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Outlook: Taiwan’s Container Shipping Industry

Outlook: Taiwan’s Container Shipping Industry. Daniel Hsiao Associate Director Corporate Ratings, Taiwan Ratings Corp. Sept. 8, 2005. Characteristics of Container Shipping Industry. Growing Industry Highly Cyclical Capital Intensive Fragmented Structure

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Outlook: Taiwan’s Container Shipping Industry

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  1. Outlook: Taiwan’s Container Shipping Industry Daniel Hsiao Associate Director Corporate Ratings, Taiwan Ratings Corp. Sept. 8, 2005

  2. Characteristics of Container Shipping Industry • Growing Industry • Highly Cyclical • Capital Intensive • Fragmented Structure • Low volatility than other shipping industry (Dry bulk carriers)

  3. Key East-West Container Market Indicators

  4. Unit: '000 TEUs 2005 2006 2007 2008 2009 Total Current global capacity (Jan. 2005) <2,500 TEUs 170 145 77 18 2 412 2,540 2,500-4,999 270 389 365 101 4 1,129 2,819 5,000-7,999 290 230 268 117 16 921 1,680 8,000+ 183 525 291 161 0 1,160 123 Total 913 1,289 1,001 397 22 3,622 7,162 Source: Drewry Shipping Consultants Ltd. (March 2005). Containership Orderbook by Size and Scheduled Delivery Year

  5. Outlook for Taiwan’s Operators • Supply: Substantially increase in 2006 and in 2007 • Ports and inland transportation Congestion problems in the west coast of US and in Europe • Demand: Global economic and growth driver in China • Outlook for Taiwan’s Operators: • Impact on intra-Asia routes is limited • Volatility in long-haul routes (trans-Pacific routes) are higher • Financial strengths are strengthened • Capital expenditure remains high

  6. Evergreen Marine Corp.* Yang Ming Marine Transport Corp. Wan Hai Lines Ltd. Standard & Poor’s credit rating Not rated Not rated BBB/Stable/-- Taiwan Ratings Corp. credit rating Not rated twA/Stable twA+/Stable (NT$ mil.) 2004 2003 2004 2003 2004 2003 Revenue 130,489 106,941 88,572 72,632 46,670 38,081 Operating income# 17,874 10,845 18,262 13,223 13,117 9,157 Net income 12,085 3,605 9,797 6,649 6,782 4,430 Cash and short-term investments 31,100 12,285 26,433 21,239 16,369 7,182 Total debt 55,343 61,930 48,205 36,128 39,481 22,109 Operating cash flow 24,593 14,507 16,691 13,527 9,847 7,028 Capital expenditure 3,350 9,884 12,891 5,313 5,069 3,695 Operating margin (%) 13.7 10.1 20.6 18.2 28.1 23.9 EBITDA/interest (x) 9.3 4.2 10.8 9.8 9.6 14.5 Funds from operations/total debt (%) 28.4 13.2 35.9 34.1 32.2 39.8 Total debt/total capital (%) 51.4 60.6 52.4 52 60.3 50.2 *Not adjusted for operating leasing ; # Before depreciation and amortization. Peer Comparison of Three Taiwan-based Shipping Companies

  7. Outlook: Telecom Industry in Taiwan

  8. Characteristics of Taiwan’s Telecom Market • Fixed Lines: Monopoly (per se) • Wireless: • Saturated Market • High Penetration Rate • Dominated by Three Operators • 3G Services and Mobile Number Portability

  9. Local call services (%) Domestic long distance (%) International direct dial (%) 2002 Chunghwa Telecom Co. Ltd. 99 92 61 New start-ups 1 8 39 2003 Chunghwa Telecom Co. Ltd. 98 91 58 New start-ups 2 9 42 2004 Chunghwa Telecom Co. Ltd. 98 88 60 New start-ups 2 12 40 Market Share Comparisons Between Chunghwa Telecom Co. Ltd. and New Fixed-Line Start-Ups

  10. Taiwan's Mobile Phone Market

  11. 3G: Friend or Foe? • 2G was revolution, 3G is just evolution. • Non-voice revenue accounted for only 5% of revenue • Demand Function of 3G = f (Quality, Content, Price) • Quality: Rooms to improve at the start-up phase • Content: 3G are joked as Girls/Games/Gambling • Price: 3G handset stillexpensive • Attitude of Major Operators: • Launch the service at the last moment • Targeted 3G subscribers only 50,000 to 120,000

  12. MNP: Opportunity for New Start-ups • Experiences from Other Markets in the Region • Hong Kong • Singapore • Taiwan? • Transfer fee • Three dominated operators equally share the market • It is an opportunity for new start-ups, but at the expense of profit

  13. Trends on Taiwan’s Telecom Industry • Fixed Lines Market: • Dominated by One Incumbent • Potential Threat from VoIP • Wireless Market: • Low growth • Limited competition from new entrants • Outlook: Stable

  14. Chunghwa Telecom Co. Ltd. Far EasTone Telecommunications Co. Ltd. Taiwan Mobile Co. Ltd. --As at Dec. 31, 2004-- Standard & Poor's rating AA-/Negative BBB+/Stable/-- Not rated Taiwan Ratings Corp. rating twAAA/Stable twAA/Stable twAA/Stable Mobile subscribers (mil.) 8.2 6.5 6.8 Mobile market share (%) 35 34 31 Total revenue (NT$ bil.) 182.6 65.5 55.2 Operating margin (%) 55.0 47.0 48.0 Net debt/capital (%) Net cash 17.0 13.0 EBITDA interest coverage (x) 22,654.0 39.0 21.0 Funds from operations/net debt (%) Net cash 212.0 236.0 Major Telecommunications Operators in Taiwan

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