Australia First To Market: Monday, October 24th 2011

Australia Equity Research
21 October 2011
Australia First to Market

Monday, October 24th 2011
Lead Research
Macquarie Group Limited, (MQG A$22.53), Neutral................... 5 1H12E Result Preview - 28 October 2011
Australian REITs
Rating Changes
Company Upgrades SGT New Rating OW Old Rating N
Strategy, Economics, Quantitative

Australasian Economic Weekly ........................................................ 13 Aussie 3Q CPI this week key for near-term policy outlook
Estimate Changes
Company Upgrades WPL (USD) Downgrades BLD MQG PRY
* EPS Changes > +/- 1% See page 2 for a complete summary of key rating, target price, EPS changes and analysts' comments
FY_12 +1.8% -3.9% -5.2% -4.0%
FY_13 +1.2% -4.0% -4.5% 0.0%
Companies & Sectors

Woodside Petroleum, (WPL A$33.38), Underweight .................. 19 3Q11 top line beat; third party gas for Pluto-2 looking increasingly necessary Building Materials ............................................................................. 25 Backs Against the Wall...Boral now in the spotlight Murchison Metals Ltd, (MMX A$0.26), Underweight ................ 43 MMX's value is likely to be in its intellectual property Singapore Telecom, (STEL S$3.16), Overweight ......................... 47 Downside hedged benefits from NBN, regional asset contributions to improve; upgrade to OW Primary Health Care Limited, (PRY A$3.30), Neutral ............... 71 Suring up its funding
Global
Macy's, Inc. ........................................................................................ 75 Winning at Its Own Game; Core Long Term Holding; Initiating with Overweight. Relevant for Australian stocks: DJS, MYR
Economics and Commodities Forecasts ................ 101 Company Forecasts .................................................. 102
See page 107 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
1
www.morganmarkets.com
Rob Stanton (61-2) 9220-1923 rob.a.stanton@jpmorgan.com
Australia Equity Research 21 October 2011
Key rating, target price and estimate changes

Rating Changes
Company Upgrades SGT New Rating OW Old Rating N Company Upgrades SGT WPL Downgrades BLD MMX MQG PRY
Price Target Changes

Target New 3.60 44.89 4.40 0.17 28.63 3.87 Old 3.40 44.73 4.50 0.57 31.99 3.92
Estimate Changes
Company Upgrades WPL (USD) Downgrades BLD MQG PRY
* EPS Changes > +/- 1%
FY_12 +1.8% -3.9% -5.2% -4.0%
FY_13 +1.2% -4.0% -4.5% 0.0%
Analyst comments
Company BLD MMX MQG PRY WPL Comment We revise our earnings estimates for BLD's building products division following a series of profit warnings from BLD's peers. Our average downgrade to group NPAT over the next three years is 3.7%. Market update. Change in valuation methodology. Ahead of 1H12 results, we downgrade our FY12E/FY13E earnings by ~5% to reflect weaker market activity. PRY debt refinancing. Upgrade production and EPS estimates on strong 3Q11 results.
Source: J.P. Morgan estimates.
Summary
Macquarie Group Limited, (MQG A$22.53), Neutral ........................................................................................ 5 1H12E Result Preview - 28 October 2011 Ahead of the 1H12 result, we are downgrading our FY12E/FY13E earnings by ~5%, to reflect weaker markets activity. We are forecasting 1H12E earnings of A$327m (1H10: A$403m) and an interim dividend of 86cps (flat on 1H10). We remain cautious, given the outlook for global IB remains challenging and, although MQG is trading at a ~20% discount to our valuation of A$28.63, it is no more attractive than that on offer across our coverage universe. Neutral retained. Australasian Economic Weekly ......................................................................................................................... 13 Aussie 3Q CPI this week key for near-term policy outlook RBA minutes gave no hint that board members are close to cutting cash rate Aussie inflation data critical next week; PPI data also scheduled for release Next week should see a slight slowing in inflation in New Zealand, and the RBNZ on hold Woodside Petroleum, (WPL A$33.38), Underweight .................................................................................... 19 3Q11 top line beat; third party gas for Pluto-2 looking increasingly necessary WPL delivered a solid 3Q top line result, but the truncated Pluto-2 gas exploration program highlights the risk WPL may have to rely on 3rd party gas. Our view has not materially changed as a result of the 3Q11 report. We think (a) WPL represents reasonable value on an absolute basis, with essentially free exposure to its growth projects, but (b) on a relative basis in the large cap Australian energy space we think there are better risk/reward propositions. Accordingly we hold an Underweight recommendation. Building Materials ............................................................................................................................................... 25 Backs Against the Wall...Boral now in the spotlight The building materials sector, in particular building products, has been beset by a litany of profit warnings over the past three months. A marked deterioration in residential activity is the common theme running through the downgrades. With this wall of evidence in hand, we now no longer expect BLD to grow its Building Products earnings this year and have cut our group FY12 forecasts as a result. While our BLD recommendation is OW, our preference in the sector remains ABC. Murchison Metals Ltd, (MMX A$0.26), Underweight ..................................................................................... 43 MMX's value is likely to be in its intellectual property MMX provided an update today in which they indicated that discussions with stakeholders are ongoing with respect to a restructure of the ownership of OPR. We believe the value of MMX is in the intellectual property that has been developed since OPR was appointed as the preferred proponent to build the infrastructure. We have changed our valuation methodology to 50% of the MMXs share of the IPs book value but maintain an Underweight rating.
Singapore Telecom, (STEL S$3.16), Overweight ........................................................................................... 47 Downside hedged benefits from NBN, regional asset contributions to improve; upgrade to OW We upgrade SingTel to Overweight with a Mar-13 price target of S$3.60 with a total return expectation of 20% (+14% capital appreciation based on our target FY13 P/E of 13x + 5% expected cash dividends during the next 12 months). Our price target is driven by two factors: 1) our EPS forecasts vs. street: we are 6% ahead for FY13; 2) the target FY13 earnings multiple currently at 11.9x and below the top of its normal trading range; we use 13.0x for our price target. Primary Health Care Limited, (PRY A$3.30), Neutral..................................................................................... 71 Suring up its funding Considering the uncertainty surrounding funding from a global perspective, PRYs announcement that it had refinanced its syndicated debt facility at ~225 bps above BBSY is an impressive outcome. Attention now squarely shifts to its operational performance with Medical Centres remaining a key value driver. To date, we have not noticed an obvious improvement in PRY's Medical Centre division despite managements apparent success in recruiting additional GPs. Maintain Neutral recommendation. Macy's, Inc. ........................................................................................................................................................... 75 Winning at Its Own Game; Core Long Term Holding; Initiating with Overweight Summary: Matthew Boss initiated coverage of Macys with an Overweight rating and December 2012 $36 price target. Macys represents a core long term holding and strong multi-year investment opportunity given among the strongest arsenals of top-line (My Macys, Omni-Channel) and margin drivers (price optimization) in retail today, best-in-class management, and more than reasonable valuation (9.4x P/E & 5.0x EBITDA). Relevance for Australian stocks (Shaun CousinsAC): Matthew Boss has initiated on the department store retailers in the United States. The Macy's and Nordstrom initiation have greatest relevance for DJS and MYR, specifically the top-line drivers given the difficulty for DJS and MYR to generate revenue growth over recent years. The top-line drivers for Macy's are My Macys (tailoring merchandise assortments to specific demographics and demand at the local market or store level), Omni-channel (integrating inventory management across all channels [stores, online, mobile] to allow customers a seamless shopping experience) and Magic selling (enhanced associate training program aimed at accelerating sales through focus on increased conversion). The top line drivers for Nordstrom have included omni-channel integration (which is ahead of its competition having been launched in 2005 and provides a seamless shopping experience across channels [online, full-line, Rack]) and a store-level merchandising localisation program. We remain Underweight on DJS and Neutral on MYR and highlight the challenges for top-line growth and the risk of EBIT margin compression due to potential deflation, cost inflation and required service investment.

21 October 2011
Macquarie Group Limited

1H12E Result Preview - 28 October 2011
Neutral
MQG.AX, MQG AU Price: A$22.53
Price Target: A$28.63

Previous: A$31.99
Ahead of the 1H12 result, we are downgrading our FY12E/FY13E earnings by ~5%, to reflect weaker markets activity. We are forecasting 1H12E earnings of A$327m (1H10: A$403m) and an interim dividend of 86cps (flat on 1H10). We remain cautious, given the outlook for global IB remains challenging and, although MQG is trading at a ~20% discount to our valuation of A$28.63, it is no more attractive than that on offer across our coverage universe. Neutral retained. Issues to look for with the 1H12E result FY12E Earnings Guidance: MQGs FY12E guidance an improved result for FY12 on FY11 was provided on 7 September. Ongoing weakness in market conditions sees our FY12E earnings forecasts of A$902m falling short of this JPM(f) are currently 6% below FY12E consensus and 15% below FY13E consensus (refer to Table 4). In our view, one of the key swing factors remains the compensation ratio (FY12E: ~48%) and the extent to which it may be reduced as returns continue to be generated below the cost of capital. Dividend: Our forecast 1H12E / 2H12E dividends of 86cps / 100cps represent a consistent outcome with FY10 and FY11 dividend outcomes. However, ongoing levels of depressed earnings sees the resulting FY12E payout ratio of ~72% steadily departing from the dividend policy of 50%-60% annual payout ratio (FY10 div 186cps = 60% payout, FY11 div 186cps = 67% payout). Capital management: Given the release of the APRA Basel 3 discussion paper on 6 September, we will await disclosure from MQG as to what the impact on their current surplus capital position may be. With A$3bn of excess capital relative to current APRA minimum requirements, MQG have stated that there is sufficient capital to meet Basel 3 capital requirements. Further, thoughts on how to manage capital deployment to restore ROEs will be keenly sought. Costs: MQG are planning to execute estimate annualized post-tax cost savings in a range of A$221m to A$335m (i.e. a potential pro-forma FY13E earnings impact of ~20% to 30% refer Table 5). We await further evidence of progress and have not incorporated their full impact into our current forecasts. Funding: We will be looking for commentary on the funding maturity profile for MQG (and its managed funds), and the extent to which ongoing dislocation of global funding markets may impact quantum and pricing.
Macquarie Group Limited (Reuters: MQG.AX, Bloomberg: MQG AU) Year-end Mar (A$) FY10A FY11A FY12E Total Revenue (A$ mn) Net profit after tax (A$ mn) 1,071.0 982.0 927.7 EPS (A$) 3.266 2.902 2.664 P/E (x) 6.9 7.8 8.5 Dividend (A$) 1.860 1.860 1.860 Net Yield (%) 8.3% 8.3% 8.3% Franking (%) 0.0% 0.0% 0.0% Normalised* Profit (A$ mn) 1,050.0 956.0 901.7 Normalised* EPS (A$) 3.174 2.759 2.550 Normalised* EPS chg (%) 2.6% -13.1% -7.6% Normalised* P/E (x) 7.1 8.2 8.8
Source: Company data, Bloomberg, J.P. Morgan estimates.
Banks Scott Manning

AC
(61-2) 9220-1803 scott.r.manning@jpmorgan.com
James Nicholias
(61-2) 9220-1528 james.nicholias@jpmorgan.com
Bharat Anand
(61-2) 9220-1550 bharat.k.anand@jpmorgan.com J.P. Morgan Securities Australia Limited
Price Performance
40 A$ 30 20
Oct-10 Jan-11 Apr-11 Jul-11 Oct-11
MQG.AX share price (A$) ASX200-Bnk (rebased)
Abs Rel
YTD -33.5% -30.7%
1m 14.0% 3.9%
3m -14.3% -17.4%
12m -26.9% -22.0%
FY13E 1,081.7 3.085 7.3 1.920 8.5% 30.0% 1,055.7 2.948 15.6% 7.6
FY14E 1,058.4 3.001 7.5 1.920 8.5% 30.0% 1,032.4 2.870 -2.6% 7.8
Company Data 52-week range (A$) Market capitalisation (A$ bn) Market capitalisation ($ bn) Fiscal Year End Price (A$) Date Of Price Shares outstanding (mn) ASX100 ASX200-Bnk NTA/Sh^ (A$) Tier 1 Ratio
41.95 - 19.94 7.85 8.03 Mar 22.53 21-Oct-11 348.3 3,379.8 5,700.2 26.93 11.0%
5
Scott Manning (61-2) 9220-1803 scott.r.manning@jpmorgan.com
Earnings Revisions
Market conditions have continued to deteriorate through September and October 2011 and recent global IB 3Q11 trends indicate weak market conditions are expected to persist for some time. Based on these most recent trends, we are downgrading our FY12E / FY13E / FY14E earnings by ~-5% to A$902m / A$1,056m / A$1,032m, respectively (refer Table 1).
Table 1: MQGRevised Forecasts
A$ in millions, year-end March FY12E NPAT ($m) Norm NPAT ($m) EPS (c) Norm EPS (c) Norm Diluted EPS (c) Norm Diluted EPS Growth DPS (c) FY13E NPAT ($m) Norm NPAT ($m) EPS (c) Norm EPS (c) Norm Diluted EPS (c) Norm Diluted EPS Growth DPS (c) FY14E NPAT ($m) Norm NPAT ($m) EPS (c) Norm EPS (c) Norm Diluted EPS (c) Norm Diluted EPS Growth DPS (c)
Source: J. P. Morgan estimates.
Revised 927.7 901.7 266.4 259.0 255.0 -7.6% 186.0 Revised 1,081.7 1,055.7 308.5 301.0 294.8 15.6% 192.0 Revised 1,058.4 1,032.4 300.1 292.8 287.0 -2.6% 192.0
Previous 978.5 952.6 281.0 273.6 268.8 -2.6% 186.0 Previous 1,131.3 1,105.4 322.7 315.3 308.3 14.7% 192.0 Previous 1,113.5 1,087.5 315.9 308.5 301.9 -2.1% 192.0
% Change -5.2% -5.3% -5.2% -5.3% -5.1% 0.0% % Change -4.4% -4.5% -4.4% -4.5% -4.4% 0.0% % Change -4.9% -5.1% -5.0% -5.1% -4.9% 0.0%
As detailed in Table 2, we have downgraded financial markets revenues and increased our effective tax rate. Specifically: Trading income forecasts have been reduced modestly across equities and F/X markets. Our effective tax rate has increased to 28% in 1H12E (2H12E: 26%) reflecting the higher proportion of group earnings derived from annuity sources (compared to trading earnings) in the current environment.
Table 2: MQGDetailed Earnings Revisions

A$ in millions, year-end March Prior J. P. Morgan Forecasts 1H12E 2H12E 2012E 2013E 2,714 2,761 5,475 5,625 -2,057 -2,104 -4,161 -4,348 657 657 1,314 1,277 471 15 423 500 83 193 1,686 198 298 104 39 638 100 0 0 180 94 63 -54 -3 100 480 2,804 3,461 -1,806 -304 -249 -159 -133 -308 -2,958 503 -127 -8 368 -13 355 499 20 466 549 88 212 1,834 213 374 120 41 747 100 0 0 180 94 358 -52 -3 150 827 3,408 4,065 -2,056 -323 -252 -161 -135 -303 -3,228 837 -214 -13 610 -13 597 970 35 889 1,049 171 406 3,520 411 671 223 80 1,385 200 0 0 360 188 421 -107 -5 250 1,307 6,212 7,526 -3,861 -626 -501 -320 -268 -611 -6,186 1,340 -341 -21 979 -26 953 1,078 15 1,002 1,183 189 457 3,924 458 804 257 88 1,608 200 0 0 360 188 126 -106 -6 300 1,062 6,594 7,871 -3,936 -694 -513 -327 -274 -617 -6,361 1,510 -355 -23 1,131 -26 1,105 Revised J. P. Morgan Forecasts 1H12E 2H12E 2012E 2013E 2,714 2,761 5,475 5,625 -2,057 -2,105 -4,162 -4,350 657 656 1,313 1,274 471 15 423 500 83 193 1,686 182 298 93 39 611 100 0 0 180 94 63 -54 -3 100 480 2,777 3,434 -1,806 -304 -249 -159 -133 -308 -2,958 476 -129 -7 340 -13 327 499 20 466 549 88 212 1,834 196 374 107 41 717 100 0 0 180 94 358 -52 -3 150 827 3,379 4,035 -2,056 -323 -252 -161 -135 -303 -3,228 806 -206 -12 588 -13 575 970 35 889 1,049 171 406 3,520 377 671 200 80 1,328 200 0 0 360 188 421 -107 -5 250 1,307 6,155 7,468 -3,861 -626 -501 -320 -268 -611 -6,186 1,282 -335 -20 928 -26 902 1,078 15 1,002 1,183 189 457 3,924 421 804 230 88 1,544 200 0 0 360 188 126 -106 -6 300 1,062 6,530 7,805 -3,936 -694 -513 -327 -274 -617 -6,361 1,443 -339 -22 1,082 -26 1,056 1H12E 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -8.1% 0.0% -10.5% 0.0% -4.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -1.0% -0.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -5.4% 1.7% -5.4% -7.8% 0.0% -8.1% % Changes 2H12E 2012E 0.0% 0.0% 0.0% 0.0% -0.1% -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -8.1% 0.0% -10.5% 0.0% -4.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -0.9% -0.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -3.6% -3.7% -3.6% -3.6% 0.0% -3.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -8.1% 0.0% -10.5% 0.0% -4.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -0.9% -0.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -4.3% -1.7% -4.3% -5.2% 0.0% -5.3% 2013E 0.0% 0.1% -0.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -8.1% 0.0% -10.5% 0.0% -4.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -1.0% -0.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -4.4% -4.5% -4.4% -4.4% 0.0% -4.5%
Interest Income Interest Expense Net Interest Income Non Interest Revenues Fee & Commission Income Base Fees Performance Fees M&A, Advisory and U/W Brokerage and Commissions Wrap & Other Admin Fee Income Other Fee & Commission Income Net Fee & Commission Income Trading Income Equities Commodities Foreign Exchange Interest Rate Products Total Trading Income Other Income Gain on Disposal of Investments Provn for Diminution Investments Unrealised Gain on fixed rate sub debt Net Operating Lease Income Equity Accounted Income Dividends Received Specific Provisions General / Collective Provisions Other Total Other Income Total Non Interest Revenues Total Income Expenses Employment Expenses Brokerage and Commission Expenses Occupancy Expenses Non-salary Technology Expenses Professional fees, travel and communication expenses Other Operating Expenses Total Expenses Profit Before Tax Income Tax Expense Minority Interests Net Profit After Tax Less Preference Dividends Normalised Earnings
Source: J. P. Morgan estimates.
Recent Outlook Commentary

MQG provided updated outlook commentary on 7 September 2011 (23 days prior to half year end), noting: 1H12: 1H12 result will be lower than 1H11 (Previous guidance of 1H12 result is likely to be lower than 1H11). FY12: We continue to expect an improved result for FY12 on FY11 Our expectation for FY12 also assumes that we receive the cash amount to be made available to investors noted in MAps recent announcement (Previous guidance of we continue to expect an improved result for FY12 on FY11). In effect, MQGs 7 September 2011 guidance indicated that operational weakness due to market conditions across Securities, Capital, and FICC is likely to be offset by the MAp special distribution in FY12E (refer Table 3)). At the time of these comments, we left our earnings estimates unchanged as these dynamics were already taken into account in our bottom-of-market FY12E and FY13E earnings. However, since early September 2011, market conditions have continued to deteriorate and recent global IB 3Q11 trends indicate weak market conditions are expected to persist for some time. Based on these most recent trends, we are downgrading our FY12E / FY13E / FY14E earnings by ~-5% to A$902m / A$1,056m / A$1,032m. Notwithstanding substantial consensus downgrades in recent months, our FY12E earnings of A$902m (vs. FY11 A$956m) remain ~6% below consensus and our bottom-of-the-market FY13E earnings of A$1,056m are ~15% below consensus (refer Table 4).
Table 3: MQG - Divisional Outlook Commentary - July 2011 AGM vs Current
$ in millions Macquarie Securities Macquarie Capital Macquarie Funds Group FICC Corporate and Asset Finance Banking and Financial Services Real Estate Banking Corporate Total FY11 175 281 602 575 501 275 -42 -1,411 956 FY12 Outlook AGM, 28 July 2011 FY12 to be up on FY11 assuming better market conditions than FY11. FY12 to be up on FY11 assuming better market conditions than FY11. FY12 to be up on FY11. FY12 to be broadly in line with FY11. FY12 to be up on FY11. FY12 to be broadly in line with FY11. Not provided. Not provided. FY12 Outlook 7 September 2011 FY12 to be broadly in line with FY11 assuming better market conditions and higher completion of ECM pipeline than in 1H12. FY12 to be broadly in line with FY11 assuming better market conditions and higher completion of ECM pipeline than in 1H12. No change. FY12 to be lower than FY11. No change1. No change. Not provided. FY12 likely to be impacted by recently announced MAp cash amount.
Source: Company reports and J.P. Morgan estimates.
Table 4: MQG Earnings Estimates - JPM vs. Consensus

A$ in millions Op Briefing Feb-11 FY12E Consensus JPM Difference FY13E Consensus JPM Difference 1,367 1,129 -17% 1,661 1,183 -29% FY11 Result April-11 1,271 1,161 -9% 1,517 1,254 -17% Pre-AGM Jul-11 1,200 1,161 -3% 1,470 1,254 -15% Pre-Update 1-Sep-11 1,050 953 -9% 1,323 1,105 -16% Post-Update 8-Sep-11 991 953 -4% 1,295 1,105 -15% Current Oct-11 954 902 -6% 1,247 1,056 -15%
Source: Bloomberg, J.P. Morgan estimates.
Proposed Platform Efficiencies

Table 5 below summarizes the proposed platform efficiencies across key divisions announced by MQG at the 2011 AGM in July 2011. We estimate annualized posttax cost savings in a range of A$221m to A$335m could provide a potential proforma FY13E earnings impact of ~20% to 30%. We await further evidence of the sustainability of these proposed cost savings and have not incorporated their full impact into our current forecasts.
Table 5: Proposed Platform Efficiencies
$ in millions Staff -208 -207 -159 -179 -72 -253 -6 -912 -1,996 Non-Staff -392 -169 -247 -280 -78 -370 -14 338 -1,212 Expense -600 -376 -406 -459 -150 -623 -20 -574 -3,208 Cost Saving (%) Low 5% 15% 10% 5% High 10% 15% 15% 10% Cost Saving ($) Low 30 56 41 0 0 31 0 0 158 316 221 1,056 20.9% High 60 56 61 0 0 62 0 0 240 479 335 1,056 31.7%
Macquarie Securities Macquarie Capital Macquarie Funds FICC CAF Banking & Fin Services Real Estate Corporate 2H11 Reported earnings
Annualised Annualised (post-tax) JPM FY13E

Source: J.P. Morgan estimates, Company data.
The Global Investment Banking Comparison

As detailed in Figure 1, since the onset of the GFC, MQG has traded largely in line with global investment banking peers, with it no longer receiving a premium to global vanilla investment banks (arguably attributable to the value of the Macquarie Model), as was the case in the past.
Figure 1: Macquarie Historical Price/Book Relative to Global Investment Banking Peers
5x 4 3 2 1 0 Jan-06
Jan-07
Jan-08 MQG AU Equity
Jan-09
Jan-10
Jan-11
Average (ex MQG)
Source: Company data, J.P. Morgan estimates. Note: composite includes Deutsche Bank, Goldman Sachs, Credit Suisse, Morgan Stanley, UBS and Macquarie.
Valuation
We value each of MQGs different styles of earnings stream with consideration given to the appropriate multiples for each, as well as placing value on the equity held against balance sheet equity investments which generate minimal direct earnings, and surplus capital. We believe that this is the appropriate way to value MQG as a whole. Specifically, the key part of the process is stripping out the value of surplus capital and the capital held against the equity investments, and value that at par, to get a true sense of the capital deployed to generate a return. It is this ROE on deployed capital which drives our multiple for these businesses, with the par value of the equity investments and surplus capital added to get total value for MQG. On this basis, our new December 2011 price target of A$28.63 (change due to earnings revisions) reflects our current valuation based on FY12E earnings (refer to Table 6). Risks to the share price target (both upside and downside) include activity levels in global financial markets and successful integration of MQGs recently acquired businesses.
Table 6: MQG Valuation JPM
A$ in millions Earnings Macquarie - JPM FY12E Traditional Banking Funds Management Investment Banking Core Earnings Capital - Equity Investments Capital - Surplus
Source: J.P. Morgan estimates, Bloomberg.
Multiple 8.0x 12.0x 7.0x 9.4x 1.6x 10.2x 8.0x 11.7x
Value 1,641 3,111 1,190 5,942 2,798 8,740 1,793 10,532
Share count (m) 368 368 368 368 368 368 368 368
per share 4.46 8.46 3.24 16.15 7.61 23.76 4.87 28.63
SHF 1,669 1,200 4,640 7,509 2,448 9,957 1,447 11,404
ROE 12.3% 21.6% 3.7% 8.4% 8.6% 7.9%
P/B 0.98x 2.59x 0.26x 0.79x 1.14x 0.88x 1.24x 0.92x
205 259 170 634 224 859 43 902
Table 7: Australian Major Bank Consensus Valuation Metrics - 'ex Div' P/Es and Yields
Price ANZ CBA NAB WBC MQG 21.21 47.55 24.32 21.50 22.53 Div PV 0.69 0.54 0.78 0.77 0.79 Ex-Div Price 20.52 47.01 23.54 20.73 21.74 1 Yr Fwd EPS 2.24 4.56 2.68 2.15 2.55 1 Yr Fwd P/E 9.2x 10.3x 8.8x 9.7x 8.8x 1 Yr Fwd Div Yield 7.3% 7.3% 8.0% 7.8% 8.6% Payout 66% 73% 70% 74% 72%
Source: IRESS, J.P. Morgan estimates. Priced as of 21 Oct 2011.
10
Table 8: MQGResults and Forecasts

A$ in millions, year-end March FY09 Profit & Loss Account Interest Income Interest Expense Net Interest Income Non Interest Revenues Fee & Commission Income Base Fees Performance Fees M&A, Advisory and U/W Brokerage and Commissions Wrap & Other Admin Fee Income Other Fee & Commission Income Net Fee & Commission Income Trading Income Equities Commodities Foreign Exchange Interest Rate Products Total Trading Income Other Income Gain on Disposal of Investments Provn for Diminution Investments Impairments on Trading Assets Impairments on Trading Assets- Rate Products Unrealised Gain on fixed rate sub debt Gain on financing acquisition of MIPS Net operating lease Income Equity Accounted Income Dividends Received Specific Provisions General / Collective Provisions Other Total Other Income Total Non Interest Revenues Total Income Expenses Employment Expenses Brokerage and Commission Expenses Occupancy Expenses Non-salary Technology Expenses Professional fees, travel and comm expenses Other Operating Expenses Total Expenses Profit Before Tax Income Tax Expense Minority Interests Net Profit After Tax Less Preference Dividends Normalised Earnings
Source: J. P. Morgan estimates, Company data.
FY10 4,591 -3,511 1,080
1H11 2,637 -2,032 605
2H11 2,667 -1,997 670
2011 5,304 -4,029 1,275
1H12E 2,714 -2,057 657
2H12E 2,761 -2,105 656
2012E 5,475 -4,162 1,313
FY13E 5,625 -4,350 1,274
FY14E 5,680 -4,548 1,132
6,420 -5,482 938
921 234 1,229 1,037 134 490 4,045 409 583 132 85 1,209 441 -1,287 -265 -61 274 197 0 74 49 -411 -90 413 -666 4,588 5,526 -2,359 -685 -393 -263 -325 -512 -4,537 989 -15 -70 904 -33 871
926 57 1,085 1,077 135 441 3,721 590 665 145 144 1,544 840 -470 0 0 -200 127 138 -230 22 -218 2 282 293 5,558 6,638 -3,101 -645 -482 -283 -287 -546 -5,344 1,294 -201 -22 1,071 -21 1,050
496 15 402 582 66 434 1,995 178 156 83 183 600 261 -53 0 0 6 0 76 85 66 -86 9 97 461 3,056 3,661 -1,896 -441 -237 -159 -133 -299 -3,165 496 -85 5 416 -13 403
454 21 529 555 80 258 1,896 214 397 109 39 759 226 -77 0 0 3 0 167 94 60 -47 -4 236 658 3,313 3,983 -1,994 -344 -246 -157 -163 -304 -3,208 775 -197 -12 566 -13 553
950 36 931 1,137 146 692 3,891 392 553 192 222 1,359 487 -130 0 0 9 0 243 179 126 -133 5 333 1,119 6,369 7,644 -3,890 -785 -483 -316 -296 -603 -6,373 1,271 -282 -7 982 -26 956
471 15 423 500 83 193 1,686 182 298 93 39 611 100 0 0 0 0 0 180 94 63 -54 -3 100 480 2,777 3,434 -1,806 -304 -249 -159 -133 -308 -2,958 476 -129 -7 340 -13 327
499 20 466 549 88 212 1,834 196 374 107 41 717 100 0 0 0 0 0 180 94 358 -52 -3 150 827 3,379 4,035 -2,056 -323 -252 -161 -135 -303 -3,228 806 -206 -12 588 -13 575
970 35 889 1,049 171 406 3,520 377 671 200 80 1,328 200 0 0 0 0 0 360 188 421 -107 -5 250 1,307 6,155 7,468 -3,861 -626 -501 -320 -268 -611 -6,186 1,282 -335 -20 928 -26 902
1,078 15 1,002 1,183 189 457 3,924 421 804 230 88 1,544 200 0 0 0 0 0 360 188 126 -106 -6 300 1,062 6,530 7,805 -3,936 -694 -513 -327 -274 -617 -6,361 1,443 -339 -22 1,082 -26 1,056
1,139 11 1,081 1,276 204 493 4,204 454 868 248 95 1,665 0 0 0 0 0 0 360 188 126 -99 -6 300 869 6,738 7,870 -3,936 -749 -525 -335 -281 -632 -6,458 1,412 -332 -22 1,058 -26 1,032
11
Table 9: MQGResults and Forecasts

A$ in millions, year-end March FY09 Balance Sheet Details Group Assets SHFunds Risk Weighted Assets Av Balance Sheet Details Interest Earning Assets Total Average Assets Interest Bearing Liabs Total Liabilities SH Funds Free Float KEY RATIOS Asset Growth (%) - Period End Asset Leverage (x) Simple Equity Ratio (%) Profitability (%) To Av Assets - Net Interest Income - Non Interest Revenues - Operating Expenses - Pre Tax Earnings Effective Tax Rate Cost To Income Rates Of Return ROA ROE Per Share Data Normalised Basic EPS () Normalised Fully Diluted EPS () Operating Dividend Per Share () Special Dividend Per Share () Book Value Per Share () NTA Per Share () PER Basic EPS (x) PER Fully Diluted EPS (x) Dividend Yield (%) Dividend Franking (%) Franking Rate (%) Normalised Payout Ratio (%) DRP Participation (%) Issued Shares (m) Period End Ordinary Weighted Average Diluted Weighted Average Dilution Factor (%)
Source: Company data, J. P. Morgan estimates.
FY10 145,940 11,769 73,754 91,712 150,301 93,032 139,348 10,953 -1,320 -2.15 12.4 8.06
1H11 158,060 11,593 81,530 94,508 153,983 97,339 142,579 11,404 -2,832 8.30 13.6 7.33
2H11 157,568 11,932 84,550 97,170 157,665 101,647 145,809 11,856 -4,476 -0.31 13.2 7.57
2011 157,568 11,932 84,550 95,839 155,824 99,493 144,194 11,630 -3,654 7.97 13.2 7.57
1H12E 159,416 11,960 85,541 99,114 159,514 103,405 147,568 11,946 -4,292 1.17 13.3 7.50
2H12E 161,297 12,266 86,551 101,096 161,396 105,120 149,283 12,113 -4,024 1.18 13.2 7.60
2012E 161,297 12,266 86,551 100,105 160,455 104,263 148,425 12,029 -4,158 2.37 13.2 7.60
FY13E 165,145 12,726 88,616 104,149 164,274 107,635 151,797 12,477 -3,486 2.39 13.0 7.71
FY14E 169,145 13,150 90,762 108,357 168,239 111,147 155,310 12,929 -2,791 2.42 12.9 7.77
149,144 9,560 70,221 101,664 171,771 99,287 161,836 9,935 2,377 -10.83 15.6 6.41
0.55 2.67 2.64 0.58 1.6 82.10 0.51 9.96 310.4 309.4 185 0 3,057 2,372 7.3 7.3 8.2 70 30 59.8 17.6 283.4 280.6 281.5 100%
0.72 3.70 3.56 0.86 15.8 80.51 0.70 10.16 320.2 317.4 186 0 3,263 2,582 7.0 7.1 8.3 0 30 60.0 21.7 344.2 327.9 340.8 100%
0.79 3.97 4.11 0.64 17.6 86.45 0.52 7.62 119.2 117.1 86 0 3,201 2,521 9.4 9.6 3.8 0 30 73.8 10.1 345.6 338.0 357.7 100%
0.85 4.20 4.07 0.98 25.9 80.54 0.70 10.23 159.7 156.1 100 0 3,288 2,616 7.1 7.2 4.4 0 30 62.7 14.0 346.8 346.2 366.5 100%
0.82 4.09 4.09 0.82 22.7 83.37 0.61 8.94 282.5 275.9 186 0 3,288 2,616 8.0 8.2 8.3 0 30 67.4 12.2 346.8 338.4 359.2 100%
0.82 3.48 3.71 0.60 28.0 86.13 0.41 5.77 94.0 94.0 86 0 3,283 2,623 12.0 12.0 3.8 0 30 91.7 10.0 348.2 347.5 367.8 100%
0.81 4.19 4.00 1.00 26.0 80.02 0.71 10.02 164.8 160.9 100 0 3,358 2,693 6.8 7.0 4.4 0 30 60.8 10.0 349.6 348.9 369.2 100%
0.82 3.84 3.86 0.80 26.7 82.83 0.56 7.91 259.0 255.0 186 0 3,358 2,693 8.7 8.8 8.3 0 30 72.0 10.0 349.6 348.2 368.5 100%
0.78 3.98 3.87 0.88 24.0 81.51 0.64 8.91 301.0 294.8 192 0 3,469 2,793 7.5 7.6 8.5 30 30 63.9 10.0 351.6 350.7 371.0 100%
0.67 4.01 3.84 0.84 24.0 82.06 0.61 8.40 292.8 287.0 192 0 3,570 2,882 7.7 7.8 8.5 30 30 65.7 10.0 353.6 352.6 372.9 100%
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Economic Research 21 October 2011
Australasian Economic Weekly

Aussie 3Q CPI this week key for near-term policy outlook

RBA minutes gave no hint that board members are close to cutting cash rate Aussie inflation data critical next week; PPI data also scheduled for release Next week should see a slight slowing in inflation in New Zealand, and the RBNZ on hold
The past week was quiet for top-tier data in Australia, while there were no major data to speak of at all for New Zealand. What did become available in Australia hinted that domestic economic conditions had improved slightly, with leading indicators lifting, and the terms of trade rising again. For policy, the RBAs Board minutes hinted that the futures market probably read overly dovish sentiments into the RBAs policy announcement two weeks ago. The minutes made clear that RBA officials implicit nod toward possible official rate cuts is highly conditional, first on whether cuts are necessary at all, and, second, on the scenario that next weeks inflation print is very benign, which looks unlikely. Indeed, next weeks quarterly Aussie inflation data will have an important bearing on what the RBA does from here. We anticipate elevated prints on both the headline and core measures, with both accelerating in annual terms. These outcomes will make it very difficult for RBA Board members to contemplate rate cuts any time soon, unless something dramatic changes, most likely offshore, to significantly improve Australias medium-term inflation outlook. It would take an event of considerable importance for RBA officials to capitulate on their well-worn mantra that the terms of trade and investment booms are continuing. Our forecast remains that the RBA will be on hold from here, partly on the basis that global recession will be avoided, and growth in Australias major export markets, therefore, will remain robust. This implies that the terms of trade, which slipped in 3Q, will stay elevated, and that the mining investment boom will continue. Essentially, the price and wage pressures being triggered by the boom, which admittedly seem less alarming than they did a few weeks back, will broadly offset the disinflationary pulse triggered by weakness in the domestic-focused sectors of the economy, like retailing, manufacturing, and finance.
Australia: headline and trimmed mean inflation

% oya 8 6 4 2 0 -2 95 97 99 01 03 05 07 09 11 Core Headline
Source: ABS, J.P. Morgan
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J.P. Morgan Securities LLC Stephen Walters (612) 9220 1599 stephen.b.walters@jpmorgan.com Ben Jarman (612) 9220 1669 ben.k.jarman@jpmorgan.com Tom Kennedy (612) 9220 3250 tom.kennedy@jpmorgan.com
Economic Research October 21 2011
Inflation data key to RBA (in)action

Our forecast for the Aussie quarterly inflation prints this coming Wednesday is that the headline rate will be 0.7%q/q (down from 0.9% in 2Q), and that the core measures will be 0.6%, the same as in the previous quarter. On this basis, the annual rates should be 3.8%oya and 2.6% for headline and trimmed mean inflation, respectively. Each of these will represent modest accelerations from the previous quarter. The largest price rises during the quarter probably came from a double-digit rise in electricity prices, a smaller rise in gas prices, and a hefty lift in rents. Largely offsetting these will be price falls for fruit and vegetables (after the flood-induced spike in 2Q), falls in tobacco prices, and a lower cost of hospital and medical services. There also should be a 5% drop in automotive fuel prices, owing to lower crude prices.
Australia: food and non-food inflation
% oya 12 10 8 6 4 2 0 -2 Food Ex-food
95
97
99
01
03
05
07
09
11
This will be the first CPI release since the statistics bureau dropped the previously volatile financial services component from the CPI. The weights of other categories have risen as a result. Also, the ABS will release more seasonally adjusted data in the headline and core measures. Both changes should contribute to less volatility in quarterly price outcomes (the financial services component, in particular, has been unexpectedly volatile), but could make interpretation more problematic, particularly the first time the new series are released.
RBA minutes downplay the about face

Tuesdays RBA minutes were highly anticipated, given the marked change in the language describing inflation at the October Board meeting. Until this month, officials had been talking of the need to tighten policy further in the future, if inflation were to evolve as expected. In fact, recent RBA speeches had even divulged details from several meetings of the past year in which the Board nearly did raise the cash rate, but held fire due to offshore uncertainties. That all changed two weeks ago, when the RBA kept rates on hold and saw inflation as (now) being more consistent with the 2-3 per cent target. The minutes to the October meeting certainly acknowledged that the growth outlook has weakened, and that the inflation picture has improved, but the discussion suggests a more nuanced shift than many have read into the October statement. In particular, the more relaxed attitude toward near-term inflation risks was pegged on two factors: a labor market that now is just a little softer than previously, and the recent revisions to the CPI, which lower the starting point for the inflation path.
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Neither of these catalysts will be particularly satisfying for those hoping to win officials over to the view that current terms of trade-driven policy settings are too much for the non-mining economy to bear. In fact, while the language says that the starting point for inflation is lower, it does not say the path has changed, and judging by the (still) upbeat capex discussion, and the extent to which the rise in the unemployment rate is downplayed, we would guess that path remains upward sloping. In the discussion of global issues, the European saga looms large, with officials emphasizing the transmission to share prices for financial institutions, which had fallen significantly, and then to business and consumer confidence in the North Atlantic economies, which had showed a sharp drop. Sentiment clearly is the key transmission mechanism about which officials are worried in terms of private demand domestically as well.
Labor market less tight ... not loose

The downward impulses to inflation were seen as coming from the labor market, which, while recent data were mixed, on balance appeared to be softening. The unemployment rate has risen, but the minutes were careful to note that the vacancy rate had increased over the last few months, and the number of recipients of unemployment benefits was still falling. Overall this suggests that the labor market would be less tight and that the likelihood of a significant acceleration in aggregate labor costs was lessening. As far as a downgrade of the wage/inflation story goes, this reads as a pretty subtle one.
Australia: unemployment rate
Percent 6.0 5.5 5.0 4.5 4.0 3.5 2005 2006 2007 2008 2009 2010 2011
The downward revisions to the CPI data were the other factor granting officials more scope to keep policy steady for now. The revisions take underlying inflation in the year to June down from 2.7% to 2.5%, but if the new CPI weights were applied, the number goes down by about 25bp over the year. This reflects the substitution bias from the shift to items that have become more affordable in recent years, like AV and computing equipment. All up, these influences meant that inflation would be more consistent with the 2%3% target than previously.
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15
Australia: wage price index

% oya 5.0 4.5 4.0 3.5 3.0 2.5 2.0 99 01 03 05 Private sector 07 09 11 Public sector
Rate cut hints highly conditional

Finally, for those anticipating rate cuts, it is worth noting that there are two significant hurdles to clear. First, the improved inflation outlook needs to be confirmed by further data. A very soft outcome for 3Q CPI would then seem to be required for the new lower path of inflation to be locked in. Second, such an outcome would provide scope for accommodation, but only should that prove necessary. In other words, there is no need for such action as the data now stand. The fact that financial conditions had already eased somewhat through lower fixed lending rates and the decline in AUD raises these hurdles further. We would characterize the RBA as having given up more on the jawboning than on the base case. Uncertainty clearly is high at the moment, and the data have softened a little, but are not sufficiently weak to jettison the capex/terms of trade story. The RBAs story has been disrupted frequently by offshore events this year, but not derailed. Ultimately though, officials will have limited tolerance for talking one way and acting another, and to the extent that confidence has been hurt by the combination of poor news flow and the lingering threat of rate hikes, it makes sense to portray a balanced outlook in the face of such uncertainty. We expect the RBA to be on hold until the end of this year, with core inflation gradually rising, but not at a pace sufficient to spook officials given persistent global growth risks.
RBA verbiage: Aussie banks healthy

Other public commentary from senior RBA officials this week similarly betrayed no hint that officials are close to cutting the cash rate (futures market pricing still implies that the cash rate will fall more than 100bp in the year ahead). Guy Debelle, Assistant Governor (Financial Markets), highlighted in a speech in Sydney that Australias commercial banks are in very good shape. This is partly owing to the shift toward a more diversified funding model that favors more deposit-taking relative to the previous preference for a higher share of wholesale funding. Debelle compared Australias robust banking system favorably with more problematic financial systems offshore. There is official commentary scheduled for next week. Deputy Governor Ric Battellino speaks to an investment conference in Sydney. Coming the day before the release of the CPI data, it is unlikely that the Deputy Governors speech will deviate much relative to the tone of recent commentary and this weeks minutes. The topic of the speech is not yet available.
4
16
Aussie terms of trade rose in 3Q

Yet again, the peak in Australias terms of trade was pushed back a quarter, with the news this week that, contrary to our expectation, export prices jumped a further 4%q/q in 3Q, while import prices held steady. Export prices were led higher by a very sharp spike in natural and manufactured gas prices, which were up 24.5%q/q, while the coal, coke and briquettes group jumped 9.3%q/q. Todays release brought new weighting patterns for the indices, and while gas products retain much smaller representation in the index than say, iron ore, which declined, the magnitude of the rise in the former group also played a significant role in the upside surprise on export prices.
Australia: terms of trade
Index, 2004/05=100, sa 140 120 100 80 60 40 60 65 70 75 80 85 90 95 00 05 10
The improvement in coal, though, was more of a puzzle. While contrary to other data on global coal prices through the third quarter, we remain confident that the discrepancy is a timing issue, and that prices for Australias two most significant commodities, coal and iron ore, will come back to earth somewhat as global growth slows, and with earlier supply shocks being unwound. The iron ore decline seems already to have landed in 3Q, with prices in the metalliferous ores group dragging the index lower. On the imports side, the flat-line result was significantly softer than expected, but came with a breakdown that had less definitive implications for next weeks CPI. The decline in WTI over the third quarter was widely appreciated, and certainly played a role, though the pass-through was broader and stronger than we had penciled in. The petroleum and related products group was down 3.8%q/q, and had the largest single lineitem impact. But on the flipside, the footprint of AUD depreciation was evident in several CPI-relevant groups, like apparel, footwear, and imported food groups.
NZ CPI decelerating, RBNZ on hold

Next week the third quarter CPI data should show that price pressure eased a little in New Zealand, but that alone is far from sufficient to keep the RBNZ comfortable with current policy settings. The Bank made clear a couple of months ago that the 50bps of insurance cuts delivered post-earthquake would need to be withdrawn provided conditions offshore did not deteriorate further. By next weeks meeting, the dust is unlikely to have settled in financial markets following the EU summit, and we are not particularly hopeful of the outcomes that will be delivered anyway. Thus, it seems likely that the RBNZ will keep policy on hold. Our current call is for the RBNZ to withdraw the 50bps of prior accommodation six weeks later at the December meeting, though with no easy solutions available to offshore worries, how the RBNZ next week expresses their own expectations on the external front will be critical to that call. We expect Governor
5
17
Bollard to give a fairly downbeat assessment of global growth prospects. Any sense that the Governor is getting more comfortable with the OCR at 2.50% against this backdrop obviously would force us to push back the start of the hiking cycle. On the CPI result, %oya inflation likely cooled from 5.3% in Q2 to 4.9% in the third quarter. This translates to a 0.8%q/q rise in the headline measure, slighlty below the previous quarters 1.0%q/q. Slightly slower growth in food prices, energy, and the transport group will have driven the slowdown. With last years rise in GST to drop out of the annual measures inflation from next quarter, inflation is scheduled to keep falling for a few quarters yet.
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21 October 2011
Woodside Petroleum
3Q11 top line beat; third party gas for Pluto-2 looking increasingly necessary
WPL delivered a solid 3Q top line result, but the truncated Pluto-2 gas exploration program highlights the risk WPL may have to rely on 3rd party gas. Our view has not materially changed as a result of the 3Q11 report. We think (a) WPL represents reasonable value on an absolute basis, with essentially free exposure to its growth projects, but (b) on a relative basis in the large cap Australian energy space we think there are better risk/reward propositions. Accordingly we hold an Underweight recommendation.
Solid 3Q11 top line results above our forecasts, upgrade CY11 EPS 5%. WPL reported production of 16.1mmboe (+3% vs JPMe). NWS LNG production was 5% above our expectations, as the planned T5 shutdown was well executed. Sales volume was 16.7mmboe (+8% vs JPMe) leading to sales revenue of US$1,313m (+10% vs JPMe). The 10% revenue beat was ~50% attributable to the over-lift at Laminaria (0.5mmbbls) and NWS. CY11 production guidance of 62-64mmboe maintained; with risk to the upside (JPMe 64.2mmboe). At the current run rate WPL is on track to produce 64.1mmboe for CY11 (48mmboe YTD). We think the lower end of guidance is now conservative. Perhaps it allows generously for potential weather and NR2 issues, or perhaps the new-ish CEO Peter Coleman wants to over-deliver. We are comfortable our 64.2mmboe full year forecast, which roughly maintains the 3Q run rate, given that over the past 5 years, the 4Q has averaged the strongest production levels. Pluto2 exploration program looks modest to us. WPL will release the Maersk Discoverer rig in early 2012 rather than late 2012, implying a truncated exploration program. WPL intends to drill six Pluto-2 exploration wells in 4Q11/1H12. The 4Q11 drilling program includes 3 wells in the Ragnar and Claudius Hubs, which are areas we think are either (a) less prospective as they are being targeted late in the program, or (b) could be less economic to tie-back given their distances from other facilities. The Xeres appraisal well is not being re-attempted in 4Q11, and this was important for WPLs confidence to order Long Lead Items (at least when Don Voelte was CEO). We see Pluto-2 as unlikely to reach FID before late 2012. A third party gas deal may be a more likely option now, although on our numbers the economic outcome is likely to be significantly lower than a WPL equity gas development (perhaps 55-60% of the NPV).
Woodside Petroleum Limited (Reuters: WPL.AX, Bloomberg: WPL AU) Year-end Dec (US$) FY09A FY10A FY11E FY12E Total Revenue ($ mn) 3,759.2 4,246.0 4,931.4 5,911.2 EBITDA ($ mn) 2,597.4 2,907.0 3,473.4 4,442.0 Net profit after tax ($ mn) 1,530.6 1,564.0 1,759.4 1,892.2 EPS ($) 2.176 2.023 2.218 2.318 P/E (x) 15.7 16.9 15.4 14.7 Cash flow per share ($) 1.982 2.722 3.463 3.694 Dividend ($) 0.950 1.050 1.130 1.160 Net Yield (%) 2.9% 3.2% 3.4% 3.5% Normalised* EPS ($) 1.588 1.820 2.226 2.318 Normalised* EPS chg (%) -29.2% 14.6% 22.3% 4.2% Normalised* P/E (x) 21.5 18.8 15.3 14.7
Underweight
WPL.AX, WPL AU Price: A$33.38

Previous: A$44.73
Australian Energy and Steel Benjamin Wilson

AC
(61-2) 9220-1384 benjamin.x.wilson@jpmorgan.com
Daniel Butcher
(61-2) 9220-1405 daniel.butcher@jpmorgan.com J.P. Morgan Securities Australia Limited
Price Performance
45 A$ 35 25
WPL.AX share price (A$) ASX100 (rebased)
Abs Rel
YTD -21.6% -9.4%
1m 0.7% -2.1%
3m -15.3% -6.5%
12m -23.9% -13.7%
FY13E 6,738.9 5,106.5 2,228.6 2.690 12.7 4.463 1.350 4.0% 2.690 16.1% 12.7
Company Data 52-week range (A$) Market capitalisation (A$ bn) Market capitalisation ($ bn) Fiscal Year End Price (A$) Date Of Price Shares outstanding (mn) ASX100 ASX200-Res NTA/Sh^ ($) Net Debt^ ($ bn)
50.85 - 29.76 26.89 27.52 Dec 33.38 21 Oct 11 805.7 3,378.1 4,611.7 17.43 5.29
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. 19 www.morganmarkets.com
Benjamin Wilson (61-2) 9220-1384 benjamin.x.wilson@jpmorgan.com
3Q11 result solid production despite planned outages

Overall WPL delivered a solid 3Q, with production of 16.1mmboe (+3% vs JPMe), sales of 16.7mmboe (+8% vs JPMe) and sales revenue of US$1,313m (+10% vs JPMe). NWS LNG production was higher than our forecasts by 5%, with planned maintenance on LNG T5 and North Rankin A impacting less than we estimated. This result lends further credence to WPLs long term plan to re-rate NWS at higher production levels. (Currently 16.3mtpa, aiming for 17.1mtpa as an interim target and 17.4mtpa eventually.)
Table 1: WPL actual production versus JPM expectations (mmboe)
Project NWS (ex-oil) NWS oil Laminaria Ohanet Mutineer-Exeter GoM Enfield Neptune Stybarrow Vincent Total production Sales volume (mmboe) Sales revenue (US$m) 3Q11 JPMe 10.8 0.3 0.5 0.0 1.2 0.2 1.0 1.5 15.6 15.5 1,196 3Q11a 11.2 0.1 0.4 0.6 0.1 1.0 0.2 1.2 1.4 16.1 16.7 1,313 Diff 4% n/m 13% 11% 115% n/a -22% 31% 18% -4% 3% 8% 10% Comments Driven by strong LNG and condensate production levels in spite of planned T5/NRA outage FPSO replacement completed 24 September, ramped up to 24kbopd by end September A field near the end of its life; negligible contribution. A well workover boosted production Divested 1 May 2011 Planned shut down in July had more impact than anticipated Outperformed due to Stybarrow North well and facility uptime Did not achieve close to its 30kbopd potential until late in the 3Q; averaged 25kbopd Sales boosted 0.6mmboe above production by 0.5mmboe overlift at Laminaria; also NWS 10% higher than forecast due to production 3%, overlift 5% and overall realized prices 2%
Source: Company reports and J.P. Morgan estimates
Growth projects update

We discussed our views on the WPL's large portfolio of LNG growth projects in our Sector note Oil & gas sector Australia: Commodity forecast updates drive EPS downgrades (11 Oct 2011). Please see that note for further details. North Rankin Redevelopment. WPL says the project remains on schedule and budget for 2013 completion. We have been told by industry sources that weather conditions (high seas) are making work difficult there. However, the weather delays do not concern us at this stage, as they were said to be only modest (~1 month).
Earnings and valuation revisions

We have upgraded our FY11 earnings forecasts by 5%, mainly reflecting the stronger than expected sales volumes (boosted by 3Q over-lift at Laminaria and NWS LNG). Our DCF valuation increases <1% because our long term forecasts Upare basically unchanged. We outline our revisions in Table 2 below.
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Table 2: J.P. Morgan earnings revisions for WPL

Revised CY 2011 NPAT reported (US$m) NPAT pre-sig (US$m) EPS pre-sig (Ac) DPS (USc) Cash Flow ($m) Cashflow/share (USc) Oil price (US$/bbl) Exchange rate (US$/A$) Production (mmboe) CY 2012 NPAT reported (US$m) NPAT pre-sig (US$m) EPS pre-sig (Ac) DPS (USc) Cash Flow ($m) Cashflow/share (USc) Oil price (US$/bbl) Exchange rate (US$/A$) Production (mmboe) CY 2013 NPAT reported (US$m) NPAT pre-sig (US$m) EPS pre-sig (Ac) DPS (USc) Cash Flow ($m) Cashflow/share (USc) Oil price (US$/bbl) Exchange rate (US$/A$) Production (mmboe) Valuation (A$/share)
Source: J.P. Morgan estimates
Previous 1673 1679 202.4 108.0 2671 336.6 94.1 1.046 63.3 1856 1856 210.7 114.0 2936 360.1 97.5 1.078 78.9 2199 2199 254.2 114.0 3657 442.2 113.0 1.046 93.6 44.73
% change 5.2% 5.2% 5.1% 4.6% 2.9% 2.9% 0.0% 0.0% 1.4% 2.0% 2.0% 1.8% 1.8% 2.7% 2.6% 0.0% 0.0% 1.0% 1.4% 1.4% 1.2% 1.8% 1.1% 0.9% 0.0% 0.0% 0.6% 0.4%
$ change 87 87 10.3 5.0 76 9.6 0.0 0.000 0.9 36 36 3.9 2.0 80 9.3 0.0 0.000 0.8 30 30 3.0 2.0 41 4.2 0.0 0.000 0.6 0.16
1759 1766 212.6 113.0 2747 346.3 94.1 1.046 64.2 1892 1892 214.6 116.0 3016 369.4 97.5 1.078 79.6 2229 2229 257.1 116.0 3698 446.3 113.0 1.046 94.2 44.89
Price Target
We employ a WACC of 9.0% for WPL. Our Jun-12 price target for WPL is A$44.89/share (changed due to earnings revision) based on applying a 50% risk weighting to a theoretical Laverda oil development, 55% risk weighting to Pluto-2 assuming 90% WPL equity gas and future Hess milestone payments, a 70% risk weighting for a Browse tie-back to NWS option (comparable to a 35% risk weighting on a standalone James Price Point development), and a 20% risk weighting to Sunrise. The main upside risks are the oil price, and progress toward key milestones for its LNG projects. In the near term, one of the most relevant upside risks is further exploration/appraisal success for WPLs planned Pluto-2 project, or to a lesser extent an agreement for third party gas supply into the project.
21
Sector Scenario Valuation Table

LT WTI (US$/bbl) LT A$/US$ Company Valuation Scenario (unrisked projects included) Base Case: Existing projects + Pluto 1, Laverda Oil Risked 50%, incl A$23/t carbon + Pluto 2 assuming WPL 90% equity gas WPL + Sunrise FLNG + either Browse tie back to North West Shelf (option 1) + or Browse at James Price Point (option 2) Base Case: Existing projects incl. GLNG equity sell down, capital raising, A$23/t carbon, excl. LNG + PNG LNG project STO + 2 train GLNG + Third Train PNGLNG Base Case: Oil business (excluding PNG LNG) + PNG LNG project OSH + Third Train PNG LNG, 3tcf, 30% OSH share + Mananda 5 development Base Case: Incl. Netherby reserves, A$23/t carbon charge AWE + Trefoil 2 & Rockhopper 1 unrisked + Risked exploration value upside Base Case: Inc. A$23/t carbon charge, excl. Exploration Value, Beibu Gulf ROC + Exploration Value, Beibu Gulf + Balai Cluster RSC (project financed) Base Case inc. Tipton West Milestone payments, A$23/t carbon charge + GLNG Cooper Basin contract participation Base Case (40MW Wilga Park PS) ESG* Base Case (40MW Wilga Park PS) + 1mtpa NLNG Base Case (40MW Wilga Park PS) + 2mtpa NLNG 0.83 0.33 1.15 5.88 6.74 6.83 1.32 1.56 1.60 0.28 0.40 0.42 0.69 1.11 0.68 n/a n/a n/a -38% 0.95 n/a n/a n/a -14% 1.22 n/a n/a n/a 10% 15% 16% 15% 36% 40% -15% 24% 29% -37% 9.23 9.43 1.54 1.88 1.96 0.32 0.47 0.55 0.87 57% 60% 34% 65% 71% -1% 45% 68% -21% 11.54 11.85 1.76 2.23 2.32 0.36 0.54 0.67 1.05 96% 101% 54% 95% 103% 12% 66% 106% -5% 12.12 13.64 15.37 0.96 5.38 13% 27% -84% -8% 18.31 20.66 1.13 7.35 51% 70% -81% 25% 22.35 25.34 1.31 9.13 84% 109% -78% 55% 33.38 Share price (A$) DCF val (A$/shr) 29.71 34.53 36.72 41.99 44.77 7.79 11.61 70 0.80 Upside to DCF value -11% 3% 10% 26% 34% -36% -4% DCF val (A$/shr) 34.47 42.65 46.32 53.84 59.91 9.01 14.24 90 0.80 Upside to DCF value 3% 28% 39% 61% 79% -26% 18% DCF val (A$/shr) 38.95 50.14 55.31 65.10 74.43 10.05 16.44 110 0.80 Upside to DCF value 17% 50% 66% 95% 123% -17% 36%
BPT
Source: J.P. Morgan estimates. Note: * J.P.Morgan is under restriction on ESG and cannot offer a valuation at this time
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23
24

21 October 2011
Building Materials
Backs Against the Wall...Boral now in the spotlight
The building materials sector, in particular building products, has been beset by a litany of profit warnings over the past three months. A marked deterioration in residential activity is the common theme running through the downgrades. With this wall of evidence in hand, we now no longer expect BLD to grow its Building Products earnings this year and have cut our group FY12 forecasts as a result. While our BLD recommendation is OW, our preference in the sector remains ABC. Four profit warnings in three months Since August, the drumbeat of bad news has been monotonously consistent in the Building Materials sector. ALS (26/08) was the first to go, highlighting a sharper than expected deterioration in 'Building Products markets'. CSR (01/09) followed soon after in early September, with FBU (12/10) and GWA (20/10) both warning this month. With BLD's AGM less than two weeks away, it looks increasingly likely, in our view, that management will highlight the impact of difficult trading conditions over the first three months of FY12. Reining in our BLD Building Products (BBP) estimates In light of the clear challenges facing building products markets, we have revisited our BBP estimates. We had previously been forecasting an improvement in EBIT margin to 7.7% from FY11s 7.3%. Our revised expectation is for a contraction to 7.0%, which in turn leads to a 3.9% downgrade to our FY12 NPAT from $194m to $186m. We have also lowered our estimates for FY13 and FY14 primarily on lower margin expectations. Considerable room for improvementbut the cycle needs to turn As our detailed analysis of the industry in this report shows, BLD has been the perennial underperformer in the building products space. Its average 6-year EBIT margin, for instance, is 2.8% below the sector. While the mix of BLD's businesses timber for instance partially explains the difference, we see room for improvement on the cost management front. Divestment catalyst should help BLD in the short-term, but ABC remains our preferred name The sale of the Asia Construction Materials (ACM) business should act as a positive near-term catalyst. While we are still positive on BLD from a valuation perspective, ABC remains our sector preference for its stronger industry positioning and clearer near-term prospects.
Equity Ratings and Price Targets Company Adelaide Brighton Limited Boral Limited CSR Limited James Hardie Industries SE Symbol ABC.AX BLD.AX CSR.AX JHX.AX Mkt Cap (A$ mn) 1,819.76 2,569.32 1,249.82 2,562.72 Rating Price (A$) 2.86 3.45 2.47 5.85 Cur OW OW N UW Prev n/c n/c n/c n/c Price Target Cur Prev 3.30 n/c 4.40 4.50 2.90 n/c 5.80 n/c
Building Materials Jason Steed

AC
(61-2) 9220-1551 jason.h.steed@jpmorgan.com
Keith Chau
(61-2) 9220-1582 keith.chau@jpmorgan.com J.P. Morgan Securities Australia Limited
Source: Company data, Bloomberg, J.P.Morgan estimates. n/c = no change. All prices as of 20 Oct 11.
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Jason Steed (61-2) 9220-1551 jason.h.steed@jpmorgan.com
Backs Against the Wall

Four building materials companies have profit warned in the past three months
Over the past three months, a number of the Australian Building Materials and Building Products companies have issued profit warnings, including ALS, CSR, FBU and GWA. These warnings have primarily been driven by softer than expected conditions in the Australasian residential sector. As a result, top line performance has deteriorated. In order to mitigate the weakness flowing through from the broader economy, all companies have set out a plan to cut costs in an effort to defend margin. Implications for BLD With its AGM less than two weeks away (03/11), the focus has turned squarely on what BLD's management will say about operating conditions and performance in the first three months of FY12. In broad terms, our expectations for each of the principal divisions, with the exception of BBP, is as follows: Boral Construction Materials (BCM): Set to see an improvement in EBIT to $238m in FY12 driven by acquisitions (Wagners and Sunshine) and flow through of price increases. We do, however, expect volumes in particular concrete to fall on an underlying basis. Cement: We expect EBIT from the Cement division to be flat at $95m for FY12, with a 7% decline in volumes offset by higher prices and some cost control. USA: As set out in our recent report American Drag (11/10/11), we have lowered our expectations for US housing starts, which led to sharp downgrades in our EBIT expectations for the division. In FY12, we expect the US business to register a similar loss to FY11. LBGA: our current projections assume that BLD has outright ownership of LBGA from 01/01/12, which equates to EBIT for FY12 of $34m.
Management are likely to give a trading update at the AGM (03/11)
Our forecasts outside BBP are unchanged
At this point in time, we see little reason to adjust the divisional forecasts set out above. However, the same cannot be said for BBP, where the relentless pressure of a weak and wary consumer looks set to weigh on FY12 performance. In re-assessing the prospects for the business in FY12, we have undertaken a detailed analysis of BBP's performance relative to the various companies that operate in the broadly defined Building Products market 1 . As shown in Figure 1, BLDs Building Products business has consistently underperformed the peer group.
Figure 1: Historical EBIT Margins: Australian Building Products vs. BLD
12% 10% EBIT Margin 8% 6% 4% 2% 0% T-6 T-5 T-4 Group
Source: Capital IQ, Company reports, J.P. Morgan estimates.
T-3 BLD
T-2
T-1
See following section entitled: An analysis of the Australian Building Products Sector for the composition of the group that makes up this Building Products market.
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ROA has similarly been well below the peer group
While the difference in margins can partly be attributed to BLD's mix of business e.g. very low margin for timber the division's equally underwhelming Return on Assets (ROA) suggests some scope for improvement. Over the past six years, BLDs ROA has on average been 4.0% below the peer group. Figure 2 sets out the profile of BBPs returns vs. the sector.
Figure 2: Historical Return on Assets: Australian Building Products vs. BLD
14% 12% Return on Assets 10% 8% 6% 4% 2% 0% T-6 T-5 T-4 Group
Source: Capital IQ, Company reports, J.P. Morgan estimates.
T-3 BLD
T-2
T-1
In our view, the wide disparity between BLDs margins and returns against the sector suggests strong prospects for growth in the medium-term. For instance, on an FY12 basis, our EBIT estimates would be as follows even if BLD was able to only recover half of the difference: EBIT margin at 8.4% $93m vs. current estimate of $78m ROA at 7.7% $114m vs. current estimate of $78m
Very little has been enumerated on the cost saving front
While BLD's sub-optimal history raises the prospect of a stronger recovery in the coming years, there remains a distinct lack of detail on the cost management front. Management continues to espouse the virtues of the LEAN programme, but with no commitment as to what financial benefits might accrue. At the FY11 results in August, management indicated that until the cycle turns, the tangible benefits of LEAN are unlikely to manifest themselves. This challenge around cost management appears to be less of an issue for the peer group, all of which to an extent appear to be taking action around cost to diminish the effects of the weak operating environment. When BLDs Strategic Review was announced in Jul-10, the following was indicated around prospective cost savings: a restructuring charge of circa $14 million to reorganise Boral to a simpler, leaner business expected to result in cost savings from 2011. However, since then, there has been little said about the extent of those cost savings and the period over which they might be achieved. At the FY11 result, there was reference to the following actions being taken to address the cost base in NSW and QLD: The deteriorating housing and commercial construction market environment in New South Wales, and particularly in Queensland, have fully exposed the need to address the high fixed costs and low utilisation of our brick and masonry operations in these states. As a result, the Group has announced plans to close a brick plant in Queensland and New South Wales, and to rationalise masonry operations on the east coast. Improved efficiency within the balance of operations is expected to provide the capacity and geographic cover to service market needs and improve returns.
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With the exception of the indications around masonry cost savings above, there has been little to show in terms of explicit cost savings on the building products side of the business.
An analysis of the Australian Building Products Sector

In comparing BLD to the broader Australian Building Products sector, we have taken into consideration the earnings of a number of listed companies with similar products and exposures to BLD. Where possible, we have isolated the residential-leveraged earnings of each of these companies, which enables us to form an aggregate view of the Building Products sector. For example, in CSRs case, we exclude the earnings of its Aluminium and Property divisions. Our aggregate overview of the Australian listed building products2 sector is set out in Table 1:
Table 1: Australian Building Products Earnings & Return History
ALS Revenue EBIT Total Assets Revenue growth EBIT growth Asset growth EBIT Margin ROA UNITS $m $m $m % % % % % FY06 3,791 425 3,890 FY07 4,145 466 4,118 9.3% 9.7% 5.9% 11.2% 11.3% FY08 4,454 476 3,989 7.5% 2.1% -3.1% 10.7% 11.9% FY09 4,480 395 4,301 0.6% -17.0% 7.8% 8.8% 9.2% FY10 4,473 460 4,481 -0.2% 16.5% 4.2% 10.3% 10.3% FY11 4,616 470 4,504 3.2% 2.0% 0.5% 10.2% 10.4%
11.2% 10.9%
Source: Capital IQ, Company reports, J.P. Morgan.
Our key observations on this aggregation and history are as follows: With the exception of 2009/10, revenues have held up reasonably well; although this is likely to be tested in 2011/12. Despite a drawn out period of weak and volatile conditions, EBIT margins on average have been reasonably steady. Companies in the sector have continued to invest, with asset growth running at over 3% for the period. Interestingly, the worst year for earnings performance (2008/09) was the year in which the sectors asset growth was highest this may have been partially attributed to a short-term increase in costs related to investment. As set out in the following sections, the areas of weakest return appear to be bricks and masonry. In the following section, we outline the historical earnings and return profiles of the various companies that make up our Building Products market. In particular, given this report's focus on BLD, we assess the relevance of each of the company's to the various businesses that make up BBP.
The aggregation excludes FBU due to the heavy skew in its Building Products segment to NZ.
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ALS: 1H12 Revenue down 6%; NPAT down c.33%
Alesco Corporation (ALS.AU) Relevant exposure: Broad exposure to the Australian residential market. Comments: On 26/08, ALS indicated that, trading conditions in the Australian and New Zealand building products markets have deteriorated faster than anticipated. More specifically, Management pointed to a sharp fall in consumer confidence and an increase in household savings driving lower demand for its products. As a result, 1H12 revenue is now expected to decline 6% vs. the pcp of $289m, and NPAT is forecast to be between $6.2-7.5m, down 33% or $3.4m at the mid-point of the guidance range.
Table 2: ALS Earnings & Return History
ALS Revenue EBIT Total Assets Revenue growth EBIT growth Asset growth EBIT Margin ROA UNITS $m $m $m % % % % % FY06 502 61 527 FY07 589 68 643 17.3% 11.2% 22.0% 11.6% 10.6% FY08 719 74 457 22.1% 8.8% -28.9% 10.3% 16.2% FY09 661 39 636 -8.1% -48.2% 39.1% 5.8% 6.1% FY10 550 38 592 -16.9% -0.8% -6.9% 7.0% 6.5% FY11 534 39 578 -2.8% 3.1% -2.3% 7.4% 6.8%
12.2% 11.6%
CSR: 1H12 EBIT down 19%
CSR (CSR.AU) Relevant exposure: Plasterboard Comments: On 01/09, CSR announced that it expects 1H12 Group EBIT to be between $90-100m, a decline of c. 19% vs. the pcp of $118m. CSR attributed the decline in earnings to a deterioration of business confidence and activity. Also impacting 1H12 earnings is a restructure of its Viridian business, which will result in a further $10m impact at the EBIT level.
Table 3: CSR Earnings & Return History
CSR Revenue EBIT Total Assets Revenue growth EBIT growth Asset growth EBIT Margin ROA UNITS $m $m $m % % % % % FY06 978 81 826 FY07 1,004 85 852 2.6% 4.4% 3.1% 8.4% 9.9% FY08 1,044 98 852 4.0% 16.3% 9.4% 11.5% FY09 1,086 85 916 4.0% -14.0% 7.5% 7.8% 9.2% FY10 1,046 106 979 -3.7% 25.7% 7.0% 10.2% 10.8% FY11 1,049 104 927 0.4% -2.3% -5.3% 9.9% 11.2%
8.3% 9.8%
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GWA: 1H12 EBIT down 5-10%
GWA Group (GWA) Relevant exposure: Broad exposure to the Australian residential market. Comments: Over the past 4 years, GWA has increased both its margins and returns. However, on 20/10, the company announced it expects 1H12 EBIT to be down 5-10% for continuing operations. Should this eventuate, it would mark an end to a period of steady growth.
Table 4: GWA Earnings & Return History
GWA Revenue EBIT Total Assets Revenue growth EBIT growth Asset growth EBIT Margin ROA UNITS $m $m $m % % % % % FY06 620 89 821 FY07 636 91 795 2.6% 2.5% -3.2% 14.4% 11.5% FY08 649 83 775 2.0% -9.7% -2.4% 12.7% 10.6% FY09 613 83 782 -5.5% 0.4% 0.9% 13.5% 10.6% FY10 657 95 813 7.1% 14.0% 4.0% 14.4% 11.6% FY11 726 107 814 10.6% 13.3% 0.0% 14.8% 13.2%
14.4% 10.9%
Adelaide Brighton (ABC.AU) Relevant exposure: Masonry/concrete products Comments: Over recent years, ABCs Concrete Products earnings have been anemic at best. As a result of, soft housing and retail activity the division registered a loss of $1.2m at the EBIT level in 1H11 compared to a modest profit of $0.8m in the pcp.
Table 5: ABC Earnings & Return History
ABC Revenue EBIT Total Assets Revenue growth EBIT growth Asset growth EBIT Margin ROA UNITS $m $m $m % % % % % FY05 92 3 105 FY06 88 9 112 -3.8% 193.3% 7.2% 10.0% 7.8% FY07 83 2 110 -6.4% -79.5% -2.5% 2.2% 1.6% FY08 122 9 210 47.8% 372.2% 91.5% 7.0% 4.1% FY09 133 4 210 8.7% -48.2% 3.3% 2.1% FY10 132 4 210 -1.0% -13.6% 2.9% 1.8%
3.3% 2.9%
Reece Australia (REH.AU) Relevant exposure: Broad exposure to the Australian residential market. Comments: Since FY06, REH has consistently grown revenues. However, margins deteriorated significantly in FY09 as a result of tight trading conditions and costs associated with the roll-out of new stores. Since then, margins have recovered to c.11%. Despite this strong performance, management remain cautious on the outlook, with the Board anticipating, 2012 to be another challenging year.
Table 6: REH Earnings & Return History
REH Revenue EBIT Total Assets Revenue growth EBIT growth Asset growth EBIT Margin ROA UNITS $m $m $m % % % % % FY06 1,116 125 605 FY07 1,310 151 668 17.4% 20.8% 10.3% 11.5% 22.6% FY08 1,439 165 781 9.8% 9.7% 17.0% 11.5% 21.1% FY09 1,508 144 839 4.8% -13.1% 7.3% 9.5% 17.1% FY10 1,508 164 887 -0.0% 13.9% 5.8% 10.8% 18.4% FY11 1,570 174 958 4.1% 6.1% 8.0% 11.1% 18.1%
11.2% 20.6%
Source: Capital IQ, Company reports, J.P. Morgan. 6
30
Brickworks (BKW.AU) Relevant exposure: Bricks Comments: The returns generated by BKWs Building Products business are low relative to the rest of the Building Products sector. In an environment where demand is soft and input costs are rising, both returns and margins have deteriorated. Regarding outlook, management remained cautious at its recent FY11 results:The forecast decline in housing activity will result in another challenging year for the Building Products Group. This challenge is being met head on with an aggressive cost reduction programme.
Table 7: BKW Earnings & Return History
BKW Revenue EBIT Total Assets Revenue growth EBIT growth Asset growth EBIT Margin ROA UNITS $m $m $m % % % % % FY06 483 66 1,006 FY07 517 62 1,048 7.0% -4.7% 4.2% 12.1% 6.0% FY08 520 54 1,014 0.6% -14.1% -3.3% 10.3% 5.3% FY09 489 37 918 -5.9% -30.9% -9.4% 7.6% 4.0% FY10 580 53 999 18.6% 44.2% 8.8% 9.2% 5.3% FY11 605 42 1,017 4.2% -21.3% 1.8% 6.9% 4.1%
13.6% 6.5%
FBU: 1H12 NPAT down 10%
Fletcher Building (FBU.NZ) Given its large exposure to the New Zealand market, we have excluded FBUs Building Products earnings from our analysis of the Australian Building Products market. However, the commentary in its recent profit warning provides further evidence of a weakening Australian residential market. On 12/10, FBU announced that 1H12 NPAT is expected to decline 10% on 1H11 NPAT of $166m. The expected reduction in earnings is driven by continued low levels of activity in the residential and commercial construction sectors in New Zealand and the significant downturn in residential consents and continued weak approval levels in commercial construction in Australia.
Table 8: FBU Earnings & Return History
FBU Revenue EBIT Total Assets Revenue growth EBIT growth Asset growth EBIT Margin ROA UNITS $m $m $m % % % % % FY06 629 142 646 FY07 697 141 687 10.8% -0.7% 6.3% 20.2% 20.5% FY08 739 148 786 6.0% 5.0% 14.4% 20.0% 18.8% FY09 771 106 783 4.3% -28.4% -0.4% 13.7% 13.5% FY10 798 114 792 3.5% 7.5% 1.1% 14.3% 14.4% FY11 692 111 711 -13.3% -2.6% -10.2% 16.0% 15.6%
22.6% 22.0%
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Forecast changes and valuation

Downgrades to Building Products earnings; Target Price reduced to $4.40 In light of our analysis and the recent profit warnings from BLDs peers, we have downgraded our earnings estimates for BLDs building products divisions. As a result of our earnings downgrades, we have reduced our Target Price from $4.50 to $4.40.
Table 9: BLD earnings changes
Financial Year Revenue New Old Difference % EBIT New Old Difference % NPAT (pre-significant items) New Old Difference % EPS (pre-significant items) New Old Difference % DPS New Old Difference %
Unit $m $m % $m $m % $m $m % $m $m %
FY12 5,172 5,189 -0.3% 333 342 -2.7% 186 194 -3.9% 25.6 26.6 -3.9% 15.5 16.0 -3.1%
FY13 5,858 5,876 -0.3% 427 439 -2.8% 246 257 -4.0% 33.4 34.8 -4.0% 20.0 21.0 -4.8%
FY14 6,338 6,357 -0.3% 549 563 -2.4% 331 341 -3.2% 44.1 45.5 -3.2% 26.5 27.5 -3.6%
3yr AVG
-0.3%
-2.6%
-3.7%
-3.7%
-3.8%
Our $4.40 Target Price is based on our Jun-13 Sum-of-Parts (SoP) valuation discounted back to Jun-12 at the cost of equity and adjusted for the grossed up dividend where applicable. We calculate our SoP based on the individual cash flow streams of each of the discrete business segments. In BLD's case for the SoP valuation, we strip out capex at the segmental level, not at a group level. We separately value corporate costs, working capital and provisions. We discount the segment cash flows at a group discount rate, or where relevant at a segment specific rate. Our current post-tax WACC applied to our SoP is 9.6%.
Table 10: BLD DCF-based SoP valuation
Segment Boral Construction Materials Boral Cement Boral Building Products Boral USA Other Businesses LBGA Less: Carbon Cost Less: Corp, WC, Corp Capex Enterprise Value Less: Net Debt Less: Provisions Equity Value
Valuation methodology / Comment DCF-based valuation (ex. Changes in working capital and provisions) DCF-based valuation (ex. Changes in working capital and provisions) DCF-based valuation (ex. Changes in working capital and provisions) DCF-based valuation (ex. Changes in working capital and provisions) DCF-based valuation (ex. Changes in working capital and provisions) DCF-based valuation (ex. Changes in working capital and provisions) DCF of annual costs to 2020 plus an adjusted TV DCF-based valuation of unallocated Corp O-heads, WC, Corp Capex Group net debt as at year-end: 2013E Group provisions as at year-end: 2013E Group SoP valuation
A$m 2,468 1,148 924 833 69 778 -209 -595 5,417 -1,510 -325 3,581
A$/share 3.31 1.54 1.24 1.12 0.09 1.05 -0.28 -0.80 7.27 -2.03 -0.44 4.81
Our Target Price date is Jun-12. The downside risks to our Target Price include: a sustained depressed level of building activity in the US; a prolonged decline in Australian housing commencements; not realising announced price increases; and weakening of the A$.
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Adelaide Brighton Limited

Company Data 52-week range (A$) Market capitalisation (A$ bn) Market capitalisation ($ bn) Fiscal Year End Price (A$) Date Of Price Shares outstanding (mn) ASX100 ASX200-Ind NTA/Sh (A$) Net Debt^ (A$ bn) 3.69 - 2.22 1.82 1.88 Dec 2.86 20 Oct 11 636.3 3,379.8 5,637.8 1.22 0.17 Adelaide Brighton Limited (Reuters: ABC.AX, Bloomberg: ABC AU) Year-end Dec (A$) FY09A FY10A FY11E FY12E Total Revenue (A$ mn) 1,009.7 1,079.1 1,104.1 1,196.4 EBITDA (A$ mn) 242.1 269.0 280.9 305.1 Net profit after tax (A$ mn) 123.1 151.5 152.3 167.3 EPS (A$) 0.204 0.239 0.240 0.264 P/E (x) 14.0 12.0 11.9 10.9 EV/EBITDA 8.2 7.3 7.1 6.6 Dividend (A$) 0.135 0.215 0.200 0.200 Net Yield (%) 4.7% 7.5% 7.0% 7.0% Normalised* EPS (A$) 0.204 0.239 0.240 0.264 Normalised* EPS chg (%) -8.0% 17.0% 0.5% 9.8% Normalised* P/E (x) 14.0 12.0 11.9 10.9
FY13E 1,356.9 337.4 192.3 0.303 9.4 5.9 0.225 7.9% 0.303 14.9% 9.4
Boral Limited
Company Data 52-week range (A$) Market capitalisation (A$ bn) Market capitalisation ($ bn) Fiscal Year End Price (A$) Date Of Price Shares outstanding (mn) ASX100 ASX200-Ind NTA/Sh (A$) Net Debt^ (A$ bn) 5.73 - 3.13 2.57 2.63 Jun 3.45 20 Oct 11 744.7 3,378.1 5,637.8 4.11 1.49 Boral Limited (Reuters: BLD.AX, Bloomberg: BLD AU) Year-end Jun (A$) FY10A FY11A Total Revenue (A$ mn) 4,599.3 4,710.5 EBITDA (A$ mn) 504.5 522.2 Net profit after tax (A$ mn) -90.5 167.7 EPS (A$) -0.152 0.233 P/E (x) NM 14.8 EV/EBITDA 7.4 5.9 Dividend (A$) 0.135 0.145 Net Yield (%) 3.9% 4.2% Normalised* EPS (A$) 0.221 0.244 Normalised* EPS chg (%) -0.7% 10.5% Normalised* P/E (x) 15.6 14.1
FY12E 5,171.6 610.3 186.2 0.256 13.5 6.7 0.155 4.5% 0.256 4.9% 13.5
FY13E 5,858.4 735.1 246.5 0.334 10.3 5.6 0.200 5.8% 0.334 30.6% 10.3
FY14E 6,338.4 865.6 330.6 0.441 7.8 4.7 0.265 7.7% 0.441 31.8% 7.8
CSR Limited
Company Data 52-week range (A$) Market capitalisation (A$ bn) Market capitalisation ($ bn) Fiscal Year End Price (A$) Date Of Price Shares outstanding (mn) ASX100 ASX200-Ind NTA/Sh (A$) Net Debt^ (A$ bn) 3.88 - 2.20 1.25 1.29 Mar 2.47 20 Oct 11 506.0 3,379.8 5,637.8 2.58 -0.17 CSR Limited (Reuters: CSR.AX, Bloomberg: CSR AU) Year-end Mar (A$) FY10A FY11A FY12E Total Revenue (A$ mn) 1,960.5 1,933.5 1,817.0 EBITDA (A$ mn) 311.4 308.0 279.9 Net profit after tax (A$ mn) -111.7 503.4 89.2 EPS (A$) -0.082 0.996 0.176 P/E (x) NM 2.5 14.1 EV/EBITDA 6.5 3.6 3.9 Dividend (A$) 0.085 0.417 0.135 Net Yield (%) 3.4% 16.9% 5.5% Normalised* EPS (A$) 0.175 0.178 0.190 Normalised* EPS chg (%) -52.1% 1.7% 6.4% Normalised* P/E (x) 14.1 13.8 13.0
FY13E 1,830.0 289.1 106.6 0.209 11.8 3.4 0.145 5.9% 0.209 10.0% 11.8
FY14E 1,913.3 312.7 127.0 0.248 10.0 2.9 0.175 7.1% 0.248 18.7% 10.0
33
James Hardie Industries SE

Company Data 52-week range (A$) Market capitalisation (A$ bn) Market capitalisation ($ bn) Fiscal Year End Price (A$) Date Of Price Shares outstanding (mn) ASX100 ASX200-Ind NTA/Sh ($) Net Debt^ ($ bn) 7.12 - 4.66 2.56 2.65 Mar 5.85 20 Oct 11 438.1 3,379.8 5,637.8 -1.15 0.10 James Hardie Industries SE (Reuters: JHX.AX, Bloomberg: JHX AU) Year-end Mar (US$) FY10A FY11A FY12E FY13E Total Revenue ($ mn) 1,124.6 1,167.0 1,182.1 1,232.6 EBITDA ($ mn) 270.4 246.9 246.1 268.2 Net profit after tax ($ mn) -84.9 -347.0 131.4 152.7 EPS ($) -0.196 -0.797 0.302 0.367 P/E (x) NM NM 20.1 16.5 EV/EBITDA 10.3 10.9 11.2 9.8 Dividend ($) 0.000 0.000 0.065 0.075 Net Yield (%) 0.0% 0.0% 1.1% 1.3% Normalised* EPS ($) 0.307 0.268 0.316 0.367 Normalised* EPS chg (%) 32.1% -12.8% 17.9% 16.2% Normalised* P/E (x) 19.7 22.6 19.1 16.5
FY14E 1,352.7 307.7 181.2 0.436 13.9 8.0 0.085 1.5% 0.436 18.7% 13.9
10
34
Adelaide Brighton Limited: Summary of Financials

A$ in millions, year end Dec Income Statement Total Revenue Revenue Growth Y/Y EBITDA Depreciation & Amortisation EBIT Net Interest Pre-Tax Profit Tax Minority Interests Preference Dividends NPAT before Abnormals NPAT after Abnormals Normalised NPAT # Shares Outstanding FY09 FY10 FY11E FY12E FY13E Balance Sheet 1,009.7 1,079.1 1,104.1 1,196.4 1,356.9 Cash & Bills (2.1%) 6.9% 2.3% 8.4% 13.4% Debtors 242.1 269.0 280.9 305.1 337.4 Investments -56.8 -52.8 -56.7 -59.4 -60.9 Inventories 185.3 216.2 224.2 245.6 276.6 Other Current Assets -16.7 -14.0 -14.7 -15.5 -12.1 Current Assets 168.6 202.2 209.5 230.1 264.5 Receivables -45.4 -50.8 -57.2 -62.8 -72.2 Investments -0.1 0.1 0.0 0.0 0.0 Inventories - PP&E 123.1 151.5 152.3 167.3 192.3 Goodwill 123.1 151.5 152.3 167.3 192.3 Other Intangibles 123.1 151.5 152.3 167.3 192.3 Pension Fund Assets 634.1 634.9 634.9 634.9 634.9 Future Income Tax Benefits Other Non Current Assets Cash Flow Statement FY09 FY10 FY11E FY12E FY13E Non Current Assets EBIT 185.3 216.2 224.2 245.6 276.6 Total Assets Depreciation & Amortisation 56.8 52.8 56.7 59.4 60.9 Creditors Net Interest (Paid)/Recd -14.2 -11.2 -14.7 -15.5 -12.1 Current Borrowings Tax (Paid) -30.9 -47.5 -57.2 -62.8 -72.2 Current Lease Liabilities Inc/(Dec) in Provisions -2.0 -0.1 -8.9 3.7 7.0 Current Provisions (Inc)/Dec in Working Capital -5.2 1.1 -11.8 19.9 35.1 Other Current Liabilities Other Operating Items -1.7 -22.8 16.4 -35.5 -66.4 Current Liabilities Operating Cash Flow 188.1 188.5 204.6 214.9 228.9 Non Current Creditors Gross Capex -43.1 -51.7 -103.8 -106.5 -62.4 Non Current Borrowings Sale of Fixed Assets 4.1 4.5 0.0 0.0 0.0 Non Current Lease Liabilities Net Capex -39.0 -47.2 -103.8 -106.5 -62.4 Non Current Provisions Net Acquisitions 0.0 0.0 0.0 0.0 0.0 Pension Fund Liabilities Other Investing Items -2.1 -0.1 0.0 0.0 0.0 Deferred Income Tax Liability Investing Cash Flow -41.1 -47.3 -103.8 -106.5 -62.4 Other Non Current Liabilities Equity Issued 111.0 0.0 0.0 0.0 0.0 Non Current Liabilities Dividends Paid -45.6 -114.2 -127.0 -127.0 -142.8 Total Liabilities Inc/(Dec) in Borrowings -210.0 -50.5 26.1 18.6 -23.7 Total Ordinary Equity Other Financing Items - Outside Equity Interests Financing Cash Flow -144.6 -164.7 -100.9 -108.4 -166.5 Other Equity Net Cash Flow 2.4 -23.5 0.0 0.0 0.0 Total Equity Net Debt / (Net Debt + Equity) Per Share Data A$ FY09 FY10 FY11E FY12E FY13E Valuation Metrics Reported EPS 0.204 0.239 0.240 0.264 0.303 Reported P/E Normalised EPS 0.204 0.239 0.240 0.264 0.303 Normalised P/E DPS 0.135 0.215 0.200 0.200 0.225 Net Yield NTA 1.20 1.18 1.22 1.28 1.36 Price to Book EV/EBITDA Source: Company reports and J.P. Morgan estimates. FY09 FY10 FY11E FY12E 25.5 2.8 2.8 2.8 162.8 153.3 160.3 177.0 107.8 117.8 118.0 124.6 12.7 0.2 0.2 0.2 308.8 274.1 281.3 304.6 30.4 30.4 30.4 30.4 72.5 87.7 87.7 87.7 774.3 760.6 807.7 854.8 169.0 170.3 170.3 170.3 0.0 8.8 8.8 8.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1,046.2 1,057.8 1,104.9 1,152.0 1,355.0 1,331.9 1,386.2 1,456.5 106.1 105.4 108.3 119.7 0.4 1.0 1.0 1.0 24.4 21.6 21.6 21.6 31.0 31.0 31.0 31.0 161.9 159.0 161.9 173.3 200.5 150.2 176.3 194.9 29.9 32.6 32.6 32.6 5.8 4.2 4.2 4.2 59.8 51.5 51.5 51.5 0.1 0.1 0.1 0.1 296.1 238.6 264.7 283.3 458.0 397.6 426.5 456.5 893.9 931.3 956.7 997.0 3.1 3.0 3.0 3.0 897.0 934.3 959.7 1,000.0 16.4% 13.7% 15.4% 16.2% FY09 FY10 FY11E FY12E 14.0 12.0 11.9 10.9 14.0 12.0 11.9 10.9 4.7% 7.5% 7.0% 7.0% 1.9 1.9 1.9 1.8 8.2 7.3 7.1 6.6 FY13E 2.8 204.5 141.3 0.2 348.7 30.4 87.7 856.3 170.3 8.8 0.0 0.0 1,153.5 1,502.2 139.7 1.0 21.6 31.0 193.3 171.2 32.6 4.2 51.5 0.1 259.6 452.8 1,046.4 3.0 1,049.4 13.9% FY13E 9.4 9.4 7.9% 1.7 5.9
35
11
Boral Limited: Summary of Financials

A$ in millions, year end Jun Income Statement Total Revenue Revenue Growth Y/Y EBITDA Depreciation & Amortisation EBIT Net Interest Pre-Tax Profit Tax Minority Interests Preference Dividends NPAT before Abnormals NPAT after Abnormals Normalised NPAT # Shares Outstanding Cash Flow Statement EBIT Depreciation & Amortisation Net Interest (Paid)/Recd Tax (Paid) Inc/(Dec) in Provisions (Inc)/Dec in Working Capital Other Operating Items Operating Cash Flow Gross Capex Sale of Fixed Assets Net Capex Net Acquisitions Other Investing Items Investing Cash Flow Equity Issued Dividends Paid Inc/(Dec) in Borrowings Other Financing Items Financing Cash Flow Net Cash Flow Per Share Data A$ Reported EPS Normalised EPS DPS NTA FY10 FY11 4,599.3 4,710.5 (5.7%) 2.4% 504.5 522.2 -252.6 -245.0 251.9 277.2 -97.0 -63.7 154.9 213.5 -22.1 -40.4 -1.2 2.3 131.6 175.4 -90.5 167.7 131.6 175.4 599.0 729.9 FY10 251.9 252.6 -101.5 -11.7 20.8 109.3 -62.3 459.1 -179.9 44.8 -135.1 0.0 -1.6 -136.7 0.7 -42.4 -224.1 -0.1 -265.9 56.5 FY10 -0.152 0.221 0.135 3.90 FY11 277.2 245.0 -43.6 -21.5 -26.9 13.9 -93.4 350.7 -345.8 73.5 -272.3 -112.6 2.4 -381.7 482.4 -101.0 9.7 44.1 435.2 404.2 FY11 0.233 0.244 0.145 3.95 FY12E FY13E FY14E Balance Sheet 5,171.6 5,858.4 6,338.4 Cash & Bills 9.8% 13.3% 8.2% Debtors 610.3 735.1 865.6 Investments -277.7 -308.5 -316.4 Inventories 332.6 426.6 549.2 Other Current Assets -93.9 -102.3 -96.3 Current Assets 238.7 324.3 452.9 Receivables -52.5 -77.8 -122.3 Investments 0.0 0.0 0.0 Inventories - PP&E 186.2 246.5 330.6 Goodwill 186.2 246.5 330.6 Other Intangibles 186.2 246.5 330.6 Pension Fund Assets 727.5 737.3 750.1 Future Income Tax Benefits Other Non Current Assets FY12E FY13E FY14E Non Current Assets 332.6 426.6 549.2 Total Assets 277.7 308.5 316.4 Creditors -93.9 -102.3 -96.3 Current Borrowings -52.5 -77.8 -122.3 Current Lease Liabilities 0.0 0.0 0.0 Current Provisions -81.7 -94.4 -86.8 Other Current Liabilities 0.0 -0.0 -0.0 Current Liabilities 382.2 460.6 560.2 Non Current Creditors -363.9 -367.3 -355.4 Non Current Borrowings 0.0 0.0 0.0 Non Current Lease Liabilities -363.9 -367.3 -355.4 Non Current Provisions -920.5 0.0 0.0 Pension Fund Liabilities 0.0 0.0 0.0 Deferred Income Tax Liability -1,284.4 -367.3 -355.4 Other Non Current Liabilities 0.0 0.0 0.0 Non Current Liabilities -112.8 -147.5 -198.8 Total Liabilities 984.7 20.4 -50.3 Total Ordinary Equity 30.3 33.8 44.2 Outside Equity Interests 902.2 -93.2 -204.8 Other Equity 0.0 0.0 0.0 Total Equity Net Debt / (Net Debt + Equity) FY12E FY13E FY14E Valuation Metrics 0.256 0.334 0.441 Reported P/E 0.256 0.334 0.441 Normalised P/E 0.155 0.200 0.265 Net Yield 4.11 4.23 4.39 Price to Book EV/EBITDA FY10 157.0 783.7 548.5 122.8 1,612.0 19.2 294.1 85.3 2,785.1 275.0 2.6 43.3 92.8 3,597.4 5,209.4 640.9 8.9 246.0 108.8 1,004.6 22.1 1,330.7 107.0 118.9 1,578.7 2,583.3 2,623.5 2.6 2,626.1 31.1% FY10 NM 15.6 3.9% 0.8 7.4 FY11 561.2 784.1 596.1 85.6 2,027.0 10.3 240.2 93.5 2,894.9 243.7 12.2 88.2 58.0 3,641.0 5,668.0 702.8 163.4 218.6 123.8 1,208.6 132.2 903.2 106.5 161.1 1,303.0 2,511.6 3,108.8 47.6 3,156.4 13.8% FY11 14.8 14.1 4.2% 0.8 5.9 FY12E 561.2 839.7 631.3 85.6 2,117.8 10.3 240.2 93.5 3,901.6 243.7 12.2 88.2 58.0 4,647.7 6,765.5 711.9 163.4 218.6 123.8 1,217.7 132.2 1,887.9 106.5 161.1 2,287.7 3,505.4 3,212.5 47.6 3,260.1 31.4% FY12E 13.5 13.5 4.5% 0.8 6.7 FY13E 561.2 917.8 722.5 85.6 2,287.1 10.3 240.2 93.5 3,960.5 243.7 12.2 88.2 58.0 4,706.6 6,993.7 786.7 163.4 218.6 123.8 1,292.5 132.2 1,908.3 106.5 161.1 2,308.1 3,600.6 3,345.4 47.6 3,393.0 30.8% FY13E 10.3 10.3 5.8% 0.7 5.6 FY14E 561.2 996.6 777.7 85.6 2,421.1 10.3 240.2 93.5 3,999.5 243.7 12.2 88.2 58.0 4,745.6 7,166.7 834.0 163.4 218.6 123.8 1,339.8 132.2 1,858.0 106.5 161.1 2,257.8 3,597.6 3,521.5 47.6 3,569.1 29.0% FY14E 7.8 7.8 7.7% 0.7 4.7
12
36
CSR Limited: Summary of Financials

A$ in millions, year end Mar Income Statement Total Revenue Revenue Growth Y/Y EBITDA Depreciation & Amortisation EBIT Net Interest Pre-Tax Profit Tax Minority Interests Preference Dividends NPAT before Abnormals NPAT after Abnormals Normalised NPAT # Shares Outstanding FY11 FY12E FY13E FY14E Balance Sheet 1,933.5 1,817.0 1,830.0 1,913.3 Cash & Bills (1.4%) (6.0%) 0.7% 4.6% Debtors 308.0 279.9 289.1 312.7 Investments -96.0 -94.2 -94.0 -92.8 Inventories 212.0 185.7 195.1 219.9 Other Current Assets -57.0 -22.3 -18.8 -14.4 Current Assets 155.0 163.4 176.3 205.5 Receivables -41.8 -45.8 -49.4 -57.5 Investments -23.0 -21.3 -20.3 -20.9 Inventories - PP&E 90.2 96.4 106.6 127.0 Goodwill 503.4 89.2 106.6 127.0 Other Intangibles 90.2 96.4 106.6 127.0 Pension Fund Assets 506.0 509.6 511.2 513.4 Future Income Tax Benefits Other Non Current Assets Cash Flow Statement FY10 FY11 FY12E FY13E FY14E Non Current Assets EBIT 218.0 212.0 185.7 195.1 219.9 Total Assets Depreciation & Amortisation 93.4 96.0 94.2 94.0 92.8 Creditors Net Interest (Paid)/Recd -57.6 -28.1 -22.3 -18.8 -14.4 Current Borrowings Tax (Paid) -39.2 -64.6 -45.8 -49.4 -57.5 Current Lease Liabilities Inc/(Dec) in Provisions 0.0 0.0 0.0 Current Provisions (Inc)/Dec in Working Capital 0.0 0.0 -30.1 6.2 11.7 Other Current Liabilities Other Operating Items 104.6 -71.4 0.0 0.0 0.0 Current Liabilities Operating Cash Flow 319.2 143.9 181.7 227.2 252.4 Non Current Creditors Gross Capex -239.7 -143.1 -114.8 -70.6 -84.6 Non Current Borrowings Sale of Fixed Assets 45.2 48.8 0.0 0.0 0.0 Non Current Lease Liabilities Net Capex -194.5 -94.3 -114.8 -70.6 -84.6 Non Current Provisions Net Acquisitions -10.9 1,811.2 0.0 0.0 0.0 Pension Fund Liabilities Other Investing Items -2.0 2.3 0.0 0.0 0.0 Deferred Income Tax Liability Investing Cash Flow -207.4 1,719.2 -114.8 -70.6 -84.6 Other Non Current Liabilities Equity Issued 363.7 2.6 12.6 3.9 5.6 Non Current Liabilities Dividends Paid -65.7 -307.2 -52.3 -74.0 -79.4 Total Liabilities Inc/(Dec) in Borrowings -383.7 -794.5 0.0 0.0 0.0 Total Ordinary Equity Other Financing Items 3.5 -665.6 0.0 0.0 0.0 Outside Equity Interests Financing Cash Flow -82.2 -1,764.7 -39.7 -70.1 -73.9 Other Equity Net Cash Flow 29.6 98.4 27.2 86.5 93.9 Total Equity Net Debt / (Net Debt + Equity) Per Share Data A$ FY10 FY11 FY12E FY13E FY14E Valuation Metrics Reported EPS -0.082 0.996 0.176 0.209 0.248 Reported P/E Normalised EPS 0.175 0.178 0.190 0.209 0.248 Normalised P/E DPS 0.085 0.417 0.135 0.145 0.175 Net Yield NTA 1.13 2.44 2.58 2.68 2.81 Price to Book EV/EBITDA Source: Company reports and J.P. Morgan estimates. FY10 1,960.5 (44.8%) 311.4 -93.4 218.0 -94.4 123.6 -21.2 -22.4 80.0 -111.7 80.0 1,514.9 FY10 43.9 491.9 455.9 157.8 1,149.5 29.1 33.4 32.1 2,246.4 69.8 36.3 164.8 113.2 2,725.1 3,874.6 408.0 25.6 229.3 74.8 737.7 0.6 785.2 471.2 61.7 1,318.7 2,056.4 1,682.6 135.6 1,818.2 29.7% FY10 NM 14.1 3.4% 1.9 6.5 FY11 143.6 302.4 281.9 34.4 762.3 27.0 14.5 17.6 1,134.5 13.8 32.1 194.7 19.5 1,453.7 2,216.0 201.6 3.1 199.1 26.8 430.6 2.5 1.4 462.0 38.2 504.1 934.7 1,233.7 47.6 0.0 1,281.3 -12.2% FY11 2.5 13.8 16.9% 1.0 3.6 FY12E 170.8 308.6 293.7 34.4 807.6 27.0 14.5 17.6 1,155.1 13.8 32.1 194.7 19.5 1,474.3 2,281.9 189.5 3.1 199.1 26.8 418.5 2.5 1.4 462.0 38.2 504.1 922.6 1,283.2 68.9 7.2 1,359.3 -13.9% FY12E 14.1 13.0 5.5% 0.9 3.9 FY13E 257.3 305.8 290.8 34.4 888.3 27.0 14.5 17.6 1,131.7 13.8 32.1 194.7 19.5 1,450.9 2,339.2 190.0 3.1 199.1 26.8 419.0 2.5 1.4 462.0 38.2 504.1 923.1 1,319.7 89.2 7.2 1,416.2 -21.7% FY13E 11.8 11.8 5.9% 0.9 3.4 FY14E 351.2 304.0 288.3 34.4 977.9 27.0 14.5 17.6 1,123.6 13.8 32.1 194.7 19.5 1,442.8 2,420.7 197.3 3.1 199.1 26.8 426.3 2.5 1.4 462.0 38.2 504.1 930.4 1,372.9 110.1 7.2 1,490.2 -30.3% FY14E 10.0 10.0 7.1% 0.8 2.9
37
13
James Hardie Industries SE: Summary of Financials

US$ in millions, year end Mar Income Statement Total Revenue Revenue Growth Y/Y EBITDA Depreciation & Amortisation EBIT Net Interest Pre-Tax Profit Tax Minority Interests Preference Dividends NPAT before Abnormals NPAT after Abnormals Normalised NPAT # Shares Outstanding FY10 FY11 FY12E FY13E FY14E Balance Sheet 1,124.6 1,167.0 1,182.1 1,232.6 1,352.7 Cash & Bills (6.5%) 3.8% 1.3% 4.3% 9.8% Debtors 270.4 246.9 246.1 268.2 307.7 Investments -61.7 -62.9 -60.9 -59.6 -58.4 Inventories 208.7 184.0 185.2 208.6 249.3 Other Current Assets -7.7 -11.3 -5.2 0.6 0.6 Current Assets 201.0 172.7 180.0 209.2 250.0 Receivables -68.0 -56.0 -48.6 -56.5 -68.7 Investments 0.0 0.0 0.0 0.0 0.0 Inventories - PP&E 133.0 116.7 131.4 152.7 181.2 Goodwill -84.9 -347.0 131.4 152.7 181.2 Other Intangibles 133.0 116.7 131.4 152.7 181.2 Pension Fund Assets 433.1 435.6 435.6 415.8 415.8 Future Income Tax Benefits Other Non Current Assets Cash Flow Statement FY10 FY11 FY12E FY13E FY14E Non Current Assets EBIT 208.7 184.0 185.2 208.6 249.3 Total Assets Depreciation & Amortisation 61.7 62.9 60.9 59.6 58.4 Creditors Net Interest (Paid)/Recd -7.7 -11.3 -5.2 0.6 0.6 Current Borrowings Tax (Paid) - Current Lease Liabilities Inc/(Dec) in Provisions 6.6 0.1 0.0 0.0 0.0 Current Provisions (Inc)/Dec in Working Capital -52.0 0.3 -7.3 -18.1 13.5 Other Current Liabilities Other Operating Items -34.2 -88.8 -90.9 -56.5 -68.7 Current Liabilities Operating Cash Flow 183.1 147.2 142.8 194.2 253.2 Non Current Creditors Gross Capex -50.5 -50.3 -47.3 -43.1 -47.3 Non Current Borrowings Sale of Fixed Assets 0.0 0.7 0.0 0.0 0.0 Non Current Lease Liabilities Net Capex -50.5 -49.6 -47.3 -43.1 -47.3 Non Current Provisions Net Acquisitions - Pension Fund Liabilities Other Investing Items 0.0 0.0 0.0 0.0 0.0 Deferred Income Tax Liability Investing Cash Flow -50.5 -49.6 -47.3 -43.1 -47.3 Other Non Current Liabilities Equity Issued 10.1 4.9 0.0 0.0 0.0 Non Current Liabilities Dividends Paid 0.0 0.0 -28.3 -31.2 -35.3 Total Liabilities Inc/(Dec) in Borrowings -170.0 -95.0 58.1 -117.1 0.0 Ordinary Shareholders Funds Other Financing Items 4.1 -8.1 -125.2 0.0 0.0 Outside Equity Interests Financing Cash Flow -155.8 -98.2 -95.5 -148.2 -35.3 Other Equity Net Cash Flow -23.2 -0.6 0.0 2.8 170.5 Total Equity Per Share Data $ FY10 FY11 FY12E FY13E FY14E Valuation Metrics Reported EPS -0.196 -0.797 0.302 0.367 0.436 Reported P/E Normalised EPS 0.307 0.268 0.316 0.367 0.436 Normalised P/E DPS 0.000 0.000 0.065 0.075 0.085 Net Yield NTA -0.27 -1.04 -1.15 -0.85 -0.50 Price to Book EV/EBITDA Source: Company reports and J.P. Morgan estimates. FY10 19.2 155.0 149.1 141.2 464.5 710.6 3.2 1,000.5 1,714.3 2,178.8 100.9 95.0 48.8 169.4 414.1 59.0 18.2 113.5 1,691.9 1,882.6 2,296.7 261 59.2 -117.9 FY10 NM 19.7 0.0% -22.2 10.3 FY11 18.6 138.1 161.5 139.9 458.1 707.7 27.3 767.5 1,502.5 1,960.6 106.4 0.0 47.0 169.1 322.5 59.0 20.1 108.1 1,905.4 2,092.6 2,415.1 275 55.2 -454.5 FY11 NM 22.6 0.0% -5.8 10.9 FY12E 18.6 161.9 145.7 139.9 466.1 694.0 27.3 767.5 1,488.8 1,954.9 97.4 0.0 47.0 136.5 280.9 117.1 20.1 108.1 1,905.4 2,150.7 2,431.6 150 55.2 -476.7 FY12E 20.1 19.1 1.1% -5.5 11.2 FY13E 21.4 168.8 152.0 139.9 482.1 677.5 27.3 767.5 1,472.3 1,954.4 92.5 0.0 47.0 136.5 276.0 0.0 20.1 108.1 1,905.4 2,033.6 2,309.6 150 55.2 -355.2 FY13E 16.5 16.5 1.3% -7.1 9.8 FY14E 191.9 166.7 148.2 139.9 646.8 666.5 27.3 767.5 1,461.3 2,108.0 100.2 0.0 47.0 136.5 283.7 0.0 20.1 108.1 1,905.4 2,033.6 2,317.3 150 55.2 -209.3 FY14E 13.9 13.9 1.5% -12.0 8.0
14
38
JPM Q-Profile
Adelaide Brighton Ltd. (AUSTRALIA / Materials)
As Of: 13-Oct-2011 Quant_Strategy@jpmorgan.com
Local Share Price

4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07
Current:
2.83
12 Mth Forward EPS

0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00
Current:
0.25
Sep/08
Sep/09
Sep/10
Sep/11
-0.05 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/10 Sep/10 Sep/10 Sep/10 Sep/11
Earnings Yield (& local bond Yield)

25% 20% 15% 10% 5% 0% Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07
12Mth fwd EY Australia BY Proxy
Current:
9%
Implied Value Of Growth*

0.80 0.60 0.40 0.20 0.00 -0.20 -0.40 -0.60 -0.80
Current:
6.04%
Sep/08
Sep/09
Sep/10
Sep/11
-1.00 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/11
PE (1Yr Forward)
20.0x 18.0x 16.0x 14.0x 12.0x 10.0x 8.0x 6.0x 4.0x 2.0x 0.0x Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07
Current:
11.3x
Price/Book Value
4.0x 3.5x 3.0x 2.5x 2.0x 1.5x 1.0x 0.5x 0.0x
PBV hist PBV Forward
Current:
2.0x
Sep/08
Sep/09
Sep/10
Sep/11
-0.5x Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/11
ROE (Trailing)
20.00 15.00 10.00 5.00 0.00 -5.00 -10.00 -15.00 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07
Current:
15.76
Dividend Yield (Trailing)

10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07
Current:
6.25
Sep/08
Sep/09
Sep/08
Sep/09
Sep/10
Summary
Adelaide Brighton Ltd. AUSTRALIA Materials 12mth Forward PE P/BV (Trailing) Dividend Yield (Trailing) ROE (Trailing) Implied Value of Growth 1796.11 6.770337 SEDOL 6006886 Construction Materials Latest Min 5.09 11.25x 0.42 1.95x 0.00 6.25 -12.44 15.76 -0.82 6.0% As Of: Local Price: EPS: % to Max % to Med 58% 8% 75% -26% 43% -26% 17% -5% 772% 266% 13-Oct-11 2.83 0.25 % to Avg 6% -22% -28% -45% 162%
Max 17.79 3.41 8.96 18.39 0.53
Median 12.20 1.44 4.64 14.97 0.22
Sep/11
Average 11.92 1.52 4.48 8.71 0.16
2 S.D.+ 17.51 3.05 8.21 30.29 0.69
2 S.D. 6.33 -0.01 0.75 -12.87 -0.38
% to Min -55% -79% -100% -179% -1462%
Source: Bloomberg, Reuters Global Fundamentals, IBES CONSENSUS, J.P. Morgan Calcs
* Implied Value Of Growth = (1 - EY/Cost of equity) where cost of equity =Bond Yield + 5.0% (ERP)
39
Sep/11
15
JPM Q-Profile
Boral Ltd. (AUSTRALIA / Materials)
Local Share Price

Current:
3.63
12 Mth Forward EPS

0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10
Current:
0.29
Sep/08
Sep/09
Sep/10
Sep/11
0.00 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/10 Sep/10 Sep/10 Sep/10 Sep/11

14% 12% 10% 8% 6% 4% 2% 0% Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07
Current:
8%

0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 -0.10 -0.20 -0.30 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07
Current:
15.14%
Sep/08
Sep/09
Sep/10
Sep/11
Sep/08
Sep/09
PE (1Yr Forward)
30.0x 25.0x 20.0x
Current:
12.5x
Price/Book Value
2.5x 2.0x 1.5x
Current:
0.9x
15.0x 10.0x 5.0x 0.0x Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/10 Sep/11 1.0x 0.5x 0.0x Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/11
ROE (Trailing)
18.00 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 -2.00 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07
Current:
5.78

Current:
4.14
Sep/08
Sep/09
Sep/08
Sep/09
Sep/10
Summary
Boral Ltd. AUSTRALIA Materials 12mth Forward PE P/BV (Trailing) Dividend Yield (Trailing) ROE (Trailing) Implied Value of Growth 2689.25 17.90772 SEDOL 6218670 Construction Materials Latest Min 7.90 12.46x 0.65 0.85x 2.13 4.14 -0.70 5.78 -0.20 15.1% As Of: Local Price: EPS: % to Max % to Med 101% -4% 174% 55% 109% 10% 184% 46% 312% 32% 13-Oct-11 3.63 0.29 % to Avg 3% 59% 15% 57% 47%
Max 24.98 2.34 8.67 16.45 0.62
Median 11.99 1.32 4.56 8.43 0.20
Sep/11
Average 12.89 1.36 4.78 9.09 0.22
2 S.D.+ 19.74 2.16 7.79 18.73 0.57
2 S.D. 6.04 0.56 1.77 -0.55 -0.12
% to Min -37% -24% -48% -112% -229%
16
40
Sep/11
Sep/11
JPM Q-Profile
CSR Ltd. (AUSTRALIA / Industrials)
Local Share Price

25.00 20.00 15.00 10.00
Current:
2.46
12 Mth Forward EPS

1.00 0.80 0.60 0.40 0.20
Current:
0.20
5.00 0.00 0.00 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/10 Sep/11 -0.20 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/10 Sep/10 Sep/10 Sep/10 Sep/11

16% 14% 12% 10% 8% 6% 4% 2% 0% Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07
Current:
8%

1.20 1.00 0.80 0.60 0.40 0.20 0.00 -0.20 -0.40 -0.60 -0.80 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07
Current:
13.50%
Sep/08
Sep/09
Sep/10
Sep/11
Sep/08
Sep/09
PE (1Yr Forward)
80.0x 70.0x 60.0x 50.0x 40.0x 30.0x 20.0x 10.0x 0.0x -10.0x -20.0x Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07
Current:
12.2x
Price/Book Value
8.0x 7.0x 6.0x 5.0x 4.0x 3.0x 2.0x 1.0x
Current:
1.0x
Sep/08
Sep/09
Sep/10
Sep/11
0.0x Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/11
ROE (Trailing)
80.00 60.00 40.00 20.00 0.00 -20.00 -40.00 -60.00 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07
Current:
-5.35

30.0 25.0 20.0 15.0 10.0 5.0 0.0 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07
Current:
6.14
Sep/08
Sep/09
Sep/08
Sep/09
Sep/10
Summary
CSR Ltd. AUSTRALIA Industrials 12mth Forward PE P/BV (Trailing) Dividend Yield (Trailing) ROE (Trailing) Implied Value of Growth 1274.74 9.760425 SEDOL 6238645 Industrial Conglomerates Latest Min 6.97 12.22x 0.67 1.01x 2.97 6.14 -43.87 -5.35 -0.58 13.5% As Of: Local Price: EPS: % to Max % to Med 451% 12% 309% 50% 365% 5% 1399% 347% 547% 125% 13-Oct-11 2.46 0.20 % to Avg 118% 67% 34% 304% 226%
Max 67.41 4.12 28.53 69.50 0.87
Median 13.71 1.51 6.45 13.23 0.30
Sep/11
Average 26.61 1.68 8.23 10.92 0.44
2 S.D.+ 62.31 2.89 19.51 48.53 1.10
2 S.D. -9.09 0.47 -3.04 -26.68 -0.22
% to Min -43% -33% -52% -720% -528%
41
Sep/11
Sep/11
17
42
23

21 October 2011
Murchison Metals Ltd

MMX's value is likely to be in its intellectual property
Underweight
MMX.AX, MMX AU Price: A$0.26

Previous: A$0.57
MMX provided an update today in which they indicated that discussions with stakeholders are ongoing with respect to a restructure of the ownership of OPR. We believe the value of MMX is in the intellectual property that has been developed since OPR was appointed as the preferred proponent to build the infrastructure. We have changed our valuation methodology to 50% of the MMXs share of the IPs book value but maintain an Underweight rating. MMXs value is in its intellectual property: MMX noted that the progress made by OPR to date cannot be easily or quickly replicated and that any commercial outcome that would enable the project to be developed in the shortest possible timeframe would naturally take advantage of this pre-existing body of work and approvals. We believe the most likely outcome is for a third party to acquire MMXs IP: Murchison is currently actively engaging, or seeking to engage, with third parties in an effort to restructure the ownership of OPR. The company indicated that this contemplated involvement of other parties in the project assumed an inclusive, rather than exclusive, approach to project development. However, we believe it will more likely be an acquisitive action rather than co-operative. The Chinese appear to be the most likely candidates: WA Premier Colin Barnett has now become actively involved in the process, including initiatives to facilitate Chinese participation in the Oakajee project. We believe the greatest value of OPRs intellectual property is most likely to the Chinese with both Sinosteel Midwest (with the Weld Range Project) and Angang (with the Karara JV with Gindalbie) active in the area. Our price target is based on our valuation of MMXs IP: The two JV partners have spent ~A$400 million on design and development work for both OPR and Crosslands; however, it is unlikely in our view that they will see full value for that work. We therefore assign a value to MMX of 50c in the dollar or A$100m for its 50% share of the intellectual property at book value. Excluding the debt that is due to RCF of US$25m, we arrive with a June 2012 price target for Murchison of A$0.17 per share.
Murchison Metals Ltd (Reuters: MMX.AX, Bloomberg: MMX AU) Year-end Jun (A$) FY10A FY11A FY12E Total Revenue (A$ mn) 0 0 0 EBITDA (A$ mn) -25.5 -18.3 10.0 Net profit after tax (A$ mn) -21.60 -16.52 10.34 EPS (A$) -0.050 -0.038 0.024 P/E (x) NM NM 10.8 Cash flow per share (A$) -0.020 -0.029 -0.020 Dividend (A$) 0.000 0.000 0.000 Net Yield (%) 0.0% 0.0% 0.0% Normalised* EPS (A$) -0.050 -0.038 0.024 Normalised* EPS chg (%) -2797.0% 23.6% 162.4% Normalised* P/E (x) NM NM 10.8
Australian Resources Mark Busuttil

AC
(61-2) 9220-1553 mark.busuttil@jpmorgan.com
Fraser Jamieson
(61-2) 9220-1586 fraser.jamieson@jpmorgan.com
Joseph Kim
(61-2) 9220-7882 joseph.x.kim@jpmorgan.com
Luke Nelson
(61-2) 9220-1629 luke.nelson@jpmorgan.com
Andrew Muir
(61-2) 9220 1579 andrew.x.muir@jpmorgan.com J.P. Morgan Securities Australia Limited
Price Performance
1.8 1.4 A$ 1.0 0.6 0.2
MMX.AX share price (A$) ASX100 (rebased)
Abs Rel
YTD -79.2% -67.0%
1m -50.5% -53.3%
3m -62.2% -53.4%
12m -84.1% -73.9%
FY13E 0 0.6 1.16 0.003 98.1 0.002 0.000 0.0% 0.003 -88.8% 98.1
FY14E 0 0.0 1.18 0.003 94.4 0.003 0.000 0.0% 0.003 2.1% 94.4
Company Data 52-week range (A$) Market capitalisation (A$ bn) Market capitalisation ($ bn) Fiscal Year End Price (A$) Date Of Price Shares outstanding (mn) ASX100 ASX200-Ind NTA/Sh^ (A$) Net Debt^ (A$ bn)
1.76 - 0.24 0.11 0.11 Jun 0.26 21 Oct 11 437.4 3,378.1 5,637.8 0.01 0.02
43
Mark Busuttil (61-2) 9220-1553 mark.busuttil@jpmorgan.com
Murchison provides an update on OPR process

Murchison issued a short release today providing an update to the market on the process for the development of the Oakajee Port & Rail. As we discussed in our note of 4 July 2011, three months ago Murchison initiated a strategic review because the company was unable to sign foundation customers for the infrastructure and the Residual Payment from Mitsubishi would not be sufficient to cover its anticipated equity required for project development. The release today indicated that as part of its ongoing strategic review, Murchison is currently evaluating a range of options to advance the development of the Oakajee infrastructure project and Jack Hills Expansion Project. Murchison believes that restructuring the ownership of OPR represents the best means of achieving a commercial outcome that meets the needs of all parties and would enable the projects to proceed. In our opinion, there appear to be a number of options being considered: Foundation customers eventually sign with OPR: In this case, OPR finalises agreements with foundation customers and proceeds with the development of the project, with JV partners Murchison and Mitsubishi funding the capital requirements for OPR and Crosslands. Given what has already transpired over the last few months, we would consider this option to be very unlikely now. In June 2011, key foundation customer Sinosteel Midwest announced that it had deferred development of its Weld Range project. Sinosteel Midwest confirmed to OPR that it was willing to engage in ongoing discussions but was seeking a revised tariff structure/model and further certainty on scheduling, including the date by which the port and rail infrastructure will be delivered. OPR is acquired by a third party who develops the project: Murchison noted in todays release that the progress made by OPR to date cannot be easily or quickly replicated and that any commercial outcome that would enable the project to be developed so as to provide the foundation customers with a route to market in the shortest possible timeframe would naturally take advantage of this pre-existing body of work and approvals. The implication is that there is a value to the work done by OPR in developing the project. We note that the joint venture spent up to A$400 million on the development of the intellectual property for both Oakajee and Crosslands over the last few years. Murchison noted that the company is actively engaging, or seeking to engage, with third parties in an effort to restructure the ownership of OPR. Murchison indicated that this contemplated involvement of other parties in the project assumed an inclusive, rather than exclusive, approach to project development. However, we believe it will more likely be an acquisitive action rather than cooperative. Murchison also noted in the release that WA Premier Colin Barnett had become actively involved in the process including initiatives to facilitate Chinese participation in the Oakajee project. We believe OPRs intellectual property is
2
We believe that that OPR signing foundation customers is very unlikely now
We believe there is a value to the intellectual property that OPR has acquired over the years which could lead to an potential acquisition
44
likely greatest to the Chinese with both Sinosteel Midwest (with the Weld Range Project) and Angang (with the Karara JV with Gindalbie) active in the area. OPR loses its rights to develop the project and is not actively involved any further: The sunset date for the implementation agreement is 31 December 2011. Given the inability for Murchison/Mitsubishi to fund the project, it appears highly unlikely that the agreement will be signed before the end of the year, in our view. This means that OPR will likely lose its rights to develop the project and the WA Government can pass those rights on to another party. Given the extent of work that OPR has done to date (and assuming OPR does not pass on its intellectual property), this process could put the project timeline back up to 2-3 years. The WA Government does have an option to acquire OPRs intellectual property for A$78 million but only if implementation agreements are not executed by 31 December 2011 due to a default or breach by OPR of its obligations. As noted by Murchison, failure to execute implementation agreements by the sunset date does not in itself result in a breach of the state development agreement. The development is abandoned: In March 2009, Premier Colin Barnett referred to Oakajee as the single most important project for Western Australias economic development over the next 50 years. While the economic feasibility of the iron ore projects in the region have been questioned following the events over the last 12 months, it seems highly unlikely that the WA Government will abandon its plans to develop Oakajee.
We believe Murchisons value is now solely in its intellectual property

We believe the most likely outcome is that Murchison is potentially acquired for the intellectual property that it has developed since OPR was appointed as the preferred proponent to build the port and rail infrastructure at Oakajee. While noting that the two JV partners have spent A$400 million on design and development work for OPR and Crosslands, it is unlikely in our view that they will see full value for that work. We therefore assign a value to MMX of 50c in the dollar or A$100m for its 50% share of the intellectual property at book value. Excluding the debt that is due to RCF of US$25m, we arrive with a valuation for Murchison of A$0.17 per share. Given the stock is trading for a premium to this valuation, we maintain our Underweight on the stock. We note that no value has been assigned to Crosslands and particularly MMXs share of the Jack Hills mine. The risks to our Underweight rating and PT are: 1) potential sale of either Jack Hills or OPR generating more than expected value; 2) changes to the scope of government funding for OPR; and 3) introduction of a strategic investor.
45
46
Asia Pacific Equity Research

21 October 2011
Overweight
Singapore Telecom
Downside hedged benefits from NBN, regional asset contributions to improve; upgrade to OW
We upgrade SingTel to Overweight with a Mar-13 price target of S$3.60 with a total return expectation of 20% (+14% capital appreciation based on our target FY13 P/E of 13x + 5% expected cash dividends during the next 12 months). Our price target is driven by two factors: 1) our EPS forecasts vs. street: we are 6% ahead for FY13; 2) the target FY13 earnings multiple currently at 11.9x and below the top of its normal trading range; we use 13.0x for our price target. The NBN should ultimately curtail competition and cement SingTel dominance: Many, including ourselves, have made much about the potential for Singapores National Broadband Network (NBN) project to increase competition and drive opportunities for infrastructure-lite competition. The facts, however, do not support this case. We believe the NBN will largely serve to cement SingTels dominance of the local market, potentially force Starhub into a Virgin Media (covered by JPM analyst Carl Murdock-Smith) type strategy, and lock M1 out of the mainstream market. Regional assets contributions to improve: We expect 12% growth in FY12 associate contributions for SingTel; driven by 20% growth at AIS and 15% at Bharti. The decline over FY11 was largely driven by appreciation of the Singapore dollar vs. local currencies. We expect 6% growth in Optuss EBIT contributions to SingTel in FY12. Potential for increased capital management: SingTel has the best balance sheet among Singapore telcos with a net debt/EBITDA (including associates) of 0.6x. Current dividend yield of 6% is more than covered by internal cash flows and we thus see potential for a special dividend as an upside risk. SingTel is trading at a 330bp spread to Singapore govt bonds vs. a historical high of 390bp. Key risks: Key downside risks include worse-than-expected pricing competition and lower-than-expected NBN market share.
Singapore Telecoms Ltd (Reuters: STEL.SI, Bloomberg: ST SP) S$ in mn, year-end Mar FY09A FY10A FY11A Revenue (S$ mn) 14,934 16,871 18,070 EBITDA (S$ mn) 4,432 4,846 5,116 EBITDA growth (%) -2.2% 9.3% 5.6% Recurring profit (S$ mn) 3,455 3,910 3,800 Recurring EPS (S$) 0.22 0.25 0.24 EPS growth (%) (6.2%) 13.2% (2.9%) DPS (S$) 0.12 0.14 0.16 EV/EBITDA (x) 12.8 11.5 10.8 P/E 14.6 12.9 13.2 Dividend Yield 4.0% 4.5% 5.2% FCF to mkt cap (%) 6.4% 6.8% 8.0%
Previous: Neutral STEL.SI, ST SP Price: S$3.16
Price Target: S$3.60

Previous: S$3.40
Singapore Wireline Services/Incumbents James R. Sullivan, CFA

AC
(65) 6882-2374 james.r.sullivan@jpmorgan.com J.P. Morgan Securities Singapore Private Limited
Vishesh Gupta
(65) 6882 2367 vishesh.x.gupta@jpmorgan.com J.P. Morgan Securities Singapore Private Limited
Laurent Horrut
(61-2) 9220-1593 laurent.j.horrut@jpmorgan.com J.P. Morgan Securities Australia Limited
Christopher Gee, CFA

(65) 6882-2345 christopher.ka.gee@jpmorgan.com J.P. Morgan Securities Singapore Private Limited
Price Performance
3.4 3.2 S$ 3.0 2.8
Aug-10 Nov-10 Feb-11 May-11 Aug-11
STEL.SI share price (S$) FTSTI (rebased)
Abs Rel
YTD -2.0% 10.5%
1m -6.5% 1.5%
3m -5.0% 4.7%
12m 1.7% 5.1%
FY12E 18,755 5,166 1.0% 3,942 0.25 3.7% 0.17 10.6 12.8 5.4% 6.7%
FY13E 18,287 5,053 -2.2% 4,494 0.28 14.0% 0.19 10.9 11.2 6.1% 6.2%
Company Data 52-wk range (S$) Mkt cap (S$ mn) Mkt cap ($ mn) Shares O/S (mn) Free float (%) 3-mth avg trading volume: Average 3m Daily Turnover ($ mn) FTSTI Exchange Rate Price (S$) Date Of Price
3.30 - 2.75 50,371 39,778 15,940 45.5% 30 71.92 2,720 1.27 3.16 20 Oct 11
47
James R. Sullivan, CFA (65) 6882-2374 james.r.sullivan@jpmorgan.com
Asia Pacific Equity Research 21 October 2011
Company Description SingTel provides Internet, IPTV, mobile and fixed line telephony services domestically and it also owns 100% of the Australian Telco Optus. Other major regional associate investments include Bharti (India), Telkomsel (Indonesia), Advanced (Thailand) and Globe (Philippines).
P&L sensitivity metrics (FY2012E)

Singapore revenues (S$ mn) Impact of each 1% Forex A$/S$ Impact of each 1% Bharti equitized PBT (S$ mn) Impact of each 5% Telkomsel equitized PBT (S$ mn) Impact of each 5%
EBITDA impact (%) 6,501 0.4% 0.78 0.6% 892 0.0% 886 0.0%
EPS impact (%) 0.4% 0.6% 0.9% 0.8%
Price target and valuation analysis
Our PT is based on the sum of 1) potential upside/ (downside) to consensus EPS vs. JPM EPS estimates, and 2) our estimated multiple expansion/(contraction) based on peak P/E multiple. Our peak P/E multiple is based on the stocks historical trading range and expected future business changes.
Revenue breakdown (FY12E)
Optus-mobile 42%
Sing-others 16%
Price target and valuation analysis

Current consensus P/E (a) Peak P/E (b)
FY12E 12.8 13.0 1.5% 1.7% 3.2%
FY13E 11.9 13.0 9.4% 6.4% 15.8% 3.6
Sing-data & internet 9% Sing-mobile 10%
Upside/ (Downside) to peak multiple (b/a-1=e)

Optusothers 25%
JPM vs. consensus EPS (d) Cumulative upside to current price (e+d) JPM Dec-12 price target (S$/sh)
Net income: J.P. Morgan vs consensus

S$ MM FY12E FY13E J. P. Morgan 3,985 4,494 Consensus 3,819 4,040
If our price target were achieved, SingTel would be trading at 2010E/11E P/E of 14.5x/12.8x and EV/EBITDA of 11.9x/12.3x and provide a 4.7%/5.3% yield. Less-than-expected NBN and pay TV market share in Singapore is a key downside risk to our price target. Further appreciation of the Singapore dollar is also a risk.
Source: Bloomberg, J.P. Morgan estimates.
48
Investment Summary
We upgrade SingTel to Overweight with a Mar-13 price target of S$3.60 with a total return expectation of 20% (+14% capital appreciation based on our target FY13 P/E of 13x + 5% expected cash dividends during the next 12 months). Our price target is driven by two factors: 1) our EPS forecasts vs. street: we are 6% ahead for FY13; 2) the target FY13 earnings multiple currently at 11.9x and below the top of its normal trading range; we use 13.0x for our price target. . We have rebuilt our Singapore models, incorporating NBN into our forecasts and have shifted our price target timeframe to Mar-13. The NBN should ultimately curtail competition and cement SingTel dominance: Many, including ourselves, have made much about the potential for Singapores National Broadband Network (NBN) project to increase competition and drive opportunities for infrastructure-lite competition. The facts, however, do not support this case. The NBN will largely serve to cement SingTels dominance of the local market, potentially force Starhub into a Virgin Media (covered by JPM analyst Carl Murdock-Smith) type strategy, and lock M1 out of the mainstream market. Please see our Singapore industry report published today in conjunction with this report for details. Regional assets contributions to improve: We expect 12% growth in FY12 associate contributions for SingTel; driven by 20% growth at AIS and 15% at Bharti. The decline over FY11 was largely driven by appreciation of the Singapore dollar vs. local currencies. We expect 6% growth in Optuss EBIT contributions to SingTel in FY12. Potential for increased capital management: SingTel has the best balance sheet among Singapore Telcos with a net debt/EBITDA (including associates) of 0.6x. Current dividend yield of 6% is more than covered by internal cash flows and we thus see potential for a special dividend as an upside risk. SingTel is trading at a 330bp spread to Singapore govt bonds vs. a historical high of 390bp. Key risks: Key downside risks include worse-than-expected pricing competition and lower-than-expected NBN market share.
Risks to our view

Pricing competition is worse than forecast: We do expect a degree of price compression which will reduce overall industry revenue growth rates moving forward, but are not forecasting an all out price war on a product by product basis. This is driven by the fact that a) bundles will increasingly drive this saturated, mature market, in our view, which theoretically limits product specific price discovery for consumers; b) Starhub and to a lesser degree M1 will face structurally lower NBN economics, which limits their ability to aggressively cut price without significantly impacting their own margins...not a guarantee that price competition will not get out of control, but clearly a limiting factor.
49
Forecast competitive dynamics are upended as Starhub pursues an alternative infrastructure approach: We suspect that a Virgin Media type strategy may in fact be the best long-term strategic option for the company, but as of yet see no signs that this will occur. Were this dynamic to change, we would expect a greater potential for a degree of price competition between Starhub and SingTel given StarHubs better economics. This could be somewhat restrained, however, by StarHubs desire to achieve a reasonable return on capex. A foreign operator takes control of M1 and introduces cross market competitive dynamics into the Singapore environment. We would not be shocked to see an operator such as Telstra (in order to have a counter balance to SingTel's Optus) or Axiata (already a 29.23% shareholder in M1, general offer is triggered at ) to eventually make a bid for the firm. This has the potential to introduce another layer of strategy into the Singapore market, which could be de-stabilizing. NIMS project creates unbundles content: The Infocomm Development Authority of Singapore (IDA), the Telecom industry regulator, has been actively pushing a program called the NextGen Interactive Multimedia Applications and Services program (NIMS), which provides for a common platform Set Top Box (STB). This could theoretically be used to completely unbundle content and reduce the role of SingTel and Starhub as Pay TV content aggregators. This program is at a very early stage of development, but is something we are watching closely. Worse-than-expected NBN market share: We expect SingTel to capture 60% of the total NBN market. We assume StarHub would account for 30% of the market while the remaining 10% would be M1. SingTels current fixed broadband market share is 42% while pay TV market share is 37% and less-than-expected share of NBN subs is thus a downside risk. Please see the table below for earnings sensitivity to NBN market share assumptions.
Table 1: Singapore Telcos: Earnings sensitivity to market share within NBN subscribers
SingTel NBN market share 5% FY16 Singapore EBITDA (S$ mn) 2,292 Upside to base case -3.3% FY16 group net (S$ mn) Upside to base case StarHub NBN market share 2015 net income (S$ mn) Upside to base case M1 NBN market share 2015 net income (S$ mn) Upside to base case
10% 15% 20% 2,300 2,307 2,314 -3.0% -2.7% -2.4% 5,700 5,705 5,711 -0.9% -0.8% -0.8% 10% 15% 20% 351 354 358 -4.0% -3.0% -2.0% Base case 10% 192 0.0% 15% 194 1.0% 20% 196 2.0%
25% 2,321 -2.1% 5,716 -0.7% 25% 361 -1.0% 25% 198 3.1%
30% 35% 2,328 2,336 -1.8% -1.5% 5,721 5,727 -0.6% -0.5% Base case 30% 365 0.0% 30% 200 4.1% 35% 369 1.0% 35% 202 5.1%
40% 45% 2,343 2,350 -1.2% -0.9% 5,732 5,738 -0.4% -0.3% 40% 372 2.0% 40% 204 6.1% 45% 376 3.0% 45% 206 7.1%
50% 55% 2,357 2,364 -0.6% -0.3% 5,743 5,748 -0.2% -0.1% 50% 380 4.0% 50% 208 8.2% 55% 383 4.9% 55% 210 9.2%
Base case 60% 2,371 0.0% 5,754 0.0% 60% 387 5.9% 60% 212 10.2%
65% 2,379 0.3% 5,759 0.1% 65% 390 6.9% 65% 214 11.2%
70% 2,386 0.6% 5,765 0.2% 70% 394 7.9% 70% 216 12.2%
5,694 -1.0% 5% 347 -4.9% 5% 190 -1.0%
50
Valuation and share price analysis

Price target calculation
Our investment philosophy has been simplified over the years. It is our belief that ultimately share prices are driven by earnings estimates, an assumption holding true for all of our coverage companies around the region. Our simple valuation methodology is that we believe only two things can mathematically move a share price: 1) changing earnings estimates; and 2) the multiple the market is willing to put on those earnings estimates. This structure allows us to focus our research on: 1) getting the numbers right; and 2) understanding what potential range of multiples the market might apply. A simple sum of the two leads to our price targets...i.e. if we have 10% upside to street EPS forecasts, and think there could be 15% multiple expansion, our total target return is 25%. This method allows us to capitalize on (hopefully) good fundamental research, but also allows us to understand market sentiment. If a multiple has expanded to previously unseen levels, either the business has changed or a lot of expectations have already been built into the share price. Our Dec-12 PT at S$3.6 is based on a sum of: 1) potential upside/(downside) to consensus EPS vs. JPM EPS estimates at +6%; and 2) our estimated multiple expansion/(contraction) at 9% based on peak P/E multiple. Our peak P/E multiple at 13.0x is based on the stocks historical trading range and expected future business changes.
Valuation
Our price target of S$3.6 implies a total return of +20% (14% capital appreciation and 5% dividend yield). Our share price target is driven by two aspects: 1) our EPS forecasts vs. the Street; we are 6% above for 2012 EPS; and 2) target earnings multiple; shares are at 11.9x, we use a 13.0x multiple for our PT.
Table 2: Singapore Telcos: Valuation summary
Company SingTel StarHub M1 Stock code ST SP STH SP M1 SP Rating Price (LC) OW 3.2 N 2.9 N 2.5 PT (LC) 3.6 2.7 2.5 % to EV/EBITDA (x) Target 2011E 2012E 14.3% 10.6 10.8 -5.9% 8.3 7.8 0.0% 8.1 8.0 P/E (x) 2011E 2012E 12.7 11.2 15.6 14.8 13.3 13.2 Dividend Yield (%) 2011E 2012E 5.3 6.1 7.0 7.0 6.0 6.0 FCF Yield (%) 2011E 2012E 5.4 4.8 7.9 9.1 9.4 9.3 Total Return 19.6% 1.0% 6.0%
Source: Bloomberg, and J.P. Morgan estimates. Priced on 20 Oct 2011
We run a best- and worst-case scenario valuation for our companies where we compare our peak and trough level valuation returns. SingTel looks most attractive on this metric with an equal distribution both sides while StarHub and M1 offer higher losses on the downside than gains on the upside.
Table 3: Singapore Telcos: Best- and worst-case analysis
Current price Current consensus P/E Peak P/E Trough P/E SingTel StarHub M1 3.2 2.9 2.5 11.9 15.3 12.6 13.0 14.0 13.0 10.0 10.0 10.0 JPM vs. consensus Best case price % upside Worst case price % upside Up/Down EPS 6.4% 3.6 15.8% 2.7 -15.9% 1.00 3.0% 2.7 -5.3% 1.9 -34.5% (0.15) -5.1% 2.5 -1.6% 1.9 -25.5% (0.06)
Source: Bloomberg and J.P. Morgan estimates. . Priced on 20 Oct 2011 5
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As per the J.P. Morgan vs. consensus table below, we see 6% upside to Street's 2012 EPS estimates for SingTel. EPS estimates have been revised down 5% YTD for SingTel, driven to a large extent by appreciation of the Singapore dollar. We expect the trend to reverse given business fundamentals have been strong across Singapore, Australia, India and Thailand.
Table 4: Singapore Telcos: JPM vs. Street estimates
SingTel Revenue EBITDA EBITDA margin-BP diff EPS StarHub Revenue EBITDA EBITDA margin-BP diff EPS M1 Revenue EBITDA EBITDA margin-BP diff EPS
Source: Bloomberg and J.P. Morgan estimates.
FY1E 0.8% NA NA 1.7% -1.0% -0.1% 0.3 3.3% -0.2% -1.1% (0.3) -0.1%
FY2E -3.5% NA NA 6.4% -3.0% 0.8% 1.2 3.0% -1.8% -4.9% (1.0) -5.6%
Figure 1: SingTel: Street one-year forward EPS trends
Source: Bloomberg.
SingTels P/E has expanded by 13% YTD given its increased dividend payout and improving regional asset performance.
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Figure 2: SingTel: Street one-year forward P/E trends
Source: Bloomberg.
SingTels dividend has been rising since 2009, closing the dividend yield gap to StarHub and M1.
Figure 3: SingTel: Street dividend yield estimates
Source: Bloomberg.
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Figure 4: SingTel: Street dividend yield spread to Singapore 10-year govt bonds
Source: Bloomberg.
We run full discounted cash flow analysis on all of our companies, but do not use this analysis to specifically set target prices. Our experience has been that the heavy retail participation in most Southeast Asian markets leaves P/E multiples, and the upside to street + upside to multiple approach described above a more effective way of forecasting future share price movements. We instead use DCF analysis as another gauge of market sentiment, by back calculating what discount rate is implied by the current share price. A high discount rate would be indicative of either a) a very risky business / market, or b) an excessively pessimistic sentiment applied by the market. SingTel's share price currently implies a lower discount rate relative to Starhub and M1. This appears fair given both SingTel's greater revenue diversification outside of Singapore and the fact that it is likely a share gainer due to the NBN, but also given its status as a large cap stock (S$50.2B vs. STH at S$4.9B, and M1 at S$2.2B) with a much larger index inclusion then STH or M1 (ST at 10.14% of STI vs. STH at 0.79% and M1 at 0%).
Table 5: Singapore Telcos: DCF summary
SingTel StarHub M1 Current price (LC) 3.15 2.87 2.50 2013 Terminal growth rate 4.0% 4.0% 4.0% 2012 Terminal value as % of EV 92.0% 87.6% 87.8% Implied discount rate at current price 7.9% 10.4% 10.1%
Source: Company reports and J.P. Morgan estimates. . Priced on 20 Oct 2011
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Singapore Optus Bharti Telkomsel AIS Globe Warid PBTL SingPost Total
1.5
2.5
SingTel starts bundled plans Wins pay TV license M1 broadband gives 5Gb free usage Bharti Dec07 net up 100% Analyst upgrades China slowdown concern Optus reports 10% decline in earnings
3.5
4.5
Table 6: SingTel: SOTP valuation
Source: Company reports, Bloomberg and J.P. Morgan estimates.
Figure 5: SingTel: Share price analysis with key events
Source: Company reports and J.P. Morgan estimates. . Priced on 20 Oct 2011
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EV 14,896 18,035 58,461 22,728 18,476 4,974 NA NA 2,060
Acquires 30% Warid stake Commercial pay TV launch
Net Debt 3,306 1,249 13,689 (748) 1,411 1,368 NA NA 106
Sells 49% of bharti aquanet Analyst upgrades Optus offers bundled plans Stocks fall on Subprime concerns Optus stops selling Telstra's fixed line product. M1 Cuts prices by 35% ahead of MNP Sells 41% ISAT stake to Qtel Buys 3% Globe stake MNP commences Lehman files bankruptcy Market fall Analyst downgrades Sells 10% of United Business Solutioins Sell Australia fixed line assets Actively involved in Bharti MTN merger talks Bharti MTN extend merger talks Buys 1.5% of Bharti Reduces iPhone price Governmet passes content sharing rule Protest on rising soccer fee in Singapore Lim Chuan: CEO intl. to retire Govt. seeks 3G spectrum bids 1Q11 net down 0.2% YoY Analyst downgrades Dec09 net neats street by 4.5%
Equity Value 11,590 16,786 44,772 23,476 17,066 3,605 3,183 577 1,954 Implied EV/EBITDA (x) 6.9 5.9 7.4 5.5 7.5 4.5 NA NA 8.9 Implied P/E (x) NA NA 15.9 12.0 13.7 11.0 NA NA 12.4 SingTel's Stake 100.0% 100.0% 32.3% 35.0% 21.3% 47.3% 30.0% 45.0% 25.9%
SingTel price
Attributable Equity 11,590 16,786 14,461 8,217 3,635 1,705 955 259 506 58,115 Equity/sh new (S$) 0.73 1.05 0.91 0.52 0.23 0.11 0.06 0.02 0.03 3.6 Contribution to NAV 20% 29% 25% 14% 6% 3% 2% 0% 1% 100%
SG- Malaysia romaing rate cut S$0.1/share special dividend Telstra NBN negotiations closing S&P downgrades US debt rating 1Q12 net down 3% QoQ
Comments
Jan-07 Jan-07 Feb-07 Mar-07 Apr-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Aug-07 Sep-07 Oct-07 Nov-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Jul-08 Aug-08 Sep-08 Oct-08 Oct-08 Nov-08 Dec-08 Jan-09 Jan-09 Feb-09 Mar-09 Apr-09 May-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Sep-09 Oct-09 Nov-09 Dec-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Aug-10 Sep-10 Oct-10 Nov-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Mar-11 Apr-11 May-11 Jun-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11
Implied JPM estimated EV/EBITDA JPM TP Rs460 XL Axiata JPM multiple JPM 2012 TP Bt140 JPM 2012 TP Php930 Purchase price Purchase price Market price-20 Oct 2011
1.5
2.5
3.5
4.5
SWOT analysis
Strengths
Strongest balance sheet amongst Singapore Telcos. Diversified business model. A high quality mobile network. Strategically well placed in the NBN business model.
Weaknesses
Risk of heavy competition on all business lines post opening up of NBN infrastructure. Excessive competition in India, Indonesia and Philippines.
Opportunities
Opportunity to gain market in share the pay TV and fixed broadband segment post BPL win and new content sharing law in Singapore. Growth assets in Indonesia, India, Philippines and Thailand. Growing pay TV base providing higher bundling opportunities.
Threats
Risk to SingTels monopoly share in corporate fixed line market due to NBN infrastructure. Threat from new entrants as NBN infrastructure expands and matures. Long-term threat to pay TV market share from the NIMS initiative.
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Regional Asset Discussions

Singapore
Table 7: SingTel: Singapore revenue build
FY FY FY FY FY FY FY FY FY FY FY FY FY FY 2008A 2009A 2010A 1Q11A 2Q11A 3Q11A 4Q11A 2011A 1Q12A 2012E 2013E 2014E 2015E 2016E Mobile Voice Blended MOU-JPM calc YoY Voice ARPM (S cents)-JPM calc YoY Voice revenue (S$ mn)-JPM calc YoY Voice ARPU (S$)-JPM calc YoY Data Data ARPU (S$)-JPM calc YoY Data revenue (S$ mn)-JPM calc Data as % of mobile revenue Total mobile communication revenue (S$ mn) YoY Blended ARPU-JPM calc (S$) YoY National telephone Ex. NBN Fixed line ARPU (S$)-JPM calc QoQ YoY Ex. NBN National telephone revenue (S$ mn) QoQ YoY NBN Fixed SingTel subs (000) YoY NBN ARPU (S$) YoY NBN Revenue (S$) YoY Total National telephone revenue (S$ mn) YoY
319 370 9.0% 15.8% 11.0 7.9 -21.3% -28.1% 929 8.2% 977 5.1%
351 -5.1% 8.2 3.9% 1,058 8.3% 28.9 -1.4% 0.0 15.1 7.4%
351 2.4% 8.3 -1.4% 272 5.4% 29.1 1.0% 0.0 17.1 26.0% 160 37.0% 432 13.8% 46.3 9.0% 18.9 -1.1% -4.1% 95 -0.7% -4.8% NM NM NM 95 -4.8%
362 3.7% 7.9 -2.6% 271 4.2% 28.8 1.1%
358 3.3% 8.1 -2.7% 279 2.3% 29.0 0.5%
351 0.9%
356 1.4%
343 346 345 343 -2.3% -2.6% -0.5% -0.5%
343 0.0%
343 0.0%
7.9 8.0 -2.4% -3.1% 273 2.2% 1,095 3.5%
8.0 7.9 7.7 7.7 7.6 7.5 -3.0% -1.3% -2.3% -0.7% -1.0% -1.0% 279 2.3% 1,127 2.9% 1,163 3.2% 1,189 2.3% 1,206 1.4% 1,221 1.2%
35.3 29.3 -14.2% -16.8% 0.0 14.9 7.0% 0.0 14.1 -5.5%
27.8 28.4 -1.6% -1.8%
27.6 27.3 26.6 26.2 26.0 25.7 -5.2% -3.8% -2.8% -1.2% -1.0% -1.0% 0.0 21.0 5.2% 0.0 21.3 1.1% 0.0 21.5 1.0% 0.0 21.7 1.0%
0.0 0.0 0.0 0.0 0.0 0.0 17.6 19.4 18.6 18.0 19.2 20.0 20.2% 24.4% 16.7% 19.1% 12.2% 11.1%
393 469 552 29.7% 32.4% 34.3% 1,322 15.0% 1,445 1,610 9.3% 11.4% 44.0 1.4% 19.4 0.0% -0.1% 393 0.0% -2.7% NM NM NM 393 -2.7%
166 186 182 694 194 825 921 964 998 1,030 38.0% 40.0% 40.0% 38.8% 41.0% 42.3% 44.2% 44.8% 45.3% 45.8% 437 465 10.9% 10.9% 46.4 7.6% 18.8 -0.5% -4.9% 95 -0.1% -4.5% NM NM NM 95 -4.5% 48.4 8.9% 18.7 -0.8% -5.3% 95 -0.4% -4.1% NM NM NM 95 -4.1% 455 1,789 9.0% 11.1% 46.4 5.0% 46.4 5.4% 472 9.3% 46.8 1.2% 1,952 9.1% 47.3 2.0% 2,084 6.8% 2,153 3.3% 2,204 2.4% 2,251 2.1%
50.2 43.4 -8.9% -13.4% 20.0 0.0% -5.3% 425 0.0% -6.6% NM NM NM 425 -6.6% 19.5 0.0% -2.8% 404 0.0% -4.9% NM NM NM 404 -4.9%
47.6 47.5 47.5 47.4 0.6% -0.2% -0.1% -0.1%
17.8 18.6 -4.5% 0.0% -6.8% -4.5% 90 375 -4.3% 0.0% -5.5% -4.6% 10 NM NM NM 10 NM NM NM
17.8 17.3 16.3 15.9 15.0 14.2 -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% -5.9% -6.9% -5.6% -2.8% -5.2% -5.5% 90 351 320 293 247 204 -0.4% 0.0% 0.0% 0.0% 0.0% 0.0% -5.3% -6.4% -8.8% -8.5% -15.7% -17.6% 22 73 202 319 474 631 NM 627.0% 177.4% 58.0% 48.9% 32.9% NM NM NM NM NM NM NM NM NM NM NM NM
90 375 -5.5% -4.6%
90 351 320 293 247 204 -5.3% -6.4% -8.8% -8.5% -15.7% -17.6%
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Table 8: SingTel: Singapore revenue build continued

FY FY FY FY FY FY FY FY FY FY FY FY FY FY 2008A 2009A 2010A 1Q11A 2Q11A 3Q11A 4Q11A 2011A 1Q12A 2012E 2013E 2014E 2015E 2016E Data and Internet (includes fixed BB) Fixed broadband EX. NBN Fixed BB ARPU (S$)-JPM calc YoY Ex. NBN Fixed broadband revenue (S$ mn) YoY NBN broadband ARPU (S$) YoY NBN broadband Revenue (S$) YoY Total Fixed broadband revenue (S$ mn) YoY Others data & Internet Other data & internet revenue (S$ mn) YoY Total data and Internet revenue (S$ mn) YoY International telephone IDD outgoing mins (mil) YoY IDD revenue per minute (S cents) YoY Elasticity International telephone revenue (S$ mn) YoY IT and engineering services NBN revenue (Fibre rollout) YoY Revenue from NCS group YoY Total IT and engineering revenue (S$ mn) YoY Equipment Sale of equipment revenue (S$ mn) YoY Pay TV Pay TV ARPU (S$) YoY Pay TV (S$ mn) YoY Total Miscellaneous revenue (S$ mn) YoY Total operating revenue (S$ mn) YoY
Source: Company reports and J.P. Morgan estimates. 12
61.9 3.3% 333 19.8% NM NM 333 19.8%
62.2 0.4% 363 9.0% NM NM 363 9.0%
59.2 -4.7% 360 -0.8% NM NM 360 -0.8% 1,216 3.8% 1,577 2.7% 2,531 4.6%
59.4 -1.1% 92 2.2% 80.0 NM NM 92 2.2% 303 0.5% 395 0.9% 717 26.5%
60.4 1.0% 94 4.4% 80.0 NM NM 94 4.4% 308 1.7% 402 2.3%
61.4 3.8% 96 6.7% 80.0 NM NM 96 6.7% 305 1.1% 401 2.3%
61.9 6.0% 97 7.6% 80.0 NM 1 NM 98 8.9% 317 2.1% 415 3.6%
61.1 3.1% 379 5.2% 80.0 NM 1 NM 380 5.6% 1,233 1.3% 1,613 2.3%
60.2 58.3 51.3 46.5 41.5 36.5 1.4% -4.5% -11.9% -9.5% -10.8% -12.1% 93 368 326 286 240 194 1.3% -2.7% -11.5% -12.4% -16.1% -19.1% 80.0 66.5 65.1 56.3 53.3 51.3 0.0% -16.9% -2.0% -13.6% -5.3% -3.8% 4 33 107 163 254 340 NM 2649% 225.1% 51.6% 56.0% 34.1% 97 5.4% 401 5.6% 433 8.0% 448 493 3.5% 10.0% 534 8.2%
1,053 1,172 7.7% 11.3% 1,385 1,535 10.3% 10.9% 1,771 2,420 53.2% 36.6%
301 1,210 1,156 1,129 1,080 1,032 -0.7% -1.9% -4.5% -2.3% -4.4% -4.4% 398 1,611 1,589 1,577 1,573 1,566 0.8% -0.1% -1.4% -0.7% -0.3% -0.4% 785 9.5% 3,226 6.8% 3,387 5.0% 3,455 2.0% 3,524 2.0% 3,595 2.0%
765 767 771 3,020 22.6% 17.1% 12.7% 19.3%
34.8 25.8 20.5 17.5 17.1 17.2 16.0 16.9 -32.3% -25.8% -20.5% -26.9% -19.0% -11.8% -11.6% -17.4% 1.6 616 3.8% 0 NM 1.4 0.2 1.0 126 -7.6% 1.2 131 -0.7% 1.5 132 3.3% 1.1 1.1
16.2 15.9 15.1 14.8 14.5 14.2 -7.6% -6.4% -5.0% -2.0% -2.0% -2.0% 1.2 127 1.1% 1.1 1.0 1.0 510 0.0% 1.0 510 0.0% 1.0 509 0.0%
624 519 1.4% -16.9% 0 NM
123 511 -0.3% -1.5%
511 510 0.0% -0.3%
181 73 72 72 51 268 47 158 49 10 2 0 NM 421.4% 132.3% 30.9% -37.0% 48.1% -35.6% -40.9% -69.1% -80.0% -80.0% -80.0% 273 6.1% 346 27.5% 66 29.8% 302 4.5% 374 16.9% 75 41.0% 312 1.2% 384 5.7% 85 7.1% 379 -0.7% 430 -7.0% 1,266 2.4% 1,534 8.3% 277 1,238 1.5% -2.2% 1,263 2.0% 1,288 2.0% 1,314 2.0% 1,316 1.4% 401 5.0% 34.5 9.5% 1,340 2.0% 1,341 1.9% 421 5.0% 37.5 8.7%
731 1,072 1,236 17.4% 46.6% 15.4% 731 1,072 1,417 17.4% 46.6% 32.2% 272 15.9% 268 -1.5% 268 0.1%
324 1,397 1,312 1,298 -6.4% -9.0% -6.1% -1.1% 364 5.0% 29.5 6.3% 382 5.0% 31.5 6.9%
86 311 77 346 0.1% 16.0% 16.7% 11.4% 27.7 1.7%
36 7.5 10.0 21.9 30.8 27.8 27.3 27.3 25.8 NM -79.0% 32.8% 126.1% 191.5% 178.7% 148.9% 173.3% 17.8%
1 6 16 14 22 21 23 79 23 112 151 188 230 278 NM 1000% 192.7% 419.2% 497.2% 404.8% 300.0% 390.7% 73.3% 42.2% 34.2% 24.4% 22.6% 20.7% 154 194 27.7% 26.5% 4,904 5,547 10.7% 13.1% 195 0.3% 5,995 8.1% 47 -8.6% 1,520 9.9% 51 52 39 189 6.5% 12.0% -20.4% -3.1% 1,586 9.9% 1,634 6.8% 1,661 1.3% 6,400 6.8% 46 220 244 270 305 344 -2.4% 16.6% 10.8% 10.7% 12.8% 12.8% 1,557 2.5% 6,501 1.6% 6,574 1.1% 6,671 1.5% 6,786 1.7% 6,914 1.9%
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Table 9: SingTel domestic OpEx build

FY 2008A Selling & Administrative Monthly expense per sub (S$) YoY Ex. NBN Selling and administrative (S$ mn) As % of ex. NBN revenue NBN monthly marketing/sub (S$) YoY NBN marketing expense (S$ mn) As % of NBN revenues Total S&A (S$ mn) As % of total revenue Traffic charges Intl. phone outpayments IDD outgoing mins (mil) Tariff per minute (S cents) YoY Intl phone outpayments (S$ mn) As % of ex. NBN revenue Mobile roaming outpayments Monthly expense per sub (S$) YoY Mobile roaming (S$ mn) As % of ex. NBN revenue Leases Ex. NBN Monthly expense/ sub (S$) YoY Ex. NBN Leases (S$ mn) As % of ex. NBN revenue NBN monthly marketing/sub (S$) YoY NBN Lease expense (S$ mn) As % of NBN revenues Leases (S$ mn) As % of total revenue Interconnect Mobile minutes (mn) Interconnect per minute (S cents) YoY Interconnect (S$ mn) As % of ex. NBN revenue Traffic expenses (S$ mn) As % of total revenue 14.3 8.3% (761) 15.5% 0 NM 0 (761) 15.5% FY 2009A 14.8 3.9% FY 2010A 14.8 -0.2% FY 1Q11A 14.0 7.5% (254) 16.7% 25.0 NM 0.0% (254) 16.7% FY FY FY FY FY 2Q11A 3Q11A 4Q11A 2011A 1Q12A 18.3 23.8% (339) 21.4% 25.0 NM 0.0% (339) 21.4% 16.7 8.5% (319) 19.5% 25.0 NM 0.0% (319) 19.5% 17.1 6.5% 16.4 10.8% 15.6 11.1% FY 2012E 16.1 -2.2% FY 2013E 14.5 -9.9% FY 2014E 13.5 -7.0% FY 2015E 12.8 -5.0% FY 2016E 12.3 -4.0%
(916) (1,015) 16.5% 16.9% 0 NM 0 0 NM 0
(337) (1,249) 20.3% 19.5% 25.0 NM (0.4) 0.0% 25.0 NM (0.4) 0.0%
(317) (1,362) (1,343) (1,315) (1,293) (1,279) 20.5% 21.2% 20.9% 20.4% 20.1% 19.9% 25.0 0.0% (1.2) 31.3% 23.4 -6.4% (11.6) 35.2% 23.6 0.7% (38.8) 36.2% 23.6 0.0% 23.6 0.0% 23.6 0.0%
(73.6) (112.1) (156.3) 45.3% 44.2% 46.0%
(916) (1,015) 16.5% 16.9%
(337) (1,249) 20.3% 19.5%
(318) (1,374) (1,381) (1,388) (1,405) (1,435) 20.4% 21.1% 21.0% 20.8% 20.7% 20.8%
1,771
2,420
2,531
717
765
767
771
3,020
785
3,226
3,387 5.2 -5.0% (177) 2.8% 5.6 -6.6% (247) 3.9%
3,455 5.2 -1.0% (179) 2.8% 5.4 -4.0% (246) 3.8% 2.9 -7.0% (279) 4.3% 14.4 1.0% (45.0) 27.7% (324) 4.9%
3,524 5.1 -1.0% (181) 2.8% 5.3 -3.0% (244) 3.8% 2.7 -5.0% (274) 4.3% 14.6 1.0% (69.3) 27.3% (344) 5.1%
3,595 5.1 -1.0% (183) 2.8% 5.1 -3.0% (242) 3.8% 2.6 -3.0% (274) 4.3% 14.7 1.0% (97.6) 28.7% (372) 5.4%
11.4 9.0 7.7 -31.3% -21.4% -14.5% (202) 4.1% (217) 3.9% (194) 3.2%
6.7 6.7 6.0 5.8 6.3 5.7 5.5 -20.9% -18.4% -18.2% -16.8% -17.9% -14.4% -12.4% (48) 3.2% 6.3 8.8% (58) 3.8% (51) 3.2% 6.1 5.3% (57) 3.6% (46) 2.8% 6.8 6.8% (66) 4.0% (45) 2.7% 5.9 3.7% (58) 3.5% (190) 3.0% 6.2 3.0% (239) 3.7% (45) 2.9% 5.9 -4.8% (60) 3.9% (178) 2.8% 6.0 -2.5% (249) 3.9%
9.4 7.1 6.0 -12.8% -24.7% -15.3% (249) 5.1% 5.0 5.6% (267) 5.4% 0 NM 0 (267) 5.4% 8,590 (236) 4.3% 4.9 -2.0% (303) 5.5% 0 NM 0 (303) 5.5% 12,326 (220) 3.7% 4.7 -4.9% (320) 5.3% 0 NM 0 (320) 5.3% 12,812 0.71 12.2% (91) 1.5% (825) 13.8%
4.3 4.2 3.9 -14.1% -15.0% -15.7% (78) 5.1% 15.0 NM 0.0% (78) 5.1% 3,284 0.76 11.3% (25) 1.6% (209) 13.8% (78) 4.9% 15.0 NM 0.0% (78) 4.9% 3,414 0.79 9.8% (27) 1.7% (213) 13.4% (74) 4.5% 15.0 NM 0.0% (74) 4.5% 3,435 0.82 15.7% (28) 1.7% (214) 13.1%
4.0 4.1 3.5 3.5 3.1 -6.0% -13.1% -19.7% -14.1% -11.9% (79) 4.7% 15.0 NM (0.2) 0.0% (79) 4.8% (309) 4.8% 15.0 NM (0.2) 0.0% (309) 4.8% (70) 4.5% 15.0 0.0% (0.7) 18.8% (71) 4.6% (296) 4.6% 14.0 -6.4% (7.0) 21.1% (303) 4.7% (285) 4.4% 14.3 1.7% (23.5) 21.9% (308) 4.7%
3,437 13,570 0.81 11.4% (28) 1.7% (210) 12.6% 0.80 12.1% (108) 1.7% (846) 13.2%
3,463 14,398 15,114 15,545 15,928 16,284 0.84 10.0% (29) 1.9% (205) 13.2% 0.85 6.7% (122) 1.9% (852) 13.1% 0.87 2.0% (131) 2.0% (864) 13.1% 0.87 1.0% (136) 2.1% (885) 13.3% 0.87 0.0% (139) 2.2% (908) 13.4% 0.87 0.0% (142) 2.2% (939) 13.6%
0.77 0.63 -12.0% -17.6% (66) 1.3% (784) 16.0% (78) 1.4% (834) 15.0%
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Table 10: SingTel domestic OpEx build continued

FY 2008A Staff Average employees Subscribers per employee YoY Monthly cost per employee (S$ 000) YoY Staff costs (S$ mn) As % of ex. NBN revenue Cost of sales Monthly expense per sub (S$) YoY Cost of sales (S$ mn) As % of ex. NBN revenue Repair & maintenance Monthly expense per sub (S$) YoY Repair and maintenance (S$ mn) As % of ex. NBN revenue Others Monthly expense per sub (S$) YoY Others (S$ mn) As % of ex. NBN revenue 9,895 FY 2009A 11,956 FY 2010A 12,649 434 -1.0% 5.7 0.9% (859) 14.3% 15.0 8.8% FY 1Q11A 12,666 436 5.1% 5.6 0.5% (213) 14.0% 14.0 21.9% (253) 16.7% FY FY FY FY FY 2Q11A 3Q11A 4Q11A 2011A 1Q12A 12,887 436 2.0% 5.9 5.9% (229) 14.4% 15.5 17.4% (288) 18.2% 12,822 445 1.9% 5.8 6.0% (224) 13.7% 12,920 12,920 450 3.6% 6.1 1.4% (235) 14.2% 450 3.5% 5.8 2.7% (901) 14.1% FY 2012E FY 2013E FY 2014E FY 2015E FY 2016E
12,983 13,205 13,092 12,893 12,660 12,374 456 4.5% 6.0 7.2% (234) 15.1% 468 4.0% 6.2 7.0% 482 3.0% 6.6 5.9% 489 1.5% 6.8 3.5% 494 1.0% 7.1 3.5% 499 1.0% 7.3 3.5%
490 439 16.0% -10.4% 5.9 6.6% (701) 14.3% 12.5 6.1% (665) 13.6% 5.6 -4.9% (805) 14.5% 13.8 10.4%
(985) (1,034) (1,054) (1,071) (1,084) 15.3% 16.1% 16.4% 16.7% 16.8% 10.9 -7.0% 10.3 -5.0% 9.9 -4.0%
15.9 16.8 3.5% -14.2% (305) 18.6% 1.5 -3.5% (29) 1.8% (0.22) NM 4 -0.3%
15.5 11.9 13.3 11.7 3.2% -14.5% -14.1% -12.0%
(850) (1,027) 15.3% 17.1% 1.7 1.4% (114) 1.9% (0.38) NM 26 -0.4%
(331) (1,177) 19.9% 18.4% 1.7 -1.6% (33) 2.0% (0.15) NM 3 -0.2% 1.6 -4.8% (121) 1.9% (0.27) NM 21 -0.3%
(243) (1,127) (1,086) (1,063) (1,045) (1,034) 15.7% 17.5% 16.9% 16.5% 16.3% 16.1% 1.5 -9.7% (30) 1.9% (0.29) NM 6 -0.4% 1.4 -9.1% (122) 1.9% (0.25) NM 21 -0.3% 1.3 -9.9% (120) 1.9% (0.25) NM 24 -0.4% 1.2 -7.0% (118) 1.8% (0.3) 5.0% 26 -0.4% 1.1 -5.0% (116) 1.8% (0.3) 5.0% 28 -0.4% 1.1 -5.0% (113) 1.8% (0.3) 5.0% 31 -0.5%
1.9 1.6 -10.0% -11.8% (99) 2.0% (0.43) NM 23 -0.5% (101) 1.8% (0.45) NM 28 -0.5%
1.6 1.6 0.1% -11.4% (30) 1.9% (0.39) NM 7 -0.5% (29) 1.8% (0.35) NM 7 -0.4%
Total Operating expenses (S$ mn) (2,987) (3,479) (3,814) As % of total revenue 60.9% 62.7% 63.6% BP change YoY 2.68 1.81 0.91
(952) (1,092) (1,086) (1,143) (4,272) (1,024) (4,439) (4,462) (4,482) (4,517) (4,575) 62.6% 68.8% 66.5% 68.8% 66.7% 65.8% 68.3% 67.9% 67.2% 66.6% 66.2% 2.34 5.29 2.65 2.42 3.13 3.13 1.54 (0.42) (0.68) (0.63) (0.40)
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Table 11: SingTel: Singapore P&L

SingTel domestic P&L (S$ MM, YE Mar) Mobile-voice Mobile-data National telephone Fixed broadband Other data & internet International telephone IT and engineering services Sale of equipment Pay TV Miscellaneous Operating revenue YoY Selling and administrative Intl. Telephone outpayments Mobile roaming outpayments Leases Interconnect Staff costs Cost of sales Repair and maintenance Others (govt grant etc.) Operating expenses Gross Operating Profit Other income EBITDA YoY EBITDA margin (%) BP change YoY Depreciation & amortization EBIT YoY FY 2008A 929 393 425 333 1,053 616 731 272 1 154 4,905 10.7% (761) (202) (249) (267) (66) (701) (665) (99) 23 (2,987) 1,919 49 1,968 3.5% 40.1% (2.81) (488) 1,480 5.8% FY 2009A 977 469 404 363 1,172 624 1,072 268 6 194 5,547 13.1% (916) (217) (236) (303) (78) (805) (850) (101) 28 (3,479) 2,069 42 2,111 7.3% 38.0% (2.06) (476) 1,635 10.5% FY 2010A 1,058 552 393 360 1,216 519 1,417 268 16 195 5,995 8.1% (1,015) (194) (220) (320) (91) (859) (1,027) (114) 26 (3,814) 2,181 42 2,223 5.3% 37.1% (0.97) (518) 1,705 4.3% FY 1Q11A 272 160 95 92 303 126 346 66 14 47 1,520 9.9% (254) (48) (58) (78) (25) (213) (253) (30) 7 (952) 568 8 576 2.4% 37.9% (2.77) (134) 442 1.6% FY 2Q11A 271 166 95 94 308 131 374 75 22 51 1,586 9.9% (339) (51) (57) (78) (27) (229) (288) (29) 7 (1,092) 494 11 505 -6.0% 31.8% (5.40) (134) 371 -9.6% FY 3Q11A 279 186 95 96 305 132 384 85 21 52 1,634 6.8% (319) (46) (66) (74) (28) (224) (305) (29) 4 (1,086) 548 24 572 1.8% 35.0% (1.70) (136) 436 1.1% FY 4Q11A 273 182 90 98 317 123 430 86 23 39 1,661 1.3% FY 2011A 1,095 694 375 380 1,233 511 1,534 311 79 189 6,400 6.8% FY 1Q12A 279 194 90 97 301 127 324 77 23 46 1,557 2.5% FY 2012E 1,127 825 351 401 1,210 511 1,397 346 112 220 6,501 1.6% FY 2013E 1,163 921 320 433 1,156 510 1,312 364 151 244 6,574 1.1% FY 2014E 1,189 964 293 448 1,129 510 1,298 382 188 270 6,671 1.5% FY 2015E 1,206 998 247 493 1,080 510 1,316 401 230 305 6,786 1.7% FY 2016E 1,221 1,030 204 534 1,032 509 1,341 421 278 344 6,914 1.9% (1,435) (183) (242) (372) (142) (1,084) (1,034) (113) 31 (4,575) 2,339 32 2,371 3.1% 34.3% 0.39 (556) 1,816 4.2%
(337) (1,249) (45) (190) (58) (239) (79) (309) (28) (108) (235) (901) (331) (1,177) (33) (121) 3 21 (1,143) (4,272) 518 11 529 -6.0% 31.8% (2.45) (147) 382 -11.0% 2,128 54 2,182 -1.8% 34.1% (2.99) (551) 1,631 -4.3%
(318) (1,374) (1,381) (1,388) (1,405) (45) (178) (177) (179) (181) (60) (249) (247) (246) (244) (71) (303) (308) (324) (344) (29) (122) (131) (136) (139) (234) (985) (1,034) (1,054) (1,071) (243) (1,127) (1,086) (1,063) (1,045) (30) (122) (120) (118) (116) 6 21 24 26 28 (1,024) (4,439) (4,462) (4,482) (4,517) 533 8 541 -6.0% 34.8% (3.13) (134) 407 -7.9% 2,062 32 2,094 -4.0% 32.2% (1.88) (530) 1,564 -4.1% 2,112 32 2,144 2.4% 32.6% 0.41 (546) 1,598 2.2% 2,189 32 2,221 3.6% 33.3% 0.67 (556) 1,665 4.2% 2,269 32 2,301 3.6% 33.9% 0.62 (557) 1,743 4.7%
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15
Australia-Optus
Whats changed in the past 12 months? Telstras (the incumbent operator in Australia) reassertion in the Mobile (+1.1% market share) and Fixed Broadband markets (+1.4%) has undeniably been the main development in the Australian Telecom market over the past year. This was driven by a significant reinvestment by Telstra (c. A$1bn) in customers acquisition and retention costs but also helped by Vodafone network severe congestion issues and subsequent customer dissatisfaction (loss of -400k customers in 2H11) during the year. Optus remained reasonably resilient throughout the year with most of Telstras market share gains coming at the expense of other players (Vodafone in Mobile, Layer 2 ISPs in Fixed).
Figure 6: Subscribers Market share changes
+4.0% +3.0% +2.0% +1.0% +0.0% -1.0% -2.0% -3.0% FY10 1H11 Telstra Optus 2H11 VHA -0.1% -0.6% -0.8% -0.1% -0.6% -1.8% -2.6% FY11 +2.1% +1.4% +3.2% +1.9%
Figure 7: Service Revenue Market share changes

+2.0% +1.5% +1.0% +0.5% +0.0% -0.5% -1.0% -1.5% -2.0% -2.5% 1H11 2H11 FY11 -1.9% -0.7% -0.6% +0.6% +0.0% +0.2% +1.7%
Telstra Optus VHA
+0.5% +0.1%
-2.0%
Source: Company reports, J.P. Morgan estimates
Source: J.P.Morgan estimates, Company data.
What is the driver for the sector / operator for the next 12 months? In mobile, wireless data consumption driven by strong smartphone adoption (c. 30%+ mkt penetration) and continued mobile broadband take-up is likely to continue to drive mid to high single digit mobile in revenue growth. A likely reduction in Mobile Termination rate (60% reduction over next 2 years proposed by the Regulator) is likely to drive a moderation in mobile industry growth (JPMe mobile market growth of +6%) in FY12-13. In Fixed line, the carriers main focus will be on preparing for the migration to NBN and possibly on consolidation ahead of the NBN roll-out (e.g. TPG/IIN ). Key issues that investors need to be aware of for the next 12-24 months Key issues in the Australian Telecom market in the next 12-24 months: NBN: with NBNco expected to launch core wholesale products commercially in 2012, the migration to the new NBN market environment will be the main focus in the Fixed line segment. Mobile termination rate reduction: the Regulator (ACCC) has recently launched a review on a proposed reduction in termination rates (9cpm today going to 6cpm from 3.6cpm. Competitive environment : Following the well publicized network/customer issues in 2011, Vodafone is likely to try to re-assert itself in the market place though price based competition.
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Table 12: SingTel: Australia (Optus) P&L

Optus Australia P&L (A$ MM, YE Mar) Mobile Business & wholesale Consumer & multimedia Inter-segment Operating revenue YoY EBITDA Mobile Business & wholesale Consumer & multimedia Operational EBITDA YoY EBITDA margin Mobile Business & wholesale Consumer & multimedia EBITDA margin (%) BP change YoY D&A EBIT YoY Optus P&L (S$ mn) Operating revenue YoY Operational EBITDA YoY EBITDA margin (%) BP change YoY D&A EBIT YoY FY 2008A 4,355 1,872 1,553 (20) 7,760 3.8% 1,432 421 163 2,002 0.7% 32.9% 22.5% 10.5% 25.8% (0.80) (1,092) 910 5.2% 9,940 11.1% 2,564 7.7% 25.8% (0.81) (1,399) 1,165 12.3% FY 2009A 4,938 1,974 1,421 (12) 8,321 7.2% 1,388 474 205 2,066 3.2% 28.1% 24.0% 14.4% 24.8% (0.97) (1,108) 958 5.3% 9,387 -5.6% 2,321 -9.5% 24.7% (1.06) (1,257) 1,065 -8.6% FY 2010A 5,573 2,004 1,384 (12) 8,949 7.5% 1,455 490 209 2,153 4.2% 26.1% 24.5% 15.1% 24.1% (0.77) (1,120) 1,033 7.8% 10,876 15.9% 2,623 13.0% 24.1% (0.61) (1,360) 1,263 18.6% FY 1Q11A 1,424 494 339 (2) 2,255 2.6% 369 129 55 553 9.5% 25.9% 26.1% 16.2% 24.5% 1.55 (286) 267 19.2% 2,769 12.3% 679 20.0% 24.5% 1.56 (351) 329 30.8% FY 2Q11A 1,498 484 343 (2) 2,323 4.8% 374 124 58 557 9.6% 25.0% 25.6% 16.9% 24.0% 1.06 (283) 274 20.4% 2,850 7.1% 683 11.5% 24.0% 0.95 (347) 336 21.8% FY 3Q11A 1,561 490 336 (2) 2,385 3.6% 371 126 56 553 4.5% 23.8% 25.7% 16.7% 23.2% 0.21 (286) 267 7.2% 3,070 5.1% 712 6.1% 23.2% 0.22 (368) 344 8.9% FY 4Q11A 1,494 500 330 (2) 2,322 4.0% 448 162 61 671 9.8% 30.0% 32.4% 18.5% 28.9% 1.52 (275) 396 19.3% 2,982 5.3% 862 11.3% 28.9% 1.55 (353) 509 21.0% FY 2011A 5,977 1,968 1,348 (8) 9,285 3.8% 1,562 541 230 2,333 8.4% 26.1% 27.5% 17.1% 25.1% 1.07 (1,130) 1,203 16.5% 11,670 7.3% 2,934 11.9% 25.1% 1.03 (1,418) 1,516 20.1% FY 1Q12A 1,492 497 327 (2) 2,314 2.6% 371 131 58 560 1.3% 24.9% 26.4% 17.7% 24.2% (0.32) (279) 281 5.2% 3,048 10.1% 738 8.6% 24.2% (0.33) (367) 370 12.7% FY 2012E 6,217 2,022 1,314 (8) 9,545 2.8% 1,679 505 210 2,394 2.6% 27.0% 25.0% 16.0% 25.1% (0.04) (1,145) 1,249 3.8% 12,254 5.0% 3,072 4.7% 25.1% (0.08) (1,470) 1,602 5.7% FY 2013E 6,518 2,086 1,371 (9) 9,966 4.4% 1,727 522 226 2,475 3.4% 26.5% 25.0% 16.5% 24.8% (0.25) (1,196) 1,279 2.4% 11,713 -4.4% 2,909 -5.3% 24.8% (0.23) (1,405) 1,504 -6.2% FY 2014E 6,809 2,149 1,402 (9) 10,351 3.9% 1,770 543 238 2,551 3.1% 26.0% 25.3% 17.0% 24.6% (0.19) (1,221) 1,330 4.0% 12,124 3.5% 2,988 2.7% 24.6% (0.19) (1,431) 1,558 3.6% FY 2015E 7,054 2,216 1,433 (10) 10,694 3.3% 1,799 565 251 2,615 2.5% 25.5% 25.5% 17.5% 24.5% (0.20) (1,240) 1,374 3.3% 12,401 2.3% 3,032 1.5% 24.5% (0.20) (1,438) 1,594 2.3% FY 2016E 7,263 2,280 1,465 (10) 10,998 2.8% 1,816 587 264 2,667 2.0% 25.0% 25.8% 18.0% 24.2% (0.20) (1,243) 1,424 3.6% 12,626 1.8% 3,061 1.0% 24.2% (0.20) (1,427) 1,635 2.6%
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Other Regional Associates

We are positive on the business for Bharti in India, AIS in Thailand while Globe has been gaining back revenue market share from PLDT in the Philippines. Recent lower contributions from associates to SingTel were largely a function of large appreciation of the Singapore dollar. Telkomsels operations in Indonesia are expected to remain weak due to heavy competition in the industry. Please see below for links to detailed recent J.P. Morgan reports on Bharti, PT Telkom (Telkomsels parent company), AIS and Globe. Bharti (OW, Mar-12 PT Rs460) India Telecoms: DoT responds to TRAI's recommendations India Telecoms NTP 2011 draft - key takeaways India Telecoms: The future of voice services Bharti Airtel Limited: Encouraging developments in Africa PT Telkom (N, Dec-12 PT Rp7,900) TIPM Telcos: The 2Q11 Deep Dive PT Telekomunikasi IndonesiaTbk: 2Q11 net 11% below JPM, higher S&M and depreciation for both TLKM and EXCL AIS (N, Dec-12 PT Bt140) Thai Telcos: 3Q11 Preview Asia Telcos: Where to care about GDP downgrades Downgrade AIS/Thailand TIPM Telcos: The 2Q11 Deep Dive Advanced Info Services 2Q11 net 7% ahead of JPM Globe (N, Dec-12 PT Php930) TIPM Telcos: The 2Q11 Deep Dive Globe Telecom 2Q11: spot in line with JPM, higher than Street
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Table 13: SingTel: Associate contribution breakdown

Associates (S$ MM) SingTel's effective stake Telkomsel AIS Bharti Globe Warid PBTL Effective contributions Associate PBT (S$ mn) Telkomsel AIS Bharti Globe Warid PBTL Others Exceptional items Total Associate PAT (S$ mn) Telkomsel AIS Bharti Globe Warid PBTL Others Exceptional items Total Associates Dividends Telkomsel AIS Bharti Globe Warid PBTL Others Total FY 2008A 35.0% 21.4% 30.4% 44.5% 30.0% 45.0% FY 2009A 35.0% 21.4% 30.4% 47.3% 30.0% 45.0% FY 2010A 35.0% 21.3% 32.0% 47.3% 30.0% 45.0% FY 1Q11A 35.0% 21.3% 32.0% 47.3% 30.0% 45.0% FY 2Q11A 35.0% 21.3% 32.0% 47.3% 30.0% 45.0% FY 3Q11A 35.0% 21.3% 32.2% 47.3% 30.0% 45.0% FY 4Q11A 35.0% 21.3% 32.3% 47.3% 30.0% 45.0% FY 2011A 35.0% 21.3% 32.3% 47.3% 30.0% 45.0% FY 1Q12A 35.0% 21.3% 32.3% 47.3% 30.0% 45.0% FY 2012E 35.0% 21.3% 32.3% 47.3% 30.0% 45.0% FY 2013E 35.0% 21.3% 32.3% 47.3% 30.0% 45.0% FY 2014E 35.0% 21.3% 32.3% 47.3% 30.0% 45.0% FY 2015E 35.0% 21.3% 32.3% 47.3% 30.0% 45.0% FY 2016E 35.0% 21.3% 32.3% 47.3% 30.0% 45.0%
1,153 253 840 317 (31) (23) 83 (1) 2,591 803 176 753 209 (32) (38) 60 1 1,932 604 179 0 239 0 0 93 1,115
712 239 871 258 (116) (23) 89 1 2,031 517 179 808 172 (115) (23) 78 1,616 534 169 0 231 0 0 134 1,068
940 215 987 235 (63) (13) 119 2,420 682 148 848 165 (63) (13) 109 (1) 1,875 447 169 18 228 0 0 92 954
221 68 210 45 (14) (5) 26 551 164 48 164 31 (14) (5) 21 409 0 223 0 0 0 0 5 228
230 67 209 49 (14) (4) 31 567 172 46 156 34 (14) (4) 28 (1) 417 265 80 17 74 0 0 47 483
214 68 184 40 (14) (4) 30 518 161 48 156 33 (21) (4) 27 (2) 398 215 164 0 0 0 22 401
190 73 173 59 (12) (4) 35 514 142 49 128 41 (12) (4) 32 376 0 0 58 0 0 25 83
855 276 776 193 (54) (17) 122 2,150 639 191 604 139 (61) (17) 108 (3) 1,600 480 467 17 132 99 1,195
210 77 154 49 (12) (6) 28 (1) 500 157 53 103 34 (12) 2 23 360 353 102 0 0 0 0 9 464
886 331 892 212 (38) (15) 112 (1) 2,379 664 242 629 146 (38) (7) 92 1,728 440 369 141 99 1,049
950 385 1,450 234 (17) (7) 112 3,108 713 296 1,061 159 (17) (7) 92 2,296 445 242 150 99 936
1,102 435 1,981 264 (4) (5) 112 0 3,884 826 334 1,450 179 (4) (5) 92 0 2,871 470 289 159 99 1,017
1,411 492 2,415 327 2 (4) 112 0 4,756 1,059 377 1,681 223 1 (4) 92 0 3,430 530 334 186 99 1,149
1,139 262 2,814 286 7 (2) 112 0 4,617 854 201 1,865 194 4 (2) 92 0 3,209 722 377 230 99 1,429
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Group Model Build

Table 14: SingTel: Group P&L
Group P&L (S$ MM) Total Operating Revenue YoY EBITDA YoY EBITDA margin - Group BP change YoY Compensation from IDA D&A EBIT Share of results of associates Interest income Forex gain/(loss) Finance costs Net finance (expense)/ income Exceptional items ("EI") Profit before tax Taxation Tax rate Profit after taxation Minority interests Net profit YoY Net profit (underlying) YoY EPS (Sen) Recurring EPS (Sen) FY 2008A 14,845 11.0% 4,531 5.8% 30.5% (1.49) 0 (1,887) 2,644 2,559 52 165 (393) (177) 103 5,130 (1,168) 23% 3,962 (1) 3,961 4.8% 3,681 3.5% 24.9 23.2 FY 2009A 14,934 0.6% 4,432 -2.2% 29.7% (0.85) 0 (1,733) 2,699 2,051 57 (8) (361) (312) (56) 4,382 (933) 21% 3,450 (1) 3,449 -12.9% 3,455 -6.1% 21.7 21.7 FY 2010A 16,871 13.0% 4,846 9.3% 28.7% (0.95) 0 (1,878) 2,968 2,410 22 (44) (312) (334) (2) 5,042 (1,136) 23% 3,906 1 3,906 13.3% 3,910 13.2% 24.6 24.6 FY 1Q11A 4,289 11.5% 1,255 11.2% 29.3% (0.06) 0 (484) 771 541 4 5 (88) (79) 0 1,233 (292) 24% 942 1 943 -0.3% 943 -0.2% 5.9 5.9 FY 2Q11A 4,436 8.1% 1,188 3.3% 26.8% (1.23) 0 (481) 707 567 6 (7) (87) (88) 1 1,187 (296) 25% 891 1 892 -6.7% 891 -6.4% 5.6 5.6 FY 3Q11A 4,704 5.7% 1,284 4.2% 27.3% (0.40) 0 (503) 781 519 33 0 (99) (66) 30 1,264 (266) 21% 998 1 999 0.9% 968 -2.3% 6.3 6.1 FY 4Q11A 4,643 3.8% 1,391 4.0% 30.0% 0.06 0 (500) 891 514 8 3 (102) (92) (6) 1,307 (317) 24% 990 0 990 -2.5% 998 -2.4% 6.2 6.3 FY 2011A 18,070 7.1% 5,116 5.6% 28.3% (0.41) 0 (1,969) 3,147 2,141 50 2 (376) (324) 25 4,991 (1,171) 23% 3,821 3 3,823 -2.1% 3,800 -2.8% 24.0 23.9 FY 1Q12A 4,605 7.4% 1,279 1.9% 27.8% (1.50) FY 2012E 18,755 3.8% 5,166 1.0% 27.5% (0.77) FY 2013E 18,287 -2.5% 5,053 -2.2% 27.6% 0.09 FY 2014E 18,795 2.8% 5,209 3.1% 27.7% 0.08 FY 2015E 19,187 2.1% 5,333 2.4% 27.8% 0.08 FY 2016E 19,540 1.8% 5,433 1.9% 27.8% 0.01 0 (1,982) 3,450 4,617 43 0 (534) (492) 0 7,576 (1,818) 24% 5,757 (4) 5,754 -1.9% 5,754 -1.9% 36.1 36.1
0 0 (501) (2,000) 778 3,166 508 3 0 (96) 2,387 27 0 (398)
0 0 0 (1,952) (1,986) (1,996) 3,101 3,223 3,337 3,108 30 0 (398) 3,884 27 0 (398) 4,756 24 0 (398)
(93) (371) 66 66 1,259 5,249 (342) (1,260) 27% 24% 917 3,989 (1) (4) 916 3,985 -2.8% 4.2% 873 -7.4% 5.8 5.5 3,942 3.7% 25.0 24.7
(368) (371) (374) 0 0 0 5,841 6,736 7,719 (1,343) (1,549) (1,853) 23% 23% 24% 4,497 5,187 5,867 (4) (4) (4) 4,494 5,183 5,863 12.8% 15.3% 13.1% 4,494 14.0% 28.2 28.2 5,183 15.3% 32.5 32.5 5,863 13.1% 36.8 36.8
20
66
Table 15: SingTel: Group balance sheet

S$ MM, YE March Cash and cash equivalents Trade and other receivables Others Total Current Assets Property, plant and equipment Intangible assets Associate & JV companies Others Total Non-Current Assets Total Assets Trade and other payables Borrowings Others Total Current Liabilities Borrowings Others Total Non Current Liabilities Total Liabilities Minority interests Share capital Reserves Total equity Total liabilities and equity 2008 1,372 2,541 137 4,050 10,124 10,057 8,540 1,944 30,664 34,714 3,360 1,875 521 5,756 5,668 2,288 7,956 13,712 3 2,594 18,406 21,000 34,714 2009 1,076 2,532 186 3,794 9,123 10,027 8,659 1,652 29,461 33,255 3,268 1,434 401 5,103 6,061 1,591 7,652 12,754 24 2,606 17,871 20,476 33,255 2010 1,614 3,172 359 5,144 10,750 10,200 10,412 1,445 32,807 37,952 4,650 1,528 657 6,835 5,351 2,250 7,601 14,436 23 2,616 20,877 23,493 37,952 2011 2,738 3,449 368 6,555 11,113 10,218 10,197 1,199 32,727 39,282 4,450 2,699 1,392 8,541 4,587 1,805 6,391 14,932 22 2,623 21,706 24,328 39,282 2012E 2,965 3,580 368 6,913 11,379 10,342 10,962 1,199 33,882 40,795 4,619 2,699 1,392 8,709 4,587 1,805 6,391 15,101 26 2,623 23,046 25,668 40,795 2013E 2,731 3,491 368 6,590 11,653 10,465 12,418 1,199 35,735 42,324 4,504 2,699 1,392 8,594 4,587 1,805 6,391 14,985 29 2,623 24,687 27,310 42,324 2014E 2,403 3,588 368 6,359 11,850 10,588 14,392 1,199 38,029 44,388 4,629 2,699 1,392 8,719 4,587 1,805 6,391 15,111 33 2,623 26,621 29,244 44,387 2015E 4,293 3,662 368 8,323 12,045 10,711 16,858 1,199 40,813 49,136 4,725 5,199 1,392 11,316 4,587 1,805 6,391 17,707 36 2,623 28,770 31,392 49,136 2016E 3,659 3,730 368 7,757 12,296 10,834 18,937 1,199 43,267 51,024 4,812 5,199 1,392 11,403 4,587 1,805 6,391 17,794 40 2,623 30,567 33,190 51,024
67
21
Table 16: SingTel: Cash flows

S$ MM, YE March Profit before tax Adjustments for Depreciation and amortisation Interest and investment income (net) Finance costs Share of associated and JV's (Pretax-tax) Others Operating cash flow before working capital changes Changes in operating assets and liabilities Trade and other receivables Trade and other payables Others Cash generated from operations Dividends received from associated and joint venture companies Income tax and withholding tax paid Others Net cash inflow from operating activities Interest received Net Payment for acquisition of subsidiary Net Investment in associated and joint venture companies Payment for purchase of property, plant and equipment Purchase of intangible assets Others Net cash outflow from investing activities Net proceeds from borrowings Net interest paid on borrowings and swaps Final dividends paid to shareholders of the Company Interim dividends paid to shareholders of the Company Proceeds from issue of shares Others Net cash outflow from financing activities Net decrease in cash and cash equivalents Exchange effects on cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Net debt / (cash)
2008 5,130 1,887 (216) 393 (2,559) (52) 4,583 (36) 177 (38) 4,687 1,114 (335) (12) 5,454 52 0 (1,102) (1,879) (3) 184 (2,748) 1,166 (411) (2,545) (891) 32 (63) (2,711) (6) (12) 1,390 1,372 6,171
2009 4,382 1,733 (49) 361 (2,051) 89 4,465 (86) 96 (38) 4,437 1,068 (339) (4) 5,163 35 (185) (255) (1,918) (4) (63) (2,391) (466) (374) (1,098) (891) 12 (201) (3,018) (245) (51) 1,372 1,076 6,419
2010 5,042 1,878 8 326 (2,410) 39 4,883 (456) 357 (37) 4,747 954 (370) (2) 5,329 17 0 (90) (1,923) (123) (60) (2,179) (204) (315) (1,097) (987) 11 (42) (2,634) 515 23 1,076 1,614 5,266
2011 4,991 1,969 (44) 368 (2,141) (5) 5,138 (134) 101 48 5,154 1,194 (301) (4) 6,043 34 0 (670) (2,005) (27) (92) (2,759) 840 (348) (1,274) (1,083) 7 (283) (2,141) 1,143 (18) 1,614 2,738 4,548
2012E 5,249 2,000 (27) 398 (2,387) 0 5,232 (131) 169 0 5,270 1,049 (687) 0 5,633 27 0 0 (2,266) (123) 0 (2,362) 0 (398) (1,529) (1,116) 0 0 (3,043) 227 0 2,738 2,965 4,320
2013E 5,841 1,952 (30) 398 (3,108) 0 5,053 89 (115) 0 5,027 936 (629) 0 5,334 30 0 0 (2,225) (123) 0 (2,318) 0 (398) (1,594) (1,258) 0 0 (3,250) (234) 0 2,965 2,731 4,555
2014E 6,736 1,986 (27) 398 (3,884) 0 5,209 (97) 125 0 5,237 1,017 (656) 0 5,598 27 0 0 (2,184) (123) 0 (2,280) 0 (398) (1,797) (1,451) 0 0 (3,647) (328) 0 2,731 2,403 4,883
2015E 7,719 1,996 (24) 398 (4,756) 0 5,333 (75) 96 0 5,355 1,149 (711) 0 5,792 24 0 0 (2,191) (123) 0 (2,290) 2,500 (398) (2,073) (1,642) 0 0 (1,613) 1,890 0 2,403 4,293 5,493
2016E 7,576 1,982 (43) 534 (4,617) 0 5,433 (67) 87 0 5,452 1,429 (710) 0 6,171 43 0 0 (2,233) (123) 0 (2,314) 0 (534) (2,345) (1,611) 0 0 (4,491) (633) 0 4,293 3,659 6,126
22
68
JPM Q-Profile
Singapore Telecommunications Ltd. (SINGAPORE / Telecommunication Services)
Local Share Price

Current:
3.21
12 Mth Forward EPS

0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05
Current:
0.26
Sep/08
Sep/09
Sep/10
Sep/11
0.00 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/10 Sep/10 Sep/10 Sep/10 Sep/11

12% 10% 8% 6% 4%
12Mth fwd EY Singapore BY Proxy
Current:
8%

0.80 0.60 0.40 0.20 0.00 -0.20
Current:
-21.62%
2% 0% Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/10 Sep/11
-0.40 -0.60 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/11
PE (1Yr Forward)
30.0x 25.0x 20.0x 15.0x 10.0x 5.0x 0.0x Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07
Current:
12.4x
Price/Book Value
7.0x 6.0x 5.0x 4.0x 3.0x 2.0x 1.0x
Current:
2.0x
Sep/08
Sep/09
Sep/10
Sep/11
0.0x Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Sep/11
ROE (Trailing)
35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 Sep/96 Sep/97 Sep/98 Sep/99 Sep/00 Sep/01 Sep/02 Sep/03 Sep/04 Sep/05 Sep/06 Sep/07
Current:
15.53

Current:
4.97
Sep/08
Sep/09
Sep/08
Sep/09
Sep/10
Summary
Singapore Telecommunications Ltd. 39378.38 SINGAPORE 71.14382 SEDOL B02PY22 Telecommunication Services Diversified Telecommunication Latest Min Max 12mth Forward PE 8.82 25.95 12.40x P/BV (Trailing) 1.45 6.42 2.03x Dividend Yield (Trailing) 0.00 7.64 4.97 ROE (Trailing) 9.32 30.72 15.53 Implied Value of Growth -0.38 0.63 -21.6% Source: Bloomberg, Reuters Global Fundamentals, IBES CONSENSUS, J.P. Morgan Calcs As Of: Local Price: EPS: % to Max % to Med 109% 14% 216% 15% 54% -33% 98% 19% 391% 140% 13-Oct-11 3.21 0.26 % to Avg 23% 44% -29% 28% 171%
Median 14.14 2.34 3.33 18.48 0.09
Sep/11
Average 15.27 2.92 3.52 19.95 0.15
2 S.D.+ 23.19 5.56 7.61 29.91 0.68
2 S.D. 7.35 0.28 -0.57 9.98 -0.37
% to Min -29% -29% -100% -40% -76%
Sep/11
69
23
Singapore Telecom: Summary of Financials

Profit and Loss Statement S$ in millions, year end Mar Revenue EBITDA Depreciation Amortization EBIT Interest income Interest expense Associates Profit before tax Tax Minorities Net profit - reported Net profit - adjusted Shares Outstanding (mn) EPS (S$) (Reported) EPS (Adjusted) DPS (S$) DPS payout ratio Revenue growth EBITDA growth Adj Net profit growth Adj EPS growth DPS growth FY10 16,871 4,846 (1,878) 0 2,968 22 (312) 2,410 5,042 (1,136) 1 3,906 3,910 15,912 0.25 0.25 0.14 58% 13.0% 9.3% 13.2% 13.2% 13.5% FY11 18,070 5,116 (1,969) 0 3,147 50 (376) 2,141 4,991 (1,171) 3 3,823 3,800 15,918 0.24 0.24 0.16 68% 7.1% 5.6% (2.8%) (2.9%) 15.6% FY12E 18,755 5,166 (2,000) 0 3,166 27 (398) 2,387 5,249 (1,260) -4 3,985 3,942 15,931 0.25 0.25 0.17 68% 3.8% 1.0% 3.7% 3.7% 3.8% FY13E 18,287 5,053 (1,952) 0 3,101 30 (398) 3,108 5,841 (1,343) -4 4,494 4,494 15,931 0.28 0.28 0.19 68% (2.5%) (2.2%) 14.0% 14.0% 12.8% Balance Sheet statement FY14E S$ in millions, year end Mar 18,795 Cash and equivalents 5,209 Accounts receivable (1,986) Others 0 Total Current assets 3,223 27 ST loans (398) Others 3,884 Total current liabilities 6,736 (1,549) Net working capital -4 5,183 Net fixed assets 5,183 Other long term assets Total non-current assets 15,931 0.33 Total Assets 0.33 0.22 Long-term debt 68% Other liabilities Total Liabilities 2.8% 3.1% Shareholders' equity 15.3% 15.4% Total liabilities and equity 15.3% Net debt/(cash) Book value per share Cash flow statement FY14E S$ in millions, year end Mar 27.7% Cash flow from operations 18.2% Capex 18.3% Cash flow from other investing 9.1% Cash flow from financing 12.0% 23.0% Change in cash for year (11.6%) 19.9% Beginning cash 16.7% Closing cash 14.06 FY10 1,614 3,172 359 5,144 1,528 5,307 6,835 (1,691) 10,750 22,057 32,807 37,952 5,351 2,250 14,436 23,493 37,952 5,266 1.48 FY11 2,738 3,449 368 6,555 2,699 5,842 8,541 (1,986) 11,113 21,615 32,727 39,282 4,587 1,805 14,932 24,328 39,282 4,548 1.53 FY12E 2,965 3,580 368 6,913 2,699 6,011 8,709 (1,796) 11,379 22,502 33,882 40,795 4,587 1,805 15,101 25,668 40,795 4,320 1.61 FY13E 2,731 3,491 368 6,590 2,699 5,895 8,594 (2,005) 11,653 24,082 35,735 42,324 4,587 1,805 14,985 27,310 42,324 4,555 1.71 FY13E 5,334 (2,225) (94) (3,250) (234) 2,965 2,731 FY14E 2,403 3,588 368 6,359 2,699 6,020 8,719 (2,361) 11,850 26,179 38,029 44,388 4,587 1,805 15,111 29,244 44,387 4,883 1.84 FY14E 5,598 (2,184) (96) (3,647) (328) 2,731 2,403
Ratio Analysis %, year end Mar FY10 FY11 EBITDA margin 28.7% 28.3% FCF margin 20.2% 22.4% ROE 17.8% 15.9% ROC 10.2% 10.2% ROA 11.0% 9.8% Tax rate 22.5% 23.5% Capex to sales (11.4%) (11.1%) Debt/Capital 22.7% 23.1% Net debt or (cash) to equity 22.4% 18.7% Interest cover (x) 16.70 15.72 Source: Company reports and J.P. Morgan estimates.
FY12E 27.5% 18.0% 15.8% 9.8% 9.9% 24.0% (12.1%) 22.1% 16.8% 13.94
FY13E 27.6% 17.0% 17.0% 9.2% 10.8% 23.0% (12.2%) 21.1% 16.7% 13.72
FY10 FY11 FY12E 5,329 6,043 5,633 (1,923) (2,005) (2,266) (256) (755) (96) (2,634) (2,141) (3,043) 538 1,076 1,614 1,125 1,614 2,738 227 2,738 2,965
24
70

21 October 2011
Primary Health Care Limited

Suring up its funding
Neutral
PRY.AX, PRY AU Price: A$3.30

Previous: A$3.92
Considering the uncertainty surrounding funding from a global perspective, PRYs announcement that it had refinanced its syndicated debt facility at ~225 bps above BBSY is an impressive outcome. Attention now squarely shifts to its operational performance with Medical Centres remaining a key value driver. To date, we have not noticed an obvious improvement in PRY's Medical Centre division despite managements apparent success in recruiting additional GPs. Maintain Neutral recommendation. PRY announced that it has refinanced its syndicated bank debt facility, which was due to mature in Dec-12. The syndicate lending group reduced to 8 banks refinanced $1.02b, including 1) $770m 3 year 4 month non-amortising facility maturing Feb-15, at 225bps above BBSY, 2) $100m 3 year 4 month revolving working capital facility maturing Feb-15, at 225bps above BBSY, and 3) $150m 5 year non-amortising facility maturing Oct-16, at 250bps above BBSY. This is a ~75bp improvement on the 300bp margin on the previous facility. Increasing future cash flows augmented by a slowdown in capex and reduced dividend payout ratio have no doubt helped PRY secure this reduction. Interest expense for FY12 is expected to be ~$83m ($44m for 1H12, and $39m for 2H12). Amortisation of borrowing costs will be $14.5m for FY12E, bringing the total interest cost to $97.5m. Amortisation of borrowing costs will reduce to ~$4.5m in FY13E. PRYs refinancing was slightly better than we were expecting, however relative to the companys guidance on interest cost we have not had to change our forecasts mainly due to the small increase in the borrowing. The downgrade we process in FY12 relates to the fast tracking of amortised borrowing costs associated with the original facility. Encouragingly borrowing cost fees appear to have fallen demonstrating a willingness of banks to lend to Healthcare companies within Australia.
Primary Health Care Limited (Reuters: PRY.AX, Bloomberg: PRY AU) Year-end Jun (A$) FY09A FY10A FY11A FY12E Total Revenue (A$ mn) 1,329.3 1,296.8 1,312.2 1,413.0 EBITDA (A$ mn) 348.1 331.0 317.8 360.6 Net profit after tax (A$ mn) 116.1 132.0 78.3 125.2 EPS (A$) 0.306 0.277 0.158 0.251 P/E (x) 10.8 11.9 20.9 13.2 EV/EBITDA 8.2 7.9 8.6 7.4 Dividend (A$) 0.140 0.250 0.080 0.135 Net Yield (%) 4.2% 7.6% 2.4% 4.1% Normalised* EPS (A$) 0.302 0.277 0.193 0.251 Normalised* EPS chg (%) 47.1% -8.0% -30.5% 30.0% Normalised* P/E (x) 10.9 11.9 17.1 13.2
Healthcare Steven Wheen

AC
(61-2) 9220-1645 steven.d.wheen@jpmorgan.com
Anasuya Ramesh
(61-2) 9220-7734 anasuya.x.ramesh@jpmorgan.com J.P. Morgan Securities Australia Limited
Price Performance
4.2 3.8 A$ 3.4 3.0 2.6
PRY.AX share price (A$) ASX100 (rebased)
Abs Rel
YTD -21.1% -8.9%
1m 6.8% 4.0%
3m -8.7% 0.1%
12m -5.7% 4.5%
FY13E 1,490.0 380.8 144.9 0.290 11.4 6.9 0.203 6.2% 0.290 15.7% 11.4
Company Data 52-week range (A$) Market capitalisation (A$ bn) Market capitalisation ($ bn) Fiscal Year End Price (A$) Date Of Price Shares outstanding (mn) ASX100 ASX200-Ind NTA/Sh (A$) Net Debt^ (A$ bn)
4.16 - 2.56 1.65 1.69 Jun 3.30 21 Oct 11 500.3 3,378.1 5,631.3 -1.14 1.03
71
Steven Wheen (61-2) 9220-1645 steven.d.wheen@jpmorgan.com
Debt Refinancing
PRY announced that it has refinanced $1.02b of debt that was due to mature in Dec12. The refinancing was supported by a syndicate lending group reduced to 8 banks. This includes: $770m 3 year 4 month non-amortising facility maturing Feb-15, at 225bps above BBSY $100m 3 year 4 month revolving working capital facility maturing Feb-15, at 225bps above BBSY $150m 5 year non-amortising facility maturing Oct-16, at 250bps above BBSY This is a ~75bp improvement on the 300bp margin on the existing facility. Interest expense for FY12 is expected to be ~$83m ($44m for 1H12, and $39m for 2H12). Amortisation of borrowing costs will be $14.5m for FY12, bringing the total interest expense to $97.5m. Amortisation of borrowing costs will reduce to ~$4.5m in FY13.
Earnings Revisions
We present the key revisions to our forecasts in the table below.
Table 1: Revisions to our forecasts
Profit and Loss Revenue - old Revenue - new Difference (%) EBITDA - old EBITDA - new Difference (%) EBIT - old EBIT - new Difference (%) PBT - old PBT - new Difference (%) NPAT to members - old NPAT to members - new Difference (%) EPS normalised - old EPS normalised - new Difference (%)
FY11E 1312.2 1312.2 0% 317.8 317.8 0% 235.6 235.6 0% 138.6 138.6 0% 78.3 78.3 0% 19.3 19.3 0%
FY12E 1413.0 1413.0 0% 360.6 360.6 0% 275.2 275.2 0% 185.0 177.7 -4% 130.4 125.2 -4% 26.1 25.1 -4%
FY13E 1490.0 1490.0 0% 380.8 380.8 0% 293.0 293.0 0% 205.1 205.5 0% 144.7 144.9 0% 29.0 29.0 0%
FY14E 1565.0 1565.0 0% 404.6 404.6 0% 313.7 313.7 0% 225.2 225.6 0% 158.9 159.2 0% 31.8 31.9 0%
Share Price Target

We revise our Jun-12 share price target for PRY from $3.92 to $3.87 on the back of earnings revisions made in this note. Our share price target is based on a DCF methodology (terminal growth assumption of 2.5%, WACC 9.7%). Our share price target implies the stock will be trading on a 12-month forward P/E of ~13.7x our earnings forecasts at this time. Risks to our share price target and Neutral rating could come from further Symbion acquisition integration problems, market share losses or gains, further unfavourable changes to Government policy, industry growth rates significantly above or below historical levels, or potential acquisitions.
2
72
Primary Health Care Limited

Y/E June Profit & Loss Statement (A$ millions) 1H11A 2H11A 1H12E 2H12E Trading Revenue 656 657 700 713 % change 0% 2% 7% 9% Operating Costs (505) (542) (523) (508) EBITDA 151 167 177 183 Depreciation (30) (31) (32) (32) EBITA 121 136 145 151 Amortisation (11) (11) (11) (11) EBIT 111 125 135 140 Net Interest Expense (47) (50) (50) (48) Pre-Tax Profit 64 75 85 93 Tax (19) (23) (25) (27) NPAT reported 45 52 60 66 NPAT attrib to OEI (1) (0) (0) (0) NPAT to members 44 51 60 65 Sig Items - post tax 24 7 NPAT to members - post sig items 20 58 60 65 EBITDA margin EBIT margin EPS Basic - reported (cps) EPS Diluted - reported (cps) EPS - Diluted adj (cps) % change DPS - reported (cps) % change Payout ratio (%) Franking (%) Effective Tax Rate (%) Guidance No specific guidance prov ided 23.0% 16.9% 4.1 4.1 8.9 -46% 3.0 -80% 73% 100% 29% 25.4% 19.0% 11.7 10.4 11.7 3% 5.0 -50% 48% 100% 31% 25.3% 19.3% 12.1 12.0 12.0 35% 6.0 100% 50% 100% 29% 25.7% 19.7% 13.1 13.1 13.1 12% 7.5 50% 58% 100% 29% FY11A 1312 1% (1,046) 318 (61) 257 (21) 236 (97) 139 (42) 97 (1) 95 17 78 24.2% 18.0% 15.8 15.8 19.3 116% 8.0 -68% 51% 100% 30% FY12E 1413 8% (1,030) 361 (64) 297 (21) 275 (97) 178 (52) 126 (1) 125 125 25.5% 19.5% 25.2 25.1 25.1 30% 13.5 69% 54% 100% 29% FY13E 1490 5% (1,086) 381 (66) 314 (21) 293 (88) 205 (60) 146 (1) 145 145 25.6% 19.7% 29.1 29.0 29.0 16% 20.3 50% 70% 100% 29% FY14E 1565 5% (1,136) 405 (70) 335 (21) 314 (88) 226 (65) 160 (1) 159 159 25.9% 20.0% 32.0 31.9 31.9 10% 28.7 41% 90% 100% 29% Shares: 500.3m Financial Ratios PE reported (x) PE "normalised" EV/EBITDA (x) P/GCFPS (x) Dividend yield (%) ROE ROIC ROIC (operations only) Gearing (ND/(ND+E)) Net Interest cov (EBIT) er Net Interest cov (EBITDA) er FY11E 17.1 17.1 8.5 10.2 2.4% 3.7% 4.9% 33.9% 30.0% 2.4 3.3 FY12E 13.2 13.2 7.5 8.3 4.1% 4.7% 5.5% 34.6% 28.6% 2.8 3.7 FY13E 11.4 11.4 7.1 7.1 6.2% 5.2% 5.8% 33.9% 27.0% 3.3 4.4 FY14E 10.4 10.4 6.7 6.7 8.7% 5.6% 6.2% 33.4% 26.2% 3.6 4.6 M'cap: A$1651m Price: A$3.30
PE "normalised' on 12 month forward basis 12.6x EV/EBITDA on 12 month forward basis 8.2x Note: ROIC = NOPLAT/Inv ested Capital, cummulativ goodwill amortisation is added back to IC e ROIC (operations only) remov goodwill from IC es Cashflow Statement (A$ millions) Net op cash flow Capex & Acquisitions Asset Sales & Property Dev Other investing cash flows Equity Raised Debt Repayment Debt Proceeds Proceeds of securitisation Dividends Paid Share buyback Other financing cash flows Net cashflow GCFPS (cps) Free cashflow ($m) FCF after capex/share (cps) Balance Sheet (A$ millions) Current assets PP&E Equity investments Intangibles Other non current assets Total assets Total liabilities Shareholder funds Total debt Cash Net debt Operating working capital NPV Valuation at discount rate FY11A 207 398 3,164 57 3,826 1,321 2,504 1,118 43 1,074 77 9.7% A$m 822 539 183 85 (29) 1,600 (1,061) 1,271 1,809 A$ 1.64 1.08 0.36 0.17 (0.06) 3.20 (2.12) 2.54 3.62 -5.8% EV/EBITDA 8.7x PE 13.8x FY12E 226 420 3,143 14 3,804 1,228 2,576 1,038 7 1,030 55 FY13E 190 445 3,121 124 3,881 1,243 2,638 1,048 72 975 122 FY14E 263 472 3,100 86 3,921 1,249 2,673 1,048 98 950 150 FY11A 160 (174) 1 (24) 0 (160) 266 (45) (8) 18 32 (19) 12 FY12E 199 (100) 0 0 (80) 0 (55) (36) 40 99 23 FY13E 230 (91) 0 0 10 (84) 65 46 139 28 FY14E 247 (96) 0 0 0 (125) 25 50 151 30
Sales by Division (A$ millions) Medical Centres Pathology Diagnostics Health Technology Other & Inter-segmentals Total EBITDA by Division (A$ millions) Medical Centres Pathology Diagnostics Health Technology Other & Inter-segmentals Total EBITDA Margin by Division (A$ millions) Medical Centres Pathology Diagnostics Health Technology Total 1H11A 2H11A 1H12E 2H12E 54.1% 55.3% 54.9% 55.8% 15.2% 16.8% 17.6% 16.7% 14.5% 15.9% 15.4% 15.5% 39.8% 40.1% 42.0% 42.0% 23.0% 25.4% 25.3% 25.7% FY11A 54.7% 16.0% 15.2% 39.9% 24.2% FY12E 55.4% 17.2% 15.5% 42.0% 25.5% FY13E 56.2% 16.1% 15.5% 42.0% 25.6% FY14E 56.2% 16.1% 15.4% 42.0% 25.9% 1H11A 2H11A 1H12E 2H12E 74 76 81 88 55 63 69 67 21 22 23 23 10 10 11 11 (9) (5) (6) (4) 151 167 177 183 FY11A 150 119 43 20 (14) 318 FY12E 168 136 46 21 (11) 361 FY13E 188 134 48 22 (10) 381 FY14E 203 140 49 22 (9) 405 1H11A 2H11A 1H12E 2H12E 138 137 147 157 364 376 394 401 145 140 150 147 24 24 25 25 (15) (21) (16) (16) 656 657 700 713 FY11A 275 740 285 49 (36) 1,312 FY12E 303 794 297 50 (32) 1,413 FY13E 334 831 307 52 (35) 1,490 FY14E 360 871 317 53 (36) 1,565
Medical Centres Pathology Diagnostics Health Technology Investments & Other Operational NPV (10yr forecast) Net Debt Terminal Value Group NPV Share price prem/(disc) to NPV
12 month forward multiples implied in our valuation
73
74
North America Equity Research

20 October 2011
Initiation
Macy's, Inc.
Winning at Its Own Game; Core Long Term Holding; Initiating with Overweight
We are initiating coverage of Macys with an Overweight rating and December 2012 $36 price target. Macys represents a core long term holding and strong multi-year investment opportunity given among the strongest arsenals of top-line (My Macys, Omni-Channel) and margin drivers (price optimization) in retail today, best-in-class management, and more than reasonable valuation (9.4x P/E & 5.0x EBITDA). Multi-year investment with drivers properly aligned: With top-line drivers My Macy's, Direct growth, and Magic selling in early innings and Omni-Channel a 2013 driver (~2% SSS lift for JWN), we see sustainable 3.0%-5.0% comps for 3-5 years. On margins, we see 215bps of expansion through 2013 and view 15% EBITDA (13% today / mgmt goal of 14-15%) as realistic given inventory management, credit, private and exclusive growth, and price optimization drivers. Winning at its own game. Macy's has recently separated itself from moderate peers JCP/KSS, in our view. While the promotional environment continues to heat up, we believe M can and will continue to win by focusing on its own strategy (brand, price, quality trio) via internal initiatives (My Macys, Omni-Channel, Magic Selling). With a best in class management team (in our view) and continued innovation, we believe M can reach former peak productivity levels over time. 2H11 EPS potential upside minimal, but does not derail the story. We see minimal EPS upside over the next two quarters ($0.01 and $0.02 above the Street in 3Q and 4Q11) given free shipping and online/Omni-channel spending. While below the trailing six quarter average $0.06 beat, this does not derail the story as we see 2012 EPS of $3.15 (vs. Street at $3.04) driven by 3.6% SSS, GPM -11bps, SG&A $ up 2.8%, and $250mil in buybacks with additional upside levers, in our view. Balance sheet strength with 9.5% FCF yield provides support. With annual estimated FCF generation of $1.7 bil for the next 3 years and $1.5bil on hand, Macys balance sheet is a far cry from 2008. With debt ratios in line, Ms priority is shareholder returns and we see an increased focus on share buybacks post-holiday as a catalyst.
Overweight
M, M US Price: $29.42 Price Target: $36.00
Broadlines Retailing, Apparel & Footwear Matthew R. Boss, CPA

AC
(1-212) 622-2630 matthew.boss@jpmorgan.com
Anne McCormick
(1-212) 622-4163 anne.e.mccormick@jpmorgan.com J.P. Morgan Securities LLC
Price Performance
27 25 $ 23 21 19
Aug-10 Nov-10 Feb-11 May-11 Aug-11
Abs
YTD -3.1%
1m -7.6%
3m -7.6%
12m 26.5%
$36 PT See upside to the multiple and "E": At 9.4x our 2012E EPS and 5.0x EBITDA Macys trades among the cheapest names in retail today. The disconnect between sustainable EPS growth (mid-teens+) and its current market multiple creates a compelling entry point today, in our view. Our $36 December 2012 price target is based on 11.5x (above the trailing 3-year average) our 2012E EPS of $3.15.
Macy's, Inc. (M;M US) FYE Jan EPS (Operating) ($) Q1 (Apr) Q2 (Jul) Q3 (Oct) Q4 (Jan) FY P/E (Operating) FY
2010A 0.09 0.34 0.08 1.59 2.11 13.9
2011E 0.30 0.55 0.17 1.68 2.70 10.9
2012E 3.15 9.4
Source: Company data, Bloomberg, J.P. Morgan estimates. EPS presented on an operating basis (excluding integration/restructuring charges).
Company Data Price ($) Date Of Price 52-week Range ($) Mkt Cap ($ mn) Fiscal Year End Shares O/S (mn) Price Target ($) Price Target End Date
29.42 19 Oct 11 30.62 - 21.69 12,624.12 Jan 429 36.00 31 Dec 12
See page 27 for analyst certification and important disclosures.

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Matthew R. Boss, CPA (1-212) 622-2630 matthew.boss@jpmorgan.com
North America Equity Research 20 October 2011
Investment Thesis
Macys Inc (M)
Overweight
Multi-year story with drivers properly aligned The pace of Macys top-line turnaround has been impressive, in our view, with monthly comps averaging 5.6% year to date and +3.4% over the past 24 months (since August 09), exceeding the trailing two year average of -4.7% (Aug 2007-July 2009) by a delta of 810 basis points. With top-line momentum building and strategic and merchandising drivers in early innings (My Macys, Omni-channel, Magic selling), we believe top-line strength is sustainable for the next few years. 2013 represents the next leg in the margin storyline We believe Macys has among the top lineups of margin drivers over the next several years with price optimization, My Macys, and Omni-Channel all in early innings. We are modeling 215bps of EBIT margin expansion over the next three years to 9.8% in 2013 (from 7.7% in 2010) a level we feel could prove conservative. The company has provided a longer term goal of 14-15% EBITDA margin (we model 13.6% in 2013 from 12.3% today), which we believe is more than realistic over time given inventory management, continued credit benefit, private and exclusive growth, and price optimization (2013) drivers. Winning at its own game Macy's has recently separated itself from the moderate pack, particularly peers JCPenney and Kohl's. While the promotional environment continues to heat up - we believe Macy's can and will continue to win through focusing on its own strategy (brands, price, quality trio) and through internal initiatives (My Macys, OmniChannel, and Magic Selling). With what we view as a best in class management team, we believe Macys will continue to drive innovation that will prove essential on closing the productivity gap from former peak sales per square foot levels. $1.7 billion in free cash flow should provide increased flexibility Over the past three years Macys has transformed the face of its balance sheet, increasing its cash on hand from $583 million at the end of 2007 to $1.5 billion today while at the same time paying down roughly $2.6 billion in long term debt. Placing a priority on the capital structure with a focus on investment grade again, management is actively tracking their credit ratios (leverage ratio and interest coverage in line today). Looking forward, we are modeling free cash flow generation of $1.7 billion per annum over the next three years, which should provide a lot of dry powder to significantly increase shareholder returns through share repurchases and dividends catalysts we see on the horizon post the upcoming holiday. Lease by lease rationalization looks prudent w bloomy outlets NT driver Consistent with the past two years, we expect Macys to continue to prune its store base in a rational manner (a few stores per year) as leases come due. Specifically, the company closed four stores in 2010 and plans to close two incremental stores in 2011. Looking forward, we believe Macy's will review each store from a productivity and profitability standpoint as leases expire and close doors that fall below set thresholds, but do not anticipate a large closing announcement. For the time being, Macys new Bloomingdales outlet concept (4 today) remains the growth vehicle (25K sq ft) with 3-5 openings per year planned.
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Valuation we see upside to both the multiple and "E" At 9.4x EPS and 5.0x 2012E EBITDA, M trades among the cheapest names in retail, which given the current disconnect between sustainable EPS growth (mid-teens+) and current market multiple creates a compelling entry point today, in our view. While the company has posted industry leading top-line results, cut its expense base by $550 million, and reduced debt on the books by $2.6 billion over the past three years, we believe Macy's valuation metrics are not reflective of a continued turnaround story. Our December 2012 price target is $36, representing 22% upside from here, which is based on 11.5x our 2012 EPS of $3.15. Our target multiple of 11.5x represents a 9.5% premium to the companys 3-year historical average, which we believe is appropriate given the turnaround effort is in early innings with current initiatives (My Macys, Direct) in place, and the next leg up with same-store-sales and margins in 2013 as the impact of price optimization and Omni-Channel begin to show up in the company results .
Risks to Rating and Price Target

Economic climate The economic climate, particularly the employment picture, can affect consumer spending and the department store industry. A greater than expected downturn in household spending could cause sales trends to decelerate below our current assumptions rendering our estimates too high. Competition A change in the competitive landscape as related to promotional activity particularly from moderate peers JCP and KSS could negatively impact same-store-sales growth. Increased inventory Greater inventory availability in the department store channel, particularly from Kohl's and JCPenney could result in excess clearance markdowns negatively impacting gross margin more than we are current modeling.
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Company Description
Macys, headquartered in Cincinnati, OH, and New York City, is a chain of department stores operating under the Macys and Bloomingdales names. As of 2Q11, the company operated 804 Macys stores, 41 Bloomingdales, and 4 Bloomingdales Outlets. Macys and Bloomingdales stores sell a variety of mens and childrens apparel (23%), womens apparel (26%), accessories, intimates, shoes and cosmetics (36%), and home furnishings (15%). Formerly Federated Department Stores, the company acquired May Company in August 2005 and changed its name to Macys in 2007. Macys Inc., with 2010 revenues of $25.0 billion, also operates two ecommerce sites at www.macys.com, and www.bloomingdales.com.
Table 1: Department Store Comparable Metrics

Dillard's DDS Selling Statistics: Same Store Sales (a) Store Count Sq. Footage (Total - '000s) Sales/Sq. Ft. Inventory/Sq. Ft Financial Statistics: Total Sales ($ Millions) (a) Gross Profit Margin (a) SG&A % of sales (a) EBIT Margin (a) Inventory Turnover Debt-to-Cap Ratio CapEx ($ Millions) Free Cash Flow ($ Millions) Geographic Store Base: Northeast Southeast Midwest Southwest West Other: Private Label & Exclusive Mix Average Household Income 3.2% 305 53,500 $114.53 $24.11 $6,230 35.7% 26.3% 6.5% 3.1x 26.7% $98 $404 0.0% 46.2% 16.5% 27.8% 9.5% 22.1% 87,500 JCPenney JCP 1.0% 1106 111,662 $159.07 $28.77 $17,561 38.3% 30.1% 5.1% 3.5x 36.2% $499 $218 16.2% 26.9% 27.8% 12.1% 16.4% 55.0% 70,000 Nordstrom JWN 6.6% 213 23,838 $399.48 $40.98 $10,409 37.3% 26.4% 11.8% 6.3x 57.9% $399 $640 11.3% 14.6% 11.9% 9.3% 53.0% 10.0% 100,000 Kohl's KSS 1.5% 1097 96,000 $194.61 $31.63 $18,976 38.3% 22.6% 11.5% 3.8x 33.7% $801 $812 22.3% 16.8% 35.1% 10.9% 14.9% 53.0% 70,000 Macy's M 5.1% 850 154,177 $162.05 $30.86 $26,338 40.5% 31.8% 8.7% 3.2x 57.3% $339 $1,141 24.9% 19.0% 18.5% 9.3% 28.1% 43.0% 75,000 Saks SKS 9.2% 105 7,092 $384.02 $94.67 $3,023 40.9% 25.2% 5.4% 2.2x 30.3% $56 $20 19.4% 30.6% 19.4% 13.8% 16.8% 10.0% 175,000
Source: Company reports and J.P. Morgan estimates. (a) Reflects 2011E
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Playing and Winning at Its Own Game

Emerging from the recession in 2009, Macy's initiated a strategy to strengthen the organization for the long term focused on sustainable top-line growth, increased profitability, and improved free cash flow. Over the past three years, Macy's rolled out the My Macy's localization initiative, reduced its expense base by roughly $550 million (largely permanent in nature: central office expenses, workforce management, distribution staff), and paid down over $2.6 billion in debt. In the stores, Macys initiated successful change through basic Retail 101 blocking and tackling localizing its assortments, focusing its advertising, and improving its offering through fashion and newness (i.e. INC, Tommy Hilfiger, Martha Stewart Collection). Specifically, the My Macy's localization effort has helped to put the right product on the floor by region and store level at the right time and in the appropriate quantity - improving sales and limiting clearance markdowns. Importantly, during a time of company transition and an increasingly competitive environment, management has stuck to the game plan, executing on top-line, margin, and balance sheet initiatives, which we believe has bolstered credibility and confidence in the turnaround effort. Looking forward, we believe additional market share remains up for grabs and see Macy's as the primary beneficiary.
Table 2: SSS Past 6 Quarters
M KSS JCP Average 1-Year 5.1% 3.5% 2.3% 3.7% 2-Year 3.0% 5.6% -1.5% 2.4%
Separating from Peers in the Moderate Space

While price competition is increasing (KSS and JCP both speaking to sharpening price points), we believe Macy's has taken the steps over the past three years to effectively tailor its assortment at the store level with the right mix of quality private label and national brands at compelling prices. As illustrated in Table 3 below, the spread between Macys same-store sales and JCPenney/Kohls has widened to 437 basis points over the past 12 months (versus the past two years). Three key reasons, in our view: (1) Sharper price points and laddered assortment of good-better-best private label and national brands, (2) Higher level of fashion/newness, (3) Tailored assortments to the local demographic (colors, sizing, styling).
Table 3: Macy's Same-Store-Sales Versus JCP & KSS
Past 6 months Past 12 months Trailing 2-Year Average (9/08-8/10) 5-Year Average (2006-2011)
Source: Company reports.
Source: Company reports. 1Q10-2Q11.
M vs. JCP 5.4% 3.2% 2.5% 1.6%
M vs. KSS 4.0% 3.2% (2.4%) (0.5%)
M vs. JCP/KSS Average 3.5% 2.8% -1.6% -0.1%
Ms pace of share gains versus JCP and KSS has accelerated at a rapid pace over the past 12 months
Sticking to the Playbook Key to Continued Share Gains

While we acknowledge investor concerns that a more promotional environment is a net negative for all, we believe Macys has the ability to navigate best, given that it is sticking to its game plan. To this end, company specific top-line drivers include (1) My Macys Localization, (2) Omni-Channel, (3) Magic Selling - all of which remain in early innings today.
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Recession Analysis Highlights $1.2bil Lost Volume

While Macy's turnaround initiatives have borne fruit over the past few years, the company's top line remains 7.3% below pre-recession levels (2006). In table 4 below, we point out that Macys lost $3.2 billion in top-line sales during the course of the recession from 2007 to 2009. While cognizant of numerous external factors impacting top-line sales since that time, Macys sales increased over $2.0 billion through September 2011, representing 64% of the volume lost during the recession. Fully recognizing that a portion of share lost during the recession may not be recovered, we believe this analysis points to continued opportunity looking forward.
Table 4: Recession versus Recovery Analysis (2007-Present)
Net Revenues YOY Delta 2007-2009 Loss 10-'11 YTD Recovery Opportunity Remaining 2005 $22,390 2006 $26,970 $4,580 2007 $26,316 ($654) 2008 $24,892 ($1,424) 2009 $23,895 ($997) ($3,075) 2010 $25,003 $1,108 2011 YTD $17,161 $978 $2,086 ($989) Macy's has recovered 68% of total sales lost during the recession (2007-2009) with $989 million remaining.
Source: J.P. Morgan estimates, Company data. Note: 2011 delta is Feb-September
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Multi-Year Story with Top-Line Initiatives in Early Innings

The pace of Macys top-line turnaround has been impressive with monthly comps averaging 5.6% year to date and +3.4% over the past 24 months (since August 09), exceeding the trailing two year average of -4.7% (Aug 2007-July 2009) by a delta of 810 basis points. With top-line momentum building and strategic and merchandising drivers in early innings (My Macys, Omni-channel, Magic selling), we believe topline strength is sustainable for the next few years. As illustrated below, we have put together a bottoms-up same-store-sales component build for 2012 and see comps up 3.6% - a rate that we believe is conservative (particularly the Omni-Channel,. My Macys, and Direct sales contribution), but prudent at this juncture given an uncertain macroeconomic backdrop.
Table 5: 2012 Same-Store-Sales Component Build-Up
Component Base Core SSS Direct Growth Sub-Total My Macy's (Year 3) Bloomingdales Omni-Channel/Magic Total Comp 1.0% 0.8% 1.8% 0.8% 0.5% 0.5% 3.6% Model Notes Modeling conservative given macro/tougher comparisons Modeling below 0.9% lift to 2010. 1H11: +39-40% YOY Year 1 Spring lift +2.6% / Year 2 estimate +1-2% Expect continued outperformance (estimate 1-2% lift in 2010) Search & Send to 150 doors (23 today) / Magic selling traction
3 Strategic Initiatives Driving the Turnaround

Macys has implemented three key strategic initiatives within the last 3 years to turnaround its lagging sales (2007-2009 run-rate of -3.8%). These include (1) The My Macys Localization Program, (2) Omni-channel/Direct, and (3) Magic Selling. Initiative 1: My Macys Localization Initiative Year 3 = 3rd/4th Inning Piloted in 2008 and rolled out chain-wide in early 2009, the My Macys localization program is currently in year three, with benefits remaining in only the 3rd or 4th inning. In a nutshell, the My Macys initiative aims to optimize selling by focusing on tailoring merchandise assortments to specific demographics and demand at the local market or store level. To this end, inventory is controlled locally based on demand facilitating increased levels of full-price selling and limited clearance markdowns. In the process, 49 new store districts were created, bringing the total to 69 today with managers having more autonomy in the field (10-12 stores each versus 16-23 in the past).
Table 6: Online Sales Penetration
2006 2007 2008 2009 2010 2011E Sales ($ mil) $620 730 950 1000 1287 $1650 % of Total 2.3% 2.8% 3.8% 4.2% 5.1% 6.3%
Initiative 2: Omni-channel Integration Effort = 1st Inning Launched in 2010, Macy's Omni-Channel initiative is geared toward integrating inventory management across all channels (stores, online, mobile) to allow customers a seamless shopping experience. With internet sales of $1.3 billion as of 2010 (5% of sales), direct growth has become a significant driver of total company same-storesales (modeling 0.75% comp lift in 2012 versus 0.9% in 2010 and 1-1.5% in 2011), raising the importance of this initiative. Specifically, the initiative is three pronged (1) Search & Send, (2) Store to Door, and (3) Site to Store to Door. First, Search & Send (23 stores today with 150 planned by 2012 end) facilitates purchases not available in-store through utilization of online inventory. Secondly, store to door
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Table 7: Search and Send

2010 2Q 2011 2012E # of Stores 4 23 150
Source: Company reports
(currently in testing phase) provides sales associates with access to inventory across the store base, which we see not only as a means of satisfying demand, but also an additional tool to manage per store inventory more efficiently. Finally, Macys Site to Store to Door program (2H11 roll-out) allows online buys to be fulfilled using instore inventory, treating the stores more/less as fulfillment centers. Additional mobile technology initiatives include (1) iShop (shopping application for the iPhone), and (2) Shopkick (location based shopping application). Initiative 3: MAGIC Selling Implemented in 2010, Magic selling is an enhanced associate training program aimed at accelerating sales through focus on increased conversion. Sales associates are trained in selling through the following steps: Meet & Make a Connection; Ask Questions and Listen, Give Options, Give Advice; Inspire to Buy and Sell More; and Celebrate the Purchase.
Table 8: Private & Exclusive Brands

Private Brands INC Style & Co Alfani American Rag Charter Club Club Room Karen Scott JM Clooection John Ashford Tasso Elba The Cellar First Impressions Giani Bernini Hotel Collection Tools of the Trade
Merchandising Initiatives Hitting Its Stride

Over the past few years, Macys has worked to revitalize the store experience through improving its private brand offering, and increasing its fashion/newness element through exclusive launches and improving the presentation and display of key national brands. Private and exclusive brands currently represent 43% of sales today (20% private label & 23% exclusive). Importantly, in 2010, private and exclusive brands outperformed national brands, which we attribute to strength from (1) strength in INC and American Rag, (2) compelling initial price point offerings of Karen Scott, and (3) continued strength of exclusives Tommy, and Martha Stewart. Looking forward, we expect to hear of continued additions to the exclusives portfolio, including recent additions Karl Lagerfield capsule collection, Bar III, and Impulse Beauty. In addition, we will be monitoring progress on in-store initiatives that include the relaunch of Charter Club over the next few months.
Exclusive Brands Tommy Hilfiger Martha Stewart Collection Ellen Tracy Material Girl Kenneth Cole Reaction Vida for Espana/Eva Mendes Threads & Heirs Kouture by Kimora mstylelab Bar III Rachel Bilson Dinnerware Sean John Collection Rachel by Rachel Roy Karl Lagerfield Capsule Impulse Beauty
Rising AUR+ Stable Traffic = A Powerful Combination

With average unit retail (AUR) rising given price increases from higher materials costs (i.e. cotton), we believe it is increasingly important to monitor traffic levels at the department stores as a proxy for demand. With AUR up 4% in 2Q11 and guidance calling for a 5-7% increase in 2H11, stability in traffic will be very important to monitor closely.
Productivity Levels Improving But Still Substantial Room

Following five years of consecutive declines (2005-2009) from $185 to $155 per square foot, Macy's sales per square foot improved by 4.6% in 2010 and we are modeling further productivity improvement over the next two years. Specifically, we are modeling sales per square foot of $179 in 2012 - an 11% improvement from 2010, but still 5% below its near-term peak of $188 in 2004. Given the My Macys localization initiative, increased penetration of direct sales, Omni-channel's multiyear opportunity and Magic selling, we do not see 2004s productivity levels as a ceiling by any means.
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Figure 1: Macys Sales per Square Foot (2004-2011E)

$195 $190 $185 $180 $175 $170 $165 $160 $155 $150 2004 2005 2006 2007 2008 2009 2010 2011E
$188.1 $185.2
M's sales per square foot increased 4.6% to $162.1 in 2010 following 5 years of decline. We are modeling a 5.4% increase in 2011 as Macy's closes the productivity gap.
$171.3
$169.0 $161.1 $154.9 $162.1
$170.8
Tougher Comps Ahead Are Worth Noting

Table 9: 2-Yr Stacked SSS - Forward Four Quarter Average
Company DDS JCP M KSS SKS JWN Fwd 4Q Avg 0.5% 1.4% 6.5% 7.1% 8.9% 13.2%
As illustrated in Figure 2 below, Macys faces tougher two-year compares in 2H11 of 1.9% and 6.5% through 1H 2012 versus a trailing four quarter average of -6.3%. While we believe the companys top-line initiatives will more than offset tougher compares, we believe it is worth noting steeper comparisons ahead. Looking across the department store spectrum, Macys compares over the next four quarters (+6.5%) fall slightly above its peer average of 6.2% (Table 9 at left).
Figure 2: Macy's 2-year Stacked Comparisons (2009-Present)
5.0% 3.0% 1.0% -1.0% -3.0% -5.0% -7.0% -9.0% -11.0% -13.0% 1Q09 2Q09 3Q09 4Q09 -11.6% -11.6% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11E 4Q11E -2.1% -3.5% -4.7% -6.8% -9.0% -9.6% -7.8% -4.4% Macy's faces 2-year compares of +1.9% over the next two quarters, which stands substantially above its trailing four quarter average of -6.3%. 0.3% 3.5%
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15% EBITDA Margin Realistic Over Time

We are modeling 215bps of EBIT margin expansion over the next three years to 9.8% in 2013 (7.7% in 2010) a level we feel could prove conservative. Driving the projected expansion would be continued SG&A leverage to an estimated 30.6% of sales offset partially by gross margin compression of 25 basis points. Importantly, the company has provided a longer term goal of 14-15% EBITDA margin (we model 13.6% in 2013 from 12.3% today), which we believe is more than realistic with 15% reasonable over time Looking forward, we believe SG&A expense leverage will continue to be the workhorse over the next several years driven by fixed cost leverage at a 1-2% comp (given permanent cost cuts), improved credit metrics, and more efficient advertising. We are modeling 31 basis points of gpm compression over the next two years given higher product costs and free shipping headwinds, but believe price optimization, private brand expansion, omni-channel benefits, and further My Macys levers could help to turn GPM positive in 2013 (not currently modeling).
Figure 3: EBITDA Margin (2002-2013E)
16.1% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E 10.9% 11.1% 14.0% 14.2% 13.6% 13.1% 12.8% 12.3% 13.0% 13.2% 14.7% M has improved its EBITDA margin by 140bps to 12.3% in 2010 from a trough of 10.9% in 2008. We are conservatively modeling 13.6% by 2013 versus mgmt's stated goal of 14-15% over time.
2013 Potential Gross Margin Inflection- NOT in Our Model

We are modeling roughly 25 basis points of gross margin degradation over the next two years as we expect inflationary product costs, free shipping as online becomes a larger piece of the pie, and a promotional backdrop to mute tailwinds from My Macys and private and exclusive brand expansion. While we are modeling flattish in 2013 we believe the initial benefits of price optimization/zone pricing represents a potential upside lever to our model. Below we outline the drivers and headwinds of gross margin over the next three years: Private & Exclusive Brand Expansion: Macy's penetration of private and exclusive brands (modestly higher GPM) currently stands at 43% (20% private label and 23% exclusive), below peers Kohl's at 53% and JCPenney at 55%. As illustrated in Table 10 below, the company's private label penetration of 20% stands below peers (KSS at 35% / JCP at 49%). Given its success with exclusives such as Tommy Hilfiger and
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Martha Stewart, along with strong improvement with INC private brand, we expect continued expansion, although at a controlled pace dictated by customer demand.
Table 10: Private & Exclusive Penetration
M Private Label Exclusive Total
Figure 4: Macy's Private Label Penetration

JCP 49.0% 6.0% 55.0%
20.5% 20.0% 19.5% 19.0% 18.5% 18.0% 17.5% 17.0% 16.5% 2003 2004 2005 2006 2007 2008 2009 2010 17.0% 17.4% 18.0% 18.2% 19.0% 19.0% 19.0% M has growth its private label brand portfolio 300 bps over the past 8 years, but remains significantly below KSS and JCP at 35% and 49%, respectively. 20.0%
KSS 35.0% 18.0% 53.0%
20.0% 23.0% 43.0%
My Macys Localization Initiative: Through localizing product assortments and focusing its buying, the My Macys initiative has resulted in more full-priced selling and improved inventory management through reduced clearance markdowns and higher inventory turns. Importantly, management believes this initiative remains in only the 3rd or 4th inning today and we see gross margin benefits over the next several years. Price Optimization is the Catalyst for Potential 2013 GPM Expansion: While just in early testing phase today, Macys plans to rollout its price optimization initiative in stages over the course of 2012. While not modeling, we expect initial benefits of Macys price optimization initiative to begin to benefit the income statement in 4Q12 (minimal) with more meaningful upside potential in 2013 and beyond. This technology enhancement should allow Macys to manage the timing and level of markdowns on a regional basis. While too early to quantify financial benefits, it is worth pointing out that Kohl's saw several hundred basis points of gross margin improvement since initial rollout of similar technology in 2006. Free Shipping and Rising Product Costs Headwinds For Now: In January 2011 Macys implemented free shipping on orders exceeding $99 online. While the company will fully lap this gross margin headwind in early 2012, the free shipping headwind should moderate, but remain to an extent given a higher growth rate of online sales (30-40%) versus in-store sales (+MSD) today. On rising product costs, Macys (like all retailers) is facing higher costs of goods given rising input costs and labor rates overseas. To offset a portion of this margin pressure, average unit retail (AUR) is planned up 5-7% in 2H11. While this raises the risk profile regarding customer acceptance, demand elasticity remained favorable to initial price increases through wave one in 2Q.
SG&A Remains an Area for Opportunity Ahead

While Macys has cut roughly $550 million in expenses since the 2006 divisional consolidation (largely permanent in nature), we see drivers for continued SG&A leverage over the next several years. Primary drivers include (1) sales leverage at a 12% comp, continued credit benefits, lower depreciation, and more efficient
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advertising. Offsetting a portion of the upside, we are modeling higher pension and workers compensation expenses and have built in spending for the company's direct growth and Omni-Channel initiative. All in, we are modeling an increase in core SG&A expenses of $340 million over the next two years (2011/2012), representing leverage (as a % of sales) of 124 basis points in 2011 and 65 bps in 2012.
Figure 5: SG&A Per Square Foot (2010)
$48.0 $47.5 $47.0 $46.5 $46.0 $45.5 $45.0 M KSS JCP
Source: Company reports. Note: Excludes pension & depreciation expense.
Table 11: Macy's SG&A (ex pension & depreciation) - 2006-2011E

$47.9
SG&A (% of sales) Basis Points YOY SG&A $ (per square foot) 2006 26.9% $46.4 2007 27.0% 14.8 $45.9 2008 28.4% 133.8 $45.9 2009 28.6% 25.1 $44.3 2010 27.9% -77.7 $45.2 2011E 27.0% -86.3 $46.1
$46.3
Source: J.P. Morgan estimates Company data.
$45.2
Deep Dive Analysis Highlights Pockets Of Opportunity

In Table 11 below, we broke down Macys SG&A expense structure and created a bottom's up build for forward looking model projections. Looking forward, we see 189 basis points of leverage through 2012. FC Hurdle Rate Below 2% Allows For Continued Leverage With $490 million of expenses (ex depreciation/advertising) pulled from the company's operating structure, Macys has been able to reduce the comp needed to leverage fixed expenses from roughly 3% before the consolidation to 1-2% today. As such, we are modeling core leverage of approximately 50 basis points per annum over the next two years. Credit Tailwind to Continue with Diminishing Level of Benefit Given improving credit portfolio metrics, Macys has recently benefited from improved credit income (+$9.0 mil in 2010), following three years of decline. Specifically, credit income declined $203 million from 2.0% of sales in 2006 to 1.3% of sales in 2010. Notably, the company has reported an improvement of $82 million in 1H 2011 and anticipates continued gains (diminishing rate) looking forward. We are modeling a credit tailwind of $127 million in 2011 and are conservatively estimating a $38 million benefit in 2012. More Efficient Use of Advertising Given increased digital advertising and more targeted efforts (via Dunhumby partnership), Macys was able to reduce ad spend by $15 million in 2010 and we see continued opportunity (yet at a declining rate) going forward. For reference, Macys ad spend (as a % of sales) has remained fairly constant, standing at 4.2% today. Pension, Workers Comp and Online/Omni-Channel Spending Partial Offsets Over the next two years, we are modeling pension and workers compensation headwinds of $45 million and $63 million, respectively. In addition, we are modeling
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increased spending/investment around the companys online expansion and OmniChannel initiative as a partial offset of fixed cost leverage given mid-single-digit same-store-sales.
Table 12: SG&A Line Item Build-Up (2006-2011E)
"Core" SG&A Expenses $ Change YOY As a % of Sales Basis Point Change YOY Workers Comp/Gen liability $ Change YOY As a % of Sales Basis Point Change YOY Pension $ Change YOY As a % of Sales Basis Point Change YOY Depreciation & Amortization $ Change YOY As a % of Sales Basis Point Change YOY Stock based compensation $ Change YOY As a % of Sales Basis Point Change YOY Advertising Expense $ Change YOY As a % of Sales Basis Point Change YOY Credit Income $ Change YOY As a % of Sales Basis Point Change YOY Total SG&A $ Change YOY YOY % Growth As a % of Sales Basis Point Change YOY 2006 6369.0 23.6% 150.0 0.6% 158.0 0.6% 1265.0 4.7% 91.0 0.3% 1171.0 4.3% 526.0 2.0% 8678.0 32.2% 2007 6164.0 -205.0 23.4% -19.2 150.0 0.0 0.6% 1.4 132.0 -26.0 0.5% -8.4 1304.0 39.0 5.0% 26.5 60.0 -31.0 0.2% -10.9 1194.0 23.0 4.5% 19.5 450.0 -76.0 1.7% 24.0 8554.0 -124.0 -1.4% 32.5% 31.5 2008 5992.0 -172.0 24.1% 64.9 164.0 14.0 0.7% 8.9 114.0 -18.0 0.5% -4.4 1278.0 -26.0 5.1% 17.9 43.0 -17.0 0.2% -5.5 1239.0 45.0 5.0% 44.0 372.0 -78.0 1.5% 21.6 8458.0 -96.0 -1.1% 34.0% 138.5 2009 5879.0 -113.0 24.6% 53.1 124.0 -40.0 0.5% -14.0 110.0 -4.0 0.5% 0.2 1210.0 -68.0 5.1% -7.0 76.0 33.0 0.3% 14.5 1087.0 -152.0 4.5% -42.8 323.0 -49.0 1.4% 14.3 8163.0 -295.0 -3.5% 34.2% 18.3 2010 6012.0 133.0 24.0% -55.8 148.0 24.0 0.6% 7.3 144.0 34.0 0.6% 11.6 1150.0 -60.0 4.6% -46.4 66.0 -10.0 0.3% -5.4 1072.0 -15.0 4.3% -26.2 332.0 9.0 1.3% 2.4 8260.0 97.0 1.2% 33.0% -112.6 2011E 6217.1 205.1 23.6% -43.5 171.2 23.2 0.7% 5.8 158.0 14.0 0.6% 2.4 1110.0 -40.0 4.2% -38.4 68.5 2.5 0.3% -0.4 1106.0 34.0 4.2% -8.7 459.0 127.0 1.7% 41.5 8371.7 111.7 1.4% 31.8% -120.8 2012E 6372.6 155.4 23.1% -54.0 193.4 22.2 0.7% 5.0 207.2 49.2 0.8% 15.0 1080.0 -30.0 3.9% -30.5 71.8 3.4 0.3% 0.0 1146.3 40.4 4.2% -5.0 497.2 38.2 1.8% 5.7 8574.0 202.3 2.4% 31.0% -75.2
Source: J.P. Morgan estimates, Company data. Note: Workers comp in 2006 & 2007 is an estimate based on the average of 2008-2010.
We are modeling overall SG&A leverage of 121 basis points in 2011, but have cut the rate of expansion in half looking to 2012 (modeling 75 bps of leverage).
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Balance Sheet Affords Flexibility

Table 13: Credit Ratios
Target Ratios Debt/EBITDA EBITDA/Interest
Goal 2.4-2.7x 6.4-6.6x
2Q TTM 2.7x 6.4x
Over the past three years, Macys has transformed the face of its balance sheet, increasing its cash on hand from $583 million at the end of 2007 to $1.5 billion today while at the same time paying down roughly $2.6 billion in debt. Placing a priority on the capital structure and to achieve investment grade rating again, management is actively tracking their credit ratios (leverage ratio and interest coverage). Looking forward, we are modeling free cash flow generation of $1.7 billion per annum over the next three years, which should provide a lot of dry powder to increase shareholder returns through share repurchases and dividends.
Figure 6: Department Store Free Cash Flow Yield Comparison
14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% DDS M KSS SKS JWN JCP
13.3%
9.5%
Macy's FCF Yield is impressive at 9.5% second to only Dillard's a nd outpacing moderate peers KSS/JCP at 6.1%.
7.6%
6.8%
6.3% 4.5%
FCF Generation of $1.7 billion for the Next 3 Years

We are modeling annual free cash flow generation of roughly $1.7 billion over the next three years (2011-2013E), which is more than three times its free cash flow generation just three years ago (2008). With $1.5 billion of cash on hand as of 2Qend, this level of free cash flow should provide substantial dry powder for share repurchases and/or increased dividends in 2012.
Table 14: Macy's Free Cash Flow 2004-2013E
Net Income Noncash Charges Depreciation & Amortization Free Cash Flow Operations Working Capital Decrease/(Increase) Capital Expenditures Free Cash Flow (FCF) Dividends Net Free Cash Flow
Source: Company reports and J.P. Morgan estimates
2005 $1,406.0 194.0 943.0 2,543.0 (95.0) (568.0) 1,880.0 (157.0) 1,723.0
2006 $995.0 628.0 1,265.0 2,888.0 (846.0) (1,317.0) 725.0 (274.0) 451.0
2007 $818.0 219.0 1,304.0 2,341.0 (230.0) (994.0) 1,117.0 (230.0) 887.0
2008 $290.4 187.0 1,278.0 1,755.4 (433.0) (761.0) 561.4 (221.0) 340.4
2009 $329.0 391.0 1,210.0 1,930.0 (233.0) (355.0) 1,342.0 (84.0) 1,258.0
2010 $886.6 0.0 1,150.0 2,036.6 (557.0) (339.0) 1,140.6 (84.0) 1,056.6
2011E $1,169.4 0.0 1,110.0 2,279.4 38.0 (800.0) 1,517.4 (173.0) 1,344.4
2012E $1,344.9 0.0 1,085.0 2,429.9 105.8 (800.0) 1,735.7 (171.0) 1,564.7
2013E $1,492.3 0.0 1,060.0 2,552.3 (2.3) (850.0) 1,700.0 (167.9) 1,532.1
Share Repurchases Provide Valuation Support On September 1, 2011, Macy's announced that it had resumed share buybacks for the first time since suspending its authorization in 2008. With an existing authorization of $850 million, we are modeling repurchases of roughly $150 million in 2011 and
We are modeling FCF generation of $1.7 billion over the next three years
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Table 15: Share Buyback Scenario Analysis Buyback EPS Model $250mil $3.15 Scenario 1 $500mil $3.18 Scenario 2 $750mil $3.21 Scenario 3 $1.0bil $3.25
Source: J.P. Morgan estimates, Company data. Note: Scenarios imply all other P&L items held constant
$250 million in 2012, assumptions which we believe likely prove conservative (particularly 2012E). In Table 10 at left, we outline three possible scenarios for 2012 share repurchases. Dividend Is Another Lever to Increase Shareholder Returns In February 2009, Macys board of directors elected to reduce the companys quarterly dividend from 13.25 cents to 5 cents in an effort to conserve cash flow. Given increased confidence in their business and strength of recent financial results, Macy's management doubled the quarterly dividend to 10 cents in conjunction with their 1Q11 EPS release in May 2011. Looking ahead, we believe Macys will further increase its dividend allocation, given sustained free cash flow, over the next several years.
Inventory Control Key to Working Capital Management

From 2006-2009, Macys reduced its inventory per square foot by roughly 10% and improved its inventory turnover from 3.0x to 3.2x today. Largely driven by the My Macys localization effort, in our view, Macys has been able to maintain better control of merchandise by region and location limiting excess inventory build. Looking ahead, as illustrated in Figure 7 below, we believe Macy's will close the gap with peers JCP and KSS (average of 3.6x) over the next several years.
Figure 7: Inventory Turnover (2006-2010)
3.8x 3.7x 3.6x 3.5x 3.4x 3.3x 3.2x 3.1x 3.0x 2.9x 2006 2007 2008 2009 2010 JCP/KSS Avg
While M's inventory turnover has shown improvement recently, a substantial opportunity remains versus moderate peers Kohl's and JCP
3.6x
3.2x 3.0x 3.1x 3.0x
3.0x
Table 16: Debt to Capital (2008-2011E)

Year 2008 2009 2010 2Q11
Debt Paydown Reduces Risk Profile

Macys has paid down over $2.6 billion of debt over the past three years, reducing its debt to capital ratio from 67.6% in 2008 to 54.3% as of 2Q11 (56% adjusted for leases). Looking ahead, the company has $1.1 billion of debt coming due in 2012 and $2.4 billion due through 2015, which we anticipate the company to pay down using its ample free cash flow generation of roughly $1.7 billion per annum.
Debt to Cap 67.6% 64.9% 57.3% 54.3%
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Lease by Lease Rationalization Prudent with Bloomy Outlets NT Driver

Consistent with the past two years, we expect Macys to continue to prune its store base in a rational manner (a few stores per year) as leases come due. Specifically, the company closed four stores in 2010 and plans to close two stores in 2011. Looking forward, we believe Macy's will review each store from a productivity and profitability standpoint as leases expire and close doors that fall below set thresholds, but do not anticipate a large store closing announcement.
Bloomingdales Outlets a New Vehicle

As of 2Q11, Macy's had opened four Bloomindales outlets (Paramus, NJ, Miami, FL, Woodbridge, VA, and Sunrise, FL), with three additional openings slated to open through the close of 2011. While the new 25,000 foot stores provide an additional sales channel for the company, they have also been successful at driving traffic into full-line Bloomingdales stores, according to management. Longer term, management has stated plans for a handful of openings each subsequent year. We highlight the pace of competitive growth of this format from Saks, Nordstrom and Neiman Marcus below.
Table 17: Outlet Stores by Retailer
Stores Bloomingdales Outlet Saks Off-Fifth Nordstrom Rack Neiman Marcus Last Call 2008 0 48 60 23 2010 4 57 87 28 2011E 11 61 104 30
Figure 8: Macy's Square Footage (2005-2010)

159,000 158,000 157,000 156,000 155,000 154,000 153,000 152,000 151,000 150,000 2005 2006 2007 2008 2009 2010 154,961 154,091 154,400 154,177 156,401 158,475
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Financial Outlook
3Q EPS: Modeling a Penny Above Street Consensus We estimate 3Q11 EPS for Macys of $0.17, which stands only a penny above Street consensus. We are modeling same store sales of 4.5% - in line with managements revised guidance (September SSS release: High end of 4.0%-4.5%). On margins, we are modeling gross margin compression of 24 basis points to 39.70%, primarily given the free shipping online drag and see SG&A year-over-year dollar growth of 1.85% (versus 2Q up 1.18%). In addition, we have modeled share repurchases of $50 million (10Q: As of Aug 31 had repurchased 930mil shares for $23.8 million). 4Q EPS: See $1.68 Versus Street at $1.66 We estimate 4Q11 EPS of $1.68, which is $0.02 above the Street consensus estimate of $1.66. We model same store sales of 4.4% in line with 2H guidance of 4-4.5%. On margins, we see gross margin contraction of 14bps, which is in line with guidance for down slightly and greater contraction in 3Q than 4Q. SG&A year-overyear dollar growth is modeled up 3.0%, representing leverage of 37 basis points. Finally, we expect an increase in share repurchase activity post-holiday and are modeling $100 million in 4Q. Estimating $3.15 versus the Street at $3.04 for 2012E For 2012E, we model EPS of $3.15, which is $0.11 above the Street consensus of $3.04, and reflects 16.3% EPS growth YOY. We estimate same store sales growth of 3.6% (below 2011E of 5.3% given tougher compares). We estimate EBIT margin expansion of 51 bps, which is comprised of a gross margin contraction of 11 basis points offset by SG&A leverage of 62 basis points (+2.8% growth including extra week). We are also modeling share repurchases of $250 million, which likely proves conservative. Of note, 2012 includes an extra week of sales (53 week year), which we estimate adds roughly $355 million in sales and $113 million in associated SG&A, equating to a $0.07 EPS benefit.
Table 18: Macy's Income Statement
Income Statement ($ in mil, except per share data) Net Revenues Cost of Goods Sold Gross Profit SG&A Operating Income Interest and Debt Expense, net Pretax Income Income tax (benefit) Net income before extra. Net Income GAAP EPS One Time Items Operating EPS Fully Diluted Shares O/S EPS Growth 2009 23,895.0 14,278.0 9,617.0 8,163.0 1,063.0 556.0 507.0 178.0 329.0 329.0 $0.78 $0.58 $1.36 422.0 6.0% 2010 25,003.0 14,824.0 10,179.0 8,260.0 1,894.0 508.0 1,386.0 499.4 886.6 886.6 $2.07 $0.04 $2.11 427.4 54.8% 1Q11 5,889.0 3,586.0 2,303.0 1,973.0 330.0 116.0 214.0 83.0 131.0 131.0 $0.30 $0.00 $0.30 430.0 231.2% 2Q11 5,939.0 3,457.0 2,482.0 1,976.0 506.0 111.0 395.0 154.0 241.0 241.0 $0.55 $0.00 $0.55 434.6 60.9% 3Q11E 5,875.3 3,542.8 2,332.5 2,107.3 225.2 111.3 114.0 41.3 72.6 72.6 $0.17 $0.00 $0.17 433.6 114.5% 4Q11E 8,634.4 5,081.3 3,553.0 2,312.4 1,240.7 103.8 1,136.8 412.1 724.7 724.7 $1.68 $0.00 $1.68 431.9 5.4% 2011E 26,337.6 15,667.1 10,670.5 8,368.6 2,301.9 442.1 1,859.8 690.4 1,169.4 1,169.4 $2.70 $0.00 $2.70 432.5 28.0% 2012E 27,627.8 16,466.2 11,161.6 8,606.8 2,554.8 420.0 2,134.8 789.9 1,344.9 1,344.9 $3.15 $0.00 $3.15 427.6 16.3%
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Table 19: Macys 2011 Guidance

2011 Guidance as of 2Q11 (8-10-11) 2H11 SSS 2011 SSS 2H11 EPS 2011 EPS GPM: 2H11 down slightly, particularly 3Q SG&A: 2H11 increase YOY higher % than in 2Q, (4Q > 3Q) 2H11 Depreciation 2H11 Interest Expense 2011 Tax Rate 2011 Capital Expenditures
4.0%-4.5% 4.8-5.1% $1.74-1.79 $2.60-2.65 $565M $215M 37.0% $800M
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Valuation
Macy's is currently trading at 9.4x our 2012 EPS estimate of $3.15, noticeably below moderate peers JCPenney (14.7x) and Kohl's (10.5x), and its more upscale competitors Nordstrom (14.0x) and Saks (19.5x). On an EV/EBITDA basis, the company is trading at 5.0x or 8%, below the department store average of 5.5x. While the company has posted industry leading top-line results, cut its expense base by $550 million, and reduced debt on the books by $2.6 billion over the past three years, Macy's valuation metrics are not reflective of a continued turnaround story, in our view. That said, we believe the turnaround effort not only has legs given current initiatives (My Macys, Direct) in place, but we see the next leg up with same-storesales and margins in 2013 as the impact of Price optimization and Omni-Channel begin to show up in the company results. Our December 2012 price target is $36, representing 22% upside from here, which is based on 11.5x our 2012 EPS estimate of $3.15. Specifically, our P/E multiple stands 100 basis points above the companys trailing three-year average, which we see fit given improving earnings prospects and upside versus Street estimates looking forward. On an EV/EBITDA basis, Macys is trading at 5.0x a 7% discount to its 3-year historical average.
Multiple and E Scenario Analysis Highlights Disconnect

In Table 20 below, we provide an upside/downside scenario analysis for 2012 earnings per share based on the primary model assumptions (comps, margins, buyback). With the current Street consensus at $3.04 and some conservatism built into our Base Model Case of $3.15, we like the risk reward of the stock here. With Street earnings revisions likely skewed to the upside in 2012 and top-line and margin drivers ahead in 2013, the turnaround story at Macys is set to continue to several years something the current valuation metrics are not incorporating today, in our view.
Table 20: 2012 Model Scenario Analysis (2012)
P/L Item SSS GPM SG&A Buyback EPS Downside Case 3.0% -20bps +3.0% $200 million $3.00 Base Model Case 3.6% -11bps +2.8% $250 million $3.15 Upside Case 4.0% -8bps +2.5% $500 million $3.35
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Table 21: Department Store Valuations

Macy's M OW $34.00 $29.42 $30.62 $21.69 $12,786 $2.71 $3.15 10.5x 9.1x 9.9x 10.5x 5.2x 4.9x 5.2x 5.4x 0.7x 0.5x 1.4% 9% 4% Kohl's KSS UW $42.00 $52.03 $58.00 $42.14 $14,464 $4.47 $5.09 11.4x 10.0x 10.9x 13.0x 4.5x 4.4x 5.4x 6.1x 1.1x 1.2x 1.9% 8% 5% JCPenney JCP OW $37.00 $31.46 $41.00 $23.44 $6,805 $1.88 $2.40 16.2x 12.8x 15.2x 17.1x 4.7x 4.4x 5.6x 5.6x 1.0x 1.0x 2.5% 5% 25% Dillard's DDS N $52.00 $50.43 $61.08 $25.31 $2,784 $3.93 $4.71 12.5x 10.4x 13.7x 11.2x 4.7x 4.4x 5.6x 10.1x 0.5x 0.4x 0.4% 13% 15% Nordstrom JWN N $55.00 $51.32 $52.61 $35.92 $11,306 $3.18 $3.66 16.1x 13.9x 13.3x 13.0x 7.9x 7.2x 6.8x 6.8x 1.1x 1.0x 1.8% 6% 6% Saks SKS N $10.50 $9.83 $12.97 $7.67 $1,541 $0.38 $0.50 26.8x 20.3x 32.3x 20.8x 6.6x 5.8x 7.7x 12.1x 0.6x 0.5x 0.0% 7% 33%
JPM Rating JPM Price Target Current Price 52-Wk High 52-Wk Low Market Cap EPS 2011E EPS 2012E P/E 2011 P/E 2012 1-Yr Forward Avg P/E 3-Yr Forward Avg P/E EV/EBITDA 2011E EV/EBITDA 2012E 1-Yr Forward Avg EV/EBITDA 3-Yr Forward Avg EV/EBITDA EV/Sales P/Sales Dividend Yield FCF Yield Short Interest % Float
Source: J.P. Morgan estimates, Bloomberg.
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Additional Background Perspective

A Look at Regional Footprint
Figure 9: Kohl's Stores by State
WA 35 OR 15 ID 7 NV 8/1 UT 6 MT 2 WY 1 CO 14 NM 2 TX 57 ND 2 SD 1 NH 6 VT 1 MN 13/1 WI 5 IL IN 25/4 11 NY 52/7 PA 37/2 WV 2 VA 27/1 NC 12 GA 23/2 SC 2 ME 2 MA 29/2 RI 2 CT 13 NJ 30/4 DE 4 MD 23/2 DC 1
MI 21 OH 36 KY 7 TN 9 AL 2
CA 138/10
KS 6 OK 4
MO 15
AZ 11
LA 5
FL 61/5
HI 18
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A Look at the Management Structure

Table 22: Macy's Executive Officers
Name Terry. J. Lundgren Title Chairman of the Board; President and Chief Executive Officer Experience Chairman of the Board since January 2004 and President and CEO since February 2003; Served as the President/COO and CMO of the company from April 2002 to February 2003. CFO since February 2009;previously Executive Vice President and Chief Financial Officer from June 2005 to February 2009. Elected CMO in February 2009.From February 2008 to February 2009, he served as chairman and chief executive officer of Macy's West in San Francisco. Prior, he was named chairman of Macy's Northwest in Seattle in December 2005 and executive vice president and director of stores for Macy's Central in Atlanta in 2004. Mr. Genette has been with the company since 1983. Elected chief stores officer of Macy's, Inc., in February 2009. From February 2004 to February 2009, Mr. Klein served as chairman and CEO of New York-based Macy's East. Prior to this, he served as chairman and chief executive officer of Atlantabased Rich's/Lazarus/Goldsmith's since July 2001. Mr. Klein has been with the company since 1974. CAO since February 2009; previously Vice Chair, Support Operations of the company from February 2003 to February 2009. Until February 2009, he also was responsible for the operations of Macy's Logistics since 1995, of MST since 2001, and of MCCS since 2002 Vice Chair of the company since February 2009; previously Vice Chair, Merchandising, Private Brand and Product Development of the company from February 2003 to February 2009. Ms. Grove also served as Chairman of MMG from 1998 to 2009 and Chief Executive Officer of MMG from 1999 to 2009.
Karen M. Hoguet Jeff Gennette
Chief Financial Officer Chief Merchandising Officer
Ronald Klein
Chief Stores Officer
Thomas L. Cole
Chief Administrative Officer
Janet E. Grove
Vice Chair
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Macys Financial Model

Table 23: Income Statement
$ in millions Net Revenues Cost of Goods Sold Gross Profit SG&A Merger Integration/Restructuring Operating Income Interest and Debt Expense, net Pretax Income Income tax (benefit) Net income before extra. Disc. Oper. Net Income EPS (Ex One Time Items) Adjustments: Merger Integration One-Time Items Operating EPS Fully Diluted Shares O/S EPS Growth 2008 24,892.0 15,009.0 9,883.0 8,458.0 398.0 1,027.0 560.0 467.0 176.7 290.4 0.0 290.4 $0.69 $0.60 $1.29 420.7 -39.9% 2009 23,895.0 14,278.0 9,617.0 8,163.0 391.0 1,063.0 556.0 507.0 178.0 329.0 0.0 329.0 $0.78 $0.58 $1.36 422.0 6.0% $0.09 426.2 -157.0% $0.34 426.5 72.5% $0.08 427.6 -374.6% 1Q10 $5,574.0 3,378.0 2,196.0 1,993.0 0.0 203.0 135.0 68.0 28.8 39.2 0.0 39.2 $0.09 2Q10 $5,537.0 3,214.0 2,323.0 1,953.0 0.0 370.0 130.0 240.0 93.0 147.0 0.0 147.0 $0.34 3Q10 $5,623.0 3,377.0 2,246.0 2,069.0 0.0 177.0 125.0 52.0 18.6 33.4 0.0 33.4 $0.08 4Q10 $8,269.0 4,855.0 3,414.0 2,245.0 25.0 1,144.0 118.0 1,026.0 359.0 667.0 0.0 667.0 $1.55 $0.04 $1.59 429.1 18.1% 2010 25,003.0 14,824.0 10,179.0 8,260.0 25.0 1,894.0 508.0 1,386.0 499.4 886.6 0.0 886.6 $2.07 $0.04 $2.11 427.4 54.8% $0.30 430.0 231.2% $0.55 434.6 60.9% $0.17 433.6 114.5% $1.68 431.9 5.4% $2.70 432.5 28.0% $3.15 427.6 16.3% 1Q11 $5,889.0 3,586.0 2,303.0 1,973.0 0.0 330.0 116.0 214.0 83.0 131.0 0.0 131.0 $0.30 2Q11 $5,939.0 3,457.0 2,482.0 1,976.0 0.0 506.0 111.0 395.0 154.0 241.0 0.0 241.0 $0.55 3Q11E $5,875.3 3,542.8 2,332.5 2,107.3 0.0 225.2 111.3 114.0 41.3 72.6 0.0 72.6 $0.17 4Q11E $8,634.4 5,081.3 3,553.0 2,312.4 0.0 1,240.7 103.8 1,136.8 412.1 724.7 0.0 724.7 $1.68 2011E 26,337.6 15,667.1 10,670.5 8,368.6 0.0 2,301.9 442.1 1,859.8 690.4 1,169.4 0.0 1,169.4 $2.70 2012E 27,627.8 16,466.2 11,161.6 8,606.8 0.0 2,554.8 420.0 2,134.8 789.9 1,344.9 0.0 1,344.9 $3.15
Source: Company reports and JPMorgan estimates.
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Table 24: Annual Balance Sheet

$ in millions 2006 ASSETS Cash and Cash equivalents Accounts Receivable Inventories, net Deferred income tax assets Assets of discontinued operations Supplies & Prepaid Expenses Total current assets Property and equipment, net Goodwill, net Other Intangible Assets Other current assets Total assets LIABILITIES & STOCKHOLDERS' EQUITY Short-term debt Accounts Payable and accrued expenses Income Taxes payable Deferred income tax assets Liabilities of discontinued operations Other short-term borrowings Total current liabilities Long-Term Debt Deferred Income Taxes Other Liabilities Other Total liabilities Total Stockholders' Equity
Source: Company reports and JPMorgan estimates.
2007 583.00 463.0 5,060.0 0.0 0.0 218.0 6,324.0 10,991.0 9,133.0 831.0 510.0 27,789.0 666.0 4,442.0 344.0 173.0 0.0 0.0 5,625.0 9,087.0 1,496.0 1,674.0 0.0 17,882.0 9,907.0
2008 1,385.0 360.0 4,769.0 0.0 0.0 226.0 6,740.0 10,442.0 3,743.0 719.0 501.0 22,145.0 966.0 3,910.0 28.0 222.0 0.0 0.0 5,126.0 8,733.0 1,119.0 2,521.0 0.0 17,499.0 4,646.0
2009 1,686.0 358.0 4,615.0 0.0 0.0 223.0 6,882.0 9,507.0 3,743.0 678.0 490.0 21,300.0 242.0 3,938.0 68.0 206.0 0.0 0.0 4,454.0 8,456.0 1,068.0 2,621.0 0.0 16,599.0 4,701.0
2010 1,464.0 392.0 4,758.0 0.0 0.0 285.0 6,899.0 8,813.0 3,743.0 637.0 539.0 20,631.0 454.0 4,065.0 182.0 364.0 0.0 0.0 5,065.0 6,971.0 1,245.0 1,820.0 0.0 15,101.0 5,530.0
1Q11 1,152.0 290.0 5,159.0 0.0 0.0 313.0 6,914.0 8,636.0 3,743.0 628.0 496.0 20,417.0 741.0 4,317.0 68.0 353.0 0.0 0.0 5,479.0 6,343.0 1,328.0 1,579.0 0.0 14,729.0 5,688.0
2Q11 1,495.0 369.0 4,948.0 0.0 0.0 310.0 7,122.0 8,506.0 3,743.0 618.0 519.0 20,508.0 914.0 4,069.0 119.0 336.0 0.0 0.0 5,438.0 6,162.0 1,381.0 1,564.0 0.0 14,545.0 5,963.0
$1,211.0 517.0 5,317.0 0.0 126.0 251.0 7,422.0 11,473.0 9,204.0 883.0 568.0 29,550.0 650.0 4,944.0 665.0 52.0 48.0 0.0 6,359.0 7,847.0 1,728.0 1,362.0 0.0 17,296.0 12,254.0
98
25
Table 25: Annual Cash Flow Statement

$ in millions Beginning Cash and MS Position Cash Flow From Operations Net Income Income from discontinued operations Gain on sale of accounts receivable Depreciation and Amortization Amortization of intangible assets Amortization of financing costs Amortization of unearned restricted stock Integration Costs Extraordinary loss (gain) on extinguishment of debt Impairment charges Cumulative effect of accounting change, net of taxes Stock based Compensation Proceeds from the sale of proprietary A/R Other Changes in Working Capital Accounts Receivable Inventories Supplies and Prepaid Expenses Other Current Assets Accounts Payable and Liabilities Current Income Taxes Deferred Income Taxes Other Liabilities Total Operating Cash Flow Cash Flow from Investing Activities Proceeds from disposals of fixed assets Capialized software Acquisition Increase in non proprietary accounts receivable Increase (decrease) in notes receivable Repurchase of Accounts Receivable Proceeds from the sale of repurchased A/R Proceeds from the disposition of discontinued ops Other Capital Expenditures Total Investing Cash Flow Cash Flow from Financing Activities Debt issued Financing Costs Debt repaid Dividends paid Increase (Decrease) in outstanding checks Repurchase of stock Proceeds from issuance of stock Other Total Financing Cash Flow Net Cash Position Increase (Decrease) - Cont. Ops Net Cash Position Increase (Decrease) - Disc. Ops Net Cash Position Increase (Decrease) Ending Cash and MS Position
Source: Company reports and JPMorgan estimate
2006 $1,263.7 $995.0 (7.0) (191.0) 1,265.0 0.0 (49.0) 0.0 628.0 (54.0) 0.0 91.0 1,860.0 0.0 207.0 (51.0) (41.0) 25.0 (841.0) (139.0) (18.0) 12.0 3,692.0 679.0 (75.0) 0.0 (1,141.0) 0.0 0.0 1,323.0 1,787.0 17.0 (1,317.0) 1,273.0 1,146.0 (10.0) (2,680.0) (274.0) (77.0) (2,500.0) 382.0 0.0 ($4,013.0) 952.0 11.0 963.0 2,226.7
2007 $2,226.7 $818.0 16.0 0.0 1,304.0 0.0 (31.0) 0.0 219.0 0.0 0.0 60.0 0.0 0.0 28.0 256.0 33.0 3.0 (553.0) 14.0 (2.0) (9.0) 2,156.0 227.0 (111.0) 0.0 0.0 0.0 0.0 0.0 66.0 23.0 (994.0) (789.0) 1,950.0 (18.0) (649.0) (230.0) (57.0) (3,322.0) 257.0 0.0 ($2,069.0) (702.0) (1.0) (703.0) 1,523.7
2008 $1,523.7 ($4,803.0) 0.0 0.0 1,278.0 0.0 (27.0) 0.0 187.0 0.0 5,593.0 0.0 43.0 0.0 0.0 (1.0) 291.0 (7.0) 1.0 (318.0) (146.0) (315.0) 62.0 1,838.0 38.0 (136.0) 0.0 0.0 0.0 0.0 0.0 0.0 68.0 (761.0) (791.0) 650.0 (18.0) (666.0) (221.0) (116.0) (1.0) 7.0 0.0 ($365.0) 682.0 0.0 682.0 2,205.7
2009 $2,205.7 $329.0 0.0 0.0 1,210.0 0.0 (23.0) 0.0 276.0 0.0 115.0 0.0 76.0 0.0 0.0 7.0 154.0 3.0 (16.0) (172.0) 40.0 123.0 (372.0) 1,750.0 60.0 (105.0) 0.0 0.0 0.0 0.0 0.0 0.0 23.0 (355.0) (377.0) 0.0 0.0 (966.0) (84.0) (29.0) (1.0) 8.0 0.0 ($1,072.0) 301.0 0.0 301.0 2,506.7
2010 $2,506.7 $886.6 0.0 0.0 1,150.0 0.0 (25.0) 0.0 0.0 0.0 0.0 0.0 66.0 0.0 0.0 (51.0) (143.0) (10.0) 2.0 46.0 115.0 241.0 (757.0) 1,520.6 74.0 (166.0) 0.0 0.0 0.0 0.0 0.0 0.0 (34.0) (339.0) (465.0) 0.0 0.0 (1,245.0) (84.0) 24.0 (1.0) 43.0 0.0 ($1,263.0) (207.4) 1.0 (206.4) 2,300.3
1Q11 $2,300.3 $131.0 0.0 0.0 268.0 0.0 (4.0) 0.0 0.0 0.0 0.0 0.0 16.0 0.0 0.0 113.0 (401.0) (28.0) (2.0) 240.0 (114.0) 69.0 (221.0) 67.0 4.0 (33.0) 0.0 0.0 0.0 0.0 0.0 0.0 26.0 (61.0) (64.0) 0.0 0.0 (335.0) (21.0) 10.0 (2.0) 33.0 0.0 ($315.0) (312.0) 0.0 (312.0) 1,988.3
2Q11 $1,988.3 $241.0 0.0 0.0 268.0 0.0 (4.0) 0.0 0.0 0.0 0.0 0.0 21.0 0.0 0.0 (77.0) 211.0 4.0 4.0 (225.0) 50.0 27.0 0.0 520.0 2.0 (55.0) 0.0 0.0 0.0 0.0 0.0 0.0 (2.0) (103.0) (158.0) 0.0 (8.0) (2.0) (43.0) (16.0) 0.0 50.0 0.0 ($19.0) 343.0 0.0 343.0 2,331.3
26
99
100
Australia Equity Research October 2011
J.P. Morgan Forecasts - Economics and Commodities

10Q1A Economic
(%, annualised growth)
10Q2A
10Q3A
10Q4A
11Q1A
11Q2A
11Q3A
11Q4E
12Q1E
12Q2E
12Q3E
12Q4E
CY10A
CY11E
CY12E
Long Term
GDP CPI Currency A$/US$ (period end) A$/US$ (period average) Commodities
(period average)
0.7 3.1
0.8 2.7
0.3 2.6
0.8 2.3
-0.9 2.3
1.2 2.5
0.5 2.6
0.6 2.8
1.0 2.4
0.8 2.3
1.2 2.6
1.1 2.8
2.7 2.7
1.4 2.5
3.5 2.5
0.92 0.90
0.84 0.88
0.97 0.91
1.02 0.99
1.03 1.01
1.07 1.06
0.97 1.05
1.05 1.01
1.06 1.06
1.08 1.07
1.10 1.09
1.09 1.10
1.02 0.92
1.05 1.03
1.09 1.08
Gold (US$ per ounce) Silver (US$ per ounce) Oil (WTI) (US$/bbl) Aluminium (US$/lb) Copper (US$/lb) Lead (US$/lb) Nickel (US$/lb) Zinc (US$/lb) Iron Ore - Fines (USc/Fe%) Iron Ore - Lump (USc/Fe%) Coking Coal (US$/t) Thermal Coal (US$/t) Uranium (US$/lb)
1,104 16.7 79 0.99 3.29 0.96 9.78 1.01 97 112 129 85 60.0
1,213 18.6 79 0.95 3.16 0.88 10.19 0.91 194 217 200 95 59.0
1,246 19.7 77 1.00 3.44 0.97 9.87 0.95 222 249 225 103 60.3
1,370 26.6 86 1.07 3.91 1.09 10.71 1.06 209 234 209 98 64.0
1,387 31.9 96 1.15 4.37 1.17 12.21 1.10 218 244 235 120 71.5
1,509 38.5 103 1.19 4.16 1.15 10.97 1.03 281 314 330 130 65.0
1,706 38.9 90 1.10 4.08 1.11 10.00 1.02 271 303 315 128 65.0
1,789 35.8 100 1.00 3.29 0.91 8.16 0.86 263 295 285 122 65.4
1,789 35.0 110 1.07 3.74 0.99 9.07 0.91 263 295 280 124 65.8
1,739 34.1 110 1.11 3.86 1.02 9.53 0.95 260 292 260 130 66.2
1,640 33.6 115 1.16 4.20 1.03 9.98 0.98 262 294 260 124 66.6
1,540 33.2 120 1.20 4.08 1.04 9.98 1.00 264 295 250 124 67.0
1,233 20.4 80 1.00 3.45 0.98 10.14 0.98 181 203 191 95 60.8
1,598 36.3 97 1.11 3.97 1.08 10.34 1.00 258 289 291 125 66.7
1,677 34.0 114 1.13 3.97 1.02 9.64 0.96 262 294 263 126 66.4
1,150 17.5 90 1.00 2.49 0.91 8.16 0.91 118.20 132.39 150.00 150.00 65.0
Source: J.P. Morgan This material is provided for information only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security or financial instrument. This material is not a research report, although it may refer to information and data contained in J.P. Morgan published research reports or models from all J.P. Morgan affiliated regions. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this publication must make its own independent decisions regarding any securities or financial instruments mentioned herein. Please refer to the most recent published research or model for complete information on the specific stocks mentioned in this publication, including important disclosures and analysts' certifications. 2011 JPMorgan Chase & Co.
101
J.P. Morgan Company Forecasts

21 October, 2011 Company Ticker Year End Banks ANZ Banking Group Bendigo and Adelaide Bank Bank of Queensland Commonwealth Bank National Australia Bank Westpac Banking Corporation Capital Goods Ausenco Ltd. AJ Lucas Group Alesco Corporation Limited Ausdrill Limited Boart Longyear Limited (USD) CSR Limited Hastie Group Leighton Holdings Limited Monadelphous Group Limited Seven Group Holdings UGL Limited WDS Limited Commercial Services & Supplies Brambles Limited (USD) Cabcharge Australia Credit Corp Limited Clarius Group Campbell Brothers Limited Downer EDI Fleetwood Corporation GUD Holdings Norfolk Group Programmed Group SAI Global Limited SEEK Limited Salmat Spotless Group Tox Free Solutions Transpacific Industries Transfield Services Consumer Services Ardent Leisure Group Aristocrat Leisure Limited Crown Limited Domino's Pizza Enterprises Ltd Echo Entertainment Group Flight Centre Ltd Jetset Travelworld Retail Food Group Limited Sky City (NZD) Tabcorp Holdings Tatts Group Limited BXB CAB CCP CND CPB DOW FWD GUD NFK PRG SAI SEK SLM SPT TOX TPI TSE Jun Jun Jun Jun Mar Jun Jun Jun Mar Mar Jun Jun Jun Jun Jun Jun Jun 6.64 4.40 3.90 0.51 44.80 2.90 11.79 7.52 1.14 2.00 4.73 5.83 2.65 2.00 2.28 0.66 2.14 475 46 21 6 132 (28) 51 40 19 22 45 98 36 43 12 (281) (20) 669 64 26 7 183 185 53 54 23 31 59 127 53 50 16 93 112 773 66 33 8 209 233 57 60 26 38 67 151 67 57 19 124 146 524 46 21 6 132 166 51 49 21 27 60 105 42 44 13 60 100 669 64 26 7 183 185 53 54 24 31 70 127 53 50 16 93 112 773 66 33 8 209 233 57 60 26 38 77 151 67 57 19 124 146 32.9 38.3 46.9 6.4 203.2 (6.8) 90.0 58.1 12.0 8.8 23.1 28.9 22.7 16.4 12.9 (30.9) (4.0) 45.2 53.3 58.2 8.1 271.2 39.1 89.6 78.3 14.5 26.0 29.4 37.5 33.8 19.2 17.9 7.6 20.5 52.2 54.6 73.6 9.4 309.4 49.3 96.6 87.2 16.3 32.2 33.6 44.7 42.5 21.8 20.8 10.7 26.6 36.2 50.7 46.9 6.4 202.8 40.7 90.0 71.7 13.3 22.8 30.8 31.1 26.8 16.7 14.2 6.3 20.3 45.2 53.3 58.2 8.1 271.2 39.1 89.6 78.3 14.9 26.0 34.9 37.6 33.8 19.2 17.9 9.7 20.5 52.2 54.6 73.6 9.4 309.4 49.3 96.6 87.2 16.6 32.2 38.3 44.8 42.5 21.8 20.8 12.9 26.6 14 6 54 61 57 (26) 26 (6) (3) (6) 17 26 (11) (14) 54 (20) (12) 25 5 24 26 34 (4) (0) 9 12 14 14 21 26 15 26 55 1 16 3 26 16 14 26 8 11 12 24 10 19 26 14 16 32 30 19.0 8.7 8.3 8.0 22.1 7.1 13.1 10.5 8.6 8.8 15.4 18.7 9.9 11.9 16.0 10.5 10.5 15.2 8.3 6.7 6.3 16.5 7.4 13.2 9.6 7.7 7.7 13.5 15.5 7.8 10.4 12.8 6.8 10.5 13.1 8.1 5.3 5.4 14.5 5.9 12.2 8.6 6.9 6.2 12.3 13.0 6.2 9.2 11.0 5.1 8.0 142 65 62 60 166 54 98 79 65 66 116 141 74 90 120 79 79 127 69 56 53 139 62 110 81 64 65 114 130 66 87 107 57 88 123 76 50 51 136 55 115 81 65 58 116 122 59 86 103 48 76 27.5 30.0 20.0 4.0 140.0 0.0 73.0 64.0 2.0 9.0 14.3 14.3 24.0 11.0 3.0 0.0 14.0 28.3 38.0 30.0 4.0 182.0 13.0 76.0 88.0 3.0 10.0 16.4 19.0 24.0 11.0 4.0 0.0 14.0 29.8 40.0 35.0 6.0 198.0 20.5 82.0 98.0 3.0 12.0 18.2 22.4 29.0 13.0 4.0 3.0 17.0 4.1 6.8 5.1 7.8 3.1 0.0 6.2 8.5 1.8 4.5 3.0 2.5 9.1 5.5 1.3 0.0 6.5 4.3 8.6 7.7 7.8 4.1 4.5 6.5 11.7 2.6 5.0 3.4 3.2 9.1 5.5 1.8 0.0 6.5 4.5 9.1 9.0 11.8 4.4 7.1 7.0 13.0 2.6 6.0 3.8 3.8 10.9 6.5 1.8 4.6 7.9 20 100 100 100 50 0 100 100 100 100 100 100 100 100 100 100 52 10 100 100 100 50 0 100 100 100 100 100 100 100 100 100 100 25 15 100 100 100 50 0 100 100 100 100 100 100 100 100 100 100 25 OW N OW OW N N N OW OW OW OW N OW N N N N AAX AJL ALS ASL BLY CSR HST LEI MND SVW UGL WDS Dec Jun May Jun Dec Mar Jun Jun Jun Jun Jun Jun 2.50 1.35 1.38 2.81 2.98 2.46 0.11 20.56 18.85 7.74 12.13 0.74 22 (12) 14 73 152 503 (88) (409) 95 105 159 6 32 7 13 96 188 89 27 596 102 282 179 11 35 12 20 109 187 107 47 727 130 318 215 14 22 (27) 21 74 152 90 12 159 95 236 164 5 32 7 21 96 188 96 27 596 102 282 184 11 35 12 27 109 187 107 47 727 130 318 220 14 18.0 (17.5) 14.4 26.9 33.1 99.6 (34.6) (133.1) 106.9 33.7 95.3 3.8 25.7 9.8 13.7 31.5 40.8 17.6 2.8 177.2 113.6 88.9 107.7 7.6 28.6 17.9 20.7 35.4 40.6 20.9 3.5 216.1 144.5 100.2 129.3 10.0 18.0 (39.4) 21.9 27.2 33.1 17.8 4.6 48.9 106.9 75.7 98.8 3.7 25.7 9.6 22.4 31.5 40.8 19.0 2.8 177.2 113.6 88.9 110.9 7.4 28.6 17.4 29.2 35.4 40.6 20.9 3.5 216.1 144.5 100.2 132.5 9.7 (12) 13 73 2 (74) (76) 12 1106 8 2 16 23 6 (38) 263 6 17 12 97 2498 43 11 82 30 12 (1) 10 23 22 27 13 20 32 6.3 10.3 9.3 13.8 2.3 42.1 17.6 10.2 12.3 19.8 13.9 9.7 14.1 6.2 8.9 7.5 13.0 3.7 11.6 16.6 8.7 10.9 10.0 8.7 7.7 4.7 7.9 7.6 11.8 3.0 9.5 13.0 7.7 9.2 7.6 104 na 47 78 70 104 17 316 133 77 92 149 82 118 52 75 63 109 31 97 139 73 92 84 82 73 44 75 71 111 29 89 123 73 86 71 9.1 0.0 14.0 12.0 10.8 41.7 0.0 60.0 95.0 36.0 70.0 2.0 13.0 0.0 16.0 15.5 13.0 13.5 0.0 129.0 101.0 44.0 79.0 2.0 15.0 0.0 20.0 17.5 14.0 14.5 2.0 157.0 129.0 48.0 95.0 3.0 3.6 0.0 10.1 4.3 3.6 17.0 0.0 2.9 5.0 4.7 5.8 2.7 5.2 0.0 11.6 5.5 4.4 5.5 0.0 6.3 5.4 5.7 6.5 2.7 6.0 0.0 14.5 6.2 4.7 5.9 19.1 7.7 6.8 6.2 7.8 4.1 100 100 100 100 35 100 100 100 100 100 100 100 100 100 100 100 35 100 100 100 100 100 100 100 100 100 100 100 35 100 100 100 100 100 100 100 OW N N OW N N N N UW OW OW N Price A$
1
Reported Profit ($m) 2011 2012
Normalised Profit ($m) 2011 2012
Reported EPS () 2011 2012
Normalised EPS () 2011 2012 2013
Nor EPS Growth (%) 2011 2012 2013 2011
P/E Nor (x) 2012 2013
Relative P/E (%) 2011 2012
DPS () 2011 2012 2013 2011
Yield (%) 2012 2013
Franking (%) 2011 2012 2013
Current Rating
6
2013
2013
2013
2013
ANZ BEN BOQ CBA NAB WBC
Sep Jun Aug Jun Sep Sep
21.21 9.22 8.18 47.55 24.32 21.50
5406 342 159 6394 4961 7116
6088 350 244 7304 6039 6676
6573 393 277 7946 6599 7163
5607 332 187 6835 5426 6323
6076 355 254 7329 6039 6676
6561 399 287 7946 6599 7163
208.3 93.9 67.1 427.5 233.5 237.5
229.2 94.3 101.0 440.0 278.0 220.2
241.9 103.9 111.2 472.9 298.8 232.4
208.5 86.2 70.0 423.6 245.7 203.7
219.2 90.4 96.1 446.8 267.3 212.8
232.4 99.5 104.8 479.6 287.4 226.3
7 19 (19) 11 16 6
5 5 37 5 9 4
6 10 9 7 8 6
10.2 10.7 11.7 11.2 9.9 10.6
9.7 10.2 8.5 10.6 9.1 10.1
9.1 9.3 7.8 9.9 8.5 9.5
76 80 88 84 74 79
81 86 71 89 76 85
86 87 73 93 79 89
142.0 60.0 54.0 320.0 174.0 154.0
150.0 62.0 62.0 340.0 190.0 162.0
166.0 68.0 68.0 365.0 206.0 170.0
6.7 6.5 6.6 6.7 7.2 7.2
7.1 6.7 7.6 7.1 7.8 7.5
7.8 7.4 8.3 7.7 8.5 7.9
100 100 100 100 100 100
100 100 100 100 100 100
100 100 100 100 100 100
N N N UW OW N
AAD ALL CWN DMP EGP FLT JET RFG SKC TAH TTS
Jun Dec Jun Jun Jun Jun Jun Jun Jun Jun Jun
1.07 2.16 7.85 6.52 3.70 17.80 0.77 2.40 2.69 2.84 2.35
36 55 336 21 226 140 19 27 118 (56) 275
48 88 429 25 131 189 33 31 156 338 340
56 132 467 29 179 203 38 34 156 154 233
39 51 302 21 190 171 24 28 131 290 280
48 84 401 25 155 189 33 31 156 336 341
56 129 440 29 178 203 38 34 156 156 232
11.4 10.3 44.3 31.3 28.8 140.0 5.0 25.2 20.4 (8.4) 21.2
18.3 16.4 57.5 37.0 19.2 189.3 7.4 29.2 27.0 47.7 25.4
20.9 24.7 64.1 42.5 26.0 203.1 8.7 31.8 26.9 21.1 16.9
12.6 9.5 39.8 31.0 28.8 171.0 6.4 26.1 22.7 43.8 21.5
15.1 15.7 53.8 36.6 22.6 189.3 7.4 29.2 27.0 47.6 25.5
17.7 24.1 60.4 42.0 25.8 203.1 8.7 31.8 26.9 21.4 16.9
10 4 23 20 (8) 18 2 1 2 (2)
20 65 35 18 (22) 11 17 12 19 9 18
17 53 12 15 14 7 17 9 (0) (55) (34)
8.5 22.7 19.7 21.0 12.8 10.4 12.1 9.2 15.2 6.5 10.9
7.1 13.7 14.6 17.8 16.4 9.4 10.4 8.2 12.8 6.0 9.2
6.1 8.9 13.0 15.5 14.3 8.8 8.8 7.6 12.8 13.3 13.9
64 170 148 158 96 78 91 69 114 49 82
59 115 122 149 137 79 87 69 107 50 77
57 84 122 146 135 82 83 71 121 125 131
11.5 8.5 37.0 21.9 0.0 84.0 3.0 14.5 16.0 43.0 21.5
12.0 8.0 37.0 26.0 11.3 100.0 4.0 13.0 19.0 23.5 25.8
13.0 18.0 37.0 30.0 13.0 112.0 5.0 14.0 18.0 16.8 17.0
10.8 3.9 4.7 3.4 0.0 4.7 3.9 6.0 6.0 15.1 9.2
11.2 3.7 4.7 4.0 3.1 5.6 5.2 5.4 7.1 8.3 11.0
12.2 8.3 4.7 4.6 3.5 6.3 6.5 5.8 6.7 6.1 7.2
0 100 46 100 0 100 100 100 100 100 100
0 100 41 100 100 100 100 100 73 100 100
0 100 75 100 100 100 100 100 100 100 100
OW OW OW N OW OW OW OW N N N
Source: Company Data, J.P. Morgan Estimates
102

21 October, 2011 Company Ticker Year End Diversified Financials ASX Ltd Challenger Financial Services Group Henderson Group Plc (GBP) IOOF Holdings Limited Macquarie Group Limited Perpetual Limited Thinksmart Limited Energy Aquila Resources Ltd AWE Limited Beach Energy Ltd. Energy Resources of Australia Limited Eastern Star Gas Gujarat NRE Coking Coal Ltd Matrix Composites & Engineering Miclyn Express Offshore (USD) Origin Energy Oil Search (USD) Paladin Energy Ltd (USD) ROC Oil Company Limited (USD) Santos Limited WorleyParsons Limited Woodside Petroleum (USD) Food, Beverage & Tobacco Australian Vintage Limited Coca-Cola Amatil Foster's Group Goodman Fielder Limited GrainCorp Ltd Tassal Group Treasury Wine Estates Limited Health Care Equipment & Services Ansell Limited (USD) Blackmores Limited Cochlear Limited CSL Limited Primary Health Care Limited QRxPharma Limited Ramsay Health Care ResMed Inc (USD) Sonic Healthcare Sigma Pharmaceuticals Limited Price A$
1
Nor EPS Growth (%) 2011 2012 2013 2011
P/E Nor (x) 2012 2013
Relative P/E (%) 2011 2012
DPS () 2011 2012 2013 2011
Yield (%) 2012 2013
Franking (%) 2011 2012 2013
Current Rating
6
2013
2013
2013
2013
ASX CGF HGG IFL MQG PPT TSM
Jun Jun Dec Jun Mar Jun Dec
30.16 4.45 1.81 6.03 22.53 21.93 0.44
352 261 38 99 982 62 7
383 279 97 92 928 55 14
419 300 120 98 1082 68 17
354 248 126 111 956 73 9
381 279 141 110 902 69 15
416 300 159 116 1056 73 18
201.6 50.7 3.7 42.9 290.2 140.8 5.7
218.5 50.4 8.9 39.7 266.4 130.1 10.4
239.1 54.1 11.0 42.1 308.5 161.7 12.7
202.8 48.1 12.2 48.1 275.9 166.8 6.8
217.3 50.4 12.9 47.5 255.0 164.3 11.4
237.6 54.1 14.6 50.1 294.8 174.2 13.7
6 13 27 14 (13) (5) (20)
7 5 6 (1) (8) (1) 66
9 7 12 5 16 6 20
14.9 9.3 9.6 12.5 8.2 13.2 6.4
13.9 8.8 9.1 12.7 8.8 13.3 3.8
12.7 8.2 8.1 12.0 7.6 12.6 3.2
112 70 72 94 61 99 48
117 74 77 106 74 112 32
119 77 76 113 72 118 30
183.2 16.5 7.0 43.0 186.0 185.0 3.0
196.5 17.0 7.5 41.0 186.0 172.0 6.0
227.3 19.0 8.0 44.0 192.0 177.0 7.0
6.1 3.7 3.9 7.1 8.3 8.4 6.9
6.5 3.8 4.2 6.8 8.3 7.8 13.8
7.5 4.3 4.4 7.3 8.5 8.1 16.1
100 0 0 94 0 100 100
100 0 0 94 0 100 100
100 0 0 91 30 100 100
OW OW OW N N N OW
AQA AWE BPT ERA ESG GNM MCE MIO ORG OSH PDN ROC STO WOR WPL
Jun Jun Jun Dec Jun Mar Jun Jun Jun Dec Jun Dec Dec Jun Dec
5.18 1.15 1.11 2.04 0.83 0.25 3.26 1.67 14.05 5.88 1.55 0.33 12.12 27.80 33.38
(64) (118) (97) (102) (10) 35 34 55 186 200 (82) (1) 746 364 1759
21 66 66 54 (21) 127 34 60 887 191 40 28 542 370 1892
(7) 59 108 85 293 142 38 69 1009 203 74 76 771 471 2229
(65) (16) 35 (3) (10) 36 34 55 673 200 (82) (14) 478 299 1766
21 65 73 54 (21) 127 34 60 887 191 40 28 542 370 1892
(7) 59 108 85 (8) 142 38 69 1009 203 74 76 771 471 2229
(17.4) (22.5) (8.8) (60.0) (1.1) 3.8 46.0 20.0 19.6 15.1 (11.1) (0.1) 84.6 147.2 221.8
5.7 12.6 6.0 10.4 (1.9) 12.4 43.7 22.0 80.4 14.3 4.7 3.9 60.6 149.4 231.8
(1.8) 11.3 9.7 16.5 22.2 13.9 49.6 25.5 88.8 15.1 8.7 10.7 85.6 190.5 269.0
(17.7) (3.1) 3.2 (8.1) (1.1) 3.9 46.8 20.0 73.3 15.1 (11.1) (2.0) 54.2 120.6 222.6
5.6 12.4 6.6 10.4 (1.9) 12.4 43.7 22.0 80.4 14.3 4.7 3.9 60.6 149.4 231.8
(1.8) 11.3 9.7 16.5 (0.7) 13.9 49.6 25.5 88.8 15.1 8.7 10.7 85.6 190.5 269.0 (133) 218 (7) 10 10 (5) 105
(131) (9) 47 59 12 14 16 10 5 85 172 41 27 16 6.4 7.0 8.6 19.2 40.4 34.5
91.7 9.3 16.8 19.6 2.0 7.5 7.9 17.5 42.5 34.0 8.5 20.0 18.6 14.7 10.1 11.4 12.4 1.8 6.6 6.8 15.8 40.3 18.4 3.1 14.2 14.6 12.7
na na 259 na na 48 52 65 144 303 na na 168 173 115
770 78 141 165 na 17 63 66 147 357 285 72 168 156 124
na 95 107 116 na 17 62 64 149 379 173 30 133 137 119
0.0 0.0 1.8 0.0 0.0 0.0 8.0 6.1 50.0 4.0 0.0 0.0 30.0 86.0 113.0
0.0 0.0 1.2 0.0 0.0 0.0 12.0 5.5 51.5 4.0 0.0 0.0 30.0 107.0 116.0
0.0 11.3 2.0 0.0 0.0 0.0 18.0 6.4 55.4 5.0 0.0 0.0 30.0 136.0 135.0
0.0 0.0 1.6 0.0 0.0 2.5 3.7 3.6 0.7 0.0 0.0 2.5 3.1 3.4
0.0 0.0 1.1 0.0 0.0 3.7 3.3 3.7 0.7 0.0 0.0 2.5 3.9 3.5
0.0 9.9 1.8 0.0 0.0 5.5 3.8 3.9 0.9 0.0 0.0 2.5 4.9 4.0
0 0 100 100 0 0 100 0 100 0 0 0 100 57 100
0 0 100 100 0 0 100 0 100 0 0 0 100 57 100
0 100 100 100 0 0 100 0 100 0 0 0 100 57 100
N OW N
51 98 10 37
N UW OW OW N N UW OW N UW
22 3 22
12 24 4
22.4 23.0 15.3
AVG CCL FGL GFF GNC TGR TWE
Jun Dec Jun Jun Sep Jun Jun
0.29 12.01 5.30 0.53 7.93 1.62 3.90
7 471 251 (167) 162 22 143
13 605 526 102 180 27 121
19 673 509 140 151 30 133
8 549 622 125 174 22 132
13 601 480 113 192 27 131
17 667 513 137 163 30 143
5.2 73.7 13.0 (12.1) 81.5 15.0 22.0
9.3 79.8 27.1 5.9 90.9 18.3 18.7
12.0 87.9 26.2 7.1 76.1 20.5 20.3
6.1 72.4 32.2 9.1 87.8 15.0 20.4
9.6 78.9 24.7 6.7 96.8 18.3 20.1
10.9 87.1 26.4 6.9 82.2 20.5 21.7
471 10 (11) (25) 107 (7) (8)
57 9 (23) (26) 10 22 (2)
14 10 7 3 (15) 12 8
4.6 16.6 16.5 5.9 9.0 10.8 19.1
3.0 15.2 21.4 7.9 8.2 8.9 19.4
2.6 13.8 20.0 7.7 9.6 7.9 18.0
35 125 124 44 68 81 143
25 128 180 66 69 74 163
24 129 188 72 91 74 169
2.5 53.0 41.3 7.8 44.8 2.0 6.0
4.0 57.5 21.0 4.8 94.5 4.0 12.3
6.0 65.9 22.3 5.8 57.0 5.0 13.5
8.8 4.4 7.8 14.6 5.6 1.2 1.5
14.0 4.8 4.0 9.0 11.9 2.5 3.1
19.3 5.5 4.2 10.9 7.2 3.1 3.5
100 100 100 35 100 0 0
100 100 100 20 100 0 31
100 100 0 20 100 0 81
N OW N OW N UW
ANN BKL COH CSL PRY QRX RHC RMD SHL SIP
Jun Jun Jun Jun Jun Jun Jun Jun Jun Jan
13.60 29.99 57.98 30.00 3.30 1.45 18.85 2.95 10.85 0.69
122 27 180 941 78 (20) 198 227 295 (235)
137 32 68 1022 125 15 231 226 319 50
153 35 173 1130 145 26 265 254 344 48
122 27 176 941 95 (20) 221 237 295 35
137 32 168 1022 125 15 247 234 319 52
153 35 173 1130 145 26 280 262 344 48
91.6 162.9 316.1 173.6 15.8 (17.4) 98.0 14.9 75.5 (19.9)
106.7 188.5 118.7 196.9 25.1 11.4 112.9 15.4 81.8 4.2
120.1 211.6 313.2 226.9 29.0 17.5 129.9 18.3 88.3 4.0
91.6 163.2 308.5 173.6 19.3 (17.4) 101.1 15.1 75.5 3.0
105.5 188.5 293.9 196.9 25.1 11.4 112.0 15.6 81.8 4.4
119.8 211.6 313.2 226.9 29.0 17.5 127.6 18.3 88.3 4.0
16 11 13 6 (30) 20 18 0 (55)
15 16 (5) 13 30 11 3 8 47
14 12 7 15 16 54 14 18 8 (8)
15.3 18.4 18.8 17.3 17.1 18.6 20.2 14.4 23.1
13.3 15.9 19.7 15.2 13.2 12.7 16.8 19.6 13.3 15.7
11.7 14.2 18.5 13.2 11.4 8.3 14.8 16.6 12.3 17.1
115 138 141 130 129 na 140 152 108 173
112 134 166 128 110 107 141 165 111 132
110 133 174 124 107 78 139 156 116 160
33.4 124.0 225.0 71.1 8.0 0.0 52.0 0.0 59.0 15.0
40.0 151.0 240.2 85.9 14.1 0.0 59.2 0.0 61.0 2.6
44.7 171.0 240.2 159.7 20.3 0.0 67.1 0.0 65.4 2.2
2.5 4.1 3.9 2.4 2.4 0.0 2.8 0.0 5.4
2.9 5.0 4.1 2.9 4.1 0.0 3.1 0.0 5.6 3.8
3.3 5.7 4.1 5.3 6.2 0.0 3.5 0.0 6.0 3.2
0 100 60 0 100 0 100 0 28 100
0 100 60 0 100 0 100 0 28 100
0 100 60 0 100 0 100 0 28 100
OW OW N OW N OW OW N OW N
103

21 October, 2011 Company Ticker Year End Information Technology Bravura Solutions Computershare Limited (USD) IRESS Market Technology Silex Systems Insurance AMP Limited Insurance Australia Group NIB Holdings Limited QBE Insurance Group (USD) Suncorp Group Ltd Tower Limited (NZD) Materials Adelaide Brighton Limited Atlas Iron Ltd Amcor Limited Alumina Limited (USD) BHP Billiton Limited (USD) Boral Limited BlueScope Steel DuluxGroup Limited Fletcher Building Ltd (NZD) Fortescue Metals Group Ltd (USD) Gindalbie Metals Ltd Gunns Limited Hillgrove Resources Ltd Iluka Resources Incitec Pivot Ltd Ivanhoe Australia James Hardie Industries SE (USD) Lynas Corporation Limited Macarthur Coal Limited Mount Gibson Iron Ltd Murchison Metals Ltd Newcrest Mining Nufarm Limited Orica Limited OneSteel Limited OZ Minerals Limited PanAust Limited (USD) PaperlinX Limited Rio Tinto Limited (USD) Sandfire Resources Sims Metal Management Ltd Venture Minerals Limited YTC Resources Limited ABC AGO AMC AWC BHP BLD BSL DLX FBU FMG GBG GNS HGO ILU IPL IVA JHX LYC MCC MGX MMX NCM NUF ORI OST OZL PNA PPX RIO SFR SGM VMS YTC Dec Jun Jun Dec Jun Jun Jun Sep Jun Jun Jun Jun Jan Dec Sep Dec Mar Jun Jun Jun Jun Jun Jul Sep Jun Dec Dec Jun Dec Jun Jun Jun Jun 2.85 3.05 7.15 1.36 35.70 3.45 0.83 2.62 6.41 4.25 0.55 0.27 0.23 15.13 3.28 0.81 5.70 1.10 16.22 1.45 0.26 33.30 4.45 24.10 1.24 10.78 2.84 0.09 62.57 6.64 13.38 0.33 0.46 152 169 167 348 192 496 152 174 167 348 192 496 24.0 26.7 28.8 4.6 429.1 23.3 (57.4) 23.9 61.8 32.7 1.5 (42.9) (1.7) 121.9 32.7 (12.9) (79.7) (3.6) 66.3 22.2 (3.8) 118.7 (23.6) 170.3 17.3 73.6 24.0 (21.3) 858.0 (18.3) 94.2 (1.9) (1.2) 26.4 42.7 30.3 60.8 24.0 27.6 40.0 4.6 427.2 24.4 (6.5) 21.3 61.8 51.1 1.5 0.4 (2.0) 121.3 29.8 (19.8) 26.8 0.0 51.9 22.2 (3.8) 138.3 32.9 170.3 17.7 103.9 24.4 (7.7) 864.7 (18.3) 88.8 (1.9) (1.2) 26.4 42.7 46.5 3.5 451.9 25.6 2.8 23.9 77.5 60.5 1.7 2.2 (0.6) 250.7 30.0 (4.1) 31.6 (2.4) 109.0 51.5 2.4 175.5 38.3 202.2 26.3 85.9 43.4 (3.9) 983.7 (32.2) 148.9 (0.8) (0.8) 30.3 60.8 51.2 13.6 556.0 33.4 8.0 25.1 92.7 80.7 13.8 3.4 3.8 321.9 33.5 13.7 36.7 26.9 150.1 66.2 0.3 171.3 48.3 224.4 46.0 129.0 42.3 (1.6) 1154.8 201.3 148.8 3.6 (3.4) 1 31 247 92 10 (204) 8 28 106 (84) (116) 1403 19 (13) 5 80 (12) 55 (8) (2) (18) 1 21 29 10 54 16 (23) 6 5 12 25 19 8 416 107 1 18 110 132 27 16 19 48 (17) 78 14 68 15 42 10 285 23 31 183 5 20 33 730 53 28 12 16 38 28 (89) (2) 26 11 75 50 (2) 17 (0) 11.9 11.0 17.9 30.3 8.6 14.1 12.3 10.4 8.6 35.7 63.0 12.5 11.0 22.0 31.3 6.5 24.1 13.5 14.2 7.0 10.4 12.0 7.4 15.1 10.8 7.1 15.4 39.5 8.1 13.5 29.3 11.0 8.3 7.3 33.1 12.2 6.0 10.9 18.7 14.9 2.8 10.8 19.0 11.6 11.9 4.7 12.6 6.8 6.5 9.0 9.4 5.0 14.0 10.3 6.6 10.3 10.3 10.4 6.9 5.4 4.0 8.0 6.1 4.7 9.8 5.9 16.1 4.1 10.8 2.2 96.4 19.4 9.2 10.7 2.7 8.4 6.9 5.5 3.3 9.0 9.2 89 83 134 228 64 106 na 92 78 65 268 473 na 94 83 na 165 na 235 49 na 181 101 106 52 78 90 na 56 na 113 na na 91 60 129 332 68 113 246 92 69 61 278 103 na 51 92 na 157 na 125 24 91 159 98 100 39 105 57 na 55 na 75 na na 88 47 131 97 62 97 97 98 65 51 38 75 57 44 92 55 151 38 102 21 905 183 87 101 25 78 65 na 52 31 84 87 na 20.0 3.0 35.0 5.0 101.0 14.5 2.0 14.9 35.0 7.0 0.0 0.0 0.0 46.1 7.0 0.0 0.0 0.0 40.0 4.0 0.0 50.0 0.0 93.0 10.0 50.0 0.0 0.0 120.0 0.0 47.0 0.0 0.0 20.0 4.3 42.3 3.0 113.0 15.5 2.0 16.7 38.0 9.5 0.0 0.0 0.0 75.2 7.0 0.0 6.5 0.0 54.0 20.0 0.0 40.0 14.0 101.0 12.0 45.0 0.0 0.0 129.0 0.0 74.8 0.0 0.0 22.5 6.1 45.8 7.5 117.0 20.0 4.0 17.6 44.0 10.7 0.0 0.0 0.0 96.6 8.0 0.0 7.5 0.0 75.0 22.0 0.0 50.0 17.0 135.0 22.0 50.6 0.0 0.0 136.0 0.0 74.8 0.0 0.0 7.0 1.0 4.9 3.7 2.8 4.2 2.4 5.7 5.5 1.7 0.0 0.0 0.0 3.1 2.1 0.0 0.0 0.0 2.5 2.8 0.0 1.5 0.0 3.9 8.1 4.6 0.0 0.0 1.9 0.0 3.5 0.0 0.0 7.0 1.4 5.9 2.2 3.2 4.5 2.4 6.4 5.9 2.3 0.0 0.0 0.0 5.0 2.1 0.0 1.1 0.0 3.3 13.8 0.0 1.2 3.2 4.2 9.7 4.2 0.0 0.0 2.1 0.0 5.6 0.0 0.0 7.9 2.0 6.4 5.5 3.3 5.8 4.8 6.7 6.9 2.6 0.0 0.0 0.0 6.4 2.4 0.0 1.3 0.0 4.6 15.2 0.0 1.5 3.8 5.6 17.8 4.7 0.0 0.0 2.2 0.0 5.6 0.0 0.0 100 0 16 100 100 100 100 100 0 0 0 100 0 36 50 0 0 0 100 0 0 0 0 39 0 41 0 0 100 0 43 0 0 100 0 0 100 100 100 50 100 0 0 0 100 0 100 100 0 0 0 100 0 0 3 0 39 3 100 0 0 100 0 99 0 0 100 0 0 100 100 100 100 100 0 0 0 100 0 100 100 0 0 0 100 0 0 100 0 39 53 100 0 0 100 0 98 0 0 OW N OW N N OW N OW N OW OW UW OW N N N UW OW OW UW OW UW N OW N OW UW OW UW OW OW OW Price A$
1
Nor EPS Growth (%) 2011 2012 2013 2011
P/E Nor (x) 2012 2013
Relative P/E (%) 2011 2012
DPS () 2011 2012 2013 2011
Yield (%) 2012 2013
Franking (%) 2011 2012 2013
Current Rating
6
2013
2013
2013
2013
BVA CPU IRE SLX
Jun Jun Dec Jun
0.15 7.29 7.18 2.40
(21) 264 44 (31)
11 301 55 17
16 351 66 16
12 309 61 (31)
21 322 67 17
25 368 73 16
0.1 47.3 34.5 (12.3)
1.7 53.6 42.9 11.0
2.7 62.6 51.3 9.5
0.1 55.7 47.2 (12.3)
1.7 57.8 51.7 11.0
2.7 65.8 56.7 9.5
(4) 2
2327 4 9
56 14 10 (14)
13.5 15.2
8.7 13.0 13.9 21.8
5.6 11.4 12.7 25.2
na 102 114 na
73 109 117 183
52 108 119 237
0.0 29.3 37.0 0.0
0.0 32.3 43.0 0.0
0.0 34.5 50.0 0.0
0.0 4.0 5.2 0.0
0.0 4.4 6.0 0.0
0.0 4.7 7.0 0.0
0 60 90 100
0 60 90 100
0 60 90 100
OW OW N OW
AMP IAG NHF QBE SUN TWR
Dec Jun Jun Dec Jun Sep
4.05 3.08 1.45 13.77 8.25 1.31
745 250 66 1464 453 32
799 603 68 1812 912 54
1093 723 73 1915 1103 58
964 426 65 1608 638 38
1114 629 68 1956 1029 54
1238 749 73 2059 1197 58
28.1 12.0 14.1 139.4 35.3 12.2
28.2 28.8 14.5 169.4 70.9 20.3
38.5 34.6 15.6 176.4 85.8 21.8
36.4 20.4 13.7 150.6 49.7 14.4
39.3 30.0 14.5 180.4 80.0 20.3
43.7 35.8 15.6 187.3 93.0 21.8
0 111 10 17 (25) (29)
8 47 6 20 61 41
11 19 8 4 16 8
11.1 15.1 10.6 9.5 16.6 9.1
10.3 10.3 10.0 7.9 10.3 6.5
9.3 8.6 9.3 7.6 8.9 6.0
84 113 80 71 125 69
86 86 84 66 87 54
87 81 87 71 83 56
30.4 16.0 13.0 134.9 35.0 8.3
31.4 18.5 8.7 137.2 48.0 12.1
34.9 21.6 8.7 137.2 56.0 13.0
7.5 5.2 9.0 9.8 4.2 6.4
7.8 6.0 6.0 10.0 5.8 9.2
8.6 7.0 6.5 10.0 6.8 9.9
70 100 100 10 100 0
70 100 100 10 100 0
70 100 100 10 100 0
N OW OW N OW N
357 536 707 500 576 630 112 86 332 113 86 332 21684 24209 29784 23648 24209 29784 168 186 246 175 186 246 (1055) (263) 148 (119) 52 148 87 86 91 77 86 91 381 471 563 381 471 563 1023 1882 2472 1591 1882 2472 14 21 172 14 21 172 (356) 19 29 12 19 29 (14) (4) 30 (14) (4) 30 510 1050 1348 508 1050 1348 533 553 577 485 489 546 (60) (25) 85 (88) (23) 85 (347) 131 153 117 131 153 (59) (40) 461 (53) (40) 461 193 327 451 151 327 451 240 648 714 240 556 714 (17) 10 1 (17) 10 1 908 1338 1310 1058 1343 1310 (49) 113 140 86 100 126 629 745 824 607 721 800 230 351 615 235 351 615 237 267 398 335 267 398 148 280 226 151 280 226 (108) (3) 11 (47) (24) (10) 16525 18413 21531 16719 18413 21531 (27) (48) 301 (27) (48) 301 193 307 307 183 307 307 (4) (2) 14 (4) (2) 14 (3) (3) (12) (3) (3) (12)
43.4 57.4 3.5 13.6 454.7 559.5 25.6 33.4 (14.3) 8.0 23.9 25.1 77.5 92.7 60.5 80.7 1.7 13.8 2.2 3.4 (0.6) 3.8 250.7 321.9 34.0 35.4 (4.5) 13.7 30.2 36.7 (2.4) 26.9 109.0 150.1 60.0 66.2 2.4 0.3 174.9 171.3 43.3 53.3 202.2 224.4 26.3 46.0 85.9 129.0 43.4 42.3 (3.9) (1.6) 987.5 1159.3 (32.2) 201.3 149.7 149.6 (0.8) 3.6 (0.8) (3.2)
104

21 October, 2011 Company Ticker Year End Media APN News & Media Austar United Communications Consolidated Media Holdings Fairfax Media Limited Prime Media Group Limited REA Group Ltd Sky Network Television Limited (NZD) Seven West Media Limited Southern Cross Media Group Ten Network Holdings Real Estate Abacus Property Group Astro Japan Property Group Australand Property Group Bunnings Warehouse Property Trust Challenger Diversified Property Group Carindale Property Trust Centro Retail Group CFS Retail Property Trust Charter Hall Group Commonwealth Property Office Fund Charter Hall Office REIT Charter Hall Retail REIT DEXUS Property Group FKP Property Group Goodman Group GPT Group Investa Office Fund ALE Property Group Lend Lease Group Mirvac Group Stockland Tishman Speyer Office Fund Westfield Group Westfield Retail Trust Retailing Billabong International David Jones Limited Fantastic Holdings Harvey Norman JB Hi-Fi Limited Metcash Ltd Myer Holdings Limited Pacific Brands Wesfarmers Limited Warehouse Group Limited (NZD) Woolworths Limited Wotif.com Holdings Price A$
1
Nor EPS Growth (%) 2011 2012 2013 2011
P/E Nor (x) 2012 2013
Relative P/E (%) 2011 2012
DPS () 2011 2012 2013 2011
Yield (%) 2012 2013
Franking (%) 2011 2012 2013
Current Rating
6
2013
2013
2013
2013
APN AUN CMJ FXJ PRT REA SKT SWM SXL TEN
Dec Dec Jun Jun Jun Jun Jun Jun Jun Aug
0.85 1.21 2.50 0.88 0.66 12.37 5.38 3.35 1.02 0.83
(40) 16 102 (391) 27 69 120 115 53 36
86 54 92 241 27 80 127 275 106 87
93 66 97 262 29 94 132 291 114 102
82 68 95 274 27 67 120 142 58 83
86 77 92 266 27 80 127 275 106 87
93 94 97 262 29 94 132 291 114 102
(6.7) 1.3 17.8 (17.0) 7.7 53.1 30.9 38.6 11.6 3.5
14.2 4.2 16.4 10.3 7.3 61.6 32.7 43.8 15.0 8.3
15.3 5.2 17.2 11.2 7.9 71.9 33.9 44.3 16.1 9.7
13.5 5.4 16.6 11.6 7.4 52.0 30.8 37.5 12.5 7.9
14.2 6.0 16.4 11.3 7.3 61.6 32.7 41.1 15.0 8.3
15.3 7.4 17.2 11.2 7.9 71.9 33.9 41.6 16.1 9.7
(22) 26 19 (2) 47 31 18 (18) (23) (45)
5 13 (2) (3) (2) 18 6 10 19 6
8 23 5 (1) 9 17 4 1 8 17
6.3 22.6 15.1 7.5 8.9 23.8 17.5 8.9 8.1 10.4
6.0 20.0 15.3 7.7 9.0 20.1 16.4 8.1 6.8 9.9
5.6 16.3 14.5 7.8 8.3 17.2 15.8 8.1 6.3 8.5
47 170 113 56 67 179 131 67 61 78
50 168 128 65 76 169 138 68 57 83
52 153 137 74 78 162 149 76 59 80
9.4 0.0 16.5 3.0 4.5 26.0 43.5 45.0 10.0 5.1
9.9 0.0 16.5 4.0 5.5 30.8 17.5 35.0 9.0 6.3
10.7 0.0 16.5 5.6 6.0 36.0 19.0 35.0 9.7 7.3
11.1 0.0 6.6 3.4 6.8 2.1 8.1 13.4 9.9 6.2
11.7 0.0 6.6 4.5 8.3 2.5 3.4 10.5 8.9 7.1
12.6 0.0 6.6 6.4 9.0 2.9 3.5 10.5 9.5 8.3
30 0 0 100 100 100 0 100 100 100
30 0 0 100 100 100 0 100 100 100
30 0 0 100 100 100 0 100 100 100
N UW N N N OW N OW N OW
ABP AJA ALZ BWP CDI CDP CER CFX CHC CPA CQO CQR DXS FKP GMG GPT IOF LEP LLC MGR SGP TSO WDC WRT
Jun Jun Dec Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Dec Jun Jun Jun Jun Jun Jun Dec Dec
1.90 2.07 2.48 1.69 0.52 3.91 0.28 1.80 1.84 0.94 3.39 3.24 0.82 0.52 0.60 3.13 0.61 1.97 7.51 1.24 3.16 0.56 7.55 2.56
77 40 131 57 44 20 (4281) 350 60 155 132 66 358 121 392 408 135 31 493 182 755 16 1481 735
71 39 140 70 42 19 226 372 72 178 115 87 367 125 463 408 140 26 470 355 742 18 1436 566
76 40 154 70 47 20 225 386 72 195 90 92 378 139 534 423 148 27 506 376 753 18 1545 587
77 40 131 57 44 20 139 350 60 155 132 88 358 121 384 408 135 31 384 359 752 16 1481 563
71 39 131 70 42 19 145 372 72 178 107 87 367 125 463 408 140 26 457 359 742 18 1488 566
76 40 154 70 47 20 156 386 72 195 82 92 378 139 534 423 148 27 491 376 753 18 1650 587
20.9 72.4 22.7 12.6 4.9 28.2 (187.2) 12.4 20.5 6.3 26.8 21.6 7.4 10.3 5.9 22.2 5.0 32.7 86.9 5.4 31.7 4.7 64.2 24.1
18.2 66.4 24.1 13.4 4.6 26.7 9.9 13.1 24.3 7.2 23.4 29.2 7.6 10.5 6.1 23.0 5.1 16.6 82.4 10.4 31.6 5.4 62.2 18.5
18.8 68.3 26.0 13.5 5.2 27.9 9.8 13.5 23.9 7.9 18.2 30.7 7.8 11.6 6.6 23.8 5.4 17.4 88.6 11.0 32.1 5.3 67.0 19.2
20.9 72.4 22.7 12.6 4.9 28.2 6.1 12.4 20.5 6.9 26.8 28.9 7.4 10.3 5.8 22.2 5.0 19.9 67.7 10.5 31.6 4.7 64.2 18.4
18.2 66.4 24.1 13.4 4.6 26.7 6.3 13.1 24.3 7.2 23.4 29.2 7.6 10.5 6.1 23.0 5.1 16.6 80.1 10.4 31.6 5.4 64.5 18.5
18.8 68.3 26.0 13.5 5.2 27.9 6.8 13.5 23.9 7.9 18.2 30.7 7.8 11.6 6.6 23.8 5.4 17.4 86.0 11.0 32.1 5.3 71.5 19.2
6 (24) 3 4 (7) 3 (13) (1) 28 (3) (12) (18) 1 6 4 7 (12) (21) 4 13 9 (53) (15) 3659
(13) (8) 6 7 (4) (5) 4 6 18 6 (13) 1 2 2 6 3 4 (16) 18 (2) (0) 13 0 1
3 3 8 1 13 5 8 3 (1) 9 (22) 5 3 10 9 4 6 5 7 6 2 (1) 11 4
9.1 2.9 10.9 13.4 10.6 13.9 4.5 14.5 9.0 13.7 12.7 11.2 11.0 5.0 10.4 14.1 12.2 9.9 11.1 11.7 10.0 11.8 11.8 13.9
10.4 3.1 10.3 12.6 11.1 14.7 4.3 13.8 7.6 13.0 14.5 11.1 10.8 4.9 9.8 13.6 11.8 11.8 9.4 11.9 10.0 10.5 11.7 13.8
10.1 3.0 9.5 12.5 9.8 14.0 4.0 13.3 7.7 11.9 18.6 10.6 10.4 4.4 9.1 13.2 11.1 11.3 8.7 11.2 9.9 10.6 10.6 13.3
68 21 82 101 80 104 34 109 67 103 95 84 83 38 78 106 92 74 83 88 75 89 88 104
88 26 86 106 93 123 36 115 64 109 122 93 90 41 83 114 99 99 79 100 84 88 98 116
95 28 90 117 92 132 38 125 72 112 175 99 98 42 85 124 105 106 82 106 93 99 99 125
16.5 45.5 21.5 12.0 4.1 27.8 0.0 12.7 16.5 5.5 20.1 24.8 5.2 3.0 3.5 17.3 3.9 19.7 35.0 8.2 23.7 0.0 48.4 16.6
16.5 21.0 21.7 13.0 3.9 27.8 0.0 13.1 20.2 5.8 18.2 25.9 5.3 3.4 3.6 17.9 4.0 16.6 42.0 8.2 23.7 0.0 49.6 16.9
16.8 19.9 22.1 13.5 5.1 27.8 3.0 13.5 23.9 6.3 14.9 27.4 5.5 4.2 3.9 18.6 4.1 17.4 44.0 8.8 24.7 0.0 55.2 17.4
8.7 8.7 7.1 7.9 7.1 0.0 7.1 9.0 5.9 5.9 7.7 6.4 5.8 5.8 5.5 6.5 10.1 4.7 6.6 7.5 0.0 6.4 6.5
8.7 10.1 8.7 8.0 7.8 7.1 0.0 7.3 11.0 6.1 5.4 8.0 6.5 6.4 6.1 5.7 6.7 8.5 5.6 6.6 7.5 0.0 6.6 6.5
8.8 9.6 8.9 8.0 9.8 7.1 10.9 7.5 13.0 6.7 4.4 8.5 6.7 8.1 6.6 5.9 7.1 8.9 5.9 7.1 7.8 0.0 7.3 6.8
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 29 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 50 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 50 0 0 0 0 0
UW OW N UW N OW N OW UW OW UW UW OW N OW N OW N OW OW UW N OW
BBG DJS FAN HVN JBH MTS MYR PBG WES WHS WOW WTF
Jun Jul Jun Jun Jun Apr Jul Jun Jun Jul Jun Jun
3.54 3.16 2.09 2.21 14.25 4.15 2.39 0.62 31.00 3.18 24.06 3.58
119 168 19 252 110 241 160 (132) 1922 78 2124 51
105 144 25 244 134 253 147 81 2312 78 2169 63
126 150 29 289 146 264 157 109 2529 75 2310 77
118 168 19 265 134 263 156 107 1904 76 2094 51
105 143 25 251 134 268 146 91 2328 71 2138 63
126 150 29 289 146 280 156 110 2545 75 2280 77
47.0 32.8 19.0 23.8 100.7 32.3 27.4 (14.2) 165.4 25.0 171.4 24.2
41.1 27.3 24.0 23.0 133.0 32.9 24.5 8.7 198.9 24.9 175.0 29.6
49.4 28.3 28.6 27.1 144.7 34.3 26.0 11.7 217.5 24.2 185.5 36.5
46.5 32.7 19.0 25.0 122.0 33.8 26.9 11.5 163.9 24.5 169.0 24.0
41.1 27.3 24.0 23.7 133.0 34.5 24.4 9.7 200.3 22.7 172.5 29.6
49.4 28.3 28.6 27.1 144.7 36.4 25.9 11.8 218.9 24.2 183.0 36.5
(19) (3) 12 (12) 15 6 (2) 16 15 (9) 7 (4)
(12) (16) 26 (5) 9 2 (9) (16) 22 (7) 2 24
20 4 20 14 9 5 6 21 9 6 6 23
7.6 9.7 11.0 8.8 11.7 12.3 8.9 5.4 18.9 13.0 14.2 14.9
8.6 11.6 8.7 9.3 10.7 12.0 9.8 6.4 15.5 14.0 13.9 12.1
7.2 11.1 7.3 8.2 9.9 11.4 9.2 5.3 14.2 13.2 13.1 9.8
57 73 83 66 88 92 67 40 142 98 107 112
72 97 73 78 90 101 82 53 130 117 117 101
67 105 69 77 93 107 87 50 133 124 124 92
29.0 28.0 11.0 12.0 77.0 27.0 22.5 6.2 150.0 22.0 122.0 22.0
26.0 25.0 14.5 12.0 84.0 27.0 20.0 5.1 158.0 20.5 124.0 25.0
31.0 25.0 17.0 14.0 90.0 29.0 22.0 6.2 179.0 20.5 131.0 29.2
8.2 8.9 5.3 5.4 5.4 6.5 9.4 10.0 4.8 6.9 5.1 6.2
7.3 7.9 6.9 5.4 5.9 6.5 8.4 8.2 5.1 6.5 5.2 7.0
8.8 7.9 8.1 6.3 6.3 7.0 9.2 9.9 5.8 6.5 5.4 8.2
39 100 100 100 100 100 100 100 100 100 100 100
25 100 100 100 100 100 100 100 100 100 100 100
25 100 100 100 100 100 74 100 100 100 100 100
UW UW OW N N UW N N OW UW OW OW
Telecommunication Services Hutchison Telecommunications (Austral HTA iiNet IIN Telecom New Zealand (NZD) TEL Telstra Corporation TLS
Dec Jun Jun Jun
0.06 2.59 2.55 3.14
116 33 166 3231
208 43 424 3535
285 49 468 3741
116 39 388 3252
208 43 424 3535
285 49 468 3741
15.4 21.9 8.6 26.0
27.6 28.3 22.0 28.4
37.9 32.3 24.3 30.1
15.4 25.6 20.2 26.1
27.6 28.3 22.0 28.4
37.9 32.3 24.3 30.1
567 12 2 (20)
79 11 9 9
37 14 10 6
0.4 10.1 12.6 12.0
0.2 9.2 11.6 11.1
0.2 8.0 10.5 10.4
3 76 95 90
2 77 97 93
1 75 98 98
1.0 12.0 20.0 28.0
2.0 12.0 21.0 28.0
3.0 13.0 22.0 28.0
16.7 4.6 7.8 8.9
4.6 8.2 8.9
5.0 8.6 8.9
0 100 100 100
0 100 100 80
0 100 100 100
N OW N N
105

21 October, 2011 Company Ticker Year End Transportation Auckland International Airport (NZD) Asciano Group Australian Infrastructure BrisConnections Unit Trusts MAp Airports Macquarie Atlas Roads Qantas Airways QR National Transurban Group Toll Holdings Virgin Blue Utilities AGL Energy APA Group Contact Energy Limited (NZD) Challenger Infrastructure Fund DUET Group Envestra Limited Hastings Diversified Utilities Fund Infigen Energy Spark Infrastructure Group SP AusNet Price A$
1
Nor EPS Growth (%) 2011 2012 2013 2011
P/E Nor (x) 2012 2013
Relative P/E (%) 2011 2012
DPS () 2011 2012 2013 2011
Yield (%) 2012 2013
Franking (%) 2011 2012 2013
Current Rating
6
2013
2013
2013
2013
AIA AIO AIX BCS MAP MQA QAN QRN TCL TOL VBA
Jun Jun Jun Jun Dec Dec Jun Jun Jun Jun Jun
2.36 1.48 1.87 0.80 3.30 1.36 1.49 3.16 5.42 4.61 0.36
101 145 212 (143) 174 (314) 249 350 112 281 (68)
134 283 178 (234) 168 (317) 323 424 169 306 36
144 330 193 (93) 188 (85) 420 541 191 345 109
121 189 73 (143) 426 178 402 243 385 278 (47)
134 283 72 (234) 387 222 421 424 413 306 36
144 330 81 (93) 413 250 574 541 422 345 109
7.7 6.0 34.2 (15.3) 9.4 (67.7) 11.0 14.9 7.8 39.8 (3.1)
10.1 9.7 28.7 (20.0) 9.0 (68.2) 14.3 17.4 11.6 42.8 1.6
10.9 11.3 31.1 (6.6) 10.1 (18.3) 18.5 22.2 13.2 47.4 4.9
9.2 7.7 11.7 (16.0) 22.9 38.8 17.7 10.1 26.8 39.4 (2.1)
10.1 9.7 11.6 (21.4) 20.8 47.8 18.6 17.4 28.5 42.8 1.6
10.9 11.3 13.1 (7.1) 22.2 53.9 25.3 22.2 29.1 47.4 4.9
10 88 33 (4) 18 55 3268 7 (4) (311)
10 26 (1) (9) 23 5 71 6 9
8 17 13 7 13 36 28 2 11 201
25.7 19.3 15.9 14.4 3.5 8.4 31.2 20.2 11.7
23.4 15.3 16.0 15.9 2.8 8.0 18.2 19.0 10.8 21.8
21.7 13.1 14.2 14.9 2.5 5.9 14.3 18.6 9.7 7.2
193 145 119 na 108 26 63 234 152 88 na
196 128 134 na 133 24 67 153 159 90 183
204 123 134 na 140 24 55 134 175 91 68
8.7 2.0 10.0 24.0 101.0 0.0 0.0 3.7 27.0 25.0 0.0
9.0 2.0 10.5 24.0 21.0 0.0 0.0 8.3 29.0 25.0 0.0
9.8 4.0 11.0 34.0 22.0 18.0 0.0 11.0 30.0 25.0 0.0
3.7 1.4 5.4
3.8 1.4 5.6 6.4 0.0 0.0 2.6 5.4 5.4 0.0
4.1 2.7 5.9 6.7 13.2 0.0 3.5 5.5 5.4 0.0
0.0 0.0 1.2 5.0 5.4 0.0
100 0 87 0 0 0 100 0 0 100 0
100 50 86 0 0 0 100 0 0 100 100
100 100 36 0 0 0 100 90 0 100 100
N OW OW UW N OW OW UW OW N N
AGK APA CEN CIF DUE ENV HDF IFN SKI SPN
Jun Jun Jun Jun Jun Jun Dec Jun Dec Mar
14.61 4.23 5.70 1.10 1.65 0.65 1.61 0.28 1.21 0.99
559 109 150 (1) 125 45 34 (61)
515 126 187 37 103 60 11 (62)
597 144 217 39 118 72 21 (55)
431 109 151 8 191 48 31 (26) 114 253 NPG
515 126 187 37 103 60 26 (62) 129 232 NPG
597 144 217 39 118 72 21 (55)
122.6 19.7 23.9 (0.2) 13.8 3.2 5.9 (8.0)
111.3 19.7 26.5 11.6 9.4 4.1 4.9 (8.1)
128.6 22.3 29.7 12.0 10.5 4.6 3.8 (7.2)
94.6 19.8 24.0 2.5 21.1 3.4 5.9 (3.4)
111.3 19.7 26.5 11.6 9.4 4.1 4.9 (8.1)
128.6 22.3 29.7 12.0 10.5 4.6 3.8 (7.2)
(1) 0 (4) 99 17 (26)
18 (0) 10 360 (56) 21 (18)
16 13 12 4 12 14 (21)
15.4 21.4 23.8 43.4 7.8 19.2 27.2
13.1 21.5 21.5 9.4 17.6 15.9 33.1
11.4 18.9 19.2 9.1 15.7 14.0 41.9
116 161 178 326 59 144 204 na 106 82
110 180 180 79 148 134 278 na 107 103
107 178 180 85 147 131 394 na 99 108
59.3 34.4 23.0 14.0 20.0 5.5 10.0 1.0
64.6 36.1 25.0 10.0 16.0 5.5 10.3 0.0
74.3 36.9 25.3 10.0 16.5 5.5 10.6 0.0
4.1 8.1 4.0 12.8 12.1 8.5 6.2 3.6
4.4 8.4 4.4 9.1 9.7 9.0 6.4 0.0
5.1 8.7 4.4 9.1 10.0 9.2 6.6 0.0
100 0 100 0 0 0 0 0
100 0 100 0 0 0 0 0
100 0 100 0 0 0 0 0 0 9 FRANK
OW N N N N UW OW N UW N
65 129 159 253 232 254 RPIAG RPIAG RPIAG Reported Profit Growth(%) 2011 2012 2013 4.4 18.3 15.5 5.2 21.0 17.6 3.7 16.6 14.6 4.5 19.1 16.9 16.0 14.8 13.3 17.1 17.4 15.8 9.9 13.2 10.8 5.1 16.0 12.3
159 4.9 9.5 11.5 8.6 9.5 254 9.1 8.0 8.6 9.1 8.0 REPSIAG REPSIAG NEPSG NEPSG NPGREPSIAG Reported EPS Growth(%) 2011 2012 2013 0.7 16.9 14.7 1.6 20.0 16.7 0.2 15.3 13.5 1.0 18.4 15.6 13.5 12.4 12.7 14.6 15.7 15.6 8.3 10.8 10.0 4.7 14.9 12.2
11.5 18 11 21 14.1 12.7 10.5 8.6 16 (12) 8 10.9 12.3 11.4 NEPSGE_REPSIA_REPSIA_REPSIA PE_NEPS PE_NEPSPE_NEPS P/E Reported (x) 2011 2012 2013 15.1 13.3 11.4 15.7 13.9 11.6 14.9 12.9 11.4 15.5 13.4 11.6 13.2 12.4 10.9 14.2 13.7 11.7 13.4 12.6 11.4 15.5 15.0 13.3 P/E Normalised (x) 2011 2012 2013 14.1 12.8 11.1 14.8 13.3 11.3 13.6 12.2 11.1 14.3 12.6 11.3 13.3 11.9 10.6 14.7 12.9 11.3 13.3 11.9 11.0 15.8 13.8 12.5
9.3 9.5 9.7 7.6 7.8 8.0 8.0 8.0 8.2 8.1 8.1 8.3 NYIELD NYIELD NYIELD GYIELD GYIELD GYIELD Net Yield (%) 2011 2012 2013 5.2 5.3 6.3 4.8 4.9 6.0 6.0 6.0 7.0 5.7 5.7 6.9 5.3 5.4 5.9 4.3 4.3 4.8 6.2 6.3 6.9 5.6 5.4 6.0 Gross Yield (%) 2011 2012 6.4 6.6 6.1 6.3 7.4 7.4 7.2 7.3 7.0 7.2 5.7 5.7 8.2 8.3 7.3 7.0
0 0 7 8 FRANK FRANK Franking (%) 2011 2012 52.4 54.2 58.1 60.2 56.4 57.7 65.0 66.6 72.4 72.7 71.4 71.8 70.3 70.1 66.4 65.6
MARKET AVERAGES Arithmetic Average Arithmetic Average (ex Financials) Arithmetic Average (ex Resources) Arithmetic Average (ex Financials) (ex Resources) Weighted Average Weighted Average (ex Financials) Weighted Average (ex Resources) Weighted Average (ex Financials) (ex Resources)
7
Normalised Profit Growth(%) 2011 2012 2013 11.0 15.5 14.1 12.3 17.7 16.0 10.3 13.9 12.6 11.6 16.0 14.5 16.7 11.4 12.6 20.1 12.5 15.2 9.3 11.1 9.7 7.3 12.8 11.0
Normalised EPS Growth(%) 2011 2012 2013 6.7 12.7 13.7 8.3 14.6 15.8 6.1 11.2 12.1 7.8 12.8 14.1 13.4 10.2 12.2 16.7 11.9 15.1 6.9 9.5 9.1 5.7 11.7 11.0
2011
2012
2013
2013 7.9 7.7 8.7 8.8 7.8 6.3 9.1 7.7
2013 56.3 62.7 58.5 67.5 76.2 77.1 71.7 68.4
Notes 1. All prices are in Australian dollars. Stocks with a suffix of USD or NZD or SGD are forecast in these currencies. 2. Reported earnings for financial years startingafter 31 Dec 2004 are forecast according to International Accounting Standards (IFRS). The main differences between IFRS forecasts and earlier numbers are that goodwill amortisation is not deducted and staff options are expensed. 3. Normalised earnings exclude goodwill in all periods along with P&L on FX movements, asset disposal and some other non-operational items. 4. Per share figures are calculated on a weighted average capital basis. 5. Normalised P/E relative to the arithmetic average of the market. 6. OW = Overweight, N = Neutral, UW = Underweight 7. Weighted averages are calculated using 100% market capitalisation This material is provided for information only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security or financial instrument. This material is not a research report, although it may refer to information and data contained in J.P. Morgan published research reports or models from all J.P. Morgan affiliated regions. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this publication must make its own independent decisions regarding any securities or financial instruments mentioned herein. Please refer to the most recent published research or model for complete information on the specific stocks mentioned in this publication, including important disclosures and analysts' certifications. 2011 JPMorgan Chase & Co.
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7
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territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA rules. General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise. "Other Disclosures" last revised September 30, 2011.
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109
J.P. Morgan Australasia Research and Sales Responsibilities

Matthew Roberts, Head of Australasian Equities (61-2) 9220 3175 Richard Newton, Head of Australasian Sales (61-2) 9220 1821 Rob Stanton, Head of Australasian Research (61-2) 9220 1923
RESEARCH
Banks
Research Sales
(61-2) 9220 1803 (61-2) 9220 1528 (61-2) 9220 1550 (61-2) 9220 1596 (61-2) 9220 1527 (61-2) 9220 1525 (61-2) 9220 1593 (61-2) 9220 3051 (61-2) 9220 1815 (61-2) 9220 1606 (61-2) 9220 1538 scott.r.manning@jpmorgan.com james.nicholias@jpmorgan.com bharat.k.anand@jpmorgan.com siddharth.x.parameswaran@jpmorgan.com uma.x.joshi@jpmorgan.com russell.j.gill@jpmorgan.com laurent.j.horrut@jpmorgan.com jarrod.mcdonald@jpmorgan.com thomas.g.beadle@jpmorgan.com scott.j.carroll@jpmorgan.com william.en.loh@jpmorgan.com stuart.a.jackson@jpmorgan.com matthew.h.ryan@jpmorgan.com richard.x.szabo@jpmorgan.com megan.a.freeman@jpmorgan.com shaun.r.cousins@jpmorgan.com shen.w.li@jpmorgan.com kirsty.a.mackay-fisher@jpmorgan.com carolyn.j.holmes@jpmorgan.com jason.h.steed@jpmorgan.com christopher.r.laybutt@jpmorgan.com keith.chau@jpmorgan.com anthony.g.passede.silva@jpmorgan.com william.en.loh@jpmorgan.com steven.d.wheen@jpmorgan.com anasuya.x.ramesh@jpmorgan.com richard.b.jones@jpmorgan.com michael.john.scott@jpmorgan.com rob.a.stanton@jpmorgan.com scott.x.molloy@jpmorgan.com russell.j.gill@jpmorgan.com garry.sherriff@jpmorgan.com armina.x.soemino@jpmorgan.com damon.callaghan@jpmorgan.com fraser.jamieson@jpmorgan.com mark.busuttil@jpmorgan.com andrew.x.muir@jpmorgan.com joseph.x.kim@jpmorgan.com luke.nelson@jpmorgan.com benjamin.x.wilson@jpmorgan.com daniel.butcher@jpmorgan.com paul.m.brunker@jpmorgan.com armina.x.soemino@jpmorgan.com stephen.b.walters@jpmorgan.com helen.e.kevans@jpmorgan.com ben.k.jarman@jpmorgan.com berowne.d.hlavaty@jpmorgan.com james.eustace@jpmorgan.com garry.sherriff@jpmorgan.com stephen.j.blagg@jpmorgan.com
SALES AND TRADING (61-2) 9220 1821 (61-2) 9220 3191 (61-2) 9220 1651 (61-2) 9220 1642 (61-2) 9220 1849 (61-2) 9220 1585 (61-3) 9633 4012 (61-3) 9633 4014 (61-2) 9220 1650 (61-2) 9220 1683 (61-2) 9220 7745 (61-2) 9220 3003 (61-2) 9220 1632 (61-2) 9220 3109 (61-2) 9220 1673 (61-2) 9220 1592 (61-2) 9220 1668 (61-2) 9220 1574 (61-2) 9220 1658 (61-2) 9220 1691 (61-2) 9220 1956 (61-2) 9220 3134 (61-2) 9220 3171 (61-2) 9220 1682 (61-2) 9220 3049 (61-2) 9220 3258 (61-2) 9220 1561 (61-2) 9220 1513 (61-2) 9220 3220 (61-2) 9220 1547 (61-2) 9220 3145 (61-2) 9220 3228 (61-2) 9220 1353 (61-2) 9220 1334 (61-2) 9220 7962 (85-2) 2800 8887 (85-2) 2800 8886 (65) 6882 2060 (65) 6882 2306 (44-207) 742 8320 (39-02) 8895 2715 (44-207) 779 2228 (44-207) 779 2400 (1-212) 622 2554 (1-212) 622 2592 (1-212)-622 2550 (61-2) 9220 1387
Scott Manning James Nicholias Bharat Anand
Insurance
Siddharth Parameswaran Uma Joshi Diversified Financials Russell Gill
Telecommunications & Media

Laurent Horrut Jarrod McDonald Thomas Beadle Transport Scott Carroll William Loh Stuart Jackson Matt Ryan Richard Szabo Megan Freeman
Sales Trading & Specialist Sales

Bill Findlay Lachlan Evans Patrick Maguire Matthew Alvarez Richard Waddington Paul Stemmer Aaron Payne Cameron Wood Sujit Dey Luke Allshorn Paul Mobilio Sam Musgrave
Richard Newton Mark Malouf Edward Clegg Amy Krizanovic Andrew Fincher Richard Bailey Alistair Drummond James Casey
Beverages & Food, Gaming, Paper & Packaging, Chemicals

(61-2) 9220 1601 (61-2) 9220 1533 (61-2) 9220 1408 (61-2) 9220 1690 (61-2) 9220 1524 (61-2) 9220 1692 (61-2) 9220 1609 (61-2) 9220 1307 (61-2) 9220 1551 (61-2) 9220 1623 (61-2) 9220 1582 (61-2) 9220 1638 (61-2) 9220 1538 (61-2) 9220 1645 (61-2) 9220 7734 (61-3) 9633 4038 (61-2) 9220 1570 (61-2) 9220 1923 (61-2) 9220 1573 (61-2) 9220 1525 (61-2) 9220 1502 (61-2) 9220 1589 (61-2) 9220 1580 (61-2) 9220 1586 (61-2) 9220 1553 (61-2) 9220 1579 (61-2) 9220 7882 (61-2) 9220 1629 (61-2) 9220 1384 (61-2) 9220 1405 (61-2) 9220 7841 (61-2) 9220 1589 (61-2) 9220 1599 (61-2) 9220 3250 (61-2) 9220 1669 (61-2) 9220 1591 (61-2) 9220 1675 (61-2) 9220 1502 (61-2) 9220 1584
Retail
Shaun Cousins Shen Li
Real Estate Sales

Simon Byrne Adam Fairfax
Infrastructure
Kirsty Mackay-Fisher Carolyn Holmes Jason Steed Chris Laybutt Keith Chau Anthony Passe-De Silva William Loh Healthcare Steven Wheen Anasuya Ramesh
Facilitation and Program Trading

Anthony Brawn Chris Podbury Matthew Bailey Ashley Critcher Chris Tolj
Utilities & Building Materials
Property Developers & Contractors
Stock Lending
Mark Bradley Nicholas Sayers
Corporate Access
Rebecca Thompson Donna Murphy
Property Trusts
Richard Jones Michael Scott Rob Stanton Scott Molloy
Equity Derivatives
Mark Dewar Stuart Cook John Manchee Joanne Comminos Olivia Cartwright Henry Polkinghorne Alex Menzies Grace Chan
Emerging Companies
Russell Gill Garry Sherriff Armina Soemino Damon Callaghan
ASIA
Resources
UK/EUROPE
Fraser Jamieson Mark Busuttil Andrew Muir Joseph Kim Luke Nelson
Lee Hopperton Gianluca Gorlani Andrew King Alex Apoifis
USA
Derek Kellett Nik Kritikos Alexander Stewart Christine Biggs
Energy & Steel

Ben Wilson Daniel Butcher
Strategy
Paul Brunker Armina Soemino
For further information on this product please call:
Economics
Stephen Walters Helen Kevans Ben Jarman
Quantitative & ESG

Berowne Hlavaty James Eustace Garry Sherriff
Database
Stephen Blagg
110

Australia First To Market: Monday, October 24th 2011

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Australia Equity Research

Australia First to Market

Strategy, Economics, Quantitative

FY_12 +1.8% -3.9% -5.2% -4.0%

FY_13 +1.2% -4.0% -4.5% 0.0%

Companies & Sectors

Rob Stanton (61-2) 9220-1923 rob.a.stanton@jpmorgan.com

Australia Equity Research 21 October 2011

Key rating, target price and estimate changes

Price Target Changes

FY_12 +1.8% -3.9% -5.2% -4.0%

FY_13 +1.2% -4.0% -4.5% 0.0%

Source: J.P. Morgan estimates.

Rob Stanton (61-2) 9220-1923 rob.a.stanton@jpmorgan.com

Australia Equity Research 21 October 2011

Rob Stanton (61-2) 9220-1923 rob.a.stanton@jpmorgan.com

Australia Equity Research 21 October 2011

Australia Equity Research

Macquarie Group Limited

Price Target: A$28.63

Banks Scott Manning

(61-2) 9220-1803 scott.r.manning@jpmorgan.com

MQG.AX share price (A$) ASX200-Bnk (rebased)

YTD -33.5% -30.7%

12m -26.9% -22.0%

Scott Manning (61-2) 9220-1803 scott.r.manning@jpmorgan.com

Australia Equity Research 21 October 2011

Scott Manning (61-2) 9220-1803 scott.r.manning@jpmorgan.com

Australia Equity Research 21 October 2011

Table 2: MQGDetailed Earnings Revisions

Scott Manning (61-2) 9220-1803 scott.r.manning@jpmorgan.com

Australia Equity Research 21 October 2011

Recent Outlook Commentary

Source: Company reports and J.P. Morgan estimates.

Table 4: MQG Earnings Estimates - JPM vs. Consensus

Source: Bloomberg, J.P. Morgan estimates.

Scott Manning (61-2) 9220-1803 scott.r.manning@jpmorgan.com

Australia Equity Research 21 October 2011

Proposed Platform Efficiencies

Annualised Annualised (post-tax) JPM FY13E

The Global Investment Banking Comparison

Jan-08 MQG AU Equity

Average (ex MQG)

Scott Manning (61-2) 9220-1803 scott.r.manning@jpmorgan.com

Australia Equity Research 21 October 2011

Multiple 8.0x 12.0x 7.0x 9.4x 1.6x 10.2x 8.0x 11.7x

Value 1,641 3,111 1,190 5,942 2,798 8,740 1,793 10,532

SHF 1,669 1,200 4,640 7,509 2,448 9,957 1,447 11,404

ROE 12.3% 21.6% 3.7% 8.4% 8.6% 7.9%

P/B 0.98x 2.59x 0.26x 0.79x 1.14x 0.88x 1.24x 0.92x

205 259 170 634 224 859 43 902

Source: IRESS, J.P. Morgan estimates. Priced as of 21 Oct 2011.

Scott Manning (61-2) 9220-1803 scott.r.manning@jpmorgan.com

Australia Equity Research 21 October 2011

Table 8: MQGResults and Forecasts

FY10 4,591 -3,511 1,080

1H11 2,637 -2,032 605

2H11 2,667 -1,997 670

2011 5,304 -4,029 1,275

1H12E 2,714 -2,057 657

2H12E 2,761 -2,105 656

2012E 5,475 -4,162 1,313