David & Goliath
Research Analyst
Kenny Lau, CFA
(Regional Sector Head)
852 2101 7914
Gabriel Chan, CFA
(Hong Kong Small Caps/Macau Gaming)
852 2101 6523
Adrian Chan
(Hong Kong Small Caps)
852 2101 6469
Jinsong Du
(China Small Caps/Healthcare)
852 2101 6589
Justin Liu
(China Small Caps)
852 2101 7350
Teddy Oetomo
(Indonesia Small Caps)
62 21 2553 7911
Sanghoon Kim
(Korea Small Caps)
822 3707 3737
Minseok Sinn
(Korea Small Caps)
822 3707 8898
Foong Wai Loke
(Malaysia Small Caps)
603 2723 2082
Su Tye Chua
(Singapore Small Caps)
65 6212 3014
Clarice Khoo
(Singapore Small Caps)
852 2101 6035
Sidney Yeh
(Taiwan Small Caps)
886 2 2715 6368
Chai Techakumpuch
(Thailand Small Caps)
662 614 6211
WEEKLY ANALYSIS
Looking for small-cap laggards?
The more undervalued Asian small caps have outperformed the large caps by
7% in the past five months. Taiwan, China and Indonesia are the most powerful
small-cap arenas in the region. Interest in small caps is escalating when
investors have finally noted their outperformance and potential to generate beta.
There are two common questions to D&G, “which small caps drove the index
outperformance? Are there still good small-cap laggards with potential upside?”
Although the overall small-cap sector has done well, it is not a blind buy – 78%
of China small caps outperformed the large caps, but there are only 53-68% of
small caps outperforming the MSCI indices in other markets. Buying small caps
still needs to be selective to outperform. The industrial and consumer
discretionary small caps, which were believed untouchable amid the economic
slump, outperformed the most in the past months.
D&G has ranked the small-cap constituents in each market by their YTD share
price performance. To look for laggards, we can refer to the full lists in “Got to
know” (p 4-22). However, D&G seldom does so because looking for small-cap
laggards is usual a reliable indicator of a (short-term) market peaking. Investors
are suggested to wait for D&G’s next batch of carefully selected “hidden jewels.”
Chart of the week
How do the Asian small caps outperform?
YTD gain Out- % o/p small caps vs Most outperforming
Market CS small caps MSCI performance CS small-cap MSCI small-cap sector
China 44% 22% 19% 48% 78% Ind & con discretionary
Hong Kong 29% 24% 5% 54% 57% Consumer discretionary
Indonesia 50% 33% 13% 51% 68% Financials & con staples
Korea 34% 24% 8% 57% 66% Ind & con discretionary
Malaysia 23% 18% 4% 46% 53% Industrals
Singapore 27% 24% 2% 51% 55% Industrials & financials
Taiwan 51% 42% 6% 50% 60% Information technology
Thailand 25% 20% 4% 47% 53% Financials & industrials
NJA 34% 26% 7% 52% 61% Ind & con discretionary
Source: Datastream, Credit Suisse estimates
Davids of the week:
Indonesia: United Tractors – seeing recovery in equipment volume with positive
leverage on a weaker IDR; 10.3x 09E P/E, 21% potential upside (p. 43)
Singapore: Venture – cost rationalisation initiatives implmented have kicked in
faster than anticipated; 11.8x 09E P/E, 7.5% yield, 11% potential upside (p. 70)
Taiwan: Cheng Uei – management’s expectation of double-digit growth in 2009
revenue should be too optimistic; 14.5x 09E P/E, 9% potential downside (p. 79).

The tales of Davids
Hong Kong
Luk Fook – Management expects margin improvement due to higher gold price and lower rent 28
China
Yili – A mixed bag from FY08 and 1Q09 results 34
Home Inns – 1Q09 likely to show an operating loss 34
China Yurun – 1Q09 performance on track though depressed hog prices yield risks on supplies 35
Indonesia
Ramayana – 1Q09 results in line, but outlook improving 42
Bakrieland – 1Q09 results soft but FY09E may be skewed to 2H09E + highly undervalued 42
Kalbe Farma – 1Q09 results in line but share price has rallied 43
United Tractors – New report: Still positive, with ample catalysts 43
Bank Pan Indonesia – At premium to regional peers 44
Inco – 1Q09 profit mostly from other income 44
Ramayana – Trend of stabilisation continues 45
Korea
Daum – Afterthoughts on the 1Q09 results – a long and winding road to an earnings rebound 49
MKIF – Solid results but earnings reduced due to potential delay in near-term refinancing activities 49
Megastudy – “Ban on offline tutoring classes after 10 p.m.” may not be implemented 50
LG Innotek – Stronger 1Q09 results and healthier 2Q09 guidance, but demanding valuations 50
LG Micron – Stronger 1Q09 results and 2Q09 guidance, although mostly priced in already 51
SK Broadband – Potential restructuring to drive share performance 51
Taewoong – 1Q09 results in line with consensus; potential margin pressures still there 52
Hyundai M&F – Downgrading to NEUTRAL 52
Dongbu Insurance – Short-term relief to the group-related concern 53
LIG Insurance – Too early to take profit 53
Meritz F&M – Strong earnings recovery ahead 54
Malaysia
AirAsia – New report: Growth in the face of adversity 63
Sinagpore
CCT – 1Q09 results: revenues in line, rights issue still a possibility 69
SingPost – FY09 results broadly in line; challenging outlook ahead 69
Venture – 1Q09 signals cost rationalisation initiatives kicking in 70
COSCO Corp – A contract win may boost sentiment but valuations not supported by fundamentals 70
Raffles Education – Moving on from ORIC, and on to zero borrowings by end-2010 71

COSCO Corp – 1Q09 disappoints on lowest quarterly profit in three years 71
Wing Tai – 3Q09 results: below expectations, but market risk aversion has subsided 72
Taiwan
Everlight – Better 1Q09 results helped by sustained gross margin 78
Realtek – Robust 2Q09 after a better-than-expected 1Q09 78
Taiwan Fertilizer – New report: 1Q09 should be bottom for 2009 79
Cheng Uei – Company update – new customers could be positive catalysts 79
Thailand
TISCO Financial – New report: Still a favourite to win 86