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DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Monday, 13 March 2017
Asian Daily (Asia Edition)
EPS, TP and Rating changes EPS TP
(% change) T+1 T+2 Chg Up/Dn Rating
Tabcorp Holdings (0.3) (2.1) 0 12 O (O) Guangzhou R&F (0.7) 4 16 (4) N (N) Heilan Home Co Ltd (0.9) (7.5) (7) (2) N (N) Huaneng Renewables (1.2) 9 6 37 O (O) Jiangsu Hengrui Medicine Co. Ltd
(5.3) 0 25 17 O (N)
Yadea Group Holdings (3.2) 3 (2) 1 N (N) Hitachi Kokusai Electric (38) (15) 29 (3) N (O) KB Financial Group 1 5 15 29 O (O) Advantech Co., Ltd. (0.7) (1.1) (2) 18 O (O) Delta Electronics 1 0 0 13 O (O) P.C.S. Machine Grp Holdg 65 61 100 16 O (U) PetroVietnam Drilling and Well Services JSC
(37.5) (11.4) (8) 34 O (O)
Connecting clients to corporates
Thematic Trip
Pre AIC: India Autos Tour Date 20-22 March, New Delhi, Mumbai, Pune
Analyst Jatin Chawla
Indonesia Cement Tour Date 20-22 March, Jakarta
Analyst Paworamon Suvarnatemee
Pre AIC: India Macro Investment Cycle Tour Date 20-24 March, Mumbai, New Delhi
Analyst Lokesh Garg
Pre AIC: China Internet Tour Date 21-24 March, Shanghai, Beijing, HK/Shenzhen
Analyst Evan Zhou
Pre AIC: India Consumer Tour Date 22-24 March, Mumbai, Bengaluru
Analyst Arnab Mitra
Pre AIC: China Macro/Policy Tour Date 23-24 March, Beijing
Analyst Vincent Chan
Korea Internet/Media Tour Date 24 March, Seoul
Analyst Eric Cha
Post AIC: Macau Tour Date 31 March, Macau
Analyst Kenneth Fong
Post AIC: HK/ China Property Tour Date 31-March - 01-April, Hong Kong, Shenzhen,
Guangzhou
Analyst Alvin Wong, Susanna Leung
Corporate Days / Conferences
20th Annual Asian Investment Conference Date 27-30 March, Hong Kong
Hong Kong / China (Non-deal roadshow)
Sunny Optical (2382.HK) Post Results Date 14-15 March, Hong Kong
Analyst Sam Li, Kyna Wong
Singapore (Non-deal roadshow)
Sunny Optical (2382.HK) Post Results Date 16-17 March, Singapore
Analyst Sam Li, Kyna Wong
Contact [email protected] or your usual sales representative.
Top of the pack ...
Singapore Property Sector Louis Chua, CFA (3) Easing of property measures a positive catalyst; improving fundamentals to sustain outperformance
Singapore Market Strategy Gerald Wong, CFA (4) Easing of property measures supports bottoming in ROE
Japan Technology Sector Hideyuki Maekawa (5) Asia feedback (Semiconductor/SPE): Mounting risks
KB Financial Group (105560.KS) – Maintain O Focus List stock Gil Kim (6)
NIM recovery to drive up sustainable ROE
Credit Suisse Research – the team you partnered with in 2016.
If you have appreciated our service, please consider voting for us.
2017 II All-Asia Research Poll
CS pic of the day
Taiwan Semiconductor Manufacturing—TSMC and Toshiba together: Potential merits, but also notable risks
Press reported TSMC may bid on acquiring a partial or majority stake in Toshiba's NAND memory business. It could be
a candidate for Toshiba by bringing its financial and technical resources, customer base and areas to cooperate on
memory-logic integration. Deal does add memory’s cyclicality and potentially lower margins. Risks below could raise
TSMC’s earnings volatility and its challenge maintaining or improving profitability and 20%+ ROE: (1) added cyclicality
and capital intensity, (2) commodity like pricing, (3) different business model and (4) potential retaliation from Samsung.
Source: Company data, Credit Suisse estimates
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1Q1
3
2Q1
3
3Q1
3
4Q1
3
1Q1
4
2Q1
4
3Q1
4
4Q1
4
1Q1
5
2Q1
5
3Q1
5
4Q1
5
1Q1
6
2Q1
6
3Q1
6
Samsung SK Hynix Micron Toshiba
OpMs (%) Toshiba's NAND OpMs lag Samsung’s
... and the whole pack
Regional
Asia Pacific Equity Strategy Sakthi Siva (7) New report: Can the KOSPI break the 2,100 jinx?
Malaysia Palm Oil Sector Tan Ting Min (8) Bearish tone at the POC2017
Australia
Tabcorp Holdings (TAH.AX) – Maintain O Larry Gandler (9) We still expect TAH/TTS Merger Approval
China
China A-share Strategy Li Chen (10) A-share will rebound after 'two sessions'
Monday, 13 March 2017
Asian Daily
- 2 of 32 -
Asian indices - performance (% change) Latest 1D 1W 3M YTD
ASX300 5,721 0.6 0.7 3.8 1.8
CSEALL 6,085 (0.1) (0.3) (3.8) (2.3)
Hang Seng 23,569 0.3 0.1 3.5 7.1
H-SHARE 10,069 (0.3) (0.7) 2.0 7.2
JCI 5,391 (0.2) (0.0) 1.6 1.8
KLSE 1,718 0.0 0.5 4.6 4.6
KOSPI 2,097 0.3 0.9 3.6 3.5
KSE100 49,192 (0.4) (0.9) 8.4 2.9
NIFTY 8,935 0.1 0.4 8.1 9.1
NIKKEI 19,605 1.5 0.7 3.2 2.6
TOPIX 1,574 1.2 1.0 3.2 3.6
PCOMP 7,146 (2.0) (1.4) 1.5 4.5
RED CHIP 3,856 (0.1) 0.1 2.7 7.5
SET 1,540 (0.6) (1.7) 0.9 (0.2)
STI 3,133 0.5 0.4 6.0 8.8
TWSE 9,628 (0.3) (0.2) 2.5 4.0
VNINDEX 712 (0.5) (0.1) 7.4 7.1 Thomson Reuters
Asian currencies (vs US$) (% change) Latest 1D 1W 3M YTD
A$ 1 0.5 (0.7) 1.2 4.5
Bt 35 (0.2) 0.8 (0.9) (1.5)
D 22,760 (0.2) (0.4) 0.8 (0.0)
JPY 115 (0.1) 0.7 (0.5) (1.8)
NT$ 31 0.1 0.4 (2.4) (4.3)
P 50 (0.2) (0.1) 0.7 1.3
PRs 105 - - 0.1 0.3
Rp 13,378 (0.1) (0.0) 0.4 (0.7)
Rs 67 (0.2) (0.3) (1.4) (2.1)
S$ 1 (0.6) 0.1 (1.3) (2.5)
SLRs 151 (0.0) (0.5) 1.8 1.0
W 1,148 (1.0) (0.3) (2.1) (4.8) Thomson Reuters
Global indices (% change) Latest 1D 1W 3M YTD
DJIA 20,903 0.2 (0.5) 5.8 5.8
S&P 500 2,373 0.3 (0.4) 5.0 6.0
NASDAQ 5,862 0.4 (0.2) 7.7 8.9
SOX 992 1.2 1.8 11.1 9.4
EU-STOX 3,101 0.2 (0.5) 5.1 3.0
FTSE 7,343 0.4 (0.4) 5.6 2.8
DAX 11,963 (0.1) (0.5) 6.8 4.2
CAC-40 4,993 0.2 (0.0) 4.8 2.7
10 YR LB 3 (1.0) 4.0 5.1 5.8
2 YR LB 1 (0.7) 3.7 19.5 13.9
US$:E 1 0.9 0.5 1.0 1.5
US$:Y 115 (0.1) 0.7 (0.5) (1.8)
GOLD 0 0.3 (2.4) 4.0 4.6
VIX 0 (5.2) 6.4 (0.8) (17.0) Thomson Reuters
MSCI Asian indices – valuation & perf. EPS grth. P/E (x) Performance
MSCI Index 16E 17E 16E 17E 1D 1M YTD
Asia F X Japan 2 13 15.1 13.4 0.2 1.2 9.0
Asia Pac F X J. (1) 14 16.0 14.1 0.4 1.2 8.5
Australia (17) 13 19.2 17.0 1.1 1.4 6.9
China 1 15 14.4 12.5 0.2 1.2 10.1
Hong Kong 1 7 17.2 16.2 0.6 2.5 10.7
India 8 19 20.0 16.8 0.3 2.7 10.8
Indonesia 4 16 18.2 15.6 (0.3) -0.2 2.1
Japan (4) 13 18.6 16.5 1.2 0.0 4.6
Korea 7 15 11.9 10.4 0.4 0.6 9.4
Malaysia (3) 6 17.3 16.4 0.1 1.2 5.3
Pakistan (7) 11 12.4 11.2 -0.61 0.1 1.8
Philippines 7 7 18.7 17.5 (1.6) -1.6 3.9
Singapore (7) 5 14.7 14.0 1.2 1.8 10.3
Sri Lanka (2) 11 14.8 13.3 (0.1) -3.4 (4.8)
Taiwan 11 9 16.1 14.8 (0.4) 0.8 7.1
Thailand 0 4 11.2 10.8 (0.5) -3.2 2.2 Thomson Reuters. All data as of the most recent market close.
China Banks Sector Sanjay Jain (11) Stricter macro-prudential framework? Most banks should be able to avoid equity dilution
Guangzhou R&F (2777.HK) – Maintain N Alvin Wong (12) Nothing more than dividend
Heilan Home Co Ltd (600398.SS) – Maintain N Raymond Ching (13) 2016 results missed by 3%; remain conservative in 2017
Huaneng Renewables Corporation (0958.HK) – Maintain O Dave Dai, CFA (14) February output much stronger than expected; raise utilisation hours forecast
Jiangsu Hengrui Medicine Co. Ltd (600276.SS) – Upgrade to O Iris Wang (15) FY16 results review: R&D expense historical high, strong growth momentum in US generic drug market
Yadea Group Holdings Limited (1585.HK) – Maintain N Shelley Wang (16) FY16 results in line; launching promotion campaign to gain market share
India
India Market Strategy Neelkanth Mishra (17) New report: State elections—UP results a turning point
Indonesia
Ramayana Lestari Sentosa (RALS.JK) – Maintain U Ella Nusantoro (18) Weak Feb numbers; expect further derating in share price
Japan
Japan Technology Sector Akinori Kanemoto (19) Asia feedback report (Hardware): Spring hasn't yet come
Japan Technology Sector Hideyuki Maekawa (5) Asia feedback (Semiconductor/SPE): Mounting risks
Hitachi Kokusai Electric (6756) – Downgrade to N Hideyuki Maekawa (20) 3D NAND capex, possible buyout by parent company already reflected in share price
For more Japan equity reports, please see Japan Daily (First Edition) – 13 March 2017
Singapore
Singapore Market Strategy Gerald Wong, CFA (4) Easing of property measures supports bottoming in ROE
Singapore Property Sector Louis Chua, CFA (3) Easing of property measures a positive catalyst; improving fundamentals to sustain outperformance
Keppel Corporation (KPLM.SI) – Maintain OFocus List stock Gerald Wong, CFA (21)
Beneficiary of improving Singapore residential sentiment
South Korea
KB Financial Group (105560.KS) – Maintain O Focus List stock Gil Kim (6)
NIM recovery to drive up sustainable ROE
Taiwan
Advantech Co., Ltd. (2395.TW) – Maintain O Thompson Wu (22) New report: Phase 2 IoT transformation takes shape
Delta Electronics (2308.TW) – Maintain O Pauline Chen (23) 4Q16 slightly impacted by mix; 2017 key drivers intact
Thailand
Thailand Property Sector Atul Sethi (24) Unexciting 2M17 industry data
P.C.S. Machine Group Holding (PCSGH.BK) – Upgrade to O Putt Virasathienpornkul (25) A turnaround story
Vietnam
PetroVietnam Drilling and Well Services JSC (PVD.HM) – Maintain O Wattana Punyawattanakul (26) Waiting for day rates to recover
O=Outperform N=Neutral U=Underperform R=Restricted OW= Overweight MW=Market Weight UW=Underweight
Research mailing options To make any changes to your existing research mailing details, please e-mail us directly at [email protected]
Sales Contact Hong Kong 852 2101 7211 Singapore 65 6212 3052 London 44 20 7888 4367 New York 1 212 325 5955 Boston 1 617 556 5634
Monday, 13 March 2017
Asian Daily
- 3 of 32 -
Top of the pack ...
Singapore Property Sector ---------------------------------------------------------------------------------- Easing of property measures a positive catalyst; improving fundamentals to sustain outperformance Louis Chua, CFA / Research Analyst / 65 6212 5721 / [email protected] Nicholas Teh / Research Analyst / 65 6212 3026 / [email protected] Daniel Lim / Research Analyst / 65 6212 3011 / [email protected]
● The government announced an easing of cooling measures via— (1) reduced SSD rates to 4-12%, with lower holding periods from the current 4 years to 3 years; (2) TDSR exemption to mortgage equity withdrawal loans with LTV ratios of 50% and below.
● We view this positively. While the SSD change is prospective, we believe this will allow stretched households to offload their investment properties if needed in future; with a secondary impact of supporting buyer demand today. Partial relaxation in TDSR allows for greater flexibility by borrowers to monetise their properties in case of economic hardship, while also supporting asset-rich individuals in leveraging to generate higher ROEs.
● Measures aside, we believe the improving residential fundamentals and sentiment today, with moderating price declines, record low unsold inventory and rising volumes and take-up rates remain the key driver for developers’ continued outperformance.
● City Developments (OUTPERFORM, TP S$11.60) is our top pick, given its status as a residential proxy, with valuations still attractive at 1.0x P/B (-1 S.D. from historical averages).
Figure 1: Summary of changes in Sellers' stamp duty
Sellers' stamp duty rates
Old New
Holding period
Up to 1 year 16% 12%
1 to 2 years 12% 8%
2-3 years 8% 4%
3-4 years 4% No SSD payable
4 years No SSD payable
Source: Ministry of Finance.
Easing of cooling measures a positive surprise
As highlighted in our earlier report, the market has not priced in the likelihood of an easing of measures. The government has announced an easing of the Seller's Stamp Duty (SSD) and Total Debt Servicing Ratio (TDSR) framework, effective 11 March 2017. We view this as a key positive re-rating catalyst for the developers.
Lowering of SSD holding period to 3 years and rate by 4 pp
The government has: (1) reduced SSD rates to 4-12%, and (2) lowered the holding periods from the current 4 years to up to 3 years (Figure 1). While the change is prospective, we believe that the recalibration will allow stretched households to offload their investment properties and alleviate their financial situation if needed in future, with a secondary impact of supporting buyer demand today. With no changes to ABSD measures, financial prudence is maintained by allowing those who are financially able to re-enter the market to support such sellers, supportive of demand.
TDSR revised for mortgage equity withdrawal loans
In a further recalibration post the fine-tuning of TDSR rules in September 2016, the government will not apply the TDSR framework to mortgage equity withdrawal loans with LTV ratios of 50% and below. These are loans which are secured on the borrower’s equity in a residential property. This, thus, allows for greater flexibility by borrowers to monetise their properties, preventing the need for a distressed sale in the event of economic hardship and thus a contagion effect on the market. The flipside is of course, allowing for
asset-rich owners to monetise their residential property assets for other investments, thereby improving ROEs.
Closing of stamp duty loophole for transfers of equity interest in an entity holding residential properties
As highlighted in our earlier report, the government is looking to close the regulatory "loophole" where the sale of shares in an entity holding residential properties is only subject to a 0.2% stamp duty vs 18% for direct purchases. Given our view that sentiment is improving, we believe developers can continue to sell units to individuals via discounts & other schemes, thus reducing pro-rated QC charges.
Residential fundamentals improving regardless of easing
All in, the moves appear to be pre-emptive in nature given the uncertain economic outlook, especially when the objectives of the measures have been met. These would also support residential demand, in our view, augmenting the improving residential fundamentals and sentiment today, where price declines have moderated while volumes and take-up rates continue to be up strongly. These will remain the key driver for developers' continued outperformance, in our view. (full report)
Figure 2: Summary of residential inventory unsold/unlaunched
Developer Unsold
units
Est. saleable area Est. sales value
Total area (sq ft)
% CCR
% RCR
% OCR
Total^ (S$ mn)
% CCR
% RCR
% OCR
City Developments 2,909 3,296,578 48 13 39 5,872 70 9 21
Frasers Centrepoint 1,655 1,472,140 0 0 100 1,862 0 0 100
Bukit Sembawang 1,394 2,591,862 16 0 83 3,292 27 1 72
UOL Group 1,036 939,481 0 33 67 1,189 0 42 58
Guocoland 741 978,191 62 38 0 2,065 75 25 0
CapitaLand 665 1,194,494 56 27 17 2,131 68 22 10
Ho Bee Land 453 955,452 100 0 0 2,416 100 0 0
Wing Tai 376 497,614 29 69 2 1,175 48 51 1
Wheelock Properties 114 141,904 85 0 15 439 94 0 6
Oxley Holdings 70 71,838 41 15 44 97 50 15 35
^taking 100% basis for unsold units in all projects. Units unsold as at Sept 2016. Source: Company data, Credit Suisse estimates, URA.
Figure 3: CDL historical P/B still -1 S.D. from historical averages
0.99
1.82
2.62
1.02
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12 Jan-16
City Dev. - P/B Average - 1.82 ±1 std. dev.
P/B
Source: Company data, Thomson Reuters, Credit Suisse estimates
Monday, 13 March 2017
Asian Daily
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Singapore Market Strategy ---------------------------------------------------------------------------------- Easing of property measures supports bottoming in ROE Gerald Wong, CFA / Research Analyst / 65 6212 3037 / [email protected] Kwee Hong Ching / Research Analyst / 65 6212 3142 / [email protected]
● The Singapore government has announced an easing of the Seller’s Stamp Duty and Total Debt Servicing Ratio, which we believe could drive a rerating of Singapore developers. CityDev is our top pick as a proxy for the Singapore residential market.
● With a lower likelihood of distressed selling, we expect concerns about a spike in NPLs for Singapore mortgages to ease. Housing loans represent 21-27% of total loans for Singapore banks, most of which are domestic. NPLs remain low: below 1.0% in 4Q16.
● The easing of property measures, together with measures to support financing for the offshore and marine sector in November 2016, reflects greater willingness by the government to provide assistance to selected industries. This could help reverse the fall in ROE since 2011 driven partially by regulatory changes.
● We see further upside for MSCI Singapore driven by attractive P/B of 1.25x and a bottoming in ROE. Our top ideas fall into the following themes: (1) stocks with ROE improvement (UOB, Keppel, Genting, ST Engineering); (2) yield stocks pricing in higher rates (Singtel, AREIT); and (3) domestic policy plays (ComfortDelgro and CityDev).
Figure 1: Summary of changes in Sellers' Stamp Duty (SSD)
Sellers' stamp duty rates
Old New
Holding period Up to 1 year 16% 12%
1 to 2 years 12% 8%
2-3 years 8% 4%
3-4 years 4% No SSD payable
Source: Ministry of Finance
Easing of Singapore property measures a positive surprise
The government has announced an easing of the Seller’s Stamp Duty (SSD) and Total Debt Servicing Ratio (TDSR) framework, effective 11 March 2017. This includes (1) reduction in SSD rates from 4-16% to 4-12% and (2) lowering the holding periods from the current four years to up to three years. In addition, the government will no longer apply the TDSR framework to mortgage equity withdrawal loans with LTV ratios of 50% and below. These are loans which are secured on the borrower’s equity in a residential property. While the changes are prospective, Credit Suisse Property analyst Louis Chua believes that they will prevent distressed sales in the event of economic hardship.
We view this as a key positive rerating catalyst for the developers. City Developments (OUTPERFORM, TP S$11.60) is our top pick, given its status as a residential proxy, with valuation still attractive at 1.0x P/B (-1.0 SD from the historical average). Link to property report.
Banks could face easing concerns on spike in property NPL
With a lower likelihood of distressed selling in the Singapore residential property market, concerns about a spike in housing non-performing loans (NPLs) for Singapore banks are likely to ease. Housing loans represent 21% of total loans for DBS and 27% for UOB/OCBC, most of which are domestic. As shown in Figure 2, NPLs remain low at 1.0% or below in 4Q16. We expect credit costs to remain under control as unemployment rate remains below 3.0%.
Figure 2: Singapore housing NPLs remain low
Source: Company data
Growing signs of government support to select sectors
In our 2017 Outlook report, "Close to the bottom," of 6 January 2017, we highlighted growing signs that the government is willing to step in to provide support to select sectors. This would include fine-tuning of TDSR requirements for refinancing of mortgages in September 2016, and measures to facilitate access to financing the offshore and marine sector in November 2016. In our view, these measures could help drive a recovery in ROE for MSCI Singapore, after regulatory changes have partially led to a decline in ROE since 2011.
Figure 3: MSCI Singapore ROE appears to have bottomed
2%
4%
6%
8%
10%
12%
14%
16%
18%
Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15 Dec-17
MSCI Singapore - ROE
7.9% in Nov 2016
8.5% now
Source: MSCI
Remain positive on MSCI Singapore
Valuation for MSCI Singapore remains attractive at 1.25x P/B, and we expect a recovery in ROE to drive further rerating.
Figure 4: Top OUTPERFORM-rated stock ideas for 2017 Price TP Mkt P/E FY17E
Company RIC Rat. (S$) (S$) cap (x) Yield P/B ROE
10 Mar (U$ m) FY16E FY17E FY18E (%) (x) (%)
SingTel STEL.SI O 3.94 4.60 45,328 16.2 16.7 16.0 4.5 2.3 14.4
UOB UOBH.SI O 21.39 24.30 24,821 11.2 10.1 9.3 3.7 1.0 11.0
Keppel Corp KPLM.SI O 6.86 8.70 8,787 16.0 12.8 11.8 3.2 1.0 8.1
Genting SG GENS.SI O 1.00 1.20 8,518 41.5 28.1 24.9 3.0 1.6 5.9
ST Eng STEG.SI O 3.66 4.00 8,052 23.5 20.3 19.0 4.4 5.0 25.0
CDL CTDM.SI O 10.15 11.60 6,503 16.7 15.4 15.2 1.6 0.9 6.2
AREIT AEMN.SI O 2.47 2.63 5,087 16.6 16.3 15.9 6.3 1.2 7.3
ComfortDelGro CMDG.SI O 2.51 3.35 3,815 17.0 16.1 14.8 4.5 2.1 13.3
Source: Company data, Credit Suisse estimates
Monday, 13 March 2017
Asian Daily
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Japan Technology Sector ------------------------------------------------------------------------------------ Asia feedback (Semiconductor/SPE): Mounting risks Hideyuki Maekawa / Research Analyst / 81 3 4550 9723 / [email protected] Akinori Kanemoto / Research Analyst / 81 3 4550 7363 / [email protected] Mika Nishimura / Research Analyst / 81 3 4550 7369 / [email protected]
● As noted in our latest hardware outlook based on our Asia feedback (Hardware): Spring hasn't yet come, published on 10 March, excessive inventory in PCs and some Chinese smartphones are leading to cuts in production plans. Full report.
● We think the startup for new Chinese smartphones in spring and beyond will lag versus expectations, and note a component glut in the supply chain due to production plan slippages triggered by application processor (AP) supply delays.
● As we anticipated, risk appears to have mounted for a cutback in semiconductor production in the second half of 2Q 2017. There appears to be some excess inventory in both PC DRAM and mobile RAM, the supply–demand balance for which was tight previously, and a glut due to cuts in demand projections, so we anticipate a peak-out in DRAM prices.
● Meanwhile, 3D NAND investment appears to be firm, with concurrent development in multiple projects. To sum up, we see a limited number of positives, but expect mounting risks in semiconductor production, DRAM prices, and foundry SPE orders.
Valuation Metrics Company Ticker Rating Price Year P/E (x) P/B
(x)
Local Target T T+1 T+2 T+1
DISCO ORD 6146.T N 17,840 16,000 03/16 26.5 24.0 3.5 TOSHIBA ORD 6502.T O 208.30 460.00 03/16 4.3 4.4 1.6 HITACHI KOKUSAI ORD
6756.T N 2,637 2,560 03/16 29.4 20.4 2.6
TOKYO ELECTRON ORD
8035.T N 11,910 10,500 03/16 19.4 13.0 3.2
Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Source: Company data, Credit Suisse estimates
As noted in our latest hardware outlook based on our Asia feedback (Hardware): Spring hasn't yet come, published on 10 March, excessive inventory in PCs and some Chinese smartphones are leading to cuts in production plans. We think the startup for new Chinese smartphones in spring and beyond will lag versus expectations, and note a component glut in the supply chain due to production plan slippages triggered by application processor (AP) supply delays. As we anticipated, risk appears to have mounted for a cutback in semiconductor production in the second half of 2Q 2017. There appears to be some excess inventory in both PC DRAM and mobile RAM, the supply–demand balance for which was tight previously, and a glut due to cuts in demand projections, so we anticipate a peak-out in DRAM prices. With the predominant outlook pointing to two new iPhone models, one with an increase to 64GB and the other with 256GB, we continue to look for an increase in installed NAND density on smartphones. In addition, enterprise demand appears to be robust; as this could lead to a sustained tightness in NAND supply–demand, we anticipate ongoing price increases not only in 1Q but also 2Q. As for semiconductor capex, Taiwan foundries are yet to start 7nm node mass production investment; we thus note a muted equipment order trend than anticipated previously. Meanwhile, 3D NAND investment appears to be firm, with concurrent development in multiple projects. To sum up, we see a limited number of
positives, but expect mounting risks in semiconductor production, DRAM prices, and foundry SPE orders.
Key takeaways from our channel check: (1) Taiwan foundries’ 300mm capacity utilization remains high at 90-95%. No change in plans to fully utilize the 28nm process, which is used mainly on Chinese smartphones. (2) The predominant outlook points to two new iPhone models, one with an increase to 64GB in installed NAND density and the other with 256GB. (3) An outlook for NAND price increases of 5–30% in 1Q and 5–20% in 2Q for all applications. (4) In terms of 64-layer 3D NAND development, SSD sample shipments are one to two months behind schedule, even at the leading makers. (5) With PC DRAM inventory above warehouse capacity in some cases, Chinese smartphone makers have also revised down 1H 2017 demand projections. (6) A sharp rise in server DRAM demand in tandem with the change in CPU platform and the resultant shift from 16GB to 32GB modules. (7) Concrete negotiations yet to begin on Taiwan foundries’ 7nm mass production. (8) Some initial inquiries for Chinese 3D NAND; technology appears to be Korean in origin. (9) Request for the postponement of delivery dates by Taiwanese OSATs due to delays in the startup of new APs. (10) After the new iPhone models, Chinese smartphones now looking at iris scanner; this could lead to back-end SPE (dicer) demand.
Stock calls: We forecast lackluster performance across the technology sector due to mounting risks of a correction in semiconductors. We expect a correction in components to play the role of a catalyst. As for stocks, we downgrade Tokyo Electron and Hitachi Kokusai Electric to NEUTRAL, as the stocks lack catalysts for SPE orders. Once risks have played out and share prices have corrected, we see investors favoring back-end SPEs (Disco) with a good investment theme. Toshiba’s NAND business remains brisk, and we believe business conditions continue to be favorable for inviting bids for its memory business.
Figure 1: Projected capacity utilization for Taiwanese foundry 300nm/200nm lines (input basis)
Source: Company data, Credit Suisse estimates.
(This is an extract from Japan Technology sector report ‘Asia feedback (Semiconductor/SPE): mounting risks’, published on 10 March 2017. For details, please see the CS Plus website.)
Monday, 13 March 2017
Asian Daily
- 6 of 32 -
KB Financial Group --------------------------------------------------------- Maintain OUTPERFORM NIM recovery to drive up sustainable ROE EPS: ▲ TP: ▲ Gil Kim / Research Analyst / 82 2 3707 3763 / [email protected] Jennifer Yu / Research Analyst / 82 2 3707 3738 / [email protected]
● We expect a further leg-up for KBFG’s share price, driven by upgrades of sustainable earnings, even after its notable outperformance. We raise our EPS estimates for FY17/18 by 5%/7%, reflecting higher net interest margins (NIM).
● We expect net interest income (NII) to meaningfully recover in FY17 on the back of NIM expansion. Loan growth competition remains subdued while the possibility of a BoK policy rate cut appears limited. The new net interest spread for Korea’s banking system is tracking higher at a robust pace. Considering the operational leverage stemming from cost reductions and stable asset quality, a larger NII would mostly lead an earnings recovery.
● Key catalysts: Upward revision of consensus earnings is anticipated in the run up to the 1Q17 results. We have also assumed full privatisation of KB Insurance before 2H17.
● Reflecting the EPS estimate revisions, we raise our target price to W63,000 (from W55,000), which implies 0.8x FY17E BVPS. The stock's valuation still appears undemanding considering an estimated sustainable ROE of +8%.
Click here for detailed financials
KB Financial Group is a CS AxJ Focus List stock. NIM recovery likely to drive sustainable earnings upgrades and upward share price
Earnings growth driven by higher NIM is a more meaningful share price catalyst than loan growth, given that loan and deposit pricing is considered more sustainable than growth, in our view. We expect KBFG’s NII to increase 11% YoY in FY17, largely driven by NIM expansion of 8 bp YoY (from flat previous) and loan growth of 3.5%, in addition to the consolidating impact from Hyundai Securities (~5%). We believe the key drivers of NIM expansion are: (1) subdued loan growth competition, which supports both loan and deposit spreads; and (2) limited risks of BoK’s rate cut. As banks continue to focus on profitability, loan growth is likely to be slower than nominal GDP growth. This would also reduce the funding burden, supporting the deposit spread. The new loan-to-deposit spread for the system has
been recovering through 2016, which would be reflected into back-book spread in FY17. In addition, given the intensified concerns about household debt by the regulators and CPI hovering at 2%, we see limited possibility of BoK’s rate cut.
Figure 1: Korea banks system NIS (new) and Kookmin Bank NIM
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
1Q03
1Q04
1Q05
1Q06
1Q07
1Q08
1Q09
1Q10
1Q11
1Q12
1Q13
1Q14
1Q15
1Q16
Jan. 17
System Corp. Loan NIS System retail Loan NIS
Source: Company data, BoK, Credit Suisse research
Materialisation of operational leverage; consensus appears too conservative
In our view, the anticipated recovery of NII would mostly lead the growth of net profit (excluding HDS NII contribution) without inducing higher operating costs or provisioning, since it would be largely driven by pricing hikes. Thus, current consensus NP of W2,284 bn, only slightly higher than FY16 adjusted NP, appears too conservative. The Bloomberg consensus expects W6,861 bn of NII, which we believe does not reflect on NIM recovery and/or consolidation of HDS. We project SG&A of W4,672 bn, higher than W4,327 bn in FY16, excluding the expense related to staff restructuring. Cost reduction of W150 bn from staff restructuring in 2016 would partly offset the consolidation impact of HDS (~W500 bn). We conservatively forecast loan loss provisioning of W729 bn in FY17, higher than W628 bn in FY16 after net write-offs. Given KBFG’s conservative growth and persistent restructuring, loan loss provisioning is unlikely to be more than our forecasts, in our view. Please see the report on KBFG, More Steam Left, dated as of 6 October 2016, on KBFG’s asset quality. Lastly, we assumed that KBFG would fully privatise KB Insurance before 2H17 and thus accrued 100% of net profit (from 40% currently) of KB Insurance earnings from 3Q17.
Figure 2: KBFG—earnings forecasts
FY16FY16 (One-
off adj.)
FY17
CSe
FY17
Cons.
YoY (One-
off adj.)
CSe vs.
Cons
Net Interest Income 6,403 6,403 7,106 6,861 11.0% 3.6%
Non-interest Income 1,042 1,219 1,456 1,329 19.4% 9.5%
Fee Income 1,585 1,585 1,966 1,669 24.0% 17.8%
SG&A Expense 5,229 4,327 4,672 4,680 8.0% -0.2%
PPOP 2,216 3,295 3,889 3,510 18.0% 10.8%
Provision 539 628 729 965 16.1% -24.4%
Net Profit 2,144 2,088 2,548 2,284 22.0% 11.5% Source: Company data, Bloomberg, Credit Suisse estimates
Bbg/RIC 105560 KS / 105560.KS Rating (prev. rating) O (O) Shares outstanding (mn) 418.11 Daily trad vol - 6m avg (mn) 1.0 Daily trad val - 6m avg (US$ mn) 36.8 Free float (%) 83.5 Major shareholders NPS; 8.5%
Price (10 Mar 17, W) 49,000 TP (prev. TP W) 63,000 (55,000) Est. pot. % chg. to TP 29 52-wk range (W) 49000.0 - 31750.0 Mkt cap (W/US$ bn) 20,487.5/ 17.8
Performance 1M 3M 12M
Absolute (%) 2.5 12.1 51.7 Relative (%) 1.4 8.7 45.3
Year 12/14A 12/15A 12/16E 12/17E 12/18E
Pre-prov Op profit (W bn) 3,187.1 2,858.4 2,216.2 3,889.1 4,055.9 Net profit (W bn) 1,401 1,698 2,144 2,548 2,717 EPS (CS adj. W) 3,626 4,396 5,357 6,093 6,499 - Change from prev. EPS (%) n.a. n.a. 1 5 7 - Consensus EPS (W) n.a. n.a. 5,404 5,661 5,874 EPS growth (%) 11.1 21.2 21.9 13.7 6.7 P/E (x) 13.5 11.1 9.1 8.0 7.5 Dividend yield (%) 1.6 2.0 2.4 3.1 3.5 BVPS (CS adj. W) 70,700 74,234 74,116 79,018 84,017 P/B (x) 0.69 0.66 0.66 0.62 0.58 ROE (%) 5.3 6.1 7.3 8.0 8.0 ROA (%) 0.5 0.5 0.6 0.7 0.7 Tier 1 ratio (%) 13.3 13.6 14.4 14.7 15.0
Note 1: ORD/ADR=1.00. Note 2: KB Financial Group is the holding company for Kookmin Bank. The bank and the affiliates provide various commercial banking services, such as deposits, securities investment and trading services, investment banking, foreign exchange services and insurance.
Monday, 13 March 2017
Asian Daily
- 7 of 32 -
Regional
Asia Pacific Equity Strategy --------------------------------------------------------------------------------- New report: Can the KOSPI break the 2,100 jinx? Sakthi Siva / Research Analyst / 65 6212 3027 / [email protected] Kin Nang Chik / Research Analyst / 852 2101 7482 / [email protected]
● While investors appear focussed on the political scandals in Korea, the KOSPI has been quietly edging towards 2,100. In the past, we used to write about the KOSPI 2,000 jinx but now we are writing about the 2,100 jinx.
● As Figure 1 highlights, the KOSPI has only risen above 2,100 on six episodes (three times in 2011, twice in 2015 and in February 2017) and has not been able to sustain those gains.
● While it is dangerous to suggest this time could be different, Figure 4 highlights two key differences this time around. One, PB vs ROE discount—the biggest at 24%. This is double the average discount of 12%. Two, consensus EPS revisions—the current episode is associated with rising ROE and the strongest consensus EPS revisions.
● While YTD more of the gains in MSCI Korea have come from the Won strengthening and less from the KOSPI (MSCI Korea up 9% YTD), we are hopeful that the KOSPI could break the 2,100 jinx on this occasion. The key risk though is potential protectionist measures from a Trump administration. Full report
Figure 1: KOSPI versus trailing PB
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
800
1000
1200
1400
1600
1800
2000
2200
2400
Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16
Kor
ea -
Tra
iling
PB
Kos
pi
Kospi Korea - Trailing PB
KOSPI 2100
Source: Bloomberg, Datastream, Company data, Credit Suisse estimates
With the KOSPI quietly edging towards 2,100…
While investors appear focussed on the political scandals in Korea, the KOSPI has been quietly edging towards 2,100. In the past, we used to write about the KOSPI 2,000 jinx but now we are writing about the 2,100 jinx. As Figure 1 highlights, the KOSPI has only risen above 2,100 on six episodes (three times in 2011, twice in 2015 and in February 2017) and has not been able to sustain those gains.
We think this time could be different While it is dangerous to suggest this time could be different, Figure 4 highlights two key differences this time around. One, PB vs ROE discount—the biggest at 24% (see Figure 2). This is double the average discount of 12%. Two, consensus EPS revisions—the current episode is associated with rising ROE and the strongest consensus EPS revisions (see Figure 3).
Staying Overweight Korea
While YTD more of the gains in MSCI Korea have come from the Won strengthening and less from the KOSPI (MSCI Korea up 9% YTD), we are hopeful that the KOSPI could break the 2,100 jinx on this occasion. The key risk though is potential protectionist measures from a Trump administration.
Figure 2: KOSPI versus PBV vs ROE discount
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
800
1000
1200
1400
1600
1800
2000
2200
2400
Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16
Kor
ea -
PB
vs
RO
E r
el to
reg
ion
Kos
pi
Kospi Korea - PB vs ROE rel to region
KOSPI 2000
Source: Datastream, Bloomberg, Company data, Credit Suisse estimates
Figure 3: Korea consensus EPS by year
70
80
90
100
110
120
130
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
EPS17E EPS16E EPS15E EPS14E EPS13E
EPS12E EPS11E EPS10E EPS09E
20102017E +17%
Korea
Source: IBES
Figure 4: Episodes with KOSPI at 2100
Date PB ROE PB vs
ROE
rolling 12M net
foreign
EPS revision (FY1)
rel to
region
buying as a %
of mktcap
1M chg 3M chg
Jan-11 1.43 11.0% -9.7% 1.7% -0.1 1.5
Mar-11 1.44 10.8% -7.4% 1.1% -0.2 -0.7
Jun-11 1.48 10.4% -1.1% 1.1% -1.4 -0.9
Apr-15 1.08 8.1% -9.8% 0.9% 1.3 1.6
Jul-15 0.89 8.2% -17.4% 0.4% -4.0 -5.4
Feb-17/ Current 1.01 9.3% -24.3% 1.1% 1.3 9.3
Source: IBES, Stock exchange of Korea, Company data, Credit Suisse estimates
Monday, 13 March 2017
Asian Daily
- 8 of 32 -
Malaysia Palm Oil Sector ------------------------------------------------------------------------------------- Bearish tone at the POC2017 Tan Ting Min / Research Analyst / 60 3 2723 2080 / [email protected]
● Crude palm oil spot prices are now RM2,990 per tonne, down by 11% from the recent peak of RM3,349 (10 February 2017), while the palm kernel oil bubble appears to have burst.
● Malaysian palm oil inventories in February 2017 tightened further by falling 5% MoM to 1.46 mn tonnes (-33% YoY), as production was -1% MoM. February palm exports were -14% MoM.
● Malaysian palm production will seasonally rise in March. The 13% and 21% YoY production rise in January and February, respectively, may indicate that palms have recovered from the severe stress. The recovery for the Indonesian planters was V-shaped as they are younger palms.
● Speakers at the POC 2017 were broadly bearish on palm oil prices. Dorab Mistry expects palm oil price to fall to RM2,500 by June-July. James Fry expects palm oil prices to average RM2,500 in 3Q and to fall further to RM2,250 in 4Q. Thomas Mielke said palm oil prices have peaked and could face renewed downward pressure by end April-May and could fall to RM2,400.
Figure 1: Valuation comparison
Target PE
Ticker Calenderised Ccy Price Rating price 2015 2016E 2017E
IOI MK IOI Corp MYR 4.69 N 4.00 34.9 30.8 27.9
KLK MK KLK MYR 24.38 N 24.10 24.7 18.0 25.3
GENP MK Genting Plant MYR 11.42 O 12.76 47.1 30.0 21.7
FGV MK Felda MYR 1.84 U 1.46 58.8 207.4 94.2
Malaysia 35.6 26.3 25.0
WIL SP Wilmar SGD 3.58 N 3.73 15.5 16.8 14.6
GGR SP Golden Agri SGD 0.38 U 0.38 12.6 13.7 15.5
FR SP First Resources SGD 1.95 O 2.10 19.8 20.3 13.0
BAL SP Bumitama SGD 0.82 O 0.90 15.2 16.8 9.8
IFAR SP Indofood Agri SGD 0.52 N 0.47 122.6 14.4 8.7
Singapore 37.1 16.4 12.3
AALI IJ Astra Agro IDR 15,225 O 17,800 38.7 18.4 13.3
LSIP IJ London Sumatra IDR 1,470 O 1,820 16.1 15.5 11.2
SIMP IJ Salim Ivomas IDR 605 N 470 36.2 19.9 12.6
Indonesia 30.3 17.9 12.3
Region 34.9 19.5 15.8
Source: Company data, Credit Suisse estimates
Inventories were tighter in February
Crude palm oil (CPO) spot prices are now RM2,990 per tonne, down by 11% from the recent peak of RM3,349 (10 February 2017), while the palm kernel oil (PKO) bubble appears to have burst, and is now at RM5,494, or 35% below the peak of RM8,429 (24 January 2017).
Malaysian palm oil inventories in February 2017 tightened further by falling 5% MoM to 1.46 mn tonnes (-33% YoY), as production was -1% MoM. February exports were -14% MoM.
February is the trough production month, so we expect production to rise March onwards. The 13% and 21% YoY rise in January and February, production, respectively, may indicate that palms are recovering from severe stress. The recovery for the Indonesian planters was V-shaped as they are younger, and manage to rebound faster.
According to SGS, palm exports in February 2017 were +7% YoY but -12% MoM. For 2M17, Malaysian palm exports rose 3.4% YoY, driven by exports to China (+61% YoY) and Pakistan (+30% YoY) but were dragged by exports to India (-33% YoY, still suffering from the cash crunch) and to the US (-18% YoY).
Figure 2: Malaysia Feb palm oil inventories were -5% MoM and -33% YoY
'000 t Feb-17 Jan-17 MoM change (%) Feb-16 YoY change (%)
Production 1,259 1,277 -1.4 1,043 20.7
Exports 1,107 1,283 -13.7 1,085 2.0
Imports 40 72 -43.7 16 153.9
Stocks 1,459 1,541 -5.3 2,170 -32.8
Domestic consumption 274 190 43.7 112 145.3
Source: MPOB, Credit Suisse estimates
Figure 3: Malaysia's palm oil exports in 2M17 were +3% YoY
China Pakistan India EU USA Others Total
Market share 13% 3% 13% 19% 6% 47% 100%
2M17 289,070 55,500 280,340 409,040 120,380 1,021,560 2,175,890
2M16 179,270 42,800 416,690 438,410 147,120 880,570 2,104,860
YoY % change 61.2% 29.7% -32.7% -6.7% -18.2% 16.0% 3.4%
Feb-17 143,560 24,000 139,790 195,090 70,030 446,130 1,018,600
Feb-16 55,160 NA 197,150 222,020 81,580 399,690 955,600
MoM -1.3% -23.8% -0.5% -8.8% 39.1% -22.5% -12.0%
YoY 160.3% NA -29.1% -12.1% -14.2% 11.6% 6.6%
Source: SGS
Palm Oil Conference’s (POC 2017) tone—bearish
Speakers at the POC 2017, the largest palm oil conference in the world, were broadly bearish on palm oil prices. Here is the summary of the thoughts of the keynote speakers:
Dorab Mistry, Godrej: Palm oil prices may recover to RM3,000 in the short term before falling to RM2,500 by June-July. He added, “April is set to be the most challenging month in terms of stocks, shipment and availability.” Dorab expects Malaysia’s 2017 palm oil output to rise 13% YoY to 19.5 mn t. He is watching Trump’s renewable fuel regulation in the US as the US biodiesel mandate has the potential to be a 'game changer'.
James Fry, LMC: Palm oil prices to average RM2,500 in 3Q (US$605) and to fall further to RM2,250 in 4Q (US$550). Global palm oil output to increase over 6 mn t with Malaysia at 19.9 mn t. Malaysia’s stockpile to rise above 2 mn t by June and to 2.5 mn t by year end. Indonesia can subsidise 2.3 mn t of biodiesel with a palm oil fund size of US$750 mn, Brent crude oil at US$55/bbl and FOB palm oil price at US$725. Indonesia can subsidise 3.75 mn t if palm oil was at US$600 and can subsidise 6 mn t if palm oil was at US$525. Correlation: a US$10/bbl rise in Brent will lift palm oil prices by US$70.
Thomas Mielke, Oil World: Palm oil prices have peaked but the recent price decline was overdone and prices will likely recover in the next three to six weeks. Prices to face renewed weakness by end April-May and may fall to RM2,400. Indonesian output is expected to increase 9% YoY to 35 mn t and Malaysia by +15% to 20 mn t. In Malaysia, the key uncertainty is how much of a labour shortage it faces. 2016-17 World output of vegoils is expected to rise by 10-11 mn t.
Chandran, industry consultant: World palm oil output is forecast to climb 11% to 65 mn t this year as near perfect weather boosts yields.
Monday, 13 March 2017
Asian Daily
- 9 of 32 -
Australia
Tabcorp Holdings ------------------------------------------------------------ Maintain OUTPERFORM We still expect TAH/TTS Merger Approval EPS: ▼ TP: ◄► Larry Gandler / Research Analyst / 61 3 9280 1855 / [email protected] Ben Levin / Research Analyst / 61 3 9280 1766 / [email protected]
● We continue to model Tabcorp on a combined merged basis, with the release of a statement of issues by the ACCC presenting no insurmountable hurdle to a business combination with TTS.
● We made minor EPS changes, post the TTS 1H17 result and also to reflect a one-off A$45 mn settlement to AUSTRAC. These had little bearing on our DCF, and therefore our target price remains unchanged.
● We believe that Tabcorp is cheap. Although the combined entity is trading at 10.5x pro-forma FY19 EBITDA and this seems to be a full multiple, Tabcorp is offering a 5.4% yield. That yield is above Tabcorp’s normal yield premium to the Aussie 10-year bond.
● In addition, our DCF factors A$100 mn of merger synergy versus Tabcorp guidance of A$135 mn as we anticipate competition will pressure Tabcorp to re-invest some savings beyond its current expectation.
Click here for detailed financials
Continuing to model on a combined merged basis
We continue to model Tabcorp on a combined merged basis, with the release of a statement of issues by the ACCC presenting no insurmountable hurdle to a business combination with TTS.
We made minor EPS changes, post TTS 1H17 result and also to reflect a one off A$45 mn settlement to AUSTRAC. These had little bearing on our DCF, and therefore our target price remains unchanged.
We believe that Tabcorp is cheap. Although the combined entity is trading at 10.5x pro-forma FY19 EBITDA and this seems to be a full multiple, Tabcorp is offering a 5.4% yield. That yield is above Tabcorp’s normal yield premium to the Aussie 10-year bond.
In addition, our DCF factors A$100 mn of merger synergy versus Tabcorp guidance of A$135 mn as we anticipate competition will pressure Tabcorp to re-invest some savings beyond its current expectation.
(This is an extract from Tabcorp Holdings report, published on 9 March 2017. For details, please see the CS Plus website.)
Bbg/RIC TAH AU / TAH.AX Rating (prev. rating) O (O) Shares outstanding (mn) 835.27 Daily trad vol - 6m avg (mn) 3.4 Daily trad val - 6m avg (US$ mn) 21.1 Free float (%) 99.3 Major shareholders
Price (10 Mar 17 , A$) 4.48 TP (prev. TP A$) 5.00 (5.00) Est. pot. % chg. to TP 12 52-wk range (A$) 5.21 - 3.99 Mkt cap (A$/US$ mn) 3,742.0/ 2,809.1
Performance 1M 3M 12M
Absolute (%) 6.9 (3.7) 9.5 Relative (%) 5.3 (6.9) (1.9)
Year 06/15A 06/16A 06/17E 06/18E 06/19E
Revenue (A$ mn) 2,155 2,189 2,270 5,323 5,513 EBITDA (A$ mn) 508 516 500 1,073 1,169 Net profit (A$ mn) 171.3 185.9 165.0 429.5 473.5 EPS (CS adj. A$) 0.22 0.22 0.20 0.22 0.25 - Change from prev. EPS (%) n.a. n.a. (0.3) (2.1) (2.2) - Consensus EPS (A$) n.a. n.a. 0.23 0.25 0.28 EPS growth (%) 9.7 3.2 (11.7) 14.0 9.6 P/E (x) 20.7 20.1 22.8 20.0 18.2 Dividend yield (%) 11.2 5.4 5.5 4.9 5.4 EV/EBITDA (x) 9.3 9.1 10.5 7.0 6.4 P/B (x) 2.2 2.2 2.4 1.3 1.3 ROE (%) 10.8 11.0 10.1 10.6 7.2 Net debt(cash)/equity (%) 58.4 56.5 95.6 57.0 55.6
Note 1: ORD/ADR=2.00. Note 2: TABCORP is engaged in the provision of leisure and entertainment services (particularly in relation to gambling and hospitality). The company operates in three segments: Wagering and Racing Media, Gaming Services, and Keno.
Monday, 13 March 2017
Asian Daily
- 10 of 32 -
China
China A-share Strategy --------------------------------------------------------------------------------------- A-share will rebound after 'two sessions' Li Chen / Research Analyst / 852 2101 6645 / [email protected] Kathy Zhang / Research Analyst / 852 2101 6782 / [email protected]
● Three major concerns affecting the current A-share market and southbound trade include (1) potential material sell-off in the stock market after "two sessions", (2) downside risks for the asset management industry from potential new regulation, and (3) RMB depreciation pressure from the US interest hike.
● However, those concerns are unlikely to occur. The sell-off concern has potentially led to an oversell due to the cautious view of many investors. The new regulation for asset management industry may affect the fixed income market more than equity. RMB stability has solid support from the increasing forex reserve.
● Leading indicators may imply further upside. Property sales were strong in Jan/Feb. Bank loan has solid growth with large portion from mid/long-term loans for infrastructure development. Exports will have further upside implied by export leading indicator index.
● Policy expectations are stabilising in "two sessions". Supply side reform will continue to progress steadily. No new property policies have been announced. Infrastructure investment has an upside with solid funding support according to the 2017 government work plan.
Figure 1: Property contracted sales/bank loan growth
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
Jan-16 Apr-16 Jul-16 Oct-16 Jan-17
Property contracted sales growth%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
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20%
30%
40%
50%
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70%
Jan-94 Dec-97 Nov-01 Oct-05 Sep-09 Aug-13
Mid/long-term loan as % total balance of bank loan
Growth of bank loan balance YoY%
Source: Company data, Credit Suisse estimates, Wind
Three major concerns in the current market
According to our recent marketing feedback, there are mainly three concerns in the market given recent weak A-share market momentum. Firstly, many investors are worried about the material sell-off after "two sessions", when the selling ban guided by the central government expires. According to some news, major institutional investors are currently guided not to have net sell on stocks during the "two sessions". Secondly, the potential new regulation aimed to control high leverage risks in asset management industry will bring material downside for overall funding size of those asset management companies. Thirdly, the expectation for US interest hike in March has increased recently, which will potentially further drive up the interest rate; e.g., repo rate, MLF/SLF rate in China, and bring in depreciation pressure for the RMB. Those concerns are unlikely to occur
Firstly, we believe the material stock sell-off is unlikely to happen after the "two sessions", as the selling ban is a regular practice, which also happened during the past "two sessions". Investors' cautious view due to the potential sell-off may have led to overselling in the current market.
Secondly, we expect limited impact on the equity market from the potential new regulation for the asset management industry because it is likely to mainly target on deleverage in this bond market. Therefore, the bond yield and money market rate may further go up, leading to significant negative impact on the fixed income market.
Thirdly, RMB stability still has solid support, given increasing foreign exchange reserves in spite of the pressure from the US interest rate hike. We expect foreign exchange reserves will continue to increase starting from this February, given net inflow in foreign trade settlement. Positive macro data imply further upside for the market
We expect further upside for A-share and southbound trade implied by positive macro data in January/February. Macro data in the past two months was generally better than our expectations. Leading indicators
Property sales, bank loans, and exports are three important leading indicators. As one of the lead indicators, Jan/Feb property sales of major developers were very strong at ~60-100% YoY growth. The destocking progress in tier 3/4 cities was also better than expected. Meanwhile, property prices in tier 1/2 cities are under good control currently. Bank loan growth was also very solid at 13% in Jan/Feb, especially mid/long-term bank loans, which are closely related to infrastructure investment, and account for ~60% of total balance. Therefore, we believe new construction starts in March is likely to be strong with solid funding support. Also, following strong export growth in Jan/Feb, we expect it will continue to have upside risks implied by export leading indicator index
Figure 2: Export leading indicator index/Keqiang index
0
5
10
15
20
25
30
35
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50
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17
Export leading indicator index
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Jul-09 Aug-10 Sep-11 Oct-12 Nov-13 Dec-14 Jan-16
Keqiang index %
Source: Wind
Other data
Electricity production/corporate earnings growth and cargo transport had strong recovery implying improving macro. Also, we expect limited downside for commodity prices, especially steel and cement, given better-than-expected production and price indicators in Jan/Feb despite higher inventory level in 2015/16. Policy uncertainty is eliminating
The expectations are for government policies to stabilise during the "two sessions", which is also positive for the market. Government has insisted that supply side reform will continue to progress with solid support from SOE reform. No additional restriction policy has been announced for the property market given stabilising property prices in tier 1/2 cities and on-going destocking progress in tier 3/4 cities, which are largely in line with the policy target of the central government. In addition, infrastructure investment still has upside given solid fiscal support from the government and a stabilising political environment after leadership changes in the local government. According to the 2017 government work report, local government debt has doubled compared with the number last year. The expenditure budget growth of national government fund is 18.4% YoY in 2017.
Monday, 13 March 2017
Asian Daily
- 11 of 32 -
China Banks Sector -------------------------------------------------------------------------------------------- Stricter macro-prudential framework? Most banks should be able to avoid equity dilution Sanjay Jain / Research Analyst / 65 6306 0668 / [email protected] Eric Cui / Research Analyst / 852 2101 7071 / [email protected] Rikin Shah / Research Analyst / 65 6212 3098 / [email protected]
● Bloomberg reported (9 Mar) the PBOC is planning to apply a stricter method on banks' capital in its Macro-Prudential Assessment (MPA) framework. In a separate comment, reported by sina.com, Deputy Governor of PBOC, Mr YI Gang said the regulation framework remained unchanged for banks’ capital and based on Basel 3.
● Per the Bloomberg report, new measures would remove one of the three categories in the capital assessment and increase the risk of bank slipping into the lower tier and/or face penalties—lower rate on reserves, limited/pricey access to PBOC liquidity, etc.
● The MPA framework was implemented from last year. Our discussions with banks indicate that ICBC and CCB were categorised as "A" while other listed banks in our sample, including joint-stock banks, received a "B" rating for 3Q16.
● While a tighter set of criteria may be aimed at financial risk, we believe (a) the government would like to maintain economic growth with its 12% credit growth target, (b) banks have avenues such as slowing down or securitising loans, and (c) banks should be able to shore up their capital by issuing preferred/sub-debt/Tier 2 bonds.
Valuation metrics Company Ticker Rating Price Year P/E (x) P/B
(x)
Local Target T T+1 T+2 T+1
ICBC (H) 1398.HK O 4.91 6.30 12/15 5.7 5.6 0.8 CCB (H) 0939.HK O 6.05 7.90 12/15 5.8 5.7 0.9 ABC (H) 1288.HK N 3.49 3.90 12/15 5.7 5.6 0.8 BOC (H) 3988.HK O 3.78 4.40 12/15 5.9 5.9 0.7 BCOM (H) 3328.HK N 5.94 6.50 12/15 5.9 5.9 0.7 CMB (H) 3968.HK O 20.75 25.00 12/15 7.5 7.1 1.1 CITIC (H) 0998.HK N 5.17 5.90 12/15 5.2 5.2 0.6 MSB (H) 1988.HK N 8.44 8.90 12/15 5.8 5.8 0.8 CEB (H) 6818.HK N 3.81 3.90 12/15 5.4 5.2 0.6
Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Source: Company data, Credit Suisse estimates
Some further tightening in macro-prudential regulation possible…
Per the Bloomberg article, the PBOC was said to remove the intermediary scores of 48-80 (leaving only two outcomes: 0 and 80), which would make it easier for banks to drop into the bottom tier. The C-rated banks will be penalised with 100 bp of cost hike in the application for Standing Lending Facility (SLF), and other disadvantages, such as cut (0.7-0.9x) in reserve yields, etc.
The MPA system seems quite logical to us and appears to be similar to the CAMEL framework used by most banking regulators around the world. Most of the factors are also incorporated in Basel 3 recommendations.
MPA was implemented from 2016 and our discussions with banks indicate that ICBC and CCB received A rating, while other listed banks in our sample, including BOC/ABC/BCOM and joint-stock banks, received B rating in the third quarter last year.
Why the stricter criteria, if at all the news is correct? It could be aimed at the risk inherent in the Chinese financial sector from the rapid credit expansion. We already know that the PBOC will include off-balance sheet wealth management products (WMPs) into a "broad credit"
definition under MPA system from 1Q17, which means capital requirement will probably rise. We also know that the four government agencies (PBOC, CBRC, CIRC, CSRC) are also drafting rules on joint regulation for asset management sector and bank wealth management products.
Figure 1: Macro-Prudential Assessment (MPA) overview
MPA indicators Score factors
Capital & leverage 1) CAR, 2) Leverage ratio
Asset/ Liability 1) Broad credit, 2) Entrusted loan, 3) Interbank liability
Liquidity 1) LCR, 2) NSFR; 3) Reserve
Pricing 1) Interest rate pricing
Asset quality 1) NPL ratio, 2) NPL coverage
Foreign debt risk 1) Foreign debt risk weighted avg. balance
Credit policy execution 1) Policy implementation, 2) PBOC fund usage Source: PBOC, Credit Suisse estimates
…but most of the banks in our sample should be able to avoid equity dilution
We do not believe that the PBOC would rock the banking sector to the extent that many banks would suddenly need to raise substantial amounts of capital, particularly in light of the government's 12% credit growth target for this year. Perhaps some specific banks may be affected, more likely to be the unlisted ones, who may need to slow down their interbank lending or WMP businesses.
Since the PBOC focuses on total capital ratio rather than just equity capital, we believe most of the listed banks in our sample should be able to get by with issuance of preferred shares or sub-debt or Tier 2 bonds (we are sure PBOC recognises the fact that most banks cannot issue fresh equity anyway given their P/B is below 1.0x and the SOE rules do not permit new shares to be issued below book).
Figure 2: China banks' capital adequacy level at end-3Q16
13.4 12.6 11.1
12.4 11.3 10.4
9.1 9.0 8.5
0.2 0.6
1.2 0.0
0.9 0.7
0.0 0.1 1.2
1.8 1.1 1.9 1.7 1.9
2.2
2.6 2.3 1.5
0
2
4
6
8
10
12
14
16
18
CCB ICBC BCOM CMB BOC ABC MSB CITIC CEB
CET1 ratio AT1 CAR Tier 2 CAR
15.414.2 14.2 14.2 14.1
13.2
11.7 11.5 11.2
(%)
Source: Company data, Credit Suisse
Therefore, we do not believe that the banks in our sample would face any equity dilution. Yes, their EPS may be affected to some extent due to the issuance of non-equity capital but the cost of such capital is far lower than the cost of equity.
Monday, 13 March 2017
Asian Daily
- 12 of 32 -
Guangzhou R&F ----------------------------------------------------------------------Maintain NEUTRAL Nothing more than dividend EPS: ▲ TP: ▲ Alvin Wong / Research Analyst / 852 2101 6486 / [email protected] Kelvin Tam, CFA / Research Analyst / 852 2101 6582 / [email protected] Jizhou Dong, CFA / Research Analyst / 852 2101 6538 / [email protected]
● R&F reported an in-line core profit of Rmb6.5 bn (+9.1% YoY). However, the growth was only driven by the revenue increase (+21.3%) with quite disappointing GP margin of 28.3% (vs. FY15's 32.1%). Total dividend amounted to Rmb1.0 (1H:2H 30:70) implying the sector-highest yield of 9.3%.
● During the period, the company reduced its exposure of perpetual securities by 70% to Rmb2.4 bn so as to lower its average funding cost to 6.3% (from FY15's 8.1%). However, its net gearing of 177% (+6.7 pp YoY) is still scary. Overall, we do not see any concrete plan for balance sheet improvement.
● R&F mentioned once again the timetable of A-share listing (likely 3Q17). With several disappointments, we do not have much expectation, especially as the Chinese property sector is still facing a tightening policy.
● We believe the high gearing and uncertainty around the A-share listing should continue to be the overhangs. We tweak 17E/18E EPS by -0.7%/+3.5% after adjusting the property schedule and raise our TP to HK$11.6 from HK$10.0 to reflect the better sales outlook. Maintain NEUTRAL.
Click here for detailed financials
FY16 results review
FY16 revenue was up 21.3% YoY to Rmb53.7 bn. Of this, revenue from property development increased 21.5% YoY to Rmb49.5 bn while revenue from investment property increased 7.1% YoY to Rmb0.9 bn. Income from hotel also grew 15.3% YoY to Rmb1.4 bn.
Gross margin shrank to 28.3%, from FY15's 32.1%. The company expects gradual margin recovery given better margin (>30%) for sold but unbooked sales.
Core profit increased 9.1% YoY to Rmb6.5 bn with core profit margin squeezing 1.3 pp YoY to 12.1%. Core EPS was also up 8.7% YoY to Rmb2.02. R&F declared a final dividend of Rmb0.7 (-22% YoY). FY16’s total dividend reached Rmb1.0 / share, representing a 47%
payout ratio, which is better than its guidance of 30-40%. The decline (-17% YoY) was mainly due to the one-off increment in dividend in FY15 to compensate for the absence of distribution in FY14.
Net gearing deteriorated to 176.5% (vs FY15: 169.8%). Over the period, the company experienced a slight net cash outflow of Rmb1.5 bn (inflow of Rmb49.4 bn versus an outflow of Rmb50.9 bn). Average funding cost, however, further improved to 6.3% in FY16 (from 6.7%/8.1% in 1H16 /FY15).
Total landbank amounted to 38.5 mn sq m GFA as at end-2016. During FY16, R&F spent Rmb17.5 bn (or AV of Rmb3,500 per sq m) to add a total landbank of 5 mn sq m.
Full-year sales target was set at Rmb73 bn (20% higher than the contracted sales in FY15), based on saleable resources of Rmb140 bn and ~52% sell through. The split in 1H vs 2H should be 40 vs 60.
The chairman remains optimistic on China property market and expects housing price to stay firm in 2017. Future investments should still be focused on mainland.
Figure 1: R&F—FY16 results summary
FY16 FY15 YoY change (%)
Revenue (Rmb mn) 53,730 44,291 21.3%
Gross margin (%) 28.3% 32.1% -3.8 p.p
Core profit (Rmb mn) 6,494 5,950 9.1%
Core margin (%) 12.1% 13.4% -1.3 p.p
EPS (Rmb) 2.02 1.86 8.7%
DPS (Rmb) 1.00 1.20 -16.7%
End 16 End 15 YoY change (%)
Total debt (Rmb mn) 123,256 90,417 36.3%
Total cash (Rmb mn) 45,969 21,284 116.0%
Equity (Rmb mn) 43,778 40,712 7.5%
Net gearing (%) 176.5% 169.8% 6.7 p.p
BVPS (Rmb) 13.59 12.63 7.5%
Source: Company data, Credit Suisse estimates
Figure 2: R&F—FY17E cash flow
0
10
20
30
40
50
60
70
Construction cost Land premium Expenses Cash inflow
(Rmb bn)
Source: Company data, Credit Suisse estimates
Bbg/RIC 2777 HK / 2777.HK Rating (prev. rating) N (N) Shares outstanding (mn) 3,222.37 Daily trad vol - 6m avg (mn) 6.1 Daily trad val - 6m avg (US$ mn) 8.5 Free float (%) 90.9 Major shareholders Li Sze Lim (33.5%),
Zhang Li (32.0%)
Price (10 Mar 17 , HK$) 12.12 TP (prev. TP HK$) 11.60 (10.00) Est. pot. % chg. to TP (4) 52-wk range (HK$) 13.9 - 9.1 Mkt cap (HK$/US$ mn) 39,055.1/ 5,030.3
Performance 1M 3M 12M
Absolute (%) 10.0 20.2 22.5 Relative (%) 8.3 13.8 1.2
Year 12/15A 12/16A 12/17E 12/18E 12/19E
EBITDA (Rmb mn) 11,578 12,006 14,168 15,882 17,153 Net profit (Rmb mn) 5,950 6,494 7,839 8,607 9,319 EPS (CS adj. Rmb) 1.86 2.02 2.44 2.67 2.90 - Change from prev. EPS (%) n.a. n.a. (0.7) 3.5 - Consensus EPS (Rmb) n.a. n.a. 2.29 2.45 EPS growth (%) 38.5 8.7 20.7 9.8 8.3 P/E (x) 5.8 5.3 4.4 4.0 3.7 Dividend yield (%) 11.1 9.3 9.3 10.0 10.7 EV/EBITDA (x) 9.0 9.3 8.3 7.6 7.4 ROE (%) 15.5 15.4 17.0 16.8 16.4 Net debt(cash)/equity (%) 167.6 173.9 168.3 156.7 152.0 NAV per share (Rmb) — 20.7 21.4 — — Disc./(prem.) to NAV (%) — 47.9 49.5 — —
Note 1: ORD/ADR=20.00. Note 2: Guangzhou R&F Properties Co., Ltd. is a Guangdong-based property developer. It was established in 1994 and was listed on HKSE in 2005.
Monday, 13 March 2017
Asian Daily
- 13 of 32 -
Heilan Home Co Ltd -----------------------------------------------------------------Maintain NEUTRAL 2016 results missed by 3%; remain conservative in 2017 EPS: ▼ TP: ▼ Raymond Ching / Research Analyst / 852 2101 7852 / [email protected] Yvonne Wu / Research Analyst / 852 2101 7648 / [email protected]
● Heilan Home reported 5.5% and 7.2% earnings growth for 2016 and 4Q16, respectively. Dividend payout was 70% (2015: 50%) Overall full-year earnings were 3% below our expectation, mainly due to lower gross margin.
● 4Q sales grew 9.5% (vs. 6.6% in 9M16 and 7.4% in 2016). In 2016, sales growth was mainly driven by store openings. Core brand Heilan Home recorded a 3.47% decline in SSSG. Full-year inventory level decreased to Rmb8.6 bn from Rmb9.6 bn in 2015 despite the sales increase.
● Management indicated that 1Q17 sales remain soft with no meaningful pickup, and guided for a cautious sales outlook of 5-10% growth in 2017. The firm will also launch a new sub-brand, and target to complete an acquisition in 2017.
● We believe Heilan Home has entered a normalised growth phase, but its business remains stable. Its 5% dividend yield still looks attractive. We lower our forecasts by 8%/12% in 2017/18, given the earnings miss, and are turning more cautious on the SSS outlook. We lower TP to Rmb10.2 (from Rmb11.0) and maintain NEUTRAL.
Click here for detailed financials
Key 2016 results highlights
Group sales increased 7.4%: by segment, Heilan Home +9%, ICHITOO +67%, HaiYiJia -9% and St. Canal -11%. The core brand Heilan Home recorded 4% SSS decline given the cannibalisation with new stores. The sharp decline for HaiYiJia was attributed to a reduction of selling space. The firm opened 720 Heilan Home stores, 323 ICHITOO stores and 209 HaiYiJia stores in 2016, equivalent to 31% network expansion.
GPM/OPM was down 130 bp, which was mainly attributed to a 5% reduction in buyout products ratio that earn higher GPM, as well as the lower margin for HaiYiJiaz during the restructuring phase.
Inventory level decreased to Rmb8.6 bn from Rmb9.6 bn in 2015 despite a sales increase of 7%, thanks to more cautious order placement. By the end of 2016, the sell-through rate for spring summer 2015 products was 76%, and fall winter 2015 products was 73%, while the sell-through rate for spring summer 2016 products was 60% and fall winter 2016 products was 62%. Overall, the sell-through rate was still healthy and suppliers’ profitability was decent.
The dividend payout ratio was 70%, higher than 2015's 50%. By yearend 2016, Heilan Home had Rmb8.8 bn net cash (19% of market cap).
Cautious on 2017 outlook, but potential acquisition
Despite the better retail momentum since 4Q16, Heilan Home does not seem to enjoy the trend YTD. Management believes that the better retail sentiment mainly reflects the mid- to high-end products but the mass market segment remains cautious. In our view, its high sales network concentration to street level stores (a declining channel) may partly explain the decoupling trend between Heilan Home and the general retail market.
In 2017, management targets to achieve 5-10% sales growth, mainly driven by store openings. Management targets to achieve largely stable SSSG and margins. The firm also targets to roll out 30-50 stores under Heilan Home's sub-brand. This new sub-brand will be more stylish as it mainly targets younger customers. Management targets to open 350 Heilan Home stores and 400 ICHITOO and HaiYijia stores. For HaiYiJia, 2017 will focus on restructuring. The firm will continue to tighten inventory control; management wants to increase the replenishment ratio to 20-30% in the long term from ~10% in 2016.
In addition to the existing brands, management also targets to complete an acquisition in 2017. The group targets to buy a popular brand with good long-term potential.
Figure 1: HH 2016 annual results highlights
2015 2016 YoY 1H15 1H16 YoY 2H15 2H16 YoY
Total revenue 15,830 17,000 7.4% 7,933 8,763 10.5% 7,897 8,237 4.3%
Gross profit 6,375 6,628 4.0% 3,286 3,577 8.8% 3,089 3,051 -1.2%
Operating profit 3,894 3,985 2.3% 2,119 2,330 9.9% 1,775 1,655 -6.7%
Net profit 2,953 3,123 5.7% 1,666 1,773 6.4% 1,287 1,350 4.9%
GP margin 40.3% 39.0% -1.3% 41.4% 40.8% -0.6% 39.1% 37.0% -2.1%
OP margin 24.6% 23.4% -1.2% 26.7% 26.6% -0.1% 22.5% 20.1% -2.4%
Net margin 18.7% 18.4% -0.3% 21.0% 20.2% -0.8% 16.3% 16.4% 0.1%
Effective tax
rate 26.0% 23.9% -2.1% 23.7% 25.8% 2.1% 28.9% 21.3% -7.5%
SG&A ratio 14.6% 14.1% -0.5% 14.6% 13.7% -1.0% 14.6% 14.6% 0.0%
Source: Company data, Credit Suisse estimates
Bbg/RIC 600398 CH / 600398.SS Rating (prev. rating) N (N) Shares outstanding (mn) 4,492.76 Daily trad vol - 6m avg (mn) 5.0 Daily trad val - 6m avg (US$ mn) 7.9 Free float (%) 18.2 Major shareholders Heilan Group 39.31%
Price (10 Mar 17, Rmb) 10.37 TP (prev. TP Rmb) 10.20 (11.00) Est. pot. % chg. to TP (2) 52-wk range (Rmb) 12.3 - 10.4 Mkt cap (Rmb/US$ mn)
46,589.9/ 6,747.3
Performance 1M 3M 12M
Absolute (%) (4.0) (3.4) 3.0 Relative (%) (4.4) (3.9) (10.6)
Year 12/14A 12/15A 12/16E 12/17E 12/18E
Revenue (Rmb mn) 12,277 15,740 16,867 18,213 19,630 EBITDA (Rmb mn) 3,359 4,146 4,262 4,634 4,965 Net profit (Rmb mn) 2,375 2,953 3,123 3,274 3,539 EPS (CS adj. Rmb) 0.54 0.66 0.70 0.73 0.79 - Change from prev. EPS (%) n.a. n.a. (0.9) (7.5) (12.0) - Consensus EPS (Rmb) n.a. n.a. 0.72 0.82 0.97 EPS growth (%) 54.2 21.4 5.7 4.8 8.1 P/E (x) 19.1 15.8 14.9 14.2 13.2 Dividend yield (%) 3.7 3.2 4.7 4.9 5.3 EV/EBITDA (x) 11.8 9.3 8.9 7.9 7.6 P/B (x) 6.5 5.6 4.6 4.2 3.8 ROE (%) 45.8 38.5 34.1 30.9 30.1 Net debt(cash)/equity (%) (100.6) (95.8) (88.1) (88.5) (72.9)
Note 1: Heilan Home is China largest apparel company selling mens wear under the brand name Hielan Home targeting the mass market.
Monday, 13 March 2017
Asian Daily
- 14 of 32 -
Huaneng Renewables Corporation ------------------------------------ Maintain OUTPERFORM February output much stronger than expected; raise utilisation hours forecast EPS: ▲ TP: ▲ Dave Dai, CFA / Research Analyst / 852 2101 7358 / [email protected] Gloria Yan / Research Analyst / 852 2101 7369 / [email protected] Gary Zhou, CFA / Research Analyst / 852 2101 6648 / [email protected]
● Huaneng Renewables's (HNR) February wind output rose 60% YoY, which was substantially stronger than January' +29% and exceeded our 30-40% forecast range. This was also meaningfully better than +31% recorded by key peer Longyuan Power (LYP).
● Based on our calculation, the better performance had more to do with better project quality than movement of wind resources. HNR outperformed LYP in areas such as Xinjiang, Liaoning and Inner Mongolia on absolute utilisation hour basis.
● Given the combined 2M17 output already expanded by 43% YoY and achieved 17% of our prior FY17E output forecast, we now expect full-year output to be better (utilisation hours revised from 2,050 to 2,100), and upgrade FY17-18E EPS by 3-9%.
● We also revise up our DCF-based TP to HK$3.8. Throughout years of operational improvement, we expect the company to make new highs on ROE starting FY16E, which should justify a higher multiple than the historical mean of 1.1x. Key downside risks are slower-than-expected utilisation recovery and unexpected tariff cuts.
Click here for detailed financials
February output much stronger than expected. Huaneng Renewables (HNR) reported strong February wind output growth of 60% YoY, exceeding our previous forecast range of 30-40% growth. This was substantially higher than +29% YoY it recorded in January and also outpaced key peer Longyuan Power's (LYP) +31% YoY February output growth reported earlier. We believe the robust output growth had more to do with better project quality than movement of resources (-2% YoY wind speed in February). Among the curtailment-heavy locations, our calculated utilisation hours suggest that HNR outperformed LYP in locations such as Xinjiang, Liaoning and Inner Mongolia in terms of absolute utilisation hours.
Figure 1: HNR/LYP—utilisation comparison for key locations in 2M17
Inner
Mongolia
Liaoning Yunnan Xinjiang Guizhou Jilin
Utilization hour HNR 290 319 696 228 356 114
LYP 282 285 643 204 412 209
YoY growth HNR 16% 89% 51% 184% 36% 82%
LYP 6% 117% 22% 51% 28% 51%
Note:utilization hour calculated based on 1H16 capacity. Source: Company data, Credit Suisse estimates
Earning changes: The combined 2M17 output already expanded by 43% YoY, achieving 17% of our prior FY17E output forecast. We now forecast utilisation hours to improve to 2,100 hours (from 2,050) in FY17E, suggesting a 3% YoY higher output forecast. We lift our FY17-18E EPS by 3-9% to reflect such changes.
Figure 2: Assumption changes
2016E 2017E 2018E
Utilisation (new) 1,986 2,100 2,200
Utilisation (old) 1,950 2,050 2,100
Output growth (new) 33% 22% 17%
Output growth (old) 31% 19% 21%
Source: Company data, Credit Suisse estimates
Figure 3: Operational performance—HNR vs LYP
2012 2013 2014 2015 2016E 2017E 2018E
Utilisation hour
LYP 1,985 2,111 1,980 1,888 1,900 2,050 2,100
HNR 1,774 2,029 1,875 1,882 1,986 2,100 2,200
Output growth
LYP 26% 30% 5% 11% 16% 20% 15%
HNR 23% 33% 5% 19% 33% 22% 17%
ROE
LYP 9% 7% 8% 8% 9% 12% 13%
HNR 5% 7% 7% 11% 14% 17% 18%
Source: Company data, Credit Suisse estimates
Re-rating to above historical mean. Throughout years of operational improvement, we expect the company to make new highs on ROE starting FY16E (14% and higher afterwards), which should justify a higher multiple than the historical mean of 1.1x. The stock was once trading at 1.5x in 2013 when ROE in that year was only 7%.
Figure 4: HNR—historical valuation and curtailment
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
0.3
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
(x)
HNR ROE HNR P/B
1.3x Avg+1SD
1.1x Avg
1.6x Avg+2SD
0.8x Avg-1SD
0.6x Avg-2SD
11% 8% 9%17% 12%HNR curtailment rate
Source: CEIC, Company data, Bloomberg
Bbg/RIC 958 HK / 0958.HK Rating (prev. rating) O (O) [V] Shares outstanding (mn) 9,728.00 Daily trad vol - 6m avg (mn) 23.8 Daily trad val - 6m avg (US$ mn) 8.1 Free float (%) 38.7 Major shareholders Huaneng Group
56.9%
Price (10 Mar 17, HK$) 2.78 TP (prev. TP HK$) 3.80 (3.60) Est. pot. % chg. to TP 37 52-wk range (HK$) 3.10 - 1.95 Mkt cap (HK$/US$ mn) 27,043.8/ 3,483.3
Performance 1M 3M 12M
Absolute (%) 13.9 10.3 39.0 Relative (%) 12.3 3.9 17.7
Year 12/14A 12/15A 12/16E 12/17E 12/18E
Revenue (Rmb mn) 6,151 7,357 9,778 11,978 14,092 EBITDA (Rmb mn) 5,616 6,851 8,723 10,750 12,692 Net profit (Rmb mn) 1,121 1,860 2,628 3,603 4,339 EPS (CS adj. Rmb) 0.12 0.19 0.27 0.37 0.45 - Change from prev. EPS (%) n.a. n.a. (1.2) 9.4 3.2 - Consensus EPS (Rmb) n.a. n.a. 0.27 0.32 0.37 EPS growth (%) 16.3 54.2 41.3 37.1 20.4 P/E (x) 20.0 12.9 9.2 6.7 5.5 Dividend yield (%) 0.9 1.2 2.2 3.0 3.6 EV/EBITDA (x) 11.3 10.4 8.9 7.7 6.7 P/B (x) 1.4 1.4 1.2 1.1 0.9 ROE (%) 7.5 11.0 13.9 16.9 17.7 Net debt(cash)/equity (%) 234.3 254.6 257.3 249.4 223.6
Note 1: Huaneng Renewables Corp Ltd. Is an alternative energy company. The company acquires and develops wind and solar power projects in China.
Monday, 13 March 2017
Asian Daily
- 15 of 32 -
Jiangsu Hengrui Medicine Co. Ltd ---------------------------------- Upgrade to OUTPERFORM FY16 results review: R&D expense historical high, strong growth momentum in US generic drug market EPS: ▼ TP: ▲ Iris Wang / Research Analyst / 852 2101 7646 / [email protected] Suyu Li / Research Analyst / 852 2101 6205 / [email protected]
● Hengrui reported FY16 revenue/net profit of Rmb11 bn/Rmb2.6 bn, which grew 19.1%/19.3% YoY, in line with our and consensus forecasts, mainly driven by fast growth in innovative drugs and export of finished drugs.
● Hengrui's R&D expenses increased 33% in 2016; as a percentage of revenue, they increased from 8.1% in 2010 to 10.7% in 2016. During 2016, the company received CFDA clinical approvals for six innovative drugs and 36 generic drugs, and CFDA manufacturing approvals for two generic drugs.
● Finished drug exports are a new growth driver, from which the company booked revenue of Rmb432 mn, up 21.5% YoY. YTD, Hengrui received ANDA for two new generic drugs. We expect the export business to account for 4% of its total revenue by 2019.
● We increase our TP to Rmb59.8 (from Rmb47.90), implying 17% upside, for acceleration in new product launch, stronger-than-expected growth in the export business and the upside from reimbursement expansion. Upgrade to OUTPERFORM rating.
Click here for detailed financials
2016 results highlights
Hengrui reported FY16 revenue/net profit of Rmb11 bn/Rmb2.6 bn, which grew 19.1%/19.3% YoY, driven by: (1) fast growth of innovative drugs such as Apatinib and imrecoxib; (2) fast growth of the export of finished drugs, e.g., Cyclophosphamide; (3) product mix optimisation, from oncology drugs only to a more diversified product portfolio, including oncology drugs, anaesthesia drugs, and radiocontrast agents.
FY16 revenue from oncology drugs increased 25.7% YoY to Rmb4.8 bn, among which the innovative drug Apatinib booked revenue of ~Rmb800 mn. Contrast medium drugs booked revenue of Rmb1.3 bn in FY16, up 30% YoY, among which Iodixanol recorded volume growth of 57% YoY. Anaesthesia drugs revenue grew 19.1% YoY in FY16, driven by the fast growth of Dexmedetomidine Hydrochloride, whose volume increased 44.3% YoY.
Strong commitment to R&D
Hengrui's R&D team consisted of 2,142 professionals as of the end of 2016, among which ~50% had advanced degrees. Its R&D strategy has been evolving from "me-too" and "me-better" to innovation. Its R&D expense ratio increased from 8.1% in 2010 to 10.7% in 2016.
During 2016, Hengrui received CFDA clinical approvals for six innovative drugs and 36 generic drugs, and CFDA manufacturing approvals for two generic drugs. It has also completed bioequivalence tests for four drugs—faster than we had expected.
Figure 1: Hengrui has strong commitment to R&D
301 400
535 563 652
892
1,184
8.1%8.9%
9.9%9.1% 8.8%
9.8%
10.7%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
-
200
400
600
800
1,000
1,200
1,400
2010 2011 2012 2013 2014 2015 2016
R&D expense R&D as % of manufacturing revenue
Source: Company data, Credit Suisse estimates
Finished drug export is a new growth driver
In 2016, the export business booked revenue of Rmb432 mn, up 21.5% YoY, without any new ANDA approval. YTD, Hengrui received ANDA for two new generic drugs, Atracurium and Docetaxcel. According to Hengrui, 2015 sales of Atracurium/Docetaxel in the US market were US$51 mn/US$154 mn. We expect the export business to account for 4% of Hengrui's total revenue by 2019.
Upgrade to OUTPERFORM
Hengrui has several major drugs, which accounted for ~10% of 2016E revenue, and added into the 2017 NRDL, including Dexmedetomidine, Imrecoxib, and Febuxostat.
We increase our target price to Rmb59.8 because: (1) we expect Hengrui to launch 5-10 new products in 2017-20, driven by the fast-growing R&D expenses; (2) the finished drug export business will be also growing faster than we previously expected, receiving new ANDA from the US FDA; (3) we factor in the revenue upside from the reimbursement expansion. However, we slightly cut our FY17E EPS forecast due to the increasing R&D expenses.
New product approvals by China FDA and US FDA should be the catalyst. Major downside risks are a setback in clinical trials and unexpected aggressive drug price cuts by the government.
Bbg/RIC 600276 CH / 600276.SS Rating (prev. rating) O (N) Shares outstanding (mn) 2,347.46 Daily trad vol - 6m avg (mn) 5.0 Daily trad val - 6m avg (US$ mn) 34.1 Free float (%) 42.8 Major shareholders Jiangsu Hengrui
Medical Group, 24.3%
Price (10 Mar 17, Rmb) 51.28 TP (prev. TP Rmb) 59.80 (47.90) Est. pot. % chg. to TP 17 52-wk range (Rmb) 51.4 - 37.4 Mkt cap (Rmb/US$ bn) 120.4/ 17.4
Performance 1M 3M 12M
Absolute (%) 7.3 8.3 32.1 Relative (%) 6.9 7.7 18.6
Year 12/15A 12/16A 12/17E 12/18E 12/19E
Revenue (Rmb mn) 9,316 11,094 13,067 15,419 17,590 EBITDA (Rmb mn) 2,553 3,077 3,843 4,757 5,421 Net profit (Rmb mn) 2,172 2,589 3,195 4,030 4,615 EPS (CS adj. Rmb) 0.92 1.10 1.36 1.72 1.97 - Change from prev. EPS (%) n.a. n.a. (5.3) 0.1 - Consensus EPS (Rmb) n.a. n.a. 1.41 1.73 0.46 EPS growth (%) 10.2 19.2 23.4 26.1 14.5 P/E (x) 55.4 46.5 37.7 29.9 26.1 Dividend yield (%) 0.2 0.3 0.3 0.4 0.5 EV/EBITDA (x) 45.1 37.5 29.6 23.1 19.9 P/B (x) 12.1 9.7 7.9 6.4 5.3 ROE (%) 24.3 23.2 23.2 23.8 22.2 Net debt(cash)/equity (%) (49.6) (38.2) (42.0) (53.5) (54.2)
Note 1: Jiangsu Hengrui Medicine is principally engaged in manufacturing chemical drugs of various therapeutical areas such as anti-tumor, anesthesia and contrast agent.
Monday, 13 March 2017
Asian Daily
- 16 of 32 -
Yadea Group Holdings Limited --------------------------------------------------Maintain NEUTRAL FY16 results in line; launching promotion campaign to gain market share EPS: ▼ TP: ▼ Shelley Wang / Research Analyst / 852 2101 6715 / [email protected] Bin Wang / Research Analyst / 852 2101 6702 / [email protected]
● In line with expectations, Yadea’s 2016 earnings rose 15% YoY to Rmb430 mn. As its 2016 volume was flat YoY, earnings growth was mainly driven by product mix improvement—higher proportion of high-end two-wheelers. As a result, Yadea 2016 blended ASP rose 3.5% YoY to Rmb1,539 and gross margin rose 1.4 pp to 20.3%.
● Due to notable raw material price rise, some two-wheeler makers tried passing on raw material cost hikes to downstream customers, resulting in sector-wide weak demand. However, Yadea guided that its volumes jumped 30% YoY in Jan and Feb after the company launched a promotion campaign with ~Rmb300 lower retail price for select models, and Rmb13 mn red-pocket cash incentive offer.
● Although the promotion might hurt Yadea’s near-term earnings, this move is strategically right in the long term as a sector consolidator. In other words, brand awareness improvement via share gain could help Yadea further penetrate into the high-end market.
● We remain NEUTRAL, and lower target price to HK$1.72 (from HK$1.76) on 2017E’s lower margin but higher volume assumptions.
Click here for detailed financials
2016 results in line
Yadea’s 2016 earnings rose 15% YoY to Rmb430 mn, in line with market consensus. As its 2016 volume was flat YoY, earnings growth was mainly driven by product mix improvement—higher proportion of high-end two-wheelers. Blended ASP (including e-scooter and e-bike) increased 3.5% YoY to Rmb1,539 in 2016, but their subtotal sales volume growth decelerated sharply to 0% YoY in 2016 amid falling sector demand from 10%/10% YoY in 2014/15.
Proactively igniting a price war
Yadea has shifted its priority to volume growth from margin gain by proactively igniting a price war. While some two-wheeler makers tried passing on raw material cost hikes to downstream customers due to notable raw material price rise, Yadea has launched two promotion events starting from end-January: (1) lowering retail selling price—our
channel checks (across Hefei, Wuxi, Huzhou, Qingdao) show an average of ~Rmb300 price discount for select models; and (2) providing a total of Rmb13 mn/96k unit red-pocket cash incentives. The company guided for an expanded scope of its promotion (e.g., involving more dealers and more models) from March.
Market consolidator in the long term
Although promotions might hurt Yadea’s near-term earnings, this move seems strategically right in the long term as Yadea will become the sector consolidator to gain market share. In other words, brand awareness improvement via share gain could help Yadea further penetrate into the high-end market.
Limited impact from bike-sharing
While investors are concerned that the fast-expanding bike-sharing services (e.g., Mobike and ofo) will reduce reliance on electric two-wheelers, management doesn’t regard bike-sharing a threat, because: (1) bikes only serve a 1 km-5 km travel range vs e-bike’s ~20 km range; (2) bike-sharing is substituting Didi car-sharing/public bus/subway rather than personal transit tools such as e-bike/e-scooter.
Remain NEUTRAL. We lower our target price to HK$1.72 (from HK$1.76), and revise down 2017E earnings on lower margin but higher volume assumptions, and revise up 2018E earnings on a margin recovery assumption. An upside risk is export sales beat and a downside risk is high-end model sales volume miss.
Figure 1: Yadea 2016 results summary, by segment
(Rmb mn) 2H16 2H15 YoY 2016 2015 YoY
Turnover 3,724 3,676 1% 6,662 6,429 4%
e-scooter 1,979 2,012 -2% 3,584 3,483 3%
e-bicycle 860 829 4% 1,524 1,455 5%
others 885 835 6% 1,554 1,491 4%
Volume (unit 000) 1,871 1,919 -3% 3,320 3,321 0%
e-scooter 1,132 1,183 -4% 2,029 2,045 -1%
e-bicycle 739 736 0% 1,291 1,276 1%
ASP (Rmb) 1,518 1,481 2% 1,539 1,487 3%
e-scooter 1,748 1,701 3% 1,766 1,704 4%
e-bicycle 1,164 1,127 3% 1,181 1,140 4%
Gross profit 723 706 2% 1,353 1,217 11%
Selling expense (213) (240) -11% (451) (454) -1%
Admin expense (226) (217) 4% (428) (359) 19%
Other income 43 55 -23% 81 86 -6%
Operating profit 326 304 7% 555 491 13%
Tax (73) (73) 1% (124) (115) 8%
Net profit 253 232 9% 430 375 15%
Gross margin 19.4% 19.2% 0.2% 20.3% 18.9% 1.4%
Net margin 6.8% 6.3% 0.5% 6.5% 5.8% 0.6%
Source: Company data.
Bbg/RIC 1585 HK / 1585.HK Rating (prev. rating) N (N) [V] Shares outstanding (mn) 3,000.00 Daily trad vol - 6m avg (mn) 4.1 Daily trad val - 6m avg (US$ mn) 0.9 Free float (%) 26.7 Major shareholders Dong Jinggui
Price (10 Mar 17, HK$) 1.71 TP (prev. TP HK$) 1.72 (1.76) Est. pot. % chg. to TP 1 52-wk range (HK$) 1.84 - 1.23 Mkt cap (HK$/US$ mn) 5,130.0/ 660.7
Performance 1M 3M 12M
Absolute (%) (1.2) 6.2 — Relative (%) (1.9) (1.5) —
Year 12/15A 12/16A 12/17E 12/18E 12/19E
Revenue (Rmb mn) 6,429 6,662 7,319 7,823 8,230 EBITDA (Rmb mn) 550.7 626.8 664.7 784.1 836.7 Net profit (Rmb mn) 375.5 430.1 448.9 531.1 561.6 EPS (CS adj. Rmb) 0.15 0.16 0.15 0.18 0.19 - Change from prev. EPS (%) n.a. n.a. (3.2) 2.7 - Consensus EPS (Rmb) n.a. n.a. 0.16 0.18 0.21 EPS growth (%) 68.0 2.9 (5.2) 18.3 5.7 P/E (x) 9.9 9.6 10.2 8.6 8.1 Dividend yield (%) 0 2.7 2.5 2.9 3.1 EV/EBITDA (x) 6.9 4.4 4.1 2.9 2.2 P/B (x) 4.8 1.9 1.8 1.5 1.4 ROE (%) 57.8 28.7 18.8 19.3 17.7 Net debt(cash)/equity (%) (99.0) (81.1) (71.8) (76.8) (80.9)
Note 1: Yedea is the largest high-end electric two-wheeled vehicle maker in China, with a 10.5% market share in 2015. It sells e-scooters, e-bicycles, batteries and chargers, with over 95% of total revenue from China.
Monday, 13 March 2017
Asian Daily
- 17 of 32 -
India
India Market Strategy ------------------------------------------------------------------------------------------ New report: State elections—UP results a turning point Neelkanth Mishra / Research Analyst / 91 22 6777 3716 / [email protected] Prateek Singh / Research Analyst / 91 22 6777 3894 / [email protected] Ravi Shankar / Research Analyst / 91 22 6777 3869 / [email protected]
● Against market expectations of a hung verdict in UP (exit polls had BJP just short of majority), the BJP repeated its 2014 vote share and won 77% of seats—the second highest ever by any party in India's most populous state, after 83% by Janata Party in 1977.
● SAD+BJP lost, as expected, in Punjab: lack of economic progress, poor fiscal situation and inability to handle serious social issues are likely the reasons. BJP's victory in Uttarakhand was better than exit poll predictions. Goa and Manipur are micro states, and less relevant in the national discourse.
● 53% of Indians now live in BJP-ruled states: good for centre-state cooperation. Not only does this help the BJP in the arithmetic for the presidential polls (due July 2017), it also signals a decline of identity politics. Like the BJP's 2014 victories did, this brings good governance back as a political imperative.
● Many would also project this as a signal of success in the 2019 parliamentary elections. However, state capacity limitations may be hard to overcome quickly, delaying the economic impact. It could be years before these changes show up in earnings. Full report.
BJP victory in UP a political turning point
Against market expectations of a hung verdict in UP (exit polls had BJP just short of majority), the BJP repeated its 2014 vote share and won nearly 80% of seats (second highest ever by any party in India's most populous state). 53% of Indians live in BJP-ruled states: good for centre-state cooperation. Not only does this help the BJP in the
arithmetic for the Presidential polls (due July 2017) and with a lag in the Upper House, it also signals a decline of identity politics. Caste will continue to be important, but its primacy as seen 1989 onwards is now broken: a historic change.
Similar lessons from the smaller states
In the smaller state of Punjab (PU: 13% of UP population), SAD+BJP lost, as expected: lack of economic progress, poor fiscal situation and inability to handle serious social issues like the drug menace are likely the reasons. BJP's victory in Uttarakhand (UT: 5% of UP) was better than exit poll predictions. Goa and Manipur are micro states, and less relevant in the national discourse. Nevertheless, all reinforced the importance of good governance in getting re-elected.
Economic prospects better; market impact fleeting
Like the BJP's 2014 victories did, this brings good governance back as a political imperative (the Bihar setback of December 2015 proved temporary). Given UP's size and importance for the country, a strong and stable government elected on a governance plank is heartening. Upper House prospects improve (even if control is likely only after 2020), and the opposition for a while is more likely to support legislative action. Many would also project this as a signal of success in the 2019 parliamentary elections. However, limitations in state capacity may be hard to overcome quickly, and economic impact could be years away. It could be years before these changes show up in earnings.
Figure 1: Change in seats and vote shares over time Seats Votes
2007 2012 2017 2007 2012 2014 2017
Uttar Pradesh
BJP 51 47 312 17% 15% 42% 40%
SP 97 224 47 25% 29% 22% 22%
BSP 206 80 19 30% 26% 20% 22%
INC 22 28 7 9% 12% 8% 6%
RLD 10 9 1 4% 2% 1% 2%
Others 17 15 17 15% 16% 7% 8%
Total 403 403 403 100% 100% 100% 100%
Punjab
INC 44 46 77 41% 40% 33% 39%
SAD+BJP 67 68 18 45% 42% 35% 31%
Others 5 3 22 14% 18% 32% 31%
Total 116 117 117 100% 100% 100% 100%
Goa
INC 16 9 17 32% 31% 37% 28%
BJP 14 21 13 30% 35% 53% 33%
Others 10 10 10 37% 35% 10% 39%
Total 40 40 40 100% 100% 100% 100%
Uttarakhand
BJP 34 31 57 32% 33% 55% 47%
INC 21 32 11 30% 34% 34% 34%
Others 14 7 2 39% 33% 11% 20%
Total 69 70 70 100% 100% 100% 100%
Manipur
INC 30 42 28 34% 42% 42% 35%
BJP 21 12% 36%
AITC 7 1 17% 1%
Others 30 11 10 66% 41% 46% 27%
Total 60 60 60 100% 100% 100% 100%
Source: Election Commission, Credit Suisse
Monday, 13 March 2017
Asian Daily
- 18 of 32 -
Indonesia
Ramayana Lestari Sentosa ------------------------------------------- Maintain UNDERPERFORM Weak Feb numbers; expect further derating in share price EPS: ◄► TP: ◄► Ella Nusantoro / Research Analyst / 62 21 2553 7917 / [email protected] Benny Kurniawan
● Ramayana reported Feb 2017 same-store sales growth (SSSG) at -5.8% YoY, which brought 2M17 SSSG down to -0.1% YoY from 4.5% YoY in Jan 2017. We believe that the weak numbers were due to loss of purchasing power in the lower-end segment with higher inflation arising from government subsidy removals (electricity for the lower end, 3 kg-LPG, and an increase in vehicle registration tax).
● Regional breakdown suggests that Jakarta fared better in Feb with 0.1% YoY SSSG, but Java/ex-Java regions dragged down growth with -3.5%/-12.5% YoY. We have not seen the impact of rising commodity prices on ex-Java SSSG this year.
● Looking at per the segment breakdown, direct purchase merchandise booked -11% YoY growth, followed by consignment and supermarket at -4.7% and -5.7% YoY, respectively.
● The stock has derated 15% relative to the JCI in the past month, which is in line with our contrarian view. We expect further derating to continue as we believe the valuation remains expensive. We reiterate our UNDERPERFORM rating on the stock.
Click here for detailed financials
Discretionary consumption soft in 1Q, but lower-end segment impacted even more
We believe discretionary consumption is going to be soft in 1Q17, as inflation crept up on the back of higher crop prices (chilli prices fetch Rp170k/kg in Jakarta) and government subsidy removals. We did not see the full impact of the first electricity subsidy removal in January 2017 as Indonesia uses a prepaid system for some of the households and these households would have prepaid for their electricity consumption in December with the subsidised rate.
Figure 1: Impact of electricity subsidy removal for the lower end
Rp/kWh Old price New Price Change
January 585 774 32%
March 774 1023 32%
May 1,023 1352 32%
Average Consumption/(kWh/household) 150
Incremental electricity bill (IDR/month) 115,050 (USD8-9)
Source: Credit Suisse estimates* average household income in Indonesia is about USD250. The increase in electricity bill consumes about 3-4% of that.
Nevertheless, the lower-end segment started to feel the heat from the increase in electricity prices in February and we believe the full blown impact will be felt in May. The government has also guided that Inflation is likely to peak in May due to the dry season and it is also one month before the fasting season starts. Digging for more details in Feb 2017 numbers
Looking further into February 2017 numbers, -5.8% SSSG looks very weak as February 2016 only saw +2% SSSG. We are also surprised at the extent of the weakness in ex-Java (-12.5% SSSG YoY, but takes 41% of the total space and 39% of gross sales), as we had initially believed the improvement in commodity prices would start trickling down into the lower-end segment. Furthermore, as a result of the falling contributions from direct purchase merchandise, Ramayana's gross margin fell from 23.9% in 2M16 to 23.2% in 2M17. This number is also significantly lower than the FY16 gross margin of 25%. Last year, Ramayana was able to introduce new merchandise with higher gross margins as the government's fiscal easing tailwind was behind it. People had more money as a result of higher employment arising from the government's project rollouts. Furthermore, inflation was down from 6.4% in 2015 to 3.7% in 2016. With inflation likely increasing this year and government budget a constraint, we believe this year will be tough for Ramayana. We expect further derating to continue
The stock has derated 15% relative to the JCI in the past month, which is in line with our contrarian view. We expect further derating to continue as we think the valuation remains expensive. Ramayana is trading at 19.4x 2017E P/E with 3% EPS growth. Its current valuation is also at a 14% premium to LPPF versus the historical discount of 25%. We reiterate our UNDERPERFORM rating on the stock.
Figure 2: Ramayana trades at a 14% premium to LPPF, even after its 15% derating in the past month
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
Mar
-13
May
-13
Jul-1
3
Sep
-13
Nov
-13
Jan-
14
Mar
-14
May
-14
Jul-1
4
Sep
-14
Nov
-14
Jan-
15
Mar
-15
May
-15
Jul-1
5
Sep
-15
Nov
-15
Jan-
16
Mar
-16
May
-16
Jul-1
6
Sep
-16
Nov
-16
Jan-
17
Mar
-17
RALS discount vs LPPF Mean +1 sd -1 sd
Source: Credit Suisse RAVE, Credit Suisse estimates
Bbg/RIC RALS IJ / RALS.JK Rating (prev. rating) U (U) Shares outstanding (mn) 7,096.00 Daily trad vol - 6m avg (mn) 8.6 Daily trad val - 6m avg (US$ mn) 0.8 Free float (%) 35.2 Major shareholders Ramayana Makmur
Sentosa (55.88%)
Price (10 Mar 17, Rp) 1,195.00 TP (prev. TP Rp) 1,100 (1,100) Est. pot. % chg. to TP (8) 52-wk range (Rp) 1460.0 - 665.0 Mkt cap (Rp/US$ bn) 8,479.7/ 0.6
Performance 1M 3M 12M
Absolute (%) (14.3) — 61.5 Relative (%) (14.7) (1.6) 49.5
Year 12/14A 12/15A 12/16E 12/17E 12/18E
Revenue (Rp bn) 5,861 5,533 5,825 6,126 6,555 EBITDA (Rp bn) 763.3 595.5 739.8 742.0 771.8 Net profit (Rp bn) 355.7 336.1 424.7 436.4 469.5 EPS (CS adj. Rp) 50.1 47.4 59.8 61.5 66.2 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rp) n.a. n.a. 58.4 67.5 75.9 EPS growth (%) (8.9) (5.5) 26.4 2.8 7.6 P/E (x) 23.8 25.2 20.0 19.4 18.1 Dividend yield (%) 2.5 2.3 2.2 2.8 2.8 EV/EBITDA (x) 8.9 11.2 8.5 8.1 7.4 P/B (x) 2.5 2.5 2.3 2.2 2.1 ROE (%) 10.8 10.0 12.1 11.7 11.9 Net debt(cash)/equity (%) (49.7) (54.8) (61.2) (65.8) (69.4)
Note 1: Ramayana operates department stores and supermarket across Indonesia, gearing towards low-income people.
Monday, 13 March 2017
Asian Daily
- 19 of 32 -
Japan
Japan Technology Sector ------------------------------------------------------------------------------------ Asia feedback report (Hardware): Spring hasn't yet come Akinori Kanemoto / Research Analyst / 81 3 4550 7363 / [email protected] Hideyuki Maekawa / Research Analyst / 81 3 4550 9723 / [email protected] Mika Nishimura / Research Analyst / 81 3 4550 7369 / [email protected]
● In late February/early March, we conducted our customary market research in Korea, China, and Taiwan into demand in hardware, semiconductors, displays, and electronic components. Compared with our previous survey (early December 2016), the server/data-related sectors are stronger than we expected.
● However, Chinese smartphone production, especially vivo and OPPO, is undergoing adjustment; iPhone-related demand appears somewhat weak in the near term; and PC-related demand is weak as well; so the talk is not exactly encouraging.
● In our previous survey, we saw a limited risk of correction in smartphone-related demand in January–March 2017, but in addition to inventory adjustments at vivo and OPPO, shipments of spring models built on new APs have been pushed back until at least May.
● In addition to an emerging risk of higher BOM, we also see growing component/materials procurement risk amid the start-up of iPhone 8 production. Full-scale production of the Galaxy S8 will start in April-June. Click here for full report.
Figure 1: Hardware production forecast trend
Source: Company data, Credit Suisse estimates
Focal points for hardware Production
(1) We estimate total iPhone production as follows: January-March 2017: 47 mn units (−47% QoQ; +18% YoY); April–June: 40 mn (−15%; −2%), July–September: 48 mn (+20%; +15%), and October–December: 89mn (+85%; +1%). iPhone 8 series production target for July–December: Roughly 100−110 mm units (July–September 25−30 mn, October–December 75−80 mn).
(2) Samsung started GS8 production in March, with plans to increase volume in April–June, in line with annual production target of 320 mn units.
(3) For Chinese smartphone production, we expect a 16% QoQ decline for January–March versus previous assumption for a 9% drop. Production start for new models in April/late-June runs the risk of higher BOM and tight materials/parts procurement.
Figure 2: Production outlook for leading North American, Korean, and Chinese smartphone manufacturers (Mar 2017)
Source: Company data, Credit Suisse estimates.
Devices
(1) Smartphone-use NAND supply remains tight. CIS remains tight as well. We see a growing risk of tightness for MLCC in the latter part of 2017 due to sharply higher iPhone 8-related demand.
(2) The iPhone 8 will newly feature OLED, iris scan authentication, a USB Type-C connector, SLP (substrate-like PCB), an L-shaped battery, a glass case, and a wireless charger. Interest in Chinese makers is rising on the news that the iPhone 8 will include iris scan authentication.
(3) In CIS, Chinese smartphones dual cameras have become standard.
(4) In OLED-related, Samsung intends to cut supply to itself and expand shipments to Chinese makers.
(5) The USB Type-C install rate has increased sharply since the start of 2017.
Stock calls
In electronic components, we recommend near-term caution on stocks with high Chinese smartphone exposure ratios and that investors instead look to firms that have higher sales revenue per phone for the iPhone 8. We expect Nissha Printing, Alps Electric, and Murata Mfg. to attract investor attention. We recommend companies poised to benefit from an iPhone rebound in North America, higher component install rates for Chinese smartphones, and yen depreciation.
Our top pick is Alps Electric (6770). We also recommend Murata Mfg. (6981) and Nissha Printing (7915). In the SPE sector, we are downgrading Tokyo Electron and Hitachi Kokusai Electric from Outperform to NEUTRAL based on the risk of semiconductor demand deterioration. We expect Disco (6146) to attract increased attention starting in the latter part of 2017 due to investment related to fingerprint/iris scan authentication sensors. Our top pick in the consumer electronics sector is Sony (6758), where we expect increased CIS demand.
(This is an extract from Akinori Kanemoto's Technology sector report, Asia feedback report (Hardware): Spring hasn't yet come, published on 10 March 2017. For details, please see the CS Plus website.)
Monday, 13 March 2017
Asian Daily
- 20 of 32 -
Hitachi Kokusai Electric --------------------------------------------------- Downgrade to NEUTRAL 3D NAND capex, possible buyout by parent company already reflected in share price EPS: ▼ TP: ▲ Hideyuki Maekawa / Research Analyst / 81 3 4550 9723 / [email protected] Yoshiyasu Takemura / Research Analyst / 81 3 4550 7358 / [email protected]
● We lower our FY3/17–19 forecasts for Hitachi Kokusai Electric (HKE) to reflect weakness in its video & communication solutions business and downward pressure on margins caused by large volume orders at the SPE business. Click here for full report.
● We think the stock faces a number of near-term downside risks, including the risk of a dropoff in smartphone output and semiconductor inventory corrections in China, a peakout in SPE orders, and changing conditions in the DRAM market, which has been strong to date.
● With its largest customer, Samsung Electronics, expected to continue expanding investment in 3D NAND production lines in 1H 2017, HKE’s orders environment looks favorable. However, we see a lack of new business that could increase profits.
● Potential catalysts include confirmation of large Chinese investments in 3D NAND and a 100% buyout by Hitachi as part of a Hitachi Group restructuring. Risks include deterioration in the DRAM market and sale by Hitachi of its shares in HKE to a private-equity fund.
Click here for detailed financials
We lower our FY3/17–19 forecasts for Hitachi Kokusai Electric (HKE) to reflect weakness in its video & communication solutions business and downward pressure on margins caused by large volume orders at the SPE business. We think the stock faces a number of near-term downside risks, including the risk of a dropoff in smartphone output and semiconductor inventory corrections in China, a peakout in SPE orders, and changing conditions in the DRAM market, which has been strong to date. In addition to lowering our forecasts, we update our valuation base year to FY3/18. Assigning a valuation premium to reflect SPE business restructuring, we raise our target price from ¥1,980 to ¥2,560. However, we also downgrade the stock from Outperform to NEUTRAL.
Investment overview: With its largest customer, Samsung Electronics, expected to continue expanding investment in 3D NAND production lines in 1H 2017, HKE’s orders environment looks favorable. However, we see a lack of new business that could increase profits. Although we expect TSMC to invest in 7nm mass production lines in 2H 2017, related order value is unlikely to match that for memory-related equipment. China 3D NAND plants are likely to be similar to Samsung Electronics’ Xian factory, so HKE could receive some orders from this source. However, negotiations most likely will not be until 2H 2017. In addition, we are seeing unfavorable changes in market conditions, with the DRAM market slowing and excess inventories at some PC and smartphone related customers. We think these factors and risk of a correction in the semiconductor market triggered by inventory adjustments at Chinese makers limit upside potential for the share price.
Figure 1: Hitachi Kokusai Electric – TOPIX relative share performance
Source: Company data, Credit Suisse estimates.
Catalysts/risks: Potential catalysts include confirmation of large Chinese investments in 3D NAND and a 100% buyout by Hitachi as part of a Hitachi Group restructuring. Risks include deterioration in the DRAM market and sale by Hitachi of its shares in HKE to a private-equity fund.
Valuation: We value HKE at a P/B of 2.37x FY3/18E BPS of ¥1,084 (previously a FY3/17E P/E of 13.7x EPS of ¥144.09). The 2.37x P/B represents a premium relative to the three-year average TOPIX valuation related to the positive impact of strong 3D NAND investment plus a 30% “Hitachi Premium” related to expectations for an acquisition by the parent company (source; Nikkei). We adopted P/E when orders were growing, but switch to P/B as we expect orders to peak out like other SPE companies.
(This is an extract from Hitachi Kokusai Electric report ‘3D NAND capex, possible buyout by parent company already reflected in share price’, published on 10 March 2017. For details, please see the CS Plus website.)
Bbg/RIC 6756 JP / 6756.T Rating (prev. rating) N (O) Shares outstanding (mn) 102.70 Daily trad vol - 6m avg (mn) 0.7 Daily trad val - 6m avg (US$ mn) 14.8 Free float (%) 40.0 Major shareholders
Price (10 Mar 17 , ¥) 2,637.00 TP (prev. TP ¥) 2,560 (1,980) Est. pot. % chg. to TP (3) 52-wk range (¥) 2641.0 - 1105.0 Mkt cap (¥/US$ bn) 270.8/ 2.3
Performance 1M 3M 12M
Absolute (%) 6.0 22.4 107.6 Relative (%) 2.8 19.2 91.2
Year 03/15A 03/16A 03/17E 03/18E 03/19E
Revenue (¥ bn) 183.6 180.7 171.9 178.2 173.2 EBITDA (¥ bn) 24.5 19.6 19.8 24.1 22.8 Net profit (¥ bn) 14.7 13.0 9.2 13.3 12.5 EPS (CS adj. ¥) 143 127 90 129 122 - Change from prev. EPS (%) n.a. n.a. (38) (15) (12) - Consensus EPS (¥) n.a. n.a. 106 153 159 EPS growth (%) (4.0) (11.6) (29.2) 44.6 (6.0) P/E (x) 18.4 20.8 29.4 20.4 21.7 Dividend yield (%) 1.4 1.5 1.1 1.5 1.4 EV/EBITDA (x) 9.2 11.4 11.1 8.8 8.9 P/B (x) 2.9 2.8 2.6 2.4 2.3 ROE (%) 16.4 13.8 9.3 12.4 10.8 Net debt(cash)/equity (%) (49.3) (48.6) (50.3) (52.5) (56.7)
Note 1: ORD/ADR=2.00. Note 2: Hitachi Kokusai Electronic Inc. is a Japan-based company engaged in the manufacture & sale of electronic equipment, having 4 segments: Communication & Information Systems; Broadcasting & Image Systems; Semiconductor Manufacturing Systems; & Others.
Monday, 13 March 2017
Asian Daily
- 21 of 32 -
Singapore
Keppel Corporation --------------------------------------------------------- Maintain OUTPERFORM Beneficiary of improving Singapore residential sentiment EPS: ◄► TP: ◄► Gerald Wong, CFA / Research Analyst / 65 6212 3037 / [email protected] Shih Haur Hwang / Research Analyst / 65 6212 3024 / [email protected]
● The Singapore government has announced an easing of the Seller’s Stamp Duty and Total Debt Servicing Ratio, which we believe could drive a rerating of Singapore developers as measures are taken to support a stable property market.
● We expect Keppel Land to benefit from improvement in sentiment post the easing. Keppel has one of the largest residential land banks in Singapore, with 1.3 mn sq ft of unsold area worth an estimated S$2.7 bn. This will add to improving overseas sales momentum, where units sold rose 25% YoY in 2016.
● In our view, there could also be more opportunities for property divestments after an investment cycle in 2012-15 where investments exceeded divestments by S$2.1 bn. We note that revaluation and divestment gains averaged S$393 mn in 2010-14.
● Singapore residential makes up 12% of our GAV estimate of Keppel Land. Based on P/B of 1x (in line with Keppel Land average), Property would represent 58% of our SOTP valuation of Keppel Corp. Assuming a 1.6x P/B valuation for O&M (in line with SMM), the implied valuation of Property is 0.72x P/B, vs CAPL at 0.89x.
Click here for detailed financials
Keppel Corporation is a CS AxJ Focus List stock.
Figure 1: Keppel Land’s residential land bank in Singapore
Singapore (end-Dec 2016) Stake Location Total units Units left Remaining area (sf)
Launched projects
The Glades 70% OCR 726 113 105,304
Corals at Keppel Bay 100% RCR 366 144 239,736
Reflections at Keppel Bay 100% RCR 1129 50* 170,200
Highline Residences 100% RCR 500 209 216,604
Upcoming projects
Keppel Bay Plot 4 39% RCR 234^ 234 344,448
Keppel Bay Plot 6 100% RCR 86^ 86 226,044
Total 3,041 836 1,302,336 *Excludes ~150 units for corporate residences, ^ estimated number of units. Source: Company data
Easing of Singapore property measures a positive surprise
The government has announced an easing of the Seller’s Stamp Duty (SSD) and Total Debt Servicing Ratio (TDSR) framework, effective 11 March 2017. This includes (1) reduction in SSD rates from 4-16% to 4-12%, and (2) lowering the holding periods from the current four years to up to three years. In addition, the government will no longer apply the TDSR framework to mortgage equity withdrawal loans with LTV ratios of 50% and below. These are loans which are secured on the borrower’s equity in a residential property. While the changes are prospective, Credit Suisse Property analyst Louis Chua believes that they will prevent distressed sales in the event of economic hardship. The easing of cooling measures augments the improving residential fundamentals, where price declines have moderated while volumes and take-up rates continue to be up strongly. Link to property report.
Figure 2: Keppel Land RNAV
% stake GAV (S$ mn) % of GAV
Residential 7,664
Singapore 1400 12%
China 4349 37%
Vietnam 1592 14%
Others 323 3%
Investment properties 2,560
Commercial/ Leases 2560 22%
Listed entities 1,471
Keppel REIT 45% 1,397 12%
Keppel DC REIT 5% 74 1%
Total GAV 11,694
Less: Net Debt -1,609
RNAV 10,085
Source: Company data, Credit Suisse estimates
Figure 3: Keppel Land—historical P/B of 1.04x
Source: Bloomberg
Figure 4: SOTP valuation of Keppel
Keppel SOTP Value (S$ mn) % of SOTP
O&M 3,806 24%
Infrastructure 1,571 10%
Property 9,141 58%
Total Investments 1,215 8%
Total 15,733
Per share 8.67 Target price rounded up to S$8.70
Source: Company data, Credit Suisse estimates
Bbg/RIC KEP SP / KPLM.SI Rating (prev. rating) O (O) Shares outstanding (mn) 1,817.91 Daily trad vol - 6m avg (mn) 4.7 Daily trad val - 6m avg (US$ mn) 19.6 Free float (%) 79.0 Major shareholders Temasek Holdings
(20.9%)
Price (09 Mar 17, S$) 6.83 TP (prev. TP S$) 8.70 (8.70) Est. pot. % chg. to TP 27 52-wk range (S$) 7.22 - 5.11 Mkt cap (S$/US$ mn) 12,416.3/ 8,748.2
Performance 1M 3M 12M
Absolute (%) 10.2 15.2 15.8 Relative (%) 7.8 9.0 4.0
Year 12/15A 12/16A 12/17E 12/18E 12/19E
EBITDA (S$ mn) 1,761 1,032 1,208 1,311 1,382 Net profit (S$ mn) 1,525 784 977 1,062 1,096 EPS (CS adj. S$) 0.84 0.43 0.53 0.58 0.60 Core EPS (S$) 0.84 0.43 0.53 0.58 0.60 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (S$) n.a. n.a. 0.51 0.56 0.56 EPS growth (%) (19.1) (48.9) 24.6 8.7 3.2 P/E (x) 8.1 15.9 12.8 11.7 11.4 Core P/E (x) 8.1 15.9 12.8 11.7 11.4 Dividend yield (%) 5.0 2.9 3.2 3.5 3.8 EV/EBITDA (x) 10.5 18.8 16.0 14.4 13.4 P/B (x) 1.1 1.1 1.0 0.9 0.9 ROE (%) 14.2 6.9 8.1 8.1 7.8 Net debt(cash)/equity (%) 51.5 56.5 54.2 47.9 42.8
Note 1: ORD/ADR=2.00. Note 2: Keppel Corporation Ltd is a Singapore-based investment holding and management company. The principal activities of the company along with its subsidiaries consist of offshore oil-rig construction, shipbuilding and ship repair and conversion.
Monday, 13 March 2017
Asian Daily
- 22 of 32 -
Taiwan
Advantech Co., Ltd. --------------------------------------------------------- Maintain OUTPERFORM New report: Phase 2 IoT transformation takes shape EPS: ▼ TP: ▼ Thompson Wu / Research Analyst / 886 2 2715 6386 / [email protected] Harvie Chou / Research Analyst / 886 2 2715 6364 / [email protected]
● Improving sector outlook. Industry outlook improves with standardisation of industrial frameworks, sensor platforms, and network/connectivity. These standards accelerate industrial automation adoption, smart city solutions and edge computing and also drive scalability and sales growth. Full report.
● Phase 2 IoT transformation takes shape. Phase 2 of IoT transformation enhances Advantech capability to provide hardware + software integrating solutions. Advantech invests in technology, channel and regional sales offices along with business reorganisation positions it directly for the growth.
● Trim 2017E EPS by 1%. Advantech guided double-digit sales growth with stable margins but currency headwind and component shortages are concerns in 1H. We expect recovery in 2H with better product mix and enhanced operating leverage.
● Reiterate OUTPERFORM. We are confident on Advantech's execution of the Phase 2 of IoT strategy and earnings to accelerate to a 15% CAGR in the next three years. We argue for a valuation re-rating to 29x P/E which drives our NT$300 TP (from NT$305).
Click here for detailed financials
Improving sector outlook
We believe the industry's outlook is becoming more promising with the standardisation of industrial frameworks, sensor platforms (i.e., M2.com) and network/connectivity (i.e., LoRa alliance). We believe these standards accelerate industrial automation adoption, smart city solutions (i.e., smart medical and intelligent retail) and edge computing. Industry standard standardisation drives scalability and sales growth, but will not drive commoditization and eroding margins as seen with consumer IoT, in our view. Advantech investments and re-org directly positions for this growth.
Phase 2 IoT transformation takes shape
Advantech enters phase 2 of its IoT strategy, which focuses on solution ready platforms (SRP), edge intelligence servers (i.e., B+B SmartWorx), and IoT software (i.e., WISE-PaaS). The new product groups (i.e., Embedded, Industrial and Service IoT, and Allied DMS) align with
technology. Industrial IoT will lead growth with recovery in Service and Embedded IoT. The US market will start to improve; Greater China and Japan remain stories. The full report covers this transformation presented at the Smart City Summit and Expo by Advantech's management.
Figure 1: Advantech enters Phase 2 of IoT strategy
Source: Company data, Credit Suisse
Figure 2: Advantech 10% sales growth was above the sector average
Source: Company data, Credit Suisse
Trim 2017E EPS by 1%
NT/US dollar appreciation and DRAM/SoC constraints are a headwind to 1H sales. We believe a share price pullback is an attractive entry-point as growth will start to recover in 2H and accelerate in 2018. Operating margins upside may surprise positively, driven by Industrial IoT and opex-leverage. We forecast sales and net profit of NT$45.8/6.6 bn (+9%/+16% YoY) vs Consensus of NT$46.4/6.5 bn.
Reiterate OUTPERFORM
We believe earnings growth accelerates to a 15% CAGR in the next three years driven by a successful business. We argue for a valuation re-rating to a historical 29x P/E, which drives our new NT$300 TP. Cash yield is 2.5% based on the NT$6.30 per share announced last week.
Figure 3: Advantech 2016-18E select financial data 4Q16 CS Est. Consen. 1Q17E 2Q17E 3Q17E 4Q17E 2016 2017E 2018E
Sales $10,805 $10,802 $10,721 $10,001 $11,261 $11,970 $12,537 $42,002 $45,770 $51,062
Gross profit 4,350 4,466 4,412 4,031 4,620 4,954 5,171 17,118 18,776 21,218
Operating profit 1,737 1,733 1,740 1,351 1,884 2,105 2,300 6,631 7,640 8,861
Pre-tax profit 1,796 1,805 1,822 1,479 2,012 2,280 2,407 7,097 8,178 9,176
Net profit 1,422 1,447 1,468 1,185 1,614 1,829 1,930 5,667 6,558 7,362
GAAP EPS $2.25 $2.29 $2.34 $1.87 $2.55 $2.89 $3.05 $8.95 $10.36 $11.63
Sales YoY % 10.8% 10.8% 9.9% -0.7% 5.1% 15.0% 16.0% 10.5% 9.0% 11.6%
Sales QoQ % 3.8% 3.8% 3.0% -7.4% 12.6% 6.3% 4.7%
GM % 40.3% 41.3% 41.2% 40.3% 41.0% 41.4% 41.2% 40.8% 41.0% 41.6%
Opex/sales 24.2% 25.3% 24.9% 26.8% 24.3% 23.8% 22.9% 25.0% 24.3% 24.2%
OPM % 16.1% 16.0% 16.2% 13.5% 16.7% 17.6% 18.3% 15.8% 16.7% 17.4% Source: Company data, The BLOOMBERG PROFESSIONAL™ service, CS estimates
Bbg/RIC 2395 TT / 2395.TW Rating (prev. rating) O (O) Shares outstanding (mn) 633.07 Daily trad vol - 6m avg (mn) 0.6 Daily trad val - 6m avg (US$ mn) 5.2 Free float (%) 46.7 Major shareholders Asustek (15%)
Price (10 Mar 17 , NT$) 254.00 TP (prev. TP NT$) 300.00 (305.00) Est. pot. % chg. to TP 18 52-wk range (NT$) 287.5 - 218.0 Mkt cap (NT$/US$ bn) 160.8/ 5.2
Performance 1M 3M 12M
Absolute (%) (3.4) (1.9) 8.1 Relative (%) (4.3) (4.4) (3.1)
Year 12/14A 12/15A 12/16E 12/17E 12/18E
Revenue (NT$ bn) 35.7 38.0 42.0 45.8 51.1 EBITDA (NT$ bn) 6.1 6.6 7.5 8.4 9.7 Net profit (NT$ bn) 4.9 5.1 5.7 6.6 7.4 EPS (CS adj. NT$) 7.8 8.1 9.0 10.4 11.6 - Change from prev. EPS (%) n.a. n.a. (0.7) (1.1) (1.6) - Consensus EPS (NT$) n.a. n.a. 8.9 10.2 11.9 EPS growth (%) 7.5 3.6 10.8 15.7 12.1 P/E (x) 32.5 31.4 28.4 24.5 21.9 Dividend yield (%) 2.4 2.4 2.5 2.9 3.2 EV/EBITDA (x) 25.9 23.9 21.0 18.5 16.0 P/B (x) 7.1 6.8 6.3 5.8 5.2 ROE (%) 23.4 22.2 23.2 24.6 25.1 Net debt(cash)/equity (%) (13.3) (14.8) (16.4) (16.1) (20.6)
Note 1: Founded in 1983, Advantech designs and manufactures a range of embedded computing components and automation products and solutions.
Monday, 13 March 2017
Asian Daily
- 23 of 32 -
Delta Electronics ------------------------------------------------------------- Maintain OUTPERFORM 4Q16 slightly impacted by mix; 2017 key drivers intact EPS: ▲ TP: ◄► Pauline Chen / Research Analyst / 886 2 2715 6323 / [email protected] Thurston Lee / Research Analyst / 886 2 2715 6352 / [email protected]
● 4Q16 results slightly behind. EPS of NT$1.91 was above CS but behind market expectations, hurt by a less favourable product mix shift to more consumer products and higher opex at year end.
● 1Q17 outlook on track. We expect a seasonal sales decline of 10-15% QoQ, which only requires 13% MoM growth in March. OPM is expected to see YoY improvement despite the QoQ comparison remaining tough on smaller scale.
● Positive 2017 outlook. Delta maintains Industrial Automation, data centre, and automotive to be long-term growth drivers. IA strategy will continue to focus on business model upgrade, customer base refocus and regional diversification. The company sees rising demand from data centre solutions and is continually expanding its product portfolio in Auto. M&A will also be a focus.
● Maintain OUTPERFORM. We fine-tune 2016 EPS by 1.4% to factor in the 4Q16 results. We maintain our NT$183 TP as we remain positive on Delta's product diversification for a stable OPM. Key risks include aggressive expansion in passive components and potential M&As.
Click here for detailed financials
4Q16 saw mild margin contraction
4Q16 revenue was already released: flat QoQ but up 3% YoY. Delta announced today 4Q16 EPS of NT$1.91, down 12% QoQ and 4% YoY, above CS but below latest market expectations. Drivers in the fourth quarter included sustained demand in Power Systems and Networking that helped offset seasonal weakness in Power Electronics. GMs slightly contracted by 140 bp QoQ to 27.3% due to less-than-ideal product mix of more consumer-related products in Networking. OPM saw a 175 bp QoQ decline to 9.4% on slightly higher SG&A. Delta's bottom line also saw a higher tax rate of 22.3% despite help from NT$118 mn FX gain and NT$258 mn investment gain. BOD also approved 2016 cash dividend of NT$5.0, representing a payout ratio of 69% and dividend yield of ~3%.
Figure 1: Delta 4Q16 results review
(NT$ mn) Actual 3Q16 4Q15 QoQ YoY CS Street
Net sales 57,014 57,068 55,608 0% 3% 56,190 56,582
Gross profit 15,541 16,352 15,229 -5% 2% 15,266 16,108
Operating profit 5,375 6,378 5,341 -16% 1% 5,093 6,157
Net Income 4,952 5,666 5,158 -13% -4% 4,690 5,755
EPS(NT$) 1.91 2.18 1.99 -13% -4% 1.81 2.12
GM 27.3% 28.7% 27.4% 27.2% 28.5%
OPM 9.4% 11.2% 9.6% 9.1% 10.9%
NM 8.7% 9.9% 9.3% 8.3% 10.2%
Source: Company data, Bloomberg I/B/E/S estimates, Credit Suisse estimates
1Q17 on track to meet CS estimates
Delta reported Feb sales of NT$16.03 bn, up 11%MoM/29% YoY. QTD sales reached 61% of CS/consensus estimates of down 12% QoQ, versus the seasonal trend of 63%. Bright spots in 1Q17 include IA, networking, and NB power, offsetting weakness in areas such as Telecom.
Figure 2: Delta February sales review
(NT$ mn) Feb-17 Jan-17 MoM Feb-17 Feb-16 YoY
Net sales 16,026 14,434 11% 16,026 12,421 29%
Seasonal (2003-16) -14% 14%
Quarter to date QTD 1Q17E QTD
Tracking to CS 30,460 49,893 61%
Tracking to street 30,460 50,105 61%
Seasonal (2003-16) 63%
Source: Company data, Bloomberg I/B/E/S estimates, Credit Suisse estimates.
Positive 2017 Outlook
Delta reiterated its positive outlook for 2017 with IA, data centre, and automotive still as the key long-term drivers. Management suggested that it is already seeing benefits from its direct account strategy and gradual transformation to solution provider as they cooperate more directly with clients on higher-end and customization projects. On top of its organic growth, Delta is still actively looking for M&A opportunities for domain knowhow talents or special components. One key area that it will focus on is in the Automation segment. Maintain OUTPERFORM
Post result, we fine tune 2016 earnings by 1.4% to factor in 4Q16 results but maintain our OUTPERFORM rating and NT$183 target price based on 21x NTM EPS. We remain positive on Delta's efforts of diversification into non-IT segments to help mitigate the weakness from consumer electronic products and deliver a more stable OPM on a quarterly basis. Key risks include aggressive expansion in passive components and potential M&As.
Figure 3: Delta forward P/E band
5
10
15
20
25
30
35
Jan- 10 Jan- 11 Jan- 12 Jan- 13 Jan- 14 Jan- 15 Jan- 16 Jan- 17
Average = 19.4
+1 Std dev = 24.0
-1 Std dev = 14.8
+2 Std dev = 28.7
-2 Std dev = 10.2
Delta PE (x)
Source: Company data, TEJ, Credit Suisse estimates
Bbg/RIC 2308 TT / 2308.TW Rating (prev. rating) O (O) Shares outstanding (mn) 2,597.54 Daily trad vol - 6m avg (mn) 3.9 Daily trad val - 6m avg (US$ mn) 20.8 Free float (%) 74.8 Major shareholders Hsiang Tai Int.
(10.4%)
Price (10 Mar 17, NT$) 161.50 TP (prev. TP NT$) 183.00 (183.00) Est. pot. % chg. to TP 13 52-wk range (NT$) 176.0 - 137.0 Mkt cap (NT$/US$ bn) 419.5/ 13.5
Performance 1M 3M 12M
Absolute (%) (7.7) (0.3) 14.9 Relative (%) (7.3) (3.3) 4.4
Year 12/14A 12/15A 12/16E 12/17E 12/18E
Revenue (NT$ mn) 190,635 203,452 214,356 228,408 246,740 EBITDA (NT$ mn) 30,453 28,894 31,636 37,861 42,060 Net profit (NT$ mn) 20,699 18,715 18,798 20,962 23,392 EPS (CS adj. NT$) 8.5 7.2 7.2 8.1 9.0 - Change from prev. EPS (%) n.a. n.a. 1.4 0.0 (0.1) - Consensus EPS (NT$) n.a. n.a. 7.4 8.5 9.5 EPS growth (%) 16.4 (15.2) 0.4 11.5 11.6 P/E (x) 19.0 22.4 22.3 20.0 17.9 Dividend yield (%) 4.1 3.1 3.1 3.5 3.9 EV/EBITDA (x) 12.4 13.3 12.3 10.6 9.5 P/B (x) 3.8 3.4 3.8 3.7 3.5 ROE (%) 21.1 16.5 16.0 18.7 20.0 Net debt(cash)/equity (%) (36.2) (28.3) (26.6) (14.3) (17.1)
Note 1: Delta Electronics, Inc. is a Taiwan-based supplier of power management products; information & communication components; video products & electromechanical products, including inverters.
Monday, 13 March 2017
Asian Daily
- 24 of 32 -
Thailand
Thailand Property Sector ------------------------------------------------------------------------------------- Unexciting 2M17 industry data Atul Sethi / Research Analyst / 66 2 614 6211 / [email protected] Putt Virasathienpornkul / Research Analyst / 66 2 614 6212 / [email protected]
● The Agency of Real Estate Affairs (AREA) has released February industry data for the Thai residential property sector.
● In our eyes, the data looks tepid and is unlikely to excite the market. Condo launch activity picked up from a very low base in December, but is still 40% under 2016 average levels. The drop in landed property launches was relatively more benign, but we believe the market will care most about prospects of the larger, condo market. Take-up rates returned to more normalised levels across the sector after a dip in 4Q16, but the weak absolute primary activity means this is unlikely to translate into strong catalysts for the sector.
● We also visited a housing and condo fair at Queen Sirikit National Convention Centre this weekend; our channel checks with banks on-site and developers suggest that while activity has improved from 4Q16, is still below steady-state levels.
● Our view on the sector is maintained in light of this data, which we believe may curb more optimistic views on the street.
Valuation metrics Company Ticker Rating Price Year P/E (x) P/B
(x)
Local Target T T+1 T+2 T+1
Supalai SPALI.BK U 24.80 22.00 12/16 8.5 7.6 1.8 AP (Thailand) AP.BK U 7.35 6.60 12/16 8.0 6.7 1.2 L.P.N. LPN.BK U 11.70 11.00 12/16 9.5 7.6 1.4 Quality Houses QH.BK N 2.56 2.50 12/16 8.2 7.8 1.2 Land and Houses LH.BK N 9.80 9.20 12/16 13.7 14.2 2.5
Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Source: Company data, Credit Suisse estimates
Tepid AREA 2M17 data
The Agency of Real Estate Affairs (AREA) has released February industry data for the Bangkok Metropilitian Area (BMA). We see little reason for optimism from the data provided. Take-up rates showed some level of improvement from 4Q16 levels, as expected; however, launch activity is below historical levels. We believe that this will unlikely excite the market.
Condo launch activity below historical levels
YTD condo launch activity will unlikely provide much reason for optimism. On a 2M17 basis, condo launches were 40% under 2016 historical levels. January saw an increase in launches—with some projects delayed from 4Q16 coming to market—but still remained well under the 2016 average for launches (Figure 1). February saw a further dip in launches. This data corroborates with our view that condo launch activity will unlikely be exciting in the near term, suggesting that prior optimism regarding a big rebound in launches may have been exaggerated.
Figure 1: YTD launches well below 2016 average
0
2,000
4,000
6,000
8,000
10,000
12,000
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17
(Units)
Condo launches
2016 avg: 4,274
Source: Company data, Credit Suisse estimates
Normalisation of take-up rates in 2M17
Although YTD launch activity has been muted, take-up rates improved from a dip in 4Q16, returning close to normalised levels. With the exception of SDH, condo and TH rates showed some improvement, returning close to levels in 2Q-3Q16 (Figure 2). This does not come as a surprise, given the weakness in 4Q16. Although the uptick in take-up is a positive sign, we believe that the low absolute level of launches will likely cap the potential for pre-sales to pick up.
Figure 2: Normalisation of take-up rates…
0%
10%
20%
30%
40%
50%
60%
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
(% take-up of new launches)
SDH TH Condo
Note: 1Q17 includes data for January and February. Source: Agency for Real Estate Affairs (AREA)
Takeaways from visit to House and Condo expo
We also visited the 36th House and Condo Expo 2017 this weekend, held at the Queen Sirikit National Convention Centre. Our conversations with staff members at Thai bank booths, and with various developers indicate that activity in the sector is slower as compared prior to the mourning period. Also of note was that projects where the biggest discounts and promotions being offered were for smaller private developers.
Maintain view on Thai property developers
We maintain our view on the sector, in light of this recent set of data. Whilst some improvement in take-up is encouraging to see, we believe that unflattering levels of primary activity will cap catalysts for the sector.
Monday, 13 March 2017
Asian Daily
- 25 of 32 -
P.C.S. Machine Group Holding --------------------------------------- Upgrade to OUTPERFORM A turnaround story EPS: ▲ TP: ▲ Putt Virasathienpornkul / Research Analyst / 66 2 614 6212 / [email protected]
● We upgrade PCSGH to OUTPERFORM (from Underperform) as we expect both sales and margin to turn around in 2017.
● Having been low-profile in the market for the past two years, PCSGH is well prepared for a strong return with 68% EPS growth in 2017. This year, we expect sales to grow 5% from the on-going recovery in Thai vehicle volumes, and sales contribution from new contracts, while gross margin should normalise to the 20% level (vs 14% in 2016), thanks to a tighter cost control (i.e., better allocation of workers and lower defects)—a trend we saw in 4Q16.
● We raise FY17E/18E EPS by 65%/61%, as we factor in better sales and margin, and lift our TP to Bt6.4 (from Bt3.2). We expect upward revisions to consensus estimates to follow. A turnaround in operations should trigger a rerating for PCSGH, in our view.
● The stock is now trading at 13x 2017E P/E vs 68% EPS growth, which we find attractive. Our new TP of Bt6.4 implies a 16% upside potential.
Click here for detailed financials
Figure 1: PCSGH—financials
(Bt mn) 3Q16 4Q16 QoQ 4Q15 YoY 2016 YoY
Sales 865 901 4.1% 932 -3.3% 3,707 -9.4%
Gross Profit 101 174 73.2% 98 78.7% 516 -22.5%
Operating Profit 58 132 128.4% 58 125.7% 351 -29.0%
Net Profit 60 143 136.5% 65 118.4% 382 -29.5%
Gross margin 11.6% 19.4% 10.5% 13.9%
Operating margin 6.7% 14.6% 6.3% 9.5%
Net margin 7.0% 15.9% 7.0% 10.3%
Source: Company data
Strong 4Q16 performance
PCSGH posted 4Q16 net profit of Bt143 mn (+118% YoY and +137% QoQ), taking FY16 net profit to Bt382 mn (-30% YoY). Sales fell 3% YoY to Bt901 mn due to weak sentiment during the mourning period.
Gross margin rose ~900 bp YoY to 19.4%, thanks to better cost control.
SG&A-to-sales came in at 4.7%, largely in line with the FY16 level.
Figure 2: PCSGH—2016 sales breakdown
Isuzu, 19.8%
GM, 10.0%
Ford & Mazda, 20.7%
Mitsubishi,
27.6%
Toyota, 12.1%
Nissan, 6.2%
Others, 3.7%
Pick-up truck
97.8%
Others2.2%
Source: Company data
EPS and TP revisions
We increase FY17E/18E EPS by 65%/61% to reflect the positive sales and margin outlook, raise our TP to Bt6.4 (from Bt3.2), and anticipate consensus upgrades to follow.
Figure 3: EPS downgrade momentum likely over
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
Aug-14 Aug-15 Aug-16
2016 2017 2018
Source: IBES estimates
Sales and margin turnaround
Heading into 2017, PCSGH appears to be a prime beneficiary of the on-going recovery in the Thai auto space. This, coupled with the revenue contribution of new contracts (e.g., pick-up truck, big bike, big truck, non-auto parts such as electronics), should allow PCSGH to grow sales 5% this year. We also expect gross margins to normalise to 20% level (from 14% in 2016), boosted by a more efficient use of employees, lower defects as the trial process for new contracts has ended, and higher sales. The net result of higher sales and margin expansion should translate into 68% EPS growth this year, in our view.
Figure 4: Gross margin has normalised to ~20% level 22.9% 23.3%
21.0%
12.1%
21.0%
16.2% 16.6%
10.5%
15.3%
9.1%
11.6%
19.4%
0%
5%
10%
15%
20%
25%
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Source: Company data
Attractive risk-reward
The stock is trading at 13x 2017E P/E vs 68% EPS growth. We find its current risk-reward attractive and upgrade it to OUTPERFORM (from Underperform). Our new TP of Bt6.40 offers a 16% upside potential.
Bbg/RIC PCSGH TB / PCSGH.BK Rating (prev. rating) O (U) Shares outstanding (mn) 1,545.00 Daily trad vol - 6m avg (mn) 0.3 Daily trad val - 6m avg (US$ mn) 0.0 Free float (%) 18.2 Major shareholders Siripong
Rungrojnkitiyos (37.41%)
Price (09 Mar 17 , Bt) 5.50 TP (prev. TP Bt) 6.40 (3.20) Est. pot. % chg. to TP 16 52-wk range (Bt) 6.00 - 4.12 Mkt cap (Bt/US$ mn) 8,497.5/ 240.3
Performance 1M 3M 12M
Absolute (%) 10.9 13.6 7.8 Relative (%) 14.0 12.7 (3.9)
Year 12/15A 12/16A 12/17E 12/18E 12/19E
Revenue (Bt mn) 4,092 3,707 3,893 4,087 4,292 EBITDA (Bt mn) 1,118 924 1,181 1,304 1,428 Net profit (Bt mn) 541.7 382.1 642.1 746.2 853.5 EPS (CS adj. Bt) 0.35 0.25 0.42 0.48 0.55 - Change from prev. EPS (%) n.a. n.a. 64.6 61.2 - Consensus EPS (Bt) n.a. n.a. 0.33 0.38 0.48 EPS growth (%) (24.5) (29.5) 68.1 16.2 14.4 P/E (x) 15.7 22.2 13.2 11.4 10.0 Dividend yield (%) 7.3 4.4 4.4 4.4 4.4 EV/EBITDA (x) 6.9 8.1 5.9 4.8 3.8 P/B (x) 1.7 1.7 1.6 1.5 1.4 ROE (%) 10.8 7.8 12.8 14.0 14.8 Net debt(cash)/equity (%) (15.6) (20.5) (30.5) (40.7) (50.9)
Note 1: P.C.S. Machine Group Holding is a holding company. The company, through its subsidiaries, manufactures auto parts for powertrain system (engines, transmissions, and final drives) for sale to automakers.
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Vietnam
PetroVietnam Drilling and Well Services JSC ---------------------- Maintain OUTPERFORM Waiting for day rates to recover EPS: ▼ TP: ▼ Wattana Punyawattanakul / Research Analyst / 66 2 614 6215 / [email protected]
● We trim down our earnings forecast by 38% in FY17E to reflect the current status and pricing of confirmed contracts. The revision is mainly due to lower-than-expected achieved day rates, while our rigs utilisation assumption has been lowered slightly to 64% (from 65%) in FY17.
● We have noticed an improving rig activity in Vietnam offshore, supporting our thesis that spending in Vietnam offshore has marked its bottom in 2016. So far in 2017, PVD has successfully contracted work for three out of four jack-up rigs.
● PVD contracted its work at a day rate of ~US$50-55k/day earlier in the year, which is lower than our expectations. However, the latest day rates for jack-up rigs contracted in the region have demonstrated a recovery closer to US$60-70k/day level. PVD should be able to lock down a more profitable day rate once its contracts get rolled over, in our view.
● Relative to PVS, we believe PVD is a better option to position for a recovery in the oil and gas industry. We trim our TP to D28,400 (from D30,800), equivalent to 0.75x FY17E 12M forward P/B.
Click here for detailed financials
Rig activities picking up
We have noticed improving rig activity in Vietnam offshore, supporting our thesis that spending in Vietnam offshore has marked its bottom in 2016. So far in 2017, PVD has successfully contracted work for three out of four jack-up rigs. Our rigs utilisation assumption is 64% in FY17. We expect activities to be picking up further in 2H17 when developments of Ca Rong Do and Blue Whale see more clarity.
Day rates appear to be bottoming
PVD contracted its work at a day rate of ~US$50-55k/day earlier in the year, which is lower than our expectation. However, the latest day rates for jack-up rigs contracted in the region have demonstrated a recovery closer to ~US$60-70k/day level. PVD should be able to lock down a more profitable day rate once its contracts get rolled over, in
our view. Our forecast assumes a day rate of US$70k/day for PVD’s uncontracted jack-up rigs in FY17E.
Figure 1: CS’s assumption on PVD’s rigs’ utilisation
J F M A M J J A S O N D J F M A M J J A S O N D
PV Drilling I
PV Drilling II
PV Drilling III
PV Drilling V
PV Drilling VI
PV Drilling 11
Total (Myanmar)
2017E 2018E
HL
JVPC
Hoang Long
Source: Company data, IHS, Credit Suisse estimates
PV Drilling V: Not a big concern to balance sheet
The market is concerned that PV Drilling V (semi-submersible rig) not being contracted currently could lead to a material impact to PVD’s debt repayment ability. PV Drilling V is currently idle and in the status of being cold-stacked. PVD is currently bidding for PV Drilling V in the regional market.
We believe that PVD still has a manageable balance sheet position. Its internal cash on hand should be able to meet the obligation for 2017. Principle repayment in 2017 is around US$50 mn versus cash on hand of US$120 mn. However, if the situation continues to be tough in 2018, PVD has an option to start negotiating with its banks for some rescheduling. PVD’s big repayment obligation will be in 2019-20.
Figure 2: Assuming PV Drilling V remains idle in 2017, PVD should likely be able to meet its principle repayment
0
20
40
60
80
100
120
Cash end-2016 Free cash flow* Principle repayment Cash end-2017
US$ mn
* Assuming PV Drilling remains idle for the entire 2017. Source: Company data, Credit Suisse estimates.
Maintain OUTPERFORM
We trim down our earnings forecast by 38% in FY17E to reflect the current status and pricing of confirmed contracts, and introduce our 2019 numbers. The revision is mainly due to achieved day rates, while our rigs utilisation assumption has been lowered only slightly to 64% (from 65%) in FY17. We also revise down our TP to D28,400 (from D30,800), equivalent to 0.75x FY17E 12-month forward P/B.
Bbg/RIC PVD VN / PVD.HM Rating (prev. rating) O (O) Shares outstanding (mn) 382.85 Daily trad vol - 6m avg (mn) 1.6 Daily trad val - 6m avg (US$ mn) 1.6 Free float (%) 47.7 Major shareholders PetroVietnam
50.46%
Price (09 Mar 17 , D) 21,150 TP (prev. TP D) 28,400 (30,800) Est. pot. % chg. to TP 34 52-wk range (D) 31545.5 - 20050.0 Mkt cap (D/US$ bn) 8,097.3/ 0.4
Performance 1M 3M 12M
Absolute (%) (0.2) (2.5) (13.5) Relative (%) (2.2) (10.5) (37.8)
Year 12/15A 12/16A 12/17E 12/18E 12/19E
Revenue (US$ mn) 659.3 240.0 264.5 354.1 374.2 EBITDA (US$ mn) 161.6 40.1 53.9 83.9 95.1 Net profit (US$ mn) 76.0 5.4 7.2 29.7 38.2 EPS (CS adj. US$) 0.22 0.01 0.02 0.08 0.10 - Change from prev. EPS (%) n.a. n.a. (37.5) (11.4) - Consensus EPS (US$) n.a. n.a. 0.02 0.08 EPS growth (%) (33.6) (93.2) 27.7 311.9 28.6 P/E (x) 4.3 62.9 49.3 12.0 9.3 Dividend yield (%) 0 0 0 0 0 EV/EBITDA (x) 3.0 11.8 8.5 5.0 3.6 P/B (x) 0.6 0.6 0.6 0.6 0.5 ROE (%) 13.6 0.9 1.2 4.9 5.9 Net debt(cash)/equity (%) 21.8 19.8 17.3 9.6 (1.5)
Note 1: PVD is a Vietnam-based provider of oil and gas drilling services. PVD offers drilling services, as well as other drilling-related services to exploration companies. PVD is a subsidiary of state-owned oil and gas company, PetroVietnam.
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Companies mentioned
Advantech Co., Ltd. (2395.TW, NT$254.0, OUTPERFORM, TP NT$300.0) Agricultural Bank of China (1288.HK, HK$3.49) Alps Electric (6770.T, ¥3,490, OUTPERFORM[V], TP ¥3,400) AP (Thailand) (AP.BK, Bt7.35, UNDERPERFORM, TP Bt6.6) Ascendas REIT (AEMN.SI, S$2.47, OUTPERFORM, TP S$2.63) Astra Agro Lestari Tbk (AALI.JK, Rp15,225) Bank of China Ltd (3988.HK, HK$3.78) Bank of China Ltd (601988.SS, Rmb3.63) Bank of Communications (3328.HK, HK$5.94) Bukit Sembawang (BSES.SI, S$6.26) Bumitama Agri Ltd (BUMI.SI, S$0.82) CapitaLand (CATL.SI, S$3.57) CapitaLand (CATL.SI, S$3.7) China Citic Bank (0998.HK, HK$5.17) China Citic Bank (601998.SS, Rmb6.7) China Construction Bank (0939.HK, HK$6.05) China Construction Bank (601939.SS, Rmb5.88) China Everbright Bank (601818.SS, Rmb4.14) China Everbright Bank (6818.HK, HK$3.81) China Industrial Bank (601166.SS, Rmb16.41) China Merchants Bank Co Ltd (3968.HK, HK$20.75) China Minsheng Banking Co Ltd (1988.HK, HK$8.44) City Developments (CTDM.SI, S$10.15, OUTPERFORM, TP S$11.6) ComfortDelGro Corporation Ltd (CMDG.SI, S$2.51, OUTPERFORM, TP S$3.35) DBS Group Holdings Ltd (DBSM.SI, S$18.93) Delta Electronics (2308.TW, NT$161.5, OUTPERFORM, TP NT$183.0) DISCO (6146.T, ¥17,840, NEUTRAL, TP ¥16,000) Felda Global Ventures (FGVH.KL, RM1.84) First Resources Ltd (FRLD.SI, S$1.94) Ford Motor Company (F.N, $12.5) Frasers Centrept (FRCT.SI, S$1.73) General Motors Company. (GM.N, $36.83) Genting Plantations Bhd (GENP.KL, RM11.42) Genting Singapore (GENS.SI, S$1.0, OUTPERFORM, TP S$1.2) Golden Agri-Resources (GAGR.SI, S$0.38) Guangzhou R&F (2777.HK, HK$12.12, NEUTRAL, TP HK$11.6)
GuocoLand (GUOC.SI, S$1.89) Heilan Home Co Ltd (600398.SS, Rmb10.37, NEUTRAL, TP Rmb10.2) Hitachi Kokusai Electric (6756.T, ¥2,637, NEUTRAL, TP ¥2,560) Ho Bee Land (HBEE.SI, S$2.35) Huaneng Renewables Corporation (0958.HK, HK$2.75, OUTPERFORM[V], TP HK$3.8) Indofood Agri Resources Ltd (IFAR.SI, S$0.52) Industrial & Commercial Bank of China (1398.HK, HK$4.91) Industrial & Commercial Bank of China (601398.SS, Rmb4.71) IOI Corporation (IOIB.KL, RM4.69) Isuzu Motors (7202.T, ¥1,589) Jiangsu Hengrui Medicine Co. Ltd (600276.SS, Rmb51.28, OUTPERFORM, TP Rmb59.8) KB Financial Group (105560.KS, W49,000, OUTPERFORM, TP W63,000) KB Insurance (002550.KS, W27,300) Keppel Corporation (KPLM.SI, S$6.83, OUTPERFORM, TP S$8.7) Keppel DC REIT (KEPE.SI, S$1.15) Keppel REIT (KASA.SI, S$1.01) Kuala Lumpur Kepong (KLKK.KL, RM24.38) L.P.N. Development (LPN.BK, Bt11.7, UNDERPERFORM, TP Bt11.0) Land and Houses (LH.BK, Bt9.8, NEUTRAL, TP Bt9.2) London Sumatra (LSIP.JK, Rp1,470) Longyuan Power (0916.HK, HK$6.58) Mazda Motor (7261.T, ¥1,619) Mitsubishi Heavy Industries (7011.T, ¥442) Murata Manufacturing (6981.T, ¥16,380, OUTPERFORM[V], TP ¥19,500) Nissan Motor (7201.T, ¥1,142) Nissha Printing (7915.T, ¥3,220, OUTPERFORM, TP ¥3,700) Oversea-Chinese Banking Corp Ltd (OCBC.SI, S$9.56) Oxley Holdings (OXHL.SI, S$0.605) P.C.S. Machine Group Holding (PCSGH.BK, Bt5.5, OUTPERFORM, TP Bt6.4) PetroVietnam Drilling and Well Services JSC (PVD.HM, D21150.0, OUTPERFORM, TP D28400.0) PetroVietnam Technical Services Corporation (PVS.HN, D17600.0) Quality Houses (QH.BK, Bt2.56, NEUTRAL, TP Bt2.5) Ramayana Lestari Sentosa (RALS.JK, Rp1,195, UNDERPERFORM, TP Rp1,100) Salim Ivomas Pratama (SIMP.JK, Rp605) Sembcorp Marine Ltd. (SCMN.SI, S$1.92) Singapore Telecom (STEL.SI, S$3.94, OUTPERFORM, TP S$4.6) Sony (6758.T, ¥3,661, OUTPERFORM, TP ¥4,300) ST Engineering (STEG.SI, S$3.66, OUTPERFORM, TP S$4.0) Supalai (SPALI.BK, Bt24.8, UNDERPERFORM, TP Bt22.0) Tabcorp Holdings (TAH.AX, A$4.48, OUTPERFORM, TP A$5.0) Tatts Group (TTS.AX, A$4.18) AP (Thailand) (AP.BK, Bt7.35, UNDERPERFORM, TP Bt6.6) Tokyo Electron (8035.T, ¥11,910, NEUTRAL, TP ¥10,500) Toshiba (6502.T, ¥208, OUTPERFORM[V], TP ¥460) Toyota Motor (7203.T, ¥6,434) United Overseas Bank Ltd (UOBH.SI, S$21.39, OUTPERFORM, TP S$24.3) UOL (UTOS.SI, S$6.92) Wheelock Prop (WPSL.SI, S$1.88) Wilmar International Ltd (WLIL.SI, S$3.58) Wing Tai Holdings (WTHS.SI, S$1.935)
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Yadea Group Holdings Limited (1585.HK, HK$1.71, NEUTRAL[V], TP HK$1.72)
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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.
When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.
