Asia/Pacific Morning Meeting Summary

13 Pages·2010·0.09 MB·English

MORGAN STANLEY RESEARCH

Morgan Stanley Asia Limited+
Companies Featured
0440.HK, 1133.HK, 1211.HK, 2009.HK, 2451.TW, 2899.HK, 3481.TW,
BEN.AX, JBH.AX, MAPL.SI, RLCP.BO, SOHU.O, SOL.N

August 10, 2010
Asia/Pacific Morning
Meeting Summary
Highlights
The Morning Call
JB Hi-Fi Limited (Australia) / Time for a Buyback? Overweight
BBMG Corporation (China) / Undervalued Social Housing Play with Significant Potential Overweight
ReneSola (China) / Higher Profitability Overweight
Indonesia Telecommunications / Steady Growth Continues: Telkom Remains Top Pick
Mapletree Logistics Trust (Singapore) / Stable Yield, Steady Pace and Critical Mass – EW Equal-weight
Company/Industry Analysis
Bendigo and Adelaide Bank Limited (Australia) / Disappointing Result, Optimism Required Equal-weight
BYD Company Limited (China) / Cut Estimates on Margin Risks; but 3Q Likely Presents as the Fundamental Equal-weight
Trough
Harbin Power (China) / Raise PT on Better than Expected 1H10 Result, OW Overweight
Sohu.com Inc (China) / Investment in Sogou by Alibaba May Help Enlarge Search Market Share Overweight
Zijin Mining Group (China) / 2Q10 Above on Higher Volume; Maintain EW Equal-weight
Dah Sing Financial (Hong Kong) / Stronger Balance Sheet Helps Growth & Resumption of Dividend - OW Overweight
China Transportation / Industry Overhang Suggests a Differentiation Strategy
Reliance Capital (India) / F1Q11 – Trends Continue to be Muted Equal-weight
Chimei Innolux (Taiwan) / Back in Style Overweight
Transcend Information (Taiwan) / Back on Track in 2H10, EW Equal-weight

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MORGAN STANLEY RESEARCH
August 10, 2010
Asia/Pacific Morning Meeting Summary
What's Changed
Stock Rating Changes - Downgrades
Stock Rating Price Target ModelWare Estimate
Ticker Company From To From To From To (FY) Consensus*
600004.SS Guangzhou Baiyun Int'l Airport O E Rmb13.58 Rmb10.71 -- -- --
Company Initiations
2009.HK BBMG Corporation -- O -- HK$11.90 -- Rmb0.69(12/'10) Rmb0.70
-- Rmb1.04(12/'11) Rmb0.93
-- Rmb1.35(12/'12) Rmb1.18
MAPL.SI Mapletree Logistics Trust -- E -- S$0.90 -- S$0.06(12/'10) S$0.06
-- S$0.07(12/'11) S$0.07
-- S$0.07(12/'12) S$0.07
Estimates/Price Target Changes - Up
3481.TW Chimei Innolux -- O -- NT$48.00 NT$2.64 NT$3.28(12/'10) NT$2.57
0440.HK Dah Sing Financial -- O HK$50.00 HK$62.00 HK$3.65 HK$4.02(12/'10) --
HK$4.72 HK$4.92(12/'11) --
HK$5.42 HK$5.58(12/'12) --
1133.HK Harbin Power -- O HK$8.08 HK$9.17 Rmb0.54 Rmb0.65(12/'10) Rmb0.53
Rmb0.62 Rmb0.74(12/'11) Rmb0.56
Rmb0.72 Rmb0.82(12/'12) Rmb0.67
TLKM.JK PT Telekomunikasi -- O Rp9,700 Rp9,900 Rp650(12/'10) Rp643(12/'10) --
-- -- -- -- Rp698(12/'11) Rp715(12/'11) --
EXCL.JK PT XL Axiata -- O Rp4,850 Rp5,650 Rp306(12/'10) Rp351(12/'10) --
-- -- -- -- Rp377(12/'11) Rp447(12/'11) --
SOL.N ReneSola -- O US$7.80 US$11.30 US$0.71 US$1.56(12/'10) US$1.15
US$0.61 US$1.53(12/'11) US$1.13
US$0.66 US$1.40(12/'12) US$1.15
Estimates/Price Target Changes - Down
0694.HK Beijing Capital Int'l Airport -- E HK$5.11 HK$4.11 -- -- --
BEN.AX Bendigo and Adelaide Bank -- E A$8.20 A$8.00 A$0.78 A$0.75(6/'11) --
Limited
A$0.86 A$0.85(6/'12) --
A$0.91 A$0.90(6/'13) --
1211.HK BYD Company Limited -- E HK$64.00 HK$56.00 Rmb2.56 Rmb2.02(12/'10) Rmb2.30
Rmb2.99 Rmb2.55(12/'11) Rmb2.84
Rmb3.41 Rmb2.91(12/'12) Rmb3.27
0357.HK Hainan Meilan Int'l Airport -- O HK$12.53 HK$10.89 -- -- --
600009.SS Shanghai International Airport -- O Rmb22.89 Rmb21.41 -- -- --
2451.TW Transcend Information -- E NT$102.00 NT$96.00 NT$7.95 NT$7.20(12/'10) NT$6.98
NT$9.88 NT$9.37(12/'11) NT$10.89
600897.SS Xiamen Airport -- O Rmb26.16 Rmb23.54 -- -- --
Estimates/Price Target Changes - Up/Down
JBH.AX JB Hi-Fi Limited -- O A$22.00 A$22.50 A$1.47 A$1.34(6/'11) A$1.36
A$1.65 A$1.52(6/'12) A$1.58
A$1.84 A$1.71(6/'13) --
* First Call consensus estimate. For valuation methodology and risks associated with any price targets above, please email [email protected] with a request
for valuation methodology and risks on a particular stock

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MORGAN STANLEY RESEARCH
August 10, 2010
Asia/Pacific Morning Meeting Summary
The Morning Call
JBH.AX, JB Hi-Fi Limited (A$19.45) /Time for a Buyback? Rating: Overweight
Australia Retail: Cautious
Morgan Stanley Australia Limited
Target: A$22.50
[email protected], Martin.Yule, Crystal.Wang
52-Week Range: A$23.71-15.91
Mkt. Cap(mn): A$2,103
Navigating tougher retail conditions well; Remain Overweight. F2010 sales and earnings
ModelWare EPS: A$1.34 (FY 6/'11), A$1.52
rose 17% and 24%, respectively. JBH’s strong fundamentals remain intact including: (i) 40% (FY 6/'12)
space growth over four years, (ii) in-built LFL growth via store maturation, (iii) attractive store
locations and (iv) being a beneficiary of industry consolidation. While gross margins should revert
to declines, JBH’s pricing power should go some way to offset this, in our view.
Results overview: JBH reported F2010 NPAT of $118.7mn, in line with our $118.5mn forecast
and guidance of $117–120mn, but slightly beneath consensus of $120mn. We lift our basic EPS
forecasts marginally to factor in a slower decline in gross margins.
A$300mn buyback would be 7.7% accretive: On our forecasts, JBH could complete a
A$300mn buyback comfortably. Fixed charges cover would decline to 3.8x (vs covenant of 1.75x)
and leverage to 1.3x (vs covenant of 3.5x). We assume a 10% discount to the market price and a
7.5% interest cost.

2009.HK, BBMG Corporation (HK$9.95) /Undervalued Social Housing Play with Rating: Overweight
China Building Materials: Attractive
Significant Potential
Target: HK$11.90
Morgan Stanley Asia Limited 52-Week Range: HK$10.06-6.78
[email protected], John.Lam Mkt. Cap(mn): US$4,965
ModelWare EPS: Rmb0.69 (FY 12/'10),
Morgan Stanley Asia (Singapore) Pte. Rmb1.04 (FY 12/'11)
[email protected]
Initiate at Overweight, price target implies ~20% upside. Webelieve BBMG should trade at
least in line with industry average multiples, as it has the highest earnings growth prospects in the
next 3 years. In addition, conversion of its sizable land bank from industrial to residential use and
leveraging of its low-geared balance sheet should serve as strong NAV and share price drivers.
Attractive valuation, especially on EV/ton: Despite a 35% run-up in the past three months,
valuation remains inexpensive at 2011e P/E of 8.4x, below the industry average of 10-11x. On
our sum-of-the-parts valuation, the share price implies an EV/ton of just US$36 for the cement
assets, the lowest among peers, even though BBMG has the second-highest gross profit/ton.
Land bank, balance sheet value have yet to be unlocked:We think market recognition of our
bull case is looking increasingly likely. This assumes BBMG converts half its 8mn sqm of
industrial land to residential use, adding HK$2.20 to our base case fair value. If BBMG were to
leverage up its net gearing to 60% (the average of Chinese property developers) to acquire more
land, it would add a further ~HK$0.5/share, on our estimates.

SOL.N, ReneSola (US$7.99) /Higher Profitability Rating: Overweight
China Clean Energy: In-Line
Morgan Stanley Asia (Singapore) Pte.
Target: US$11.30
[email protected], Sophie.Lu
52-Week Range: US$8.75-3.50
Mkt. Cap(mn): US$740
Increasing wafer profitability; Price target up, remain Overweight. Due to strong demand
ModelWare EPS: US$1.56 (FY 12/'10),
and tight supply at wafer capacity, wafer ASP has been holding up firmly since early this year. US$1.53 (FY 12/'11)
Meanwhile, ReneSola is steadily bringing down polysilicon cost and manufacturing cost, which
shows significant margin expansion. The stock trades at 5.2x FY11e EPS and 1.1x FY11e BV,
with 25%+ ROE, which we view as attractive. Despite share price strong outperformance
year-to-date, we see more than 40% upside to our new price target.
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MORGAN STANLEY RESEARCH
August 10, 2010
Asia/Pacific Morning Meeting Summary
2Q results at a glance: ReneSola reported solid results, with sales of US$254 mn on 207MW
wafer shipment and 50.6MW module shipment. Thanks to stronger ASP and steady cost
reduction, 2Q gross margin reached 30%. Management sexpect similar gross margin trend into
2H. ReneSola is adding wafer capacity to 1.8GW by 1Q11e, in response to strong demand.
What’s changed: Healthy solar demand should result in higher-than-expected wafer ASPs and
volume in 2010e. We raise our total solar product shipment forecast by 15% and 30% in 2010/
2011. With wafer ASP higher by 8% and wafer COGS lower by 5% in FY11e, ReneSola’s core
wafer business is leading to significant margin expansion.

Indonesia Telecommunications: Steady Growth Continues: Telkom Remains Indonesia Telecommunications:
Attractive
Top Pick
[email protected], Vanessa.DSouza
Reiterate Attractive industry view.2Q results from PT Telkom (TLKM.JK, Rp8,500, O) and XL
(EXCL.JK, Rp4,700, O) continue to support our bullish thesis on the industry. We raise our
earnings and price targets for both stocks and highlight Telkom as our top pick, given its laggard
status, improving operational momentum and attractive valuations. We remain Equal-weight on
Indosat (ISAT.JK, Rp4,600), which has not yet reported.
Based on PT’s and XL’s results, we highlight some key messages: We estimate mobile
revenues rose 12-13% YoY in 2Q, similar to 1Q levels. Double-digit revenue growth appears
sustainable for the next 2-3 years given increasing take-up of data by urban subscribers and
subscriber growth in rural areas.
MOUs declined 24–38% on rationalization of voice tariffs and free SMS promos that shifted
usage from voice to SMS. Non-SMS data revenue continues to grow and now comprise10% and
17% of revenues for Telkomsel and XL, respectively.

MAPL.SI, Mapletree Logistics Trust (S$0.87) /Stable Yield, Steady Pace and Rating: Equal-weight
Singapore REITs: In-Line
Critical Mass – EW
Target: S$0.90
Morgan Stanley Asia (Singapore) Pte. 52-Week Range: S$0.91-0.56
[email protected], Wilson.W.Ng Mkt. Cap(mn): S$1,787
ModelWare EPS: S$0.06 (FY 12/'10),
Initiate at Equal-weight; price target at S$0.90. MLT offers a fairly high dividend yield of 7.1%, S$0.07 (FY 12/'11)
supported by a long-term sale-and-leaseback portfolio, geographic diversification, and a
relatively stable asset class. We believe the portfolio has reached critical mass, and MLT should
be viewed more as a logistics partner rather than simply as a landlord.
Valuation looks fair. While the 7.1% yield is below the historical average of 8.7%, current
valuation looks fair relative to long-term rates of 2%. However, we do not expect much yield
compression from here, as we see limited scope for acquisition in the near term.
Steady foundation:With a portfolio of 86 properties in seven countries across Asia, MLT is
establishing itself as a pan-Asian logistics partner, poised to benefit from economies of
scale/scope as it differentiates itself from the competition. Also, establishing a broader regional
presence opens up built-to-suit (BTS) development opportunities, which MLT announced it will
embark on, bolstering its inorganic growth pipeline. Along with a stable income stream, MLT’s
strength is in its steady foundation, and potentially firm yields, we believe..

4
MORGAN STANLEY RESEARCH
August 10, 2010
Asia/Pacific Morning Meeting Summary
Company/Industry Analysis
AUSTRALIA
BEN.AX, Bendigo and Adelaide Bank Limited (A$8.64) /Disappointing Result, Rating: Equal-weight
Australia Banks: Cautious
Optimism Required
Target: A$8.00
Morgan Stanley Australia Limited 52-Week Range: A$10.48-7.66
[email protected], David.Shi Mkt. Cap(mn): A$3,505
ModelWare EPS: A$0.75 (FY 6/'11), A$0.85
2H10 result disappointing;Negatives outweighed the positives. There was optimistic (FY 6/'12)
commentary from management on a range of key value drivers, but we have reservations about
whether these can be achieved. At the operating level, sources of upside rely heavily on factors
outside of management control. In addition, we do not believe that BEN has the capital flexibility
or proven capability to pursue its acquisition ambitions. Despite this, we retain our Equal-weight
rating because we believe a P/BVof ~0.9x, a P/NTA of ~1.6x and an F2011E P/E of 9.8x broadly
reflect our less optimistic expectations for returns and growth.
Key positives: (1) Optimistic commentary from management margin expectations, network
capacity, acquisition opportunities and ROE targets; and (2) a slight improvement in the funding
mix and a better outlook for securitization markets.
Key negatives: (1) Income below expectations due to a weaker-than-forecast margin
improvement; (2) A lower Tier 1 ratio and poor organic capital generation; (3) Renewed appetite
for acquisitions on the basis that the group has capital flexibility and proven M&A capability; and
(4) Little improvement in credit quality to make us more optimistic on the outlook for loan losses..

CHINA
1211.HK, BYD Company Limited (HK$54.00) /Cut Estimates on Margin Risks; Rating: Equal-weight
China Hardware Technology: In-Line
but 3Q Likely Presents as the Fundamental Trough
Target: HK$56.00
[email protected], Tim.Hsiao 52-Week Range: HK$88.40-38.80
Mkt. Cap(mn): Rmb107,121
Reducing our 2010-12e EPS, price target; Remain Equal-weight.Our new estimates reflect ModelWare EPS: Rmb2.02 (FY 12/'10),
lower auto shipment forecasts and to a greater extent lighter margin assumptions. Given likely Rmb2.55 (FY 12/'11)
delay in demand recovery and considerable downside risk to consensus earnings, we suggest
that investors stay on the sidelines until the 1H10 analyst meeting (22 August). We think BYD’s
secular growth story remains attractive but cyclical headwinds and richer-than-peers’ valuation
premium could pressure the stock nearterm.
Downside risks to margin on the rise.2Q auto sales were down 23% QoQ (or 4.8% of market
share), and monthly run rate fell to 33k units (versus its peak of 68k units in March) in July,with
another soft month in August. Industry oversupply, mounting competition and BYD’s compromise
between pricing and volume has caused a delay in recovery to September, at the earliest
Secular story unchanged.BYD’s outlook is supported byits technology innovation (eg. xEV),
in-house component (batteries) supply and early deployment in renewable energy coveringxEV,
solar and ultimately power storage station, as well as organic growth of its gasoline-based auto
business in China.

1133.HK, Harbin Power (HK$7.21) /Raise PT on Better than Expected 1H10 Rating: Overweight
China Power Equipment: Attractive
Result, OW
Target: HK$9.17
[email protected], Ivy.Lu 52-Week Range: HK$9.10-5.05
Mkt. Cap(mn): Rmb8,655
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MORGAN STANLEY RESEARCH
August 10, 2010
Asia/Pacific Morning Meeting Summary
Higher earnings forecastslift our price target from HK$8.08 to HK$9.17:On much ModelWare EPS: Rmb0.65 (FY 12/'10),
Rmb0.74 (FY 12/'11)
better-than-expected 1H10 results, we raise our 2010–12eearnings by 13-21%,assuming higher
GP margin and revenue. We saw strong momentum in Harbin’s nuclear business,withnew order
inflow of Rmb5.29bn in 1H10 vs. Rmb5.3bn in 2009.
Reiterate Overweight: With new management on board, lower steel pricessince 2H08 and a
quick catch-up in the nuclear business, we believe the worst for Harbin is over.We expect a
re-rating following its internal efficiency improvement and ramp-up of new energy business.
Valuation looks cheap:The stock trades at9.7x and 8.5x2010e and 2011e P/E, respectively, vs.
peers’ average of 20x and 17x.Net cash equals 70% of market cap.Harbin has underperformed
the Hang Seng Index by 23ppt during the past year and 33ppt since the October 2007 peak.We
believe the market has punished Harbin too much forits low profitability and earningsvisibility. We
believe Harbin can benefit the most from the expected industry re-rating.

SOHU.O, Sohu.com Inc (US$2.25) /Investment in Sogou by Alibaba May Help Rating: Overweight
China Internet: Attractive
Enlarge Search Market Share
52-Week Range: US$72.29-40.05
[email protected], Richard.Ji, Gillian.Chung, Philip.Wan, Timothy.Yh.Chan Mkt. Cap(mn): US$86
ModelWare EPS: US$3.62 (FY 12/'10),
Summary: Sohu announced that it would enter into a preliminary, non-binding term sheet for the US$4.49 (FY 12/'11)
possible sale of a 16% stake in Sogou (its online search business) to Alibaba Group and Yunfeng
Fund L.P., and a 16% stake to Dr. Charles Zhang, Sohu’s CEO. The amount of the proposed
investment and the pricing were not revealed, and the terms are still subject to various parties’
review and approval. Assuming the transaction is completed under the current terms, Sohu will
retain the remaining of 68% of Sogou and will continue to consolidate Sogou’s financials. We
estimate Sogou will contribute about 2-3% of Sohu’s total revenue and will continue to make a
loss in 2010. We expect the transaction to have a limited financial impact on Sohu in the near
term.
Sogou: A small online search player yet with unique competency: In April, Sogou had 4%
search queries market share in China and ~1% of paid search sales market share. We believe
Sogou has the potential to capture more market share as: 1) Sogou Pinyin, Sohu’s Chinese-
language input method has ~80% user market share in China. 2) Sogou Brower, which can open
pages, videos and social networking sites at a faster speed than other browsers, may help
promote Sogou’s brand awareness and attract more users given the increasing popularity of
online video in China. We reiterate our Overweight rating, with a DCF-based fair value of
US$66.2, which implies ~30% upside.

2899.HK, Zijin Mining Group (HK$5.60) /2Q10 Above on Higher Volume; Rating: Equal-weight
China Gold: In-Line
Maintain EW
Target: HK$5.00
Morgan Stanley Asia Limited 52-Week Range: HK$9.33-4.36
[email protected], John.Lam Mkt. Cap(mn): US$10,491
ModelWare EPS: Rmb0.36 (FY 12/'10),
Morgan Stanley Asia (Singapore) Pte. Rmb0.39 (FY 12/'11)
[email protected]
2Q10earnings above, full year volume guidance lowered; Stay Equal-wieght.The company
reported 2Q EPS of Rmb0.10, ahead of our Rmb0.09 forecast, owing to higher mine-produced
gold & coppervolume, as well as the lower income tax. Despite higher 2Q volume, the company
lowered full year guidance, due to the closure in Zijianshan gold and copper mines.
Valuation cheap, yet uncertainties ahead.While the stock trades at just 13x our 2011e EPS
and an implied gold price of US$772/oz, we remain Equal-weightgiven the uncertainties related
to the mine closure and compensation/penalties post the leakage accident. Historical
environmental issues in the M&M industry suggest a potentially longer government investigation,
and much higher compensation than management suggested.
6
MORGAN STANLEY RESEARCH
August 10, 2010
Asia/Pacific Morning Meeting Summary
Prefer Zhaojin (1818.HK, HK$18.32, O) for gold exposure: Since 2006,Zijin has been
diversifying into other metals such as copper and zinc. We forecast its gold production growth of
only low single digits in the next three years vs. Zhaojin’s 20%, leading to a further decline of gold
revenue of total to 65% in 2011 and 61% in 2012. Hence for investors looking for gold exposures,
we prefer Overweight-rated Zhaojin.

HONG KONG
0440.HK, Dah Sing Financial (HK$49.10) /Stronger Balance Sheet Helps Growth Rating: Overweight
Hong Kong Financial Services: In-Line
& Resumption of Dividend - OW
Target: HK$62.00
[email protected], Daniel.Shum 52-Week Range: HK$50.00-35.20
Mkt. Cap(mn): HK$13,041
1H10 earnings of HK$504 mn beats our HK$448 mn estimate; Remain Overweight.The key ModelWare EPS: HK$4.02 (FY 12/'10),
reason for the beat was much lower than expected loan loss provisions. On the negative side, HK$4.92 (FY 12/'11)
core revenue was weak. NIMs compressed by 5 bps sequentially and deposits were flat HoH.
Asset quality: Loan loss provisions declined to just 10 bps for 1H from 50 bps in 2H09 and 80 in
1H09. We were expecting credit costs to decline, but not at this pace. Credit issues are now
seem to be behind.
Stock remains very attractively valued. We raise our price target to HK$62 to reflect an
improving balance sheet. Moreover, we expect re-rating of smaller banks in HK to continue,
reflecting recent events in the mid cap space.

China Transportation: Industry Overhang Suggests a Differentiation Strategy China Transportation: In-Line
Morgan Stanley Asia Limited
[email protected], Andy.Meng, Tommy.Cw.Wong, Victoria.WY.Wong
Morgan Stanley Asia (Singapore) Pte.
[email protected]
We see good intrinsic values in Chinese airports. Following 0-24% year-to-date share price
corrections, our DCF fair values show 2% downside to 62% upside potential from current levels.
Factoring in risk from cancellation of airport construction fee (the fee):We lower our price
targets, using a probability-weighted approach for BCIA (0694.HK, HK$4.28, E), HMA (0357.HK,
HK$8.69, O) and GBIA (600004.SS, Rmb10.63, E). We suggest selectively owning stocks with
least exposure to this risk in the near term. We reiterate our Overweight ratings on SIAC
(600009.SZ, Rmb13.63), SACL (000089.SZ, Rmb6.10) and XIAC (600897.SZ, Rmb17.44).
We still like HMA (0357.HK, HK$8.69, O) despite our lower price target.We factor in the risk
of fee cancellation (2011e revenue Rmb120mn), which should be outweighed by potential
positives from its planned asset acquisitions and A-share IPO, special dividend payout, and
consolidation of the Hainan market. We cut GBIA to Equal-weight, and maintain our Equal-weight
rating on BCIA (0694.HK, HK$4.28). In our view, they have the most significant exposure to fee
cancellation risk in the near term – 2011e revenues of Rmb1,031mn for BCIA and Rmb565mn for
GBIA.

INDIA
RLCP.BO, Reliance Capital (Rs768.45) /F1Q11 – Trends Continue to be Muted Rating: Equal-weight
India Financial Services: In-Line
Morgan Stanley India Company Private Limited
Target: Rs790.00
[email protected], Subramanian.Iyer
52-Week Range: Rs972.90-611.30
Mkt. Cap(bn): Rs189.2
Morgan Stanley Asia Limited
ModelWare EPS: Rs25 (FY 3/'11), Rs25
[email protected]
(FY 3/'12)
7
MORGAN STANLEY RESEARCH
August 10, 2010
Asia/Pacific Morning Meeting Summary
F1Q11 pre-tax profit at Rs 977mn, down 41% YoY, up 4% QoQ.PBT from AMC, broking and
consumer finance businesses was up 46% YoY but down 34% QoQ. Capital gains contribution
was significantly lower at Rs100 mn, down from Rs670 mn the prior quarter. However, this drop
seems to have been offset by higher finance and investments income.
Key trends across the various business segments.Life insurance: Market share was lower at
9.8%. NBP margins were lower at 17.7%. Management indicated that it is targeting NBAP margin
of 17-18%, offseting the hit from regulatory changes via cost rationalization and product mix
changes.
Asset management: Average domestic AUMs were down 11% QoQ but their market share
ticked up sequentially equity AUM proportion increased. PBT was down 29% QoQ (owing to
lower AUMs) but was up 23% YoY. On consumer finance, the unsecured loan book continued to
contract and was down 18% QoQ/54% YoY. Excluding the same, the loan book was up 2%
QoQ/26% YoY.

TAIWAN
3481.TW, Chimei Innolux (NT$39.80) /Back in Style Rating: Overweight
Taiwan TFT LCD: Attractive
Morgan Stanley Taiwan Limited
Target: NT$48.00
[email protected], Jerry.Su
52-Week Range: NT$57.50-32.40
Mkt. Cap(mn): US$9,185
Summary: CMI hosted its long-awaited first conference call since the announcement of its
ModelWare EPS: NT$3.28 (FY 12/'10),
merger in 4Q09. CMI's mission ahead: 1) Synergy: Innolux Shenzhen site is over capacity. NT$3.72 (FY 12/'11)
Transferring large module and assembly production to CMO Ningpo and Nanha sites; EPS, basic, rpt'd: NT$3.35 (FY 12/'10),
NT$3.74 (FY 12/'11)
transferring small/medium-sized module production to TPO Nanjing site. 2) Technology: CMI
licensed IPS technology from Hitachi for Apple iPad production. It is increasing touch panel
capacity to suit Apple’s needs. 3) Financials: CMI looks to lower debt via inventory control and
capex discipline. 4) Profitability: optimizing Innolux’s module strength to CMO and TPO sites;
optimizing CMO’s panel strength to Innolux and TPO sites. We reiterate our Overweight rating on
CMI, with ~20% upside.
What's new: We raise our 2010 EPS to NT$3.35 from NT$2.71 on better-than-expected 2Q10
results. CMI reported 2Q10 EPS of NT$1.30 (net profit of NT$9.5bn), beating our estimate of
NT$0.73. 2Q10 GM/OM/EBITDA margins were 12.8%, 7.9%, and 24.1% vs. 10.3%, 6.1%, and
15.1% in 1Q10.
3Q10 guidance: 1) Overall shipment: flat to slightly down Q/Q in 3Q10. 2) Overall blended ASP:
flat to slightly down Q/Q in 3Q10 (certain commodity panel prices down by 10% Q/Q). 3) 3Q10
utilization rate will fall sequentially. 4) 2010 capex guidance: NT$80-100bn on Gen 6/8.5
expansion, LTPS technology, and touch panel deployment. 2H10 capex will be ~NT$40-60 bn
vs. depreciation of ~NT$50bn. 5) Component cost decline will be marginal in 3Q10.

2451.TW, Transcend Information (NT$91.10) /Back on Track in 2H10, EW Rating: Equal-weight
Taiwan DRAM: In-Line
Morgan Stanley Taiwan Limited
Target: NT$96.00
[email protected], Frank.Ay.Wang
52-Week Range: NT$124.00-79.00
Mkt. Cap(mn): US$1,226
Price target down to NT$96; Remain Equal-weight. Our lower price target reflects soft 2Q
ModelWare EPS: NT$7.20 (FY 12/'10),
profit. 2H revenue should grow sequentially driven by seasonal demand and new initiatives in NT$9.37 (FY 12/'11)
emerging markets, though gross margin should stay in a 10–13% range on competition and soft EPS, basic, rpt'd: NT$7.30 (FY 12/'10),
NT$9.50 (FY 12/'11)
pricing for NAND Flash and DRAM. Transcend will pay NT$6 cash dividend in September; we
would look for an entry point if stock falls to 11x 2010e P/E.
2H10 rebound on European recovery and emerging markets growth. 2Q revenue fell 18%
Q/Q (vs average 4% Q/Q decline) on weak European demand. We expect revenue from Europe
will start to recover in late 3Q10 on seasonality and inventory restocking. Emerging markets
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MORGAN STANLEY RESEARCH
August 10, 2010
Asia/Pacific Morning Meeting Summary
demand including India, Russia, the Middle-East, and China was in line in 2Q. We expect
emerging markets will remain a growth driver for Transcend in 2H10 on solid distribution
channels and a good brand image.
SSD Demand Ramp Up in 4Q. SSD (Solid State Disk) will become an alternative storage option
for consumers and the DIY market on Kingston and Intel’s push. Kingston has been promoting
64GB SSD at ~US$160 for both desktops and notebook PCs. We expect consumer demand will
ramp up rapidly in 4Q10 and 1H11 for 32/64 GB application as NAND Flash ASP will continue to
fall on advanced process migration. Transcend will benefit from this trend given it has developed
a full range of SSD products (32/64/128 GB, both SATA/IDE interface) ready with DRAM cache
for faster data transfer.

9
MORGAN STANLEY RESEARCH
August 10, 2010
Asia/Pacific Morning Meeting Summary

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Coverage Universe Investment Banking Clients (IBC)
% of % of % of Rating
Stock Rating Category Count Total Count Total IBC Category
Overweight/Buy 1095 42% 380 44% 35%
Equal-weight/Hold 1123 43% 388 45% 35%
Not-Rated/Hold 14 1% 4 0% 29%
Underweight/Sell 362 14% 93 11% 26%
Total 2,594 865

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