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Outlook: Taiwan’s Container
     Shipping Industry

              Daniel Hsiao
            Associate Director
   Corporate Ratings, Taiwan Ratings Corp.
                Sept. 8, 2005
                                          twBB
             Characteristics of Container Shipping
                            Industry
                                     twAAA
                                                  twAA

•   Growing Industry
•   Highly Cyclical
•   Capital Intensive
•   Fragmented Structure
•   Low volatility than other shipping industry
    (Dry bulk carriers)
                    twBB
Key East-West Container
                   twAAA
Market Indicators       twAA
                                              twBB
                     Containership Orderbook by
                                         twAAA
                     Size and Scheduled Delivery Year
                                                                                twAA
                                                                        Current
Unit: '000                                                               global
                    2005     2006     2007 2008 2009          Total
TEUs                                                                    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).
                                                         twBB
                                     twAAA
                Outlook for Taiwan’s Operators
                                                                 twAA
• 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
                               Peer Comparison of
                                                                                                       twBB
                               Three Taiwan-based Shipping Companies
                                                                                            twAAA
                                                                                                                 twAA
                                             Evergreen Marine            Yang Ming Marine
                                                  Corp.*                  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.
                          twBB
                     twAAA
                               twAA
Outlook: Telecom Industry in
          Taiwan
                                         twBB
            Characteristics of Taiwan’s Telecom
                            Market
                                      twAAA
                                                  twAA

• Fixed Lines: Monopoly (per se)
• Wireless:
  –   Saturated Market
  –   High Penetration Rate
  –   Dominated by Three Operators
  –   3G Services and Mobile Number Portability
                          Market Share Comparisons Between            twBB
                          Chunghwa Telecom Co. Ltd. and
                          New Fixed-Line Start-Ups
                                                            twAAA
                                                                           twAA

                            Local        call Domestic     long International
                            services (%)      distance (%)      direct dial (%)
2002   Chunghwa                           99                 92                   61
       Telecom Co. Ltd.
       New start-ups                       1                  8                   39

2003   Chunghwa                           98                 91                   58
       Telecom Co. Ltd.
       New start-ups                       2                  9                   42

2004   Chunghwa                           98                 88                   60
       Telecom Co. Ltd.
       New start-ups                       2                 12                   40
                    twBB
                  twAAA
Taiwan's Mobile Phone Market
                        twAA
                                                   twBB
                                  twAAA
                    3G: Friend or Foe?
                                       twAA
• 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 still expensive
• Attitude of Major Operators:
   – Launch the service at the last moment
   – Targeted 3G subscribers only 50,000 to 120,000
             MNP: Opportunity for twBB
               New Start-ups twAAA
                                    twAA
• 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
                 Trends on Taiwan’s         twBB
                               twAAA
                  Telecom Industry
                                             twAA
• Fixed Lines Market:
  – Dominated by One Incumbent
  – Potential Threat from VoIP
• Wireless Market:
  – Low growth
  – Limited competition from new entrants
• Outlook: Stable
                                                         twBB
                              Major Telecommunications Operators
                              in Taiwan                                  twAAA
                                                                                          twAA
                                   Chunghwa                 Far EasTone
                                  Telecom Co.         Telecommunications Co.        Taiwan Mobile
                                      Ltd.                      Ltd.                   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

				
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