KGI Securities Greater China Daily Navigator -- November 6, 2008

Top Stock Ideas
CN Shandong Weida (002026.SZ, Rmb3.65, OP): Weathering tough times in export market 
▓       3Q08 results better than our forecasts; gross margin up nearly 3.0 ppts QoQ
▓       2008 earnings set to decline within 30% from 2007
▓       Weak sentiment at China Import & Export Fair points to a tough 2009
 
Sentiment at the China Import and Export Fair indicates that current tough times for the export market will continue into 1H09. But we think a solid management track record and a good financial structure will put Weida in a better position to weather the storm than peers. Downside risk to the stock is limited as shares are now trading at a P/B of 0.9x and major shareholders have promised to sell restricted shares at a price of no less than Rmb7.7. We have lowered our 12-month target price to Rmb4.81 (or 1.3x 3Q08 BVPS), implying 31.8% upside, but maintained our Outperform rating.
 
TW Merida Industry (9914.TW, NT$45.5. N): 3Q08 results below expectation
▓       1Q-3Q08 net income only NT$855mn, for EPS of NT$3.97, down 12.3% YoY
▓       Management expects parent monthly sales to average NT$1.2-1.3bn in 4Q08
▓       12M target price lowered to NT$51 from NT$83, based on 8.0x our 2009 EPS forecast of NT$6.39; maintain Neutral
 
Given the increasingly popularity of using bicycles for exercise, we think demand for bicycles will remain strong into 1H09. We believe Merida is a good defensive play since the bicycle industry is less sensitive to the global economic slowdown. With the correction on the Taiex, we have revised down our target PE ratio to 8x from 11x. Our new 12-month target price for Merida is set at NT$51, based on our revised 2009 EPS estimate of NT$6.39 and a target PE of 8x. We have maintained our Neutral rating on Merida.
 
Technology
TW Sunplus (2401.TW, NT$13.8, U): Tough year ahead
■        3Q08 below market expectation; 4Q08 outlook bearish
■        Tough year ahead on grim economic conditions & strong competition
■        Target price NT$13, based on 2009 P/B of 0.7x; Underperform rating maintained
 
TW Lumax International (6192.TW, NT$36.1, NR): A stable growth play
■        Taiwan’s top vendor of process control equipment, Lumax also distributes various electronics and telecom devices
■        Outlook poor for electronics/telecom division in 2009, but process control equipment division to grow moderately
■        Shares trading at five-year low 5-6x our 2008 & 2009 EPS forecasts; stable operation and ample cash postion make Lumax a good target for conservative investors
 
Non-Tech
CN Salt Lake Potash (000792.SZ, Rmb86.92, OP): Prices high, shipments up in 3Q08
■        3Q08 results up sharply on improving shipments
■        Int’l potash prices remain high; domestic prices to hold steady on plunging imports
■        12M target price set at Rmb53; maintain Outperform
 
CN China Fiberglass (600176.SS, Rmb12.69, OP): Growing despite challenging environment
■        Sales volume to rise in 2009 on export strength
■        Under pressure short term; long-term outlook promising
■        Target price Rmb16.5; Outperform rating maintained
 
Titbits
TW E. Sun Holdings (2884.TW, NT$8.15, NR): Analyst meeting