•Global power orders to fall by up to 60% in 2009: The global power
equipment market has held up reasonably well in recent quarters in terms of
orders; cancellations and postponements have been more moderate than
elsewhere and the initial fears on availability of financing for customers to
complete backlogs have moderated. We expect order declines to intensify in
the coming quarters and look for global equipment orders to fall by around
50% in GW with pricing down 10%. We estimate the market to recover
to around 260GW post the downturn compared to the 2007/2008 peak
level of 320-330GW.
• Longer term industry fundamentals intact: Good backlogs will mostly
carry the equipment makers through the order dip and a structurally
increasing replacement market should result in an order recovery once
confidence returns and financial conditions ease. However, in the next 12-
24 months at least, weak orders and associated cash outflows will weigh
on sentiment. The power market should recover more quickly than other
capex markets given the structural replacement need.
• We have downgraded Alstom to Neutral: We expect weak orders and cash
flow and concerns on industry pricing to limit performance in the medium
term despite an attractive valuation. We have lowered our adj. EPS estimates
(FY10E -4%, FY11E -13%) and multiples-based Dec09 target price to