Stock Focus - China Stocks

Research by Deutsche Bank: China Stocks
(copyright of Deutsche Bank Research)

I picked a few companies to zoom in on:

Hong Leong Asia (HLA SP) - S$1.970 (mid-day 17Jan07)

1. The white goods market is growing at 10% pa, reflecting rising penetration of
   refrigerators into the Chinese population. Investors generally expect strong earnings
   growth for Xinfei, reflecting cost efficiencies and a higher effective stake. Xinfei also
   plans increased product launches and capacity expansion in 2007 to drive the
   growth momentum.
2. For the diesel engine business, FY05 earnings took a beating due to a weaker
   product mix. Management has started seeing indications of demand patterns
   normalizing, which could result in improved margins.
3. GPac continued to generate losses due to delays in ramping up sales. Customers
   were taking longer than expected to change products. Breakeven could come later
   this year if an order from an anchor customer is secured.
4. The building materials business was boosted by an uptick in construction activity,
   which resulted in an increase in selling prices for ready mix concrete (5%), cement
   (9%) and granite (17%) in 2006.

AsiaPharm Group Ltd (APHM SP) - S$0.800 (mid-day 17Jan07)

1. Following its latest acquisitions of cancer treatment injection drug CMNa and an
   oncology pharmaceutical unit Nanjing Kanghai Pharmaceutical Ltd, AsiaPharm will
   continue to explore other accretive acquisitions.
2. Distribution agreement with international drug distribution agency KKC Corp in South
   Korea should enable AsiaPharm to pave its entry into the South Korean market and
   extend its regional footprint.
3. Management believes that the key success for AsiaPharm depends on the
   integration of its existing and newly acquired businesses

Jiutian Chemical (JIUC SP) - S$1.400 (mid-day 17Jan07)

1. The group believes that demand for DMF was ~500,000 ton in 2006 and is
   forecasted to grow >30% for 2007. To leverage on it, the group will focus on
   capacity expansion in the medium term.
2. The DMF plant is on track to expand from the current 30,000mt capacity to
   150,000mt and is expected to commence by 3Q07. Management aims for 100%
   production ramp-up by 4Q07.
3. Management explained that the company did not export its products because of
   strong domestic demand and good working relationships it has established with
   local customers. Further, DMF are sold domestically at ~RMB6,200/ton compared
   to the export price of RMB9,000/ton, which is not significantly lower.