S&P - Singapore 2011 Outlook

Global Strategy
Equity Research Asia Singapore

December 23, 2010
2011 Outlook: Good but choppy

KEY 2011 GDP ESTIMATES:
Singapore: 4.5%-5.0%  If history is any gauge, the upcoming third year of the bull market could be a hit
or a miss for the FSSTI but certainly if we are to refer to the prior liquidity bubble,
China: 8.5%-9.0%
chances are decent that the stock market could surprise on the upside. Rising
U.S.A.: 2.6% interest rates and the Eurozone debt crisis remain risks but we believe current
Eurozone: 1.9% market valuations are discounting these issues. As such, we believe the FSSTI
should perform well in 2011, and we are looking at a potential 14% upside from
2011 TARGET: the Dec. 17 close.
FSSTI: 3,600
Hang Seng Index: 29,000  We believe that regional markets are increasingly discounting potential rate hikes
S&P 500: 1,315 of 50bps-100bps. With still limited retail participation and ample liquidity, we
expect that there is room for equities to gain favour with investors particularly on
rotation out of fixed income into stocks.
 Eurozone debt worries remain a drag but we expect the contagion to be contained
with the ECB able to provide support to Portugal, Ireland and Greece while
Spanish banks are in relatively healthier shape and are not expected to require
ECB help. More importantly, northern European and the U.K. economies are
growing.
 Singapore issues had a mixed performance in 2010 with clear leaders Healthcare,
Consumer Discretionary and the Industrial sectors outperforming while the rest
largely lagged. This differs somewhat from the regional performance and this
probably reflects the components of the sectors in Singapore.
 For 2011, we are Overweight Energy and Industrials. We are neutral on the
Financials with a preference for banks over the property issues. While signs are
pointing to some resilience in the property segment, we anticipate additional
measures to be introduced if transactions do not slow. Overall, our neutral view
on the Financials leads us to take a Marketweight stance on Singapore relative to
our regional market recommendations.
o We maintain our preference for Energy issues over Materials on

valuation grounds and reduced transparency for steel prices.
Lorraine Tan o For banks, we note the lending environment is competitive but
Director of Research valuations largely reflect the risks in our view while an
improving global economic outlook should allow for more
balanced activity.
o The global recovery should continue to lift Industrials issues.

Raw material costs may be rising but we see relative
appreciation of the SGD against the USD which should help
mitigate margin pressures while improving demand should lead
to better asset utilization.
o After outperforming in 2010, we take a cautious view on

Healthcare given relatively pricey valuations.
This report is for information purposes and should not be considered a solicitation to buy or sell any security.
Standard & Poor’s Neither Standard & Poor’s nor any other party guarantees its accuracy or makes warranties regarding results
Equity Research Services from its usage. Redistribution is prohibited without written permission. Copyright © 2010. All required
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30 Cecil Street, Singapore available on request.
December 23, 2010 Global Strategy
Choppy but positive 2
The S&P Equity Research Asia team believes that a combination of excess
Excess liquidity and relatively low liquidity and relatively low valuations should lead to a positive performance for
valuations should lead to a positive equities in 2011. Global interest rates remain low but are anticipated to rise as the
performance year progresses. This may dampen sentiment periodically in emerging Asia
where interest rates are anticipated to rise ahead of developed markets.
Nonetheless, as the global economy gains pace towards 2012, a positive demand
outlook should increase risk appetite. We see the S&P Asia 50 rising 16% from
the Dec. 17 close to end 2011 at 4,000 points.
On valuation grounds, based on Bloomberg market consensus, Singapore’s FSSTI

looks to be comfortably valued at 14.0x 2011 PER. Based on 2010 average,
We see a year-end target of 3,600 for the
however, we should see the market support 2011 PER of 15x-16x as 2011 unfolds.
FSSTI. If confidence returns, a rise to the
Looking further back, this remains well below historical average of 17x-20x
3,800 level could be supported while,
although we note that the make up of the index is more narrow than in the past.
conversely, we see risk contained to the
With the financials and real estate issues making up 43% of the FSSTI weighting,
3,150 level should 2012 growth fail to
market consensus is estimating 2011 weighted EPS growth at 10.8%, while we are
materialize
looking at 17.6% annualized weighted EPS growth for a broader universe. As
such, we peg our year-end 2011 FSSTI target at 3,600 on 16x 2011 PER. Our target
also includes upside for a potential upward rerating on 2012 growth expectations.
If confidence reverts to historical norms closer to 17x PER, upside would be
greater, potentially to the 3,800 level. Conversely, if 2012 growth expectations do
not materialize, we see reasonable fundamental justification for the index to stay
flat at the 3,150 level.
FSSTI PERs and 2011 Target
20.0 4,000
17.3 17.4
18.0 3,500
15.9
15.1 14.9 15.3 15.4 15.3 15.6 16.0
16.0 14.5 14.3
13.6 13.1 13.9 3,000
14.0
11.3 2,500
12.0
PERx
Index
9.2
10.0 2,000
8.0 1,500
6.0
1,000
4.0
2.0 500
- 0
9
Ma 0
9
Ma y-10
-10
0
w
8
-09
-10
0
0
0e
1e
r-0
p-0
r-1
r-1
p-1
c-0
c-0
g-1
t-1
v-1
5 lo
201
201
Jul
Jun
Jun
Oc
Ma
Ma
Ap
No
Se
Se
De
De
Au
y2
PERx FSSTI
Source: Bloomberg, S&P Equity Research estimates
Standard & Poor’s Equity Research

U.S. Recovery Should Provide Buffer to Tightening Risk

3
We believe the markets have largely discounted expectations for a sluggish
U.S. GDP may be growing on a faster global recovery. The good news, nonetheless, is that a double dip appears more
trajectory than originally assumed and remote which removes one recent concern. S&P Economists forecast U.S. real
there is upside potential to GDP estimates GDP to rise 2.3% from 2Q10 through 2Q11 and 3.2% from 2Q11 through 2Q12. The
latest data, however, may indicate that the U.S. GDP may be growing on a faster
trajectory than originally assumed and if so, there is upside potential to GDP
estimates. At this stage we expect China to post real GDP growth of around 10%
in 2010 and narrowing to 9.0% in 2011. Singapore’s 2011 GDP growth should
normalize to the 4.5%-5.0% range given the higher base in 2010.
Singapore Real GDP Growth
25
19.5
20
17.4
15
10.5
10 7.9
7.8 5.6
5.0
YoY %
4.5 4.3
5 3.8
2.6 1.6
0
-0.2
-5 -2.4 -1.8
S&P Forecast
-10
-9.0
-15
08
08
08
08
09
09
09
09
10
10
10
10
11
11
11
11
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
YoY Annualized
Source: CEIC, S&P Equity Research estimates
Another positive from the growth pick up from mid 2011 is that we expect there
may be upside potential for 2012 estimates with the possible boost to U.S.
Upside potential for 2012 estimates
growth and stable China GDP growth of 9.0%. The key areas of likely EPS rises
should come to the transport segment on improved freight and shipping rates, rig
fabrication contracts for the energy sector and property income.
Without a doubt, the signs are that inflation risk will be a significant issue
particularly for Asia. The PRC government has set China’s inflation (CPI) target at
In Asia, particularly China, we could see
4.0% in 2011, up from 3+% in 2010. We see the Renminbi (CNY) appreciating by
about 50-100 bps of rate hikes in 2011
around 5% annually going forth and this should provide some offset to inflation
although Singapore rates should stay low
for China. Nonetheless, with the 1-year deposit rate trailing at 2.5%, we could see
about 75-100 bps of rate hikes in 2011, just to narrow the gap. This should take
China’s benchmark lending rate to 6.25-6.50%, which remains below the pre-crisis
high of 7.47%.

For Singapore, interest rates should trend higher along with the economic
4
recovery but we see a relatively muted rise with the MAS’ current preference to
widen the SGD trading band. As such, SGD strength remains a probable tool to
combat inflation. With likely appreciation in the CNY, we should see the SGD post
similar gains. In addition, competition among the banks remains significant
particularly given mortgage restrictions and this may keep the rise in borrowing
costs contained.
SGD Gains Against Major Currencies Except for JPY, AUD
3.50
3.00
2.50
2.00
1.50
1.00
0.50
-
N op -07
No p -09
N op -10
Maar-07
Ma r-08
Maar-10
J u - 07
Se l -0 7
Ju -0 8
J u - 09
S e l-09
J u - 10
Se l -10
M n - 07
Man-08
N o - 08
Man -09
M n -1 0
J a v-07
J a v- 08
M r-09
Ja v-09
0
Se l -08
v -1
y
ay
y
Ja
SGD:USD SGD:AUD SGD:EURO

SGD:GBP SGD:JPY100
Source: CEIC
We believe the market has discounted the rate hikes although the periodic talk of
a rise should still cause jitters. Fundamentally, impact to companies’ earnings
due to increased interest expense should be contained with our universe showing
comfortable average net gearing of 40%.

China’s Benchmark Deposit Rates Have to Narrow the Gap to Inflation (CPI)
10
% 4
-2
-4
Ma r-07
J a v-0 7
Ma r-08
Ma r-09
J a v - 09
Ma r-10
0
J u - 07
J u - 08
J u - 09
J u - 10
Se l-07
Se l-08
Se l-09
Se l-10
M an-07
N op-07
M an-08
No p-08
M an -09
N op-09
M an-10
N op-10
J a v- 08
v-1
y
y
Ja
CPI
3-Mths Time Deposit Rate
Base Lending Rate
Source: CEIC
At this stage, we don’t see U.S interest rates rising until 4Q11 with
unemployment rate likely to stay high. Regardless, interest rates are coming from
a low level so impact is likely to be absorbed.
Markets have discounted the rate hikes
and rising confidence and risk appetite
The global economic recovery, however, should enable companies to post
should lead to a rotation into equities
stronger toplines and this should provide buffer to rising costs, including interest
expense. In addition, we expect consumer and investor confidence to rise as the
global economy recovers. This, we expect, should lead to increased risk appetite
and a rotation into equities.
Property Bubble Risk Exists but Should be Contained

We do not see a bubble developing in the Singapore property market given the
Limited bubble risk in Singapore but government’s recent measures. The risk to the sector, however, will probably
China risk is more significant, albeit come from dampened sentiment as the government will likely impose additional
manageable measures should speculative activity remain prevalent. Similarly, we se recent
policy moves curtailing Hong Kong activity in the short term. We do see,
however, a property bubble risk in China, although we believe this should be
contained.
For China, an offshoot of the rising rate risk is the impact to the real estate market
and banks asset quality. We see greater impact to the property market from the
direct measures to curb lending rather than from the actual interest rate hike.
Unlike the sub-prime mortgage situation in the U.S., the Chinese have funded the
majority of housing purchases with 50% cash so we see moral hazard risk as
being low. We would not rule out, however, that some developers’ loans may see
greater risk but this is anticipated to mainly impact the third tier and more
provincial oriented banks.

At the same time, however, the relative price levels indicate that the established
6
cities such as Beijing, Shanghai and Guangzhou would be at greater risk to see
China’s tier one cities at greater risk of
prices come down. At current price levels, affordability appears stretched.
property price slump while second tier
Demand in the second tier cities such as Chengdu should be stable being
cities should be stable
relatively more affordable.
If the China property market should crumble, the national banks should see
contained risks given more diversified loan books in terms of both industry and
geography. Mortgage loans and property development loans make up 20%-25%
of total loans for the top four banks. In his sensitivity analysis, our banks analyst
Desmond Ch’ng estimates that a 30% decline in property values would raise NPL
ratios by about 1 %-pt, representing a manageable 7%-9% of shareholders’ funds.
Separately, a 50%-60% decline in property values would raise NPL ratios by 3%-
4% pts, impacting shareholders’ funds by 27%-30%. The latter case would
nevertheless represent a more extreme scenario which assumes a significant
slowdown in economic growth.
We also note the property market in Hong Kong is also somewhat bubbly but
interest rates will remain low given the HKD peg to the USD. Nonetheless, the
A 10% drop in Hong Kong property
recent measures are likely to be severe enough to generate a 10% drop in Hong
prices is possible
Kong property prices and a 25% decline in transactions, according to our Hong
Kong property analyst Tam Ching Wah.
For the equity market, however, we believe a fair degree of risk is already
reflected in the share prices of the real estate developers. Nonetheless, the
outlook remains challenging in the near-mid term and real estate industry share
prices are likely to move in the line with the market at best.
Eurozone Risk Remains but Likely Contained

Problems with Eurozone debt are likely to continue in 2011 but we believe impact
will be contained. S&P Equity Strategist Robert Quinn is optimistic with the
stronger global economic recovery likely to pull the Eurozone up. So far the
German, French and Benelux economies are performing well and this will provide
a buffer to the “olive” belt’s recession. He notes that Spain, given its size, is the
tipping point but Spanish banks, unlike Ireland’s, are unlikely to require the
European Central Bank (ECB) to provide liquidity. Nonetheless, Spain will have
significant sovereign debt to refinance in 2011 so markets may get the jitters from
time to time.
Near Term Technical Pullback Remains in Play

While we like the market over the mid-term, the short term picture worries Mark
Arbeter, our Technical Strategist. Mark writes on Dec. 17 that global markets are
struggling led by toppish signs on the Hang Seng Index. Mark notes that the S&P
500, as well as other major indices, is hitting key resistance while bullish
sentiment remains broad, which is seen as a contrarian indicator. He further
indicates that the Hong Kong and China markets have lagged, which he takes to
be a weak sign since these markets have led the U.S. market in terms of tops and
bottoms. In his view, technical indicators are pointing to a weak start for 2011 and
near term cautiousness warranted.

Sector Recommendations 7
Bearing in mind the generally favourable market conditions but with an eye on
Growth story still in play - OW Energy, value and the potential for upward re-ratings, we like issues with positive
and Industrials and UW Healthcare and industry developments with which we expect activity to pick up. With our view
Real Estate that growth plays are still likely to outperform on the global economic pick up, we
are OW Energy and Industrials and UW Healthcare and Real Estate, with the latter
likely to lag on policy measures.
Overweight Energy and Industrials

Rising global consumption is likely to keep demand for commodities and related
transport services favourable. Given the growth story, we like Energy and
Industrials on an improving outlook as well as having relatively comfortable
valuations. We have a preference for the Energy sector as we see limited supply
growth to keep oil prices on an upward trend and comfortable valuations.
Furthermore, oil services suppliers and equipment providers should improving
demand and with it, improved asset utilization that should support margins.
While excess capacity and higher raw material costs may limit the earnings
upside for industrials, improving revenue and asset utilization rates are likely
provide a buffer to margins. Hence we expect an improving operating margin
trend through 2012 to underpin performance. After a stellar performance in 2010,
airlines may lag other transport issues but Singapore Airlines, in our view,
remains relatively attractive.
Neutral Banks, Gaming

Banks have lagged with worries over margins and loans growth as well as global
worries over issues ranging from China’s loan quality risk to the Basel 3
requirements. However, we see an improving environment for Singapore’s banks
in 2011 with steady economic growth to provide support as well as a pick up in
treasury activity. Our neutral stance, however, reflects our expectation for
margins to continue to be challenged.
The Consumer Discretionary issues led gains in 2010 due largely to gaming stock
Genting. With the Singapore integrated resorts more of a known issue going into
2011, and already heightened valuations, we see more limited upside. Excluding
gaming the sector was relatively lacklustre in 2010.
Underweight Healthcare and Real Estate

Healthcare was a key outperformer among Singapore issues in 2010 due in large
part to mergers & acquisition activities, firstly, the takeover battle for Parkway
and, secondly, the sale of Thomson Medical Center. With the space for
transactions for limited and premium valuations, we see fewer positive drivers in
the sector.
While demand for newly launched properties remains strong and the share prices
of real estate companies may already reflect risks, we expect the potential for
additional measures remains high. As such, we see a losing news flow situation
for share prices. If the property market remains buoyant, measures may be added
but if transactions and prices slip, the earnings outlook may be less certain.

Sector Weighted Share Price Performances as of Dec. 17, 2010 8
1 month 3 month YTD perf

GICS Sectors perf perf '10 1 year perf
Consumer Discretionary 0.5% 1.0% 61.8% 79.8%
Median -0.8% 0.8% 2.3% 9.1%
Consumer Staples 2.1% 6.1% 13.1% 13.5%
Median 2.0% 3.6% 50.0% 50.0%
Energy -3.3% 4.9% 36.5% 42.3%
Median -0.2% 2.5% 40.7% 45.2%
Financials -0.6% 3.7% -0.1% 3.2%
Median -0.9% 11.6% 4.4% 6.5%
Banks & Diversified Financials 0.7% 4.6% -1.9% 1.2%
Insurance -4.3% -4.8% -1.8% -0.4%
Real Estate -3.5% 1.9% 4.0% 7.8%
Healthcare 0.3% 43.5% 115.5% 133.0%
Median -2.0% 12.6% 74.5% 84.6%
Industrials -2.6% -3.1% 0.2% 2.8%
Median -4.4% -4.5% 0.9% 5.0%
Aviation -4.2% -5.2% 0.4% 4.6%
Construction & Engineering -1.6% -1.0% -5.8% -6.3%
Industrial Conglomerates, Machinery & Others -0.1% -0.1% 0.3% 0.3%
Trading 1.8% 5.5% 10.5% 11.8%
Information Technology -16.7% -18.7% -18.7% -19.0%
Median -12.5% -12.5% -22.2% -22.2%
Materials -3.8% -13.5% 17.6% 15.2%
Median 4.2% -10.0% -5.7% -2.0%
Telecom Services -2.8% -0.6% 0.7% 2.9%
Median -5.8% -0.1% 7.8% 11.0%
S&P Singapore Universe -1.3% 1.5% 7.0% 11.4%
Median -2.0% -0.1% 4.4% 9.1%
Source: Factset
S&P Singapore BMI Sector Performances, 2010 (year-to-Nov. 30) and 2009
35%
Healthcare 138%
Consumer Discretionary 28%
74%
Industrials 19%
59%
Consumer Staples 7%
137%
Telecom Services 1%
23%
Financials 0%
72%
Information Technology -4%
131%
Energy -5%
191%
Utilities -11%
98%
Materials -1 9%
125%
6%
Index 72%
-50% 0% 50% 100% 150 % 20 0% 250%

2009 2010 YTD
Source: S&P Index Services

S&P Recommended Sector Weightings and Key Annualized Weighted Average Sector Ratios (as of Dec. 17)
GICS Sectors 2009 PER 2010e PER 2011e PER 2010e EPS 2011e EPS 2010 Div Yld 2010 P/BV 2010 ROE Recommended
X X X Growth % Growth % est. % est. X est. % S&P Sector Emphasis
Consumer Discretionary n.m. 33.0 22.7 (0.5) 45.9 0.0 5.2 15.6 Marketweight
Median n.m. n.m. n.m. n.m. n.m. n.m. n.m. n.m.
Consumer Staples 28.0 92.6 14.0 93.1 39.0 2.6 1.1 14.3 Marketweight
Median 17.2 14.6 11.6 46.0 16.8 4.4 2.0 10.4
Energy 15.7 13.9 13.2 11.6 6.9 2.6 1.3 18.4 Overweight
Median 16.7 15.0 11.9 11.5 5.5 1.6 2.6 0.0
Financials 15.3 16.5 12.9 4.7 30.1 3.6 1.4 10.4 Marketweight
Median 14.3 10.8 12.3 14.9 5.6 2.9 1.4 9.0
Banks 15.9 17.5 11.7 3.7 47.9 4.3 1.5 11.9 Marketweight
Real Estate 14.2 14.6 15.9 6.9 (10.7) 2.0 1.2 6.9 Underweight
Healthcare 41.0 28.7 23.4 35.1 21.0 2.0 1.3 14.7 Underweight
Median 16.7 15.0 11.9 11.5 5.5 1.6 2.6 17.2
Industrials 13.2 22.4 35.7 (24.0) (22.4) 3.9 1.7 16.9 Overweight
Median 9.3 8.3 7.1 6.5 8.1 4.3 2.7 11.1
Aviation 14.8 28.7 49.2 (30.6) (26.9) 3.7 1.3 15.2 Overweight
Construction & Engineering 9.4 5.9 5.3 60.0 9.8 2.9 0.3 11.4 Overweight
Industrial Conglomerates & Others 11.0 13.7 16.8 (19.5) (17.8) 4.4 2.5 20.0 Marketweight
Trading Services 7.9 7.1 6.5 12.7 9.1 4.3 0.3 10.7 Overweight
Information Technology 8.4 10.4 12.3 (10.9) (15.1) 6.5 1.1 12.0 Marketweight
Median 8.6 8.0 8.7 (6.7) 0.0 5.7 1.4 6.7
Materials 4.2 5.1 5.5 (17.9) (6.9) 1.7 0.4 16.2 Marketweight
Median 4.5 5.1 5.5 (11.6) (6.6) 1.9 0.8 16.6
Telecom Services 12.9 14.2 13.1 (8.5) 8.3 4.8 3.0 40.5 Marketweight
Median 13.1 15.9 14.6 (16.1) 8.3 6.3 1.7 n.m.
S&P Singapore Universe 12.9 19.0 17.9 (3.1) 17.6 3.5 1.7 18.2
Median 13.7 12.7 11.7 (0.1) 6.8 3.6 2.3 10.8
Source: Company data, S&P Equity Research estimates

10
Consumer Discretionary
Overview
The consumer discretionary sector outperformed in 2010 with the S&P Singapore BMI
Consumer Discretionary rising by 28.4% YTD vs. the 6.1% gain in the broader market.
Discretionary spending strengthened on the back of growing consumer confidence, an
improving global economic outlook and the wealth effect from the equity and property markets.
The sector has also seen an upward re-rating on the back of a resumption of global economic
growth.
The opening of the two integrated resorts (IR) this year has provided a boost to the sector. The
IRs have generated strong revenues while tourism arrivals have hit record high levels aided by
the draw of the two IRs.
Sector Performance vs. S&P Singapore BMI (as of Nov. 30)
Consumer Discretionary vs. Index

80%
74%72%
70%
60%
50%
40%
28% 28%
30%
20%
7% 8%
10% 3%2% 6%
0%
-10% -1% -3%
-9%
-20%
2 009 1Q10 2Q10 3Q10 QTD YTD
Consumer Discretionary Index
We expect continued strength in the regional economies to support further growth in

discretionary spending in 2011. We are Marketweight the consumer discretionary sector with
valuations reflecting upside expectations.
2011 Outlook – Positive Drivers

Modest global economic growth and the robust regional economies are the main drivers for the
sector. Higher purchasing power from rising income levels should lead to higher discretionary
spending and a reduced need for price discounting. The addition of new facilities and
attractions at the IRs will ensure that the IRs remain a draw for visitors.

Negatives
11
The absence of licensed casino junkets in Singapore may somewhat limit the ability of the IRs
to fully realize the potential of the premium player segment of the casino market. Also, high
cotton prices are likely to put pressure on apparel retailers’ margins. With consumers being
more price-sensitive than in the past, it may be difficult for apparel retailers to fully pass on the
higher cost. In addition, any sharp declines in the property and equity markets that results in a
negative wealth effect may impact consumer sentiment.
Base Case Expectation

We project a 20%-25% growth in casino revenue in 2011, which will be the first full-year of
operations for the IRs. We expect exporters/suppliers that are dependent on the U.S. and
European markets to see a gradual improvement in demand. In addition, major suppliers that
are financially strong should continue to benefit from consolidation in the supply chain.
IRR Openings Have Boosted Tourist Arrivals, Hotel Rates and Occupancy Recover
1,200,000 100 350

90
300
1,000,000 80
Occupancy Rate (% )
70 250
800,000
Visit or Arrivals
60
SGD/night
200
50
600,000
150
40
400,000 30 100
20
50
200,000 10
0 0
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
0 Sep-10
Sep-07
Sep-09
Jan-07
May -07
Jan-08
May-08
Sep-08
Jan-09
May -09
Jan-10
May-10
Sep-10
Hotel Occupancy Rate (lhs)

Americas As ia Europe Oceania Avg. Room Rate (rhs)
Source: CEIC

12
Consumer Staples
Overview
The Singapore consumer staples sector performed in line with the broader market in 2010. The
S&P Singapore BMI Consumer Staples rose 6.6% YTD vs. the 6.1% gain in the broad market
index.
Palm oil prices have rallied over 50% since mid-2010 to about USD1,200/ton, presently on tight
global supply of vegetable oils and continued high demand. Adverse weather conditions have
affected palm oil production in Malaysia and Indonesia, and soybean plantings in South
America. China led the demand growth as domestic production lagged accelerating demand.
Consumer Staples vs. Index

160%
140% 137%
120%
100%
80% 72%
60%
40%
20% 4% 10%8% 3%2%

7% 6%
0%
-1% -3%
-20% -10%
2009 1Q10 2Q10 3Q10 QTD YTD
Consumer Staples Index
We have a Marketweight view on the consumer staples sector. The sector is trading at a 2011
PER of about 15x, which is close to current market valuations. We remain positive on the
outlook of palm oil prices in 2011 and project an average price of between USD900/ton and
USD1,000/ton (vs. USD860/ton estimated for 2010) due to supply-demand imbalance. While
high commodity prices are positive for upstream producers such as plantation companies, F&B
companies are likely to face cost pressures in 2011. We expect leading F&B players with greater
pricing power to fare better in the high cost environment.
2011 Outlook – Positive Drivers

The negative effect of adverse weather conditions on palm oil yields and soybean plantings will
keep the global supply tight, in our opinion. 1Q is also a seasonally low production period for
palm oil and soybean oil. Palm yields are expected to recover in 2H2011 while a more favorable
weather could potentially support larger soybean plantings in the US at record level. However,
we expect expanding biodiesel production to limit the availability of soybean oil for export.
Similarly, we expect the planned implementation of the biodiesel mandate in Malaysia in mid-
2011 to absorb the higher output and keep the country’s palm oil stock low.

Meanwhile, we expect rising consumption and product mix enhancements to be the main
13
positive drivers for F&B companies in 2011.
Malaysia CPO Prices, Production and Inventory
4,000 2,500
3,500
2,000
3,000
2,500
" 000 tons

1,500
M YR/t on
2,000
1,500 1,000
1,000
500
500
0
0
N op -07
N op -09
Ma r-07
M a r - 08
Ma r-09
M a r - 10
S e l-07
S e l - 09
M an -07
Man -08
No p-08
M an -09
Man -10
No p-10
Ja -07
J a v- 08
Ja -09
0
J u - 07
Ju -08
J u - 09
Ju -10
Se l-08
Se l -10
v- 1
0
-0 8
-0 9
-1 0
-08
8
-09
9
-10
0
r-0
r-0
r-1
t-0
t-0
t-1
v
v
y
y
Ja
Jul
Jul
Jul
Jan
Jan
Jan
Oc
Oc
Oc
Ap
Ap
Ap
Spot Price 1-month Forward
2-months Forward CPO Production CPO Stock
Source: CEIC
Negatives
Palm oil import demand from China is likely to slow down given the increasing inventory level.
The steep price increase could also curb consumption and halt biodiesel production in Asia.
The projected recovery in palm oil production in 2H could put downward pressure on prices.
Commodity prices remain a key concern for F&B companies. While product mix enhancements
and selling price increases can help cushion the impact of higher raw material cost, companies
may not be able to fully pass on higher costs if there are sharp increases in commodity prices.

While palm oil prices could be pressured by the projected production recovery, we expect the
downside to be supported by the continued growing demand for vegetable oils from both food
and non-food sectors. Given the low stock levels of oilseeds, competition for acreage is
expected to continue in 2011. Accordingly, we do not factor in a big expansion of soybean
plantings in the U.S. to make up for the weather-induced production losses in South America.
We thus expect the supply-demand situation for soybean oil to remain tight throughout 2011.
This is expected to increase the dependence on palm oils to meet the demand for vegetable
oils.
We expect to see continued cost headwinds for F&B companies in 1H11 due to high commodity
prices, but believe that product mix enhancements, selling price increases and improving
production efficiency will help cushion the impact.

Energy 14
Overview
The Energy sector performance was a mixed bag so far in 2010, generally underperforming the
S&P Asia-Pacific ex-Japan BMI, and the S&P Singapore BMI. The gains in the regional energy
sector have generally been led by upstream oil & gas companies. Margins at oilfield services
companies in general saw declines, as slower capital investments on worries over the global
economy and safety procedures post-Macondo resulted in lower asset utilization. Meanwhile,
upstream players saw better profits as crude oil prices tracked higher.
Energy vs. Index

250%
200% 191%
150%
100%
72%
50%
7% 8% 5%2% 6%
0%
-5%
-1% -11%-3%
-5%
-50%
2009 1Q10 2Q10 3Q10 QTD YTD
Energy Index
Fundamentally, 2011 oil prices should increase at a more sedate pace as spikes in oil prices
should be tempered as spare capacity remains, but USD movements will be the wildcard, and
may boost short-term crude price volatility. We are Overweight the sector given the relatively
attractive sector 2011 weighted PER of 13.2x and we see limited downside risk to oil prices in
our base case scenario. As we move into 2012, upward pressure is likely on prices as demand is
anticipated to grow at a quicker pace than supply. This should filter through to improve overall
sector activity.
Positive Drivers
The two key factors that may boost energy prices in 2011 are: (i) the prospect for USD
weakness and (ii) a faster-than-expected growth in global demand. S&P economists expect the
USD to depreciate by 3.9% vs. its major trade partners in 2011. The current reprieve due to the
weak EUR will be short-term in nature, as the combined effects of QEII and dampened US
exports will continue to put downward pressure on the dollar.
This should sustain short-term market interest in oil futures and other commodity issues as a
hedging tool.

If the global economy grows at a quicker rate, the current spare capacity in oil output should be
15
more rapidly absorbed, boosting futures prices and benefiting the upstream oil & gas and coal
industries in particular. Further, OPEC’s inaction (or inability to act, especially as compliance to
target is already low at 54%) could delay an expected supply response, and provide more
strength to oil prices.
The potential strength to oil prices should also incite a pickup in exploration & production,
leading to a rise in oil & gas equipment demand and rental rates. Increased investment awards
should benefit fabricators, while a better lending environment in 2011 should also boost
investments.
Negatives
A slower-than-expected global economic recovery will negatively impact energy demand and
prices. A drop back in oil will be negative for upstream producers. Refiners may not be as
sensitive, given the likely faster drop off in raw material prices, since gasoline prices have not
kept pace with the recent rise in oil prices. The risks for the services companies is if investment
remains weak, but profit margins should have lower downside risk in 2011, as utilization rates
appear to have bottomed.

Our fundamental outlook on oil places an average price for WTI of about USD85.41/bbl for
2011, implying an 8.4% increase from an expected 2010 average of USD78.82/bbl. Oil prices
should be supported by improving fundamentals but capped by excess supply.
The higher oil prices and improving lending environment should allow committed investment
to increase, and although 1H10 orderflow was slow, the pace began to pick up in 2H10. We
expect this will translate into better times for the oil & gas services industry, which faced
shrinking orderbooks and more competitive equipment rental rates in 2010. Hence, we factor
rig and other support vessel rental rates to grow by 5% YoY.

Financials - Banks 16
Overview
As a sector, financials lagged the S&P Singapore BMI and specifically, banks underperformed
the FSSTI in 2010. The domestic operating environment in 1H10 was largely cautious, with loan
growth trailing in the mid single digit range throughout much of the period. Competition,
meanwhile, was stiff and net interest margins (NIM) continued to compress as a result. The 2H
nevertheless, has seen renewed confidence. Loan growth has gathered momentum and was up
13.8% YoY in October, driven essentially by consumer lending, particularly to the property
sector. We expect aggregated operating profit for the three banks to rise 4.1% in 2010.
Recurring net profit, on the other hand, is expected to jump 24% on the back of lower
impairment charges.
We are Marketweight the Singapore banks primarily on valuation grounds as we believe

present valuations are fair, with the sector presently trading at an average P/BV of 1.4x for an
average ROAE of 12%. Providing support to share price nevertheless, are average yields of
4.3% for 2010.
Financials vs. Index

80%
72% 72%
70%
60%
50%
40%
30%
20%
10% 5% 8% 6%
0%2%
0%
0%
-1% -1% -3%
-10% -4%
2009 1Q10 2Q10 3Q10 QTD YTD
Financials Index
Positive Drivers
We expect economic momentum to provide impetus to loan growth while NIM is likely to have
bottomed, in our view. The strength of regional economies in which the banks are present,
such as Malaysia, Indonesia and Hong Kong, should serve to enhance group earnings as well.
What is also undoubtedly positive is that Singapore banks are more than adequately
capitalized, with core capital ratios of 12%-14%, placing them in a strong position to pursue
future growth strategies.

Negatives
17
Of risk would be of slower-than-expected economic growth in the region that would negatively
impact earnings. Also of concern would be government efforts to further rein in the property
sector. Housing loans presently account for about 25%-29% of group loans on average.
Loans growth is recovering, interest rates are still low and margins should improve
3.0% 30% 4.0
2.5% 25% 3.5
2.0% 20% 3.0
2.5
1.5% 15%
2.0
%
MoM
YoY
1.0% 10%
1.5
0.5% 5%
1.0
0.0% 0%
0.5
-0.5% -5%
0.0
-1.0% -10%
Ma 8
Ma -09
Ma 0
Jul 8
Se 08
No 08
Jul 9
Se 09
No 9
Jul 0
Se 10
No 0
Ma 0 8
Jan 08
Ma 0 9
Jan 09
Ma 1 0
0
r-0
p-0
r-1
p-1
y-0
y-0
y-1
v-1
-
p-
-
-
v-
-
v-
-
r
Jan
8
l-10
8
0
8
-1 0
8
l -0
l-0
r-0
r-0
t-0
r-1
t-1
n -0
n-0
t -0
Ja n
Ju
Ju
Ju
Ap
Oc
Ap
Oc
Ap
Oc
Ja
Ja
Overnight Rate SIBOR 3-Months

Loans (MoM) Loans (YoY) Interbank 3-Months

S&P Economists forecast GDP growth of 5% for Singapore in 2011, as the island state continues
to ride the global economic recovery. For the banks, we forecast aggregate loan growth of 8.9%
and an improvement in net interest margins to contribute to a 9.1% expansion in operating
profit, while recurring net profit is expected to grow at a faster clip of 12.7%.

Financials - Real Estate 18
Overview
In 2010, like most key regional property markets, the Singapore property market was not spared
Asian-centric property policy measures to pre-empt a bubble. Strong sales were tempered by
two rounds of control measures, beginning in 2Q10.
Government intervention will remain a dominant threat in 2011 and any perceived price
exuberance will be swiftly contained by more policy measures. Active government measures
have thus far been effective, with transaction volumes slowing down post measures.
Nevertheless, the sharp 79.2% MoM uptick in sales volume to 1,909 units in November 2010 has
re-ignited fears of further tightening measures. We believe that sales outperformance is
difficult in such an environment. In our view, stricter measures in the government’s arsenal
include a capital gains tax and further modification of credit availability to buyers.
Transactions anticipated to cool following government measures but prices should be stable
1,800 0%
1,600 -5%
1,400 -10%
-15%
Change from Peak

1,200
SGD ' 000/psf
-20%
1,000
-25%
800
-30%
600
-35%
400 -40%
200 -45%
0 -50%
8
0
-08
-09
-10
-08
-09
-10
0
r-0
r-0
r-1
t-0
t-0
t-1
Jul
Jul
Jul
Jan
Jan
Jan
Oc
Oc
Oc
Ap
Ap
Ap
Avg. Transacted Price Change from Dec. '07 Peak
Source: CEIC
Likewise we remain concerned about impending supply in the coming three years. Note that an
average of 12,500 residential units per annum have been sold during 2007 to 2010, with the
bulk completing in the coming three years. On the supply side, the 1H11 Government Land
Sales Programme (GLS) now includes 17 confirmed residential sites, which should yield 8,100
units, just slightly lower than 2H10’s record 8,135 units. Meanwhile, the reserve list of the GLS
includes another 12 residential sites that can yield 6,200 potential units, aggregating to a total
of 14,300 units for 2011. In addition, the government is expected to add another 22,000 HDB
units in 2011. Therefore we see the bulk of supply influx coming on stream in 2012-2014, which
may lead to oversupply due to the government’s current more stringent immigration policy to
slow population growth.
We maintain an Underweight view on the sector. Sector gearing remains healthy at 35% to 50%
and the average sector P/BV of 1.2x is fair versus a five-year historical sector average of 1.5x.

We believe that the residential sub-segment will face near term headwinds, as any demand
19
exuberance in 4Q10 will be plugged by more legislative measures. Nevertheless, all other sub-
sectors will continue to perform well, especially the office sector, as rents are still well below
its previous peaks. In our view, this segment will benefit from continued GDP growth and a
positive employment outlook, especially in the financial services segment.
Positive Drivers
Two key factors will underpin demand for properties in 2011, namely the low-interest-rate
environment and ample liquidity. We believe that this will drive transaction volumes, with
prices remaining firm, that is if it is not curtailed by further cooling measures. In addition, the
high end segment may see more foreign buyers returning to the market, especially Chinese
buyers, which accounted for 20% of foreign demand for private homes in Singapore in 3Q10
(on par with the Indonesian buyers).
Negative Drivers
The government will continue to employ policy measures to temper the property market to
prevent asset bubbles. This will result in periodic volatility, curb demand exuberance and
dampen investor sentiment.
Base Case Expectations

Going into 2011, most Singapore developers are still optimistic as they are buffered by strong
pre-sales from previous years. We project recurring net profit for companies under our
coverage to grow by 10% to 18% in 2011. Most developers are still selectively augmenting to
existing landbank, favoring choice sites near main transport nodes. Though the high residential
land supply coming on stream is likely to result in lower land prices, it may not translate to
lower selling prices, which have thus far held firm. Nevertheless, we believe that further
cooling measures are imminent. We project that about 14,000 residential units will be sold in
2011, about 15% lower than 2010 levels. On the price front, we believe that selling prices will
remain fairly firm, with most developers seeing no urgency to discount.
On a relative basis, commercial space will perform better in 2011. We see commercial space
outperforming on the back of a cyclical recovery, liquidity inflows, and cap rate compression.
The glut that many had feared has eased substantially with over 50% of the 2011 office space
already pre-committed. Office supply is expected to fall meaningfully after 2012, especially in
the CBD. This will drive higher reversionary yields. With demand and net take-up rates positive,
coupled with cap-rate compression, asset values will be supported.
The retail segment, similarly, will remain resilient, as the bulk of supply is held in the hands of
a few major landlords. In our opinion, the healthy GDP growth and influx of tourists will bode
well for the retail market in the near term, with rentals remaining firm, especially for suburban
space.

Healthcare 20
Overview
In Singapore, the healthcare sector looks positive with the regional economic recovery and
upturn in medical tourism. Private healthcare providers are expected to benefit from rising
affluence and the aging population, continued attraction of Singapore as a medical hub and its
growing resident population. The beneficial conditions coupled with a few high profile
takeovers led the sector to outperform, gaining 35% vs. the S&P Singapore BMI rise of 6% year-
to-Nov. 30.
However, share price rises have led the sector to heightened valuations and we suspect, more
limited upside. With fewer exceptional triggers in 2011, we expect the sector to underperform.
As such, we are Underweight the sector although we note that there are pockets of relatively
attractive smaller cap stocks that may still be fodder for potential acquisitions.
Healthcare vs. Index

160%
140% 138%
120%
100%
80% 72%
60%
40% 35%
20% 11% 7% 13%

8% 2%2% 6%
0%
-1% -3%
-20%
2009 1Q10 2Q10 3Q10 QTD YTD
Healthcare Index
Positive Drivers
Key catalysts for the healthcare sector in Singapore include continued growth in the global
economy and the prospect for further mergers and acquisitions. This comes after Khazanah
Nasional took over Parkway Holdings and billionaire investor Peter Lim making a general offer
for Thomson Medical in 2010. There are limited healthcare players listed in Singapore and
valuations are likely to be supported by investors looking for exposure to this sector.
Negative Drivers
Slower-than-expected economic recovery could affect demand for healthcare services and
cause patients to cut medical bills. Rising competition, a loss of key doctors, complaints or
medical negligence are all ongoing operating risks. Investment risks stemming from overseas

ventures, higher-than-expected start-up costs, and longer-than-expected gestation period may

21
also dampen margins and cash flow. Another severe flu outbreak could also reduce medical
tourists and discourage hospital usage.

The fundamental outlook remains buoyant with earnings growth underpinned by a rising
Singapore population, particularly consisting of a bigger expatriate community with decent
spending power. In addition, regional economic growth and the ensuing wealth effect
generated should help the increase of medical travelers to Singapore. The government’s drive
to increase medical tourism and boost Singapore’s attraction as a world class healthcare
destination with investments in skilled medical professional and technology should also help
healthcare providers sustain margins against rising costs. We also expect the private healthcare
providers to continue to capitalize on their established Singapore brand and expand overseas
which will help bolster their net profits. Meanwhile, pre-tax margins are expected to remain
firm due to continued efforts to roll-out medical specialties services and continued emphasis on
cost management. However, the positive story is largely reflected with the sector trading at 26x
2011 PER with 2011 average weighted EPS growth of 21% (excludes Parkway, which is not
trading).

Industrials 22
Overview
The Industrial sector outperformed in 2010, increasing 21.0% vs. 8.6%% for the S&P Asia-Pacific
ex-Japan BMI through end-November. This outperformance was seen across markets in the
region, including a 19% rise vs. the S&P Singapore BMI’s 6% return. Within the region, the
gains were led primarily by transport issues. In Singapore, while aviation was flat, the
construction & engineering segment, conglomerates and marine issues led the market.
For 2011, the outlook remains largely positive with the global recovery expected to help the
transport logistics sector through improving capacity utilization and stable rates. We also
anticipate capital equipment sales to gain towards end 2012 as companies begin to refocus on
expansion activities. We remain Overweight the Industrials sector.
Industrials vs. Index

80%
72%
70%
60% 59%
50%
40%
30%
20% 19%
7% 8% 8%
10% 4%2% 6%
0%
-10%
-1% -2% -3%
2009 1Q10 2Q10 3Q10 QTD YTD
Industrials Index
Construction & Engineering: The construction sector GDP in Singapore continues to grow,
albeit at a slower rate of 7.1% YoY in 3Q10 compared with 11.5% in 2Q10 and 9.7% in 1Q10
(Source: MTI). The performance of the sector in 2010 was primarily driven by sustained public
works and recovery in the residential property segment in tandem with improved market
sentiment. Public sector projects include the MRT contracts for the Downtown Line, road works,
industrial facilities at Seletar Aerospace Park, service tunnel at Marina Bay and new healthcare
facilities. Nonetheless, the industry’s growth has moderated this year due to the completion of
significant portions of the two integrated resorts.
In 2011, we expect the sector to continue to benefit from increased spending in public works
particularly transport infrastructure and continued economic growth in Singapore. Robust
economic growth in Singapore will create spill-over benefits to the construction sector,
providing more tendering opportunities in building projects. In addition, expectations for a
sustained take-up rate in the private residential market should continue to buoy the sector.

Meanwhile, local companies with overseas activities particularly in niche infrastructure areas
23
should benefit from the economic growth in the region.
Airlines: We expect Singapore’s aviation market to continue growing in 2011 on the back of
rising demand for air travel and airfreight. Business travel should also improve in line with
growing regional trade and increasing activity in the financial sector. Visitor arrivals to
Singapore are increasing, drawn by the new integrated resorts and the country’s established
position as a venue for conferences, seminars and exhibitions. The aviation support services
sector, e.g. maintenance, repair and overhaul, is expected to see more work as parked aircraft
are recalled into service and new aircraft are commissioned. Singapore aviation stocks are
currently trading at forward PERs of 13.9x, compared with historical averages of 12x-20x.
Marine: Going into 2011, we still prefer the container shippers over the dry bulk shippers and
ports. Container ship deliveries are decelerating versus dry bulk new built completions that will
remain high following record orders in 2007 and 2008. Total dry bulk orderbook makes up
approximately 31% 2011 global fleet. Although oversupply could exist in both sub-sectors, we
estimate the extent will be much milder among the container liner operators, with an estimated
1.0% excess supply growth versus dry bulk operators’ about 4.9% excess supply growth in
2011.
Global trade growth will normalize to 7% to 9% in 2011, in our opinion, and the recovery should
continue to underpin freight rates on most trade routes. Despite an increase in global container
tonnage in 2011, we believe much of the new container vessel supply can be absorbed via slow
steaming. With the container liner operators less fragmented than bulk shippers, mutual
cooperation via Grand Alliance pacts in terms of new routes and new builds has ensured a
more stable operating environment.
Positive Drivers
Construction & Engineering: In Singapore, public sector demand for construction services is
expected to remain strong in 2011, supported by extensive works in transportation
infrastructure. With the Singapore government spending over SGD60 bln over the next ten
years to double the existing rail transit system (RTS), the order books of local construction
companies are set to grow. The new lines are the Downtown Line (DTL), the Thomson Line
(TSL) and the Eastern Region Line (ERL). In addition, other mega infrastructure include the
SGD1.33 bln Sports Hub that will be rolled-out after a two-year delay due to the financial crisis
and high building material costs.
HDB’s plans to boost and expedite development of new flats to appease rising demand also
bode well for the construction industry. HDB is doubling this year’s supply from 8,000 to 16,000
units and plans to launch a record of 22,000 flats in 2011. Besides the continued
implementation of government contracts, private building projects should be sustained by
activities in both the residential property and commercial segments in tandem with the
improvement in the economy.

24
Private projects picked up with the recovery but government will step in should jobs dip
25 ,000
20 ,000
15 ,000
SGD mln
10 ,000
5 ,000
0
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Public Project Awards (YTD) Private Project Awards (YTD)
Source: CEIC
Airlines: Sustainable economic growth will be the primary positive driver for airlines, as
business travel grows on increasing international trade and financial market activities, and
leisure travel rises on higher disposable income and discretionary spending. We see increasing
demand and disciplined capacity management leading to stronger yields and higher revenues.
At the same time, costs remain relatively stable, due to the restructuring measures that airlines
were forced to implement during the recession. Prospects for a weaker USD would be good for
airlines in Asia in general, as this would reduce their USD debt burdens, acquired when
purchasing aircraft, leading to foreign exchange gains.
Marine: A continued improvement in trade volume will be the key positive for both shippers
and ports. In particular, signs of a pickup in manufacturing should improve confidence, which
will be positive for container shippers. China’s domestic requirements, especially in
infrastructure development, will continue to drive dry bulk deliveries.

25
(Lef) Revenue/Passenger-km vs. Available Seat-km (Right) Freight Tonne-km vs. Available Freight Tonne-km
25.0 50.0
20.0 40.0
15.0
30.0
10.0
20.0
5.0
10.0
0.0
0.0
-5.0
-10.0
-10.0
-15.0 -20.0
-20.0 -30.0
Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
RPK ASK FTK AFTK
Source: Association of Asia-Pacific Airlines
Negatives
Construction & Engineering: Higher prices of basic building materials such as steel bars and
concrete, and transportation costs could pressure margins. The gradual increase in foreign
workers’ levy to encourage contractors to invest in productivity enhancing equipment and
training will further dampen margins. Fuel cost is also rising and this could further pressurize
construction margins. Undoubtedly, with construction of the integrated resorts completing,
there may be added competition for new jobs and this may also constrict margins.
Airlines: Looking ahead to 2011, the overall outlook for Asian airlines remains positive, but the
double-digit passenger traffic growth rates of the first nine months of 2010 are expected to
ease back toward normalized growth trends. Slower economic growth in Europe and the US
also needs to be factored in. There are signs that the airline industry is entering a slower phase
of growth after the strong post-recession rebound that began in 2H09 and gained momentum in
1H10.
Now that the restocking cycle has ended, consumer spending and business investment will be
more important drivers of air freight demand, but they represent more uncertain factors as
joblessness remains high and consumer confidence falls in Europe and North America. At the
same time, airlines have been adding air freight capacity at a rate that has outpaced demand
growth.
The rise in jet fuel prices remains a worry for airlines. Since its early 2009 low, the price of jet
fuel has nearly doubled, in line with the rise in the price of crude oil. We are concerned that
higher fuel prices may hamper airlines’ profitability if fuel surcharges applied by airlines cannot
fully offset the fuel cost increase. Airlines may also see a narrowing in fuel hedging gains or
losses, as fuel hedging contracts entered into in 2007/2008 are gradually settled.

Marine: Shippers will have to manage fuel costs more actively in 2011 given our view for oil
26
prices to see greater upside pressure as the global economy recovers. Since there remains
excess capacity of vessels, the ability to pass through higher fuel costs may be limited. Rising
interest rates may lift interest expense but the shippers in our coverage have comfortable
gearing levels and should see contained impact. As mentioned earlier there remains significant
supply of bulk ships coming on stream and this could pressure dry bulk freight rates.

Construction & Engineering: We anticipate local construction demand to grow at a slower
pace as it tapers from the peak of the recent building boom, particularly with the completion of
the integrated resorts. However, we expect construction companies to continue to benefit from
the government’s sustained high level of public projects in the next few years comprising
mainly infrastructure works, new public housing and institutional projects. According to the
BCA, the average annual construction demand for 2011 and 2012 is forecasted to reach between
SGD18 bln and SGD25 bln. This is higher than the historical average annual construction
demand of SGD15.6 bln between 1996 and 2006.
Airlines: We expect traffic demand to remain robust, although the pace of growth will likely
moderate, due to the higher base effect and as traffic patterns ease toward long term trends.
For the Asia Pacific region, we see international passenger and cargo traffic growth slowing
from 10% and 25% in 2010 to 4% and 10% in 2011, respectively. Of course the actual pace of
expansion will be dependent on the strength of the global economic recovery ahead. A good
number of Asia-Pacific airlines have announced new aircraft orders in 2010, a sign that
confidence has returned to the sector. We expect airline capacity to expand over the next few
years to cater to growing demand, and that will also benefit airport operators. We expect
airport operations to normalize and profitability to grow, in line with higher traffic and airlines’
capacity growth.
Marine: While shipping rates are not expected to move much due to increased capacity, we feel
valuations are undemanding and this should provide support to share prices. We estimate the
BDI will stay range bound at around the 2700 to 2800 range in 2011. We expect container freight
rates to remain relatively flat on most routes. We have factored in an overall volume growth of
8% on the back of increased global trade demand.

27
Choppy recovery in Singapore container throughput
25 %
18.5%
20 %
15 % 10.4%
10 % 7.9% 7.1%
5.9%
4.4% 5.3%
5% 2.5% 2.1%
0.7% 0.5% 1.0%
-0.1%
0%
-5 % -1.3% -1.9% -1.1%
-3.2% -3.7% -3.7%
-10 % -5.8% -6.3% -4 .9% -5.8% -6.4%
-9.3% -8.4% -7.9%
-15 %
-20 %
-25 %
9
9
09
0
9
-08
-10
8
0
0
r -0
v-0
y -1
l-0
n -0
p-0
n-1
v- 0
r-1
v- 1
l -1
y-
p
p
Ju
Ju
Ma
Ma
Ma
No
No
No
Ma
Se
Ja
Se
Ja
Se
Container Throughput (MoM)
Container Throughput (YoY)
Source: CEIC

Information Technology 28
Overview
Following the stellar performance in 2009, the broad Information Technology sector
underperformed in 2010. In Asia, the sector gained 4.4% vs. 8.6% YTD for the Asia-Pacific ex-
Japan BMI and -4.0% vs. 6% for the S&P Singapore BMI. The overall weakness was mainly due
to more subdued growth expectations going into 2H10 in the absence of any inventory
restocking. However, underlying performances were mixed. Internet issues fared far better and
this helped propel to the China technology sector to outperform, but this seems to be one of
the fewer bright spots for the overall sector and an absent driver for the Singapore issues.
Information Technology vs. Index

140% 131%
120%
100%
80% 72%
60%
40%
20% 7% 8% 9%2%
2% 6%
0%
-3% -4%
-20%
-1%
-19%
-40%
2009 1Q10 2Q10 3Q10 QTD YTD
Information Technology Index
For 2011, despite the uncertain outlook for the Europe, we expect demand for most applications
to remain stable as global economy gradually recovers. Nevertheless, earnings growth will
decelerate due to: (i) a higher base in 2010; (ii) mounting raw material prices; and (iii) price
competition for certain applications. Overall, we estimate the stocks under our coverage to face
challenges but as the bad news is largely reflected in current valuations, we keep a
Marketweight stance.
Positive Drivers
Recovery of the global economy remains the key factor for the demand of IT products. Global
demand in 2009 and 2010 were mainly driven by stronger consumer spending as a result of
various government stimulus packages. Going forward, we expect the commercial sector to
support demand for IT products as corporate profitability gradually recovers.
In addition, the continual launch of attractively priced products (e.g. tablet PCs and smart
phones) and demand for high-speed data transmission will help support consumer spending.
Further, stronger demand for end-user applications also suggests more outsourcing needs for

manufacturing service providers (i.e. foundries and EMS) and supports prices for IT
29
commodities (e.g. TFT LCD and DRAM), in our opinion.
Negatives
A slower-than-expected recovery in the global economy will negatively affect corporate IT
spending due to poorer earnings prospects. Stronger price competition for the end-user
applications will also affect profitability for IT brand names and margin pressure for EMS
providers. For IT TFT LCD and DRAM industries, faster-than-expected expansion of the
production capacities and weaker-than-expected demand for PCs and LCD TVs will lead to
greater-than-expected demand-supply imbalance and a drop back in panel and chip prices, in
our opinion.

Following an 18% YoY growth in 2010, we expect PC demand to remain solid and project 15%
YoY unit shipment growth based on further economic expansion particularly in the emerging
markets. In addition, IDC also forecasts global handset shipments to grow by 8% YoY in 2011
that will be supported by higher smart phone penetration (+22% YoY unit shipment growth).
Stable demand for end-user applications also support our view about the 7% YoY and 8% YoY
revenue growth for the global semiconductor and EMS industries, respectively.
Nevertheless, we expect earnings for leading foundry suppliers to decline by single-digit

percentage, as we expect their aggressive capex plans will lead to excess capacities and pricing
pressure for its services. For the TFT LCD industry, we expect cautious capacity expansion
among panel suppliers will result in an anticipated earnings recovery in 2H11.

Materials 30
Overview
The Materials sector outperformed in 2010, rising 12% YTD vs. 9% for the S&P Asia-Pacific ex-
Japan BMI, as most materials prices remained strong, benefiting from excess liquidity and
weakness in the USD. However, Materials underperformed the S&P Singapore BMI sharply. The
relative underperformance reflects mixed constituent performances with weakness in steel
product companies and an absence of the larger cap raw material producers to boost
performances in the Singapore market. However, select small cap issues, such as Broadway
Industrial Group, did well primarily due to specialized products and unique outlooks.
Materials vs. Index

140%
125%
120%
100%
80% 72%
60%
40%
20% 6% 8%
3% 2% 6%
0%
-1% -3% -7%
-20% -19%
-20%
-40%
2009 1Q10 2Q10 3Q10 QTD YTD
Materials Index
Overall, it was a volatile year, with metal prices falling in the beginning of the year but
reversing the trend in 2H10, on the back of better economic outlook, further quantitative easing
in U.S. and power restriction measures in China. Steel companies under our coverage have
underperformed the sector this year given slower China production growth of 11% YoY (vs
global growth of 27% YoY YTD) and increased volatility of raw material prices after the
replacement of the ‘annual’ raw material pricing system with a ‘quarterly’ cycle. For 2010,
prices of key raw materials (iron ore and coking coal) was pushed up by 110% YoY and 62%
YoY, respectively and in turn has raised 2010 ASP for steel products over 20% YoY.

31
(Left) Global Aluminum Inventory (Right) Global Copper Inventory
6,000 1,000
5,000
800
4,000
600
'000 m t
'000 m t
3,000
400
2,000
200
1,000
0 0
Nov-04
Nov-07
Nov-03
Nov-05
Nov-06
Nov-08
Nov-09
Nov-10
Nov-03
Nov-04
Nov-05
Nov-06
Nov-07
Nov-08
Nov-09
Nov-10
Source: ME, COMEX, SHFE
For 2011, we anticipate the Materials sector will continue to track global growth, particularly
China’s. Expectations of a weaker USD will have a positive impact on prices of industrial metals
and gold. While physical demand should be healthy, the biggest risk for the sector would be
further tightening measures in China due to higher inflation, or slower-than-expected growth in
global economy. We remain Marketweight on the sector.
Positive Drivers
A weakening greenback (which lowers the price of commodities quoted in USD), stronger-than-
expected global growth, reduction in excess capacity as well as industry consolidation in China
would continue to support material prices. Energy conservation moves by the Chinese
authorities should also help control excess production and this would assist in propping up
material prices as well. In addition, the potential launch of physically-backed metal ETFs may
reduce inventories and provide support to metal prices.
Mounting fears for a high inflation environment coupled with increased demand for gold by
central banks as a hedge against currency volatility and a weakening USD would be catalysts
for a higher gold price.
Negative Drivers
A slower-than-expected global economic growth and strengthening USD could negatively
impact material prices. Meanwhile, excess steel and aluminum capacity in China remains an
issue to be resolved and could place a cap on prices should idle capacity restart production.
Furthermore, aluminum’s high inventory levels may exert pressure on prices. Additionally, a
sharp rise in operating costs (such as energy costs) would be negative for the materials sector
should global growth not pick up.


32
We expect the Materials sector to continue performing decently supported by expectations of a
weaker USD and continued rise in China’s fixed asset investment, especially in the rural areas.
Meanwhile, risk of excess capacity should be mitigated by China’s environment controls and
capacity closures. Nonetheless, performance will be mixed among various materials, due to
different fundamentals.
For steel in 2011, we estimate a 5%-10% YoY increase in production in tandem with our
expectations for a decent GDP growth and improving construction activities, together with
inventory accumulation by distributors. Nevertheless, given the risk for a lackluster global
growth, we would anticipate that segments where inventory has fallen faster may do better.
Within the Chinese steel industry, long steel inventory has fallen 39% from its 2010 average,
against a +7% in flat steel. Our models assume major steel prices ranging between USD650/mt
to USD750/mt for the next year.
China Steel Product Inventory Levels are Declining
1,000
900
800
700
'0000 tons
600
500
400
300
200
100
-
Jan-10
Apr-10
May-10
Jun-10
Sep-10
Oct-10
Nov-10
Feb-10
Mar-10
Jul-10
Aug-10
Dec-10
Long Steel Inventory Flat Steel Inventory
Source: Bloomberg
Aluminum however, continues to suffer from high inventories and oversupply issues. Although
prices are rising due to production cuts and the weaker USD, it may not be sustainable with the
removal of power restrictions in China. We expect aluminum to trade around CNY16,000/mt to
CNY17,000/mt in 2011, mainly due to higher production costs (energy prices).
In Singapore, building material products should see a gradually improving price trend. Prices
may stay subdued, however, with overall building activity off peak levels. Nonetheless, since
the majority of products are imported and priced primarily in USD, there should be some buffer
to margins if rising prices can only be passed through on a lag. Those supplying to HDB
projects should see a relatively better sales outlook.

Singapore material product prices recover gradually 33
150%
100%
50%
YoY
0%
-50%
-100%
8
0
8
0
8
0
8
0
8
0
n- 0
n- 0
n- 1
p-0
v- 0
p-0
v- 0
p-1
v- 1
r -0
r -0
r -1
y -0
y- 0
y- 1
l- 0
l- 0
l -1
Ju
Ju
Ju
Ma
Ma
Ma
Ma
Ma
Ma
Ja
Ja
Ja
Se
No
Se
No
No
Se
Cement Steel Bars Granite Concreting Sand

Telecommunications 34
Overview
Regionally, the telecommunications sector underperformed in 2010, rising by 4% YTD vs. the
S&P Asia-Pacific ex-Japan BMI of 9% as investors sought higher beta issues and stronger
growth prospects. In Singapore, earnings stayed soft in 2010 due to high content cost,
aggressive handset subsidies and continual price pressure, which led to further margin
compression. As we expect revenue growth to be in the low single-digit percentage for 2011,
we think the median 2011 PER valuation of 13.2x is justified. We maintain our Marketweight
view on the sector with dividend play stocks providing a safe haven amid the macroeconomic
uncertainties. We see positive catalysts emanating from ARPU uplifts and growth opportunities
arising from the rollout of national broadband network (NBN).
Telecom Services vs. Index

80%
72%
70%
60%
50%
40%
30%
23%
20%
10% 8% 6%
2% 4% 2%
1%
0%
-10%
-1% -4% -3% -1%
2009 1Q10 2Q10 3Q10 QTD YTD

Telecom Services Index
Positive Drivers
Key ARPU lifts include prospective payoffs from handset subsidies and smartphone revolution,
aggressive rollout of mobile broadband services, and expansion into new growth areas (SME
markets, quadruple play) with the NBN rollout. We continue to see data services (i.e.
broadband) taking centre stage in 2011, with greater emphasis on content strategy amid the
convergence of quadruple play (mobility, voice, data and video services).
Negatives
Negatives for the sector include margin compression from aggressive handset subsidies, price
competition from new market entrants and pricing risk of broadband access. NBN rollout in
Singapore could yield lower margins on broadband access.


35
We expect stable mobile ARPU for 2011, as payoffs from handset subsidy strategy should help
offset ARPU attrition rates. Nevertheless, amid a NBN environment, competition is expected to
remain intense, with the rising adoption of IPTV and pricing pressure on broadband services.
Overall, we expect revenue to grow at a marginal rate of 2%-3% YoY in 2011.

December 23, 2010
Glossary
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36
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equity analysts rank stocks according to their individual forecast of a London; Standard & Poor’s Equity Research Services Asia includes
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December 23, 2010
Required Disclosures S&P Global Quantitative Recommendations Distribution

37
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Global Strategy

Equity Research Asia Singapore

2011 Outlook: Good but choppy

o We maintain our preference for Energy issues over Materials on

o The global recovery should continue to lift Industrials issues.

o After outperforming in 2010, we take a cautious view on

Choppy but positive 2

On valuation grounds, based on Bloomberg market consensus, Singapore’s FSSTI

FSSTI PERs and 2011 Target

Source: Bloomberg, S&P Equity Research estimates

Standard & Poor’s Equity Research

U.S. Recovery Should Provide Buffer to Tightening Risk

Singapore Real GDP Growth

Source: CEIC, S&P Equity Research estimates

Standard & Poor’s Equity Research

SGD Gains Against Major Currencies Except for JPY, AUD

SGD:USD SGD:AUD SGD:EURO

Standard & Poor’s Equity Research

Property Bubble Risk Exists but Should be Contained

Standard & Poor’s Equity Research

Eurozone Risk Remains but Likely Contained

Near Term Technical Pullback Remains in Play

Standard & Poor’s Equity Research

Overweight Energy and Industrials

Neutral Banks, Gaming

Underweight Healthcare and Real Estate

Standard & Poor’s Equity Research

Sector Weighted Share Price Performances as of Dec. 17, 2010 8

1 month 3 month YTD perf

-50% 0% 50% 100% 150 % 20 0% 250%

Source: S&P Index Services

Standard & Poor’s Equity Research

Standard & Poor’s Equity Research

Sector Performance vs. S&P Singapore BMI (as of Nov. 30)

Consumer Discretionary vs. Index

Source: S&P Index Services

We expect continued strength in the regional economies to support further growth in

2011 Outlook – Positive Drivers

Standard & Poor’s Equity Research

Base Case Expectation

1,200,000 100 350

Hotel Occupancy Rate (lhs)

Standard & Poor’s Equity Research

Sector Performance vs. S&P Singapore BMI (as of Nov. 30)

Consumer Staples vs. Index

20% 4% 10%8% 3%2%

Source: S&P Index Services

2011 Outlook – Positive Drivers

Standard & Poor’s Equity Research

Malaysia CPO Prices, Production and Inventory

" 000 tons

Base Case Expectation

Standard & Poor’s Equity Research

Sector Performance vs. S&P Singapore BMI (as of Nov. 30)

Energy vs. Index

Source: S&P Index Services

Standard & Poor’s Equity Research

Base Case Expectation

Standard & Poor’s Equity Research

We are Marketweight the Singapore banks primarily on valuation grounds as we believe

Sector Performance vs. S&P Singapore BMI (as of Nov. 30)

Financials vs. Index