nomura oil outlook

ASIA

NOMURA INTERNATIONAL (HK) LIMITED

Asia Oil & Gas/ChemicalsOil at peak; Petrochems offer more LT upsidemore LT upside

Cheng Khoo+852 2252 6180852 2252 [email protected]

May 2011Any authors named on this report are research analysts unless otherwise indicated.

See the important disclosures and analyst certifications on pages 200 to 208.

y

ASIA

Oil d G TOil and Gas TeamName Email Address Telephone Coverage

Cheng Khoo [email protected] +852 2252 6180 Team Head

Michael Lo [email protected] +852 2252 6225 Global Oil Market

Xavier Grunauer [email protected] +61 2 8062 8416 Australia

Gordon Wai [email protected] +852 2252 6176 China

Anil Sharma [email protected] +91 22 4037 4338 India

Cindy Park [email protected] +822 3783 2324 Korea

2© Nomura International (Hong Kong) Limited

Yong Liang Por [email protected] +852 2252 6220 Taiwan, Thailand

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ContentsI. Crude oil fundamentals 9II. Asian refining fundamentals 50III Asian petrochemical fundamentals 63III. Asian petrochemical fundamentals 63IV. China 80V. China fertiliser 123VI. India 132VII. Korea 153VIII Malaysia 168VIII. Malaysia 168IX. Taiwan 173X. Thailand 185

© Nomura International (Hong Kong) Limited 3

ASIA

Structure of oil and petrochemical industryOil & t lOil & natural gas

Oil refining

LPG Gasoline Naphtha Kerosene Diesel Fuel oil

Naphtha cracking

Olefin plant Aromatics plant

Ethylene Propylene Mixed C4 Butylene Benzene Toluene Xylene

Plastics industry OthersSynthetic rubber industry

Synthetic fibre industry


ASIA

A i il d t h i l iAsian oil and petrochemicals universe Price Potential

Company Name BloombergReporting Currency 29-Apr Target Price

Upside (%) Rating

Mkt Cap. (US$ bn) High Low 2009 2010 2011E 2012E 2009 2010 2011E 2012E

Exploration & ProductionPetrochina 857 HK Rmb HK$ 11.16 HK$ 13.50 21% Buy 322.4 12.3 8.0 103,387 139,992 176,214 184,403 2.7% 3.7% 4.6% 4.8%CNOOC 883 HK Rmb HK$ 19.16 HK$ 23.00 20% Buy 110.2 20.9 11.6 29,486 54,410 70,482 71,116 4.1% 3.2% 3.2% 3.3%

52 - Week Net Profit^ Dividend Yield (%)

yWoodside WPL AU USD A$ 46.80 A$ 56.40 21% Buy 40.6 48.2 40.6 1,462 1,577 1,808 3,150 1.3% 2.5% 2.5% 2.5%PTT E&P PTTEP TB Bt Bt 185 Bt 202 9% Neutral 20.6 196.5 138.0 22,154 41,739 44,092 53,799 2.1% 3.3% 3.1% 3.8%Origin ORG AU A$ A$ 16.35 A$ 18.80 15% Buy 19.0 17.2 13.7 6,941 612 705 945 3.7% 3.1% 3.1% 3.1%Cairn India CAIR IN Rs Rs 349 Rs 405 16% Buy 15.0 367.4 271.8 11 61 104 118 0.0% 0.0% 1.4% 1.4%Santos STO AU A$ A$ 15.12 A$ 16.10 6% Neutral 14.5 16.5 11.8 434 500 429 564 2.3% 2.0% 2.0% 2.0%Oil Search OSH AU USD A$ 7.05 A$ 7.70 9% Neutral 10.2 7.6 5.3 134 186 175 183 0.6% 0.7% 0.7% 0.7%Kunlun Energy 135 HK HK$ HK$ 13.76 HK$ 17.00 24% Buy 8.8 14.4 9.6 1,234 2,426 5,868 6,757 0.5% 1.0% 1.7% 2.0%AWE AWE AU A$ A$ 1.56 A$ 1.70 9% Neutral 0.9 2.4 1.5 89 (29) 10 66 0.0% 0.0% 0.0% 0.0%E t St G ESG AU A$ A$ 0 76 A$ 0 92 21% B 0 8 0 9 0 6 (3) (7) (5) 2 0 0% 0 0% 0 0% 0 0%Eastern Star Gas ESG AU A$ A$ 0.76 A$ 0.92 21% Buy 0.8 0.9 0.6 (3) (7) (5) 2 0.0% 0.0% 0.0% 0.0%Average 1.6% 1.8% 2.0% 2.1%Oil ServicesCOSL 2883 HK Rmb HK$ 15.36 HK$ 10.30 -33% Reduce 12.1 18.0 8.4 3,135 4,128 4,421 4,957 2.1% 1.4% 1.5% 1.7%Natural Gas TransmissionGAIL GAIL IN Rs Rs 476 Rs 600 26% Buy 13.6 527.3 419.5 31 37 44 49 1.6% 1.8% 2.2% 2.4%Gujarat State Petronet GUJS IN Rs Rs 98.35 Rs 135 37% Buy 1.3 125.1 88.7 4 5 6 6 1.0% 1.5% 1.5% 1.5%Average 1.3% 1.7% 1.9% 2.0%LNG and City Gas DistributionLNG and City Gas DistributionPetronet LNG PLNG IN Rs Rs 132.10 Rs 180 36% Buy 2.2 138.3 77.1 4 6 8 9 1.3% 1.5% 1.5% 1.5%Gujarat gas GGAS IN Rs Rs 364.60 Rs 415 14% Neutral 1.1 419.8 271.1 2 3 3 3 2.2% 3.3% 2.7% 2.7%Indraprastha Gas IGL IN Rs Rs 321.20 Rs 450 40% Buy 1.0 361.7 219.6 2 3 3 4 1.4% 1.4% 1.4% 1.4%Average 1.6% 2.1% 1.9% 1.9%Refining & MarketingSinopec 386 HK Rmb HK$ 7.82 HK$ 9.00 15% Buy 110.0 8.8 5.8 63,147 71,800 81,153 93,005 3.4% 3.1% 3.5% 4.0%Reliance Ind RIL IN Rs Rs 981.95 Rs 1,200 22% Buy 72.7 1,112.0 895.7 159 202 259 292 0.7% 0.8% 0.8% 0.8%PTT PTT TB Bt Bt 375 Bt 440 17% Buy 35.8 384.0 233.0 59,548 83,087 97,499 113,836 4.0% 4.4% 3.9% 4.6%Formosa Petrochemical 6505 TT NT$ NT$ 100.50 NT$ 110.00 9% Neutral 33.4 100.5 71.3 39,192 40,923 59,369 61,731 5.1% 4.8% 5.7% 6.1%Indian Oil Corporation IOCL IN Rs Rs 340.0 Rs 365 7% Neutral 18.7 448.2 293.3 107 60 86 88 3.8% 2.1% 3.0% 3.0%SK Innovation 096770 KS Won W 232,000 W 330,000 42% Buy 20.0 222,500 78,200 677 1,206 2,526 2,698 0.9% 0.9% 0.9% 0.9%S-Oil 010950 KS Won W 159,500 W 200,000 25% Buy 16.8 167,000 49,150 217 677 1,873 2,034 0.6% 1.5% 3.4% 3.7%Shanghai Petrochem 338 HK Rmb HK$ 3.76 HK$ 4.50 20% Buy 8.3 4.9 2.7 1,591 2,772 2,375 3,081 1.2% 3.6% 2.5% 3.3%GS Holdings 078930 KS Won W 89,500 W 115,000 28% Buy 7.8 103,000 32,800 496 801 1,041 1,051 1.1% 1.4% 1.7% 1.7%Bharat Petroleum BPCL IN Rs Rs 627.2 Rs 620 -1% Neutral 5.1 802.0 514.9 16 12 19 18 2.2% 1.2% 1.5% 1.5%Thai Oil TOP TB Bt Bt 84.50 Bt 85.00 1% Neutral 5.8 86.8 40.5 12,062 8,999 15,434 16,088 7.1% 4.0% 3.9% 4.0%PTT Aromatics & Refining PTTAR TB Bt Bt 41 25 Bt 50 00 21% Buy 4 1 43 0 22 1 9 162 6 343 13 051 16 180 7 0% 3 1% 4 5% 5 6%PTT Aromatics & Refining PTTAR TB Bt Bt 41.25 Bt 50.00 21% Buy 4.1 43.0 22.1 9,162 6,343 13,051 16,180 7.0% 3.1% 4.5% 5.6%Hindustan Petroleum HPCL IN Rs Rs 372.0 Rs 380 2% Neutral 2.8 546.2 309.0 13 6 7 8 3.2% 1.4% 1.5% 1.8%Average 3.1% 2.5% 2.8% 3.2%Upstream/Integrated ChemicalFormosa Chemical & Fibre 1326 TT NT$ NT$ 115.50 NT$ 134.00 16% Buy 25.0 117.0 63.0 29,440 47,275 59,701 58,248 8.6% 9.7% 9.0% 8.8%Petronas Chemicals PCHEM MK RM RM 7.23 RM 8.40 16% Buy 19.5 7.53 5.05 NA 2,195 3,001 3,839 NA 0.0% 2.7% 3.5%PTT Chemical PTTCH TB Bt Bt 160 Bt 200 25% Buy 8.1 166.5 88.8 6,802 10,290 20,495 24,770 3.7% 2.3% 3.9% 4.7%Honam Petrochemical 011170 KS Won W 378,000 W 480,000 27% Buy 11.2 445,000 116,500 797 784 1,100 1,223 0.4% 0.5% 0.5% 0.5%Average 4.2% 3.1% 4.0% 4.4%gMidstream ChemicalLG Chem 051910 KS Won W 530,000 W 700,000 32% Buy 32.8 567,000 262,000 1,572 2,200 2,751 3,084 0.7% 0.8% 0.8% 0.8%Nanya Plastics 1303 TT NT$ NT$ 87.8 NT$ 105.0 20% Buy 24.1 88.4 49.6 16,404 40,974 52,154 62,093 4.2% 7.4% 7.3% 8.7%Formosa Plastics 1301 TT NT$ NT$ 117.00 NT$ 136.00 16% Buy 22.9 119.0 67.9 27,533 45,547 60,569 64,984 7.0% 9.1% 8.1% 8.7%Cheil Industries 001300 KS Won W 118,000 W 160,000 36% Buy 5.5 127,500 77,700 127 259 321 415 0.6% 0.6% 0.6% 0.6%Hanwha Chemicals 009830 KS Won W 47,700 W 69,000 45% Buy 6.2 54,300 14,600 343 399 610 703 1.0% 1.0% 1.0% 1.0%Average 3.2% 4.5% 4.3% 4.7%China Fertilizer


Note: Ratings and price targets are as of the date of the most recently published report (http://www.Nomura.com) rather than the date of this document.

Source: Company data, Nomura estimates ^ Local currency in million won and INR in billion

Sinofert 297 HK Rmb HK$ 3.24 HK$ 3.00 -7% Reduce 2.9 4.7 3.0 (1,444) 536 1,018 1,306 0.0% 0.3% 0.6% 0.8%China BlueChem 3983 HK Rmb HK$ 6.32 HK$ 7.00 11% Buy 1.4 7.1 4.3 985 1,175 1,800 2,344 1.9% 1.5% 2.2% 2.8%

ASIA

A i il d t h i l iAsian oil and petrochemicals universeCompany Name Bloomberg

Reporting Currency 2009 2010 2011E 2012E 2009 2010 2011E 2009 2010 2011E 2012E 2009 2010 2011E 2012E

Exploration & ProductionPetrochina 857 HK Rmb 0.56 0.76 0.96 1.01 35% 26% 5% 12.7 10.5 10.2 9.8 5.6 5.1 5.3 5.2CNOOC 883 HK Rmb 0 66 1 22 1 58 1 59 85% 30% 1% 25 6 13 9 10 7 10 6 6 1 5 1 5 7 5 5

EPS EPS Growth (YoY%) P/E EV/EBITDA

CNOOC 883 HK Rmb 0.66 1.22 1.58 1.59 85% 30% 1% 25.6 13.9 10.7 10.6 6.1 5.1 5.7 5.5Woodside WPL AU USD 1.95 2.04 2.31 3.96 8% 15% 74% 21.6 20.6 18.3 10.6 11.8 12.2 10.3 5.9PTT E&P PTTEP TB Bt 6.70 12.62 13.33 16.21 88% 6% 22% 27.6 14.7 13.9 11.4 5.9 5.2 5.7 4.4Origin ORG AU A$ 7.91 0.70 0.67 0.90 -91% 15% 34% 2.1 23.4 24.4 18.2 11.5 12.6 9.9 8.2Cairn CAIR IN Rs 5.54 32.25 54.72 61.94 NM 70% 13% NM 10.8 6.4 5.6 70.1 7.8 4.0 2.9Santos STO AU A$ 0.50 0.57 0.49 0.65 15% -14% 32% 30.5 26.5 30.8 23.4 9.0 8.3 9.1 9.2Oil Search OSH AU USD 0.11 0.14 0.13 0.14 39% -6% 5% 58.8 44.6 47.5 45.2 20.6 25.2 22.0 23.0Kunlun Energy 135 HK HK$ 0.27 0.49 0.82 0.95 97% 142% 15% 20.7 21.1 16.8 14.6 9.3 9.2 6.7 5.7AWE AWE AU A$ 0.174 (0.057) 0.020 0.127 -133% NM NM 9.0 NM 78.9 12.3 1.3 7.8 6.5 2.9Eastern Star Gas ESG AU A$ (0.003) (0.007) (0.004) 0.002 NM NM NM NM NM NM NM NM NM NM 49.5Average 23.2 20.7 25.8 16.2 15.1 9.8 8.5 11.1 Oil ServicesCOSL 2883 HK Rmb 0.70 0.92 0.98 1.10 32% 7% 12% 9.5 14.7 13.8 12.3 9.1 10.1 9.4 8.5Natural Gas TransmissionGAIL GAIL IN Rs 24.75 29.16 35.00 38.85 18% 20% 11% 19.2 16.3 13.6 12.2 12.3 11.0 9.2 8.3Gujarat State Petronet GUJS IN Rs 7.35 8.60 10.05 10.76 17% 17% 7% 13.4 11.4 9.8 9.1 7.0 6.7 6.2 5.7Average 16.3 13.9 11.7 10.7 9.7 8.8 7.7 7.0 LNG and City Gas DistributionLNG and City Gas DistributionPetronet LNG PLNG IN Rs 5.39 8.26 10.55 12.18 53% 28% 15% 24.5 16.0 12.5 10.8 14.3 10.6 9.2 8.3Gujarat gas GGAS IN Rs 13.48 20.00 23.67 25.82 48% 18% 9% 27.0 18.2 15.4 14.1 16.7 11.2 9.4 8.4Indraprastha Gas IGL IN Rs 15.39 18.63 22.77 26.50 21% 22% 16% 20.9 17.2 14.1 12.1 11.5 9.6 7.8 6.4Average 24.1 17.2 14.0 12.4 14.1 10.5 8.8 7.7Refining & MarketingSinopec 386 HK Rmb 0.73 0.83 0.94 1.07 14% 13% 15% 7.2 7.0 7.4 6.4 4.3 4.0 4.3 3.8Reliance Ind. RIL IN Rs 48.62 61.75 78.38 87.63 27% 28% 13% 20.2 15.9 12.5 11.2 12.1 9.2 7.9 7.4PTT PTT TB Bt 19.43 25.22 34.53 39.91 40% 17% 17% 19.3 14.9 10.9 9.4 5.9 5.3 6.8 5.5Formosa Petrochemical 6505 TT NT$ 4.50 3.96 6.04 6.48 4% 45% 4% 16.6 20.5 16.6 15.5 10.1 12.0 11.5 10.5Indian Oil Corporation IOCL IN Rs 44.12 24.77 35.49 36.31 -44% 43% 2% 7.7 13.7 9.6 9.4 10.1 11.2 7.6 7.2SK Energy 096770 KS Won 7,385 13,151 27,551 29,430 78% 109% 7% 31.4 17.6 8.4 7.9 13.2 8.7 4.6 4.0S-Oil 010950 KS Won 1,927 6,016 16,639 18,065 212% 177% 9% 82.8 26.5 9.6 8.8 21.3 9.8 3.7 3.0Shanghai Petrochem 338 HK Rmb 0.22 0.38 0.33 0.43 74% -14% 30% 11.1 7.3 10.0 7.7 7.0 5.3 6.6 5.6GS Holding 078930 KS Won 5,320 8,596 11,171 11,284 61% 30% 1% 16.8 10.4 8.0 7.9 11.9 6.7 4.9 4.4Bharat Petroleum Corp. BPCL IN Rs 44.69 32.80 53.20 50.82 -27% 62% -4% 14.0 19.1 11.8 12.3 16.3 14.2 9.7 9.7Thai Oil TOP TB Bt 5.91 4.41 7.57 7.89 NM 72% 4% NM 19.2 11.2 10.7 4.7 7.6 6.7 6.2PTT Aromatics & Refining PTTAR TB Bt 3 09 2 13 4 38 5 43 -31% 106% 24% 13 3 19 4 9 4 7 6 8 1 11 3 7 5 6 1PTT Aromatics & Refining PTTAR TB Bt 3.09 2.13 4.38 5.43 -31% 106% 24% 13.3 19.4 9.4 7.6 8.1 11.3 7.5 6.1Hindustan Petroleum Corp. HPCL IN Rs 38.29 17.46 19.20 22.31 -54% 10% 16% 9.7 21.3 19.4 16.7 13.2 17.5 18.0 15.5Average 20.8 16.4 11.1 10.1 10.6 9.5 7.7 6.8Upstream/Integrated ChemicalFormosa Chemical & Fibre 1326 TT NT$ 5.15 8.45 10.49 10.24 61% 26% -2% 10.2 9.1 11.0 11.3 7.6 7.6 11.2 12.2Petronas Chemicals PCHEM MK RM NA 0.30 0.39 0.48 NA 37% 28% NA 24.0 18.6 15.1 NA 12.0 10.2 8.1PTT Chemical PTTCH TB Bt 4.55 6.79 13.52 16.34 51% 99% 21% 35.2 23.6 11.8 9.8 7.1 15.5 7.5 6.3Honam Petrochemical 011170 KS Won 25,006 24,616 34,539 38,383 NM 40% 11% 15.1 15.4 10.9 9.8 7.4 7.1 5.2 4.2Average 20.2 18.0 13.1 11.5 7.4 10.5 8.5 7.7 Midstream ChemicalLG Chem 051910 KS Won 23,315 32,727 40,993 46,017 40% 25% 12% 22.7 16.2 12.9 11.5 8.6 6.4 5.1 4.5Nanya Plastics 1303 TT NT$ 2.06 5.37 6.64 7.91 150% 27% 19% 21.5 11.8 13.2 11.1 13.6 9.5 12.2 11.2Formosa Plastics 1301 TT NT$ 4.51 7.52 9.76 10.62 65% 33% 7% 12.6 9.9 12.0 11.0 10.1 7.8 12.3 11.2Cheil Industries 001300 KS Won 2,540 5,185 6,425 8,297 104% 24% 29% 46.5 22.8 18.4 14.2 14.3 11.8 9.5 7.3Hanwha Chemical 009830 KS Won 2,448 2,845 4,351 5,010 NM 53% 15% 19.5 16.8 11.0 9.5 9.9 8.7 6.3 6.0Average 25.0 15.3 13.6 11.5 12.0 9.4 10.1 8.9 China FertilizerSinofert 297 HK Rmb (0 21) 0 08 0 14 0 19 NM 90% 28% NM 37 4 19 7 15 4 NM 37 3 16 6 13 4


Source: Company data, Nomura estimates Note: Ratings and price targets are as of the date of the most recently published report (http://www.Nomura.com) rather than the date of this document.

Sinofert 297 HK Rmb (0.21) 0.08 0.14 0.19 NM 90% 28% NM 37.4 19.7 15.4 NM 37.3 16.6 13.4China BlueChem 3983 HK Rmb 0.21 0.25 0.39 0.51 19% 53% 30% 17.2 21.8 14.3 11.0 7.4 9.8 6.2 4.8

ASIA

A i il d t h i l iAsian oil and petrochemicals universeBloomberg 2009 2010 2011E 2012E 2009 2010 2011E 2012E 2009 2010 2011E 2012E 2009 2010 2011E 2012E

Exploration & ProductionPetrochina 857 HK Rmb 1.5 1.6 1.7 1.6 17% 20% 31% 34% 12.6% 15.7% 17.8% 16.8% 10.6% 12.7% 13.7% 12.3%CNOOC 883 HK R b 2 2 2 6 2 8 2 4 N t C h N t C h N t C h N t C h 17 6% 27 9% 29 2% 24 5% 20 8% 31 6% 31 5% 26 9%

ROCE (%)P/BV Net Debt/Equity(%) ROE(%)

CNOOC 883 HK Rmb 2.2 2.6 2.8 2.4 Net Cash Net Cash Net Cash Net Cash 17.6% 27.9% 29.2% 24.5% 20.8% 31.6% 31.5% 26.9%Woodside WPL AU USD 3.6 2.9 3.1 2.5 42.5% 35.6% 38.4% 16.5% 21.7% 15.9% 16.5% 25.8% 11.7% 10.5% 12.0% 20.0%PTT E&P PTTEP TB Bt 2.9 2.9 3.1 2.6 9% 14% 24% 14% 16.3% 24.7% 23.7% 24.9% 11.2% 16.5% 16.3% 17.4%Origin ORG AU A$ 1.4 1.4 1.4 1.3 NM 26.0% 31.3% 29.3% 98.6% 6.0% 6.2% 7.4% 71.3% 4.7% 4.3% 5.6%Cairn CAIR IN Rs 2.0 1.7 1.3 1.1 7% Net Cash Net Cash Net Cash 3.2% 16.6% 23.3% 21.5% 3.2% 17.3% 26.8% 29.2%Santos STO AU A$ 1.9 1.7 1.7 1.7 Net Cash Net Cash 4.4% 34.1% 6.2% 6.6% 5.6% 7.0% 6.6% 7.8% 5.3% 5.3%Oil Search OSH AU USD 3.2 2.9 2.9 2.7 Net Cash Net Cash 31.6% 67.4% 0.1% 0.1% 0.1% 0.1% 8.7% 6.8% 4.6% 3.6%Kunlun Energy 135 HK HK$ 1.9 3.2 2.3 2.0 Net Cash Net Cash 12.1% 9.0% 15.0% 15.0% 13.5% 13.9% 11.2% 15.2% 16.8% 12.2%AWE AWE AU A$ 0.7 0.7 0.8 0.7 Net Cash Net Cash Net Cash Net Cash 8.1% -2.7% 1.0% 5.8% 11.9% -3.1% 1.1% 6.2%$Eastern Star Gas ESG AU A$ 3.7 4.3 2.9 2.9 Net Cash Net Cash Net Cash Net Cash -1.6% -3.8% -1.7% 0.8% -2.6% -4.5% -2.4% 1.0%Average 2.3 2.4 2.2 2.0 18% 11% 12% 14% 15% 11% 12% 13%Oil ServicesCOSL 2883 HK Rmb 1.4 2.5 2.1 1.9 125.0% 95.1% 82.6% 70.7% 15% 18% 17% 16% 8% 10% 10% 10%Natural Gas TransmissionGAIL GAIL IN Rs 3.6 3.1 2.7 2.4 Net Cash 5.5% 10.1% 12.6% 20% 21% 22% 21% 22% 20% 19% 18%Gujarat State Petronet GUJS IN Rs 3.5 2.8 2.3 1.9 69.4% 57.5% 52.9% 43.2% 30% 28% 26% 23% 19% 17% 16% 15%

3.6 3.0 2.5 2.1 25% 24% 24% 22% 20% 19% 18% 17%LNG d Cit G Di t ib tiLNG and City Gas DistributionPetronet LNG PLNG IN Rs 4.4 3.7 3.0 2.5 97% 111% 125% 130% 19% 25% 26% 25% 12% 14% 13% 12%Gujarat gas GGAS IN Rs 6.0 5.4 4.6 3.9 Net Cash Net Cash Net Cash Net Cash 23% 32% 33% 30% 18% 24% 25% 24%Indraprastha Gas IGL IN Rs 5.4 4.4 3.6 2.9 Net Cash 23% 23% 12% 29% 28% 28% 26% 26% 23% 22% 21%

5.3 4.5 3.7 3.1 24% 28% 29% 27% 19% 21% 20% 19%Refining & MarketingSinopec 386 HK Rmb 1.2 1.2 1.2 1.1 56% 46% 41% 36% 18% 18% 18.0% 18.0% 13% 13% 13% 14%Reliance Ind. RIL IN Rs 2.3 2.0 1.8 1.6 36% 22% 6% 1% 19% 13% 15.1% 14.8% 9% 10% 11% 11%PTT PTT TB Bt 1.4 1.6 1.9 1.7 58% 47% 47% 39% 12% 13% 16.0% 16.4% 9% 10% 11% 12%Formosa Petrochemical 6505 TT NT$ 3.1 3.2 3.6 3.5 66% 53% 34% 24% 20% 16% 22.5% 22.8% 12% 11% 17% 19%Indian Oil Corporation IOCL IN Rs 1.6 1.5 1.3 1.2 91% 80% 69% 60% 22% 11% 14.5% 13.5% 2% 5% 4% 6%SK Energy 096770 KS Won 2.7 2.0 1.7 1.4 81% 52% 32% 22% 9% 13% 21.7% 19.8% 6% 6% 11% 15%S-Oil 010950 KS Won 4.6 4.0 2.9 2.4 49% 40% 24% 5% 6% 16% 35.3% 30.1% 7% 7% 20% 30%Shanghai Petrochem 338 HK Rmb 1.2 1.2 1.2 1.1 53% 25% 23% 20% 11% 16% 12.4% 14.2% 8% 12% 11% 13%GS Holding 078930 KS Won 2.0 1.7 1.4 1.2 15% 12% 2% Net Cash 13% 18% 19.5% 16.8% 7% 13% 16% 17%Bharat Petroleum Corp. BPCL IN Rs 1.6 1.5 1.4 1.3 184% 163% 149% 135% 12% 8% 12.2% 10.6% 1% 2% 4% 0%Thai Oil TOP TB Bt 1.1 1.4 2.1 1.9 51% 42% 20% 6% 16% 8% 18.7% 17.2% 12% 7% 15% 16%PTT Aromatics & Refining PTTAR TB Bt 0 9 1 3 1 7 1 5 124% 95% 65% 46% 16% 10% 19 1% 20 5% 9% 5% 12% 14%PTT Aromatics & Refining PTTAR TB Bt 0.9 1.3 1.7 1.5 124% 95% 65% 46% 16% 10% 19.1% 20.5% 9% 5% 12% 14%Hindustan Petroleum Corp. HPCL IN Rs 1.1 1.1 1.0 1.0 182% 179% 173% 165% 12% 5% 5.3% 6.0% 2% 1% 0% 1%Average 1.9 1.8 1.8 1.6 14% 13% 18% 17% 7% 8% 11% 13%Upstream/Integrated ChemicalFormosa Chemical & Fibre 1326 TT NT$ 1.3 1.6 2.3 2.2 32% 23% 21% 22% 14% 19% 21% 20% 11% 16% 18% 17%Petronas Chemicals PCHEM MK RM NA 3.1 2.9 2.6 NA Net Cash Net Cash Net Cash NA 13% 16% 18% NA 18% 23% 27%PTT Chemical PTTCH TB Bt 0.8 2.2 1.9 1.7 34% 28% 7% Net Cash 6% 10% 18% 19% 6% 8% 16% 18%Honam Petrochemical 011170 KS Won 3.2 2.7 2.2 1.8 11% 28% 15% 5% 24% 19% 22% 20% 11% 16% 16% 17%Average 1.8 2.4 2.3 2.1 15% 15% 19% 19% 9% 14% 18% 20%gMidstream ChemicalLG Chem 051910 KS Won 5.9 4.5 3.4 2.9 22% 9% 2% 0% 28.4% 31.7% 30.1% 27.6% 18% 24% 26% 26%Nanya Plastics 1303 TT NT$ 1.4 1.8 2.3 2.2 34% 25% 20% 18% 5.3% 15.8% 17.9% 20.3% 6% 13% 16% 18%Formosa Plastics 1301 TT NT$ 1.5 1.7 2.6 2.5 25% 17% 14% 14% 13.6% 18.9% 22.1% 22.8% 13% 21% 25% 26%Cheil Industries 001300 KS Won 3.0 2.3 2.1 1.9 19% 11% 11% 7% 7.1% 11.5% 12.1% 13.9% 6% 8% 10% 11%Hanwha Chemical 009830 KS Won 2.5 2.2 1.9 1.6 53% 52% 37% 35% 13.7% 14.1% 18.7% 18.1% 5% 9% 11% 12%Average 2.1 2.0 2.2 2.0 9.9% 15.1% 17.7% 18.8% 7% 13% 15% 17%China FertilizerSi f t 297 HK R b 2 0 1 6 1 5 1 4 66% 55% 51% 46% 6% 4% 8% 9% 2% 4% 7% 8%


Source: Company data, Nomura estimatesNote: Ratings and price targets are as of the date of the most recently published report

(http://www.Nomura.com) rather than the date of this document.

Sinofert 297 HK Rmb 2.0 1.6 1.5 1.4 66% 55% 51% 46% -6% 4% 8% 9% -2% 4% 7% 8%China BlueChem 3983 HK Rmb 1.7 2.4 2.2 1.9 Net Cash Net Cash Net Cash Net Cash 10% 12% 16% 18% 12% 12% 17% 20%

ASIA

Share price performance relative to indexShare price performance relative to indexPrice Mkt.

Company Name Bloomberg Currency 29-Apr (US$ bn) -1w -1m -3m -6m -1y -1w -1m -3m -6m -1yExploration & ProductionPetrochina 857 HK HK$ 11.16 322.4 (6.1) (7.2) 0.0 16.6 22.6 (4.4) (6.8) 0.8 16.4 9.1ONGC ONGC IN Rs 309 59.8 2.1 5.5 4.5 (7.0) 17.1 4.5 7.1 (1.2) (1.1) 7.5CNOOC 883 HK HK$ 19 16 110 2 (3 6) (6 5) 7 8 13 5 38 4 (1 4) (5 1) 1 9 20 7 27 0

% change % change rel to underlying market

CNOOC 883 HK HK$ 19.16 110.2 (3.6) (6.5) 7.8 13.5 38.4 (1.4) (5.1) 1.9 20.7 27.0PTT E&P PTTEP TB Bt 185 20.6 (1.9) 0.3 10.8 3.4 21.7 (0.8) (2.4) (0.9) (5.0) (15.0)Cairn CAIR IN Rs 349.25 15.0 0.2 (1.2) 6.1 6.5 10.9 2.6 0.2 0.3 13.2 1.8Woodside WPL AU USD 46.80 40.6 (2.2) (1.3) 10.1 7.3 3.1 (0.3) (0.1) 10.1 4.6 1.7Origin ORG AU A$ 16.35 19.0 0.7 (1.0) 3.1 5.6 2.7 2.7 0.1 3.1 2.8 1.4Santos STO AU A$ 15.12 14.5 (5.3) (5.2) 8.7 19.3 9.2 (3.5) (4.1) 8.7 16.3 7.8Oil Search OSH AU USD 7.05 10.2 (4.2) (1.1) 4.4 7.8 24.1 (2.3) (0.0) 4.4 5.0 22.5Kunlun Energy 135 HK HK$ 13.76 8.8 (2.3) 6.8 16.6 36.5 31.3 (0.6) 7.2 17.5 36.2 16.8Kunlun Energy 135 HK HK$ 13.76 8.8 (2.3) 6.8 16.6 36.5 31.3 (0.6) 7.2 17.5 36.2 16.8AWE AWE AU A$ 1.56 0.9 (4.6) (9.0) (10.6) 3.0 (36.8) (2.7) (8.0) (10.6) 0.3 (37.7)Oil ServicesCOSL 2883 HK HK$ 15.36 12.1 (8.2) (13.7) 0.8 16.7 38.9 (6.6) (13.4) 1.6 16.5 23.6Natural Gas TransmissionGAIL GAIL IN Rs 475.70 13.6 (0.7) 2.6 3.2 (2.2) 10.9 1.7 4.2 (2.5) 4.0 1.7Gujarat State Petronet GUJS IN Rs 98.35 1.3 (4.1) (3.4) (3.9) (14.5) 3.2 (1.9) (2.0) (9.2) (9.1) (5.3)LNG and City Gas DistributionyPetronet LNG PLNG IN Rs 132.10 2.2 (4.5) 5.5 5.6 10.5 60.9 (2.2) 7.1 (0.2) 17.5 47.6Gujarat gas GGAS IN Rs 364.60 1.1 (2.9) (4.1) 13.6 (5.6) 26.1 (0.7) (2.7) 7.3 0.4 15.7Indraprastha Gas IGL IN Rs 321.20 1.0 (1.3) 6.0 1.5 (2.7) 37.7 1.0 7.6 (4.0) 3.5 26.3Eastern Star Gas ESG AU A$ 0.76 0.8 (3.2) (1.3) (5.6) (11.6) (16.9) (1.3) (0.2) (5.6) (13.9) (18.0)Refining & MarketingSinopec 386 HK HK$ 7.82 110.0 (2.4) 0.0 (10.6) 4.8 24.3 (0.7) 0.3 (9.9) 4.6 10.6Reliance Ind. RIL IN Rs 982 72.7 (2.7) (5.2) 6.6 (8.6) (4.9) (0.4) (3.7) 0.8 (2.8) (12.7)Formosa Petrochemical 6505 TT NT$ 100.50 33.4 1.3 4.5 6.7 16.1 21.4 0.7 1.0 8.3 7.5 7.9PTT PTT TB Bt 375.00 35.8 (1.1) 5.0 9.0 21.8 45.9 0.0 2.2 (2.5) 12.0 1.9Indian Oil Corporation IOCL IN Rs 340 18.7 2.3 2.2 4.3 (19.6) 15.4 4.7 3.7 (1.4) (14.5) 5.9S-Oil 010950 KS Won 159,500 16.8 1.0 4.9 48.4 116.4 182.3 2.0 1.5 40.2 89.3 124.3SK Innovation 096770 KS Won 232,000 20.0 (8.7) 8.9 15.1 39.8 90.2 (7.7) 5.4 8.8 22.3 51.1Shanghai Petrochem 338 HK HK$ 3.76 8.3 (0.8) 2.2 (21.8) 3.9 24.1 1.0 2.5 (21.2) 3.7 10.4Bharat Petroleum Corp. BPCL IN Rs 627.15 5.1 1.5 3.4 5.7 (18.7) 21.1 3.9 4.9 (0.1) (13.6) 11.1Thai Oil TOP TB Bt 84.50 5.8 (1.7) (0.6) 24.3 49.6 79.8 (0.7) (3.2) 11.1 37.5 25.5GS HoldingS 078930 KS Won 89,500 7.8 (11.4) (5.8) 13.6 39.4 130.4 (10.4) (8.9) 7.3 22.0 83.0Hindustan Petroleum Corp. HPCL IN Rs 372 2.8 (0.5) 5.7 8.9 (25.3) 17.9 1.8 7.3 3.0 (20.5) 8.2PTT Aromatics & Refining PTTAR TB Bt 41.25 4.1 (1.2) 3.8 8.6 22.2 48.7 (0.1) 1.0 (2.9) 12.4 3.8Upstream/Integrated ChemicalFormosa Chemical & Fibre 1326 TT NT$ 115.50 25.0 2.7 3.6 9.0 29.8 45.3 2.0 0.1 10.6 20.2 29.1Petronas Chemicals PCHEM MK RM 7.23 19.5 (0.3) (1.9) 17.6 NA NA (1.0) (0.6) 17.3 NA NAPTT Ch i l PTTCH TB Bt 160 00 8 1 (2 7) 1 9 9 6 3 9 54 6 (1 7) (0 8) (2 0) (4 5) 7 9PTT Chemical PTTCH TB Bt 160.00 8.1 (2.7) 1.9 9.6 3.9 54.6 (1.7) (0.8) (2.0) (4.5) 7.9Honam Petrochemical 011170 KS Won 378,000 11.2 (13.1) (2.5) 6.5 46.8 160.7 (12.2) (5.6) 0.6 28.4 107.1Midstream ChemicalNanya Plastics 1303 TT NT$ 87.80 24.1 1.7 0.9 9.1 25.1 32.6 1.1 (2.5) 10.7 15.9 17.9Formosa Plastics 1301 TT NT$ 117.00 22.9 5.9 12.5 17.8 31.5 67.1 5.2 8.7 19.6 21.8 48.5LG Chem 051910 KS Won 530,000 32.8 (5.2) 15.7 28.5 41.0 87.3 (4.2) 12.0 21.4 23.3 48.8Cheil Industries 001300 KS Won 118,000 5.5 (7.1) (1.7) (0.8) 25.8 47.7 (6.1) (4.9) (6.3) 10.1 17.3Hanwha Chemical 009830 KS Won 47 700 6 2 (12 2) 10 7 20 6 47 2 182 3 (11 2) 7 1 14 0 28 8 124 2


Hanwha Chemical 009830 KS Won 47,700 6.2 (12.2) 10.7 20.6 47.2 182.3 (11.2) 7.1 14.0 28.8 124.2China FertilizerSinofert 297 HK HK$ 3.24 2.9 (3.3) (3.3) (27.5) (24.8) (23.4) (1.6) (3.0) (26.9) (25.0) (31.8)China BlueChem 3983 HK HK$ 6.32 1.4 (7.3) (2.3) (11.4) 1.4 30.0 (5.7) (2.0) (10.7) 1.2 15.7

ASIA

Crude oil fundamentals


ASIA

Oil i ld k i th tOil prices could peak in the near term We expect oil prices to remain volatile, with potential WTI & Brent pricese e pec o p ces o e a o a e, po e a

to spike higher in the near term.

In addition, fundamentals will likely tighten over the coming months on the back of both increasing d d d d d l 90

100110120130

90100110120130

US$/bblUS$/bbl

demand and reduced supply.

The potential increase in oil demand in Japan for power generation during its peak power demand season will be an added feature to this year’s 40

5060708090

405060708090

yseasonal demand upswing as we head into the summer driving season.

The effect of lost Libyan crude capacity will likely have a more profound impact on sweet crude as European

203040

203040

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-

09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep-

10

Nov

-10

Jan-

11

Mar

-11

May

-11

Brent WTIa more profound impact on sweet crude as European refiners return from maintenance season in the coming months. Nomura Brent crude oil price forecasts

Brent WTI

US$/bbl 2008 2009 2010 2011E 2012E 2013E Long TermQ1 96.52 45.14 76.61 105 105Q2 122 08 59 35 78 63 123 113

Source: Bloomberg, Nomura estimates

Q2 122.08 59.35 78.63 123 113Q3 115.91 68.37 76.70 110 113Q4 55.89 74.98 86.93 103 110Year Avg. 97.60 61.96 79.73 110 110 110 75


ASIA

Loss of Libyan crude to boost sweet crude premiumLoss of Libyan crude to boost sweet crude premiumLibya sweet crude production capacity as %age

of global sweet crude production Libyan crude capacity accounts for only 2% of world supply but represents 7% of global sweet crude capacity.

7%p g p y

73% of Libyan oil is exported to Europe, with Italy being the major importer.

We believe that the spread could widen as we move into the

7%

summer season as demand for sweet crude further increases.

World major crudes by quality

93%

World major crudes by quality

Source: IEA, Eni, Nomura estimates

Libya Production CapacityRest of World sweet crude production

Sweet-Sour crude spread (Brent – Dubai)

8.0

12.0 (US$/bbl)

0 0

4.0

8.0

-4.0

0.0

n-09

ar-0

9

y-09

ul-0

9

p-09

v-09

n-10

ar-1

0

y-10

ul-1

0

p-10

v-10

n-11

ar-1

1

11© Nomura International (Hong Kong) LimitedSource: Bloomberg

Source: Eni World Oil & Gas Review 2010

Ja Ma

Ma J u Sep

No Ja Ma

Ma J u Sep

No Ja Ma

ASIA

Japanese oil demand to increase this summerJapanese oil demand to increase this summer

Potentially available capacity in thermal power The earthquake and tsunami in Japan could cause a spikePotentially available capacity in thermal power The earthquake and tsunami in Japan could cause a spike in oil demand.

In Japan, oil-fired power plants have always been used as the swing supplier.

Using fuel substituted in 2007 as a reference, we find oil demand could increase by 171kbbl/d, or 3.9% of total Japanese demand.

Moreover based on the increase in oil demand for power Moreover, based on the increase in oil demand for power generation in 2010, an additional 180kbbl/d could be needed in 3Q11 over 2Q11.

Source: FEPC, Nomura research

Earthquake impact on power demand Japan oil demand for electricity generationEarthquake impact on power demand Japan oil demand for electricity generation

0 6

0.8 (mmb/d) Prior 5 Year RangePrior 5 Year Average20102011

0.4

0.6

+0.2mmb/d

Note: ‘Max individual alternate fuel requirement’ refers to the individual additional requirement of each alternative source to generate the total additional power required.‘Actual demand increase by source’ for 2011F is calculated at the same percentage of total as 2007. Source: FEPC, JNES, Nomura estimates 0.0

0.2

12© Nomura International (Hong Kong) LimitedSource: FEPC

J F M A M J J A S O N D

ASIA

Seasonal demand upswing in US and EuropeSeasonal demand upswing in US and EuropeNorth America gasoline demand vs price in 2008

The summer driving season in the US has historically led to a significant rise in gasoline demand in the summer.11.0 500 (mmb/d)(cents/gallon)

g g

Gasoline demand continues to follow its seasonal pattern, with total gasoline demand up by 0.2mmbbl/d from December 2010 to April this year, while at the same time, oil prices increased by 34% from US$91 8/bbl to US$123 0/bbl10 2

10.6

200

300

400

+0.3mmb/d

increased by 34% from US$91.8/bbl to US$123.0/bbl.

Even during 2008, when oil prices crossed US$100/bbl, gasoline demand increased during the first eight months of the year before hitting the financial crisis in September.

9.8

10.2

0

100

n-08

b-08

r-08 r-08

y-08

n-08

ul-0

8

g-08

p-08

ct-0

8

v-08

c-08

Impact offinancial crisis

y g p

In addition, we foresee a similar pickup in OECD Europe demand. On a quarterly basis, 3Q demand for OECD Europe is on an average 430kbbl/d higher than 2Q demand.Source: IEA, Nomura estimates

Jan

Feb

Ma Ap Ma y Jun

Ju Aug

Sep

Oc

Nov Dec

US Regular Grade Motor Gasoline retail priceNorth America Gasoline Demand

North America total product demand OECD Europe total product demand

28.0

30.0 (mmb/d) Prior5 Year RangePrior 5 Year Average20102011

17.0 (mmb/d) Prior5 Year RangePrior 5 Year Average20102011

24.0

26.0

15.0

16.0+0.4mmb/d

20.0

22.0+0.3mmb/d

13 0

14.0

13© Nomura International (Hong Kong) LimitedSource: IEA, Nomura Research

Source: Nomura estimates

J F M A M J J A S O N D13.0


ASIA

Demand from refineries to increase in coming monthsDemand from refineries to increase in coming monthsGlobal refinery turnaround

Growth in refinery run rates has lagged demand growth so far this year.y

Refinery turnaround this year peaked in March and some 2.0mmbbl/d of refining capacity will slowly resume operation from April to July, with 1.0mmbbl/d coming back on line from EuropeEurope.

This represents approx 8% of total refinery throughput in Europe and could further increase demand for light sweet crude, in our opinion.

European refinery turnaroundSource: IEA

Global refinery throughput

76

78 (mb/d)

72

74

68

70 Prior4 Year Range Prior 4 Year Average

2010 2011

IEA Forecast 2011


Source: IEA


Source: IEA

ASIA

Demand growth to remain strongDemand growth to remain strongGlobal oil demand

Rising consumption, led by faster-growing non-OECD countries, will likely bring total 2011F oil demand to

92.0(mmb/d) , y g

89.7mmbbl/d, up 1.8mmbbl/d y-y, rising further to 91.3mmbbl/d in 2012F, up 1.6mmbbl/d y-y.

China, India and the Middle East are the key demand centers

86.0

88.0

90.0

( )

centers.

We estimate that total non-OECD demand growth will amount to 1.5mmbbl/d vs. OECD demand growth of only 0.2mmbbl/d in 2011F.

82.0

84.0

Q07

2Q07

3Q07

4Q07

Q08

2Q08

3Q08

4Q08

Q09

2Q09

3Q09

4Q09

Q10

2Q10

3Q10

4Q10

Q11

Q11

EQ

11E

Q11

EQ

12E

Q12

EQ

12E

Q12

E01

3E

Source: IEA, Nomura estimates

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 Q 3Q 4Q 1Q 2Q 3Q 4Q 20

2011F global demand change 2012F global demand change

ChiTotal OECD

Total non-OECDGlobal demand

ChiTotal OECD

Total non-OECDGlobal demand

AfricaOECD-North America

Latin AmericaMiddle EastOther Asia

China

AfricaLatin America

OECD-North AmericaMiddle EastOther Asia

China

OECD-Pacificnon-OECD Europe

OECD-EuropeFSU

Africa

(mmb/d) non-OECD EuropeOECD-EuropeOECD-Pacific

FSUAfrica

(mmb/d)

15© Nomura International (Hong Kong) LimitedSource: Nomura estimates.


0.0 0.5 1.0 1.5 2.0 0.0 0.5 1.0 1.5 2.0

ASIA

April Chinese PMI dips but remains strongApril Chinese PMI dips but remains strongChina’s official PMI components

China’s official PMI fell to 52.9 in April from 53.4 in March. The index has remained above the expansion-contraction 50 pmark for 26 consecutive months, suggesting that the manufacturing sector is in a solid expansion stage.

Although the new orders component moderated again, to 53.8 from 55 2 in March it is still well above the critical 50 markfrom 55.2 in March, it is still well above the critical 50 mark. New export orders fell slightly to 51.3 from 52.5 in March, suggesting solid external demand will continue.

Input prices component fell to 66.2 from 68.3 in March, p p psuggesting that PPI inflation will remain at a relatively high level over the next few months.

Source: Nomura Global Economics

PMI, new orders & finished goods inventories China exports & trade surplus


Source: Nomura Global Economics Source: Nomura Global Economics

ASIA

Chinese oil demand continues in upward trajectoryChinese oil demand continues in upward trajectoryChinese oil demand

12 (mmb/d)

10

( b/d)

6

8

Source: IEA, Nomura estimates.

6

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

E3Q

11E

4Q11

E1Q

12E

2Q12

E3Q

12E

4Q12

E20

13E

Total Chinese oil demand increased by 0.9mmbbl/d, 10.3% y-y during the first quarter, while diesel demand, which is driven mainly by industrial activities increased by 0 4mmbbl/d or 13 8% y y in 1Q11

,

driven mainly by industrial activities, increased by 0.4mmbbl/d, or 13.8% y-y in 1Q11.

Economic activity continued to expand in the first three months of 2011 as industrial production growth accelerated to 14.4% y-y in 1Q11 from 13.3% in 4Q10.

We estimate that Chinese demand will increase by 0 6mmbbl/d in 2011F and a further 0 6mmbbl/d in 2012F on the We estimate that Chinese demand will increase by 0.6mmbbl/d in 2011F and a further 0.6mmbbl/d in 2012F on the back of strong GDP growth of 9.8% and 9.5%, respectively (based on Nomura’s economic forecasts).

We also estimate that diesel demand will increase by 0.3mmbbl/d in 2011, or 9.0% y-y, which accounts for nearly half of this year’s Chinese demand growth.


ASIA

Indian oil demand remains strongIndian oil demand remains strongIndia gasoline demand India’s GDP is expected to rise by 8.0% in 2011F and a

further 8.3% in 2012F, according to Nomura estimates. 400 (kb/d) Prior 5 Year RangePrior 5 Year Average

We believe demand for transportation fuels, driven by population growth and rising income per capita, especially in urban areas, will continue to be the main driver of oil demand growth.

300

350

g20102011

g

In addition, farming and industrial activities have contributed to support gasoil demand so far this year.

Year-to-date, India’s oil demand growth is up 3.7% y-y on 200

250

8.3% growth in gasoline and 5.8% growth in distillate demand.

Led by India, we estimate ‘Other Asia’ will see robust oil demand growth of 0 3mmbbl/d in each of 2011F and 2012F

Source: Thomson Reuters, Nomura research

I di di till t d d

150J F M A M J J A S O N D

demand growth of 0.3mmbbl/d in each of 2011F and 2012F, up 2.4% y-y each year, respectively.

India distillate demand

1 200

1,400 (kb/d) Prior 5 Year RangePrior 5 Year Average20102011

1,000

1,200

600

800


Source: Thomson Reuters, Nomura research


ASIA

New supply peaked in 2009New supply peaked in 2009 While demand has outpaced supply over the past year,

we believe there might be new supply growth, beyond

Global oil supply and demand3.03.0 (mmb/d)(mmb/d) g pp y g , y

our estimates, going into 2013F as high oil prices entice new investments into the sector.

However, on current estimates, OPEC spare capacity will lik l t d l i th i t d d1.0

2.0

1.0

2.0

likely trend lower in the coming two years as demand growth continues to exceed supply growth.

We estimate OPEC spare capacity, which reached a peak of 6.7mmbbl/d in 2009, to average 4.8mmbbl/d in

0.0

1.0

0.0

1.0

2005 2006 2007 2008 2009 2010 2011F 2012F 2013F

p , g2012F from 5.3mmbbl/d this year, before bottoming out in 2013F.

Source: IEA, Nomura estimates

-2.0

-1.0

(2.0)

(1.0)

OPEC NGL growth Total OPEC capacity growthNon OPEC Production Growth Global demand growth

Peak capacity coming online 5,000

6,000(mmbbl/d) 2009 2010 2011F 2012F 2013F 2014F 2015F

Global Supply-Demand Balance

1 000

2,000

3,000

4,000 Global Demand 85.0 87.9 89.7 91.3 92.8 93.9 95.0

Non-OPEC supply 51.7 52.8 53.7 54.2 53.9 54.0 54.4

OPEC NGL production 4.8 5.3 5.9 6.3 6.6 6.9 7.1

0

1,000

2009 2010 2011 2012 2013 2014 2015Africa AsiaChina FSULatin America OECD Asia Pacific

OPEC crude capacity 35.0 35.2 35.5 35.8 36.7 37.8 38.1

Call on OPEC Production 28.5 29.8 30.1 30.9 32.4 33.0 33.5

OPEC average

19© Nomura International (Hong Kong) LimitedSource: International Energy Agency, Nomura estimates

Latin America OECD Asia PacificOECD Europe OECD North AmericaOPEC Non OPEC Middle East

OPEC average annual spare capacity 6.5 5.4 5.4 4.9 4.3 4.8 4.6

Source: International Energy Agency, Nomura estimates

ASIA

OPEC spare capacity continues to fallOPEC spare capacity continues to fall The OPEC compliance rate declined from a peak of

83% i M h 2009 t l 60% i M h 2011

OPEC capacity and production7 037 0

(mmb/d)(mmb/d)

83% in March 2009 to only 60% in March 2011.

However, this includes lost capacity in Libya; excluding Libya, compliance would be closer to 30%.

On the contrary Brent oil price has increased from3 0

4.0

5.0

6.0

7.0

29 0

31.0

33.0

35.0

37.0

On the contrary, Brent oil price has increased from US$47/bbl in March 2009, when the compliance level was at its peak, to about US$125/bbl.

0.0

1.0

2.0

3.0

23.0

25.0

27.0

29.0

Q04

Q04

Q05

Q05

Q06

Q06

Q07

Q07

Q08

Q08

Q09

Q09

Q10

Q10 11E

11E

12E

12E

13E

13E

O C C li b OPEC bSource: IEA, Nomura estimates

1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q

OPEC Crude Production Capacity OPEC Crude ProductionOPEC crude capacity excluding libya OPEC Spare CapacityOPEC spare capacity excluding Libya

OPEC compliance to quota Compliance by OPEC members28.0

90%

(mb/d)OPEC 11 Complaince Rate (lhs)OPEC 11 Production

26.0

27.0

50%

70%

25.030%

an-0

9M

ar-0

9ay

-09

Jul-0

9ep

-09

ov-0

9an

-10

Mar

-10

ay-1

0Ju

l-10

ep-1

0ov

-10

an-1

1M

ar-1

1

20© Nomura International (Hong Kong) LimitedSource: International Energy Agency, Nomura estimates

Source: IEA

Ja M Ma J Se No Ja M Ma J Se No Ja M

ASIA

Iraq supply could be swing factor in 2013 & beyondIraq supply could be swing factor in 2013 & beyond Seven years after the overthrow of the Saddam Hussein regime, Iraq has witnessed huge interest in its oil sector

from international oil companies (IOCs). The government undertook two rounds of bidding in 2009-10 and has already awarded some of its most prolific

super giant fields to major IOCs. The two rounds promise to raise headline production to over 12.0mmbbl/d from the current 2.75mmbbl/d. For now, we estimate that Iraq’s production capacity can reach 3.1mmbbl/d by end-2011, 3.2mmbbl/d in 2012 and

3.4mmbbl/d in 2013 from 2.75mmbbl/d currently. However, we do recognize that the Iraqi government has a higher expectation of some 6.0mmbbl/d. In the event that Iraq can deliver production above our expectations it could alter the fundamental picture and weigh In the event that Iraq can deliver production above our expectations, it could alter the fundamental picture and weigh

on oil prices.

Iraq production capacity estimates Iraq capacity additions by fields

12

14(mmb/d)

Iraq Prod Capacity as per Licensing Rounds

Nomura Estimates

IEA

12.0

14.0 (mmb/d)

NajmahQayara

4

6

8

10IEA

6.0

8.0

10.0 BadrahGarrafHalfayaMajnoonWest Qurna - 2NassiriyahAl Ahdab

0

2

4

2009

2010

011F

012F

013F

014F

015F

016F

017F

018F

019F

020F 0.0

2.0

4.0

Current Capacity Round I Round II Kurdistan

Al-AhdabZubairWest Qurna - 1Rumaila

21Source: International Energy Agency, Nomura research

© Nomura International (Hong Kong) Limited

Source: Bloomberg, Nomura research

2 2 20 20 20 20 20 20 20 20 20 20 Current Capacity Round I Round II Kurdistan

ASIA

Rig count points to intensifying investmentsGlobal oil rig count

Rig count points to intensifying investments

2,500

We believe that rig count is an early indicator of future supply growth and serves as an indication of i t t l l i th il k t

1,500

2,000

investment level in the oil markets.

Over the past months, we have seen an increase in rig counts, which we believe could be an indication that investments are picking up in the sector.

500

1,000

that investments are picking up in the sector.

Our analysis suggests that there is approximately a 24-27-month lag between global rig count and its peak effect on oil supply.

Source: International Energy Agency, Nomura research

-

Jan-

01Ju

l-01

Jan-

02Ju

l-02

Jan-

03Ju

l-03

Jan-

04Ju

l-04

Jan-

05Ju

l-05

Jan-

06Ju

l-06

Jan-

07Ju

l-07

Jan-

08Ju

l-08

Jan-

09Ju

l-09

Jan-

10Ju

l-10

Jan-

11

Based on our analysis, if rig counts are sustained at the current level, it could push 2013 global supply up by approximately 3.2mmbbl/d from 2010 average, compared with our current estimate of 2.6mmbbl/d.

Rig count (-2years) vs global oil supply


Non-OPEC rig count vs supplyy = 7.0012ln(x) + 25.53

R² = 0.8222

78 (OPEC

Capacity + Non OPEC 80%

90% (R Square)

p

74

76 Non-OPEC

supply)

60%

70%

80%

70

72

(Global Rig Count) 40%

50%

0 5 10 15 20 25 30 35




- 500 1,000 1,500 2,000 (Lag in months)

ASIA

Inventories could continue to fallOECD crude inventory days (comm + strategic) While both crude and product inventories remain near their

five-year averages, OECD inventories have shown a downward trend, as demand rebounded in 2010,

Inventories could continue to fall

60 (Days of d d

Prior5 Year RangePrior 5 Year Average , ,

outpacing supply growth.

OECD industry crude inventory currently stands at 979mmbbl, 0.7% higher than its five-year average but 5 6% l th it k i A il 2010 hil d t

50

55

demand cover)

Prior 5 Year Average20102011

5.6% lower than its peak in April 2010; while product inventories are at 1,412mmbbl, 0.6% higher than the five-year average but 5.8% lower than the peak in September 2009. 40

45

For 2011F, we could see crude inventory drop further as global demand growth continues to outpace supply growth.

Furthermore, the backwardation nature of the oil futures curve is skimming excess inventoriesSource: International Energy Agency, Nomura research


curve is skimming excess inventories.OECD product inventory days (comm + strategic)


Brent 3-month future spread45 (Days of

demand cover)

Prior5 Year RangePrior 5 Year Average20102011 7 0

9.0 30.0

40.0 (US$/bbl)(US$/bbl)

3-year spread (LHS)

35

40

cover) 2011

(1 0)

1.0

3.0

5.0

7.0

0.0

10.0

20.0 3-month spread (RHS)

25

30(5.0)

(3.0)

(1.0)

(20.0)

(10.0)ar

-06

un-0

6ep

-06

ec-0

6ar

-07

un-0

7ep

-07

ec-0

7ar

-08

un-0

8ep

-08

ec-0

8ar

-09

un-0

9ep

-09

ec-0

9ar

-10

un-1

0ep

-10

ec-1

0ar

-11



Source: Bloomberg, Nomura researchJ F M A M J J A S O N D M

aJu Se D

eM

aJu Se D

eM

aJu Se D

eM

aJu Se D

eM

aJu Se D

eM

a

ASIA

Fl ti d & d t tFloating crude & product storage No longer a profitable trade as we move into Global crude floating storage

backwardation.

Total oil and product stored at sea declined from its peak of 150mmbbl in November 2009 to 64mmbbl in February 201140

60

80

100 (mmb)

February 2011.

With Iran storing crude oil in tankers in May-June 2010, floating storage of oil and oil products went up globally.-

20

40

ar-1

0

pr-1

0

ay-1

0

un-1

0

ul-1

0

ug-1

0

ep-1

0

ct-1

0

ov-1

0

ec-1

0

an-1

1

eb-1

1

ar-1

1

Source: Bloomberg, Gibson, Nomura research

Ma

Ap Ma Ju J A u Se O No

De Ja Fe Ma

Mideast Gulf Asia Pacific MedNW Europe US Gulf Coast West Africa

Global product floating storage

40

50

60 (mmb)

10

20

30

40

-

Mar

-10

Apr-

10

May

-10

Jun-

10

Jul-1

0

Aug-

10

Sep-

10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb-

11

Mar

-11

Mideast Gulf Asia Pacific Med

© Nomura International (Hong Kong) Limited 24Source: Bloomberg, Gibson, Nomura research

NW Europe US Gulf Coast West Africa

ASIA

Demand a mere fraction of trading volumesDemand a mere fraction of trading volumesPhysical demand vs trading volume Physical demand remains a mere fraction

of trading volumes of oil 1 000 (mb/d)of trading volumes of oil.

Trading volume have risen exponentially since July 2005, while demand has only risen marginally. 500

600700800900

1,000 (mb/d)Trading Vol on NYMEX

Trading Vol on ICE

World Demand

g y

WTI physical delivery is only about 1% of the total open interest on NYMEX.

This has led to increased volatility and 0100200300400

WTI physical delivery as % of open interest

speculation in oil prices.


1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

WTI physical delivery as % of open interest

2.5%

3.0%

1.0%

1.5%

2.0%

0.0%

0.5%ug

-08

ov-0

8

eb-0

9

ay-0

9

ug-0

9

ov-0

9

eb-1

0

ay-1

0

ug-1

0

ov-1

0

eb-1

1

Source: Bloomberg, Nomura research© Nomura International (Hong Kong) Limited 25

Au No Fe Ma

Au No Fe Ma

Au No Fe

ASIA

F d fl t ti l i fl il i i thFund flows to negatively influence oil prices in the medium term

QE-2 exit timeline As QE-2 draws to an end by June 2011, liquidity could tighten in the market, causing reduced fund flow into commodities.

Further monetary tightening measures in 2012F in the US and a possible rate hike by 1Q13 could cause the US dollar to appreciate and further reduce liquidity and the appeal of commodities investments.

Globally, our Economics team expects benchmark policy rates to rise from 3.08% at the end of 2010 to 3.77% by the end of 2011 and further to 4.25% by the end of 2012.

Source: Nomura economics team

Benchmark policy interest rate expectations Managed money net long vs WTI price

105

115

280,000

320,000 (US$/bbl)(contracts)(% end of period) 2010 2011F 2012F

Global 3.08 3.77 4.25

75

85

95

80 000

120,000

160,000

200,000

240,000 United States 0.13 0.13 0.13

Euro Area 1.00 1.75 2.75

United Kingdom 0.50 1.00 2.00

Japan 0.05 0.05 0.05

China 5 81 6 81 7 56

6540,000

80,000

Jan-

10

Feb-

10

Mar

-10

Apr-

10

May

-10

Jun-

10

Jul-1

0

Aug-

10

Sep-

10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb-

11

Mar

-11

Apr-

11

May

-11

Managed money net long (lhs) WTI price (rhs)

China 5.81 6.81 7.56

India 6.25 7.75 7.75

Source: Nomura economics team

© Nomura International (Hong Kong) Limited26

Source: CFTC, Bloomberg, Nomura research

ASIA

N f d fl ld dNew fund flows could dry upGlobal AUM of commodity ETPs QE-2 has led to a significant increase in

funds inflow into the oil markets $270 (bn)funds inflow into the oil markets. Based on our ETP fund flow analysis,

some US$20bn has entered the commodity market since the beginning of QE-2 $170

$190$210$230$250$270 (bn)

QE-2. Also, as many as 20 new ETPs have

been launched since the beginning of this year, compared with 66 launched in 2010 $70

$90$110$130$150$170

Cumulative fund flows into global commodity ETPs

2010.

In our opinion there are two mainSource: Bloomberg, Nomura research

$

Jan-

09

Apr-

09

Jul-0

9

Oct

-09

Jan-

10

Apr-

10

Jul-1

0

Oct

-10

Jan-

11

Apr-

11

Cumulative fund flows into global commodity ETPs In our opinion, there are two main reasons for the strength in fund flows:

First, the US dollar remains weak compared with most global currencies.

$60

$70

$80

$5.0

$7.0 (bn)(bn)

Second, we believe that most funds are accumulating oil/commodities this year on the back of geopolitical uncertainties, in addition to the desire to hedge against a decline in the US dollar

$30

$40

$50

$60

$1.0

$3.0

a decline in the US dollar.

$0

$10

$20

-$3.0

-$1.0-0

9-0

9-0

9-0

9-0

9-0

9-1

0-1

0-1

0-1

0-1

0-1

0-1

1-1

1

Weekly ETP Fund InflowsCumulative Inflow(rhs)


Jan-

Mar

-M

ay-

Jul-

Sep-

Nov

-Ja

n-M

ar-

May

-Ju

l-Se

p-N

ov-

Jan-

Mar

-

ASIA

US d ll t t th b d 2012FUS dollar to strengthen by end-2012F60-day rolling correlation The correlation between the US dollar index and oil

prices has remained strong1 0 prices has remained strong.

The dollar has weakened notably vs most major currencies over the past few months, causing a rise in oil prices.

0.5

1.0 Dollar Index Euro World ex-euro

p

Also, the correlation between the US dollar vs the rest of world currencies with oil price continues to hold up well.

(0.5)

0.0

Our in-house FX team is forecasting for the US Dollar Index to appreciate to 76.8, up 5.2% by the end of 2011F.


(1.0)

Apr-

09

Jun-

09

Aug-

09

Oct

-09

Dec

-09

Feb-

10

Apr-

10

Jun-

10

Aug-

10

Oct

-10

Dec

-10

Feb-

11

Apr-

11US$ Index


Nomura currency forecasts

85

90

130

140

75

80

85

100

110

120

70

75

n‐10

pr‐10

ul‐10

ct‐10

n‐11

pr‐11

ul‐11

ct‐11

n‐12

pr‐12

ul‐12

ct‐12

901Q

08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

F

3Q11

F

4Q11

F

1Q12

F

2Q12

F

3Q12

F

4Q12

F

Dollar Index Euro World ex-Euro


Source: Bloomberg, Nomura FX estimates

Ja Ap Ju Oc Ja Ap Ju Oc Ja Ap Ju Oc Dollar Index Euro World ex Euro

ASIA

OPEC t t hi h il iOPEC to support higher oil pricesBreak-even oil price of Middle East producers With the political crisis in the MENA region

impacting many OPEC members we have seenimpacting many OPEC members, we have seen announcements and pledges of increased government spending on infrastructure.

In particular, Saudi Arabia has pledged to spend a 84

65

88

70

85

101

80

100

120 (US$/bbl)

p , p g ptotal of US$130bn in the two packages that it announced on February 24 and March 18 this year.

We note that the majority of the additional expense is for building 500 000 homes which could take 2 3

20

40

60

is for building 500,000 homes, which could take 2-3 years. As a result, we allocate US$45bn of the expense to 2011.

This has led to a steep rise in the break-even oil Source: Bloomberg, Nomura research

0Saudi Arabia Qatar Kuwait UAE Iran Iraq

price for the oil-dependent economy of the country to balance its budget from our earlier estimate of US$63/bbl to US$84/bbl.

Such additional spending in our view will lead the Such additional spending, in our view, will lead the OPEC countries to remain more inclined towards maintaining higher oil prices.


ASIA

L t il i t i t US$75/bblLong-term oil price to remain at US$75/bbl Our long-term oil price is based on the supply cost of

replacing reserves for the industry, as well as IHS CERA upstream cost index

increasing production in line with growth in demand.

While upstream costs showed a constant rise from 1985 to 2008, both capital and operating costs declined at the end of 2008180

200

220

240 Upstream Capital Costs IndexUpstream Operating Costs Index

at the end of 2008.

Although all these costs have begun to recover, we note that upstream costs of oil and gas drilling and extraction remain well below their 2008 peak levels.120

140

160

We estimate a Brent price of US$75/bbl is needed to earn a “mid-cycle” 10% to 12% nominal return on capital.Source: IHS CERA press releases, Nomura research

100

1Q00

3Q00

1Q01

3Q01

1Q02

3Q02

1Q03

3Q03

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

Industry cost curve US PPI sub-indices for oil & gas industry

120

140 Production Cost, $/bl

Oil ShaleDeep Water and Ultra

Coal to LiquidsGas to Liquids500

(Index) Oil & Gas extractionDrilling oil & gas wellsSupport activities for oil and gasoperations

60

80

100

EOR

Other Conventional Oil

CO2 - EOR

pdeepw ater Arctic

Heavy Oil and Bitumen

200

300

400 Support activities for oil and gas operationsOil & gas field machinery & equipment

20

40

Resources (billion barrels)

Produced MENA

Oil

0

100

200

6 8 0 2 4 6 8 0 2 4 6 8 0


Source: US Bureau of Labor StatisticsSource: IEA, Nomura estimates

00 2000 4000 6000 8000 10000 19

86

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

ASIA

L t il i t i t US$75/bblLong-term oil price to remain at US$75/bbl We have also looked at some of the recent major M&A

Break-even oil price for deepwater oil exploration

deals in the oil and gas space over the past few years, as we believe this is one of the best indicators to ascertain what the industry perceives as the value of a barrel of oil.

We estimate that the long-term implied oil price could be between US$70/bbl and US$80/bbl in order to give the companies fair 10-12% returns on capital.

In addition, we estimate that the majority of probable new developments have a break-even oil price in the range of US$40-US$60/bbl for a 15% IRR, although there are wide differences in break-even prices Source: Woodmac

between the projects.Estimated Long-term oil price from M&A deals

120

140 (US$/bbl) Break-even price

B t i

60

80

100

120 Brent price

0

20

40

Q07

Q07

Q07

Q07

Q08

Q08

Q08

Q08

Q09

Q09

Q09

Q09

Q10

Q10

Q10

Q10

Q11



1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q

ASIA

Oil i f tOil price forecasts

Nomura Brent oil price forecast


Nomura Brent oil price forecast(US$/bbl) 1Q11 2Q11F 3Q11F 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F 2010 2011F 2012F 2013FBrent 105 123 110 103 105 113 113 110 80 110 110 110

We believe oil prices could peak in the near term as the loss of Libyan crude capacity and increased seasonal demand, alongside a potential increase in Japanese demand, play

OPEC spare capacity as % of world oil demand

10.0%

12.0%

out.

Post the summer peak, prices could moderate as strong fundamentals face reduced global liquidity which have partly driven prices higher6.0%

8.0%

liquidity, which have partly driven prices higher in recent years.

We continue to see stronger fundamentals through to 2013F, noting the risk to the 2.0%

4.0%

downside.0.0%

Jan-

00Ju

n-00

Nov

-00

A pr-

01Se

p-01

Feb-

02Ju

l-02

Dec

-02

Ma y

-03

Oct

-03

Mar

-04

Aug-

04Ja

n-05

Jun-

05N

ov-0

5A p

r-06

Sep-

06Fe

b-07

Jul-0

7D

ec-0

7M

a y-0

8O

ct-0

8M

ar-0

9Au

g-09

Jan-

10Ju

n-10

Nov

-10

3Q11

F4Q

12F

32

Source: International Energy Agency, Nomura estimates


ASIA

Nomura supply-demand balanceNomura supply demand balancemm bls/d 2006 2007

Q1 Q2 Q3 Q4 2009 Q1 Q2 Q3 Q4 2010 Q1 Q2F Q3F Q4F 2011F Q1F Q2F Q3F Q4F 2012F2013Fmm bls/d % mm bls/d % mm bls/d %DemandNorth America 25.4 25.5 24.2 23.4 22.9 23.3 23.6 23.3 23.6 23.8 24.2 24.0 23.9 24.0 24.0 24.3 24.1 24.1 24.1 24.1 24.4 24.3 24.2 24.3 0.2 0.8 0.1 0.5 0.1 0.4Europe 15.7 15.5 15.4 14.9 14.3 14.5 14.4 14.5 14.2 14.1 14.8 14.7 14.4 14.2 14.2 14.7 14.8 14.5 14.3 14.4 14.8 14.8 14.6 14.7 0.0 0.3 0.1 0.4 0.1 0.7Pacif ic 8 5 8 4 8 0 8 1 7 3 7 2 8 0 7 7 8 2 7 3 7 6 8 0 7 8 8 1 7 3 7 6 8 1 7 8 8 2 7 5 7 7 8 1 7 9 7 9 0 0 0 1 0 1 0 8 0 0 0 6

Change, 12 vs 11Change, 13 vs 12Change, 11 vs 102008 2009 2010 2011 2012

Pacif ic 8.5 8.4 8.0 8.1 7.3 7.2 8.0 7.7 8.2 7.3 7.6 8.0 7.8 8.1 7.3 7.6 8.1 7.8 8.2 7.5 7.7 8.1 7.9 7.9 0.0 0.1 0.1 0.8 0.0 0.6OECD 49.6 49.3 47.6 46.4 44.5 45.0 45.9 45.5 46.0 45.2 46.6 46.7 46.1 46.3 45.5 46.6 47.1 46.4 46.6 46.0 46.9 47.2 46.6 46.9 0.2 0.5 0.3 0.6 0.2 0.5

FSU 4.0 4.1 4.2 4.0 3.9 4.1 4.0 4.0 4.2 4.2 4.4 4.4 4.3 4.3 4.2 4.5 4.5 4.4 4.4 4.3 4.6 4.5 4.4 4.6 0.1 1.8 0.1 2.0 0.1 2.3Europe 0.7 0.8 0.8 0.7 0.8 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.8 0.7 0.8 0.7 0.8 0.8 0.8 0.8 0.0 2.8 0.0 4.9 0.0 5.2China 7.2 7.6 7.7 7.5 8.5 8.7 8.8 8.4 8.9 9.4 9.2 10.0 9.4 9.9 10.0 9.8 10.4 10.0 10.4 10.6 10.4 11.1 10.6 11.1 0.6 6.8 0.6 6.0 0.5 4.8Other Asia 9.0 9.5 9.6 10.0 10.2 9.9 10.2 10.1 10.4 10.5 10.1 10.6 10.4 10.7 10.8 10.4 10.8 10.6 10.9 11.0 10.6 11.0 10.9 11.1 0.3 2.4 0.3 2.4 0.2 1.6Latin America 5 4 5 7 6 0 5 8 6 0 6 1 6 1 6 0 6 0 6 3 6 4 6 4 6 3 6 2 6 5 6 7 6 5 6 5 6 3 6 6 6 9 6 6 6 6 6 8 0 2 3 2 0 1 1 9 0 2 2 3Latin America 5.4 5.7 6.0 5.8 6.0 6.1 6.1 6.0 6.0 6.3 6.4 6.4 6.3 6.2 6.5 6.7 6.5 6.5 6.3 6.6 6.9 6.6 6.6 6.8 0.2 3.2 0.1 1.9 0.2 2.3Middle East 6.4 6.6 7.0 6.7 7.2 7.7 7.1 7.2 7.1 7.5 8.0 7.4 7.5 7.4 7.7 8.2 7.7 7.7 7.6 7.8 8.4 7.9 7.9 8.1 0.2 3.2 0.2 2.2 0.2 2.4Africa 2.9 3.1 3.2 3.3 3.2 3.2 3.1 3.2 3.2 3.3 3.2 3.3 3.3 3.3 3.3 3.3 3.4 3.3 3.4 3.4 3.5 3.5 3.5 3.5 0.1 2.8 0.1 3.6 0.1 1.6Non OECD 35.7 37.3 38.6 38.0 39.7 40.4 40.0 39.5 40.5 41.8 42.1 42.7 41.8 42.5 43.2 43.5 44.0 43.3 43.8 44.4 45.0 45.6 44.7 45.9 1.5 3.6 1.4 3.2 1.2 2.7Total demand 85.3 86.7 86.1 84.4 84.2 85.4 85.9 85.0 86.5 87.0 88.7 89.4 87.9 88.8 88.7 90.2 91.1 89.7 90.3 90.4 91.9 92.8 91.3 92.8 1.8 2.0 1.6 1.8 1.5 1.6% increase y-o-y 1.3 1.6 -0.6 -3.2 -2.5 -0.6 0.9 -1.3 2.4 3.4 3.9 4.1 3.5 2.6 1.9 1.6 1.8 2.0 1.8 1.9 1.9 1.8 1.8 1.6

SupplyNorth America 13.9 13.9 13.3 13.5 13.5 13.7 13.8 13.6 13.9 14.0 14.1 14.4 14.1 14.4 14.1 14.2 14.4 14.3 14.3 14.0 14.1 14.3 14.2 14.1 0.1 1.0 (0.1) (0.7) (0.1) (0.7)Europe 5.3 5.0 4.8 4.9 4.5 4.3 4.5 4.6 4.5 4.2 3.8 4.2 4.2 4.3 4.1 4.0 4.2 4.1 4.1 4.0 3.9 4.0 4.0 3.8 (0.0) (0.9) (0.1) (3.2) (0.2) (5.0)Pacif ic 0.6 0.6 0.6 0.7 0.6 0.7 0.6 0.7 0.6 0.6 0.6 0.6 0.6 0.5 0.6 0.6 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.6 (0.0) (0.8) (0.0) (1.1) 0.0 5.0OECD 19.8 19.5 18.7 19.1 18.6 18.7 19.0 18.8 19.1 18.9 18.5 19.2 18.9 19.2 18.8 18.8 19.2 19.0 19.0 18.6 18.6 18.9 18.8 18.5 0.1 0.6 (0.2) (1.2) (0.3) (1.4)FSU 12.3 12.8 12.8 13.0 13.3 13.4 13.5 13.3 13.5 13.5 13.5 13.7 13.6 13.7 13.8 13.6 13.7 13.7 13.8 13.8 13.7 13.9 13.8 13.7 0.1 1.0 0.1 0.8 (0.1) (0.7)Europe 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 (0.0) (1.4) (0.0) (25.6) 0.0 0.0p ( ) ( ) ( ) ( )China 3.7 3.7 3.8 3.8 3.9 3.9 3.9 3.9 4.0 4.1 4.1 4.2 4.1 4.2 4.3 4.3 4.3 4.3 4.4 4.4 4.4 4.4 4.4 4.4 0.2 4.3 0.1 2.8 0.0 0.0Other Asia 3.7 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.7 3.6 3.7 3.6 3.7 3.6 3.6 3.6 3.5 3.6 3.6 3.6 3.6 3.6 3.6 3.6 (0.1) (2.0) 0.0 0.4 (0.1) (1.4)Latin America 3.6 3.6 3.7 3.8 3.9 3.9 4.0 3.9 4.0 4.1 4.1 4.1 4.1 4.2 4.4 4.5 4.5 4.4 4.5 4.6 4.6 4.6 4.6 4.7 0.3 7.7 0.2 4.2 0.1 1.6Middle East 1.8 1.7 1.7 1.6 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.6 1.6 1.6 1.6 1.6 1.6 0.0 0.8 (0.1) (6.7) 0.0 0.0Africa 2.5 2.6 2.7 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.7 2.7 2.7 2.7 2.7 2.7 0.0 1.4 0.1 3.1 (0.1) (1.9)Non OECD 27.8 28.2 28.4 28.7 29.0 29.2 29.4 29.1 29.6 29.7 29.9 30.0 29.8 30.2 30.4 30.4 30.6 30.4 30.7 30.8 30.7 30.9 30.8 30.7 0.6 2.0 0.4 1.2 (0.1) (0.4)Processing gains 2 1 2 2 2 2 2 2 2 2 2 3 2 3 2 3 2 3 2 3 2 3 2 3 2 3 2 3 2 3 2 4 2 4 2 3 2 4 2 4 2 4 2 4 2 4 2 4 0 0 1 9 0 1 2 2 0 0 0 0Processing gains 2.1 2.2 2.2 2.2 2.2 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.4 2.4 2.3 2.4 2.4 2.4 2.4 2.4 2.4 0.0 1.9 0.1 2.2 0.0 0.0Other Biofuels 0.8 1.1 1.4 1.1 1.6 1.8 1.7 1.6 1.4 2.0 2.1 1.8 1.8 1.5 1.9 2.3 2.1 1.9 2.2 2.2 2.2 2.2 2.2 2.3 0.1 7 0.3 14 0.1 5Non OPEC 50.5 50.9 50.8 51.1 51.5 51.9 52.4 51.7 52.4 52.8 52.8 53.3 52.8 53.2 53.5 53.9 54.2 53.7 54.3 54.0 53.9 54.4 54.2 53.9 0.9 1.6 0.4 0.8 (0.3) (0.5)

OPEC 11 crude 28.8 28.2 28.8 26.3 26.1 26.2 26.4 26.2 26.7 26.7 26.9 27.0 26.8 27.1Iraq crude 1.9 2.1 2.4 2.3 2.5 2.6 2.5 2.4 2.4 2.4 2.4 2.4 2.4 2.7OPEC NGLs 4.3 4.3 4.4 4.7 4.7 4.9 5.0 4.8 5.1 5.2 5.4 5.5 5.3 5.7 5.7 6.0 6.0 5.9 6.1 6.2 6.3 6.4 6.3 6.6 0.6 10.7 0.4 6.8 0.3 4.8

Total supply 85 5 85 5 86 4 84 4 84 6 85 6 86 2 85 2 86 5 87 1 87 4 88 2 87 3 88 7Total supply 85.5 85.5 86.4 84.4 84.6 85.6 86.2 85.2 86.5 87.1 87.4 88.2 87.3 88.7Call on OPEC crude* 30.6 31.5 30.9 28.7 28.0 28.6 28.6 28.5 29.0 29.0 30.5 30.6 29.8 29.8 29.5 30.3 30.9 30.1 29.9 30.2 31.7 32.0 30.9 32.4 0.3 1.1 0.8 2.7 1.5 4.7Implied stock change - m bl 0.2 (1.2) 0.3 (0.1) 0.5 0.2 0.3 0.2 0.1 0.0 (1.3) (1.2) (0.6) (0.0)Implied stock change - m bl 15 #### 104 (7) 43 16 24 80 5 3 (115) (113) (55) (2)OECD stock change - m bls 94 (62) 73 58 (34) (45) (6) (28) 42 20 (50) 37 49Source: IEA (International Energy Agency)/Nomura estimates

Note: Demand estimates are Nomura estimates and 2011 supply estimates are IEA estimates.


*Call on OPEC crude from Q2 2011 onwards is to tal demand minus Non OECD supply and OPEC NGLs, such that the implied stock change in fo recast years is zero

ote e a d est ates a e o u a est ates a d 0 supp y est ates a e est ates

ASIA

Risks to Nomura oil price forecastRisks to Nomura oil price forecast Our oil price forecast rests, among other factors,

on Nomura’s in-house GDP and FX estimates. Nomura Brent oil price forecast We are currently factoring geopolitical conditions

in the MENA region to ease by end-2011F.

Although we believe that the current energy regulation proposals are loose and will not

100

120

140

160 (US$/bbl)

regulation proposals are loose and will not impact near-term prices, any success by the US regulators in strengthening their control over the futures and/or OTC market may pose a threat to the oil market in the medium term

20

40

60

80

Source: Bloomberg Nomura estimates

the oil market in the medium term.

Oil price might fall short of our forecast should demand fail to meet our expectation or should supply exceed our near-term estimates.

0

Jan‐08

Apr‐08

Jul‐0

8

Oct‐08

Jan‐09

Apr‐09

Jul‐0

9

Oct‐09

Jan‐10

Apr‐10

Jul‐1

0

Oct‐10

Jan‐11

Apr‐11

Jul‐1

1

Oct‐11

Jan‐12

Apr‐12

Jul‐1

2

Oct‐12

Source: Bloomberg, Nomura estimates Lastly, major technological advancement leading

to cheaper and cleaner substitutes to oil may impact our oil price forecast.


ASIA

Nomura economics estimatesNomura economics estimatesNomura FX forecasts

5-May-10 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11F 3Q11F End 2011 1Q12F 2Q12F 3Q12F End-2012 US Dollar Index DXY 74.2 81.1 86.0 78.7 79.0 75.9 76.2 75.1 76.8 75.1 75.3 75.4 75.6US Dollar Index DXY 74.2 81.1 86.0 78.7 79.0 75.9 76.2 75.1 76.8 75.1 75.3 75.4 75.6 Rest of World Index=2008 93.5 102.1 105.3 98.3 96.7 95.0 94.4 94.6 93.9 93.9 93.8 93.7 93.6

G10 Euro EUR 1.45 1.35 1.22 1.36 1.34 1.42 1.43 1.40 1.45 1.45 1.45 1.45 1.45 Japanese Yen US$/JPY 80.1 93.4 88.4 83.5 81.1 83.1 82.5 85.0 87.5 87.5 89.2 90.3 92.5British Pound GBP 1.64 1.52 1.49 1.57 1.56 1.60 1.64 1.63 1.71 1.73 1.74 1.76 1.77 Swiss Franc CHF 0.87 1.05 1.08 0.98 0.94 0.92 0.93 0.98 0.97 0.99 0.99 0.98 0.98

Australian Dollar AUD 1.06 0.92 0.84 0.97 1.02 1.03 0.98 1.00 1.02 1.02 1.02 1.02 1.02 Norwegian Krone EUR/NOK 7.96 8.03 7.96 8.01 7.79 7.84 7.60 7.60 7.70 7.70 7.70 7.70 7.70S di h K EUR/SEK 9 06 9 74 9 52 9 19 8 99 8 95 8 60 8 70 8 70 8 78 8 85 8 93 9 00Swedish Krona EUR/SEK 9.06 9.74 9.52 9.19 8.99 8.95 8.60 8.70 8.70 8.78 8.85 8.93 9.00

Asia Chinese Renminbi CNY 6.49 6.83 6.78 6.69 6.61 6.55 6.40 6.32 6.22 6.14 6.06 5.98 5.90 Indian Rupee INR 44.76 44.95 46.45 44.97 44.7 44.6 44.1 43.5 43.2 42.8 42.4 42.0 41.6Korean Won KRW 1081 1131 1222 1135 1126 1097 1060 1040 1020 1005 990 975 960

LatAm Brazilian Real BRL 1.62 1.78 1.81 1.69 1.66 1.63 1.65 1.65 1.62 1.62 1.61 1.61 1.60

Source: Bloomberg, Nomura FX team estimates

LatAm Brazilian Real BRL 1.62 1.78 1.81 1.69 1.66 1.63 1.65 1.65 1.62 1.62 1.61 1.61 1.60 Mexican Peso MXN 11.73 12.33 12.94 12.60 12.34 11.90 11.90 11.70 11.50 11.35 11.20 11.05 10.90

Nomura Real GDP growth forecastsReal GDP (% y-y) 2010 2011F 2012F

Global 4.9 4.3 4.6

United States 2.9 2.6 2.6

Western Europe 1.7 2.1 2.3

Euro Area 1.7 2.1 2.2

United Kingdom 1.3 1.7 2.6g

EEMEA 4.6 4.6 4.3

Asia Pacific 8.0 6.5 7.2

Japan 3.9 -0.5 3.1

Australia 2.7 3.4 4.0

China 10 3 9 8 9 5


Source: Nomura Global Economics

China 10.3 9.8 9.5

India 8.6 8.0 8.3

South Korea 6.2 3.5 5.0

ASIA

Non-OPEC supplyNon-OPEC supplyNon-OPEC supply coming in short, medium and long term

Source: Wood Mackenzie


ASIA

OPEC supplyOPEC supplyOPEC supply coming in short, medium and long term

Source: Wood Mackenzie


ASIA

St t l hift i il iStructural shift in oil priceBrent vs spare capacity as %age of demand

Brent crude price (per bbl)2001 2002 2003 2004 2005 2006

$120

$140

$1602001 2002 2003 2004 2005 2006

2007 2008 2009 2010 2011

$80

$100

$120

$40

$60

$0

$20

0% 2% 4% 6% 8% 10% 12%Spare Capacity as % of Demand

We believe there has been a structural shift in the oil market, with oil prices significantly higher than historical data would suggest.

Source: International Energy Agency, Bloomberg, Nomura Research

Spare Capacity as % of Demand

The market has readjusted itself to a higher level of oil prices.

Oil consumption growth, particularly in the emerging economies such as China and India, has been relatively inelastic to the oil prices.

W b li th t 2009 k d th f t iti f th il k t id d b th ti l hift i th We believe that 2009 marked another year of transition for the oil market, as evidenced by the vertical shift in the oil prices for a given OPEC spare capacity.


ASIA

WTI B t di t h t tWTI- Brent discount here to stay Crude oil inventories at Cushing, Oklahoma, have

pushed down WTI crude prices. Cushing US Cushing inventoryinventories are currently at 40.5mmbbl, 46% higher than their 5-year average. Overall crude inventories in the US are also near 5-year high.

Inventory levels at Cushing have led to temporary

g y

35

40

45 (mmb) Prior 5 Year RangePrior 5 Year Average20102011

disparities between WTI and other international benchmarks, such as Brent, in recent years.

The new Canadian pipeline is pumping more crude into Cushing than is required, and the landlocked 20

25

30

g qnature of the hub makes exports difficult.

We believe the WTI-Brent differential is here to stay but will likely revert to levels that justify transportation costs by rail/road from Cushing to a

S E I f ti Ad i i t ti N h

10

15


p y gsea port (estimated at US$5-8/bbl).Source: Energy Information Administration, Nomura research

WTI and Brent Futures curve WTI premium over Brent oil prices

110

115 (US$/bbl)WTI Brent

4 0

8.0 $/ bbl

95

100

105

110

-8.0

-4.0

0.0

4.0

80

85

90

1M 7M 13M 19M 25M 31M 37M

-20.0

-16.0

-12.0-0

9

-09

-09

-09

-09

-09

-10

-10

-10

-10

-10

-10

-11

-11

-11

W TI-Brent Differential


Source: Bloomberg, Nomura researchSource: Bloomberg

Jan-

Mar

-

May

-

Jul-

Sep-

Nov

-

Jan-

Mar

-

May

-

Jul-

Sep-

Nov

-

Jan-

Mar

-

May

-

ASIA

MENA crisis to further fuel oil prices?MENA crisis to further fuel oil prices?

If Libya and Algeria were to halt oil production together, oilOPEC spare capacity as % of oil demand

If Libya and Algeria were to halt oil production together, oil price could peak above US$220/bbl and OPEC spare capacity will be reduced to 2.1mmbbl/d, similar to levels seen during the Gulf War and when prices hit US$147/bbl.

D i th th f G lf i 1990 91 i12%14%16%

Oil price reached $40/bbl, up 130% Oil price reached

OPEC spare capacity excl Libya & Algeria -

Oil price?

During the seven months of Gulf war in 1990-91, prices jumped 130% as OPEC spare capacity was reduced to 1.8mmbbl/d while demand came off briefly by 1.7%.

High crude inventories in OECD (around 48 days of demand 0%2%4%6%8%

10%, p Oil price reached

$147/bbl, up 34% y-y

g ( ycover) reduce concerns for the very near term.

There is enough spare capacity in OPEC to ward off any near-term supply disruptions. However, situation could worsen if crisis spreads to other oil producing countries

0%

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Jan.

201

1Im

pact

of c

risis

worsen if crisis spreads to other oil producing countries.Source: IEA, Nomura estimates

OPEC spare capacity by country Demand sensitivity to oil price during Gulf War3 504.0 (mb/d) 3.50

2.0

3.0

( )

0.03 0.040.23 0.22 0.26 0.18 0.33 0.14 0.19 0.04 0.02

0.0

1.0

lger

ia

Iran

uwai

t

Liby

a

iger

ia

Qat

ar

Saud

ira

bia

U.A

.E

zuel

a

ngol

a

Iraq

uado

r


Source: IEA

Al Ku N Q S Ar

Vene

z An Ecu

Source: Bloomberg, IEA, Nomura estimates

ASIA

Minimal impact from Yemen Bahrain and SyriaMinimal impact from Yemen, Bahrain and Syria

Oil production in MENA countries (2009) Net oil exports from the three countries amounts to only 304kbbl/d, with the largest exporter being Bahrain at 142kbbl/d.

More than three-fourths of Bahrain’s production is from an offshore field (Abu Safah), which is a joint field (50-50offshore field (Abu Safah), which is a joint field (50 50 share) between Bahrain and Saudi Arabia and is operated by Saudi Aramco.

Yemen is the 16th largest LNG exporter globally, with a it t t 6 7 t f LNG ti 3 4%

Source: IEA, company data, Nomura research

capacity to export 6.7mmtpa of LNG, representing 3-4% of global LNG supply.

A possible disruption in Yemen LNG exports could tighten the market amid increasing demand for LNG cargo from

Net exports from Bahrain, Syria and Yemen

Sou ce , co pa y data, o u a esea c t e a et a d c eas g de a d o G ca go oJapan. Korea could be the most at risk, as it has contracted 2 mmtpa from Yemen LNG, representing 6% of Korean LNG demand.

Th i h it i th Middl E t OPEC There is enough spare capacity in the Middle East OPEC countries to absorb the potential loss in capacity.


Source: IEA, Nomura research

ASIA

China to increase methanol gasoline blendingChina to increase methanol gasoline blendingImpact of various factors on China gasoline

demand growth in 2010FBlended methanol growth as % of total gasoline

demand growth

15%

20%

25% (y-y)

4 0

6.0

8.0(mn tonnes)

15%

20%

25%

30%

0%

5%

10%

Potential Decline due Decline due Decline due Change due Actual-

2.0

4.0

2007 2008 2009 2010F 2011F 2012F0%

5%

10%

15%

Source: CIEC, CMAI, Thomson Reuters, Nomura estimates

grow th ingasolinedemand

to kms drivenper vehicle

to increasedeff iciency

to methanolblending

to commercialstocks

gasolinedemandgrow th

Methanol demand grow th (LHS)Gasoline demand grow th (LHS)Blended methanol grow th as % of gasoline grow th (RHS)

Source: CMAI, Nomura estimates

China retail gasoline & methanol prices Methanol blended in gasoline in China increased from

1.4% in 2005 to 5.4% in 2009, and we expect methanol to continue its displacement of gasoline in the coming years.

8 000

10,000RMB/tonne Gasoline Methanol

Methanol costs about 1/3rd the price of regular gasoline and, as such, makes economic sense to blend.

We estimate methanol blending will increase to about 10% of the country’s gasoline demand by 2015F from about

4,000

6,000

8,000

of the country s gasoline demand by 2015F, from about 5% in 2009, growing gradually at approx 1% per annum.

The reduction in engine size coupled with increased efficiency due to new technological advancements is l di l d li i li d d b h i

0

2,000

an-0

8

pr-0

8

Jul-0

8

Oct

-08

an-0

9

pr-0

9

Jul-0

9

Oct

-09

an-1

0

pr-1

0

Jul-1

0

Oct

-10


Source: CEIC, Nomura research

leading to a structural decline in gasoline demand, both in China and across the world.

Ja Ap J O Ja Ap J O Ja Ap J O

ASIA

Increasing upstream capex to benefit gas productionIncreasing upstream capex to benefit gas production Global upstream ‘development’ capex witnessed growth of

5.3% in 2010, after a significant drop of 14.0% in 2009.

Global upstream development capex by country (US$ bn) Rest of World US Russia

Canada China Norw ay

Woodmac estimates global upstream development spending to increase from about US$361bn in 2009 to about US$418bn in 2013 (3.7% CAGR).

M t f th t ‘d l t’ dit i b i300

400

500Ca ada C a o ayMexico Brazil AngolaAustralia Nigeria

Most of the upstream ‘development’ expenditure is being targeted towards increasing gas production and building of LNG infrastructure, as opposed to increasing oil output.

US and Australia’s capex growth will total US$55bn (2009-100

200

p g $ (2013), representing over 95% of global capex growth for that period.

Source: Woodmac

-2008 2009 2010F 2011F 2012F 2013F

Global upstream development capex OPEC upstream development capex

12%

(y-y)

15%

(y-y)Non-OPEC Oil Production (LHS)Non-OPEC Gas Production (LHS)Global Upstream Capex (RHS) 20%

(y-y)

20%

(y-y)OPEC Oil Prod Capacity (LHS)OPEC Gas Production (LHS)OPEC Upstream Capex (RHS)

4%

8%

5%

15%

5%

10%

15%

10%

0%

10%

-4%

0%

-15%

-5%

-5%

0%

5%

-30%

-20%

-10%


Source: Woodmac, BP, Nomura research Source: Woodmac, OPEC, Nomura research

2009 2010F 2011F 2012F 2013F 2009 2010F 2011F 2012F 2013F

ASIA

Global oil decline rates to increaseGlobal oil decline rates to increase Non-OPEC oilfields decline rate increased by 1.1% over

the past decade and could accelerate going forward as we i i i fi ld i h i ifi l hi h d li

Decline rate by size & type of field

0%Super-giant Giant Large Total

continue to mix in fields with a significantly higher decline rate into our existing pool of oilfields.

Decline rate for non-OPEC fields that started post year 2000 is 14.5%, compared with 11.6% for fields started in

-6%

-4%

-2%

0%

2000 is 14.5%, compared with 11.6% for fields started in the 1990s and only 5.9% for fields started before 1970s.

A misjudgment of just 1% in decline rate, based on IEA’s implied decline rate of 5.1%, could result in overestimated

l f 3 0 bbl/d b 2020 i l t t b t 2-14%

-12%

-10%

-8%

Oilfield production profile

supply of some 3.0mmbbl/d by 2020, equivalent to about 2 years of average global demand growth, on our estimates.

Decline rate & R/P ratio by region (2007)

Source: IEA

-16% Ohshore Offshore Shelf Deepw ater World

Oilfield production profile Decline rate & R/P ratio by region (2007)

0%0 20 40 60 80

Reserves/Production Ratio (years)

8%

10%

2P re

serv

es) Onshore < 500 mmbOffshore < 500 mmbOnshore 500mb-1.5bn bblOffshore 500mb-1.5bn bblAll > 1.5bn bblDeepw ater

OECD E

Latin AmericaAsia

Africa Europe/Eurasia

M iddle East

-10%

-5%

l Dec

line

Rat

e

2%

4%

6%

8%

ual P

rod

/ ini

tial 2 Deepw ater

OECD Pacific

OECD Europe

OECD North America

-20%

-15%Nat

ural

0%

2%

0% 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

(Cumuilative prod / initial 2P reserves)

(Ann

u


Source: IEA Source: IEA

20%(Cumuilative prod / initial 2P reserves)

ASIA

Iran sanctions & delaysIran – sanctions & delays Recent sanctions have led to significant delays in oil

& gas fields development in Iran.Iran oil and gas production capacity estimates

(mb/d) (bcm/yr)Current prod capacity g p

Recent Japanese sanctions against Iran could potentially force oil exports to below 1.5mmbbl/d in the near term from 2.0mmbbl/d currently, negatively affecting global supply while helping push oil prices

4

5

6(mb/d)

300

400

500(bcm/yr)p p y

Pre-sanction target (2015F)Post-sanction target (2015F)

affecting global supply while helping push oil prices higher.

We reckon oil production capacity will likely decline by 15% from 2010-15, compared with Iran’s pre-1

2

3

100

200

300

sanction target of 35% growth.

Also, gas production is unlikely to go as planned, forcing Iran to abandon all of its LNG plans.Source: BP, Bloomberg, Nomura estimates

0Oil (LHS) Gas (RHS)

0

Iran crude production capacity estimates Iran crude + NGL production capacity estimates

5

6(mb/d) Nomura IEA Iran Government

4.7(mb/d)

3

4

5

4.39

(0.01)(0.09)

0.010.06

4.52

4 4

4.5

4.6

0

1

2

2010F 2011F 2012F 2013F 2014F 2015F

(0.10)

4.2

4.3

4.4


Source: International Energy Agency, Bloomberg, Nomura estimates Source: IEA, Nomura research

2010F 2011F 2012F 2013F 2014F 2015F 2010F 2011F 2012F 2013F 2014F 2015F 2015Avg

ASIA

US DOE t ti tiUS DOE statisticsUS crude inventory US crude run

400 (mmb) 17 0 (mmb/d)

340

360

380

400 (mmb)

15.0

16.0

17.0 (mmb/d)

280

300

320

340

12 0

13.0

14.0

US t t l d t i tUS t t l d t d d

260

280


Prior 5 Year Range Prior 5 Year Average 2010 2011

11.0

12.0

J F M A M J J A S O N DPrior 5 Year Range Prior 5 Year Average 2010 2011

US total product inventoryUS total product demand

22.0

23.0 (mmb/d)

760

810 (mmb)

19 0

20.0

21.0

660

710

17.0

18.0

19.0

J F M A M J J A S O N D560

610

46© Nomura International (Hong Kong) LimitedSource: Energy Information Administration, United States

Prior 5 Year Range Prior 5 Year Average 2010 2011J F M A M J J A S O N D


ASIA

US DOE t ti tiUS DOE statisticsUS gasoline demand US diesel demand

10 0 (mmb/d) 5.0 (mmb/d)

9.5

10.0 (mmb/d)

4.5

5.0 ( )

8.5

9.0

3.5

4.0

US j t/k d dUS f l il d d

8.0J F M A M J J A S O N D




US jet/kerosene demandUS fuel oil demand

1 2

1.6 (mmb/d)

1.8

2.0 (mmb/d)

0.8

1.2

1.4

1.6

0.0

0.4

J F M A M J J A S O N DPrior 5 Year Range Prior 5 Year Average 2010 2011

1.0

1.2



Source: Energy Information Administration, United States

Prior 5 Year Range Prior 5 Year Average 2010 2011Prior 5 Year Range Prior 5 Year Average 2010 2011

ASIA

OECD E t ti tiOECD Europe statisticsOECD Europe crude inventory OECD Europe crude runs

580 (mmb) 15.0 (mmb/d)

540

580 ( )

13.0

14.0

15.0 (mmb/d)

500

11.0

12.0

OECD E t t l d t i tOECD E t t l d t d d


Prior5 Year Range Prior 5 Year Average 2010 2011



OECD Europe total product inventoryOECD Europe total product demand850 mmb

16

17 (mmb/d)

750

800

15

700

750


13

14



Source: International Energy Agency

J F M A M J J A S O N DPrior5 Year Range Prior 5 Year Average 2010 2011


ASIA

OECD E d t d dOECD Europe product demandOECD Europe gasoline demand OECD Europe diesel demand

3.0 (mmb/d) 7.0 (mmb/d)

2.6

2.8

(mmb/d)

6.2

6.6

7.0 (mmb/d)

2.0

2.2

2.4

5.4

5.8

OECD E j t/k d dOECD E f l il d d

1.8

0




OECD Europe jet/kerosene demandOECD Europe fuel oil demand

1.8

2.0 (mmb/d)

1.4

1.5 (mmb/d)

1.4

1.6

1.2

1.3

0.8

1.0

1.2

0.9

1.0

1.1

49© Nomura International (Hong Kong) LimitedSource: International Energy Agency



ASIA

Asian refining fundamentals


ASIA

A i fi i i d tAsian refining industryMonthly Singapore margins and product spreads

M hl Si fi i iMonthly Singapore refining margins

12Complex SimpleHurricanes (US$/bbl)

4

8

Prolonged

Financial crisis

-4

0

04 05 06 07 08 09 10 11

dow nturn

Oil product price spreads

40

50Gasoline Diesel HSFO Naphtha(US$/bbl)

0

1020

3040

-40

-30-20

-100


Source: Thomson Reuters Database, Bloomberg

04 05 06 07 08 09 10 11

ASIA

Hi h i k f d i ikHigher risks from crude price spikeRelative performance of crude, GRM and stocks (1) In 1H08, refining margins remained solid, but stock

prices declined 24% in that periodprices declined 24% in that period.

In 2008, demand destruction only occurred in 2H08, implying that the financial crisis was a more important cause than high oil prices.

170

190

210

230Brent Sg complex Sector perf

We estimate that US$220/bbl oil prices for 2 quarters would lower 2011F global oil demand growth to 700kb/d from our current forecast of 1.8mb/d.90

110

130

150

170

Change in global oil demand (y y) (2)

1.8mb/d.

With global demand growth of 700kb/d, we estimate GRM would fall to US$4.4, from our current estimate of US$5.6.

70

90

Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08

Change in global oil demand (y-y) (2)

2

3

4(mb/d)

Positives Negatives1. Complex refineries benefit

Potential impact of crude oil spike (3)

2

-1

0

1

2 pfrom improved upgrading economics.

1. Potential demand destruction.

2. Plant closures in Europe could accelerate. 2. Potential price caps. 3 No more capacity overhang

1 S Bl b R t

-4

-3

-2

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

3. No more capacity overhang unlike 2008.


1. Source: Bloomberg, Reuters2. Source: IEA3. Nomura research

ASIA

I t f th kImpact of earthquakePotential change in Japan oil produce trade (1)

A total of 3 refineries remain shut, totalling 554kb/d and representing 12% of Japan’s capacity.

We expect near-term tightening of the regional diesel balance due to lower Japanese exports.

(kb/d)

Net exports / (imports)

Net exports / (imports)

Chg in net exports / (imports)

% Asian demand

% global demand

2010 2011

Of the 3 shut refineries, we believe only the Sendai refinery (145kb/d) is likely to face a prolonged closure (>6 months).

Gasoline 20 (42) (63) 1.4 0.3Naphtha (468) (429) 39 -1.0 -0.7Jet Fuel 140 122 (18) 0.8 0.3Gas Oil / Kero 173 95 (78) 1.0 0.3Fuel Oil 87 (115) (202) 7 2 2 5

Scenario analysis of 2011 refining margins (2)

Significant nuclear powered electricity generating capacity is down, totalling 13,648MW, or 5% of total electricity generating capacity

Fuel Oil 87 (115) (202) 7.2 2.5

Scenario analysis of 2011 refining margins (2) electricity generating capacity.

Fuel oil demand likely to improve to replace lost nuclear power – the majority of Japan’s spare

Av 2011 margins based on length of 12% Japanese

capacity disruption nuclear power the majority of Japan s spare capacity is oil fired.

We estimate this could increase fuel oil demand in

(US$/bbl) Curr. fcst 3m 6m 9mGasoline 12.0 12.3 12.5 12.8Jet 13.5 14.6 15.8 16.9Diesel 13.0 14.3 15.5 16.8Fuel oil (5 0) (1 0) (1 0) (1 0) We estimate this could increase fuel oil demand in

Japan by 170kb/d. This is equivalent to 7.2% of Asian demand and 2.5% of global demand.

Fuel oil (5.0) (1.0) (1.0) (1.0)Naphtha 1.5 0.6 (0.3) (1.1)LPG (14.0) (15.0) (16.0) (17.0)Sg complex 5.6 6.9 7.3 7.6Sg simple 1.2 3.4 3.8 4.1


1. Source: Petroleum Association of Japan, Nomura estimates2. Source: Nomura estimates

Average 2011 refining margins could significantly improve under these circumstances to US$6.9-7.6/bbl.

ASIA

S t i bl hi h 2011F iSustainably higher 2011F marginsDiesel margin trends (1)

$ Diesel margins are averaging US$10/bbl higher than a year ago.

20

25

302009 2010 2011(US$/b)

The current diesel margin of US$24/bbl is the highest since November 2008.

5

10

15

Diesel demand growth (y y change) (2)

01 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52

(Week)

Diesel demand growth (y-y change) (2)

We attribute this to sharply improved global demand growth.600

800Asia US EU Latam(kb/d)

Diesel growth has been led by Asia, where we estimate demand grew by 420kb/d or 7%.

-200

0

200

400

Only region with declining demand was EU, down 1%.-800

-600

-400

2008 2009 2010


1. Source: Bloomberg2. Source: EIA, JODI

ASIA

Ti ht i di l b lTightening diesel balanceGlobal diesel capacity & demand trends (1)

DieselCapacity Demand

CDU FCC HCC CDU FCC HCC (mb/d) (mb/d)2003 82 14 5 28 14 28 26 222004 82 15 5 28 14 28 26 232005 85 14 5 28 14 28 27 23

DieselCapacity (mb/d) Diesel yield (%)

We forecast global diesel capacity growth of 1.8% pa for 2010-2015F.

2006 85 14 5 28 14 28 27 242007 85 14 5 28 14 28 27 242008 86 14 5 28 14 28 27 252009 87 15 5 28 14 28 28 242010F 89 15 6 28 14 28 28 252011F 90 15 6 28 14 28 29 25

This is based on estimated diesel production yield from the OGJ’s database of global refineries.

2011F 90 15 6 28 14 28 29 252012F 91 15 7 28 14 28 30 262013F 92 16 7 28 14 28 30 262014F 94 16 8 28 14 28 31 272015F 95 16 8 28 14 28 31 28

We forecast global diesel demand growth of 2.4% pa for 2010-15F.

Global diesel utilisation rates & margin (1)

9092 30

Utilisation rateMid. dist. margin (RHS)

(%) ($/b) Growth to be driven by Asia, the Middle East and

LatAm.

8284868890

15

20

25 We project a gradually tightening diesel balance.

Utilisation rates to rise to 89% by 2015F

7274767880

0

5

10 Utilisation rates to rise to 89% by 2015F.

We believe diesel margins of US$12-15/bbl are achievable

55© Nomura International (Hong Kong) Limited1. Source: OGJ, Nomura estimates

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10F11F12F13F14F15Fachievable.

ASIA

St d il d d thSteady oil demand growthIEA incremental oil demand forecast (1)

IEA has consistently raised its oil demand growth forecasts.

1.52.02.53.0

Feb-11 Sep-09(mb/d)

Most recent forecast calls for +2.8mb/d and +1.5mb/d for 2010F and 2011F, respectively.

Thi l l f il d d th i li GDP-1 0-0.50.00.51.0

Global oil demand: GDP sensitivity (1)

This level of oil demand growth implies a GDP elasticity of 0.4x.-2.0

-1.51.0

2009 2010 2011 2012 2013 2014 2015

Global oil demand: GDP sensitivity (1)

Oil demand growth could be very sensitive to changes in global GDP1.5

2.0Base case Low case(mb/d)

changes in global GDP.

IEA estimates that global GDP of 2.8% in 2011 vs current expectations of around 4% could see0.0

0.5

1.0

1.5

current expectations of around 4% could see demand growth of only 300kb/d.

-1.5

-1.0

-0.52008 2009 2010 2011

56© Nomura International (Hong Kong) Limited1. Source: IEA

ASIA

Sl i it dditi & lSlowing capacity additions & closuresGlobal CDU additions (annual) (1)

1,4001,6001,8002,000(kb/d) New capacity growth of 1mb/d in 2011 likely to be

the lowest level of additions in the 2009-2010 period.

400600800

1,0001,200 Many planned additions in 2011 are back-end

loaded towards 2H11, so there may not be much impact in 2011.

Gl b l CDU l (2)

0200400

2009 2010F 2011F 2012F 2013F 2014F

Pace of plant closures is acceleratingGlobal CDU closures (2)

1,000

1,200North America Europe Asia(kb/d)

Pace of plant closures is accelerating.

In 2010, another 330kb/d of CDU capacity was idled, while 270kb/d of idled CDU capacity was

200

400

600

800while 270kb/d of idled CDU capacity was permanently closed.

Spurred by new regulations Japanese closures

-400

-200

0

2009 2010 2011 2012 2013 2014

Spurred by new regulations, Japanese closures could accelerate – an additional 400-500k/bd could close, in addition to earmarked closures of 535kb/d.


1. Source: Nomura estimates2. Includes idled, closed & targeted for closure. Source: Nomura research

Latest casualty – Shell’s 110kb/d Harburg (Germany) refinery to be closed in early 2012.

ASIA

Chi i b k i t b lChina moving back into balanceChina gasoline & diesel trade (1)

China’s oil product exports have slightly undermined the market this year.

Recent diesel shortages should translate into lower exports

200

300

400Gasoline Diesel

Net imports

(kb/d)

exports.

By next year, imports should lessen as we expect demand to outpace supply.

China diesel inventories declined from February to(200)

(100)

0

100

China diesel inventories declined from February to November 2010, but gained some ground in December.

(500)

(400)

(300)

2006 2007 2008 2009 2010

Net exports

China’s oil product demand vs supply (2)

(kb/d) 2008 2009 2010F 2011F 2012F 2013F 2014F 2015F( )Sinopec 240 300 344 120 190 60 200 200Petrochina 360 80 250 100 0 800 600 0CNOOC 0 240 0 0 0 0 200 0Others 0 0 100 0 0 240 0 0Total new supply 600 620 694 220 190 1 100 1 000 200

1 Source: China Customs Statistics

Total new supply 600 620 694 220 190 1,100 1,000 200Demand growth @5% pa 346 363 381 401 421 442 464 487Surplus/(Deficit) 254 257 313 (181) (231) 658 536 (287)


1. Source: China Customs Statistics2. Source: Nomura estimates

ASIA

I i PX tImproving PX prospectsPX price & margin trend (1)

PX has been the best performing chemical in the PX has been the best-performing chemical in the past six months, with margins recently reaching a record high.

1500

1750

2000PX Naphtha Margin(US$/t)

Production cuts, unplanned outages and strong PTA demand drove the improvement.

500

750

1000

1250

Gl b l PX b l (2)

Start-up of S-Oil’s new plant (900ktpa) in April 2011 could crimp near-term margins.0

250

06 07 08 09 10 11

Global PX balance (2) Improvements in PX should be more evident by

2H11, when large new PTA capacities start up.

1000

1500(k t)

Surplus

We project PX to be structurally short throughout most of 2011-2012.

(500)

0

500

Benzene margins have also improved significantly in 1Q11 – this is being driven by rising US imports.

(1500)

(1000)

( )

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

Deficit


1. Source: Thomson Reuters Datastream2. Source: CMAI, Nomura estimates

Earthquake in Japan has reduced regional PX supply – Japan exports 2.5mn tpa of PX, equivalent to 9% of global demand.

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3

ASIA

B il i till tBase oil margins still strongBase oil spreads (less HSFO) (1)

Base oil margins have improved significantly since 2Q10 and strong trends look to continue in 2011.

600

800

1,000500SN - HSFO Bitumen-HSFO(US$/t)

Improving trends being driven by strong demand growth in China and India, plus tight supply in US and Europe.

(200)

0

200

400

A i b il l dditi (2)

Bitumen demand down due to winter in China and flooding in Thailand.

(400)

(200)

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

Asian base oil supply additions (2)

We believe base oil margins could remain tight1200

1400(k t)

We believe base oil margins could remain tight through 1H11F, before large new capacity starts up in 3Q11.

400

600

800

1000

Margins could improve by 2012 as new capacity additions are absorbed and there are limited start-ups in the 2012-13 period.0

200

400

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13


1. Source: Thomson Reuters Datastream2. Source: Nomura estimates

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

ASIA

S l /d d tl kSupply/demand outlookGlobal CDU additions and deletions (1)

(kb/d) 2009 2010F 2011F 2012F 2013F 2014FGross additionsNorth America 21 180 94 415 54 0Europe 20 130 124 150 0 0Asia 1,403 914 450 625 1,330 800Middle East 236 20 0 144 32 474FSU 80 130 140 60 0 0South America 0 0 115 0 280 380Africa 100 0 97 100 33 0Total 1,860 1,374 1,020 1,494 1,729 1,654

Total idled/closed 946 925 (295) 0 0 0

Gl b l t CDU dditi (1) Gl b l it l d d (1)

Total idled/closed 946 925 (295) 0 0 0Net additions 914 449 1,315 1,494 1,729 1,654

Demand (1,300) 2,700 1,800 1,500 1,100 1,000Supply less Demand 2,214 (2,251) (485) (6) 629 654

Global net CDU additions (1) Global capacity less demand (1)

1 500

2,000North America Europe AsiaMiddle East FSU South AmericaAfrica

(kb/d)

1 5002,0002,500(kb/d)

500

1,000

1,500

( )(500)

0500

1,0001,500

(500)

0

2009 2010F 2011F 2012F 2013F 2014F(2,500)(2,000)(1,500)(1,000)

2008 2009 2010F 2011F 2012F 2013F 2014F


1. Source: Nomura estimates

ASIA

Ti ht & ti htTighter & tighter

Si fi i i (1)Singapore refining margins (1)

US$/bbl 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F 2012F 2013FGasoline 7.6 6.1 4.5 7.7 15.7 15.2 13.5 17.0 13.7 12.5 12.0 12.0 11.5 10.5Jet 8 3 5 6 4 3 6 0 13 5 17 4 18 4 18 5 27 7 8 2 12 0 13 5 14 0 13 5Jet 8.3 5.6 4.3 6.0 13.5 17.4 18.4 18.5 27.7 8.2 12.0 13.5 14.0 13.5Diesel 6.4 4.7 3.7 5.4 11.6 14.2 15.3 16.7 25.9 7.3 11.3 13.0 14.0 13.0Fuel oil -1.2 -1.8 -1.8 -1.0 -3.8 -6.2 -11.2 -8.3 -14.7 -7.5 -6.4 -5.0 -6.0 -6.0Naphtha 2.2 1.3 1.1 2.5 7.0 2.2 0.8 6.2 -4.2 -1.6 0.9 1.5 1.0 0.8LPG 1.4 -0.2 -1.8 0.2 0.0 -7.6 -14.6 -14.0 -27.2 -15.3 -14.0 -14.0 -16.0 -16.0S

S f ti d l ti (2)

Singapore complex 3.2 2.1 1.6 3.4 6.7 6.9 5.5 7.6 6.2 3.7 4.6 5.6 5.6 5.0Singapore simple 1.2 0.2 0.2 1.4 2.1 1.8 -0.3 1.7 0.4 0.7 0.9 1.2 1.5 1.1

Summary of ratings and valuations (2)

Mark. Cap Pr target Sh priceTicker Rating (US$m) (loc curr) (loc curr) 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E

FPCC 6505 TT Neutral 33.4 110.00 100.50 16.3 15.2 3.5 3.4 11.2 10.3 22.5% 22.8% 5.7% 6.1%

PE (x) PBV (x) ROE (%) Yield (%)EV/EBITDA (x)

SK Innovation 096770 KS Buy 20.0 330,000 232,000 8.4 7.9 1.7 1.4 4.6 4.0 21.7% 19.8% 0.9% 0.9%S-Oil 010950 KS Buy 16.8 200,000 159,500 9.6 8.8 2.9 2.4 3.7 3.0 35.3% 30.1% 3.4% 3.7%Thai Oil TOP TB Neutral 5.8 85.00 84.50 11.2 10.7 1.9 1.7 6.3 5.7 18.7% 17.2% 3.9% 4.0%GS Hold. 078930 KS Buy 7.8 115,000 89,500 8.0 7.9 1.4 1.2 4.9 4.4 19.5% 16.8% 1.7% 1.7%PTTAR PTTAR TB Buy 4.1 50.00 41.25 9.4 7.6 1.6 1.4 7.2 5.8 19.1% 20.5% 4.5% 5.6%

Average 10.5 9.7 2.2 1.9 6.3 5.5 22.8% 21.2% 3.3% 3.7%

1. Source: Bloomberg, Thomson Reuters, Nomura research.

g


2. Share prices as of 29 April 2011 close; Ratings and Price Targets are as of the date of the most recently published report (http://www.Nomura.com) rather than the date of this document.

ASIA

Asian petrochemical fundamentals


ASIA

M i t k t blMargins take a tumbleAsian chemical margin trends (1)

S d Ch (%)US$/t Mar-11 -1M -2M -3M -6M -12M -1M -2M -3M -6M -12MPTA - Naph 518 569 488 324 222 223 (9) 6 60 134 132Benzene - Naph 200 279 203 140 184 200 (28) (1) 42 8 (0)PX - Naph 662 757 598 475 312 283 (13) 11 39 112 134

Spreads Change (%)

Butadiene - Naph 1,548 1,478 1,252 1,156 1,004 1,216 5 24 34 54 27MEG - Ethylene 444 456 404 342 186 208 (3) 10 30 138 113AN - Propylene 1149 1083 985 960 821 1060 6 17 20 40 8Propylene - Naph 507 522 436 425 488 532 (3) 16 19 4 (5)Ethylene Naph 343 406 338 310 338 471 (15) 2 11 2 (27)Ethylene - Naph 343 406 338 310 338 471 (15) 2 11 2 (27)PP - Naph 625 655 604 585 586 551 (5) 3 7 7 13PVC - Ethylene 405 378 384 400 443 404 7 5 1 (9) 0ABS - Naph 1183 1246 1210 1181 1139 1002 (5) (2) 0 4 18Phenol - Naph 851 883 826 880 1088 621 (4) 3 (3) (22) 37SM - Naph 422 547 536 449 448 506 (23) (21) (6) (6) (17)LDPE - Naph 709 797 820 757 687 699 (11) (14) (6) 3 1ECH - Prop 811 874 849 898 665 847 (7) (5) (10) 22 (4)2-EH - Prop 444 493 484 506 468 491 (10) (8) (12) (5) (10)HDPE - Naph 323 407 394 370 423 496 (21) (18) (13) (24) (35)

Recent crude price spike has not translated into higher margins, resulting in m-m margin compression.

HDPE Naph 323 407 394 370 423 496 (21) (18) (13) (24) (35)AE - Prop 1644 1769 1849 1887 1578 991 (7) (11) (13) 4 66PSF-MEG-PTA 488 300 251 576 218 123 63 94 (15) 124 297

Recent crude price spike has not translated into higher margins, resulting in m m margin compression.

Despite the m-m decline, overall margins remain at strong levels on a 3-month comparison.

AN, 2-EH & PSF managed to record rising margins, which we attribute to product tightness.

HDPE is probably loss making at current levels


1. Source: Thomson Reuters Datastream

HDPE is probably loss-making at current levels.

ASIA

Hi h i k f d i ikHigher risks from crude price spikeRelative performance of crude, ethylene and stocks (1) In 1H08, ethylene margins remained solid, but stock

i d li d 12% i th t i d

140150160170

Brent Ethylene margin Sector perf prices declined 12% in that period.

In 2008, demand destruction began from 1Q08, but bounced back very strongly from 3Q09 onwards.

S stained high oil prices for 2 q arters co ld lead to

90100110120130 Sustained high oil prices for 2 quarters could lead to

similar rates of demand destruction this year.

In this case, we believe the recovery could be sharp, as inventories of key products are at low levels.

Change in global PE demand (y y) (2) P t ti l i t f d il ik (3)

7080

Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08

y p

Change in global PE demand (y-y) (2) Potential impact of crude oil spike (3)

Positives Negatives

1 Tight products could pass 1 Potential demand10

15(%)

1. Tight products could pass through rising costs.

1. Potential demand destruction.

2. Competing commodities ie. rubber & cotton have risen much more.

2. Sharp margin erosion of oversupplied products.

3 No more capacity overhang-5

0

5

1 S Bl b R t

3. No more capacity overhang unlike 2008.

-15

-10

Q10

7

Q20

7

Q30

7

Q40

7

Q10

8

Q20

8

Q30

8

Q40

8

Q10

9

Q20

9

Q30

9

Q40

9

Q11

0

Q21

0

Q31

0

Q41

0


1. Source: Bloomberg, Reuters2. Source: IEA3. Nomura research

ASIA

S i l iScenario analysisSensitivity analysis of chemical margins to crude prices (1)

Current Base case(US$/t, US$/bbl) level 95 105 115 125 135Tight - 90% pass throughPTA - naphtha 521 380 371 361 352 342PX hth 701 460 451 441 432 422PX - naphtha 701 460 451 441 432 422Butadiene - naphtha 1,496 1,200 1,191 1,181 1,172 1,162ABS- naphtha 1,426 1,150 1,141 1,131 1,122 1,112Phenol - naphtha 866 750 741 731 722 712AN - propylene 1,130 1,200 1,230 1,263 1,297 1,330AN propylene 1,130 1,200 1,230 1,263 1,297 1,330LDPE - naphtha 751 540 531 521 512 502MEG - ethylene 427 320 356 392 427 463

Balanced - 70% pass throughEthylene - naphtha 401 360 332 304 275 247Propylene - naphtha 516 400 372 344 315 287PVC - ethylene 393 440 459 478 496 515SM - naphtha 541 560 532 504 475 447Benzene - naphtha 244 200 172 144 115 87Benzene - naphtha 244 200 172 144 115 87

Oversupplied - 60% pass throughPP - naphtha 666 480 442 405 367 330HDPE - naphtha 361 410 372 335 297 260


1. Source: Thomson Reuters Datastream, Nomura estimates

ASIA

I t f th kImpact of earthquakePlant shutdowns in Japan (1) A total of 4 naphtha crackers are out of action,

totalling 1 8mn tpa or 23% of Japanese capacitytotalling 1.8mn tpa, or 23% of Japanese capacity.

Rolling power cuts are disrupting production of downstream chemical manufacturers.

ktpaShutdown

capacity% of Japan

capacityAsian

capacity% of global

capacityPhenol 663 76 20 7Butadiene 390 38 9 3MEG 450 54 7 2

Plants have been generally unaffected, but infrastructure has been severely damaged.

Benzene 1163 20 5 2Ethylene 1790 23 5 1PX 910 24 5 3SM 670 18 5 2PP 861 25 4 1

(1)

y g

We estimate that production should resume in 2-3 months’ time.

PVC 905 41 4 2VCM 800 23 3 2Propylene 1022 15 3 1PE 550 14 3 1

Chemicals most impacted by export loss (1)

Phenol, MEG, PVC, BD and PX production capacity in Japan have been most impacted.(k t)

2009 net exports

% of global demand

6M potential export loss

% of global demand

Phenol 230 2 7 332 4 0

Products in which Japan is a significant exporter could tighten further – primarily phenol, PX and PVC.

Phenol 230 2.7 332 4.0Paraxylene 2,535 8.7 455 1.6PVC 718 2.1 453 1.3SM 1,590 5.8 275 1.0Synthetic rubbers 487 4.1 117 1.0PP 371 0 8 431 0 9

Naphtha crack spreads have worsened, thereby slowing the increase in naphtha prices (relative to crude)

PP 371 0.8 431 0.9Ethylene 546 0.5 895 0.7PE 371 0.7 511 1.0Propylene 812 1.1 335 0.5


1. Source: CMAI, Nomura estimates

crude).

ASIA

Gl b l l thGlobal supply growthOlefins (1) Benzene derivatives (1)

5

67

8Ethylene Propylene Butadiene(%)

6

8

10SM Phenol ABS(%)

1

2

34

5Av demand

0

2

4 Av demand

Propylene derivatives (1) Polyester intermediates (1)

-1

0

05 06 07 08 09 10F 11F 12F-4

-2

05 06 07 08 09 10F 11F 12F

Propylene derivatives (1) Polyester intermediates (1)

8

10Acrylic acid AN Oxo-alcohol(%)

12

14Paraxylene PTA MEG(%)

0

2

4

6 Av demand

4

6

8

10

Av demand

-4

-2

0

05 06 07 08 09 10F 11F 12F

0

2

4

05 06 07 08 09 10F 11F 12F


1. Source: CMAI, Nomura estimates

ASIA

Chi d d th bi i tChina demand – the big pictureKey drivers of China chemical demand (1)

Sector Chemicals ApplicationsVolume (mn t) Key drivers

3-yr fwd CAGR (%)

Retail PE Packaging, bags, milk bottles 7.6 Rising share of modern vs traditional retailers 9PP Snack wraps, caps, houseware 2.8 Rural retail network expansion 14PET D i k b ttl 2 9 St F&B th t d 13PET Drinks bottles 2.9 Strong F&B growth trends 13

Construction PVC Windows, pipes & cables 6.6 Higher housing supply to curb prices 15PE Pipes & cables 1.3 More land auctions & enforcing anti-idle land policy 15PP Cement sacks 3 9 Rmb 10tr infrastructure stimulus spending 9PP Cement sacks 3.9 Rmb 10tr infrastructure stimulus spending 9

Textiles Polyester Garments, carpet, furnishings 20.0 Rising retail spending 10

Appliances ABS Refrigerator panels 2.6 Subsidies for rural households 8Appliances ABS Refrigerator panels 2.6 Subsidies for rural households 8PP Waching machine pumps 1.1 Trade-in subsidies of 10% of new product price 8

Autos PP Bumper, body panels 0.9 Trade-in incentives raised to Rmb18k on 31 Dec 09 13ABS Body panel, instrument panel 0.8 Subsidies of Rmb3k for fuel saving cars on 8 Jan 10 13

Agriculture PE Greenhouse, ground covering 1.2 Higher rural incomes and incentives to increase yield 9


1. Source: Nomura research

ASIA

Chi ’ 12th Fi Y PlChina’s 12th Five-Year Plan China’s 12th Five-year Plan themes (1)

Structure change Efficiency People’s Environmentprocess improvement well being protection

Lower unit GDPConsumptiondriven growth

Industryconsolidation

Adjusting incomedistribution system

energyconsumption

Strategic emergingindustry

development

Investment returnimprovement

Development ofCentral & Western

China

Decrease pollutant emission

Upgrade ontraditionalindustry

Phase outoutdated capacity

Increase medicalcoverage for aging

population

Resourcesconservation



ASIA

P tti it t thPutting it togetherChina’s ethylene equivalent demand growth (1)

(k tpa) 05 06 07 08 09 10F 11F 12FPE 10,836 11,520 12,035 11,915 15,602 16,882 18,227 19,536MEG 3,109 3,491 4,081 3,976 4,516 5,371 5,889 6,399PS 1,142 1,216 1,473 1,674 1,697 1,771 1,824 1,870EDC 696 735 826 793 904 958 1,015 1,076PVC 640 374 244 197 852 636 660 688Total 16,423 17,336 18,658 18,554 23,571 25,617 27,615 29,569

China’s propylene equivalent demand growth (1)

Y-Y chg (%) 9.6 5.6 7.6 -0.6 27.0 8.7 7.8 7.1GDP elasticity 0.9 0.5 0.6 -0.1 3.1 0.8 0.8 0.7

China s propylene equivalent demand growth (k tpa) 05 06 07 08 09 10F 11F 12FPP 8,231 8,759 10,164 9,940 12,230 13,722 15,188 16,632AN 2,126 2,134 2,169 1,823 2,077 2,251 2,375 2,504Oxo-alcohols 956 954 1,137 1,139 1,207 1,243 1,268 1,293PO 531 710 837 812 934 1,027 1,120 1,210Others 318 325 331 338 345 351 359 366Total 12,164 12,882 14,638 14,052 16,792 18,595 20,309 22,005Y-Y chg (%) 6.2 5.9 13.6 -4.0 19.5 10.7 9.2 8.3GDP elasticity 0.6 0.5 1.0 -0.4 2.2 1.0 0.9 0.9


1. Source: CEIC, Nomura estimates

ASIA

Wh Chi ttWhy China mattersChinese demand as % of global demand (1) Chinese imports as % of global demand (1)

50

60

70

(%)

25303540(%)

10

20

30

40

5101520

China imports as % of Chinese demand (1) Global ethylene demand breakdown (2)

0

ABS

PTA

MEG

Met

hano

l

Cau

stic

PVC PP PE

0

MEG

ABS

PTA PX

Met

hano

l

PE PP

China imports as % of Chinese demand (1) Global ethylene demand breakdown ( )

708090(%)

North America

24%Rest of A i

Middle East6%

Africa1%

2030405060

South America

4%

Asia21%

010

MEG SM ABS PE PP

Met

hano

l

PTA Europe

23%China21%


1. Source: CEIC, Nomura estimates2. CMAI

ASIA

US d d b dUS demand rebounds US ethylene demand y-y change (1) US ethylene inventory levels (2)

500

1000

1500(k tpa)

789

10(days)

1500

-1000

-500

0

23456

US PE exports (1)

-2000

-1500

Q10

7Q

207

Q30

7Q

407

Q10

8

Q20

8Q

308

Q40

8Q

109

Q20

9Q

309

Q40

9Q

110

Q21

0

Q31

0Q

410

US ethylene utilisation rates (1)

01

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

US PE exports (1)

130014001500

(k tpa)

US ethylene utilisation rates (1)

30

35

95

100

CapacityProductionUtilisation rate (RHS)

(mn t) (%)

9001000110012001300

15

20

25

80

85

90

600700800

Q10

7

Q20

7Q

307

Q40

7

Q10

8Q

208

Q30

8

Q40

8Q

109

Q20

9

Q30

9Q

409

Q11

0

Q21

0Q

310

Q41

0 0

5

10

05 06 07 08 09 10F 11F 12F 13F 14F 15F70

75

80


1. Source: CMAI, Nomura estimates2. NPRA

ASIA

Middl E t d t i ?Middle East — a desert mirage?Middle East ethylene supply & demand (1)

Utilisation rates in the Middle East have been falling gfor the past few years.

Of the 8mn t of new ethylene capacity from 2006-09, we estimate only 4.7mn t was produced (59% utilisation rate)

20,000

25,000

100

105

110

Capacity (LHS)Production (LHS)Utilisation rate (RHS)

(k t) (%)

utilisation rate).

Iran’s utilisation rates have been particularly poor ,at around 50% over the past two years.

We expect Iran’s operating rate to remain weak on5,000

10,000

15,000

80

85

90

95

China PE imports from Saudi + Iran (1)

We expect Iran s operating rate to remain weak on structural issues. Sanctions could further reduce future Iran’s exports.

China PP imports from Saudi (1)

090 92 94 96 98 00 02 04 06 08

70

75

China PE imports from Saudi + Iran (1) China PP imports from Saudi ( )

80 00090,000

100,000

161820

PP imports

share of China imports (RHS)

(tonnes) (%)

200 000

250,000Saudi Iran(tonnes)

40,00050,00060,00070,00080,000

810121416

100,000

150,000

200,000

010,00020,00030,000

,

J 08 J l 08 J 09 J l 09 J 10 J l 100246

0

50,000

Jan 09 May 09 Sep 09 Jan 10 May 10 Sep 10


1. Source: CMAI

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10

ASIA

P l t h i i i ti tPolyester chain – margins migrating upstream China’s ethylene equivalent demand growth (1)

(k tpa) Polyester PTA PX Polyester PTA PX Polyester PTA PX2008 (419) (356) (239) n/a 1,205 290 n/a 1,561 529

Surplus/(Deficit)Incremental demand New capacity

( ) ( ) ( )2009 1,589 1,351 905 2,152 1,650 2,303 563 299 1,3982010 2,794 2,375 1,591 2,959 1,365 3,544 165 (1,010) 1,9532011F 3,455 2,937 1,968 5,967 2,467 1,903 2,512 (470) (65)2012F 3,697 3,143 2,106 7,507 3,503 382 3,810 361 (1,723)2013F 3 391 2 882 1 931 5 409 5 322 2 473 2 018 2 439 541

PTA supply/demand balance (1) PX supply/demand balance (1)

2013F 3,391 2,882 1,931 5,409 5,322 2,473 2,018 2,439 541

PTA supply/demand balance (1) PX supply/demand balance (1)

2000

2500(k t)

Surplus1000

1500(k t)

Surplus

500

1000

1500

(500)

0

500

-1000

-500

0

10 10 10 10 11 11 11 11 12 12 12 12 13 13 13 13

Deficit (1500)

(1000)

(500)

Q10

Q10

Q10

Q10

Q11

Q11

Q11

Q11

Q12

Q12

Q12

Q12

Q13

Q13

Q13

Q13

Deficit

© Nomura International (Hong Kong) Limited1. Source: PCI, Nomura estimates

75

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

ASIA

P d t iti iProduct positioningGlobal supply less demand growth (2011F) (1)

(%)

1

0

1

2(%)

Surplus

-4

-3

-2

-1

P e e E c S C e M A ol e e ol A G N A

Deficit

Global supply less demand growth (2012F) (1)

PP

Ethy

lene

Prop

ylen

e PE

Cau

stic

ABS

PVC

Benz

ene

SM BPA

Oxo

-al

coho

Buta

dien

e

Para

xyle

ne

Phen

o

MM

A

MEG AN PT

A

Global supply less demand growth (2012F) ( )

012(%)

Surplus

5-4-3-2-1

Deficit

-6-5

BPA

ABS

PVC

PTA

Cau

stic

Buta

dien

eO

xo-

alco

hol

PP

Benz

ene

SM PE

Ethy

lene

Prop

ylen

e

Phen

ol

AN MEG

MM

A

Para

xyle

ne



ASIA

All b t iti iAll about positioning Company product gearing matrix (1)

OtherDownstreamUpstream Mid-stream Fibers

(%) Eth

ylen

e

Pro

pyle

ne

But

adie

ne

Ben

zene

Par

axyl

ene

Orth

oxyl

ene

Cau

stic

sod

a

Ace

tone

Acr

ylon

itrile

BP

A

ME

G

Oxo

-alc

ohol

s

Phe

nol

PTA

Sty

rene

Acr

ylic

est

er

AB

S

EC

H

Epo

xy re

sin

MM

A

Pla

stic

izer

PC

PE

PP

PS

PV

C

SB

R/B

R

EO

D

MTB

E

Nyl

on

Pol

yest

er

Ray

on

Met

hano

l

Ure

a

FPC 7 12 13 4 4 25 10 24FCFC 7 3 8 25 13 10 7 8 5 8 6NYP 17 27 7 15 16 19LGC 3 3 2 3 5 5 3 19 4 18 6 3 21 4Honam 4 25 11 12 2 19 22 5

Regional valuation comparison (1)

Hanwha 16 30 4 5 26 19PTTC 28 18 10 42PCG 2 7 4 13 4 13 2 8 9 4 14 9

Regional valuation comparison

Mark. Cap Pr target Sh priceTicker Rating (US$m) (loc curr) (loc curr) 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E

Formosa Plastics 1301 TT Buy 22.9 136.00 117.00 11.4 10.5 2.4 2.3 11.4 10.4 22.1% 22.8% 8.1% 8.7%Nan Ya Plastics 1303 TT Buy 24 1 105 00 87 80 12 4 10 4 2 2 2 1 11 1 10 2 17 9% 20 3% 7 3% 8 7%

PE (x) PBV (x) ROE (%) Yield (%)EV/EBITDA (x)

Nan Ya Plastics 1303 TT Buy 24.1 105.00 87.80 12.4 10.4 2.2 2.1 11.1 10.2 17.9% 20.3% 7.3% 8.7%LG Chem 051910 KS Buy 32.8 700,000 530,000 12.9 11.5 3.4 2.9 5.1 4.5 30.1% 27.6% 0.8% 0.8%Formosa Chemicals 1326 TT Buy 25.0 134.00 115.50 11.4 10.5 2.1 2.1 9.9 10.8 21.3% 20.1% 9.0% 8.8%PTT Chemical PTTCH TB Buy 8.1 200.00 160.00 11.8 9.8 1.8 1.6 7.1 6.0 18.2% 19.2% 3.9% 4.7%Honam PC 011170 KS Buy 11.2 480,000 378,000 10.9 9.8 2.2 1.8 5.2 4.2 22.1% 20.1% 0.5% 0.5%Hanwha Chemical 009830 KS Buy 6.2 40,000 47,700 11.0 9.5 1.9 1.6 6.3 6.0 18.7% 18.1% 1.0% 1.0%

1. Merchant sales only, by revenue. Source: Company data,

Hanwha Chemical 009830 KS Buy 6.2 40,000 47,700 11.0 9.5 1.9 1.6 6.3 6.0 18.7% 18.1% 1.0% 1.0%Average 11.7 10.3 2.3 2.1 8.0 7.4 21.5% 21.2% 4.4% 4.7%


2. Share prices as of 29 April 11 close. Source: Bloomberg, Nomura estimates; Note: Ratings and Price Targets are as of the date of the most recently published report (http://www.Nomura.com) rather than the date of this document.

ASIA

P d t i f tProduct price forecasts Asian spot petrochemical prices

US$/tonne US$/bbl 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F 2012F 2013F

Brent 24.5 25.0 28.9 38.2 54.0 65.6 73.1 97.7 62.0 80.0 95.0 110.0 110.0

Naphtha 204 236 284 388 487 582 701 858 558 727 858 978 978

Ethylene 445 413 470 900 906 1 136 1 153 1 204 845 1 114 1 218 1 398 1 458Ethylene 445 413 470 900 906 1,136 1,153 1,204 845 1,114 1,218 1,398 1,458

LDPE 615 587 677 1,106 1,118 1,227 1,434 1,598 1,142 1,421 1,398 1,638 1,738

HDPE 571 521 609 943 1,022 1,211 1,304 1,440 1,079 1,173 1,268 1,518 1,618

Propylene 405 455 563 822 943 1,100 1,093 1,229 901 1,201 1,258 1,438 1,478

PP 522 567 698 958 1,055 1,223 1,317 1,451 1,039 1,288 1,338 1,558 1,618

AN 664 634 857 1,123 1,344 1,505 1,763 1,862 1,237 2,174 2,178 2,398 2,468

Butadiene 367 560 707 954 1,220 1,352 1,068 2,132 1,003 1,913 2,058 2,228 2,378

Benzene 296 350 455 833 825 885 1,038 1,025 694 927 1,058 1,198 1,218 , , , , ,

SM 494 613 699 1,048 1,133 1,192 1,279 1,327 954 1,194 1,418 1,598 1,638

PS 605 676 793 1,186 1,172 1,248 1,435 1,421 1,051 1,337 1,518 1,708 1,748

ABS 849 799 928 1,291 1,409 1,528 1,703 1,872 1,354 1,961 2,008 2,058 2,118

Ph l 513 568 693 1 140 1 046 1 179 1 570 1 416 858 1 586 1 608 1 758 1 578Phenol 513 568 693 1,140 1,046 1,179 1,570 1,416 858 1,586 1,608 1,758 1,578

BPA 1,028 795 963 1,365 1,571 1,414 1,748 1,698 1,276 1,918 2,008 2,133 1,998

PVC 497 544 617 882 815 814 936 1,030 777 962 1,049 1,109 1,159

MEG 441 424 656 920 862 851 1,113 975 632 880 1,051 1,179 1,235

PX 432 422 620 819 906 1,159 1,141 1,198 990 1,056 1,318 1,478 1,378

PTA 450 488 577 776 812 899 883 913 833 968 1,238 1,338 1,238

Methanol 179 155 249 270 269 345 380 400 227 297 315 330 350

Urea 136 114 166 198 253 230 345 490 269 309 330 310 320



ASIA

P d t i f tProduct margin forecasts Asian petrochemical product spreadsUS$/tonne 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F 2012F 2013F

Ethylene-Naphtha 242 177 186 512 419 554 452 346 287 387 360 420 480

LDPE-Naphtha 412 351 393 718 631 645 733 740 584 694 540 660 760

LDPE Eth l 170 174 207 206 212 91 281 394 297 307 180 240 280LDPE-Ethylene 170 174 207 206 212 91 281 394 297 307 180 240 280

HDPE-Naphtha 368 285 325 555 535 629 603 582 521 446 410 540 640

HDPE-Ethylene 126 108 139 43 116 75 151 236 234 59 50 120 160

Propylene-Naphtha 201 219 279 434 456 518 392 371 343 474 400 460 500Propylene Naphtha 201 219 279 434 456 518 392 371 343 474 400 460 500

PP-Naphtha 319 331 414 570 568 641 616 593 481 561 480 580 640

PP-Propylene 117 112 135 136 112 123 224 222 138 87 80 120 140

AN-Propylene 259 179 294 301 401 405 670 633 336 973 920 960 990

Butadiene-Naphtha 164 324 423 566 733 770 367 1,274 445 1,186 1,200 1,250 1,400

Benzene-Naphtha 93 114 171 445 338 303 337 167 136 200 200 220 240

SM-Naphtha 291 377 415 660 646 610 578 469 396 467 560 620 660

PS SM 111 63 94 138 39 56 156 94 97 143 100 110 110PS-SM 111 63 94 138 39 56 156 94 97 143 100 110 110

ABS-Naphtha 645 563 644 903 922 946 1,002 1,014 796 1,234 1,150 1,080 1,140

Phenol-Naphtha 310 332 409 752 559 597 869 558 300 859 750 780 600

BPA-Phenol 515 227 270 225 525 235 178 282 418 332 400 375 420

PVC-Ethylene 274 338 382 432 362 246 360 428 355 405 440 410 430

MEG-Ethylene 174 176 374 380 318 169 421 252 125 212 320 340 360

PX-Naphtha 228 186 336 431 419 577 440 340 432 329 460 500 400



PTA - Naphtha 247 252 293 388 325 317 182 55 275 241 380 360 260

ASIA

China


ASIA

Chi tiChina energy consumption

China energy consumption breakdown, 2020F (22.9bn boe)

China energy consumption breakdown, 2009 (16.1bn boe)

Renewable energy, 9.0%

Oil 18 9%

Renewable energy, 6.4% Oil , 18.6%

Nuclear, 2.8%

Oil , 18.9%

Nuclear, 0.7%

Gas , 3.7%

Gas , 8.3%

Coal, 61.0%

Oil Gas Coal Nuclear Renewable energy

Coal, 70.6%Oil Gas Coal Nuclear Renewable energy

Source: China Statistics, NDRC, Nomura research Source: China Statistics, NDRC, Nomura estimates


ASIA

Chi il & tChina oil & gas sector

Under the Eleventh Five-Year Plan, the government’s plans for the energy sector include:

Reduce energy consumption per unit of GDP by 20% b ti ffi i

China Crude Demand & Supply (1)

600m tonnes

120%

130%Self suff rate %

by promoting energy efficiency.

Improve air quality by increasing natural gas and renewable energy consumption and reducing the share of coal and oil.300

400

500

60%

70%

80%

90%

100%

110%

Reform natural gas prices and refined oil product prices to international levels.

Build up the strategic oil reserve base.0

100

200

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10E11E12E13E14E15E0%

10%

20%

30%

40%

50%

On 29 April, 2010, the government stated in an official document following a congress meeting held by

1. Source: BP, Nomura estimates

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10E11E12E13E14E15E

Production Consumption Self Sufficiency rate

premier Wen Jiabao that it intends to implement the following measures in the remainder of 2010 before the 12th Five-Year Plan:

Introduce and implement a new resource tax Introduce and implement a new resource tax.

Increase wellhead natural gas prices.

Revamp the oil product-pricing mechanism.


ASIA

Chi t l d dChina natural gas demandNatural gas production vs consumption Natural gas consumption by sector, 2008

(80.7 bcm)280300320

Power , 10% Town gas, 28%

160180200220240260280

m

Consumption (2009-2020F) CAGR: 11%

Import:119bcm

Chemicals406080

100120140160bc

Production (2009-2020F) CAGR: 7%

Chemicals, 32%

Industrial, 31%

Town gas Industrial Chemicals Power

02040

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E20

10E

2011

E20

12E

2013

E20

14E

2015

E20

16E

2017

E20

18E

2019

E20

20E

Production Consumption

Natural gas consumption by sector, 2020F (290 bcm)

Towe gas, 28%

Power , 21%2008 2009 2010F 22015F 2020F 2005-10F 2010F-15F 2015F-20F

DomesticProductionPetrochina 59 61 65 90 124 15 7 7

CAGR (%)

China Natural gas demand supply balance (bcm)

28%Petrochina 59 61 65 90 124 15 7 7Sinopec 9 10 13 20 33 15 10 11CNOOC 7 10 9 12 14 19 4 3Subtotal 75 81 87 122 171 16 7 7(%)Petrochina 78 76 75 74 73Sinopec 12 12 15 17 20CNOOC 10 12 11 10 8

Chemicals, 15%

ImportLNGPetrochina 0 0 0 9 18 NA 16Sinopec 0 0 0 4 4 NA 0CNOOC 5 5 5 45 55 55 4Subtotal 5 5 5 58 77 63 6Pipeline 0 0 6 42 42 48 0


Source: CEIC, OGP, Nomura estimates

Industrial, 36%

Towe gas Industrial Chemicals Power

Total supply/demand 81 86 98 221 290 18 6Import % of total demand 6 6 11 45 41

ASIA

Chi LNG t i lChina LNG terminal

LNG terminal projects in China (mn tonnes per annum)

Location 2006 2007 2008 2009 2010E 2011E 2012E Status LNG sourceCNOOCDapeng (Guangdong) 3.7 5.5 10.0 10.0 10.0 10.0 10.0 Operation North West Shelf Venture (Australia)Putian (Fujian) 3 0 3 0 5 2 5 2 On stream in 2H09 Tangguh (Indonesia)Putian (Fujian) 3.0 3.0 5.2 5.2 On stream in 2H09 Tangguh (Indonesia)Shanghai 3.0 3.0 3.0 3.0 On stream in 2H09 Petronas (Malaysia)Zhuhai (Guangdong) 3.0 3.0 On stream in 2011 Iran: ParsNingbo (Zhejiang) 3.0 UC Qatargas (Qatar)CNPCDalian (Liaoning) 3 0 3 0 On stream in 2011 Qatargas (Qatar) and Shell (Australia)Dalian (Liaoning) 3.0 3.0 On stream in 2011 Qatargas (Qatar) and Shell (Australia)Tangshan (Hebei) 4.0 UC naRudong (Jiangsu) 3.5 3.5 On stream in 2011 Qatargas (Qatar)SinopecTianjin 3.0 3.0 3.0 Initial stageTotal 3 7 5 5 10 0 16 0 19 0 30 7 37 7

Source: OGP, Nomura estimates

Total 3.7 5.5 10.0 16.0 19.0 30.7 37.7Total (bcm) 5.0 7.5 13.6 21.8 25.8 41.8 51.3

Note: NA: not available.


ASIA

N t l i hikNatural gas price hike China has announced the much-awaited natural gas price hike, with effect from 1 June, 2010. According to the

government, the reasons for increasing the wellhead natural gas price and refining the pricing mechanism are: to conserve natural gas to reduce wastage; to smooth out the price difference of natural gas vs other fuels; to increase the market share of natural gas in China’s energy pie, as this encourages production and

developmentdevelopment. The domestic ex-factory (well head) natural gas prices from all onshore wells have been increased by RMB0.23cm, or

20-32.5% (depending on the base effect of the original price). Producers are allowed to price their gas up to 10% above the guidance price published by the government.

Gas from the West East pipeline has the largest increase of 30 3% while that from “other fields” has the lowest Gas from the West-East pipeline has the largest increase of 30.3%, while that from other fields has the lowest increase of 20%

We think PetroChina will be the major beneficiary, as its production accounts for 82% of all domestic natural gas, or 87% of all onshore gas output. Sinopec will likely benefit from the price change and its biggest volume growth in the near term is from Puguang, which has already been granted a higher priceg g, y g g p

We don’t expect CNOOC to immediately benefit from this natural gas price hike, since it does not have any onshore gas production and its gas prices were never controlled by the government.

(RMB/’000 cubic meter) Before After Change (%)

Fertiliser 661 868 31.3

Di t I d t i l U 1 067 1 274 19 4Direct Industrial Use 1,067 1,274 19.4

City Gas (Industrial Use) 1,073 1,280 19.3

Cit G (N I d t i l U ) 713 920 29 0City Gas (Non-Industrial Use) 713 920 29.0

85© Nomura International (Hong Kong) LimitedSource: NDRC

ASIA

Gl b l d Chi t l i t dGlobal and China natural gas price trend

Natural gas price trend globally Natural gas pricing breakdown for industry end-

10.00

12.00

14.00 US$/mmbtu

Natural gas price trend globally

2.5

3.0

3.5 Rmb/cum

Mark-up

users, 2008

2.00

4.00

6.00

8.00

1.0

1.5

2.0

City-Gate

End-user

Mark-up

0.002001 2002 2003 2004 2005 2006 2007 2008 2009Japan cif European Union cif UK Heren NBP indexUS Henry Hub Canada China industry

0.0

0.5

Beijing Shanghai Henan Anhui Jaingsu ZhejiangEx-plant Pipeline tarif f

Estimated city gate price for National Gas in China byChina natural gas end-user price trend Estimated city-gate price for National Gas in China by source

17.3

16 0

18.0

20.0 US$/mmbtu3.5

CNY/cum

6.5

11.9

14.1

8.0

10.0

12.0

14.0

16.0

2.5

3.0

4.2

6.5

0.0

2.0

4.0

6.0

LNG Contract Domestic Turkmenistan Other LNG Spot LNG 2H08

1.5

2.0

n-04

r-04

ul-0

4

ct-0

4

n-05

r-05

ul-0

5

ct-0

5

n-06

r-06

ul-0

6

ct-0

6

n-07

r-07

ul-0

7

ct-0

7

n-08

r-08

ul-0

8

ct-0

8

n-09

r-09

ul-0

9

ct-0

9

n-10

r-10

ul-1

0

ct-1

0

n-11

(NWS Australia) Production Pipeline estimated Contractsestimated

p

© Nomura International (Hong Kong) Limited 86Source: BP Statistical Review 2010, CEIC, CNPC, IEA, OGP, Nomura research

Ja Ap J u Oc

Ja Ap J u Oc

Ja Ap J u Oc

Ja Ap J u Oc

Ja Ap J u Oc

Ja Ap J u Oc

Ja Ap J u Oc

Ja

Residential use Public Service Sector Industry

ASIA

Chi i b ildi t t iChina is building a strategic reserve China’s National Petroleum Reserve Centre (NPRC) was established on 18 December, 2007, to monitor the China s National Petroleum Reserve Centre (NPRC) was established on 18 December, 2007, to monitor the

construction of and managing the strategic reserve bases.

The NDRC completed its first phase of strategic reserve construction in December 2008 over a four-year period p p g y p(around 3.5mntpa). Of the total first phase capacity 102mmbbl (14mn tonnes), Sinopec operates bases in Zhenhai (33mm bbl), Zhoushan (31mm bbl), Huangdao (18.9mm bbl) and CNPC operates the base in Dalian (18.9mm bbl).

China is currently locating areas to build the second phase of national strategic oil reserves with eight bases totaling capacity of 200mm bbl over the next three years. (Dushanzi has been specified as one of the locations.)

According to the preliminary plan, the NDRC expects to finish construction of oil reserves bases and fill oil fully within 15 years through three phases with a total investment of more than RMB100bn. More than RMB8bn was invested for the first four bases.

1st phase (2004-2008): 102mm bbl;

2nd phase (2009-2011): 200mm bbl;

3rd phase (2011-2020): 480mm bbl p ( )

In 2020, when all three phases are completed, total strategic oil reserves (around 780 mm bbl) should total 100 days of imports.


ASIA

Chi ’ d i tChina’s crude importsChina crude demand & supply (mn tonnes)

Net crude imports grew by 17.4% y-y in 2010.

YTD (March), China’s total crude imports increased 12% y-y to 63.42mn tonnes and demand increased 8 7%

pp y ( )YoY% YoY% YoY%

Production Import ExportNet

Import Demand Production Net Import Demand2000 162 70 10 60 222 1.2% 102.7% 16.9%2001 165 60 8 53 218 1.6% -11.7% -2.0%2002 170 69 7 62 232 3.3% 18.1% 6.9%2003 170 91 8 83 253 0.1% 33.4% 9.0% 8.7%.

We expect China’s total crude imports in 2011F to exceed 250mn tonnes and demand to increase at least 5.5%.

% % %2004 175 123 5 117 292 2.5% 41.4% 15.2%2005 181 127 8 119 300 3.5% 1.4% 2.7%2006 184 145 6 139 323 1.6% 16.7% 7.6%2007 187 163 4 159 346 1.6% 14.8% 7.3%2008 190 179 4 175 365 1.8% 9.9% 5.5%2009 190 204 5 199 388 -0.2% 13.4% 6.3%2010 204 239 3 236 440 7.5% 19.0% 13.4%2011E 207 261 4 257 464 1 5% 9 0% 5 5%2011E 207 261 4 257 464 1.5% 9.0% 5.5%2012E 210 286 5 281 491 1.5% 9.1% 5.7%2013E 213 307 5 302 515 1.5% 7.6% 5.0%

mn tonnes Production Import Export Net Import Demand2007 186.71 163.19 (3.82) 159.37 346.082008 190 02 178 90 (3 73) 175 17 365 18 Crude oil imports by source (2010)

Other regions,

16%

2008 190.02 178.90 (3.73) 175.17 365.182009 189.60 203.78 (5.17) 198.61 388.212010 203.83 239.30 (3.03) 236.27 440.10

Jan-11 17.82 21.80 (0.28) 21.52 39.34Feb-11 15.91 19.95 (0.08) 19.87 35.78Mar-11 17 57 21 67 (0 34) 21 33 38 90

Middle East, 56%

16%

Africa, 24%

Mar 11 17.57 21.67 (0.34) 21.33 38.90Jan-Mar 11 51.30 63.42 (0.70) 62.72 114.02

YoY%2007 1.6% 12.4% -38.6% 14.7% 7.3%2008 1.8% 9.6% -2.3% 9.9% 5.5%2009 -0.2% 13.9% 38.5% 13.4% 6.3%2010 7 5% 17 4% 41 4% 19 0% 13 4%

Asia Pacific, 4%

24%

Middl E t A i P ifi Af i Oth i

2010 7.5% 17.4% -41.4% 19.0% 13.4%Jan-11 5.6% 27.5% 115.4% 26.8% 16.2%Feb-11 5.2% 7.8% -63.6% 8.6% 7.1%Mar-11 3.9% 2.9% 21.4% 2.6% 3.2%

Jan-Mar 11 4.9% 11.9% 11.1% 11.9% 8.7%

88© Nomura International (Hong Kong) LimitedSource: OGP, China Custom Statistics, Nomura research

Middle East Asia Pacific Africa Other regions

ASIA

Chi ’ il d t d dChina’s oil product demand

t 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E 96 05 00 10E 00 05 05 10E 10 13ECAGR %

m tonnes 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E 96-05 00-10E 00-05 05-10E 10-13EGasoline 47 48 52 56 63 67 71 76 80 83.5 4.7% 7.4% 6.5% 8.2% 5.4%Diesel 104 109 116 125 139 138 156 167 177 188.0 9.8% 8.7% 10.0% 7.4% 6.5%Kerosene 11 10 11 12 13 15 17 20 22 24.0 7.3% 7.2% 3.8% 10.8% 11.2%Fuel Oil 50 46 48 44 36 34 34 34 34 33.0 2.9% -1.2% 3.5% -5.8% -1.2%Naphtha 29 30 33 35 33 41 53 57 60 63 0 5 8% 8 3% 4 9% 11 8% 5 8%

S CEIC OGP N ti t

Naphtha 29 30 33 35 33 41 53 57 60 63.0 5.8% 8.3% 4.9% 11.8% 5.8%Others 60 64 67 74 79 90 101 108 115 120.4 11.5% 8.5% 7.4% 9.7% 6.0%Total 301 308 328 346 363 385 433 461 487 512 7.4% 7.1% 7.1% 7.1% 5.7%YoY Growth 17.5% 2.2% 6.5% 5.5% 5.1% 6.0% 12.4% 6.5% 5.7% 5.0%

Diesel is the main oil product consumed in China owing to the high agricultural need for diesel. Diesel demand grew at

Source: CEIC, OGP, Nomura estimates

ese s t e a o p oduct co su ed C a o g to t e g ag cu tu a eed o d ese ese de a d g e ata CAGR of 10% from 1996 to 2005. In 2009, diesel demand suffered a 0.4% decline owing to a slowdown in industrial production mainly in 1Q09.

Unlike OECD countries, gasoline consumption is only half of diesel and has grown at a rate of only 5% from 1996 to 2005. However, we think that growth will accelerate over the next decade, as the number of passenger vehicles escalates.

Fuel oil demand has grown at a below-average rate and will likely continue to lose market share, in our view.


ASIA

Oil ti i i tOil consumption in various sectors

2002 2010 20022010 2011E 2012E CAGR %2013E2006 2007 20092008

mn tonnes Demand YoY % Demand YoY % Demand YoY % Demand YoY % Demand YoY % Demand YoY % Demand YoY % Demand YoY %2002-2010

2010-2013E

2002-2013E

Cars 42.0 10.5% 45.0 7.1% 51.8 15.0% 54.9 6.0% 58.5 6.7% 62.2 6.2% 65.6 5.6% 69.1 5.3% 9.6% 5.7% 9.4%Motorcycle 8.8 8.8% 9.4 6.8% 10.1 7.0% 10.5 4.5% 11.0 5.0% 11.6 4.8% 12.1 4.5% 12.6 4.5% 6.0% 4.6% 6.2%Others 1.6 -17.9% 1.5 -5.7% 1.6 7.2% 1.7 6.3% 1.8 3.0% 1.8 0.9% 1.8 -0.1% 1.8 -1.3% -1.6% -0.2% -1.3%

Gasoline demand 52.4 9.1% 55.9 6.7% 63.4 13.4% 67.1 5.8% 71.3 6.3% 75.5 5.9% 79.5 5.3% 83.5 5.0% 8.5% 5.4% 8.5%Diesel run vehicles 44.4 11.8% 50.2 13.1% 58.3 16.0% 55.9 -4.0% 62.6 12.0% 68.9 10.0% 74.4 8.0% 80.4 8.0% 15.6% 8.7% 15.1%A i lt l hi l 12 7 1 7% 13 1 3 0% 14 1 8 0% 14 3 1 0% 15 0 5 0% 16 5 10 0% 17 9 8 5% 19 4 8 5% 4 3% 9 0% 6 2%Agricultural vehicles 12.7 1.7% 13.1 3.0% 14.1 8.0% 14.3 1.0% 15.0 5.0% 16.5 10.0% 17.9 8.5% 19.4 8.5% 4.3% 9.0% 6.2%Other agricultural use 24.3 11.5% 26.5 9.0% 29.0 9.5% 29.3 1.0% 31.9 9.0% 34.8 9.0% 37.4 7.5% 40.2 7.5% 9.5% 8.0% 10.0%Rail transportion 6.3 2.3% 6.4 1.0% 6.7 5.5% 6.8 1.0% 7.0 3.0% 7.2 3.0% 7.4 3.0% 7.6 3.0% 3.7% 3.0% 3.9%Water transportation 5.3 0.6% 5.3 0.2% 5.3 0.5% 5.3 0.5% 5.4 1.0% 5.4 0.2% 5.4 0.5% 5.4 0.5% 2.8% 0.4% 2.4%Fishing trawlers 5.1 -4.7% 4.8 -5.0% 4.6 -5.0% 4.3 -6.0% 4.0 -6.0% 3.9 -3.0% 3.8 -3.0% 3.7 -3.0% -5.6% -3.0% -5.4%Diesel generator 3.9 -18.1% 3.6 -9.7% 4.3 20.0% 4.0 -5.0% 4.5 10.0% 4.9 10.0% 5.3 9.0% 5.8 9.0% 7.0% 9.3% 8.4%Construction and others 14.3 5.6% 15.1 5.4% 16.6 10.1% 18.3 10.2% 25.4 38.3% 25.5 0.4% 25.4 -0.3% 25.5 0.4% 10.4% 0.2% 8.3%

Diesel Demand 116 2 6 6% 124 9 7 4% 138 8 11 2% 138 2 -0 4% 155 7 12 7% 167 0 7 2% 177 0 6 0% 188 0 6 2% 9 4% 6 5% 9 5%Diesel Demand 116.2 6.6% 124.9 7.4% 138.8 11.2% 138.2 -0.4% 155.7 12.7% 167.0 7.2% 177.0 6.0% 188.0 6.2% 9.4% 6.5% 9.5%Kerosene 11.5 9.5% 12.2 6.6% 12.8 4.6% 15.0 16.9% 17.5 16.8% 20.0 14.5% 22.0 10.0% 24.0 9.1% 9.2% 11.2% 10.7%Fuel Oil 47.7 3.6% 43.9 -7.9% 35.9 -18.3% 33.6 -6.3% 34.2 1.6% 34.0 -0.5% 33.5 -1.5% 33.0 -1.5% -1.6% -1.2% -1.6%Naphtha 32.6 6.9% 34.6 6.2% 33.0 -4.7% 40.9 24.0% 53.2 30.1% 57.0 7.1% 60.0 5.3% 63.0 5.0% 9.8% 5.8% 9.6%Other Refined oils 67.2 5.8% 74.2 10.4% 79.4 7.0% 90.4 13.9% 101.2 11.9% 107.7 6.5% 115.5 7.2% 120.4 4.2% 11.1% 6.0% 10.7%Total Oil Products 327.6 6.5% 345.7 5.5% 363 5.1% 385 6.0% 433 12.4% 461.2 6.5% 487.5 5.7% 511.9 5.0% 8.3% 5.7% 8.4%

Source: CEIC, Sinopec, Nomura estimates


ASIA

Chi ’ il d t d dChina’s oil product demandOil product apparent consumption (‘000 tonnes)

(m tonnes) Throughput Import Export Net Import Demand(m tonnes) g p p Export Net Import Demand2007 327.4 33.8 (15.50) 18.3 345.72008 341.4 38.9 (17.03) 21.8 363.32009 373.2 37.0 (25.04) 11.9 385.12010 423.1 36.9 (26.90) 10.0 433.0( )

Jan-11 37.19 3.85 (2.14) 1.71 38.90Feb-11 35.22 3.30 (1.86) 1.44 36.66Mar-11 37.67 3.88 (2.58) 1.30 38.97

Jan-Mar 11 110.07 11.03 (6.58) 4.45 114.52YoY%2007 7.8% -7.1% 25.3% -23.8% 5.5%2008 4.3% 14.9% 9.9% 19.2% 5.1%2009 9.3% -4.9% 47.0% -45.4% 6.0%2010 13.4% -0.2% 7.4% -16.2% 12.4%2010 13.4% 0.2% 7.4% 16.2% 12.4%

Jan-11 10.3% 51.6% -20.7% -1168.8% 15.9%Feb-11 10.4% 14.2% 16.3% 11.6% 10.4%Mar-11 9.0% 20.5% -2.3% 124.1% 10.9%

Jan-Mar 11 9.9% 27.5% -5.2% 160.2% 12.4%

According to the CEIC data, China’s oil product demand in 2010 rose 12.4% y-y from a low base.

YTD (March), gasoline, diesel, kerosene and fuel oil apparent demand increased by 9.4% y-y, 13.8% 15 6% d 23% ti l


y-y, 15.6% y-y and 23% y-y, respectively.

The Chinese government’s extensive construction of new roads, airports and railways from the fiscal stimulus plans helped prop up demand for asphalt/bitumen, which are classified under the “others”

t


category.

ASIA

Chi ’ il d t d dChina’s oil product demandGasoline apparent consumption (mn tonnes) Kerosene apparent consumption (mn tonnes)

(m tonnes) Production Import Export Net Imp/(Exp) App Cons (m tonnes) Production Import Export Net Imp/(Exp) App Cons(m tonnes) Production Import Export Net Imp/(Exp) App. Cons2007 60.31 0.23 (4.64) (4.42) 55.902008 63.46 1.99 (2.04) (0.05) 63.412009 71.97 0.04 (4.94) (4.90) 67.072010 76.50 0.00 (5.17) (5.17) 71.33

Jan-11 6.83 0.00 (0.56) (0.56) 6.28

(m tonnes) Production Import Export Net Imp/(Exp) App. Cons2007 11.48 5.24 (4.48) 0.76 12.242008 11.65 6.48 (5.33) 1.15 12.802009 14.79 6.12 (5.95) 0.18 14.962010 17.06 6.50 (6.08) 0.42 17.47

Jan-11 1.42 0.71 (0.47) 0.24 1.666.83 0.00 (0.56) (0.56)Feb-11 6.34 0.00 (0.40) (0.40) 5.94Mar-11 6.64 0.00 (0.47) (0.47) 6.17

Jan-Mar 11 19.82 0.00 (1.43) (1.43) 18.39YoY%2007 8.0% 239.6% 32.4% 28.4% 6.7%2008 5 2% 775 3% 56 2% 98 9% 13 4%

Feb-11 1.42 0.40 (0.30) 0.10 1.53Mar-11 1.47 0.46 (0.73) (0.28) 1.19

Jan-Mar 11 4.30 1.57 (1.50) 0.07 4.37YoY%2007 19.9% -6.7% 20.7% -60.1% 6.6%2008 1.5% 23.5% 19.0% 50.2% 4.6%2008 5.2% 775.3% -56.2% -98.9% 13.4%

2009 13.4% -97.8% 142.8% nm 5.8%2010 6.3% -99.7% 4.6% 5.6% 6.3%

Jan-11 9.8% nm -7.4% -7.4% 11.6%Feb-11 11.4% nm 91.4% 91.4% 8.3%Mar-11 5.5% nm -21.1% -21.1% 8.3%

J M 11 8 8% 42 5% 1 7% 1 7% 9 4%

2009 26.9% -5.5% 11.5% -84.7% 16.9%2010 15.4% 6.2% 2.3% 137.5% 16.8%

Jan-11 5.0% 44.9% -14.3% -509.5% 28.3%Feb-11 10.7% -27.9% -29.4% -22.7% 7.6%Mar-11 5.1% 25.4% 6.7% -14.4% 10.9%

Jan-Mar 11 6.9% 11.1% -9.5% -127.1% 15.6%

Diesel apparent consumption (mn tonnes) Fuel oil apparent consumption (mn tonnes)Jan-Mar 11 8.8% -42.5% 1.7% 1.7% 9.4%

(m tonnes) Production Import Export Net Imp/(Exp) App. Cons2007 123.89 1.62 (0.66) 0.96 124.862008 133.20 6.25 (0.63) 5.62 138.822009 140 9 1 8 (4 51) (2 67) 138 23

Ja a 6 9% % 9 5% % 5 6%

(m tonnes) Production Import Export Net Imp/(Exp) App. Cons2007 23.58 24.12 (3.78) 20.34 43.922008 21.52 21.60 (7.25) 14.36 35.872009 18 23 24 00 (8 62) 15 38 33.612009 140.9 1.8 (4.51) (2.67) 138.23

2010 158.59 1.80 (4.67) (2.87) 155.71Jan-11 14.09 0.18 (0.10) 0.09 14.17Feb-11 13.40 0.16 (0.16) (0.00) 13.39Mar-11 13.84 0.09 (0.26) (0.17) 13.67

Jan-Mar 11 41.32 0.44 (0.52) (0.08) 41.24YoY%

2009 18.23 24.00 (8.62) 15.38 33.612010 21.05 23.01 (9.90) 13.12 34.17

Jan-11 1.84 2.43 (0.94) 1.49 3.33Feb-11 1.78 2.30 (0.94) 1.36 3.14Mar-11 1.76 2.71 (1.00) 1.71 3.46

Jan-Mar 11 5.38 7.44 (2.88) 4.56 9.93YoY%YoY%

2007 6.5% 130.1% -14.9% -1462.9% 7.4%2008 7.5% 285.1% -4.8% 484.0% 11.2%2009 5.8% -70.6% 617.0% -147.5% -0.4%2010 12.6% -2.1% 3.7% 7.6% 12.7%

Jan-11 11.1% 81.7% -79.3% -124.1% 15.1%Feb-11 14.6% 67.8% -44.1% -99.9% 16.5%

YoY%2007 5.7% -13.7% 47.6% -19.8% -7.9%2008 -8.7% -10.4% 91.7% -29.4% -18.3%2009 -15.3% 11.1% 19.0% 7.1% -6.3%2010 15.4% -4.1% 14.7% -14.7% 1.6%

Jan-11 10.9% 72.3% -5.7% 258.0% 60.7%Feb-11 14.9% 26.9% 63.5% 9.8% 12.6%

92© Nomura International (Hong Kong) LimitedSource: CEIC, Nomura research

Mar-11 9.5% -65.3% -44.4% -15.8% 9.9%Jan-Mar 11 11.7% -6.3% -57.5% -89.3% 13.8%

Feb 11 14.9% 26.9% 63.5% 9.8% 12.6%Mar-11 -7.2% 30.3% 32.2% 29.2% 7.7%

Jan-Mar 11 5.4% 40.3% 23.8% 53.2% 23.0%

ASIA

Chi ’ d il d il d t i tChina’s crude oil and oil product inventoryCrude oil inventory (mn tonnes) Gasoline and diesel inventory (mm bbl)

30

35

40

45

60

70

80

15

20

25

30

20

30

40

50

0

5

10

an-0

8

eb-0

8

Mar

-08

Apr

-08

ay-0

8

un-0

8

Jul-0

8

ug-0

8

ep-0

8

Oct

-08

ov-0

8

ec-0

8

an-0

9

eb-0

9

Mar

-09

Apr

-09

ay-0

9

un-0

9

Jul-0

9

ug-0

9

0

10

20

Jan-

06Fe

b-06

Mar

-06

Apr

-06

May

-06

Jun-

06Ju

l-06

Aug

-06

Sep

-06

Oct

-06

Nov

-06

Dec

-06

Jan-

07Fe

b-07

Mar

-07

Apr

-07

May

-07

Jun-

07Ju

l-07

Aug

-07

Sep

-07

Oct

-07

Nov

-07

Dec

-07

Jan-

08Fe

b-08

Mar

-08

Apr

-08

May

-08

Jun-

08Ju

l-08

Aug

-08

Sep

-08

Oct

-08

Nov

-08

Dec

-08

Jan-

09Fe

b-09

Mar

-09

Apr

-09

May

-09

Jun-

09Ju

l-09

Aug

-09

Ja Fe M A Ma Ju J Au

Se O No

De Ja Fe M A Ma Ju J Au

Crude oil inventory (mn tonnes)

J F M A M J A S O N D J F M A M J A S O N D J F M A M J A S O N D J F M A M J A

CNPC & Sinopec Gasoline Inventory (mm bbls) CNPC and Sinopec Diesel Inventory (mm bbls)

4%

5%

6%

30

31

15%

20%

20

25

-1%

0%

1%

2%

3%

27

28

29

0%

5%

10%

10

15

-4%

-3%

-2%

25

26

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

-10%

-5%

0

5

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11


Source: OGP, Nomura research

Crude oil inventory (LHS)

0 0 0 0 0 0 0

Product oil inventory (LHS)

ASIA

Chi ’ fi i tChina’s refining sectorChina refining utilisation rate % The oil product price mechanism linking ex-refinery oil

product prices to international crude oil prices was10,000 100%

product prices to international crude oil prices was implemented on 1 January, 2009.

Retail gasoline and diesel prices are priced at ex-6,000

7,000

8,000

9,000

80%

85%

90%

95%

g p prefinery product prices plus average cost, applicable taxes (17% VAT and consumption tax) and a “reasonable” margin.

2,000

3,000

4,000

5,000

60%

65%

70%

75%

There is room for the Chinese government to hike oil product prices by the end of 2Q11F at the latest due to potential supply shortages.

0

1,000

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

50%

55%

Capacities (mm b/d) (LHS) Throughput (mm b/d) (LHS) Utilization rate (RHS)

Gasoline prices — China vs Singapore Diesel prices — China vs Singapore

140160US$/bbl

140

160

180US$/bbl

406080

100120

40

60

80

100

120

020

Jan-

02Ju

l-02

Jan-

03Ju

l-03

Jan-

04Ju

l-04

Jan-

05Ju

l-05

Jan-

06Ju

l-06

Jan-

07Ju

l-07

Jan-

08Ju

l-08

Jan-

09Ju

l-09

Jan-

10

SG Gasoline PRC Gasoline

0

20

Jan-

02Ju

l-02

Jan-

03Ju

l-03

Jan-

04Ju

l-04

Jan-

05Ju

l-05

Jan-

06Ju

l-06

Jan-

07Ju

l-07

Jan-

08Ju

l-08

Jan-

09Ju

l-09

Jan-

10

SG Diesel PRC Diesel


Source: OGP, Nomura.

Source: CEIC, Bloomberg, BP, Nomura estimates.

SG Gasoline PRC Gasoline

ASIA

D ti fi i iDomestic refining margins There is a time lag between when refineries purchase

th d il d h th d il i fi dPRC gasoline vs Dubai

160 the crude oil and when the crude oil is refined. There is a one-month lag for PetroChina, but almost a

two-month lag for Sinopec, which imports most of its crude oil requirement from overseas. 80

100

120

140

160

Refining margins peaked in June 2009.

Sinopec refining EBIT margins (US$/bbl)(US$/bbl) Refining margins Quarterly avg.

Jan-09 2.7-20

0

20

40

60

Feb-09 8.6Mar-09 7.3 1Q09 6.2Apr-09 9.6May-09 7.6Jun-09 10.4 2Q09 9.2Jul-09 6.1Aug-09 0.1Sep-09 2.6 3Q09 2.9Oct-09 (1.0)Nov-09 2.5Dec-09 (1.3) 4Q09 0.1

-60

-40

Jan-

01M

ay-0

1S

e p-0

1Ja

n-02

Ma y

-02

Se p

-02

Jan-

03M

a y-0

3S

e p-0

3Ja

n-04

Ma y

-04

Sep

-04

Jan-

05M

a y-0

5S

ep-0

5Ja

n-06

Ma y

-06

Se p

-06

Jan-

07M

a y-0

7S

e p-0

7Ja

n-08

Ma y

-08

Se p

-08

Jan-

09M

a y-0

9S

e p-0

9Ja

n-10

Ma y

-10

Se p

-10

Jan-

11M

a y-1

1

Spread Dubai (US$/bbl) China Gasoline Price (US$/bbl)

PRC diesel vs. DubaiJan-10 0.4Feb-10 (0.7)Mar-10 3.3 1Q10 1.0Apr-10 4.1May-10 (0.7)Jun-10 (5.9) 2Q10 (0.9)Jul-10 2.8Aug-10 3.9Sep-10 2.4 3Q10 3.1Oct-10 5.8Nov-10 3.9100

150

Gasoline and diesel price — PRC vs Singapore

Dec-10 2.7 4Q10 4.1Jan-11 1.1Feb-11 0.2Mar-11 (2.7) 1Q11 (0.5)Apr-11 (3.8)

China China China (ex consumption tax) China (ex consumption tax) Singapore(RMB/tonne) (RMB/litre) (RMB/tonne) (RMB/litre) (Avg Price in May 11)

0

50

(RMB/tonne) (RMB/litre) (RMB/tonne) (RMB/litre) (Avg. Price in May 11)Retail PriceGasoline 9,380 6.76 7,992 5.76Diesel 8,530 7.25 7,589 6.45Ex-refineryGasoline 8,580 6.18 7,192 5.18Diesel 7,730 6.57 6,789 5.77

(US$/bbl) (US$/bbl)Retail Price (ex VAT)Gasoline 141.9 120.9Diesel 146 2 130 1

-100

-50

an-0

1ay

-01

ep-0

1an

-02

ay-0

2ep

-02

an-0

3ay

-03

ep-0

3an

-04

ay-0

4ep

-04

an-0

5ay

-05

ep-0

5an

-06

ay-0

6ep

-06

an-0

7ay

-07

ep-0

7an

-08

ay-0

8ep

-08

an-0

9ay

-09

ep-0

9an

-10

ay-1

0ep

-10

an-1

1ay

-11

95© Nomura International (Hong Kong) LimitedSource: Bloomberg, OGP, Nomura research

Source: NDRC, Nomura research

Diesel 146.2 130.1Ex-refinery (ex VAT)Gasoline 129.8 108.8 134.1Diesel 132.5 116.4 137.2Gasoline (US$/Litre) 0.93 0.78 0.84Diesel (US$/litre) 0.99 0.87 0.86

J M S J M S J M S J M S J M S J M S J M S J M S J M S J M S J M

Spread Dubai (US$/bbl) China Diesel Price (US$/bbl)

ASIA

N PRC Oil P d t P i i M h iNew PRC Oil Product Pricing Mechanism

The PRC government will continue to control oil product prices and provide guidance price for gasoline and diesel and set Maximum retail price Maximum retail price

Maximum wholesale price

Reasonable distribution price

Prescribed price for special customer

Ex-refinery price of gasoline and diesel will be set according to international oil prices, average processing cost taxes and appropriate profit marginaverage processing cost, taxes and appropriate profit margin.

Prices may be adjusted if average international oil price were to exceed a certain level (4%) within a certain period of time (22 working days).

Between international crude prices of US$80/bbl – US$130/bbl, the level of price adjustment will slow, resulting in narrower profit margins for refineries.

When international crude oil prices exceed US$130/bbl the government may no longer When international crude oil prices exceed US$130/bbl, the government may no longer adjust product prices higher and will consider giving subsidies to refineries to compensate for losses.


ASIA

Wh thi k il d t i i h i i fl dWhy we think oil product pricing mechanism is flawed

Fixed margins cannot work in a free market

Fixed margins can lead to overcapacity

Being too transparent ca ses in entor s ings Being too transparent causes inventory swings

Can cause margin swings for the marketing sector Can cause margin swings for the marketing sector

Timing out of sync with refineries’ crude purchasesg y p

The government has not fully adhered to the pricing mechanism


ASIA

C t il d t i i A il 2011Current oil product price in April 2011#0 DieselRON #90 Gasoline

Max Retail Price

Min spread 300Max. Wholesale Price

8,880

8,580 7,830

8,130

Max. Wholesale Price

Max. Distribution Price

8,580 7,830

8,480 7,730Min spread 400

Ex-Refinery Price 7,3308,080

98

Source: Company data, National Development and Reform Commission.


ASIA

C ti tConsumption tax

Removed six types of fees, such as road maintenance fee, road transportation management fee, etc.

Raised consumption tax rate for oil products

Consumption tax rate for oil productsG li RMB 1 00/lit RMB1 388/t (i d b RMB 0 80/lit )Gasoline RMB 1.00/liter or RMB1,388/t (increased by RMB 0.80/liter)Diesel RMB 0.80/liter or RMB941/t (increased by RMB 0.70/liter)Jet Fuel RMB 0.80/liter or RMB997/t (increased by RMB 0.70/liter, temporarily exempted)

RMB 0 80/liter (increased b RMB 0 80/liter e empted if sed as ra material forNaphtha

RMB 0.80/liter (increased by RMB 0.80/liter, exempted if used as raw material for ethylene or aromatics production up to end of 2010)

Fuel Oil RMB 0.80/liter or RMB812/t (increased by RMB 0.70/liter)Source: Company data, National Development and Reform Commission.


ASIA

Chi t i k SChina sector picks - SummaryStock ratings and target prices

PetroChina (857 HK) – BUY, Price Target HK$13.5 (Buy for long-term gas story)

Sinopec (386 HK) – BUY, Price Target HK$9.0 (2Q11 could underperform, but LT fundamentalsSinopec (386 HK) BUY, Price Target HK$9.0 (2Q11 could underperform, but LT fundamentals intact)

CNOOC Ltd. (883 HK) – BUY, Price Target HK$23.0 (Buy for gearing to oil prices)( ) , g $ ( y g g p )

COSL (2883 HK) – REDUCE, Price Target HK$10.3 (Overvalued)

Shanghai Pet (338 HK) – BUY, Price Target HK$4.5 (Gearing to petchem upcycle)

Kunlun Energy (135 HK) – BUY, Price Target HK$17.0 (Asset injection story)

China BlueChem (3983 HK) – BUY, Price Target HK$7.00 (Gaining market share)

Sinofert (297 HK) – REDUCE, Price Target HK$3.0 (Improving margins discounted)


China BlueChem (3983 HK) BUY, Price Target HK$7.00 (Gaining market share)

ASIA

1Q11 lt1Q11 results recap

QoQ YoYTicket 1Q10 4Q10 1Q11 1Q11 1Q11

Petrochina 857 HKet oc a 857 HKNet profit (RMB mn) 32,492 39,962 37,003 -7.4% 13.9%EPS (RMB) 0.178 0.218 0.202Shanghai Petrochemicals 338 HKShanghai Petrochemicals 338 HKNet profit (RMB mn) 895 980 912 -7.0% 1.9%EPS (RMB) 0.124 0.136 0.127Sinopec 386 HKSinopec 386 HKNet profit (RMB mn) 16,485 15,355 20,643 34.4% 25.2%EPS (RMB) 0.190 0.177 0.238COSL 2883 HKCOSL 2883 HKNet profit (RMB mn) 977 699 967 38.4% -1.0%EPS (RMB) 0.217 0.155 0.215CNOOC 883 HKRevenue (RMB mn) 30,493 43,420 48,511 11.7% 59.1%

Source: Company data, Nomura Research.


ASIA

P t Chi (857 HK) BUY PT HK$13 5PetroChina (857 HK), BUY, PT: HK$13.5 Integrated oil company focuses on upstream E&P, with estimated 2011F net profit of > US$25bn and a market cap of

around US$320bn It remains the largest oil and gas proxy to the China marketaround US$320bn. It remains the largest oil and gas proxy to the China market. PetroChina (PTR) announced 1Q11 earnings of RMB37bn, up 14% y-y. Overall earnings continue to be stable despite

high volatility in crude prices and losses in the refining sector. PetroChina is our long-term pick due to its stable earnings growth, large reserve base, strong growth in natural gas,

strong balance sheet and cashflow, undemanding-looking valuations, high yield and low gearing. Future volume growth in gas should be its next trigger. We expect natural gas demand in China to grow from 90bcm in

2009 to 290bcm in 2020F. PetroChina will likely be the biggest beneficiary of this growth in 3 ways – 1) upstream production growth and price PetroChina will likely be the biggest beneficiary of this growth in 3 ways – 1) upstream production growth and price

appreciation; 2) pipeline distribution; and 3 downstream distribution (via Kunlun Energy, Kunlun Natural Gas and Kunlun Gas) to end-users.

Strategy is to stabilise domestic oil production and for overseas production to contribute 50% of oil production. It will have strong double digit domestic natural gas growth we believehave strong double-digit domestic natural gas growth, we believe.

Near-term risks: 1) losses in imported gas from Turkmenistan; 2) lower-than-expected oil product prices; 3) downside risk related to hike in resource tax; and 4) government regulatory risks.

Upside potential: 1) asset injections; 2) windfall tax; 3) petrochemical upcycle; and 4) improved oil product mechanism) j ) ) y )

Yr to Dec Share Price Sales Net profit YoY% EPS (WA) PER BVPS P/B EV/DACF EV/ Yield ROACE Gearing EV/BarrelAvg. (RMBmn) (RMBmn) (RMB) (x) (RMB) (x) (x) EBITDA (%) (%) (%) US$/bbl

2006 8.44 688,978 142,224 6.6% 0.777 11.2 3.28 2.6 9.6 7.3 3.1% 24.3% 3.9% 12.42006 8.44 688,978 142,224 6.6% 0.777 11.2 3.28 2.6 9.6 7.3 3.1% 24.3% 3.9% 12.42007 11.76 836,353 146,750 3.2% 0.802 14.5 4.11 2.8 9.0 7.4 3.2% 20.8% 0.3% 13.22008 9.49 1,072,604 114,453 -22.0% 0.625 13.6 4.32 2.0 6.7 5.8 3.7% 13.3% 11.8% 10.42009 8.13 1,019,275 103,387 -9.7% 0.565 12.7 4.63 1.5 6.5 5.6 2.6% 10.6% 17.4% 9.42010 9.11 1,465,415 139,992 35.4% 0.765 10.5 5.13 1.6 5.8 5.1 3.5% 12.7% 20.0% 10.8

2011E 11.16 1,784,353 176,214 25.9% 0.963 10.2 5.71 1.7 6.2 5.3 4.4% 13.7% 31.2% 14.02012E 11 16 1 879 404 184 403 4 6% 1 008 9 8 6 27 1 6 6 1 5 2 4 6% 12 3% 34 1% 14 5

102© Nomura International (Hong Kong) LimitedSource: Company data, Nomura estimates.

2012E 11.16 1,879,404 184,403 4.6% 1.008 9.8 6.27 1.6 6.1 5.2 4.6% 12.3% 34.1% 14.52013E 11.16 1,991,636 189,763 2.9% 1.037 9.5 6.85 1.4 6.0 5.2 4.7% 11.4% 38.1% 15.0

* Based on share price of HK$11.6 @ 29 April

ASIA

Chinese companies’ domestic production and reservesChinese companies’ domestic production and reservesCrude oil production (2010) – [1,322mn bbl] Natural gas production (2010) – [2,803 bcf]

Sinopec, 16%Si

CNOOC, 8%

16%Sinopec, 25%

Petrochina, 58%

CNOOC, 17%

C d il (2010) [14 496 bbl] N t l (2010) [71 652 b f]

Petrochina, 76%

Petrochina CNOOC Sinopec

17%

Petrochina CNOOC Sinopec

Crude oil reserve (2010) – [14,496 mn bbl] Natural gas reserve (2010) – [71,652 bcf]

CNOOC, 6%

Sinopec, 9%Sinopec,

20%

CNOOC, 10%

Petrochina

Petrochina, 70%

103© Nomura International (Hong Kong) LimitedSource: PetroChina, Sinopec, CNOOC, Nomura research

Petrochina, 85%

Petrochina CNOOC SinopecPetrochina CNOOC Sinopec

ASIA

P t Chi (857 HK) l tiPetroChina (857 HK) — valuationSum-of-the-parts EBIT breakdown

Normalized Rmb in millions 2008 2009 2010 2011E 2012E 2013EUS$ mn Rmb m HK$/Share

Normalized EBITDA Multiple Basis

E&P 205,579 1,342,534 8.74DCF calculation based on estimated

recoverable reserves at 8% discount rateR&C 37,886 247,413 1.61 24,741 10.0 avg EV/EBITDA.Marketing 58,464 381,797 2.48 38,180 10.0 avg EV/EBITDA.

Gas 34,485 225,204 1.47DCF calculation based on projected gas sales

at 8% discount rateTotal Enterprise Value 336 413 2 196 948 14 30

Rmb in millions 2008 2009 2010 2011E 2012E 2013EEBIT E&P 240,470 105,019 153,703 209,347 209,907 215,975Refining & Chemicals (93,830) 17,308 7,847 (9,020) 3,718 3,932Marketing 7,982 13,265 15,956 28,613 28,697 28,735Natural Gas 16,057 19,046 20,415 21,669 23,741 26,876Subtotal 170,679 154,638 197,921 250,609 266,063 275,519

Total Enterprise Value 336,413 2,196,948 14.30Less: Avg. Net debt at FY10 28,774 187,911 1.22Equity Value 307,639 2,009,037 13.07# of Shares Outstanding (mn) 1,830 183,021NAV (US$/Shr; HK$/Shr) 168.09 13.07Value of overseas assets (HK$/US$) 0.03 0.21Total NAV (US$/Shr; HK$/Shr) 168.12 13.28

% of subtotalE&P 141% 68% 78% 84% 79% 78%Refining & Chemicals -55% 11% 4% -4% 1% 1%Marketing 5% 9% 8% 11% 11% 10%Natural Gas 9% 12% 10% 9% 9% 10%E&P revenue %Oil 93% 87% 88% 89% 86% 83%

R l t t 2011F iti it t bl

Oil 93% 87% 88% 89% 86% 83%Gas 7% 13% 12% 11% 14% 17%

Replacement cost 2011F sensitivity tableTotal amount Rmb

Unit Price (US$ m) /shareReservesOil (mm bbl) 11,278 US$ 12 /bbl 135,336 5.1Gas (bcf) 65,503 US$ 1.8 /mcf 117,905 4.4

80 90 100 110 120 130 140 2.0 72,680 96,140 119,600 143,061 166,521 189,981 213,4413 0 85 308 108 768 132 228 155 689 179 149 202 609 226 069

Crude oil price (US$/bbl)

e Overseas assets (mm BOE) 795 4,947 0.2E&P (total) 258,188 9.6Refining capacity ('000b/d) 2,671 US$14,000 per bbl 37,669 1.4Marketing (Gas stations) 17,996 US$ 1 m/station 13,041 0.5Chemical (Ethylene capacity (m tonne)) 3.71 US$ 3,500 per ton 12,985 0.5Pipeline (Length of natural gas pipelines (km)) 56,840 US$ 2.0 mn per km 113,680 4.2others 23,074 0.9

3.0 85,308 108,768 132,228 155,689 179,149 202,609 226,0694.0 97,936 121,396 144,856 168,317 191,777 215,237 238,6974.6 105,833 129,294 152,754 176,214 199,674 223,134 246,5945.0 110,564 134,024 157,484 180,945 204,405 227,865 251,3256.0 123,192 146,652 170,112 193,573 217,033 240,493 263,9537.0 135,820 159,280 182,740 206,201 229,661 253,121 276,5818.0 148,448 171,908 195,368 218,829 242,289 265,749 289,209N

atur

al G

as P

rice

(U$/

mcf

),

Total NAV (US$ mils) 458,637 17.1Total NAV (Rmb mils) 3,132,490 17.1Less: net debt (Rmb mils) 187,911Total (Rmb mil) 2,944,579Total NAV per share (HK$) 18.26

9.0 161,076 184,536 207,996 231,457 254,917 278,377 301,837


Source: Nomura estimates.

ASIA

P t Chi b d h t d t t i d i tiPetroChina — band charts and target price derivationForward P/E band Forward P/B band

18.0

20.0

22.0

24.0

26.0 PB band chart

3 0

3.5x

4.0x

4.5x

22.0 24.0 26.0 28.0 30.0 32.0

PE band chart

20x

25x

6.0

8.0

10.0

12.0

14.0

16.0

HK

$

1.5x

2.0x

2.5x

3.0x

10.0 12.0 14.0 16.0 18.0 20.0

HK

$

10x

15x

0.0

2.0

4.0

Jan-

01M

ay-0

1S

ep-0

1Ja

n-02

May

-02

Sep

-02

Jan-

03M

ay-0

3S

ep-0

3Ja

n-04

May

-04

Sep

-04

Jan-

05M

ay-0

5S

ep-0

5Ja

n-06

May

-06

Sep

-06

Jan-

07M

ay-0

7S

ep-0

7Ja

n-08

May

-08

Sep

-08

Jan-

09M

ay-0

9S

ep-0

9Ja

n-10

May

-10

Sep

-10

Jan-

11

0.5x

1.0x

0.0 2.0 4.0 6.0 8.0

an-0

1ay

-01

ep-0

1an

-02

ay-0

2ep

-02

an-0

3ay

-03

ep-0

3an

-04

ay-0

4ep

-04

an-0

5ay

-05

ep-0

5an

-06

ay-0

6ep

-06

an-0

7ay

-07

ep-0

7an

-08

a y-0

8ep

-08

an-0

9ay

-09

ep-0

9an

-10

ay-1

0ep

-10

an-1

1

5x

Target price derivation Forward EV/EBITDA bandRisk Free Rate 2.5%Risk Premium 6.5%Beta 1.2

J M Se J M Se J M Se J M Se J M Se J M Se J M Se J M Se J M Se J M Se J

20

22

24

12.0x

Cost of Debt 2.2%Cost of Equity 10.2%2011F ROACE 13.7%WACC 8.1%EV (Rmb bn) 2,470Capital Employed (Rmb bn) 1 456

10

12

14

16

18

HK$

6.0x

8.0x

10.0x

Capital Employed (Rmb bn) 1,456ROACE 13.7% 2,470WACC 8.1% 1,456Fair values per share (HK$) HK$ 13.29Value of Overseas Assets 0.21Target Price (HK$) HK$ 13.50

= = 1.7 =

0

2

4

6

8

-01

-01

-01

-02

-02

-02

-03

-03

-03

-04

-04

-04

-05

-05

-05

-06

-06

-06

-07

-07

-07

-08

-08

-08

-09

-09

-09

-10

-10

-10

-11

-11

2.0x

4.0x

105

Source: Datastream, Company data, Nomura estimates


Target Price (HK$) HK$ 13.50Ja

n-M

ay-

Sep

-Ja

n-M

ay-

Sep

-Ja

n-M

ay-

Sep

-Ja

n-M

ay-

Sep

-Ja

n-M

ay-

Sep

-Ja

n-M

ay-

Sep

-Ja

n-M

ay-

Sep

-Ja

n-M

ay-

Sep

-Ja

n-M

ay-

Sep

-Ja

n-M

ay-

Sep

-Ja

n-M

ay-

ASIA

Si (386 HK) BUY PT HK$9 0Sinopec (386 HK), BUY, PT: HK$9.0

An integrated oil company geared more towards downstream oil and chemicals It is geared most to domestic demand An integrated oil company geared more towards downstream oil and chemicals. It is geared most to domestic demand growth in oil products and petrochemicals.

Sinopec announced 1Q11 net profit of RMB20.6bn, up +25% y-y. Despite refining losses of RMB576mn, its petrochemical and marketing divisions achieved strong EBIT growth of 64% and 41% y-y, respectively.

W t fi i l t id d t h i l i t i 2Q11 We expect refining losses to widen and petrochemical margins to squeeze in 2Q11. However, we believe there is room for the Chinese government to hike oil product prices by the end of 2Q11F at the

latest due to potential supply shortages. Near-term investment risks: 1) oil product price controls; 2) inflation risks; and 3) regulatory risks such as resource tax. Upside potential – 1) petrochemical upcycle; 2) further upstream asset injections by parent; 3) improvement in oil

product pricing mechanism; and 4) positive changes in taxes (VAT on oil products and windfall tax).

Yr to Dec Share Price Sales Net Profit YoY% EPS (WA) PER BVPS P/B EV/DACF EV/ Yield ROACE Gearing EV/Barrel(HK$) (RMBmn) (RMBmn) (RMB) (x) (Rmb) (x) (x) EBITDA (%) (%) (%) US$/bbl

2006 4.88 1,061,741 53,603 29% 0.618 8.1 3.05 1.7 6.3 4.8 3.0% 13.9% 59.4% 18.62007 8.50 1,204,843 56,533 5% 0.652 12.9 3.55 2.4 7.4 6.4 2.0% 13.7% 56.3% 29.62008 7.13 1,444,291 28,525 -50% 0.329 19.4 3.78 1.7 10.3 9.3 1.9% 8.9% 69.9% 27.62009 5.92 1,345,052 63,147 121% 0.728 7.2 4.33 1.2 NM 4.3 3.4% 13.5% 55.8% 25.02010 6.53 1 913 182 71 800 14% 0 828 7 0 4 83 1 2 3 8 4 0 3 0% 13 2% 46 0% 26 0

Source: Company data Nomura estimates

2010 6.53 1,913,182 71,800 14% 0.828 7.0 4.83 1.2 3.8 4.0 3.0% 13.2% 46.0% 26.02011E 7.82 2,376,901 81,153 13% 0.936 7.4 5.55 1.2 6.3 4.3 3.4% 13.2% 41.4% 29.62012E 7.82 2,542,700 93,005 15% 1.073 6.4 6.37 1.1 4.8 3.8 3.9% 13.6% 36.0% 29.62013E 7.82 2,633,708 94,164 1% 1.086 6.3 7.18 1.0 4.7 3.8 4.0% 12.4% 34.7% 30.2

* Based on share price of HK$7.82 @ 29 April


Source: Company data, Nomura estimates

ASIA

Sinopec refining marginsSinopec refining margins(US$/bbl) Refining margins Quarterly avg.

Jan-09 2.7Feb-09 8.6Mar 09 7 3 1Q09 6 2

% of Price (incl. VAT) Price (incl. VAT) Market Barrel Price (ex VAT) Price PriceMar-09 7.3 1Q09 6.2Apr-09 9.6May-09 7.6Jun-09 10.4 2Q09 9.2Jul-09 6.1Aug-09 0.1Sep-09 2.6 3Q09 2.9Oct-09 (1.0)Nov-09 2.5Dec-09 (1 3) 4Q09 0 1

ex consumption tax ex consumption taxProduction (Rmb/Tonne) (Rmb/Tonne) Unit Price or Factor US$/tonne US$/tonne US$/bbl

(A) Gov't Price (B) A x BGasoline 18.0% 8,580 7,192 US$/bbl 109.9 8.5 936 168.4Jet/kero 6.0% 6,840 5,843 US$/bbl 96.5 7.9 760 45.6Diesel/GO 41.5% 7,730 6,789 US$/bbl 118.7 7.4 883 366.6Fuel oil 11.0% 4,804 4,804 US$/bbl 96.7 6.5 625 68.8 Dec 09 (1.3) 4Q09 0.1

Jan-10 0.4Feb-10 (0.7)Mar-10 3.3 1Q10 1.0Apr-10 4.1May-10 (0.7)Jun-10 (5.9) 2Q10 (0.9)Jul-10 2.8Aug-10 3.9Sep-10 2.4 3Q10 3.1

ue o 0% ,80 ,80 US$/bb 96 6 5 6 5 68 8LPG 5.0% 6,529 6,529 US$/tonne 850 12.4 850 42.5Napththa 12.0% 6,376 6,376 US$/bbl 98.2 8.5 830 99.6Gross Product Value 791.5 108.8CostsDubai crude (Lag 1.5 months) US$/bbl 108.62 7.275 790.2 108.6Refining margin 1.3 0.2Operating cost 29 1 4 0 p Q

Oct-10 5.8Nov-10 3.9Dec-10 2.7 4Q10 4.1Jan-11 1.1Feb-11 0.2Mar-11 (2.7) 1Q11 (0.5)Apr-11 (3.8)

Operating cost 29.1 4.0

Refining profit (US$/tonne) (27.8)Refining profit (US$/bbl) (3.8) (3.8)

The product pricing mechanism gives no clarity on what refining margins the government intends for the domestic refineries.

Source: NDRC, Thomson Reuters Datastream, Nomura research

Oil product prices may be adjusted every 22 working days if average crude oil prices move by 4% since the last adjustment.

According to the benchmark retail and ex-refinery price differences, marketing margins are around RMB700/tonne, around 30% lower than historical levels.

Longer term, we expect full liberalisation of product pricing.


ASIA

Si (386 HK) l tiSinopec (386 HK) — valuation

Sum-of-the-parts EBIT breakdownSum-of-the-parts EBIT breakdown

Sum-of-the parts US$ mn Rmb m HK$/shareNormalized

EBITDA Multiple Basis

E&P 73,092 499,439 6.5 n/a DCF based on recoverable reserves at 10.2% discount rate

Refining 10,259 70,103 0.9 17,526 4.0 Average EBITDA multiple

(Rmb in millions) 2008 2009 2010 2011E 2012E 2013EEBITE&P 66,569 23,894 47,149 60,213 65,747 66,704 Refining (63,635) 27,508 15,855 (3,850) 5,112 5,161 Marketing 38,519 30,300 30,760 35,683 35,845 35,869 Chemicals (12 950) 13 805 15 037 25 150 26 545 27 879Marketing 59,628 407,439 5.3 40,744 10.0 Average EBITDA multiple

Chemicals 27,837 190,213 2.5 31,702 6.0 Average EBITDA multipleTotal Enterprise Value 170,817 1,167,194 15.3Net debt at 2010 (28,230) (192,895) (2.5)Equity Value 142,587 974,299 12.75# of O/S Shares bn 867.0 86.7NAV (US$/ADR, HK$/Shr) 164.5 12.75

Chemicals (12,950) 13,805 15,037 25,150 26,545 27,879 Subtotal 28,503 95,507 108,801 117,197 133,250 135,613 % of subtotalE&P 234% 25% 43% 51% 49% 49%Refining -223% 29% 15% -3% 4% 4%Marketing 135% 32% 28% 30% 27% 26%Chemicals -45% 14% 14% 21% 20% 21%

Replacement cost FY11 earnings sensitivity tableReplacement cost

Total AmountUnit Price (US$ m) Rmb/share

E&P 80 90 100 110 120 130 140Crude Oil Price (US$/bbl)

oil (mm bbl) 2,888 US$ 12 /bbl 34,656 2.73natural gas (bcf) 6,447 US$ 1.8 /mcf 11,605 0.91New discoveryTahe, Xinjiang (Oil) (recoverable reserve) 511 US$ 12 /bbl 6,132 E&P (Oil and Gas reserves) 52,393 4.13Refining 59,840 4.72Marketing (gas station operated by SNP) 30,116 US$ 1 m/station 21,823 1.72

$

80 90 100 110 120 130 1407.00 58,169 67,077 75,985 84,893 93,800 102,708 111,6166.50 56,979 65,887 74,794 83,702 92,610 101,517 110,4256.00 55,788 64,696 73,604 82,511 91,419 100,327 109,2355.43 54,430 63,338 72,245 81,153 90,061 98,968 107,8765.50 54,598 63,505 72,413 81,321 90,229 99,136 108,0445.00 53,407 62,315 71,222 80,130 89,038 97,946 106,8534 0

atur

al G

as P

rice

(US$

/kcf

)

Chemical (Ethylene capacity (m tonne)) 9.33 US$ 3,500 per ton 32,638 2.57Others 5,018 Total NAV (US$ mil) 171,711 13.53Total NAV (Rmb mil) 1,173,300 13.53Less: net debt (Rmb mil) (192,895) (2.2)Total (Rmb mil) 980,405 11.31Total NAV per share (HK$) 12.83

4.50 52,216 61,124 70,032 78,940 87,847 96,755 105,663N



ASIA

Si b d h t d t t i d i tiSinopec — band charts and target price derivationForward P/E band Forward P/B band

10.0

12.0

14.0 PE band chart

11.0x

13.0x

15.0x

10.0

12.0

14.0PB band chart

2.5x

3.0x

3.5x

4.0

6.0

8.0

HK

$

5 0x

9.0x

7.0x

4.0

6.0

8.0

HK

$

1 0

1.5x

2.0x

0.0

2.0

Oct

-00

Jan-

01A

pr-0

1Ju

l-01

Oct

-01

Jan-

02A

pr-0

2Ju

l-02

Oct

-02

Jan-

03A

pr-0

3Ju

l-03

Oct

-03

Jan-

04A

pr-0

4Ju

l-04

Oct

-04

Jan-

05A

pr-0

5Ju

l-05

Oct

-05

Jan-

06A

pr-0

6Ju

l-06

Oct

-06

Jan-

07A

pr-0

7Ju

l-07

Oct

-07

Jan-

08A

pr-0

8Ju

l-08

Oct

-08

Jan-

09A

pr-0

9Ju

l-09

Oct

-09

Jan-

10A

pr-1

0Ju

l-10

Oct

-10

Jan-

11A

pr-1

1

5.0x

0.0

2.0

Oct

-00

Jan-

01Ap

r-01

Jul-0

1O

ct-0

1Ja

n-02

Apr-0

2Ju

l-02

Oct

-02

Jan-

03Ap

r-03

Jul-0

3O

ct-0

3Ja

n-04

Apr-0

4Ju

l-04

Oct

-04

Jan-

05Ap

r-05

Jul-0

5O

ct-0

5Ja

n-06

Apr-0

6Ju

l-06

Oct

-06

Jan-

07Ap

r-07

Jul-0

7O

ct-0

7Ja

n-08

Apr-0

8Ju

l-08

Oct

-08

Jan-

09Ap

r-09

Jul-0

9O

ct-0

9Ja

n-10

Apr-1

0Ju

l-10

Oct

-10

Jan-

11Ap

r-11

0.5x

1.0x

Target price derivation Forward EV/EBITDA bandRisk Free Rate 2.5%Risk Premium 9.0%Beta 1.2C f D b 2 8%

12.0

14.0

7.5x

9.0x

Cost of Debt 2.8%Cost of Equity 13.4%FY11F ROACE 13.2%WACC 10.2%EV (Rmb bn) 887Capital Employed (Rmb bn) 689

6.0

8.0

10.0

HK

$ 4.5x

6.0x

Capital Employed (Rmb bn) 689ROACE 13.2% 887WACC 10.2% 689Fair value per share (HK$) 9.00

New target price (HK$) HK$ 9.00

1.29 == =

0 0

2.0

4.03.0x

109Source: Datastream, Company data, Nomura estimates


g p ( $) $New target price (HK$) (round up to 1 decimal) HK$ 9.00

0.0

Oct

-00

Jan-

01A

pr-0

1Ju

l-01

Oct

-01

Jan-

02A

pr-0

2Ju

l-02

Oct

-02

Jan-

03A

pr-0

3Ju

l-03

Oct

-03

Jan-

04A

pr-0

4Ju

l-04

Oct

-04

Jan-

05A

pr-0

5Ju

l-05

Oct

-05

Jan-

06A

pr-0

6Ju

l-06

Oct

-06

Jan-

07A

pr-0

7Ju

l-07

Oct

-07

Jan-

08A

pr-0

8Ju

l-08

Oct

-08

Jan-

09A

pr-0

9Ju

l-09

Oct

-09

Jan-

10A

pr-1

0Ju

l-10

Oct

-10

Jan-

11A

pr-1

1

ASIA

CNOOC Ltd (883 HK) BUY PT HK$23 0CNOOC Ltd (883 HK), BUY, PT: HK$23.0

The second-largest listed pure E&P company in the world in terms of reserves and China’s only pure E&P company The second-largest listed pure E&P company in the world in terms of reserves and China s only pure E&P company. CNOOC 1Q11 oil and gas production volume came in at 85.2mmboe up 26.6% y-y. There may be revision of full-year production target of 355-365mmboe (up 8-10% y-y) depending on: 1) progress of its

acquisition completion dates; and 2) new project starts-ups and the production interruption due to its damaged FPSO. Our Brent oil price forecasts are US$110/bbl in 2011-13F and our long-term oil price estimate is US$75/bbl. Investment risks – 1) declining returns and margins as company expands overseas; 2) limited reserve base; 3) resource (or

some other) taxes; 4) rising operating cost – lifting cost, exploration expenses; 5) lower production growth; and 6) international regulatory risks6) international regulatory risks.

Our target price of HK$23.0 is derived from 2011F ROACE/WACC (30.5%/8.6%) with a long-term growth rate of 1%.

LT crude oil price (US$/bbl) NAV (HK$)40 8.4160 9.5675 (base case) 10.2880 10.52100 11.48120 12.44

Yr to Dec Share Price Sales Net Profit YoY% EPS PER BVPS P/B EV/DAC EV/ Yield ROACE Gearing EV/Barrel(HK$) (RMBmn) (RMBmn) (Rmb) (x) (Rmb) (x) (x) EBITDA (%) (%) (%) US$/bbl

2006 6.40 88,947 30,927 22% 0.71 9.2 2.49 2.6 7.0 5.6 3.9% 36% Net Cash 14.42007 9.36 90,724 31,258 1% 0.71 13.0 3.03 3.0 9.1 7.5 3.0% 29% Net Cash 19.82008 10.76 125,977 44,375 42% 0.99 9.7 3.59 2.7 7.0 6.1 3.7% 35% Net Cash 23.12009 9 79 105 195 29 486 34% 0 660 13 1 3 89 2 2 7 4 6 1 4 1% 21% N t C h 17 6 140 13.40

160 14.36180 15.32200 16.28220 17.24240 18.20260 19.16

2009 9.79 105,195 29,486 -34% 0.660 13.1 3.89 2.2 7.4 6.1 4.1% 21% Net Cash 17.62010 14.01 183,053 54,410 85% 1.218 10.1 4.83 2.6 6.3 5.1 3.2% 32% Net Cash 26.1

2011E 19.16 235,179 70,482 30% 1.578 10.7 5.97 2.83 6.7 5.7 3.1% 28% Net Cash 36.22012E 19.16 239,781 71,116 1% 1.592 10.6 7.04 2.40 6.6 5.5 3.1% 29% Net Cash 35.12013E 19.16 251,917 71,912 1% 1.610 10.5 8.12 2.08 6.1 5.1 3.1% 30% Net Cash 34.1

* Based on share price of HK$19 16 @ 29 April


Source: Company data, Nomura estimates260 19.16280 20.12300 21.08

Based on share price of HK$19.16 @ 29 April

ASIA

CNOOC b d h t d t t i d i tiCNOOC — band charts and target price derivationForward P/E band Forward P/B band

16.0

18.0

20.0

22.0

24.0 PE Band Chart

15x

18x

21x

16.0

18.0

20.0

22.0

24.0 PB Band Chart

5x

4x

6.0

8.0

10.0

12.0

14.0

HK

$

12x

9x6.0

8.0

10.0

12.0

14.0

HK

$

3x

2x

0.0

2.0

4.0

Feb

-01

Jul-0

1

Dec

-01

May

-02

Oct

-02

Mar

-03

Aug

-03

Jan-

04

Jun-

04

Nov

-04

Apr

-05

Sep

-05

Feb

-06

Jul-0

6

Dec

-06

May

-07

Oct

-07

Mar

-08

Aug

-08

Jan-

09

Jun-

09

Nov

-09

Apr

-10

Sep

-10

Feb

-11

6x

0.0

2.0

4.0

Feb

-01

Jul-0

1

Dec

-01

May

-02

Oct

-02

Mar

-03

Aug-

03

Jan-

04

Jun-

04

Nov

-04

Apr

-05

Sep-

05

Feb

-06

Jul-0

6

Dec

-06

May

-07

Oct

-07

Mar

-08

Aug-

08

Jan-

09

Jun-

09

Nov

-09

Apr

-10

Sep-

10

Feb

-11

1x

Forward EV/EBITDA bandTarget price derivation

Risk Free Rate 2.5%Risk Premium 6.5%Beta 1 3

20.0

22.0

24.0

11x

9xBeta 1.3Cost of Debt 4.1%Cost of Equity 10.7%LT growth rate (g) 1.0%FY11F ROACE 31.5%WACC 9.6%EV (Rmb bn) 890 0

10.0

12.0

14.0

16.0

18.0

HK

$

7x

5x

EV (Rmb bn) 890.0Capital Employed (Rmb bn) 251.2ROACE - g 30.5% 890.0WACC - g 8.6% 251.2New target Price (HK$) HK$ 23.00

= == 3.5

0.0

2.0

4.0

6.0

8.0

eb-0

1ay

-01

ug-0

1ov

-01

eb-0

2ay

-02

ug-0

2ov

-02

eb-0

3ay

-03

ug-0

3ov

-03

eb-0

4ay

-04

ug-0

4ov

-04

eb-0

5ay

-05

ug-0

5ov

-05

eb-0

6ay

-06

ug-0

6ov

-06

eb-0

7ay

-07

ug-0

7ov

-07

eb-0

8ay

-08

ug-0

8ov

-08

eb-0

9ay

-09

ug-0

9ov

-09

eb-1

0ay

-10

ug-1

0ov

-10

eb-1

1

3x

Source: Datastream, Company data, Nomura estimates.


Fe Ma

Au No Fe Ma

Au No Fe Ma

Au No Fe Ma

Au No Fe Ma

Au No Fe Ma

Au No Fe Ma

Au No Fe Ma

Au No Fe Ma

Au No Fe Ma

Au No Fe

ASIA

MENA i i i t Chi il iMENA crisis impact on Chinese oil companies

FY11F earnings sensitivity (RMB mn) FY11F earnings sensitivity on oil prices (RMB mn)Sinopec Base case

Crude oil price (US$/bbl) 110 130 140 145 150Refining margin (US$/bbl) (0.37) 0.0 (10.0) (15.0) (20.0) Oil price US$95 +$10/bblFY11F net profit (RMB mn) 81,153 101,799 34,194 391 (33,411) EPS (RMB) 0.94 1.17 0.39 0.00 (0.39) Petrochina Base caseCrude oil price (US$/bbl) 110 130 140 145 150Refining margin (US$/bbl) (2.23) 0.0 (10.0) (15.0) (20.0)FY11F net profit (RMB mn) 176,214 233,576 210,277 198,628 186,979

Oil price US$95 +$10/bblFY11F net profit EPS FY11F net profit EPS % change

(RMB mn) (RMB) (RMB mn) (RMB)Petrochina 176,214 0.96 199,674 1.09 13.3%Sinopec 81,153 0.94 90,061 1.04 11.0%CNOOC 70,482 1.58 80,209 1.80 13.8%

EPS (RMB) 0.96 1.28 1.15 1.09 1.02

FY11F refining EBIT sensitivity (RMB mn)FY11F refining EBIT sensitivity (RMB mn)Base for SNP Base for PTR

Refining marings 2.00 1.00 0.00 (0.37) (1.00) (2.00) (2.23) (5.00) (10.00)Petrochina (RMB mn) 196,007 191,331 186,655 NA 181,979 177,304 176,214 163,276 139,897Sinopec (RMB mn) 99,287 91,635 83,984 81,153 76,333 68,681 NA 45,727 7,471

Source: Company data, Nomura estimates.


ASIA

E&P it l dit (P t Chi Si d CNOOC)E&P capital expenditure (PetroChina, Sinopec and CNOOC)

250,000

300,000

1999 - 2011E CAGR: 20.7%

150 000

200,000

Milli

ons

100,000

150,000

Rm

b in

0

50,000

R

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

E

Source: Company data Nomura estimates

2

Petrochina Sinopec CNOOC



ASIA

COSL (2883 HK) REDUCE PT HK$10 3COSL (2883 HK), REDUCE, PT: HK$10.3

COSL was incorporated in December 2001 and provides drilling, well, geophysical and marine and transport services; CNOOC (parent company) currently holds a 61.58% stake in COSL.

COSL reported FY10 earnings up 32% y-y, 6% higher than our estimate. The difference was mainly due to a lower effective tax rate of only 2% in 4Q10 vs 15% normally and slightly higher +3% EBIT in drilling.

Management maintains its cautious view on the drilling day rates and expects intense competition due to overcapacity in 2011.

We are forecasting modest earnings growth of 7% in 2011F and a stronger recovery of 12% in 2012F. Longer term, the company’s growth direction is unclear to us, as new investment plans have not been determined.

Investment risks: 1) share price sensitive to oil price movement; 2) dependence on CNOOC Ltd; 3) engaged in high-risk business (offshore drilling); 4) older technology; 5) high gearing; and 6) share placement.

Yr to Dec Share Price Sales Net profit EPS (WA) YoY% PER BVPS P/B EV/ DPS Yield ROACE GearingAvg. (RMBmn) (RMBmn) (RMB) (x) (RMB) (x) EBITDA (RMB) (%) (%) (%)g ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( )

2006 4.08 6,365 1,128 0.282 37% 14.6 2.10 2.0 7.8 0.06 1.5% 16.0% Net Cash2007 10.57 9,008 2,237 0.542 98% 19.1 4.04 2.6 10.4 0.12 1.2% 24.5% Net Cash2008 11.01 12,143 3,102 0.690 39% 14.3 4.26 2.3 13.1 0.14 1.4% 12.9% 123.1%2009 7.55 16,802 3,135 0.697 1% 9.5 4.82 1.4 9.1 0.14 2.1% 8.2% 125.0%2010 11.28 17,561 4,128 0.918 32% 10.8 5.51 1.8 8.2 0.18 1.3% 9.5% 95.1%

2011E 15.36 20,407 4,421 0.983 7% 13.8 6.30 2.1 9.4 0.19 1.4% 9.8% 82.6%2012E 15.36 23,219 4,957 1.103 12% 12.3 7.19 1.9 8.5 0.22 1.6% 10.2% 70.7%2013E 15.36 25,312 5,460 1.215 10% 11.1 8.17 1.7 7.7 0.24 1.8% 10.4% 60.8%

*Based on share price of HK$15 36 @ 29 April




ASIA

COSL it i l d i filCOSL — capacity expansion plan and rigs profileCOSL capacity expansion plan (2008 – 2011) EBIT breakdownp y p p ( ) EBIT breakdown

2010 2011 2012Drilling 1) 2x 350feet drilling rigs commenced operation 1) 2x 200feet drilling rigs (COSL 921 & 922) to commerce operation 1) Pioneer operating days to increase

2) 2x 200 feet drilling rigs (COSL 921 & 922) delivered 2) 2x 200feet drilling rigs (COSL 923&924) to be delivered 2) Innovator to commence operation3) Pioneer delivered 3) Pioneer to commence operation 3) Promoter to be delivered

(Rmb in millions) 2008 2009 2010 2011F 2012F 2013FDrilling services 2,118 2,748 3,505 3,685 4,027 4,158Well services 471 743 814 956 1,105 1,278Marine support & transpo 491 654 542 658 736 826Geophysical services 551 323 339 408 458 6413) Pioneer delivered 3) Pioneer to commence operation 3) Promoter to be delivered

4) Innovator to be delivered5) Ultra deep water SS981 to be delivered

Well Services 1) 2x Liftboats 1) Vessels introducing acidification and crushing delivered for operation2) Well services equipment

Marine Support 1) 1x well-workover support barge 1) 2x deep water ATHS vesselsGeophysical 1) 1x underwater cable team 1) Underwater cable team

2) 12-streamer seismic vessel, Deepwater survey vessel

EBIT 3,631 4,468 5,200 5,707 6,327 6,904% of EBITDrilling services 58% 61% 67% 65% 64% 60%Well services 13% 17% 16% 17% 17% 19%Marine support & transpo 14% 15% 10% 12% 12% 12%Geophysical services 15% 7% 7% 7% 7% 9%

Awilco rigs profile Total number of rigsW depth (ft) Delivery Customer Dayrate (USD/day) Contract

Jack-upsWilPower 375 Delivered ADC 70 000 Aug 2006 Aug 2011

2008 2009 2010 2011 2012 2013COSLJ k 19 22 24 26 26 26WilPower 375 Delivered ADC 70,000 Aug 2006 - Aug 2011

WilCraft 400 Delivered Peak Group 255,000 Mar 2007 - Aug 2008WilSuperior 375 Delivered in 2Q07 Thang Long 225,000 Sep 2007 - Sep 2008WilBoss 400 Delivered at 07YE Premier Oil 220,000 Mar 2007 - Aug 2008WilForce 375 Delivered in 1Q08 Repsol, LOI 198,000 3Q2008 - 1Q2009WilSeeker 375 2Q08 195000WilStrike 400 2Q09WilConfidence 375 2Q09

Jackup 19 22 24 26 26 26Jackup (leased) 1 1 1 1 1 1Semi-sub 3 3 3 6 7 7Semi-sub (operator) 1 1 1 1 1Sub-total 23 27 29 34 35 35Accommodation 2 2 2 2 2 2WilConfidence 375 2Q09

Average 193,833Semi-submersiblesWilPioneer 2500 2H2010 BP 300,000 2Q2009 to 4Q2011WilInnovator 2500 1H2011 StatoilHydro 350,000 mid 2009 to 2017/2025WilPromoter 2500 1H2012 StatoilHydro 350,000 mid-2010 to mid-2018Average 333,333Accommodation Beds W depth (ft)

Accommodation 2 2 2 2 2 2Module rigs 4 4 4 4 4 4Land rigs 4 6 6 6 6 6Sub-total 10 12 12 12 12 12Total 33 39 41 46 47 47

115Source: Company data, Nomura estimates.

p ( )Port Rigmar 358 1,500 ConocoPhilips 155,000 Aug 2007 - Oct 2009Port Reval 326 300 ConocoPhilips US$76,500/day to US$149,500/day Jul 2007 - May 2009


ASIA

COSL b d h t d t t i d i tiCOSL — band charts and target price derivationForward P/E band Forward P/B band

15 0

20.0

25.0

20.0x

25.0x

30.0x35.0x

15 0

20.0

25.0

3.5x

4.5x

5.0

10.0

15.0

HK

$

10.0x

15.0x

5.0

10.0

15.0

HK

$

1.5x

2.5x

0.0

Nov

-02

Mar

-03

Jul-0

3

Nov

-03

Mar

-04

Jul-0

4

Nov

-04

Mar

-05

Jul-0

5

Nov

-05

Mar

-06

Jul-0

6

Nov

-06

Mar

-07

Jul-0

7

Nov

-07

Mar

-08

Jul-0

8

Nov

-08

Mar

-09

Jul-0

9

Nov

-09

Mar

-10

Jul-1

0

Nov

-10

Mar

-11

5.0x0.0

Nov

-02

Mar

-03

Jul-0

3

Nov

-03

Mar

-04

Jul-0

4

Nov

-04

Mar

-05

Jul-0

5

Nov

-05

Mar

-06

Jul-0

6

Nov

-06

Mar

-07

Jul-0

7

Nov

-07

Mar

-08

Jul-0

8

Nov

-08

Mar

-09

Jul-0

9

Nov

-09

Mar

-10

Jul-1

0

Nov

-10

Mar

-11

0.5x

Forward EV/EBITDA bandTarget price derivationRisk free rate 2.5%Risk premium 7.9%Beta 1.3 20.0

25.0

25.0x

Cost of debt 1.9%Cost of equity 12.7%ROACE (2011E) 9.8%WACC 7.9%EV (Rmb mil) 64,197CE (R b il) 51 738

10.0

15.0

0 0

HK

$15.0x

20.0x

CE (Rmb mil) 51,738ROACE 9.8% 64,197WACC 7.9% 51,738Target Price (HK$) HK$ 10.30

= = 1.2 =

0.0

5.0

ov-0

2

Mar

-03

Jul-0

3

ov-0

3

Mar

-04

Jul-0

4

ov-0

4

Mar

-05

Jul-0

5

ov-0

5

Mar

-06

Jul-0

6

ov-0

6

Mar

-07

Jul-0

7

ov-0

7

Mar

-08

Jul-0

8

ov-0

8

Mar

-09

Jul-0

9

ov-0

9

Mar

-10

Jul-1

0

ov-1

0

Mar

-11

5.0x

10.0x


Source: Thomson Reuters Datastream, Company data, Nomura research


No M J No M J No M J No M J No M J No M J No M J No M J No M

ASIA

Global offshore rig utilisation and dayrateGlobal offshore rig utilisation and dayrateJackup and semi-submersible utilisation and dayrates

80.0%

90.0%

100.0%

110.0%

90.0%

100.0%

110.0%

40.0%

50.0%

60.0%

70.0%

70.0%

80.0%

20.0%

30.0%

1/1/

2001

4/1/

2001

7/1/

2001

10/1

/200

1

1/1/

2002

4/1/

2002

7/1/

2002

10/1

/200

2

1/1/

2003

4/1/

2003

7/1/

2003

10/1

/200

3

1/1/

2004

4/1/

2004

7/1/

2004

10/1

/200

4

1/1/

2005

4/1/

2005

7/1/

2005

10/1

/200

5

1/1/

2006

4/1/

2006

7/1/

2006

10/1

/200

6

1/1/

2007

4/1/

2007

7/1/

2007

10/1

/200

7

1/1/

2008

4/1/

2008

7/1/

2008

10/1

/200

8

1/1/

2009

4/1/

2009

7/1/

2009

10/1

/200

9

US GOM North West Europe SE Asia Pacific

50.0%

60.0%

1/1/

2001

4/1/

2001

7/1/

2001

10/1

/200

1

1/1/

2002

4/1/

2002

7/1/

2002

10/1

/200

2

1/1/

2003

4/1/

2003

7/1/

2003

10/1

/200

3

1/1/

2004

4/1/

2004

7/1/

2004

10/1

/200

4

1/1/

2005

4/1/

2005

7/1/

2005

10/1

/200

5

1/1/

2006

4/1/

2006

7/1/

2006

10/1

/200

6

1/1/

2007

4/1/

2007

7/1/

2007

10/1

/200

7

1/1/

2008

4/1/

2008

7/1/

2008

10/1

/200

8

1/1/

2009

4/1/

2009

7/1/

2009

10/1

/200

9

US GOM North West Europe SE Asia PacificUS GOM North West Europe SE Asia Pacific US GOM North West Europe SE Asia Pacific

180

200

220

240

340360380400420440

80

100

120

140

160

180

140160180200220240260280300320

0

20

40

60

80

an-9

7

May

-97

Sep-

97

an-9

8

May

-98

Sep-

98

an-9

9

May

-99

Sep-

99

an-0

0

May

-00

Sep-

00

an-0

1

May

-01

Sep-

01

an-0

2

May

-02

Sep-

02

an-0

3

May

-03

Sep-

03

an-0

4

May

-04

Sep-

04

an-0

5

May

-05

Sep-

05

an-0

6

May

-06

Sep-

06

an-0

7

May

-07

Sep-

07

an-0

8

May

-08

Sep-

08

an-0

9

May

-09

Sep-

09

020406080

100120140

an-9

7

May

-97

Sep-

97

an-9

8

May

-98

Sep-

98

an-9

9

May

-99

Sep-

99

an-0

0

May

-00

Sep-

00

an-0

1

May

-01

Sep-

01

an-0

2

May

-02

Sep-

02

an-0

3

May

-03

Sep-

03

an-0

4

May

-04

Sep-

04

an-0

5

May

-05

Sep-

05

an-0

6

May

-06

Sep-

06

an-0

7

May

-07

Sep-

07

an-0

8

May

-08

Sep-

08

an-0

9

May

-09

Sep-

09


Source: ODS-Petrodata, Nomura research

J M S J M S J M S J M S J M S J M S J M S J M S J M S J M S J M S J M S J M S

Jackups, NW Europe, Harsh Standard (US$'000) Jackups, Asia, 300' Cantilever (US$'000)Jackups, COSL dayrate (US$ '000) (excl. Awilco) Jackups, Gulf of Mexico, 250' Cantilever (US$'000)

J M S J M S J M S J M S J M S J M S J M S J M S J M S J M S J M S J M S J M S

Semisubmersibles, Gulf of Mexico, 0-3000' (US$'000) Semisubmersibles, UK, Harsh Standard (US$'000)Semi-sub, COSL dayrate (US$ '000) (excl. Awilco) Semi-sub, Asia, 0-3000 (US$'000)

ASIA

Gl b l D R t d Utili ti R tGlobal Day Rate and Utilisation Rate


Source: ODS-Petrodata, Nomura research118

ASIA

Sh h i P t h (338 HK) BUY PT HK$4 5Shanghai Petrochem (338 HK), BUY, PT: HK$4.5 SPC was originally founded in 1972 as a large-scale petrochemical complex and was established as a separate

subsidiary of Sinopec Group in June 1993subsidiary of Sinopec Group in June 1993. 1Q11 net profit came in RMB912mn, up 2% y-y. Stripping out RMB185mn of impairment loss, earnings would have

increased 17% y-y. The impairment loss was prompted to cushion refining losses in 2Q11. We think the government will eventually hike oil product prices due to product shortages albeit not in the near term. Two main factors are expected to determine SPC’s share price: 1) sector fundamentals; and 2) market expectations of

when SPC will be privatised. Upside catalysts — 1) petrochemical upcycle; 2) improvement in oil product pricing; and 3) potential privatisation. Investment risks: 1) lower-than-expected oil product price hikes; 2) government regulatory risks; and 3) petrochemicals

downcycle.

Hi t i l Hi t i lHistorical HistoricalYr to Dec Share Price Sales Net Profit YoY% EPS PER BVPS P/B EV/ Gross Div. Payout Yield ROACE Gearing

(HK$) (HK$ mn) (HK$ mn) (HK$) (x) (HK$) (x) EBITDA (HK$) Ratio (%) (%) (%) (%)2007 4.40 3,843 1,963 15% 0.405 10.8 1.86 2.4 4.4 0.12 30% 2.7% 16% Net Cash2008 3.43 6,788 3,385 72% 0.711 4.8 2.44 1.4 1.9 0.15 20% 4.4% 41% Net Cash2009 5 68 6 164 1 234 -64% 0 275 20 7 2 99 1 9 9 3 0 07 28% 1 2% 11% Net Cash2009 5.68 6,164 1,234 -64% 0.275 20.7 2.99 1.9 9.3 0.07 28% 1.2% 11% Net Cash2010 10.37 9,068 2,426 97% 0.491 21.1 3.28 3.2 9.2 0.14 28% 1.3% 15% Net Cash2011F 13.76 22,226 5,868 142% 0.821 16.8 6.07 2.3 6.7 0.23 28% 1.7% 17% 12%2012F 13.76 34,663 6,757 15% 0.945 14.6 6.78 2.0 5.7 0.27 28% 1.9% 12% 9%2013F 13.76 47,600 8,172 21% 1.143 12.0 7.66 1.8 4.8 0.32 28% 2.3% 13% 5%* Based on share price of HK$13.76 @ 29 April



ASIA

Sh h i P t h b d h t d PT d i tiShanghai Petrochem — band charts and PT derivationPrice target derivation EBIT breakdownEBIT breakdown

Risk Free Rate 2.5%Risk Premium 6.5%Beta 1.0Cost of Debt 6.0%Cost of Equity 9.0%

(Rmb in millions) 2004 2005 2006 2007 2008 2009 2010 2011F 2012F 2013FSynthetic Fibers 250 263 196 (82) (1,652) 11 436 656 674 651Resins and Plastics 1,887 1,491 1,162 656 (2,177) 844 991 1,360 1,484 1,622Intermediate Petrochemicals 1,551 981 680 814 (43) 191 365 595 625 728Petroleum Products 987 (447) (1,698) (644) (3,946) 805 1,140 (206) 296 387Others 351 240 212 149 (1) 172 35 40 40 42q y

ROACE (2011E) 11.1%WACC (%) 8.1%EV (Rmb bn) 33.0Capital Employed (Rmb bn) 24.0

ROACE 11.1% 33WACC 8 1% 24

= = 1.4 =

( )Total EBIT 5,025 2,528 553 893 (7,817) 2,023 2,967 2,445 3,119 3,430%Synthetic Fibers 5% 10% 35% -9% 21% 1% 15% 26.8% 22% 19%Resins and Plastics 38% 59% 210% 74% 28% 42% 33% 55.6% 48% 47%Intermediate Petrochemicals 31% 39% 123% 91% 1% 9% 12% 24.3% 20% 21%Petroleum Products 20% -18% -307% -72% 50% 40% 38% -8.4% 9% 11%Others 7% 9% 38% 17% 0% 9% 1% 1.6% 1% 1%

Forward P/BV band (x)

WACC 8.1% 24New target price (HK$) HK$ 4.50

Forward P/E band (x)PB h t

2.0

2.5

3.0 PB chart

35.0

40.0

45.0

50.0 PE chart

1.0

1.5

PB (x

)

PB mean: 1.1x

+1SD: 1.6x

-1SD: 0.7x15.0

20.0

25.0

30.0

PE (x

)

PE mean: 15.1x

+1SD: 23.0x

0.0

0.5

Jan-

95Ju

l-95

Jan-

96Ju

l-96

Jan-

97Ju

l-97

Jan-

98Ju

l-98

Jan-

99Ju

l-99

Jan-

00Ju

l-00

Jan-

01Ju

l-01

Jan-

02Ju

l-02

Jan-

03Ju

l-03

Jan-

04Ju

l-04

Jan-

05Ju

l-05

Jan-

06Ju

l-06

Jan-

07Ju

l-07

Jan-

08Ju

l-08

Jan-

09Ju

l-09

Jan-

10Ju

l-10

Jan-

11

0.0

5.0

10.0

Jan-

95Ju

l-95

Jan-

96Ju

l-96

Jan-

97Ju

l-97

Jan-

98Ju

l-98

Jan-

99Ju

l-99

Jan-

00Ju

l-00

Jan-

01Ju

l-01

Jan-

02Ju

l-02

Jan-

03Ju

l-03

Jan-

04Ju

l-04

Jan-

05Ju

l-05

Jan-

06Ju

l-06

Jan-

07Ju

l-07

Jan-

08Ju

l-08

Jan-

09Ju

l-09

Jan-

10Ju

l-10

Jan-

11

-1SD: 7.3x

120© Nomura International (Hong Kong) LimitedSource: Thomson Reuters Datastream, Company data, Nomura estimates.

ASIA

K l E (135 HK) BUY PT HK$17 0Kunlun Energy (135 HK), BUY, PT: HK$17.0

Kunlun Energy (formerly known as CNPC HK) was listed on the HK Stock Exchange on 1 June 1998. Following Petrochina’s capital injection in late 2008, Kunlun Energy became the flagship of Petrochina to access the natural gas downstream market in addition to its E&P business.

Kunlun Energy announced FY10 net profit of RMB2,426mn, up 97% y-y, in line with consensus. We attribute the strong earnings growth in 2011F to Petrochina Beijing Pipeline company contribution, which accounts

for 63% of FY11F EBIT breakdown. Its E&P business accounting for 27% of FY11F EBIT is geared to high oil price. Its new business of natural gas distribution (mainly CNG) is able to pass on price hikes although the government has Its new business of natural gas distribution (mainly CNG) is able to pass on price hikes although the government has

prevented full pass-through of price hike for Towngas business Potential asset injection from Petrochina to achieve revenue target of RMB50-100bn by 2015F. Upside share price catalysts — (i) potential asset injections, (ii) favourable government policies on natural gas usage,

(iii) natural gas price reform (iv) high crude oil price and (v) high gasoline price(iii) natural gas price reform, (iv) high crude oil price, and (v) high gasoline price. Investment risks: (i) government regulatory risks and (ii) share issuance to raise capital.

Historical HistoricalYr to Dec Share Price Sales Net Profit YoY% EPS PER BVPS P/B EV/ Gross Div. Payout Yield ROACE Gearing

(HK$) (HK$ mn) (HK$ mn) (HK$) (x) (HK$) (x) EBITDA (HK$) Ratio (%) (%) (%) (%)2007 4.40 3,843 1,963 15% 0.405 10.8 1.86 2.4 4.4 0.12 30% 2.7% 16% Net Cash2008 3.43 6,788 3,385 72% 0.711 4.8 2.44 1.4 1.9 0.15 20% 4.4% 41% Net Cash

% % % % C2009 5.68 6,164 1,234 -64% 0.275 20.7 2.99 1.9 9.3 0.07 28% 1.2% 11% Net Cash2010 10.37 9,068 2,426 97% 0.491 21.1 3.28 3.2 9.2 0.14 28% 1.3% 15% Net Cash2011F 13.76 22,226 5,868 142% 0.821 16.8 6.07 2.3 6.7 0.23 28% 1.7% 17% 12%2012F 13.76 34,663 6,757 15% 0.945 14.6 6.78 2.0 5.7 0.27 28% 1.9% 12% 9%2013F 13.76 47,600 8,172 21% 1.143 12.0 7.66 1.8 4.8 0.32 28% 2.3% 13% 5%* Based on share price of HK$13 76 @ 29 April




ASIA

Kunlun Energy band charts and target price derivationKunlun Energy - band charts and target price derivation

Forward P/E band Forward P/B band

12.0

14.0

16.0

4.0x

12.0

14.0

16.0

25.0x

20.0x

6.0

8.0

10.0

HK

$

3.0x

2.0x6.0

8.0

10.0

HK

$

15.0x

10.0x

0.0

2.0

4.0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

1.0x

0.0

2.0

4.0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

5.0x

Price target derivation EBIT BreakdownRisk Free Rate 2.5%Risk Premium 6.5%Beta 0.9 31%

0% 0% 0%2%

0% 0% 0%

80%

90%

100%

Cost of Debt 3.3%Cost of Equity 8.4%LT growth rate (g) 3.0%FY11F ROACE 16.8%WACC 7.1%EV (R b b ) 127

100% 100% 100%

66% 10%

1%7%

9%

63% 63% 65%

30%

40%

50%

60%

70%

EV (Rmb bn) 127Capital Employed (Rmb bn) 38ROACE - g 13.8% 127WACC - g 4.1% 38Target Price (HK$) HK$ 17.00

= = =3.3527%

19% 16%

10%10%

9%1%9%

0%

10%

20%

30%

2007 2008 2009 2010 2011F 2012F 2013F

E&P


Natural gas (CNG)Natural gas (Xinjiang Xinjie pipeline)Natural Gas (LNG)Natural gas (Beijing pipeline)

ASIA

China fertiliser


ASIA

Chi f tili d d d lChina fertiliser demand and supply

Fertiliser demand supply Fertiliser consumption breakdownFertiliser demand supply(‘000 tonnes)

Fertiliser consumption breakdown(‘000 tonnes)

70 000

80,000 60,000('000 tonnes)

50,000

60,000

70,000

40,000

50,000

20,000

30,000

40,000

20,000

30,000

0

10,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Production ('000 tonnes) Consumption ('000 tonne)

-

10,000

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Source: China National Statistical Yearbook, Nomura researchNitrogenous Phosphate Potash Compound


ASIA

China fertiliser demand-supplyUrea consumptionPotash consumption

('000 tonnes) Production Import Export Net Imp./(exp.) App. Cons.2006 47,581 37.55 1,367 (1,330) 46,251

('000 tonnes) Production Import Export Net Imp./(Exp.) App. Cons.2006 2,673 7,300 353 6,947 9,620

2007 54,387 0.54 5,254 (5,253) 49,1342008 56,497 0.07 4,360 (4,360) 52,1372009 63,981 38.80 3,379 (3,340) 60,6412010 57,809 13.26 7,026 (7,013) 50,796

Jan-11 4,404 0.00 346 (346) 4,058Feb-11 4,613 0.10 196 (196) 4,417Mar-11 5,280 0.11 54 (53) 5,227

2006 2,673 7,300 353 6,947 9,6202007 2,545 9,593 117 9,476 12,0202008 2,832 5,248 150 5,098 7,9292009 3,735 2,074 396 1,678 5,4132010 4,125 5,355 82 5,273 9,398

Jan-11 147 517 19 499 646Feb-11 145 166 2 165 310Mar 11 311 401 0 401 712 Jan-Mar 2011 14,298 0.20 596 (596) 13,702

YoY%2006 9.1% -47.1% -12.9% -11.3% 9.8%2007 14.3% -98.6% 284.3% 295.1% 6.2%2008 3.9% -87.6% -17.0% -17.0% 6.1%2009 13.2% NM -22.5% -23.4% 16.3%2010 -9.6% -65.8% 107.9% 109.9% -16.2%

Mar-11 311 401 0 401 712Jan-Mar 11 603 1,084 20 1,064 1,667

YoY%2006 11.7% -19.1% 157.4% -21.8% -14.7%2007 -4.8% 31.4% -66.7% 36.4% 25.0%2008 11.3% -45.3% 27.7% -46.2% -34.0%2009 31.9% -60.5% 163.9% -67.1% -31.7%2010 10 4% 158 2% 79 3% 214 2% 73 6%

Phosphate consumption M th l ti

Jan-11 -12.9% NM -14.0% -13.3% -12.9%Feb-11 -6.3% NM -64.8% -64.6% 1.1%Mar-11 1.3% NM -77.7% -77.2% 5.0%

Jan-Mar 11 -5.9% NM -50.4% -49.9% -2.2%

2010 10.4% 158.2% -79.3% 214.2% 73.6%Jan-11 42.7% 51.5% -4.7% 54.9% 52.0%Feb-11 49.5% -50.7% -74.2% -50.2% -27.6%Mar-11 -3.1% -23.8% NM -23.7% -15.9%

Jan-Mar 11 15.7% -10.0% -24.0% -9.7% -1.9%

Phosphate consumption Methanol consumption('000 tonnes) Production Import Export Net Imp/(Exp.) App. Cons.

2006 19,616 1,460 1,261 199 19,8152007 20,795 557 3,906 (3,349) 17,4462008 19,659 101 1,754 (1,653) 18,0062009 23,245 444 2,569 (2,125) 21,1202010 27,048 455 4,923 (4,468) 22,581

('000 tonnes) Production Import Export Net Imp/(Exp.) App. Cons.2006 7,458 1,127 190 937 8,3952007 10,127 845 563 282 10,4102008 11,100 1,434 368 1,066 12,1672009 11,231 5,288 14 5,274 16,5052010 15 753 5 189 12 5 177 20 9302010 27,048 455 4,923 (4,468) 22,581

Jan-11 1,786 94 231 (138) 1,648Feb-11 1,884 0 66 (66) 1,818Mar-11 1,995 0 96 (96) 1,900

Jan-Mar 2011 5,666 94 393 (299) 5,367YoY %2006 12.3% -22.1% 34.9% -78.8% 7.7%2007 6 0% -61 8% 209 7% NM -12 0%

2010 15,753 5,189 12 5,177 20,930Jan-11 1,303 393 0 392 1,695Feb-11 1,439 276 0 276 1,715Mar-11 1,817 533 0 533 2,350

Jan-Mar 11 4,559 1,202 1 1,201 5,760YoY %2006 39.1% -17.1% 248.7% -28.2% 25.9%2007 35.8% -25.0% 196.1% -69.9% 24.0%2007 6.0% 61.8% 209.7% NM 12.0%

2008 -5.5% -81.9% -55.1% -50.6% 3.2%2009 18.2% 340.0% 46.5% 28.5% 17.3%2010 16.4% 2.5% 91.6% 110.2% 6.9%

Jan-11 0.4% -50.8% 25.1% NM -7.7%Feb-11 3.9% NM -30.0% NM -0.1%Mar-11 -11.7% NM 0.9% NM -17.3%

Jan-Mar 11 -3 2% -77 9% 5 0% NM -9 1%

2008 9.6% 69.7% -34.6% 277.6% 16.9%2009 1.2% 268.8% -96.2% 394.7% 35.7%2010 40.3% -1.9% -10.1% -1.8% 26.8%

Jan-11 0.6% 77.8% 324.3% 77.7% 11.8%Feb-11 20.3% -20.4% -93.7% -19.5% 11.4%Mar-11 32.2% 19.5% -0.6% 19.6% 29.1%

Jan-Mar 11 18.0% 18.6% -78.5% 19.0% 18.2%

© Nomura International (Hong Kong) LimitedSource: CEIC, Nomura research

125

Jan-Mar 11 -3.2% -77.9% 5.0% NM -9.1%

ASIA

China fertiliser demand-supplyPotash consumption Urea consumption

4 8005,200 5,600 6,000 (000 tonnes)

1 4001,6001,8002,000('000 tonnes)

2 8003,200 3,600 4,000 4,400 4,800

600800

1,0001,2001,400

2,000 2,400 2,800

02 03 04 05 06 07 08 09 10 110

200400

02 03 04 05 06 07 08 09 10 11

Phosphate consumption Methanol consumption

28003000('000 tonnes)

1 8002,0002,200(000 tonnes)

160018002000220024002600

8001,0001,2001,4001,6001,800

8001000120014001600

02 03 04 05 06 07 08 09 10 11

0200400600

02 03 04 05 06 07 08 09 10 11



02 03 04 05 06 07 08 09 10 11

ASIA

Fertiliser pricesUrea prill, China domestic price (RMB/tonne) Urea prices: US vs China (US$/tonne)

600700800900

1,000(US$/tonne)

2 0002,2002,4002,600(Rmb/tonne)

100200300400500600

1 2001,4001,6001,8002,000

0100

02 03 04 05 06 07 08 09 10 11China Urea Price US Urea Price

1,0001,200

02 03 04 05 06 07 08 09 10 11

US DAP price vs its raw material prices (US$/tonne)DAP, US vs China (US$/tonne)

1,200 1,400

(US$/tonne)

12001400(US$/tonne)

400 600 800

1,000

400600800

1000

-200

02 03 04 05 06 07 08 09 10 11China DAP Price US DAP Price

0200

98 99 00 01 02 03 04 05 06 07 08 09 10 11

US DAP Price Sulfur priceSource: Thomson Reuters Datastream, Nomura research.


p

ASIA

Potash and methanol pricesPotash price (Vancouver Std Grade) (US$/tonne) China potash price (RMB/tonne)

400500600(US$tonne)

3000

4000

5000(Rmb/tonne)

100200300400

1000

2000

3000

002 03 04 05 06 07 08 09 10

Potash Vancouver Standard Grade

002 03 04 05 06 07 08 09 10 11

Potash (Domestic) Potash (Imported)

China methanol prices (RMB/tonne) China vs US methanol price (US$/tonne)

4,5005,000(Rmb/tonne)

1,000 (US$/tonne)

2 5003,0003,5004,000,

400

600

800

1,0001,5002,0002,500

-

200

07 08 09 10 11

Source: Bloomberg, Thomson Reuters Datastream, Nomura research.


02 03 04 05 06 07 08 09 10 1107 08 09 10 11

China Methanol Price US Methanol Price

ASIA

Si f t (297 HK REDUCE PT HK$3 00)Sinofert (297 HK; REDUCE; PT: HK$3.00)

Sinofert is one of China’s 10 licensed fertiliser importers and has the widest domestic distribution network throughout China.

Sinofert reported FY10 earnings of RMB536mn (vs a loss of RMB1.4bn in FY09) significantly below market and our expectations.expectations.

We attribute the earnings disappointment to a lower-than-expected gross profit margin, flattish sales volume growth and lower contribution from Qinghai Salt Potash.

Sinofert concluded contract prices about US$400/tonne for 1H11 supply with international potash producers. I t ti l t h d lik l t i th t t i i 2H11 d t i i d d l b llInternational potash producers are likely to raise the contract prices in 2H11 due to increase in demand globally.

We estimates FY11F earnings to increase 90% y-y to RMB1.0bn on the back of sales volume growth (12% y-y) and overall gross profit margin to improve from 5.1% in 2010 to 6.8% in 2011.

However FY11F valuations appear demanding The company is trading at 20x FY11F PE above the historical trading However, FY11F valuations appear demanding. The company is trading at 20x FY11F PE above the historical trading range of 10x-18x with historical avg. of 15.2x (excluded an exception 2007 PE).

Risks: 1) adverse weather conditions during plantation season; 2) potential share placement/bank borrowing for Qinghai Salt Lake Potash acquisition; and 3) margin squeeze due to high potash costs/weak potash prices.

Share Price ^ Sales Net Profit YoY% EPS (WA) PER BVPS P/B EV/ Gross Div. Yield ROACE Gearing ROEYr to Dec Avg. (HK$) (RMBmn) (RMBmn) (Rmb) (x) (Rmb) (x) EBITDA (x) (Rmb) (%) (%) (%) (%)2005 1.47 20,269 830 51% 0.154 10.1 0.67 2.3 9.0 0.023 1.5% 20.2% 34% 23%2006 2.71 21,684 920 11% 0.158 17.6 0.75 3.7 15.2 0.023 0.8% 17.0% 37% 20%2007 5.12 28,382 641 -30% 0.107 47.0 1.25 4.0 17.1 0.030 0.6% 16.6% 65% 19%,2008 5.36 45,393 1,913 198.3% 0.267 18.0 1.94 2.5 21.7 0.041 0.8% 12.2% 64% 14%2009 3.87 27,011 (1,444) NM (0.206) NM 1.73 2.0 NM 0.000 0.0% -1.8% 66% -6%2010 4.17 29,271 536 NM 0.076 48.2 1.80 2.0 45.3 0.009 0.3% 3.7% 55% 4%2011E 3.24 36,540 1,018 90.0% 0.145 19.7 1.93 1.5 16.6 0.018 0.6% 6.6% 51% 8%2012E 3.24 42,187 1,306 28.3% 0.186 15.4 2.10 1.4 13.4 0.023 0.8% 7.6% 46% 9%2013E 3.24 49,094 1,684 29.0% 0.240 11.9 2.32 1.2 10.8 0.029 1.0% 9.0% 41% 10%



2013E 3.24 49,094 1,684 29.0% 0.240 11.9 2.32 1.2 10.8 0.029 1.0% 9.0% 41% 10%^ 2010-11E share price is based on the closing price of HK$3.24 on 29 April

ASIA

Chi Bl Ch (3983 HK BUY PT HK$7 00)China BlueChem (3983 HK; BUY; PT: HK$7.00)

China BlueChem is one of China’s leading urea, phosphate and methanol producers.

China Blue Chemical reported FY10 net profit of RMB1,175mn, up 19.5% y-y from RMB985mn in FY09. This was mainly due to lower-than-expected realized fertilizer and methanol prices and the 2-month y p pdelay of its new methanol plant (800k tonnes) which was finally launched in December 2010.

We continue to like the company due to 1) capacity expansions to drive volume and earnings growth; 2) cost leadership in the industry; and 3) strong balance sheet (net cash).p y; ) g ( )

Risks: 1) government regulatory risk; 2) weak fertiliser and methanol demand globally; 3) competition from coal-based fertiliser producers; 4) weak crop prices; and 5) production cuts due to natural disasters.

Share Price ^ Sales Net Profit YoY% EPS (WA) PER BVPS P/B EV/ Gross Div. Yield ROACE GearingYr to Dec Avg. (HK$) (RMBmn) (RMBmn) (Rmb) (x) (Rmb) (x) EBITDA (x) (Rmb) (%) (%) (%)2005 3.05 2,371 944 31% 0.205 15.7 0.82 3.9 13.0 0.00 0.0% 29.0% Net Cash2006 3.05 3,466 1,646 74% 0.357 8.8 1.46 2.1 5.8 0.00 0.0% 24.3% Net Cash2007 4.29 4,340 1,448 -12% 0.314 13.3 1.75 2.4 8.0 0.08 1.9% 25.0% Net Cash2008 4 35 6 812 1 608 11% 0 349 11 1 2 23 1 7 5 5 0 10 2 4% 24 2% N t C h2008 4.35 6,812 1,608 11% 0.349 11.1 2.23 1.7 5.5 0.10 2.4% 24.2% Net Cash2009 4.16 5,795 985 -39% 0.214 17.2 2.10 1.7 7.4 0.07 1.9% 12.2% Net Cash2010 5.24 6,867 1,175 19% 0.255 23.5 2.29 2.6 8.0 0.09 1.5% 12.4% Net Cash2011E 6.79 9,080 1,800 53% 0.391 15.3 2.59 2.3 6.7 0.13 2.1% 16.6% Net Cash2012E 6.79 11,397 2,344 30% 0.509 11.8 2.97 2.0 5.2 0.17 2.8% 19.7% Net Cash2013E 6 79 13 148 2 793 19% 0 606 9 9 3 41 1 8 4 1 0 20 3 3% 21 9% Net Cash

130



2013E 6.79 13,148 2,793 19% 0.606 9.9 3.41 1.8 4.1 0.20 3.3% 21.9% Net Cash^ 2011-13E share price is based on the closing price of HK$6.79 on 29 April

ASIA

R b kd & i t t d i tiRevenue breakdown & price target derivationSinofert Operating data China BlueChem revenue breakdown

(Rmb mil.) 2007 2008 2009 2010 2011E 2012E 2013E (Rmb mils) 2007 2008 2009 2010E 2011E 2012E(Rmb mil.) 2007 2008 2009 2010 2011E 2012E 2013EPotash 11,915 16,125 6,750 7,322 9,899 11,823 14,050Nitrogen 6,873 10,728 8,255 9,876 11,403 13,171 15,212Compound 3,979 7,557 4,716 4,547 5,430 6,024 6,931Phosphate 4,525 8,565 6,511 6,380 7,570 8,585 9,915others 1,090 2,418 778 1,146 2,238 2,585 2,986Total Sales 28,382 45,393 27,011 29,271 36,540 42,187 49,094

% of totalPotash 42% 36% 25% 25% 27% 28% 29%Nitrogen 24% 24% 31% 34% 31% 31% 31%

(Rmb mils) 2007 2008 2009 2010E 2011E 2012EUrea 3,035 3,613 3,340 3,661 3,759 4,806Methanol 1,146 1,672 1,240 1,717 3,036 3,325Phosphate 0 0 0 1,235 1,399 2,370POM (Polyoxymethylene) 0 0 0 0 542 599Rendering of services 159 425 358 560 555 561Subtotal 4 340 5 710 4 937 7 174 9 290 11 661g

Compound 14% 17% 17% 16% 15% 14% 14%Phosphate 16% 19% 24% 22% 21% 20% 20%others 4% 5% 3% 4% 6% 6% 6%Gross profitPotash 1,527 1,990 (1,728) 395 846 1,000 1,186Nitrogen 280 608 314 217 456 527 608Compound 407 463 264 332 396 440 506Phosphate 344 158 521 555 659 747 863others 182 182 67 (9) 112 129 149Total GP 2 741 3 401 (563) 1 491 2 469 2 842 3 313

Subtotal 4,340 5,710 4,937 7,174 9,290 11,661Less: intersegment sales 0 (199) (134) (185) (210) (264)Revenue 4,340 5,511 4,803 6,989 9,080 11,397% of subtotalUrea 70% 63% 68% 51% 40% 41%Methanol 26% 29% 25% 24% 33% 29%Ph h t 0% 0% 0% 17% 15% 20%

Sinofert PT China BlueChem PT

Total GP 2,741 3,401 (563) 1,491 2,469 2,842 3,313GP marginsPotash 12.8% 12.3% -25.6% 5.4% 8.5% 8.5% 8.4%Nitrogen 4.1% 5.7% 3.8% 2.2% 4.0% 4.0% 4.0%Compound 10.2% 6.1% 5.6% 7.3% 7.3% 7.3% 7.3%Phosphate 7.6% 1.8% 8.0% 8.7% 8.7% 8.7% 8.7%others 16.7% 7.5% 8.6% -0.8% 5.0% 5.0% 5.0%

Phosphate 0% 0% 0% 17% 15% 20%POM (Polyoxymethylene) 0% 0% 0% 0% 6% 5%Rendering of services 4% 7% 7% 8% 6% 5%

China BlueChem PTRisk free rate 2.5%Equity risk premium % 5.5%Beta 0.8Cost of Equity % 6.9%C t f d bt % 4 5%

Risk Free Rate 2.5%Risk Premium 5.0%Beta 0.6Cost of Equity 5.6%

Cost of debt % 4.5%WACC% 6.9%FY11F ROACE 16.5%

ROACE 16.5% 26.1== 2 40 =

Cost of Debt 4.0%WACC % 5.2%ROACE (2011E) 6.6%

ROACE 6 6% 25WACC 6.9% 10.9

Avg. Capital Employed (Rmb bn) 10.9Enterprise Value based on fair value (Rmb bn) 26.1# of shares outstanding (mil shares) 4,610

== 2.40 =ROACE 6.6% 25WACC 5.2% 20

Avg. Capital Employed (Rmb bn) 20Enterprise Value based on fair value (Rmb bn) 25

= = 1.26 =

131Source: Company data, Nomura estimates.


Fair Value per share (HK$) HK$ 7.00Fair value per share (HK$) HK$ 3.00

ASIA

India


ASIA

I di Oil d G St k l tiIndian Oil and Gas – Stock selectionSummary of ratings and price targets

Company Ticker Price Market Cap Rating PT (INR/sh) Upsides(INR/sh) US$bn New New (%)

Reliance Industries RIL IN 984 72.8 BUY 1,200 22%GAIL GAIL IN 476 13.6 BUY 600 26%Cairn India CAIR IN 349 15.0 BUY 405 16%Gujarat State Petronet GUJS IN 99 1.3 BUY 135 37%Gujarat State Petronet GUJS IN 99 1.3 BUY 135 37%Petronet LNG PLNG IN 132 2.2 BUY 180 36%Indraprastha Gas IGL IN 322 1.0 BUY 450 40%Gujarat Gas GGAS IN 367 1.1 Neutral 415 13%BPCL BPCL IN 630 5.1 Neutral 620 -2%IOCL IOCL IN 340 18 7 N t l 365 7%

Key market information

IOCL IOCL IN 340 18.7 Neutral 365 7%HPCL HPCL In 373 2.9 Neutral 380 2%

Name Ticker Rating Market M Cap ( S$ )

Free Float FII 3M TO ( S$ )

52W H/L PT Upside Valuation price (US$bn) holdings (US$mn) Method

Reliance Industries RIL IN BUY 984 72.8 55.3 17.6 122.6 1,187 - 841 1,200 22% SOTP

GAIL GAIL IN BUY 476 13.6 42.7 12.5 11.3 536 - 402 600 26% SOTP

Cairn india CAIR IN BUY 349 15.0 19.4 11.7 65.7 372 - 266 405 16% SOTP

Gujarat State Petronet GUJS IN BUY 99 1.3 62.3 11.3 2.8 128 - 88 135 37% DCFGujarat State Petronet GUJS INPetronet LNG PLNG IN BUY 132 2.2 50.0 10.8 5.4 141 - 77 180 36% DCF

Indraprastha Gas IGL IN BUY 322 1.0 55.0 17.0 2.1 374 - 215 450 40% DCFGujarat Gas GGAS IN NEUTRAL 367 1.1 34.9 15.9 0.3 454 - 260 415 13% DCFBPCL BPCL IN NEUTRAL 630 5.1 45.1 6.9 8.1 840 - 509 620 -2% P/B

IOCL IOCL IN NEUTRAL 340 18 7 21 1 0 9 4 9 457 - 290 365 7% P/B

Note: Ratings and price targets are as of the date of the most recently published report (http://www. Nomura.com) rather than the date of this document. Share prices as of 29th April 2011. Gujarat Gas has Dec accounting year end.


IOCL IOCL IN NEUTRAL 340 18.7 21.1 0.9 4.9 457 290 365 7% P/B

HPCL HPCL In NEUTRAL 373 2.9 49.0 8.4 7.3 556 - 304 380 2% P/B


ASIA

Reliance Industries (RIL IN, BUY, PT - INR1,200)Reliance Industries (RIL IN, BUY, PT INR1,200)Risk-reward keeps getting better Marked underperformance despite several positives—under-performed ~13/35% over 1Y/2Y vs. Sensex. Delays in KG-D6 ramp-up, no guidance on KG-D6 plans and several unrelated acquisitions are perhaps key reasons. Although some near-term concerns remain on KG-D6, the BP deal allays a lot of these concerns and restores faith in

the LT E&P potential, apart from setting a valuation benchmark for the E&P segment. The stock seems to be ignoring several positives in core refining and petchem business (73% of EBIT in FY11) The stock seems to be ignoring several positives in core refining and petchem business (73% of EBIT in FY11) Refining strength has surpassed all expectations – Refining EBIT increase sharp 53% in FY11. We believe Petchem is entering a “Golden Age” - aromatics and polyester margins to remain strong. With nearly US$10bn cash investor focus is also likely to remain on cash usage plans Beyond petchem/E&P/shale With nearly US$10bn cash, investor focus is also likely to remain on cash usage plans. Beyond petchem/E&P/shale

gas, RIL, in our view, will keep looking for M&A in the energy chain.

K k t i f tiKey financials and valuations PriceKey market informationKey financials and valuations

1000

1050

1100

1150

100

105

110

Rel MSCI India(INR)

FY Mar (INR) 2010 2011 2012F 2013FRevenue (bn) 2,037 2,658 3,267 3,304 OP. Inc (bn) 309 390 422 437 Net earnings (bn) 159 202 259 292

Market DataMarket Cap (INR bn) 3,220 Market cap (US$bn) 72.8Shares Outstanding (mn) 3,272

850

900

950

1000

85

90

95

ay 1

0

un 1

0

ul 1

0

ug 1

0

ep 1

0

ct 1

0

ov 1

0

ec 1

0

an 1

1

eb 1

1

ar 1

1

pr 1

1

EPS 49 62 78 88 DPS 7 8 8 8 Yield 0.7 0.8 0.8 0.8 P/BV 2.3 2.0 1.8 1.6 P/E 20 2 15 9 12 6 11 2

3mth Dailt T/O (US$mn) 122.6Free Float 55%

134Source: Bloomberg, Datastream, Nomura estimates

Note: Share prices as of 29th April 2011. M

a Ju J Au

Se Oc

No

De Ja Fe Ma

ApP/E 20.2 15.9 12.6 11.2


ASIA

Reliance Industries (RIL IN BUY PT INR1 200)Reliance Industries (RIL IN, BUY, PT- INR1,200)Key assumptions RIL – EBIT breakdown by segment

FY10 FY11 FY12 FY13R fi i M i (US$/bbl)

FY10 FY11 FY12F FY13FEBIT b kd (INRb )Refining Margins (US$/bbl)

Singapore Complex 3.5 5.2 7.5 6.8Premium over Singapore GRM 3 3.1 3.6 3.9Avg GRM of RIL 6.5 8.4 11.1 10.7

EBIT breakdown (INRbn)E&P 54 67 59 69Refining 60 92 129 147Petrochemicals 86 93 92 95EBIT change (%)

Exchange Rate (INR / US$) 47.5 45.6 43.7 43.5KG-D6 gas production (mmscmd) 39 56 50 55KG-D6 Oil production (kbpd) 11 24 18 18

E&P and others 27% 27% 20% 22%Refining 30% 36% 50% 47%Petrochemicals 43% 37% 30% 31%

Earnings sensitivities to key variables RIL SOTP ValuationsFY13F

Base EPS 78 88EPS change INR/shr % INR/shr %Refining GRM

FY12F

Earnings sensitivities to key variables RIL – SOTP Valuations

INR Bn $ bnINR /

Share Comments1 Refining 1,319 30.2 445 7x FY13 EBITDA2 Petrochemicals 873 20.0 295 7x FY13 EBITDAg

Base Case (US$/bbl) 11.1 10.7+1 US$/bbl 5.2 6.7% 5.6 6.4%KG-D6 gas productionBase Case (mmscmd) 50 55+ 5 mmscmd 1 4 1 7% 1 5 1 7%

3 E&P 1,039 24.1 351 Part of BP deal 699 16.0 236 BP to take 30% stake

KG-D6 Gas 393 9.0 133 DCFKG-D6 Oil 56 1.3 19 DCFExploration assets 249 5.7 84+ 5 mmscmd 1.4 1.7% 1.5 1.7%

KG-D6 gas pricesBase Case (US$/mmbtu) 4.34 4.34+1 US$/mmbtu 3.7 4.7% 4.3 4.9%KG-D6 Oil Production

Exploration assets 249 5.7 84 Not part of BP deal 340 8.1 115

PMT 199 4.6 67 7x FY13 EBITDACBM Blocks 47 1.1 16 Shale gas 88 2 30

Oth 6 0 2Base Case (kbpd) 18 18 + 5 kbpd 1.0 1.3% 1.2 1.3%Exchange RateBase Case (INR/US$) 43.7 43.5 INR 1 depreciation 3.1 4.0% 3.4 3.9%

Others 6 0 2

4 Investments 413 10.5 139 Enterprise Value 3,645 84.7 1,230

Less: Net Debt 106 2.4 36 FY12E end

E it V l 3 539 82 3 1 195 E t h f 2962

135Source: Company data, Nomura estimates

Equity Value 3,539 82.3 1,195 Ex-treasury shares of 2962mnTarget Price 1,200


ASIA

GAIL (GAIL IN BUY PT INR600)GAIL (GAIL IN, BUY, PT- INR600)Concerns look overdone Revenue impact of lower domestic volume offset by – Higher LNG imports; higher tariffs on new LNG of new HVJ p y g p ; g

(over 100% of old HVJ); and ship-or-pay provisions for KG-D6 contracts Subsidy is a concern, but GAIL is least impacted among oil PSUs - unlike other upstream companies, GAIL shares

are burdened only by cooking fuels (~13% of upstream’s one-third share) - as the price of oil rises, the bulk of incremental under-recoveries are due to diesel that GAIL does not share.incremental under recoveries are due to diesel that GAIL does not share.

Petchem prices strong, capacity on the rise - GAIL recently raised its petchem capacity by ~20% to 490ktpa – it plans to further raise its capacity to 900ktpa by FY14F - we expect PE prices to remain resilient.

We continue to like GAIL for operating upside and re-rating from gas growth.

fKey financials and valuations Key market informationKey financials and valuationsFY Mar (INR) 2010 2011F 2012F 2013FRevenue (bn) 250 324 388 427 OP. Inc (bn) 47 56 68 77 Net earnings (bn) 31 37 44 49 480

500

520

540

110

115

120

PriceRel MSCI India(INR)Market Data

Market Cap (INR bn) 603 Market cap (US$bn) 13.6Shares Outstanding (mn) 1,268g ( )

EPS 25 29 35 39 DPS 8 9 10 12 Yield 1.6 1.8 2.2 2.5 P/BV 3.6 3.1 2.7 2.4 P/E 19 2 16 3 13 6 12 2

400

420

440460

480

95

100

105

May

10

Jun

10

Jul 1

0

Aug

10

Sep

10

Oct

10

Nov

10

Dec

10

Jan

11

Feb

11

Mar

11

Apr

11

S a es Ou s a d g ( ) , 683mth Dailt T/O (US$mn) 11.3Free Float 43%

Source: Bloomberg, Datastream, Nomura Estimates

136Note: Share prices as of 29 April 2011

P/E 19.2 16.3 13.6 12.2


ASIA

GAIL (GAIL IN BUY PT INR600)GAIL (GAIL IN, BUY, PT- INR600)GAIL – Key assumptions GAIL – SOTP valuation

FY10 FY11F FY12F FY13FGas Transmission

(INRbn) (US$bn) INR / Share CommentsGas TransmissionVolume (mmscmd) 107 119 130 140Avg. Tarif f (INR/mscm) 813 883 920 953PetrochemicalsPolymers production (KT) 417 414 475 480

Gas transmission 521 11.4 411 10x FY13F EBITDAPetrochemicals 127 2.8 100 7x FY13F EBITDALPG & liquid HC 62 1.4 49 6x FY13F EBITDAE&P upside 19 0.4 15

Avg. realisation (INR/kg) 71 71 72 77LPG & Other liquid HCLPG sales (KT) 1,101 1,081 1,157 1,180Other HC sales (KT) 343 298 320 328 LPG prices (US$/MT) 610 766 905 899

Investments 58 1.3 46 Enterprise value 787 17.3 621 Less: net debt 22 0.5 18 FY12FEquity value 765 16.8 603 Price target 600

GAIL – EBIT breakdown by segment GAIL – Earning sensitivities to key variables

Subsidy (INR mn) 13,267 18,277 25,207 23,317Tax rate (%) 31 33 32 32

Price target 600

FY09 FY10 FY11F FY12F FY13FEBIT breakdown (INRbn)Transmission & trading 21.7 28.9 36.9 41.6 46.0 Petrochemicals 12.1 13.3 10.8 14.3 16.4 LPG & Liquid HC 8 6 6 1 7 2 8 7 9 4

Base case EPS (INR/share)EPS Change INR/Share % INR/Share %Gas transmission volumeBase volumes (mmscmd) 130 140

FY12F FY13F35 39

LPG & Liquid HC 8.6 6.1 7.2 8.7 9.4

EBIT breakdown (%)Transmission & trading 51 60 67 64 64 Petrochemicals 29 28 20 22 23

+10 mmscmd 1.2 3.6% 1.3 3.3%Gas transmission tariffsBase avg tariff (Rs/'000 SCM) 920 953

5% higher tariff 1.2 3.4% 1.3 3.4%Polymer pricesLPG & liquid HC 20 13 13 13 13 Polymer pricesBase case ($/MT) 1650 1760

10% higher prices 1.8 5.2% 2.0 5.1%Subsidy burdenBase (INRbn) 25.2 23.3

10% hi h b id 1 4 3 9% 1 3 3 2%

137


10% higher subsidy -1.4 -3.9% -1.3 -3.2%


ASIA

Cairn India (CAIR IN, BUY, PT- INR405)Cairn India (CAIR IN, BUY, PT INR405)LT story positive despite royal(ty) mess The fate of Vedanta deal is still a big unknown and a near -term overhang - lost co-relation to oil prices g g p

since the deal announcement. Nearly 9 months have elapsed - The deal appeared simple initially, but royalty issues have delayed

approvals. Uncertainty could continue and a decision may not come by the new timelines Uncertainty could continue and a decision may not come by the new timelines. Royalty cost recovery - NAV dilutive (INR57/share) and potential deal breaker. The stock is an oil play, but range-bound currently on confusion over the deal. Deal or no deal underlying resource story remains intact Deal or no deal – underlying resource story remains intact Early decision is key to clear the overhang – the deal itself does not materially change Cairn India. Operating performance remains strong and the correlation to oil prices could return. Large resource upsides with 4bboe of discovered and a further 2 5bboe of prospective exploration

K k t i f tiK fi i l d l ti

Large resource upsides – with 4bboe of discovered and a further 2.5bboe of prospective exploration resources.

PriceKey market informationKey financials and valuationsFY Mar (INR) 2010 2011F 2012F 2013FRevenue (bn) 16 100 172 193 OP. Inc (bn) 10 82 144 159 Net earnings (bn) 11 61 104 118

Market DataMarket Cap (INR bn) 664 Market cap (US$bn) 15.0Shares Outstanding (mn) 1,901 320

340

360

380

100

105

110

115

PriceRel MSCI India(INR)

Net earnings (bn) 11 61 104 118 EPS 6 32 55 62 DPS - - 5 5 Yield na na 1.4 1.4 P/BV 2.0 1.7 1.3 1.1 P/E 63 0 10 8 6 4 5 6

S a es Ou s a d g ( ) ,903mth Dailt T/O (US$mn) 65.7Free Float 19%

260

280

300

85

90

95

Jun

10

Jul 1

0

Aug

10

Sep

10

Oct

10

Nov

10

Dec

10

Jan

11

Feb

11

Mar

11

Apr

11

May

11

Source: Bloomberg, Datastream, Nomura estimates

138

Note: Share prices as of 29 April 2011

P/E 63.0 10.8 6.4 5.6


ASIA

Cairn India (CAIR IN BUY PT INR405)Cairn India (CAIR IN, BUY, PT- INR405)CAIRN – SOTP valuation

2P + EOR Resource

US$Mn INR bnINR/

Share mmboe US$/boe RemarksRajasthan Block

Conventional Recovery 9,888 451 237 494 20.0 DCF BasedEnhanced Recovery 1,269 78 41 216 5.9 DCF Based

Other Producing BlocksRavva 258.0 12.2 6 23 11.2 DCF BasedCambay 86.9 3.5 2 7 12.4 DCF Based

Future upsides in Rajasthan block20 small f ields - Contingent 2P Resources 588 27 14 98 6.0 2P reserves @ US$6/boe20 small f ields Contingent 2P Resources 588 27 14 98 6.0 2P reserves @ US$6/boe20 small f ields - prospective resources 1,232 56 30 1.0 GHIP of 1.9bboe @ US$1/boeFut expl upside - prosp recov resour 1,050 48 25 175 6.0 Gross 250mmboe @US$ 6/boeKG-DWN-98/2 210 10 5 35 6.0 2P reserves @ US$6/boe

Enterprise Value 14,582 685 361 1048 13.9N t C h 1 868 85 45 FY12 d

and cess by 4%R lt t i t NAV b 14%

Net Cash 1,868 85 45 FY12 endEquity Value 16,450 770 405 1048 15.7Target Price 405

… and cess by 4%Royalty cost recovery impacts NAV by 14% ...Royalty NAV

% (INR/sh) FY12F FY13FBase case Nil 405 55 62

EPS (INR/sh)We assume Govt demand Cairn demand

Cess (INR/tonne)FY12/13F 2,625 2,625 0LT 927 2,625 0

S N ti t

Royalty - cost recoverable 20% 349 46 50 Impact (INR/sh) 57 8 12 Impact (%) -14% -15% -20%

,

NAV (INR) 405 387 427% impact -4% 5%

139



ASIA

Petronet LNG (PLNG IN, BUY, PT- INR180)Petronet LNG (PLNG IN, BUY, PT INR180)Pure LNG upside play Pipeline bottlenecks that restricted gas growth are behind now. With limited visibility on domestic gas for next 4-5

years, LNG is likely to be the key source of gas availability.years, LNG is likely to be the key source of gas availability. PLNG owns 75% of India’s LNG re-gas capacity – its near-term capacity is all booked with short-term contracts, yet

few spot cargoes could keep surprising. Re-gas capacity to double to 20mmtpa by FY14 – we believe PLNG will remain a key gateway for LNG imports. “Too good to believe” LT GSPA, with the re-gas tariff increasing 5% pa. Apart from getting the same tariff on

short/spot cargoes, the company keeps surprising on marketing gains on cargo that it markets. In the current framework, we see not much risk of regulatory intervention in tariffs Hi h iti it t l ti FY12F EPS i 13% f 1MT i i RLNG l High sensitivity to volume assumption – FY12F EPS increases 13% for every 1MT increase in RLNG volumes. New LT contracts for new capacity could be the key catalyst – PLNG remains our favorite in mid-cap gas names.

Key market informationKey financials and valuationsFY Mar (INR) 2010 2011F 2012F 2013FRevenue (bn) 106 132 189 250 OP. Inc (bn) 8 12 15 18 Net earnings (bn) 4 6 8 9

Market DataMarket Cap (INR bn) 99 Market cap (US$bn) 2.23mth Dailt T/O (US$mn) 5 4

120

140

160

180


Net earnings (bn) 4 6 8 9 EPS 5 8 11 12 DPS 2 2 2 2 Yield 1.3 1.5 1.5 1.5 P/BV 4.4 3.7 3.0 2.5 P/E 24.5 16.0 12.5 10.8

3mth Dailt T/O (US$mn) 5.4Free Float 50%No of shares(million) 750Major shareholders - GAIL 12.5

O GC

60

80

100

80

100

120

140

ay 1

0

un 1

0

ul 1

0

ug 1

0

ep 1

0

ct 1

0

ov 1

0

ec 1

0

an 1

1

eb 1

1

ar 1

1

pr 1

1

140

Source: Bloomberg, Datastream, Nomura Estimates

Note: Share prices as of 29th April 2011

P/E 24.5 16.0 12.5 10.8 - ONGC 12.5 Ma Ju J Au

Se O N De Ja Fe M A


ASIA

Petronet LNG (PLNG IN BUY PT- INR180)PLNG - DCF Valuations

Petronet LNG (PLNG IN, BUY, PT INR180)Key assumptions and Valuation FY13 endTerminal Grow th rate 1%WACC 10%Valuation (INRmn)Discounted FCFF 70,692 Terminal cash f low 99,896 Enterprise Valuation 170,588 Net Debt (FY12end) 37,301 Implied Mcap 133,288 Value per share (INR) 179 Price Target (INR) 180

FY11F FY12F FY13F FY14F FY15F FY16F FY17F FY18F FY19F FY20F FY21FLNG Volumes (MMT)LNG Volumes (MMT)

- Dahej 8.6 10.1 10.4 11.0 11.3 11.3 11.3 11.3 11.3 11.3 11.3- Kochi 0.0 0.0 0.5 2.0 2.0 2.0 2.0 2.0 2.5 2.5 2.5

Net back Margins (INR/mmbtu)- Dahej 31.9 33.2 35.1 37.8 37.8 37.8 37.8 37.8 37.8 37.8 37.8 - Kochi - - 80.0 84.0 80.0 84.0 88.2 92.6 92.6 92.6 92.6

Market seems to be building in no tariff growth and only 75% utilisation

EBIT 10,432 13,213 15,460 20,851 19,157 19,338 19,544 19,768 21,617 21,459 21,300 FCFF -9,658 2,339 16,570 16,857 17,153 17,461 18,854 18,907 18,959Discounted FCFF -9,658 2,127 13,703 12,677 11,730 10,859 10,663 9,724 8,867

70% 75% 80% 84% 90% 100%0% 119 135 152 164 184 2161% 130 148 165 179 200 234

Levelised utilisation rate at Dahej

tarif

f

1% 130 148 165 179 200 2342% 143 162 181 195 217 2533% 157 177 197 212 236 2744% 172 193 214 231 256 2975% 188 211 233 251 278 322

Leve

lised

t

141Source: Bloomberg, Nomura Estimates


ASIA

Indraprastha Gas (IGL IN, BUY, PT- INR450)p ( , , )A secular CGD story IGL is our preferred gas downstream play – a beneficiary of CNG growth in NCR and industrial volume growth long term. It has the twin advantages of being in Delhi NCR India’s largest metropolitan area where discretionary conversion to It has the twin advantages of being in Delhi NCR — India s largest metropolitan area, where discretionary conversion to

CNG is driving growth. CNG penetration is still low — ~15% of overall three/four vehicles and ~40% of annual additions. CNG is fast becoming the fuel of choice in Delhi. It is about 36-62% cheaper than liquid fuels and is now widely available.

Most key automakers have started to supply factory fitted CNG vehicle – growth rates can ramp-up quickly. Historically, due to paucity of gas IGL could not grow beyond Delhi and could not tap large potential demand in

industrial/commercial segments. With increased gas availability, it has stepped-up operations in NCR areas and focus now is to tap industrial/commercial segment.

Concerns on its ability to pass along gas costs have been reduced by the ease with which it has passed on all costConcerns on its ability to pass along gas costs have been reduced by the ease with which it has passed on all cost increases over the past year (including a more than 100% APM increase) to raise CNG prices by 35%.

More APM allocation likely - CNG is a high priority area in current gas allocation policy – IGL is seeking allocation of about 0.25mmscmd for the Ghaziabad and pooling of all the gas allocation for the Delhi NCR area.

Key market informationKey financials and valuationsFY Mar (INR) 2010 2011F 2012F 2013FRevenue (bn) 11 18 25 32 OP. Inc (bn) 4 5 6 7 Net earnings (bn) 2 3 3 4

Market DataMarket Cap (INR bn) 45 Market cap (US$bn) 1.03mth Dailt T/O (US$mn) 2 1 320

340360380

130

140

150


Net earnings (bn) 2 3 3 4 EPS 15 19 23 27 DPS 5 5 5 5 Yield 1.4 1.4 1.4 1.4 P/BV 5.5 4.4 3.6 2.9 P/E 20 9 17 3 14 1 12 1

3mth Dailt T/O (US$mn) 2.1Free Float 55%No of shares(million) 140Major shareholders - GAIL 22.5

200220240260280300320

90

100

110

120

130

y 10

n 10

ul 1

0

g 10

p 10

ct 1

0

ov 1

0

c 10

n 11

b 11

ar 1

1

pr 1

1

142

Source: Bloomberg, Datastream, Nomura EstimatesNote: Share prices as of 29th April 2011

P/E 20.9 17.3 14.1 12.1 - BPCL 22.5 Ma Ju Ju Au

Se Oc

No

De Ja Fe Ma

Ap


ASIA

Indraprastha Gas (IGL IN BUY PT INR450)Indraprastha Gas (IGL IN, BUY, PT- INR450)IGL – DCF Valuations

(INRmn) FY10 FY11F FY12F FY13F FY14F FY15F FY16F FY17F FY18F FY19F FY20F FY21FTotal Volume (mmscmd) 2.1 2.7 3.3 3.9 4.6 4.9 5.3 5.6 6.0 6.3 6.6 6.9 CNG (mmscmd) 1.9 2.2 2.6 3.0 3.5 3.7 4.0 4.3 4.6 4.8 5.1 5.3 PNG (mmscmd) 0.2 0.5 0.7 0.9 1.1 1.2 1.3 1.3 1.4 1.4 1.5 1.5 EBITDA (INR/scm) 4.9 5.1 5.2 5.2 5.0 4.9 4.8 4.7 4.5 4.4 4.3 4.2 EBITDA 3,808 4,913 6,149 7,309 8,464 8,815 9,174 9,549 9,940 10,120 10,304 10,492EBIT 3,033 3,908 4,883 5,648 6,575 6,747 7,058 7,385 7,728 7,860 7,996 8,136FCFF (1,105) (3,113) (312) 1,197 2,494 3,575 6,031 6,297 6,574 6,711 6,850 6,991Discounted FCFF 1,197 2,249 2,906 4,420 4,161 3,917 3,605 3,318 3,053

DCF Summary (INRmn) FY13 EndAssumptionsTerminal Growth rate 2.5%WACC 11%Valuation summaryDiscounted free cash flow 28,826 Terminal valuation 37,204 Enterprise Value 66,030 Net Debt / (Cash) incl investments 2,695 Implied Mcap 63,335

IGL – 1 year forward P/E band chart

Implied Mcap 63,335 Value per share 453 Target price 450

(INR/ h )

IGL – 1 year forward P/B band chart(INR/share)

250

300

350

400

12x

(INR/share)

16x

10x

14x

250

300

350

400

3.0x

(INR/share)5.0x

4.0x

50

100

150

200

6 6 6 7 7 7 8 8 8 9 9 9 0 0 0

6x

8x

10x

50

100

150

200

250

1.5x

2.0x

2.5x

143Source: Company data, Nomura Estimates

Apr

-06

Jul-0

6

Nov

-06

Mar

-07

Jul-0

7

Nov

-07

Mar

-08

Jul-0

8

Nov

-08

Mar

-09

Jul-0

9

Nov

-09

Mar

-10

Jul-1

0

Nov

-10

Mar

-11 50

Apr

-06

Jul-0

6

Nov

-06

Mar

-07

Jul-0

7

Nov

-07

Mar

-08

Jul-0

8

Nov

-08

Mar

-09

Jul-0

9

Nov

-09

Mar

-10

Jul-1

0

Nov

-10

Mar

-11


ASIA

Gujarat State Petronet (GUJS IN BUY PT INR135)Gujarat State Petronet (GUJS IN, BUY, PT- INR135)Emerging pan-India gas transmission play – Regulatory uncertainties near term Present in 16 of 26 districts of Gujarat with a pipeline network of ~1,700kms ; has 25+% of gas transmission market.Present in 16 of 26 districts of Gujarat with a pipeline network of 1,700kms ; has 25 % of gas transmission market. The pure transmission model works on an open-access basis, in line with the spirit of the new regulations. It does not

buy or sell gas, and thus does not take any commodity price risk. In 3QFY11, GSPL’s JV (GSPL owns 52%),emerged as the winner in all three long-distance pipelines - On completion,

GSPL ill I di t i i ith t k 5 500k (3 f 1 700k )GSPL will emerge as a pan-India transmission company with a network over 5,500km (3x of 1,700km now). But the formal letter is not issued yet due to regulatory delays – limited clarity on capex, funding, timing, equity

dilutions , etc. Tariff setting is also delayed due to regulatory delays . We do not expect sharp tariff cuts yet but build conservativeTariff setting is also delayed due to regulatory delays . We do not expect sharp tariff cuts yet but build conservative

tariff estimates.

Key market informationKey financials and valuations Key market informationKey financials and valuationsFY Mar (INR) 2010 2011F 2012F 2013FRevenue (bn) 10 11 12 13 OP. Inc (bn) 9 10 11 12 Net earnings (bn) 4 5 6 6 EPS 7 9 10 11

Market DataMarket Cap (INR bn) 55 Market cap (US$bn) 1.33mth Dailt T/O (US$mn) 2.8F Fl t 62%

110

120

130

110

115

120

125


EPS 7 9 10 11 DPS 1 2 2 2 Yield 1.0 1.5 1.5 1.5 P/BV 3.5 2.8 2.3 1.9 P/E 13.4 11.5 9.8 9.1

Free Float 62%No of shares(million) 562Major shareholders - GSPC 37.8 - Gujarat Maritime Board 6.6

80

90

100

95

100

105

110

May

10

Jun

10

Jul 1

0

Aug

10

Sep

10

Oct

10

Nov

10

Dec

10

Jan

11

Feb

11

Mar

11

Apr

11

144



ASIA

Gujarat State Petronet (GUJS IN, BUY, PT- INR135)Gujarat State Petronet (GUJS IN, BUY, PT INR135)GSPL - DCF Valuations

DCF Summary (INRmn) FY13 endDiscounted FCFF 37,507Terminal valuation 50,866Terminal Growth rate 2.5%WACC 10.4%Enterprise Value of core business 88,373Investment 866Enterprise Valuation 89,239Net Debt (FY12 - Rsm) 12,785Implied Mcap (Rsm) 76,454Per share Value 136 Target price 135

(INRmn) FY10 FY11F FY12F FY13F FY14F FY15F FY16F FY17F FY18F FY19F FY20F FY21FGas Volumes (mmscmd) 32.0 35.7 41.2 46.8 53.2 54.8 56.5 58.1 59.9 61.7 63.5 65.4Tariffs (Rs/MSCM) 850 807 775 750 750 750 750 750 750 750 750 750EBIT (Rsm) 7,049 8,036 9,447 10,273 11,682 11,304 11,608 11,923 12,251 12,592 12,947 13,314FCFF (Rsm) 1,732 3,133 6,750 7,055 7,367 7,688 8,018 8,356 8,703Discounted FCFF (Rsm) 1 732 2 837 5 535 5 239 4 954 4 681 4 421 4 172 3 935

1-yr forward P/E band chart 1-yr forward P/B band chartDiscounted FCFF (Rsm) 1,732 2,837 5,535 5,239 4,954 4,681 4,421 4,172 3,935

140(INR/share) 15x

1403.5x

3 0

(INR/share)

60

80

100

120

5x

12x

8x

10x

60

80

100

1202.5x

1.5x

2.0x

3.0x

0

20

40

-06

-06

-06

-07

-07

-07

-08

-08

-09

-09

-09

-10

-10

-10

-11

5x

0

20

40

b-06

n-06

v-06

r-07 l-0

7

c-07

r-08

g-08

n-09

y-09

p-09

b-10

n-10 t-1

0

r-11

1.0x

145Source: Bloomberg, Nomura Estimates

Feb-

Jun-

Nov

-

Mar

-

Jul-

Dec

-

Apr-

Aug-

Jan-

May

-

Sep-

Feb-

Jun-

Oct

-

Mar

-

Feb

Jun

Nov Mar Ju

l

Dec Ap

r

Aug

Jan

May Sep

Feb

Jun

Oct

Mar


ASIA

Gujarat Gas (GGAS IN, NEUTRAL, PT- INR415)j ( , , )Limited growth visibility Gujarat Gas has faced severe gas shortages since its PMT (Panna-Mukta-Tapti fields) allocation was cut by 30%

in 2Q08. CGD is a priority area for APM and KG-D6 gas allocation. Yet, compared to the current need of ~0.5mmscmd for

CNG and domestic piped gas, GGAS’ allocation is limited to 0.15mmscmd of APM gas. Due to limited domestic gas supply, GGAS is increasingly relying on spot/short-term RLNG. As RLNG prices fluctuate the company is now resorting to more frequent pricing change but is facing some As RLNG prices fluctuate, the company is now resorting to more frequent pricing change, but is facing some

consumer resistance. After a sharp 16% increase in December 2010, it has further raised prices for the industrial segment by a sharp 25% from April 2011.

Sacrificing volume growth in already mature markets - slowing volumes with rising prices. To further grow, GGAS needs to expand, but seems not to be pursuing aggressive growth.

K k t i f tiK fi i l d l ti P iKey market informationKey financials and valuationsFY Dec (INR) 2009 2010 2011F 2012FRevenue (bn) 14 18 23 26 OP. Inc (bn) 3 4 5 5 Net earnings (bn) 2 3 3 3

Market DataMarket Cap (INR bn) 47 Market cap (US$bn) 1.13mth Dailt T/O (US$mn) 0.3 340

360380400420440

120

130

140

150


EPS 13 20 24 26 DPS 8 12 10 10 Yield 2.1 3.2 2.7 2.7 P/BV 6.2 5.6 4.8 4.0 P/E 27.9 18.8 15.9 14.5

Free Float 35%Major shareholders - BG Group 65.1 - Aberdeen 11.4

260280300320

90

100

110

May

10

Jun

10

Jul 1

0

Aug

10

Sep

10

Oct

10

Nov

10

Dec

10

Jan

11

Feb

11

Mar

11

Apr

11

146


P/E 27.9 18.8 15.9 14.5


ASIA

Gujarat Gas (GGAS IN, REDUCE, PT- INR415)GGAS – DCF Valuation

Gujarat Gas (GGAS IN, REDUCE, PT INR415)(INRmn) 2010 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019FGas Sales (mmscmd) 3.32 3.56 3.84 4.17 4.50 4.77 5.04 5.36 5.68 6.02 EBITDA (INR/ ) 3 43 3 76 3 76 3 76 3 51 3 51 3 51 3 51 3 51 3 51EBITDA (INR/scm) 3.43 3.76 3.76 3.76 3.51 3.51 3.51 3.51 3.51 3.51 EBIT(INRmn) 3,614 4,272 4,617 5,001 4,984 5,288 5,613 5,960 6,330 6,725FCFF 1,832 2,312 2,458 2,764 2,812 3,657 3,916 4,190 4,479 4,785Discounted FCFF 2,458 2,488 2,277 2,665 2,569 2,473 2,379 2,287

DCF Summary CY12endDiscounted free cash flow 19,596 Terminal Growth rate 2.5%WACC 11%Terminal valuation 27,197 Enterprise Value of core business 46,794 Investments 5 488Investments 5,488 Enterprise valuation 52,282 Net Debt / (Cash) - CY11F (1,090) Preference shares 144 Implied Mcap (Rsm) 53,228 Per share Value 415

41

GGAS – 1 Yr forward P/E band chart GGAS – 1 Yr forward P/B band chart

Target price 415

(INR/share) 24x 500(INR/share)

5 5

200250300350400450500

16x

12x

20x

200250300350400450500

4.5x

2.5x

3.5x

5.5x

050

100150200

-06

-06

-06

-07

-07

-07

-08

-08

-08

-09

-09

-09

-10

-10

-10

-11

8x

050

100150200

n-06

n-06

v-06

r-07

p-07

b-08 l-0

8

c-08

y-09 t-09

r-10

g-10

n-11

1.5x

147Source: Bloomberg, Nomura estimates

Jan-

May

-Se

p-Ja

n-M

ay-

Sep-

Jan-

May

-Se

p-Ja

n-M

ay-

Sep-

Jan-

May

-Se

p-Ja

n- Jan

Jun

Nov Ap

r

Sep

Feb

Ju Dec

May Oc

Ma r

Aug

Jan


ASIA

Oil marketing companies – In dire straitsOil marketing companies In dire straitsKey operating numbers

IOC BPCL HPCLRefining g

Number of refineries x 8 2 2Refining capacity MMT 51 22 15FY10 throughput MMT 51 20 16FY10 operating rate % 99 95 106Refining market share % 27% 11% 9%

FY10 avg GRM US$/bbl 4.5 3.0 2.7Last 3 yr avg GRM US$/bbl 5.8 4.6 4.4

MarketingMarketing volume MMT 70 28 26Market share % % 51% 20% 19%Market share % % 51% 20% 19%Marketing to Refining vol 1.38 1.36 1.67 Number of outlets - Retail outlets x 18,643 8,692 9,127- LPG Distributors x 5,095 2,187 2,404- LPG Customers millions 57 28 29- LPG bottling plants x 89 49 44

Pipeline NetworkProduct Pipelines MMT 34 12 13Crude Pipelines MMT 40Total MMT 75 12 13Market share - Product pipeline % 54% 18% 20% - Crude pipeline % 44%

FY10 thruput MMT 66 11 12

Source: Company data, PPAC, Nomura research


ASIA

OMCs – Deteriorating financial healthOMCs Deteriorating financial healthDe-growth in operating profits despite growth in

operating volumes% growth FY04 FY05 FY06 FY07 FY08 FY09 FY10 Reported net profit Net profit ex subsidy(INRbn)

PAT - Dictated less by operating matrix, more by govt decisions on subsidy

Key operating matrixRefining thruput 0.1 (0.0) 0.2 15.6 5.8 2.4 (0.3) Marketing sales 3.7 4.2 (1.3) 13.9 9.4 4.7 4.8 Retail outlets 13.6 15.7 15.5 18.9 6.6 3.1 3.5 LPG Customers 10.4 9.4 5.2 7.3 6.2 5.7 7.3 (100)

0

100

200 p p p y

G Custo e s 0 9 5 3 6 5 3

Operating profit 14 (33) (16) 75 (9) (17) 44

(400)

(300)

(200)

(100)

OMCs: Gross under-recoveries vs. reported PAT

(600)

(500)

FY04 FY05 FY06 FY07 FY08 FY09 FY10

OMCs: Net U/Rs (post upstream/cash support) vs. PATp

1000

1200Gross U/Rs PAT(INRbn)

140

160

180 Net under-recoveries PAT(INRbn)

400

600

800

1000

40

60

80

100

120

0

200

400

FY05 FY06 FY07 FY08 FY09 FY10(20)

0

20

40

FY05 FY06 FY07 FY08 FY09 FY10

149



ASIA

OMCs – Deteriorating financial healthOMCs Deteriorating financial healthOMCs: Increased share of other income in PBT OMCs: Other income enabling to stay in black

Core PBT Other income(INRbn) Reported net profit Net profit ex other income(INRbn)

50% 120%

56%

95

115

135 Core PBT Other income( )

80

100

120

140 Reported net profit Net profit ex other income( )

18% 26%42%

31%

50% 120%

35

55

75

0

20

40

60

80

OMCs combined debt up 5.3x over last 6 years OMCs – Rising interest costs / falling interest cover

(5)

15

FY04 FY05 FY06 FY07 FY08 FY09 FY10(20)

0


p y

120

140

800900

1000Debt (LHS)

Debt - Equity ratio (RHS)

(INRbn) (%)

258090

Interst cost (LHS)Interest cover (RHS)

(INRbn) (x)

60

80

100

300400500600700800

10

15

20

3040506070

0

20

40

0100200300


0

5

0102030


150



ASIA

OMCs – Deteriorating financial healthOMCs Deteriorating financial healthOMCs: Deteriorating key return ratios – Lower oil

price came to rescue in FY10OMC quarterly PAT – Rather than refining margin,

earnings depend on subsidyROAE ROACE ROAIC(%) OMCs quarterly PAT (INRbn)(INRbn) (US$/bbl)(LHS)

25

30

35

(%)

2 5

5.0

7.5

10.0

50

100

150

200

OMCs quarterly PAT (INRbn)Singapore complex GRM (US$/bbl)

(US$/bbl)( )

(LHS)(LHS)(RHS)(RHS)

5

10

15

20

(7 5)

(5.0)

(2.5)

0.0

2.5

(150)

(100)

(50)

0

50

Between April-Sep 2010 OMC saw sharp rally on reform hopes – Nearly all gains lost by Feb-2011

0

5


(7.5)(150)

1QFY

062Q

FY06

3QFY

064Q

FY06

1QFY

072Q

FY07

3QFY

074Q

FY07

1QFY

082Q

FY08

3QFY

084Q

FY08

1QFY

092Q

FY09

3QFY

094Q

FY09

1QFY

102Q

FY10

3QFY

104Q

FY10

1QFY

112Q

FY11

3QFY

11

p p p y p y g y

Some recent recovery Declines start peak lows declines CMP gains from Sept-10

Apr-10 Sep-10 gains Feb-11 Apr-11 % peaksBPCL 491 802 63% 539 33% 630 17% 22%

Rally on hope of reforms Hopes puncutred

BPCL 491 802 63% 539 -33% 630 17% -22%IOCL 274 450 64% 293 -35% 340 16% -24%HPCL 295 546 85% 309 -43% 373 21% -32%

151



ASIA

OMCs – Limited downside post correctionOMCs Limited downside post correctionStocks are back to trading around book values

2.5 PB (x)

2.0

2.3

IOC BPCL HPCL

1.3

1.5

1.8

0.8

1.0

We use 3yr average 1yr fwd P/B multiple for OMCs – our P/B valuation methodology

0.5

Apr-

04

Jul-0

4

Oct

-04

Jan-

05

Apr-

05

Jul-0

5

Oct

-05

Jan-

06

Apr-

06

Jul-0

6

Oct

-06

Jan-

07

Apr-

07

Jul-0

7

Oct

-07

Jan-

08

Apr-

08

Jul-0

8

Oct

-08

Jan-

09

Apr-

09

Jul-0

9

Oct

-09

Jan-

10

Apr-

10

Jul-1

0

Oct

-10

Jan-

11

Apr-

11

valuing OMCs 1 yr fwd P/B IOC BPCL HPCL1Year 1.5 1.5 1.12Year 1.4 1.4 1.13Year 1 3 1 25 1 0

BPCL IOCL HPCLBook value per share - FY13 497 281 380 Target multiple (x) - Last 3yrs avg 1yr fwd P/B 1.25 1.30 1.00 Implied equity value 622 365 380

Source: Company data, Bloomberg, Nomura estimates

3Year 1.3 1.25 1.0Our current target multiple 1.3 1.25 1.0Earlier multiple 1.0 1.0 0.8

Price Target 620 365 380


ASIA

Korea


ASIA

Currency (KRW) FY10 FY11F FY12F FY13F

S-Oil (010950 KS; BUY; CMP: W159,500; PT: W200,000)Beneficiary of polyester chain strength

y ( )Revenue (bn) 20,530 28,478 29,481 30,137Reported net profit (bn) 677 1,873 2,034 1,798Normalised net profit (bn) 677 1,873 2,034 1,798Normalised EPS 6 016 20 16 638 50 18 065 30 15 971 50

ACTION: BUY as earnings will be resilient. After a strong rally over the last 6 months, S-Oil’s outperformance has slowed down recently. We attribute this to market concern that refining and PX margins may have peaked out and that 2Q11 profit may weaken due to the subsidy

Normalised EPS 6,016.20 16,638.50 18,065.30 15,971.50Norm. EPS growth (%) 212.3 176.6 8.6 -11.6Norm. P/E (x) 26.5 9.6 8.8 10EV/EBITDA 19.6 7.7 6.6 7.3Price/book (x) 4 2.9 2.4 2.2Dividend yield (%) 1 5 3 4 3 7 3 7have peaked out and that 2Q11 profit may weaken due to the subsidy

imposed on domestic gasoline and diesel (effective early April). We believe the concern is overdone, and any share correction should be seen as a buying opportunity.

Dividend yield (%) 1.5 3.4 3.7 3.7ROE (%) 16.1 35.3 30.1 23.4Net debt/equity (%) 39.1 21.1 4.3 net cash

Catalyst: PX strength in 2H11, sustainable refining margin. S-Oil’s new PX plant started operation in April 2011 (PX capacity up by +129% to 1.6mn tpa; benzene up +140% to 0.5mn tpa), and the company started to generate revenue and profit from mid April We expect PXstarted to generate revenue and profit from mid-April. We expect PX margin to surge again from 2H11 due to the start-up of new PTA plants. Furthermore, we believe current high refining margins are sustainable for the next few months on continued strong oil demand and the possibility of diesel shortages in China due to electricity rationing this summer.

Maintain BUY; PT W200,000. Our PT of W200,000 is based on FY11F P/BV of 3 8x which represents a 20% premium to the peak cycleP/BV of 3.8x, which represents a 20% premium to the peak-cycle multiple seen over FY04-10. Risks include 1) weakening polyester demand hurting PX margin; 2) new petrochemical plants facing operational problems; and 3) management not paying out enough.

154Note: Pricing as of 29 Apr 2011 close© Nomura International (Hong Kong) Limited

ASIA

S-Oil: dividends and quarterly earningsDividendsDividends( W/share) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F 2012F1Q 8,3002Q 250 625 375 750 1,500 1,500 1,750 600 300 1,000 1,0003Q 750 750 1 7503Q 750 750 1,7504Q 1,250 1,000 1,250 1,875 1,750 4,000 2,875 2,875 5,125 1,500 750 2,200 4,500 5,000DPS 1,250 1,250 1,875 1,875 2,125 4,750 5,125 5,125 13,425 5,000 1,350 2,500 5,500 6,000

EPS 2,654 58 246 2,297 3,127 11,144 5,682 6,505 6,347 3,902 1,927 6,016 16,639 18,065P t 47% 2155% 762% 82% 68% 43% 90% 79% 212% 128% 70% 42% 33% 33%

FY11F OP breakdown

Source: Company data, Nomura

Pay-out 47% 2155% 762% 82% 68% 43% 90% 79% 212% 128% 70% 42% 33% 33%

Petrochemical18%

Lubricant19%

Petroleum63%

19%

155Source: Nomura© Nomura International (Hong Kong) Limited

ASIA

SK I tiSK Innovation (096770 KS; BUY, CMP: W232,000; PT: W330,000)Turning to value stocks

f S (S )

Currency (KRW) FY10 FY11F FY12F FY13FRevenue (bn) 43,864 53,201 55,172 55,925Reported net profit (bn) 1206 2,526 2,698 2,566

Action: BUY the less expensive refiners. SK Innovation (SKI) has lagged other Asian refiners in share price performance, likely due to its smaller exposure to parayxlene and limitations faced pricing domestic gasoline and diesel in 2Q11. We find SKI attractive not only

(bn) , , ,Normalised net profit (bn) 1206 2,526 2,698 2,566Normalised EPS 13,151.10 27,551.10 29,430.00 27,986.60Norm. EPS growth (%) 78.1 109.5 6.8 -4.9Norm. P/E (x) 19 9.1 8.5 8.9EV/EBITDA 11 1 7 2 6 3 6 4g y

on the cyclical upturn of the refining/chemical industry but on structural improvements (costs, operational efficiency).

Catalyst: Capital gain from Brazilian oil block sale. In December

EV/EBITDA 11.1 7.2 6.3 6.4Price/book (x) 2.1 1.8 1.6 1.4Dividend yield (%) 0.8 0.8 0.8 0.8ROE (%) 13 21.7 19.8 16.5Net debt/equity (%) 58.4 45.1 27.5 19.3

2010, SKI sold its stakes in Brazilian oil blocks to Denmark’s Maersk Oil at a price of USD2.4bn. SKI plans to use the proceeds to fund other international deals and to “upgrade” its E&P portfolio. This deal, once approved by the Brazilian government, should create a , pp y g ,cash inflow of over USD1.4bn (or capital gain of circa KRW1.0trn), on our estimates.

Maintain BUY, PT W330,000. We reiterate BUY on SK Innovation, with a PT of KRW300,000. Our PT is based on 2.4x FY11F P/BV (KRW136,665), a 20% premium to the peak cycle multiple over FY07-10. Risks include crude prices and volatile refining and chemical margins.chemical margins.

156Note: Pricing as of 29 Apri 2011 close© Nomura International (Hong Kong) Limited

ASIA

SK Innovation – SOTP NAV

(W bn) RemarkRefining EBITDA 1,551 2011F EBITDA * OP contribution (57%)

Target multiple (x) 10 6 20% premium to Asia refiner average (2011F) Target multiple (x) 10.6 20% premium to Asia refiner average (2011F) EV 16,374Petrochemical EBITDA 637 2011F EBITDA * OP contribution (23%)

T t lti l ( ) 9 0 K t h (2011F) Target multiple (x) 9.0 Korea petrochem average (2011F) EV 5,736E&P EV/barrel (US$/bbl) - oil 20.0

$ EV/barrel (US$/bbl) - gas 10.0 Proven reserves (mn bbl) 534 oil (25%), gas (75%) EV 7,409 2011F KRW/USD: 1110EV 29,519Net debt 3,316 2011F net debtFair market cap 26,203# of shares (mn) 92SK Energy fair value (W/share) 283,372

Source: Company data, Nomura

gy ( ) ,


ASIA

SK Energy: business segments

OP by division (2010)Sales by division (2010)

OthE&P

E&P22%

Others4%

Petrochemical28%

E&P2%

Petroleum53%

28%

53%

Petrochemical21%

Petroleum70%

21%

Source: Company data Source: Company data


ASIA

How SK Innovation has changedPrevious New

SK Holdings

Refining

SK Holdings

33.4%33.4%

SK Energy

Refining

Petrochemicals

E&P

SK InnovationE&P

New businessesinformation/electronic materials

SK Lubricants (100%)

New businesses-information/electronic materials-battery-green technology

SK Energy (100%)

SK marketing & company (50%)

Dopco (38.3%)

NeTruck (33.7%)

SK Lubricants (100%)

SK marketing & company (50%)

SK Global Chemical (100%)

SK Mobile Energy (100%)

SK Petrochemical (100%)

SK Encar (87 5%)

Dopco (38.3%)

NeTruck (33.7%)

SK Mobile Energy (100%)SK Encar (87.5%)

etc.

gy ( )

SK Petrochemical (100%)

SK Encar (87.5%)

159Source: Company data

etc.


ASIA

GS Holdings (078930 KS; BUY; CMP: W89 500; PT: W115 000)GS Holdings (078930 KS; BUY; CMP: W89,500; PT: W115,000)

Structural changes taking place Action: BUY on market jitters over refining and PX margin

Currency (KRW) FY10 FY11F FY12F FY13FRevenue (bn) 929 1,187 1,204 1,200Reported net profit (bn) 799 1,038 1,048 1,054

Action: BUY on market jitters over refining and PX margin. Recent share weakness may be attributable to concern about the sustainability of refining and PX margin, in our view, along with subsidies by GS Caltex (GSC) on domestic gasoline and diesel in Q11 W b li th i d d h ti

Normalised net profit (bn) 799 1,038 1,048 1,054Normalised EPS 8,596.00 11,171.10 11,284.00 11,347.10Norm. EPS growth (%) 61.6 30 1 0.6Norm. P/E (x) 10.4 8 7.9 7.9EV/EBITDA 10 2 7 5 7 6 5Q11. We believe the concern is overdone, and share correction

should be seen as a buying opportunity. GS Retail (GSR) has filed for listing on the KRX this year, and assuming a 30% stake sale, GSH may see a capital gain of W250-300bn.

EV/EBITDA 10.2 7.5 7 6.5Price/book (x) 1.7 1.4 1.2 1.1Dividend yield (%) 1.4 1.7 1.7 1.7ROE (%) 17.9 19.5 16.8 14.7Net debt/equity (%) 12.1 2.2 net cash net cashy g

Catalyst: PX strength, sustainable refining margin, volume growth. Following completion of two hydrocrackers in 2007 and 2010, GSC is constructing another fluid catalytic cracker (FCC) with t t i 2013F GSC i l d t ki ll i thistart-up in 2013F. GSC is also undertaking small expansions this

year for base oil. We expect deleveraging from GSC’s sector-high gearing (net debt/equity ratio of 113% at end-2010), as the high capex cycle (W1.2tn pa over the past 5 years) ended in FY10. PX p y ( p p y )margin should surge again from 2H11 on the start-up of new PTA plants while refining margins appear sustainable on strong oil demand and possible diesel shortages in China this summer.

O f Maintain BUY, PTW115,000. Our PT of W115,000 is based on FY11F P/BV of 1.8x, which is a 20% premium to the peak-cycle multiple over FY07-10F. Risks: 1) operational problems at the new hydrocracker; 2) delays in GS Retail’s listing and/or the company’s

160

y ; ) y g p ynew FCC schedule.

Note: Pricing as of 29 Apr 2011 close© Nomura International (Hong Kong) Limited

ASIA

GS Holdings – SOTP NAV

(W bn) RemarkFixed tangible asset 556 GS TowerGS Caltex 8,621 2011F book value 2.0xGS Retail 915 2010 book valueGS Retail 915 2010 book value GS Homeshopping 143 25% discount to Nomura fair valueGS Sports 11 25% discount to 2010 book valueGS EPS 248 25% discount to 2010 book valueGS Global 193 25% discount to market capBrand royalty & rental income 517 NPV of 20 yr brand royalty (FY11F)Investment asset 11,205Net debt 129 NAV 11,076# of shares (mn) 95GS Holdings fair value (W/share) 116,586



ASIA

GS H ldi b kdGS Holdings: breakdown Revenue breakdownAnnual (Wbn) FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11F FY12F( )Revenue 274 424 393 420 139 534 929 1,187 1,204 Equity income 263 396 359 364 71 471 858 1,079 1,092 Rental income 11 28 34 35 37 36 40 40 40

B d R l (0) 0 0 21 31 26 31 68 2


Equity income breakdown (FY11F)NAV breakdown 2010

Brand Royalty (0) 0 0 21 31 26 31 68 72

Equity income breakdown (FY11F)NAV breakdown 2010

GS Home Shopping

3%

GS EPS5%

GS Global0%

GS EPS

GS Homeshopping

2%

GS Global2% GS Sports

0%GS Retail

10%

GS Retail17%

GS EPS6%

2% 0%

GS Caltex82%

GS Caltex73%

162Source: Company data Source: Nomura© Nomura International (Hong Kong) Limited

ASIA

LG Chem (051910 KS; BUY, CMP: W530,000; PT: W700,000)Multi-year re-rating in place

Currency (KRW) FY10 FY11F FY12F FY13FRevenue (bn) 19,471 22,631 25,022 24,966Reported net profit (bn) 2169 2,717 3,050 3,183Normalised net profit

Action: BUY for multi-year re-rating. LG Chem (LGC) has rallied continuously for 2 years. We are diligently watching for potential de-rating catalysts but none seem in sight. Any traction in EV b tt i h ld b iti LCD b t t t t t t

(bn) 2169 2,717 3,050 3,183Normalised EPS 32,727.20 40,993.30 46,017.10 48,030.10Norm. EPS growth (%) 40.4 25.3 12.3 4.4Norm. P/E (x) 16 12.8 11.4 10.9EV/EBITDA 10 8 7 6.5Price/book (x) 4.4 3.4 2.9 2.5

batteries should be positive. LCD substrate start-up may turn out to be timely, potentially dovetailing with the LCD cycle upturn.

Catalysts: Petrochemicals resilient, IT recovery to play t l t F ll i d t l fit i 1Q thi k ABS/EP

( )Dividend yield (%) 0.8 0.9 0.9 0.9ROE (%) 31.7 30.1 27.6 24.9Net debt/equity (%) 9.3 2.4 0.1 net cash

catalyst . Following record quarterly profit in 1Q, we think ABS/EP (sales: +10% q-q), acrylate (+28% q-q) and BR (+23% q-q) should see healthy trends in 2Q. The next 2 quarters should be backed by seasonality and tight supply of rubber and acrylates. Capacityseasonality and tight supply of rubber and acrylates. Capacity expansion of BR is planned to be ready in Aug. We believe potential recovery in LCD/ IT has yet to be priced in.

Maintain BUY, PTW700,000. Our PT of KRW700,000 is based onMaintain BUY, PTW700,000. Our PT of KRW700,000 is based on SOTP. Our PT reflects a more positive view of the petrochemical and car battery units. We value the auto battery and LCD glass segments at KRW29,000/share and KRW28,000/share. Risks i l d 1) t h d LCD l l tilit 2) ti finclude: 1) petrochem and LCD cycle volatility; 2) execution of car battery production.


ASIA

LG Chem: SOTP valuation(W bn) Remark Previous

l i(W bn) Remark

valuation Electronic material EV (a) 15,999 11,938 EBITDA 1,333 PV of 2012F 1,194

Multiple (x) 12 0 20% premium to Korea tech average; unchanged 10 0 Multiple (x) 12.0 20% premium to Korea tech average; unchanged 10.0 Petrochemical EV (b) 26,754 17,627 EBITDA 3,111 PV of 2012F 2,540 Multiple (x) 8.6 LGC's peak cycle multiple in 2010 6.9 LCD glass EV (c) 2,306 2,306 Auto battery EV (d) 2,387 2,139 EV (a)+(b)+(c)+(d) 47,446 34,010 ( ) N t d bt 13 2012F 232(-) Net debt 13 2012F 232 Market cap 47,433 33,777 (-) preferred share market cap 1,377 Market cap 2 May 1,014 Fair market cap 45 990 32 697


Fair market cap 45,990 32,697 # of shares (mn) 66.3 Common share 66 LGC fair value (W/share) 693,970 493,386



ASIA

H P t h i lHonam Petrochemical (011170 KS; BUY, CMP: W378,000; PT: W480,000)

Seeking global growth platform BUY f th t t l t h i A K i HPC

Currency (KRW) FY10 FY11F FY12F FY13FRevenue (bn) 7,189 8,434 9,568 10,216Reported net profit (b ) 784 1 100 1 223 1 390 BUY for the sweet spot – polyester chain: Among Korean companies, HPC

has the greatest exposure to the polyester chain though MEG (capacity: 1.0mn tpa), PTA (950k tpa), PX (750k tpa). MEG price and margin have seen the largest correction year-to-date, but we see an improving outlook in 2H11. We believe HPC should be one of Asia’s biggest beneficiaries of strong polyester

(bn) 784 1,100 1,223 1,390Normalised net profit (bn) 784 1,100 1,223 1,390Normalised EPS 24,616.40 34,538.60 38,382.60 43,619.00Norm. EPS growth (%) -1.6 40.3 11.1 13.6Norm. P/E (x) 9.4 6.7 6 5.3believe HPC should be one of Asia s biggest beneficiaries of strong polyester

demand growth and tight MEG supply.

Catalyst: Price pick up from end-May, expanding scale. While petrochemical prices and margins may slow in May due to inactive buying demand from China,

e e pect demand to pick p as in entories appear thin HPC’s CEO has

EV/EBITDA 6.7 5.1 4.3 3.6Price/book (x) 1.7 1.3 1.1 1Dividend yield (%) 0.8 0.8 0.8 0.8ROE (%) 19.2 22.1 20.1 19.4Net debt/equity (%) 27.6 15.1 5 net cash

we expect demand to pick up as inventories appear thin. HPC’s CEO has reportedly (Korea Economy, 17 April) stated his interest in acquiring the remaining 48% stake in KP Chemical this year. HPC intends to complete 14% ethylene capacity expansion in 2012F and will also seek asset acquisitions in Asia to achieve targeted sales of W40tr by 2019 HPC is developingAsia to achieve targeted sales of W40tr by 2019. HPC is developing rechargeable batteries with a US energy storage system provider, with commercialisation targeted for 2015. HPC is also developing battery separator (dry-type) and electrolytes.

Maintain BUY PTW480 000 Our target price of KRW480 000 is based on sum Maintain BUY, PTW480,000. Our target price of KRW480,000 is based on sum-of-the parts methodology. We have raised FY11F EBITDA by 8% and our target EV/EBITDA multiple to 9.3x, which represents the peak multiple in 2010. Risks may come from: 1) input and product price volatility; and 2) HPC buying assets at unattractive pricesunattractive prices.


ASIA

Honam Petrochemical: SOTP valuation

(Wbn) RemarkEBITDA 1,445 2011F EBITDAMultiple (x) 9 3 Honam peak cycle multiple 2010Multiple (x) 9.3 Honam peak cycle multiple 2010 EV 13,496Lotte Construction 1,249 33% stake; sector average multiple (1.5x) to 4Q10KP Chem 1 350 52% stake market cap; 2 MayKP Chem 1,350 52% stake, market cap; 2 MayInvestment asset 2,599Net debt 832 2011FFair mkt cap 15 264


Fair mkt cap 15,264Fair value (W /share) 478,082


ASIA

Honam Petrochemical — update Revenue goal. Lotte Group is targeting consolidated petrochemical sales to rise to W40tn

by FY19F (FY09: W8tn). W30tn of this will be from the core chemical business, while W10tn will be from other businesses, such as refining and resources.

How? W30tn chemical revenue target should stem from: 1) commodity chemical; and 2)How? W30tn chemical revenue target should stem from: 1) commodity chemical; and 2) special chemical and green energy. Honam says it is considering various M&A opportunities.

Investments The Qatar cracker project has been cancelled due to: 1) construction cost Investments. The Qatar cracker project has been cancelled due to: 1) construction cost being too high; and 2) project financing wasn’t as easy as they had initially thought due to the global financial crisis. This 1.3mn tpa cracker consisted of 50:50 naphtha and ethane, and apparently Qatar wanted to use ethane for something elseand apparently Qatar wanted to use ethane for something else.

Expansions. Honam’s ethylene capacity expansion under W520bn capex (completion target in 2012) would make its ethylene capacity at 2mn tpa the largest in Korea. The company believes the completion of this expansion could coincide with the cyclical upturn. It has timed its previous ethylene expansion right and have seen good returns since then.

Capex. FY10F capex is expected at W500bn and FY11F at around W1.0tn. p p p

KP Chemical. After failing to merge last year (due to excessive put options exercised by shareholders), Honam is looking for the right timing.


ASIA

Malaysia


ASIA

Petronas Chemicals (PCHEM MK BUY PT RM8 4)Petronas Chemicals (PCHEM MK, BUY, PT: RM8.4)Middle East meets the Far East PCG is the chemical division of Petronas and Malaysia’s fifth-largest stock by market

capitalisation. Key advantages include: 1) Cheap gas feedstock; 2) diversified products; and 3) strategic

location. Leveraged to the chemical upcycle and rising oil prices. Key catalysts: 1) Rising chemical margins; and 2) firmer expansion plans Key catalysts: 1) Rising chemical margins; and 2) firmer expansion plans. China energy policy to play a key role. Our earnings estimates are 12% above consensus on higher product margin forecasts. Key risks: ringgit appreciation and feedstock price escalation.

Sh Price Sales NPAT EPS PE BVPS P/B EV/ DPS Yield ROCE GearingSh Price Sales NPAT EPS PE BVPS P/B EV/ DPS Yield ROCE Gearing(RM) (RM m) (RM m) (RM) YoY % (X) (NT$) (x) EBITDA (NT$) (%) % (%)

FY08 - 12,855 3,904 - - - - - - - - - -FY09 - 12,367 2,823 - - - - - - - - - -FY10 - 12,203 2,195 - - - - - - - - - -, ,FY11F 6.76 13,566 2,811 0.37 28% 18.6 2.4 2.8 10.0 0.2 2.6 21 (27)FY12F 6.76 14,541 3,445 0.43 23% 15.7 2.7 2.5 8.3 0.2 3.2 24 (34)FY13F 6.76 16,146 3,893 0.49 13% 13.9 3.0 2.3 7.2 0.2 3.6 27 (39)


As of 24 Mar 11. Source: Bloomberg, Company data, Nomura estimates.

ASIA

Strong price & margin moment mStrong price & margin momentumPCG’s key chemical price trends (1)

1Q10 2Q10 3Q10 4Q10 1Q11 Q-Q (%) Y-Y (%)1Q10 2Q10 3Q10 4Q10 1Q11 Q Q (%) Y Y (%)Naphtha 723 711 666 807 874 8 21Ethylene 1,273 1,143 942 1,099 1,252 14 (2)HDPE 1,242 1,164 1,065 1,221 1,284 5 3LDPE 1,459 1,370 1,288 1,568 1,695 8 16LLDPE 1,370 1,258 1,141 1,335 1,407 5 3MEG 965 822 757 976 1 181 21 22MEG 965 822 757 976 1,181 21 22PVC 990 964 917 976 1,003 3 1Propylene 1,226 1,205 1,133 1,239 1,351 9 10PP 1,273 1,278 1,214 1,386 1,510 9 192-EH 1,616 1,775 1,601 1,783 1,869 5 16Butyl acrylate 2,250 2,720 2,661 3,174 3,336 5 48Benzene 970 923 846 971 1 123 16 16Benzene 970 923 846 971 1,123 16 16SM 1,282 1,163 1,067 1,265 1,414 12 10Paraxylene 1,052 988 928 1,255 1,578 26 50MTBE 831 811 777 884 974 10 17Methanol 309 261 261 355 354 (0) 15Acetic acid 405 380 377 455 396 (13) (2)U 311 259 299 365 372 2 19

PCG’s key chemical margin trends (1)

Urea 311 259 299 365 372 2 19

1Q10 2Q10 3Q10 4Q10 1Q11 Q-Q (%) Y-Y (%)Ethylene - Ethane 1,183 1,053 852 1,009 1,162 15 (2)HDPE - Ethane 1 152 1 074 975 1 131 1 194 6 4HDPE - Ethane 1,152 1,074 975 1,131 1,194 6 4LDPE - Ethane 1,369 1,280 1,198 1,478 1,605 9 17LLDPE- Ethane 1,280 1,168 1,051 1,245 1,317 6 3EG - Ethylene 205 136 192 317 425 34 107PVC - Ethylene 351 392 446 427 378 (11) 8Propylene - Propane 866 845 773 879 991 13 14PP Propane 913 918 854 1 026 1 150 12 26PP - Propane 913 918 854 1,026 1,150 12 262-EH - Propylene 386 582 461 540 509 (6) 32Butyl acrylate - Propylene 902 1,395 1,415 1,811 1,846 2 105Benzene - Naphtha 254 211 180 164 240 47 (6)Styrene - Naphtha 558 453 400 457 541 18 (3)PX - Naphtha 339 277 262 448 677 51 100A ti id M th l 236 236 234 260 202 (23) (14)


1. Source: Thomson Reuters Datastream

Acetic acid - Methanol 236 236 234 260 202 (23) (14)

ASIA

B llish signals in ke prod ctsBullish signals in key products Methanol price trend (1)

$

China methanol & urea production (monthly) (2)

500

600

700

(US$/t)

1,200

1,400

1,600

2,4002,6002,8003,000

Methanol Urea(k t) (k t)

200

300

400

500

600

800

1,000

1,4001,6001,8002,0002,200

PX price & margin trend (1) China anthracite coal prices (2010) (2)

100

200

06 07 08 09 10200

400

05 06 07 08 09 101,0001,2001,400

PX price & margin trend (1) China anthracite coal prices (2010) (2)

1500

1750PX Naphtha Margin(US$/t)

1300

1400(Rmb/t)

750

1000

1250

1000

1100

1200

0

250

500

06 07 08 09 10800

900

1000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov


1. Source: Thomson Reuters Datastream2. Source: CEIC

ASIA

Potential catal stsPotential catalysts

World scale urea plant – 1mn tpa plant or a 70% increase in urea capacity. Total investment cost of US$1bn and potential net profit boost of RM150-200mn pa.

BASF Petronas expansion – Specialty chemical expansion being studied. Total investment cost of US$500mn and potential net profit boost of RM300mn pa.

Integrated refinery/petchem complex – A potential doubling of current chemical capacity. Total investment cost of US$2bn but might take 4-5 years to complete.

Higher dividend payout – Current guidance of 50% payout ratio could be raised.


ASIA

Taiwan


ASIA

T i th F GTaiwan — the Formosa GroupFormosa Group comparisons

Company Unit FPCC NYP FPC FCFCCompany Unit FPCC NYP FPC FCFCSummary detailsBloomberg 6505 TT 1303 TT 1301 TT 1326 TTRating Neutral Buy Buy BuyPrice target NT$ 110 00 NT$ 105 00 NT$ 136 00 NT$ 134 00Price target NT$ 110.00 NT$ 105.00 NT$ 136.00 NT$ 134.00Share price (29 April 11) NT$ 100.50 NT$ 87.80 NT$ 117.00 NT$ 115.50Market cap (24 Mar 11) US$ m 33 24 23 25Free Float % 17% 64% 78% 60%Key data (2011F)y ( )Sales NT$ m 898,685 243,811 226,806 322,544Operating profit NT$ m 62,340 33,473 33,724 34,543Investment income NT$ m 2,422 25,204 32,982 31,198Net profit NT$ m 59,369 52,154 60,569 59,701EPS NT$ 6.0 6.6 9.8 10.5DPS NT$ 5.6 6.0 9.0 9.5Key ratio (2011F)EBIT Margin % 6.9% 13.7% 14.9% 10.7%I t t i % f PBT % 3 9% 42 8% 49 0% 47 3%Investmetn income as % of PBT % 3.9% 42.8% 49.0% 47.3%Valuations (2010F)PE (x) 16.3 12.4 11.4 10.1PBV (x) 3.5 2.2 2.4 2.1ROE % 22 5% 17 9% 22% 21%

Source: Bloomberg Nomura estimates

ROE % 22.5% 17.9% 22% 21%ROIC % 16.6% 22.3% 25% 26%EV/EBITDA (x) 11.2 11.1 11.4 9.9Dividiend yield % 5.7% 7.3% 8.1% 9.0%


Source: Bloomberg, Nomura estimates.Note: Ratings and Price Targets are as of the date of the most recently published report (http://www.Nomura.com) rather than the date of this document.

ASIA

Key themes and drivers

We prefer Formosa parent companies (with higher earnings growth) to FPCC (flat earnings).

ECFA would benefit FCFC the most, in our view, followed by FPC and NYP.ECFA would benefit FCFC the most, in our view, followed by FPC and NYP.

High dividend yields (c7%) with a cash payout ratio rising 80-90%.

We think valuation are not cheap anymore, but the cycle is still about two years from the peak.

Likely street earnings upgrades, in our view, given recent strong margin momentum.

Top picks – FCFC (BUY, PT NT$110), FPC (BUY, PT NT$136) and NYP (BUY, PT NT$105).


ASIA

ECFA t ti l i tECFA – potential impactPotential ECFA impact on Formosa group (1)

Capacity(ktpa) 2011 2012 2011 2012

FCFCPP 510 -1.5 -6.5 176 764

Chg in tariff (%) Chg in OP (NT$m)

88 petrochemicals and 136 synthetic fibres included in the early harvest list.

Chemicals include: PP, PS, acrylic acid, PC, PU and MMA.PS 320 -1.5 -6.5 111 479PC 195 0.0 -3.0 0 292Nylon 204 -2.0 -7.0 235 823Rayon 161 -2.0 -7.0 155 541Total 676 2899% h i FCFC OP 3 3 13 6

Import duties to progressively decline to 0% by 1 January, 2012.

Products with current tariff >5% to fall to 5% on 1 January 2011% chg in FCFC OP 3.3 13.6% chg in FCFC NP 1.6 6.8FPCPP 400 -1.5 -6.5 138 599Acrylic acid 262 -0.5 -5.5 63 692MMA 98 -0.5 -5.5 24 259

Products with current tariff >5% to fall to 5% on 1 January, 2011.

Products with current tariff <5% to fall to 0% on 1 January, 2011.

MMA 98 0.5 5.5 24 259Total 225 1549% chg in FPC OP 1.4 8.6% chg in FPC NP 0.6 4.0NYPPVC sheets 286 -1.0 -6.0 66 396P l t fib 642 1 0 6 0 148 888

PP and PS were surprise inclusions.

Limited near-term impact but positive implications for LT.

Polyester fiber 642 -1.0 -6.0 148 888Total 214 1283% chg in NYP OP 1.0 6.0% chg in NYP NP 0.5 3.1

FCFC likely to benefit the most – potential upside of 7% to our FY12F earnings estimates.



ASIA

Formosa Chemical & Fibre (1326 TT BUY PT NT$134)Formosa Chemical & Fibre (1326 TT, BUY, PT: NT$134)Preferred polyester play

Strong polyester fundamentals – low inventory, record cotton prices, strong demand.

PTA is good proxy to polyester strength based on tightening supply/demand through 2012F.

Ph l & ABS t bl i t d d i d b d d Phenol & ABS – stable margin trends underpinned by consumer demand.

SM – dearth of additions post 2010 should see improving margins.

Strong turnaround in China operations – NT$5bn pa contribution from zero previously Strong turnaround in China operations – NT$5bn pa contribution from zero previously.

Trading at 2.4x 2011F P/BV, representing the mid-to-up cycle.

Sustainable dividend yield of 7-8%.y

Sh Price Sales NPAT EPS PE BVPS P/B EV/ DPS Yield ROCE Gearing(NT$) (NT$m) (NT$m) (NT$) YoY % (X) (NT$) (x) EBITDA (NT$) (%) % (%)

2006 49.5 181,981 32,572 5.90 -4% 8.5 36.9 1.3 8.2 4.8 9.7% 14% 31%2007 73.0 240,005 47,693 8.63 46% 9.0 47.1 1.5 8.6 7.0 9.6% 16% 24%2008 63.4 249,817 6,098 1.10 -87% 43.1 32.1 2.0 39.8 0.9 1.4% 4% 44%2009 52.3 219,729 29,440 5.17 369% 10.2 40.5 1.3 7.6 4.5 8.6% 11% 32%2010F 107 5 279 522 47 616 8 37 62% 9 2 43 7 1 8 8 2 7 5 9 8% 16% 22%2010F 107.5 279,522 47,616 8.37 62% 9.2 43.7 1.8 8.2 7.5 9.8% 16% 22%2011F 107.5 292,712 52,139 9.16 9% 11.7 45.3 2.4 11.5 8.2 7.7% 17% 21%2012F 107.5 319,973 54,866 9.64 5% 11.1 46.7 2.3 11.2 8.7 8.1% 17% 21%2013F 107.5 319,628 47,215 8.30 -14% 13.0 46.3 2.3 15.0 7.5 6.9% 14% 24%


As of 24 Mar, 2011. Source: Bloomberg, Company data, Nomura estimates.

ASIA

Formosa Chemical & FibreFormosa Chemical & FibreFCFC P/BV band chart (2)FCFC PT derivation (1)

Unit 2010F NT/sh RemarksAverage invested capital NTD m 113,032Target EV/IC (x) 2.4Implied EV NTD m 274,990 48.3

( ) ( )

100

120Sh price 2.5x 1.9x1.3x .7x

(NT$)

Less debt NTD m (44,283) (7.8)Add associates: FPCC (25%) NTD m 227,710 40.0 PT@ NT$96/sh NYP (5%) NTD m 37,690 6.6 PT NT$96/sh FPC (8%) NTD m 57,782 10.2 PT NT$118/sh

$

40

60

80

FTC (37%) NTD m 18,076 3.2 Mkt price@NT$29/sh Other investments NTD m 109,281 19.2 At 2011 book valueImplied market capitalisation NTD m 681,246Implied price target NTD 120.0

0

20

00 01 02 03 04 05 06 07 08 09 10 11

FCFC EBIT breakdown (3) FCFC investment income breakdown (3)

NT$ mn 2009 2010F 2011F 2012F 2013FTextiles 943 5 108 6 320 7 252 6 306

(NT$m) Stake 2009 2010F 2011F 2012F 2013FFPCC 26% 9 597 10 754 11 923 13 351 14 630Textiles 943 5,108 6,320 7,252 6,306

Aromatics 8,198 18,773 22,864 22,381 13,673Others 1,102 2,134 2,247 2,309 2,080Total 10,242 26,015 31,431 31,942 22,059

FPCC 26% 9,597 10,754 11,923 13,351 14,630Formosa Taffeta 37% 29 1,197 1,221 1,245 1,058Formosa Cayman 100% 5,217 5,954 6,251 6,314 5,051Mailiao Power 25% 2,209 1,771 1,683 1,716 1,751Vietnam JV 43% 175 254 267 280 294Others 1 054 942 942 942 942

1. Source: Nomura estimates.2. Source: Bloomberg, Nomura estimates

Others - 1,054 942 942 942 942Total 18,282 20,872 22,287 23,849 23,727


g3. Source: Company data, Nomura estimates

Note: Ratings and Price Targets are as of the date of the most recently published report (http://www.Nomura.com) rather than the date of this document.

ASIA

Formosa Plastics (1301 TT BUY PT NT$136)Formosa Plastics (1301 TT, BUY, PT: NT$136)

PVC margins to remain robust on strong demand and energy conservation in China

A steady performer

PVC margins to remain robust on strong demand and energy conservation in China.

Caustic prices rising on improved global demand.

Specialty chemicals margins could remain high on strong demand.Specialty chemicals margins could remain high on strong demand.

Key drawbacks – polyolefin margins are likely to worsen next year

Investment income appears to be rising gradually due to rising contributions from FPCC, FPC USA and Chinese divisions.

Trading at 2.3x FY11F P/BV, representing the mid-to-upcycle range.

M di t t i bl di id d i ld f 7 8% Medium-term sustainable dividend yield of 7-8%.

Sh Price Sales NPAT EPS PE BVPS P/B EV/ DPS Yield ROCE Gearing(NT$) (NT$m) (NT$m) (NT$) YoY % (X) (NT$) (x) EBITDA (NT$) (%) % (%)(NT$) (NT$m) (NT$m) (NT$) YoY % (X) (NT$) (x) EBITDA (NT$) (%) % (%)

2006 48.4 147,458 31,119 5.44 -11% 8.8 33.7 1.4 9.3 4.4 9.1% 16% 33%2007 75.0 181,607 47,811 8.36 54% 9.4 43.6 1.7 10.2 6.7 8.9% 21% 25%2008 71.3 182,042 19,709 3.45 -59% 20.3 31.5 2.3 18.5 1.8 2.5% 9% 39%2009 56.9 156,970 27,533 4.50 31% 12.6 36.8 1.5 10.1 4.0 7.0% 13% 25%2010 100.5 194,446 45,547 7.44 65% 9.9 42.6 1.7 7.8 6.6 8.9% 21% 17%2011F 100.5 207,798 50,165 8.20 10% 12.3 44.2 2.3 11.4 7.3 7.3% 21% 16%2012F 100.5 230,307 54,184 8.85 8% 11.4 45.7 2.2 10.9 7.9 7.8% 22% 15%2013F 100.5 244,537 57,710 9.43 7% 10.7 47.3 2.1 10.5 8.4 8.3% 23% 14%




ASIA

Formosa PlasticsFormosa PlasticsFPC P/BV band chart (2)FPC price target derivation (1)

100

120

140Sh price 2.9x 2.3x

1.6x 1.x

(NT$)

40

60

80

FPC EBIT breakdown (3) FPC investment income breakdown (3)

0

20

00 01 02 03 04 05 06 07 08 09 10 11

FPC EBIT breakdown (3) FPC investment income breakdown (3)

(NT$ mn) 2009 2010F 2011F 2012F 2013FPlastics 2,185 9,346 12,612 11,577 11,745Tair lan 2 207 9 143 8 488 8 137 7 900

(NT$m) Stake 2009 2010F 2011F 2012F 2013FFPCC 30% 12,058 12,362 13,706 15,347 16,818FPC USA 22% 1 376 3 554 2 488 2 612 2 873Tairylan 2,207 9,143 8,488 8,137 7,900

Polyolefin 4,927 3,806 2,989 5,579 6,371Others 1,221 4,621 4,631 4,743 4,918Total 10,540 26,916 28,719 30,036 30,935

FPC USA 22% 1,376 3,554 2,488 2,612 2,873Formosa Sumco 30% (194) 141 169 195 224Mailiao Power 25% 2,209 1,877 1,784 1,819 1,856Formosa Cayman 100% 2,809 3,412 3,582 3,762 4,326Others - 505 508 602 606 610T t l 18 762 21 854 22 331 24 341 26 706

1. Source: Nomura estimates.2 Source: Bloomberg Nomura estimates

Total 18,762 21,854 22,331 24,341 26,706


2. Source: Bloomberg, Nomura estimates.3. Company data, Nomura estimatesNote: Ratings and Price Targets are as of the date of the most recently published report (http://www.Nomura.com) rather than the date of this document.

ASIA

Nan a Plastics (1303 TT BUY PT NT$105)Nanya Plastics (1303 TT, BUY, PT: NT$105)

MEG margins at exceptional levels and should be sustained for the next few yearsThe tide turns MEG margins at exceptional levels and should be sustained for the next few years.

Polyester margins exceptionally strong – expected to last through 1H11.

Specialty chemical margins (epoxy resin 1 4 BG) appear to be on an improving trend Specialty chemical margins (epoxy resin, 1,4 BG) appear to be on an improving trend.

Copper-clad laminate (CCL) margins likely to remain strong on glass fibre shortage.

Nanya Tech is the key risk – breakeven level at US$1.5/Gb post migration.y y p g

Strongest earnings growth in the group this year – we forecast EPS growth of 21% y-y for FY11F.

Sustainable dividend yield of 6-7% for FY11-13F.

Sh Price Sales NPAT EPS PE BVPS P/B EV/ DPS Yield ROCE GearingSh Price Sales NPAT EPS PE BVPS P/B EV/ DPS Yield ROCE Gearing(NT$) (NT$m) (NT$m) (NT$) YoY % (X) (NT$) (x) EBITDA (NT$) (%) % (%)

2006 46.6 181,652 47,669 6.25 16% 7.9 32.5 1.4 8.5 5.0 10.7% 15% 31%2007 72.0 228,700 59,047 7.75 24% 9.7 37.8 1.9 8.6 6.7 9.3% 17% 26%2008 59 7 208 719 9 386 1 23 -84% 43 0 29 5 2 0 18 2 0 8 1 3% 4% 42%2008 59.7 208,719 9,386 1.23 -84% 43.0 29.5 2.0 18.2 0.8 1.3% 4% 42%2009 44.9 160,964 16,404 2.09 70% 21.5 31.9 1.4 13.6 1.9 4.2% 6% 34%2010F 84.0 214,275 40,719 5.19 148% 12.1 35.3 1.8 9.4 4.7 7.5% 13% 22%2011F 84.0 225,080 49,127 6.26 21% 13.4 36.9 2.3 12.1 5.7 6.8% 15% 19%2012F 84.0 233,049 52,739 6.72 7% 12.5 37.9 2.2 11.9 6.1 7.3% 16% 19%

181© Nomura International (Hong Kong) LimitedAs of 24 Mar 11. Source: Bloomberg, Company data, Nomura estimates.

2012F 84.0 233,049 52,739 6.72 7% 12.5 37.9 2.2 11.9 6.1 7.3% 16% 19%2013F 84.0 235,136 55,686 7.09 6% 11.8 38.9 2.2 11.8 6.5 7.7% 16% 19%

ASIA

Nan a PlasticsNanya PlasticsNYP price target derivation (1) NYP P/BV band chart (2)

80

100

120Sh price 3.x 2.2x1.5x .7x

(NT$)

20

40

60

80

NYP EBIT breakdown (3) NYP Investment Income breakdown (3)

0

20

00 01 02 03 04 05 06 07 08 09 10 11

NYP EBIT breakdown (3) NYP Investment Income breakdown (3)

NT$ mn 2009F 2010F 2011F 2012F 2013FPlastics 4,250 5,973 7,973 7,638 7,437 Polyester 1,787 7,304 10,856 11,237 11,266

(NT$ m) Stake 2009 2010F 2011F 2012F 2013FFPCC 24% 9,340 9,858 10,938 12,257 13,438 Nanya PCB 68% 1,403 1,385 2,380 3,373 3,710 y , , , , ,

Electronic materials 1,777 8,629 8,199 8,098 7,988 Others 896 5,009 4,955 5,261 5,192 Total 8,710 26,914 31,984 32,234 31,883

Nanya Tech 30% (7,804) (3,433) (3,967) (3,570) (2,400) Nanya Plastics, USA 100% 837 2,659 2,925 3,071 3,225 Nanya Plastics, HK 100% 773 5,381 5,488 5,598 5,710 Others 2,605 2,847 2,703 2,759 2,817 Total 7,155 18,698 20,468 23,488 26,500

1. Source: Nomura estimates.2. Bloomberg, Nomura estimates3. Company data, Nomura estimates




ASIA

Formosa Petrochemical (6505 TT NEUTRAL PT: NT$110)Formosa Petrochemical (6505 TT, NEUTRAL, PT: NT$110) Expensive valuations

High conviction on stronger refining margins in 2011 (US$5.6/bbl vs US$4.7/bbl in 2010).

Less bearish than before on olefin margins – propylene to stay tighter than ethylene.

R t l t fi h i d f t d Recent plant fires have raised concern on safety record.

Strong earnings growth from 2012 onwards on completion of RFCC repairs.

We expect FY11F dividend yield of 5% lower than parent Formosa companies We expect FY11F dividend yield of 5%, lower than parent Formosa companies.

Expensive multiples at 3.5x FY11F P/BV vs ROE of 19%.

Sh Price Sales NPAT EPS PE BVPS P/B EV/ DPS Yield ROCE Gearing(NT$) (NT$m) (NT$m) (NT$) YoY % (X) (NT$) (x) EBITDA (NT$) (%) % (%)

2006 60.13 529,566 44,476 4.81 -25% 12.6 23.5 2.6 9.5 4.4 7.3% 12.8% 66%2007 83.00 699,315 69,611 7.53 57% 11.1 27.9 3.0 8.7 6.7 8.1% 18.5% 52%2008 81.08 875,573 15,193 1.64 -78% 29.1 21.0 3.9 14.8 1.2 1.5% 7.8% 101%2009 74.70 634,232 39,192 4.11 150% 16.6 24.4 3.1 10.1 3.8 5.1% 12.2% 66%2010 92.00 747,307 40,923 4.30 4% 20.5 25.6 3.2 12.4 3.9 4.8% 10.9% 53%2011F 92.00 712,946 45,355 4.76 11% 19.3 26.5 3.5 12.5 4.4 4.8% 13.8% 31%2012F 92.00 841,815 50,930 5.35 12% 17.2 27.5 3.3 11.2 4.9 5.3% 15.9% 24%2013F 92.00 850,302 55,838 5.86 10% 15.7 28.4 3.2 10.0 5.4 5.9% 17.8% 15%



ASIA

Formosa PetrochemicalFormosa PetrochemicalFPCC P/BV band chart (2)FPCC price target derivation (1)

Sh price 4.4x 3.6x(NT$)

100

120

140p

2.8x 2.x

( )

40

60

80

FPCC refining margins vs Singapore (3) FPCC EBIT breakdown (4)

2004 05 06 07 08 09 10 11

(NT$ bn) 2008 2009 2010F 2011F 2012F 2013FRefinery 22.2 19.3 15.6 22.5 25.3 26.6Olefins -2.0 12.3 17.7 20.5 25.9 33.8Utilities 3.5 8.2 9.0 5.1 6.4 6.514

161820

FPCC export Sg complex(US$/bbl)

Total 23.8 39.8 42.3 48.1 57.6 66.9

468

101214

1. Nomura estimates.2 Bl b N ti t

024

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10


2. Bloomberg, Nomura estimates3. Company data, Reuters4. Company data, Nomura estimates

ASIA

Thailand


ASIA

Th il d PTT GThailand — PTT GroupGroup structure

Government of Thailand Free Float

68% 32%68% 32%

PTT

PTT E&P 66% Trans Thai Msia 50% PTT Intl. Trading100% Thai Oil 50% PTT Chemical 50%

E & P Gas & Power Oil Refining Petrochemicals

PTT Utility 40%Thai Oil Power 26%IPT 20%

gSubic Bay 100%Retail Business 49%PTT Mart 49%

PTTAR 49%Star Petroleum 36%IRPC 32%

Bkk PE 50%PTT Phenol 40%

PTT LNG 100% Thai Lube 49%PetroAsia 35%Thai Petro 34%

Bangchak 20%


Source: Company data, Nomura research

ASIA

PTT PCL (PTT TB BUY PT Bt440)PTT PCL (PTT TB, BUY, PT: Bt440) The stars align

Key overhangs removed – the Montara incident and Map Ta Phut court case have been favourably resolved.

Recent LPG price hike benefits Thai refiners and indicate a lighter regulatory touch.p g g y

1Q11 startup of GSP#6 with 1.8mn tpa of value-added products could add Bt7-8bn of net profits.

Expectations of higher refining and chemical margins to provide strong associates income growth.

M&A to be a key driver of future growth.

Key risks: national service obligations, delays to Rayong plant expansions.

Sh Price Sales NPAT EPS PE BVPS P/B EV/ DPS Yield ROCE Gearing(Bt) (Bt m) (Bt m) (Bt) YoY % (X) (Bt) (x) EBITDA (Bt) (%) % (%)

2007 279 1,495,806 86,808 31.0 11.0 9.0 129 2.2 6.0 11.5 4.1 14.8 40.42008 269 2 000 816 51 706 18 3 -40 9 14 7 136 2 0 5 6 8 0 3 0 9 2 41 22008 269 2,000,816 51,706 18.3 -40.9 14.7 136 2.0 5.6 8.0 3.0 9.2 41.22009 214 1,586,174 54,865 19.4 6.1 11.0 152 1.4 5.9 8.5 4.0 8.6 58.02010 347 1,900,004 71,232 25.2 29.8 10.7 172 1.6 5.3 11.7 4.4 9.7 47.02011F 347 2,037,814 91,122 32.3 27.9 10.9 192 1.8 6.5 12.8 3.7 10.2 47.72012F 347 2 200 504 109 149 38 3 18 6 9 1 217 1 6 5 1 15 3 4 4 11 3 39 2

As of 24 March, 2011. Source: Company data, Nomura estimates.

2012F 347 2,200,504 109,149 38.3 18.6 9.1 217 1.6 5.1 15.3 4.4 11.3 39.22013F 347 2,312,664 111,662 39.1 2.3 8.9 241 1.4 4.7 15.7 4.5 10.8 30.4


ASIA

PTT PCLPTT PCLPTT valuation(1) PTT P/BV band chart (3)

Sh i 2 5 2(Bt)

400

500

600Sh price 2.5x 2.x

1.4x .9x

(Bt)

100

200

300

PTT NPAT breakdown(2)

0

100

02 03 04 05 06 07 08 09 10 11

Bt m 2008 2009 2010F 2011F 2012FPre-ex NPAT breakdownNatural Gas 24,608 11,326 24,315 32,160 37,773Oil marketing 5,390 7,899 8,625 5,225 5,344E&P 28,024 16,695 21,608 27,560 35,649Refining (13 147) 15 350 9 799 18 036 20 271Refining (13,147) 15,350 9,799 18,036 20,271Chemicals 6,829 3,594 5,477 9,117 11,121Total 51,706 54,865 69,823 92,098 110,158YoY change (%) -40 6 27 32 20% of total NPATNatural Gas 48 21 35 35 34

1 Source: Nomura estimates

Oil marketing 10 14 12 6 5E&P 54 30 31 30 32Refining -25 28 14 20 18Chemicals 13 7 8 10 10Total 100 100 100 100 100


1. Source: Nomura estimates.2. Company data, Nomura estimates3. Bloomberg, Nomura estimates

ASIA

PTT E&P (PTTEP TB NEUTRAL PT Bt202)PTT E&P (PTTEP TB, NEUTRAL, PT: Bt202)

P d ti l th t t f 4% f FY11F 17% f FY12F d 3% f FY13FLooking ahead to 2012 Production volume growth targets of +4% for FY11F, +17% for FY12F and -3% for FY13F.

2011 net profits likely to be flat due to Baht appreciation and flat production volume.

Bullish on Brent oil forecasts of US$95/110 per bbl for FY11F/12F.p

KKD acquisition is potentially transformative, but appears expensive and is unlikely to contribute meaningfully until 2015.

Each US$10/bbl change in oil prices impacts NPAT by 20% Each US$10/bbl change in oil prices impacts NPAT by 20%.

Top pick if crude prices continue to rise.

Each 1% appreciation in Baht reduces pre-ex net profits by 1.3% on our estimates.

Sh Price Sales NPAT EPS PE BVPS P/B EV/ DPS Yield ROCE Gearing(Bt) (Bt m) (Bt m) (Bt) YoY % (X) (Bt) (x) EBITDA (Bt) (%) % (%)(Bt) (Bt m) (Bt m) (Bt) YoY % (X) (Bt) (x) EBITDA (Bt) (%) % (%)

2006 109 86,339 28,047 8.6 13.4 27 4.0 5.5 3.2 1.8 21.5 -10.52007 117 90,764 28,455 8.6 1 13.6 32 3.6 5.5 3.3 2.8 18.8 -3.72008 143 132,621 41,675 12.6 46 11.1 41 3.5 4.6 5.4 3.8 23.8 -18.22009 125 115 548 22 154 6 7 -47 18 2 43 2 9 5 9 2 7 2 1 11 2 9 12009 125 115,548 22,154 6.7 47 18.2 43 2.9 5.9 2.7 2.1 11.2 9.12010 183 138,474 41,739 12.6 88 12.9 52 2.9 5.2 5.0 3.3 16.6 14.12011F 183 149,859 41,758 12.6 0 14.5 60 3.1 5.9 5.0 2.8 15.6 24.32012F 183 205,292 54,014 16.3 29 11.2 70 2.6 4.3 6.5 3.6 17.5 13.82013F 183 212 107 56 595 17 1 5 10 7 80 2 3 4 0 6 8 3 7 17 4 3 2


As of 24 March, 2011. Source: Company, Nomura estimates.

2013F 183 212,107 56,595 17.1 5 10.7 80 2.3 4.0 6.8 3.7 17.4 3.2

ASIA

PTT E&PPTT E&PPTTEP valuation(1) PTTEP P/BV band chart (2)

UnitAverage capital employed Bt m 307,770Target EV/CE (x) 2.0Implied EV Bt m 627,620Less: net debt Bt m (32,168)Add: Exploration upside Bt m 62 762

200

250Sh price 4.8x 3.8x

2.9x 1.9x

(Bt)

Add: Exploration upside Bt m 62,762Implied market capitalisation Bt m 658,214Price target Bt 202Key assumptions:WACC % 9%Long-term growth rate % 1%ROCE (2011 2013F) % 17% 50

100

150

ROCE (2011-2013F) % 17%No shares mn 3,318

0

50

00 01 02 03 04 05 06 07 08 09 10 11

PTTEP sensitivity analysis(1)

US$/bbl Unit -20 -10 95 +10 +202011F EPS Bt/sh 8.8 10.7 12.6 14.5 16.42011F ROCE % 11% 13% 16% 18% 20%2011F ROCE % 11% 13% 16% 18% 20%


1. Source: Nomura estimates.2. Source: Bloomberg, Nomura estimates

ASIA

Th i Oil (TOP TB NEUTRAL PT Bt85/ h)Thai Oil (TOP TB, NEUTRAL, PT: Bt85/sh) Fully valued

We believe TOP’s integrated refinery operations enables it to generate profits from oil products, aromatics or lubricants.

It has a low cash cost of production of US$1/bbl.p $

Trading at 2.1x FY11F P/BV, in line with upcycle valuations.

Trading at 1.4x EV/replacement cost, a significant discount to 1.8x of PTTAR.

TOP’s sustainable dividend yield of 3%, in our view, should underpin its share price.

Key risk: Possible merger with PTT refining associates in the next 12 months.


2007 73 261,051 19,176 9.4 9 8.7 33 2.2 5.8 4.5 6.2 18.2 40.92008 62 399 125 224 0 1 -99 561 7 29 2 1 12 7 2 8 4 5 6 9 70 52008 62 399,125 224 0.1 99 561.7 29 2.1 12.7 2.8 4.5 6.9 70.52009 36 284,123 12,062 5.9 5295 6.1 33 1.1 4.7 2.6 7.1 12.2 51.22010 81 318,391 8,999 4.4 -25 11.3 35 1.4 7.6 2.0 4.0 6.9 42.02011F 81 364,177 11,681 5.7 30 14.1 39 2.1 7.9 2.3 2.8 11.9 24.12012F 81 397,610 11,505 5.6 -2 14.3 42 1.9 7.8 2.3 2.8 12.1 12.5, ,2013F 81 395,872 10,330 5.1 -10 15.9 45 1.8 8.0 2.0 2.5 11.2 12.5


As of 24 March, 2011. Source: Company, Nomura estimates

ASIA

PTT Aromatics (PTTAR TB BUY PT Bt50)PTT Aromatics (PTTAR TB, BUY, PT: Bt50) Geared towards PX

55 kb/d upgrading unit (processing condensate residue to diesel) is likely to improve profitability.

Current diesel cracks of >US$10/bbl are a strong positive.

Aromatics margins testing new highs in 1Q11 Aromatics margins testing new highs in 1Q11.

Most operational leverage in our universe – each US$50/tonne revision in aromatics margins changes NPAT by 16%, on our estimates.

Valuations appear attractive at 1.6x FY11F P/BV and a dividend yield of 4%.

Key risks: A 94% end-2010 net gearing and possible merger with PTT refining associates.


2008 25.9 251,387 (8,465) -2.9 -8.2 18 1.5 -14.6 0.5 1.9 -7.3 132.72009 17 9 225 300 9 162 3 1 n/m 5 8 20 0 9 8 1 1 3 7 0 9 0 124 02009 17.9 225,300 9,162 3.1 n/m 5.8 20 0.9 8.1 1.3 7.0 9.0 124.02010 37.5 273,767 6,343 2.1 -31 13.1 21 1.3 11.3 0.9 3.1 4.6 94.72011F 37.5 303,394 10,813 3.6 70 10.3 24 1.6 8.1 1.5 3.9 9.8 69.52012F 37.5 377,312 12,969 4.4 20 8.6 27 1.4 6.8 1.7 4.6 11.4 54.02013F 37 5 389 008 9 990 3 4 23 11 2 28 1 3 8 0 1 3 3 6 8 8 43 8


2013F 37.5 389,008 9,990 3.4 -23 11.2 28 1.3 8.0 1.3 3.6 8.8 43.8


ASIA

PTT Chemical (PTTCH TB BUY PT Bt200)PTT Chemical (PTTCH TB, BUY, PT: Bt200) Good news priced in

Largest volume growth amongst regional peers with startup of new 1mn tpa ethane cracker at end-2010. Beneficiary of rising oil prices due to gas feedstock advantage. Low net gearing levels (FY10F: 26%) should provide a cushion.Low net gearing levels (FY10F: 26%) should provide a cushion. Appreciating baht and narrow product portfolio are key concerns. Despite an estimated doubling of NPAT by FY12F from FY10F levels, we project FY12F ROE of 16%,

below the 24% level achieved in 2006below the 24% level achieved in 2006. Currently trading at 1.8x FY11F P/BV, above the historical peak level. Key risks – Potential merger with other refining and chemical affiliates of PTT.


2007 99 73,870 19,167 12.9 5 7.9 63 1.6 5.5 6.0 6.1 22.5 -3.42008 81 84,117 11,739 7.8 -39 10.3 64 1.3 6.5 4.0 4.9 13.1 24.42009 54 83,952 6,802 4.5 -42 14.9 68 0.8 7.1 2.0 3.7 5.9 33.82010 146 98,656 10,290 6.8 49 25.0 71 2.0 14.2 2.6 1.8 8.0 28.22011F 146 128,322 17,893 11.8 74 12.3 81 1.8 7.5 5.2 3.6 13.9 9.02012F 146 140,405 21,854 14.4 22 10.1 90 1.6 6.4 6.3 3.6 16.2 -5.32013F 146 149,711 24,424 16.1 12 9.0 100 1.5 5.6 7.1 3.6 17.3 -17.0



ASIA

PTT A ti PTT Ch i lPTT Aromatics – PTT Chemicals mergerNew petrochemical flagship emerges

Fourth-largest stock on the SET, with strong growth prospects.

Diversified earnings base – 60% olefins, 25% aromatics, 15% refining – should result in more stable earnings stream.g

Main benefits from larger market cap and liquidity – synergy benefits are less obvious.

Prospects for both companies appear bright, but share prices could consolidate until the listing.Pro-forma financials and valuations (1)Pro-forma financials and valuations ( )

(Bt m) 2010 2011F 2012F 2010 2011F 2012F 2010 2011F 2012FSales 101,547 130,924 143,059 273,767 303,394 377,312 375,314 434,318 520,372

PTTCH PTTAR Mergeco

Operating profit 11,366 20,787 23,644 7,362 14,739 17,560 18,728 35,525 41,204NPAT 10,290 17,893 21,854 6,343 10,813 12,969 16,633 28,706 34,823EPS (Bt) 6.8 11.8 14.4 2.1 3.6 4.4 3.7 6.4 7.7DPS (Bt) 3.1 5.3 6.5 0.9 1.5 1.7 1.6 2.7 3.3No of shares 1516 1516 1516 2979 2979 2979 4494 4494 4494Net debt 30,429 10,948 (7,182) 59,703 49,528 43,144 90,132 60,476 35,962Net gearing 28% 9% -5% 95% 69% 54% 53% 32% 17%Sh equity 106,108 120,122 134,103 63,032 71,308 79,952 169,140 191,430 214,055

Bbg Rating M. Cap Sh pr. PT(US$ m) (Bt) (Bt) 11F 12F 11F 12F 11F 12F 11F 12F

PTT Chem PTTCH TB Buy 8,137 160.0 200.0 12.2 10.0 1.8 1.6 16.2 17.5 3.6 4.4PTTAR PTTAR TB Buy 4,117 41.3 50.0 10.2 8.5 1.5 1.4 16.1 17.1 3.9 4.7Mergeco n/a n/a 12,254 n/a n/a 11.5 9.5 1.7 1.5 15.9 17.2 3.7 4.5

PE (x) PB (x) ROE (%) Div. yld (%)

194© Nomura International (Hong Kong) Limited1. As of 28 February, 2011. Source: Company, Nomura estimates

ASIA

V l ti th d l iValuation methodologies AWE: We value the company using DCF with a 10.9% WACC and a 3.5% terminal growth rate. Models find fair value of AWE at A$1.7/share.

Bharat Petroleum Corporation: Our 12-month price target of INR620 is based on 1.25x P/B FY13F book value per share of INR497.

Cairn India: We value Cairn India on a SOTP basis combining NAV and DCF We calculate the NAV of its key fields Mangala Bhagyam and Aishwariya (under development) and Cairn India: We value Cairn India on a SOTP basis, combining NAV and DCF. We calculate the NAV of its key fields Mangala, Bhagyam and Aishwariya (under development) and Rageshwari & Saraswati (FDP approved) using a discounted cash flow (DCF) methodology. Our NAV of MBA and R&S field is INR278/share. The Ravva and Cambay blocks are valued at INR6/share and INR2/share, respectively. We value Cairn's 10% share in the 2P reserves in KG-DWN-98/2 block at a conservative US$6/boe. We value recoverable resources (140mmboe now) in other 20 fields at US$6/boe and prospective resources of 1.76bboe (net of recoverable resources) at US$1/boe. We also assign a value of US$6/boe to exploration upsides (prospective recoverable resources of 250mmboe — Cairn’s share of 175mmboe). Our SOTP-based NAV for Cairn is INR405/share. Our PT for Cairn India is INR405.

Cheil Industries: Our price target of W160,000 is based on sum-of-the parts valuation. We believe that the stock will re-rate further owing to strong EPS growth of a 27% CAGR in ff f f f O2010-12F on the efforts of all divisions and structural changes coming from polarizer film, OLED products and chemicals.

China BlueChem: Our price target of HK$7 is based on an FY11F ROACE/WACC of 16.5%/6.9%.

COSL: Our PT of HK$10.3 is based on FY11E ROACE of 9.8% and WACC of 7.9%.

CNOOC: Our price target of HK$23.0 is based on our FY11F ROACE and WACC of 31.5% and 9.6%, respectively, with a long term growth rate of 1%.

Eastern Star Gas: We value ESG using a DCF model which finds fair value at A$0.92/share. We make use of a cost of equity (Ke) of 11%, zero debt, which lead us to a weighted- Eastern Star Gas: We value ESG using a DCF model which finds fair value at A$0.92/share. We make use of a cost of equity (Ke) of 11%, zero debt, which lead us to a weightedaverage cost of capital (WACC) of 11.0%.

Formosa Chemical & Fibre: Our PT of NT$134 is based on sum-of-the-parts analysis, which values FCFC’s core business at 3.0x EV/IC (average FY11F-12F ROIC of 24.5%; WACC of 8.5%), investments in the Formosa group at our price targets, other listed investments at market price and unlisted investments at 1.5x book value.

Formosa Petrochemical: Our PT if NT$110 is based on a 13.2x P/CF multiple, based on an average FY11-13E OpFCF and WACC of 7.6%.

Formosa Plastics: Our price target of NT$136 is based on sum-of-the-parts analysis which values FPC’s core business at 3 9x EV/IC (average FY11F-12F ROIC of 32 5%; WACC of Formosa Plastics: Our price target of NT$136 is based on sum of the parts analysis, which values FPC s core business at 3.9x EV/IC (average FY11F 12F ROIC of 32.5%; WACC of 8.5%), investments in the Formosa group at our price targets, other listed investments at market price and unlisted investments at 1.5x book value.

GAIL: We have used sum-of-the-parts as our primary tool to value GAIL’s diversified business. We have valued its gas transmission business (including gas trading) at 10x its FY13F EBITDA. We have assigned a multiple of 7x FY13F EBITDA for petrochemical and 6x FY12F estimated EBITDA for the LPG business. We also value E&P upside at a conservative INR15/share. Our target price is INR600.

GS Holdings: Our price target of W115,000 is based on FY11F P/BV (W62,368) of 1.8x, which is a 20% premium to the peak-cycle multiple seen over FY07-10F (unchanged). The g p g ( ) p p y p ( g )absolute peak P/BV (forward looking) was 1.8x in FY07. We apply a 20% premium to the FY07-10F peak multiple with a view that structural changes and strong industry fundamentals will lift valuation to above historical levels.

Gujarat Gas: We use DCF methodology to value Gujarat Gas. We use a WACC of 11% and a terminal growth rate of 2.5%. Our DCF-based price target is INR415/share.

Gujarat State Petronet: We use DCF methodology to value GSPL. We use a WACC of 10.4% and terminal growth rate of 2.5%. Our DCF-based price target is INR135.

Hanwha Chemical: Our PT of KRW69,000 is based on SOTP. We use a target EV/EBITDA multiple of 10.8x, which represents the peak multiple in 2010 (EV: KRW8,605bn ; FY11F , g p , p p p ( , ;EBITDA: KRW797bn). We believe the industry upturn will be sustainable over the next 20 months.

Hindustan Petroleum Corporation: Our 12-month target price of INR380 is based on 1.0x P/B FY13F book value per share.

Honam Petrochemical: Our target price of KRW480,000 is based on sum-of-the parts methodology. We apply a target EV/EBITDA multiple of 9.3x, which represents the peak multiple in 2010 (EV: KRW13,496bn; FY11F EBITDA: KRW1,445bn).

Indian Oil Corporation: Our 12-month price target of INR365 is based on 1.3x P/B multiple to FY13F book value per share.d a O Co po at o Ou o t p ce ta get o 365 s based o 3 / u t p e to 3 boo a ue pe s a e

Indraprastha Gas: We use DCF methodology to value IGL, assuming a WACC of 11% and a terminal growth rate of 2.5%. This derives a target price of INR450/share.

Kunlun Energy: Our price target of HK$17.0/share is based on FY11F ROACE of 16.8% and WACC of 7.1% with a LT growth rate of 3%.


ASIA

V l ti th d l iValuation methodologies LG Chem: Our TP of KRW700,000 is based on a sum-of-the-parts methodology and reflects our positive view of the petrochemical and car battery business units. We value the auto

battery and LCD glass segments at KRW29,000/share and KRW28,000/share, respectively.

Nan Ya Plastics: Our PT of NT$105 is based on sum-of-the-parts analysis, which values NYP’s core business at 2.8x EV/IC (average FY11F-12F ROIC of 23.5%; WACC of 8.5%), investments in the Formosa group at our price targets other listed investments at market price and unlisted investments at book valueinvestments in the Formosa group at our price targets, other listed investments at market price and unlisted investments at book value.

Oil Search: Our fair value of Oil Search makes use of our DCF valuation and a sum-of-the-parts (SOTP) methodology, finding a price target of A$7.7, with our core DCF valuation of A$6.7 per share leaning heavily on the delivery of the PNG LNG project by 2014. Included in our SOTP valuation is A$1.0 per share for a third train at the PNG LNG site with our models assuming that two development wells scheduled for 2012 will confirm consensus belief that the Hides gas field holds sufficient reserves to support a third train, with our expectations that an expansion train could come online as early as 2016. Our DCF models make use of 9.5% WACC and 3.5% terminal growth.

Origin Energy: Our models value Origin using a combination of DCF models and the sum of the parts (SOTP), finding a fair value of A$18.8/share. Our models currently price in A$3.0 g gy g g p ( ), g $ y p $per share for APLNG.

PetroChina: Our 12-month price target of HK$13.50 is based on its FY11F ROACE/WACC (13.7%/8.1%).

Petronas Chemicals Group: We value PCG at RM8.40 based on a target EV/CE multiple of 3.4x that is derived from an average FY12-14F ROCE of 29.4% and WACC of 9%.

Petronet LNG: We use a DCF methodology to value Petronet LNG. Based on WACC of 10% and terminal growth of 1%, our DCF-based price target is INR180.

PTT W l PTT t THB440 i SOTP th t i b d ki PTT' li t d i t t t i t t k t i PTT' t l b i DCFWACC f PTT: We value PTT at THB440 using a SOTP that is based on: marking PTT's listed investments at our price targets or market price, PTT's natural gas business on a DCFWACC of 9%, oil marketing business at 8x FY10F EBITDA, and unlisted investments at BV.

PTT Aromatics & Refining: Our PT of THB50 is based on based on PTTAR’s one-third stake in the PTTAR-PTTCH merged entity, which we value at US$15.2bn, derived from an EV/IC multiple of 1.7x (ROIC of 15.7% and WACC of 9%).

PTT Chemical: Our price target of THB200 is based on based on PTTCH’s two-third stake in the PTTAR-PTTCH merged entity, which we value at US$15.2bn, derived from an EV/IC multiple of 1 7x (ROIC of 15 7% and WACC of 9%)multiple of 1.7x (ROIC of 15.7% and WACC of 9%).

PTTEP: Our price target of THB202 is based on a target EV/CE multiple of 2.1x, which is derived from a ROCE of 17%, WACC of 9% and g of 1%.

Reliance Industries: We use the SOTP method to value RIL’s different businesses. For its core businesses, we use EV/EBITDA multiples. We use a 7x FY13F EV/EBITDA multiple for its refining and petrochemical business. We use DCF to value the company's new E&P business. Our TP is INR1,200/share.

Santos: We continue to find value using a combination of our DCF model and a sum-of-the-parts (SOTP) methodology. We find a fair value of A$16.1/share. Our DCF models make use of an 8 5% WACC and a 3 5% terminal growth rate Remember that included in our DCF are both its 30% stake in GLNG which we value at A$2 2 per share and its 13 5% stake in PNGof an 8.5% WACC and a 3.5% terminal growth rate. Remember that included in our DCF are both its 30% stake in GLNG which we value at A$2.2 per share and its 13.5% stake in PNG LNG which has a standalone value of A$1.5 per share.

Sinofert: Our price target of HK$3.00 is based on average FY11F ROACE/WACC (6.6%/5.2%).

Sinopec: Our price target of HK$9.0 is based on FY11F ROACE of 13.2% and WACC of 10.2%.

Sinopec Shanghai Petrochemical: Our price target of HK$4.50 is based on FY11F ROACE/WACC of 11.1%/8.1%.

SK Innovation: Our TP of KRW330,000 is based on 2.4x FY11F P/BV (KRW136,665), a 20% premium to the peak cycle multiple seen over FY07-10.

S-Oil Corp: Our price target of W200,000 is based on an FY11F P/BV (W54,228) of 3.8x, which represents a 20% premium to the peak-cycle multiple seen over FY04-10 (previously FY11F P/BV of 3.0x based on peak-cycle see in FY07-10).

Thai Oil: Our PT of THB85 is based on a FY11-12F ROCE of 15.5% and WACC of 9%.

Woodside Petroleum: Our valuation models use a combination of a DCF model and a sum-of-the-parts (SOTP) approach. Our DCF valuation focuses on WPL's core business and makes use of an 8.5% WACC and a 3.5% terminal growth rate. The fair value of the core business, which includes Pluto T1 and T2, comes in at A$48/share. Our SOTP valuation adds Sunrise and Browse. All in, we arrive at a price target of A$56.4 per share.


ASIA

Ri kRisks AWE: Upside risks to our Neutral call are significant oil discoveries in the Middle East fields and much higher oil prices. Downside risks include operations risks and

loss of production near and medium termloss of production near and medium term.

Bharat Petroleum Corporation: Key upside risks: Significant change in government policy on fixing retail prices. Complete deregulation would be a significant positive in the long term and could lead to a re-rating. Even partial deregulation, but with a clear policy on sharing of any under-recoveries, would also be positive for BPCL. A significant and sustained decline in global oil prices would also be positive, since losses on retail fuels decline sharply at low oil prices. Refining margins that are higher than our estimates would be a positive for BPCL. Key downside risks: Higher oil prices, lower-than-expected refining margins and higher net under-recoveries are key downside risksdownside risks.

Cairn India: Delays in ramp-up of production; lower oil prices and higher discounts and royalty payments or cost recovery of royalty.

Cheil Industries: Downside risks to our PT include: 1) a delay in launching OLED products; 2) worse-than-expected LCD and LED cycle; 3) macro concerns weakening petrochemical pricing; and 4) slower-than-expected domestic consumption recovery, which could negatively affect the apparel business.

China BlueChem: Risks include 1) adverse weather in peak plantation season; and 2) weak fertilizer and methanol demand.) p p ; )

COSL: Upside risks to our price target include: 1) if the market (both oil and equity) continues its positive momentum; and 2) if investors look beyond the trough of 2010 and focus on the company's longer-term growth after its expansions are completed.

CNOOC: Downside risks include: 1) rising operating costs; 2) lower-than-budgeted production; 3) acquisition risks; and 4) weather-related risks — offshore China often experiences a large number of typhoons, which could affect the development and production of natural gas.

E S G Ri k i i il l h i i l d l i i i d f h l ll hi h i l d Eastern Star Gas: Risks to our investment view entail lower growth in organic volumes and lower pricing received for these volumes, as well as higher operational and project costs which would lower cash-flow and profitability.

Formosa Chemical & Fibre: Key risks include volatile crude prices, volatile aromatic margins and plant mechanical failure.

Formosa Plastics: Key risks include volatile crude prices, volatile chemical margins and plant mechanical failure.

Formosa Petrochemical: Upside risks to our price target include stronger than expected refining/olefin margins and crude prices Downside risks include plant Formosa Petrochemical: Upside risks to our price target include stronger-than-expected refining/olefin margins and crude prices. Downside risks include plant mechanical failure and weaker-than-expected refining/olefin margins.

GAIL: Lower transmission volume growth, a sharp cut in overall tariffs by the regulator (we do not assume any cut), a sharper polymer price decline than our assumption and higher subsidy burden than our assumptions.

GS Holdings: Key risks include: 1) operational problems at the new hydrocracker; 2) delays in GS Retail’s listing and/or the company’s 3rd FCC schedule.

Gujarat Gas: Key upside risks include: 1) an increase in domestic gas availability; 2) success in winning new cities in currently ongoing city gas bidding process; and 3) rupee appreciation. Key downside risks include: 1) lower-than-expected volume growth; and 2) a sharp increase in RLNG costs.

Gujarat State Petronet: Key downside risks: lower-than-expected growth in transmission volumes, a sharp cut in the transmission tariff by the PNGRB postapplication of new regulations, and an eventually higher social contribution as per the directives of the Gujarat government (in our estimates, we do not factor any outgoing here).g g )

Hanwha Chemical: Risks include: 1) petrochemical price volatility; 2) execution risks on new businesses.


ASIA

Ri kRisks Hindustan Petroleum Corporation: Key upside risks: Significant change in government policy on fixing retail prices. Complete deregulation would be a significant positive in the long

term and could lead to a re-rating. Even partial deregulation, but with a clear policy on sharing of any underrecoveries, would be positive for HPCL, we believe. A significant and sustained decline in global oil prices would also be positive, since losses on retail fuels decline sharply at low oil prices. Refining margins that are higher than our estimates would be g p p , p y p g g gpositive for HPCL. Key downside risks: Higher oil prices, lower-than-expected refining margins and higher net under-recoveries are key downside risks.

Honam Petrochemical: Risks may come from: 1) input and out price volatility; and 2) HPC buying assets at unattractive prices.

Indian Oil Corporation: Key upside risks - Significant change in government policy on fixing retail prices. Complete deregulation would be a significant positive in the long term and could lead to a re-rating. Even partial deregulation, but with a clear policy on sharing of any underrecoveries, would also be positive for IOCL. A significant and sustained decline in global oil prices would also be positive, as losses on retail fuels decline sharply at low oil prices. Refining margins that are higher than our estimates would be a positive for IOCL. Key downside risks – Higher oil prices, lower than expected refining margins, higher net under-recoveries are key downside risks.

Indraprastha Gas: Under the new PNGRB regulations, the regulator can only control network tariff (based on 14% post tax ROCE principle) and not end-product pricing. Therefore, we do not expect any major risk to IGL’s margins. However, any sharp cut in the overall tariff would negatively impact our valuations. Any slowdown in CNG conversions and new PNG connections could also present downside risk.

Kunlun Energy: Risks: 1) government regulatory risks; 2) uncertainty about whether there will be asset injections of Petrochina’s subsidiaries, Kunlun Gas and Kunlun Natural Gas; 3) limited LNG earnings visibility in FY12F; 4) crude oil price and production risks and; 5) share issuance leading to earnings dilutionlimited LNG earnings visibility in FY12F; 4) crude oil price and production risks, and; 5) share issuance leading to earnings dilution.

LG Chem: Risks are: 1) petrochemical and LCD cycle volatility; 2) execution of car battery production.

Nan Ya Plastics: We believe the key risk remains the earnings volatility of Nanya Tech.

Oil Search: Upside risks include significant oil and gas discoveries in PNG, or in the Middle East where they are currently drilling new wells. Downside risks to our forecasts and views include much lower oil prices, operational risks, and project risks which could arise from delays and large project cost overruns of the PNG LNG project.

Origin Energy: Risks to the achievement of our price target include oil price volatility, operational risks, and project risk from delays and large cost overruns.

PetroChina: Risks to its earnings are: 1) losses from gas imported from Turkmenistan, and; 2) refining losses if the government stops increasing oil product prices in an extremely high oil price environment.

Petronas Chemicals Group: Key risks include volatile crude prices, volatile chemical margins and plant mechanical failure.

Petronet LNG: Key downside risks: 1) Lower-than-expected spot volumes could result in downside to our numbers. 2) The Dahej off-take agreement provides for 5% annual rises in the y ) p p ) j g pregasification charges. Although we believe we are conservative in our assumptions on re-gasification charges, a sharp cut could have a negative impact on profitability and valuations. 3) PLNG’s Kochi terminal is under construction and execution delays and cost overruns could hurt our valuation of the Kochi terminal.

PTT: Key risks to our investment case are volatile crude prices, delays to start-up of new gas fields or new plants and potential national service obligations.

PTT Aromatics & Refining: Downside risks to our price target include weaker-than-expected refining or aromatic margins, plant mechanical failure, and declining crude prices.

PTT Chemical: Key positive risks include stronger-than-expected ethylene and polyethylene margins, and vice versa.y p g p y p y y g ,

PTTEP: PTTEP’s earnings are sensitive to crude oil price changes. Other risks include delays to field start-ups or operational accidents.

Reliance Industries: 1.Deterioration in refining and petchem margins. 2. Further delays in the ramp-up of KGD6 volumes. 3. Delays in government approvals for the E&P deal with BP. 4. Sharper rupee appreciation vs. the US dollar than our assumptions.


ASIA

Ri kRisks Santos: Risks to our forecasts and investment view include oil price volatility, operational risks, project risk from delays and large cost overruns.

Sinofert: Upside risks: 1) 2H11F potash contract prices being lower than our expectations; 2) strong sales volume growth; and 3) higher-than-expected potash margin if domestic potash price surges.

Sinopec: Downside risks to our view include rising inflation, chemical downcycle and resources tax. Upside risks include potential change in oil product pricing mechanism and lifting of the windfall tax hurdle rate.

Sinopec Shanghai Petrochemical: Downside risks to our price target: 1) lower than- expected oil product price hikes; and 2) government regulatory risks.

SK Innovation: Risks to our target price include crude prices and volatile refining margins Material progress on the new businesses may provide upside risks to our SK Innovation: Risks to our target price include crude prices and volatile refining margins. Material progress on the new businesses may provide upside risks to our target price.

S-Oil: Risks include: 1) weakening polyester demand hurting PX price and margin; 2) new petrochemical plants facing operational problems; and 3) management not paying out enough of earnings.

Thai Oil: Upside risks to our PT include stronger-than-expected refining/aromatics margins and crude prices. Downside risks include plant mechanical failure or weaker-than-expected refining/aromatic margins and crude prices.

Woodside Petroleum: Risks to our forecasts and investment view include oil price volatility, operational risks from offshore operations, and project risk from delays and large cost overruns.


ASIA

Any Authors named on this report are Research Analysts unless otherwise indicatedAny Authors named on this report are Research Analysts unless otherwise indicatedAnalyst CertificationI, Chiew Cheng Khoo, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of my compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Issuer Specific Regulatory DisclosuresIssuer Specific Regulatory Disclosures Mentioned companies Issuer name Ticker Price Price date Stock rating Sector rating Disclosures

Cheil Industries 001300 KS

121000.00 KRW 11-May-2011 Buy Not Rated 4,135

078930 87000.00 GS Holdings KS KRW 11-May-2011 Buy Not Rated

Hanwha Chemical Corp 009830 KS

47750.00 KRW 11-May-2011 Buy Not Rated

Honam Petrochemical 011170 KS

394000.00 KRW 11-May-2011 Buy Not Rated

LG Chem 051910 KS

520000.00 KRW 11-May-2011 Buy Not Rated 4,112y y

S-Oil Corporation 010950 KS


SK Innovation 096770 KS


Disclosures required in the European UnionDisclosures required in the European Union

4 Market maker Nomura International plc or an affiliate in the global Nomura group is a market maker or liquidity provider in the securities / related derivatives of the issuer.

Disclosures required in KoreaDisclosures required in Korea

112 Liquidity Provider for Equity Linked Warrant Nomura Financial Investment (Korea) Co., Ltd. is a liquidity provider (LP) or LP & issuer for ELW which the underlying is LG Chem (051910.KS), and holds 21,041,940 warrants as of 11-May-2011.

131 Liquidity Provider for Equity Linked Warrant Nomura Financial Investment (Korea) Co., Ltd. is a liquidity provider (LP) or LP & issuer for ELW which the underlying is SK Innovation (096770.KS), and holds 5,801,710 warrants as of 11-May-2011.

135 Liquidity Provider for Equity Linked Warrant Nomura Financial Investment (Korea) Co., Ltd. is a liquidity provider (LP) or LP & issuer for ELW which the underlying is Cheil Industries (001300.KS), and holds 14,065,500 warrants as of 11-May-2011.

156 Liquidity Provider for Equity Linked Warrant Nomura Financial Investment (Korea) Co., Ltd. is a liquidity provider (LP) or LP & issuer for ELW which the underlying is S Oil Corp (010950 KS) and holds 13 573 440 arrants as of 11 Ma 2011


S-Oil Corp (010950.KS), and holds 13,573,440 warrants as of 11-May-2011.

ASIA

Previous Rating Issuer name Previous Rating Date of change Cheil Industries Neutral 22-Feb-2011 GS Holdings Not Rated 09-Jun-2009 Hanwha Chemical Corp Neutral 03-Nov-2010Honam Petrochemical Neutral 03-Nov-2010 LG Chem Neutral 09-Sep-2009 S-Oil Corporation Neutral 11-Oct-2010 SK Innovation Reduce 09-Jun-2009

Cheil Industries (001300 KS) 121000.00 KRW (11-May-2011)Rating and target price chart (three year history)

Buy (Sector rating: Not Rated)

Date Rating Target price Closing price22-Feb-2011 160000.00 121000.00 22-Feb-2011 Buy 121000.00y30-Jun-2010 93000.00 94400.00 30-Jun-2010 Neutral 94400.00 10-Mar-2010 73000.00 60500.00 17-Sep-2009 63000.00 52700.00 04-Jun-2009 56000.00 45850.00 24-Feb-2009 49000.00 36000.00 30-Sep-2008 60000.00 51700.00 30-Sep-2008 Buy 51700.00 01-Jul-2008 68500.00 47250.00

For explanation of ratings refer to the stock rating keys located after chart(s)

Valuation Methodology Our price target of W160,000 is based on sum-of-the parts valuation. We believe that the stock will re-rate further owing to strong EPS growth of a 27% CAGR in 2010-12F on the efforts of all divisions and structural changes coming from polarizer film, OLED products and chemicals. Risks that may impede the achievement of the target price Downside risks to our PT include: 1) a delay in launching OLED products; 2) worse-than-expected LCD and LED cycle; 3) macro concerns weakening petrochemical pricing; and 4) slower-than-expected domestic consumption recovery, which could negatively affect the apparel business.


ASIA GS Holdings (078930 KS) 87000.00 KRW (11-May-2011)Rating and target price chart (three year history)

Buy (Sector rating: Not Rated) Rating and target price chart (three year history)

Date Rating Target price Closing price28-Jan-2011 105000.00 83300.00 11-Oct-2010 68000.00 56700.00 09-Jun-2009 42000.00 32000.00 09-Jun-2009 Buy 32000.00


Valuation Methodology Our price target of W115,000 is based on FY11F P/BV (W62,368) of 1.8x, which is a 20% premium toValuation Methodology Our price target of W115,000 is based on FY11F P/BV (W62,368) of 1.8x, which is a 20% premium to the peak-cycle multiple seen over FY07-10F (unchanged). The absolute peak P/BV (forward looking) was 1.8x in FY07. We apply a 20% premium to the FY07-10F peak multiple with a view that structural changes and strong industry fundamentals will lift valuation to above historical levels. Risks that may impede the achievement of the target price Key risks include: 1) operational problems at the new hydrocracker; 2) delays in GS Retail’s listing and/or the company’s 3rd FCC schedule.

Hanwha Chemical Corp (009830 KS) 47750.00 KRW (11-May-2011)R ti d t t i h t (th hi t )

Buy (Sector rating: Not Rated) Rating and target price chart (three year history)

Date Rating Target price Closing price03-Nov-2010 40000.00 32150.00 03-Nov-2010 Buy 32150.00 06-Sep-2010 25000.00 25750.00 06-Jul-2010 20000.00 17500.00 04-Sep-2009 14000.00 13300.00 04-Sep-2009 Neutral 13300.00 p01-Jul-2009 9400.00 10500.00 14-Apr-2009 7100.00 12050.00 14-Nov-2008 4000.00 4960.00 14-Nov-2008 Reduce 4960.00 01-Jul-2008 12000.00 11450.00 01-Jul-2008 Neutral 11450.00


Valuation Methodology Our PT of KRW69,000 is based on SOTP. We use a target EV/EBITDA multiple of 10.8x, which


Valuation Methodology Our PT of KRW69,000 is based on SOTP. We use a target EV/EBITDA multiple of 10.8x, which represents the peak multiple in 2010 (EV: KRW8,605bn ; FY11F EBITDA: KRW797bn). We believe the industry upturn will be sustainable over the next 20 months. Risks that may impede the achievement of the target price Risks include: 1) petrochemical price volatility; 2) execution risks on new businesses.

ASIA

Honam Petrochemical (011170 KS) 394000.00 KRW (11-May-2011)Rating and target price chart (three year history)


Date Rating Target price Closing price 03-Nov-2010 330000.00 268000.00 03-Nov-2010 Buy 268000.00 06-Jul-2010 160000.00 147000.00 06-Jul-2010 Neutral 147000.00 17-Dec-2009 82000.00 106500.00 04-Sep-2009 81000.00 91000.00 01-Jul-2009 70000.00 79100.00 14-Apr-2009 49000.00 72500.00 14-Nov-2008 37000.00 45900.00 01-Jul-2008 65000.00 72600.00 01-Jul-2008 Reduce 72600.00


Valuation Methodology Our target price of KRW480,000 is based on sum-of-the parts methodology. We apply a target EV/EBITDA multiple of 9.3x, which represents the peak multiple in 2010 (EV: KRW13,496bn; FY11F EBITDA: KRW1,445bn). Risks that may impede the achievement of the target price Risks may come from: 1) input and out price volatility; and 2) HPC buying assets at unattractive prices.

LG Chem (051910 KS) 520000.00 KRW (11-May-2011)Rating and target price chart (three year history)


D t R ti T t i Cl i iDate Rating Target price Closing price 03-Nov-2010 500000.00 382000.00 06-Jul-2010 430000.00 290500.00 09-Sep-2009 270000.00 212000.00 09-Sep-2009 Buy 212000.00 24-Jul-2009 150000.00 138000.00 24-Jul-2009 Neutral 138000.00 28-Apr-2009 120000.00 128000.00 p17-Mar-2009 66000.00 99226.80 17-Mar-2009 Reduce 99226.80 13-Jan-2009 71000.00 89463.06 14-Nov-2008 71000.00 79585.80 16-Oct-2008 Neutral 85943.58 16-Oct-2008 77000.00 85943.58 09-Sep-2008 75000.00 101383.90 09 S 2008 R d 101383 9009-Sep-2008 Reduce 101383.90 01-Jul-2008 107000.00 116937.76 01-Jul-2008 Neutral 116937.76


Valuation Methodology Our TP of KRW700,000 is based on a sum-of-the-parts methodology and reflects our positive view of th t h i l d b tt b i it W l th t b tt d LCD l t t KRW29 000/ h d


the petrochemical and car battery business units. We value the auto battery and LCD glass segments at KRW29,000/share and KRW28,000/share, respectively. Risks that may impede the achievement of the target price Risks are: 1) petrochemical and LCD cycle volatility; 2) execution of car battery production.

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S-Oil Corporation (010950 KS) 143000.00 KRW (11-May-2011)Rating and target price chart (three year history)


Date Rating Target price Closing price 28-Jan-2011 150000.00 112000.00 11-Oct-2010 85000.00 71700.00 11-Oct-2010 Buy 71700.00 04-Feb-2010 59000.00 52700.00 22-Oct-2009 66000.00 60000.00 21-Sep-2009 63000.00 64200.00 31 J l 2009 61000 00 58500 0031-Jul-2009 61000.00 58500.00 09-Jun-2009 63000.00 55900.00 09-Jun-2009 Neutral 55900.00 23-Jan-2009 47000.00 58900.00 14-Nov-2008 Reduce 63000.00 01-Sep-2008 60000.00 65700.00


Valuation Methodology Our price target of W200 000 is based on an FY11F P/BV (W54 228) of 3 8x which represents a 20%Valuation Methodology Our price target of W200,000 is based on an FY11F P/BV (W54,228) of 3.8x, which represents a 20% premium to the peak-cycle multiple seen over FY04-10 (previously FY11F P/BV of 3.0x based on peak-cycle see in FY07-10). We have lifted the target multiple as new 2011F ROE rises to 35% (from 22%) on higher net profit and DPS (new DPS: W6,000; old DPS W3,000) estimates. Risks that may impede the achievement of the target price Risks include: 1) weakening polyester demand hurting PX price and margin; 2) new petrochemical plants facing operational problems; and 3) management not paying out enough of earnings.

SK Innovation (096770 KS) 226000.00 KRW (11-May-2011) Buy (Sector rating: Not Rated)S o at o (096 0 S) 6000 00 ( ay 0 )Rating and target price chart (three year history)

uy (Sec o a g o a ed)

Date Rating Target price Closing price 28-Jan-2011 260000.00 199000.00 11-Oct-2010 190000.00 151000.00 05-May-2010 145000.00 123500.00 04-Feb-2010 135000.00 104000.00 28-Oct-2009 140000.00 113000.00 24 J l 2009 133000 00 99 00 0024-Jul-2009 133000.00 99700.00 09-Jun-2009 135000.00 115000.00 09-Jun-2009 Buy 115000.00 13-Jan-2009 51000.00 78800.00 14-Nov-2008 52000.00 63300.00 01-Sep-2008 75000.00 81200.00 01-Sep-2008 Reduce 81200.00 28-May-2008 145000.00 123500.00



Valuation Methodology Our TP of KRW330,000 is based on 2.4x FY11F P/BV (KRW136,665), a 20% premium to the peak cycle multiple seen over FY07-10. Risks that may impede the achievement of the target price Risks to our price target include crude prices and volatile refining margins. Material progress on the new businesses may provide upside risks to our target price.

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O li il bilit f h d dditi l fli t f i t t di lOnline availability of research and additional conflict-of-interest disclosuresNomura Japanese Equity Research is available electronically for clients in the US on NOMURA.COM, REUTERS, BLOOMBERG and THOMSON ONE ANALYTICS. For clients in Europe, Japan and elsewhere in Asia it is available on NOMURA.COM, REUTERS and BLOOMBERG.Important disclosures may be accessed through the left hand side of the Nomura Disclosure web page http://www.nomura.com/research or requested from Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please email [email protected] for technical assistance.

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Distribution of ratings (Global)st but o o at gs (G oba )The distribution of all ratings published by Nomura Global Equity Research is as follows:49% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 37% of companies with this rating are investment banking clients of the Nomura Group*.40% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 46% of companies with this rating are investment banking clients of the Nomura Group*. 11% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 16% of companies with this rating are investment banking clients of the Nomura Group*.As at 31 March 2011.

*The Nomura Group as defined in the Disclaimer section at the end of this reportThe Nomura Group as defined in the Disclaimer section at the end of this report.

Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America for ratings published from 27 October 2008The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc.

STOCKSSTOCKSA rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months.A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months.A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months.A rating of 'Suspended', indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company.Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page: http://www.nomura.com/research);Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology.

SECTORSA 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months.A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months.A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months.Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.


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Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published from 30 October 2008 and in Japan from 6 January 2009STOCKSStock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price, subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc.A 'Buy' recommendation indicates that potential upside is 15% or more.A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%.A 'Reduce' recommendation indicates that potential downside is 5% or more.A rating of 'Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company.Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies.

SECTORSA 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation.A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation.g ( g g g )A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.

Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009 (and ratings in Europe, Middle East and Africa, US and Latin America published prior to 27 October 2008)STOCKSA rating of '1' or 'Strong buy', indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next six months.A rating of 1 or Strong buy , indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next six months.A rating of '2' or 'Buy', indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the next six months.A rating of '3' or 'Neutral', indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 5% over the next six months.A rating of '4' or 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but less than 15% over the next six months.A rating of '5' or 'Sell', indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months.Stocks labeled 'Not rated' or shown as 'No rating' are not in Nomura's regular research coverage. Nomura might not publish additional research reports concerning this company, and it undertakes no obligation to update the analysis, estimates, projections, conclusions or other information contained herein.

SECTORSA 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months.A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months.A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months.Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe, by sector - Hardware/Semiconductors: FTSE W Europe IT Hardware; Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe; Auto & Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W Europe IT Hardware; Ecology Focus: Bloomberg World Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia.


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Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published prior to 30 October 2008STOCKSSTOCKSStock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price)/Current Price, subject to limited management discretion. In most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation.A 'Strong buy' recommendation indicates that upside is more than 20%.A 'Buy' recommendation indicates that upside is between 10% and 20%A Buy recommendation indicates that upside is between 10% and 20%.A 'Neutral' recommendation indicates that upside or downside is less than 10%.A 'Reduce' recommendation indicates that downside is between 10% and 20%.A 'Sell' recommendation indicates that downside is more than 20%.

SECTORSA 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation.A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation.A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.

Target PriceA Target Price, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.

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