>ANATOMY OF ASIAN EARNINGS 2009 (HSBC)

Cyclical, not structural

• We update our proprietary Asian earnings database

• Analysis includes country and sector breakdowns, DuPont models, and P&L, balance sheet and cash flow analysis

• Although last year was difficult, with EPS falling 31%, ROE bottomed at 12.5% – higher than in ’98 or ’01 and above COE

We have updated our MSCI Asia ex-Japan universe earnings database for the period 1993-2008. This report includes detailed analyses of aggregate earnings, plus country and sector breakdowns. We use a DuPont framework to decompose ROE, and we provide tables and charts of key ratios for 10 Asian markets and nine sectors.

Key trends
■ ROE fell to 12.5% in 2008 from 17.8% in 2007. But that is higher than in previous recession years (6.3% in 1998 and 9.1% in 2001). This suggests the fall in ROE in 2008 is cyclical rather than structural.

■ Indonesia produced the highest ROE last year, at 31%. Indonesia’s ROE has been consistently above 25% since 2000. The lowest ROEs were in Taiwan and Korea: 7.0% and 7.9% respectively. These were the only markets in which ROE was lower than COE; but, in both, ROE was higher than the 1998 and 2001 lows.

■ Telecoms was the best sector last year in terms of ROE/COE ratio. ROE was 17.4%, up from 17.0% in 2007; it has ranged in a tight band between 16% and 20% since 1999. We estimate COE for the sector at 7.7%. Three sectors – industrials, IT, and utilities – had ROEs lower than COE.

■ Gearing increased sharply last year. Net debt rose 48% y-o-y. Net debt to equity rose to 35% (from 25% in 2007), the highest gearing level since 2002. The 21% rise in interest expenses brought the interest coverage ratio (EBITDA/interest expense) down to 10.7x.

To see full report: ANATOMY OF ASIAN EARNINGS