20 January 2009
DB Access China Conference
Economic and company
highlights
David-J Clark
Research Analyst
(+852) 2203 6149
david-j.clark@db.com
Jun Ma, Ph.D
Chief Economist
(+852) 2203 8308
jun.ma@db.com
Jack Frew
Research Analyst
(+852) 2203 6197
jack.frew@db.com
DB's 2009 Access China conference, held from Jan 13-16 in Beijing, received over
1,300 attendees and featured speakers including senior government officials,
prominent Chinese corporates and leading industry experts. This compendium
consolidates the Research published by our analysts last week.
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http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Compendium
Post Conference Picks
Beijing Enterprises (0392.HK),HKD30.00 Buy
China Comservice (0552.HK),HKD4.86 Buy
China Dongxiang (3818.HK),HKD2.12 Buy
China Life Insurance (2628.HK),HKD22.40 Buy
China Mobile (0941.HK),HKD69.15 Buy
China Vanke (200002.SZ),HKD6.08 Buy
China Railway Contr (1186.HK),HKD10.72 Buy
China Southern Airlines (1055.HK),HKD1.28 Buy
Huabao Int'l (0336.HK),HKD5.34 Buy
Huadian Power (1071.HK),HKD1.53 Buy
ICBC (1398.HK),HKD3.45 Buy
Sinopec-H (0386.HK),HKD4.46 Buy
Zijin Group. (2899.HK),HKD4.27 Buy
Global Markets Research Company
- Macro: We see a growing likelihood of a near-term production recovery from the
recent trough in November. Supporting evidence includes inventory restocking
and improvements in power production growth and PMI from December. At the
policy level, we expect strong loan growth to continue in the coming months and
Rmb1tr funding for infrastructure projects to reach the project level by end-
February. Swift implementation of the government-led projects will have an earlierthan-
expected positive impact on production growth and should provide shortterm
support for demand for raw materials and energy. On the medium-term
growth outlook, however, we maintain our view of a double-dip, or a W-shaped
recovery. When the initial impact of policy stimulus fades, we expect GDP growth
to resume its deceleration, hitting the second (final) trough in H1 2010.
- Banks: Our recent meetings with the management of the major Chinese banks
and regulators lead us to believe that there has been strong credit demand in late
2008 and year to date 2009. As the loan approval process could take some time,
there has been a strong surge in discounted bills in Nov. and Dec. 2008. In our
view, 1Q09 loan growth could surprise on the upside as these discounted bills
mature and turn into new loans. Top pick: ICBC.
- Insurance: Insurance companies are expecting the embedded value impact from
slowing premium growth to be cushioned by rising margins. We expect the lowermargin
investment type of life insurance to weaken and the higher-margin
protection-type of life insurance to benefit. In addition, the proportion of business
sold in rural areas (which is benefiting from urban-rural migration flows) is highly
skewed towards the higher-margin protection-type of insurance. This benefits our
preferred pick of the large-cap Chinese insurers, China Life, at the expense of Ping
An.
More sector summaries are contained on pages two and three, and all Conference
updates are included at the back of this compendium.

- Property: Feedback from the conference reinforces our cautious near-term view due to
potential weak 1Q transaction volumes and scope for the upcoming earnings season to
disappoint the market. We maintain our view that residential prices will fall 10%-15% in 2009
(yoy). However, we expect transaction volumes to increase modestly (c.5% in 2009 yoy) due
to favourable government policy boosting mass market demand. Despite our negative shortterm
view, we believe the sector will be up modestly yoy. Our top Buy is Vanke, and our top
Sells are CR Land and Agile.
- Consumer: Corporates are cautious about whether sales momentum will continue after
CNY. While they remain hopeful for a recovery in 2H09, most corporates mentioned that
visibility is poor and much depends on the 1H09 unemployment rate and the impact of the
stimulus plan. Many corporates have already scaled back store opening plans. However, we
believe some of the SSS growth guidance is still high. China DX stands out as more
transparent than most by providing investors earnings sensitivities to declines in SSS, which
is one reason we keep this stock as one of our top picks (alongside Huabao) in a sector
where we are underweight.
- Industrials (rail): Feedback from the conference reinforces our bullish view on China's
railway construction sector. China will spend Rmb600bn on railway infrastructure
construction in 2009E and is expected to spend more in 2010E to fulfill an aggressive railway
network growth target of 55% annual growth on high speed rail lines. Railway construction
companies should see stable margins thanks to the correction in the price of raw materials.
Our top Buy in the sector is still CRC due to the company's focus on railway (67% of net
profit is derived from railway-related business). Our top Sell is CSR due to the company's
capacity constraints and expensive valuation (highest EV/EBIT in the sector).
- Industrials (auto): Feedback from the conference points to a contraction in both passenger
vehicle (PV) and commercial vehicle (CV) sales volumes in 1H09. Our current view is for PV
and CV sales to contract 3% and 19% yoy, respectively, in 1H09. However, the stimulus
package is likely to aid a turnaround in 2H09. We expect PV sales volume to grow by 6% in
2009 and see some upside risk to our view that heavy truck sales volumes will fall 25% yoy.
Lower commodity prices will help margins, but margin contraction across the auto sector still
looks unavoidable. We prefer Denway.
- Oil/Gas: Following presentations by both Petrochina and Sinopec, we are confident that
the new refined product prices and new tax structure will allow surprisingly wide margins for
both refiners that will persist at least through the first half of the year. Sinopec has greater
refining leverage, and we rate it a Buy. We rate Petrochina and CNOOC a Hold due to DB's
bearish outlook for crude pricing through 2010.
- Metals/mining/materials: We remain cautious on this sector due to high inventories and
low product prices. While steel and bulk materials prices have rebounded some, companies
are unconvinced that demand recovery is sustainable. Base metals are limited beneficiaries
of the stimulus package, and production volumes will likely remain high despite low finished
metal prices as raw material prices have softened. The one bright spot is cement, which will
be the first (and most direct) beneficiary of demand creation through the stimulus package.
Regarding coal, contract pricing appears to be at greater risk than originally thought as large
IPPs demand price cuts and national coal inventories are high. We recommend a Sell on all
metals and materials stocks except CNBM and Zijin.
- Telecom services and equipment: Several data points suggest incremental competition
(e.g., CT doubling CDMA capex in 2009 to Rmb50bn), but we feel that the much-discussed
onset of new competition will prove particularly costly this year for those seeking higher
subscriber numbers (e.g., CT and CU). We prefer China Mobile as it looks most likely to enjoy
EPS growth. Moreover, it has the greatest top- and bottom-line visibility, as the other two

operators invest heavily through new capacity and subsidies to build market share. On the
equipment side, we believe the worst has past on pricing, and upside surprise on TD-SCDMA
and CDMA spend should provide support to equipment vendors such as ZTE and
outsourcers such as China Comservice. We prefer CCS given its greater dominance in its
main line of service (Telecom Infra Service), and thus lessened vulnerability to margin
contraction.
- Transport: (Shipping, dry bulk): We remain cautious on the outlook for dry bulk shipping
for the rest of the year because of weakening demand and growing supply. At current BDI
levels, most companies will lose money. We expect greatly reduced earnings this earnings
season and more newbuild order cancellations, scrapping and bankruptcies. However, one
upside risk is the possibility the stimulus measures in China will boost demand for steel and
iron ore, and hence dry bulk shipping. We are sticking to our Sell recommendation on the
sector (with Sell ratings on China Cosco, China Shipping Development and Pacific Basin).
- Transport (Airlines): During the conference the regulator (CAAC) and Air China were more
optimistic than DB on domestic demand, expecting about 10% overall traffic growth in 2009
(we assume c.5%). They believe that capacity growth will be broadly in line with demand.
The regulator believes the government is likely to continue to support the sector as it is
crucial to the well-being of the whole aviation supply chain (e.g., jet fuel suppliers and
airports). According to Air China, pricing pressure has stabilized, and the company plans to
control capacity growth by hastening retirement of older aircraft and re-configuration (no
surprises here). We maintain our preference for CSA (Buy).
- Utilities (IPPs): The IPPs are looking for a c.5% contraction in utilisation hours in 2009.
However, they remain confident about coal price negotiations and expect spot coal prices to
trend down gain in March. None of the IPPs expects nationwide tariff cuts (unless we see
another big collapse in coal prices) despite evidence that some local governments have
already cut tariffs. Overall, the tone was a little less upbeat than our assumptions, but we
caution that this could be a tactical stance prior to the settlement of contract coal prices. Our
top picks are Huadian Power and Datang Power.
- Utilities (city gas): With natural gas supply still being a bottleneck, conference meetings
confirmed our view that overall natural gas consumption in China will continue its growth
momentum despite economic uncertainty in 2009E. However, the property market
slowdown represents a downside risk to earnings for most city gas operators, which still rely
heavily on connection fees as a major source of income. Our top pick is Beijing Enterprises
(Buy) because the company has no reliance on connection fees (earnings are primarily
generated from recurring gas sales).