Monday, March 29, 2010

>THE ASIA INVESTIGATOR: Cash...Flows and Flows

Asia ex-Japan: From Negative to Positive Free Cash Flow — Asia post 1998 is very different from the preceding period. Over-investment has given way to more sensible investment ratios, and FCF has turned positive from negative. Cash flow has been used to either repay debt (from a peak of 82% to the current 27%) or raise payout ratios – a double benefit for investors.

Australia: Cash at a Price — The Australian equity environment is overweight cash in at least 3 senses: 1) Corporates are undergeared vs. regulatory requirements and in-house targets; 2) Pension funds are still somewhat overweight cash; and 3) Dividend yields are high relative to cash rates and global comps. We see each of these as constituting a persistent tailwind for Australian equities.

Hong Kong: Repaying the Faith — With the recovery in the real economy, free cash flow generation in Hong Kong has bounced back. Page 22

India: FCF: The Big Turn? — India’s FY10 FCF yield is estimated at only 0.7%. Nearly 45% of the largest companies generate negative FCF, and 4 of 10 sectors are FCF-negative. This at first glance may not look good, but one can’t have it both ways. You can’t ask for growth and investment boom and at the same time expect the rapidly growing corporate sector to generate meaningful FCF. Page 27

■ Indonesia: Generating Cash for Growth — Indonesia’s market attractiveness is based on its better growth prospects, which have to be supported by ability and willingness to spend for growth. Page 35

■ Korea: Cash flow generators — In terms of CF yield analysis, memory, auto, telco, and overseas-exposed construction stocks stand out. Page 40

Malaysia: Tanjong Generates, Genting Retains — Malaysia's FCF yield screen features Tanjong, KLCC Property, Star Publications, Axiata and Genting Malaysia at the top quintile. Page 42

Singapore: Top Cash Flow Generators: Telcos, Media, Offshore Marine — Net cash over assets for STI companies improved to -5% in 09 from -18% in 01 on steady earnings, conservative capital management and higher equity issuance. Page 44

Taiwan: Cash Pile-up — We forecast FCF yield to surge from 4.2% in 10E to 7.7% in 11E. This surge is premised on our assumption that capex will peak in 10E and revenues will grow 14% in 11E. Page 48

Thailand: Strong Growth Momentum Supports Rising Earnings & FCF

To read the full report: ASIA INVESTIGATOR