17 June 2013

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Global Research

First Light Asia

Nanya PCB, S Oil, Coal change India Limited [Production: please headline text colour to WHITE, change headline row height to 1pt exactly before publish]

Whats Changed, Research Focus, Todays Events

Ticker Down 8046 TT COAL IN Company Rating
was N Currency TWD INR

Target

was 41.00 410.00

EPS '13e -1.02 27.47(a)

EPS '14e -0.47 29.27

Price 41.20 298.90

Price At Close 14 Jun 13 Jun

Nanya PCB Coal India Limited

UW OW

21.00 400.00

Source: Bloomberg, HSBC estimates

Click on title to open reports

Research Focus
Nanya PCB (8046 TT) - Downgrade to UW: Intels supply chain getting crowded Tse-yong Yao* Leading European PCB supplier AT&S entering Intels IC substrate supply chain suggests Nanya PCB is not a part of Intels long-term plans Downgrade to UW from N; 2013 are estimates unchanged but we lower our target price to TWD21 (from TWD41), which is now based on net working capital minus long-term debt S-Oil (010950 KS) - UW: Potential for a de-rating; need a breakthrough Concerns on PX oversupply risk and disadvantages in crude cost weigh on investor sentiment Ex-growth and lower dividend yield could lead to a de-rating Retain Underweight and TP at KRW60,000

Dennis H C Yoo*

Coal India Limited (COAL IN) - OW: Continues to provide stable earnings growth Arun Kumar Singh* We conservatively forecast a stable 10% CAGR earnings growth outlook along with good dividend yield (5%) Expect sales volume and e-auction outlook to remain stable despite approvals issue and softer international prices We cut our estimates and target marginally from INR410 to INR400, accounting for FY13 shortfall, but maintain our OW

Ticker L'Occitane International SA Singapore Non-Oil Domestic Exports India Repo Rate India Cash Reserve Ratio Philippines Overseas Remittances
Source: Bloomberg, HSBC estimates

Event Y May 17-Jun 17-Jun Apr

Rating UW

Target 22.00 4.2% 7% 4% 7%

Price 22.7 Empire Manufacturing NAHB Housing Market Index

Ticker US US

Event Jun Jun

NI Bbg 45

973 HK

Colin Davis*

Head of Research Marketing Asia

+852 2996 6635

colindavis@hsbc.com.hk

*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Issuer of report: The Hongkong and Shanghai Banking Corporation Limited View HSBC Global Research at: http://www.research.hsbc.com

Disclaimer & Disclosures This report must be read with the disclosures in the Disclosure appendix, and the Disclaimer, which forms part of it Disclosures for companies can be accessed via the hyperlinks to the original published research, which can be found in the title

First Light Asia 17 June 2013

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Regional
Mine & Dime - POSCO: Impact of power-shortage warning to be limited Simon Francis* Korea issued a preliminary power-shortage warning after a corruption scandal forced the suspension of two nuclear reactors. In response, the nations major steel mills have agreed to participate in the governments move to save electricity by curtailing usage during the peak season. The Korea Iron & Steel Association announced on 9 June that its members will reduce their daily electricity consumption by 1.1m KW in August when the demand for electricity tends to spike due to air conditioning usage.

China & Hong Kong

From the horses mouth - The latest on local government debt in China Qu Hongbin In its latest report, the State Audit Office estimates local debt has grown 6% pa since 2011, implying the local government debt-GDP ratio has fallen from 26% to 23% HSBC estimates that total local government debt topped RMB12trn, of which 78% are bank loans Issuing municipal bonds and selling assets could be feasible ways to mitigate the liquidity risk

India
India - Still moderating: May WPI inflation eased to 4.7% y-o-y Leif Eskesen May WPI inflation eased to 43-month low of 4.7% y-o-y (vs. 4.9% in April) led by energy, minerals and manufactured goods. However, food inflation picked up and inflation rose slightly on a sequential basis. Inflation is likely to remain relatively benign in coming months as commodity prices remain low and domestic demand remains soft. Shunning India and Indonesia bonds - Foreign flows compass Andr de Silva EM bond funds recorded weekly outflows of USD2.5bn, the largest amount since September 2011 India and Indonesia countries, which run a current account deficit observed the largest foreign selling of bonds in Asia

Global
HSBC Steel Weekly - EU to the rescue EU has published its Steel Action Plan Interest and support is positive but the political process will likely take time that the industry might not have Thorsten Zimmermann*

Platinum Group Metals Outlook - Supply squeezes to drive rallies James Steel We lower our 2013 and 2014 platinum price forecasts, but expect a growing supply squeeze to be price supportive We expect the platinum supply/demand deficit to reach record levels on static supply and rising ETF and physical demand We maintain our 2013 palladium price forecast; eroding Russian stockpiles and weak production are price supportive

Market data
Markets HSI SHCOMP TAIEX KOSPI TOPIX BSE 30
Source: Bloomberg

HSBC 24,000 2,500 8,300 2,300 780 21,700

Last 20,969 2,162 7,938 1,889 1,056 19,178

5d % -3.98 -4.86 -1.96 -1.80 -0.05 -1.29

Forecast GDP (%Yr) Int Rate USD vs CCY US China Taiw an Korea Japan India 1.7 8.6 4.2 3.8 1.2 5.5 0-0.25 EUR 6.00 2.375 3.25 7.25 CNY TWD KRW INR

HSBC 1.35 6.18 29.2 1,090.0 78.0 52.0

Last 1.33 6.13 29.86 1126 94.5 57.53

5d % 0.93 0.04 -0.33 -0.84 3.25 -0.81

Commodities Oil Gold Coal (Thermal) Steel (HRC Asia) Aluminium Copper

HSBC 106.6 1,700 90 711 2,150 7,500

Last 97.9 1389 86 1813 7058

5d % 1.92 0.41 -0.46 -5.94 -3.47

0-0.10 JPY

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Global Research

Telecoms, Media & Technology Electronic Equipment

Equity Taiwan

Nanya PCB (8046 TT)

Downgrade to UW: Intels supply chain getting crowded
Leading European PCB supplier AT&S entering Intels IC substrate supply chain suggests Nanya PCB is not a part of Intels long-term plans Downgrade to UW from N; 2013 are estimates unchanged but we lower our target price to TWD21 (from TWD41), which is now based on net working capital minus long-term debt

Underweight
Target price (TWD) Share price (TWD) Forecast dividend yield (%) Potential return (%) 21.00 41.20 0.0 -49

Note: Potential return equals the percentage difference between the current share price and the target price, plus the forecast dividend yield Performance Absolute (%) Relative^ (%) Index^ RIC Bloomberg Market cap (USDm) Market cap (TWDm) Enterprise value (TWDm) Free float (%)
Note: (V) = volatile (please see disclosure appendix)

1M 18.2 22.7

3M 21.2 21.2

12M -11.8 -21.5

TAIWAN WEIGHTED IN 8046.TW 8046 TT 889 26,622 20,786 33

A new player entering Intels IC substrate supply chain... Leading European PCB maker AT&S (ATS AV, Not Rated) had previously announced its intentions to enter the IC substrate business. Yesterday, the company provided further details, announcing Intel (INTC US, Not Rated) as its partner. The companys new factory in Chongqing is currently under construction and AT&S expects it to begin to generate revenue in 2016. This marks the second new entrant into Intels IC substrate supply chain with Unimicron (3037 TT, TWD29.5, N(V)) looking to start production in 2014. suggests Nanya PCB is no longer a part of Intels long-term plans. While the company has clearly struggled of late, we had maintained hope that the company could meaningfully turn things around, given the recent order uptake from Intel. Given the rapidly increasing competition, even if Nanya PCB maintains its place in Intels supply chain, we believe it would be highly unlikely that the company could capture enough volume to run this business profitably (see our note Nanya PCB N: AMD helps, but no saviour, 30 May 2013). We estimate that Nanya PCB would need to capture a 15-20% share of Intel just to break even and a 25-30% share to drive gross margin above 10%. Downgrade to UW from N. We leave our estimates unchanged as the new competition is still a few years away. While we are modelling net losses for 2013 and 2014, theres certainly a window of opportunity for the company to turn profitable within the next few years. Over the long run though, and especially without a meaningful share of Intels business, we view Nanya PCB as a loss-making enterprise (its non-Intel business is mostly breaking even or generating losses). As such, we now value the company based on its net working capital minus long-term debt. Put another way, we are essentially valuing the companys property, plant and equipment at zero, as we believe that these assets are generating zero to negative returns. Our new TP is TWD21 (down from TWD41, which was based on a 0.8x PB).
Nanya PCB Financial and valuation summary Year end - Dec EPS (TWD) EPS growth (% y-o-y) Net profit change (%) HSBC/consensus (%) PE (x) ROE (%)
Source: Company data, Bloomberg, HSBC estimates

17 June 2013
Tse-yong Yao* Analyst HSBC Securities (Taiwan) Corporation Limited +8862 6631 2861 tse-yongyao@hsbc.com.tw

View HSBC Global Research at: http://www.research.hsbc.com *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Issuer of report: HSBC Securities (Taiwan) Corporation Limited

Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

2010 3.3 -2% NA NA 12.5 6.1%

2011 4.9 49% NA NA 8.4 9.4%

2012 -3.2 -165% NA NA -12.9 -6.3%

2013e -1.0 68% 0.0% 386% -40.3 -2.1%

2014e -0.5 54% 0.0% -3% -86.9 -1.0%

Nanya PCB (8046 TT) Electronic Equipment 17 June 2013

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Financials & valuation

Financial statements Year to 12/2012a 12/2013e 12/2014e 12/2015e Valuation data Year to EV/sales EV/EBITDA EV/IC PE* P/Book value FCF yield (%) Dividend yield (%) 12/2012a 0.6 35.2 0.8 NM 0.9 1.8 4.9 12/2013e 0.7 13.6 0.8 NM 0.8 1.6 0.0 12/2014e 0.6 11.3 0.8 NM 0.8 3.2 0.0 12/2015e 0.5 6.7 0.7 53.6 0.8 7.4 0.0

Profit & loss summary (TWDm) Revenue EBITDA Depreciation & amortisation Operating profit/EBIT Net interest PBT HSBC PBT Taxation Net profit HSBC net profit Cash flow summary (TWDm) Cash flow from operations Capex Cash flow from investment Dividends Change in net debt FCF equity Tangible fixed assets Current assets Cash & others Total assets Operating liabilities Gross debt Net debt Shareholders funds Invested capital 2,948 -2,279 -1,605 -1,299 1,889 456 17,951 20,320 9,802 38,930 5,057 2,946 -6,856 30,927 23,412 -46 -1,668 -2,037 0 1,711 405 19,154 19,510 8,110 39,354 3,853 2,965 -5,146 32,392 26,701 2,450 -1,700 -1,700 0 -1,044 834 17,988 20,659 9,154 39,365 4,134 2,965 -6,189 32,081 25,358 3,690 -1,600 -1,600 0 -1,937 1,906 16,777 22,531 11,316 40,055 4,279 3,190 -8,127 32,586 23,712 29,723 543 -3,388 -2,845 550 -2,295 -2,295 231 -2,064 -2,064 31,294 1,524 -3,147 -1,623 844 -779 -779 114 -665 -665 33,574 1,745 -2,882 -1,137 772 -365 -365 55 -310 -310 33,375 2,633 -2,807 -174 768 594 594 -89 505 505

Note: * = Based on HSBC EPS (fully diluted)

Price relative
138 118 98 78 58 38 18 2011
Nanya PCB
Source: HSBC

138 118 98 78 58 38 18 2012

Rel to TAIWAN WEIGHTED INDEX

Balance sheet summary (TWDm)

2013

2014

Note: price at close of 14 Jun 2013

Ratio, growth and per share analysis Year to Y-o-y % change Revenue EBITDA Operating profit PBT HSBC EPS Ratios (%) Revenue/IC (x) ROIC ROE ROA EBITDA margin Operating profit margin Net debt/equity Net debt/EBITDA (x) Per share data (TWD) EPS reported (fully diluted) HSBC EPS (fully diluted) DPS Book value -3.19 -3.19 2.01 47.78 -1.02 -1.02 0.00 49.79 -0.47 -0.47 0.00 49.07 0.77 0.77 0.00 49.59 1.2 -10.5 -6.3 -6.1 1.8 -9.6 -22.2 -12.6 1.2 -5.5 -2.1 -3.5 4.9 -5.2 -15.9 -3.4 1.3 -3.7 -1.0 -2.5 5.2 -3.4 -19.3 -3.5 1.4 -0.6 1.6 -0.4 7.9 -0.5 -24.9 -3.1 -23.4 -91.1 -196.0 -156.2 -164.9 5.3 180.7 7.3 14.5 -0.6 50.9 12/2012a 12/2013e 12/2014e 12/2015e

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Global Research

Nat Resources & Energy Oil & Gas

Equity Korea

S-Oil (010950 KS)

UW: Potential for a de-rating; need a breakthrough
Concerns on PX oversupply risk and disadvantages in crude cost weigh on investor sentiment Ex-growth and lower dividend yield could lead to a de-rating Retain Underweight and TP at KRW60,000
Continuing underperformance: Despite a rebound in benchmark refining margins from USD4.8/bbl to USD7.8/bbl in the past 7 weeks, S-Oils share price has dipped by c10% in the past 10 days, extending ytd losses to -23% vs KOSPIs -5%. A weak 2Q13 earnings outlook has partly contributed to this underperformance, but we believe our concerns on the medium-term business outlook have started to play out. Disadvantaged crude cost: As we have anticipated, ME crude is becoming unattractively priced compared with international benchmarks on tightened OPEC supply. The Brent-Dubai crude differential has narrowed from USD3-5/bbl in 2011-12 to USD2/bbl in 2Q13 qtd, making S-Oil who relies solely on Arabian crude less competitive. As Dubai crude has already become more expensive, the recent cut in Aramco OSP (Official Selling Price, a price premium that S-Oil pays over Dubai crude) has little positive impact. It may become more pronounced if OPEC cuts crude output in response to higher non-OPEC production. PX golden age likely over: PX the largest earnings contributor to S-Oil (c45% in 201113e) has been in a sweet spot in the past three years thanks to a surge in Chinas imports as a result of downstream PTA expansions in the country. New PTA plants in China have been displacing PTA imports and consuming more PX during the period, but as PTA selfsufficiency has risen (from 79% in 1Q11 to 131% in 4Q12 in terms of capacity) Chinas PX imports will likely decelerate while regional PX capacity grows by 47% in 2013-15e. The downturn has started already, evidenced by a cUSD200/t fall in PX-gasoline spread ytd. Lower dividend yield and ex-growth may lead to a de-rating: Well-disciplined high pay-out ratio (40-50%) has attracted investor interest to S-Oil, but a weak earnings outlook suggests the dividend yield (4.1% in 2013e) will be far lower than in the past (7.2% in the past 10 years). The viability of the refinery upgrade project is still vague, so ex-growth concerns may lead to a de-rating until the company draw a clearer blueprint. We maintain our UW and target price at KRW60,000. We have cut our 2013e DPS forecast from KRW4,500 to KRW 3,250 as we believe the company will likely retain more cash for future maintenance and capex. Our target price is derived from applying target PE multiple of 9.1x (unchanged), which is the Korean refining sectors historical average, to our 12 months forward EPS. 2013e consensus EPS have fallen by 25% during the last 6 months, but its still 21% higher than our estimate. Key upside risk to our call is a sudden rise in crude oil price that may cause unexpected inventory gains.

Underweight
Target price (KRW) 60,000 Share price (KRW) 79,000 Forecast dividend yield (%) 4.1 Potential return (%) -20.4
Note: Potential return equals the percentage difference between the current share price and the target price, plus the forecast dividend yield Performance Absolute (%) Relative^ (%) Index^ RIC Bloomberg Market cap (USDm) Market cap (KRWb) Enterprise value (KRWb) Free float (%)
Note: (V) = volatile (please see disclosure appendix)

1M -9.2 -6.1

3M -16.1 -10.9

12M -14.3 -15.4

KOSPI INDEX 010950.KS 010950 KS 8,122 9,186 11,399 36

17 June 2013
Dennis H C Yoo *, CFA Analyst The Hongkong and Shanghai Banking Corporation Limited +852 2996 6917 dennishcyoo@hsbc.com.hk Thomas C Hilboldt *, CFA Head of Oil, Gas & Petrochemicals Research, Asia-Pacific The Hongkong and Shanghai Banking Corporation Limited +852 2822 2922 thomaschilboldt@hsbc.com.hk View HSBC Global Research at: http://www.research.hsbc.com *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Issuer of report: The Hongkong and Shanghai Banking Corporation Limited

Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

S-Oil (010950 KS) Oil & Gas 17 June 2013

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Reuters SG-Dubai Benchmark Gross Refining Margins (USD/bbl)

Brent-Dubai crude differential vs Singapore-Dubai 2:1:1 crack spread (USD/bbl)

16 14 12 10 8 6 4 2 0 -2 -4 -6

35 30 25 20 15 10 5 0

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

15 13 11 9 7 5 3 1 -1 -3 -5

Jul 04

Jul 05

Jul 06

Jul 07

Jul 08

Jul 09

Jul 10

Jul 11

Jul 12
131%

SG-Dubai Complex GRM

SG-Dubai Simple GRM

Singapore 2-1-1 Crack spread

Source: Bloomberg, HSBC

Brent - Dubai spread (RHS)

Source: Reuters, HSBC

Saudi Aramco OSP applied for S-Oil (USD/bbl)

PX-Gasoline and PX-Naphtha price spread (USD/t)

2005-11 range 2012

Source: Bloomberg, HSBC

2011 2013

Source: Thomson Reuters Datastream, Reuters, HSBC

Chinas PTA and PX net imports (000 tonnes per month)

Chinas PTA self-sufficiency (capacity to domestic demand)

900

000 tonnes / month

700 600 500 400 300 200 100 0 2007 2008 2009 2010 2011 2012 2013 2014

000 tonnes / Quarter

7,000 5,000 3,000

87% 78% 76% 77% 79% 80% 88% 89%

Capacity (a)
Source: IHS Chemical, HSBC

Source: CEIC, HSBC

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12

Demand (b)

106% 99% 109%

800

PTA

PX

9,000

Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13
PX-Gasoline PX-Naphtha

4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0

800 700 600 500 400 300 200 100

Jan

Jun

Mar

Apr

Aug

Sep

Feb

Oct

Jul

Nov

May

Dec

(a)/(b) (RHS)

Jul 13
140% 130% 120% 110% 100% 90% 80% 70% 60%

Company report

Nat Resources & Energy Metals & Mining

Equity India

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Global Research

Coal India Limited (COAL IN)

Overweight
Target price (INR) Share price (INR) Forecast dividend yield (%) Potential return (%) 400.00 298.90 5.4 39.2

OW: Continues to provide stable earnings growth

We conservatively forecast a stable 10% CAGR earnings growth outlook along with good dividend yield (5%) Expect sales volume and e-auction outlook to remain stable despite approvals issue and softer international prices We cut our estimates and target marginally from INR410 to INR400, accounting for FY13 shortfall, but maintain our OW
Subsidiary level analysis suggest sales & E-auction volume outlook remain stable Our analysis suggest that three subsidiaries, MCL, SECL and CCL, will account for 75% of the production volume increase and 68% of the e-auction volume. These subsidiaries expect 135MT capacity of new mines to become operational in FY14-15. Despite a production shortfall for MCL in May, we expect that 58MT of inventory will allow CIL the flexibility to meet its sales volume target even in case production falls short, as it did in FY13. Expect E-auction revenue to remain stable CIL saw a 5.5% decline in revenue from eauction due to a decline in both volume available as well as lower price of e-auction. However, this was 9% better than our expectation. Further, we are factoring in a lower percentage of sales through e-auction (9% by FY16 from 10.6% in FY13). However, 57% of sales are of lower grade coal which is already selling at a c35% discount to international prices on a likefor-like basis, hence we do not expect a major decline in realization unless there is a major correction in global coal prices. Earnings growth continues While earnings grew by 18% in FY13, we expect volume growth (5% CAGR over FY14-16e) and margin expansion (by 390bps) because we dont expect wages, the largest cost, to rise to support EPS growth at 10% CAGR over FY14-16e. Our net profit estimates for FY15 are 2% ahead of consensus. In addition we expect the company to continue to provide >5% dividend yield for FY14. Valuations are attractive Trading at PE of 10.2x, at its lowest ever multiple, and c26% below its historical average (since listing in November 2010) of 13.6x following its 13.4% underperformance against the market over the past six months. Reiterate OW; lower target price to INR400 (from INR410) as we marginally reduce our EPS estimates by c1% for FY14-15 and update our multiples, which have shrunk over the past six months. We value CIL using a combination of DCF and earnings multiples. Our target implies a 12.2x FY15e PE and an EV/EBITDA of 7.6x on FY15e EBITDA. Key downside risk includes lower-than-expected offtake (coal despatched to consumers), 10% stake sale by government, which is already announced, may remain a major overhang to the stock.
Index^ Index level RIC Bloomberg
Source: HSBC

Note: Potential return equals the percentage difference between the current share price and the target price, plus the forecast dividend yield Mar HSBC EPS HSBC PE Performance Absolute (%) Relative^ (%) 2013 a 2014 e 27.47 10.9 1M 0.7 5.3 29.27 10.2 3M -6.3 -3.7 2015 e 32.69 9.1 12M -10.3 -19.6

Note: (V) = volatile (please see disclosure appendix)

17 June 2013
Arun Kumar Singh* Senior Analyst, Indian Power Utilities HSBC Securities and Capital Markets (India) Private Limited +9122 22681778 arun4kumar@hsbc.co.in Jigar Mistry*,CFA Analyst, Indian Metals and Mining HSBC Securities and Capital Markets (India) Private Limited +9122 22681079 jigarmistry@hsbc.co.in Murtuza Zakiuddin* Associate Bangalore View HSBC Global Research at: http://www.research.hsbc.com *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Issuer of report: HSBC Securities and Capital Markets (India) Private Limited

Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

BOMBAY SE IDX 18,827 COAL.BO COAL IN

Enterprise value (INRm) Free float (%) Market cap (USDm) Market cap (INRm)
Source: HSBC

1186721 10 32,553 1,887,961

Coal India Limited (COAL IN) Metals & Mining 17 June 2013

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Financials & valuation

Financial statements Year to 03/2013a 03/2014e 03/2015e 03/2016e Key forecast drivers Year to Production (MT) Sales (MT) ASP (INR/t) 03/2013a 452 465 1,468 03/2014e 477 490 1,507 03/2015e 506 515 1,543 03/2016e 534 540 1,580

Profit & loss summary (INRm) Revenue EBITDA Depreciation & amortisation Operating profit/EBIT Net interest PBT HSBC PBT Taxation Net profit HSBC net profit Cash flow summary (INRm) Cash flow from operations Capex Cash flow from investment Dividends Change in net debt FCF equity 170,315 -39,310 -43,445 -104,999 -42,887 64,549 231,343 -45,000 -45,000 -119,999 -66,344 126,160 258,235 -37,222 -37,222 -134,999 -86,014 155,697 286,938 -40,200 -40,200 -149,999 -96,740 176,044 683,027 180,836 -18,130 162,707 63,255 249,790 249,722 -76,227 173,564 173,495 738,561 203,310 -19,925 183,385 57,644 266,083 266,083 -81,221 184,862 184,862 794,409 230,536 -21,775 208,761 61,893 297,244 297,244 -90,733 206,511 206,511 853,108 259,225 -23,517 235,708 67,483 331,395 331,395 -101,157 230,238 230,238

Valuation data Year to EV/sales EV/EBITDA EV/IC PE* P/Book value FCF yield (%) Dividend yield (%) 03/2013a 1.8 6.9 10.9 3.9 3.5 4.7 03/2014e 1.6 5.8 10.2 3.4 6.8 5.4 03/2015e 1.4 4.8 9.1 3.0 8.3 6.0 03/2016e 1.2 3.9 8.2 2.7 9.4 6.7

Note: * = Based on HSBC EPS (fully diluted)

Price relative
516 516 466 416 366 316 266 2012 2013 2014
Coal India Limited
Source: HSBC

Balance sheet summary (INRm) Intangible fixed assets Tangible fixed assets Current assets Cash & others Total assets Operating liabilities Gross debt Net debt Shareholders funds Invested capital 0 169,617 999,531 622,360 1,215,648 555,486 10,778 -611,582 484,720 -8,699 0 194,692 1,078,964 688,704 1,320,156 595,131 10,778 -677,926 549,583 -10,180 0 210,139 1,178,140 774,718 1,434,779 638,242 10,778 -763,941 621,096 -24,681 0 226,822 1,288,715 871,458 1,562,037 685,261 10,778 -860,681 701,335 -41,183

466 416 366 316 266 2011

Rel to BOMBAY SE SENSITIVE INDEX

Ratio, growth and per share analysis Year to Y-o-y % change Revenue EBITDA Operating profit PBT HSBC EPS Ratios (%) Revenue/IC (x) ROIC ROE ROA EBITDA margin Operating profit margin EBITDA/net interest (x) Net debt/equity Net debt/EBITDA (x) CF from operations/net debt Per share data (INR) EPS reported (fully diluted) HSBC EPS (fully diluted) DPS Book value 27.48 27.47 14.00 76.74 29.27 29.27 16.00 87.01 32.69 32.69 18.00 98.33 36.45 36.45 20.00 111.03 -17.9 -296.4 39.0 15.2 26.5 23.8 -126.0 -3.4 -78.2 -1349.8 35.7 14.6 27.5 24.8 -123.2 -3.3 -45.6 -832.1 35.3 15.0 29.0 26.3 -122.9 -3.3 -25.9 -497.3 34.8 15.4 30.4 27.6 -122.6 -3.3 9.4 15.4 18.8 17.4 18.1 8.1 12.4 12.7 6.5 6.6 7.6 13.4 13.8 11.7 11.7 7.4 12.4 12.9 11.5 11.5 03/2013a 03/2014e 03/2015e 03/2016e
Note: price at close of 13 Jun 2013

14 June 2013

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Global Research

Mine & Dime

Asia Pacific Metals and Mining
Commodities and indices LME 3 months prices Aluminium Copper Zinc SHFE Aluminium Copper Zinc Other metals Gold China steel (ex-VAT) Wire and rods Rebar Angle steel Medium plate HR coil CR sheet Galvanised steel Seamless pipe Coal Qinhuangdao 5,800kcal, fob Newcastle 6,700kcal, fob Indices HSI Index HSCEI Index Shanghai Comp KOSPI Baltic freight
Source: Bloomberg, HSBC

POSCO: Impact of power-shortage warning to be limited

USD/t Daily chg 1,857 7,050 1,803 -0.4% -1.0% -1.4%

POSCO announces plans to cut energy use after shortage warning Korea issued a preliminary power-shortage warning after a corruption scandal forced the suspension of two nuclear reactors. In response, the nations major steel mills have agreed to participate in the governments move to save electricity by curtailing usage during the peak season. The Korea Iron & Steel Association announced on 9 June that its members will reduce their daily electricity consumption by 1.1m KW in August when the demand for electricity tends to spike due to air conditioning usage. In particular, POSCO plans to reduce its electricity consumption by 380,000 KW. This will be achieved by lowering the capacity utilization rates of its electric-arc furnaces (including its stainless plant), as well as reducing working hours during peak electricity usage hours. The company and its subsidiary POSCO Specialty Steel will also adjust revamp schedules to August from the original plans set for later this year. From a full-year perspective, impact on earnings to be minimal We believe these measures will have a limited impact on POSCOs annual shipments, with the recent completion of Gwangyang Blast Furnace #1. Following the revamp, the blast furnaces annual capacity increased from 3.28mt to 5.65mt, which should more than offset any volume declines from lower utilization rates at the electric-arc furnaces. This shift should also allow POSCO better energy efficiency. Not only does the blast furnace have lower electricity costs relative to electric-arc furnaces, but BF #1 has been designed to enhance the energy recovery ratio and thus should translate into better margins. Also we note that POSCO already generates more than 70 % of its own energy requirements, which should minimize any further risks on the downside. Valuation and risks for POSCO: Our target price of KRW420,000 is based on a 2013e PB of 0.8x, given our 2013-15e ROE forecast of 7.1%. Key downside risks include: 1) an unexpected cut in product prices; 2) a sharp increase in raw material prices; and 3) a steep depreciation in the KRW.

RMB/t Daily chg 14,730 52,030 14,565 -1.4% -2.2% -1.6%

USD/oz Daily chg 1,385 0.2%

USD/t Wkly chg 502 499 520 515 517 642 697 668 -0.9% -1.0% -1.2% -1.4% -1.6% -1.1% -1.1% -0.6%

USD/t Wkly chg 107 86 0.8% -0.5%

Index Daily chg 20,887 9,688 2,148 1,890 873 -2.2% -2.7% -2.8% 0.4% 3.1%

Simon Francis* Regional Head of The Hongkong and Shanghai Banking Corporation Limited Metals and Mining, ASP Thomas Zhu* Chris Chen * Jeff Yuan* Brian Cho* Jigar Mistry* Jena Han* Analyst Analyst Analyst Analyst Analyst Analyst The Hongkong and Shanghai Banking Corporation Limited The Hongkong and Shanghai Banking Corporation Limited The Hongkong and Shanghai Banking Corporation Limited HSBC Securities and Capital Markets (India) Private Limited

+852 2996 6620 simonfrancis@hsbc.com.hk +852 2822 4325 thomasjzhu@hsbc.com.hk +852 2822 4277 +852 3941 7010 +91 22 2268 1079 chrislchen@hsbc.com.hk jeffsyuan@hsbc.com.hk briancho@kr.hsbc.com jigarmistry@hsbc.co.in jenahan@kr.hsbc.com

The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities +822 3706 8750 The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities +822 3706 8772

*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Issuer of report: The Hongkong and Shanghai Banking Corporation Limited View HSBC Global Research at: http://www.research.hsbc.com

Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it Disclosures for companies can be accessed via the hyperlinks to the original published research, which can be found in the title

Mine & Dime Metals and Mining 14 June 2013

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Figure 1: Valuation comparison Close price as of 27 Jun China, Taiwan, Mongolia Coal China Coal Energy China Shenhua Shougang Fushan Mongolian Mining Yanzhou Coal Gold Zhaojin Mining Zijin Mining Non-ferrous metals Chalco Chinalco Mining Jiangxi Copper Steel Angang Steel Baoshan CH Metal Recycling China Steel Maanshan I&S India Hindalco Hindustan Zinc Jindal Steel & Power JSW Steel National Aluminium Company NMDC Sesa Sterlite Tata Steel Korea Dongkuk Steel Mils Hyundai Steel POSCO Bberg Rating Mkt cap USDbn Target Current Potential Price Price Return* _________ PE __________ 2012 2013e 2014e _____ EV/EBITDA ______ 2012 2013e 2014e ____ PB ______ 2012 2013e

1898 HK UW 1088 HK OW 639 HK UW(V) 975 HK UW 1171 HK UW 1818 HK OW(V) 2899 HK OW 2600 HK 3668 HK 358 HK UW N(V) OW

11.6 62.3 2.0 0.9 7.9 2.5 9.0 7.3 1.9 9.2 3.5 12.2 1.4 12.4 2.1 3.2 7.8 3.8 2.6 1.3 7.3 2.1 4.5

6.80 36.88 2.90 3.00 9.85 11.74 3.17 2.20 1.39 18.87 4.10 4.80 14.00 25.25 1.52 120 150 460 840 51 177 194 400

4.60 23.85 2.86 1.80 6.81 6.76 1.87 2.81 1.24 15.12 3.86 4.53 9.43 24.25 1.74 97 108 237 671 29 107 140 266

52% 60% 6% 67% 48% 77% 73% -22% 12% 27% 8% 10% 53% 5% -12% 26% 43% 95% 26% 77% 69% 39% 55% -14% 44% 38%

5.4 7.7 8.4 n.a. 4.3 8.1 6.2 n.a. n.a. 8.0 n.a. 7.7 5.7 64.0 n.a. 8.0 7.5 5.7 12.8 15.2 6.6 4.3 17.1 n.a. 10.9 11.1

6.6 7.7 9.4 25.0 7.7 9.7 6.5 n.a. 38.2 8.8 34.3 10.3 4.9 28.9 57.8 9.0 6.6 6.5 9.7 8.4 6.7 4.3 6.3 -6.4 9.1 9.6

6.1 7.4 8.9 9.0 5.9 8.7 5.9 n.a. 7.7 7.9 14.5 11.0 4.4 33.0 18.5 7.4 6.7 5.1 7.6 8.4 7.1 4.2 4.9 -15.3 7.7 8.8

3.9 4.3 3.6 26.4 4.6 6.3 3.8 68.6 n.a. 6.7 30.4 4.6 7.2 22.7 9.3 8.4 6.0 6.4 5.8 4.9 2.7 2.5 7.8 23.5 9.1 6.8

3.9 4.5 3.3 12.6 5.6 6.8 3.9 20.4 n.a. 5.6 7.6 4.8 5.9 16.6 5.3 8.2 4.6 6.3 5.5 2.3 2.6 1.9 5.9 15.5 8.4 6.4

3.2 4.3 2.8 8.0 4.7 6.1 3.6 17.0 n.a. 4.8 7.0 4.4 4.9 16.3 4.9 7.4 4.1 5.0 4.6 2.2 2.5 1.2 5.3 14.1 7.8 5.9

0.6 1.5 0.8 1.1 0.6 1.9 1.1 0.7 4.5 1.0 0.5 0.7 1.4 1.5 0.5 0.5 1.4 1.0 0.9 0.6 1.5 0.5 0.6 0.3 0.6 0.7

0.5 1.3 0.7 1.1 0.6 1.7 1.0 0.8 2.2 0.9 0.5 0.7 1.1 1.4 0.5 0.5 1.2 0.9 0.8 0.6 1.2 0.5 0.6 0.3 0.6 0.6

347 HK UW(V) 600019 CH UW 773 HK OW(V) 2002 TT UW 323 HK UW(V) HNDL IN OW HZ IN OW JSP IN OW(V) JSTL IN N(V) NACL IN N NMDC IN OW SESA IN N TATA IN N 001230 KS UW 004020 KS OW(V) 005490 KS OW

0.6 10,000 11,600 5.3 100,000 70,000 24.1 420,000 312,000

* Potential return equals the percentage difference between the current share price and the target price, plus the forecast dividend yield. *India reports earnings on a March ending basis so 2012e corresponds to FY13e Source: HSBC estimates, Bloomberg.

A note on our stock ratings

Under HSBCs equity research model, the Neutral rating band equals the local hurdle rate (9.5% for China and Mongolia, 9% for Taiwan, 11% for India and 10% for Korea), plus or minus 10ppt for volatile stocks or 5ppt for non-volatile stocks. At the time we set our target prices for the stocks discussed above, they implied potential returns above, below, or within this band; accordingly, we rate the stocks Overweight, Underweight, or Neutral, with a (V) if they are volatile (see disclosure appendix for HSBCs definition of volatility). Potential return equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated.

14 June 2013

Macro Economics

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Global Research

From the horses mouth

The latest on local government debt in China
In its latest report, the State Audit Office estimates local debt has grown 6% pa since 2011, implying the local government debt-GDP ratio has fallen from 26% to 23% HSBC estimates that total local government debt topped RMB12trn, of which 78% are bank loans Issuing municipal bonds and selling assets could be feasible ways to mitigate the liquidity risk

The State Audit Office has published a report on its investigation of provincial and municipal government debt. In this issue of From the horses mouth, we summarise the results and key messages from the report. On 10 June, the State Audit Office (SAO) published the results of its latest investigation of local debt, covering 36 provincial/prefecture governments. It shows outstanding local debt grew 12.9% from 2010 to 2012 (annual rate of 6.3%). Based on this report, we estimate that total local government debt is likely to have topped RMB12.1trn in 2012, or around 23.3% of 2012 GDP (down from 26.6% in 2010). The debt structure of the 36 local governments suggests that bank loans remain the largest source of funding, representing 78.1%. This number was 79% in 2010 when the SAO published its last audit report on local debt. Bond issuance is playing an increasingly important role in funding local government spending, accounting for 12.1% of the total at the end of 2012, up from the 7.1% in 2010. It has considerable potential to grow further. As for usage of the fund, 92% of these borrowing are channelled into transportation, city infrastructure, land reserve, medical and culture, agriculture and water conservancy, environmental protection and public housing construction. This paints a relatively similar picture to 2010, when more than 90% of local debt was used to fund similar long-term infrastructure projects. Therefore, there is no material change in the composition (and possibly also quality) of local government balance sheets. The 36 local governments are responsible for repayment or guaranteeing repayment of 71.5% of the RMB3,848bn outstanding debt in 2012, down from the 84.4% in 2010.

Qu Hongbin Economist The Hongkong and Shanghai Banking Corporation Limited (HK) +852 2822 2025 hongbinqu@hsbc.com.hk Ma Xiaoping Economist The Hongkong and Shanghai Banking Corporation Limited (HK) +86 10 5999 8232 xiaopingma@hsbc.com.cn View HSBC Global Research at: http://www.research.hsbc.com Issuer of report: The Hongkong and Shanghai Banking Corporation Limited

Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

Macro Economics 14 June 2013

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Although the overall local government debt level is still manageable and there is no material deterioration in local government balance sheets, the SAO indicates there are some warning signs that justify the central government taking pre-emptive policy measures to curb local government solvency risk through debt restructuring. Firstly, the debt-to-income ratio measured by outstanding debt as a percentage of local revenue generation capacity exceeds 100% in 10 out of the 36 local governments surveyed. This number increases to 16, or 44% of the local governments surveyed, if we include local-government-guaranteed corporate debt. In addition, when local-government-guaranteed corporate debt is included in the calculation, 20 out of 36 local governments have a debt-service ratio of above 20% (the highest being 67%). The average overdue debt ratio measured by overdue debt as a percentage of outstanding debt also rose by 0.48ppts to 0.75%. Secondly, outstanding debt raised via local government financial vehicles (LGFVs) increased by 11.3% pa and accounted for 45.7% of total debt in 2012, down from 46.4% in 2010. The report claims 151 out of the 223 LGFV financing platforms that were surveyed had difficulties meeting principal and interest payments in 2012, while 37 recorded a book loss in 2012. Illiquid assets and a lack of transparency remain the main challenges facing most LGFVs. Thirdly, the report claims some local governments are heavily reliant on land sales for revenue. Of the 36 local governments surveyed, 21 were committed to repaying 54.6% of their debt in 2012, just as income from land sales contracted by 2.8%. Debt principal plus interest payments amounted to 1.25x of their land sales revenue in 2012. Fourthly, funding through trust loans, finance leases, sale-and-leaseback agreements, wealth management products and build-transfer contracts, with an implied interest rate of as high as 15-20%, increased by RMB215bn between 2011 and 2012. Given that total local debt increased by RMB300m in 2011, most of the 12.9% increase in outstanding debt should have occurred in 2012, in line with the strong growth in trust loans and bond issuance for the purpose of local government financing.

Conclusion
The SAO report confirms that Chinas overall local government debt level is still manageable, but with over 70% of the debt funded by bank loans, there is a liquidity problem. This is because there is a mismatch between the maturity structure of the debt used to finance long-term projects and the projects expected payback period. The good news is that local government debt is being closely monitored by Beijing. Given that the amount of debt maturing in the next two to three years is about 70% of total local debt, we believe the authorities need to take decisive action to restructure local debt in order to avoid disorderly defaults. HSBC believes Beijing has three options for restructuring local debt (see China Inside Out: Local debt: Three options, published on 1 August 2011.) Municipal bonds for loans swap. Local governments could issue municipal bonds and use the proceeds to pay back bank loans. In the near term, this would mitigate the risk of a maturity mismatch, as it would enable local governments to roll over old debt (short-term loans) into new debt (long-term bonds). In the long run, as urbanisation continues in China, bond issuance opens a channel for local governments to raise funds needed for infrastructure investment in a more transparent and market-based fashion.

Economics - Data Reactions 14 June 2013

India
Still moderating: May WPI inflation eased to 4.7% y-o-y
May WPI inflation eased to 43-month low of 4.7% y-o-y (vs. 4.9% in April) led by energy, minerals and manufactured goods. However, food inflation picked up and inflation rose slightly on a sequential basis. Inflation is likely to remain relatively benign in coming months as commodity prices remain low and domestic demand remains soft. Good monsoon rains may also be in the cards and help lower inflation. However, if the weakness of the INR persists and leads to higher imported inflation, this may partly counter the other moderating trends. Facts - WPI inflation eased to 4.7% y-o-y in May (vs. 4.9% in April), which is a shade below market expectations of 4.9% and our 4.8% estimate. - On a sequential seasonally adjusted (sa) basis, WPI inflation rose 0.3% m-o-m (vs. -0.1% in April) - Core inflation (non-food manufactured goods) slowed to 2.4% y-o-y (vs. 2.7% in April). On a sequential basis, core inflation rose 0.1% m-o-m sa vs. -0.4% in April - The deceleration was driven by energy (7.3% y-o-y vs. 8.8% in April) and manufactured goods (3.1% y-o-y vs. 3.4% in April) - Meanwhile, primary articles rose 6.7% y-o-y (vs. 5.8% in April) led by primary food (8.2% y-o-y vs. 6.1% in April). The uptick in food was the result of cereals, vegetables, and protein-rich foods. However, non-food primary articles (4.9% y-o-y vs. 7.6% in April) and minerals (0.6% y-o-y vs. 0.9% in April) continued to slow Implications Inflation continues to moderate on the back of the weaker global commodity cycle and softer domestic demand. However, the uptick in food inflation was a bit of a surprise, which may, in part, have reflected temporary weather-related factors. Looking ahead, inflation is expected moderate a bit further in coming months as commodity prices and domestic demand remains soft. Moreover, preliminary weather forecasts suggest we may get a normal monsoon, which would help lower food inflation, including when you consider last year's relatively high base following the below-normal monsoons. Of course, if the depreciation of the INR persists, it may partly counter these moderating trends by adding to imported inflation. However, as we head into the second half of the fiscal year we expect a gradual rise in inflation as commodity prices find a floor as the global economy regains its footing. Moreover, the gradual recovery expected in India during the second half of the fiscal year should also slowly build up inflation. In the meantime, however, we believe that the RBI will deliver a few more cuts (50bps in total) in light of the lingering economic softness and the moderation in inflation. The next cut (25bps) will likely come on Monday June 17, although the recent weakness in the INR may delay it. Bottom line: WPI inflation eased as expected led by weaker commodity prices and softer domestic demand conditions. However, food inflation firmed. The RBI is likely to ease monetary policy a bit further in light of this. Leif Lybecker Eskesen, Chief Economist for India & ASEAN

Leif Eskesen | +6566588962 | LEIFESKESEN@HSBC.COM.SG View HSBC Global Research at:http://www.research.hsbc.com

Issuer of report: The Hongkong and Shanghai Banking Corporation Limited Singapore Branch

HSBC Global Research Economics - Data Reactions 14 June 2013

Prithviraj Srinivas, Economics Associate Chart 1. Headline and core inflation continues to slow in annual terms, but.

Chart 2. inflation picked up on a sequential basis

Chart 3. However, core inflation is still falling on a 3m/3m seasonally adjusted basis

Flashnote

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Global Research

Asia-Pacific Rates Strategy

Shunning India and Indonesia bonds

Foreign flows compass
EM bond funds recorded weekly outflows of USD2.5bn, the largest amount since September 2011 India and Indonesia countries, which run a current account deficit observed the largest foreign selling of bonds in Asia
Table 1. Foreign capital flows Total Last week Four-week YTD flows weekly flows moving (USDm) flows (USDm) average total (USDm) flows (USDm) 2012 Flows Foreign holdings (USDm) USDbn (% of total govt. outstanding) 6,260 3,436 -278 3,102 36,754 -2,535 15,106 5,006 1,657 9,278 6,270 3,007 n/a 2,452 6,717 3,498 2,971 24,228 20,336 9,304 11,032 1,010 2,490 1,011 20,107 29,706 25,333 6,262 7,505 -1,242 88.2 (18.6%) 54.4 (23.3%) 19 (18.5%) 14.8 (10.7%) n/a n/a n/a 30.7 (32.8%) n/a 29.5 (13.8%) 20.4 (19.1%) 9.1 (8.5%) n/a n/a 34.7 (6.6%) 15.26 (2.99%) 15.54 (32%) n/a 73.0 (38.1%) 48.2 (32.5%) 24.8 (57.4%) n/a n/a 3.9 (13.8%) 214.2 (68.7%) 1018.5 (8.7%) n/a 34.3 (67.1%) 33.0 (69.1%) 1.4 (39.2%) As of

14 June 2013
Andr de Silva, CFA Head of Asia-Pacific Rates Research The Hongkong and Shanghai Banking Corporation Limited +852 2822 2217 andre.de.silva@hsbc.com.hk Pin-Ru Tan Strategist The Hongkong and Shanghai Banking Corporation Limited +852 2822 4665 pinrutan@hsbc.com.hk Himanshu Malik Strategist The Hongkong and Shanghai Banking Corporation Limited +852 3941 7006 himanshu1malik@hsbc.com.hk Prerana Seth Associate Bangalore View HSBC Global Research at: http://www.research.hsbc.com

Issuer of report: The Hongkong and Shanghai Banking Corporation Limited

Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

KOREA Total: Bonds - < 2years - 2-5 years - > 5 years Net of Redemptions 3yr KTB futures Total: Equity INDONESIA IndoGBs Total: Equity THAILAND Total: Bonds - ThaiGBs - BoT bills Net of Redemptions Total: Equity INDIA2 Total: Bonds Government Bonds Corporate Bonds Total: Equity MALAYSIA Total: Bonds - MGS + MGII - BNMNs + T-bills PHILIPPINES Total: Bonds+Time deposits Total: Equity SRI LANKA Total: Bonds AUSTRALIA Total: Bonds JAPAN** Total: Bonds Total: Equity NEW ZEALAND Total: Bonds Government bonds T-bills

-435 -17 -442 23 4,772 -2,751 -2,026 -603 -888 -151 -146 -5 -355 -380 -1,618 -178 -41 -283 3,958 2,338 1,620 -108 -55 -5 -867 -2,870 1,164 152 276 -123

868 342 432 95 2,378 -446 107 -499 -334 -151 -146 -5 150 -568 -1,265 -178 -41 149 3,958 2,338 1,620 -108 -188 -5 -867 -1,192 -1,902 -818 -1131 313

264 209 -21 76 2,064 -2,800 -221 -302 -399 -380 -12 -368 -399 -350 -784 n/a n/a 315 n/a n/a n/a -68 -86 16.1 n/a -2,101 1,380 n/a n/a n/a

8,971 5,564 1,657 1,749 26,388 -5,415 -6,304 2,442 574 3,478 3,395 83 n/a -1,790 1,776 1,703 0 15,044 3,452 4,943 -1,492 184 1,481 787 -867 -16,393 84,255 152 276 -123

14-Jun-13 14-Jun-13 14-Jun-13 14-Jun-13 14-Jun-13 13-Jun-13 13-Jun-13 12-Jun-13 13-Jun-13 7-Jun-13 7-Jun-13 7-Jun-13 13-Jun-13 13-Jun-13 12-Jun-13 31-Mar-13 31-Mar-13 12-Jun-13 Apr-13 Apr-13 Apr-13 24-May-13 13-Jun-13 5-Jun-13 1Q 13 8-Jun-13 8-Jun-13 31-May-13 31-May-13 31-May-13

Notes: 2Flow data for corporate and government bonds is bimonthly, total bond flows data is weekly; *Indicates flows from the previous month, ** % ownership of government bonds is as of September 2012; Source: HSBC, Bloomberg, CEIC, Bank of Korea, Infomax, Bank Indonesia, DMO, ThaiBMA, CBSL, Reserve Bank Australia, MoF (Japan)

Table 2. Future positioning (open interest) Future contracts US Treasuries S&P 500 Euro Stoxx German Bund
Source: HSBC, Bloomberg

Weeky increase Last week increase Open interest (# of contracts) (# of contracts) (# of contracts ) -131,119 8,394 141,213 9,997 75,958 8,068 -151,363 -102,469 -1609.5 7383.75 77606 -37104.75

YTD increase 2012 increase (# of contracts) (# of contracts) 37,126 38,841 547,352 -17,963 -42833 -60416 -92351 25717

As of 4-Jun-13 14-Jun-13 14-Jun-13 14-Jun-13

Asia-Pacific Rates Strategy 14 June 2013

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Emerging Markets: Over the past three weeks, EM-dedicated bond funds have recorded net outflows of USD4.3bn. This is in response to strengthening market expectations of the Feds tapering of QE and rising currency volatility in emerging markets. The last time outflows of such magnitude were seen was in September 2011 when EM bond funds saw USD5.3bn of withdrawals. Outflows over the past week were still led by hard currency bonds, which recorded the highest outflow (USD1.4bn) since April 2007. Local currency bond funds also witnessed USD943m of withdrawals, the largest amount since September 2011. India and Indonesia: Foreign investors have sold around USD3.7bn of Indian bonds over the past three weeks, reversing more than two-thirds of the inflows seen between January and May. Recent efforts by the Finance Ministry, such as a 2% increase in gold import duty and the USD5bn increase in investment quota for long-term investors, have proved ineffective in stemming outflows. Indian bonds remain more exposed to offshore liquidation as the high current account deficit makes the currency more vulnerable. Indonesia also recorded a sizeable weekly outflow of USD603m. This was the largest weekly selling by foreign investors since September 2011. Foreign ownership of IndoGBs has declined to 32.8% from 34% at the end of May. New Zealand: Non-resident investors holdings of New Zealand government debt increased by USD152m in May. Foreign ownership rose to a 55-month high of 67.1% and is close to surpassing the offshore ownership in Australia (68.7%), which has been falling over the past three quarters. Japan: Japanese investors pulled another USD4bn out of overseas bond markets last week (Page 3, Figure 3). This marks the fourth consecutive week of selling of overseas bonds by domestic investors. Year-to-date domestic investors have sold around USD83bn of foreign bonds. This was primarily led by domestic banks, which sold around USD38bn of foreign bonds between January and April (Page 4, Figure 6). The preliminary data provided by designated major investors indicates that banks sold another USD24.3bn of overseas bonds in May. Nevertheless, the increasing volatility of domestic bonds should encourage banks to diversify into overseas bond markets. In contrast to banks, retail investors and life insurance firms added USD12bn and USD3.4bn, respectively, of foreign bonds between January and April 2013.

Figure 1: Record outflows from CEEMEA and LatAm bond funds

4500 3500 2500 1500 500 -500

Figure 2: Hard currency bonds leading the outflows in EM

3000 2000 1000 USDm 0 -1000 -2000 -3000 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Local currency bond flows Hard currency bond flows Total flows

Source: HSBC, EPFR

Foreign flows (USDm)

-1500 -2500 -3500

Jan12 Apr12 Aug12 Nov 12 Feb13 Jun13 Europe bond funds US govt bond funds CEEMEA & LATAM bond funds Asia ex-Japan bond funds
Source: HSBC, EPFR

First Light Asia 17 June 2013

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Research Last Week

Ticker New GNP IN MNCN IJ MSKY IJ Up 3 HK OINL IN ASTRO MK 8039 TT 1112 HK 044490 KS Down 2357 TT PBK MK TCM MK UMWH MK TTAN IN 1038 HK 2 HK 6 HK DFI SP 386 HK Company Rating
was Currency INR IDR IDR N N HKD INR MYR TWD HKD KRW OW N N N TWD MYR MYR MYR INR HKD HKD HKD USD HKD

Target

was

EPS '13e 22.86(a) 144.42 46.63

EPS '14e 29.62 178.88 76.22 0.80 67.76 0.09 5.30 2.22 975.94 30.84 1.27 0.62 0.88 8.82 4.08 4.43 5.04 0.43 0.60

Price 554.35 2900.00 2400.00 18.76 556.90 3.00 43.50 43.10 21,950 314.00 17.02 6.60 14.64 237.20 51.30 63.10 67.00 12.50 5.69

Price At Close 10 Jun 10 Jun 10 Jun 12 Jun 12 Jun 11 Jun 07 Jun 07 Jun 07 Jun 11 Jun 12 Jun 06 Jun 06 Jun 11 Jun 12 Jun 12 Jun 12 Jun 06 Jun 10 Jun

Glenmark Pharmaceuticals Media Nusantara Citra MNC Sky Vision Hong Kong & China Gas Oil India Limited Astro Malaysia Holdings Taiflex Scientific Biostime Taewoong Co Ltd Asustek Public Bank TAN Chong Motor Holdings UMW Holdings Titan Industries Ltd Cheung Kong Infra CLP Holdings Ltd Power Assets Holding Dairy Farm Intl Holdings Sinopec

OW OW N(V) OW OW OW(V) OW(V) OW N(V) N UW UW UW OW N N N UW UW

710.00 4500.00 2700.00 23.00 750.00 3.60 52.00 62.00 24,000 307.00 16.60 6.20 14.30 285.00 54.00 69.00 72.00 11.10 5.40
22.70 550.00 3.50 50.50 43.00 22,000 382.00

0.79 59.71(a) 0.08(a) 4.33 1.67 847.76 29.08 1.14

4.60 12.50 330.00 55.00 73.00 74.00 11.60 7.10

0.54 0.84 8.17(a) 4.17 4.02 5.08 0.38 0.55

Source: Bloomberg, HSBC estimates

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14 Jun

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Malaysia Banks - Margins to remain structurally depressed Hong Kong utilities - Close but not yet buying territory Hong Kong & China Gas (3 HK) - Upgrade to OW: Raise TP to HKD23.0 from HKD22.7 Prada SPA (1913 HK) - OW(V): Shares victim of market short-termism? India Pharmaceuticals - Generics are evolving Indonesia Media - Prime time for free-to-air: initiating coverage Glenmark Pharmaceuticals (GNP IN) - Initiate OW: Attractive mix of specialty generics & innovation Asustek (2357 TT) - Downgrade to N: Share gain to pause in 2H13 Honghua Group (196 HK) - OW(V): Site visit - patience needed before next breakthrough Biostime (1112 HK) - OW: Formula for success Doosan Corp (000150 KS) - OW: Attractive in many aspects Asia Container Shipping - Whos most exposed? Malaysian Autos - Time to hit the brakes Huaneng Power International (902 HK) - OW: No sharp, sudden tariff cut Dairy Farm Intl Holdings (DFI SP) - UW: Lacklustre outlook remains Taiflex Scientific (8039 TT) - OW(V): 2Q13 revenue higher on project win Australian labour market steady - Less urgency for another RBA cut RBNZ Observer Update - Steady for now, but inflation risks rising Asian FX - The "carry-teristics" of the sell off Asia Investor Forum - London: 17-18 June 2013, Boston: 19 June 2013, New York: 20 June 2013 Asias best in class - The companies that have what it takes to generate sustainable high returns

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First Light Asia 17 June 2013

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11 Jun

10 Jun

Asian FX - Lower stop on short THB-JPY Asia-Pac Rates: Mindful of FX risks - Trades: Reduce duration Australia's rebalancing slower than expected - Paul Bloxham's Oped in today's Australian Financial Review BoJ Watch Update - Sticking to its guns--policy on hold Mine & Dime - Chinese copper wirerod fabricators expect flat June orders Asia's 11 trillion dollar opportunity - Ronald Man's article in The Korea Times Asian FX - RMB: All present to correct Japan: Public pensions taking a new tack - Increased allocation to foreign bonds as well as equities Mine & Dime - Jiangxi Copper - OW: Attractive valuation but near-term risks looming; Baoshan cuts prices for July deliveries Bank of Japan Watch - Better safe than sorry Sri Lanka - Wait-and-see mode: Central bank on hold The RBNZ Observer - On hold, despite housing sectors rapid rise Asian FX: - Sell THB-JPY (corrected) Mine & Dime - Chalco - Tinkering away; China Steel brings forward blast furnace maintenance Moving China - Infrastructure and Industrials Research Focus and Key News Spreadtrum Communications (SPRD US) - N(V): Positive 2Q13 preannouncement Cheung Kong Infra (1038 HK) - N: Not yet buying territory CLP Holdings Ltd (2 HK) - N: Cut TP on Australia, India and currency downgrades Power Assets Holding (6 HK) - N: Remain Neutral despite share price fall Li & Fung (494 HK) - OW(V): Laggard exporter on US recovery Upside of a Fall - Donna Kwok's latest op-ed in the SCMP China: The sharp money market squeeze - Liquidity tightness is here to stay Great Wall Motor (2333 HK) - OW(V): Overall sales volume +32% y-o-y in May Jiangxi Copper (358 HK) - OW: Attractive valuation but near-term risks looming Sinopec (386 HK) - UW: Bonus share revisions; cutting EPS and Target Aluminum Corp of China (2600 HK) - UW: Tinkering away Korea - Rates unchanged at 2.50% Doosan Heavy (034020 KS) - OW: 2H outlook remains bright Korea Consumer - In search of value NHN Corp - OW(V): LINEs strong growth to continue in 2Q Taewoong Co Ltd (044490 KS) - N(V): First year of recovery, but still needs time Korea central bank watch - More risks on the radar Korea E&C - Still too early to call a recovery Epistar Corp (2448 TT) - OW(V): Robust margin recovery ahead Lite-On (2301 TT) - Favourable mix shift and margin expansion Indonesia - BI unexpectedly lifts reference rate too The Philippines - Steady in the storm: Rates on hold Ayala Land (ALI PM) - OW: Roadshow feedback Overseas Union Enterprise (OUE SP) - OW: Getting closer to hotel spin-off Auction Preview: New Issue of 15-year Malaysian Government Securities - First 15-year MGS auction this year Indonesia - BI lifts FASBI ahead of policy meeting Indonesia bonds: reason to breathe, but not yet to cheer - Maintain neutral stance on IndoGBs Astro Malaysia Holdings (ASTRO MK) - OW(V): 1QFY14 results - Pay TV momentum continues

Paul Mackel Andr de Silva Paul Bloxham Izumi Devalier Simon Francis Ronald Man Paul Mackel Andr de Silva Simon Francis Izumi Devalier Leif Eskesen Paul Bloxham Paul Mackel Simon Francis Anderson Chow Yolanda Wang Jenny Cosgrove Jenny Cosgrove Jenny Cosgrove Chris Zee Donna Kwok Andr de Silva Carson Ng Thomas Zhu Thomas Hilboldt Simon Francis Ronald Man Yeon Lee Karen Choi Hongsik Jo Yeon Lee Ronald Man Brian Cho Jerry Tsai Jenny Lai Su Sian Lim Trinh Nguyen Pratik Burman Ray David Choo Andr de Silva Su Sian Lim Andr de Silva Rajesh Raman

China & Hong Kong

14 Jun

13 Jun 11 Jun

10 Jun

Korea
14 Jun 13 Jun 11 Jun 10 Jun

Taiwan
13 Jun 11 Jun

ASEAN
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11 Jun 10 Jun

Bank Central Asia (BBCA IJ) - OW: FASBI rate hike catalyst materializing Philippines central bank watch - Some protection needed: one more SDA rate cut Indonesia Central Bank Watch - No moves yet Malaysia bonds: Strong comeback of foreign demand - Foreign flows compass India Central Bank Watch - Another cut in the pipeline India Equity Insights - INR weakness: Mixed bag for corporate India Oil India Limited (OINL IN) - Upgrade to OW: Better placed than downstream Infosys Technologies (INFO IN) - N: Wage hike announcement by Infosys India - Industrial production slows in April India - Slower reform, delayed recovery Sun Pharma (SUNP IN) - OW: Sun files DJ on blockbuster Gleevec Titan Industries Ltd (TTAN IN) - OW: Gold loans now banned, but stock correction overdone TCS (TCS IN) - OW: Takeaways from the investor meetings GEMs and MENA bottom-up databases - 13 June 2013 USDA June2013 summary - Bearish for corn and soybean Climate Football anyone? - IEA proposes a 4-4-2C GEMs equity strategy - Clarity on US monetary policy and China required for GEMs equities to progress Global Chartbook - Mid-year jitters HSBC Steel Weekly - Troughed

Kar Weng Loo Trinh D Nguyen Su Sian Lim Andr de Silva Leif Eskesen Jitendra Sriram Kumar Manish Yogesh Aggarwal Leif Eskesen Leif Eskesen Girish Bakhru Amit Sachdeva Yogesh Aggarwal John Lomax Alexandre Falcao Nick Robins John Lomax Madhur Jha Thorsten Zimmermann

India
14 Jun

13 Jun

10 Jun

Global
14 Jun 13 Jun

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Disclosure appendix
Important disclosures
Equities: Stock ratings and basis for financial analysis

HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon; and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating. HSBC has assigned ratings for its long-term investment opportunities as described below. This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this website. HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research report. In addition, because research reports contain more complete information concerning the analysts' views, investors should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not be used or relied on in isolation as investment advice.

Rating definitions for long-term investment opportunities

Stock ratings

HSBC assigns ratings to its stocks in this sector on the following basis: For each stock we set a required rate of return calculated from the cost of equity for that stocks domestic or, as appropriate, regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, must exceed the required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands are classified as Neutral. Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily triggering a rating change. *A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12 months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However, stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.

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Rating distribution for long-term investment opportunities

As of 14 June 2013, the distribution of all ratings published is as follows: Overweight (Buy) 45% (35% of these provided with Investment Banking Services) Neutral (Hold) Underweight (Sell) 37% 18% (34% of these provided with Investment Banking Services) (28% of these provided with Investment Banking Services)

HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives) of companies covered in HSBC Research on a principal or agency basis. Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues. For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research. * HSBC Legal Entities are listed in the Disclaimer below.

Additional disclosures
1 2 3 This report is dated as at 17 June 2013. All market data included in this report are dated as at close 14 June 2013, unless otherwise indicated in the report. HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

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Disclaimer
* Legal entities as at 8 August 2012 Issuer of report UAE HSBC Bank Middle East Limited, Dubai; HK The Hongkong and Shanghai Banking Corporation The Hongkong and Shanghai Banking Limited, Hong Kong; TW HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Bank Canada, Corporation Limited Toronto; HSBC Bank, Paris Branch; HSBC France; DE HSBC Trinkaus & Burkhardt AG, Dsseldorf; 000 Level 19, 1 Queens Road Central HSBC Bank (RR), Moscow; IN HSBC Securities and Capital Markets (India) Private Limited, Mumbai; JP Hong Kong SAR HSBC Securities (Japan) Limited, Tokyo; EG HSBC Securities Egypt SAE, Cairo; CN HSBC Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Telephone: +852 2843 9111 Limited, Singapore Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Telex: 75100 CAPEL HX Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC Securities (South Fax: +852 2596 0200 Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; US HSBC Website: www.research.hsbc.com Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC Mxico, SA, Institucin de Banca Mltiple, Grupo Financiero HSBC; HSBC Bank Brasil SA Banco Mltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR This document has been issued by The Hongkong and Shanghai Banking Corporation Limited (HSBC) in the conduct of its Hong Kong regulated business for the information of its institutional and professional investor (as defined by Securities and Future Ordinance (Chapter 571)) customers; it is not intended for and should not be distributed to retail customers in Hong Kong. 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