daiwa !! to · [analyst alan kam] taiwan mobile held its fy11 results conference call on 1/19....

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Pan Asia: Asia Hotels – Time to check out? HK/China: Hong Kong Property Sector – Positive undercurrents on the way

Korea: Korea Refinery Sector – INITIATE with a positive view Taiwan: Taiwan Mobile (3045 TT) – Up to 8% Yield

ASEAN: Manila Water (MWC PM) – Rate adjustments to help India: India Power T&D – Channel checks provide no reason to turn bullish

Japan: Nippon Electric Glass (5214 JP) – Short-term recovery expected to emerge in 1Q FY12

Pan Asia: Asia Hotels – Time to check out? [Analyst Gavin Ho] After a year of strong operating performance gone by, the Asia Hotel sector is now expected to take a breather. Daiwa analyst Gavin Ho today downgrades the sector from a Positive to Neutral stance as RevPar growth for luxury hoteliers are set to only grow by 5% in 2012e vs 15-18% in 2011. Plugging these numbers into his models, Gavin has cut his EBITDA f/casts for the sector by 9%-43% over the next 2 years though he expects Shangri-La (Outperform, TP HK$18.06) to stand out given its superior positioning in China and the growth of domestic travel in that market. On valuations, the sector trades on a 1yr forward 12.5x EV/EBITDA, broadly in-line with its 10 yr average but lacks the catalysts to outperform meaningfully over the next 6 months. Specifically, we downgrade Hong Kong and Shanghai Hotels and Mandarin Oriental to Hold (previously Outperform). Tactically, investors should use the recent ~20% bounce in share prices of all these operators to trim exposures in the sector. http://asiaresearch.daiwacm.com/eg/cgi-bin/files/AsiaHotelsSector120127.pdf#page=1 HK/China: Hong Kong Property Sector – Positive undercurrents on the way [Analyst Jonas Kan] Our HK property analyst believes that amidst the uncertainties in the physical property market in 2012, there lie hidden opportunities. We see three positive signs that support our positive sector rating. 1) Some of the wealthy and long-term investors appear to have returned to the residential market to look for quality units at reasonable prices. 2) Demand has just been suppressed but not vanished as people look for a better entry level. Pent up demand is building up and there could be surprise on the upside. 3) Bernake’s latest comments about no rate hikes until 2014 should boost investing appetite in both property stocks and the physical market. Moreover, we believe government policy overhang could subside and the government may consider relaxing some of its previous measures such as that on LTV. Even after the recent rally, share prices are still overdiscounted as the disconnection between the physical market and stock prices are still large. Valuation still looks cheap in terms of both P/NAV and PBR. Our top picks are SHK [16 HK] with price target of HK$144.70 based on 1.21x PBR, followed by Sino Land [83 HK] with price target of HK$15.93 based on 1.04x PBR. http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20120127hk_HKPropertySector.pdf#page=1 Korea: Korea Refinery Sector – INITIATE with a positive view [Analyst Jihye Choi] The stock prices of major local refinery companies have corrected by 35% since their peak in 2011, putting the sector on just 7.5x 2012 earnings. Daiwa Analyst, Jihye Choi believes that the sector is oversold, and current stock price levels offer a good entry point. We expect refinery margins to remain above the past 8-yr avg on back of: 1) limited downside risk to the crude oil px (eg, Iran sanctions); 2) firm PX-naphta spread outlook; and 3) limited net supply additions through facility shutdown in developed countries. The risks to our positive long term view on sector is if global crude prices are much weaker than expected and Korean government regulatory issues. Top pick is SK Innovation (096770 KS, BUY, TP: W 220,000), as the sole oil E&P player in Korea, cheap valuation and entry into new businesses such as car batteries. Jihye also maintains her positive view on S-Oil (010950 KS, O/PF, TP: W 135,000) and

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GS Holdings (078930 KS, O/PF, TP: W 64,000). http://asiaresearch.daiwacm.com/eg/cgi-bin/files/KoreaRefinerySector120127.pdf#page=1 Taiwan: Taiwan Mobile (3045 TT, m/c US$1 bn, Outperform) – Up to 8% Yield [Analyst Alan Kam] Taiwan Mobile held its FY11 results conference call on 1/19. Generally 4Q11 earnings were in-line. Smartphone accounts for 64% of total handset sales for 4Q11 (from 50% in 3Q11), driving smartphone penetration to 21% at end of 2011, better than its target of 20%. TWM will introduce more mid-to-low smartphones in 2012 to drive the penetration further. Alan expects mid-to-low end smartphone to account for >60% of total handset sales from 50% in 2011. Management expects the earnings impact of iPhone 4S (launched in early Dec) will continue to weigh on profitability in 1Q12. Taiwan Mobile guided 2012 with 1) 25% YoY in revenue driven by mobile data, device sales and Momo contribution; 2) 5% YoY growth in EBITDA with EBITDA margin to -5.3ppt as Momo has lower margin; 3) 13.6% YoY in EPS due to capital reduction (~NT$1 incremental EPS). Total cash yield would be 5-6% w/o a capital reduction and 7-8% with capital reduction. ASEAN: Manila Water (MWC PM, m/c US$980 mill, BUY) – Rate adjustments to help [Analyst Alvin Arogo] We believe there is a justifiable case for the regulator to increase the annual rebasing rate for MWC as the company is currently generating negative returns on its operations and investments. This should be corrected through a rebasing-rate adjustment to allow the company to generate positive returns. MWC is scheduled to submit a rebasing-rate adjustment proposal (for the rebasing period spanning 1 January 2013 to 31 December 2017) on or before April 2012. The regulator will review and discuss the proposal with the company until December 2012. A new rebasing rate, if any, would probably be implemented on January 2013. We incorporate an upward adjustment of the current rate to P1.5/m3 for the period 2013-17E resulting in average revenue growth of 10.9% over the period. On our estimates, the stock is pricing in no change in its rebasing rate for 2013-17E (P1.0/m3), whereas we expect an upward rebasing adjustment (P1.5/m3) that results in our new target price of P26.60. MWC is trading currently at a 2012E PBR of 1.7x (based on our BVPS forecast), slightly below its past-five-year average multiple of 1.8x. Our new target price of P26.60 (assuming a rebasing-rate increase to P1.5/m3) would imply a 2012E PBR of 2.1x, slightly below the stock’s past-five-year average+1SD PBR of 2.2x. Even if status quo is maintained, Alvin’s fair value of P22.00/share suggests slight upside of ~5% from current levels. http://asiaresearch.daiwacm.com/eg/cgi-bin/files/ManilaWater120127.pdf#page=1 India: India Power T&D – Channel checks provide no reason to turn bullish [Analyst Saurabh Mehta] Having recently met with number of T&D equipment cos, Saurabh finds it hard to turn bullish and believes sector prospects remain dim due to slowdown in orders and greater pricing pressure leading to a fall in sector ROEs. Strong PGCIL ordering so far this year (~Rs111bn, 30% in sub-stations) shouldn't be seen as an indicator of the overall trend as PGCIL only accounts for 20-25% of total substation orders with the rest coming in from SEBs/pvt utilities etc, where the outlook remains grim. Structural issues of SEB funding & coal shortages have led to a decline in generation capex which is a disincentive for T&D capex and reduces the visibility beyond 2-3 years. Further, with the implementation of competitive bidding for transmission projects, there is no visibility on orders by PGCIL in the 13th Five-Year Plan (2017-22). In the interim, Saurabh expects substation orders to peak this year (FY12) and at best show zero growth over FY13-15. His channel checks suggest recent easing in competition from Chinese/Korean players to be short-lived and highlights the seriousness of Chinese players to set up transformer mfg capacity in India. ABB (ABB IN) remains our top sell in the sector. http://asiaresearch.daiwacm.com/eg/cgi-bin/files/IndiaT&DSector120127.pdf#page=1

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Japan: Nippon Electric Glass (5214 JP, m/c US$4.5 bn, Neutral) – Short-term recovery expected to emerge in 1Q FY12 [Analyst Ando]Earnings continued to decline in 3Q. However, 3Q shipment volume of LCD glass appears to have recovered 7-8% QoQ and Ando estimates a further 6-7% QoQ improvement in 4Q. The decline in ASPs has moderated from a 7-8% drop in 2Q to a 5-6% decline in 3Q. Ando expects earnings to deteriorate further in 4Q on 1) a continued decline in LCD glass prices (down 7-10% q/q), 2) increasing depreciation costs (up over Y2b q/q) & 3) costs related to production capacity expansion. Profitability should recover short-term starting 1Q FY12 when the cost burden is reduced, but from a medium term perspective, the earnings environment is likely to remain harsh. Ando does not find the stock undervalued trading at FY12 P/E of 12.3x. http://www2.us.daiwacm.com/jpe/report/English\/2012/20120127_jp_5214.pdf

Taiwan Corporate Day Date in SG: Thu Feb 16th Venue: Daiwa SG Office (Level 26 DBS Bldg.) Date in HK: Fri Feb 17th Venue: Daiwa HK Office (26/F One Pacific Place) Taiwan Banks 2892TT First Financial (presenter: Mr Ming Ren CHIEN/CEO) 2886TT Mega Financial (presenter: Mr Jack LIN/IR Mgr) 2881TT Fubon Financial (presenter: Ms Amanda WANG/First VP) * HK ONLY Taiwan Electronics 6176TT Radiant Opto-Electronics (presenter: Mr Vincent Chang/Sp. Asst to Chairman) 3149TT G-Tech Optoelectronics (presenter: Mr Sunny LIN/VP of Financial Civ.)

NEW!

3 more India companies (GITG, GRASIM, GPPV) and 1

more Korea company (042660 KS)

As of today we have total of 309 corporates.

Kirin Holdings (2503 JP) and Nissin Foods Holdings

(2897 JP) still need more demand!

Analysts Marketing

<HK> Feb 6-7 - SY Chung – Trading Places (HK)

<SG> Feb 8-9 – SY Chung – Trading Places (SG) NEW Feb 21-22 – Justin Lau – Custom Product (SG)

DAIWA Dialogues This is a sales note and not a research report

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Asia Pacific Sales Directory

Hong Kong

Regional Head of Equities Sales & Sales Trading Shoichi Saito (852) 2848 4051 shoichi.saito@hk.daiwacm.com

Regional Head of Asian Equities Sales Ester Li (852) 2532 4360 ester.li@hk.daiwacm.com

Asian Equities Sales Andrew Douglas (852) 2532 4130 andrew.douglas@hk.daiwacm.com

Asian Equities Sales Daisuke Yamaguchi (852) 2848 4092 daisuke.yamaguchi@hk.daiwacm.com

Asian Equities Sales Greg Mclaughlin (852) 2532 4121 greg.mclaughlin@hk.daiwacm.com

Asian Equities Sales Hiroyuki Goto (852) 2848 4009 hiroyuki.goto@hk.daiwacm.com

Asian Equities Sales Kanako Ito (852) 2848 4450 kanako.ito@hk.daiwacm.com

Asian Equities Sales Ravi Narain (852) 2532 4376 ravi.narain@hk.daiwacm.com

Asian Equities Sales Vishal Bhammer (852) 2848 4444 vishal.bhammer@hk.daiwacm.com

Asian Equities Sales William Han (852) 2532 4375 william.han@hk.daiwacm.com

Asian Equities Sales (Japan Equities) Takayuki Saito (852) 6044 2110 takayuki.saito@hk.daiwacm.com

Asian Equities Sales (Japan Equities) Yusaku Itasaka (852) 2848 4054 yusaku.itasaka@hk.daiwacm.com

HK/China Sales Bonnie Arai (852) 2532 4393 bonnie.arai@hk.daiwacm.com

HK/China Sales Esther Wong (852) 2848 4086 esther.wong@hk.daiwacm.com

HK/China Sales Leah Liu (852) 2532 4377 leah.liu@hk.daiwacm.com

Singapore

Head of Asian Equities Sales (Singapore) Jean Ang (65) 6329 2161 jean.ang@sg.daiwacm.com

Asian Equities Sales Evageline Cheong (65) 6321 3059 evangeline.cheong@sg.daiwacm.com

Asian Equities Sales Gillian Lim (65) 6321 3032 gillian.lim@sg.daiwacm.com

Asian Equities Sales Jeffrey Cahyadi (65) 6329 2111 jeffrey.cahyadi@sg.daiwacm.com

ASEAN Equities Sales Lunar Lee (65) 6499 6510 lunar.lee@sg.daiwacm.com

ASEAN Equities Sales Tadashi Ishii (65) 6329 2131 tadashi.ishii@sg.daiwacm.com

India Specialist Navneet Babbar (65) 6329 2166 navneet.babbar@sg.daiwacm.com

Korea Specialist Michael Greenberg (65) 6499 6511 michael.greenberg@sg.daiwacm.com

Japan Specialist Takahito Otake (65) 6329 2192 takahito.otake@sg.daiwacm.com

Japan Specialist Takeo Kubota (65) 6321 3051 takeo.kubota@sg.daiwacm.com

Taiwan

Head of Equity (Taiwan) William Chen (886) 2 8758 6171 william.chen@daiwacm-cathay.com.tw

Taiwan Specialist David Huang (886) 2 2345 3635 david.huang@daiwacm-cathay.com.tw

Taiwan Specialist Sunny Hsiao (886) 2 8789 5100 sunny.hsiao@daiwacm-cathay.com.tw

Taiwan Specialist Tomoko Suto (886) 2 8758 6180 tomoko.suto@daiwacm-cathay.com.tw

Korea

Head of Equities (Korea) K Y Nam 82 (2) 787 9861 ky.nam@kr.daiwacm.com

Head of Equities Sales (Korea) Joe Lee 82 (2) 787 9175 joelee@kr.daiwacm.com

Korea Specialist Jun Koh 82 (2) 787 9125 jun.koh@kr.daiwacm.com

India

Head of Equities (India) Sriram Iyer (91) 22 6622 1040 ram.iyer@in.daiwacm.com

India Specialist Ashish Kalra (91) 22 6622 1055 ashish.kalra@in.daiwacm.com

India Specialist Deepa Arora (91) 22 6622 1000 deepa.arora@in.daiwacm.com

India Specialist Kentaro Konishi (91) 22 6622 5678 kentaro.konishi@in.daiwacm.com

Australia

Australian Sales Craig Robertson 61 (3) 9916 1303 craig.robertson@au.daiwacm.com

Philippines

Head of Sales (Philippines) Leon Jose Katigbak (632) 750 4411 leo.katigbak@dbpdaiwacm.com.ph

Philippines Specialist Racquel Panaligan (632) 848 0193 racquel.panaligan@dbpdaiwacm.com.ph

Philippines Specialist Rosel Ponce (632) 750 4417 rosel.ponce@dbpdaiwacm.com.ph

UK

Head of Equities, Europe & the Middle East Meurig Williams 44(0)20-7597-7600 Meurig.Williams@uk.daiwacm.com

Head of Asian Equity Sales Ali Khan 44(0)20-7597-7502 Ali.Khan@uk.daiwacm.com

Asian Equity Sales Andrea Doubtfire 44(0)20-7597-7501 Andrea.Doubtfire@uk.daiwacm.com

Asian Equity Sales Christoph Osterman 44(0)20-7597-7506 Christoph.Ostermann@uk.daiwacm.com

Asian Equity Sales Madiha Alam 44(0)20-7597-7509 Madiha.Alam@uk.daiwacm.com

Asian Equity Sales Mark Watson 44(0)20-7597-7604 Mark.Watson@uk.daiwacm.com

Asian Equity Sales Natsuko Matsumura 44(0)20-7597-7504 Natsuko.Matsumura@uk.daiwacm.com

DAIWA Dialogues This is a sales note and not a research report

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US

Deputy Head of Equity, Head of Sales Woon Lim (1) 212 612 6866 woon.lim@us.daiwacm.com

Asian Equity Sales Abhijit Kukreja (1) 212 612 8486 abhijit.kukreja@us.daiwacm.com

Asian Equity Sales Arfa Ahmed (1) 212 612 488 arfa.ahmed@us.daiwacm.com

Asian Equity Sales Ningguo Yang (1) 212 612 6431 ningguo.yang@us.daiwacm.com

Asian Equity Sales Peter Wolff (1) 212 612 6438 peter.wolff@us.daiwacm.com

Asian Equity Sales Soongho (Sam) Hahn (1) 212 612 6488 sam.hahn@us.daiwacm.com

Asian Equity Sales Syed Wajahat Ali (1) 212 612 6359 syed.ali@us.daiwacm.com

Asian Equity Sales Tiffanie Ho (1) 212 612 6275 tiffanie.ho@us.daiwacm.com

Asian & JP Equity Sales Ayami Miyoshi (1) 212 612 6929 ayami.miyoshi@us.daiwacm.com

Asian & JP Equity Sales Michael Denning (1) 212 612 6928 michael.denning@us.daiwacm.com

Asian & JP Equity Sales Steve Zelko (1) 212 612 6355 steve.zelko@us.daiwacm.com

Asian Equity Sales Erik Grossman (1) 415 955 8100 erik.grossman@us.daiwacm.com

Asian Equity Sales Joshua Evans (1) 415 955 8100 joshua.evans@us.daiwacm.com * This material has been compiled by Daiwa Capital Markets equity sales and marketing personnel from various publicly available sources, including newspapers and news services. This information has not been reviewed or approved by or in conjunction with Daiwa research. It is not intended to be a comprehensive summary of newsworthy business or economic events nor is it a substitute for Daiwa fundamental research, and it may not be relied upon as such. The information is not intended to reflect the views of Daiwa or any of its affiliates and the accuracy of the information is not guaranteed. The information does not constitute an offer, solicitation or recommendation for the purchase or sale of any securities or other financial instruments nor does the information constitute advice or an expression of our view as to whether a particular security or financial instrument is appropriate for you and meets your financial objectives. Daiwa and/or its affiliates may make markets, effect or have effected a transaction for their own account in any securities mentioned herein or in related investments and also may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned herein. *