Tuesday, 28 November 2017
(Asia Edition) Asian Daily EPS, TP and Rating changes Top of the pack ... EPS TP (% change) T+1 T+2 Chg Up/Dn Rating Treasury Wine (0.3) (0.4) 0 (11) U (N) Airports of Thailand (AOT.BK) – Upgrade to O Thaniya Kevalee (3) China Gas Holdings 3 1 5 32 O (O) Analyst meeting: Plenty of good news ahead
China Mengniu Dairy (10.4) 0 0 25 O (O) Qudian Inc. 4 (26) (55) 23 O (O) Malaysia Economics Michael Wan (4) Tuniu Corporation n.m n.m 9 37 O (O) Reading between the lines—text mining the central bank Eris Lifesciences Ltd Initiation 18 O (NA) XL Axiata Tbk 0 0 0 20 O (N) Sysmex 2 7 45 19 O (N) Sime Darby (SIME.KL) – Maintain O Joanna Cheah, CFA (5) Terumo 1,108 - 25 19 O (N) New report: Back to basics
Fauji Fertilizer Company 7 8 6 (15) U (U) Airports of Thailand (0.2) (3.3) 27 20 O (N) XL Axiata Tbk (EXCL.JK) – Upgrade to O Colin McCallum, CA (6) A key beneficiary if data prices rise in FY18 Connecting clients to corporates
Corporate Days / Conferences China Mengniu Dairy (2319.HK) – Maintain O Charlie Chen (7) 7th Annual Macro Conference Correction overdone Date 05 January, Singapore CS pic of the day Great China Technology and Internet Conference Date 10-12 January, Hong Kong Vietnam Market Strategy: Highest consensus EPS growth forecast in region for next year Analyst Thomas Chong / Manish Nigam Vietnam has long been a frustrating market, with a strong economy but low investability. That is now changing. 9th Annual ASEAN Conference Total trading volume is now 27% above that of the Philippines, new listings have added to stock selection and Date 11-12 January, Singapore foreign ownership limits are less of an obstacle. Credit Suisse economist Deepali Bhargava has raised her 2018
Asia Frontier Markets Conference GDP forecast from 6.4% to 6.7% on strong exports, improving rural incomes and surprising growth in tourism. Date 20 February, London Macro risks have faded, and the economy should remain highly supportive of earnings next year. Analyst Farhan Rizvi
21st Annual Asian Investment Conference 20% 19% Date 19-23 March, Hong Kong 18% 16% Hong Kong / China (Non-deal roadshow) 14% 12% 11% 10% MOMO Inc (MOMO.OQ) Post Result 10% 9% 8% 8% Date 30 November, Hong Kong 6% 6% Analyst Thomas Chong 6% 4% 3% 3% China Life Insurance (2628 HK) 2% Date 01 December, Hong Kong 0% Analyst Charles Zhou VN TH MY ID PH JP SG KR HK
Singapore (Non-deal roadshow) Source: IBES Thomson Reuters for Vietnam's top 32 stocks, the BLOOMBERG PROFESSIONALTM service for other countries Kotak Mahindra Bank Limited (KTKM.NS) Date 01 December, Singapore ... and the whole pack Analyst Ashish Gupta Regional US (Non-deal roadshow) Asia Pacific Strategy Kin Nang Chik (8) Inari Amertron (INAR.KL) Credit Suisse GEM valuation snapshot Date 29 November, New York Analyst Randy Abrams Asia Pacific Strategy Kin Nang Chik (9)
Tarena International (TEDU.OQ) Credit Suisse valuation snapshot Date 29-November - 05-December, New York, Boston, Chicago, San Francisco Australia Analyst Thomas Chong Treasury Wine (TWE.AX) – Downgrade to U Larry Gandler (10)
Sembcorp Industries Ltd (SCIL.SI) Is 19 Crimes a Cupcake? Date 30 November, Toronto Analyst Gerald Wong China China Cement Sector Yang Luo (11) Europe (Non-deal roadshow) New report: Embracing six-year high profitability Shui On Land Limited (0272.HK) Date 29-November - 01-December, Europe China Gas Holdings Ltd (0384.HK) – Maintain O Dave Dai, CFA (12) Analyst Kelvin Tam 1H18 earnings beat; guidance revised up for both volume and rural connections
Others (Non-deal roadshow) China Mengniu Dairy (2319.HK) – Maintain O Charlie Chen (7) PT PP (PERSERO) TBK (PTPP.JK) Correction overdone Date 06 December, Kuala Lumpur Qudian Inc. (QD.N) – Maintain O Charles Zhou, CFA (13) Analyst Ariyanto Jahja Multiple headwinds, reduce TP to US$15
Contact [email protected] or your usual sales Tuniu Corporation (TOUR.OQ) – Maintain O Ivy Ji (14) representative. 3Q17 non-GAAP breakeven; on track to achieve full-year profitability 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. Tuesday, 28 November 2017
Asian Daily
Asian indices - performance India (% change) Closing 1D 1W 3M YTD ASX300 5,943 0.1 0.7 5.7 5.8 India Market Strategy Neelkanth Mishra (15) CSEALL 6,417 0.1 (0.9) 0.3 3.0 Oct headline GST collections disappointing; but do additional disclosures point to a lower revenue Hang Seng 29,686 (0.6) 1.5 6.9 34.9 neutral threshold? H-SHARE 11,772 (1.1) 2.0 4.2 25.3 JCI 6,065 (0.0) 0.2 3.0 14.5 Eris Lifesciences Ltd (ERIS.BO) – Initiating Coverage with O Anubhav Aggarwal (16) KLSE 1,720 0.2 0.1 (2.3) 4.8 New report: Scalable model with strong FCF generation KOSPI 2,508 (1.4) (0.8) 6.1 23.8 KSE100 40,032 (0.5) (0.7) (2.9) (16.3) Indonesia NIFTY 10,400 0.1 1.0 6.2 27.0 Indonesia Telecoms Sector – Maintain OW Colin McCallum, CA (17) NIKKEI 22,496 (0.2) 1.1 16.2 17.7 Price points static for now, but we expect an improvement in FY18 TOPIX 1,777 (0.2) 1.0 11.2 17.0 PCOMP 8,362 (0.0) 0.5 5.2 22.2 XL Axiata Tbk (EXCL.JK) – Upgrade to O Colin McCallum, CA (6) RED CHIP 4,340 (0.9) 1.0 1.2 21.0 A key beneficiary if data prices rise in FY18 SET 1,696 (0.0) (1.1) 5.1 9.9 STI 3,436 (0.2) 1.5 5.8 19.3 Japan TWSE 10,751 (1.0) 0.8 2.4 16.2 VNINDEX 939 0.3 3.9 21.3 41.2 Sysmex (6869.T) – Upgrade to O Fumiyoshi Sakai (18) Thomson Reuters Update estimates: FY3/18 recovery priced in; still scope for upside based on FY3/19 earnings Asian currencies (vs US$) Terumo (4543.T) – Upgrade to O Fumiyoshi Sakai (19) (% change) Closing 1D 1W 3M YTD Update estimates: Acquisitions, stronger organisation fruitful A$ 0.760 (0.2) 0.7 (4.3) 5.4 Bt 32.7 0.1 (0.4) (1.5) (8.8) For more Japan equity reports, please see Japan Daily (First Edition) – 28 November 2017 D 22,718 0.0 0.1 (0.0) (0.2) HK$ 7.80 (0.1) (0.1) (0.3) 0.6 Malaysia JPY 111.4 0.0 (1.1) 1.5 (4.7) Malaysia Economics Michael Wan (4) NT$ 29.98 0.0 (0.3) (0.7) (7.6) P 50.59 (0.0) (0.4) (1.2) 2.1 Reading between the lines—text mining the central bank PRs 105.5 0.4 0.3 0.3 1.1 Asia FX Strategy Trang Thuy Le (20) RM 4.11 (0.1) (0.8) (3.6) (8.3) MYR: Further room to run Rmb 6.60 0.0 (0.5) 0.1 (4.9) Rp 13,515 0.1 (0.1) 1.3 0.3 Malaysia Market Strategy Danny Goh (21) Rs 64.73 0.1 (0.6) 1.1 (4.7) Winners and losers of a stronger RM S$ 1.35 (0.0) (0.8) (0.7) (7.1) W 1,088 0.4 (0.8) (3.2) (9.8) Malaysia Banks Sector – Maintain OW Danny Goh (22) Thomson Reuters Higher possibility of rate hike: Who are the key beneficiaries? Global indices RHB Bank Berhad (RHBC.KL) – Maintain O Danny Goh (23) (% change) Closing 1D 1W 3M YTD 3Q17 results in line with street, key investor concerns mostly addressed DJIA 23,588 0.1 0.7 7.9 19.4 S&P 500 2,603 0.0 0.8 6.4 16.2 IHH Healthcare Berhad (IHHH.KL) – Maintain O Ari Jahja (24) NASDAQ 6,889 0.3 1.6 10.0 28.0 Decent 9M17 growth, new hospitals ramp up continues SOX 1,342 0.9 2.7 24.2 48.0 EU-STOX 3,155 (0.5) (0.2) 5.1 4.8 Sime Darby (SIME.KL) – Maintain O Joanna Cheah, CFA (5) FTSE 7,384 (0.3) (0.1) 0.6 3.4 New report: Back to basics DAX 13,000 (0.5) (0.4) 8.8 13.2 Pakistan CAC-40 5,360 (0.6) 0.4 6.5 10.2 10 YR LB 2.329 (0.6) (1.7) 9.4 (4.9) Fauji Fertilizer Company Limited (FAUF.KA) – Maintain U Fahd Niaz, CFA (25) 2 YR LB 1.753 (0.5) (0.1) 32.7 46.3 Expensive valuations fail to capture declining earnings outlook US$:E 1.192 (0.1) 1.6 (0.4) 13.4 US$:Y 111.4 0.0 (1.1) 1.5 (4.7) South Korea GOLD 1,288 (0.2) (0.5) (0.2) 11.8 Samsung Heavy Industries (010140.KS) – Maintain O Hoonsik Min (26) VIX 9.9 2.2 (7.2) (15.6) (29.6) Thomson Reuters Noise at end of ESOP lock-in provides buying opportunity MSCI Asian indices – valuation & perf. Taiwan EPS grth. P/E (x) Performance MSCI Index 17E 18E 17E 18E 1D 1M YTD Taiwan Components Sector Pauline Chen (27) Asia F X Japan 20 11 15.6 14.1 0.2 4.6 39.6 New report: Key findings from 9M17 financial reports Asia Pac F X J. 20 9 15.8 14.5 0.2 3.8 33.3 Australia 16 7 19.8 17.0 (0.1) 0.2 10.7 Thailand China 17 14 17.0 14.9 0.4 6.5 54.8 Airports of Thailand (AOT.BK) – Upgrade to O Thaniya Kevalee (3) Hong Kong 9 7 18.5 17.3 0.5 4.5 31.4 India 14 19 20.5 17.2 0.3 1.5 32.0 Analyst meeting: Plenty of good news ahead Indonesia 17 14 18.0 15.8 0.2 2.7 16.4 Japan 16 12 18.1 16.1 (0.0) 3.5 20.8 Korea 43 7 10.8 10.1 0.2 6.3 48.3 Malaysia 2 7 16.3 15.3 (0.5) 1.6 13.9 Pakistan 5 15 8.6 7.5 (0.2) (5.2) (27.9) Philippines 4 11 20.4 18.4 (0.0) 2.1 18.3 Singapore 7 7 15.6 14.5 0.7 5.0 30.2 Sri Lanka 11 8 15.1 14.0 (0.3) (4.2) 0.7 Taiwan 7 9 16.2 14.9 (0.1) 1.7 27.3 Thailand 10 13 10.5 9.3 (0.6) 2.4 24.3 Thomson Reuters; All data as of the most recent market close.
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
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Top of the pack ... Airports of Thailand ------Upgrade to OUTPERFORM Analyst meeting: Plenty of good news ahead EPS: ▼ TP: ▲ Thaniya Kevalee / Research Analyst / 66 2 614 6219 / [email protected] Siriporn Sothikul, CFA / Research Analyst / 662 614 6217 / [email protected] ● Feedback from a group analyst meeting is very positive. We raise there should be an upside to the profit over the long term. The conclusion our DCF-based target price to Bt70 (from Bt55) to reflect lower should be reached by 1Q18. risk free rate (2.5% versus 3% previously) and expected Commercial development of vacant land at Suvarnabhumi incremental revenue sharing from commercial concessions and airport upgrade AOT to OUTPERFORM (from Neutral). As AOT has already settled additional land rental agreement (under ROA ● Apart from high likelihood of high revenue sharing post renewal of approach) with the Treasury Department (TD), the latter should soon concessions, we believe potential upside could come from: 1) high unlock the restriction on land usage, allowing AOT to initiate commercial possibility that AOT will take transfer of ownership of 15 provincial plan for the 900 rais of empty land inside Suvarnabhumi airport. AOT airports from the government and; 2) development of commercial believes it can provide details and execute the bid (it will not develop the land at Suvarnabhumi airport. Both are not reflected in our TP. land by itself but will likely award concessions to the private sector) within ● International volume growth remains intact and does not surprise. 1H18. AOT also has another plot of land (700 rais)—this land belongs to However, its ability to sell off-peak hours slot to Chinese airlines AOT itself and does not need approval from TD–which it plans to implies much lower concern on capacity constraints. We cut our commercially develop too. However, developing this plot may take a FY18-19E profit by 3% to reflect additional rental under ROA longer time because there is no infrastructure around this plot currently. approach, but we are still 4-5% ahead of Bloomberg consensus. Lower concerns on potential capacity constraints ● AOT has performed largely in line with the broad market in the last International passenger volume growth reached nearly 26% YoY during few months. Given more positive news ahead, we believe another the first three weeks of November. This was in line with our expectation. round of re-rating is coming. Nonetheless, management sees this as a very positive sign because Bbg/RIC AOT TB / AOT.BK Price (27 Nov 17 , Bt) 58.50 strong volume growth has allowed AOT to sell several off-peak hour slots, Rating (prev. rating) O (N) TP (prev. TP Bt) 70.00 (55.00) particularly to Chinese airlines; these airlines gave up good slots last year 52-wk range (Bt) 61.0 - 38.3 Est. pot. % chg. to TP 20 due to impact from crackdown on illegal tours and these slots were taken Mkt cap (Bt/US$ bn) 835.7/ 25.6 Blue sky scenario (Bt) 81.00 up by Indian and Russian airlines. The fact that Chinese airlines have ADTO-6M (US$ mn) 57.2 Grey sky scenario (Bt) 54.00
Free float (%) 30.0 Performance 1M 3M 12M agreed to buy off-peak hour slots reflects the strong demand from Major shareholders Ministry of Finance Absolute (%) — 7.8 52.7 Chinese arrivals. Management said that growth from China was mainly (70%) Relative (%) 1.3 2.9 39.8 driven by Free Independent Travellers (FIT) rather than group tours and Year 09/15A 09/16A 09/17E 09/18E 09/19E thus quality is much better, in our view. Revenue (Bt mn) 43,969 50,962 54,672 62,040 68,082 EBITDA (Bt mn) 26,618 30,759 32,669 37,485 41,715 Figure 1: Chinese arrivals (YoY) – driven largely by FIT Net profit (Bt mn) 15,779 19,395 21,705 25,596 28,815 80% Zero dollar tour crackdown has 70% EPS (CS adj. Bt) 1.10 1.36 1.52 1.79 2.02 taken place - Change from prev. EPS (%) n.a. n.a. (0.2) (3.3) (3.4) 60% - Consensus EPS (Bt) n.a. n.a. 1.51 1.73 1.90 EPS growth (%) 28.9 22.9 11.9 17.9 12.6 40% P/E (x) 53.0 43.1 38.5 32.6 29.0 24% 15% Dividend yield (%) 0.9 1.2 1.3 1.5 1.7 20% 11% 13% 12% 11% 10% 7% 8% EV/EBITDA (x) 30.8 26.2 24.6 21.5 19.5 6% 3% P/B (x) 7.7 6.9 6.3 5.6 5.1 0% ROE (%) 15.3 16.9 17.1 18.2 18.5 -8% -8% -20% Net debt(cash)/equity (%) (14.8) (23.4) (23.9) (21.0) (12.6) -16% -16% -18% Note 1: ORD/ADR=10.00. Note 2: Airports of Thailand Public Company Limited is a Thailand-based -30% company engaged in the operation of airports across Thailand. Its airports include Thailand's main -40% airport of Suvarnabhumi, the former main airport of Don Mueang, Chiang Mai, Hat Yai, Phuket.
Jul-16 Jul-17
Oct-16 Apr-17 Oct-17
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May-16 May-17 Click here for detailed financials Potential to take transfer of 15 provincial airports Source: MOTS, Credit Suisse Management sees a high possibility that AOT most likely will take Raising target price to Bt70 transfer of ownership of 15 provincial airports from the Department of Our new target reflects; 1) lower risk free rate assumption to 2.5% Airports (Thailand), which owns and operates 28 airports in aggregate. from 3% and 2) inclusion of expected increase in revenue sharing This is part of the government’s plan to promote new tourist attractions under commercial concessions at Suvarnabhumi airport. We now throughout Thailand. AOT does not have to pay DOA for the ownership assume 25% revenue sharing compared with 15-20% under existing of these airports, but would have to pay should any renovation costs concession. Management is convinced that the bidding could take come up. AOT said that out of 15 airports, it plans to select only few place within 1Q18. Key risks include lower-than-expected international airports and upgrade them into regional hubs with international standards, passenger volume growth, lower-than-expected revenue sharing from and with the capability to handle direct international flights. This would commercial concessions and higher-than-expected opex and capex. allow AOT to minimise renovation costs estimated at around Bt2-3 bn. The 15 airports combined produced a net profit of Bt1 bn; i.e. around 5% of FY17E profit. But AOT is convinced that under its management,
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Malaysia Economics ------Reading between the lines—text mining the central bank Michael Wan / Economist / 65 6212 3418 / [email protected]
● We expect the Malaysian central bank to hike its policy rate in Figure 2: We analysed the text of Bank Negara’s monetary policy 1Q2018, bringing its key rate to 3.25% from 3%. statements ● Using novel text mining algorithms, we quantify the evolution of the central bank’s monetary policy statements. We highlight that sentiment changes in BNM’s statements have led policy rate changes by around six months. More importantly, our sentiment indicator provides additional and timely information to help us predict rate changes on top of available macroeconomic data. ● We also raise our 2018 growth forecast to 5.8% from 5.2% previously. The upgrade incorporates the recent rise in oil prices, which should feed positively into investment and consumption, together with recent Budget measures. ● We have also raised our current account forecast for 2017. Our FX strategy team sees the Ringgit appreciating further to 4.00 in 3M and 3.80 in 12M. (see Malaysia: Reading between the lines –
text mining the central bank) Source: BNM, Credit Suisse estimates.
Figure 1: BNM sentiment index has led policy rate changes by around Figure 3: Malaysia macroeconomic forecast changes six months CS new CS new CS old CS old consensus consensus 2017 2018 2017 2018 2017 2018 Bank Negara net sentiment index versus policy rate GDP Growth 6.0 5.8 5.6 5.2 5.4 5.0 BNM Net Sentiment Index (6 months lead) Index Private 7.0 6.7 6.9 6.5 6.7 6.1 % BNM policy rate (RHS) Consumption 6.0 more Fixed investment 6.7 7.5 6.7 6.5 5.7 4.4 4.0 positive 4.00 Inflation 3.9 3.0 3.7 2.6 3.8 2.5 words Current Account 9.9 11.5 8.4 8.1 7.7 7.5 2.0 (USD bn) 3.50 Source: Consensus Economics, Credit Suisse estimates. 0.0 Figure 4: FX conversion from exports have improved -2.0 3.00 USD bn Net FX conversion from Exports (USD bn) -4.0 2.50 4.0 -6.0 3.5 -8.0 more negative 3.0 and uncertainty 2.00 -10.0 2.5 words -12.0 1.50 2.0
1.5
2005 2012 2007 2008 2009 2010 2011 2013 2014 2015 2016 2017 2018 2006 1.0 Source: BNM, CEIC, Credit Suisse estimates. 0.5 We now expect Bank Negara Malaysia (BNM) to hike its policy rate in 0.0 Q12018, bringing its key rate to 3.25% from the current 3%. This is -0.5 expected to happen at the 25 January monetary policy meeting. -1.0 Using novel text mining methods, we quantify the evolution of BNM’s Jan 2016 to Nov Dec 2016 to Mar Apr 2017 to June July 2017 to Sep 2016 2017 2017 2017 monetary policy statements. Source: BNM, Credit Suisse estimates. We highlight that sentiment changes in the central bank’s statements have led policy rate changes by around six months, and as such have been a good indicator of the central bank’s policy. More importantly, this indicator provides additional and timely information beyond what we already know from latest macroeconomic data. We raise our 2018 forecasts for Malaysia’s GDP, inflation, and current account, incorporating the recent rise in oil prices. We maintain our positive view on growth and domestic demand, moving into 2018. Our FX strategy team has also lowered its USDMYR forecasts further to 4.00 in 3M and 3.80 in 12M, from 4.1 and 4.0 previously (see MYR further room to run).
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Sime Darby ------Maintain OUTPERFORM New report: Back to basics EPS: ◄► TP: ◄► Joanna Cheah, CFA / Research Analyst / 6 03 2723 2081 / [email protected] Ella Nusantoro / Research Analyst / 62 21 2553 7917 / [email protected] Danny Chan / Research Analyst / 60 3 2723 2082 / [email protected] ● The listing reference prices for Sime entities have been set. Sime other planters (peer average of 24x). However, we believe Sime Plantation & Sime Property will be listed on 30 November. Plantation deserves to trade at a premium to peer, justified by a ● Sime Plantation (RM5.59, market cap – RM38 bn): This values premium valuation to peers based on the following attributes: (1) it is the entity at 28.7x FY18 P/E, which is higher than peers’ average the world’s largest oil palm plantation company with its estate in of 24x. The premium looks fair, in our view, given its position as Malaysia, Indonesia, PNG and Liberia, (2) it is the leader in the world’s largest palm oil planter and as a leader in sustainability with its estates all RSPO certified and (3) strong growth sustainability, as well as strong growth in the future. in the future, driven by accelerated replanting that it has conducted over the last two years using high-yielding materials that could lead to ● Sime Berhad (RM1.85, market cap – RM13 bn): This implies 0.84x an improvement in the current FFB yield of 19 MT/Ha (21.3% OER) to PB (RM12.6 bn vs RM15.0 bn)—(1) a sharp contrast vs its historical 25 MT/Ha by 2025 (on 25% OER). average of 1.8x PBV and (2) its 17 sen DPS (entitlement date of 6th Dec and payment date of 20th Dec) implies a whopping 9.2% yield. Sime Bhd: Diamond in the rough ● Sime Property (RM1.50, market cap – RM10 bn): Our estimated value The implied market cap for Sime Darby Berhad, post-demerger, which (adjusted RNAV) is RM20 bn, implying a 50% potential upside. We is at RM12.6 bn, is below its latest book value of RM15.0 bn (as at believe discount should narrow as management aggressively unlocks end Sep-17)—an interesting scenario considering Sime Darby Berhad value through asset disposals. In addition to its 21k acres of land bank has always traded at an average of 1.8x book value vs the implied worth RM19 bn, the non-core hospitality assets up for disposal are PBV of 0.84x. More importantly, our valuation for Sime Darby Berhad worth RM1.2 bn (~11% of market cap). Full report. in our base case scenario is at RM2.95, implying a 59% potential Click here for detailed financials upside from the reference price. Share price outperformance will be driven by improvement in its industrial and motor divisions, Bbg/RIC SIME MK / SIME.KL Price (24 Nov 17 , RM) 8.94 Rating (prev. rating) O (O) TP (prev. TP RM) 11.10 (11.10) underpinned by the mining sector boom and BMW’s product upcycle. 52-wk range (RM) 9.62 - 7.96 Est. pot. % chg. to TP 24 It is also worth noting that shareholders who hold the shares until 6th Mkt cap (RM/US$ bn) 60.8/ 14.8 Blue sky scenario (RM) 15.00 December (entitlement date) will be entitled to a 17 cents DPS on 20th ADTO-6M (US$ mn) 16.1 Grey sky scenario (RM) 6.40 December (implies a bumper dividend yield of 9.2%). Free float (%) 39.1 Performance 1M 3M 12M Major shareholders PNB (47.5%) Absolute (%) (2.5) (0.7) 10.4 Sime Property: Grossly undervalued Relative (%) (0.9) 1.8 4.8 The implied market cap of Sime Property based on its reference price is Year 06/16A 06/17A 06/18E 06/19E 06/20E RM10 bn. Our estimated fair value for Sime Property (upon applying a EBITDA (RM mn) 4,238 3,015 4,103 5,103 — 40% discount rate to RNAV) points towards RM20 bn, which implies a Net profit (RM mn) 2,879 3,090 2,325 2,205 — EPS (CS adj. RM) 0.47 0.45 0.34 0.32 50% potential upside. In our view, this discount should narrow as the Core EPS (RM) 0.47 0.45 0.34 0.32 value unlocking of its land bank materialises quicker than expected. - Change from prev. EPS (%) n.a. n.a. 0 0 Regular asset disposal is a key strategy that management intends to - Consensus EPS (RM) n.a. n.a. 0.39 0.41 0.48 embark on, which could boost returns. Sime Property has a massive 21k EPS growth (%) 26.2 (3.3) (24.8) (5.1) n.a. P/E (x) 19.0 19.7 26.2 27.6 — acres of land bank with appraised value of RM19 bn vs book value of Core P/E (x) 19.0 19.7 26.2 27.6 — RM6 bn, which would give rise to large gains if it gets disposed. In Dividend yield (%) 3.0 3.8 2.7 2.5 addition, the group intends to dispose its non-core hospitality assets EV/EBITDA (x) 17.3 20.5 15.1 12.1 — worth at least RM1.2 bn (~11% of the implied market cap). P/B (x) 1.7 1.6 1.5 1.5 — ROE (%) 9.2 8.9 6.0 5.5 — Net debt(cash)/equity (%) 34.5 2.8 2.6 2.6 —
Note 1: Sime Darby Berhad is a Malaysia-based investment holding company. Its core businesses are industrial, motors and healthcare. It also owns many other assets, which will be disposed over time.
The listing reference prices for Sime entities have been set. Shares of Sime Plantation and Sime Property will be credited to shareholders on 29 November, with the stocks slated to be listed on 30 November.
Figure 1: Summary of reference prices for SIME entities % allocation Ref price (RM) Market cap (RMbn) Sime Plantation 62.5% 5.59 38,012 Sime Bhd 20.7% 1.85 12,580 Sime Property 16.8% 1.50 10,200 Source: Bursa Sime Plantation At the reference price of RM5.59/share, Sime Plantation is valued at RM38 bn (US$9.2 bn), or equates to 28.7x P/E FY17 (based on adjusted net EPS of 19.48 sen), on 6.8 bn shares issued, which appears to be on the higher side of the valuation as compared to the
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XL Axiata Tbk ------Upgrade to OUTPERFORM A key beneficiary if data prices rise in FY18 EPS: ◄► TP: ◄► Colin McCallum, CA / Research Analyst / 852 2101 6514 / [email protected] Billy Lee / Research Analyst / 852 2101 6529 / [email protected] ● The sharp correction in XL's share price over the last three currently shipping new equipment, which it expects to deploy across months is understandable, given that Telkomsel has reacted to December 2017 to March 2018, but until it is installed Indosat is clearly XL's aggression in some geographical clusters by offering capacity-constrained. Given this, it makes sense that XL, with ample 4G attractive starter pack pricing. XL has an extremely low net margin capacity in place, should want to regain market share lost to Indosat and ROIC, and is therefore poorly placed if a 'price war' ensues. across FY15-16 (as a reminder XL's market share dropped sharply from ● However, XL's high operational gearing can also work in its favour 19.3% of 'big 3' revenues in 4Q14 to a low of 14.5% in 4Q16). XL grew if the competitive environment improves in 1H18 as we expect. net cellular revenue by 12.2% YoY into 3Q17 (albeit from a low base), For example, a 10.0% increase in data pricing would, other things while Indosat's revenue declined by 2.4% YoY. Thus, XL regained 1.1 being equal, increase total revenue by circa 6.0%, and this would pp of market share YoY in 3Q17, recovering to 15.8% market share of drop through to a 120% increase in FY18 net profit. 'big 3' revenues—momentum that XL would very much like to continue into 4Q17. ● Given that Indosat is only likely to catch up on 4G rollout across December 2017 to March 2018, it makes sense that XL, with It is for this reason that the reduction in 4G data bonuses implemented ample 4G capacity in place, should want to continue to regain lost by all of the 'big 3' players in 4Q16-1Q17 have not been followed up market share, and we do not expect pricing to improve in 4Q17. with further price increases, and that starter pack competition has intensified, as mentioned, in certain areas in 2Q17 and 3Q17. ● However, we do continue to expect XL to shift back towards data bonus reductions/price increases in 1H18; with the highest While there has been no further intensification of competition thus far operational gearing, we therefore upgrade to OUTPERFORM. during 4Q17, pricing has not improved either, and with the XL-Indosat capacity imbalance continuing into the quarter, we do not expect XL to Bbg/RIC EXCL IJ / EXCL.JK Price (24 Nov 17, Rp) 3,010.00 change its strategy as yet. This in turn means that Telkomsel, whose Rating (prev. rating) O (N) TP (prev. TP Rp) 3,600 (3,600) premium on data pricing narrowed to 37.8% in 3Q17 (Rp15.2/MB versus 52-wk range (Rp) 4020.0 - 2040.0 Est. pot. % chg. to TP 20 XL's Rp11.1/MB) is unlikely to further reduce data bonuses in 4Q17. Mkt cap (Rp/US$ bn) 32,170.8/ 2.4 Blue sky scenario (Rp) 4,812 ADTO-6M (US$ mn) 1.8 Grey sky scenario (Rp) 2,386 …but we continue to expect improving dynamics in 1H18 Free float (%) 20.1 Performance 1M 3M 12M On the other hand, we do continue to expect XL's strategy to shift Major shareholders Axiata (66.6%) Absolute (%) (10.9) (17.1) 40.7 back towards data bonus reductions/price increases in 1H18. This will Relative (%) (12.5) (20.1) 22.2 benefit all three players—we expect both Telkomsel and Indosat to Year 12/15A 12/16A 12/17E 12/18E 12/19E Revenue (Rp bn) 22,218 20,575 22,462 24,274 25,895 swiftly follow XL upwards on pricing—but it should be particularly EBITDA (Rp bn) 8,392 8,056 8,635 9,409 10,109 positive for XL, given that, as previously mentioned, it has the highest Net profit (Rp bn) (26) 375 408 909 1,017 fixed cost base, lowest scale and lowest ROIC of the 'big 3' operators. EPS (CS adj. Rp) (3.1) 38.3 38.2 85.2 95.3 - Change from prev. EPS (%) n.a. n.a. 0 0 0 To offer some simple numbers around this, given that circa 60.0% of - Consensus EPS (Rp) n.a. n.a. 41 109 174 XL's revenue is now generated from data, a 10.0% increase in data EPS growth (%) n.m. n.m. (0.4) 123.1 11.9 pricing would, other things being equal, increase total revenue by P/E (x) n.m. 78.5 78.8 35.3 31.6 Dividend yield (%) 0 0 0.4 2.3 2.8 6.0%, and this would drop through to 120% increase in FY18 net profit. EV/EBITDA (x) 6.8 5.9 5.4 4.8 4.2 We believe that XL management understands this arithmetic very well, P/B (x) 1.8 1.4 1.5 1.5 1.5 and that, after taking advantage of Indosat's delayed 4G rollout, the ROE (%) (0.2) 2.1 1.9 4.2 4.7 logic of higher data prices will prevail in 1H18—particularly after Net debt (cash)/equity (%) 175.0 73.7 66.3 58.8 48.5
Note 1: ORD/ADR=20.00. Note 2: XL Axiata is involved in the provision of telephony services in Indosat's capacity constraints ease with its long awaited 4G catch-up. Indonesia.
No step-change in capex levels in FY18 Click here for detailed financials Similarly, we believe management is aware of XL's low profitability Don't expect data price hikes in 4Q17… and therefore remains cautious on capex. This year's market share The sharp correction in XL's share price over the last three months is recovery is, therefore, unlikely to trigger a dramatic increase in capital understandable given that Telkomsel has reacted to XL's aggression expenditure. We continue to forecast Rp6.8 tn in capex in FY18, in some geographical clusters by offering attractive starter pack similar to the FY17 guidance level of Rp7.0 tn. The mid-to-high single pricing (Rp25,000 for 1GB of data, 2GB of Videomax, and 2GB of digit revenue growth expected in FY18 (we currently forecast 8.1% Facebook). Given XL's high 'fixed' depreciation and interest costs, and growth) would not be enough to justify a step-change in capex levels, extremely low net margin and ROIC, XL is poorly positioned under the and should instead give further impetus towards management scenario that a downward spiral 'price war' ensues. reverting to the reduction of data bonuses to drive top line and bottom However, XL's high operational gearing can also work in its favour if the line growth. competitive environment improves in 1H18 as we expect. In the meantime, XL's improving operational momentum—particularly in comparison with Indosat—is likely to continue to deliver revenue share gains into 4Q17. As a reminder, XL had 15,711 4G BTS in place as at September 2017, behind Telkomsel's 21,447 4G BTS but, crucially, well ahead of Indosat's 6,110 4G BTS. We understand that Indosat is
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Asian Daily
China Mengniu Dairy ------Maintain OUTPERFORM Correction overdone EPS: ▼ TP: ◄► Charlie Chen / Research Analyst / 852 2101 6165 / [email protected] Michael Shen / Research Analyst / 852 2101 6711 / [email protected] Daisy Dai, FRM / Research Analyst / 852 2101 6591 / [email protected] ● Although the recent market sentiment was negatively affected by Stronger growth in 2018 news related to imported foreign milk formula, we reiterate our We retain our 2018/19E earnings estimate unchanged and estimate OUTPERFORM rating on Mengniu considering the industry's sales/earnings to witness 8%/31% CAGR over 2017-19E. Considering recovery and its sustainable market share gain. We cut our 2017E (1) a lower base for 2017 on one-off items, (2) further product mix earnings by 10% to factor in higher CMD loss and FX loss while optimisation on Mengniu’s sold innovation capability and (3) continued we maintain our 2018E/19E earnings unchanged. efficiency improvement following the reform launched by new ● We believe top line remains solid in 2H17 with 9% YoY growth, management, we believe Mengniu's earnings will likely take off in slightly better than 8% YoY in 1H17. However, we cut 2017 2018E (44% YoY growth by CSe). earnings by 10% to Rmb2,267 mn to factor in additional (1) Correction overdone; reiterate OUTPERFORM rating Rmb100 mn loss for CMD and (2) Rmb100 mn forex loss. Mengniu's share price was under pressure recently as market sentiment was negatively affected by government announcements, ● We retain our 2018/19E earnings unchanged and thus forecast which might be positive for imported infant milk formula brands: (1) sales/earnings to witness 8%/31% CAGR over 2017-19E. With (1) extended selling period - CFDA agreed to make the foreign products, a lower base in 2017 on one-off items, (2) further product mix which have been approved for entry before Jan 1, 2018 but not been optimisation and (3) continued efficiency improvement, we believe registered yet, to be sold until the expiry date; (2) import tariff cut for its earnings will likely take off in 2018. foreign infant milk formula announced by the Ministry of Finance. We ● Mengniu is currently trading below its historical average. Our believe the share price correction was overdone as these events unchanged target price of HK$25.0 is based on 25x 2018E P/E. would have limited fundamental impact on Mengniu’s liquid milk ●Bbg/RIC 2319 HK / 2319.HK Price (27 Nov 17 , HK$) 20.00 business and believe its milk powder should benefit from the new IMF Rating (prev. rating) O (O) TP (prev. TP HK$) 25.00 (25.00) regulation when it comes to be fully effective after this transition period. 52-wk range (HK$) 22.6 - 14.0 Est. pot. % chg. to TP 25 Mkt cap (HK$/US$ bn) 78.5/ 10.1 Blue sky scenario (HK$) 27.00 Therefore, we reiterate our OUTPERFORM rating considering (1) a ADTO-6M (US$ mn) 27.7 Grey sky scenario (HK$) 23.00 visible industry demand recovery and (2) Mengniu’s sustainable market Free float (%) 68.0 Performance 1M 3M 12M share gain and margin expansion. Current valuation is not demanding Major shareholders COFCO(16.3%) Absolute (%) (5.9) 17.5 22.5 as Mengniu is trading at 20x 2018E P/E, which is below its historical Relative (%) (11.8) 6.3 (26.5)
Year 12/15A 12/16A 12/17E 12/18E 12/19E average. Our unchanged target price of HK$25.0 is based on 25x Revenue (Rmb bn) 49.0 53.8 58.4 63.1 67.8 2018E P/E. We believe it should deserve a valuation rerating given its EBITDA (Rmb bn) 4.1 1.2 4.6 5.6 6.4 market share gain, improved execution and visible earnings recovery. Net profit (Rmb bn) 2.4 (0.8) 2.3 3.3 3.9 EPS (CS adj. Rmb) 0.61 (0.19) 0.58 0.84 0.99 Figure 1: Income statement - Change from prev. EPS (%) n.a. n.a. (10.4) 0 0 2015 2016 2017E 2018E 2019E - Consensus EPS (Rmb) n.a. n.a. 0.62 0.84 0.99 Sales 49,027 53,779 58,383 63,054 67,837 EPS growth (%) 0.7 n.m. n.m. 44.1 18.6 YoY growth -2.0% 9.7% 8.6% 8.0% 7.6% P/E (x) 27.9 n.m. 29.1 20.2 17.0 Liquid Milk 0.7% 11.0% 7.3% 7.9% 7.6% Dividend yield (%) 1.7 1.7 1.4 2.0 2.4 Ice cream -21.2% 1.8% 16.0% 10.0% 5.0% EV/EBITDA (x) 17.0 58.6 15.5 12.3 10.6 Dairy products -17.2% -1.7% 21.4% 7.7% 9.1% P/B (x) 3.0 3.2 3.0 2.7 2.5 Sales mix 100% 100% 100% 100% 100% ROE (%) 10.9 (3.5) 10.5 14.1 15.3 Net debt(cash)/equity (%) 11.9 10.1 15.7 10.5 6.1 Liquid Milk 88% 89% 88% 88% 88%
Note 1: ORD/ADR=10.00. Note 2: China Mengniu Dairy Co Ltd and its subsidiaries manufacture and Ice cream 4% 4% 4% 4% 4% distribute quality dairy products in China. It is one of the leading dairy product manufacturers in Dairy products 7% 7% 7% 7% 7% China, with MENGNIU as the core brand. The group boasts a diverse product range in milk.
Gross profit 15,375 17,635 20,284 22,493 24,703 Click here for detailed financials - YoY -0.4% 14.7% 15.0% 10.9% 9.8% 2H17 sales growth set to accelerate while earnings GP margin 31.4% 32.8% 34.7% 35.7% 36.4% negatively affected by some one-off items SG&A/sales -27.0% -34.9% -30.4% -30.0% -30.0% We believe Mengniu’s top line remains solid in 2H17, with sales growth - Selling exp -22.4% -25.0% -24.5% -24.2% -24.2% of 9% YoY, slightly accelerating from 8% YoY in 1H17. This is mainly - G&A exp -3.8% -4.6% -3.8% -3.8% -3.8% attributable to (1) sustainable overall industry recovery - we estimate - Other exp -0.8% -5.3% -2.1% -2.0% -2.0% 5.7% industry sales growth in 2017 (vs 3.3% in 2016), and (2) continued OP 2,648 (420) 3,134 4,203 4,935 focus on new/high-end product with stronger momentum. However, we - EBIT YoY -0.6% -115.9% -846.2% 34.1% 17.4% - EBIT margin 5.4% -0.8% 5.4% 6.7% 7.3% revise down our 2017E earnings by 10% to Rmb2,267 mn assuming - Effective tax rate -16.8% N.M -20.0% -20.0% -20.0% additional (1) Rmb100 mn loss for CMD and (2) Rmb100 mn FX loss Net profit 2,367 (751) 2,267 3,267 3,875 from RMB-denominated debt hold by listed company (with function - Net profit YoY 0.7% -131.7% -401.8% 44.1% 18.6% currency of HKD) on the backdrop of RMB appreciation. - Net margin 5% -1% 4% 5% 6% Source: Company data, Credit Suisse estimates.
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Regional Asia Pacific Strategy ------Credit Suisse GEM valuation snapshot Kin Nang Chik / Research Analyst / 852 2101 7482 / [email protected]
Figure 1: Historical valuations Figure 2 (continued): Forecast valuations (IBES estimates) 24 Nov 17 12M P/E (x) Trailing P/B (x) Trailing DY (%) EPS growth (%) 3M chg. in est. (%) P/E (x) Current 5-yr avg. Current 5-yr avg. Current 5-yr avg. 2016 2017 2018 2017 2018 2016 2017 2018 Brazil 12.2 11.0 1.8 1.4 2.6 3.9 Russia 9.6 4.2 9.7 2.7 -0.6 12.0 11.5 10.5 Chile 18.3 15.5 1.8 1.8 2.4 2.7 South Africa 1.0 14.2 20.7 -2.7 -1.4 23.3 19.9 16.5 China 14.2 10.3 2.2 1.6 1.6 2.8 Taiwan -0.1 10.1 10.6 -0.8 2.1 16.9 15.4 13.9 Colombia 13.1 14.0 1.3 1.4 2.6 3.1 Thailand 16.4 6.6 8.3 0.9 0.3 17.3 16.3 15.0 Czech Republic 15.0 12.9 1.4 1.4 7.1 7.2 Turkey 10.1 40.5 9.3 5.7 2.7 11.7 8.3 7.6 Egypt 10.7 9.9 3.1 2.2 1.8 2.0 UAE 2.2 2.1 9.4 0.5 -1.3 11.3 11.1 10.1 Greece 13.2 14.6 0.5 0.9 1.9 1.7 Cons. Discretionary -1.5 10.0 24.5 -5.5 -2.5 23.4 20.8 16.7 Hungary 10.8 10.4 1.8 1.2 1.9 2.7 Consumer Staples 0.1 12.5 13.1 -1.1 -1.4 28.8 25.7 22.7 India 18.5 16.3 3.2 3.0 1.3 1.4 Energy -8.1 25.1 9.4 3.9 2.7 12.7 10.2 9.3 Indonesia 16.2 14.7 3.1 3.2 2.2 2.4 Financials 1.1 11.8 9.4 1.6 1.5 11.7 10.4 9.5 Korea 9.1 9.4 1.3 1.0 1.4 1.4 Health Care 6.0 9.2 25.7 -1.9 -0.9 32.8 30.1 23.9 Malaysia 15.4 15.4 1.6 1.9 2.9 3.0 Industrials -3.4 39.9 4.6 8.6 1.6 19.6 14.0 13.3 Mexico 16.1 17.7 2.6 2.8 2.3 1.6 Info.Technology 12.5 51.0 18.1 1.4 6.1 26.8 17.7 15.0 Pakistan 8.3 8.5 1.3 2.0 6.6 6.0 Materials 307.8 24.4 5.1 3.0 6.2 15.9 12.8 12.2 Peru 14.4 12.7 2.5 2.2 1.5 2.0 Real Estate 12.0 18.8 16.7 9.0 5.9 14.1 12.4 10.7 Philippines 18.9 18.4 2.5 2.9 1.3 1.7 Telecoms -9.8 16.8 8.3 0.1 -0.8 19.5 16.7 15.4 Poland 12.3 12.5 1.5 1.3 2.0 3.9 Utilities -6.7 -13.0 15.6 -5.5 -4.1 10.6 12.1 10.5 Qatar 9.8 n/a 1.3 1.9 4.6 4.1 Russia 6.6 5.1 0.8 0.7 4.7 4.4 EM 7.7 22.4 12.7 1.5 2.5 17.6 14.4 12.8 South Africa 16.7 14.6 2.5 2.5 2.6 2.9 EM Asia 2.9 25.4 13.3 1.7 3.3 18.5 14.7 13.0 Taiwan 14.0 13.3 2.0 1.8 3.6 3.4 EM Europe 10.1 11.3 8.1 3.7 1.0 9.7 8.7 8.0 Thailand 15.1 13.2 2.2 2.1 2.8 3.0 EM Latin America 57.6 20.3 10.0 -0.8 0.9 18.3 15.2 13.8
Turkey 7.6 9.3 1.4 1.5 3.1 2.6 Figure 3: Index—absolute performance in US$ (%) UAE 10.2 n/a 1.5 1.6 4.1 3.2 24 Nov 17 1W 1M 3M YTD 12M Con Discretionary 17.2 13.0 2.3 2.1 1.2 1.5 Brazil 2.4 -1.8 1.0 21.6 23.2 Con Staples 22.9 21.2 4.0 3.8 2.0 1.9 Chile -6.7 -8.7 -1.6 24.6 25.7 Energy 9.4 7.7 0.9 0.8 3.1 3.7 China 2.0 6.7 11.9 54.8 50.1 Financials 9.6 9.0 1.3 1.3 3.1 3.3 Colombia 1.6 -1.4 -2.9 7.6 18.0 Health Care 24.6 21.8 4.2 4.0 1.0 1.0 Czech Republic 2.0 2.5 4.7 25.0 28.5 Industrials 13.4 13.8 1.5 1.5 1.7 1.8 Egypt 0.1 -1.8 -3.2 1.1 7.3 Info Technology 15.2 12.8 3.6 2.2 1.2 1.8 Greece 3.1 -2.9 -21.3 4.6 8.6 Materials 12.2 12.5 1.5 1.3 2.8 3.1 Hungary 3.1 -0.3 1.0 35.5 44.2 Real Estate 10.8 9.8 1.5 1.3 3.0 3.3 India 1.7 2.5 4.9 32.0 37.2 Telecoms 15.5 14.2 2.0 2.2 3.5 3.8 Indonesia 1.1 3.6 1.3 16.4 23.1 Utilities 10.6 10.4 1.1 1.1 3.4 3.5 Korea 1.4 6.2 13.8 48.3 50.2 Malaysia 0.9 1.8 0.8 13.9 13.5 EM 12.9 11.3 1.9 1.5 2.2 2.7 Mexico 2.7 -1.3 -10.7 16.5 18.9 EM Asia 13.2 11.5 1.9 1.6 1.9 2.4 Pakistan -0.9 -4.4 -10.0 -27.9 -19.2 EM Europe 8.1 6.9 1.0 0.9 3.7 3.8 Peru 2.7 1.8 6.1 34.7 38.9 EM Latin America 13.9 13.0 2.0 1.7 2.4 3.0 Philippines 0.8 2.0 4.2 18.3 18.4
Poland 3.4 4.4 4.4 51.3 61.9 Figure 2: Forecast valuations (IBES estimates) Qatar -2.0 -5.3 -14.0 -24.7 -19.0 24 Nov 17 EPS growth (%) 3M chg. in est. (%) P/E (x) Russia 3.2 5.2 13.4 1.2 13.3 2016 2017 2018 2017 2018 2016 2017 2018 South Africa 1.1 5.3 2.1 19.9 26.7 Brazil 92.1 23.1 11.3 -1.8 2.2 16.6 13.4 12.1 Taiwan 1.5 1.9 4.2 27.3 26.7 Chile 2.5 2.3 14.1 -3.9 -0.8 21.1 20.6 18.1 Thailand 0.1 2.4 10.5 24.3 28.8 China 0.3 22.4 14.5 3.5 3.5 19.5 16.0 14.0 Turkey -3.2 -7.2 -16.1 18.3 21.7 Colombia 25.7 -13.1 20.7 -2.7 -5.0 13.5 15.6 12.9 UAE -0.7 -6.1 -5.5 -0.4 6.2 Czech Republic -7.3 -3.1 -13.5 4.4 -0.3 12.8 13.2 15.2 Egypt 70.0 22.9 14.5 3.6 1.3 14.8 12.1 10.5 Consumer Discretionary 0.1 4.1 6.1 36.6 38.4 Greece 11.4 -7.1 20.7 -3.9 -3.6 14.7 15.9 13.1 Consumer Staples 1.1 2.8 1.0 17.4 17.7 Hungary 65.3 14.3 1.1 11.7 7.2 12.5 10.9 10.8 Energy 2.3 1.8 10.2 15.2 21.1 India 4.9 9.7 21.8 0.2 0.8 23.3 21.3 17.4 Financials 1.7 2.9 2.6 25.1 27.3 Indonesia 3.0 15.6 13.4 -0.5 -1.2 21.1 18.2 16.1 Health Care 0.8 4.0 15.2 25.7 24.9 Korea 7.2 53.3 11.7 1.9 5.5 15.4 10.1 9.0 Industrials 1.1 0.1 2.3 21.3 20.4 Malaysia -0.1 0.1 7.0 -2.1 -1.3 17.5 16.4 15.3 Information Technology 2.0 8.3 15.1 68.0 68.7 Mexico 29.8 26.1 2.9 3.6 -1.2 20.8 16.5 16.0 Materials 2.4 0.9 2.7 25.2 26.7 Pakistan -6.9 -18.3 34.3 -26.3 -4.0 9.1 11.1 8.2 Real Estate 1.1 -3.8 4.6 39.4 n/a Peru 22.1 19.6 15.7 -1.1 0.4 36.8 30.8 26.6 Telecommunication Services 0.9 -1.5 -4.4 9.2 11.6 Philippines 8.5 3.1 11.9 -0.7 -0.6 21.6 20.9 18.7 Utilities 1.2 -0.8 0.4 13.0 12.8 Poland 3.4 19.4 4.1 3.8 4.3 15.3 12.8 12.3 EM 1.6 3.7 6.6 33.9 35.5 Qatar -11.0 5.3 9.1 -1.7 -4.3 11.3 10.6 9.7 Note: Sectors are EMF sectors. Source for all figures: MSCI, IBES Aggregates
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Asian Daily
Asia Pacific Strategy ------Credit Suisse valuation snapshot Kin Nang Chik / Research Analyst / 852 2101 7482 / [email protected]
Figure 1: Country—DDM-based valuations Figure 4: Forecast valuations (IBES estimates) 24 Nov 17 Implied discount rate (IDR) (%) Equity risk premium (ERP) (%) 24 Nov 17 3-mth chg. in Current 5Y avg. Std Dev. Current 5Y avg. Std Dev. EPS growth (%) EPS est. (%) P/E (x) Australia 9.8 11.7 0.4 7.3 7.5 0.4 2016 2017 2018 2017 2018 2016 2017 2018 China 7.5 8.7 0.6 3.5 5.1 0.8 Australia -16.2 14.4 5.8 -0.3 -0.4 19.9 17.3 16.4 Hong Kong 7.6 8.0 0.3 5.8 6.3 0.4 China 0.3 22.4 14.5 3.5 3.5 19.5 16.0 14.0 India 11.1 11.8 0.5 4.1 4.1 0.6 Hong Kong 3.4 15.0 7.1 2.3 1.9 20.3 17.7 16.5 Indonesia 10.8 12.3 0.9 4.2 4.7 1.1 India 4.9 9.7 21.8 0.2 0.8 23.3 21.3 17.4 Korea 11.2 11.5 0.7 8.7 9.0 1.2 Indonesia 3.0 15.6 13.4 -0.5 -1.2 21.1 18.2 16.1 Malaysia 10.1 10.5 0.3 6.2 6.6 0.4 Japan -3.5 15.2 21.7 5.1 2.8 21.0 18.2 15.0 Philippines 9.1 9.5 0.2 3.6 5.2 0.6 Korea 7.2 53.3 11.7 1.9 5.5 15.4 10.1 9.0 Singapore 9.5 10.2 0.3 7.4 8.0 0.4 Malaysia -0.1 0.1 7.0 -2.1 -1.3 17.5 16.4 15.3 Taiwan 11.1 11.1 0.4 10.0 9.8 0.6 Philippines 8.5 3.1 11.9 -0.7 -0.6 21.6 20.9 18.7 Thailand 10.8 12.0 0.8 8.4 9.0 0.4 Singapore -8.4 7.9 9.0 -0.4 1.3 16.8 15.5 14.3 Asia ex Japan 10.4 11.4 0.4 8.0 8.7 1.0 Taiwan -0.1 10.1 10.6 -0.8 2.1 16.9 15.4 13.9 Thailand 16.4 6.6 8.3 0.9 0.3 17.3 16.3 15.0
Figure 2: Sector—DDM-based valuations Cons. Discretionary -2.7 9.6 22.1 -5.5 -2.1 20.9 19.1 15.6 24 Nov 17 Market implied growth rate (MIGR) (%) Consumer Staples 1.2 8.7 7.2 0.5 -0.8 25.0 23.1 21.5 Current 5-year average Std Dev. Energy 0.3 43.7 8.9 10.8 7.5 19.8 13.8 12.6 Cons. Discretionary 4.9 0.8 2.0 Financials -4.4 10.4 7.6 0.9 1.4 13.3 12.0 11.2 Consumer Staples 5.3 0.8 2.0 Health Care 3.1 8.2 21.0 -2.4 -1.7 35.7 33.0 27.2 Energy -1.8 -4.1 1.8 Industrials -3.5 26.7 4.0 7.3 1.4 18.7 14.8 14.2 Financials 0.8 -0.4 1.5 Information Tech 12.4 51.3 18.1 1.4 6.2 26.9 17.7 15.0 Health Care 7.7 4.6 1.6 Materials 0.0 57.2 3.3 4.2 5.4 21.9 13.9 13.5 Industrials 4.1 3.2 1.5 Real Estate 8.8 13.9 11.2 0.7 2.7 16.8 15.0 13.5 Information Tech 10.9 7.5 1.8 Telecom Services -5.4 4.4 5.9 -0.5 -1.8 16.7 16.0 15.1 Materials 4.2 2.8 1.7 Utilities -22.4 -9.9 16.5 -6.1 -2.6 14.7 15.7 13.5 Telecom Services 5.3 4.7 1.4 Asia Pacific 4.9 22.4 8.0 3.1 2.7 18.7 15.3 14.2 Utilities -0.5 -1.6 1.8 Asia ex Japan 2.3 23.5 12.5 1.7 3.1 18.6 15.0 13.4 Asia Pac ex Japan -0.5 22.7 11.2 1.6 2.6 18.8 15.3 13.8 Figure 3: Historical valuations Note: PE and EPS growth numbers for Australia and Japan corresponds to Jun 16-18 and Mar 16- 24 Nov 17 12M forward Trailing Trailing dividend 18; and EPS change numbers correspond to Jun 17-18 and Mar 18-19, respectively. P/E (x) P/B (x) yield (%) Figure 5: Index—absolute performance in US$ (%) Current 5-yr avg. Current 5-yr avg. Current 5-yr avg. (24 Nov 17) US$ – price index 1W 1M 3M YTD 12M Australia 16.1 15.1 2.0 1.9 4.3 4.5 MSCI Australia 1.4 -0.6 0.2 10.7 12.0 China 14.2 10.3 2.2 1.6 1.6 2.8 MSCI China 2.0 6.7 11.9 54.8 50.1 Hong Kong 16.5 15.0 1.4 1.3 2.6 2.8 MSCI Hong Kong 2.0 4.5 6.6 31.4 24.3 India 18.5 16.3 3.2 3.0 1.3 1.4 MSCI India 1.7 2.5 4.9 32.0 37.2 Indonesia 16.2 14.6 3.1 3.2 2.2 2.4 MSCI Indonesia 1.1 3.6 1.3 16.4 23.1 Japan 14.6 14.0 1.5 1.3 1.9 1.9 MSCI Japan 1.4 3.4 9.8 20.8 21.9 Korea 9.1 9.4 1.3 1.0 1.4 1.4 MSCI Korea 1.4 6.2 13.8 48.3 50.2 Malaysia 15.4 15.4 1.6 1.9 2.9 3.0 MSCI Malaysia 0.9 1.8 0.8 13.9 13.5 Philippines 18.9 18.4 2.5 2.9 1.3 1.7 MSCI Philippines 0.8 2.0 4.2 18.3 18.4 Singapore 14.3 13.2 1.4 1.3 3.3 3.6 MSCI Singapore 2.7 5.7 8.1 30.2 30.5 Taiwan 14.0 13.3 2.0 1.8 3.6 3.4 Thailand 15.1 13.2 2.2 2.1 2.8 3.0 MSCI Taiwan 1.5 1.9 4.2 27.3 26.7 MSCI Thailand 0.1 2.4 10.5 24.3 28.8 Cons. Discretionary 16.0 12.1 2.1 1.8 1.6 1.9 Consumer Staples 21.5 19.7 3.3 2.9 2.4 2.6 Cons. Discretionary 0.4 3.5 7.5 33.9 32.5 Energy 12.8 12.1 1.3 1.2 2.8 3.5 Consumer Staples 1.3 3.8 5.2 20.0 20.1 Financials 11.2 10.6 1.5 1.3 3.5 3.8 Energy 2.4 3.0 9.0 23.5 24.8 Health Care 27.3 22.9 5.5 5.0 1.1 1.3 Financials 1.8 3.1 4.6 23.8 23.7 Industrials 14.2 14.3 1.4 1.4 2.2 2.4 Health Care 1.9 4.1 13.2 33.2 30.4 Information Tech 15.3 12.8 3.6 2.2 1.2 1.8 Industrials 1.0 0.3 2.3 19.4 16.8 Materials 13.7 13.7 1.6 1.5 3.1 3.1 Information Tech 2.0 8.3 15.2 68.4 69.3 Real Estate 13.5 12.5 1.0 0.9 3.2 3.6 Materials 2.1 0.9 1.9 22.7 21.3 Telecom Services 15.2 15.2 1.9 2.2 3.9 3.9 Real Estate 1.7 0.0 5.0 31.8 30.2 Utilities 13.6 12.8 1.4 1.5 3.4 3.1 Telecom Services 1.2 0.1 -4.1 4.8 3.3 Utilities 0.8 -0.3 0.9 14.0 12.5 Asia Pacific 14.3 13.1 1.7 1.5 2.2 2.5 Asia ex Japan 13.5 11.9 1.8 1.5 2.0 2.5 MSCI AC Asia Pacific 1.6 3.7 8.2 28.2 28.3 Asia Pac ex Japan 13.9 12.5 1.9 1.6 2.5 3.0 MSCI AC Asia ex JP 1.7 4.8 9.0 39.6 38.4 MSCI AC Asia Pacific ex JP 1.7 3.8 7.2 33.3 32.6 Note: All sectoral data refers to Asia Pacific ex Japan. Source for all figures: MSCI, Factset, Thomson Financial Datastream, Credit Suisse
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Asian Daily
Australia Treasury Wine ------Downgrade to UNDERPERFORM Is 19 Crimes a Cupcake? EPS: ▼ TP: ◄► Larry Gandler / Research Analyst / 61 3 9280 1855 / [email protected] Justin Heath / Research Analyst / 61 3 9280 1766 / [email protected] ● The latest US wine retail scan data holds information for both the Our rating falls from Neutral to UNDERPERFORM TWE bulls and bears. Bears: TWE total retail sales have not yet No change to target price. TWE's recent share price rally has pushed ignited after initiating a strategy to resuscitate the national the company's PEx and EBITDAx ahead of peer ratings. While we accounts channel about eight months ago. Bulls: 19 Crimes – believe TWE affords investors above market growth, it appears to be which is supporting company revenue – has "escaped" to a new priced in for the time being. higher volume level. Full report Our target price continues to be determined by applying ● We compare 19 Crimes to Cupcake, fairly recent wine phenomenon 23x to EPS two-years forward (FY20) launched by the Wine Group circa 2008 which now exceeds 3 mn Rolling our valuation forward to FY21 would imply an increase in our cases. Although 19 Crimes has not attained Cupcakes' volume over target price of 60c. Also, investors anticipate TWE will make an the same time since launch, it does seem to have further runway. acquisition which may be EPS and NPV accretive. TWE has about ● Our rating falls from Neutral to UNDERPERFORM. No change to A$1.0bn of balance sheet capacity. target price. TWE's recent share price rally has pushed the Figure 1: 19 Crimes vs. Cupcake Retail Volume 50 4-week Periods company's PEx and EBITDAx ahead of peer ratings. Since Launch ● Rolling our valuation forward to FY21 would imply an increase in Figure 1: 19 Crimes vs. Cupcake Retail Volume 50 4-week Periods Since Launch 140,000.0 our target price of 60c. Also, investors anticipate TWE will make 120,000.0 an acquisition which may be EPS and NPV accretive. TWE has 100,000.0 about A$1.0bn of balance sheet capacity. Cupcake s 80,000.0 se ca L 9 Bbg/RIC TWE AU / TWE.AX Price (22 Nov 17 , A$) 15.89 60,000.0
Rating (prev. rating) U (N) TP (prev. TP A$) 14.15 (14.15) 40,000.0 52-wk range (A$) 16.0 - 10.2 Est. pot. % chg. to TP (11) 19 Crimes Mkt cap (A$/US$ mn) 11,546.4/ 8,793.8 Blue sky scenario (A$) n.a. 20,000.0 ADTO-6M (US$ mn) 35.9 Grey sky scenario (A$) n.a. 0.0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 Free float (%) 98.2 4-week periods Performance 1M 3M 12M Major shareholders Absolute (%) 5.89 13.40 47.94 Source: Nielsen Relative (%) 4.58 9.24 38.87
Year 06/16A 06/17A 06/18E 06/19E 06/20E Cupcake became a much larger brand than 19 Crimes in its first 49 Revenue (A$ mn) 2,233 2,402 2,454 2,637 2,747 months since launch. We first track Cupcake volume from January EBITDA (A$ mn) 441.7 563 617 722 787 2009 when it was a nascent brand. We track 19 Crimes from March Net profit (A$ mn) 221.3 295 333 397 444 EPS (CS adj. A$) 0.31 39.64 45.45 54.75 61.15 2014 when it also was selling very few cases. - Change from prev. EPS (%) n.a. n.a. (0.3) (0.4) (0.4) - Consensus EPS (A$) n.a. 41.60 46.50 57.90 67.40 Although Cupcake reached greater heights than 19 Crimes after about EPS growth (%) 43.0 29.1 14.7 20.5 11.7 50 months in the marketplace, 19 Crimes is still growing its monthly P/E (x) 51.8 40.1 35.0 29.0 26.0 volume strongly. (Cupcake did not permanently plateau in 2012 – four Dividend yield (%) 1.0 1.6 1.9 2.3 2.5 years after launch. It resumed modest growth to reach 120,000 EV/EBITDA (x) 27.0 21.1 19.7 16.6 15.2 P/B (x) 3.3 3.3 3.3 3.1 3.0 cases/month). The latest, November 2017 retail scan reading shows ROE (%) 6.7 8.2 9.5 11.2 11.9 19 Crimes surpassing 40,000 cases per month. Considering that retail Net debt(cash)/equity (%) 10.7 9.9 17.5 13.7 12.3 scan data measures about 40%–50% of commercial/masstige brand Note 1: ORD/ADR=1.00. Note 2: Treasury Wine Estates Ltd. is engaged in the international wine volume in the USA, 19 Crimes may be on a run-rate to surpass 1.0mn business with a portfolio of wines. Its business is structured into four regions: Australia and New Zealand (ANZ); Americas; Europe, Middle East and Africa (EMEA); and Asia Pacific. cases. TWE's North America volume is about 15mn cases.
Click here for detailed financials (This is an extract from Larry Gandler’s report, ‘Is 19 Crimes a The latest US wine retail scan data holds information for Cupcake?’ published on 27 November 2017. For details, please see both the TWE bulls and bears the CS Plus website.) Bears: TWE total retail sales have not yet ignited after initiating a strategy to resuscitate the national accounts channel about eight months ago. Bulls: 19 Crimes – which is supporting company revenue – has "escaped" to a new higher volume level – perhaps the brand is on a 1mn case run-rate in the US. How big can 19 Crimes become? We compare 19 Crimes to Cupcake, fairly recent wine phenomenon launched by the Wine Group circa 2008 which now exceeds 3 mn cases. Although 19 Crimes has not attained Cupcakes' volume over the same time since launch, it does seem to have further runway.
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Asian Daily
China China Cement Sector ------New report: Embracing six-year high profitability Yang Luo / Research Analyst / 852 2101 6328 / [email protected] Peter Li / Research Analyst / 852 2101 6320 / [email protected] ● We expect cement price to remain strong over the coming 6–12 rounds of price hikes (with an aggregate Rmb120-130/t) in East China months, on the back of resilient demand and constrained supply. within the last three months. As we forecast a 6% YoY drop in coal price to Rmb600/t in Inventory level is at five-year low. China’s average cement 2018E, the profitability of the China cement sector is expected to inventory level (measured by clinker inventory as % of total capacity of continue to hover at a high level, in our view. We have clinker silo) edged 0.6 pp lower to 54%. For 2017 YTD, cement price OUTPERFORM ratings on Anhui Conch (A&H) and BBMG (H). in Guangdong and Guangxi provinces only increased by 0.7% vs ● Average cement price went up 2.4% WoW to Rmb366/t last week +18.8% hike for Yangtze River Delta area (Jiangsu, Shanghai and (+15% for 2017 YTD). We attribute this to: (1) stable demand and (2) Zhejiang provinces). production disruption. We spotted five major rounds (total of Anhui Conch is set to be the most beneficiary; OUTPERFORM. ~Rmb120-130/t) of price hikes in East China in the last three months. Anhui Conch is our top pick within the sector due to its cost leadership ● China’s average cement inventory level (measured by clinker and strong balance sheet. We forecast its current GP/t to reach six- inventory as % of total capacity of clinker silo) edged 0.6 pp lower year high at about Rmb100/t. Maintain OUTPERFORM on Anhui to 54% as of 24 Nov 2017. Conch (A&H). We have a NEUTRAL rating on CR Cement, given the ● Conch is our top pick within the cement sector due to its cost potential supply shock (3.6% newly added in clinker capacity for leadership and strong balance sheet. We have a NEUTRAL rating Guangdong and Guangxi provinces). on CR Cement, given the potential supply shock (3.6% newly Figure 2: Conch’s stock vs cement-to-coal price gap added clinker capacity). Full report. 350 40 Figure 1: China’s cement price vs inventory (RHS) 32 270 410 80% 24 190 380 74% 16 350 110 68% 8 320 - 30 62% 290 56%
260 Jul-11
Oct-09 Apr-13 Oct-16
Jan-08 Jun-14 Jan-15
Feb-12 Mar-09 Mar-16
Nov-13 Dec-10 Dec-17
Aug-08 Sep-12 Aug-15
May-10 May-17 230 50% Conch stock price (HK$) Cement-coal for Yangzi River Delta (Rmb/t) (RHS)
Source: Digital Cement, The BLOOMBERG PROFESSIONAL™ service, CCTD, CS
Oct-17 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16
Jun-17 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 China avg. cement price (Rmb/t) Figure 3: Cement P/E vs cement-to-coal price gap China avg. cement inventory (% RHS) 260 22x Source: Digital Cement, Credit Suisse estimates 240 18x Cement prices hike amid subdued coal price. We expect cement 220 14x price to remain strong over the coming 6–12 months, on the back of 200 10x resilient demand and constrained supply. As we forecast a 6% YoY drop 180 in coal price to Rmb600/t in 2018E, profitability of the China cement 160 6x sector is expected to continue to hover at a high level, in our view. We 140 2x
derived the current gross profit per tonne (GP/t) of Rmb68/t for the
Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17
whole sector, which is at about six-year high level since end-2011. We Jul-10
Jan-16 Jan-17 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-18 have OUTPERFORM ratings on Anhui Conch (A&H) and BBMG (H). Cement price to coal price gap (Rmb/t) Cement sector 12-month fwd P/E (RHS) Production curb is the major drive for accelerating cement price Source: Digital Cement, CCTD, Company data, Credit Suisse rally. The average price went up 2.4% WoW to Rmb366/t as of 24 Nov (+15% for 2017 YTD). We attribute this mainly to: (1) stable demand and (2) production disruption. We have spotted five major Valuation metrics Company Ticker Rating Price Target TP Up/dn Year EPS Chg EPS EPS grth (%) P/E (x) DY P/B Scenario Chg to TP (%) (%) (x) (prev.) Local price (prev.) (%) (%) T T+1 T+2 T+1 T+2 T+1 T+2 T+1 T+2 T+1 T+1 Blue sky Grey sky Conch (H) 0914.HK O 35.20 42.00 0 19 12/16 0 0 2.40 2.57 48 7 12.4 11.6 2.6 1.8 48.30 18.00 BBMG (H) 2009.HK O 3.63 5.00 0 38 12/16 0 0 0.35 0.44 39 27 8.8 6.9 1.1 0.7 9.00 3.00 CRC 1313.HK N 5.00 5.40 0 8 12/16 0 0 0.50 0.53 140 5 10.0 9.5 3.0 1.1 8.00 3.00 CNBM 3323.HK U 6.81 5.40 0 (21) 12/16 0 0 0.39 0.34 99 (12) 14.8 16.7 1.5 0.6 9.00 2.50 Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Source: Company data, Credit Suisse estimates
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Asian Daily
China Gas Holdings Ltd ------Maintain OUTPERFORM 1H18 earnings beat; guidance revised up for both volume and rural connections 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] ● CGH's 1H18 net profit grew by 101%, ahead of earlier profit alert of developed rural market. Gross margin for new connection was stable >90%, thanks to stronger-than-expected gas volume and YoY at 68.5% in 1H18 (vs. 68.0% in 1H17). Value-added services connections. Recurring earnings of HK$3.3 bn achieved 56% of full- also recorded 163% growth in operating profit (HK$289 mn in 1H18). year consensus estimate, higher than the historical run-rate of 51%. SG&A expenses increased mildly by 14% YoY in 1H18. Net gearing ● Retail gas volume grew 40% YoY with large increases across major ratio dropped from 77% in FY17 to 67% in 1H18. groups. Full-year guidance is revised up from +30% to +35% YoY Figure 1: Key guidance (raised) given the sales momentum. Piped gas dollar margin eased slightly Actual Old guidance New guidance to Rmb0.65/cm from Rmb0.678/cm (FY17), similar to peers. 1H17 2H17 1H18 FY18E FY18E ● New connections in 1H18 were 2.14 mn households with 0.71 mn City-gas volume (YoY) 11.1% 19.6% 40.1% +30% +35% New connections (mn) 1.14 1.42 2.14 3.5 3.8 from rural market. Given quicker-than-expected rural connections, LPG sales (mn ton) 1.72 1.58 1.94 4.3 4.3 FY18 guidance is revised up to 3.8 mn (with 1.1 mn in rural). CGH Value added OP (HK$mn) 110 186 289 n.a. n.a. does not expect risks of connection subsidies. Value-added Source: Company data services also expanded by 163% in operating profit. Volume and connection guidance raised. At the analyst meeting, ● We revise up our FY18-20E EPS by 1-3% to reflect better sales management updated key guidance for FY18-19E: (1) Total retail momentum and higher FY18E connection outlook. Our DCF- sales volume is expected to further accelerate to >35% YoY in FY18E, based TP is revised up to HK$30.5 from HK$29. 15x FY19E looks higher than previous guidance of >30%. The management continued inexpensive considering 24% FY18-20E EPS CAGR. to see strong demand from coal-to-gas conversion in rural areas. (2) New connection is now expected to grow by 48% YoY in FY18E to Bbg/RIC 384 HK / 0384.HK Price (27 Nov 17 , HK$) 23.05 Rating (prev. rating) O (O) TP (prev. TP HK$) 30.50 (29.00) 3.8mn households, higher than previous guidance of 3.5mn, mainly 52-wk range (HK$) 24.9 - 10.2 Est. pot. % chg. to TP 32 due to quick-than-expected rural new connections. The company has Mkt cap (HK$/US$ bn) 114.5/ 14.7 Blue sky scenario (HK$) 37.50 already completed 0.7mn rural connections in 1H18 (2.4mn contracts ADTO-6M (US$ mn) 15.3 Grey sky scenario (HK$) 23.50 signed by end-Sep 2017) and expects 1.1mn for the full-year FY18. Free float (%) 31.5 Performance 1M 3M 12M Major shareholders Beijing Enterprises Absolute (%) (2.3) 22.0 113.8 The management see strong policy/subsidy supports on rural gas and Holdings 23% do not expect risks of connection subsidies. (3) The company Relative (%) (8.3) 10.7 64.8
Year 03/16A 03/17A 03/18E 03/19E 03/20E acquired 12 new city concessions in 1H18, increasing total number of Revenue (HK$ mn) 29,497 31,993 42,833 51,668 62,146 projects to 342. (4) LPG sales volume guidance is unchanged at 4.3m EBITDA (HK$ mn) 5,965 6,878 9,807 12,001 14,761 tons in FY18E (1.9m tons in 1H18) and 4.8m tons in FY19E (vs. 3.7m Net profit (HK$ mn) 2,273 4,148 6,321 7,779 9,683 EPS (CS adj. HK$) 0.46 0.85 1.27 1.57 1.95 tons in FY17), according to the management. (5) Management is - Change from prev. EPS (%) n.a. n.a. 3.1 1.0 1.2 optimistic on the growth of its value-added services (asset-light - Consensus EPS (HK$) n.a. n.a. 1.18 1.41 1.65 business), including gas heaters and kitchen appliances sales under EPS growth (%) (32.0) 84.6 50.5 23.1 24.5 the brand of Gasbo, as well as other home appliance sales, etc. The P/E (x) 50.3 27.3 18.1 14.7 11.8 Dividend yield (%) 0.8 1.1 1.6 2.0 2.5 operating profit of value-added services grew by 163% and its EV/EBITDA (x) 22.0 19.3 13.4 10.9 8.6 operating margin was stable at 41.4% in 1H18 (vs. 41.1% in 1H17). P/B (x) 6.4 5.5 4.6 3.8 3.1 Valuation. We revise up our FY18-20E EPS by 1-3% to reflect better ROE (%) 12.5 21.6 27.8 28.0 28.6 Net debt(cash)/equity (%) 79.0 76.8 58.8 44.1 28.7 sales momentum and higher FY18E connection outlook. As a result, our
Note 1: ORD/ADR=25.00. Note 2: China Gas Holdings Limited (China Gas) is an investment holding DCF-based TP is revised up to HK$30.5. We believe its current company. The company is a natural gas services operator, principally engaged in the investment, valuation (15x FY19E) is inexpensive considering 24% FY18-20E EPS construction and management of city gas pipeline infrastructure and distribution of natural gas
CAGR. CGH and ENN Energy are our top picks for city gas sector. Click here for detailed financials 1H18 results ahead of profit alert. After market close on 27 Nov, Figure 2: Valuation comparison China Gas Holdings (CGH) reported 1H18 (March year-end) net profit Company Ticker Rat. TP P/E P/B ROE EPS of HK$3,395 mn (+101% YoY), ahead of previous profit alert of >90% CAGR (%) growth. 1H18 recurring profit also grew by 73% YoY to HK$3,307 mn, 17E 18E 19E 17E 18E 19E 17E 18E 19E 17-19E CGH 0384.HK O 30.5 18.1 14.7 11.8 4.6 3.8 3.1 27.8 28.0 28.6 23.8 achieving 56% of Bloomberg consensus estimate for FY18 (higher CRG 1193.HK O 33.0 14.5 12.0 10.1 3.0 2.5 2.2 21.9 22.8 23.2 19.5 than historical run-rate of 51%). The strong results were mainly due to ENN 2688.HK O 67.0 14.2 11.7 9.7 3.0 2.5 2.1 22.8 23.1 23.5 20.8 better-than-expected gas sales volume and new connections helped Source: Bloomberg, Credit Suisse estimates. by rural gas business. Total retail gas volume grew by 40% YoY (residential [incl. rural] +65%, industrial +41%, commercial +41%, vehicle +3%). Average gas dollar margin in 1H18 (Rmb0.65/c.m.) was largely stable compared to FY17 (Rmb0.678/c.m.). Gross margin for retail gas sales dropped only marginally to 18.2% in 1H18 from 18.5% in FY17. New connections in 1H18 increased significantly by 88% YoY to 2.14 mn households, mainly driven by 0.71 mn from the newly
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Asian Daily
Qudian Inc. ------Maintain OUTPERFORM Multiple headwinds, reduce TP to US$15 EPS: ▼ TP: ▼ Charles Zhou, CFA / Research Analyst / 852 2101 6177 / [email protected] Thomas Chong / Research Analyst / 852 2101 6164 / [email protected] Alice Li / Research Analyst / 852 2101 6068 / [email protected] Doris Pan / Research Analyst / 852 2101 6191 / [email protected] ● Ant Financial will cap the all-in annualised rate charged by third-party We believe QD’s borrower engagement will be affected as a majority credit service providers in Alipay interface at 24%, effective of its borrowers come from Alipay channels and full transfer (100%) 30 November 2017. QD will therefore lower the rate it charges in from these channels to its own app is unlikely. However, the company the Alipay interface and try to direct the borrowers it acquired has been strategically shifting towards merchandise credit products, through Alipay channels to its own app, where it can still charge a which promoted its own mobile app and helps to alleviate the impact. rate up to 36%, the regulatory ceiling. Besides, stricter restrictions on rate could push it to focus on high- ● We expect QD’s borrower engagement to be affected. While QD quality customers and maintain good asset quality. plans to mitigate the impact by offering auto finance products in Auto finance: a different model and too early to judge the Alipay channel, it is too early to judge the outcome given its To diversify its product offerings and mitigate regulatory risks, QD has target customer profile and business model appear to be different started to offer auto finance under the “laifenqi” icon on Alipay’s front- from QD’s current small credit products. page since late November. This indeed could help it to differentiate ● Approval for new online micro-credit companies has been halted itself from Jiebei (Ant Financial’s consumer credit products) and better recently, which in fact benefits incumbents such as QD, although comply with Alipay’s new policy as the rate charged on auto is lower existing licences and funding sources might be reviewed. than 20%. Also, it broadens QD’s customer reach to borrowers demanding larger tick-size and longer-duration credits. ● We cut 2018E net income by 26% (mainly on lower transaction amount) and so the target price to US$15 (from US$33), which While QD has massive registered users of over 56 mn, it is hard to implies 11x 2018E P/E. QD is tracing at 9x P/E 2018. estimate to what extent they are interested in this product, given that the target customer profile and business model of auto finance appear Bbg/RIC QD US / QD.N Price (24 Nov 17 , US$) 12.22 different from QD’s current small credit products. That said, QD’s past Rating (prev. rating) O (O) [V] TP (prev. TP US$) 15.00 (33.00) transformation from campus loan to consumer finance shows its 52-wk range (US$) 34.9 - 12.2 Est. pot. % chg. to TP 23 Mkt cap (US$ mn) 4,030.9 Blue sky scenario (US$) 19.40 nimble strategy and good execution capabilities. ADTO-6M (US$ mn) 54.2 Grey sky scenario (US$) 11.10 A prime beneficiary of tightened rule on online micro-credit Free float (%) 13.1 Performance 1M 3M 12M Approval for new online micro-credit companies has been halted Major shareholders Qufenqi Holding Absolute (%) (47.5) — — Limited recently, according to the Financial Times on 22 November 2017. This Relative (%) (54.4) — —
Year 12/15A 12/16A 12/17E 12/18E 12/19E would lift industry entry barrier and benefit incumbents such as QD, Pre-prov Op profit (Rmb mn) (186.0) 845.3 3,176.6 4,245.0 5,188.5 which has already obtained two online micro-credit licences in 2016. Net profit (Rmb mn) (233) 577 2,376 3,034 3,630 EPS (CS adj. Rmb) (2.9) 7.3 7.4 8.9 10.7 According to the China Securities Journal on 23 November 2017, - Change from prev. EPS (%) n.a. n.a. 4 (26) (40) existing licences would be reviewed and those with weak shareholder - Consensus EPS (Rmb) n.a. n.a. 7.4 10.5 14.5 background and/or misconduct might be revoked. For QD, the risk is EPS growth (%) n.m. n.m. 1.6 21.0 19.6 relatively small given it has already fully complied with current P/E (x) n.m. 11.1 10.9 9.0 7.5 Dividend yield (%) 0 0 0 0 0 regulations by capping the APR at 36% and employing user-friendly BVPS (CS adj. Rmb) (82.9) (43.3) 31.6 38.9 49.6 collection methods. Besides, its partnership with Ant Financial and P/B (x) (0.97) (1.86) 2.55 2.07 1.63 position as a public company helps deal with regulatory challenges. ROE (%) — (11.5) 70.6 26.0 24.2 ROA (%) — 11.8 18.7 15.4 15.6 On the regulatory front, our major concern is that QD’s funding Tier 1 ratio (%) — — — — — channel will be under pressure due to tightened regulations on Note 1: Qudian Inc. is a leading provider of online small consumer credit in China. It uses big data- enabled technologies, such as artificial intelligence and machine learning, to transform the partnerships with micro-loan companies and traditional financial consumer finance experience in China.
institutions. As of 3Q17, 77% of the loan balance was funded by
Click here for detailed financials external funding sources and constraints on funding channels could Borrower engagement affected by Alipay adjustment limit QD’s scale expansion. Effective 30 November 2017, Ant Financial will cap the all-in annualised rate (including interest, fees and all other charges) QD is trading at 9x P/E 2018; Reduce TP to US$15 charged by third-party credit service providers in the Alipay consumer We reduce 2018E net income by 26% to Rmb3 bn to reflect a lower interface at 24%. This follows Alipay’s recent adjustment to loan facilitation volume and financing income take rate, and higher personalise each user’s front page and remove QD’s “Laifenqi” icon provision ratio. We have not built in the auto finance business given from front pages of users unqualified for Jiebei (mainly those with limited operating history and low visibility. We revise down our TP to Zhima Credit Score of < 600). To comply with this new policy, QD has US$15 (from US$33), implying 11x 2018E P/E. QD is trading at 9x to lower the rate it charges borrowers from Alipay channels (both the 2018E P/E and we maintain OUTPERFORM rating. third-party paid channel and the public service window free channel) and try to direct these borrowers to its own app, where it can still charge a rate up to 36%, the regulatory ceiling.
- 13 of 33 - Tuesday, 28 November 2017
Asian Daily
Tuniu Corporation ------Maintain OUTPERFORM 3Q17 non-GAAP breakeven; on track to achieve full-year profitability EPS: ▲ TP: ▲ Ivy Ji / Research Analyst / 852 2101 7951 / [email protected] Kenneth Fong / Research Analyst / 852 2101 6395 / [email protected] ● Tuniu reported 3Q17 adj. net profit of Rmb37 mn on net revenue The decent revenue growth, in our view, reaffirms our thesis that of Rmb806 mn, +53% YoY, in line with preliminary result range of through an extensive network of offline service centres and retail Rmb35-40 mn and Rmb800-810 mn, respectively. stores, Tuniu has built entry barriers to protect its market share and ● The strong result was driven by: (1) decent GMV growth at >30% therefore the cut in branding costs does not pose any imminent threat YoY; (2) continued take rate expansion to ~9% (3Q16: 7.4%); (3) to its growth. Tuniu remains committed to the offline strategy and the better-than-expected cost control (opex -39% YoY and -4% QoQ); number of offline stores is expected to reach 220 by end 2017. and (4) positive operating leverage (GP margin +6% YoY to 55%). Gross margin improved 6% YoY and 2% QoQ to 55% in 3Q17, thanks ● We believe the encouraging 3Q17 result shows that Tuniu’s two to positive operating leverage. Meanwhile, cost-control also progressed core strategies—building offline presence and direct procurement better than expected. Total non-GAAP operating expense of Rmb448 initiatives—are bearing fruits. It should also help boost confidence mn was -39% YoY and -4% QoQ despite seasonality, mainly driven by in management execution and in achieving the target of full-year lower-than-expected research and development expenses, thanks to non-GAAP breakeven in 2018e. efficiency-enhancement measures such as automation.
● Tuniu is now trading at 3.4x/2.3x 2017/18e P/S, at a deep Figure 1: Tuniu 3Q17 result summary (in Rmb mn) discount to Ctrip’s at 6.1x/5.1x. With net cash at 60% of market Year ended on 31 Dec 3Q16 4Q16 1Q17 2Q17 3Q17 cap and early sign of turnaround, we see attractive risk-reward Net revenue 525 322 456 460 806 from the stock. We fine tune 2017-19e forecast by 7% and raise YoY % chg 53% 52% 53% DCF-based TP to US$12. Maintain OUTPERFORM. Cost of sales (271) (153) (204) (219) (365) Non-GAAP gross profit 254 169 252 242 441 Bbg/RIC TOUR US / TOUR.OQ Price (24 Nov 17 , US$) 8.78 Non-GAAP GP margin 48.4% 52.4% 55.2% 52.3% 54.7% Rating (prev. rating) O (O) TP (prev. TP US$) 12.00 (11.00) 52-wk range (US$) 9.47 - 6.83 Est. pot. % chg. to TP 37 Adjusted operating exp. Mkt cap (US$ mn) 860.2 Blue sky scenario (US$) 15.00 Research and development (166) (168) (157) (144) (122) ADTO-6M (US$ mn) 0.7 Grey sky scenario (US$) 10.20 Sales and marketing (465) (366) (219) (187) (190)
Free float (%) 39.2 Performance 1M 3M 12M G&A (148) (181) (127) (145) (137) Major shareholders HNA Group Non-GAAP operating income (522) (536) (247) (230) 1 Absolute (%) 24.7 21.6 (3.5) Relative (%) 18.8 10.4 (52.5) Non-GAAP net profit/(loss) (493) (508) (227) (212) 37
Year 12/15A 12/16A 12/17E 12/18E 12/19E Source: Company data Revenue (Rmb mn) 7,645 10,548 2,191 3,042 4,067 On track to achieve full-year non-GAAP break-even in 2018e EBITDA (Rmb mn) (1369) (2339) (729) (95) 114 As company generated its first quarterly non-GAAP profit since its Net profit (Rmb mn) (1338) (2229) (573) 5 213 EPS (CS adj. Rmb) (16.2) (17.9) (4.6) 0.0 1.7 listing in 2014, we believe the encouraging 3Q17 result serves as a - Change from prev. EPS (%) n.a. n.a. n.m n.m 6.6 testament that the company’s two core strategies, i.e., building offline - Consensus EPS (Rmb) n.a. n.a. (5.05) (0.24) 1.48 presence and direct procurement initiatives, are bearing fruits. It also EPS growth (%) n.m. n.m. n.m. n.m. 4,178.7 should help boost confidence in management’s execution. Therefore, P/E (x) n.m. n.m. n.m. 1,449.6 33.9 Dividend yield (%) 0 0 0 0 0 in our view, this represents a firm step toward achieving the target of EV/EBITDA (x) (2.4) (1.9) (5.5) (41.9) 32.9 full-year non-GAAP break-even in 2018e. Moreover, we believe that P/B (x) 1.7 1.6 1.9 2.0 1.9 the potential lift of ban on group-tour travel to South Korea (imposed ROE (%) (56.6) (57.0) (13.9) 0.1 5.8 in 2Q17) should also bring tailwind for growth in the coming year. Net debt (cash)/equity (%) (73.1) (26.4) (43.1) (45.5) (50.0)
Note 1: Tuniu is a leading online travel agency in China with a focus on leisure travel products. It is That said, we continue to expect a net loss in 4Q17, mainly due to now the No.1 player in the online package tour market.
Click here for detailed financials weaker seasonality. We currently estimate a net revenue growth of Non-GAAP break-even in 3Q17 45% YoY in 4Q17 (guidance range: 40-45%) and a net loss of Tuniu reported 3Q17 non-GAAP attributable net income of Rmb37 mn Rmb174 mn (4Q16: Rmb508 mn; 2Q17: Rmb212 mn). (3Q16: net loss of Rmb522 mn) on the back of net revenue of Rmb806 Maintain OUTPERFORM mn, +53% YoY, both in line with preliminary announcement of Rmb35-40 The stock is now trading at 3.4x/2.3x 2017/18e P/S, at a deep mn and Rmb800-810 mn, respectively. The strong result was achieved discount to Ctrip’s at 6.1x/5.1x. With net cash at 60% of market cap, through: (1) a decent top-line growth; (2) continued efforts in cost saving; we think the downside here is quite limited. With improving profitability and (3) a positive operating leverage in the peak summer travel season. outlook and early sign of a turnaround, we continue to see attractive Net revenue growth remained robust at 53% YoY and ahead of risk-reward from the stock. Maintain OUTPERFORM rating and raise consensus/CS estimates by 4%/3%, thanks to: (1) healthy GMV DCF-based TP to US$12 to reflect the better-than-expected result. growth of over 30% YoY and (2) continued take rate expansion underpinned by direct procurement initiatives and stronger pricing power in the high season. Take rate for packaged tours improved to ~9% in 3Q17, from 7.4% in 3Q16 and ~8.5% in 2Q17. Direct procurement was 40% of GMV in 3Q17.
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Asian Daily
India India Market Strategy ------Oct headline GST collections disappointing; but do additional disclosures point to a lower revenue neutral threshold? Neelkanth Mishra / Research Analyst / 91 22 6777 3716 / [email protected] Prateek Singh / Research Analyst / 91 22 6777 3894 / [email protected] ● Reported Oct GST collections fell much short of our estimate of States' compensation suggests low revenue neutral rate the seasonally adjusted revenue neutral threshold (Fig 1). But It is also not yet clear how much higher eventual Jul-Sep revenues additional disclosures suggest it may be early to panic about fiscal were there than first disclosed. Further, as nearly all states budgeted health. The number of filings was higher than at this stage in prior for less than 14% growth in their tax revenues in FY18, their receipts months, but 15% smaller than the 5.9mn Jul/Aug ended at (Fig 2). including compensation should indicate their revenue neutral ● It is also not yet clear how much higher eventual Jul-Sep revenues threshold (Fig 3): this comes to be Rs 1 tn lower than our estimate. were than first disclosed. Further, as nearly all states budgeted for Figure 3: States' revenues incl. compensation suggest low RNR less than 14% growth in their tax revenues in FY18, their receipts Unallocated including compensation should indicate their revenue neutral Split of Rs3.6tn Comp. Cess GST in Aug-Nov'17 2% threshold (Fig 3): this comes to be Rs 1 tn less than our estimate. SGST ● Compensation cess collections are running higher than that paid 23% (~Rs310 bn collected Jul-Oct, vs. Rs245 bn paid). CGST is less than SGST: the release mentions high transition credit usage for Unallocated States IGST CGST. Large unallocated IGST (Fig 4) to act as a buffer in FY18. 32% ● This release is likely to add to the fog on macroeconomic parameters in India. We acknowledge the uncertainty but remain comfortable with the aggregate collections of GST. At this stage IGST Transfer the allocation of centre-state allocation issues are less important. to States 13% Figure 1: Oct GST much lower than seasonally adj. revenue neutral rate Seasonally adjusted Revenue GST Collections IGST Transfer Neutral Rate Rs943bn 1.0 to Centre Compensation Rs tn Centre 7% 7% 0.8 CGST 16% 0.6 Source: PIB, Credit Suisse estimates. 0.4 Compensation cess collections have been running higher than the compensation paid (~Rs310 bn collected Jul-Oct, vs. Rs245 bn paid). 0.2 Central collections are much lower than states': the release mentions 0.0 high transition credit usage for CGST. As eventually CGST and SGST Jul-17 Aug-17 Sep-17 Oct-17 would be equal, this should not be a problem in future years. For this Source: PIB, Credit Suisse estimates. year the large unallocated IGST (Fig 4) would act as a buffer. Disappointing headline GST collection in October Figure 4: A large part of IGST remains unallocated Reported October GST collections fell much short of our estimate of the seasonally adjusted revenue neutral threshold (Fig 1). But 2000 Rs bn additional disclosures suggest it may be early to panic about fiscal 1600 health. The number of filings, while higher than at this stage in prior months, was 15% smaller than the 5.9 mn Jul/Aug ended at. 1200
Figure 2: More filers than earlier months at this time, but upside remains 800 First Reported Till 27-Nov-17 GSTR 3B Filers 400 7 mn 60% 6 55% 0 5 50% 4 45% 3 40% 2 Source: PIB, Credit Suisse estimates 1 35% This release is likely to add to the fog on macroeconomic parameters 0 30% in India. If the government is indeed collecting less than it should, is Jul-17 Aug-17 Sep-17 Oct-17 the economy so weak despite the implied fiscal easing? At this stage the allocation of centre-state allocation issues are less important. Source: PIB, Credit Suisse estimates. .
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Asian Daily
Eris Lifesciences Ltd ------Initiating Coverage with OUTPERFORM New report: Scalable model with strong FCF generation Anubhav Aggarwal / Research Analyst / 91 22 6777 3808 / [email protected] Chunky Shah / Research Analyst / 91 22 6777 3872 / [email protected] ● We initiate on Eris with an OUTPERFORM rating and our Rs770 Best return profile and growth trajectory in the sector TP suggests 18% upside potential. Eris is a pure play in India Eris' profit CAGR of 24% (over FY17-20E) is the highest in our pharma market, with presence in fast-growing cardiac and coverage. Existing portfolio’s earnings should grow at 18% CAGR and diabetes drugs. Its business model is scalable as it has generated the delta driven by margin normalisation at recent acquisitions. Eris high FCF of Rs3 bn and has demonstrated appetite to use this has a strong balance sheet, with RoCE (ex-cash) at ~100% and high FCF to accelerate growth. FCF conversion at 60% of EBITDA. ● We present case studies on how Sun and Lupin grew >4x in India Figure 1: High growth is due to (1) Eris' high exposure to fast-growing in ten years when they were comparable to Eris' size and had cardiac and diabetes… similar constraints. Sun, Lupin used India FCF to boost export Gynae presence but Eris is using FCF for India scale-up. Our analysis 3% Others 11% shows existing business should grow at 15% CAGR and entry into Gastro Cardiac new areas (CNS, gynae, pain) should boost growth. 9% 33% ● In our view, turnaround of recent four loss-making acquisitions could Vitamins 14% re-rate the stock. As synergies are realised, market should be more Diabetes convinced on Eris’ ability to accelerate growth inorganically. 30% ● Eris has the best return profile (RoCE: 100%) and growth (24% CAGR over FY17-FY20E) in the sector. Our TP of Rs770 is based Source: Company data, Credit Suisse estimates. on 22x FY20E PE. Risks: implementation of ‘one company, one Figure 2: … and (2) highest mix of faster-growing molecules vs. peers brand’ policy, mandatory prescription by generic names. Sales split by growth of addressable market IPM Bbg/RIC ERIS IN / ERIS.BO Price (27 Nov 17 , Rs) 650.25 Rating (prev. rating) O (NA) [V] TP (prev. TP Rs) 770.00 (NA) Eris 52-wk range (Rs) 682.5 - 525.8 Est. pot. % chg. to TP 18 Mkt cap (Rs/US$ mn) 89,409.4/ 1,381.4 Blue sky scenario (Rs) 900.00 Sun USV ADTO-6M (US$ mn) 3.6 Grey sky scenario (Rs) 450.00 GNP Free float (%) 44.1 Performance 1M 3M 12M Intas Major shareholders Promoter Lupin Absolute (%) 14.1 8.5 — Torrent Relative (%) 12.4 1.1 — Sales split Year 03/16A 03/17A 03/18E 03/19E 03/20E 0% 20% 40% 60% 80% 100% Addressable mkt growth <5% 5%< Growth <15% 15%< Growth <30% Growth >30% Revenue (Rs mn) 5,970 7,250 9,160 12,380 14,279 Source: Company data, Credit Suisse estimates. EBITDA (Rs mn) 1,715 2,679 3,372 4,489 5,550 Net profit (Rs mn) 1,336 2,412 3,119 3,735 4,746 Figure 3: Sun/Lupin have become 4x in 10 years; Eris could follow EPS (CS adj. Rs) 9.7 17.5 22.7 27.2 34.5 similar trajectory - Change from prev. EPS (%) n.a. n.a. - Consensus EPS (Rs) n.a. n.a. 23.7 31.4 39.5 60 Sun: 20% CAGR (10 yrs)
EPS growth (%) 49.7 80.6 29.3 19.8 27.1 Rs bn Rs P/E (x) 66.9 37.1 28.7 23.9 18.8 40 Eris today at similar level to Dividend yield (%) 0 0 0 0 0 Sun/Lupin ~10 yrs back EV/EBITDA (x) 51.3 32.4 26.5 19.2 14.7 20 Lupin: 17% CAGR P/B (x) 29.8 16.7 10.5 7.3 5.3 ROE (%) 47.2 57.7 45.1 36.1 32.5 0 Net debt(cash)/equity (%) (44.1) (47.2) (1.2) (28.1) (47.4) FY02 FY04 FY06 FY08 FY10 FY12 FY14 FY16 FY18 Note 1: Eris is a pure play on the Indian pharma market with a focus on chronic therapies.
Lupin Sun (ex-Rbxy) Eris (shifted by 10 yrs) Click here for detailed financials Source: Company data, Credit Suisse estimates. Pure play in India Eris is a pure play in the India pharma market with presence in fast- Figure 4: Highest ROCE and EPS CAGR in sector growing and high-entry-barrier cardiac and diabetes drugs. Eris has 24% delivered strong performance (20% sales CAGR over FY12-17) with 22% Sun (22.4x) strong product selection (73% of portfolio in growth phase) and its 20% Ciipla (24.2x) Eris (23.4x) marketing is focused on super-specialists and specialists. 18% Alkem (22.7x) RoCE - 105% Cadila (18.5x) Scalable model focused on cardiac and diabetes 16% DRL (20.8x) Eris’ performance is strong (20% sales CAGR over five years). It has 14% Torrent (20.1x) Lupin (18.0x)
term EPS CAGR EPS term 12% proven that its business model is scalable, with (1) ability to create - 10% large brands (top two brands are Rs1+ bn and top ten brands are 70% Mid 5% 15% 25% 35% of sales) (2) double-digit prescription share from cardiologists and ROCE diabetologists (top five in represented market), (3) good risk-appetite Source: Company data, Credit Suisse estimates. in using its high FCF for asset acquisition to accelerate growth.
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Asian Daily
Indonesia Indonesia Telecoms Sector ------Maintain OVERWEIGHT Price points static for now, but we expect an improvement in FY18 Colin McCallum, CA / Research Analyst / 852 2101 6514 / [email protected] Billy Lee / Research Analyst / 852 2101 6529 / [email protected] ● Share prices of all of the 'big 3' cellular operators corrected Given this mismatch, it has made sense that XL, with ample 4G sharply in the run-up to the release of 3Q17 earnings, as fears capacity in place, should want to regain market share lost to Indosat grew over competitive intensity as well as OTT cannibalisation. across FY15-16. As a reminder XL's market share dropped sharply ● Channel checks on our recent visit revealed that pricing has not from 19.3% of 'big 3' revenues in 4Q14 to a low of 14.5% in 4Q16. XL worsened so far in 4Q17, but, equally, it has not improved. Given grew net cellular revenue by 12.2% YoY into 3Q17 (albeit from a low the ongoing mismatch in capacity between XL, which has low 4G base), while Indosat's revenue declined by 2.4% YoY. Thus, XL utilisation, and Indosat, which is capacity constrained, we are not regained 1.1 pp of market share YoY in 3Q17, recovering to 15.8% surprised that pricing has not increased; XL is understandably market share of 'big 3' revenues. This is momentum which XL would keen to retain momentum and regain revenue market share lost to very much like to continue into 4Q17. Indosat across FY15-FY16. It is for this reason that the reduction in 4G data bonuses implemented ● On the other hand, we expect XL's strategy to shift back towards by all of the 'big 3' players in 4Q16-1Q17 have not been followed up data bonus reductions/price increases in 1H18. This will benefit all with further price increases, and that starter pack competition three players – we expect both Telkomsel and Indosat to swiftly intensified in certain areas during 2Q17-3Q17. follow XL upwards on pricing – but it should be particularly …but we expect improving competitive dynamics in 1H18 positive for XL, given that it has the highest fixed cost base, On the other hand, we do continue to expect XL's strategy to shift lowest scale, and lowest ROIC of the 'big 3' operators. back towards data bonus reductions/price increases in 1H18. This will ● We remain OVERWEIGHT the Indonesian telecom sector. benefit all three players – we expect both Telkomsel and Indosat to swiftly follow XL upwards on pricing – but it should be particularly Figure 1: Indonesian telco sector—comparative multiples positive for XL, given that it has the highest fixed cost base, lowest Close Target Upside PE EV/EBITDA FCF yield scale, and lowest ROIC of the 'big 3' operators. Price Price (%) 17E 18E 17E 18E 17E 18E Indosat 5,275 8,600 63.0% 14.2 12.9 3.5 3.3 15.1% 13.0% To offer some simple numbers around this, given that circa 60.0% of XL 3,010 3,600 19.6% 78.8 35.3 5.4 4.8 1.8% 4.1% XL's revenue is now generated from data, a 10.0% increase in data PT Telkom 4,320 5,100 18.1% 17.6 16.0 9.2 8.3 3.7% 5.4% pricing would, other things being equal, increase total revenue by 6.0%, NJA - integrated 20.6 18.0 6.2 6.0 7.4% 8.2% and this would drop through to a 120% increase in FY18 net profit. We NJA - Mobile 20.0 16.8 5.5 5.2 4.8% 6.4% believe that XL management understands this arithmetic very well, and Source: Company data, Credit Suisse estimates. that, after taking advantage of Indosat's delayed 4G rollout, the logic of Competitive intensity 'stable' at present…. higher data prices will prevail in 1H18 – particularly after Indosat's The share prices of all of the 'big 3' cellular operators in Indonesia capacity constraints ease with its long awaited 4G catch-up. corrected sharply in the run-up to the release of 3Q17 earnings, as PT Telkom offers growth, yield and liquidity fears grew over competitive intensity as well as cannibalisation of In expectation of improving competitive dynamics in FY18, we have legacy voice and SMS services by Over the Top (OTT) services such upgraded XL back to OUTPERFORM following its recent share price as Whatsapp. Sure enough, Indonesian cellular service revenue grew correction, and so we rate all of the 'big 3' cellular operators by just 4.3% YoY in 3Q17, in a meaningful slowdown versus the OUTPERFORM (see link). Indosat offers the most potential upside to 11.8% growth recorded in 2Q17. The slowdown was exacerbated by our DCF-based target price at present, and looks very cheap on seasonal factors (Lebaran, which is the high season, fell in 2Q17, comparative multiples – the market has already severely punished the while it had fallen in third quarter last year) but OTT impacts were 4G rollout delays and market share regression - but its average daily indeed evident; sector voice revenues declined by 10.4% YoY in trading volume is very low at US$0.3 mn/day. 3Q17, versus 7.6% YoY growth in 2Q17. Sector data revenue growth also slowed to 36.0% YoY in 3Q17, versus 42.4% in 2Q17, as price PT Telkom's trading volume is materially better, at US$37 mn/day, and competition intensified in some geographical 'clusters'. the stock now trades at a discount to regional telecom peers on P/E and dividend yield, despite our expectation of better-than-sector growth. We Channel checks on our recent visit revealed that pricing has not forecast that Telkomsel's top-line growth can recover to 8.0% in FY18 worsened so far in 4Q17, but, equally, it has not improved; within from 4.4% in 3Q17. In addition, thanks to 32.3% expected growth in certain geographical clusters Telkomsel continues to offer the fixed broadband revenues in FY18, combined with lower costs due to attractive starter pack pricing launched in August 2017 (Rp25,000 for the departure of 1,500 employees who have recently reached 1GB of data, 2GB of Videomax, and 2GB of Facebook). mandatory retirement age, double-digit consolidated earnings growth for …as XL looks to recapture share from Indosat PT Telkom, and a 4.4% dividend yield, look achievable for FY18. We view the root cause of the uptick in competitive intensity to be a capacity mismatch between XL and Indosat. XL had 15,711 4G BTS in place as at September 2017, behind Telkomsel's 21,447 4G BTS, but well ahead of Indosat's 6,110 4G BTS. We understand that Indosat is currently shipping new 4G equipment, which it expects to deploy across December 2017 to March 2018, but until the equipment is installed Indosat clearly looks to be capacity-constrained.
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Asian Daily
Japan Sysmex ------Upgrade to OUTPERFORM Update estimates: FY3/18 recovery priced in; still scope for upside based on FY3/19 earnings EPS: ▲ TP: ▲ Fumiyoshi Sakai / Research Analyst / 81 3 4550 9737 / [email protected] ● We update our forecasts for Sysmex, raise our target price from Catalysts/risks ¥6,900 to ¥10,000 and upgrade the stock from Neutral to The focus in 2018 should be on US and China urinalysis sales. OUTPERFORM. The shares look to price in a FY3/18 recovery, but Sysmex is a hardcore hematology business, but the company needs a we still see scope for upside based on our FY3/19 forecasts. second, independent core business in our view. Clinical testing does ● The share price has risen, now pricing in decreased risk to FY3/18 not gain traction without insurance coverage, so market size is defined earnings from China, but we still see scope for upside based on by national reimbursement systems and broader application. One risk our FY3/19 forecasts. We expect FY3/19 earnings to grow based is pressure on fees in major markets like the US. China inventory on factors including the waning negative impact of excess levels still warrant vigilance. inventory in China and sales expansion of new products in Valuation hematology and urine analyser products. We update our base valuation year from FY3/18 to FY3/19. We derive ● The focus in 2018 should be on US and China urinalysis sales. our ¥10,000 target price by applying a P/E of 44x (based on an Sysmex is a hardcore hematology business, but the company average 12-month forward P/E of 37x for the period when profits and needs a second, independent core business in our view. One risk share price were rising and adding the 20% premium that we awarded is pressure on fees in major markets like the US. historically for the same period) to our FY3/19E EPS of ¥228.3. We ● We update our base valuation year from FY3/18 to FY3/19. We previously used our FY3/18E EPS of ¥199.5 and an average 12- derive our ¥10,000 target price by applying a P/E of 44x to our month forward P/E of 35x. FY3/19E EPS of ¥228.3. Full report The share price has risen, now pricing in decreased risk to FY3/18 Bbg/RIC 6869 JP / 6869.T Price (24 Nov 17 , ¥) 8,410.00 earnings from China, but we still see scope for upside based on our Rating (prev. rating) O (N) TP (prev. TP ¥) 10,000 (6,900) FY3/19 forecast. We expect FY3/19 earnings to move from recovery 52-wk range (¥) 8410.0 - 6100.0 Est. pot. % chg. to TP 19 to growth based on the factors as follows: (1) Strong sales of new Mkt cap (¥/US$ bn) 1,752/ 15.7 Blue sky scenario (¥) n.a. ADTO-6M (US$ mn) 34.4 Grey sky scenario (¥) n.a. hematology and new urine analyser products in China, where the
Free float (%) 60 Performance 1M 3M 12M negative impact of excess inventory is waning. (2) Growth in Major shareholders Absolute (%) 8.8 29.0 19.8 hematology reagents and services in the US, where new XN series Relative (%) 7.1 17.5 (2.2) model launch preparations are going well and a new urine analyser Year 03/16A 03/17A 03/18E 03/19E 03/20E will be introduced in 2018. (3) Less of an impact in the US than first Revenue (¥ bn) 253.2 249.9 281.0 311.0 350.0 feared from the Centers for Medicare and Medicaid Services (CMS) EBITDA (¥ bn) 71.1 64.1 72.5 77.0 84.0 Net profit (¥ bn) 36.2 40.6 41.5 44.5 46.0 proposed reductions in lab testing fees under the 2018 Clinical Lab EPS (CS adj. ¥) 174 195.3 204.3 228.3 249.9 Fee Schedule under the Protecting Access to Medicare Act (PAMA). - Change from prev. EPS (%) n.a. n.a. 2.40 6.73 13.02 - Consensus EPS (¥) n.a. n.a. 201.0 224.5 252.3 Figure 1: 12-month forward P/E trend EPS growth (%) 35.7 12.0 4.6 11.8 9.5 Figure 1: 12-month forward P/E trend P/E (x) 48.2 34.6 41.2 36.8 33.6 PER (x) Dividend yield (%) 0.6 0.9 0.7 0.7 0.8 55 Forward 12M P/E EV/EBITDA (x) 23.8 21.1 22.9 20.9 19.2 50 Avg P/E = 37x P/B (x) 9.3 8.4 7.4 6.5 5.8 45 ROE (%) 20.3 20.4 18.9 18.5 17.7 40 Net debt(cash)/equity (%) (29.6) Net cash Net cash Net cash Net cash 35 Note 1: ORD/ADR=0.5. Note 2: Sysmex Corp manufactures & sells laboratory testing instruments & reagents for clinical laboratories worldwide. It provides various diagnostics products, such as 30 hematology, hemostasis, immunochemistry, clinical chemistry, urinalysis etc 25
Click here for detailed financials 20 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 Action
We update our forecasts for Sysmex, raise our target price from ¥6,900 Source: the BLOOMBERG PROFESSIONALTM service to ¥10,000 (potential return 19%) and upgrade the stock from Neutral to (This is an extract from Fumiyoshi Sakai’s report, ‘Update estimates: OUTPERFORM. The shares look to price in a FY3/18 recovery, but we FY3/18 recovery priced in; still scope for upside based on FY3/19 still see scope for upside based on our FY3/19 forecasts. earnings,’ published on 27 November 2017. For details, please see Investment overview the CS Plus website.) The share price has risen, now pricing in decreased risk to FY3/18 earnings from China, but we still see scope for upside based on our FY3/19 forecasts. We expect FY3/19 earnings to grow based on factors including the waning negative impact of excess inventory in China and sales expansion of new products in hematology and urine analyser products. The US clinical lab testing market is under strong pricing pressure, but Sysmex has an unparalleled reputation in hematology for reliability, automation and maintenance of benefit to users.
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Asian Daily
Terumo ------Upgrade to OUTPERFORM Update estimates: Acquisitions, stronger organisation fruitful EPS: ▲ TP: ▲ Fumiyoshi Sakai / Research Analyst / 81 3 4550 9737 / [email protected] ● We update our forecasts for Terumo, raise our target price from Factors behind rating and forecast upgrades ¥4,800 to ¥6,000 and upgrade the stock from Neutral to We increase our forecasts based on the 2Q FY3/18 results. The core OUTPERFORM. The shares recently topped our previous ¥4,800 cardiovascular product franchises drove earnings in 1H, but ¥2.0bn of target price and now appear to price in outperformance in FY3/18 the ¥5.4bn improvement in gross profit was due to gains on earnings. We raise our target price based on our FY3/19 forecasts acquisitions. This mainly reflected the purchase of vascular closure for earnings growth. Full report. product lines from Abbott Laboratories and St. Jude Medical for ● We think earnings have embarked on a virtuous circle of growth around $1.12bn (roughly ¥125bn), with the operations being due to: (1) progressive integration of three US acquisitions since consolidated from January 2017. We estimate annual sales for the 2016; (2) a good performance by vascular intervention; (3) main product lines acquired including Angio-Seal, at over ¥25bn; the improvement in general hospital business margins; (4) business has been a net profit contributor in its first year. stabilization of blood management company margins in the US. In Terumo’s existing operations, interventional systems and peripheral ● A Puerto Rican plant that makes the aforementioned Angio-Seal vascular solutions have both been performing well in the US. We saw and other hemostatic devices was hit by hurricane damage. Terumo good evidence for strong growth potential in the North American maintains FY3/18 guidance is achievable, but there could be risk of business on our visit to the Southern California operations of US impairment losses and loss of sales to attack by rival products. subsidiary MicroVention in October. ● We update our base valuation year from FY3/18 to FY3/19. We Investment overview: We think earnings have embarked on a derive our ¥6,000 TP by applying the 12-month forward P/E of 29x virtuous circle of growth due to: (1) progressive integration of three US to our FY3/19E EPS of ¥204.6 (FY3/18E of ¥152.0). acquisitions since 2016 (Sequent Medical, Bolton Medical and Bbg/RIC 4543 JP / 4543.T Price (24 Nov 17 , ¥) 5,040.00 hemostatic device business), of which the hemostatic device business Rating (prev. rating) O (N) TP (prev. TP ¥) 6,000 (4,800) acquired from Abbott Laboratories and St Jude Medical is a potentially 52-wk range (¥) 5080.0 - 3855.0 Est. pot. % chg. to TP 19 Mkt cap (¥/US$ bn) 1,788.1/ 16.1 Blue sky scenario (¥) n.a. strong contributor to earnings, including Angio-Seal which has annual ADTO-6M (US$ mn) 42.7 Grey sky scenario (¥) n.a. sales we estimate at ¥25bn and; (2) a good performance by vascular Free float (%) 5.5 Performance 1M 3M 12M intervention, a core source of existing cardiac & vascular company Major shareholders Absolute (%) 7.9 20.1 22.3 earnings; (3) improvement in general hospital business margins as a Relative (%) 7.5 8.9 0.9 result of narrower transactions and cost containment, and (4) Year 03/16A 03/17A 03/18E 03/19E 03/20E Revenue (¥ bn) 525.0 514.2 580.0 600.0 620.0 stabilization of blood management company margins in the US, where EBITDA (¥ bn) 126.4 122.0 152.5 167.0 178.5 pricing negotiations have reached settlement. Terumo’s medical Net profit (¥ bn) 50.7 54.2 60.5 72.0 81.0 devices are not immune to growing pressure on healthcare costs and EPS (CS adj. ¥) 135 150 172 205 230 product pricing both at home and abroad, but we think the company - Change from prev. EPS (%) n.a. n.a. 1108 - - - Consensus EPS (¥) n.a. n.a. 163 181 199 will be able to compensate with top-line growth. EPS growth (%) 33.4 11.1 14.5 19.0 12.5 P/E (x) 37.6 33.8 29.6 24.8 22.1 This is an extract from Fumiyoshi Sakai's report on Terumo published Dividend yield (%) 0.8 0.8 0.9 0.9 0.9 on 27 November 2017. EV/EBITDA (x) 14.7 16.6 12.9 11.4 10.3 P/B (x) 3.8 3.9 3.6 3.3 2.9 ROE (%) 9.3 10.8 11.8 12.8 13.0 Net debt(cash)/equity (%) 13.7 47.7 34.7 20.4 7.0
Note 1: ORD/ADR=1.00. Note 2: TERUMO CORPORATION is a Japan-based manufacturer that operates in four business segment: General Hospital Products ; Cardiac and Vascular Products ; Blood Transfusion-related Products ; and Healthcare Products.
Click here for detailed financials Figure 1: Earnings summary
Source: Company data, Credit Suisse estimates.
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Asian Daily
Malaysia Asia FX Strategy ------MYR: Further room to run Trang Thuy Le / Fixed Income Research Analyst / 852 2101 7426 / [email protected] Ray Farris / Fixed Income Research Analyst / 65 6212 3412 / [email protected] ● We have lowered our USDMYR forecast to 4.0 in 3 months and The recent rise in oil prices should also increase Malaysia’s oil and 3.80 in 12 months from 4.10 and 4.0, respectively. gas exports, albeit with a four to five month lag. Combined, the above ● The ringgit has been our core bullish view in Asia FX this year, leads our economists to forecast that Malaysia’s current account and we see room for it to appreciate further, driven by: (1) Strong surplus will widen to $11.5 bn in 2018 from $9.9 bn this year, export growth and trade balance recovery; (2) Improving increasing it to 3% of GDP from 2.4% in 2016. economic growth attracting equity inflows; and (3) Currency Positioning in ringgit assets seems modest and should improve. valuation that remains very competitive. We believe that foreign equity investors are still significantly ● The central bank (BNM) is encouraging this rally and has raised underweight. Foreign investors net sold US$69 mn in Malaysian the stake for a near-term hike. We now expect BNM to raise its equity month-to date and have sold US$123 mn quarter to date policy rate by 25 bp in 1Q 2018. versus inflows in other markets such as Korea, India, and Taiwan. ● The passage of US tax package is a near-term risk to our view as However, we expect improving economic growth to support a recovery it could lead to a knee-jerk rise in the USD. However, we do not of foreign flows over the next year. Recent inflows into local bonds think USD strength will be sustained considering the still weak US picked up in November, but we estimate that this raised foreign fixed inflation, dovish Fed, and economic recovery elsewhere, including income investors' position in Malaysia to benchmark-weight from Malaysia. Domestically, a relaxation in the government's underweight. restrictions on domestic fund outflows and the upcoming general In FX, restrictions in offshore trading mean participation from FX elections are the key risks to our forecast. investors remain low. Overall, we judge that investors are small net Figure 1: Valuation remains very attractive versus oil prices long MYR, but positioning is by no means stretched. MYR REER CS forecast Regression against oil +/-2 stdev Ringgit rally encouraged by the central bank (BNM). BNM has both raised market expectation of a near-term rate hike, and seems to prefer 108 a stronger currency. Although FX reserves data suggest the BNM has been buying USD and reducing its short USD forward positions, we 103 assess the pace to be very gradual and still allowing for further ringgit gains. If anything, we think the incentive from the government and the 98 BNM is to run ringgit on the strong side into next year's elections, as the currency is seen as a confidence barometer in Malaysia. 93 What are the risks to our bullish view
88 The passage of US tax reforms could lead to a knee-jerk rise in the USD, pushing up USDMYR. We doubt this would sustain, both 83 because USD fundamentals remain weak even in a tax cut scenario Jan-06 Mar-09 May-12 Jul-15 Sep-18 and given Malaysia’s improving fundamentals. Our G10 team Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service, CEIC. continues to forecast USD-G10 to fall over the next year with Regression of REER on const, Brent EURUSD rising to 1.20 and 1.25 in three and twelve months. Currency valuation is still compelling Despite the recent ringgit rally, we estimate that the real effective Domestically, a revival in domestic outflows is a risk, as the exchange rate (REER) has risen only 3% from its all-time low in government may ease its restrictions on domestic funds' outward December 2016, and is still 7% cheap to Brent at $63/bbl. Valuation investment following ringgit stability. However, we think this will be a is rarely a reason to buy a currency on its own, but in Malaysia’s case slow and gradual process and the government will try not to upset the we believe currency cheapness is now clearly boosting exports and still recovering ringgit sentiment. Malaysia’s current account surplus. Finally, the General elections, due by August 2018, but likely in 1Q, is Exports are likely to remain strong, improving the current also a risk. However, historical evidence argues against elections account surplus. A consequence of MYR cheapness has been a being a negative driver for ringgit. MYR has tended to outperform powerful recovery in Malaysia’s exports, especially electronic exports. roughly one month into past elections. Looking forward, we expect this export outperformance to continue. One reason is that in addition to continuing competitiveness, foreign investment in manufacturing is rising. Major commitments by US electronics producers for production and global distribution hubs in Malaysia are likely to boost export supply over the next year.
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Asian Daily
Malaysia Market Strategy ------Winners and losers of a stronger RM Danny Goh / Research Analyst / 60 3 2723 2083 / [email protected] ● CS' FX strategy team has raised USDMYR forecast to 4.0 in three Losers months and 3.80 in 12 months (from 4.10 and 4.0 previously). RM ● MY telcos - mobile: The stronger RM is unlikely to impact MY has appreciated 8% vs the USD YTD and is currently at the telco’s IDD business anymore, given that they are now pricing strongest level so far this year. their services using the ‘cost plus’ method to avoid the pitfalls in ● In our view, companies most materially affected would be (1) 2016 (it became a loss-making business). That said, the scenario those with mismatch in USD-denominated revenue and cost, (2) will likely be negative for Axiata, given that ~70% of its FY18E companies with majority of profits derived from offshore EBITDA is denominated in foreign currency. We estimate that if operations, (3) companies with sizeable foreign currency RM trades at RM3.80 vs USD, it would have an approximate denominated debt. 5%/15% impact on Axiata’s FY18E EBITDA/net profit, all else equal; earnings exposure to foreign business will be partially offset ● Key beneficiaries of a stronger RM in our view are TNB, Air Asia by some modest interest savings due to Axiata's sizeable USD and Astro. Meanwhile, our screen seems to suggest that there is a debt. However, management could take pre-emptive steps (such longer list of potential losers which include: telecommunication as re-negotiate interconnect fees, reduce traffic in impacted areas) companies (Axiata, TM, TimeDotCom), rubber, petrochemical to mitigate the impact. companies, Inari, IHH and plantation companies. ● MY telcos – fixed line: Within the fixed line space, both TM and ● The adverse impact of a stronger RM on corporate earnings could Time Dotcom’s submarine cable business will be impacted if RM be among the key factors suppressing street's corporate earnings strengthens, given that the contracts are generally priced in USD. estimates (Malaysia is the only market in Asia with no 2017E EPS However, the impact is modest, based on our estimates given that growth) despite the improving economic growth outlook. if RM trades at RM3.80 vs USD, only 7-10% of TM and Time’s Figure 1: USD/MYR exchange rate revenue will be impacted (~3% of EBITDA). 4.60 ● Rubber companies such as Top Glove and Karex whose 4.50 revenue is USD-denominated would be negatively impacted by a 4.40 stronger MYR. We estimate a 10% strengthening in MYR will have 4.30 a 25% earnings impact on Karex, ceteris paribus. Meanwhile, the 4.20 same sensitivity on Top Glove will impact earnings by 4.10 approximately 7%. Nevertheless, we highlight that the exporters
4.00 typically adjust selling prices to reflect any adverse forex
3.90 movements, albeit with a slight 1-2 months’ time lag. 6/1/2016 8/1/2016 10/1/2016 12/1/2016 2/1/2017 4/1/2017 6/1/2017 8/1/2017 10/1/2017 Source: Bloomberg. ● Petrochemical companies tend to lose out in a strong RM environment as revenue is denominated in USD (product prices We take a look at the possible winners and losers of a stronger RM vs linked to international prices). Though majority of its costs are in USD. USD (feedstock, energy costs, etc), some portions of its costs are Winners in RM. We estimate 8% and 12% negative earnings impact for ● TNB - Tenaga’s USD-denominated debt as at 31 August 2017 every 5% appreciation in RM for PCHEM and LCT, respectively. amounted to RM6 bn (16% of total borrowings). Our rough estimates show that a 10% strengthening in MYR against USD ● Plantation – Plantation companies tend to be adversely affected should have an approximate 12% impact on earnings, all else as stronger RM would lead to lower revenues (palm oil traded in constant. Nevertheless, we understand that TNB has hedged at USD) while the bulk of cost is denominated in RM. least 50% of its foreign currency exposure up to 12 months, hence ● Inari: A stronger RM is negative for Inari as it bills its client in USD. possibly reducing the quantum of the earnings impact. We estimate that there could be 8-10% downside to our net profit ● Air Asia - AirAsia has a significant portion of borrowings which is estimates in FY19-20E assuming USD-RM at RM3.80. USD-denominated (RM8.4 bn or 86%) as at 30 June 2017. Bulk of ● IHH - IHH Healthcare’s growth would be negatively impacted in its operating cost (fuel and maintenance) is also dominated in the scenario of stronger RM as it generates >80% of total core USD; although AirAsia has hedged 50% of its USD opex up to revenues outside of Malaysia. If the currency appreciated to December 2017, the unhedged portion coupled with the expiry of RM3.80 relative to USD in FY18, revenue and EBITDA could be these hedges beyond 2017 would have a positive impact on affected by ~4%-5%, everything else equal. earnings. Assuming foreign-denominated cost is not hedged, a 5% appreciation in RM would lead to a 5% boost in net profit. ● Astro - The stronger RM is positive for Astro as its content cost is denominated in USD. We estimate that Astro’s bottom line in FY19E and FY20E will improve by 3.1% and 6.5%, respectively should the ringgit improve to RM3.80 (less impact in FY19E as Astro has hedged 80% of its annual USD exposure today).
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Malaysia Banks Sector ------Maintain OVERWEIGHT Higher possibility of rate hike: Who are the key beneficiaries? Danny Goh / Research Analyst / 60 3 2723 2083 / [email protected]
● Credit Suisse’s economics team is now forecasting a possible 25 Figure 2: CASA ratios bp rate hike to 3.25% (vs no change previously) that could take 45 40 40 place as soon as 1Q 2018. Bank Negara's next two monetary 35 34 policy meetings are scheduled for 25 Jan 2018 and 7 Mar 2018, 35 30 27 25 25
respectively. 25 % ● The impact of rate cuts on the banks depends on: (1) net 20 interbank position, (2) response of banks on deposit rates and 15 10
percentage of low-cost deposits and (3) mix of variable rate loans. 5 ● Based on our analysis, banks' NIM tends to expand when there is a - HL Bank Public RHB CIMB MY* Alliance MAY MY* policy rate hike as assets re-price faster than liabilities. Banks with the Source: Company data, * Domestic CASA ratio following qualities tend to benefit more: (1) net interbank lenders, (2) ● Lending and deposit rate adjustments. We expect the banks to high exposure to variable rate loans and (3) higher CASA. raise the prime lending rates in response to any policy rate hike, ● Our analysis shows that among our coverage, Alliance, RHB, so as to re-price the current variable-rate loans. Banks with higher CIMB and Maybank could be among the biggest beneficiaries of portions of variable-rate loans should comparatively benefit more any uptrend in interest rates. Our top picks within the sector are from adjustments in rates. Alliance has the highest portion of CIMB and RHB (both trade at the most attractive valuations). variable-rate loans (90% of total), followed by CIMB (88%) and
Figure 1: MY banks’ LDR comparison RHB (83% of total). 95 93 94 Figure 3: Percentage of RM-denominated variable rate loans
91 100 90 88 90 88 90 83 86 80 76 77 70 85 70
60 % 81
80 % 50 40
30 75 20
10 70 HL Bank CIMB MY* Alliance MAY MY* Public Bank RHB - MAY MY* HL Bank Public Bank RHB CIMB MY* Alliance Source: Company data. *Domestic LDR Source: Company data, * Domestic variable rate loans as % of domestic loans Credit Suisse’s economics team is now forecasting a possible 25 bp rate ● Interest-rate sensitivity. In our sensitivity analysis, key hike to 3.25% (vs no change previously), which could take place as soon assumptions in our interest-rate sensitivity analysis for the impact as 1Q 2018. Bank Negara's next two monetary policy meetings are of a 25 bp rate hike are: (1) no lag assumed, (2) no adjustment to scheduled for 25 Jan 2018 and 7 Mar 2018, respectively. CASA rates, (3) time deposit rates +20 bp, (4) variable rate loans The impact of any rate hike on the banks depends on the following +25 bp and (5) impact on investment and dealing securities not factors. factored in. Our analysis shows that among the banks under our ● Net interbank position of the banks. Should there be a rate coverage, Alliance, RHB, CIMB and Maybank could experience hike, banks with lower loan-to-deposit ratios should be in a comparatively more earnings improvement. position to benefit more. HLB (LDR = 82%), CIMB (LDR = 86%) Figure 4: Estimated % impact on net profit arising from 25 bp rate hike and Alliance (LDR = 88%) have the lowest domestic loan-to- deposit ratios (LDR). ● Response of banks on deposit rates. Banks with higher portions of low-cost deposits (e.g., Maybank, Alliance and CIMB) will likely face less upward pressure on funding costs as policy rates rise. While the intensity of deposit competition has eased somewhat since last year, we still expect banks to make adjustments to time deposit rates to capture a significant percentage of the rate hike.
Source: Company data, Credit Suisse estimates
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Asian Daily
RHB Bank Berhad ------Maintain OUTPERFORM 3Q17 results in line with street, key investor concerns mostly addressed EPS: ◄► TP: ◄► Danny Goh / Research Analyst / 60 3 2723 2083 / [email protected] ● RHB’s 9M17 net profit of RM1.49 bn (73% of street's, 69% of CS' FY account for 63% of loans (vs 55% in 2014). Management aims to estimate) was higher by 5 % YoY as LLP dipped 20% YoY while focus on SME and mortgage loans to drive loan growth. PPOP (-1.6% YoY) was a toucher weaker. Revenue was flat YoY on Deposits grew marginally (+2.3%) in 9M17 (vs system’s +4.4%). On lower NOII (-10.9% YoY) while net interest income grew +4.9% YoY. a positive note, CASA growth of 9.9% in 9M17 was ahead of system's ● On a QoQ basis, 3Q17 NP -2.4% QoQ as LLP increased by 4.0% -1.2% and management's guidance of +8%. CASA ratio improved to while PPOP was flat (-0.5%). 9M17 annualised ROE of 8.9% (vs CS' 27.1% in 3Q17 (from 25.6% in 4Q16). The group's CASA market 9.6%, street's 9.0%) is just below management's target of 9-10%. share increased to 10.2% as of end-Sept 2017 compared to 9.4% as ● Positives: (1) better-than-expected NIM, (2) robust CASA growth, of end-2016. Non-CASA deposits shrank -0.3% in 9M17 due to (3) managing cost well, (4) healthy capital position, (5) improving deliberate efforts by management to scale back on expensive loan growth, (6) stable asset quality. Negatives: (1) weak NOII. deposits. LDR rose marginally to 93.8% (93.3% as of end-2016). ● We reiterate our OUTPERFORM rating. It continues to trade at a NIM -4 bp QoQ to 2.13% in 3Q17 (2.17% in 2Q17, 2.03% in 1Q17, steep 32% P/E discount to peers (2018E P/E of 8.0x vs local peer 2.10% in 4Q16, 2.06% average in 2016), due mainly to lower average average of 11.8x, 0.8x P/B) despite improvements in NIM, CASA interest yields (-8 bp). 9M17 NIM average of 2.10% is 4 bp above market share, CIR, asset quality and capital position. Further 2016 average and ahead of management's guidance of possible high operational improvements to convince investors that the group can single-digit bp compression. deliver double-digit ROE could re-rate the stock. Non-interest income (NOII) fell 11% YoY. 9M17 NOII ratio of 26.7% is below 2016’s average of 28.5%. Improvement in wealth Bbg/RIC RHBBANK MK / RHBC.KL Price (27 Nov 17 , RM) 4.90 Rating (prev. rating) O (O) TP (prev. TP RM) 6.50 (6.50) management fee income (+27% YoY) and brokerage income (+12% 52-wk range (RM) 5.54 - 4.64 Est. pot. % chg. to TP 33 YoY) was offset by lower net forex gain (-34%) and investment Mkt cap (RM/US$ mn) 19,649.2/ 4,777.3 Blue sky scenario (RM) 11.69 banking fee income (-33%). NOII should improve in 4Q17 and 2018 ADTO-6M (US$ mn) 1.6 Grey sky scenario (RM) 5.06 as management indicated that the IB deal pipeline looks stronger. Free float (%) 27.0 Performance 1M 3M 12M Major shareholders EPF (48%); ADCB Absolute (%) (3.2) (3.0) 4.3 Costs increased by merely 2% YoY in 9M17 as management Holdings (25%) Relative (%) (1.7) (0.6) (1.4) continued to focus on cost efficiency. CIR improved to 49.6% (50.0% Year 12/15A 12/16A 12/17E 12/18E 12/19E in 2016) and is ahead of management's target of <50%. The key Pre-prov Op profit (RM mn) 2,545.0 3,094.5 3,376.9 3,886.0 4,380.9 driver was increased personnel cost of +3.7% and general expenses Net profit (RM mn) 1,665 1,682 2,159 2,537 2,874 EPS (CS adj. RM) 0.48 0.42 0.54 0.63 0.72 (+5.1%), which offset the lower establishment cost (-3.9%). - Change from prev. EPS (%) n.a. n.a. 0 0 0 GIL stable QoQ at 2.31% at the end of 3Q17 (2.29% in 2Q17, 2.39% in - Consensus EPS (RM) n.a. n.a. 0.50 0.54 0.60 1Q17, 2.43% in 4Q16). Total provision is lower by 20% YoY at RM424 EPS growth (%) (5.3) (12.8) 28.4 17.5 13.3 P/E (x) 10.2 11.7 9.1 7.7 6.8 mn in 9M17 (last year's provision included Swiber bond impairment). Dividend yield (%) 3.6 4.0 3.3 4.5 5.1 Excluding bond impairment, loan loss charge was 27 bp (vs 40 bp last BVPS (CS adj. RM) 5.11 5.42 5.80 6.21 6.68 year). Overall credit cost averaged 36 bp (vs management's guidance of P/B (x) 0.96 0.90 0.84 0.79 0.73 35 bp). During 9M17, management topped up the regulatory reserve by ROE (%) 9.9 8.5 9.6 10.5 11.1 ROA (%) 0.7 0.7 0.9 1.0 1.0 RM477 mn (transfer from shareholders' funds) to RM1.15 bn as at Tier 1 ratio (%) 13.7 16.8 16.9 16.5 16.1 September 2017 as a pre-emptive step ahead of FRS 9. The impaired
Note 1: RHB Bank Berhad is a Malaysian-based investment holding company. Its subsidiaries loan coverage (with regulatory reserve) increased to 93.6% at end-3Q17 provide commercial and merchant banking, and related financial services.
vs 74.7% in end-2016. Management intends to raise impaired loan Click here for detailed financials coverage to 100% by end-2017. O&G exposure is currently at RM5.4 bn Annualised loan growth +3.1% in 9M17, below management's 5% (upstream = RM3.5 bn, downstream =RM1.9 bn, or 3.4% of loans) vs target. Domestic loans grew 4.5% annualised (slightly ahead of the RM5.7 bn at end last quarter. GIL for O&G has improved slightly to 19% system loan growth of 3.5%) but overseas loans contracted 8.5%. (from 20% last quarter). Management has succeeded in growing loans in the higher-yielding Fully-loaded CET 1 ratio stood at 13.6% as of Sep 2017, the highest segments (retail +6.6%, SME +4.3%, and corporate -1.7%). The among Malaysian banks. Should management decide to raise impaired fastest-growing loan segments are residential housing (+12.3%), non- loan coverage to 100% (assuming the regulatory reserve can be used) residential (+13.0%), and personal use (+9.0%). Management expects upon FRS9 adoption, we estimate a 0.2 pp dilution in CET 1 ratio. loan growth to pick up in 4Q17. Retail and SME loans collectively Figure 1: Summary of results Year-end Dec 31 (RM mn) 9M2017 9M2016 YoY% % CS FY17E % Street FY17 3Q2017 2Q2017 QoQ% 3Q2016 YoY% Net interest income 3,459.0 3,298.2 4.9 74.7 n.a. 1,169.5 1,182.2 (1.1) 1,082.8 8.0 Non-interest income 1,260.1 1,413.5 (10.9) 66.2 n.a. 414.9 397.1 4.5 496.3 (16.4) Revenue 4,719.1 4,711.7 0.2 72.2 73.2 1,584.4 1,579.2 0.3 1,579.1 0.3 Op expense (2,339.1) (2,292.9) 2.0 74.0 n.a. (793.6) (784.3) 1.2 (776.5) 2.2 PPOP 2,380.0 2,418.8 (1.6) 70.5 111.4 790.8 794.9 (0.5) 802.6 (1.5) Loan-loss provisions (424.0) (531.8) (20.3) 85.2 n.a. (146.8) (141.1) 4.0 (140.1) 4.8 PBT 1,956.3 1,887.4 3.6 67.9 72.7 644.1 653.9 (1.5) 662.6 (2.8) Net profit 1,490.1 1,420.4 4.9 69.0 73.3 488.8 501.0 (2.4) 505.3 (3.3) Source: Company data, Credit Suisse estimates, IBES estimate.
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IHH Healthcare Berhad ------Maintain OUTPERFORM Decent 9M17 growth, new hospitals ramp up continues EPS: ◄► TP: ◄► Ari Jahja / Research Analyst / 62 21 2553 7976 / [email protected] Endo Takashi / Research Analyst / 62 21 2553 7911 / [email protected]
● IHH posted 9M17 revenue (+12% YoY), EBITDA (-3%), and Figure 1: In-line 9M17 vs our forecasts; slight EBITDA miss vs cons. PATMI (+33%) that reached 73%/71%/113% of our FY17 Slower net profit growth affected by higher operating and finance costs estimates, respectively. While core results were broadly in line, it MIKA.JK 9M16 9M17 YoY% 3Q17 YoY% QoQ% % CS % Cons 2017E 2017E reflects an improvement vs the +10%/-6%/+63% growth in 1H17. Core revenue RM mn 7,390 8,258 11.7% 2,801 14.7% 1.0% 72.8% 72.6% New hospitals ramp up appears to be progressing quite well. Singapore RM mn 2,662 2,883 8.3% 964 9.4% 0.7% 70.8% Malaysia RM mn 1,207 1,364 13.0% 467 11.8% 2.5% 75.4% ● Continued ramp up of Gleneagles Hong Kong. Management India RM mn 410 532 29.8% 197 32.0% 13.4% 72.7% North Asia RM mn 191 234 22.6% 81 44.6% -6.1% 66.0% stated that volume has risen by >40% MoM and revenue intensity Acibadem RM mn 2,513 2,819 12.2% 951 17.5% -0.3% 73.9% is just slightly below PPL-Singapore (RM29.9K) due to complex Other operating income RM mn 226 722 219.0% 59 39.1% -79.8% 100.5% Op Profit RM mn 1,165 1,447 24.2% 268 -24.1% -47.9% 92.2% 95.2% cases. Insurance coverage uptick could be a positive catalyst. Op Margin % 15.8% 17.5% 9.6% Pre tax RM mn 952 1,062 11.5% 128 -42.4% -68.5% 93.5% 80.6% ● Robust base business supporting our thesis. Revenue and Pre tax margin % 12.9% 12.9% 4.6% EBITDA for IHH's existing hospitals rose by 10% and 7% YoY, Net profit RM mn 655 869 32.7% 82 -52.6% -74.1% 113.3% 108.7% respectively, on the back of healthy inpatient admissions and Net profit margin % 8.9% 10.5% 2.9% Net profit (ex. EI) RM mn 644 413 -35.8% 125 -42.4% 45.4% 105.1% revenue intensity growth across most home markets. Net profit margin % 8.7% 5.0% 4.5% EBITDA RM mn 1,718 1,664 -3.1% 562 2.9% 5.0% 70.8% 67.5% ● Acibadem's (Turkey) improvement was supported by Altunizade EBITDA margin % 23.2% 20.1% 20.1% ramp up. Its constant currency top-line and EBITDA growth came Source: Company data, Credit Suisse estimates, Bloomberg in at 29% and 18%, respectively. Moreover, net D/E declined to Figure 2: EBITDA margins for Singapore, Malaysia improved QoQ; 0.05x (from 0.14x) post the RM2.1 bn perpetual securities overall +0.7% as key markets more than offset new hospitals ramp up issuance. This underscores M&A optionality to augment growth. 60.0% Bbg/RIC IHH MK / IHHH.KL Price (24 Nov 17 , RM) 5.64 40.0% Rating (prev. rating) O (O) TP (prev. TP RM) 6.80 (6.80) 52-wk range (RM) 6.60 - 5.56 Est. pot. % chg. to TP 21 20.0% Mkt cap (RM/US$ bn) 46.5/ 11.3 Blue sky scenario (RM) 7.60 0.0% ADTO-6M (US$ mn) 5.8 Grey sky scenario (RM) 5.32 -20.0% Free float (%) 19.4 Performance 1M 3M 12M Major shareholders Khazanah Nasional Absolute (%) 0.4 (6.2) (11.7) -40.0% Berhad (41.08%) Relative (%) 2.0 (3.7) (17.3) -60.0%
Year 12/15A 12/16A 12/17E 12/18E 12/19E (%) margin EBITDA -80.0% Revenue (RM mn) 8,456 10,022 11,338 12,823 15,377 -100.0% EBITDA (RM mn) 2,142 2,283 2,348 2,745 3,434 Net profit (RM mn) 934 612 766 1,003 1,314 -120.0% EPS (CS adj. RM) 0.11 0.07 0.09 0.12 0.16 1Q17 2Q17 3Q17 - Change from prev. EPS (%) n.a. n.a. 0 0 0 Singapore Malaysia India North Asia PPL Others Acibadem Holdings Overall - Consensus EPS (RM) n.a. n.a. 0.10 0.13 0.16 EPS growth (%) 23.8 (34.7) 25.1 30.8 31.0 Source: Company data. PPL Others comprised of mainly Parkway Pantai’s hospital in Brunei, P/E (x) 49.5 75.8 60.6 46.3 35.3 corporate office as well as other investment holding entities within Parkway Pantai Dividend yield (%) 0.5 0.5 0.5 0.5 0.5 Figure 3: The stock trades at ~20x forward EV/EBITDA, below -1stdev of EV/EBITDA (x) 23.9 22.6 21.5 18.6 14.6 historical average; potential inflection point on FY18 growth recovery P/B (x) 2.1 2.1 1.9 1.9 1.8 30.0x ROE (%) 4.5 2.8 3.3 4.1 5.2 STDEV+2 = 28.5x Net debt(cash)/equity (%) 19.5 21.1 15.5 16.7 13.3 28.0x
STDEV+1 = 25.8x Note 1: IHH Healthcare Berhad is a private healthcare group focused on upmarket health services, 26.0x and Asia's largest private healthcare group. IHH operates through 5 segments: Parkway Pantai, Acibadem Holdings, IMU Health, PLife REIT, and others segment. 24.0x Average = 23.2x
Click here for detailed financials 22.0x STDEV-1 = 20.5x 2018 target EV/EBITDA Robust base business growth continues 20.0x Current = 19.6x Pertaining to core business, Malaysia and Singapore (combined 51% 18.0x STDEV-2 = 17.9x of core sales) delivered top-line growth of 13% and 8%, respectively, largely driven by revenue intensity. Interestingly, revenue growth from 16.0x Sep- Feb- Jul-14 Nov- Apr- Aug- Jan- May- Sep- Dec- Mar- Jul-17 Oct- 2018E Indonesian patients in Singapore jumped by ~25% YoY, contributing 13 14 14 15 15 16 16 16 16 17 17 to the ~12% revenue intensity growth in 3Q17. Overall, 3Q17 revenue EV/EBITDA Average STDEV-1 STDEV+1 STDEV-2 STDEV+2 growth was offset by depreciation of the Turkish Lira, but boosted by SGD appreciation. Source: RAVE, Credit Suisse estimates.
New hospitals ramp up should drive long-term EBITDA growth Modest YoY decline on EBITDA still came from new hospitals' start-up costs, although relatively in-line with expectations. As a frame of reference, the new North Asia segment's (Hong Kong and Mainland China) 3Q17 EBITDA loss was flattish QoQ at -RM72 mn, while revenue grew by 69% to RM24.3 mn. Additional key launches in Chengdu (350-bed) and Shanghai (450-bed) are anticipated to play out in 2H18 and late 2019, respectively.
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Asian Daily
Pakistan Fauji Fertilizer Company Limited ------Maintain UNDERPERFORM Expensive valuations fail to capture declining earnings outlook EPS: ▲ TP: ▲ Fahd Niaz, CFA / Research Analyst / 65 6212 3035 / [email protected] Farhan Rizvi, CFA / Research Analyst / 65 6212 3036 / [email protected] ● FFC’s ability to export urea (at a time when international prices Valuations have again reached demanding levels had rallied) drove 3M outperformance. With the deadline for the Post 3M outperformance (20%), FFC trades at forward P/E of 12.1x sector to export surplus now over, this key catalyst has fizzled out. (one standard deviation above mean). Moreover, the stock price ● While the industry has seen some degree of pricing power return suggests EV/EBITDA of 10.0x, broadly in-line with global fertilizer (domestic urea prices up 7-8% in recent weeks), we still prefer low manufacturers, but offering sub-par EBITDA margins (17%). cost producers; a criteria which FFC does not fulfil. Blended feed Figure 1: At 12.1x P/E, FFC trades at its upper standard deviation band gas price stands at ~US$4.0/mmbtu (120% above EFERT) and P/E (x) primary profits are subsequently lower by ~40% (to US$68/ton). 18.0
● FFC trades at forward P/E of 12.1x (one standard deviation above 16.0
historical average). Moreover, the stock price reflects an EBITDA 14.0 multiple of 10x, broadly in-line with global fertilizer manufacturers, +1 ST Dev 12.0 but offering sub-par EBITDA margins (17%) relative to peers. Average 10.0 ● We have increased our forecasts by 1-8% after adjusting for latest price hikes in urea and also raised our TP to PRs70 (up 6%). Despite 8.0 this, we are 11% below the street, and downgrades have continued 6.0 -1 ST Dev for the third month running (28% cut in total). With two more years of 4.0 profit erosion ahead, a share price rally looks unlikely. 2.0 0.0
Bbg/RIC FFC PA / FAUF.KA Price (24 Nov 17 , PRs) 82.53
Jul-09 Jul-14
Jan-07 Jan-12 Jan-17
Mar-06 Mar-11 Mar-16
Sep-13 Nov-07 Sep-08 Nov-12 Nov-17
May-10 May-15 Rating (prev. rating) U (U) TP (prev. TP PRs) 70.00 (66.00) May-05 52-wk range (PRs) 119.0 - 70.1 Est. pot. % chg. to TP (15) Source: Reuters, Company data, Credit Suisse estimates. Mkt cap (PRs/US$ bn) 105.0/ 1.0 Blue sky scenario (PRs) 82.00 ADTO-6M (US$ mn) 1.0 Grey sky scenario (PRs) 58.00 Lifting estimates but still below consensus
Free float (%) 50.0 Performance 1M 3M 12M We have increased our earnings forecasts by 1-8% after adjusting for Major shareholders Fauji Foundation Absolute (%) (1.7) 17.5 (21.9) latest price hikes in urea and DAP and revised up our SOTP-based TP (44.4%) Relative (%) 0.3 19.9 (15.5) to PRs70 (up 6%). Despite the upward revision, we note that our Year 12/15A 12/16A 12/17E 12/18E 12/19E Revenue (PRs mn) 84,831 72,877 78,665 82,888 83,694 estimates are still 11% below consensus for 2018E. The latter has EBITDA (PRs mn) 24,038 13,022 9,987 13,672 15,870 revised down its numbers for the third consecutive month with Net profit (PRs mn) 16,766 11,782 8,937 8,653 8,482 cumulative declines of 28%. FFC’s PAT is expected to maintain its EPS (CS adj. PRs) 13.2 9.3 7.0 6.8 6.7 downtrend till 2019E (effectively marking eight years of declining profits) - Change from prev. EPS (%) n.a. n.a. 6.7 8.3 0.8 - Consensus EPS (PRs) n.a. n.a. 7.17 7.64 8.30 and we fail to defend current valuations. Maintain UNDERPERFORM. EPS growth (%) (7.7) (29.7) (24.1) (3.2) (2.0) P/E (x) 6.3 8.9 11.7 12.1 12.4 Figure 2: Consensus has cut estimates by 28% in 3M… more to come Dividend yield (%) 14.4 9.6 7.3 6.5 6.4 FFC - 2018E consensus EPS (PRs) EV/EBITDA (x) 5.9 11.3 14.5 10.0 8.3 12.0 P/B (x) 3.8 3.7 3.6 3.4 3.2 ROE (%) 63.3 42.4 31.0 28.5 26.4 11.0 Net debt(cash)/equity (%) 130.7 151.5 133.6 99.4 78.6 10.0 Note 1: Fauji Fertilizer is a leading manufacturer of urea with a capacity of 2mn tons per annum. The company has associate stakes in Fauji Fertilizer Bin Qasim, Askari Bank and Fauji Cement. The 9.0 company also has a 100% stake in FFC Energy (50 MW wind IPP).
Click here for detailed financials 8.0 Short-term excitement on urea exports behind us 7.0 CS estimate is 11% We had earlier discussed the positive impact on FFC due to the sharp 6.0 below consensus rally in international urea prices as export opportunities had opened up for the company. Resultantly, export revenue of PRs1.8 bn in 3Q17 5.0
(+3.8x QoQ, 6% of net sales) was impressive. However, with the 4.0
Jul-17
Apr-17 Oct-17 Jun-17
deadline of exporting urea over, this share price driver has fizzled out. Jan-17
Mar-17
Feb-17
Dec-16 Aug-17 Sep-17 Nov-17 May-17 Expensive producer despite better industry dynamics Source: IBES, Credit Suisse estimates. Although pricing power is improving in the sector (domestic urea Modest downside risk to dividend prices up 7-8% in recent weeks), FFC’s cost structure is still meaty. While FFC’s participation in the 330 MW Thar Energy IPP is an Blended feed gas price stands at ~US$4.0/mmbtu (120% above attractive proposition, we note the possibility of minor cuts in dividends EFERT), which keeps primary profit ~40% lower (at US$68/ton). as FFC is estimated to invest ~US$38 mn in the next two years.
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Asian Daily
South Korea Samsung Heavy Industries ------Maintain OUTPERFORM Noise at end of ESOP lock-in provides buying opportunity EPS: ◄► TP: ◄► Hoonsik Min / Research Analyst / 82 2 3707 3761 / [email protected] ● ESOP (Employee stock ownership plan) lock-up for new shares out of the 5,000 strong production labour force, 3,000 odd participated issued in November 2016 ended 27 November. Given its sizable in the vacation plan, receiving only 80% of normal salary. volume (8% of total share issued, or 31.8 mn shares) market Oil: sector outlook keeps improving considered it overhung resulting in share prices tumbling 5.3%. Meanwhile, the sector outlook keeps improving, especially with rising oil prices in both WTI and Brent. We do not speculate about oil prices here, ● However in our view, it was mostly driven by flows and not by but OPEC’s expected output decision on 30 November could trigger fundamentals; considering many employees are keen for cash sentiment for the stock in the near term. Given the strong correlation due to recent salary cuts and compulsory vacations. The between oil prices and the share price (94% for 2011-current), we correction might be overdone by non-fundamental reasons. believe SHI is one of the best proxy- play for the oil cycle. (Note the 72% ● Oil prices are rising on WTI and Brent. We don't speculate on oil correlation between oil prices and Hyundai Heavy Industries.) prices, but OPEC’s output decision on 30 November could trigger Figure 1: SHI share price and Brent price sentiment for the stock in the near term. LNG shipping activity clearly 50,000 (W) (U$/bbl) 150 45,000 supports our view for long-term improvement of the sector outlook. 130 40,000 We fine-tuned our EPS for 2017/18 due to reported 3Q numbers. 2011-2017YTD 35,000 110 Correlation = 94% 30,000 ● Given robust sector fundamentals, we believe this is a good 90 buying opportunity to play the oil recovery cycle and LNG shipping 25,000 70 story from US/Qatar/Australia to Asia. We reiterate 20,000 15,000 50 SHI share price OUTPERFORM with TP of 17k (1.0x 2018E P/B, the average 10,000 Brent price (rhs) 30 multiple for recovery cycle). 5,000 0 10 Bbg/RIC 010140 KS / 010140.KS Price (27 Nov 17 , W) 11,650 2011 2012 2013 2014 2015 2016 2017 Rating (prev. rating) O (O) TP (prev. TP W) 17,000 (17,000) 52-wk range (W) 13600.0 - 8300.0 Est. pot. % chg. to TP 46 Source: the BLOOMBERG PROFESSIONAL™ service Mkt cap (W/US$ bn) 4,543.5/ 4.2 Blue sky scenario (W) 20,000 LNG shipping activity supports long-term story ADTO-6M (US$ mn) 29.2 Grey sky scenario (W) 8,000 The LNG carrier market in 2017YTD was weak as only 8 new orders Free float (%) 75.9 Performance 1M 3M 12M for vessels were placed. But the combination of low new orders since Major shareholders Samsung Elec Absolute (%) (0.4) 4.0 35.9 2015 and rising LNG demand from Asia created tightening LNG (16.9%) and Relative (%) (0.9) (2.0) 8.9 Samsung Life (3.2%) shipping market dynamics in 2017. Considering the low new vessel
Year 12/15A 12/16A 12/17E 12/18E 12/19E prices but rising shipping demand, we remain bullish on LNG carrier Revenue (W bn) 9,714 10,414 8,047 6,633 8,760 new orders. SHI is one of the direct beneficiaries of this theme. We EBITDA (W bn) (1198) 170 421 456 730 maintain our OUTPERFORM with a Target Price of W17 k. Net profit (W bn) (1205) (121) 139 142 339 Figure 2: LNG shipping utilization EPS (CS adj. W) (5218) (433) 497 506 1,212 - Change from prev. EPS (%) n.a. n.a. 0.5 0.4 (0.5) - Consensus EPS (W) n.a. n.a. 327 273 505 EPS growth (%) n.m. n.m. n.m. 1.8 139.5 P/E (x) n.m. n.m. 23.4 23.0 9.6 Dividend yield (%) 0 0 0 0 0 EV/EBITDA (x) (5.6) 43.2 14.5 13.7 7.7 P/B (x) 0.6 0.7 0.7 0.7 0.7 ROE (%) (24.7) (2.3) 2.2 2.2 5.1 Net debt(cash)/equity (%) 50.6 44.3 24.2 26.3 15.5
Note 1: Samsung Heavy Industries is one of the largest shipbuilders in the world. The company constructs general ships and offshore structures for shipping and oil E&P companies.
Click here for detailed financials Noise creates buying opportunity Source: Poten, Gaslog In November 2016, Samsung Heavy Industries (SHI) raised capital Figure 3: LNG spot fixture by quarter with consideration. The number of shares issued was 159 mn, and 31.8 mn shares (20%) were distributed via ESOP (or 8% out of total 390 mn shares issued). ESOP lock-up for new shares issued in November 2016 ended yesterday— 27 November. Given its sizable volume (8% of total shares issued, or 31.8 mn shares), market considered it overhung resulting in share prices falling 5.3%. Also, share prices had rallied since their bottom levels witnessed in September, triggering profit-taking sentiment. However, we believe it is mostly driven by flows and not fundamentals. Considering many employees are keen for cash due to recent salary cuts and compulsory vacations due to the restructuring plan, the correction might be overdone by non-fundamental reasons. Note that, Source: Poten, Gaslog
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Asian Daily
Taiwan Taiwan Components Sector ------New report: Key findings from 9M17 financial reports Pauline Chen / Research Analyst / 886 2 2715 6323 / [email protected] ● We summarised ten key findings from 9M17 financial reports: (1) components (replacing PC components) saw the biggest increase (up Casing saw the strongest top-line growth; (2) Battery pack still 103% YoY), and cooling still saw the biggest decline (down 47% declined the most in operating profit; (3) Lens saw the biggest YoY); (7) depreciation: the sector saw 3% YoY decrease, with the margin improvement; (4) Casing still suffered from the biggest major decrease from non-lens handset components; (8) inventory margin contraction in the sector. dollar: the sector saw 14% QoQ increase, vs EMS up 34% QoQ; ● (5) Labour cost increase hurt power supply the most; (6) Sector’s cash conversion cycle for the sector was up five days YoY, mainly capex accelerated to 23% YoY growth while passive components from battery pack; (9) R&D expense: the sector increased 7% YoY, had the biggest increase; (7) overall depreciation decreased 3% hinges still saw the biggest YoY increase (by 30%) and battery pack YoY, and non-lens handset is the main contributor. still saw the biggest YoY decline (by 8%); and (10) operating profits for component sector accounted for 100% of that of EMS in 9M17, vs. ● (8) Inventory dollar grew 14% QoQ as going into high season; (9) 2008-16's 3Q average of 74%. The number of operating loss making Hinges saw the biggest increase in R&D while battery pack still suppliers has reduced in lens (Genius turned around from 4Q16) and saw decline; (10) Operating profit for component was 100% of that handset components (Cheng Uei turned around from 3Q17). of EMS, compared to 74% for 2008-16's 3Q average. ● The set of data suggests (1) continued upcycle for lens and Power supply: passive components; (2) structural headwinds in PC components We upgraded Chicony, as we see margin improvements driven by including power supply; (3) casing's business model change diversification towards non-PC and its unique business model in winning taking some assembly value; and (4) potential reversal in over industry leaders. We like Delta’s wider product portfolio in energy- performance between components and EMS in 4Q17. saving and diversified product mix in automotive although the transition is longer than expected. Risks for the sector may include pricing in IT Valuation metrics market and structural issue on server power supply. Company Ticker Rating Price Target Year P/E (x) P/B (x) Handset components: Local price T T+1 T+2 T+1 We see a strengthened leadership for Largan in lens upcycle, given a Catcher 2474.TW O 336.50 385.00 12/16 12.1 10.5 2.1 FTC 2354.TW N 86.60 100.00 12/16 11.2 10.2 1.0 bigger 3D sensing opportunity and strong position in 6-7-element lens. Casetek 5264.TW N 115.50 130.00 12/16 18.2 14.4 1.4 We downgraded Merry, as uncertainties for profit rises due to Largan 3008.TW O 5,330 6,500 12/16 26.5 17.4 8.4 complicated holding structure and a slower GM expansion on speaker. Merry 2439.TW N 221.00 230.00 12/16 18.5 16.8 5.4 Risks for the sector may include end market demand on delayed TXC 3042.TW N 40.50 45.00 12/15 12.4 11.2 1.2 Delta 2308.TW O 140.50 170.00 12/16 20.2 17.6 3.3 iPhone and emerging niche players/new technology on the lens side. Lite-on Tech 2301.TW N 38.00 48.00 12/16 31.0 9.0 1.4 Casings: Chicony 2385.TW O 76.60 88.00 12/16 13.9 11.9 2.6 Kinsus 3189.TW N 74.50 86.00 12/16 24.2 13.2 1.2 We shift our stock pick from Casetek to Catcher, and believe Catcher Chin Poon 2355.TW O 62.30 72.00 12/16 14.8 12.1 1.6 generate better return for shareholders on every dollar they spent. We Tripod 3044.TW N 96.20 112.00 12/16 11.5 11.0 1.8 think Casetek’s main casing win will be capped by dilution of right Unimicron 3037.TW N 15.30 19.00 12/16 103.3 18.9 0.6 issue plan and initial project ramp. Risks for the sector may include NYPCB 8046.TW N 26.20 26.00 12/16 n.m. 27.6 0.5 TOPOINT 8021.TW N 21.30 25.00 12/16 15.0 13.1 0.8 new iPhone demand and inventory adjustment for iPhone 8/8+. Bizlink 3665.TW O 270.50 300.00 12/16 29.0 22.0 4.8 Sinbon 3023.TW O 88.80 98.00 12/16 16.7 14.9 3.9 PCB (printed circuit board): Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Unimicron and Kinsus still suffered a little on initial ramp for substrate- Source: Company data, Credit Suisse estimates like PCB in 3Q17, but both expect to see significant improvement in Ten key findings from 9M17 results 4Q17. HDI tightness for Android phones is seen in Tripod’s strength in We summarise ten key findings from the 76 sample downstream handsets. We initiated Chin Poon with OUTPERFORM, as it offers component companies' 9M17 financial reports: (1) revenue: growth stable and better profitability given higher exposure to automotive accelerated to 6% YoY growth; casing (replacing lens) saw the market. Risks for the sector may include smartphone demand, copper strongest growth (up 22% YoY), and PC components (replacing foil price, price erosion for substrate-like PCB as competition battery pack) saw the biggest decline (down 10% YoY); (2) operating increased, Rmb appreciation, and labour cost in China. profit: the sector saw 5% YoY growth; passive components (replacing Connectors: lens) saw the strongest growth (up 38% YoY), and battery pack still We initiated BizLink and Sinbon with OUTPERFORM rating. Both saw the biggest decline (down 19% YoY); (3) operating margin: the have well diversified end market mix, and are expected to rise on sector saw 7 bp YoY decline; lens still saw the biggest improvement growing car electrification. BizLink is facing margin headwinds from (up 606-bp YoY) and casing still saw the biggest contraction (down integrating Leoni-Home Appliance business. Risks for the sector may 407-bp YoY); (4) EBITDA margin: the sector saw 53 bp YoY decline be how fast the automotive story can fully translate into profitability to 13.9%; lens still saw the biggest improvement (up 446 bp YoY), and casing still saw the biggest contraction (down 572 bp YoY); (5) labour costs: the sector saw 3% YoY increase, hurting power supply the most; (6) capex: accelerated to 23% YoY growth; passive
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Recently Published Research Date Title Author(s) Tel. E-mail Tue 28 Nov China Cement Sector - Embracing six-year high Yang Luo 852 2101 6328 [email protected] profitability Peter Li 852 2101 6320 [email protected] Tue 28 Nov Eris Lifesciences Ltd - Scalable model with strong FCF Anubhav Aggarwal 91 22 6777 3808 [email protected] generation Chunky Shah 91 22 6777 3872 [email protected] Tue 28 Nov Taiwan Components Sector - Ten key findings from 9M17 Pauline Chen 886 2 2715 6323 [email protected] financial reports Angela Pan 886 2 27156352 [email protected] Mon 27 Nov India Oil & Gas Sector - A speedbump on the path to zero Badrinath Srinivasan 91 22 6777 3698 [email protected] subsidy Mon 27 Nov Sime Darby - Back to basics Joanna Cheah 6 03 2723 2081 [email protected] Ella Nusantoro 62 21 2553 7917 [email protected] Danny Chan 60 3 2723 2082 [email protected] Mon 27 Nov Vietnam Market Strategy - Becoming investible Dan Fineman 66 2 614 6218 [email protected] Farhan Rizvi, CFA 65 6212 3036 [email protected] Hoang Minh Trinh, CFA 65 6212 8863 [email protected] Fri 24 Nov Asia Pacific Equity Strategy: ASEAN's first big EPS Sakthi Siva 65 6212 3027 [email protected] upgrade in November. Catalyst to switch back? Kin Nang Chik 852 2101 7482 [email protected] Fri 24 Nov China Steel Sector - Timing mismatch between slowing Yang Luo 852 2101 6328 [email protected] demand and production curb Peter Li 852 2101 6320 [email protected] Fri 24 Nov Korea Market Strategy - 2018 outlook: The year of Gil Kim 82 2 3707 3763 [email protected] multiple expansion Jennifer Yu 82 2 3707 3738 [email protected] Keon Han 82 2 3707 3740 [email protected] Minseok Sinn 82 2 3707 8898 [email protected] Michael Sohn 82 2 3707 3739 [email protected] A-Hyung Cho 82 2 3707 3735 [email protected] Eric Cha 82 2 3707 3764 [email protected] Ray Kim 82 2 3707 3776 [email protected] Sang Uk Kim 82 2 3707 3795 [email protected] Hoonsik Min 82 2 3707 3761 [email protected] Sohyun Lee 822 3707 3737 [email protected]
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Companies mentioned Abbott Laboratories (ABT.N, $56.13) AirAsia Berhad (AIRA.KL, RM3.1) Airports of Thailand (AOT.BK, Bt58.5, OUTPERFORM, TP Bt70.0) Alkem Laboratories Ltd (ALKE.BO, Rs1972.35) Alliance Financial Group BHD (ALFG.KL, RM3.87) Anhui Conch Cement Co. Ltd. (0914.HK, HK$35.2, OUTPERFORM, TP HK$42.0) Anhui Conch Cement Co. Ltd. (600585.SS, Rmb27.59, OUTPERFORM, TP Rmb35.7) Astro Malaysia Holdings Bhd (ASTR.KL, RM2.77) Axiata Group Berhad (AXIA.KL, RM5.31) BBMG Corporation (2009.HK, HK$3.63, OUTPERFORM, TP HK$5.0) BBMG Corporation (601992.SS, Rmb5.9, UNDERPERFORM, TP Rmb4.3) Cadila Healthcare (CADI.BO, Rs444.15) Casetek Holdings Limited (5264.TW, NT$115.5, NEUTRAL, TP NT$130.0) Catcher Technology (2474.TW, NT$336.5, OUTPERFORM, TP NT$385.0) Cheng Uei Precision Industry Co. (2392.TW, NT$50.4) Chicony (2385.TW, NT$76.6, OUTPERFORM, TP NT$88.0) China Gas Holdings Ltd (0384.HK, HK$23.05, OUTPERFORM, TP HK$30.5) China Mengniu Dairy (2319.HK, HK$20.0, OUTPERFORM, TP HK$25.0) China National Building Material Co (3323.HK, HK$6.81, UNDERPERFORM, TP HK$5.4) China Resources Cement Holdings Ltd (1313.HK, HK$5.0, NEUTRAL, TP HK$5.4) China Resources Gas (1193.HK, HK$28.0) Chin-Poon Industrial Co., Ltd. (2355.TW, NT$62.3, OUTPERFORM, TP NT$72.0) CIMB Group Holdings Bhd (CIMB.KL, RM5.97) Cipla Limited (CIPL.BO, Rs615.0) Delta Electronics (2308.TW, NT$140.5, OUTPERFORM, TP NT$170.0) Dr. Reddy's Laboratories Limited (REDY.BO, Rs2297.0) Engro Fertilizers (ENGR.KA, PRs66.71) ENN Energy Holdings Ltd (2688.HK, HK$57.75) Eris Lifesciences Ltd (ERIS.BO, Rs650.25, OUTPERFORM[V], TP Rs770.0) Fauji Fertilizer Company Limited (FAUF.KA, PRs82.53, UNDERPERFORM, TP PRs70.0) Foxconn Technology Corp (2354.TW, NT$86.6, NEUTRAL, TP NT$100.0) Glenmark Pharmaceuticals (GLEN.BO, Rs591.2) GSEO (3406.TW, NT$352.5) Hong Leong Bank (HLBB.KL, RM15.3) Hyundai Heavy Industries (009540.KS, W145,000) IHH Healthcare Berhad (IHHH.KL, RM5.65, OUTPERFORM, TP RM6.8) Inari Amertron (INAR.KL, RM3.13) Karex Bhd (KARE.KL, RM1.5) Kinsus Interconnect Tech (3189.TW, NT$74.5, NEUTRAL, TP NT$86.0) KSDB (SIME.KL^A08) Largan Precision (3008.TW, NT$5330.0, OUTPERFORM, TP NT$6500.0) Lite-On Technology (2301.TW, NT$38.0, NEUTRAL, TP NT$48.0) Lotte Chemical Titan (LOTT.KL, RM4.97) Lupin Ltd (LUPN.BO, Rs831.25) Malayan Banking (MBBM.KL, RM9.2) Man Zai (4543.TWO, NT$18.95) Merry Electronics Co. Ltd (2439.TW, NT$221.0, NEUTRAL[V], TP NT$230.0) Nan Ya Printed Circuit Board (8046.TW, NT$26.2, NEUTRAL, TP NT$26.0) Petronas Chemicals Group BHD (PCGB.KL, RM7.31) PT Indosat Tbk (ISAT.JK, Rp5,275, OUTPERFORM, TP Rp8,600) PT Sarana Menara Nusantara (TOWR.JK, Rp3,950) PT Telkom (Telekomunikasi Indo.) (TLKM.JK, Rp4,300, OUTPERFORM, TP Rp5,100) Public Bank (PUBM.KL, RM20.3) Qudian Inc. (QD.N, $12.22, OUTPERFORM[V], TP $15.0) RHB Capital Berhad (RHBC.KL, RM4.9, OUTPERFORM, TP RM6.5) Samsung Heavy Industries (010140.KS, W11,650, OUTPERFORM, TP W17,000) Sime Darby (SIME.KL, RM8.94, OUTPERFORM, TP RM11.1) Sun Pharmaceuticals Industries Limited (SUN.BO, Rs550.25) Sysmex (6869.T, ¥8,410, OUTPERFORM, TP ¥10,000) Telekom Malaysia (TLMM.KL, RM5.99) Tenaga (TENA.KL, RM15.0) Terumo (4543.T, ¥5,040, OUTPERFORM, TP ¥6,000) Time Dotcom Berhad (TCOM.KL, RM8.99) Top Glove Corporation Bhd (TPGC.KL, RM6.85) Topoint Technology Co Ltd (8021.TW, NT$21.3, NEUTRAL, TP NT$25.0) Torrent Pharma (TORP.BO, Rs1285.05) Tower Bersama (TBIG.JK, Rp6,275) Treasury Wine (TWE.AX, A$15.89, UNDERPERFORM, TP A$14.15) Tripod Technology (3044.TW, NT$96.2, NEUTRAL, TP NT$112.0) Tuniu Corporation (TOUR.OQ, $8.78, OUTPERFORM, TP $12.0) TXC Corp. (3042.TW, NT$40.5, NEUTRAL, TP NT$45.0) Unimicron Technology Corp (3037.TW, NT$15.3, NEUTRAL, TP NT$19.0) XL Axiata Tbk (EXCL.JK, Rp3,010, OUTPERFORM, TP Rp3,600)
Disclosure Appendix Analyst Certification The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
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No information or communication provided herein or otherwise is intended to be, or should be construed as, a recommendation within the meaning of the US Department of Labor’s final regulation defining "investment advice" for purposes of the Employee Retirement Income Security Act of 1974, as amended and Section 4975 of the Internal Revenue Code of 1986, as amended, and the information provided herein is intended to be general information, and should not be construed as, providing investment advice (impartial or otherwise). Copyright © 2017 CREDIT SUISSE AG and/or its affiliates. All rights reserved. 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. 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