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XHICT in November 2010. XHICT is 51% owned by Xiamen Haicang Port (XHP) and XHP is 70% owned by XIPC. In November 2010, XHICT received an additional capital injection from its shareholders. Simultaneously, XIPC disposed certain newly built assets in berth no.1 of Haicang Port to XHICT at a consideration of Rmb198mn. We estimate the disposal gain amounts to Rmb42mn, based on Rmb113mn book value and an effective 49% ownership transfer. Accordingly, we revise up our 2010E net profit forecast by Rmb42mn to Rmb305mn and maintain our core earnings unchanged for 2010-2012, mainly to reflect the one-off disposal gain. Looking ahead, we believe XIPC’s growth momentum will be mainly driven by the overall foreign trade data in Fujian as we estimate over 80% earnings and EV is related to the container business and over 85% of the container throughput is for foreign trade. According to China Custom, the export value in Fujian increased by 38.9% yoy to US$7.56bn in January 2011, which is lower than the industry average of 43.9% during the same period. In addition, import value in Fujian registered 47% yoy growth to US$3.88bn, which is also below the 51% yoy overall growth in China. Valuation We maintain our target price unchanged at HK$1.47, using DCF-based SOTP. We reiterate our Sell rating on XIPC, relative to Dalian Port and Tianjin Port Development.
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Asia-Pacific Morning Summary
February 15, 2011
Key risks Better-than-expected domestic and international container transshipment.
Technology Asia Pacific: Technology: A shift from capex to JV: Turning point for high-power LED makers Liang-chun Lin (Taipei): liang.lin@gs.com, +886(2)2730-4185 Goldman Sachs (Asia) L.L.C., Taipei Branch Marcus Shin (Seoul): marcus.shin@gs.com, +82(2)3788-1154 Goldman Sachs (Asia) L.L.C., Seoul Branch Maggie Lu (Taipei): maggie.y.lu@gs.com, +886(2)2730-4188 Goldman Sachs (Asia) L.L.C., Taipei Branch Epistar sets up a new JV for the LED lighting business According to Commercial Times (Feb 12), Epistar has set up a US$35mn JV for LED chip production with Delta Electronics after recent breakthroughs in high-power LED bulb technology. Epistar will run the 70%owned company, based in Guangdong, China. Epistar’s other JVs partners in the lighting business include China Electric Corp and Toyoda Gosei. In our view, this shows Epistar has shifted its focus from scale to business strategy alignment and technology alignment in anticipation of the lighting market’s growth. We prefer Epistar over Korea LED makers like LG Innotek and Seoul Semi, largely due to product mix. Moreover, we believe Epistar’s limited capex spending for 2009-2010 should lower its fix-cost burdens, yet its business JV should lead to improved profitability in 2011. As a result, we reiterate our Buy rating (on Conv. List) on Epistar. Taiwan LED chip makers should benefit the most from growth in China LED lighting market China is the biggest LED lighting market, including professional and street lighting for high-power LED chip makers where localized operations are important. Though China intends to reduce its reliance on foreign suppliers such as Cree (Not Covered), domestic players can currently only produce lower-power LED chips used in LCD backlighting. We believe that these less expensive LED chips are not competitive in high-end lighting devices, and estimate it could take up to two years for domestic LED chip makers to catch up with companies like Epistar. Accordingly, we expect Taiwan LED chips makers to benefit the most compared to Korea peers given their advanced technology and proximity to the growing China market. Critical for LED makers to develop a high-power LED roadmap We believe 2012 will be the first year for the LED lighting business which requires using high-power LED to expand into the consumer market (retro-fit light bulb). We expect high-power LED makers to develop better chip and packaging design to achieve at least 150 lm/W (a sweet spot for consumer market) vs. 100 lm/W currently. Currently leading LED chip makers use either the vertical method (Cree, Osram) or the flip-chip method (Lumiled) to improve brightness and heat dissipation for high-power LED chips. Both methods involve higher costs despite the epi-wafer breakthrough. Epistar currently focuses on chip size upgrades and increasing the electricity-light conversion rate, which is still competitive considering the cost and performance vs. the vertical/flip-flop method, in our view.
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Goldman Sachs Global Investment Research
Asia-Pacific Morning Summary
February 15, 2011
Ctrip.com International (CTRP): Above expectations, but soft 1Q guidance a concern CTRP, US$42.97 Market cap Target price Fiscal y/e Dec Net inc. (US$) EPS (US$) EPS growth P/E Dividend yield Investment Lists Neutral Coverage view Neutral 2011E US$6,059 mn US$42.00 2012E
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224.0 mn 281.1 mn 1.49 14.5% 28.8X -1.82 22.4% 23.6X --
Catherine Leung (Hong Kong): catherine.leung@gs.com, +852-2978-1291 Goldman Sachs (Asia) L.L.C. James Mitchell, CFA (New York): james.mitchell@gs.com, (212) 357-1849 Goldman Sachs & Co. Lisa Yuan (Hong Kong): lisa.yuan@gs.com, +852-2978-2679 Goldman Sachs (Asia) L.L.C. Fei Fang (Hong Kong): fei.fang@gs.com, +852-2978-1466 Goldman Sachs (Asia) L.L.C. What surprised us 4Q revenues and earnings were above our and consensus expectations. Revenues grew 39% yoy (31% if excluding Wing On and ezTravel), and the material earnings beat was in part helped by a government subsidy. 1Q11 guidance for 20% revenue growth was below our/consensus expectations for 37%/34% growth, attributed to conservatism from particularly limited visibility as CNY holiday ended last week (with earlier timing rendering Jan comparison difficult), high 1Q10 base, and possibly softer traveler sentiment. By segment, hotels were guided to +10% yoy, air +15%, packaged tour +70% (Wing On at 5% of revenues), and corporate travel +15%; absolute commissions to be stable. On margins, 4Q operating margin ex-SBC was stable at 44.7%, but we expect margins to trend lower in 2011E to 43.0% (from 45.0% in 2010), due to higher R&D and S&M for new/online business growth, flatter commission growth and wage inflation. Ctrip also announced an investment in Dining Secretary, a provider of restaurant reservations in China, and the launch of Lvping.com, a travel review website that will incorporate both Ctrip and third-party reviews. What to do with the stock We view the materially below-consensus 1Q guidance (even considering Ctrip’s usual conservatism) as adding to investor uncertainty over impact of competition (with online now 40%+ of Ctrip’s transactions) and softer travel demand, even prior to peak high-speed rail impact, which could keep shares range-bound. On the back of the results we lower 2011/2012E EPS by 2%/3% and introduce 2013E ests. We lower our 12m target price from $46 to $42 (28X 2011E P/E from 30X due to lower growth). Upside risks: better travel demand, cost control; downside: competition, inflation.
MStar Semiconductor (3697.TW): Above expectations: TV recovery in 1Q11; good cost control; Buy Donald Lu, Ph.D (Beijing): donald.lu@ghsl.cn, +86(10)6627-3123 Beijing Gao Hua Securities Company Limited Evan Xu (Beijing): evan.xu@ghsl.cn, +86(10)6627-3176 Beijing Gao Hua Securities Company Limited Lingling Hu (Beijing): lingling.hu@ghsl.cn, +86(10)6627-3520 Beijing Gao Hua Securities Company Limited
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What surprised us MStar reported 4Q2010 revenue/operating income/net income of NT$8.2bn/1.4bn/1.6bn, which were 0%/+3%/+5% vs. our estimates of NT$8.2bn/NT$1.4bn/NT$1.5bn. The company guided for 1Q2011 sales to be up 0%-6% qoq in US dollar, GPM of 41%-43%, and OPM of 22%-24% vs. our estimates of flat qoq in US dollar, 42.1%, and 21.3%, respectively. Highlights: 1) MStar expects handset shipments to increase 40%50% qoq in 1Q2011, with stable ASPs and shipment to quickly ramp up in 2H11, in line with our estimates of 5mn in 4Q10 and 7mn in 1Q11. Management indicated that none of its major customers have had significant product returns and that it has been focusing on handset software issues and is making progress; 2) MStar noted that 42% of its total share is locked up for 3 months post IPO, of which 10% is owned by the key management members and founders, and will continue to be locked for another 21 months; 3) TV shipment is up qoq thus far in 1Q11 after the inventory correction in 4Q10. Mstar continues to expect TV ASPs to remain relatively stable or slightly higher yoy barring a meaningful product mix shift to low-end TVs in 2011; and 4) MStar highlighted that its STB products started shipping and expects the STB business to ramp-up and contribute to approximately 5% of total revenues in 2012E.
Goldman Sachs Global Investment Research
Asia-Pacific Morning Summary
February 15, 2011
What to do with the stock We view MStar results as incrementally positive as it alleviates concerns of continued weak TV demand and demonstrates that MStar’s handset business is progressing along. We slightly raise our 2011E/2012E diluted EPS by 2%-4% on higher margins, maintain our Buy rating and raise our 12m TP to NT$295 from NT$285 to reflect earnings revisions, still based on 16.5X NTM (2Q11E-1Q12E) P/E. Our 2010 diluted EPS reflects updated share count. Risks: slower-than-expected handset volume ramp-up.
Patni Computer Systems Ltd. (PTNI.BO): Below expectations: Muted growth, margin decline disappoints, Sell PTNI.BO, Rs459.95 Market cap Target price Fiscal y/e Dec Net inc. (Rs) EPS (Rs) EPS growth P/E Dividend yield Investment Lists Asia Pacific Sell List Coverage view Neutral 2011E US$1,323 mn Rs391.00 2012E
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5,044 mn 5,668 mn 37.46 (19.3%) 12.3X 1.0% 42.10 12.4% 10.9X 1.3%
Rishi Jhunjhunwala (Mumbai): rishi.jhunjhunwala@gs.com, +91(22)6616-9039 Goldman Sachs India SPL Balaji V. Prasad (Mumbai): balaji.prasad@gs.com, +91(22)6616-9179 Goldman Sachs India SPL Santosh Chimmalgi (Bangalore): santosh.chimmalgi@gs.com, +91(80)6637-8655 Goldman Sachs India SPL What surprised us Patni Computer Systems posted 4Q2010 revenues of Rs8.2bn (-0.2% qoq) and EBIT of Rs1.13bn (15%/8% below GSe/Bloomberg consensus). Adjusting for forex gains of Rs365mn ($8.1mn) and one-time tax write back of Rs340mn ($7.5mn), PAT was 15% below our estimates at Rs1.24bn. EBIT margins compressed by 134 bp on lower utilization (-160 bp qoq) and high attrition rate of 25.2%. BPO continued to grow at a strong pace (up 20% qoq) on the back of inorganic ramp-up, however, all other service areas witnessed sequential decline indicating a muted revenue growth outlook. iGATE deal update: Mgmt expects the transaction to close by end of April and in the interim are working towards integration to align for synergies. Mgmt has discontinued giving formal quarterly guidance pending the iGATE integration. However, it did reiterate expectations for a modest 3%-4% sequential revenue growth and 16%-17% operating margin (excluding FX). What to do with the stock We reiterate our Sell rating and maintain our 12-m Director’s Cut-based target price of Rs391, implying a 15% potential downside. We reduce our 2011E-12E EPS estimates by up to 4% on a muted revenue outlook and introduce 2013E EPS of Rs48.18. We believe that Patni’s lower exposure to high growth services and overhang regarding the iGATE deal will lead to a modest 15%/1% revenue/EPS CAGR over 2010-2013E. Stock currently trades at 12.3X P/E on CY2011E EPS which is in line with its 6-year historical average and mid-cap multiples. We believe it warrants a discount considering the muted future outlook. Risks: inorganic growth, business turn-around.
PTI, US$20.10 Market cap Target price Fiscal y/e Dec Net inc. (Rs) EPS (Rs) EPS growth P/E Dividend yield Investment Lists Asia Pacific Sell List Coverage view Neutral 2011E US$2,642 mn US$17.00 2012E
5,044 mn 5,668 mn 37.46 (19.3%) 24.5X 0.5% 42.10 12.4% 21.8X 0.6%
South Korea: Technology: New product launches at MWC inline with expectations Michael Bang (Seoul): michael.bang@gs.com, +82(2)3788-1655 Goldman Sachs (Asia) L.L.C., Seoul Branch Marcus Shin (Seoul): marcus.shin@gs.com, +82(2)3788-1154 Goldman Sachs (Asia) L.L.C., Seoul Branch Hyunwoo Nam (Seoul): hyunwoo.nam@gs.com, +82(2)3788-1704 Goldman Sachs (Asia) L.L.C., Seoul Branch
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Samsung Electronics unveils next gen Galaxy line up Samsung Electronics (SEC) unveiled several new models at the Mobile World Congress (MWC). The highlights of SEC’s line up were the next generation Galaxy S smartphone and Galaxy Tab. The Galaxy S II
Goldman Sachs Global Investment Research
Asia-Pacific Morning Summary
February 15, 2011
smartphone will run Android 2.3 and come with a 4.3” Super AM OLED Plus screen, SEC’s own 1GHz dual core processor, 8MP camera, 1GB mobile DRAM, and will be thinnest smartphone available at 8.49mm. The Samsung Galaxy Tab 10.1 comes with a 10.1” WXGA LCD screen and is equipped with a Tegra dual core chip, Android 3.0, two cameras (2MP front, 8MP rear), and will come in 16GB and 32GB versions. According to Vodafone, the Galaxy Tab 10.1 will be available in over 20 markets this spring. LG Electronics adds one model to CES line up LG Electronics (LGE) meanwhile added only one new model to the same line up that they showed at International CES 2011. LGE introduced Optimus 3D which LGE claims to use several first technologies including dual-core, dual-channel and dual-memory architecture as well as the first 3D platform allowing for 3D content without glasses. The Optimus 3D is expected to be available from 2Q11 with Android 2.2. Recall that at CES LGE introduced the Optimus 2X, Optimus Black, and G-Slate all of which would be available in 1H11. New models supports our forecasts The models introduced by SEC and LGE supports our view that SEC and LGE will be able to reach our 2011 smartphone shipment estimates of 63mn units (up 160% yoy) and 19.5mn units (up 200% yoy), respectively. Although smartphone competition should increase this year, we think new model launches by SEC/LGE should allow for overall handset ASPs to remain stable given the growing proportion of smartphone in their revenue/product mix in 2011. Reiterate Buy on SEC, Neutral on LGE At FY11E EV/EBITDA of 5.1X and P/B of 1.6X, SEC (005930.KS) shares are trading below its historical avgs, which we see as unjustified given improved market position, improving ROE, and diversified earnings structure. We maintain our Buy rating with our 12-m Director’s Cut TP of W1,110,000. At FY11E EV/EBITDA of 8.2X and P/B of 1.3X, LGE (066570.KS) shares are trading inline with its historical avgs, which fairly reflects its turnaround scenario, in our view. Maintain Neutral with a 12-m Director’s Cut TP of W90,000.
Japan: Technology: Semiconductor Capital Equipment: Semiconductor capex to reach new peak in 2011, fall 20% in 2012 Toshiya Hari (Tokyo): toshiya.hari@gs.com, +81(3)6437-9853 Goldman Sachs Japan Co., Ltd. James Covello (New York): james.covello@gs.com, (212) 902-1918 Goldman Sachs & Co. Simon F. Schafer (London): simon.schafer@gs.com, +44(20)7552-3631 Goldman Sachs International Kenya Moriuchi (Tokyo): kenya.moriuchi@gs.com, +81(3)6437-9871 Goldman Sachs Japan Co., Ltd.
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Logic to drive semiconductor capex to new peak in 2011 We have raised our 2011 semiconductor capex estimate from US$60 bn to US$64 bn. This represents 22% growth and a new peak following the 2007 peak of US$59 bn. The underlying factors are (1) an increase in our foundry capex estimate from US$16 bn to US$21 bn (+57% yoy), (2) a hike in our Intel capex assumption from US$5.5 bn to US$9.0 bn (+73% yoy), (3) NAND capex estimate cut from US$13-US$14 bn to US$10 bn (+55% yoy), and (4) DRAM capex estimate cut from US$11 bn to US$7 bn (-43% yoy). We forecast 10%15% qoq growth for SPE industry orders in 1Q and 2Q 2011. But we expect a 20% fall in 2012 We expect the usual cyclical pattern – strong semiconductor capex followed by oversupply. We estimate that industry wafer processing capacity will reach an all-time high in 4Q 2011 (see Exhibit 5) and we expect particular supply/demand deterioration for foundries. We estimate a 20% decline in capex in 2012, to US$51 bn. By application this breaks out to (1) -31% for foundries, to US$14 bn, (2) -46% for Intel, to US$4.9 bn, (3) -1% for NAND, at US$10 bn, and (4) +25% for DRAM, to US$9 bn. We see memory capex as an upside risk to our estimates; our US$1.9 bn estimate is a long way below the 2007 peak of US$30 bn. Recommended stocks: Dainippon Screen, AMAT, Varian, Teradyne In this final phase of the SPE cycle we focus on companies with specific earnings drivers and stocks with specific catalysts. Our Japan top pick is Dainippon Screen (7735.T, Buy), which remains attractively valued and has prospects for an earnings boost from new business. We raise our 12-month target price to ¥880 from ¥870 to reflect a slight increase in our op. profit forecasts for FY3/12 for the graphic arts equipment business where we see room for cost cutting. In the US we highlight Varian (VSIA, Buy) and Teradyne (TER, Buy) for
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