.4) 25.7 2009A 254 141 (55) 0 0 (176) (7) 155 (280) 0 0 0 26 (254) (104) 73 0 0 (31) (129) 2H2008 3,327 (2,871) 456 (269) 187 0 0 (47) 0 140 (34) (25) 80 8.4 14.8 18.6 13.7 5.6 2.4 2010F 7,715 (6,633) 1,082 (711) 371 0 0 (54) 0 316 (81) (45) 0 190 529 15.3 16.8 18.6 25.7 2010F 316 159 (69) 0 0 23 0 430 (300) 0 0 0 34 (266) (129) 70 0 0 (59) 105 1H2009 3,249 (2,797) 453 (289) 164 0 0 (44) 0 120 (32) (18) 70 (3.2) (11.3) (7.9) 13.9 5.0 2.2 2011F 8,874 (7,627) 1,247 (824) 423 0 0 (56) 0 367 (94) (49) 0 224 600 15.0 13.4 14.2 25.7 2011F 367 177 (80) 0 0 (60) 0 404 (300) 0 0 0 36 (264) (149) (46) 0 0 (194) (54) 2H2009 3,442 (2,963) 479 (291) 188 0 0 (41) (13) 134 (33) (23) 77 3.4 0.5 (3.7) 13.9 5.5 2.3 Balance Sheet (RMB m) FY Dec Net Fixed Assets Invts in Assocs & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab. Non-Cash Wkg. Cap Net Cash/(Debt) Rates & Ratios FY Dec 2008A 2009A 13.9 4.7 2.2 10.9 3.3 7.6 50.2 5.3 1.5 59.1 59.4 48.6 0.9 0.5 0.7 17.7 2.5 (3.1) 0.91 (0.34) 2009A 1,000 1,837 250 23 3,581 6,691 2010F 14.0 4.8 2.5 12.7 3.9 8.5 50.2 6.8 1.6 57.2 58.8 45.9 0.9 0.5 0.6 19.0 2.5 (2.2) 1.04 0.33 2010F 1,123 2,046 278 213 4,055 7,715 2011F 14.0 4.8 2.5 13.5 4.2 9.2 50.2 7.6 1.7 53.9 56.5 43.9 0.9 0.5 0.6 19.0 2.6 (2.3) 0.99 0.22 2011F 1,480 2,351 319 266 4,457 8,874 Gross Margin (%) 13.8 Opg Profit Margin (%) 5.2 Net Profit Margin (%) 2.3 ROAE (%) 12.2 ROA (%) 3.9 ROCE (%) 9.4 Div Payout Ratio (%) 55.2 Interest Cover (x) 5.1 Asset Turnover (x) 1.7 Debtors Turn (days) 46.8 Creditors Turn (days) 52.3 Inventory Turn (days) 42.4 Current Ratio (x) 1.0 Quick Ratio (x) 0.6 Net Debt/Equity (X) 0.5 Capex to Debt (%) 24.8 Z-Score (X) 2.5 N.Cash/(Debt)PS (RMB) (2.2) Opg CFPS (RMB) 0.93 (1.06) Free CFPS (RMB) Segmental Breakdown (RMB m) FY Dec 2008A Revenues Retail - Hypermarket Retail - Supermarket Retail - Convenience Retail - Dept Store Others Total 1,004 1,813 249 18 3,600 6,684 2008A 1,536 0 152 623 710 970 323 4,314 1,379 1,370 56 22 1,325 164 4,314 633 (811) 2009A 1,674 0 164 466 785 1,198 480 4,769 1,576 1,627 6 23 1,388 148 4,769 837 (1,116) 2010F 1,821 0 172 571 843 1,218 455 5,081 1,576 1,708 6 25 1,603 163 5,081 809 (1,011) 2011F 1,946 0 176 517 948 1,401 516 5,505 1,576 2,003 6 26 1,715 180 5,505 863 (1,065)

Pre-Tax Profit 280 Dep. & Amort. 126 Tax Paid (65) (Pft)/ Loss on disposal of FAs 0 Assoc. & JV Inc/(loss) 0 Non-Cash Wkg.Cap. (363) Other Operating CF (6) Net Operating CF (28) Capital Exp.(net) (356) Other Invts.(net) (11) Invts in Assoc. & JV 0 Div from Assoc & JV 0 Other Investing CF 120 Net Investing CF (247) Div Paid (99) Chg in Gross Debt 387 Capital Issues 0 Other Financing CF 29 Net Financing CF 316 Net Cashflow 41 Interim Income Statement (RMB m) FY Dec 1H2008 Turnover Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Sales Gth (%) Opg Profit Gth Net Profit Gth (%) Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%) 3,357 (2,889) 468 (284) 184 0 0 (44) 0 141 (42) (22) 76 30.5 53.9 34.4 13.9 5.5 2.3

Source: Company, DBS Vickers

Page 107

Asian Consumer Digest

Pico Far East
Bloomberg: 752 HK | Reuters: 0752.HK

BUY HK$1.58 HSI : 21,455
Price Target : 12-Month HK$2.00 (Previous: HK$1.97) Potential Catalyst: Economic recovery, growing demand for exhibition and brand building, mega events in Asia.

Incredible growth in FY10F
• Pico continues to stay well poised for a substantial earnings rebound this year. We estimate its net profit to rise 44% in FY10F. • The impending World Expo in Shanghai as well as sizeable volume of forthcoming events will boost growth and reinforce its leading position in Asia. • Trading at merely 8x ex-cash FY10F PE, Pico sees an ample room for re-rating. Reiterate BUY.
Relative Index 218

Analyst Mavis Hui +852 2863 8879 mavis_hui@hk.dbsvickers.com

Price Relative
HK$ 2.80 2.30 1.80 1.30 68 0.80 0.30 2006 18 2010 168

118

2007

2008

2009

Pico Far East (LHS)

Relative HSI INDEX (RHS)

Operations bottomed out. Pico continues to see a stabilizing operating environment in recent months. Coupled with its dominant market share in Asia, the company’s operations should be well positioned for a strong performance as the region’s economy continues to recover. Specifically, Pico’s core exhibition division has leveraged on economic booms to achieve stellar performance in the past. Its operations should resume a robust momentum as key markets prosper ahead. Abundant growth drivers. Numerous mega projects for the year, including the World Expo in Shanghai, new integratedresort facilities in Singapore, the Asian Games in Guangzhou, etc. should all boost growth of Pico. Coupled with rising trade fair space across Asia, increasing demand for brand building, and further expansion into strong markets like China and newer markets like India and Vietnam, Pico should benefit from multiple growth drivers further on. We expect the company to post a strong earnings rebound to see net profit growing 44% in FY10F. Management also targets to double revenue in 5 years. Attractive valuation, BUY. Over the last 10 years, Pico’s share price had peaked at >20x 12-month rolling PE and c.4x rolling PB. Sitting on >HK$500m net cash and currently trading at 10.6x PE, 8x ex-cash PE, 4.7% yield and just 0.2x PEG based on FY10F numbers, we foresee ample room for
further re-rating. BUY
At A Glance Issued Capital (m shrs) Mkt. Cap (HK$m/US$m) Major Shareholders Pine Asset Management (%) DJE Investment S.A. (%) Deutsche Bank (%) Free Float (%) Avg. Daily Vol.(‘000) 1,197 1,891 / 244 38.7 9.4 5.6 46.3 1,835

Forecasts and Valuation 2008A 2,631 261 231 170 170 0.14 0.14 16.4 0.14 0.07 0.73 11.1 9.8 5.5 4.4 2.2 CASH 20.6 2009A 2,226 207 168 124 124 0.10 0.10 (27.0) 0.10 0.04 0.80 15.3 11.5 6.7 2.8 2.0 CASH 13.5 2010F 2,590 279 239 179 179 0.15 0.15 44.4 0.15 0.07 0.88 10.6 8.6 4.7 4.7 1.8 CASH 17.8 2011F 2,942 335 293 220 220 0.18 0.18 23.1 0.18 0.09 0.97 8.6 7.1 3.6 5.8 1.6 CASH 19.9 -

FY Oct (HK$ m) Turnover EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (HK$) EPS (HK$) EPS Gth (%) Diluted EPS (HK$) DPS (HK$) BV Per Share (HK$) PE (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Consensus EPS (HK$):

ICB Industry: Consumer Services ICB Sector: Media Principal Business: A leading event marketing company in Asia engaging in exhibition, sign advertising and commercial interior solutions.

Source of all data: Company, DBSV, Bloomberg, HKEX

Page 108
www.dbsvickers.com Refer to important disclosures at the end of this report ed-GC / sa- DC

Asian Consumer Digest Pico Far East

Company Background
HK$ m

Sales Trend
3,000 23.0% 18.0% 13.0% 8.0% 1,500 1,000 500 0 2007A 2008A 2009A 2010F 2011F
Total Revenue Revenue Growth (%) (YoY)

Strong expertise. Founded in 1969, Pico is currently a leading global operator of exhibition-related business. The company has an international network of 33 offices and some 2,400 staff worldwide, with key markets in Greater China, Singapore and Malaysia. One-stop shop. Over the years, Pico has branched out to event marketing, conference organisation, sign advertising and commercial interior solutions for museums and permanent exhibits. It has a diversified client base comprising leading global names such as Motorola, Disney, McDonalds and Shell. Industry Overview, Earnings Drivers & Risks Natural entry barrier. The global exhibition industry remains fragmented with a low entry barrier. Small operators have been competing aggressively on price at the low-end segment, particularly in China and some third-world countries. Pico differentiates itself well with its excellent track record, long-established brand name, extensive sales network, quality production and strong cash position. These form a natural competitive edge against its rivals. With a 60% market share in Asia in the top 20% exhibition businesses, Pico sustains a dominant position in Asia. Multiple growth drivers. Riding on the recovering Asian economies, growing trade fair space, and increasing demand for brand awareness, Pico should see successive double-digit revenue growth in the coming 3-5 years. Further penetration into fast growing markets including China and India, and a gradual diversification into strong growth segments (e.g. sign advertising) also support revenue expansion. Together with a series of impending mega events and rising economies of scale, Pico is well poised to achieve better performance ahead, particularly in FY10F. Risks. Pico’s operations are strongly linked to the economic well-being of its key markets. Yet, by expanding into relatively stable businesses (e.g. exhibition hall management), focusing more on cost-efficient operations, and maintaining a strong liquidity position, Pico has demonstrated better resilience during the latest global financial crisis.

2,500 2,000

3.0% -2.0% -7.0% -12.0% -17.0%

Asset Trend
HK$ m 2,000 1,500 1,000 500

2007A

2008A

2009A

2010F

2011F

Net Fixed Assets (Tangible)

Total Current Assets

Profitability Trend
HK$ m 283 263 243 223 203 183 163 143 123 2007A 2008A Operating EBIT 2009A Pre tax Profit 2010F Net Profit 2011F

Margin Trends (%)
20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2007A EBITDA Margin % 2008A 2009A 2010F 2011F EBIT Margin % Net Income Margin %

Page 109

Asian Consumer Digest Pico Far East

Leverage & Asset Turnover (x)
1.5 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 2007A 2008A 2009A 2010F 2011F Financial Leverage (LHS) Asset Turnover (RHS) 1.5 1.4 1.4 1.3 1.3 1.2 1.2 1.1

Outlook Improving macros. Pico is focusing on operations in the Greater China, Singapore and Malaysia, which together generate c.80% of its revenue. We believe the impending strong recovery in these countries should allow Pico to emerge stronger and strengthen its foothold in the industry. Wider channels. Trade fair space in Asia grew at 15% CAGR in 2004-08 to a total area of 14.3m sm. We expect the trend to continue as more Asian MICE facilities are built, including the upcoming Marina Bay project in Singapore. This should provide additional opportunities for Pico to capture more exhibition business ahead. Large amount of mega events for 2010. Leveraging on abundant experience with the Olympics and other mega events, as well as its wide international sales network with 17 in-house production facilities, Pico is in a good position to secure more projects. Specifically, 2010 will offer a particularly strong volume of major events versus the past years. These include the Singapore Air Show, Shanghai World Expo, South Africa World Cup, “ITMA”+”CITME” textile machinery shows in Shanghai, Singapore F1 Grand Prix, Delhi Commonwealth Games, and Guangzhou Asian Games. All these could help to boost Pico’s growth momentum in FY10F. Financials and Valuation

ROE (%)
40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 2007A 2008A 2009A 2010F 2011F

PE (x)
22.0

17.0

12.0

7.0

2.0 2006

2007

2008

2009

2010

Healthy liquidity. Pico currently sits on >HK$500m net cash, equivalent to >HK$0.45 per share. Additionally, it is expected to generate c.HK$200m operating cashflow per year under a normal economic environment, adequately financing its annual capex requirement of c.HK$50m on average. Attractive valuation. In view of an improving operating environment and a strong outlook for Pico, the stock could rerate as the market gradually normalises. Trading at 10.6x FY10F PE, 8x ex-cash PE, and 21% discount to our target price of HK$2.00 (based on 12x 12-month rolling PE), we reiterate a Buy.

P/Book Value (x)
4.4 3.9 3.4 2.9 2.4 1.9 1.4 0.9 0.4 2006 2007 2008 2009 2010

Page 110

Asian Consumer Digest Pico Far East
Income Statement (HK$ m) FY Oct Turnover Cost of Goods Sold Gross Profit Other Opg (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net profit before Except. EBITDA Sales Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Effective Tax Rate (%) Cash Flow Statement (HK$ m) FY Oct 2008A 2,631 (1,778) 853 (641) 211 1 12 6 0 231 (44) (17) 0 170 170 261 22.4 20.3 26.4 19.1 2008A 2009A 2,226 (1,487) 739 (585) 153 12 1 2 0 168 (36) (8) 0 124 124 207 (15.4) (20.8) (27.5) 21.5 2009A 168 45 (30) (13) (1) (53) (9) 108 (64) 10 (2) 15 (18) (59) (59) 42 0 28 11 60 2H2008 1,429 (962) 467 (350) 117 0 3 (1) 0 119 (24) (6) 88 88 34.7 51.7 35.6 32.7 8.2 6.2 2010F 2,590 (1,731) 859 (616) 244 (9) 1 3 0 239 (51) (9) 0 179 179 279 16.4 35.2 59.2 21.5 2010F 239 46 (34) 0 (1) 19 (5) 263 (50) 0 0 23 5 (22) (95) (15) 0 (53) (163) 79 1H2009 1,050 (695) 354 (268) 86 0 0 (1) 0 84 (15) (9) 60 60 (12.7) (16.2) (25.6) 33.8 8.2 5.8 2011F 2,942 (1,966) 976 (689) 287 1 1 4 0 293 (63) (10) 0 220 220 335 13.6 20.0 17.8 21.6 2011F 293 48 (39) 0 (1) 18 (6) 314 (50) 0 0 25 6 (19) (116) (13) 0 (71) (199) 96 2H2009 1,176 (792) 384 (312) 72 0 13 (2) 0 84 (21) 1 63 63 (17.7) (38.8) (28.3) 32.7 6.1 5.4 Balance Sheet (HK$ m) FY Oct Net Fixed Assets Invts in Assocs & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab. Non-Cash Wkg. Cap Net Cash/(Debt) Rates & Ratios FY Oct 2008A 2009A 33.2 6.9 5.6 13.5 6.4 11.2 43.5 N/A 1.2 108.2 155.5 5.1 1.6 1.5 CASH 115.0 2.4 0.5 0.13 0.04 2009A 1,828 145 201 51 0 2,226 2010F 33.2 9.4 6.9 17.8 8.7 16.1 50.0 N/A 1.3 98.7 138.4 2.5 1.6 1.5 CASH 105.8 2.9 0.5 0.20 0.18 2010F 2,082 185 261 62 0 2,590 2011F 33.2 9.8 7.5 19.9 9.7 17.6 50.0 N/A 1.3 99.8 139.7 2.5 1.6 1.5 CASH 124.4 3.3 0.6 0.25 0.22 2011F 2,305 226 340 71 0 2,942 Gross Margin (%) 32.4 Opg Profit Margin (%) 8.0 Net Profit Margin (%) 6.4 ROAE (%) 20.6 ROA (%) 9.6 ROCE (%) 17.9 Div Payout Ratio (%) 49.4 Interest Cover (x) N/A Asset Turnover (x) 1.5 Debtors Turn (days) 86.7 Creditors Turn (days) 119.4 Inventory Turn (days) 5.7 Current Ratio (x) 1.4 Quick Ratio (x) 1.3 Net Debt/Equity (X) CASH Capex to Debt (%) 182.8 Z-Score (X) 2.4 N.Cash/(Debt)PS (HK$) 0.4 Opg CFPS (HK$) 0.17 0.16 Free CFPS (HK$) Segmental Breakdown (HK$ m) FY Oct 2008A Revenues Exhibitions & event Museums, theme Sign advertising Conferences and Others Total 2,195 197 188 51 0 2,631 2008A 299 142 121 575 30 673 68 1,907 41 902 0 25 871 68 1,907 (131) 534 2009A 331 145 131 624 11 647 61 1,951 56 806 0 58 962 69 1,951 (87) 569 2010F 338 159 134 703 12 753 65 2,165 47 938 0 55 1,052 74 2,165 (107) 656 2011F 342 175 143 798 14 856 68 2,397 40 1,065 0 52 1,162 79 2,397 (126) 758

Pre-Tax Profit 231 Dep. & Amort. 39 Tax Paid (46) (Pft)/ Loss on disposal of FAs (3) Assoc. & JV Inc/(loss) (12) Non-Cash Wkg.Cap. 60 Other Operating CF (2) Net Operating CF 267 Capital Exp.(net) (74) Other Invts.(net) (7) Invts in Assoc. & JV (32) Div from Assoc & JV 5 Other Investing CF 28 Net Investing CF (81) Div Paid (100) Chg in Gross Debt (9) Capital Issues 2 Other Financing CF 10 Net Financing CF (98) Net Cashflow 88 Interim Income Statement (HK$ m) FY Oct 1H2008 Turnover Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. Sales Gth (%) Opg Profit Gth Net Profit Gth (%) Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%) 1,202 (816) 386 (283) 103 0 10 (1) 0 112 (20) (11) 81 81 10.5 4.9 1.1 32.1 8.6 6.8

Source: Company, DBS Vickers

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Asian Consumer Digest

Wilmar International
Bloomberg: WIL SP | Reuters: WLIL.SI

BUYS$6.90 STI : 2,980.69
Price Target : 12 months S$ 8.30 Potential Catalyst: Stronger earnings growth from 2QFY10 Analyst Ben SANTOSO +65 6398 7976 bensantoso@dbsvickers.com

Top Agribusiness Pick
• Rice and flour mills now included - more upside to earnings • RMB revaluation may expand Wilmar’s bottom line and boost competitiveness • Still 20% more upside to DCF-based TP of S$8.30. • BUY call reiterated on strong positioning in China

Price Relative
S$ 7 .8 0 6 .8 0 5 .8 0 4 .8 0 3 .8 0 2 .8 0 1 .8 0 0 .8 0 2006 345 295 245 195 145 95 45 2010 R e la tiv e In d e x

2007

2008

2009

W ilm a r In t e r n a t io n a l (L H S )

R e la t iv e S T I IN D E X (R H S )

Forecasts and Valuation
FY Dec (US$ m) 2009A 2010F 2011F 2012F

Factoring in rice and flour mills. We recently raised our forecasts to include stronger growth in the group’s rice and flour milling business through 2013F. We believe Wilmar is capable of expanding capacities by 4m MT p.a. (based on 5 plants of 400k MT capacity p.a., each for rice and flour). As at end June 07, its rice and flour milling capacity was 890k MT. The group has US$5b cash hoard and plans to spend roughly half of its US$1b capex in China this year. Combined with consumer distribution, we estimate this division to contribute additional pretax of US$350m by 2013F. Beneficiary of RMB revaluation. Chinese soybeans are priced c.40% higher than US soybeans in international markets (Brazilian and Argentine beans are also similarly priced). Even after taking into account 13% VAT and 3% import tariff, imported soybeans are still cheaper. Hence, if RMB is revalued, end product prices may not drop to protect crushers with domestic feedstock. This would benefit crushers employing imported beans (which would be even cheaper). China cannot ban soybean imports, as it produces only a third of its requirements and the gap is growing. BUY for 20% upside. Our TP is S$8.30 (based on DCF: WACC:9.1%, Rf:3.5%, ERP:7%, B:1.0, TG: 3%) with the imputation of having imputed additional contribution from rice & flour mills (including dilution in oilseeds and grains M&P pretax margins), and changes in ASP, fertilser and FX rates.
At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders Wilmar Holdings Pte Ltd (%) PPB Group Bhd (%) Global Cocoa Holding (%) Free Float (%) Avg. Daily Vol.(‘000) 6,392 43,921 / 32,127 29.3 18.4 5.6 46.7 5,925

Turnover EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft (ex. BA gains) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Consensus EPS (S cts):

23,885 2,423 2,294 1,882 1,715 N/A 40.3 36.7 12 40.3 7.9 233.9 17.1 18.7 15.4 15.2 1.1 2.9 0.4 18.3

29,892 2,774 2,497 1,994 1,994 N/A 42.7 42.7 16 42.7 8.5 268.4 16.1 16.1 14.3 12.8 1.2 2.6 0.2 17.0 38.1

34,365 3,162 2,709 2,132 2,132 N/A 45.6 45.6 7 45.6 9.1 305.3 15.1 15.1 13.2 11.1 1.3 2.3 0.2 15.9 42.7

39,715 3,599 2,994 2,312 2,312 N/A 49.5 49.5 8 49.5 9.9 345.3 13.9 13.9 12.1 9.7 1.4 2.0 0.1 15.2 49.1

ICB Industry : Consumer Goods ICB Sector: Food Producers Principal Business: Wilmar is an integrated agribusiness group with one of the largest oil palm plantation land bank in the world, significant share in China’s consumer edible oil market and large merchandising and processing capacities in Asia’s expanding economies.

Source of all data: Company, DBS Vickers, Bloomberg

Page 112
www.dbsvickers.com Refer to important disclosures at the end of this report ed: MY / sa: JC

Asian Consumer Digest Wilmar International

Company Background
U S$ m

Sales Trend
8 0 .1 % 3 5 ,0 0 0 3 0 ,0 0 0 2 5 ,0 0 0 2 0 ,0 0 0 1 5 ,0 0 0 1 0 ,0 0 0 5 ,0 0 0 0 2008A 2009A 2010F 2011F 2012F
T o ta l R e v e n u e R e v e n u e G ro w th (% ) (Y o Y )

An integrated agribusiness player. Founded in 1991, Wilmar International is a leading integrated agribusiness group in Asia, with operations capturing the entire value chain of the palm oil, oilseeds, grains, as well as fertiliser, shipping and biodiesel businesses. After the merger with Kuok Group and acquisition of its holding company’s related businesses, Wilmar now has a solid management, strong presence in key producing and consuming countries, enhanced global market intelligence; as well as having four of the top five consumer edible oil brands in China. Merchandising and processing forms the bulk of the group’s earnings. Wilmar’s merchandising and refinery segment is the biggest contributor the Group EBIT, which we expect to account for US$1,646.1m or 68% of group’s FY10F EBIT. Revenue from this segment is derived from sales of palm and laurics refined products, as well as soybean meal, crude soybean oil, rice, flour and other grains. Plantation land bank of 573,401 hectares. We estimate that Wilmar holds land rights to 573,401 hectares of combined oil palm plantation land bank in Indonesia and Malaysia – of which we estimate 255,800 hectares would have been planted by end of 2010 (excluding plasma scheme of 34,800 hectares). Industry Overview, Earnings Drivers & Risks Higher domestic soybean prices in China. When we compare soybean prices in Dalian and Chicago exchange, we found that current Chinese soybean prices are already 40% higher than US prices. Even with 3% import tariff and 13% VAT, imported soybeans are still cheaper. Hence, a much stronger RMB would render Chinese farmers vulnerable to yet cheaper imports. High domestic soybean prices in China and declining prospective international palm oil and soybean prices (in USD; even more in RMB) should lower Wilmar imported feedstock costs, expand its margins and strengthen its competitiveness against domestic players. Within our universe, the prospects of RMB revaluation would hence tilt the balance towards processors such as Wilmar from upstream players.

6 0 .1 % 4 0 .1 % 2 0 .1 % 0 .1 % -1 9 .9 %

Asset Trend
U S$ m 2 0 ,0 0 0 1 5 ,0 0 0 1 0 ,0 0 0 5 ,0 0 0

2008A

2009A

2010F

2011F

2012F

N e t F ix e d A s s e t s (T a n g ib le )

T o ta l C u rre n t A sse ts

Profitability Trend
U S$ m 2 ,9 3 0 2 ,7 3 0 2 ,5 3 0 2 ,3 3 0 2 ,1 3 0 1 ,9 3 0 1 ,7 3 0 1 ,5 3 0 2008A 2009A O p e r a t in g E B IT 2010F P r e t a x P r o f it 2011F N e t P r o f it 2012F

Margin Trends (%)
20 % 18 % 16 % 14 % 12 % 10 % 8% 6% 4% 2% 0% 2008A E B IT D A M a rg in % 2009A 2 0 1 0F 2011F 2 01 2 F E B IT M a rg in % N e t In co m e M a rg in %

Source: Company, DBS Vickers

Page 113

Asian Consumer Digest Wilmar International

Leverage & Asset Turnover (x)
0 .9 0 .8 0 .7 0 .6 0 .5 0 .4 0 .3 0 .2 0 .1 0 .0 2008A 20 0 9 A 2010F 2011F 2012F Fin a n cia l Le ve ra g e (LH S) A sse t T u rn o ve r (R H S) 1.2 1.1 1.8 1.7 1.6 1.5 1.4 1.3

Outlook Strategic growth plans. Wilmar had secured licenses to expand its capacities in the oilseeds crushing divisions, prior to restrictions imposed on foreign ownerships in this space since December 2007. Hence, having completed such expansions last year, we expect the group’s oilseeds and grains M&P volume to grow by 6.2% in CY11F and 4.5% in CY12F (excluding rice and flour milling). The M&P unit should provide Wilmar with a stable earnings stream (contributing 66-68% of EBIT), while the Group’s plantation unit is expected to maintain its EBIT contribution at 19-20% over the next three years. Wilmar’s consumer products, while only contributing to 11% of EBIT this year, could expand to 13% by 2013F with additional contribution from packaged rice and flour. Expanding cooking oil in India. Given India’s huge market and palm oil’s price discount to soybean oil, we expect Wilmar to expand its market share in India. With close to 20% market share, the highest in the consumer-pack cooking oil (Fortune brand), we expect Wilmar to replicate its Chinese business model of integrated complexes in India with its JV partner, Adani Group. Financials and Valuation Expect lower 1QFY10 earnings Our estimates based on daily spot prices showed that soybean crushing margins in the quarter ending 31 March 2010 have come down q-o-q to US$39.0/MT from US$52.4/MT and palm oil refining margin to US$19.3/MT from US$20.8/MT. Hence, given seasonally lower palm oil production and steady soybean volumes q-o-q, we expect Wilmar’s M&P pretax profit to come down q-o-q. The group’s plantation division should also book c.20% lower volumes q-o-q, partially offset by 13.3% increase in spot palm oil prices. While still growing we do not expect the group’s rice and flour volumes to bear any significant impact in 1QFY10, although we do anticipate consumer volumes to increase q-o-q (in line with Chinese New Year). Our top pick. Wilmar’s leading position is China is our key investment thesis. Second, the group’s large economies of scale and global market intelligence provide a support for low cost origination and processing. Third, continued expansion in Asia (particularly India, Indonesia and Africa) would provide further growth beyond China and current business segments. Finally, a strong management team makes Wilmar’s business model impossible to replicate.

ROE (%)
2 0 .0 % 1 9 .0 % 1 8 .0 % 1 7 .0 % 1 6 .0 % 1 5 .0 % 1 4 .0 % 1 3 .0 % 1 2 .0 % 1 1 .0 % 1 0 .0 % 2008A 2009A 2010F 2011F 2012F

PE (x)
4 0 .0 3 5 .0 3 0 .0 2 5 .0 2 0 .0 1 5 .0 1 0 .0 5 .0 2006

2 00 7

2008

2009

P/Book Value (x)
4 .3 3 .8 3 .3 2 .8 2 .3 1 .8 1 .3 0 .8 2006

2007

2008

20 0 9

Source: Company, DBS Vickers

Page 114

Asian Consumer Digest Wilmar International
Income Statement (US$ m)
FY Dec 2009A 2010F 2011F 2012F

Balance Sheet (US$ m)
FY Dec 2009A 2010F 2011F 2012F

Turnover Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. Net Pft (ex. BA gains) EBITDA Sales Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Effective Tax Rate (%)
FY Dec

Cash Flow Statement (US$ m)
Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Net Cashflow

23,885 (20,882) 3,003 (878) 2,125 0 46 (43) 167 2,294 (324) (88) 0 1,882 1,715 N/A 2,423 (18.0) 7.6 10.0 22.9 14.1
2009A

29,892 (26,307) 3,585 (1,182) 2,404 0 60 33 0 2,497 (385) (118) 0 1,994 1,994 N/A 2,774 25.1 14.5 13.1 5.9 15.4
2010F

34,365 (30,230) 4,135 (1,390) 2,745 0 62 (98) 0 2,709 (417) (160) 0 2,132 2,132 N/A 3,162 15.0 14.0 14.2 6.9 15.4
2011F

39,715 (34,945) 4,770 (1,642) 3,128 0 66 (200) 0 2,994 (461) (222) 0 2,312 2,312 N/A 3,599 15.6 13.8 13.9 8.4 15.4
2012F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab. Non-Cash Wkg. Capital Net Cash/(Debt)

3,919 1,082 5,577 5,440 3,940 3,174 317 23,449 8,374 1,995 1,206 463 10,931 481 23,449 5,436 (4,140)

4,472 1,142 5,622 5,202 4,036 3,286 317 24,078 6,699 2,542 1,206 486 12,546 599 24,078 5,098 (2,703)

5,085 1,204 5,763 5,223 4,638 3,777 317 26,009 6,364 2,900 1,206 510 14,269 759 26,009 5,833 (2,347)

5,736 1,271 5,923 5,269 5,362 4,366 317 28,243 6,046 3,333 1,206 536 16,141 981 28,243 6,712 (1,983)

Rates & Ratio
FY Dec 2009A 2010F 2011F 2012F

2,294 252 (324) (46) (2,584) (58) (465) (1,073) 0 122 0 (359) (1,310) (328) 4,296 12 37 4,017 2,242

2,497 310 (385) (60) 275 281 2,919 (983) 0 0 0 (24) (1,007) (379) (1,675) 0 (112) (2,165) (253)

2,709 355 (417) (62) (749) 10 1,845 (1,095) 0 0 0 (25) (1,120) (409) (335) 0 24 (719) 5

2,994 405 (461) (66) (898) 14 1,988 (1,201) 0 0 0 (26) (1,227) (439) (318) 0 26 (732) 29

Quarterly / Interim Income Statement (US$ m)
FY Dec 1Q2009 2Q2009 3Q2009 4Q2009

Segmental Breakdown / Assumptions
FY Dec

Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x) Asset Turnover (x) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X) N. Cash/(Debt)PS (US cts.) Opg CFPS (US cts.) Free CFPS (US cts.)

12.6 8.9 7.9 18.3 9.1 9.8 19.5 48.9 1.2 40.1 32.4 56.7 1.2 0.8 0.4 0.4 11.2 3.9 (64.8) 33.2 (24.1)
2009A

12.0 8.0 6.7 17.0 8.4 9.5 20.0 NM 1.3 39.4 29.0 56.0 1.4 0.9 0.2 0.2 12.4 3.4 (42.3) 41.4 30.3
2010F

12.0 8.0 6.2 15.9 8.5 10.4 20.0 27.9 1.4 37.5 30.3 53.0 1.5 1.0 0.2 0.2 14.5 3.7 (36.7) 40.6 11.7
2011F

12.0 7.9 5.8 15.2 8.5 11.0 20.0 15.6 1.5 37.4 30.2 52.8 1.6 1.0 0.1 0.1 16.6 3.8 (31.0) 45.2 12.3
2012F

Turnover Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA Sales Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

4,958 (4,141) 817 N/A 562 N/A 13 (56) N/A 519 (110) (29) 380 380 635 (14.9) 39.6 55.6 1.7 16.5 11.3 7.7

5,712 (5,008) 704 N/A 539 N/A 2 (17) N/A 524 (85) (31) 407 407 602 15.2 (5.2) (4.2) 7.2 12.3 9.4 7.1

6,299 (5,576) 723 N/A 688 N/A 17 29 N/A 735 (76) (6) 653 653 769 10.3 27.8 27.8 60.4 11.5 10.9 10.4

6,916 (6,156) 759 N/A 502 N/A 14 1 N/A 517 (53) (22) 442 442 585 9.8 (23.9) (27.0) (32.3) 11.0 7.3 6.4

Revenues (US$ m) M&P Plantations Consumer products Others Elimination Total EBIT (US$ m) M&P Plantations Consumer products Others Unallocated costs Total EBIT Margins (%) M&P Plantations Consumer products Others Total Key Assumptions CPO price (RM/MT) Oilseeds & grains pretax Palm & lauric pretax Consumer products vol. Oil palm planted area (Ha)

20,783 1,119 3,898 1,434 (3,349) 23,885 1,399 395 227 71 (32) 2,058 6.7 35.3 5.8 4.9 8.6 2,261.3 38.9 36.3 3,191.0 235,799

26,048 1,404 4,559 1,059 (3,178) 29,892 1,646 465 254 74 (36) 2,404 6.3 33.1 5.6 7.0 8.0 2,460.0 35.6 38.6 3,615.3 255,799

29,411 1,532 5,732 1,124 (3,434) 34,365 1,852 522 332 78 (39) 2,745 6.3 34.1 5.8 6.9 8.0 2,470.0 36.3 38.9 4,720.4 275,799

33,562 1,710 7,018 1,194 (3,769) 39,715 2,066 611 411 82 (42) 3,128 6.2 35.7 5.9 6.9 7.9 2,530.0 37.2 39.8 5,860.0 295,799

Source: Company, DBS Vickers

Page 115

Asian Consumer Digest

Research Team Directory Analyst Regional Timothy Wong Joanne Goh Paul Yong, CFA Ben Santoso Sachin Mittal Lim Sue Lin June Ng Hong Kong / China Derek Cheung Alice Hui CFA Gideon Lo CFA Carol Wu Danielle Wang Dennis Lam Jasmine Lai Jeff Yau CFA Mavis Hui Patricia Yeung Paul Yong Rachel Miu Steven Liu CFA Titus Wu Indonesia Research Team Ariyanto Kurniawan Research Team Malaysia Wong Ming Tek Goh Yin Foo, CFA June Ng Lim Sue Lin Yee Mei Hui Juliana Ramli Chong Tjen-San, CFA Kok Chiew Sia Lee Wee Keat Research Team

Sector Head, Group Research Regional Equity Strategist Singapore & China Industrial & Transport Regional Plantation Regional Telecom Singapore, Malaysia and Indonesia Banking China and Malaysia Power Head of Research, Strategy Deputy HOR, Consumer Deputy HOR, Oil & Petrochemicals, Pharmaceuticals, Shipping China Property China Property Electronics & Technology Banking & Finance Hong Kong Property Media & General Retail Industrials Consumer Services, Transportation – Toll Roads Infrastructure, Machinery, Agriculture Software & Telecom Consumer Services Strategy, Conglomerate/Automotive, Cement Basic Materials, Oil, Gas & Energy Consumer, Construction Head of Research, Strategy Retail/ Technical Product Power, Oil & Gas, Conglomerates, REITs Financial Services Gaming, Property Aviation, Transport, Plantation Construction, Infrastructure Consumer Oil & Gas, IPO Small-Mid Caps Telecommunications, Motor, Steel, Manufacturing Other Financial Services, Building materials Head of Research, Strategy, Industrials Industrials Property, Reits Property Reits Industrials, Property Consumer Consumer Electronics Electronics, Industrials Head of Research Strategy, Property, REITs, Transportation Strategy, Telecom, Media Banks, Securities Construction Materials, Food and Beverage, Healthcare, Hotel Automotive, Commerce, Electronics Building Materials, Energy, Utilities, Petrochemicals, Chemicals Basic Materials, Utilities Consumer Automotive

E-mail timothywongkc@dbsvickers.com joannegohsc@dbs.com paulyong@dbsvickers.com bensantoso@dbsvickers.com sachin@dbsvickers.com suelin@hwangdbsvickers.com.my june@hwangdbsvickers.com.my derek_cheung@hk.dbsvickers.com alice_hui@hk.dbsvickers.com gideon_lo@hk.dbsvickers.com carol_wu@hk.dbsvickers.com danielle_wang@hk.dbsvickers.com dennis_lam@hk.dbsvickers.com jasmine_lai@hk.dbsvickers.com jeff_yau@hk.dbsvickers.com mavis_hui@hk.dbsvickers.com patricia_yeung@hk.dbsvickers.com paulyong@dbsvickers.com rachel_miu@hk.dbsvickers.com steven_liu@hk.dbsvickers.com titus_wu@hk.dbsvickers.com research@id.dbsvickers.com Ariyanto.kurniawan@id.dbsvickers.com

mingtek@hwangdbsvickers.com.my yinfoo@hwangdbsvickers.com.my june@hwangdbsvickers.com.my suelin@hwangdbsvickers.com.my meihui@hwangdbsvickers.com.my juliana@hwang.dbsvickers.com.my tjensan@hwangdbsvickers.com.my chiewsia@hwangdbsvickers.com.my weekeat@hwangdbsvickers.com.my general@hwangdbsvickers.com.my

Singapore Janice Chua Ho Pei Hwa Lock Mun Yee Adrian Chua Derek Tan Jeremy Thia Andy Sim, CFA Patrick Xu Tan Ai Teng Suvro Sarkar Thailand Chanpen Sirithanarattanakul Chirasit Vuttigrai Sugittra Kongkhajornkidsuk Nalyne Viriyasathien Research Team Research Team Korea Lee Eun Young Jung Sung Hoon Jay (Jaehak) Kim

janicechua@dbsvickers.com peihwa@dbsvickers.com mumyee@dbsvickers.com adrianchua@dbsvickers.com derektan@dbsvickers.com jeremythia@dbsvickers.com andysim@dbsvickers.com patrickxu@dbsvickers.com aiteng@dbsvickers.com survo@dbsvickers.com chanpens@th.dbsvickers.com chirasitv@th.dbsvickers.com sugittrak@th.dbsvickers.com nalynev@th.dbsvickers.com

eunyoung@dbsvickers.com sunghoon@dbsvickers.com Jay_kim@hk.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6398 7954 in respect of any matters arising from or in connection with this report.”

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DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends
DBS Vickers Research is available on the following electronic platforms: DBS Vickers (www.dbsvresearch.com); Thomson (www.thomson.com/financial); Factset (www.factset.com); Reuters (www.rbr.reuters.com); Capital IQ (www.capitaliq.com) and Bloomberg (DBSR GO). For access, please contact your DBSV salesperson. GENERAL DISCLOSURE/DISCLAIMER This document is published by DBS Vickers Research (Singapore) Pte Ltd ("DBSVR"), a direct wholly-owned subsidiary of DBS Vickers Securities (Singapore) Pte Ltd ("DBSVS") and an indirect wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH"). [This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of DBSVR.] The research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. DBSVR accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is a whollyowned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. DBSVR, DBSVS, DBS Bank Ltd and their associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. The assumptions for commodities in this report are for the purpose of forecasting earnings of the companies mentioned herein. They are not to be construed as recommendations to trade in the physical commodities or in futures contracts relating to the commodities mentioned in this report. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively. ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 28 Apr 2010 analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions). COMPANY-SPECIFIC / REGULATORY DISCLOSURES DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the mentioned 1. company as of 26 Apr 2010 DBS Bank Ltd has been appointed as the designated market maker of structured warrant(s) for Genting, Indofood Agri, 2. Wilmar issued by DBS Bank Ltd. 3. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered broker-dealer, may beneficially own a total of 1% or more of any class of common equity securities of mentioned company as of 28 Apr 2010

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4. (1)

Compensation for investment banking services: DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from the Genting, Olam, Petra Food DBSVHK, DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from Beijing Jingkelong (814 HK) mentioned in this document. (2) DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia This report is being distributed in Australia by DBSVR and DBSVS, which are exempted from the requirement to hold an Australian financial services licence under the Corporation Act 2001 [“CA] in respect of financial services provided to the recipients. DBSVR and DBSVS are regulated by the Monetary Authority of Singapore [“MAS”] under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA. This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission. This report is being distributed in Singapore by DBSVR, which holds a Financial Adviser’s licence and is regulated by the MAS. This report may additionally be distributed in Singapore by DBSVS (Company Regn. No. 198600294G), which is an Exempt Financial Adviser as defined under the Financial Advisers Act. Any research report produced by a foreign DBS Vickers entity, analyst or affiliate is distributed in Singapore only to “Institutional Investors”, “Expert Investors” or “Accredited Investors” as defined in the Securities and Futures Act, Chap. 289 of Singapore. Any distribution of research reports published by a foreign-related corporation of DBSVR/DBSVS to “Accredited Investors” is provided pursuant to the approval by MAS of research distribution arrangements under Paragraph 11 of the First Schedule to the FAA. This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Services Authority. Research distributed in the UK is intended only for institutional clients. This report is being distributed in Dubai/United Arab Emirates by DBS Bank Ltd, Dubai (PO Box 506538, 3rd Floor, Building 3, Gate Precinct, DIFC, Dubai, United Arab Emirates) and is intended only for clients who meet the DFSA regulatory criteria to be a Professional Client. It should not be relied upon by or distributed to Retail Clients. DBS Bank Ltd, Dubai is regulated by the Dubai Financial Services Authority. Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in compliance with any applicable U.S. laws and regulations. In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

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DBS Vickers Research (Singapore) Pte Ltd – 8 Cross Street, #02-01 PWC Building, Singapore 048424 Tel. 65-6533 9688, Fax: 65-6226 8048 Company Regn. No. 198600295W

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Asian Equities Sales, Sales Trading and Research Contacts
Sales Heads Regional Singapore Hong Kong London New York Thailand Lim Kok Ann Chai Szue Yin Andrew Au Graham Booth Elaine Yu Tasamol Witayanukusl Sales Trading Contacts Singapore Hong Kong London New York Loh Chong Jin Franco Law Charles Davies Brenda Wong Research Contacts Regional Singapore Hong Kong Malaysia Thailand Timothy Wong Janice Chua Derek Cheung Wong Ming Tek Chanpen Sirithanarattanakul Tel: 65-6398 6900 65-6398 7319 852-2820 4992 44-20-7618 1881 1-212-826 3553 662-657 7000 Tel: 65-6398 7304 852-2971 1828 44 20 7618 1883 1 212 826 3558 Tel: 65-6398 7952 65-6398 7954 852-2971 1703 603-2711 0956 662-657 7824 Email: kokann@dbsvickers.com szueyin@dbsvickers.com andrew_au@hk.dbsvickers.com graham.booth@uk.dbsvickers.com elaineyu@us.dbsvickers.com Indonesia tasamolweth@th.dbsvickers.com Email: chongjin@dbsvickers.com franco_law@hk.dbsvickers.com charles.davies@uk.dbsvickers.com brendawong@us.dbsvickers.com Email: timothywongkc@dbsvickers.com janicechua@dbsvickers.com derek_cheung@hk.dbsvickers.com mingtek@hwangdbsvickers.com.my chanpens@th.dbsvickers.com

DBS Vickers Securities – Regional Offices
HONG KONG DBS Vickers (Hong Kong) Ltd 18th Floor Man Yee Building 68 Des Voeux Road Central Central, Hong Kong Tel: 852-2820 4888 Fax: 852-2868 1523 Member of Stock Exchange of Hong Kong INDONESIA PT DBS Vickers Securities (Indonesia) Plaza Permata, Top Floor Jl. M.H. Thamrin Kav. 57 Jakarta 10350 Tel: 62-21-3983 2668 Fax: 62-21-3983 2669 UNITED STATES DBS Vickers Securities (USA) Inc 805 Third Avenue Suite 1201 New York, New York 10022 Tel: 1-212-826 1888 Fax: 1-212-826 8704 Member of FINRA MALAYSIA Hwang-DBS Vickers Research Sdn Bhd Suite 26.03, 26Floor Menara Keck Seng 203 Jalan Bukit Bintang 55100 Kuala Lumpur Tel: 60-3-2711 2222 Fax: 60-3-2711 2333 THAILAND DBS Vickers Securities (Thailand) Co Ltd 15th Floor Siam Tower 989 Rama 1 Road Pathumwan, Bangkok 10330 Tel: 66-2-658 1222 Fax: 66-2-658 1269 UNITED KINGDOM DBS Vickers Securities (UK) Ltd 4th Floor Paternoster House 65 St Paul's Churchyard London EC4M 8AB United Kingdom Tel: 44-20-7618 1888 Fax: 44-20-7618 1900 Regulated by The Financial Services Authority SINGAPORE DBS Vickers Securities (Singapore) Pte Ltd 8 Cross Street #02-00 PWC Building Singapore 048424 Tel: 65-6533 9688 Fax: 65-6226 8048

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