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February 3, 2013

SINGAPORE

STRATEGY

SHORT TERM (3 MTH)

LONG TERM

Conviction| |

Notes from the Field

Far from To infinity and beyond


The headline 6.9m population target in last weeks population and land use planning papers quickly raised a storm of protests from locals and opposition parties, even though these targets represent milder growth and is sorely necessary to address a shrinking workforce.

Kenneth Ng CFA
T (65) 62108610 E kenneth.ng@cimb.com

Figure 1: Planned population growth rates (% yoy)


8% 20%

Singapore Research Team

6%

Citizen growth rate (% yoy) Total population growth rate (%) Foreigner population growth rate (%) - RHS

15%

Singapore will experience an unprecedented age shift between now and 2030. Over 900,000 Baby Boomers, will enter their silver years. From 2020 onwards, the number of working-age citizens will decline, as older Singaporeans retiring outnumber younger ones starting work
Population White Paper

4%

10%

Planned population groth rates (% yoy)


2% 5%

0% 2000 -2% 2004 2008 2012 2016F 2020F 2024F 2028F

0%

-5%
SOURCES: BLOOMBERG

The big problems are ageing and a low birth rate. The solution is to keep the current slow pace of population growth and accelerate infrastructure investments. Long-term beneficiaries are construction, healthcare and education; losers are industrial REITs and the manufacturing sector. Our Neutral rating and end-13 FSSTI target of 3,316 are unchanged.

to infinity and beyond but the number crunching suggests that it is hardly so. The implication for the country is that manpower will stay tight and GDP growth will probably slow to sub-3% range.

Property winners & losers


Residential property already faces an excess supply situation in 2014-16. Planned population and property growth rates suggest that the government plans to have some excess housing inventory to prevent runaway property prices of the last eight years. The Land Use Plan also supports commercial and suburban retail demand though it is less supportive of land for industrial use.

CIMB Top Picks Capitaland


Best proxy for sustained asset inflation in Asia and an improving China. China residential take-up is rising. CAPLs earnings are backed by project completions with capex expected to peak in 2013. We expect NTA growth thereafter.

Implications of the two planning papers


The Population White Paper shed light on the countrys biggest fears: a diminishing workforce as the twin spectres of an ageing population and low birth rates collide in 2025-30. To douse the flames of (future) woes from an inverted population pyramid, the paper plans to keep an 80k-90k annual population growth rate (similar to 2010-2012, but much reduced from 2007-2009) while the Land Use Paper alluded to an acceleration of infrastructure work to prepare for the growth. The 6.9m headline target might seem like it is

DBS Group
Cheapest Singapore bank with the right SingaporeGreater China profile. Lending should return with trade. Margin pressure to be less, without deposit -funding constraints. Best poised to capture IB fees from a booming debt capital market.

Other key beneficiaries


Construction, healthcare and education seem most likely to benefit in the long term. Public transport plays will see increasing ridership but might not benefit in the short term until a new financing framework comes into effect.
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Wilmar
Commodities was 2012s worst performing sector. Wilmar is our pick in this unloved space. The stock has bounced off its 3-year P/BV lows but is still cheap. Oilseed and grains division is turning around, guidance of better timing of purchases.

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.

February 3, 2013

KEY CHARTS Healthcare a long-term winner


The most critical problem that the Population White Paper raised, is an ageing population. An ageing population will need to consume more healthcare services. 80% of a persons lifetime healthcare cost is typically spent in the last 10 years of his life. While most citizens and permanent residents will go to the public hospitals, a good portion of non-residents will need to go to private hospitals. IHH is a clear long-term winner from the population demographics, Raffles Medical is a lesser beneficiary.
1980 1990 2000 2005 2011 Elderly Residents (Aged 65 Years & Over) % of total resident population 4.9 6.0 7.2 8.1 9.3 Death Rate Per 1,000 Elderly Residents Hospital (Aged 65 Years & Over) Bed Days 55.1 20.1 47.4 25.6 42.3 23.5 37.4 25.5 33.8 29.4

Property considerations
Planned population growth and available land for housing units suggest that the government wants to keep the growth of available housing units slightly ahead of population growth. This will do much to appease those who complain of the high cost of living. We do not see an environment where physical prices will make the same gains as 2005-2012. Better stock beneficiaries will be retail REITs and office stocks. The former will do well, especially if they have assets near locations where major redevelopment works are planned. The latter will do well as the growth of professional, managerial, executive and technical (PMET) jobs is expected to outpace population growth.
140 135 130 Retail sales (ex. auto) per sf Rental - Central Rental - Fringe

1Q2006 = 100

125 120 115 110 105 100 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1

Construction another beneficiary


Construction companies typically go through feast and famine though it has been more feast than famine since 2007. The range of infrastructure developments from the Land Use Paper clearly suggests that order books will remain fairly buoyant and stable. We expect S$19bn-27bn of construction contracts in 2013-14 and ~$27bn for 2015. For the contractors, delivering topline in the next few years does not seem to be too much of a problem. The problems lie in executing the contracts profitably as manpower constraints tighten.

In S$m 35,000

Public

Private

30,000

25,000

20,000

15,000

10,000

5,000

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Africa (average)

Increasing total fertility rate


In Singapore, the post-1960s generation had been indoctrinated to have not more than two children each while the generation before had 5-10 siblings; that baby boomer generation is growing old and will leave the workforce by 2025. While there is nothing one can do with the large, retiring workforce, a lot of solutions lie in raising the total fertility rate (TFR); unfortunately rectifying that is also tough! The ageing population problem is statistically linked to high GDP per capita. The good ol joke is that all Singapore needs to do sometimes, is to have more blackouts

Total Fertility Rate (%)


United States of America

Philippines

Malaysia

Indonesia

South Korea

India

Brazil

Thailand

South Korea

Germany

UK

Japan

0
SOURCE: CIMB, CIA The World Factbook

Hong Kong

China

Singapore

Taiwan

February 3, 2013

Figure 2: Stocks in relevant industries affected by the White Paper


Company Retail CapitaMall Trust Frasers Centrepoint Trust Mapletree Commercial Trust Industrial Ascendas REIT Mapletree Industrial Trust Office CapitaLand Keppel Land Overseas Union Enterprise UOL Group Education Raffles Education Corp Ltd Healthcare IHH Healthcare Raffles Medical Group Banks - wealth management franchise DBS Group OCBC Auto distributors Jardine Cycle & Carriage Ltd WBL Corp Ltd Construction Centurion Corp Ltd Chip Eng Seng Corp Ltd Lian Beng Group Ltd OKP Holdings Ltd Pan-United Corp Tat Hong Holdings Tiong Seng Holdings Ltd Yongnam Holdings Land transport ComfortDelGro SMRT Corporation Bloomberg Ticker CT SP FCT SP MCT SP AREIT SP MINT SP CAPL SP KPLD SP OUE SP UOL SP RLS SP IHH SP RFMD SP DBS SP OCBC SP JCNC SP WBL SP CENT SP CHIP SP LBG SP OKP SP PAN SP TAT SP TSNG SP YNH SP CD SP MRT SP Recom. Underperform Outperform Outperform Outperform Neutral Outperform Neutral Outperform Outperform NR Outperform Outperform Outperform Neutral NR NR NR NR NR NR Outperform Outperform NR Outperform Neutral Underperform Price (lcl curr) 2.12 1.94 1.34 2.53 1.37 4.00 4.26 2.98 6.25 0.39 1.34 3.03 14.96 9.78 50.20 4.58 0.25 0.77 0.43 0.55 0.99 1.54 0.25 0.27 1.93 1.63 Target Price (lcl curr) 2.23 2.18 1.39 2.68 1.50 4.02 4.00 3.38 6.55 NA 1.53 3.52 17.36 10.63 NA NA NA NA NA NA 0.83 1.69 NA 0.33 1.76 1.59 Market Cap (US$ m) 5,919 1,291 2,018 4,576 1,804 13,736 5,315 2,190 3,887 328 8,687 1,335 29,450 27,110 14,375 1,001 152 403 183 135 445 716 154 270 3,282 2,003 Core P/E (x) CY2012 CY2013 25.1 18.6 23.3 17.2 15.9 48.0 13.7 27.6 15.2 na 58.8 29.4 10.3 12.1 13.9 16.2 na na 4.4 14.0 13.2 12.1 7.6 7.8 16.0 20.7 23.1 17.6 21.1 17.2 15.6 25.0 14.8 22.7 12.8 39.0 31.2 24.5 10.0 12.2 12.1 na na na 4.6 9.7 14.5 10.5 6.8 4.8 15.8 20.0 3-year EPS CAGR (%) 7.5% 13.2% 12.5% 4.9% 5.8% 45.1% 21.1% -25.8% -8.7% na 58.6% 18.8% 6.9% 9.7% 9.7% na na na -5.9% -0.8% 15.0% 28.5% -2.4% 6.6% 9.2% 0.3% P/BV (x) CY2012 CY2013 1.28 1.26 1.29 1.30 1.35 1.10 1.10 0.88 0.89 0.75 1.52 4.39 1.15 1.33 2.87 na na na 0.92 1.76 1.74 1.47 0.86 1.02 2.00 2.99 1.28 1.26 1.26 1.29 1.35 1.07 0.98 0.86 0.84 0.74 1.48 3.92 1.09 1.25 2.49 na na na 0.80 1.51 1.68 1.36 0.79 0.86 1.88 2.83 Recurring ROE (%) CY2012 CY2013 CY2014 5.1% 6.9% 5.8% 7.7% 8.5% 2.3% 8.8% 3.2% 5.9% na 2.7% 15.2% 11.5% 11.6% 21.8% na na na 20.6% 13.2% 13.1% 12.0% 11.7% 13.4% 12.2% 14.7% 5.6% 7.2% 6.0% 7.5% 8.6% 4.3% 7.0% 3.8% 6.8% na 4.8% 16.9% 11.2% 10.6% 21.8% na na na 17.3% 17.7% 11.8% 13.4% 12.0% 19.4% 12.0% 14.5% 6.0% 7.4% 6.0% 7.7% 8.9% 6.5% 7.0% 4.7% 6.7% na 5.7% 18.8% 11.0% 10.8% 21.3% na na na 13.3% 23.0% 13.2% 13.9% 10.2% 17.9% 11.7% 14.1% EV/EBITDA (x) Dividend Yield (%) CY2012 CY2013 CY2012 CY2013 na na na na na 42.2 36.5 23.0 19.2 12.0 18.0 21.5 na na 7.7 na na na 3.9 6.3 1.5 6.2 15.1 4.5 6.8 8.4 na na na na na 27.5 23.3 21.1 17.5 11.7 14.1 16.5 na na 6.7 na na na 3.3 3.6 1.3 5.4 13.1 3.3 6.2 8.3 4.5% 5.2% 4.6% 5.5% 6.5% 1.1% 2.4% 1.8% 1.4% 4.6% 0.0% 1.3% 4.4% 3.5% 3.0% na na na 2.7% 4.6% 3.5% 1.5% 4.0% 2.3% 3.1% 3.3% 4.8% 5.5% 4.9% 5.7% 6.7% 2.0% 2.0% 2.2% 1.7% 7.2% 0.0% 1.3% 4.1% 3.6% 3.2% na na na 3.7% 5.5% 4.0% 1.6% 4.0% 2.3% 3.2% 3.0%

SOURCES: CIMB, COMPANY REPORTS, BLOOMBERG

Calculations are performed using EFA Monthly Interpolated Annualisation and Aggregation algorithms to December year ends

February 3, 2013

Far from To infinity and beyond


Table of Contents
1. POPULATION WHITE PAPER & LAND USE PLAN 2. IMPLICATIONS FOR PROPERTY AND BANKS 3. INFRASTRUCTURE CONSIDERATIONS 4. OTHER WINNERS AND LOSERS 4. VALUATION AND RECOMMENDATIONS p.4 p.7 p.12 p.16 p.18

1. POPULATION WHITE PAPER & LAND USE PLAN 1.1 Highlights from the Population White Paper
The Singapore government released two long-term strategic planning papers last week. The first, the Population White Paper, highlights the key problem of ageing. The current Singapore citizen population stands at 3.3m vs. a total population of 5.3m. With a quarter (900k) of the current citizen population heading towards retirement by 2020, the citizen workforce will decline as retirees outnumber incoming younger workers. The retirees-workforce ratio will shrink from the current 5.9 to 2.1 by 2030. This has implications of (at least) doubling the potential tax rate that future generations have to pay just to ensure that the retired generation enjoys the same subsidies. By 2025, the citizen population will also start to decline. To counter the ageing population, Singapore plans to accept 15k-25k conversion to new citizens each year while keeping a float of ~550k permanent residents (PRs) and accepting 30k new PRs each year. The base of citizens and PRs will rise from 3.8m now to 4.2m-4.4m by 2030. The foreign population base will rise from 1.5m now to 2.6m by 2030. The increase in the foreign population is necessary to take on lower value-add jobs and fill positions where there are insufficient locals with the required skillsets since 2-in-3 citizens will be taking PMET jobs by 2030, vs. 1-in-2 now.
Figure 4: Entry and exit of citizens from working age - 2030

Figure 3: Entry and exit of citizens from working age - 2012

CIMB, POPULATION WHITE PAPER

CIMB, POPULATION WHITE PAPER

Figure 5: Population pyramid, 2012

Figure 6: Population pyramid, 2050

CIMB, POPULATION WHITE PAPER

CIMB, POPULATION WHITE PAPER

February 3, 2013

1.2 Highlights from the Land Use Plan


The Land Use Plan was subsequently published. It addresses how Singapore can cope with the 30% increase in population from current levels. Reclamation alone will add 7-8% of land to the current supply of 71k ha. Additionally, some 10k ha stock of reserve land (14%) will be tapped while old industrial areas and some golf courses will be recycled to achieve higher land productivity. The proportion of projected land area to be used for housing, industry and commerce will not go overboard; the percentage of land used for housing will increase from 14% now to 17% in 2030 while that used for industry and commerce will rise from 13%to 17%. There will be emphasis on liveable spaces. The proportion of land used for parks and nature reserves will increase slightly. To alleviate transport infrastructure strain, train lines will expand from four to seven and rail density will rise to 54 rail-km/million population from 34.
Figure 7: Planned rail infrastructure

SOURCES: CIMB, LAND USE PAPER

Figure 8: Planned commercial developments

SOURCES: CIMB, LAND USE PAPER

February 3, 2013

The Marina Bay area can support the expansion of the current CBD by another 1m sf but to alleviate the strains of uniform travel patterns in morning and evening peak hours, Singapore will also develop commercial centres in the city fringe and the northern corridor as well as a new southern waterfront city. The southern waterfront city will be developed at the current site of port facilities which will move to reclaimed land in Tuas (western tip). Housing stock will increase by 700k (+37%) from the current stock of 1.9m homes, of which 200k (+10.5%) will be completed by 2016.

1.3 The numbers point to a slowdown in growth rates


The headline population parameter of 6.9m, up from the previous target of 6.5m, raised a wave of concerns from certain portions of the local population. The concerns are not new; they include the cost of living, asset price inflation, crowdedness and a lack of belonging to the country as a higher proportion of foreigners stay in the country. While we hear the concerns, when we dissect the numbers, we find that the Population White Paper actually plans for a slowdown of the population growth rate, a likely lower GDP growth rate, a sustained fast pace of infrastructure investments and an alleviation of tight housing supply (the bugbear of the last five years). To elaborate: 1. Manpower to stay tight. The increase of Singapore citizens peaked in 2009 (+91.2k) when more PRs and foreigners sought to lay down roots here. Under the planned citizen increase, the growth rate will slow to only +20k p.a. Foreigner growth has already slowed from 130k-191k net adds (2007-08) to +37k (2012). The planned 2030 foreigner base of 2.6m implies a simple arithmetic average growth rate of 61k, not far from the 2009-12 range. It does not represent a change from the policies of tighter foreign worker inflows, which means that the current low unemployment rate will stay low and SMEs will still have to cope with lack of manpower and rising labour costs.
Figure 10: Implied increase in net foreign population
200,000

Figure 9: Implied increase in citizens population


200,000

150,000
91,200

150,000

Please fill in the values above to have them entered in your report
89,400

59,600

61,100

61,100 2014F

57,000

58,100

57,200

57,600

52,500

54,500

57,000

43,700

46,400

37,800

44,600

51,300

28,900

20,000

20,000

50,000

17,600

20,000

50,000

25,500

0
2013F 2014F 2015F 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

0
2013F 2015F 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-50,000

-50,000

SOURCE: CIMB, Singapore Stats

5,500

SOURCE: CIMB, Singapore Stats

2. GDP growth will slow. The journey to a 6.9m population base will only see a workforce growth of 1% p.a. Since GDP is the sum of population growth and productivity gains, target productivity gains (2-3% this decade, 1-2% for 2020-2030) will support 3% GDP only if productivity gains come through. There is a big if here because historical numbers show that productivity gains have slowed from 3.1% in the 1990s to 1.8% in 2000-10. If Singapore fails to achieve its target productivity gains, GDP could be even lower than the 3% long-term range. In our opinion, it is not as easy to achieve productivity gains in services as in manufacturing. Also, when productivity gains are achieved, profits tend to filter more towards the providers of capital than the providers of labour, further widening the income divide.

36,910

61,100

100,000

100,000

77,500

130,000

191,200

Title: Source:

February 3, 2013

Figure 11: Net adds to employment pass, s pass, work permit


('000) 180 EP Holder 160 140 120 100 80 60 40 SP Holder WP Holder

Figure 12: Unemployment rate: SA (%)


5

Unemployment Rate: SA (%) 4

Title: Source:

Please fill in the values above to have them entered in your report

20 0 -20 2007 2008 2009 2010 2011 2012


1

2006 2007 2008 2009 2010 2011

1Q88 1Q90 1Q92 1Q94 1Q96 1Q98 1Q00 1Q02 1Q04 1Q06 1Q08 1Q10 1Q12

SOURCE: CIMB estimates, Ministry of Manpower

SOURCES: CEIC

3. Some excess residential supply is planned for. Planned completed housing units of 700k from now till 2013 include a spurt of completion (200k) from now till 2016. Our ongoing concern that rising residential vacancies will depress physical property prices remains valid. Beyond 2016, the remaining 500k planned housing units till 2030 needs an incremental population base of 1.6m to absorb the supply but the 6.9m population target implies an incremental population base of only 1.3m-1.4m in the same period. 4. Support for commercial and suburban retail, less for industrial. The shift in the citizen workforce from 1-in-2 working as PMETs to 2-in-3 working as PMETs will keep up demand for office space. Suburban retail centres will continue to enjoy high footfall as new population hubs are developed. Industrial land will be a key loser. A clampdown on lower value-added activities and tighter industrial land supply could negatively impact industrial landlords. 5. Construction, healthcare and education to benefit. Outside of property, the clearest beneficiaries are construction and healthcare players. Education stocks could play a role as they complement the national education system by helping to provide many routes to success. Supermarkets will benefit as a larger population base provides the demand for consumer staples. Losers include companies like auto distributors as the fleet of cars available will be capped in increasingly crowded roads.

2. IMPLICATIONS FOR PROPERTY & BANKS 2.1 Residential: vacancy rates to remain elevated
Our expectations of rising vacancy rates remain unchanged. We believe that the government is now planning for some excess property supply, after the lessons of the past five years. The upcoming 700k supply includes 200k units due for completion by 2016. Our in-house model imputes 80k foreigner net add (vs. 61k) and 30k net add to residents per year (vs. 20k), and we still see vacancy rates rising to 8-10% by 2015. Beyond 2016, the fairly muted new population growth targets will raise vacancy rates for private residential units further, after the first 200k units are completed. The subsequent 500k units added after 2016 will cater to an additional 1.6m population (based on current household size of 3.2). If the population grows at 86k a year, this means an additional 1.2m people to populate the 500k housing units i.e. supply will still exceed demand. We present another perspective - we strip out demand for HDB and gauge how much household size has to shrink to absorb supply. The ratio of PRs to citizens stands at 16% in 2030, in line with 2011/12. The percentage of residents staying
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in HDB flats was 83%. This implies 27k residents a year demanding HDB flats, or 8k units based on household a size of 3.2 and 116k units cumulative from 2017 onwards. If the balance 380k units are private residential units, catering to non-residents and the balance 17% of residents totalling 61k population net add a year (860k in aggregate from 2017 onwards) implies a household size of 2.3 for private units vs. 3.4 on average.
Figure 13: Vacancy rates will still trend upwards beyond 2015
(Units) 28,000 23,000 18,000 13,000 8,000 3,000 -2,000 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%

Figure 14: Physical completions in the pipeline for private units


URA Estimated Physical Completion in the Pipeline 2010 2011 2012 2013 6,716 7,946 12,330 15,725 4,958 6,451 9,756 16,745 2,169 6,766 9,149 18,712 8,430 8,116 17,111 8,026 9,475 12,990 5,997 11,188 13,640 1,693 12,043 12,812 13,308 13,977 11,384 13,463 8,292 13,782 3,403 16,092 16,439 2014 13,616 14,526 15,082 17,421 18,341 17,360 19,812 20,873 19,995 19,831 18,350 18,608 2015 7,248 9,395 12,480 13,453 19,495 21,642 25,593 24,208 25,447 26,059 23,667 24,027 2016 2017 >2017 Total 63,581 61,831 64,358 65,699 68,887 71,111 76,255 77,089 78,572 83,251 83,975 86,475

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

Figure 15: Estimated HDB construction starts and net supply


Units 40,000

30,000

20,000

10,000

0 2006 2007 2008 2009 2010 2011 2012 2013F 2014F

19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 1 20 2 13 20 F 14 20 F 15 F
ss (LHS) dd (LHS) 10-yr average dd (LHS) Vacancy (RHS)

SOURCES: CIMB, URA

1,168 560 1,284 4,302 4,451 8,011 11,883 18,408 20,772

272 272 3,404 4,055 6,153

476

SOURCES: CIMB, URA

Figure 16: Est. total HDB supply and HDB demand


Units 1,000,000

Title: Source: Please fill in the values above to have them entered in your report

900,000

800,000 2006 2007 2008 2009 2010 2011 2012 2013F 2014F

Est construction starts

Net supply

Total HDB units

Residents households in HDB

SOURCES: CIMB, HDB, Singstat

SOURCES: CIMB, HDB, Singstat

February 3, 2013

Obviously, supply can be adjusted along the way, but with plans for 700k additional units till 2013, we expect physical property prices to be capped. We remain negative on developers with significant Singapore residential exposure, including CityDev (Underperform) and Wingtai (Underperform).

2.2 Decentralised mixed development the in thing


Increased population density across time has to be balanced with lifestyle facilities. Punggol, Yishun, East Coast and Bedok are examples of areas where estates will be improved and mature towns rejuvenated to provide better facilities and stronger connectivity. The government will also expand commercial nodes to Jurong Lake district, One North and Paya Lebar. With mixed-use land planning as a pillar to address strains on the transport infrastructure, developers with experience in operating mixed-use assets could benefit. Else, as developments flow out to the periphery, developers with long-dated landed landbank could see the value of those assets becoming increasingly valuable. Developers who stand to gain are UOL (Outperform), United Engineers (Outperform), Bukit Sembawang (Outperform).

2.3 Retail: Higher population = Higher retail spending


A growing population equates to more retail spending. Retail penetration in Singapore is still fairly low relative to other developed countries in Asia and could see more scope for upside. We expect plans to develop land for housing within existing matured estates. This will drive residential catchment for malls. Plans to site more commercial activities near homes through the creation of regional centres would likewise imply increased working population catchment. This increased population catchment could drive tenant sales and, in turn, rents. In future, the low retail penetration and a rising population would provide room for acquisitions by retail landlords, particularly with the creation of new towns and housing estates and regional centres and as improved transport infrastructure enhances transport connectivity for malls.
Figure 17: Retail penetration still fairly low in Singapore
60 50
Retail space per (sf)

Figure 18: Suburban retail rents rising in tandem with retail sales psf
50.5
140 135 130
Title: Source: Please fill in the values above to have them entered in your report

1Q2006 = 100

40 30 20 10 0
(20 09 Ko ) rea n (20 10 Ja ) pa n( 20 Au 09 ) str ali a( 20 10 ) US A (2 01 0) 1) 4) 20 1 20 1 g( 20 09 )

125 120 115 110 105 100

23.7 10.8 10.8 11.8 11.8 14.4 16.6

2 11 Q 20 20

re (

re (

06 Q

06 Q

07 Q

08 Q

09 Q

09 Q

10 Q

ap o

ap o

Ko n

Ch

20

20

20

20

20

20

Si ng

Si ng

ng

Ho

So u

th

Retail sales (ex. auto) per sf


SOURCES: CMT, URBIS

Rental - Central

20

Rental - Fringe

SOURCES: CIMB, SINGSTATS, URA REALIS

We believe that the rising population and commercial space allocation locally will benefit retail REITs, especially those with assets near major planned new towns. Apart from retail tailwinds, MCT (Outperform) would benefit from redevelopment plans at the Southern Corridor - the government is hoping to decant container port facilities (at City Terminals and Pasir Panjang when the lease expires in 2027) which could free up 325ha and 600ha of waterfront land, respectively for new commercial and housing developments, all of which would benefit both assets within its portfolio and its pipeline from its sponsor. FCT (Outperform) could also be a beneficiary given tailwinds at its two larger
9

12 Q

ina

February 3, 2013

assets: NorthPoint could benefit from the addition of homes in Yishun while Causeway Point could benefit from increased catchment at the upcoming Woodlands Regional Centre. Likewise, CMT (Underperform) may benefit from its suburban retail exposure at Jurong Gateway and Tampines Regional Centre though we remain cautious on valuations.

2.4 Office: Good demand as Singapore transits to a knowledge-based economy


The ongoing shift towards higher value-added and land-efficient activities will inevitably move Singapore towards a knowledge-based economy. As the level of education among Singaporeans rises, the number of Singaporeans in PMET jobs could rise by nearly 50% to about 1.25m in 2030, vs. 850k today, according to projections by the White Paper. Two-thirds of Singaporeans will hold PMET jobs then, compared to about half today. To tap on this skilled workforce, the government sees an opportunity to capture growing demand for professional services in Asia. For instance, it has started awarding qualifying full bank (QFB) licence to eligible Chinese banks and liberalising the legal sector to promote Singapore as a financial and legal hub. All these will inevitably drive demand for office space. To meet these needs, the government plans to add more office supply in centralised Marina Bay (another 1m sq m of office space, up from the current 6m sq m) and decentralised areas like Jurong Lake (500k sq m of office space), One-North and Paya Lebar Central.
Figure 19: Services jobs grew much faster than office supply in the past 20 years Figure 20: Singapore grade A rents still 40% cheaper than HK rents (adjusted for FX)

SOURCES: CIMB, MOM, JLL

SOURCES: CIMB, HONG KONG RATING AND VALUATION DEPT, JLL

The expected increase in PMET jobs will drive demand for office space and, in turn. provide support for the office market and rents. Grade A rents are currently at their widest discount to office rents in Hong Kong (~40% cheaper) since 1994 and just 15-20% above trough during the last crisis, suggesting upside for rents over the longer term. Increased supply for office sites could provide development/acquisition opportunities for office developments/landlords. Overall, we remain positive on the office sector, particularly with a bottoming expected over the nearer term. Within the sector, our preferred exposure is through developers with office exposure given their more attractive valuations. We like UOL (Outperform), a diversified landlord with exposure to the office sector and OUE (Outperform) for its Grade A office exposure and potential catalyst from asset-recycling. We retain our more cautious stance on the office REITs (CCT, KREIT, Suntec), given expectations of a more flattish DPU growth with the fall-off of income supports in 2013 and with valuations having caught up in 2012.

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February 3, 2013

2.5 Industrial: Ongoing shift towards higher value-added and land-efficient activities
We believe that industrial players stand out as losers. As land become increasingly scarce amidst rising population and housing needs, land optimisation will be increasingly critical. Land previously used for industrial purposes would have to give way. We expect Singapore to maintain its strategic shift towards higher value-added and more land-efficient economic activities. Traditional and more labour-intensive manufacturing activities could increasingly be squeezed out by higher operating costs and be compelled to seek lower-cost alternatives like Malaysias Iskandar. This emphasis on high value-added companies will also trigger scrutiny of industrialists economic development contribution in the allocation of industrial sites. This might impede industrial landlords flexibility and speed in engaging prospective tenants during developments or lease renewals. The Land Use Paper has, in fact, noted a potential need to recycle land such as older lower-intensity industrial areas to make way for housing or commercial uses in the Land Use Plan. Older centrally-located industrial estates may thus be unable to extend their land leases on expiry or may face compulsory acquisition by the government if there are more pressing land use needs.
Figure 21: Occupancy cost on the rise
11.0%

Figure 22: Gradually scaling up the value chain


Weights
Electronic cluster: 33.4 31.4 Semiconductor 20.2 15.6 Data storage 3.1 Please fill in the values above to have them 5.1 entered in your report Infocomms products 4.9 4.4 Key Modules & components 1.0 2.5 Computer peripheral 4.2 3.9 Chemicals: 10.9 14.1 Petroleum products 2.2 4.0 Specialty chemicals 4.0 3.8 Petrochemicals 3.6 4.0 Other chemicals 1.1 2.3 Biomedical science: 17.7 18.8 Pharmaceuticals 14.9 16.0 Medical devices 2.8 2.8 Precision engineering: 11.8 14.7 Machinery & system 6.2 4.9 Precision modules & com. 5.6 9.7 Transport engineering: 15.9 9.6 Marine & offshore engineer'g 10.0 4.5 Aerospace 4.9 4.5 Land 1.1 0.7 General mfg industries: 10.3 11.3

MTB rentals as % of manufacturing GDP

10.5% 10.0% 9.5% 9.0% 8.5% 8.0% 7.5% 7.0%

Title: Source:

2011

2003

20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 E
SOURCES: CIMB, URA, SINGSTATS

SOURCES: CIMB, SINGSTATS

Discouragement of lower value-added activities and tighter industrial land supply are likely to impact industrial landlords negatively over the longer term. Landlords with higher exposure to tenants in low value-added industries could be particularly affected. Those with shorter-tenure assets in centrally-located industrial estates may not be able to extend land leases. Any potential pullback in allocation of industrial sites could affect the acquisition momentum of industrial landlords, prompting more to seek greener pastures overseas for growth. We are cautious over the longer term on asset classes with higher exposure to traditional manufacturing and SMEs: AREIT (10% electronics, 20% conventional manufacturing,), MINT (40% manufacturing; 23% electronics) and Cambridge (22% manufacturing). MINT (Neutral), in particular, also has exposure to the Kallang Basin where it may be difficult to extend land leases as they lapse. AREIT (Outperform) clearly looks a safer bet for its business parks given its exposure to higher-value-added manufacturing tenants.

2.6 Banks: wealth management franchises will benefit


Lastly, while all banks will benefit from the general economic growth of the country, a higher proportion of PMETs and the de-emphasis of low-value activities will mean that the average wage and wealth of the population will rise. Banks with wealth management franchises DBS (Outperform), OCBC (Neutral) are best poised to benefit.
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3. INFRASTRUCTURE CONSIDERATIONS 3.1 Public transport operators: not necessary winners


Public transport will be the de facto mode of transport by 2030. Longer term, the public transport operators can benefit only after the transition to the new rail financing network. The government aims to shift demand from private to public transport as land supply constraints limit road capacity. It aims to raise public transports share from 60% to 70% by 2020 and 75% by 2030. New rail lines will be introduced. The rail network will double in length from 178km today to 360km by 2030. Rail density will rise from 34km per million people to 54km per million people. In the meantime, the bus fleet will be expanded as a stop-gap measure to satisfy demand before new rail lines are ready. We estimate that annual MRT ridership could grow from 688m (2012) to 1.3bn (2030) and bus ridership from 941m (2012) to 1.2bn (2030). Growing ridership does not necessarily mean higher profits though. Fares remain controlled by the Public Transport Council, implying that operators will struggle with a lack of pricing power amid escalating costs from staff and repairs & maintenance. In the near-term, we expect domestic operations to remain challenging.
Figure 23: CIMBs projected MRT ridership
1500.0 8.0

Figure 24: CIMBs projected bus ridership


1500.0

Title: Source:

8.0

1300.0 7.0 1100.0

1300.0

Please fill in the values above to have them entered in your report
7.0

1100.0

900.0

6.0

900.0

6.0

700.0 5.0 500.0

700.0 5.0 500.0

300.0 2003 2008 2013F 2018F 2023F 2028F

4.0

300.0 2003 2008 2013F 2018F 2023F 2028F

4.0

MRT ridership (m) - LHS

Population (m) - RHS

MRT ridership (m) - LHS

Population (m) - RHS

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

Figure 25: Key features of old vs. new rail financing framework
Old License period 30-40 years New 15 years Implications on operators Increases contestability between operators

Ownership of assets

Rail operating assets were owned by operators

LTA will own rail operating assets License charge corresponds to what operators would have spent on asset purchases under the old framework. Comprises fixed and vairable components, annual charge is a function of revenue and ridership Borne by operator

Lower capex and depreciation, asset-light

License charge

Nominal annual license fee

Costs are better matched with fare revenue. Margins expected to be lower under new framework

Repair and maintenance costs

Borne by operator

Operators are responsible for maintenance costs even though the assets now belong to LTA.
SOURCES: CIMB, COMPANY

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February 3, 2013

The reprieve comes later. By 2030, most, if not all, rail lines will be operating under a new rail financing framework. Under this framework, ComfortDelGro (CD) and SMRT will be pure operators while the government will own all operating assets and will determine the frequency of train runs. The new rail financing framework was introduced in 2010 with the objectives of 1) facilitating future expansion of the rail network in a financially sustainable manner, and 2) stepping up contestability among the rail operators. The Downtown Line will be the first awarded under the new framework. The Thomson Line, Cross Island Line and other new lines will similarly be awarded under the new framework. Below are the key features. The new framework is positive for public transport operators and makes their business model more viable. First, it lowers capex burden and puts less strain on cash flow since assets will be purchased by LTA. Second, balance sheets will be lighter since rail operating assets are not included in their books; this implies higher ROAs and ROEs than in the past. Third, costs are better matched by fare revenue. Under the new framework, licence charges are pegged to fare revenues and ridership, which will be backend-loaded. Under the old framework, operators incurred high upfront costs and depreciation even before ridership gained traction. We see ComfortDelGro (Neutral) as a greater beneficiary of the change in the rail financing framework given its limited exposure to the old framework. ComfortDelGro has only one line (NEL) under the old framework whereas SMRTs North-South, East-West Line and Circle Line are subject to heavy capex under the old framework, which could remain a drag on the companys financials.

3.2 Healthcare: ageing populations a tailwind


Figure 26: 2006-2010 - Singapore, has one of the fastest ageing populations
Population 65 years and above (in thousands) % of Total Country 2006 Population Southeast Asia Indonesia 11,630.9 5.2% Thailand 5,163.6 8.2% Vietnam 4,958.8 5.9% Malaysia 1,153.8 4.3% Singapore 356.5 8.1% Brunei 12.5 3.3% Asia The PRC 100,981.5 7.7% India 50,938.5 4.7% Hong Kong 844.7 12.3% CEEMENA Russia 19,482.2 13.7% Ukraine 7,552.7 16.2% Turkey 4,628.7 6.7% Egypt 3,399.7 4.8% Romania 3,214.3 14.9% Saudi Arabia 716.3 3.0% Macedonia 228.8 11.2% UAE 30.1 0.7% Developed Countries United States 37,108.9 12.4% Japan 26,038.2 20.4% Germany 16,004.1 19.5% United Kingdom 9,724.3 16.1% Korea 4,668.2 9.7% % of Total Population 5.6% 8.9% 6.0% 5.1% 9.0% 3.6% 8.9% 4.9% 12.7% 12.8% 15.5% 6.9% 5.0% 14.9% 3.0% 11.8% 0.4% 13.1% 22.7% 20.4% 16.6% 11.1% CAGR 2006-10 3.2% 2.4% 1.7% 5.7% 6.4% 3.2% 4.2% 3.2% 1.7% -1.6% -1.6% 2.3% 3.6% -0.1% 3.3% 1.5% -7.2% 2.2% 2.7% 1.0% 1.5% 3.9%

2010 13,194.5 5,677.2 5,298.5 1,440.8 456.9 14.3 119,235.1 57,742.5 904.6 18,289.3 7,075.5 5,063.0 3,913.6 3,196.4 815.5 243.0 22.3 40,483.8 28,947.1 16,632.7 10,321.1 5,446.5

SOURCES: WEO Database, September 2011 published online by IMF and countries data

An ageing population, particularly, needs more healthcare services; we believe that ageing populations healthcare needs stem from 1) higher incidence of non-communicable lifestyle diseases such as cardiovascular diseases as well as cancer and age-related diseases such as arthritis and diabetes, 2) higher requirements for diagnosis and hospital-based inpatient and outpatient treatment, and 3) longer durations of care. Theoretically, Singapore healthcare
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plays will benefit. However, the problem in the short-term is a significant hospital bed shortage. In terms of hospital bed capacity, Singapore has a lower bed ratio (2.22 beds per 1,000 people in 2010) than other developed nations. Though the government has been increasing the bed capacity of public hospitals periodically (through expansion and new developments), public hospitals are still unable to cater to the rising demand for hospital beds.
Figure 27: Hospital beds: projection and shortfall analysis, 2011-16
Desired Beds [A] Projected Beds [B] Public Hospital Licensed Beds Private Hospital Licensed Beds Projected per 1,000 population Shortfall of beds [A] minus [B] 2011E 15,634 11,509 8,881 2,628 2.19 4,125 2012F 15,904 11,873 8,881 2,992 2.22 4,031 2013F 16,181 12,093 8,881 3,212 2.22 4,088 2014F 16,464 13,043 9,831 3,212 2.36 3,421 2015F 16,749 14,143 10,931 3,212 2.51 2,606 2016F 17,041 14,393 11,181 3,212 2.51 2,648

SOURCES: Population projections by IMF, Frost & Sullivan

The Ministry of Health (MOH Singapore) provides access to quality and affordable basic medical services to all residents (citizens and permanent residents; but excludes non-residents). This leave a good proportion of the 1.5m non-residents population requiring healthcare services from the private sector. There are other developments driving a migration of healthcare consumption to the private sector in recent years. The introduction of means testing in 2009 was one. Means testing in 2009 effectively adjusted subsidies provided to eligible patients in public hospitals based on their annual income. The subsidies decrease with increasing annual income, thereby shifting healthcare costs to individuals who can afford treatment in private hospitals. This is expected to enhance the growth potential of the private hospital sector in the long term. As a reference, during 2006-11, public healthcare spending recorded a CAGR of 15.9% compared to 9.2% for private healthcare spending. The growth in public healthcare spending is attributable to the government s introduction of additional healthcare subsidies and various healthcare schemes during the global financial crisis. In dollar terms, private healthcare spending increased by S$2.93bn while public spending increased by S$2.48bn.
Figure 28: Healthcare expenditure in Singapore
Healthcare Expenditure Total (S$ billion) Public Contribution Private Contribution Public as a % of total Private as a % of total Total as a % of GDP 2006 7.52 2.26 5.26 30.1 69.9 3.3 2007 8.51 2.53 5.98 29.8 70.2 3.2 2008 9.69 3.09 6.6 31.9 68.1 3.6 2009 11.02 3.98 7.04 36.1 63.9 4.1 2010 12.02 4.37 7.66 36.3 63.7 4 2011E 12.92 4.74 8.19 36.7 63.3 3.9 CAGR (%) 2006 2011E 11.4 15.9 9.2 -

SOURCES: FROST & SULLIVAN: MARKET RESEARCH ON GLOBAL HEALTHCARE SERVICES

The Achilles heel for hospitals is manpower and resource usage. With tighter restriction of foreign labour plus initiatives for expansion, rising costs can depress margins. In this aspect, IHHs ability to pluck nurses from its own training school serves to alleviate the healthcare workers crunch. We think that IHH (Outperform) is one of the long-term winners.

3.3 Education: Growing expatriate pool, skills upgrade


Private and non-mainstream education providers stand to gain as they offer curriculums to train more qualified and skilled workforce. Singapores vision to achieve a benchmark of two out of three Singaporeans in PMET jobs by 2030 (vs. one in two today) is the tailwind support. Raffles Education, being one of the largest private education group in Asia-Pacific, will certainly see a rise in student admissions as tighter tertiary education places in the public system fill up as a result of population growth. Similarly, soon-to-be-listed Overseas Education Limited, an international school, will benefit from school enrolment given expansion of the expatriate pool in Singapore.

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3.4 Construction: no longer feast-and-famine


Construction plays are clearly beneficiaries, though again, the Achilles heel is cost management. The Population White Paper and Land Use Paper clearly talked about a steady stream of infrastructure investments in Singapore. These include: expanding existing infrastructure, creating high quality urban spaces and offering convenient access to amenities, transport nodes and services. It also seems that after this public-housing building boom (2012-16), there will still be a heightened level of public housing construction and new town planning. The potential work ahead stems from a pipeline of government projects. Based on expected expenditures announced, at least S$55bn worth of transport infrastructure is being built in Singapore (excluding the recent plan to expand the rail network). Some of the ongoing larger projects include the Thomson Line worth S$18bn, Downtown Line worth S$20.7bn and the North South Expressway worth S$8bn.
Figure 29: Construction demand breakdown: Private vs public
In S$m 35,000
90% 33% 49% 58% 71% 60% 82% 83%

Figure 30: Proportion of construction demand: Private vs public


100%

Public

Private

Title: Source:

Public

Private

30,000

Please fill in the values above to have them entered in your report
38% 60% 72% 58% 63%

80% 70%

25,000

20,000
50%

15,000

40% 30% 67% 51% 20% 42% 29% 10% 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 18% 17% 40% 28% 42% 37% 62%

10,000

5,000

Figure 31: Public construction demand breakdown - Residential and civil engineering works are biggest drivers
Residential In S$ m 14,000 Commercial Industrial Others C. Engineering

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

SOURCES: CIMB, CEIC - *2012 = 9M12

2005

2006

2007

2008

2009

2010

2011

2012
In S$ m 20,000 18,000

SOURCES: CIMB, CEIC - *2012 = 9M12

Figure 32: Private construction demand breakdown residential, commercial and industrial projects biggest drivers
Residential

Title: Source:

Commercial

Industrial

Others

C. Engineering

12,000
16,000 14,000 12,000

Please fill in the values above to have them entered in your report

10,000

8,000
10,000

6,000

8,000 6,000

4,000
4,000

2,000

2,000 -

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

SOURCES: CIMB, CEIC *2012 = 9M12

SOURCES: CIMB, CEIC *2012 = 9M12

Last year, the Building and Construction Authority (BCA) estimated total construction contracts awarded in 2012 to be in the range of S$21bn-27bn. Construction contracts awarded are estimated to be in the range of S$19bn to S$27bn for 2013 and 2014. According to BCAs estimation, around 60% of total
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February 3, 2013

contracts awarded (S$12bn-15bn) will come from public projects. We think that BCAs estimation could be a tad conservative. Although property sales will slow after the recently introduced property measures, construction demand will still be supported by the completion of previous private unit launches and planned commercial, industrial, civil engineering and MRT expansion projects. This will be given an added boost by the recently unveiled plans for DUO, one of two M+S development projects worth S$3bn, targeted for completion by 2017. We think that a more realistic estimate could be closer to S$28bn-30bn for the next two years, and ~S$27bn in 2015. The best thing for the sector is that all these government infrastructure initiatives will provide a stable source of contracts to bid for and put the feast-and-famine days behind the contractors.
Figure 33: Construction contracts awarded - historical and estimated
Contruction contracts aw arded (S$ bn) 40 36 35
30.0

Figure 34: Historical and estimated basic building materials market size
In S$ bn
35.0 30.9 Total basic building materials

Title: Source:

Construction output

Proportion (%) 12%

30.9

Please fill in the values above to have 28.3 them 28.1 entered in your report
10.3% 26.2 27.4 27.7 27.7 10%

32 30 28 26
25.0

30 24 23

27

27
20.0 17.9

8.4% 7.6%

8.4%

8.6%

8.5%

8.8%

8.8%

8%

25

15.2 15.0 6.0% 5.9%

6%

20 17 15 10 10 11

17
10.0

4%

5.0 1.8 -

2% 2.2 1.8 1.6 2.1 1.3 2.7 2.4 2.5 2.4 0% 2007 2008 2009 2010 2011 1H12 2012F 2013F 2014F 2015F

5 2004 2005 2006 2007 2008 2009 2010 2011 9M12 2012F 2013F 2014F 2015F

SOURCES: CIMB, CEIC

SOURCES: CIMB, URA

While topline prospects are excellent, margin consideration will be key to the investment thesis in this sector. One constraint for construction firms is labour supply. We favour construction specialist names such as Yongnam (steel), OKP Holding (road and civil engineering). Pan United, the largest cement and concrete supplier, is poised to ride on the upcycle of the construction industry. Soaring rental rates and supply shortage played the game into Tat Hongs hands favourably. Builders of mass housing and public projects include Lian Beng, Chip Eng Seng and Tiong Seng.

4. OTHER WINNERS AND LOSERS 4.1 Other potential winners


Workers quarters: While the construction sector will benefit, there are limits to productivity improvements in the construction industry and it is likely that a sizeable construction labour force will still be needed. This should translate into business opportunities for worker dormitory player, Centurion. As much as it is not a glamorous business, rates for lodging of construction foreign labours are on the rise. Supermarkets: With a larger population, revenue opportunities should also expand for a whole host of other businesses. The enlarged population must result in larger revenue opportunities for supermarkets such as Sheng Siong where there is an established relationship between higher grocery retail revenue and a larger population. Courts Asia should also see higher revenue opportunities as the new additions to the population will surely need IT products and furniture.

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February 3, 2013

Figure 35: Positive relationship between population and grocery retailer revenues

SOURCES: CIMB, FROST & SULLIVAN

Support services: The push towards a 6.9m population could also spur demand for various services in general. Depending on the profile of the new addition to the population, there could be higher demand for domestic help and childcare services. Perhaps it is time to explore setting up childcare centres and elderly homes. Casinos could be another unintended beneficiary should the growing foreign population additions translate into a larger captive market for the two casinos.

4.2 Potential losers


Manufacturing sector: Given the limited land availability in Singapore, the manufacturing sector is likely to be a long-term loser. Ever since the hollowing out of the tech-related manufacturing industry in Singapore, SGX-listed technology companies have been reducing their presence in cost-intensive Singapore, competing instead by basing only high value-added activities in this country. Most of the listed technology stocks have minimal operations in Singapore these days and are likely to continue to scale down their Singapore manufacturing activities. They are likely to keep only their R&D activities and high value-added, low-volume businesses in Singapore.
Figure 36: Manufacturing capacity by region
(%) Singapore Malaysia China Thailand Others Amtek 10 10-15 50 20-25 Armstrong 28 5 30 25 12 Broadway* 0 0 65-70 30-35 small Elec & Eltek 0 0 73 21 2 Hi-P <5 0 85-90 0 5-10 TPV 0 0 77 0 23 Venture 8 80 10 0 2 * component assembly business; foam packaging and precision machining 100% in China
SOURCES: CIMB, COMPANY

Auto distributors: Motor car distributors might also not benefit. The Land Use Paper makes it clear that In Singapore, travel needs must be met largely by public transport as it is the most space efficient way of transporting large numbers of people. Our limited land supply also does not allow us to build ever more roads and other facilities for private transport in an unrestrained way. We aim to achieve a public transport mode share of 70% of journeys during the morning peak hours by 2020, and 75% by 2030 given our limited land and greater priority for housing and work, we will have to reduce our reliance on private transport and focus on improving public transport. Our car population per capita and road density are already higher than Hong Kongs today. We will continue to tightly control the vehicle growth rate and implement usage restraint measures such as the Electronic Road Pricing (ERP) and manage road growth at a slower and sustainable pace.

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Jardine Cycle & Carriage (through Cycle & Carriage) distributes Mercedes-Benz, Mitsubishi, Kia and Citron motor vehicles in Singapore. But any negative impact is largely diluted for the company as its Singapore contribution to group revenue was just 7.2% in FY11. Elsewhere, the automotive distribution business contributed 36.2% to WBL Corporations FY12 revenue. In autom otive, WBL represents 11 world-renowned brands with operations throughout the region: Bentley, BMW, Bugatti, Infiniti, Jaguar, Land Rover, Mazda, McLaren, Renault, Volkswagen and Volvo. Given that WBL carries luxury brands and operates in diversified geographies, there is unlikely to be a significant negative impact on the company as well.

5. VALUATION AND RECOMMENDATIONS 5.1 A summary: Long-term concerns really


Our end-CY13 FSSTI target is maintained at 3,316, bottom-up and implying 13.2x CY14 P/E and 1.5x CY13 P/BV (-1 s.d. valuations are at 13x P/E and 1.5x P/BV). Our Neutral rating on Singapore is unchanged, premised on expectations that the FSSTI will lag behind after its outperformance in 2012 and as investors shift to Greater China. We read the Population White Paper and the Land Use Paper as the government doing its job of raising two issues ageing and low population replacement as the key long-term problems for Singapore. The antidote to manage the shrinking citizen workforce is to not meet populist pressures that demand a stop to foreigner inflows and citizen conversion altogether, but slow down the rate of both from the last five years. To prevent the overcrowding problems of the last five years from cropping up again, an overt effort has been made to prepare for some excess housing supply and to build transport, hospitals and school infrastructure in advance. The clearest long-term beneficiaries are construction, healthcare, supermarkets, while secondary beneficiaries are retail REITs and office. The clearest long-term losers are industrial REITs and the manufacturing sector. Secondary losers are residential developers.
Figure 37: FSSTI valuations
STI Core P/E (x) FD Core P/E (x) Core EPS growth (%) Core Net Profit Growth (%) P/BV (x) Dividend yield (%) EV/EBITDA (x) P/FCF (x, equity) P/FCF (x, firm) Net gearing (%) ROE (%, recurring) FSSTI level CIMB/consensus (x) CY2010 16.6x 16.6x 13% 26% 1.8x 3.3% 13.0x 9.9x 115.0x 13.9% 11.8% 3,190 CY2011 13.3x 13.3x 4% 1% 1.4x 4.1% 10.7x 23.6x 28.7x 16.9% 10.5% 2,646 CY2012 15.0x 15.1x 6% 14% 1.5x 3.4% 13.2x 24.3x 47.2x 17.7% 10.7% 3,167 1.07 CY2013 14.5x 14.6x 8% 6% 1.5x 3.2% 12.7x 25.7x 16.3x 16.4% 10.3% 3,286 1.01 CY2014 13.0x 13.1x 11% 11% 1.4x 3.5% 11.4x 16.0x 12.8x 14.1% 10.8% 3,286 1.01

SOURCE: CIMB Research

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(i) As of February 2, 2013, CIMB has a proprietary position in the securities (which may include but not limited to shares, warrants, call warrants and/or any other derivatives) in the following company or companies covered or recommended in this report: (a) Ascendas REIT, CapitaLand, CapitaMall Trust, ComfortDelGro, DBS Group, Frasers Centrepoint Trust, IHH Healthcare, Keppel Land, OCBC, Overseas Union Enterprise, Raffles Medical Group, SMRT Corporation, UOL Group, Yongnam Holdings (ii) As of February 3, 2013, the analyst(s) who prepared this report, has / have an interest in the securities (which may include but not limited to shares, warrants, call warrants and/or any other derivatives) in the following company or companies covered or recommended in this report: (a) Frasers Centrepoint Trust, Tat Hong Holdings The information contained in this research report is prepared from data believed to be correct and reliable at the time of issue of this report. CIMB may or may not issue regular reports on the subject matter of this report at any frequency and may cease to do so or change the periodicity of reports at any time. CIMB is under no obligation to update this report in the event of a material change to the information contained in this report. This report does not purport to contain all the information that a prospective investor may require. CIMB or any of its affiliates does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information and opinion contained in this report. Neither CIMB nor any of its affiliates nor its related persons shall be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof. This report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CIMB and its affiliates clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. The information and opinions in this report are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, related investments or other financial instruments thereof. Investors are advised to make their own independent evaluation of the information contained in this research report, consider their own individual investment objectives, financial situation and particular needs and consult their own professional and financial advisers as to the legal, business, financial, tax and other aspects before participating in any transaction in respect of the securities of company(ies) covered in this research report. The securities of such company(ies) may not be eligible for sale in all jurisdictions or to all categories of investors. Australia: Despite anything in this report to the contrary, this research is provided in Australia by CIMB Securities (Australia) Limited (CSAL) (ABN 84 002 768 701, AFS Licence number 240 530). CSAL is a Market Participant of ASX Ltd, a Clearing Participant of ASX Clear Pty Ltd, a Settlement Participant of ASX Settlement Pty Ltd, and, a participant of Chi X Australia Pty Ltd. This research is only available in Australia to persons who are wholesale clients (within the meaning o f the Corporations Act 2001 (Cth)) and is supplied solely for the use of such wholesale clients and shall not be distributed or passed on to any other person. This research has been prepared without taking into account the objectives, financial situation or needs of the individual recipient. France: Only qualified investors within the meaning of French law shall have access to this report. This report shall not be considered as an offer to subscribe to, or used in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of financial instruments and it is not intended as a solicitation for the purchase of any financial instrument.
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Hong Kong: This report is issued and distributed in Hong Kong by CIMB Securities Limited (CHK) which is licensed in Hong Kong by the S ecurities and Futures Commission for Type 1 (dealing in securities), Type 4 (advising on securities) and Type 6 (advising on corporate finance) activities. Any investors wishing to purchase or otherwise deal in the securities covered in this report should contact the Head of Sales at CIMB Securities Limited. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CHK has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CHK. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CHK. Unless permitted to do so by the securities laws of Hong Kong, no person may issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the securities covered in this report, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong). 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Research analysts', strategists' or economists' compensation is not linked to investment banking or capital markets transactions performed or proposed to be performed by CIMB India or its affiliates. Indonesia: This report is issued and distributed by PT CIMB Securities Indonesia (CIMBI). The views and opinions in this research repo rt are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBI has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CIMBI. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBI. Neither this report nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesia residents except in compliance with applicable Indonesian capital market laws and regulations. Malaysia: This report is issued and distributed by CIMB Investment Bank Berhad (CIMB). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMB has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CIMB. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB. New Zealand: In New Zealand, this report is for distribution only to persons whose principal business is the investment of money or who, in the course of, and for the purposes of their business, habitually invest money pursuant to Section 3(2)(a)(ii) of the Securities Act 1978. Singapore: This report is issued and distributed by CIMB Research Pte Ltd (CIMBR). Recipients of this report are to contact CIMBR in Singapore in respect of any matters arising from, or in connection with, this report. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBR has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only. If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBR. As of February 2, 2013, CIMBR does not have a proprietary position in the recommended securities in this report. South Korea: This report is issued and distributed in South Korea by CIMB Securities Limited, Korea Branch ("CIMB Korea") which is licensed as a cash equity broker, and regulated by the Financial Services Commission and Financial Supervisory Service of Korea. The views and opinions in this research report are our own as of the date hereof and are subject to change, and this report shall not be considered as an offer to subscribe to, or used in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of financial investment instruments and it is not intended as a solicitation for the purchase of any financial investment instrument. This publication is strictly confidential and is for private circulation only, and no part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB Korea. Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The distribution of this report is not an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may not be forwarded to the public in Sweden. Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have not been and will not be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through a public offering or in circumstances which constitutes an offer within the meaning of the Securities and Exchange Law of the Republic of China that requires a registration or approval of the Financial Supervisory Commission of the Republic of China. Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (CIMBS). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBS has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CIMBS. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBS. Corporate Governance Report: The disclosure of the survey result of the Thai Institute of Directors Association (IOD) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result. Score Range 90 100 80 89 70 79 Below 70 or No Survey Result Description Excellent Very Good Good N/A United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates.

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United Kingdom and Europe: In the United Kingdom and European Economic Area, this report is being disseminated by CIMB Securities (UK) Limited (CIMB UK). CIMB UK is authorised and regulated by the Financial Services Authority and its registered office is at 27 Knightsbridge, London, SW1X 7YB. This report is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are persons that are eligible counterparties and professional clients of CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the Order); (c) are persons falling within Article 49 (2) (a) to (d) (high net worth companies, unincorporated associations etc) of the Order; (d) are outside the United Kingdom; or (e) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with any investments to which this report relates may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as relevant persons). This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons. Only where this report is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does not constitute independent "investment research" under the applicable rules of the Financial Services Authority in the UK. Consequently, any such non-independent report will not have been prepared in accordance with legal requirements designed to promote the independence of investment research and will not subject to any prohibition on dealing ahead of the dissemination of investment research. United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S.-registered broker-dealer and a related company of CIMB Research Pte Ltd, CIMB Investment Bank Berhad, PT CIMB Securities Indonesia, CIMB Securities (Thailand) Co. Ltd, CIMB Securities Limited, and is distributed solely to persons who qualify as "U.S. Institutional Investors" as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc. Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
Distribution of stock ratings and investment banking clients for quarter ended on 31 December 2012 820 companies under coverage Rating Distribution (%) Outperform/Buy/Trading Buy Neutral Underperform/Sell/Trading Sell 54.5% 34.0% 11.5% Investment Banking clients (%) 9.0% 3.4% 8.6%

Recommendation Framework #1 *
Stock OUTPERFORM: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 12 months. NEUTRAL: The stock's total return is expected to be within +/-5% of a relevant benchmark's total return. UNDERPERFORM: The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 12 months. TRADING BUY: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 3 months. TRADING SELL: The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 3 months. Sector OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 3 months.

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities Exchange, Korea Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons. CIMB Research Pte Ltd (Co. Reg. No. 198701620M)

Recommendation Framework #2 **
Stock OUTPERFORM: Expected positive total returns of 10% or more over the next 12 months. NEUTRAL: Expected total returns of between -10% and +10% over the next 12 months. Sector OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) an equal number of stocks that are expected to have total returns of +10% (or better) or -10% (or worse), or (ii) stocks that are predominantly expected to have total returns that will range from +10% to -10%; both over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 3 months.

UNDERPERFORM: Expected negative total returns of 10% or more over the next 12 months. TRADING BUY: Expected positive total returns of 10% or more over the next 3 months. TRADING SELL: Expected negative total returns of 10% or more over the next 3 months.

** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons. Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2011. AAV not available, ADVANC - Excellent, AMATA - Very Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCH - Good, BEC - Very Good, BECL - Very Good, BGH - not available, BH - Very Good, BIGC - Very Good, BTS - Very Good, CCET - Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN - Excellent, DELTA - Very Good, DTAC - Very Good, GLOBAL - not available, GLOW - Very Good, GRAMMY Excellent, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH Very Good, ITD - Good, IVL - Very Good, JAS Very Good, KAMART not available, KBANK - Excellent, KK Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR - Very Good, MCOT - Excellent, MINT - Very Good, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - not available, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS Excellent, SC Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good,

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SIRI - Very Good, SPALI - Very Good, STA - Very Good, STEC - Very Good, TCAP - Very Good, THAI - Very Good, THCOM Very Good, TICON Good, TISCO - Excellent, TMB - Excellent, TOP Excellent, TRUE - Very Good, TUF - Very Good, WORK Good.

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