analysts recommend

7/29/2019 Analysts Recommend

1/54Please refer to important disclosures at the back of this document. MICA (P) 032/06/2012

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.

Asia Pacific Equity Research | Singapore

14 Dec 2012STRATEGY 2013


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OCBC Investment ResearchSingapore Equities

3

Section A: Investment Summary

Time to be optimistic?Despite gains for most of the key indices in 2012, underlying strength, interms of trading volume, appears lacking in the past one year. Is therestill 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 thatthe worst is likely over. This is generally true, especially in terms ofrecovery in economic growth numbers and the recent positive PurchasingManager Index (PMI) number for China. Based on most economicprojections, there is a consensus view that 2013 is likely to be a betteryear than 2012. In terms of corporate earnings, most are also expectingbetter earnings growth next year and a recovery from 2012. For the S&P500, and based on consensus data from Bloomberg, earnings growth isprojected 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 StraitsTimes Index (STI), which is likely to grow 6% in 2013 and 9% in 2014versus a decline of 18% in 2012.

The worst is likely overWhile equities have rallied, we believe that the gains are not widespreadas funds and investors still showed a clear preference for safer, higheryielding assets or physical properties and gold in 2012. This is especiallythe case in Singapore, where trading volume remains anaemic due to alack of investor confidence. However, moving into 2013, we believe thatthe low interest rate environment and with increasingly higher propertyprices, equity could come back into focus largely because of projectedearnings growth and still attractive valuations. The STI is trading at only14.6 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 ouryear-end Strategy report dated 16 Dec 2011), namelyTelecommunications, Oil & Gas, Healthcare, REITs and Banks. Most ofthese sectors have outperformed the market or the benchmark StraitsTimes 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 only9%, it is still a fairly decent absolute gain for the year.

Moving into 2013, we are sticking with our strategy of investing incompanies 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.


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2

TABLE OF CONTENTS

Section A. Investment Summary 3

Section B. Investment Highlights 5

Section C. Singapore Economy 21

Section D. Stock Picks / Company Reports 29

Section E. Disclaimer 54


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Px (S$) on Fair Upside YTD*

12-Dec-12 Value (%) (%)

1 Biosensors Int'l Group 1.220 1.690 39 -14 Healthcare Equip

2 City Developments 12.340 13.960 13 39 Property

3 CapitaMalls Asia 1.965 2.160 10 75 Property

4 CapitaMall Trust 2.080 2.300 11 23 REIT

5 DBS Group Hldgs 14.880 15.940 7 30 Bank

6 Ezion Hldgs 1.425 1.700 19 117 Oil & Gas

7 Keppel Corp 10.870 12.490 15 18 Oil & Gas

8 M1 /Spore 2.770 2.890 4 10 Telecom

9 Starhill Global REIT 0.750 0.840 12 33 REIT

10 Sembcorp Marine 4.540 5.840 29 22 Oil & Gas

11 United Overseas Bank 19.740 21.300 8 30 Bank

12 Venture Corp 7.900 9.220 17 27 Tech

Source: OIR

* YTD: 2012

Sector

OIR 2013 Stock Picks

Stocks


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5

Section B: Investment Highlights

Stimulus-led September and take-over related rally2012 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 themarket as the US embarked on QE3 (Quantitative Easing the thirdround). Investors ignored weak economic prospects in anticipation ofmore cheap money from central banks. In addition, rock-bottom interestrates made high-yield stocks attractive, which also explained thecontinued interest in Real Estate Investment Trusts (REITs).

The peaks were followed by troughs as stocks faltered on warnings ofbad times or poor economic numbers and weaker-than-expectedcorporate earnings. Investors lack of confidence was often cited as thereason for the lack of buying momentum.

In Singapore, it was an interesting year of several mega IPOs (includingIHH Healthcare, Ascendas Hospitality Trust and Far East Hospitality Trust)

and the protracted takeover saga for several F&B related companies (andlargely centred around Asia Pacific Breweries and Fraser & Neave). Thisspilled over to the rest of the consumer stocks, mainly the food andbeverage related companies and these outperformed the general market.In addition, privatisation exercises also boosted interest in low liquiditycounters. SC Global Developments Ltd was one such example where thepremium offered for the privatisation exercise sparked interest in otherlow liquidity companies. Overall, the Straits Times Index (STI) performedwell for the year, as investors focused on the fairly resilient localeconomy (despite the uncertainties) and several special-interestinvestments (including Yoma Strategic Holdings, which performed well,

jumping from our initialisation report price of S$0.375 on 5 Sep 2012 toa recent high of S$0.74).

Exhibit B1: STI & Daily Volume

Source: Bloomberg

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Index on YTD

12 Dec 12 % Chg Low High

Straits Times Index 3,141.6 18.7 2,607 3,145

ST Mid Cap Index 759.3 29.3 578 761

ST Small Cap Index 502.9 26.1 391 503

ST China Index 230.6 4.7 211 274

ST Real Estate Index 769.2 44.9 528 772

ST RE Hold & Dev Index 777.0 53.2 505 781

ST RE Invest Trust Index 769.7 34.2 567 784

ST Oil & Gas Index 717.5 21.2 571 775

ST Basic Materials Index 195.9 0.8 148 260

ST Industrials Index 796.1 25.2 622 804

ST Consumer Goods Index 492.0 -20.0 481 725

ST Health Care Index 1,319.7 -5.8 1,199 1,598

ST Consumer Service Index 827.3 2.8 772 872ST Telecommunicate Index 891.0 11.3 780 940

ST Utilities Index 335.6 9.6 274 392

ST Financials Index 803.0 35.5 586 805

ST Technology Index 511.9 2.7 484 599

ST Maritime Index 258.2 -3.8 242 372

Source: Bloomberg

52Wk

Exhibit B2: Singapore Sectors - Performance

The irony economic growth is anaemic, but stocks are upWhile several key economic indicators were still weak, including thestubbornly high US unemployment numbers and the anaemic economic

growth numbers, stocks were generally up for the year. This means thatthe market has effectively priced in most of the negatives and thatlooking ahead, prospects should be better. However, we will continue towatch corporate earnings for any indications of weakness in orders,revenue or increase in operating expenses. Earnings disappointmentcould be a drag on market sentiment, albeit the likelihood is lower nowdue to post 3Q12 earnings adjustments.


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Index on YTD

12 Dec 12 % Chg Low High

Straits Times Index 3,141.6 18.7 2,607 3,145

KLCI Index 1,649.8 7.8 1,449 1,679

Jakarta Composite Index 4,337.5 13.5 3,635 4,382

SET Index 1,354.6 32.1 1,006 1,355

Philippines PSEi Index 5,819.8 33.1 4,267 5,860

Hang Seng Index 22,503.4 22.1 17,822 22,508

Taiex Index 7,690.2 8.7 6,609 8,171

Shanghai Shenzhen CSI 300 Index 2,267.8 -3.3 2,102 2,718

Kospi Index 1,975.4 8.2 1,751 2,057

Nikkei 225 9,581.5 13.3 8,239 10,255

BSE Sensex 30 Index 19,355.3 25.2 15,136 19,612

Dow Jones Indus Avg Index 13,245.5 8.4 11,735 13,662

S&P 500 Index 1,428.5 13.6 1,202 1,475Nasdaq Composite Index 3,013.8 15.7 2,518 3,197

Source: Bloomberg

Exhibit B3: Key Markets YTD Performance

52Wk

World economic growth to pick up in 2013After the lacklustre performance in 2012, most economists are expecting2013 to hold better prospects. The weak growth performance in 2012was also the lowest level since 2009. In October 2012, the InternationalMonetary Fund (IMF) has projected global growth of 3.3% and 3.6% in2012 and 2013 respectively, which were lower than its projections inApril and Jul 2012. The weakness was due to the sluggishness in mostadvanced economies. The report noted that its assumptions rest on a

few factors and one of the highlighted factors was that US policymakerswill 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, largelyfrom the advanced economies, the outlook is more positive foremerging and developing economies in 2013.


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Exhibit B4: Key Economies GDP Forecast

Economies 2009 2010 2011 2012F 2013F 2014F

Euro Area -4.4 2.0 1.4 -0.5 0.1 1.1

US -3.1 2.4 1.8 2.2 2.0 2.8

UK -4.0 1.8 0.9 -0.1 1.1 1.7

Australia 1.4 2.6 2.5 3.5 2.8 3.1

New Zealand -0.2 0.9 0.5 2.6 3.0 2.6

Singapore -0.9 14.9 5.0 2.0 3.7 4.2

Malaysia -1.5 7.2 5.1 5.0 4.8 5.2

Indonesia 4.6 6.2 6.5 6.2 6.3 6.3

Philippines 1.1 7.7 3.9 5.6 5.5 5.4

Thailand -2.3 7.8 0.1 5.4 4.5 4.9

China 9.2 10.4 9.3 7.7 8.1 7.9

Hong Kong -2.5 6.8 4.9 1.6 3.8 4.3Taiwan -1.8 10.8 4.1 1.3 3.4 4.1

South Korea 0.3 6.3 3.6 2.4 3.3 3.9

Japan -5.5 4.7 -0.6 1.7 0.7 1.0

Source: Bloomberg Updated on 12 Dec 2012

Abundance of cheap moneyDespite volatility in the markets and the uncertainty in terms ofeconomic outlook, several events stood out in 2012 including theconsecutive stimulus measures from both sides of the North AtlanticOcean which propelled equities to the years high on expectations thatmore funds would come into the market. This not only fuelled interest inequities but also led to continued strong demand for properties. Whilethe reactions to these fund injections from the advanced economies intothe system were initially positive, the inflows did not really help toimprove employment numbers, and the effect diminished with eachstimulus measure.

As a result of funds flowing into the market, the stimulus measures haveled to lower yields on government bonds (Exhibit: B5), which in turn alsoled investors to favour equities and other riskier assets (Exhibit: B3). Wehave also seen a pick-up in property prices in the US (Exhibit: B12). Theinflux of funds has led to gains for equities in a year where economicgrowth has generally weak and corporate earnings have been rising at amuch slower pace.


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

Source: Bloomberg

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Exhibit B6: S&P Volatility Index (VIX)

Source: Bloomberg

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Index

Will there be a return to the former growth levels?While the outlook remains cloudy for the near- to medium-term, themore 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 highdebts (refer to Exhibit B11), still dismal growth projections (refer toExhibit B4) and high unemployment rate (Exhibit B7 and B8), this doesnot augur well for the global economic outlook. These challenges areunlikely to be resolved speedily and will continue to be a drag onmedium- to longer-term economic growth.


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Exhibit B7: US Unemployment Rate

Source: Bloomberg

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Exhibit B8: Europes Unemployment Rate

Source: Bloomberg

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US and Europe key economies to watchThe US and Europe have traditionally been key markets for Asia but thisdependency has come off in the past few years. Nevertheless, thesemarkets are still key to Asian economic growth and the prolongedweakness in both regions has hurt growth in Asia. We note that theimpact has been fairly extensive, stretching from manufacturing to theequity markets.

While the unemployment rate in the US is coming off, it remains highand this does not augur well for the economy as US consumer spendinghas always been one of the key pillars of the economy. The loomingfiscal cliff together with the current unemployment rate is not helping thesituation as consumers rein in spending. In addition, economist datafrom US remained mixed. While some of the leading indicators andmanufacturing numbers showed improvement recently, this was negatedby increased in jobless claims and the still-high unemployment rate.


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Sentiment is also starting to come off - the latest preliminary figuresfrom the University of Michigan consumer sentiment index fell to 74.5 inDec after four months of gain since Jul 2012, and also down from 85recorded in Nov.

Despite the injected liquidity into the system, European economies stillneed huge amounts of money. From Exhibit B11, it can be seen thatEuropes net debt as a percentage of GDP is poised to grow rapidly in2013-2014, with some economies expecting to see this number hit>100% (including Italy, Greece, Portugal and Ireland). These long-termissues are unlikely to be resolved soon and are potential headwinds onthe road to recovery.

Exhibit B9: US GDP Growth

Source: Bloomberg

Note: Blue line refers to consensus forecast.

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Exhibit B10: Eurozone GDP Growth

Source: Bloomberg


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

Source: IMF, Bloomberg

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Exhibit B12: US Housing Prices

Source: Bloomberg

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US$ b Index


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Exhibit B13: US Retail Sales

Source: Bloomberg

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'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

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Exhibit B14: US Consumer Confidence Index

Source: Bloomberg

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Index

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 thetemporary reduction in the payroll tax. According to the CongressionalBudget Office, these policies will amount to about US$400 billion in taxincrease. The general view is that this will hurt consumers (who will haveto pay more in taxes) and will impact the economy. This is likely to reinin consumer spending. Corporates are unlikely to be spared, and are alsolikely to cut capital expenditure. This is already apparent as consumers,worried about the impact of this measure, has already started to cutback on spending. However, as the date approaches, we expect aresolution to this issue as the recovery is still tentative at this junctureand cannot to be derailed by tax increases.

Slowing earnings growthWhile the US economy is faltering, US stock indices touched new highs in2012. The irony is, bad news have been touted as good news because of

the stimulus measures and the additional funds, which have in turn givenequities a strong boost. Since the start of the year, the S&P 500 has


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already appreciated 17.2% to the years high in September, while theDow 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 earningsgrowth is projected to slip off from 17% in 2011 to 6% in 2012 andrecover to 11% in 2013. On a PER basis, valuations are still notdemanding at 13.8x 2012 earnings and 12.4x 2013 earnings.

In Singapore, earnings growth for the STI, based on consensusestimates from Bloomberg, is projected at -18% for 2012, beforerecovering to +6% in 2013 and then +9% in 2014. Similarly, valuationsare inexpensive at 14.6x for 2012 earnings and 13.7x for 2013 earnings.

Period EPS Growth % PER

2010 83.9 17.0

2011 98.3 17 14.6

2012F 103.8 6 13.8

2013F 114.8 11 12.4

2014F 127.6 11 11.2

Source: Bloomberg As at 12 Dec 2012

Exhibit B15: S&P 500 - Earnings Growth

S&P 500: 1,428.48

Period EPS Growth % PER

2010 293.7 10.7

2011 262.1 -11 12.0

2012F 215.0 -18 14.6

2013F 228.6 6 13.7

2014F 248.4 9 12.6

Source: Bloomberg As at 12 Dec 2012

Exhibit B16: STI Earnings Growth

STI: 3,141.57

China is experiencing slower growthDuring the 2008 crisis, the Chinese authority introduced a 4 trillion Yuan(US$586b at the time) stimulus package to shield its economy from thefinancial crisis. Recently, it introduced several measures to cool theproperty market and also announced massive investments intoinfrastructure projects. Meanwhile, as signs of slowdown hit the economy,the National Development and Reform Commission said that investmentsin railway would increase to 448.3b Yuan (US$70.3b) in 2012. The aboveillustrates some of the measures undertaken in recent years and isindicative of a government that is able to manage the economy.

Chinas Gross Domestic Product (GDP) growth has been coming off, froma 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 was7.7%, and the government is maintaining that full-year growth shouldstill be within its target of 7.5%. While this rate is still in the high single-digit 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, includingincreased investment in rail and transport systems, will help to build upthe economy over time. What is of concern to us is that current asset


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inflation, experienced almost worldwide due to the cheap cost of funds, issimilarly seen in China and could result in a property market bubble ifleft unchecked. Another issue is the health and balance sheet strength ofits banking system and the banks potential over-exposure to non-performing loans.

Overall, Asias dependency on China is vital. Given that the mainland isalso one of the regions key export markets, any slowdown in theChinese economy will have a big impact on growth in the region. Hence,the recent positive indication from Chinas PMI number is reassuring andcould also signal that outlook for 2013 is likely to be better.

Exhibit B17: Chinas GDP growth

Source: Bloomberg


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Exhibit B18: Asias GDP Growth Trend From 2006-2014F

Economies 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F

Singapore 8.8 8.9 1.8 -0.9 14.9 5.0 2.0 3.7 4.2

Malaysia 5.6 6.3 4.8 -1.5 7.2 5.1 5.0 4.8 5.2

Indonesia 5.5 6.3 6.0 4.6 6.2 6.5 6.2 6.3 6.3

Philippines 5.3 6.6 4.2 1.1 7.7 3.9 5.6 5.5 5.4

Thailand 5.1 5.0 2.5 -2.3 7.8 0.1 5.4 4.5 4.9

China 12.7 14.2 9.6 9.2 10.4 9.3 7.7 8.1 7.9

Hong Kong 7.0 6.5 2.1 -2.5 6.8 4.9 1.6 3.8 4.3

Taiwan 5.4 6.0 0.7 -1.8 10.8 4.1 1.3 3.4 4.1

South Korea 5.2 5.1 2.3 0.3 6.3 3.6 2.4 3.3 3.9

Japan 1.7 2.2 -1.0 -5.5 4.7 -0.6 1.7 0.7 1.0

Source: Bloomberg

Note: 2012F - 2014F refers to consensus forecasts

Updated on 12 Dec 2012


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Exhibit B19: Purchasing Manager Index

Source: Bloomberg

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Index

All said and done, it was a good year for the Singapore marketAs a small and open economy, Singapore is still dependent on externaleconomies and highly vulnerable to events in the key developed nations.Despite all the ups and downs in the global economy in 2012, most bluechip companies were still able to generate good earnings. For example,the three local banks delivered quarterly earnings which were on mostoccasions better than consensus estimates, after stripping off exceptionalone-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 overallperformance. Buoyed by higher Non-interest Income, the overall

performance was stronger than expected.

Local property cooling measures did not derail demand (for property orloans). While there were initial concerns over the potential impact ofheftier cooling measures on the local property sector would hurt the localbanking sector, the impact was not significant after the initial weeks ofcautiousness. While loans growth rate slowed in 2012 as expected, highsingle-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 expectheadwinds to remain and there is a need to focus on companies withstrong balance sheets.

Surging home prices and concern over inflationThe increased liquidity has also found its way into the Asian markets.This has led to record home prices in most parts of Asia, and particularlyso in Singapore and Hong Kong, triggering a series of property coolingmeasures in both these countries. In Singapore, there were a total offive key property measures since early 2010. Yet, despite theintroduction of these cooling measures, interest in the property marketremains strong largely due to the current low interest rate environment.

There is obviously a fear of asset inflation now. From the latest availabledata, inflation rose 4.7% YoY in Sep 2012, and the government iswarning of higher inflation towards the end of 2012. The main culpritswere car prices and housing costs. In addition, the Ministry of Trade andIndustry (MTI) has expressed concern over food prices and expectsupward pressure in the next few months due to weather-related supplydisruptions.


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17

Exhibit B20: Singapore Inflation

Source: Bloomberg

-2

0

2

4

6

8

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

Jan-12

%

Risks in the market remainsAlthough 2013 is widely expected to show an improvement over 2012,headwind remains. While emerging and developing markets appear to behealthy, growth for the advanced economies remain tepid. In addition,leading indicators are not providing optimism as confidence has notreturned to previous highs. But the Chinese governments effort toundertake more infrastructure projects is likely to provide moreeconomic activities, and this is likely to remain the key growth country inAsia.

Are green shoots sprouting?

Some positive data have recently surfaced; giving rise to optimism thatthe worst is likely over. This is generally true, especially in terms ofrecovery in economic growth numbers and the recent positive PurchasingManager Index (PMI) number for China. Based on most economicprojections, there is a consensus view that 2013 is likely to be a betteryear than 2012. In terms of corporate earnings, most are also expectingbetter earnings growth next year and a recovery from 2012. For the S&P500, and based on consensus data from Bloomberg, earnings growth isprojected at 10% for 2013 and 11% for 2014 compared to only 6% in2012 (as of 6 Dec 2012). The trend is similarly seen for the Straits TimesIndex (STI), which is likely to grow 7% in 2013 and 9% in 2014 versus adecline of 18% in 2012.

The worst is likely over

While equities have rallied, we believe that the gains are not widespreadas funds and investors still show a clear preference for safer, higheryielding assets or physical properties and gold in 2012. This is especiallythe case in Singapore, where trading volume remains anaemic due to alack of investor confidence. However, moving into 2013, we believe thatthe low interest rate environment and with increasingly higher propertyprices, equity could come back into focus largely because of projectedearnings growth and still-attractive valuations. The STI is trading at only14.5 times 2012 earnings and 13.6 times 2013 earnings and atPrice/Book of 1.4 times, valuations are not demanding.

IPO, takeover and privatisation likely to continue into 2013Singapore stocks have outperformed in 2012, and several key sectorseven outperformed the Straits Times Index (STI) including some of ourfavourite sectors such as Oil & Gas, Banking and REITs. Price drivers for2013 will continue to depend largely on the outlook for the key external


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18

economies as well as a pick up in consumer demand. In addition, weexpect the pace of IPO, takeover and privatisation seen in 2012 tocontinue into 2013. The latter two will largely be fuelled by still attractivevaluations for Singapore stocks. However, as investor confidence is stillnot back at peak level, we expect this to cap price gains for the comingmonths. As such, we expect the STI to continue to trade within a band,supported on the downside by inexpensive valuations and on the upperlevel by the lack of buying momentum at higher levels. Any furtherupside 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 expectedto grow in the high single-digit level in 2013.

Our core picks in 2012 have performed wellWe were bullish and overweight on several sectors last year (refer to ouryear-end Strategy report dated 16 Dec 2011), namelyTelecommunications, Oil & Gas, Healthcare, REITs and Banks. Most ofthese sectors have outperformed the market or the benchmark StraitsTimes 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% forthe 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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19

Index on

12 Dec 12 Hist F1 F2 Hist F1 F2

Straits Times Index 3,141.6 12.0 14.6 13.7 1.4 1.4 1.3

ST Mid Cap Index 759.3 10.2 15.7 14.5 1.2 1.2 1.1

ST Small Cap Index 502.9 25.0 15.7 11.8 1.1 1.1 1.0

ST China Index 230.6 8.6 15.7 14.1 0.8 0.8 0.8

ST Real Estate Index 769.2 10.1 19.7 17.8 1.0 1.0 1.0

ST RE Hold & Dev Index 777.0 10.0 20.3 17.7 0.9 0.9 0.9

ST RE Invest Trust Index 769.7 10.2 18.9 18.1 1.1 1.1 1.1

ST Oil & Gas Index 717.5 9.7 11.2 11.7 2.2 2.1 1.9

ST Basic Materials Index 195.9 34.9 50.6 14.3 0.7 0.9 0.9

ST Industrials Index 796.1 13.9 15.0 12.7 1.4 1.4 1.3

ST Consumer Goods Index 492.0 9.8 12.8 10.5 1.1 1.0 1.0

ST Health Care Index 1,319.7 13.0 26.5 21.9 1.7 1.6 1.5

ST Consumer Service Index 827.3 19.3 18.8 16.0 1.7 1.8 1.7ST Telecommunicate Index 891.0 13.9 15.1 14.2 2.6 2.4 2.3

ST Utilities Index 335.6 18.7 18.2 14.3 1.1 1.6 1.5

ST Financials Index 803.0 10.5 14.8 14.5 1.2 1.2 1.1

ST Technology Index 511.9 - 21.7 17.9 2.2 3.6 3.2

ST Maritime Index 258.2 42.1 14.4 10.1 1.1 1.1 1.0

Source: Bloomberg

PER P/Book

Exhibit B21: Singapore Sectors Valuation Comparison

Index on

12 Dec 12 Hist F1 F2 Hist F1 F2Straits Times Index 3,141.6 12.0 14.6 13.7 1.4 1.4 1.3

KLCI Index 1,649.8 14.7 15.4 14.1 2.2 2.2 2.0

Jakarta Composite Index 4,337.5 17.0 16.0 13.7 2.8 3.0 2.6

SET Index 1,354.6 17.0 15.1 12.5 2.3 2.3 2.1

Philippines PSEi Index 5,819.8 18.7 18.4 16.5 2.7 2.6 2.4

Hang Seng Index 22,503.4 11.6 11.8 10.8 1.5 1.5 1.3

Taiex Index 7,690.2 25.1 18.6 14.5 1.7 1.6 1.5

Shanghai Shenzhen CSI 300 Ind 2,267.8 11.4 10.7 9.2 1.6 1.6 1.4

Kospi Index 1,975.4 19.0 11.9 9.4 1.2 1.1 1.0

Nikkei 225 9,581.5 25.3 18.1 15.0 1.2 1.2 1.1

BSE Sensex 30 Index 19,355.3 16.3 15.3 13.4 2.7 2.5 2.2

Dow Jones Indus Avg Index 13,245.5 13.3 12.7 11.8 2.6 2.6 2.3

S&P 500 Index 1,428.5 14.6 13.8 12.4 2.2 2.1 1.9

Nasdaq Composite Index 3,013.8 20.5 16.3 14.1 2.7 2.5 2.3

Source: Bloomberg

PER P/Book

Exhibit B22: Key Markets Valuation Comparison


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20

Px (S$) on Fair Upside YTD*

12-Dec-12 Value (%) (%)

1 Biosensors Int'l Group 1.220 1.690 39 -14 Healthcare Equip

2 City Developments 12.340 13.960 13 39 Property

3 CapitaMalls Asia 1.965 2.160 10 75 Property

4 CapitaMall Trust 2.080 2.300 11 23 REIT

5 DBS Group Hldgs 14.880 15.940 7 30 Bank

6 Ezion Hldgs 1.425 1.700 19 117 Oil & Gas

7 Keppel Corp 10.870 12.490 15 18 Oil & Gas

8 M1 /Spore 2.770 2.890 4 10 Telecom

9 Starhill Global REIT 0.750 0.840 12 33 REIT

10 Sembcorp Marine 4.540 5.840 29 22 Oil & Gas

11 United Overseas Bank 19.740 21.300 8 30 Bank

12 Venture Corp 7.900 9.220 17 27 Tech

Source: OIR

* YTD: 2012

Sector

Exhibit B23: OIR 2013 Stock Picks

Stocks


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21

Section C: Singapore Economy

Moderation in economic growth continuesAfter expanding 14.5% in 2010, Singapores economic growthmoderated to 5.4% in 2011 and is now expected to slow to 1.5% in2012. The pullback in growth momentum (Exhibit C-1) was largely dueto the decline in externally-oriented sectors, while domestically-orientedactivities have remained generally resilient.

Trade-related industries, and the sentiment-driven and offshore lendingsegments of the financial sector, were the hardest hit by the globalslowdown (Exhibit C-2). Manufacturing was not spared, either, andSingapores Industrial Production Index contracted by 7.3% QoQ(seasonally adjusted) in 3Q12, following a 0.3% increase in 2Q12 asoutput slowed across many industries.

On the other hand, domestic activities, especially those anchored by aseries of supply-side projects, performed well. Notably, the construction

sector grew substantially in 1H12, along with steady expansion inservices such as healthcare and education.

Exhibit C1: Singapores real GDP in recent years

-20

-10

0

10

20

30

40

1Q08 1Q09 1Q10 1Q11 1Q12

%

GDP YoY

GDP QoQ

Moderation in the

past four quarters

Source: Bloomberg, OIR


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22

Exhibit C2: GDP breakdown

Annualised QoQ growth (%) 3Q11 4Q11 2011 1Q12 2Q12 3Q12

Total 2 -2.5 4.9 10.1 0.5 -5.9

Goods Producing Industries 8.5 -9.8 6.8 22.9 2.1 -10.2

Manufacturing 11 11.1 7.6 20.9 0 -9.6

Construction 4 -2.2 2.6 40.1 19.4 -17.2Services Producing Industries 0.8 1.7 4.4 3.2 -0.1 -3.5

Wholesale & Retail Trade 8.9 10.2 1.1 -2.1 -0.4 -7.8

Transportation & Storage 1.2 -2.9 4.7 3.5 6.9 -1.3

Accommodation & Food Services 1.5 -0.6 5.8 17.5 -5.6 -1.8

Information & Communications 0.2 -0.2 1.5 5.4 1 -1.7

Finance & Insurance 7.8 -4.4 9.1 -4.7 2.9 -4.6

Business Services 1.5 2.4 2.7 13.3 0.3 0

Other Services Industries 0.7 1.2 6.7 8.4 -9.1 -1.6 Source: MTI, OIR

Meanwhile, if we look at a longer time frame, we see that the level ofgrowth (on a year-on-year basis) experienced in 1Q-3Q12 was higheronly in two periods since 2000, namely, 2Q01 to 1Q02, and 3Q08 to2Q09 (Exhibit C-3).

Exhibit C3: Singapores real GDP since 1Q00


What can we look forward to? At most 3% growthIndeed, the near-term outlook for the Singapore economy, which ishighly dependent on the external environment, is likely to remainsubdued as: 1) growth in the advanced economies in 2013 is likely to becurtailed 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 Leehas also mentioned that the government is no longer aiming for the

-20

-10

0

10

20

30

40

1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12

%

GDP YoY

GDP QoQ


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23

ridiculously high economic growth of years past, but rather a moresustainable rate of 2-3% a year.

Exhibit C4: Singapores 2012 and 2013 GDP forecast

GDP GDP Manufacturing Construction ServicesYoY QoQ SAAR YoY YoY YoY

1Q12 1.5% 9.5% -0.8% 6.9% 1.9%

2Q12 2.5% 0.2% 4.6% 12.3% 1.0%

3Q12 0.3% -6.0% -0.8% 7.7% 0.3%

4Q12 1.8% 1.6% 1.0% 7.7% 1.4%

2012 1.5% - 1.0% 9.2% 1.2%

GDP GDP Manufacturing Construction Services

YoY QoQ SAAR YoY YoY YoY

1Q13 3.3% 19.2% 4.6% 5.2% 2.4%

2Q13 2.1% -3.6% 2.2% 5.1% 1.7%

3Q13 2.7% -5.0% 1.1% 4.8% 3.3%

4Q13 2.1% -0.2% 0.2% 4.9% 2.7%

2013 2.5% - 2.0% 5.0% 2.5% Source: OCBC Treasury Research and Strategy

ECONOMIC THEMES AND IMPLICATIONS

1. Volatile capital inflows feeding inflation for now

Expect greater capital inflowsWith expansionary monetary policies in the G3 economies that seemlikely to continue before decisive signs of a global recovery appear,

larger amounts of liquidity are now moving between markets. Themiserable rates that investors get on cash and treasury bills, along withthe likelihood that this situation may persist till 2015 or early 2016, haveprompted them to search for better returns.


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24

Exhibit C5: US Fed Funds rate since 1965


Funds will flow to wherever the risk-reward ratio is most favourable, andwe expect Singapores 1) stable and pro-business climate, 2) good trackrecord in managing its economy, 3) links with emerging Asia and 4) thepotential for currency appreciation to be attractive features for foreigninvestors.

But risks of destabilisation when funds withdrawThough significant capital inflow is a manifestation of a countrysattractiveness 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 disconnectbetween asset prices and fundamentals. Property prices across the board(residential, commercial, industrial) have appreciated substantially, but aseries of cooling measures by the Singapore government have more orless capped the rise. When sentiment changes, the sudden withdrawal ofcapital by foreign investors can also be very destabilising.

2. Supply side-constraints contributing to domestic inflation

Asset inflation and supply-side constraints means more inflationCompounding asset-inflationary pressures are increasing labour costsfrom stricter immigration policies which have resulted in a tight labourmarket. The seasonally adjusted overall unemployment rate was 1.9% inSep 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 inthe domestic-oriented sectors compared to external-oriented ones(Exhibit C-7). As domestic-oriented firms generally employ a largerproportion of low- and mid-skilled workers, job vacancies for non-PMET1workers exceeded those for PMET workers.

___________________

1 PMET: Professionals, Managers, Executives and Technicians

0

2

4

6

8

10

12

14

16

18

20

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

%

US Fed Funds rate

How much lower can you go?

We have never seen such low

rates in history and this may

persist till early 2016


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25

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 carprices), domestic inflation has been on the uptrend and we expect it tocontinue. If we were to strip out accommodation and private roadtransport from the overall measure of CPI, we find that price increases

have actually been in a rather narrow range since 2010, as measured bythe MAS core inflation rate (Exhibit C-9). According to MAS, core inflationis expected to be around 2.5% in 2012 and 2-3% in 2013, while CPI-Allitems inflation is expected to ease from slightly above 4.5% to 3.5-4.5%in 2013.


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26

Exhibit C9: CPI-All items inflation and MAS core inflation

Source: MAS

Prioritising inflation over growth would lead to currencyappreciationAll these mean that the MAS is likely to place greater priority on inflationover growth for now in the management of Singapores exchange rate.In the Oct 2012 review of the S$NEER (Singapore dollar nominaleffective exchange rate) policy, the MAS kept the slope and width of thepolicy band, as well as the level at which it is centered, unchanged, tothe surprise of a number of economists who were expecting a softerstance in face of global uncertainties. This is also after the MAS increasedthe 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 goodeconomist will tell you, the answer is it depends. The import content ofSingapores domestic exports is high at around 60%, meaning that forevery dollar of external demand for our exports, S$0.60 leaks out of theeconomy2. This is not surprising since Singapores manufacturing sectorimports most of the intermediates that go into the manufacturing of itsexports. Hence, the investor must ascertain the sensitivity of anexporters earnings against the SGD before concluding that a higherexchange rate would have a significant negative impact on thecompanys bottomline.

Economic restructuring underwayThat said, we believe that Singapore is undergoing a period of economicrestructuring with a lower dependence on foreign labour. Structurallyhigher wages and other inflationary pressures suggest that unlessgrowth weakens drastically more than expected in 2013, the SGD islikely to remain strong vis--vis the currencies of its major tradingpartners. Industries which had relied on a lower cost structure would beforced to find ways to increase productivity or face consolidation.

___________________2 Measuring Singapores reliance on external demand by Shruthi Jayaram,HeRuimin. MTI, 2009.


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27

3. At best, Europe will continue to plod alongYields have fallenThis time last year, the risk of a Eurozone breakup seemed alarminglyhigh due to a rapidly weakening outlook for many countries in the EU.Conditions are now better Italian borrowing costs on benchmark 10-year bonds have dropped to 4.6% (lowest in two years), whereas Spainsfell to levels last seen in Apr.

but tough decisions have so far been deferredBeyond the calm, however, is a worrying trend that has been observedsince the Eurozone crisis started without pressure from the financialmarkets, political leaders have been slow to act. What we have seen sofar are mainly ad-hoc fixes; urgently needed are tough decisions to endthe uncertainty with firm implementation timelines.

Singapore remains vulnerable to Eurozone concernsShould this be lacking in 2013, we see the possibility of further marketvolatility before policy makers finally move in the eleventh hour. In theevent of a risk-off episode, this would, in general, affect the higher beta

stocks more.

Austerity measures in Europe would impact consumption andinvestments, and Singaporean exporters with a huge European exposureare likely to be affected. Firms whose customers rely heavily on financingfrom Europe may also see a decline in orders. As Exhibit C-11 illustrates,Singapores non-oil domestic exports (NODX) growth to Europe has notbeen as robust as those to China and the US.

Exhibit C10: Singapores NODX growth

-40

-30

-20

-10

0

10

20

30

40

Jan07

Jul07

Jan08

Jul08

Jan09

Jul09

Jan10

Jul10

Jan11

Jul11

Jan12

Jul12

%

NODX

Source: IE Singapore, Bloomberg, OIR


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28

Exhibit C11: Singapores NODX growth to various markets

-80

-60

-40

-20

0

20

40

60

80

100

120

140

Jan07

Jul07

Jan08

Jul08

Jan09

Jul09

Jan10

Jul10

Jan11

Jul11

Jan12

Jul12

%

NODX to EU

NODX to China

NODX to US

Source: IE Singapore, Bloomberg, OIR

Big picture in 2013Against the backdrop described above, we expect Singapore to continueusing the exchange rate as well as macro-prudential tools to manage itseconomy. As the US, EU, Japan and China continue competitivedevaluation a name generally avoided for obvious reasons investorsshould keep an eye on inflation and its implications.

Socio-economic issues may also increasingly come to the fore e.g. theUS government is expected to take steps to increase the tax rates of theultra-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 (inaddition to goodies from each years Singapore Budget).

Finally, the Asian growth story remains intact. Emerging Asia is likely toremain the fastest growing region in the world amidst sub-par growthprospects in the developed nations. In particular, the domestic-orientedeconomies of China and Indonesia will be buffered by consumption andinfrastructure spending. As mentioned in last years report, manycompanies that we have been speaking to have turned their focus to Asiaand Australia for growth, and we expect this trend to continue.


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OCBC Investment Research

Singapore Equities

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 since2Q09. 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 upsidefor 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 Marineand 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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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, supportedby 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 acompelling 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.

TOP HEALTHCARE PICK FOR 2013 Expect continued market share gains

Healthy financial position and superior

technology

Compelling valuations

13 Dec 2012Company Update

BIOSENSORS INTL GROUP |BUY

Asia Pacific Equity ResearchSingapore | Health Care Equipment & Supplies

BUY (maintain)Fair value S$1.69

add: 12m dividend forecast S$0.00

versus: Current price S$1.22

12m total return forecast 39%

Analysts

Wong Teck Ching (Andy) (Lead) +65 6531 9817

[email protected]

Lim Siyi +65 6531 9824

[email protected]

Key information

Market cap. (m) S$2,113 /

USD1,731

Avg daily turnover (m) S$8 /

USD6

Avg daily vol. (m) 5.9

52-wk range (S$) 1.025 - 1.7

Free float (%) 49.8

Shares o/s. (m) 1,710.8

Exchange SGX

BBRG ticker BIG SP

Reuters ticker BIOS.SI

ISIN code B20

GICS Sector Healthcare

GICS IndustryHC Equip &

Supplies

Top shareholderWeigao Int'l -

21.6%

Relative total return 1m 3m 12m

Company (%) 9 0 -7

STI-adjusted (%) 4 -4 -27

Price performance chart

0.85

1.10

1.35

1.61

1.86

2.12

Dec-11 Mar -12 Jun-12 Sep-12 Dec-12

1500

2000

2500

3000

3500

4000

Fair Value BIG SP FSSTI

Shar e Pr i ce (S$) Index Level

`

Sources: Bloomberg, OIR estimates

Industry-relative metrics

0th 25th 50th 75th 100th

PB

PE

ROE

Beta

Mkt Cap

Company Indust r y Aver age

Percent i le

Note: Industry universe defined as companies under identical GICS classificationlisted in the exchanges in Asia Pacific (Developed).Sources: Bloomberg, OIR estimates

Key financial highlights

Year Ended Mar 31 (US$m) FY11 FY12 FY13F FY14F

Revenue 156.6 292.1 353.3 404.3

Gross profit 122.1 234.6 295.2 334.8

EBIT 44.5 106.5 144.8 166.0

Core PATMI 52.6 101.0 121.3 141.4

Core EPS (US cents) 4.8 6.7 7.1 8.2

Cons. EPS (US cents) na na 7.3 8.4

EBIT margin (%) 28.4 36.5 41.0 41.1

Net profit margin (%) 27.6 124.7 35.3 35.0

ROE (%) 16.5 48.7 10.6 10.8

EV/EBITDA (x) 31.5 12.0 8.1 6.5

Please refer to important disclosures at the back of this document. MICA (P) 035/06/2012

MARKET CAP: USD 1.7B AVG DAILY TURNOVER: USD 6M


31/54


Singapore Equities

Company financial highlights


Income statement

Year Ended Mar 31 (US$m) FY11 FY12 FY13F FY14F

Revenue 156.6 292.1 353.3 404.3

Gross profit 122.1 234.6 295.2 334.8

EBITDA 47.5 119.8 166.6 188.2

EBIT 44.5 106.5 144.8 166.0

Net interests -5.1 -3.8 -0.6 3.7

Share of results of JVs, net 19.3 8.0 0.0 0.0

Profit before tax 49.1 365.6 131.4 153.7

Income tax expense -5.8 -1.4 -6.8 -12.3

Profit attributable to shareholders 43.3 364.3 124.6 141.4

Core PATMI 52.6 101.0 121.3 141.4

Balance sheet

As at Mar 31 (US$m) FY11 FY12 FY13F FY14F

Bank and cash balances 259.4 313.5 367.3 488.9

Other current assets 69.9 116.1 149.4 169.7

Property, plant, and equipment 12.0 43.0 62.2 81.0

Total assets 478.0 1,257.2 1,347.4 1,492.2

Debt 34.4 37.1 0.1 0.1

Current liabilities excluding debt 61.5 78.5 81.0 84.4

Total liabilities 99.5 139.6 105.2 108.5

Shareholders equity 378.5 1,117.7 1,242.2 1,383.6

Minority interests 0.0 0.0 0.0 0.0

Total equity and liabilities 478.0 1,257.2 1,347.4 1,492.2

Cash flow statementYear Ended Mar 31 (US$m) FY11 FY12 FY13F FY14F

Op profit before working cap. chg. 49.0 123.3 153.8 172.2

Working cap, taxes and int -21.3 -42.2 -38.0 -25.6

Net cash from operations 27.8 81.0 115.7 146.6

Purchase of PP&E -2.9 -5.2 -25.0 -25.0

Other investing flows -6.8 -26.4 0.0 0.0

Investing cash flow -9.6 -31.7 -25.0 -25.0

Financing cash flow 176.1 7.6 -37.0 0.0

Net cash flow (inc forex) 199.4 54.1 53.7 121.6

Cash at beginning of year 60.1 259.4 313.5 367.3

Cash at end of year 259.4 313.5 367.3 488.9

Key rates & ratios FY11 FY12 FY13F FY14F

Reported EPS (US cents) 4.0 24.1 7.2 8.2

Core EPS (US cents) 4.8 6.7 7.1 8.2

EBIT margin (%) 28.4 36.5 41.0 41.1


PER (x) 25.1 4.1 13.8 12.2

Price/NTA (x) 3.7 5.2 3.6 2.7

EV/EBITDA (x) 31.5 12.0 8.1 6.5

Dividend yield (%) 0.0 0.0 0.0 0.0

ROE (%) 16.5 48.7 10.6 10.8

Net gearing (%) net cash net cash net cash net cash

Sources: Company, OIR forecasts


32/54

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 RisGrove 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 mass-

market sites near MRT stations.

Maintain BUY

We like CDL for its strength in project execution, ability to read themarket, 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.

MAJOR LAUNCHES IN FOCUS Echelon launch to be key catalyst

South Beach project on track

Likely to stay active in GLS


CITY DEVELOPMENTS LTD | BUY

Asia Pacific Equity ResearchSingapore | Real Estate Management and Development





Analysts

Eli Lee (Lead) +65 6531 9112

[email protected]

Kevin Tan +65 6531 9810

[email protected]

Key information


USD9,314


USD7


52-wk range (S$) 8.4583 - 12.57

Free float (%) 64.6

Shares o/s. (m) 909.3

Exchange SGX

BBRG ticker CIT SP

Reuters ticker CTDM.SI

ISIN code C09

GICS Sector FinancialsGICS Industry RE Mngt & Dev

Top shareholderHong Leong Hldg -

16.4%


Company (%) 7 9 39

STI-adjusted (%) 3 5 19


8.04

9.47

10.89

12.32

13.75

15.18


2300

2760

3220

3680

4140

4600

Fair Value CIT SP FSSTI


`




PB

PE

ROE

Beta

Mkt Cap


Percent i le

Note: Industry universe defined as companies under identical GICS classification listed

in the same exchange.Sources: Bloomberg, OIR estimates


Year ended 31 Dec (S$m) FY10 FY11 FY12F FY13F

Revenue 3,103.4 3,280.5 3,378.9 3,716.8

Cost of sales -1,450.7 -1,507.5 -1,824.6 -2,007.1

Gross profit 1,652.7 1,773.0 1,554.3 1,709.7

Shareholders' profit 784.0 798.6 564.6 643.0

EPS (S-cents) 86.2 87.8 62.1 70.7

Cons. EPS (S-cents) na na 65.3 74.6

PER (x) 14.3 14.1 19.9 17.5

P/NAV (x) 1.8 1.6 1.5 1.4

ROE (%) 12.5 11.7 7.8 8.2

Net gearing (%) 37.2 26.4 12.8 -5.3




33/54


Singapore Equities



Income statement


Revenue 3,103.4 3,280.5 3,378.9 3,716.8

Cost of sales -1,450.7 -1,507.5 -1,824.6 -2,007.1

Gross profit 1,652.7 1,773.0 1,554.3 1,709.7

Admin. expenses -484.0 -490.2 -506.8 -557.5

Share of Assoc/JV profits 110.4 62.0 90.0 170.0

EBIT 1,100.6 1,189.3 867.1 1,024.9

Net finance costs -33.1 -52.9 -38.2 -33.3

PBT 1,067.5 1,136.4 829.0 991.6

PAT 865.4 961.7 704.6 823.0

Shareholders' profit 784.0 798.6 564.6 643.0

Balance sheet


Cash and equivalents 1,873.8 2,603.0 2,882.3 2,629.3

PPE 3,410.4 3,313.2 3,214.8 3,122.6

Development properties 3,311.2 3,243.9 2,933.7 2,311.9

Total assets 13,962.8 14,962.5 15,177.4 14,404.0

Current financial liabilities 780.0 1,476.5 1,033.6 826.8

Non-current financial liabilities 3,425.3 2,929.3 2,782.9 1,391.4

Total liabilities 5,982.5 6,266.5 5,894.9 4,416.8

Shareholders equity 6,262.5 6,826.8 7,273.2 7,798.0

Total equity 7,980.3 8,696.0 9,282.4 9,987.2

Total equity and liabilities 13,962.8 14,962.5 15,177.4 14,404.0

Cash flow statementYear ended 31 Dec (S$m) FY10 FY11 FY12F FY13F

PBT 1,067.5 1,136.4 829.0 991.6

Working capital change -271.6 90.9 525.6 621.4

Cash tax paid -105.9 -162.2 -124.3 -168.6

Operating cash flow 512.1 983.0 1,276.7 1,399.9

Investing cash flow 371.0 52.7 -251.6 96.7

Financing cash flow 34.6 -419.5 -745.8 -1,749.6

Net change in cash 917.6 616.1 279.3 -253.0

Cash at beginning of the year 980.1 1,873.0 2,603.0 2,882.3

Other adjustments -24.8 -1.5 0.0 0.0

Cash at end of the year 1,873.8 2,603.0 2,882.3 2,629.3


EPS (S-cents) 86.2 87.8 62.1 70.7

NAV per share (S-cents) 688.7 750.8 799.9 857.6

PER (x) 14.3 14.1 19.9 17.5

P/NAV (x) 1.8 1.6 1.5 1.4

Gross profit margin (%) 53.3 54.0 46.0 46.0


Net gearing (%) 37.2 26.4 12.8 -5.3

Dividend yield (%) 1.5 1.5 1.1 1.1

ROE (%) 12.5 11.7 7.8 8.2

ROA (%) 5.6 5.3 3.7 4.5



34/54

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 operationalincome 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 impetusfor 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 same-

store 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 andrelatively 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.

STARTING TO FIND OPERATIONALRHYTHM Chinese portfolio operational

Capital recycling turning likely

Chinese retail conditions staying firm


CAPITAMALLS ASIA |BUY

Asia Pacific Equity ResearchSingapore | Real Estate Management & Development





Analysts

Eli Lee (Lead) +65 6531 9112

[email protected]

Kevin Tan +65 6531 9810

[email protected]

Key information


USD6,367


USD8


52-wk range (S$) 1.125 - 2.01

Free float (%) 34.0

Shares o/s. (m) 3,887.7

Exchange SGX

BBRG ticker CMA SP

Reuters ticker CMAL.SI

ISIN code JS8

GICS Sector Financials

GICS Industry RE Mngt & Dev

Top shareholder CapitaLand - 65%


Company (%) 6 21 63

STI-adjusted (%) 1 17 43


1.07

1.35

1.64

1.92

2.20

2.49


2300

2960

3620

4280

4940

5600

Fair Value CMA SP FSSTI


`




PB

PE

ROE

Beta

Mkt Cap


Percent i le

Note: Industry universe defined as companies under identical GICS classificationlisted in exchanges in Asia Pacific.Sources: Bloomberg, OIR estimates


Year Ended Dec 31 (S$m) FY10 FY11 FY12F FY13F

Revenue 245.4 246.2 344.6 379.1

Cost of sales -91.8 -104.2 -144.7 -151.6

Gross profit 153.6 142.0 199.9 227.5

Profit to shareholders 541.3 453.0 391.0 338.3

Core earnings to shareholders na 120.4 181.5 238.3

EPS (S-cents) 13.9 11.7 10.1 8.7

Cons. EPS (S cts) na na na na

Dividend (S-cents) 2.0 3.0 3.3 3.3

PER (x) 14.1 16.9 19.5 22.6

P/NAV (%) 130.9 122.6 117.6 113.8Note: OIR FY12 EPS estimates include divestment and reval. gains reported YTD.




35/54


Singapore Equities



Income statement

Year Ended Dec 31 (S$m) FY10 FY11 FY12F FY13F

Revenue 245.4 246.2 344.6 379.1

Cost of sales -91.8 -104.2 -144.7 -151.6

Gross profit 153.6 142.0 199.9 227.5

Admin expenses -107.4 -140.4 -172.3 -182.0

Share of results (Assoc/JV) 475.9 348.9 300.0 350.0

Profit before taxation 577.8 568.6 463.3 412.9

Income tax expense -28.9 -74.3 -51.7 -56.9

Profit after taxation 548.9 491.2 411.6 356.1

Profit to shareholders 541.3 453.0 391.0 338.3

Core earnings to shareholders na 120.4 181.5 238.3

Balance sheet

As at Dec 31 (S$m) FY10 FY11 FY12F FY13F

Cash and equivalents 1,318.3 975.5 517.4 190.9

Investment & development prop. 593.3 1,679.1 2,241.3 3,168.9

Associates/JV 4,163.4 4,657.9 5,832.4 6,182.4

Total assets 6,982.2 8,078.0 9,460.3 10,444.3

Total debt 700.0 1,229.7 2,260.0 3,000.0

Other liabilities 394.0 371.2 455.5 469.6


Total equity 5,888.2 6,477.1 6,744.8 6,974.6

Shareholders equity 5,828.5 6,227.0 6,474.1 6,686.1


Cash flow statementYear Ended Dec 31 (S$m) FY10 FY11 FY12F FY13F

Pre-tax profit 446.8 568.6 463.3 412.9

Adjustments -410.8 -590.8 -461.3 -382.0

Working capital changes 19.2 30.2 -28.3 -18.9

Operating cashflow 55.2 8.0 -26.4 12.0

Investing cashflow 621.7 -719.0 -1,274.2 -884.5

Financing cashflow 99.9 372.7 842.5 546.0

Net change in cash 776.8 -338.3 -458.1 -326.5

Adjustments -1.6 -4.5 0.0 0.0

Cash at beginning of period 544.3 1,318.3 975.5 517.4

Cash at end of period 1,318.3 975.5 517.4 190.9


EPS (S-cents) 13.9 11.7 10.1 8.7

NAV per share (S-cents) 150.1 160.3 167.1 172.6

Dividend (S-cents) 2.0 3.0 3.3 3.3

PER (x) 14.1 16.9 19.5 22.6

P/NAV (%) 130.9 122.6 117.6 113.8

Gross profit margin (%) 62.6 57.7 58.0 60.0


Net gearing (%) -10.6 4.1 26.8 41.9

ROE (%) 9.3 7.3 6.0 5.0

ROA (%) 7.9 6.1 4.4 3.4



36/54

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 areexpected 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.

GOOD ORGANIC GROWTH STORY Singapores retail blue chip

Good growth potential

Recent cash call a plus


CAPITAMALL TRUST |BUY

Asia Pacific Equity ResearchSingapore | REITs





Analysts

Kevin Tan (Lead) +65 6531 9810

[email protected]

Eli Lee +65 6531 9112

[email protected]

Key information


USD5,918


USD10


52-wk range (S$) 1.615 - 2.25

Free float (%) 62.5

Shares o/s. (m) 3,456.4

Exchange SGX

BBRG ticker CT SP

Reuters ticker CMLT.SI

ISIN code C38U

GICS Sector FinancialsGICS Industry REITs

Top shareholderCapitaLand -

28.5%


Company (%) 0 6 31

STI-adjusted (%) -4 2 11


1.54

1.78

2.02

2.26

2.50

2.74


2300

2700

3100

3500

3900

4300

Fair Value CT SP FSSTI


`




PB

PE

ROE

Beta

Mkt Cap


Percent i le

Note: Industry universe defined as companies under identical GICS classification

listed on the same exchange.Sources: Bloomberg, OIR estimates


Year Ended 31 Dec (S$ m) FY10 FY11 FY12F FY13F

Gross revenue 581.1 630.6 652.3 700.0

Total property expenses -182.0 -212.3 -208.1 -222.2

Net property income 399.1 418.2 444.2 477.8

Amount available for distribution 294.8 301.6 316.7 348.7

DPU per share (S cents) 9.2 9.4 9.2 10.1

Cons. DPU (S cents) na na 9.7 10.4

DPU yield (%) 4.4 4.5 4.4 4.8

P/NAV (x) 1.3 1.3 1.3 1.3

ROE (%) 5.5 7.5 9.0 6.0

Debt/Assets (%) 35.1 37.3 34.3 34.8




37/54


Singapore Equities



Income statement

Year Ended 31 Dec (S$ m) FY10 FY11 FY12F FY13F

Gross revenue 581.1 630.6 652.3 700.0

Total property expenses -182.0 -212.3 -208.1 -222.2

Net property income 399.1 418.2 444.2 477.8

Net finance costs -116.4 -132.6 -138.0 -133.2

Property management fees -36.0 -39.4 -40.7 -44.1

Other expenses 9.2 22.2 22.2 21.0

Net income 255.9 268.5 287.7 321.5

Total return for the period 270.1 384.2 492.6 341.2

Adjustments 24.7 -82.7 -175.9 7.6

Amount available for distribution 294.8 301.6 316.7 348.7

Balance sheet

As at 31 Dec (S$ m) FY10 FY11 FY12F FY13F

Investment properties 7,271.5 7,849.2 8,132.9 8,169.2

Properties under development 0.0 306.6 331.6 402.2

Cash 713.0 757.6 730.4 757.5

Total current assets 720.8 787.6 761.2 790.7

Total assets 8,125.9 9,172.2 9,454.5 9,590.7

Current liabilities ex debt 176.1 256.3 262.2 281.3

Debt 2,851.9 3,423.9 3,247.5 3,338.1


Unitholders' funds 4,939.4 5,246.0 5,695.9 5,716.0


Cash flow statementYear Ended 31 Dec (S$ m) FY10 FY11 FY12F FY13F

Net income 255.9 268.5 287.7 321.5

Adjustments 109.9 112.9 118.5 113.6

Operating income before working cap chgs 365.8 381.4 406.2 435.1

Change in working capital 19.4 2.0 10.0 25.5

Cash generated from operating activities 385.2 383.4 416.2 460.7

Cashflow from investing activities -313.0 -718.3 -96.4 -79.7

Cashflow from financing activities 304.9 379.6 -347.1 -353.8

Change in cash 377.1 44.7 -27.2 27.2

Cash at beginning of period 335.8 713.0 757.6 730.4

Cash at end of period 713.0 757.6 730.4 757.5


DPU per share (S cents) 9.2 9.4 9.2 10.1

NAV per share (S cents) 155.1 157.6 164.8 165.3

P/E (x) 25.9 18.5 15.4 22.3

P/NAV (x) 1.3 1.3 1.3 1.3

NPI margin (%) 68.7 66.3 68.1 68.3

Net income margin (%) 44.0 42.6 44.1 45.9

Debt/Assets (%) 35.1 37.3 34.3 34.8

DPU yield (%) 4.4 4.5 4.4 4.8

ROE (%) 5.5 7.5 9.0 6.0

ROA (%) 3.5 4.4 5.3 3.6



38/54

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 ofgrowth 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 andweak 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.

SEVERAL GROWTH AREAS Earnings outlook for 2013 is healthy

Tapping on several growth units

Valuations are inexpensive; BUY


DBS GROUP |BUY

Asia Pacific Equity ResearchSingapore | Financials


add: 12m dividend

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