Analysts Recommend

Asia Pacific Equity Research | Singapore
STRATEGY 2013
14 Dec 2012
A GOOD YEAR FOR EQUITIES

The Singapore market clocked in good gains in 2012, and our core favourite sectors also outperformed. Moving into 2013, we see better economic and market conditions, and while earnings growth is still in the single-digit region, it is a recovery from the slowdown in 2012. Valuations for the Singapore market are not excessive and we expect a healthy pipeline of IPOs, takeover and privatisation exercises in 2013 to help buoy interest in the market. We are sticking with our strategy of overweighing the Oil & Gas, Banking, Healthcare and selective property sub-sectors. Our stock picks for 2013 include Biosensors, CapitaMalls Asia (CMA), CapitaMall Trust (CMT), City Developments, DBS, Ezion Holdings, Keppel Corp, M1, Sembcorp Marine, Starhill Global REIT, UOB and Venture Corp.
Please refer to important disclosures at the back of this document.
MICA (P) 032/06/2012
OCBC Investment Research Singapore Equities
Section A: Investment Summary Time to be optimistic? Despite gains for most of the key indices in 2012, underlying strength, in terms of trading volume, appears lacking in the past one year. Is there still upside for the Singapore market or should investors turn cautious, stay on the sidelines or opt for safer investments in 2013? Are green shoots sprouting? Some positive data have recently surfaced; giving rise to optimism that the worst is likely over. This is generally true, especially in terms of recovery in economic growth numbers and the recent positive Purchasing Manager Index (PMI) number for China. Based on most economic projections, there is a consensus view that 2013 is likely to be a better year than 2012. In terms of corporate earnings, most are also expecting better earnings growth next year and a recovery from 2012. For the S&P 500, and based on consensus data from Bloomberg, earnings growth is projected at 11% for 2013 and 11% for 2014 compared to only 6% in 2012 (as of 12 Dec 2012). The trend is similarly seen for the Straits Times Index (STI), which is likely to grow 6% in 2013 and 9% in 2014 versus a decline of 18% in 2012. The worst is likely over While equities have rallied, we believe that the gains are not widespread as funds and investors still showed a clear preference for safer, higher yielding assets or physical properties and gold in 2012. This is especially the case in Singapore, where trading volume remains anaemic due to a lack of investor confidence. However, moving into 2013, we believe that the low interest rate environment and with increasingly higher property prices, equity could come back into focus largely because of projected earnings growth and still attractive valuations. The STI is trading at only 14.6 times 2012 earnings and 13.7 times 2013 earnings and at Price/Book of 1.4 times, valuations are not demanding. Strategy: Go defensive! We were bullish and overweight on several sectors last year (refer to our year-end Strategy report dated 16 Dec 2011), namely Telecommunications, Oil & Gas, Healthcare, REITs and Banks. Most of these sectors have outperformed the market or the benchmark Straits Times Index (STI) in 2012. For example, the FT REIT index is up 34% (year-to-date till end November 2012) versus a gain of 16% for the STI. The FTSE Finance Index is up 31%. The FTSE Oil &Gas Index is up 21% for the same period. While the FTSE Telecommunication Index is up only 9%, it is still a fairly decent absolute gain for the year. Moving into 2013, we are sticking with our strategy of investing in companies with better earnings visibility. In this respect, we are going to continue to focus on our core favourites including Oil & Gas, Healthcare, REITs and selective banking and property stocks. Our stock picks for 2013 include the following: Biosensors, CapitaMalls Asia (CMA), CapitaMall Trust (CMT), City Developments, DBS, Ezion Holdings, Keppel Corp, M1, Sembcorp Marine, Starhill Global REIT, UOB and Venture Corp.
TABLE OF CONTENTS
Section A. Investment Summary 3
Section B.
Investment Highlights
Section C.
Singapore Economy
21
Section D.
Stock Picks / Company Reports
29
Section E.
Disclaimer
54
OIR 2013 Stock Picks

Stocks
1 2 3 4 5 6 7 8 9
Px (S$) on 12-Dec-12
Fair Value 1.690 13.960 2.160 2.300 15.940 1.700 12.490 2.890 0.840 5.840 21.300 9.220
Upside (%) 39 13 10 11 7 19 15 4 12 29 8 17
YTD* (%) -14 39 75 23 30 117 18 10 33 22 30 27
Sector
Healthcare Equip Property Property REIT Bank Oil & Gas Oil & Gas Telecom REIT Oil & Gas Bank Tech
Biosensors Int'l Group City Developments CapitaMalls Asia CapitaMall Trust DBS Group Hldgs Ezion Hldgs Keppel Corp M1 /Spore Starhill Global REIT
1.220 12.340 1.965 2.080 14.880 1.425 10.870 2.770 0.750 4.540 19.740 7.900
10 Sembcorp Marine 11 United Overseas Bank 12 Venture Corp
Source: OIR * YTD: 2012
Section B: Investment Highlights
Stimulus-led September and take-over related rally 2012 was an interesting year of several ups and downs. The Sep rally was led by euphoria ahead of expectations of an influx of funds into the market as the US embarked on QE3 (Quantitative Easing the third round). Investors ignored weak economic prospects in anticipation of more cheap money from central banks. In addition, rock-bottom interest rates made high-yield stocks attractive, which also explained the continued interest in Real Estate Investment Trusts (REITs). The peaks were followed by troughs as stocks faltered on warnings of bad times or poor economic numbers and weaker-than-expected corporate earnings. Investors lack of confidence was often cited as the reason for the lack of buying momentum. In Singapore, it was an interesting year of several mega IPOs (including IHH Healthcare, Ascendas Hospitality Trust and Far East Hospitality Trust) and the protracted takeover saga for several F&B related companies (and largely centred around Asia Pacific Breweries and Fraser & Neave). This spilled over to the rest of the consumer stocks, mainly the food and beverage related companies and these outperformed the general market. In addition, privatisation exercises also boosted interest in low liquidity counters. SC Global Developments Ltd was one such example where the premium offered for the privatisation exercise sparked interest in other low liquidity companies. Overall, the Straits Times Index (STI) performed well for the year, as investors focused on the fairly resilient local economy (despite the uncertainties) and several special-interest investments (including Yoma Strategic Holdings, which performed well, jumping from our initialisation report price of S$0.375 on 5 Sep 2012 to a recent high of S$0.74).
Exhibit B1: STI & Daily Volume

3,800 3,600 3,400 3,200 3,000 2,800 2,600 2,400 2,200 2,000 1,800 1,600 Mar 08 Mar 09 Mar 10 Mar 11 May 08 May 09 May 10 May 11 Mar 12 May 12 Jan 08 Jan 09 Jan 10 Jan 11 Sep 08 Sep 09 Sep 10 Sep 11 Jan 12 Sep 12 Nov 08 Nov 09 Nov 10 Nov 11 Nov 12 Jul 08 Jul 09 Jul 10 Jul 11 Jul 12 1,400 400 200 0 2,000
Index STI Index
mn shares
1,800 1,600 1,400 1,200 1,000
Daily Volume
800 600
Source: Bloomberg
Exhibit B2: Singapore Sectors - Performance

Index on 12 Dec 12 Straits Times Index ST Mid Cap Index ST Small Cap Index ST China Index ST Real Estate Index ST RE Hold & Dev Index ST RE Invest Trust Index ST Oil & Gas Index ST Basic Materials Index ST Industrials Index ST Consumer Goods Index ST Health Care Index ST Consumer Service Index ST Telecommunicate Index ST Utilities Index ST Financials Index ST Technology Index ST Maritime Index Source: Bloomberg 3,141.6 759.3 502.9 230.6 769.2 777.0 769.7 717.5 195.9 796.1 492.0 1,319.7 827.3 891.0 335.6 803.0 511.9 258.2 YTD % Chg 18.7 29.3 26.1 4.7 44.9 53.2 34.2 21.2 0.8 25.2 -20.0 -5.8 2.8 11.3 9.6 35.5 2.7 -3.8 Low 2,607 578 391 211 528 505 567 571 148 622 481 1,199 772 780 274 586 484 242 52Wk High 3,145 761 503 274 772 781 784 775 260 804 725 1,598 872 940 392 805 599 372
The irony economic growth is anaemic, but stocks are up While several key economic indicators were still weak, including the stubbornly high US unemployment numbers and the anaemic economic growth numbers, stocks were generally up for the year. This means that the market has effectively priced in most of the negatives and that looking ahead, prospects should be better. However, we will continue to watch corporate earnings for any indications of weakness in orders, revenue or increase in operating expenses. Earnings disappointment could be a drag on market sentiment, albeit the likelihood is lower now due to post 3Q12 earnings adjustments.
Exhibit B3: Key Markets YTD Performance

Index on 12 Dec 12 Straits Times Index KLCI Index Jakarta Composite Index SET Index Philippines PSEi Index Hang Seng Index Taiex Index Shanghai Shenzhen CSI 300 Index Kospi Index Nikkei 225 BSE Sensex 30 Index Dow Jones Indus Avg Index S&P 500 Index Nasdaq Composite Index Source: Bloomberg 3,141.6 1,649.8 4,337.5 1,354.6 5,819.8 22,503.4 7,690.2 2,267.8 1,975.4 9,581.5 19,355.3 13,245.5 1,428.5 3,013.8 YTD % Chg 18.7 7.8 13.5 32.1 33.1 22.1 8.7 -3.3 8.2 13.3 25.2 8.4 13.6 15.7 Low 2,607 1,449 3,635 1,006 4,267 17,822 6,609 2,102 1,751 8,239 15,136 11,735 1,202 2,518 52Wk High 3,145 1,679 4,382 1,355 5,860 22,508 8,171 2,718 2,057 10,255 19,612 13,662 1,475 3,197
World economic growth to pick up in 2013 After the lacklustre performance in 2012, most economists are expecting 2013 to hold better prospects. The weak growth performance in 2012 was also the lowest level since 2009. In October 2012, the International Monetary Fund (IMF) has projected global growth of 3.3% and 3.6% in 2012 and 2013 respectively, which were lower than its projections in April and Jul 2012. The weakness was due to the sluggishness in most advanced economies. The report noted that its assumptions rest on a few factors and one of the highlighted factors was that US policymakers will prevent the drastic automotive tax increases and spending cutbacks (fiscal cliff). Increasingly, it seems to be pointing towards this direction. Overall, while the report pointed to several areas of weakness, largely from the advanced economies, the outlook is more positive for emerging and developing economies in 2013.
Exhibit B4: Key Economies GDP Forecast Economies

Euro Area US UK Australia New Zealand
2009
-4.4 -3.1 -4.0 1.4 -0.2
2010
2.0 2.4 1.8 2.6 0.9
2011
1.4 1.8 0.9 2.5 0.5
2012F
-0.5 2.2 -0.1 3.5 2.6
2013F
0.1 2.0 1.1 2.8 3.0
2014F
1.1 2.8 1.7 3.1 2.6
Singapore Malaysia Indonesia Philippines Thailand
-0.9 -1.5 4.6 1.1 -2.3
14.9 7.2 6.2 7.7 7.8
5.0 5.1 6.5 3.9 0.1
2.0 5.0 6.2 5.6 5.4
3.7 4.8 6.3 5.5 4.5
4.2 5.2 6.3 5.4 4.9
China Hong Kong Taiwan South Korea Japan Source: Bloomberg
9.2 -2.5 -1.8 0.3 -5.5
10.4 6.8 10.8 6.3 4.7
9.3 4.9 4.1 3.6 -0.6
7.7 1.6 1.3 2.4 1.7
8.1 3.8 3.4 3.3 0.7
7.9 4.3 4.1 3.9 1.0
Updated on 12 Dec 2012
Abundance of cheap money Despite volatility in the markets and the uncertainty in terms of economic outlook, several events stood out in 2012 including the consecutive stimulus measures from both sides of the North Atlantic Ocean which propelled equities to the years high on expectations that more funds would come into the market. This not only fuelled interest in equities but also led to continued strong demand for properties. While the reactions to these fund injections from the advanced economies into the system were initially positive, the inflows did not really help to improve employment numbers, and the effect diminished with each stimulus measure. As a result of funds flowing into the market, the stimulus measures have led to lower yields on government bonds (Exhibit: B5), which in turn also led investors to favour equities and other riskier assets (Exhibit: B3). We have also seen a pick-up in property prices in the US (Exhibit: B12). The influx of funds has led to gains for equities in a year where economic growth has generally weak and corporate earnings have been rising at a much slower pace.
Exhibit B5: Yields on US 10-Year Treasury Notes & 30-Year Bonds

6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 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 May 10 Jul 10 Sep 10 Nov 10 Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12
US 30-Year Bonds US 10-Year Treasury Notes
Source: Bloomberg
Exhibit B6: S&P Volatility Index (VIX)

45
Index
40 35 30 25 20 15 10
Mar 10
Mar 11
May 10
May 11
Mar 12
May 12
Jan 10
Jan 11
Sep 10
Sep 11
Jan 12
Sep 12
Nov 10
Nov 11
Source: Bloomberg
Will there be a return to the former growth levels? While the outlook remains cloudy for the near- to medium-term, the more pressing question is whether the global economy is able to regain growth to the former levels seen in the past. Against a back drop of high debts (refer to Exhibit B11), still dismal growth projections (refer to Exhibit B4) and high unemployment rate (Exhibit B7 and B8), this does not augur well for the global economic outlook. These challenges are unlikely to be resolved speedily and will continue to be a drag on medium- to longer-term economic growth.
Nov 12
Jul 10
Jul 11
Jul 12
Exhibit B7: US Unemployment Rate

10.2
%
9.8 9.4 9.0 8.6 8.2 7.8 7.4 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12
Source: Bloomberg
Exhibit B8: Europes Unemployment Rate

26 24 22 20 18 16 14 12 10 8 6 4 Jan 00 May 00 Sep 00 Jan 01 May 01 Sep 01 Jan 02 May 02 Sep 02 Jan 03 May 03 Sep 03 Jan 04 May 04 Sep 04 Jan 05 May 05 Sep 05 Jan 06 May 06 Sep 06 Jan 07 May 07 Sep 07 Jan 08 May 08 Sep 08 Jan 09 May 09 Sep 09 Jan 10 May 10 Sep 10 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13 May 13 Sep 13 Jan 14 May 14 2
Spain
Ireland Italy Germany
Source: Bloomberg
US and Europe key economies to watch The US and Europe have traditionally been key markets for Asia but this dependency has come off in the past few years. Nevertheless, these markets are still key to Asian economic growth and the prolonged weakness in both regions has hurt growth in Asia. We note that the impact has been fairly extensive, stretching from manufacturing to the equity markets. While the unemployment rate in the US is coming off, it remains high and this does not augur well for the economy as US consumer spending has always been one of the key pillars of the economy. The looming fiscal cliff together with the current unemployment rate is not helping the situation as consumers rein in spending. In addition, economist data from US remained mixed. While some of the leading indicators and manufacturing numbers showed improvement recently, this was negated by increased in jobless claims and the still-high unemployment rate.
10
Sentiment is also starting to come off - the latest preliminary figures from the University of Michigan consumer sentiment index fell to 74.5 in Dec after four months of gain since Jul 2012, and also down from 85 recorded in Nov. Despite the injected liquidity into the system, European economies still need huge amounts of money. From Exhibit B11, it can be seen that Europes net debt as a percentage of GDP is poised to grow rapidly in 2013-2014, with some economies expecting to see this number hit >100% (including Italy, Greece, Portugal and Ireland). These long-term issues are unlikely to be resolved soon and are potential headwinds on the road to recovery.
Exhibit B9: US GDP Growth

12 GDP, YoY% 8
-4
-8
-12 Mar 95 Sep 95 Mar 96 Sep 96 Mar 97 Sep 97 Mar 98 Sep 98 Mar 99 Sep 99 Mar 00 Sep 00 Mar 01 Sep 01 Mar 02 Sep 02 Mar 03 Sep 03 Mar 04 Sep 04 Mar 05 Sep 05 Mar 06 Sep 06 Mar 07 Sep 07 Mar 08 Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13
Source: Bloomberg Note: Blue line refers to consensus forecast.
Exhibit B10: Eurozone GDP Growth

6 GDP, YoY% 4
-2
-4
-6 Mar 95 Sep 95 Mar 96 Sep 96 Mar 97 Sep 97 Mar 98 Sep 98 Mar 99 Sep 99 Mar 00 Sep 00 Mar 01 Sep 01 Mar 02 Sep 02 Mar 03 Sep 03 Mar 04 Sep 04 Mar 05 Sep 05 Mar 06 Sep 06 Mar 07 Sep 07 Mar 08 Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13
11
Exhibit B11: Europes Net Debt As % of GDP: 2007-2011 vs 2013F-2014F

200 180 160 140 120 100 80 60 40 20 0 200 180 160 140 120 100 80 60 40 20 Germany France Eurozone Portugal Canada 250 Greece Japan Italy Ireland United States Britain Spain 0 104 180 149 119 109 87 87 91 89 56 38 87 126 100 97 95 87 165
2007
2011
79
77
80 55 57 33
2013F
2014F
Source: IMF, Bloomberg
Exhibit B12: US Housing Prices

3,500
US$ b
3,000 2,500 2,000 1,500 1,000 500
Index
230 210 190 170 150 130 110 90 Jul 12
Jan 00
Jan 01
Jan 02
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Fed Balance Sheet (LHS)
S&P/Case-Shiller Composite-10 Home Px Index (RHS)
Source: Bloomberg
12
Jan 12
Jul 00
Jul 01
Jul 02
Jul 03
Jul 04
Jul 05
Jul 06
Jul 07
Jul 08
Jul 09
Jul 10
Jul 11
Exhibit B13: US Retail Sales

12 10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
YoY%
Source: Bloomberg
Exhibit B14: US Consumer Confidence Index

150 140 130 120 110 100 90 80 70 60 50 40 30 20 Jan 97 Jan 98 Jan 99 Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jul 97 Jul 98 Jul 99 Jul 00 Jul 01 Jul 02 Jul 03 Jul 04 Jul 05 Jul 06 Jul 07 Jul 08 Jul 09 Jul 10 Jul 11 Jul 12
Index
Source: Bloomberg
Fiscal cliff is it a concern? The debate on the fiscal cliff, which will result in a huge increase in taxes, continues. By 1 Jan 2013, the Bush era tax cuts will expire as well as the temporary reduction in the payroll tax. According to the Congressional Budget Office, these policies will amount to about US$400 billion in tax increase. The general view is that this will hurt consumers (who will have to pay more in taxes) and will impact the economy. This is likely to rein in consumer spending. Corporates are unlikely to be spared, and are also likely to cut capital expenditure. This is already apparent as consumers, worried about the impact of this measure, has already started to cut back on spending. However, as the date approaches, we expect a resolution to this issue as the recovery is still tentative at this juncture and cannot to be derailed by tax increases. Slowing earnings growth While the US economy is faltering, US stock indices touched new highs in 2012. The irony is, bad news have been touted as good news because of the stimulus measures and the additional funds, which have in turn given equities a strong boost. Since the start of the year, the S&P 500 has
13
already appreciated 17.2% to the years high in September, while the Dow Jones Industrial Average has gained 11.8% in 2012. Meanwhile, earnings growth of S&P 500 companies has eased off in 2012. Based on consensus estimates from Bloomberg, S&P 500 earnings growth is projected to slip off from 17% in 2011 to 6% in 2012 and recover to 11% in 2013. On a PER basis, valuations are still not demanding at 13.8x 2012 earnings and 12.4x 2013 earnings. In Singapore, earnings growth for the STI, based on consensus estimates from Bloomberg, is projected at -18% for 2012, before recovering to +6% in 2013 and then +9% in 2014. Similarly, valuations are inexpensive at 14.6x for 2012 earnings and 13.7x for 2013 earnings.
Exhibit B15: S&P 500 - Earnings Growth

S&P 500: 1,428.48 Period 2010 2011 2012F 2013F 2014F Source: Bloomberg EPS 83.9 98.3 103.8 114.8 127.6 17 6 11 11 Growth % PER 17.0 14.6 13.8 12.4 11.2 As at 12 Dec 2012
Exhibit B16: STI Earnings Growth

STI: 3,141.57 Period 2010 2011 2012F 2013F 2014F Source: Bloomberg EPS 293.7 262.1 215.0 228.6 248.4 -11 -18 6 9 Growth % PER 10.7 12.0 14.6 13.7 12.6 As at 12 Dec 2012
China is experiencing slower growth During the 2008 crisis, the Chinese authority introduced a 4 trillion Yuan (US$586b at the time) stimulus package to shield its economy from the financial crisis. Recently, it introduced several measures to cool the property market and also announced massive investments into infrastructure projects. Meanwhile, as signs of slowdown hit the economy, the National Development and Reform Commission said that investments in railway would increase to 448.3b Yuan (US$70.3b) in 2012. The above illustrates some of the measures undertaken in recent years and is indicative of a government that is able to manage the economy. Chinas Gross Domestic Product (GDP) growth has been coming off, from a recent high of 9.1% (YoY) in 3Q2011 to a recent 7.4% in 3Q2012. Based on this, its growth rate for the first nine months of the year was 7.7%, and the government is maintaining that full-year growth should still be within its target of 7.5%. While this rate is still in the high singledigit range, it is a marked slowdown from last years growth of 9.2%, and has also caused concern for the rest of the region. Recent measures by the government to stimulate its economy, including increased investment in rail and transport systems, will help to build up the economy over time. What is of concern to us is that current asset
14
inflation, experienced almost worldwide due to the cheap cost of funds, is similarly seen in China and could result in a property market bubble if left unchecked. Another issue is the health and balance sheet strength of its banking system and the banks potential over-exposure to nonperforming loans. Overall, Asias dependency on China is vital. Given that the mainland is also one of the regions key export markets, any slowdown in the Chinese economy will have a big impact on growth in the region. Hence, the recent positive indication from Chinas PMI number is reassuring and could also signal that outlook for 2013 is likely to be better.
Exhibit B17: Chinas GDP growth

13 GDP, YoY% 12 11 10 9 8 7 6 5 Mar 95 Sep 95 Mar 96 Sep 96 Mar 97 Sep 97 Mar 98 Sep 98 Mar 99 Sep 99 Mar 00 Sep 00 Mar 01 Sep 01 Mar 02 Sep 02 Mar 03 Sep 03 Mar 04 Sep 04 Mar 05 Sep 05 Mar 06 Sep 06 Mar 07 Sep 07 Mar 08 Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13
Exhibit B18: Asias GDP Growth Trend From 2006-2014F Economies

Singapore Malaysia Indonesia Philippines Thailand
2006
8.8 5.6 5.5 5.3 5.1
2007
8.9 6.3 6.3 6.6 5.0
2008
1.8 4.8 6.0 4.2 2.5
2009
-0.9 -1.5 4.6 1.1 -2.3
2010
14.9 7.2 6.2 7.7 7.8
2011
5.0 5.1 6.5 3.9 0.1
2012F
2.0 5.0 6.2 5.6 5.4
2013F
3.7 4.8 6.3 5.5 4.5
2014F
4.2 5.2 6.3 5.4 4.9
China Hong Kong Taiwan South Korea Japan Source: Bloomberg
12.7 7.0 5.4 5.2 1.7
14.2 6.5 6.0 5.1 2.2
9.6 2.1 0.7 2.3 -1.0
9.2 -2.5 -1.8 0.3 -5.5
10.4 6.8 10.8 6.3 4.7
9.3 4.9 4.1 3.6 -0.6
7.7 1.6 1.3 2.4 1.7
8.1 3.8 3.4 3.3 0.7
7.9 4.3 4.1 3.9 1.0
Updated on 12 Dec 2012
Note: 2012F - 2014F refers to consensus forecasts
15
Exhibit B19: Purchasing Manager Index

65 Index 60 55 50 45 40 US 35 30 Australia Mar 08 Mar 09 Mar 10 May 08 May 09 May 10 UK China Mar 11 May 11 Germany Singapore Mar 12 May 12
Jan 08
Jan 09
Jan 10
Jan 11
Sep 08
Sep 09
Sep 10
Sep 11
Jan 12
Sep 12
Nov 08
Nov 09
Nov 10
Nov 11
Source: Bloomberg
All said and done, it was a good year for the Singapore market As a small and open economy, Singapore is still dependent on external economies and highly vulnerable to events in the key developed nations. Despite all the ups and downs in the global economy in 2012, most blue chip companies were still able to generate good earnings. For example, the three local banks delivered quarterly earnings which were on most occasions better than consensus estimates, after stripping off exceptional one-off income. Softness in Net Interest Income was widely anticipated, and came in mostly in line with consensus. Net Interest Margin (NIM) weakness was also seen quarter on quarter, but did not dent overall performance. Buoyed by higher Non-interest Income, the overall performance was stronger than expected. Local property cooling measures did not derail demand (for property or loans). While there were initial concerns over the potential impact of heftier cooling measures on the local property sector would hurt the local banking sector, the impact was not significant after the initial weeks of cautiousness. While loans growth rate slowed in 2012 as expected, high single-digit growth for 2013 is still likely. While several key sectors (Oil & Gas, Banking, Property, REITs, etc) outperformed the STI in 2012, and as we head into 2013, we expect headwinds to remain and there is a need to focus on companies with strong balance sheets. Surging home prices and concern over inflation The increased liquidity has also found its way into the Asian markets. This has led to record home prices in most parts of Asia, and particularly so in Singapore and Hong Kong, triggering a series of property cooling measures in both these countries. In Singapore, there were a total of five key property measures since early 2010. Yet, despite the introduction of these cooling measures, interest in the property market remains strong largely due to the current low interest rate environment. There is obviously a fear of asset inflation now. From the latest available data, inflation rose 4.7% YoY in Sep 2012, and the government is warning of higher inflation towards the end of 2012. The main culprits were car prices and housing costs. In addition, the Ministry of Trade and Industry (MTI) has expressed concern over food prices and expects upward pressure in the next few months due to weather-related supply disruptions.
16
Nov 12
Jul 08
Jul 09
Jul 10
Jul 11
Jul 12
Exhibit B20: Singapore Inflation

8
%
6
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Source: Bloomberg
Risks in the market remains Although 2013 is widely expected to show an improvement over 2012, headwind remains. While emerging and developing markets appear to be healthy, growth for the advanced economies remain tepid. In addition, leading indicators are not providing optimism as confidence has not returned to previous highs. But the Chinese governments effort to undertake more infrastructure projects is likely to provide more economic activities, and this is likely to remain the key growth country in Asia. Are green shoots sprouting? Some positive data have recently surfaced; giving rise to optimism that the worst is likely over. This is generally true, especially in terms of recovery in economic growth numbers and the recent positive Purchasing Manager Index (PMI) number for China. Based on most economic projections, there is a consensus view that 2013 is likely to be a better year than 2012. In terms of corporate earnings, most are also expecting better earnings growth next year and a recovery from 2012. For the S&P 500, and based on consensus data from Bloomberg, earnings growth is projected at 10% for 2013 and 11% for 2014 compared to only 6% in 2012 (as of 6 Dec 2012). The trend is similarly seen for the Straits Times Index (STI), which is likely to grow 7% in 2013 and 9% in 2014 versus a decline of 18% in 2012. The worst is likely over While equities have rallied, we believe that the gains are not widespread as funds and investors still show a clear preference for safer, higher yielding assets or physical properties and gold in 2012. This is especially the case in Singapore, where trading volume remains anaemic due to a lack of investor confidence. However, moving into 2013, we believe that the low interest rate environment and with increasingly higher property prices, equity could come back into focus largely because of projected earnings growth and still-attractive valuations. The STI is trading at only 14.5 times 2012 earnings and 13.6 times 2013 earnings and at Price/Book of 1.4 times, valuations are not demanding. IPO, takeover and privatisation likely to continue into 2013 Singapore stocks have outperformed in 2012, and several key sectors even outperformed the Straits Times Index (STI) including some of our favourite sectors such as Oil & Gas, Banking and REITs. Price drivers for 2013 will continue to depend largely on the outlook for the key external
17
Jan-12
-2
economies as well as a pick up in consumer demand. In addition, we expect the pace of IPO, takeover and privatisation seen in 2012 to continue into 2013. The latter two will largely be fuelled by still attractive valuations for Singapore stocks. However, as investor confidence is still not back at peak level, we expect this to cap price gains for the coming months. As such, we expect the STI to continue to trade within a band, supported on the downside by inexpensive valuations and on the upper level by the lack of buying momentum at higher levels. Any further upside will need to be fuelled by a strong pick up in corporate earnings, which is still on a slow recovery currently as earnings are only expected to grow in the high single-digit level in 2013. Our core picks in 2012 have performed well We were bullish and overweight on several sectors last year (refer to our year-end Strategy report dated 16 Dec 2011), namely Telecommunications, Oil & Gas, Healthcare, REITs and Banks. Most of these sectors have outperformed the market or the benchmark Straits Times Index (STI) in 2012. For example, the FTSE REIT index is up 34% (year-to-date till end Nov 2012) versus a gain of 16% for the STI. The FTSE Finance Index is up 31%. The FTSE Oil &Gas Index is up 21% for the same period. While the FTSE Telecommunication Index is up only 9%, it is still a fairly decent absolute gain for the year. Sticking with the winners! We continue to advocate that investors remain in some of our core sectors and stocks despite strong gains in 2012, as we see further upside for these sectors/stocks. We continue to favour the Oil & Gas sector despite the strong outperformance in 2012 because of the sectors strong order books, good long term earnings visibility and a host of well-run companies within the sector. Our picks in this sector are Keppel Corporation, Sembcorp Marine and Ezion Holdings. We are also reiterating our Overweight for the Telecommunication, Banking, Healthcare and selective Property sub-sectors. Our 2013 picks are Biosensors, CapitaMalls Asia (CMA), CapitaMall Trust (CMT), City Developments, DBS, Ezion Holdings, Keppel Corp, M1, Sembcorp Marine, Starhill Global REIT, UOB and Venture Corp.
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Exhibit B21: Singapore Sectors Valuation Comparison

Index on 12 Dec 12 Straits Times Index ST Mid Cap Index ST Small Cap Index ST China Index ST Real Estate Index ST RE Hold & Dev Index ST RE Invest Trust Index ST Oil & Gas Index ST Basic Materials Index ST Industrials Index ST Consumer Goods Index ST Health Care Index ST Consumer Service Index ST Telecommunicate Index ST Utilities Index ST Financials Index ST Technology Index ST Maritime Index Source: Bloomberg 3,141.6 759.3 502.9 230.6 769.2 777.0 769.7 717.5 195.9 796.1 492.0 1,319.7 827.3 891.0 335.6 803.0 511.9 258.2 Hist 12.0 10.2 25.0 8.6 10.1 10.0 10.2 9.7 34.9 13.9 9.8 13.0 19.3 13.9 18.7 10.5 42.1 PER F1 14.6 15.7 15.7 15.7 19.7 20.3 18.9 11.2 50.6 15.0 12.8 26.5 18.8 15.1 18.2 14.8 21.7 14.4 F2 13.7 14.5 11.8 14.1 17.8 17.7 18.1 11.7 14.3 12.7 10.5 21.9 16.0 14.2 14.3 14.5 17.9 10.1 Hist 1.4 1.2 1.1 0.8 1.0 0.9 1.1 2.2 0.7 1.4 1.1 1.7 1.7 2.6 1.1 1.2 2.2 1.1 P/Book F1 1.4 1.2 1.1 0.8 1.0 0.9 1.1 2.1 0.9 1.4 1.0 1.6 1.8 2.4 1.6 1.2 3.6 1.1 F2 1.3 1.1 1.0 0.8 1.0 0.9 1.1 1.9 0.9 1.3 1.0 1.5 1.7 2.3 1.5 1.1 3.2 1.0
Exhibit B22: Key Markets Valuation Comparison

Index on 12 Dec 12 Straits Times Index KLCI Index Jakarta Composite Index SET Index Philippines PSEi Index Hang Seng Index Taiex Index 3,141.6 1,649.8 4,337.5 1,354.6 5,819.8 22,503.4 7,690.2 Hist 12.0 14.7 17.0 17.0 18.7 11.6 25.1 11.4 19.0 25.3 16.3 13.3 14.6 20.5 PER F1 14.6 15.4 16.0 15.1 18.4 11.8 18.6 10.7 11.9 18.1 15.3 12.7 13.8 16.3 F2 13.7 14.1 13.7 12.5 16.5 10.8 14.5 9.2 9.4 15.0 13.4 11.8 12.4 14.1 Hist 1.4 2.2 2.8 2.3 2.7 1.5 1.7 1.6 1.2 1.2 2.7 2.6 2.2 2.7 P/Book F1 1.4 2.2 3.0 2.3 2.6 1.5 1.6 1.6 1.1 1.2 2.5 2.6 2.1 2.5 F2 1.3 2.0 2.6 2.1 2.4 1.3 1.5 1.4 1.0 1.1 2.2 2.3 1.9 2.3
Shanghai Shenzhen CSI 300 Inde 2,267.8 Kospi Index Nikkei 225 BSE Sensex 30 Index Dow Jones Indus Avg Index S&P 500 Index Nasdaq Composite Index Source: Bloomberg 1,975.4 9,581.5 19,355.3 13,245.5 1,428.5 3,013.8
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Exhibit B23: OIR 2013 Stock Picks

Stocks
1 2 3 4 5 6 7 8 9
Px (S$) on 12-Dec-12
Fair Value 1.690 13.960 2.160 2.300 15.940 1.700 12.490 2.890 0.840 5.840 21.300 9.220
Upside (%) 39 13 10 11 7 19 15 4 12 29 8 17
YTD* (%) -14 39 75 23 30 117 18 10 33 22 30 27
Sector
Healthcare Equip Property Property REIT Bank Oil & Gas Oil & Gas Telecom REIT Oil & Gas Bank Tech
Biosensors Int'l Group City Developments CapitaMalls Asia CapitaMall Trust DBS Group Hldgs Ezion Hldgs Keppel Corp M1 /Spore Starhill Global REIT
1.220 12.340 1.965 2.080 14.880 1.425 10.870 2.770 0.750 4.540 19.740 7.900
10 Sembcorp Marine 11 United Overseas Bank 12 Venture Corp
Source: OIR * YTD: 2012
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Section C: Singapore Economy Moderation in economic growth continues After expanding 14.5% in 2010, Singapores economic growth moderated to 5.4% in 2011 and is now expected to slow to 1.5% in 2012. The pullback in growth momentum (Exhibit C-1) was largely due to the decline in externally-oriented sectors, while domestically-oriented activities have remained generally resilient. Trade-related industries, and the sentiment-driven and offshore lending segments of the financial sector, were the hardest hit by the global slowdown (Exhibit C-2). Manufacturing was not spared, either, and Singapores Industrial Production Index contracted by 7.3% QoQ (seasonally adjusted) in 3Q12, following a 0.3% increase in 2Q12 as output slowed across many industries. On the other hand, domestic activities, especially those anchored by a series of supply-side projects, performed well. Notably, the construction sector grew substantially in 1H12, along with steady expansion in services such as healthcare and education.
Exhibit C1: Singapores real GDP in recent years

40
GDP YoY GDP QoQ
30
20
Moderation in the past four quarters
10
-10
-20 1Q08 1Q09 1Q10 1Q11 1Q12
Source: Bloomberg, OIR
21
Exhibit C2: GDP breakdown
Annualised QoQ growth (%) Total Goods Producing Industries Manufacturing Construction Services Producing Industries Wholesale & Retail Trade Transportation & Storage Accommodation & Food Services Information & Communications Finance & Insurance Business Services Other Services Industries
Source: MTI, OIR
3Q11 2 8.5 11 4 0.8 8.9 1.2 1.5 0.2 7.8 1.5 0.7
4Q11 -2.5 -9.8 11.1 -2.2 1.7 10.2 -2.9 -0.6 -0.2 -4.4 2.4 1.2
2011 4.9 6.8 7.6 2.6 4.4 1.1 4.7 5.8 1.5 9.1 2.7 6.7
1Q12 10.1 22.9 20.9 40.1 3.2 -2.1 3.5 17.5 5.4 -4.7 13.3 8.4
2Q12 0.5 2.1 0 19.4 -0.1 -0.4 6.9 -5.6 1 2.9 0.3 -9.1
3Q12 -5.9 -10.2 -9.6 -17.2 -3.5 -7.8 -1.3 -1.8 -1.7 -4.6 0 -1.6
Meanwhile, if we look at a longer time frame, we see that the level of growth (on a year-on-year basis) experienced in 1Q-3Q12 was higher only in two periods since 2000, namely, 2Q01 to 1Q02, and 3Q08 to 2Q09 (Exhibit C-3).
Exhibit C3: Singapores real GDP since 1Q00
40
GDP YoY GDP QoQ
30
20
10
-10
-20 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12
What can we look forward to? At most 3% growth Indeed, the near-term outlook for the Singapore economy, which is highly dependent on the external environment, is likely to remain subdued as: 1) growth in the advanced economies in 2013 is likely to be curtailed by continued household de-leveraging and fiscal consolidation, and 2) while domestic demand in Asia is expected to remain resilient, this will not fully offset the weakness in external demand. The official growth forecast for 2013 is a subdued 1.0-3.0% expansion (we note that this was MTIs earlier forecast for 2012 as well), while OCBC Treasury Research & Strategy is looking at a 2.5% growth. PM Lee has also mentioned that the government is no longer aiming for the
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ridiculously high economic growth of years past, but rather a more sustainable rate of 2-3% a year.
Exhibit C4: Singapores 2012 and 2013 GDP forecast
GDP YoY 1.5% 2.5% 0.3% 1.8% 1.5% GDP YoY 3.3% 2.1% 2.7% 2.1% 2.5% GDP QoQ SAAR 9.5% 0.2% -6.0% 1.6% GDP QoQ SAAR 19.2% -3.6% -5.0% -0.2% Manufacturing Construction YoY YoY -0.8% 6.9% 4.6% 12.3% -0.8% 7.7% 1.0% 7.7% 1.0% 9.2% Services YoY 1.9% 1.0% 0.3% 1.4% 1.2% Services YoY 2.4% 1.7% 3.3% 2.7% 2.5%
1Q12 2Q12 3Q12 4Q12 2012
1Q13 2Q13 3Q13 4Q13 2013
Manufacturing Construction YoY YoY 4.6% 5.2% 2.2% 5.1% 1.1% 4.8% 0.2% 4.9% 2.0% 5.0%
Source: OCBC Treasury Research and Strategy
ECONOMIC THEMES AND IMPLICATIONS 1. Volatile capital inflows feeding inflation for now Expect greater capital inflows With expansionary monetary policies in the G3 economies that seem likely to continue before decisive signs of a global recovery appear, larger amounts of liquidity are now moving between markets. The miserable rates that investors get on cash and treasury bills, along with the likelihood that this situation may persist till 2015 or early 2016, have prompted them to search for better returns.
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Exhibit C5: US Fed Funds rate since 1965
20
US Fed Funds rate
18 16 14 12 % 10 8 6 4 2 0 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
How much lower can you go? We have never seen such low rates in history and this may persist till early 2016
Funds will flow to wherever the risk-reward ratio is most favourable, and we expect Singapores 1) stable and pro-business climate, 2) good track record in managing its economy, 3) links with emerging Asia and 4) the potential for currency appreciation to be attractive features for foreign investors. But risks of destabilisation when funds withdraw Though significant capital inflow is a manifestation of a countrys attractiveness as an investment destination and adds liquidity to markets, it can also be too much of a good thing, for this can lead to a disconnect between asset prices and fundamentals. Property prices across the board (residential, commercial, industrial) have appreciated substantially, but a series of cooling measures by the Singapore government have more or less capped the rise. When sentiment changes, the sudden withdrawal of capital by foreign investors can also be very destabilising. 2. Supply side-constraints contributing to domestic inflation Asset inflation and supply-side constraints means more inflation Compounding asset-inflationary pressures are increasing labour costs from stricter immigration policies which have resulted in a tight labour market. The seasonally adjusted overall unemployment rate was 1.9% in Sep 2012 vs 2.0% in Sep 2011 and 2.1% in Sep 2010 (Exhibit C-6). Reflecting differences in labour demand, job vacancy rates were higher in the domestic-oriented sectors compared to external-oriented ones (Exhibit C-7). As domestic-oriented firms generally employ a larger proportion of low- and mid-skilled workers, job vacancies for non-PMET1 workers exceeded those for PMET workers.
___________________
1
PMET: Professionals, Managers, Executives and Technicians
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Exhibit C6: Seasonally adjusted unemployment rate
Source: Ministry of Manpower, Labour Force Survey 3Q12
Exhibit C7: Job vacancy rates by sector
Exhibit C8: Redundancies by occupation
Source: MAS
Source: MAS
Such supply-side constraints have pushed up costs for businesses. Alongside rising costs for accommodation and transport (mainly car prices), domestic inflation has been on the uptrend and we expect it to continue. If we were to strip out accommodation and private road transport from the overall measure of CPI, we find that price increases have actually been in a rather narrow range since 2010, as measured by the MAS core inflation rate (Exhibit C-9). According to MAS, core inflation is expected to be around 2.5% in 2012 and 2-3% in 2013, while CPI-All items inflation is expected to ease from slightly above 4.5% to 3.5-4.5% in 2013.
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Exhibit C9: CPI-All items inflation and MAS core inflation
Source: MAS
Prioritising inflation over growth would lead to currency appreciation All these mean that the MAS is likely to place greater priority on inflation over growth for now in the management of Singapores exchange rate. In the Oct 2012 review of the S$NEER (Singapore dollar nominal effective exchange rate) policy, the MAS kept the slope and width of the policy band, as well as the level at which it is centered, unchanged, to the surprise of a number of economists who were expecting a softer stance in face of global uncertainties. This is also after the MAS increased the slope of the band slightly in Apr 2012. Is a strong SGD necessarily a negative for exporters? If the SGD is expected to remain strong and even appreciate further, does this necessarily mean exporters will get hurt? Like any good economist will tell you, the answer is it depends. The import content of Singapores domestic exports is high at around 60%, meaning that for every dollar of external demand for our exports, S$0.60 leaks out of the economy2. This is not surprising since Singapores manufacturing sector imports most of the intermediates that go into the manufacturing of its exports. Hence, the investor must ascertain the sensitivity of an exporters earnings against the SGD before concluding that a higher exchange rate would have a significant negative impact on the companys bottomline. Economic restructuring underway That said, we believe that Singapore is undergoing a period of economic restructuring with a lower dependence on foreign labour. Structurally higher wages and other inflationary pressures suggest that unless growth weakens drastically more than expected in 2013, the SGD is likely to remain strong vis--vis the currencies of its major trading partners. Industries which had relied on a lower cost structure would be forced to find ways to increase productivity or face consolidation.
___________________
Measuring Singapores reliance on external demand by Shruthi Jayaram, HeRuimin. MTI, 2009.
2
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3. At best, Europe will continue to plod along Yields have fallen This time last year, the risk of a Eurozone breakup seemed alarmingly high due to a rapidly weakening outlook for many countries in the EU. Conditions are now better Italian borrowing costs on benchmark 10year bonds have dropped to 4.6% (lowest in two years), whereas Spains fell to levels last seen in Apr. but tough decisions have so far been deferred Beyond the calm, however, is a worrying trend that has been observed since the Eurozone crisis started without pressure from the financial markets, political leaders have been slow to act. What we have seen so far are mainly ad-hoc fixes; urgently needed are tough decisions to end the uncertainty with firm implementation timelines. Singapore remains vulnerable to Eurozone concerns Should this be lacking in 2013, we see the possibility of further market volatility before policy makers finally move in the eleventh hour. In the event of a risk-off episode, this would, in general, affect the higher beta stocks more. Austerity measures in Europe would impact consumption and investments, and Singaporean exporters with a huge European exposure are likely to be affected. Firms whose customers rely heavily on financing from Europe may also see a decline in orders. As Exhibit C-11 illustrates, Singapores non-oil domestic exports (NODX) growth to Europe has not been as robust as those to China and the US.
Exhibit C10: Singapores NODX growth

40 NODX 30 20 10 % 0 -10 -20 -30 -40 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12
Source: IE Singapore, Bloomberg, OIR
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Exhibit C11: Singapores NODX growth to various markets

140 120 100 80 60 40 % 20 0 -20 -40 -60 -80 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 NODX to EU NODX to China NODX to US
Source: IE Singapore, Bloomberg, OIR
Big picture in 2013 Against the backdrop described above, we expect Singapore to continue using the exchange rate as well as macro-prudential tools to manage its economy. As the US, EU, Japan and China continue competitive devaluation a name generally avoided for obvious reasons investors should keep an eye on inflation and its implications. Socio-economic issues may also increasingly come to the fore e.g. the US government is expected to take steps to increase the tax rates of the ultra-rich, partly to appease the lower and middle classes. In Singapore, calls for building an inclusive society have been getting louder, which may materialise through a restructuring of the Singapore economy (in addition to goodies from each years Singapore Budget). Finally, the Asian growth story remains intact. Emerging Asia is likely to remain the fastest growing region in the world amidst sub-par growth prospects in the developed nations. In particular, the domestic-oriented economies of China and Indonesia will be buffered by consumption and infrastructure spending. As mentioned in last years report, many companies that we have been speaking to have turned their focus to Asia and Australia for growth, and we expect this trend to continue.
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Fairly mixed performance in 2012 While equity indices were generally up in 2012, the markets seem to lack the much-needed investor confidence for sustainable gains. While the outlook was largely mixed, most economies were fairly resilient despite the spate of unfavourable news. This was also the case in Asia, as prospects in Asia were somewhat dimmed by the persistent weakness in Europe, US and recently in China. However, the low interest rates environment continued to be conducive for businesses and corporate earnings for the first three quarters of 2012 were generally in line or slightly above expectations. Corporate earnings growth slowed in 2012 Led by stimulus measures from the US, there were market rallies due to expectations of influx of funds, and this benefited equities although bonds, gold and properties were favoured over equities in 2012. On the earnings front, the slowdown gathered momentum in 3Q as seen from the contraction in corporate earnings which was the weakest since 2Q09. Fears of earnings disappointment dented market sentiment and trading volume was fairly anaemic. IPO, takeover and privatisation likely to continue into 2013 Singapore stocks have outperformed in 2012, and several key sectors even outperformed the Straits Times Index (STI) including some of our favourite sectors such as Oil & Gas, Banking and REITs. Price drivers for 2013 will continue to depend largely on the outlook for the key external economies as well as a pick up in consumer demand. In addition, we expect the pace of IPO, takeover and privatisation seen in 2012 to continue into 2013. The latter two will largely be fuelled by still attractive valuations for Singapore stocks. However, price gains in the coming months are likely to be capped by the still-fragile investor confidence. As such, we expect the STI to continue to trade within a band, supported on the downside by inexpensive valuations and on the upper level by the lack of buying momentum at higher levels. Any further upside will need to be fuelled by a strong pick up in corporate earnings, which is still on a slow recovery currently as earnings are only expected to grow in the high single-digit level in 2013. Stay with our favourites We continue to advocate that investors remain in some of our core sectors and stocks despite strong gains in 2012, as we see further upside for these sectors/stocks. We continue to favour the Oil & Gas sector despite the strong outperformance in 2012 because of the sectors strong order books, good long term earnings visibility and a host of well-run companies within the sector. Our picks in this sector are Keppel Corporation, Sembcorp Marine and Ezion Holdings. We are also reiterating our Overweight for the Telecommunication, Banking, Healthcare and selective Property sub-sectors. Our 2013 picks are Biosensors, CapitaMalls Asia (CMA), CapitaMall Trust (CMT), City Developments, DBS, Ezion Holdings, Keppel Corp, M1, Sembcorp Marine, Starhill Global REIT, UOB and Venture Corp.
Singapore | Health Care Equipment & Supplies
Asia Pacific Equity Research
BIOSENSORS INTL GROUP | BUY

MARKET CAP: USD 1.7B AVG DAILY TURNOVER: USD 6M 13 Dec 2012 Company Update
TOP HEALTHCARE PICK FOR 2013

Expect continued market share gains Healthy financial position and superior technology Compelling valuations
BUY (maintain)
Fair value add: 12m dividend forecast versus: Current price 12m total return forecast S$1.69 S$0.00 S$1.22 39%
Poised for further growth We project Biosensors International Group (BIG) to report revenue and core EPS CAGR of 17.6% and 10.9% from FY12-14F, respectively. Growth would be underpinned by deeper market penetration, supported by robust clinical evidence which highlights the safety and efficacy of its drug-eluting stent (DES) products, in our view. BIG has continued to deliver healthy sales growth in the EMEA and APAC regions, especially in Europe and China, which is in contrast to some of its peers. However, Latin America and India has seen some weakness but we understand that BIG is undergoing some restructuring of its operations in Latin America such as diversifying its distributor base in a bid to increase its penetration and concentration in the region. Challenges apparent, but BIG still standing strong While challenges are apparent in the DES market (price and competitive pressures), we see positives from BIGs superior stent technology, which has enabled the group to maintain its robust growth by capturing market share away from its competitors. Strong volume growth has also led to economies of scale and this has been reflected in BIGs gross margins (1HFY13: 84.3%; +3.4ppt YoY). BIG also generated healthy free cashflows of US$52.3m for 1HFY13, thus allowing it to end the Sep quarter with a net cash position of US$331.7m. BIGs healthy balance sheet would enhance its ability to withstand the vagaries of the global economy, finance its R&D and clinical trials which is critical for future growth, and provide it with ample ammunition for share buybacks and M&A activities. Maintain BUY on attractive valuations BIG is currently trading at 13.0x blended FY13/14F core EPS, which is slightly more than half a standard deviation below its 3-year average forward core PER. Stripping out its net cash balance, BIG trades at a compelling blended FY13/14F ex-cash core PER of just 9.9x. Maintain BUY with an unchanged DCF-derived fair value estimate of S$1.69, which implies a potential upside return of 38.5%. We are recommending BIG as our top healthcare pick for 2013.
Analysts Wong Teck Ching (Andy) (Lead) +65 6531 9817 andywong@ocbc-research.com Lim Siyi +65 6531 9824 limsiyi@ocbc-research.com
Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder S$2,113 / USD1,731 S$8 / USD6 5.9 1.025 - 1.7 49.8 1,710.8 SGX BIG SP BIOS.SI B20 Healthcare HC Equip & Supplies Weigao Int'l 21.6% 1m 9 4 3m 0 -4 12m -7 -27
Relative total return Company (%) STI-adjusted (%) Price performance chart
Shar e Pr i ce (S$ ) 2.12 1.86 1.61 1.35 1.10 0.85 Dec-11 Mar -12 Jun-12
`
Index Level 4000 3500 3000 2500 2000 1500 Sep-12 Dec-12
Fair Value
Sources: Bloomberg, OIR estimates
BIG SP
FSSTI
Key financial highlights Year Ended Mar 31 (US$m) Revenue Gross profit EBIT Core PATMI Core EPS (US cents) Cons. EPS (US cents) EBIT margin (%) Net profit margin (%) ROE (%) EV/EBITDA (x) FY11 156.6 122.1 44.5 52.6 4.8 na 28.4 27.6 16.5 31.5 FY12 292.1 234.6 106.5 101.0 6.7 na 36.5 124.7 48.7 12.0 FY13F 353.3 295.2 144.8 121.3 7.1 7.3 41.0 35.3 10.6 8.1 FY14F 404.3 334.8 166.0 141.4 8.2 8.4 41.1 35.0 10.8 6.5
Industry-relative metrics
P er c ent i l e 0t h 25t h 50t h 75t h 100t h
M k t Cap B et a ROE PE PB
Company
I ndust r y A v er age
Note: Industry universe defined as companies under identical GICS classification listed in the exchanges in Asia Pacific (Developed). Sources: Bloomberg, OIR estimates
MICA (P) 035/06/2012
Company financial highlights
Income statement Year Ended Mar 31 (US$m) Revenue Gross profit EBITDA EBIT Net interests Share of results of JVs, net Profit before tax Income tax expense Profit attributable to shareholders Core PATMI
FY11 156.6 122.1 47.5 44.5 -5.1 19.3 49.1 -5.8 43.3 52.6
FY12 292.1 234.6 119.8 106.5 -3.8 8.0 365.6 -1.4 364.3 101.0
FY13F 353.3 295.2 166.6 144.8 -0.6 0.0 131.4 -6.8 124.6 121.3
FY14F 404.3 334.8 188.2 166.0 3.7 0.0 153.7 -12.3 141.4 141.4
Balance sheet As at Mar 31 (US$m) Bank and cash balances Other current assets Property, plant, and equipment Total assets Debt Current liabilities excluding debt Total liabilities Shareholders equity Minority interests Total equity and liabilities
FY11 259.4 69.9 12.0 478.0 34.4 61.5 99.5 378.5 0.0 478.0
FY12 313.5 116.1 43.0 1,257.2 37.1 78.5 139.6 1,117.7 0.0 1,257.2
FY13F 367.3 149.4 62.2 1,347.4 0.1 81.0 105.2 1,242.2 0.0 1,347.4
FY14F 488.9 169.7 81.0 1,492.2 0.1 84.4 108.5 1,383.6 0.0 1,492.2
Cash flow statement Year Ended Mar 31 (US$m) Op profit before working cap. chg. Working cap, taxes and int Net cash from operations Purchase of PP&E Other investing flows Investing cash flow Financing cash flow Net cash flow (inc forex) Cash at beginning of year Cash at end of year
FY11 49.0 -21.3 27.8 -2.9 -6.8 -9.6 176.1 199.4 60.1 259.4
FY12 123.3 -42.2 81.0 -5.2 -26.4 -31.7 7.6 54.1 259.4 313.5
FY13F 153.8 -38.0 115.7 -25.0 0.0 -25.0 -37.0 53.7 313.5 367.3
FY14F 172.2 -25.6 146.6 -25.0 0.0 -25.0 0.0 121.6 367.3 488.9
Key rates & ratios Reported EPS (US cents) Core EPS (US cents) EBIT margin (%) Net profit margin (%) PER (x) Price/NTA (x) EV/EBITDA (x) Dividend yield (%) ROE (%) Net gearing (%) Sources: Company, OIR forecasts
FY11 4.0 4.8 28.4 27.6 25.1 3.7 31.5 0.0 16.5 net cash
FY12 24.1 6.7 36.5 124.7 4.1 5.2 12.0 0.0 48.7 net cash
FY13F 7.2 7.1 41.0 35.3 13.8 3.6 8.1 0.0 10.6 net cash
FY14F 8.2 8.2 41.1 35.0 12.2 2.7 6.5 0.0 10.8 net cash
Singapore | Real Estate Management and Development
CITY DEVELOPMENTS LTD | BUY

MAJOR LAUNCHES IN FOCUS

Echelon launch to be key catalyst South Beach project on track Likely to stay active in GLS
BUY (maintain)
Major launches lie ahead Looking ahead to the next 12 months, we expect City Developments (CDL) to launch the Echelon, a 508-unit condominium development near the Redhill MRT station, and another 912-unit project in Pasir Ris Grove beside Livia and NV Residences. We anticipate healthy performances from both launches, particularly for the Echelon, which is located in a desirable central location a stone's throw away from the Redhill MRT station. These two launches would likely constitute key catalysts for the share price over the medium term, in our view. South Beach project progressing as planned Another key project, the South Beach project, is expected to achieve TOP in 2015 and would consist of 190 residential units, 651 hotel rooms and ~49k sqm of office NLA. We believe that CDL will take a wait-and-see stance with regards to launching the residential component, depending on the market demand in the high-end residential segment. Likely to stay active in GLS tenders Management recently indicated that it believes that the outlook for the domestic residential market to be positive over the medium to long term, though they recognise the risk of oversupply in 2004-2005 if the global economy remains weak and the majority of on-coming units are not owner-occupied. That said, management expects mass market residential projects to continue selling well due to abundant liquidity in the market, with prices expected to show moderate price increases. This being so, we believe CDL would continue to be active in government land sales (GLS) tenders ahead, especially for massmarket sites near MRT stations. Maintain BUY We like CDL for its strength in project execution, ability to read the market, and its effective risk-weighted approach to land banking. Maintain BUY with an higher fair value estimate of S$13.96 (10% RNAV disc.), versus S$13.18 previously, as we lower the RNAV discount from 15% to reflect a more benign risk profile as portfolio projects continue to sell through.
Key financial highlights Year ended 31 Dec (S$m) Revenue Cost of sales Gross profit Shareholders' profit EPS (S-cents) Cons. EPS (S-cents) PER (x) P/NAV (x) ROE (%) Net gearing (%) FY10 3,103.4 -1,450.7 1,652.7 784.0 86.2 na 14.3 1.8 12.5 37.2 FY11 3,280.5 -1,507.5 1,773.0 798.6 87.8 na 14.1 1.6 11.7 26.4 FY12F 3,378.9 -1,824.6 1,554.3 564.6 62.1 65.3 19.9 1.5 7.8 12.8 FY13F 3,716.8 -2,007.1 1,709.7 643.0 70.7 74.6 17.5 1.4 8.2 -5.3
Analysts Eli Lee (Lead) +65 6531 9112 elilee@ocbc-research.com Kevin Tan +65 6531 9810 kevintan@ocbc-research.com
Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder S$11,375 / USD9,314 S$9 / USD7 0.8 8.4583 - 12.57 64.6 909.3 SGX CIT SP CTDM.SI C09 Financials RE Mngt & Dev Hong Leong Hldg 16.4% 1m 7 3 3m 9 5 12m 39 19
Shar e Pr i ce (S$ ) 15.18 13.75 12.32 10.89 9.47 8.04 Dec-11 Mar -12 Jun-12 `
Fair Value
CIT SP
FSSTI
Company
I ndus t r y A v er age
Note: Industry universe defined as companies under identical GICS classification listed in the same exchange. Sources: Bloomberg, OIR estimates
MICA (P) 035/06/2012
Income statement Year ended 31 Dec (S$m) Revenue Cost of sales Gross profit Admin. expenses Share of Assoc/JV profits EBIT Net finance costs PBT PAT Shareholders' profit
FY10 3,103.4 -1,450.7 1,652.7 -484.0 110.4 1,100.6 -33.1 1,067.5 865.4 784.0
FY11 3,280.5 -1,507.5 1,773.0 -490.2 62.0 1,189.3 -52.9 1,136.4 961.7 798.6
FY12F 3,378.9 -1,824.6 1,554.3 -506.8 90.0 867.1 -38.2 829.0 704.6 564.6
FY13F 3,716.8 -2,007.1 1,709.7 -557.5 170.0 1,024.9 -33.3 991.6 823.0 643.0
Balance sheet Year ended 31 Dec (S$m) Cash and equivalents PPE Development properties Total assets Current financial liabilities Non-current financial liabilities Total liabilities Shareholders equity Total equity Total equity and liabilities
FY10 1,873.8 3,410.4 3,311.2 13,962.8 780.0 3,425.3 5,982.5 6,262.5 7,980.3 13,962.8
FY11 2,603.0 3,313.2 3,243.9 14,962.5 1,476.5 2,929.3 6,266.5 6,826.8 8,696.0 14,962.5
FY12F 2,882.3 3,214.8 2,933.7 15,177.4 1,033.6 2,782.9 5,894.9 7,273.2 9,282.4 15,177.4
FY13F 2,629.3 3,122.6 2,311.9 14,404.0 826.8 1,391.4 4,416.8 7,798.0 9,987.2 14,404.0
Cash flow statement Year ended 31 Dec (S$m) PBT Working capital change Cash tax paid Operating cash flow Investing cash flow Financing cash flow Net change in cash Cash at beginning of the year Other adjustments Cash at end of the year
FY10 1,067.5 -271.6 -105.9 512.1 371.0 34.6 917.6 980.1 -24.8 1,873.8
FY11 1,136.4 90.9 -162.2 983.0 52.7 -419.5 616.1 1,873.0 -1.5 2,603.0
FY12F 829.0 525.6 -124.3 1,276.7 -251.6 -745.8 279.3 2,603.0 0.0 2,882.3
FY13F 991.6 621.4 -168.6 1,399.9 96.7 -1,749.6 -253.0 2,882.3 0.0 2,629.3
Year ended 31 Dec (S$m) EPS (S-cents) NAV per share (S-cents) PER (x) P/NAV (x) Gross profit margin (%) Net profit margin (%) Net gearing (%) Dividend yield (%) ROE (%) ROA (%) Sources: Company, OIR forecasts
FY10 86.2 688.7 14.3 1.8 53.3 27.9 37.2 1.5 12.5 5.6
FY11 87.8 750.8 14.1 1.6 54.0 29.3 26.4 1.5 11.7 5.3
FY12F 62.1 799.9 19.9 1.5 46.0 20.9 12.8 1.1 7.8 3.7
FY13F 70.7 857.6 17.5 1.4 46.0 22.1 -5.3 1.1 8.2 4.5
Singapore | Real Estate Management & Development
CAPITAMALLS ASIA | BUY

STARTING TO FIND OPERATIONAL RHYTHM

Chinese portfolio operational Capital recycling turning likely Chinese retail conditions staying firm
BUY (maintain)
Increasing income traction for Chinese portfolio Our investment thesis for CMA is that the transition of its Chinese portfolio to a mostly operational one would have two key implications. First, we would see increased income traction as recurring operational income offsets volatile opening costs from uncompleted malls. This has mostly come to fruition; its latest 3Q12 earnings came in above consensus (PATMI of S$63.4m, up 70.8% YoY), driven mostly by a S$7.3m QoQ dip in admin expenses as mall-opening costs eased, and faster-than-expected revenue growth at Minhang and Hongkou, two major malls in Shanghai which recently began operations. Drawing closer to capital recycling phase The second implication is that we are likely drawing nearer to the capital recycling phase for several assets as they stabilise. With valuations at relatively conservative levels, in our view, potential sales of its assets could result in attractive divestment gains. In addition, as management continues to deploy significant levels of capital into greenfield projects, future capital requirements could be an impetus for recycling of stabilised assets. In particular, we note that Orchard Ion is relatively stabilised, and it could make sense for CMA to divest its stake over the medium term. Retail conditions in China still firm We also note that retail conditions in China have remained at healthy levels over the year to date. For CMAs Chinese portfolio, management reported that 9M12 shopper traffic and tenant sales were up 8.4% and 10.7% YoY, respectively and that, excluding Tier 1 cities, tenant sales were up 14.2%. In addition, 9M12 Chinese samestore NPI in China was up 18.4% YoY. Maintain BUY with an unchanged S$2.16 FV Looking ahead, we see increased visibility of recurring earnings and relatively firm retail outlooks in China and Singapore as positive drivers of the share price. Maintain BUY with an unchanged fair value estimate of S$2.16.
Analysts Eli Lee (Lead) +65 6531 9112 elilee@ocbc-research.com Kevin Tan +65 6531 9810 kevintan@ocbc-research.com
Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder S$7,775 / USD6,367 S$9 / USD8 6.2 1.125 - 2.01 34.0 3,887.7 SGX CMA SP CMAL.SI JS8 Financials RE Mngt & Dev CapitaLand - 65% 1m 6 1 3m 21 17 12m 63 43
`
Fair Value
CMA SP
FSSTI
Key financial highlights Year Ended Dec 31 (S$m) Revenue Cost of sales Gross profit Profit to shareholders Core earnings to shareholders EPS (S-cents) Cons. EPS (S cts) Dividend (S-cents) PER (x) P/NAV (%) FY10 245.4 -91.8 153.6 541.3 na 13.9 na 2.0 14.1 130.9 FY11 246.2 -104.2 142.0 453.0 120.4 11.7 na 3.0 16.9 122.6 FY12F 344.6 -144.7 199.9 391.0 181.5 10.1 na 3.3 19.5 117.6 FY13F 379.1 -151.6 227.5 338.3 238.3 8.7 na 3.3 22.6 113.8
Company
Note: OIR FY12 EPS estimates include divestment and reval. gains reported YTD.
Note: Industry universe defined as companies under identical GICS classification listed in exchanges in Asia Pacific. Sources: Bloomberg, OIR estimates
MICA (P) 035/06/2012
Income statement Year Ended Dec 31 (S$m) Revenue Cost of sales Gross profit Admin expenses Share of results (Assoc/JV) Profit before taxation Income tax expense Profit after taxation Profit to shareholders Core earnings to shareholders
FY10 245.4 -91.8 153.6 -107.4 475.9 577.8 -28.9 548.9 541.3 na
FY11 246.2 -104.2 142.0 -140.4 348.9 568.6 -74.3 491.2 453.0 120.4
FY12F 344.6 -144.7 199.9 -172.3 300.0 463.3 -51.7 411.6 391.0 181.5
FY13F 379.1 -151.6 227.5 -182.0 350.0 412.9 -56.9 356.1 338.3 238.3
Balance sheet As at Dec 31 (S$m) Cash and equivalents Investment & development prop. Associates/JV Total assets Total debt Other liabilities Total liabilities Total equity Shareholders equity Total equity and liabilities
FY10 1,318.3 593.3 4,163.4 6,982.2 700.0 394.0 1,093.9 5,888.2 5,828.5 6,982.2
FY11 975.5 1,679.1 4,657.9 8,078.0 1,229.7 371.2 1,600.9 6,477.1 6,227.0 8,078.0
FY12F 517.4 2,241.3 5,832.4 9,460.3 2,260.0 455.5 2,715.5 6,744.8 6,474.1 9,460.3
FY13F 190.9 3,168.9 6,182.4 10,444.3 3,000.0 469.6 3,469.6 6,974.6 6,686.1 10,444.3
Cash flow statement Year Ended Dec 31 (S$m) Pre-tax profit Adjustments Working capital changes Operating cashflow Investing cashflow Financing cashflow Net change in cash Adjustments Cash at beginning of period Cash at end of period
FY10 446.8 -410.8 19.2 55.2 621.7 99.9 776.8 -1.6 544.3 1,318.3
FY11 568.6 -590.8 30.2 8.0 -719.0 372.7 -338.3 -4.5 1,318.3 975.5
FY12F 463.3 -461.3 -28.3 -26.4 -1,274.2 842.5 -458.1 0.0 975.5 517.4
FY13F 412.9 -382.0 -18.9 12.0 -884.5 546.0 -326.5 0.0 517.4 190.9
Key rates & ratios EPS (S-cents) NAV per share (S-cents) Dividend (S-cents) PER (x) P/NAV (%) Gross profit margin (%) Net profit margin (%) Net gearing (%) ROE (%) ROA (%) Sources: Company, OIR forecasts
FY10 13.9 150.1 2.0 14.1 130.9 62.6 223.7 -10.6 9.3 7.9
FY11 11.7 160.3 3.0 16.9 122.6 57.7 199.5 4.1 7.3 6.1
FY12F 10.1 167.1 3.3 19.5 117.6 58.0 119.4 26.8 6.0 4.4
FY13F 8.7 172.6 3.3 22.6 113.8 60.0 93.9 41.9 5.0 3.4
Singapore | REITs
CAPITAMALL TRUST | BUY

GOOD ORGANIC GROWTH STORY

Singapores retail blue chip Good growth potential Recent cash call a plus
BUY (maintain)
Healthy growth profile We remain positive on CapitaMall Trusts (CMT) financial performance in 2013. A number of CMTs asset enhancement initiatives (AEIs) are completed or on track for completion by the end of 2012, and are expected to contribute to contribute positively to its rental income going forward. These include the refurbishments works at JCube (opened in Apr), Bugis+ (completed in Jul), The Atrium@Orchard (completed in Nov) and Clarke Quay (expected to complete in Dec). Lease renewals have also been healthy with 6.1% positive rental reversions clocked for 9M12, in line with 6.4-6.5% reversions seen in 2010-2011. Hence, we believe CMT is likely to sustain its growth profile, given its smooth execution and strong leasing activities. Private placement provides greater flexibility We also note that CMT had successfully raised ~S$245.8m in net proceeds via a private placement recently to fund its AEIs, refinancing of existing debts and its working capital needs. We highlight the fact that CMT had initially proposed to carry out a placement of 100.5m new units, but the placement was upsized to 125m units due to positive demand a reflection of market confidence in CMT. We are positive on the cash call as 1) it was done at a 22% premium to its NAV as at 30 Sep; 2) there is limited dilution given that the new units would constitute only 3.8% of its units outstanding; and 3) the placement will provide CMT greater financial capacity and flexibility to pursue its growth plans. According to management, CMTs aggregate leverage is also likely to be improved from 37.7% to 35.1%, assuming all the proceeds are used to repay its existing debts. We believe this will not only remove any price overhang in relation to its relatively high debt level but also enhance its capital structure and debt headroom. Maintain BUY We continue to like CMT for its quality portfolio, strong execution and growth profile. We maintain our BUY rating with an unchanged S$2.30 fair value on CMT.
Analysts Kevin Tan (Lead) +65 6531 9810 KevinTan@ocbc-research.com Eli Lee +65 6531 9112 EliLee@ocbc-research.com
Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder S$7,224 / USD5,918 S$13 / USD10 7.0 1.615 - 2.25 62.5 3,456.4 SGX CT SP CMLT.SI C38U Financials REITs CapitaLand 28.5% 1m 0 -4 3m 6 2 12m 31 11
`
Fair Value
CT SP
FSSTI
Key financial highlights Year Ended 31 Dec (S$ m) Gross revenue Total property expenses Net property income Amount available for distribution DPU per share (S cents) Cons. DPU (S cents) DPU yield (%) P/NAV (x) ROE (%) Debt/Assets (%) FY10 581.1 -182.0 399.1 294.8 9.2 na 4.4 1.3 5.5 35.1 FY11 630.6 -212.3 418.2 301.6 9.4 na 4.5 1.3 7.5 37.3 FY12F 652.3 -208.1 444.2 316.7 9.2 9.7 4.4 1.3 9.0 34.3 FY13F 700.0 -222.2 477.8 348.7 10.1 10.4 4.8 1.3 6.0 34.8
Company
Note: Industry universe defined as companies under identical GICS classification listed on the same exchange. Sources: Bloomberg, OIR estimates
MICA (P) 035/06/2012
Income statement Year Ended 31 Dec (S$ m) Gross revenue Total property expenses Net property income Net finance costs Property management fees Other expenses Net income Total return for the period Adjustments Amount available for distribution
FY10 581.1 -182.0 399.1 -116.4 -36.0 9.2 255.9 270.1 24.7 294.8
FY11 630.6 -212.3 418.2 -132.6 -39.4 22.2 268.5 384.2 -82.7 301.6
FY12F 652.3 -208.1 444.2 -138.0 -40.7 22.2 287.7 492.6 -175.9 316.7
FY13F 700.0 -222.2 477.8 -133.2 -44.1 21.0 321.5 341.2 7.6 348.7
Balance sheet As at 31 Dec (S$ m) Investment properties Properties under development Cash Total current assets Total assets Current liabilities ex debt Debt Total liabilities Unitholders' funds Total equity and liabilities
FY10 7,271.5 0.0 713.0 720.8 8,125.9 176.1 2,851.9 3,186.5 4,939.4 8,125.9
FY11 7,849.2 306.6 757.6 787.6 9,172.2 256.3 3,423.9 3,926.2 5,246.0 9,172.2
FY12F 8,132.9 331.6 730.4 761.2 9,454.5 262.2 3,247.5 3,758.6 5,695.9 9,454.5
FY13F 8,169.2 402.2 757.5 790.7 9,590.7 281.3 3,338.1 3,874.7 5,716.0 9,590.7
Cash flow statement Year Ended 31 Dec (S$ m) Net income Adjustments Operating income before working cap chgs Change in working capital Cash generated from operating activities Cashflow from investing activities Cashflow from financing activities Change in cash Cash at beginning of period Cash at end of period
FY10 255.9 109.9 365.8 19.4 385.2 -313.0 304.9 377.1 335.8 713.0
FY11 268.5 112.9 381.4 2.0 383.4 -718.3 379.6 44.7 713.0 757.6
FY12F 287.7 118.5 406.2 10.0 416.2 -96.4 -347.1 -27.2 757.6 730.4
FY13F 321.5 113.6 435.1 25.5 460.7 -79.7 -353.8 27.2 730.4 757.5
Key rates & ratios DPU per share (S cents) NAV per share (S cents) P/E (x) P/NAV (x) NPI margin (%) Net income margin (%) Debt/Assets (%) DPU yield (%) ROE (%) ROA (%) Sources: Company, OIR forecasts
FY10 9.2 155.1 25.9 1.3 68.7 44.0 35.1 4.4 5.5 3.5
FY11 9.4 157.6 18.5 1.3 66.3 42.6 37.3 4.5 7.5 4.4
FY12F 9.2 164.8 15.4 1.3 68.1 44.1 34.3 4.4 9.0 5.3
FY13F 10.1 165.3 22.3 1.3 68.3 45.9 34.8 4.8 6.0 3.6
Singapore | Financials
DBS GROUP | BUY

SEVERAL GROWTH AREAS

Earnings outlook for 2013 is healthy Tapping on several growth units Valuations are inexpensive; BUY
BUY (maintain)
Fair value add: 12m dividend forecast versus: Current price 12m total return forecast
Analysts Carmen Lee (Lead) +65 6531 9802 carmen@ocbc-research.com Carey Wong +65 6531 9808 carey@ocbc-research.com Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder Relative total return Company (%) STI-adjusted (%) Price performance chart
Shar e Pr i ce (S$ ) Index Level 4000 3660 3320 2980 2640 2300 Mar -12 Jun-12 Sep-12 Dec-12
S$15.94 S$0.56 S$14.88 11%
An outperformer in 2012, and poised to enjoy growth in 2013 DBS Group has outperformed its listed peers and the STI this year, with share price gains of 25% till end Nov 2012 versus 16% for the STI. The good performance is well supported by several pillars of growth in 2012, including better regional earnings, higher treasury customer income and increased earnings from its Hong Kong operations. In addition, Wealth Management (+33% YoYo for 9M12), SME (+16%) and Global Transaction Services (+44%) testified to the execution of its strategies to focus on these businesses. It is also active in the investment banking side, further cementing its leading position with several REITs deals and poised to maintain its record in 2013 as the IPO pipeline is still looking healthy. Focus Wealth, SME, GTS, Fixed Income & REITs While business challenges remain and management highlighted the weakness from China in 3Q, CEO Piyush Gupta also indicated at the recent result briefing that the worst appeared to be over, especially based on the bottoming out of China data. For several of its key focus areas, highlighted above, the income stream is still healthy and on track. Management also emphasized its intention to grow its Fixed Income pie, extending its reach into more non-SGD bonds. However, management also warned of possible headwinds from China. This was already seen in 3Q, with a drop in trade financing in China and margin compression. We expect the slowing loan growth and stabilizing interest margin to have already been discounted by the market. Maintain BUY and FV of S$15.94 Our earnings estimates for FY12 and FY13 are already slightly above market consensus numbers, but we are keeping our estimates, and believe that there is a possibility of the group surprising on the upside for its earnings in 2H 2013. However, cautious global outlook and weak market sentiment could limit price valuation. There is still no specific decision on its offer for Bank Danamon, and we have not included the potential impact in our projections. We are maintaining our fair value estimate of S$15.94 and BUY rating.
S$36,282 / USD29,717 S$51 / USD42 3.8 11.26 - 14.99 70.3 2,436.7 SGX DBS SP DBSM.SI D05 Financials Financials Temasek - 27.0% 1m 5 1 3m 2 -2 12m 29 9
17.46 16.06 14.67 13.27 11.87 10.48 Dec-11
Fair Value
DBS SP
FSSTI
Key financial highlights Year Ended Dec 31 (S$m) Interest Income Interest Expense Net Interest Income Reported net profit EPS (S$) Cons. EPS (S cts) Net interest income growth (%) Non-interest income growth (%) Dividend yield (%) Cost-to-income (%) FY10 5,699.0 1,381.0 4,318.0 1,632.0 0.7 na -3.1 27.9 3.8 41.4 FY11 6,555.0 1,730.0 4,825.0 3,035.0 1.3 na 11.7 2.1 3.8 43.3 FY12F 7,655.1 2,328.5 5,326.7 3,384.9 1.4 1.4 10.4 -1.1 3.8 44.4 FY13F 7,941.0 2,384.6 5,556.4 3,556.5 1.5 1.4 4.3 3.7 3.8 44.0
M kt Cap B et a ROE PE PB
Company
MITA No. 035/06/2012
Income statement Year Ended Dec 31 (S$m) Interest Income Interest Expense Net Interest Income Fee & commision income Non-Interest Income Total Income Staff and operating expenses Impairment charges Pretax profit Reported net profit
FY10 5,699.0 1,381.0 4,318.0 1,397.0 2,748.0 7,066.0 -2,925.0 -911.0 2,314.0 1,632.0
FY11 6,555.0 1,730.0 4,825.0 1,542.0 2,806.0 7,631.0 -3,303.0 -722.0 3,733.0 3,035.0
FY12F 7,655.1 2,328.5 5,326.7 1,612.3 2,774.0 8,100.7 -3,596.7 -408.0 4,231.0 3,384.9
FY13F 7,941.0 2,384.6 5,556.4 1,745.6 2,875.9 8,432.3 -3,710.2 -372.0 4,488.1 3,556.5
Balance sheet As at Dec 31 (S$m) Share capital Revenue & other reserves Shareholders' fund Deposits and other accounts Other liabilities Total liabilities Cash and balances Loans & advances Other assets Total assets
FY10 8,780.0 24,322.0 33,102.0 187,695.0 44,102.0 250,608.0 31,203.0 151,698.0 68,957.0 283,710.0
FY11 9,350.0 23,719.0 33,069.0 218,992.0 61,185.0 307,778.0 25,304.0 194,275.0 83,194.0 340,847.0
FY12F 9,642.0 26,233.0 35,875.0 236,891.2 64,912.8 332,165.1 25,236.1 212,610.6 89,299.7 368,040.1
FY13F 9,642.0 28,978.5 38,620.5 248,735.8 66,292.2 346,907.1 29,907.6 219,664.7 93,387.2 385,527.6
Cash flow statement Year Ended Dec 31 (S$m) Pretax profits Depreciation Others Changes in working capital Net cash from operating activities Net cash in investing activities Cash flow from financing activities Change in cash Beg cash Cash at end of year
FY10 1,860.0 193.0 1,868.0 926.0 4,847.0 134.0 920.0 5,831.0 19,281.0 25,112.0
FY11 3,290.0 185.0 531.0 -5,683.0 -1,677.0 -139.0 -4,386.0 -6,221.0 25,112.0 18,891.0
FY12F 4,231.0 185.0 363.0 2,220.9 6,999.9 21.0 -1,171.7 5,849.1 18,891.0 24,740.1
FY13F 4,488.1 185.0 429.0 4,003.5 9,105.6 19.4 -1,555.0 7,570.0 24,740.1 32,310.1
Key rates & ratios EPS (S$) NAV per share (S$) Net interest income growth (%) Non-interest income growth (%) Interest Inc / Total Inc (%) Cost-to-income (%) PER (x) Price/NAV (x) Dividend yield (%) ROE (%) Sources: Company, OIR forecasts
FY10 0.7 11.0 -3.1 27.9 61.1 41.4 21.0 1.3 3.8 6.3
FY11 1.3 11.8 11.7 2.1 63.2 43.3 11.5 1.3 3.8 11.0
FY12F 1.4 12.4 10.4 -1.1 65.8 44.4 10.7 1.2 3.8 11.3
FY13F 1.5 13.4 4.3 3.7 65.9 44.0 10.2 1.1 3.8 10.9
Singapore | Energy Equipment and Services
EZION HOLDINGS | BUY

MARKET CAP: USD 1017M AVG DAILY TURNOVER: USD 8M 13 Dec 2012 Company Update
WHAT A YEAR, BUT THE BEST IS YET TO COME

2012 has been fantastic Solidifying earnings base The best is yet to come
BUY (maintain)
Analysts Low Pei Han, CFA (Lead) +65 6531 9813 lowph@ocbc-research.com Chia Jiun Yang, CFA +65 6531 9809 chiajy@ocbc-research.com Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder Relative total return Company (%) STI-adjusted (%) Price performance chart
Shar e Pr i ce (S$ ) 2.03 Index Level 8300 7100 5900
`
S$1.70 S$0.001 S$1.43 19%
What a run! Ezion Holdings (Ezion) share price has performed very well in the past few months, rising about 99% since early Jun. In comparison, the STI and the FTSE Oil and Gas Index have appreciated by about 14% and 16% respectively over the same period. YTD, Ezion is up about 115%. The good showing is mainly due to the clinching contracts at attractive rates of return, smooth execution of projects, and commendable quarterly earnings. What does 2013 hold? As we expected last year, 2012 was a fruitful year for Ezion, which continued to secure liftboat and service rig contracts for work in various parts of the world, and embarked on new initiatives such as its proposed acquisition of YHM Group, as well as the roping in of industry veteran Mr. Tan Boy Tee. Unlike some of its SGX-listed peers, the group also did not serve up earnings disappointments in the past year. Looking ahead to 2013, we expect more news flow as additional assets are deployed, solidifying its earnings base. 1st O&M company to issue perpetual securities The company also undertook a perpetual securities issue (S$125m of 7.8% subordinated perps) in Sep, becoming the first O&M company in Singapore to issue such securities. This projects the managements strong sense of confidence in the companys growth, while the good take-up of the securities reflected investors faith in earnings sustainability. Broke the S$1b mark this year, ambitions for more Ezion Holdings has been our small-mid cap pick since we highlighted it in our year-end strategy report last year, but after breaking the S$1b market cap mark this year, it should henceforth be better classified as a mid-cap counter. Though 2012 has been a fantastic year, we believe that the best is yet to come, assuming no major change to its current operational status quo. Maintain BUY with S$1.70 fair value estimate.
S$1,242 / USD1,017 S$9 / USD8 9.7 0.63 - 1.51 71.9 862.5 SGX EZI SP EZHL.SI 5ME Energy Energy Eqpt & Svcs Chew TK - 20.1% 1m -5 -9 3m 12 8 12m 116 96
1.74 1.45 1.17 0.88 0.59 Dec-11 Mar -12 Jun-12 Sep-12
4700 3500 2300 Dec-12
Fair Value
EZI SP
FSSTI
Key financial highlights Year Ended 31 Dec (US$m) Revenue Gross profit EBITDA Core net profit Core EPS Cons. EPS (S cts) NAV per share (cents) Net profit margin (%) ROE (%) Price/NTA (x) FY10 117.1 44.7 54.5 31.6 4.4 na 29.4 34.3 19.2 3.8 FY11 107.0 55.3 73.8 45.9 6.4 na 37.6 54.3 21.7 3.0 FY12F 158.7 74.6 100.5 60.0 7.1 7.2 59.0 47.3 15.0 1.9 FY13F 332.4 156.2 169.5 128.2 15.1 13.7 67.8 40.0 23.1 1.7
Company
MICA No. 035/06/2012
Income statement Year Ended 31 Dec (US$m) Revenue Gross profit EBITDA Net finance expense Share of results of JVs, net Exceptionals Profit before tax Minority interests Profit attributable to shareholders Core net profit
FY10 117.1 44.7 54.5 -2.2 6.8 8.6 43.2 0.0 40.2 31.6
FY11 107.0 55.3 73.8 -0.7 9.5 12.2 61.0 0.0 58.1 45.9
FY12F 158.7 74.6 100.5 -5.1 13.6 15.0 79.1 0.0 75.0 60.0
FY13F 332.4 156.2 169.5 -4.0 21.0 4.8 140.7 0.0 133.0 128.2
Balance sheet As at 31 Dec (US$m) Cash and cash equivalents Other current assets Property, plant, and equipment Total assets Debt Current liabilities excluding debt Total liabilities Shareholders equity Total equity Total equity and liabilities
FY10 75.5 122.9 150.8 397.3 130.5 54.8 187.3 209.9 209.9 397.3
FY11 63.2 64.2 270.8 470.4 157.7 42.4 202.0 268.3 268.3 470.4
FY12F 76.5 113.2 707.6 988.7 420.2 64.7 487.3 501.4 501.4 988.7
FY13F 42.7 176.2 766.1 1,076.5 396.9 100.8 500.6 575.9 575.9 1,076.5
Cash flow statement Year Ended 31 Dec (US$m) Op profit before working cap. changes Working cap, taxes and int Net cash from operations Purchase of PP&E Other investing flows Investing cash flow Financing cash flow Net cash flow Cash at beginning of year Cash at end of year (incl pledges)
FY10 41.3 3.6 44.9 -115.8 13.2 -102.6 96.8 39.2 27.5 75.5
FY11 55.4 -20.9 34.5 -125.5 55.3 -70.3 25.7 -10.1 75.5 63.2
FY12F 73.3 -29.7 43.6 -453.0 70.5 -382.5 354.5 15.7 63.2 76.5
FY13F 149.2 -33.0 116.1 -83.3 33.5 -49.9 -97.7 -31.5 76.5 42.7
Key rates & ratios Core EPS EPS (cents) NAV per share (cents) Net profit margin (%) PER (x) Price/NTA (x) EV/EBITDA (x) Dividend yield (%) ROE (%) Net gearing (%) Sources: Company, OIR forecasts
FY10 4.4 5.6 29.4 34.3 19.6 3.8 26.7 0.0 19.2 26.2
FY11 6.4 8.1 37.6 54.3 14.0 3.0 19.7 0.1 21.7 35.2
FY12F 7.1 8.8 59.0 47.3 12.9 1.9 14.5 0.1 15.0 68.5
FY13F 15.1 15.6 67.8 40.0 7.3 1.7 8.6 0.1 23.1 61.5
Singapore | Industrials
KEPPEL CORPORATION | BUY

ORDER FLOWS TO CONTINUE IN 2013

More ultra-deepwater orders in 2013 S$13.1b net order book Industry outlook remains bright
BUY (maintain)
Analysts Low Pei Han, CFA (Lead) +65 6531 9813 lowph@ocbc-research.com Chia Jiun Yang, CFA +65 6531 9809 chiajy@ocbc-research.com Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder Relative total return Company (%) STI-adjusted (%) Price performance chart
Shar e Pr i ce (S$ ) 15.49 14.03 12.57 11.11 9.66 8.20 Dec-11 Mar -12 Jun-12 Sep-12
`
S$12.49 S$0.43 S$10.87 19%
2013 will still see new orders; ultra-deepwater in focus In our year-end report on Keppel Corporation (KEP) last year, we highlighted that order flows for jack-up rigs would slow while prospects for semi-submersible rigs look increasingly brighter. The year played out as expected, with the group securing three jack-up rigs and nine semi-sub orders so far this year. Looking ahead, we expect continued new order flow in 2013 due to strong industry fundamentals, including a tightening in the ultra-deepwater segment. 2012 has been front-ended loaded due to property; O&M relatively stable Overall, 2012 has been a front-end loaded year as lumpy earnings from the property division boosted net profit in 1H12. Net profit from O&M remained relatively stable each quarter in 9M12, though operating margin in the division has more than halved from 26.0% in 3Q11 to 12.9% in 3Q12 as margins continue to normalize. Recall that margins were impressive around the 20+% range from 4Q10 to 4Q11 as high profit margin contracts, secured largely before the crisis, were executed, along with productivity gains. Improving regional satellite yards Meanwhile KEP has started to improve the competencies and productivity of its regional satellite yards to meet heavier workload requirements. Increased focus will be placed on productivity and R&D efforts to sustain growth for the future. This is a good strategy to pursue so that more work can be outsourced to regional yards in the future to free up space in the Singapore yards. Maintain BUY After securing S$8.8b of orders in 9M12 (5% higher than in 9M11), the groups net order book stood at S$13.1b as at end Sep with deliveries extending to 2019. Looking ahead, we are expecting new order wins of about S$5b in 2013 from the Caspian Sea, West Africa, Brazil and other regions. Maintain BUY with S$12.49 fair value estimate.
S$19,645 / USD16,092 S$43 / USD35 4.1 8.95 - 11.67 78.1 1,797.3 SGX KEP SP KPLM.SI BN4 Industrials Industrial Conglomerates Temasek - 21.3% 1m 7 2 3m -3 -7 12m 23 3
Index Level 4600 4140 3680 3220 2760 2300 Dec-12
Fair Value
KEP SP
FSSTI
Key financial highlights Year Ended Dec 31 (S$m) Revenue EBITDA Depreciation & amortisation PATMI EPS (S) Cons. EPS (S cts) EBIT margin (%) Net profit margin (%) ROE (%) P/NTA (x) FY10 9,139.6 1,556.3 1,744.9 1,511.1 81.7 na 3.9 16.5 23.6 2.8 FY11 10,082.5 1,897.3 2,105.9 1,840.5 83.6 na 4.1 18.3 24.9 2.7 FY12F 13,979.1 2,438.8 2,656.0 1,870.9 104.1 107.9 4.7 13.4 21.8 2.3 FY13F 13,908.6 2,208.1 2,434.0 1,672.3 93.0 86.8 5.2 12.0 17.6 2.1
Company
MICA (P) 035/06/2012
Income statement Year Ended 31 Dec (S$m) Revenue Operating profit EBITDA Finance costs & invt income Associates and JV Exceptionals Pre-tax profit (excl. EI) Profit before tax Minority interests Profit attributable to shareholders
FY10 9,139.6 1,556.3 1,744.9 54.6 278.2 661.1 1,889.1 2,550.2 -479.1 1,511.1
FY11 10,082.5 1,897.3 2,105.9 40.3 239.8 1,135.3 2,177.4 3,312.7 -831.7 1,840.5
FY12F 13,979.1 2,438.8 2,656.0 34.7 245.8 0.0 2,719.3 2,719.3 -304.6 1,870.9
FY13F 13,908.6 2,208.1 2,434.0 52.4 258.1 0.0 2,518.6 2,518.6 -342.5 1,672.3
Balance sheet As at 31 Dec (S$m) Cash and cash equivalents Other current assets Property, plant, and equipment Total assets Debt Current liabilities excluding debt Total liabilities Shareholders equity Total equity Total equity and liabilities
FY10 4,246.0 6,741.2 2,243.2 20,461.0 4,068.5 6,700.4 11,179.2 6,415.4 9,281.8 20,461.0
FY11 3,020.5 9,228.1 2,715.5 24,482.6 4,877.2 7,807.7 13,291.5 7,390.4 11,191.1 24,482.6
FY12F 2,632.4 10,694.0 3,248.3 27,565.5 5,900.0 8,363.7 14,870.4 8,589.8 12,695.1 27,565.5
FY13F 4,097.0 10,153.3 3,422.3 28,906.8 5,900.0 8,463.1 14,969.7 9,489.3 13,937.0 28,906.8
Cash flow statement Year Ended 31 Dec (S$m) Op profit before working cap. changes Working cap, taxes and int Net cash from operations Purchase of PP&E Other investing flows Investing cash flow Financing cash flow Net cash flow Cash at beginning of year Cash at end of year (incl ODs)
FY10 1,789.1 -1,333.7 450.2 -873.1 230.0 -643.1 1,503.9 1,311.1 2,935.8 4,246.0
FY11 2,130.2 -2,362.1 -242.1 -875.8 -382.0 -1,257.8 275.1 -1,224.8 4,246.0 3,020.5
FY12F 2,709.9 -2,129.1 580.8 -750.0 -454.5 -1,204.5 235.7 -388.0 3,020.5 2,632.4
FY13F 2,490.5 -28.6 2,462.0 -400.0 175.5 -224.5 -772.9 1,464.6 2,632.4 4,097.0
Key rates & ratios Core EPS (S cents) EPS (S cents) NTA per share (S$) Net profit margin (%) PER (x) Price/NTA (x) EV/EBITDA (x) Dividend yield (%) ROE (%) Net gearing (%) Sources: Company, OIR forecasts
FY10 81.7 94.4 3.9 16.5 11.5 2.8 9.9 3.9 23.6 Net cash
FY11 83.6 103.2 4.1 18.3 10.5 2.7 10.1 4.0 24.9 25.1
FY12F 104.1 104.1 4.7 13.4 10.4 2.3 8.6 4.0 21.8 38.0
FY13F 93.0 93.0 5.2 12.0 11.7 2.1 8.8 4.0 17.6 19.0
Singapore | Telecoms Services
M1 | BUY
MARKET CAP: USD 2.1B AVG DAILY TURNOVER: USD 2M 13 Dec 2012 Company Results
LIKELY 4G & NBN MARKET SHARE GAINS IN 2013

4G first mover advantage NBN market still growing Defensive with attractive yield
BUY (maintain)
Analysts Carey Wong (Lead) +65 6531 9808 carey@ocbc-research.com Andy Wong +65 6531 9817 AndyWong@ocbc-research.com Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder Relative total return Company (%) STI-adjusted (%) Price performance chart
Shar e Pr i ce (S$ ) 3.15 2.95 Index Level 3500 3260 3020 2780 2540 2300 Mar -12 Jun-12 Sep-12 Dec-12
S$2.89 S$0.15 S$2.77 10%
Getting 4G traction M1 Ltd has garnered a bit of first-mover advantage with its LTE (Long Term Evolution) rollout across the nation, aided by the faster-thanexpected adoption of 4G services. According to management, it managed to garner some 44k 4G subscribers, just one month after the launch. Recall that M1 announced its nation-wide 4G network on 15 Sep, aiming to offer 95% coverage for indoor and outdoor areas (but not in the MRT tunnels yet) by end-2012, versus peers SingTel (80%) and StarHub (>50%). 4G adoption likely to pick up speed We were also pleasantly surprised by the faster-than-expected switch to the 4G network, as we thought that the initial lack of 4G-enabled handsets could be a minor stumbling block. But following the launch of the new iPhone 5 and now the wildly popular Samsung Galaxy Note II, we think that the pace of switching could continue to pick up. In addition, we expect tiered pricing plans (with more restrictive data bundles of 2GB versus 12GB previously) to also give an uplift to ARPU. On the flip side, M1s need to increase the capacity of its 4G network could keep capex at current levels until 2014. May gain NBN market share Meanwhile, in the NBN space, we note that M1 has continued to make inroads in acquiring more fibre customers. Currently, it has about 44k high-speed customers and it believes that the overall market can continue to add 7-10k new subscribers per quarter, although the bulk is still likely to be in the residential segment. Penetration into the corporate segment is likely to remain slow. Defensive business, attractive yield With the global economy still not showing any signs of a sustainable recovery, we continue to favour companies with defensive earnings such as telcos, which also have strong ability to generate cashflow to sustain dividends. Hence, we continue to keep our BUY rating and an improved S$2.89 DCF-based fair value.
S$2,511 / USD2,056 S$2 / USD2 1.0 2.4 - 2.85 37.6 913.0 SGX M1 SP MONE.SI B2F Telecoms Services Wireless Telecoms Svcs Axiata Inv - 29.3% 1m 7 2 3m 4 0 12m 22 2
2.76 2.57 2.37 2.18 Dec-11
Fair Value
M1SP
FSSTI
Key financial highlights Year Ended 31 Dec (S$m) Revenue EBITDA Depreciation & amortisation Net Profit EPS (S cents) Cons. EPS (S cts) PER (x) Price/NTA (x) Net Gearing (x) Dividend Yield (%) FY10 979.2 313.3 -117.0 157.1 17.5 na 15.8 11.5 1.0 6.3 FY11 1,064.9 310.5 -107.1 164.1 18.1 na 15.3 11.0 0.9 5.2 FY12F 1,061.3 304.6 -114.0 151.5 16.7 16.8 16.6 10.6 0.9 5.2 FY13F 1,145.1 328.3 -115.2 170.2 18.7 18.7 14.8 9.6 0.7 5.4
Company
MITA No. 035/06/2012
Income statement Year Ended 31 Dec (S$m) Revenue EBITDA Depreciation & amortisation Operating Profit Net interest Associates Exceptionals Pre-tax profit Tax Net Profit
FY10 979.2 313.3 -117.0 313.3 -5.8 0.0 0.0 190.5 -33.4 157.1
FY11 1,064.9 310.5 -107.1 310.5 -6.0 0.0 0.0 197.4 -33.3 164.1
FY12F 1,061.3 304.6 -114.0 304.6 -5.9 0.0 0.0 184.7 -33.3 151.5
FY13F 1,145.1 328.3 -115.2 328.3 -5.7 0.0 0.0 207.5 -37.4 170.2
Balance sheet As of 31 Dec (S$m) Cash Other Current Assets Fixed Assets Other long term assets Total Assets Current Liabilities less Debt Debt Other Long Term Liabilities Shareholders Equity Total Equity and Liabilities
FY10 8.8 224.9 600.6 100.2 934.5 234.0 316.0 81.6 302.9 934.5
FY11 11.8 248.9 606.8 111.0 978.6 257.4 303.3 95.3 322.6 978.6
FY12F 16.0 253.4 597.1 121.8 988.2 256.8 308.0 81.0 342.5 988.2
FY13F 17.3 271.4 586.1 132.6 1,007.4 278.9 283.2 68.9 376.5 1,007.4
Cash flow statement Year Ended 31 Dec (S$m) Operating Profit Working Capital Changes Net Cash from Operations Capex Investing Cash flow Change in Equity Net Debt Change Financing Cash Flow Net Cash flow Ending Cash Balance
FY10 314.2 -83.8 187.4 -99.9 -120.4 8.5 47.0 -65.7 1.3 8.8
FY11 311.4 14.4 285.5 -102.5 -124.2 15.7 -12.7 -158.4 3.0 11.8
FY12F 304.6 -22.1 246.0 -115.0 -114.8 0.0 4.7 -126.9 4.2 16.0
FY13F 328.3 -1.3 277.2 -115.0 -115.0 0.0 -24.8 -160.9 1.3 17.3
Key rates & ratios EPS (S cents) Fully Diluted EPS (S cents) PER (x) Price/NTA (x) EV/EBITDA (x) Dividend Yield (%) ROIC (%) ROE (%) Net Gearing (x) PE to Growth (x) Sources: Company, OIR forecasts
FY10 17.5 17.5 15.8 11.5 8.9 6.3 25.4 51.9 1.0 3.8
FY11 18.1 18.1 15.3 11.0 8.9 5.2 26.2 50.9 0.9 4.3
FY12F 16.7 16.7 16.6 10.6 9.1 5.2 23.3 44.2 0.9 -2.1
FY13F 18.7 18.7 14.8 9.6 8.4 5.4 25.8 45.2 0.7 1.2
Singapore | Industrials
SEMBCORP MARINE | BUY

FOCUS ON MARGINS AND COMPETITION IN 2013

BUY (maintain)
Analysts Low Pei Han, CFA (Lead) +65 6531 9813 lowph@ocbc-research.com Chia Jiun Yang, CFA +65 6531 9809 chiajy@ocbc-research.com Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder S$9,394 / USD7,694 S$27 / USD22 5.9 3.5506 - 5.3113 38.3 2,087.5 SGX SMM SP SCMN.SI S51 Industrials Machinery Sembcorp Industries60.8% 1m 4 0 3m -9 -13 12m 25 5
S$5.84 S$0.18 S$4.54 33%
Order intake and margins to normalise Well-positioned to capture new orders Still the market leader in terms of quality
Record new order intake in 2012 mainly due to drillships 2012 has been a record year in terms of new orders for Sembcorp Marine (SMM) the group secured orders worth a total of S$10.1b YTD, exceeding our new order win target of S$9.5b. The bulk of this, however, comprises drillship units from Sete Brasil, with deliveries from 2Q15 to 4Q19. Semi-sub orders staged a recovery as anticipated, and we expect this momentum to continue next year. Meanwhile, jack-up orders also expectedly slipped after the newbuild rush in 2010 and 2011. Focus on margins and order intake Moving into 2013, we expect the market to focus on operating margins and order intake. Management has conservatively guided operating margins to be around 10-13% due to initial recognition of new products such as drillships, but we see potential upside surprise with the recognition of higher priced jack-ups secured in 2H11 to 1H12, some of which are repeat orders. There is also talk that the first drillship may be fully built in Singapore instead of the earlier expected 55-65% local content requirement. As for order intake, we are expecting more ultradeepwater rig orders due to the relatively tight market as seen from rising day rates and utilisation levels. Keeping an eye on competition We also expect investors to keep an eye on the commercial shipbuilding market, though SMM does not build newbuilds in this area. This is because there are concerns that work-starved yards in Korea and China may be keen to accelerate their diversification into the offshore space, therefore intensifying competition in the newbuild rig market. Still, we expect that clients who are more established players would prefer to stick to SMM and Keppel Corp for quality high spec rigs. Maintain BUY with S$5.84 fair value estimate.
Shar e Pr i ce (S$ ) 7.14 6.39 5.64
`
Index Level 5100 4540 3980 3420 2860 2300 Mar -12 Jun-12 Sep-12
4.89 4.14 3.38 Dec-11
Fair Value
SMM SP
FSSTI
Key financial highlights Year Ended 31 Dec (S$m) Revenue Gross profit Operating and admin expenses Profit attributable to shareholders Earnings per share (S cents) Cons. EPS (S cts) Gross profit margin (%) Net profit margin (%) ROE (%) Price/NTA (x) FY10 4,554.9 1,128.8 -186.2 860.3 41.5 na 24.8 19.6 34.4 3.6 FY11 3,960.2 866.1 -129.0 751.9 36.1 na 21.9 19.4 31.9 4.0 FY12F 4,446.9 787.1 -156.3 576.3 27.6 26.7 17.7 13.4 24.1 3.9 FY13F 5,455.4 911.1 -150.0 688.2 33.0 31.1 16.7 13.0 25.5 3.4
Company
MICA (P) 035/06/2012
Income statement Year Ended 31 Dec (S$m) Revenue Gross profit Operating and admin expenses EBITDA Operating profit Other expenses/income Associates Pre-tax profit Profit for the year Profit attributable to shareholders
FY10 4,554.9 1,128.8 -186.2 1,025.8 942.6 77.7 57.6 1,077.9 893.9 860.3
FY11 3,960.2 866.1 -129.0 823.4 737.1 59.9 62.9 859.9 769.1 751.9
FY12F 4,446.9 787.1 -156.3 757.6 630.8 22.5 58.8 712.1 594.6 576.3
FY13F 5,455.4 911.1 -150.0 955.5 761.0 19.4 65.0 845.4 710.1 688.2
Balance sheet As at 31 Dec (S$m) Cash and cash equivalents Other current assets Property, plant, and equipment Total assets Debt Current liabilities excluding debt Total liabilities Shareholders equity Total equity Total equity and liabilities
FY10 2,915.1 985.1 681.9 5,279.2 8.0 2,440.8 2,592.2 2,599.4 2,686.9 5,279.2
FY11 1,989.6 1,409.3 1,034.3 5,051.6 48.8 2,365.1 2,545.6 2,414.3 2,506.1 5,051.6
FY12F 1,500.8 1,458.6 1,586.0 5,208.4 300.0 2,196.3 2,627.9 2,470.3 2,580.5 5,208.4
FY13F 1,318.4 1,789.4 1,937.5 5,701.5 300.0 2,355.0 2,786.7 2,782.8 2,914.9 5,701.5
Cash flow statement Year Ended 31 Dec (S$m) Op profit before working cap. changes Working cap, taxes and int Net cash from operations Purchase of PP&E Other investing flows Investing cash flow Financing cash flow Net cash flow Cash at beginning of year Cash at end of year
FY10 1,044.5 235.1 1,332.2 -73.2 0.8 -72.3 -323.4 936.5 1,978.5 2,915.1
FY11 852.6 -526.4 326.2 -437.9 -39.2 -477.1 -774.5 -925.5 2,915.1 1,989.6
FY12F 757.6 -487.5 270.1 -650.0 160.1 -489.9 -269.0 -488.8 1,989.6 1,500.8
FY13F 955.5 -497.1 458.5 -600.0 334.9 -265.2 -375.7 -182.4 1,500.8 1,318.4
Key rates & ratios Earnings per share (S cents) NTA per share (S cents) Gross profit margin (%) Net profit margin (%) PER (x) Price/NTA (x) EV/EBITDA (x) Dividend yield (%) ROE (%) Net gearing (%) Sources: Company, OIR forecasts
FY10 41.5 125.2 24.8 19.6 10.9 3.6 9.2 7.9 34.4 Net cash
FY11 36.1 114.2 21.9 19.4 12.6 4.0 11.5 5.5 31.9 Net cash
FY12F 27.6 117.1 17.7 13.4 16.4 3.9 12.5 4.0 24.1 Net cash
FY13F 33.0 132.1 16.7 13.0 13.8 3.4 9.9 4.0 25.5 Net cash
Singapore | REITs
STARHILL GLOBAL REIT | BUY

MARKET CAP: USD 1.2B AVG DAILY TURNOVER: USD 0.9M 13 Dec 2012 Company Update
GREAT SHOPPING DEAL

Diversified retail and office REIT Strong growth at Wisma Atria Trading at attractive valuations
BUY (maintain)
Good rental uplift from Wisma Atria Starhill Global REIT (SGREIT) is one of the more compelling names among the S-REITs, in our view. The REIT had completed its asset redevelopment works at Wisma Atria retail mall, Singapore in Jul, and contribution from the property has been very encouraging. For 3Q12, SGREIT reported a 5.7% and 11.0% YoY growth in NPI and DPU to S$36.4m and 1.11 S cents respectively. Notably, Wisma Atria retail mall registered a 24.3% increase in NPI amid positive rental reversions and full committed occupancy, while its office segment raked up a 15.2% growth in NPI. This more than offset the weakness at its Chengdu and Australia properties. Positive outlook The industry outlook also appears favourable to SGREIT. The Singapore retail sales (excluding motor vehicles) continued to exhibit healthy growth in Sep, increasing by 3.9% YoY after a 2.7% rise in Aug. Similarly, the tourist arrivals in Singapore have consistently been clocking double-digit growth since 2010 (1H12: 11.4%, 2011: 13.1%, 2010: 20.2%). We anticipate the positive trend to continue and this should help to keep the demand for prime retail space strong. As SGREITs Singapore properties contribute a considerate proportion to its NPI (62.3% of 3Q12 NPI), we believe SGREIT is likely to continue to put up a good showing going forward. Pertaining to the upcoming supply, we also understand from CBREs 2Q12 Market Report that only 327.5k sqft or 6.6% of total Orchard private retail space will come online over the 2013-2016 period. This limited supply should translate to relatively resilient rental rates at SGREITs properties. Maintain BUY We continue to like SGREIT for its growth potential, positive business outlook and healthy financial position (31.2% aggregate leverage). We highlight that SGREIT is currently the next most undervalued stock in the S-REIT sector after Saizen REIT (0.61x P/B), which is currently trading at 0.79x P/B. FY12-13F DPU yields of 5.8-6.2% also look respectable (vs. 5.5-5.9% for retail REIT subsector). Maintain BUY and S$0.84 fair value on SGREIT.
Key financial highlights Year Ended 31 Dec (S$ m) Gross revenue Total property expenses Net property income Amount available for distribution DPU per share (S cents) Cons. DPU (S cents) DPU yield (%) P/NAV (x) ROE (%) Gearing (%) FY10 165.7 -35.2 130.5 75.7 3.9 na 5.2 0.9 9.3 29.9 FY11 180.1 -36.5 143.6 80.1 4.1 na 5.5 0.9 6.3 30.5 FY12F 185.1 -37.1 148.0 84.8 4.4 4.3 5.8 0.9 6.3 30.0 FY13F 191.5 -38.4 153.2 90.1 4.6 4.6 6.2 0.9 6.6 29.9
Analysts Kevin Tan (Lead) +65 6531 9810 KevinTan@ocbc-research.com Eli Lee +65 6531 9112 EliLee@ocbc-research.com
Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder S$1,457 / USD1,193 S$1 / USD0.9 1.6 0.56 - 0.795 70.5 1,943.0 SGX SGREIT SP STHL.SI P4OU Financials REITs YTL Corp - 28.7% 1m -1 -6 3m 2 -2 12m 41 21
`
Fair Value
SGREIT SP
FSSTI
Company
MICA (P) 035/06/2012
Income statement Year Ended 31 Dec (S$ m) Gross revenue Total property expenses Net property income Net finance costs Manager's management fees Other expenses Net income Total return for the period Adjustments Amount available for distribution
FY10 165.7 -35.2 130.5 -31.4 -13.0 -1.7 84.4 150.0 -74.3 75.7
FY11 180.1 -36.5 143.6 -33.6 -13.9 -3.5 92.6 104.4 -24.4 80.1
FY12F 185.1 -37.1 148.0 -34.3 -14.2 -2.0 97.4 107.1 -22.3 84.8
FY13F 191.5 -38.4 153.2 -33.4 -14.3 -3.3 102.2 111.9 -21.7 90.1
Balance sheet As at 31 Dec (S$ m) Investment properties Properties under development Cash Total current assets Total assets Current liabilities ex debt Debt Total liabilities Unitholders' funds Total equity and liabilities
FY10 2,654.5 0.0 113.0 117.7 2,786.6 59.1 833.6 956.5 1,656.7 2,786.6
FY11 2,709.7 0.0 108.0 110.8 2,839.1 73.6 866.1 988.1 1,677.5 2,839.1
FY12F 2,733.3 0.0 81.3 86.7 2,838.9 67.7 853.0 970.7 1,694.8 2,838.9
FY13F 2,756.9 0.0 75.5 81.2 2,857.3 69.0 853.0 972.8 1,711.1 2,857.3
Cash flow statement Year Ended 31 Dec (S$ m) Total return Adjustments Operating income before working cap chgs Change in working capital Cash generated from operating activities Cashflow from investing activities Cashflow from financing activities Change in cash Cash at beginning of period Cash at end of period
FY10 153.4 -38.5 114.8 4.3 119.1 -410.0 107.1 -183.8 297.9 113.0
FY11 109.6 17.0 126.6 5.2 131.8 -17.1 -121.2 -6.5 113.0 108.0
FY12F 110.4 20.2 130.6 -8.4 122.2 -9.9 -139.0 -26.7 108.0 81.3
FY13F 115.3 20.2 135.5 -0.8 134.7 -9.8 -130.7 -5.8 81.3 75.5
Key rates & ratios DPU per share (S cents) NAV per share (S cents) PER (x) P/NAV (x) NPI margin (%) Net income margin (%) Gearing (%) DPU yield (%) ROE (%) ROA (%) Sources: Company, OIR forecasts
FY10 3.9 85.3 10.0 0.9 78.7 50.9 29.9 5.2 9.3 5.9
FY11 4.1 86.3 15.3 0.9 79.7 51.4 30.5 5.5 6.3 3.7
FY12F 4.4 87.2 13.6 0.9 80.0 52.6 30.0 5.8 6.3 3.8
FY13F 4.6 88.1 13.0 0.9 80.0 53.4 29.9 6.2 6.6 3.9
Singapore | Financials
UOB | BUY
REGIONAL STRATEGIES SHOWING RESULTS

Regional cross-sell opportunities Disciplined cost management Attractive valuations; still a BUY
BUY (maintain)
Analysts Carmen Lee (Lead) +65 6531 9802 carmen@ocbc-research.com Carey Wong +65 6531 9808 carey@ocbc-research.com Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder Relative total return Company (%) STI-adjusted (%) Price performance chart
Shar e Pr i ce (S$ ) 23.27 21.40
`
S$21.30 S$0.60 S$19.74 11%
Regional strategies are bearing fruits with strong growth UOB was able to generate higher growth rate from its regional countries, with revenue growth of 20.4% in 9M12 versus 13.8% for its Singapore operation. While total income increased, operating expenses rose at a slower pace. We believe that the group will continue to exercise disciplined cost management, and any increases will be a result of business units growth. In addition, we continue to see the group strengthening its balance sheet. In terms of funding, it has raised more than US$800m in senior notes and S$1.2b in subordinated notes in 2012. It has earlier outlined its plan to grow its regional corporate banking business, to attain about 50% of its corporate banking profit contribution from overseas by 2015, and this strategy is currently in place as the ratio is already at about 40% in 1H12. Other strategies include building on its transactional banking and tapping on regional affluence to grow its wealth business. Prudent management ideal to take on any challenges ahead While most economies are poised to enjoy better prospects in 2013, uncertainty remains and could be derailed by any slowdown in the pace of recovery. Overall, we expect interest margin to stay flat from 2012 into 2013, loans growth to be in the high single-digit level, but provisions should come off with better economic growth and corporate activities. Cost management remains critical, and its comparatively low cost-to-income ratio of about 41% is not excessive. We believe UOB will continue to tap on more cross-sell opportunities in the region for its units, including wholesale and wealth space. The improved capital adequacy ratios also place UOB in a stronger position as it enters into 2013 with more vigorous regulatory requirements ahead. Still a BUY; fair value estimate of S$21.30 Management has indicated that the retail portion of its fee and commission income should still remain healthy and could benefit from growth in investment related products from around the region. At current price, valuations are not excessive and a re-rating could take place once earnings outlook improves for the region. We are retaining our BUY rating and fair value estimate of S$21.30.
Key financial highlights Year Ended Dec 31 (S$m) Interest Income Interest Expense Net Interest Income Net profits EPS (S$) Cons. EPS (S cts) Net interest income growth (%) Non-interest income growth (%) Dividend yield (%) Cost-to-income (%) FY10 4,994.0 1,462.0 3,532.0 2,695.0 1.7 na -3.9 30.9 3.5 38.9 FY11 5,641.0 1,963.0 3,678.0 2,327.0 1.5 na 4.1 -10.9 3.0 43.0 FY12F 6,196.0 2,275.5 3,920.5 2,743.1 1.7 1.7 6.6 27.2 3.0 42.1 FY13F 6,493.4 2,403.5 4,089.9 2,909.7 1.8 1.7 4.3 5.3 3.0 42.7
S$30,951 / USD25,347 S$37 / USD30 2.1 15.01 - 20.23 92.1 1,574.3 SGX UOB SP UOBH.SI U11 Financials Financials Wee Inv - 7.6% 1m 8 3 3m 1 -3 12m 32 11
Index Level 4000 3660 3320 2980 2640 2300 Mar -12 Jun-12 Sep-12 Dec-12
19.54 17.68 15.82 13.96 Dec-11
Fair Value
UOB SP
FSSTI
Company
MITA No. 035/06/2012
Income statement Year Ended Dec 31 (S$m) Interest Income Interest Expense Net Interest Income Non-interest Income Fee & Com Income Staff Costs Other Operating Expenses Impairment Pretax profits Net profits
FY10 4,994.0 1,462.0 3,532.0 2,268.0 1,163.0 -1,242.0 -1,016.0 -474.0 3,196.0 2,695.0
FY11 5,641.0 1,963.0 3,678.0 2,020.0 1,318.0 -1,403.0 -1,047.0 -523.0 2,808.0 2,327.0
FY12F 6,196.0 2,275.5 3,920.5 2,568.6 1,489.0 -1,558.0 -1,175.0 -446.0 3,391.1 2,743.1
FY13F 6,493.4 2,403.5 4,089.9 2,705.5 1,632.8 -1,691.5 -1,212.9 -384.0 3,591.6 2,909.7
Balance sheet As at Dec 31 (S$m) Share capital Revenue & other reserves Shareholders' fund Deposits and other accounts Other liabilities Total liabilities Cash and balances Loans & advances Other assets Total assets
FY10 4,685.0 16,788.6 21,653.6 174,161.6 10,412.0 192,124.6 30,743.0 112,440.2 9,132.0 213,778.2
FY11 5,253.0 17,714.0 23,144.0 189,210.0 11,087.0 213,813.0 26,786.4 141,191.4 10,157.0 236,957.0
FY12F 5,266.5 19,512.9 25,051.9 206,238.9 11,974.0 231,815.4 27,697.1 158,134.4 10,512.5 256,867.3
FY13F 5,266.5 21,478.5 27,039.1 222,738.0 12,931.9 249,345.0 28,638.8 175,529.1 10,880.4 276,384.2
Cash flow statement Year Ended Dec 31 (S$m) Pretax profits Depreciation Others Changes in working capital Net cash from operating activities Net cash in investing activities Cash flow from financing activities Change in cash Beg cash Cash at end of year
FY10 3,542.0 137.0 -361.0 10,895.0 10,407.0 489.0 -181.7 10,598.3 16,544.3 27,142.6
FY11 3,248.0 116.0 16.0 -8,960.0 -9,561.0 -17.0 4,863.0 -4,748.0 27,142.6 22,394.6
FY12F 3,756.1 116.0 -446.0 3,827.4 3,197.4 -162.1 -215.2 2,467.2 22,394.6 24,861.8
FY13F 3,891.0 116.0 0.0 3,146.2 2,485.4 -167.8 -1,048.2 919.4 24,861.8 25,781.2
Key rates & ratios EPS (S$) NAV per share (S$) Net interest income growth (%) Non-interest income growth (%) Interest Inc / Total Inc (%) Cost-to-income (%) PER (x) Price/NAV (x) Dividend yield (%) ROE (%) Sources: Company, OIR forecasts
FY10 1.7 11.9 -3.9 30.9 60.9 38.9 11.4 1.7 3.5 13.3
FY11 1.5 13.2 4.1 -10.9 64.5 43.0 13.2 1.5 3.0 10.5
FY12F 1.7 14.2 6.6 27.2 60.4 42.1 11.3 1.4 3.0 11.5
FY13F 1.8 15.5 4.3 5.3 60.2 42.7 10.7 1.3 3.0 11.3
Singapore | Electronics Manufacturing Services
VENTURE CORP | BUY

TOP TECH SECTOR PICK FOR 2013

Strong financial position amid uncertainties FY13F dividend yield attractive at 7.0% Undemanding valuations, maintain BUY
BUY (maintain)
FY12 a challenging year, but financial position remains strong 2012 has been a challenging year for Venture Corporation (VMS) and the tech sector in general. While previous expectations of a stronger 2H are unlikely to materialise in FY12 given the continued macroeconomic uncertainties, we remain positive on VMSs healthy financial position and competitive strengths vis--vis its peers. The group had a net cash position of S$264.4m as at 30 Sep 2012, while S$86.6m of free cashflows were also generated for 9M12. Although VMS has plans to complete the purchase of a flatted factory building for S$38m in FY13, this would be funded by internal resources and we do not foresee an impact to our 55 S cents FY13 dividend forecast given VMSs strong cash position. VMS also has a diversified customer base across five broad business segments and the group manufactures more than 5,000 different products. It has continuously strived to scale up the technological value chain via its design and engineering capabilities, which explains why it is able to command stronger margins than its global peers. Expect new programme ramps in FY13 We expect contribution from newly acquired customers and new programme ramps (partly due to product refresh cycle) to provide an uplift to VMSs margins and earnings in FY13, as product launches typically offer an opening window of opportunity for higher margins to be captured. This includes certain industrial, networking and communications, test and measurement and life sciences products. BUY for the yield and undemanding valuations Current valuations for VMS are undemanding, in our opinion, with the stock trading at 12.9x FY13F PER, or approximately half a standard deviation below its 5-year average forward PER. We retain our forecasts and reiterate our BUY rating and S$9.22 fair value estimate, still pegged to 15x FY13F EPS. Prospective FY13F dividend yield is attractive at 7.0%, buttressed by its sustainable free cashflow generating ability. We recommend VMS as our top tech sector pick for 2013. Key risks to our estimates include a significant deterioration in the macroeconomic outlook and slower-than-expected ramp up in new programmes.
Key financial highlights Year Ended Dec 31 (S$m) Revenue EBITDA Operating Profit PATMI EPS (S cents) Cons. EPS (S cents) PER (x) EV/EBITDA (x) Dividend Yield (%) ROE (%) FY10 2,675.8 241.1 188.8 188.1 68.6 na 11.5 8.0 7.0 10.1 FY11 2,432.4 202.6 155.6 156.5 57.1 na 13.8 9.2 7.0 8.4 FY12F 2,428.1 178.5 130.2 136.6 49.8 52.4 15.9 10.5 7.0 7.3 FY13F 2,624.8 213.9 168.4 168.7 61.5 62.4 12.9 8.8 7.0 9.1
Analysts Wong Teck Ching (Andy) (Lead) +65 6531 9817 andywong@ocbc-research.com Carey Wong +65 6531 9808 carey@ocbc-research.com
Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder S$2,173 / USD1,780 S$2 / USD2 0.3 5.97 - 8.9 89.9 274.3 SGX VMS SP VENM.SI V03 Information Technology EMS Aberdeen AM 23.0% 1m 2 -3 3m 0 -4 12m 32 12
Shar e Pr ice (S$ ) 10.93 9.83 8.74 7.65 6.56 5.46 Dec-11 Mar -12 Jun-12
`
Fair Value
VMS SP
FSSTI
Company
MICA (P) 035/06/2012
Income statement Year Ended Dec 31 (S$m) Revenue EBITDA Depreciation & Amortisation Operating Profit Net Interest Associates Pre-tax Profit Tax Non-controlling Interest PATMI
FY10 2,675.8 241.1 -52.3 188.8 0.3 1.3 190.4 -2.1 0.2 188.1
FY11 2,432.4 202.6 -47.1 155.6 0.3 1.9 157.8 -1.3 -0.1 156.5
FY12F 2,428.1 178.5 -48.3 130.2 3.0 4.9 138.1 -1.4 0.1 136.6
FY13F 2,624.8 213.9 -45.5 168.4 0.8 2.1 171.3 -2.6 0.1 168.7
Balance sheet As at Dec 31 (S$m) Cash Other Current Assets Property, Plant & Equipment Other Non-current Assets Total Assets Current Liabilities less Debt Total Debt Total Liabilities Shareholders Equity Total Equity and Liabilities
FY10 441.7 1,060.2 145.0 898.6 2,545.4 463.9 203.2 687.8 1,854.6 2,545.4
FY11 513.2 1,019.1 143.9 879.3 2,555.4 463.1 204.1 684.7 1,867.6 2,555.4
FY12F 485.6 1,021.6 125.6 884.1 2,517.0 459.3 183.7 660.5 1,853.3 2,517.0
FY13F 456.7 1,103.1 110.2 886.2 2,556.2 499.0 165.3 681.8 1,871.0 2,556.2
Cash flow statement Year Ended Dec 31 (S$m) Profit Before Tax Working Capital Changes Net Cash from Operations Capex Investing Cash flow Net Debt Change Financing Cash Flow Net Cash Flow Beginning Cash Balance Ending Cash Balance
FY10 190.4 -184.6 68.3 -26.3 -25.5 -14.0 -151.0 -108.2 567.1 441.7
FY11 157.8 38.3 248.6 -29.0 -31.8 0.8 -148.9 68.0 441.7 513.2
FY12F 138.1 -6.4 168.9 -30.0 -25.1 -20.4 -171.3 -27.6 513.2 485.6
FY13F 171.3 -41.7 167.9 -30.0 -27.6 -18.4 -169.3 -28.9 485.6 456.7
Key rates & ratios EPS (S cents) NTA/share (S cents) PER (x) Price/NTA (x) EV/EBITDA (x) Dividend Yield (%) ROA (%) ROE (%) Net Gearing (%) PE to Growth (x) Sources: Company, OIR forecasts
FY10 68.6 399.7 11.5 2.0 8.0 7.0 7.1 10.1 Net Cash 0.4
FY11 57.1 412.3 13.8 1.9 9.2 7.0 6.1 8.4 Net Cash -0.8
FY12F 49.8 407.1 15.9 1.9 10.5 7.0 5.4 7.3 Net Cash -1.2
FY13F 61.5 413.6 12.9 1.9 8.8 7.0 6.6 9.1 Net Cash 0.5
SHAREHOLDING DECLARATION:
The analyst/analysts who wrote this report hold NIL shares in the above securities.
DISCLAIMER FOR RESEARCH REPORT
This report is solely for information and general circulation only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our written consent. This report should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities mentioned herein. Whilst we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness, and you should not act on it without first independently verifying its contents. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. You may wish to seek advice from a financial adviser regarding the suitability of the securities mentioned herein, taking into consideration your investment objectives, financial situation or particular needs, before making a commitment to invest in the securities. OCBC Investment Research Pte Ltd, OCBC Securities Pte Ltd and their respective connected and associated corporations together with their respective directors and officers may have or take positions in the securities mentioned in this report and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.
Privileged / confidential information may be contained in this document. If you are not the addressee indicated in this document (or responsible for delivery of this message to such person), you may not copy or deliver this message to anyone. Opinions, conclusions and other information in this document that do not relate to the official business of OCBC Investment Research Pte Ltd, OCBC Securities Pte Ltd and their respective connected and associated corporations shall not be understood as neither given nor endorsed.
RATINGS AND RECOMMENDATIONS:
- OCBC Investment Researchs (OIR) technical comments and recommendations are short-term and trading oriented. - OIRs fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon. - As a guide, OIRs BUY rating indicates a total return in excess of 10% given the current price; a HOLD trading indicates total returns within +/-10% range; a SELL rating indicates total returns less than -10%. - For companies with less than S$150m market capitalization, OIRs BUY rating indicates a total return in excess of 30%; a HOLD trading indicates total returns within a +/-30% range; a SELL rating indicates total returns less than -30%.
Co.Reg.no.: 198301152E
Carmen Lee Head of Research For OCBC Investment Research Pte Ltd
Published by OCBC Investment Research Pte Ltd
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Asia Pacific Equity Research | Singapore

A GOOD YEAR FOR EQUITIES

Please refer to important disclosures at the back of this document.

MICA (P) 032/06/2012

OCBC Investment Research Singapore Equities

OCBC Investment Research Singapore Equities

Stock Picks / Company Reports

OCBC Investment Research Singapore Equities

OIR 2013 Stock Picks

YTD* (%) -14 39 75 23 30 117 18 10 33 22 30 27

10 Sembcorp Marine 11 United Overseas Bank 12 Venture Corp

Source: OIR * YTD: 2012

OCBC Investment Research Singapore Equities

Section B: Investment Highlights

Exhibit B1: STI & Daily Volume

Index STI Index

1,800 1,600 1,400 1,200 1,000

OCBC Investment Research Singapore Equities

Exhibit B2: Singapore Sectors - Performance

OCBC Investment Research Singapore Equities

Exhibit B3: Key Markets YTD Performance

OCBC Investment Research Singapore Equities

Exhibit B4: Key Economies GDP Forecast Economies

Singapore Malaysia Indonesia Philippines Thailand

-0.9 -1.5 4.6 1.1 -2.3

14.9 7.2 6.2 7.7 7.8

5.0 5.1 6.5 3.9 0.1

2.0 5.0 6.2 5.6 5.4

3.7 4.8 6.3 5.5 4.5

4.2 5.2 6.3 5.4 4.9

China Hong Kong Taiwan South Korea Japan Source: Bloomberg

9.2 -2.5 -1.8 0.3 -5.5

10.4 6.8 10.8 6.3 4.7

9.3 4.9 4.1 3.6 -0.6

7.7 1.6 1.3 2.4 1.7

8.1 3.8 3.4 3.3 0.7

7.9 4.3 4.1 3.9 1.0

Updated on 12 Dec 2012

OCBC Investment Research Singapore Equities

Exhibit B5: Yields on US 10-Year Treasury Notes & 30-Year Bonds

US 30-Year Bonds US 10-Year Treasury Notes

Exhibit B6: S&P Volatility Index (VIX)

OCBC Investment Research Singapore Equities

Exhibit B7: US Unemployment Rate

Exhibit B8: Europes Unemployment Rate

Ireland Italy Germany

OCBC Investment Research Singapore Equities

Exhibit B9: US GDP Growth

Source: Bloomberg Note: Blue line refers to consensus forecast.

Exhibit B10: Eurozone GDP Growth

Source: Bloomberg Note: Blue line refers to consensus forecast.

OCBC Investment Research Singapore Equities

Exhibit B11: Europes Net Debt As % of GDP: 2007-2011 vs 2013F-2014F

Source: IMF, Bloomberg

Exhibit B12: US Housing Prices

Fed Balance Sheet (LHS)

S&P/Case-Shiller Composite-10 Home Px Index (RHS)

OCBC Investment Research Singapore Equities

Exhibit B13: US Retail Sales

Exhibit B14: US Consumer Confidence Index

OCBC Investment Research Singapore Equities

Exhibit B15: S&P 500 - Earnings Growth

Exhibit B16: STI Earnings Growth

OCBC Investment Research Singapore Equities