Singapore Market Focus
SMC Monthly Refer to important disclosures at the end of this report
Issue No. 1
DBS Group Research . Equity 11 Jan 2016
STI : 2,751.23 Blooms amidst the gloom FSST Small Cap : 397.54 FSST - Mid Cap : 650.02 Small-cap names can often shine despite uncertainty and malaise in the broader market. We begin 2016 with the following conviction picks under the following themes: Analyst Growth – MM2, Riverstone and Sheng Siong Paul YONG CFA +65 6682 3712 [email protected] Yield – China Merchants Holdings (Pacific) Singapore Research Team Recovery – Japfa
Five conviction picks to kick off 2016. Generally, our Key Indices five conviction picks have drivers and catalysts that Current % Chng should help them outperform the market. For mm2 Asia STI Index 2,804.27 -1.1% (BUY, TP S$1.05), earnings should be boosted by growth FS Small Cap Index 403.16 -0.5% USD/SGD Curncy 1.41 -1.8% in local productions as well as its expansion into the Daily Volume (m) 1,361 China market. Riverstone (BUY, TP S$2.83) should Daily Turnover (S$m) 994 benefit from an enlarged capacity as well as a strong Daily Turnover (US$m) 705 USD vs Ringgit, while Sheng Siong (BUY TP S$1.01) is Source: Bloomberg Finance L.P. looking to see both store growth and margin expansion. A rebound in day-old-chick prices should help Japfa’s (BUY TP S$0.90) earnings to recover, and lastly, CM Pacific (BUY TP S$1.45) offers a highly attractive dividend yield of over 8%, with long-term earnings bolstered by SMC Top Picks recently acquired toll roads in China. Price Mkt Cap Target Price Performance (%) S$ US$m S$ 3 mth 12 mth Rating Unsurprisingly, Watch out for potential reversions. Current oil & gas-related names were among the worst China Merchants 0.83 1,026 1.45 (8.8) (12.5) BUY performing in 2015, as brent crude fell to less than Hldgs (Pacific) US$34 per barrel (-34% y-o-y) from over US$100 per Japfa Ltd 0.49 599 0.90 48.5 (22.2) BUY barrel just over 15 months ago. While we are bearish on mm2 Asia 0.78 113 1.05 13.0 290.0 BUY Riverstone 2.40 616 2.83 39.1 141.2 BUY near term oil prices, if it does recover significantly, and Holdings Ltd Sheng Siong holds, we can expect to see a rebound in stock prices of 0.83 865 1.01 (1.8) 19.4 BUY oil & gas companies. Among these names, we think Group Ltd Ezion (BUY, TP S$1) and Pacific Radiance (BUY, TP S$0.42) should bear the most watching. Source: DBS Bank Prices as of 8 Jan 2016 SMC Radars: Memtech and Yuuzoo. As automotive designs trend toward more light-weight and stylish models, Memtech, a precision manufacturer of plastics and rubber, could potentially benefit from the increasing adoption of decorative and functional plastic content in vehicles. Touting its targeted networks as 3rd-generation theme-based networks, YuuZoo, a supplier of global e- commerce and network solutions, provides customers with a more direct way to monetise social network users.
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SMC Monthly
Jan-16: Top 5 Conviction Picks
No. Security Desc. Sector Rating Last Price Target Price Upside (%) Catalyst (8-Jan) 1 Japfa Ltd Consumer BUY 0.490 0.90 84 1) Earnings delivery Goods 2) Expansion 3) Recovery in purchasing power
2 China Merchants Industrials BUY 0.825 1.45 76 1) Earnings execution Holdings (Pacific) 2) Upcoming final dividend of S 3.5cts
3 mm2 Asia Consumer BUY 0.780 1.05 35 1) Growth in local productions Services 2) Further expansion into Chinese market 3) Contribution from recent acquisition
4 Sheng Siong Consumer BUY 0.830 1.01 22 1) Store growth Group Services 2) Margin expansion
5 Riverstone Health Care BUY 2.400 2.83 18 1) Capacity expansion Holdings 2) Earnings delivery 3) Strengthening USD vs Ringgit
Source: DBS Bank, Bloomberg Finance L.P.
Theme 1: Growth mm2 Asia* [MM2 SP, TP S$1.05] Sheng Siong Group [SSG SP, TP S$1.01] As a leading producer of films and TV/online content in Asia, One of the most well-run grocery retailers in ASEAN, Sheng mm2 provides a full suite of services spanning the entire Siong leads regional peers in profitability, cashflow generation filmmaking process. and working capital management. Consistently delivering earnings growth (CAGR of 20.4% since FY11) through a Riding on growing demand and support for local production, combination of margin expansion, store growth and SSSG, mm2 will continue to grow its presence in Singapore, Taiwan, Sheng Siong’s financial performance has consistently met our and Hong Kong, by offering localised content. In addition, its expectations. We believe that it is this consistency, together with venture into the lucrative Chinese movie market provides further strong dividend payout of 90% and yield of c.4%, which led to support for growth as Chinese films are generally characterised the stock’s re-rating from 20x to 22x FY15PE currently, as its by their bigger budgets and higher margins. To strengthen its share price appreciated c.22% over the year. competitive edge, mm2 recently acquired five cineplexes in Malaysia, which serve as a source of recurring income to the The Group operates 39 stores currently, but unlike other local Group, while generating cost savings for its future productions operators, still has scope to further expand its store network and over the longer term, as half of film proceeds are retained by targets to ultimately operate 50 stores island-wide. We also cinema operators. expect margin expansion through better sales mix, direct sourcing and bulk handling to improve going forward, while At 23x FYMar16F PE and 14x FY17F PE based on its enlarged long-term earnings drivers (which are still at their initial stages) share capital, mm2 trades at a c.40% discount to peers’ 27x such as e-commerce and its JV in China, continue to develop. FY16F PE. Given its smaller size, we apply a 30% discount, or PE of 19x to projected FYMar17F earnings, which implies a 12- Our target price for Sheng Siong is S$1.01, based on 25x FY16F month target price of S$1.05. PE, which is below regional peers’ average of 27x PE.
*Note: We initiated coverage of mm2 Asia on 6 Jan-16, after the counter closed at S$0.77.
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Riverstone Holdings [RSTON SP, TP S$2.83] Driven by contribution from these recent acquisitions, we project The Malaysian-based manufacturer of niche cleanroom nitrile CMHP’s core earnings to grow by nearly 50% from HK$675m in gloves and healthcare gloves had an exceptional run-up this year 2014 to HK$1,004m by 2017. from S$0.975 to a peak of S$2.58, before closing the year up 146% at S$2.40. Apart from its strong cash flow generation and long-term growth prospects, we also like the company for its attractive dividend The Group completed Phase 2 (of 5) of its expansion plans on yield of over 8%. Our 12-month target price of S$1.45 is based schedule in 3Q15, which will add 1bn gloves in annual on DCF valuation with WACC of 9.8%, and offers >60% upside. production capacity to 5.2bn by end-2015. To further capture We see the stock re-rating as it delivers earnings growth. opportunities from both new and existing customers, Riverstone will be accelerating its expansion plans ahead of schedule. When Theme 3: Recovery the five expansion phases are complete (expected by 2018), total production capacity will be raised to a minimum of 8.2bn gloves Japfa Ltd [JAP SP, TP S$0.90] p.a. Furthermore, Riverstone is able to grow capacity faster than Shares bounced back from a record low of S$0.28 on 15 Sep expected as it recently acquired 9.364 acres of land for the 2015 after the government ordered day-old-chick (DOC) construction of a factory and worker hostels. breeders to cull parent stock to address the oversupply situation in the poultry industry. Breeders have agreed to the culling of 6m Going forward, we expect capacity expansion to underpin poultry parent stock (of which Japfa’s share is 16% or c. 960k) growth, supported mostly by robust long-term global demand and when complete, would reduce the feed cost for Japfa’s for healthcare gloves amid rising healthcare standards and breeding division. Combined with the stabilisation of DOC prices expenditures, and greater awareness to workplace safety. A above breakeven cost, we anticipate the Group’s breeding strengthening US$ vs Ringgit will also benefit the company as segment GPM to recover substantially. Riverstone receives c. 90% of its revenues in US$, while only c. 35% of its costs are incurred in US$. We arrive at our 12-month At 25% EBITDA CAGR over the next three years, we believe that target price of S$2.83 after applying a target valuation multiple Japfa, given end-2015 price of S$0.47, remains undervalued at of 20x blended FY16/17F PE, which is fair given its smaller 7.6x forward PE. Looking forward, we expect recovery in the capacity. breeding segment, strong growth in China’s raw milk output, Rupiah stabilisation and recovery in purchasing power to boost Japfa’s FY16 earnings. Theme 2: Prospective Yield
China Merchants Holdings (Pacific) [CMH SP, TP S$1.45] The Chinese toll road operator completed its Jiurui Expressway acquisition and the acquisition of three toll roads in Guangxi Zhuang Autonomous Region over the year, which should propel the Group’s top and bottom lines in the medium to long term. CMHP operates eight toll roads, with a total length of 576km, in four different provinces (Zhejiang, Guangxi Zhuang Autonomous Region, Jiangxi and Guizhou) in China.
Source: DBS Bank
Page 3 Market Focus
SMC Monthly
Watch out for potential reversions in 2016
With 2015 behind us, these were the biggest losers of 2015 in the SMC space:
ALL SG SMC (Market Cap S$50m to S$2bn) No Security Desc. 52 W High 52 W Low 2015 Last Price Distance from Peak CY15 P/B* CY15 P/E* 1 Linc Energy Ltd 0.750 0.079 0.096 87.2% 2.20 - 2 Blackgold Natural 0.290 0.049 0.049 83.1% 0.22 - 3 Rex International 0.425 0.079 0.089 79.1% 0.38 - 4 Datapulse Tech 1.000 0.220 0.245 75.5% 1.11 14.4 5 Polaris Ltd 0.028 0.005 0.007 75.0% 0.30 7.8 6 China Fishery 0.301 0.044 0.076 74.8% 0.14 3.8 7 Krisenergy Ltd 0.639 0.165 0.166 74.0% 0.29 - 8 Ezra Holdings Ltd 0.357 0.093 0.099 72.2% 0.06 1.8 9 Astaka Holdings 0.750 0.183 0.210 72.0% 3.29 - 10 QT Vascular 0.370 0.066 0.104 71.9% 1.67 - *consensus estimates
DBS SMC (Market Cap S$50m to S$2bn) No Security Desc. 52 W High 52 W Low 2015 Last Price Distance from Peak CY15 P/B CY15 P/E 1 Noble Group 1.205 0.380 0.400 66.8% 0.36 6.12 2 Vard Holdings 0.655 0.230 0.240 63.4% 0.49 - 3 Pacific Radiance Ltd 0.815 0.295 0.310 62.0% 0.37 16.65 4 Ezion Holdings 1.330 0.550 0.610 54.1% 0.56 5.66 5 Mermaid Maritime 0.310 0.130 0.150 51.6% 0.26 5.45 6 OSIM International 2.090 1.010 1.080 48.3% 1.85 12.75 7 Petra Foods 4.077 2.090 2.110 48.2% 3.51 50.65 8 China Everbright Water 1.165 0.595 0.615 47.2% 1.24 19.96 9 PACC Offshore Services 0.56 0.285 0.300 46.4% 0.31 12.63 10 Super Group 1.535 0.755 0.840 45.3% 1.80 21.38 Source: DBS Bank, Bloomberg Finance L.P.
2015 has not been Noble Group’s year... It has been a year of …while OSIM's results were also poor… OSIM International, turmoil for the Group as a commodity rout and series of among other consumer names, posted a dismal set of 3QCY15 allegations arising in 1H15 sent both investor confidence and results. Led by poor performance and sentiment, the counter fell Noble’s share price spiraling downwards - from S$1.14 at end- by 45% over the year from S$1.98 at end-2014 to S$1.08. 2014 to close 65% lower y-o-y at S$0.40 on 31 Dec 2015. While we are more optimistic for sector peers such as Sheng Given continued weakness in various commodity markets, we Siong in the New Year, on margin expansion and expansion of believe the ability to generate earnings growth is increasingly new stores, we expect demand for OSIM’s products to remain getting harder. Nevertheless, we expect growth largely from lacklustre - barring the launch of new blockbuster products, Noble picking up market share from its smaller competitors and which could induce earnings recovery. expansion into the energy and power markets. We currently have a Fully Valued call on OSIM International, with We currently have a HOLD call on Noble Group, with a TP of a TP of S$1.22. S$0.42.
Page 4 Market Focus SMC Monthly
Potential Reversions in 2016 Security Desc. Sector Last Price Target Price Upside (%) Catalysts (8-Jan) Ezion Holdings Oil & Gas 0.580 1.00 72 Recovery in oil prices, delivery of vessels
Pacific Radiance Oil & Gas 0.300 0.42 40 Recovery in oil prices
Source: DBS Bank
… and the biggest loser of 2015, O&G, which could see While we do not see a turnaround in sight for Vard Holdings reversion in 2016 on expectations of oil price recovery. Within and remain cautious on the lack of order wins for some of the our coverage and definition of SMCs (Market cap: US$50m to OSV players within our coverage, we think two of the sector’s US$2bn), O&G names dominate our list of biggest stock losers most beaten-up stocks, Pacific Radiance and Ezion Holdings for 2015, no thanks to the low oil price environment resulting could be ones to watch in the event of a rebound. While from the lingering supply glut. Fears pre- and post-OPEC earnings downside risks prevail, these are the quality names meeting on 4th Dec have sent oil prices down c.55% from a that we believe are better positioned to weather through this 52-week high of US$67.77/bbl to sub US$40/bbl levels. Brent downturn and best proxies to ride potential rebound. prices for 2015 closed at US$37.28/bbl vs full-year average of US$53.50/bbl.
We cannot rule out the possibility of oil price hitting a new low on poor sentiment or unforeseen circumstances – bears are looking at a freefall to US$20/bbl. The market has been more bearish on oil than expected, as Saudi’s resistance to cut production and Iran’s coming to the market in mid-2016 continues to weigh on sentiment. Furthermore, US shale oil production has only declined a modest 11% from its peak in March 2015 – not the sharp drop-off many had predicted. China’s slower demand growth also doesn’t help. With oil prices languishing, a recovery on the equity front looks increasingly pushed out into the future.
Looking beyond near term weaknesses, market forces should Source: DBS Bank, Thomson Reuters eventually drive oil prices to fair and sustainable levels as the world may face oil supply shortages at some point in the future as a result of the lack of investment now. We expect oil price to recover towards 2H16 as low oil prices drive out the marginal producers, closing the surplus gap in 2017.
Meanwhile, we also acknowledged that there are wild cards, for instance, production disruption due to geopolitical tension, Saudi’s change in production stance, Iran’s slower-than- expected ramp up etc, that may reverse the downtrend of oil prices. In the event of a sustainable recovery in oil prices, we can expect a rebound of oil & gas stocks.
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SMC Monthly
2015 in Review: Down more than 10% y-o-y but 5-8% off the bottom for Singapore SMCs
Rolling 2-year relative performance Closing % Chg Dec-15 Price (1yr) STI 2882.73 (14.3%) Index FS Small Cap 403.51 (18.0%)
Index
FS Mid Cap 667.53 (10.8%)
Index
Closing % Chg Dec-14 Price (1yr) STI Index 3365.15 6.2%
FS Small Cap 492.31 (9.2%) Index FS Mid Cap 748.62 3.8% Index
Source: DBS Bank, Bloomberg Finance L.P.
2015 was a dismal year for the Singapore equity market, as the Straits Times Index (STI), FTSE Mid Cap Index (FSTM Index) and FTSE Small Cap Index (FSTS Index) lost 14.3%, 10.8% and 18.0% y-o-y respectively. 2015 proved to be a dismal year for the Singapore equity market as fears of a domestic technical recession, coupled with slowing growth in China and depressed oil prices, weighed on investor sentiment.
While the small-mid cap indices were down more than 10% over the year, they recovered by 5-8% off the FSTS and FSTM Indices’ lows on 24 August 2015 of 373.68 and 638.16 respectively. In 2015, interest among Singapore small-mid caps (SMCs) were relatively mixed as the FSTM, which outperformed the STI, gained 52.8% in average daily volume, while demand for small-caps weakened - as evidenced by a c.30% decline in average daily traded value and volume for the FSTS Index.
Avg Daily Avg Daily % Chg (1m) 2015 Value Volume
(S$ m) (m shares) Value Volume STI Index 0.75 261.96 23.1% 24.5%
FS Small 0.07 223.53 (32.6%) (36.4%) Cap Index
FS Mid 0.20 182.58 14.8% 52.8% Source: DBS Bank, FTSE Cap Index
Page 6 Market Focus SMC Monthly
Best and worst performing SMCs in DBS’s coverage
Source: DBS Bank, Bloomberg Finance L.P. Owing to continued cost overruns and deferments in delivery Safety first - Riverstone Holdings* (+146% y-o-y). The Malaysia- schedules of the LPG carriers in Brazil, we expect Vard to based rubber glove manufacturer led the top performers in DBS continue posting losses well into 2016. We believe that Vard is Research’s 2015 SMC universe after it kick-started Phase 1 of its currently FULLY VALUED and has a 12-month target price of capacity expansion plans to ride the long-term global demand S$0.27. for healthcare gloves. Benefitting from the stronger USD and low raw material prices, Riverstone ramped up its production Value emerging after crash - Pacific Radiance (-61% y-o-y). quickly to deliver solid earnings growth over the year. Bringing While earnings performance will be nothing to shout about in forward the next phase of its expansion plans to boost the near term, we believe valuation of 0.4x P/BV does not fairly manufacturing capacity more aggressively, we believe Riverstone reflect the underlying asset valuations, nor the fact that the should continue to benefit from favourable demand-supply company fares quite well on credit ratios – with no near-term conditions into 2017. We currently have a BUY call and 12- solvency or liquidity issues. Once we are past the oil price crisis, month target price of S$2.83 on Riverstone, which represents we believe the stock could prove to be a multi-bagger. We have an upside of 18% to end-2015 prices. a BUY call on Pacific Radiance, with a 12-month target price of S$0.42. *Note: We first introduced Riverstone in Apr-15, but only initiated coverage in Oct-15, when the counter was trading at S$1.20 and Bad year for commodities - Noble group (-65% y-o-y). Coupled S$1.60 respectively. with the downturn in commodity markets, Noble de-rated this year due to concerns over its cashflow generation and the Rising on sale hopes – Neptune Orient Lines (+46% y-o-y). valuation of its associates and Level 3 assets. While we maintain Despite posting its 1st profit in six quarters of USD890m (mainly our HOLD call with a 12-month target price of S$0.42, re-rating due to one-time gain on asset sale) in 2Q15, Neptune Orient could be possible if Noble is able to demonstrate a sustained Lines’ operating performance for the year was dismal. Prices, improvement in its free cash flow generation and earnings however, rallied on talks of a takeover and rose to S$1.23 – growth. close to CMA CGM’s offer of S$1.30. Given limited fundamental upside (we had a HOLD call on NOL) for the stock and attractive deal valuation (P/BV of 0.96x), we recommended that shareholders accept the offer in early Dec 2015.
No turnaround in sight - Vard Holdings (-60% y-o-y). Vard’s prices plummeted 60% from S$0.60 to S$0.24 at end-2015, close to the annual low of S$0.23, as the shipbuilder and OSV player faced operational challenges amid the industry downturn.
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SMC Monthly
SMC Radar From 1Q16, further upside should also come from the commercial production of component parts for the Memtech International (S$0.605, MTEC SP) new generation of Beats by Dr. Dre headphones.
Memtech is a leading manufacturer of precision component (c) Telecommunication parts for the automotive, industrial, consumer electronic and The market for keypads has contracted substantially telecommunication sectors. At 7x CY16F PE, the Group trades from its peak (80% of US$150m revenue in 2011) and at a c.21% discount to larger peers’ 9x CY16F PE, which management expects to exit the business completely – appears fair. However, the stock could rerate if Memtech is able especially since its projects with Nokia have ended to deliver good earnings growth, if it can secure and deliver on after it exited the market in 2015. Memtech continues new key contracts. A prospective yield of 4.6% is also on offer. to produce other mobile component parts such as anti- reflective lens and waterproof housing. This segment contributed only c.22% of 3Q15 revenues. Memtech was incorporated in Singapore in 2003 as a manufacturer of mobile phone keypads. Unfortunately, the market for its legacy keypad business gradually diminished as (d) Industrial and medical cell phones were increasingly replaced by smartphones. In the Memtech only ventured into this segment last year, hope of offsetting weakness in demand for keypads, the and is primarily engaged in the production of bar code company ventured into the touch screen business but was scanners and medical devices. This niche business unsuccessful and eventually exited the business in 2013. contributed c.11% of 3Q15 revenues.
The component manufacturer then diversified its production At A Glance portfolio to cater to other sub-segments in the Issued Capital (m shrs) 141 telecommunication sector (such as waterproof housing for Market Cap (S$m/US$m) 85/59 tablets and smartphones) and consumer electronics industry Major Shareholders (%) (such as routers for Netgear and e-book readers for Amazon). Keytech Investment P 43.8 Free Float (%) 47.6 Over the last 2-3 years, Memtech also made successful forays Avg Daily Vol (m shrs) n.a. into the automotive, industrial and medical industries, which
helped turn around its loss of US$3.8m in 2013 to a normalised profit (excluding gain of US$10.7m from Forecasts and Valuation liquidation of subsidiary) of c.US$6.4m in 2014. FY Dec (US$ m) 2011 2012 2013 2014 Turnover 154.7 114.4 116.6 137.6 EBITDA 25.3 0.1 12.9 14.5 Through a wide network of sales offices across and outside of Pre-tax Profit 7.9 (11.0) (2.9) 17.8 the PRC, such as Korea, Japan, Singapore, Taiwan, America Net Profit 6.2 (11.2) (3.8) 17.2 and Europe, the Group is also able to offer strong “local EPS (S cts) 6.2 (11.2) (3.8) 17.2 EPS Gth (%) (44.9) (279.5) (65.9) (551.6) support” to global customers. The Group also has three Net DPS (S cts) 4.0 1.5 3.0 3.0 keypad manufacturing facilities covering a total area of BV Per Share (S cts) 127.4 108.3 109.8 112.2 181,666m2 in the PRC (Dongguan, Nantong and Kunshan), PE (X) 10.5 (5.9) (17.2) 3.8 through which it serves the following business segments: P/Cash Flow (X) 1,467.1 - 30.6 - EV/EBITDA (X) 3.3 - 5.3 4.9 Net Div Yield (%) 6.1% 2.3% 4.6% 4.6% 0.6 0.6 0.6 (a) Automotives P/Book Value (X) 0.5 Despite having only actively ventured into the Net Debt/Equity (X) CASH CASH CASH CASH ROA (%) 3.4 (7.8) (2.6) 11.2 production and sub-assembly of precision automotive ROE (%) 4.8 (10.1) (3.5) 15.3 plastic and rubber parts in 2013, the automotive business has grown steadily and now contributes c.40% of the Group’s total 3Q15 revenues.
In 2016 and beyond, order growth from new contracts secured with Continental and Tesla should help drive revenue growth for Memtech.
(b) Consumer electronics Contribution from this segment grew from c.22% of 3Q14 revenues to c.27% in 3Q15, partly as orders that were pushed back in 2Q15 recovered in 3Q15. Source: Bloomberg Finance L.P., DBS Bank
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The general trend towards more modern automotive designs Automotive Parts Manufactured by Memtech favours the use of light-weight, stylish and competitively
priced plastic and rubber component parts that are eco- efficient and yet do not compromise on safety. Over time, we believe that this should lead to greater decorative and functional plastic contents in automotives.
In the rubber and plastic precision manufacturing space, we believe Memtech is well positioned to capitalise on opportunities arising from this long-term substitution as it is among the few that are capable of integrating both materials into component parts and has in-house secondary process capabilities (such as painting, printing and vacuum metallisation). The company is also unique in having a R&D team specialising in material science to support its processes. Source: Company We also expect gross margin improvement as the company gradually adjusts its product mix away from decorative plastics to the higher-margin functional variety. FY14 Breakdown of Revenue Segments (US$ m)
We also expect greater efficiency and uplift in margins ahead as the Group looks to invest in up to 14 more robotic arms in FY16 – which should reduce delays and production uncertainty as Chinese plants typically shut down for prolonged periods during Chinese New Year and Golden Week. With wages and benefits in China rising in double-digit percentages over the past decade, the installation of robotic arms should help the company mitigate rising labour costs in the future.
In anticipation of investments in robotic arms and upcoming automotive contracts which should begin mass production at end-2016, Memtech expects to incur capacity expenditures of US$10-12m in FY15 and FY16, which should boost Source: Company, DBS manufacturing capacity and efficiency to underpin growth.
FY14 Breakdown of Recurring Expense Items (US$ m) While Memtech does not have a fixed dividend policy, it has consistently paid out dividends since its listing – even in years where it was less profitable. Based on end-2015 prices, we estimate a prospective yield of 4.6% for FY15.
Key risks: (1) Weak domestic demand for automotives in China, for which c.50% of Memtech’s automotive components are ultimately destined, (2) Slowdown in the global economy could dampen overall demand outlook across Memtech’s product lines, and (3) Earnings disappointment from push backs or delays in orders.
Valuation at 7x CY16F PE represents a c.21% discount to larger local peers’ 9x CY16F PE, which appears fairly valued
due to its smaller scale. However, we believe that the stock could re-rate if Memtech can deliver faster-than-expected Source: Company, DBS earnings growth as it continues to seek new contracts and
orders – especially in the automotive and consumer electronic Paul YONG, CFA +65 6682 3712 [email protected] segments. Singapore Research Team
Page 9 Market Focus
SMC Monthly
SMC Radar may also accept advertising and other services from clients in place of this fee. Yuuzoo Corporation Ltd (S$0.174, YUZ SP) As for franchisees, the Group sells rights to a geo- YuuZoo is a provider of global e-commerce and networking optimised virtual market place and complete back-end solutions that develops and runs theme-based social e- solutions in exchange for an upfront licence fee. commerce networks for brands and for its own customers, YuuZoo has also increasingly opted for equity stakes in providing a more direct way to monetize social network users. these networks to participate in future upside potential At 11x T12M PE, the Group trades at a c.55% discount to larger from their success. global peers’ 25x T12M PE, which appears inexpensive. The stock could re-rate as YuuZoo grows the size of its networks (g) E-commerce revenues and MAU base to drive monetisation and deliver rapid earnings On top of revenue received from payments made on growth. YuuZoo’s networks (merchandise sales), the Group also generates e-commerce revenue through advertising (which should grow in tandem with The Group commenced trading on SGX’s Main Board on 16 Dec 2014 after a reverse takeover of W Corporation. YuuZoo’s MAU base) and volatile game launches. Headquartered in Singapore, YuuZoo hopes to leverage on its in-house technological platform to create a “virtual mall” At A Glance environment which replicates the experiences offered by Issued Capital (m shrs) 634 brick-and-mortar shopping malls. Market Cap (S$m/US$m) 110/77 Major Shareholders (%) Mobile Futureworks 26.3 Navigating a highly-competitive virtual environment dominated by consumer-centric social networking platforms, Free Float (%) 69.7 Avg Daily Vol (m shrs) 21.1 YuuZoo’s targeted networks (touted as 3rd generation
networks which are typically theme- or brand-based) are able to achieve average visits of almost six times that of 2nd Forecasts and Valuation generation networks, return control and offer monetisation FY Dec (S$ m) 2011 2012 2013 2014 capabilities to businesses - setting the Group apart from social Turnover 20.2 26.9 32.8 37.7 EBITDA 3.2 7.4 7.1 8.3 networking giants such as Facebook, Twitter, Instagram, etc. Pre-tax Profit 2.4 5.2 5.7 (45.6) Net Profit 2.4 5.2 5.7 (45.6) Growing globally through a network of franchisees and EPS (S cts) 0.5 1.0 1.1 (9.0) reputable local partners (for larger or riskier markets) who are EPS Gth (%) - 115.3 11.2 (889.8) Net DPS (S cts) - - - - responsible for localisation and local marketing, YuuZoo’s BV Per Share (S cts) 1.3 2.6 4.4 8.3 operating costs are low at c.US$300k/month. As at end-2015, PE (X) 36.4 16.9 15.2 - the highly scalable business had an exposure to 68 countries P/Cash Flow (X) - - - - and 1.5m monthly active users (MAUs). EV/EBITDA (X) 23.7 10.3 10.5 8.1 Net Div Yield (%) - - - - P/Book Value (X) 13.4 6.7 3.9 2.1 Today, YuuZoo’s revenue and profits stem from multiple Net Debt/Equity (X) CASH CASH CASH CASH sources, mainly generating revenues from: ROA (%) 20.2 31.0 14.9 (100.8) ROE (%) 36.9 39.7 25.9 (107.9) (e) Merchant fees Through wholly-owned payment arm, YuuPay, the Group is able to take on the risk of non-payments on behalf of merchants and thus reports non-YuuZoo network payments in its income statement. Revenues from payments made over YuuZoo’s networks are reflected under “E-commerce” instead.
YuuPay has grown its client base quickly and as at end- 2015, had c.45 clients adopting the YuuPay platform. More recently, YuuPay also signed master merchant
agreements with PayVision and China Union Pay.
Source: Bloomberg Finance L.P., DBS Bank (f) Network development fees
For client-driven networks, YuuZoo typically receives a
development fee, which varies with each network, but
Page 10 Market Focus SMC Monthly
To enhance its ability to navigate the challenges and risks Evolution of Social Networks inherent in larger emerging economies with vast market potential, YuuZoo prefers to engage in JVs and partnerships with reputed local TV networks and telecommunication companies which have ready audiences.
YuuZoo entered into an exclusive partnership with Great Sports Media - the sport, lifestyle and casual gaming division of China’s 2nd largest TV network, Shanghai Media Group (SMG) in July 2014, to set up a social e-commerce platform where fans can watch live events, participate in competitions, interact, and make purchases linked to the theme of the network. This partnership provides YuuZoo with immediate access to SMG’s network of over 700m viewers in China. Source: Company In April 2015, YuuZoo also pursued a similar strategy through a 50/50 JV with state broadcasting network, Nigeria FY14 Breakdown of Revenue Segments (US$ m) Television Authority (NTA). Under the agreement, YuuZoo will manage and host a virtual shopping mall while NTA develops new TV shows aimed at diverting traffic to the JV’s social networks - which should further drive advertising revenue for these local networks.
The Group recently acquired distribution and marketing rights for mobile games developed by Circle of Champions Inc for 11 leading soccer teams (such as FC Barcelona, Real Madrid and Chelsea FC), through which YuuZoo hopes to boost its top line as it leverages on potential for higher advertising revenue and in-app purchases by offering exclusive “money- can’t-buy” prizes to grow MAUs and cultivate greater user activity. Source: Company, DBS
As Yuuzoo is still very much in the growth stage, the long- term commercial viability of its targeted network remains to FY14 Breakdown of Recurring Expense Items (US$ m) be seen. Prospects for networks built specifically for well- established brands are generally positive and are inherently less risky but more often than not, the Group is not guaranteed a share in their success. While it is exposed to upside from the success takeoff of most franchise networks, the ability to curate content and garner interest (in terms of MAUs) could make or break these localised or theme-based networks.
Key risks: (1) Ability to capture and sustain user interest and activity on YuuZoo’s networks (2) Highly competitive industry with low barriers to entry (3) Ability to monetise social network users through effective advertising, pricing strategies and product availability.
Valuations at 11x trailing 12-month PE represents a c.55% Source: Company, DBS discount to larger peers’ 25x trailing 12-month PE, which appears inexpensive despite its much smaller scale and we believe that the stock should re-rate if YuuZoo Corp can Paul YONG, CFA +65 6682 3712 [email protected]
demonstrate the commercial viability of its social networks Singapore Research Team through consistent delivery of revenue and earnings growth.
Page 11 Market Focus
SMC Monthly
APPENDICES
Page 12 Market Focus SMC Monthly
APPENDIX (1)
FSTS & FSTM Indices
Top 5 Performing Sectors - FSTM Top 5 Performing Sectors - FSTS Net Net Market % Chg Market % Chg No. of Cap No. of Cap ICB Sector ICB Sector Constituents Constituents (S$ m) (1m) (S$ m) (1m)
Oil Equipment, 1 828 5.2 Leisure Goods 1 248 9.3 Services & Distribution Industrial Industrial 2 2,731 3.2 8 1,124 7.7 Engineering Engineering Technology Travel & 5 3,300 1.9 Hardware & 1 115 6.7 Leisure Equipment Real Estate Construction & Investment 16 22,127 0.9 9 1,408 2.9 Materials Trusts Health Care Construction 1 918 (0.3) Equipment & 2 439 2.6 & Materials Services
Bottom 5 Performing Sectors - FSTM Bottom 5 Performing Sectors - FSTS Net Net Market % Chg Market % Chg No. of Cap No. of Cap ICB Sector ICB Sector Constituents Constituents (S$ m) (1m) (S$ m) (1m)
Media 1 892 (14.1) Oil & Gas 1 52 (47.3) Producers General 1 1,778 (5.9) Chemicals 1 39 (17.3) Industrials
Software & 1 528 (5.7) Oil 9 701 (7.8) Computer Equipment, Services Services & Distribution Food 4 3,665 (4.4) Gas, Water & 1 310 (7.4) Producers Multi-utilities
Financial 1 586 (3.3) Electronic & 1 47 (7.3) Services Electrical Equipment
Source: DBS Bank, FTSE
Page 13 Market Focus
SMC Monthly
APPENDIX (2)
SMC Screener: Ranked by Investment Metrics*
Top 10 Prospective Dividend Yield Top 10 Potential Upside (CY16 DBS Estimates) (DBS Estimates of 12-month TP) Company Name (%) Company Name (%) Asian Pay Television Trust 11.9 Japfa Ltd 91.5 Cache Logistics Trust 9.6 Mermaid Maritime 81.2 IREIT Global 8.9 Banyan Tree 73.6 Cambridge Industrials 8.9 Midas Holdings 68.9 Religare Health Trust 8.7 Yoma Strategic Holdings 67.7 Croesus Retail Trust 8.6 China Merchants 65.4 OUE Hospitality Trust 8.6 Ezion Holdings 64.5 CDL Hospitality Trust 8.5 ARA Asset Management 59.1 Mapletree Greater China Commercial Trust 8.5 Centurion Corporation 51.3 Soilbuild Business Space REIT 8.3 Overseas Education Limited 42.9 Average 9.1 Average 66.6
Lowest P/B Lowest P/E (CY16 DBS Estimates) (CY16 DBS Estimates) Company Name (x) Company Name (x) Mermaid Maritime 0.25 Ezion Holdings 3.25 PACC Offshore Services Holdings 0.31 Mermaid Maritime 5.50 Pacific Radiance Ltd 0.37 CSE Global 6.75 Noble Group 0.40 Yandlord Group 6.79 Yandlord Group 0.42 Centurion Corporation 7.27 Ezion Holdings 0.47 Japfa Ltd 7.48 Tat Hong Holdings 0.49 Del Monte Pacific 8.24 Midas Holdings 0.50 Courts Asia 8.99 Banyan Tree 0.51 Midas Holdings 9.48 Vard Holdings 0.52 Perennial Real Estate Holdings 9.84 Average 0.42 Average 7.36
Top 10 Net Cash to Share Price Top 10 2-yr EPS CAGR (FY15 DBS Estimates of Net Cash to Last Price) (FY15-17 DBS Estimates) Company Name (%) Company Name (%) OSIM International 36.4 Midas Holdings 100.9 CSE Global 26.7 Indofood Agri 98.4 iFAST Corporation 16.1 Banyan Tree 92.3 Super Group 12.6 Japfa Ltd 66.8 Sheng Siong Group 9.8 Petra Foods 51.4 Venture Corporation 9.1 Ezion Holdings 40.6 Petra Foods 4.9 Croesus Retail Trust 35.3 Riverstone Holdings 4.1 Yandlord Group 31.7 ARA Asset Management 3.5 OUE Commercial REIT 28.9 Raffles Medical 1.5 China Everbright Water 23.8 Average 12.5 Average 57.0
*based on 31 Dec 2015 prices Source: DBS Bank, Bloomberg Finance L.P.
Page 14 Market Focus SMC Monthly
APPENDIX (3)
DBS SMC Universe
Breakdown by Sector Breakdown by Rating
Source: DBS Bank
SMC Universe (US$50m to US$2bn Market Cap) S/n Security Description Rating Market Last Price Target Price Upside / P/E P/B EPS Growth Cap (S$ m) (Dec-15) (12 month) Downside CY16 CY16 (CY16) 1 Mapletree Commercial Trust BUY 2,757 1.300 1.40 7% 16.2 1.1 4.3 2 Mapletree Industrial Trust BUY 2,713 1.520 1.62 6% 14.4 1.2 -0.6 3 Noble Group HOLD 2,614 0.400 0.42 5% 44.5 0.3 -66.7 4 M1 FV 2,548 2.720 2.60 -4% 14.2 6.1 -0.3 5 Mapletree Greater China Commercial Trust BUY 2,515 0.915 1.11 22% 15.2 0.8 13.0 6 Mapletree Logistics Trust BUY 2,459 0.990 1.15 16% 12.9 1.0 4.0 7 SPH REIT HOLD 2,420 0.955 0.99 4% 19.9 1.0 3.6 8 Raffles Medical HOLD 2,391 4.160 4.34 4% 31.3 3.8 8.3 9 SMRT FV 2,293 1.505 1.24 -18% 26.5 2.5 1.0 10 Venture Corporation BUY 2,270 8.200 9.00 10% 13.0 1.2 11.8 11 Keppel Infrastructure Trust BUY 1,967 0.510 0.56 9% 57.4 1.6 26.2 12 Yandlord Group BUY 1,958 1.005 1.35 34% 6.8 0.4 44.6 13 Ascott Residence BUY 1,835 1.185 1.38 16% 16.4 0.9 9.1 14 Frasers Centrepoint Trust BUY 1,692 1.845 2.05 11% 16.9 1.0 -2.0 15 Starhilll Global REIT BUY 1,647 0.755 0.84 11% 13.6 0.8 -28.4 16 China Everbright Water BUY 1,604 0.615 0.80 30% 15.5 1.2 28.5 17 CITIC Envirotech BUY 1,590 1.410 1.60 13% 23.5 1.7 -21.4 18 Perennial Real Estate Holdings BUY 1,573 0.950 1.32 39% 9.8 0.5 79.5 19 China Merchants BUY 1,570 0.875 1.45 65% 10.5 0.8 -12.2 20 Parkway Reit BUY 1,410 2.330 2.56 10% 18.4 1.4 6.2 21 CDL Hospitality Trust BUY 1,308 1.325 1.65 25% 11.8 0.8 1.7 22 Petra Foods FV 1,290 2.110 2.05 -3% 33.0 3.4 53.5 23 Sheng Siong Group BUY 1,263 0.840 1.01 21% 20.7 5.1 8.6 24 CapitaLand Retail China Trust BUY 1,256 1.490 1.69 13% 14.8 0.9 4.1 25 Bumitama Agri HOLD 1,237 0.705 0.86 23% 14.0 2.0 0.2 26 Far East Hospitality Trust HOLD 1,190 0.665 0.71 7% 16.2 0.7 -2.0 27 ARA Asset Management BUY 1,172 1.175 1.87 59% 12.7 2.4 4.5 28 Cosco Corporation FV 1,030 0.460 0.32 -29% nm 0.8 nm 29 OUE Hospitality Trust BUY 1,028 0.770 0.98 27% 13.2 0.9 3.8 30 Frasers Hospitality Trust HOLD 1,026 0.750 0.83 11% 15.2 0.9 6.5
Page 15 Market Focus
SMC Monthly
SMC Universe (US$50m to US$2bn Market Cap) S/n Security Description Rating Market Last Price Target Price Upside / P/E P/B EPS Growth Cap (S$ m) (Dec-15) (12 month) Downside CY16 CY16 (CY16) 31 Frasers Commercial Trust BUY 999 1.270 1.53 20% 14.8 0.8 -10.5 32 Ezion Holdings BUY 962 0.610 1.00 64% 3.3 0.5 74.1 33 Super Group HOLD 937 0.840 0.85 1% 19.8 1.7 7.9 34 Asian Pay Television Trust HOLD 920 0.640 0.77 20% 13.0 0.8 34.1 35 Keppel DC Reit BUY 896 1.015 1.14 13% 13.5 1.1 18.3 36 Riverstone Holdings BUY 889 2.400 2.83 18% 18.1 4.9 18.7 37 OUE Commercial REIT HOLD 842 0.655 0.67 2% 21.2 0.7 50.0 38 Japfa Ltd BUY 829 0.470 0.90 91% 7.5 0.7 76.4 39 Ascendas Hospitality Trust BUY 827 0.740 0.74 0% 23.5 1.1 1.7 40 Cache Logistics Trust HOLD 812 0.910 1.11 21% 11.5 0.9 13.7 41 Yoma Strategic Holdings BUY 807 0.465 0.78 68% 25.3 1.1 50.3 42 Ascendas India Trust HOLD 805 0.870 0.90 4% 14.9 1.3 2.6 43 OSIM International FV 801 1.080 1.22 13% 12.4 1.8 2.5 44 Religare Health Trust HOLD 798 1.000 0.97 -3% 15.5 1.1 9.5 45 Del Monte Pacific HOLD 748 0.385 0.35 -10% 8.2 1.4 63.3 46 First Sponsor BUY 743 1.260 1.57 25% 12.1 0.8 13.2 47 Cambridge Industrials HOLD 733 0.565 0.61 8% 11.6 0.8 1.0 48 Soilbuild Business Space REIT BUY 720 0.770 0.88 15% 13.9 1.0 5.5 49 Indofood Agri HOLD 684 0.490 0.52 6% 15.1 0.7 231.3 50 PACC Offshore Services Holdings HOLD 544 0.300 0.35 15% 10.9 0.3 15.4 51 Croesus Retail Trust HOLD 516 0.810 0.86 6% 14.4 0.9 87.2 52 IREIT Global BUY 423 0.690 0.77 12% 12.1 1.1 29.9 53 Midas Holdings BUY 353 0.290 0.49 69% 9.5 0.5 211.9 54 iFAST Corporation BUY 352 1.350 1.61 19% 25.3 4.6 15.4 55 Pan-United Corp HOLD 341 0.610 0.61 1% 11.7 1.2 4.7 56 Banyan Tree BUY 308 0.405 0.70 74% 18.4 0.5 16.7 57 Tat Hong Holdings HOLD 307 0.490 0.52 6% 177.5 0.5 nm 58 Centurion Corporation BUY 293 0.390 0.59 51% 7.3 0.7 13.3 59 Vard Holdings FV 283 0.240 0.27 15% nm 0.5 nm 60 CSE Global BUY 237 0.460 0.57 24% 6.8 0.9 -1.2 61 Pacific Radiance Ltd BUY 224 0.310 0.42 35% 41.4 0.4 -59.8 62 Mermaid Maritime BUY 212 0.150 0.27 81% 5.5 0.3 -1.0 63 Overseas Education Limited HOLD 206 0.495 0.71 43% 13.8 1.2 6.1 64 Courts Asia HOLD 197 0.375 0.41 8% 9.0 0.6 2.5 65 mm2 Asia BUY 171 0.795 1.05 32% 14.0 3.2 65
Source: DBS Bank, Bloomberg Finance L.P.
Page 16 Market Focus SMC Monthly
COMPANY PROFILES
Page 17 Singapore Company Guide China Merchants Hldgs (Pacific)
Edition 1 Version 1 | Bloomberg: CMH SP | Reuters: CAEP.SI Refer to important disclosures at the end of this report
DBS Group Research . Equity 11 Jan 2016
BUY Growing greatness Last Traded Price: S$0.83 (STI : 2,751.23) Acquisitions to drive bottom line expansion. The recently Price Target : S$1.45 (75% upside) completed acquisitions of Jiurui Expressway and three toll roads in Guangxi Zhuang Autonomous Region should propel Potential Catalyst: Earnings growth and execution the group’s top and bottom lines in the medium to long term. We project CMHP’s core earnings will grow by nearly 50% Analyst from HK$675m in 2014 to HK$1,004m by 2017F, driven by Paul YONG CFA +65 6682 3712 [email protected] contribution from these recent acquisitions.
Value-accretive acquisitions a potential catalyst. Over the last four years, the group has acquired six expressways, disposed Price Relative off a Class 1 highway (Yuyao Highway), and its property S$ Relative Index 1.3 development business in New Zealand, which have streamlined 1.2 205 and expanded its core expressway business. We believe the 1.1 185 1.0 group will continue to look for expressway acquisitions to 165 0.9 145 expand its business, which could be a catalyst for a re-rating of 0.8 125 0.7 its share price. 0.6 105 0.5 85 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Consistent and attractive dividend yields. CMHP has been China Merchants Hldgs (Pacific) (LHS) Relative STI INDEX (RHS) consistently paying attractive dividends to its shareholders
Forecasts and Valuation (7Scts per share per annum in the last two years). We project FY Dec (HK$ m) 2014A 2015F 2016F 2017F CMHP will maintain 7Scts payout for FY15 and FY16 (<85% Revenue 2,019 2,271 2,762 3,033 payout), translating into an attractive 7.7% yield currently. EBITDA 1,900 2,054 2,511 2,759 Pre-tax Profit 1,348 1,548 1,514 1,733 Net Profit 739 932 853 1,004 Valuation: Net Pft (Pre Ex.) 675 714 853 1,004 Our 12-month target price of S$1.45 is based on DCF EPS (S cts) 11.4 12.6 8.5 10.0 valuation with WACC of 9.8%, and offers >60% upside. We EPS Pre Ex. (S cts) 10.4 9.7 8.5 10.0 see the stock re-rating as it delivers earnings growth. EPS Gth (%) 7 11 (33) 18 EPS Gth Pre Ex (%) 6 (7) (12) 18 Diluted EPS (S cts) 11.4 12.6 8.5 10.0 Key Risks to Our View: Net DPS (S cts) 7.0 7.0 7.0 7.0 Exposure to Chinese economy and regulatory risks. Key risks BV Per Share (S cts) 98.3 110.3 112.8 115.8 for the group are a) its 100% exposure to the Chinese PE (X) 7.2 6.5 9.7 8.3 PE Pre Ex. (X) 7.9 8.5 9.7 8.3 economy and Rmb, b) its earnings would be negatively P/Cash Flow (X) 4.4 3.9 5.2 4.6 impacted if toll rate tariffs are revised downwards. EV/EBITDA (X) 5.8 8.1 7.1 6.1
Net Div Yield (%) 7.7 7.7 7.7 7.7 P/Book Value (X) 0.8 0.7 0.7 0.7 At A Glance Issued Capital (m shrs) 1,795 Net Debt/Equity (X) 0.4 0.6 0.5 0.4 ROAE (%) 11.6 8.4 7.5 8.6 Mkt. Cap (S$m/US$m) 1,480 / 1,026 Major Shareholders Earnings Rev (%): - 0 0 China Merchants Group (%) 75.9 Other Broker Recs: B: 2 S: 0 H: 0 Liu Qiang (%) 6.0 Source of all data: Company, DBS Bank, Bloomberg Finance L.P Free Float (%) 18.1 3m Avg. Daily Val (US$m) 0.54 ICB Industry : Industrials / Industrial Transportation
ASIAN INSIGHTS VICKERS SECURITIES Page 18 www.dbsvickers.com ed: JS / sa: YM Company Guide
China Merchants Hldgs (Pacific)
3,500 CRITICAL DATA POINTS TO WATCH Revenue by toll road (HK$m)
Earnings Drivers: 3,000 New road acquisitions to help drive revenue growth. We project the group’s total revenue to grow from HK$2,019m 2,500 in FY14 to HK$3,033 by 2017F, or c. 50%, driven largely by
contribution from newly acquired roads Jiurui E’way (acquired 2,000 end-2014), Guiyang E’way, Guixing E’way and Yangping
E’way (all three were acquired end-2015). Revenue 1,500 contribution from these four roads is expected to amount to HK$954m in 2017F or 31.5% of group revenue. Meanwhile, 1,000 revenue from the more mature Yongtaiwen E’way and Ningbo-Beilun Port E’way are expected to increase at a 500 modest pace.
0 Expect modest traffic volume growth for mature roads, and 2014 2015F 2016F 2017F stronger growth for younger roads. For mature roads like the Yongtaiwen E'way Ningbo-Beilun Port E'way Yongtaiwen E’way and Ningbo-Beilun Port E’way, we are Jiurui E'way Guixing E'way projecting 3%-4% per annum growth in traffic volumes in the medium to long-term while for the younger, newly Guiyang E'way Yangping E'way acquired roads, traffic volume growth is projected (by independent traffic consultants) to range from the mid-teens EBIT vs EBIT Margin to over 20% per annum over the next few years, driven by 2,000.0 58.0 rapid economic growth in the less developed regions of 1,800.0 57.0 1,600.0 Jiangxi and Guangxi, as well as increased connections to 56.0 these roads over time. Beyond 2017, traffic on these young 1,400.0 roads are still projected to grow at least in the high single 1,200.0 55.0 digits to low teens. 1,000.0 54.0 800.0 53.0 Stable earnings contribution from JV roads. We expect 600.0 52.0 contribution from the group’s two jointly controlled roads 400.0 Guiliu E’way and Guihuang Highway, to be stable at between 200.0 51.0 HK$294m to HK$303m over the next few years, as these are 0.0 50.0 fairly mature roads with predictable cash flows and earnings. 14 15F 16F 17F
EBIT (LHS) HK$m EBIT Margin (RHS) % No rate hike assumed in our projections. Toll rates are determined at the provincial level, and while toll road companies can propose changes to toll rate schemes to the respective provincial government, the final decision lies with Contribution from JV Roads (HK$m) the provincial government. Although there have been 350.0 instances of rate hikes in recent years in various provinces, we have not assumed any rate hikes for any of the group’s toll 300.0 roads in the short or long term. This represents upside risk to our long term revenue forecasts, and ultimately DCF-based 250.0 valuation for CMHP. 200.0 14% net profit CAGR over 2014 to 2017F. Driven by steady 150.0 growth in revenue, we project the group’s EBIT to grow by 54% from HK$1,121m in 2014 to HK$1,729m in 2017F. 100.0 Coupled with stable contribution from jointly controlled roads, this should drive net earnings to grow by c. 50% from 50.0 HK$675m in 2014 to HK$1,1004m by 2017F. 0.0 2014 2015 2016 2017
Subsidy Income Guiliu E'way Guihuang E'way
Source: Company, DBS Bank
ASIAN INSIGHTS VICKERS SECURITIES
Page 19 Company Guide
China Merchants Hldgs (Pacific)
Leverage & Asset Turnover (x) Balance Sheet: 0.2 0.70 Comfortable gearing position following recent rights issue to 0.2 fund acquisitions. The group recently completed a rights 0.60 0.2 0.1 issue that raised S$599.5m in gross proceeds (>99% was 0.50 0.1 taken up by the parent company, China Merchants Group), 0.40 0.1 which will be used to partially fund the Rmb3.04bn 0.30 0.1 0.1 acquisition of three toll roads in Guangxi. With the 0.20 0.0 remainder of the consideration to be funded by debt, we 0.10 0.0 estimate that the group’s net debt to equity ratio will rise 0.00 0.0 from 0.36x at the end of 2014 to 0.59x by end-2015F. 2013A 2014A 2015F 2016F 2017F Gross Debt to Equity (LHS) Asset Turnover (RHS) Thereafter, we project net gearing to subsequently fall to 0.51x by end-2016 and 0.42x by end-2017 on positive free Capital Expenditure HK$ cash flow generation from its toll road operations. 60.0
50.0
Share Price Drivers: 40.0 Earnings improvement to drive share price re-rating. 30.0 Following the acquisition of the three roads in Guangxi, we project CMHP’s core earnings to improve 20% in 2016F to 20.0 HK$853m, and 18% in 2017F to HK$1,004m. In EPS terms, 10.0 this translates to a 12% decline (due to dilution from the 0.0 2013A 2014A 2015F 2016F 2017F rights issue) to 8.4Scts in 2016F and 18% growth in 2017F to Capital Expenditure (-) 9.9Scts. A sustained improvement in earnings could drive a re-rating of its share price. ROE (%) 12.0%
Value-accretive acquisitions a potential catalyst. Over the last 10.0% four years, the group has acquired six expressways, disposed 8.0% off a Class 1 highway (Yuyao Highway), and its property 6.0% development business in New Zealand, which has streamlined and expanded its core expressway business. We believe the 4.0% group will continue to look for expressway acquisitions to 2.0% expand its business, which could be a re-rating catalyst for its 0.0% share price. 2013A 2014A 2015F 2016F 2017F
Forward PE Band (x) Key Risks: (x) Exposed to China’s growth. CMHP's core earnings are 14.3 derived entirely from its toll road operations in China, which 13.3 leaves it vulnerable to China's country risks. As the group's 12.3 +2sd: 12.1x functional currency is the Rmb, EPS in S$ terms is subject to 11.3 +1sd: 11.1x SGD-Rmb volatility. 10.3 Avg: 10.1x
9.3 ‐1sd: 9.1x Regulatory changes could affect earnings. Any downward 8.3 ‐2sd: 8.2x revision in tariff rates would hurt the group's bottom line 7.3 and cash flows. Jan-12 Jan-13 Jan-14 Jan-15
PB Band (x)
Company background 1.4 (x) China Merchants Holdings (Pacific) currently operates eight 1.3 toll roads in China, with a total length of 576km, in four +2sd: 1.23x 1.2 different provinces (Zhejiang, Guangxi Zhuang Autonomous 1.1 +1sd: 1.11x Region, Jiangxi and Guizhou) in the country. It is majority- 1.0 owned by China Merchants Group. Avg: 0.98x 0.9 ‐1sd: 0.86x 0.8 ‐2sd: 0.73x 0.7
0.6 Jan-12 Jan-13 Jan-14 Jan-15 Source: Company, DBS Bank
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Page 3 Page 20 Company Guide
China Merchants Hldgs (Pacific)
Income Statement (HK$ m) FY Dec 2013A 2014A 2015F 2016F 2017F
Revenue 1,886 2,019 2,271 2,762 3,033 Cost of Goods Sold (841) (907) (967) (1,095) (1,148) Gross Profit 1,045 1,113 1,303 1,666 1,884 Other Opng (Exp)/Inc (60) 8 (110) (151) (156) Operating Profit 985 1,121 1,193 1,515 1,729 Other Non Opg (Exp)/Inc 22 24 24 24 20 Associates & JV Inc 248 264 275 280 274 Net Interest (Exp)/Inc (154) (125) (161) (305) (289) Exceptional Gain/(Loss) 49 64 218 0 0 Pre-tax Profit 1,150 1,348 1,548 1,514 1,733 Tax (253) (289) (283) (328) (385) Minority Interest (283) (320) (333) (333) (345) Preference Dividend 6 0 0 0 0 Net Profit 620 739 932 853 1,004 Net Profit before Except. 571 675 714 853 1,004 EBITDA 1,731 1,900 2,054 2,511 2,759 Growth Revenue Gth (%) 30.6 7.1 12.4 21.6 9.8 EBITDA Gth (%) 35.4 9.8 8.1 22.3 9.8 Opg Profit Gth (%) 32.3 13.8 6.4 27.0 14.1 Net Profit Gth (Pre-ex) (%) 48.2 18.2 5.7 19.5 17.6 Margins & Ratio Gross Margins (%) 55.4 55.1 57.4 60.3 62.1 Opg Profit Margin (%) 52.2 55.5 52.5 54.9 57.0 Net Profit Margin (%) 32.9 36.6 41.0 30.9 33.1 ROAE (%) 12.1 11.6 8.4 7.5 8.6 ROA (%) 4.6 4.7 3.6 3.4 4.1 ROCE (%) 6.3 6.2 4.1 5.1 6.0 Div Payout Ratio (%) 50.3 56.4 64.4 82.7 75.4 Net Interest Cover (x) 6.4 9.0 7.4 5.0 6.0 Source: Company, DBS Bank
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Page 4 Page 21 Company Guide China Merchants Hldgs (Pacific)
Quarterly / Interim Income Statement (HK$ m) FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015
Revenue 529 532 494 537 549 Cost of Goods Sold (219) (260) (219) (221) (214) Gross Profit 310 272 276 316 335 Other Oper. (Exp)/Inc 26 (16) (13) 22 (18) Operating Profit 336 255 263 338 316 Other Non Opg (Exp)/Inc 6 6 6 6 5 Associates & JV Inc 72 45 64 64 64 Net Interest (Exp)/Inc (28) (34) (33) (28) (28) Exceptional Gain/(Loss) 0 0 0 0 0 Pre-tax Profit 385 272 299 379 357 Tax (82) (70) (74) (89) (90) Minority Interest (92) (71) (82) (95) (99) Net Profit 211 131 142 195 168 Net profit bef Except. 211 131 142 195 168 EBITDA 385 272 299 379 357
Growth Revenue Gth (%) 7.0 0.7 (7.1) 8.6 2.2 EBITDA Gth (%) 15.3 (29.3) 9.9 26.9 (6.0) Opg Profit Gth (%) 16.2 (23.9) 2.9 28.7 (6.4) Net Profit Gth (Pre-ex) (%) 16.6 (37.8) 8.4 37.1 (13.7) Margins Gross Margins (%) 58.6 51.1 55.8 58.8 61.0 Opg Profit Margins (%) 63.5 48.0 53.2 63.0 57.7 Net Profit Margins (%) 39.9 24.7 28.8 36.3 30.7
Balance Sheet (HK$ m) FY Dec 2013A 2014A 2015F 2016F 2017F
Net Fixed Assets 188 209 195 178 160 Three new roads Invts in Associates & JVs 1,927 1,702 1,626 1,551 1,475 acquired in 2015 Other LT Assets 9,285 12,429 22,784 22,126 21,426 Cash & ST Invts 1,448 1,049 1,119 1,123 1,215 Inventory 1 1 1 1 1 Debtors 71 200 200 200 200 Other Current Assets 512 0 0 0 0 Total Assets 13,432 15,591 25,925 25,178 24,476
ST Debt 249 402 402 402 402 Creditor 482 633 633 633 633 Other Current Liab 807 660 1,331 1,331 1,331 LT Debt 3,419 3,845 8,800 7,800 6,800 Other LT Liabilities 713 1,121 1,121 1,121 1,121 Shareholder’s Equity 5,109 6,374 11,082 11,335 11,633 Minority Interests 2,652 2,556 2,556 2,556 2,556 Total Cap. & Liab. 13,432 15,591 25,925 25,178 24,476
Non-Cash Wkg. Capital (706) (1,093) (1,764) (1,764) (1,764) Net Cash/(Debt) (2,220) (3,198) (8,083) (7,079) (5,987) Debtors Turn (avg days) 13.7 36.1 32.1 26.4 24.0 Creditors Turn (avg days) 482.4 556.9 571.1 573.6 560.9 Inventory Turn (avg days) 0.8 0.9 0.9 0.9 0.9 Asset Turnover (x) 0.1 0.1 0.1 0.1 0.1 Current Ratio (x) 1.3 0.7 0.6 0.6 0.6 Quick Ratio (x) 1.0 0.7 0.6 0.6 0.6 Net Debt/Equity (X) 0.3 0.4 0.6 0.5 0.4 Net Debt/Equity ex MI (X) 0.4 0.5 0.7 0.6 0.5 Capex to Debt (%) 0.5 1.2 0.2 0.2 0.3 Z-Score (X) 1.3 1.1 0.7 0.9 1.0 Source: Company, DBS Bank
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Page 5 Page 22 Company Guide
China Merchants Hldgs (Pacific)
Cash Flow Statement (HK$ m) FY Dec 2013A 2014A 2015F 2016F 2017F
Pre-Tax Profit 1,101 1,348 1,548 1,514 1,733 Dep. & Amort. 477 506 563 692 736 Tax Paid (198) (337) (283) (328) (385) Assoc. & JV Inc/(loss) (248) (264) (275) (280) (274) Chg in Wkg.Cap. (28) 88 0 0 0 Other Operating CF 2 (131) 0 0 0 Net Operating CF 1,107 1,209 1,553 1,599 1,811 Capital Exp.(net) (17) (50) (14) (17) (18) Other Invts.(net) 0 (695) (5,326) 0 0 Invts in Assoc. & JV 76 104 104 104 104 Div from Assoc & JV 234 373 247 252 246 Acquisition of three toll Other Investing CF 0 0 0 0 0 roads in Guangxi Net Investing CF 293 (269) (4,990) 338 332 Div Paid (427) (754) (750) (934) (1,051) Chg in Gross Debt (839) (607) 848 (1,000) (1,000) Capital Issues 0 25 3,409 0 0 Other Financing CF 0 0 0 0 0 Net Financing CF (1,266) (1,335) 3,507 (1,934) (2,051) Currency Adjustments 58 (5) 0 0 0 Chg in Cash 193 (400) 70 4 92 Opg CFPS (HK cts) 104.8 93.0 113.3 85.6 97.0 Free CFPS (HK cts) 100.7 96.2 112.2 84.7 96.0 Source: Company, DBS Bank
Target Price & Ratings History
S$ Closing Target 1.17 S.No. Date Rating Price Price 1.12 1: 20 Jan 15 0.93 1.36 BUY 4 2: 02 Mar 15 1.02 1.35 BUY 1.07 3: 04 May 15 1.09 1.35 BUY 2 3 5 1.02 4: 25 Jun 15 1.08 1.54 BUY 5: 10 Aug 15 1.03 1.45 BUY 0.97 6: 13 Oct 15 0.93 1.45 BUY 6 7: 06 Nov 15 0.97 1.45 BUY 0.92 7 1 0.87
0.82
0.77 Jan-15 May-15 Sep-15 Jan-16 Note : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank
ASIAN INSIGHTS VICKERS SECURITIES
Page 6 Page 23 Singapore Company Guide Japfa Ltd
Edition 1 Version 1 | Bloomberg: JAP SP | Reuters: JAPF.SI Refer to important disclosures at the end of this report
DBS Group Research . Equity 8 Jan 2016
BUY Normalising growth Last Traded Price: S$0.48 (STI : 2,729.91) Better 3Q15 EBITDA expected. We believe the steep share Price Target : S$0.90 (89% upside) price correction YTD has more than priced in Day Old Chicks (DOC) oversupply in Indonesia and softer raw milk prices in Potential Catalyst: Better-than-expected 3Q15 and 4Q15 results China. We expect Japfa’s 3Q15 earnings to show a sequential Where we differ: We have the lower earnings forecast of only two improvement, given higher feed prices and relatively resilient estimates in Bloomberg broiler and DOC prices despite steeper translation FX losses from subsidiary Japfa Comfeed’s US$225m bonds. We expect Analyst 3Q15 EBITDA to come in at US$70.9-76.0m (+20-28% y-o-y) Ben Santoso +65 6682 3707 [email protected] and earnings (ex. fair value changes in biological assets) of US$7.4-10.1m (16-38% lower y-o-y)
Weak purchasing power may linger in the short term. Continued weakness in the Rupiah would progressively raise Price Relative Japfa’s feedstock costs, and at the same time lift cost of living S$ Relative Index 1.0 for Indonesian consumers (implying weaker purchasing 214 0.9 194 power). We expect the DOC oversupply situation to balance 0.8 174 154 out and prices to recover as government-mandated nationwide 0.7 134 cull of 6m parent stock takes place (expected in 4Q15). 0.6 114 94 0.5 74 Long-term growth potential remains intact. Japfa is forecast to 0.4 54 book EBITDA (excluding biological asset gains/loss and FX 0.3 34 Aug-14 Jan-15 Jun-15 Nov-15 gains/losses) CAGR of 15% between 2014 and 2017 – mainly
Japfa Ltd (LHS) Relative STI INDEX (RHS) driven by higher dairy volumes. Japfa intends to double its dairy farm production capacity in China by constructing Forecasts and Valuation FY Dec (US$ m) 2014A 2015F 2016F 2017F another five farm hubs in Inner Mongolia. In the Animal Revenue 2,947 2,818 3,084 3,466 Protein segment, we expect Japfa’s combined regional DOC EBITDA 255 238 324 444 output to expand less aggressively by a 5% CAGR between EBITEDA (ex. BA gains) 263 277 333 439 2014 and 2017, given DOC overcapacity and weak purchasing Pre-tax Profit 74 103 184 293 power in Indonesia. Demand will continue to be driven by Net Profit 31 45 79 126 rising per capita income. Net Pft (Pre Ex.) 71 45 79 126
Net Pft (ex. BA gains) 58 45 79 126 EPS (S cts) 2.5 3.6 6.4 10.3 Valuation: EPS Pre Ex. (S cts) 5.8 3.6 6.4 10.3 Our SOP-based TP is S$0.90. With Rupiah stabilising, we EPS Gth (%) (91) 43 78 60 expect reduced FX losses and recovery in purchasing power EPS Gth Pre Ex (%) (76) (38) 78 60 in Indonesia next year. Our BUY rating for the counter is Diluted EPS (S cts) 2.5 3.6 6.4 10.3 reiterated on 78% upside potential.
Net DPS (S cts) 0.0 0.0 0.0 0.0 BV Per Share (S cts) 53.8 61.3 67.7 78.0 PE (X) 18.7 13.1 7.4 4.6 Key Risks to Our View: Japfa’s share price is driven by DOC, broiler and China raw PE Pre Ex. (X) 8.2 13.1 7.4 4.6 P/Cash Flow (X) 4.7 4.1 3.6 2.7 milk price movements and to a certain extent, by USD/IDR EV/EBITDA (X) 6.3 6.9 5.4 4.4 exchange rate. A strong recovery in the group’s ASP and/or Net Div Yield (%) 0.0 0.0 0.0 0.0 Rupiah would boost Japfa’s share price higher than our fair P/Book Value (X) 0.9 0.8 0.7 0.6 value, and vice versa. ROAE (%) 5.8 6.3 10.0 14.1
Earnings Rev (%): - - - At A Glance Issued Capital (m shrs) 1,765 Consensus EPS (S cts): 3.6 6.3 10.1 Mkt. Cap (S$m/US$m) 837 / 584 Other Broker Recs: B: 1 S: 0 H: 0 Major Shareholders Source of all data: Company, DBS Bank, Bloomberg Finance L.P Rangi Management Limited (%) 52.6 Morze International Limited (%) 16.0 Tasburgh Limited (%) 7.2 Free Float (%) 14.8 3m Avg. Daily Val (US$m) 0.3 ICB Industry : Consumer Goods / Food Producers
ASIAN INSIGHTS VICKERS SECURITIES Page 24 ed: TH / sa: YM
Company Guide
Japfa Ltd
Raw & fresh milk output (k MT)
CRITICAL DATA POINTS TO WATCH 567 572
Earnings Drivers: 501 457 DOC capacity expansion in Indonesia. Hampered by oversupply 429 in CY14-15, Japfa’s DOC production in Indonesia is due to fall, 358 due to the government-mandated cull of c.960k Parent Stock 307 286 (Japfa’s estimated share) by end of CY15. Post-culling, Japfa is 224 215 expected to expand its Indonesian DOC output in line with GDP 151 and population growth. As at end-Jun-15, Japfa has DOC 143 capacity of 630m chicks per annum in Indonesia and 736m 72 chicks per annum in total. 0 2013A 2014A 2015F 2016F 2017F Feedmill capacity expansion in Indonesia. Capital expenditure in Broiler sales (mn birds) poultry feedmill capacity is likewise expected to remain on hold 389 368 364 until capacity utilisation rates are in excess of 90%. However, 351 we expect continued expansion in fish and shrimp feeds. 317 Volatility of raw material costs (as well as changes in 288 government regulations with regards to importation of raw 238 materials) and exchange rates may adversely affect profitability, if Japfa is unable to pass on cost pressures. 159
Expansions of Animal protein operations in Vietnam, India and 79
Myanmar. The group is expanding its geographical operations in 0 Vietnam for both poultry and swine segments; swine 2013A 2014A 2015F 2016F 2017F profitability in Vietnam should improve next year on the back of Consumer foods volume (k MT) improved genetics. The group has expanded is Myanmar poultry operations into Mandalay this year. Hence, we expect higher 96.5 94.6 85.6 88 82.4 earnings vs. last year, following the purchase of the remaining 77.4 15% in minority interest earlier this year. Japfa’s operation in 77.2 India is only marginally increasing its geographical presence, and 57.9 is expected to expand its feedmill capacity there. Contribution of animal protein operations outside Indonesia is expected to 38.6 grow at a 9% CAGR between CY14 and CY17F – thanks to steady pricing and capacity expansion. 19.3
Expansion in dairy farms. The group intends to expand its dairy 0.0 2013A 2014A 2015F 2016F 2017F business in China through continued replication of its successful business model. The fifth farm of the first five-farm hub in China raw milk price (CNY/kg) 4.9 Shandong province was completed early this year. A second 4.95 five-farm hub is planned for construction between this year and 4.51 4.33 4.1 4.14 CY18 in Inner Mongolia. Farm 6 in Inner Mongolia is expected 4 to start milking by end of this year, and fully milking a quarter 3.71 thereafter. When completed, the second hub would increase 3.09 the group’s herd size in China to 120k heads of cattle by end of 2.47 CY18. Japfa is also expanding its dairy capacity in Malang, East 1.86 Java to hold an additional 9,000 heads. Completion is expected 1.24 by the end of this year. 0.62 0.00 Expansion of beef cattle feedlot. Japfa now has a beef cattle 2013A 2014A 2015F 2016F 2017F feedlot in Shandong province with production capacity of Average USD/IDR rate 10,000 heads per annum. The bull calves produced by Japfa’s 14,678 five dairy farms in Shandong will be the livestock input for the 13,821 14,080 new beef cattle feedlot in China. In Indonesia, imports of cattle 11,879 12,000 are subject to government approvals and regulations, including 10,849 quotas. 9,000
Further investment in high-growth Consumer Food brands. The 6,000 group intends to expand its manufacturing and processing capacities in Indonesia and Vietnam, as it seeks to expand the 3,000 reputation and market reach of its brands, including Real Good for UHT milk and So Good, So Nice and Best Chicken for 0 2013A 2014A 2015F 2016F 2017F processed meats. Source: Company, DBS Bank
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Page 2 Page 25 Company Guide Japfa Ltd
Leverage & Asset Turnover (x) 1.5 Balance Sheet: 1.40 Japfa’s net debt-to-total equity ratio is forecast to arrive at 70% 1.20 1.5 by end of this year and 68% next year on rising equity. We also 1.00 1.4 assume that the group will refinance its US$225m bonds (due 0.80 1.4 2018) with Rp500bn bank borrowings 0.60 1.3 0.40 1.3 Share Price Drivers: 0.20
DOC oversupply issues. The Indonesian poultry industry is 0.00 1.2 dominated by a few players, which collectively control more 2013A 2014A 2015F 2016F 2017F Gross Debt to Equity (LHS) Asset Turnover (RHS) than 75% market share. Overinvestment and/or miscalculated Capital Expenditure demand often lead to depressed DOC and broiler prices on top US$ of an already volatile market. Changes in prices would have 350.0 instant impact on Japfa’s profitability even with cuts in Parent 300.0 Stock (PS) numbers. Hence, we believe the completion of 250.0 nationwide PS culling would send a positive signal to share 200.0 prices. 150.0 100.0 50.0 Rupiah movements. Japfa’s US$225m bonds have created 0.0 translation FX losses in Japfa’s subsidiary, Japfa Comfeed, 2013A 2014A 2015F 2016F 2017F together with Rupiah depreciation YTD. Hence, Rupiah Capital Expenditure (-) movements would impact reported earnings. ROE (%) 14.0% 12.0% Key Risks: Outbreak of diseases. Outbreak of diseases affecting livestock 10.0% would have material effect on the group's business and 8.0% financial status. 6.0%
4.0% Intense competition. Excess capacity and intense competition 2.0% in Indonesia may continue to result in DOC oversupply and 0.0% slower-than expected price growth 2013A 2014A 2015F 2016F 2017F Forward PE Band (x) Movements in raw material costs and currencies. Japfa is (x) 30.0 exposed to volatile movements in raw material costs and +2sd: 25.7x currencies. For example, weakness in Rupiah and consumer 25.0 purchasing power caused delays in passing on raw material 20.0 +1sd: 19.3x costs. 15.0 Avg: 12.9x 10.0 Changes in regulations. Changes in government ‐1sd: 6.5x regulations/licensing/interventions/price or volume controls 5.0 may adversely affect Japfa’s profitability. 0.0 ‐2sd: 0x Aug-14 Jan-15 Jun-15 Nov-15
Vulnerable to liquidity and credit risks PB Band (x) (x)
1.4 Company Background Japfa Ltd is a leading industrialised and vertically integrated 1.2 +2sd: 1.2x producer of multiple animal proteins, dairy and consumer food 1.0 +1sd: 1.02x products in Indonesia, Vietnam, Myanmar, India and China. Avg: 0.83x The group is the second largest poultry feed and DOC (day- 0.8 old-chic. The group is involved in production of animal feeds, 0.6 ‐1sd: 0.64x poultry breeding, poultry commercial farms, beef cattle ‐2sd: 0.45x 0.4 feedlots, swine breeding, swine commercial farms, dairy farms Aug-14 Jan-15 Jun-15 Nov-15 as well as frozen and ambient temperature consumer food Source: Company, DBS Bank products.
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Page 3 Page 26 Company Guide
Japfa Ltd
Key Assumptions FY Dec 2013A 2014A 2015F 2016F 2017F Raw & fresh milk output (k 151 224 307 457 567 Broiler sales (mn birds) 288 351 368 364 389 Consumer foods volume 85.6 77.4 82.4 88.0 94.6 China raw milk price 4.51 4.90 4.00 4.10 4.14 Average USD/IDR rate 10,849 11,879 13,821 14,678 14,080
Segmental Breakdown FY Dec 2013A 2014A 2015F 2016F 2017F
Revenues (US$ m) Dairy 122 223 246 382 492 Animal protein 2,347 2,513 2,375 2,497 2,737 Consumer foods 228 211 197 204 236 Total 2,697 2,947 2,818 3,084 3,466 EBITDA (US$ m) Dairy 39 70 56 106 153 Animal protein 183 180 212 217 276 Consumer foods 11 9 9 9 10 Total 234 260 277 333 439 EBITDA Margins (%) Dairy 32.0 31.5 22.7 27.7 31.1 Animal protein 7.8 7.2 8.9 8.7 10.1 Consumer foods 4.8 4.3 4.6 4.6 4.3 Total 8.7 8.8 9.8 10.8 12.7
Income Statement (US$ m) FY Dec 2013A 2014A 2015F 2016F 2017F Revenue 2,697 2,947 2,818 3,084 3,466 Cost of Goods Sold (2,198) (2,441) (2,293) (2,471) (2,713) Gross Profit 499 506 525 613 753 Other Opng (Exp)/Inc (297) (315) (319) (343) (379) Operating Profit 202 191 206 270 374 Other Non Opg (Exp)/Inc (29) 2 (34) (13) 0 Associates & JV Inc 0 0 0 0 0 Net Interest (Exp)/Inc (64) (79) (69) (73) (80) Exceptional Gain/(Loss) 6 (40) 0 0 0 Pre-tax Profit 115 74 103 184 293 Tax (33) (15) (21) (37) (59) Minority Interest (40) (28) (38) (68) (108) Preference Dividend 0 0 0 0 0 Net Profit 42 31 45 79 126 Net Profit before Except. 43 58 45 79 126 Net Pft (ex. BA gains) 43 58 45 79 126 EBITDA 227 255 238 324 444 EBITDA (ex. BA gains) 257 263 277 333 439 Growth Revenue Gth (%) 16.2 9.3 (4.4) 9.4 12.4 EBITDA Gth (%) (3.8) 12.3 (6.6) 36.0 37.0 Opg Profit Gth (%) 5.4 (5.1) 7.7 30.8 38.6 Net Profit Gth (%) (21.5) (25.3) 42.6 78.0 59.5 Margins & Ratio Gross Margins (%) 18.5 17.2 18.6 19.9 21.7 Opg Profit Margin (%) 7.5 6.5 7.3 8.7 10.8 Net Profit Margin (%) 1.5 1.1 1.6 2.6 3.6 ROAE (%) 11.4 5.8 6.3 10.0 14.1 ROA (%) 2.3 1.5 1.9 3.2 4.6 ROCE (%) 9.1 8.2 7.9 9.8 12.1 Div Payout Ratio (%) 0.0 0.0 0.0 0.0 0.0 Net Interest Cover (x) 3.2 2.4 3.0 3.7 4.6 Source: Company, DBS Bank
ASIAN INSIGHTS VICKERS SECURITIES
Page 4 Page 27 Company Guide Japfa Ltd
Quarterly / Interim Income Statement (US$ m) FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015
Revenue 785 705 676 704 695 Cost of Goods Sold (661) (580) (568) (582) (557) Gross Profit 123 126 107 122 138 Other Oper. (Exp)/Inc (80) (79) (76) (78) (73) Operating Profit 43 47 31 44 66 Other Non Opg (Exp)/Inc (3) (7) (13) (5) (21) Associates & JV Inc 0 0 0 0 0 Net Interest (Exp)/Inc (21) (20) (17) (18) (17) Exceptional Gain/(Loss) (2) (35) 7 (18) (9) Pre-tax Profit 17 (15) 9 3 18 Tax (2) (1) (4) (2) (8) Minority Interest (4) 3 2 2 (2) Net Profit 11 (14) 7 3 8 Net profit bef Except. 13 21 0 20 17 EBITDA 59 61 50 63 92
Growth Revenue Gth (%) 2.3 (10.1) (4.2) 4.2 (1.3) EBITDA Gth (%) (36.7) 3.3 (17.7) 25.8 45.3 Opg Profit Gth (%) (34.8) 7.4 (32.6) 40.2 49.3 Net Profit Gth (%) (48.2) nm nm (57.6) 169.5 Margins Gross Margins (%) 15.7 17.8 15.9 17.3 19.9 Opg Profit Margins (%) 5.5 6.6 4.7 6.3 9.5 Net Profit Margins (%) 1.4 (2.0) 1.0 0.4 1.1
Balance Sheet (US$ m) FY Dec 2013A 2014A 2015F 2016F 2017F
Net Fixed Assets 653 834 886 941 1,073 Invts in Associates & JVs 0 0 0 0 0 Other LT Assets 275 310 409 507 591 Cash & ST Invts 225 287 180 218 239 Inventory 543 598 536 578 634 Debtors 135 151 136 149 168 Other Current Assets 133 148 179 182 225 Total Assets 1,964 2,327 2,326 2,575 2,929
ST Debt 457 476 414 516 622 Creditor 195 233 201 217 238 Other Current Liab 65 25 28 37 49 LT Debt 469 507 468 445 428 Other LT Liabilities 81 91 90 88 86 Shareholder’s Equity 406 662 754 833 960 Minority Interests 291 332 370 438 546 Total Cap. & Liab. 1,964 2,327 2,326 2,575 2,929
Non-Cash Wkg. Capital 550 639 621 655 740 Net Cash/(Debt) (701) (697) (702) (744) (811) Debtors Turn (avg days) 18.1 17.7 18.6 16.9 16.7 Creditors Turn (avg days) 27.9 32.9 35.6 31.7 31.4 Inventory Turn (avg days) 87.7 87.5 92.9 84.6 83.7 Asset Turnover (x) 1.5 1.4 1.2 1.3 1.3 Current Ratio (x) 1.4 1.6 1.6 1.5 1.4 Quick Ratio (x) 0.5 0.6 0.5 0.5 0.4 Net Debt/Equity (X) 1.0 0.7 0.6 0.6 0.5 Net Debt/Equity ex MI (X) 1.7 1.1 0.9 0.9 0.8 Capex to Debt (%) 22.2 29.8 21.8 20.8 26.9 Z-Score (X) 2.1 2.2 2.2 2.2 2.3 Source: Company, DBS Bank
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Page 5 Page 28 Company Guide
Japfa Ltd
Cash Flow Statement (US$ m) FY Dec 2013A 2014A 2015F 2016F 2017F
Pre-Tax Profit 115 74 103 184 293 Dep. & Amort. 55 62 66 68 71 Tax Paid (33) (38) (21) (37) (59) Assoc. & JV Inc/(loss) 0 0 0 0 0 Chg in Wkg.Cap. (80) (88) (20) (73) (114) Other Operating CF 0 0 0 0 0 Net Operating CF 89 125 144 164 220 Capital Exp.(net) (206) (293) (192) (200) (282) Other Invts.(net) 0 0 0 0 0 Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc & JV 0 0 0 0 0 Other Investing CF 1 (6) (3) (3) (3) Net Investing CF (205) (299) (195) (202) (285) Div Paid (9) (4) 0 0 0 Chg in Gross Debt 125 68 (101) 79 88 Capital Issues 131 198 48 0 0 Other Financing CF (63) (27) (2) (2) (2) Net Financing CF 183 235 (56) 77 86 Currency Adjustments 0 0 0 0 0 Chg in Cash 68 62 (107) 38 21 Opg CFPS (US cts.) 80.8 12.1 9.3 13.4 18.9 Free CFPS (US cts.) (55.7) (9.5) (2.7) (2.0) (3.5) Source: Company, DBS Bank
Target Price & Ratings History
S$ 0.66 Closing Target S.No. Date Rating Price Price 0.61 1 1: 02 Feb 15 0.64 0.80 BUY 2: 02 Mar 15 0.53 0.76 BUY 0.56 2 3: 04 May 15 0.46 0.54 HOLD 10 4: 02 Jul 15 0.39 0.46 HOLD 0.51 12 5: 10 Aug 15 0.32 0.46 BUY 0.46 11 6: 18 Aug 15 0.31 0.46 BUY 7: 16 Sep 15 0.30 0.46 BUY 0.41 3 89 4 8: 28 Oct 15 0.40 0.46 BUY 9: 03 Nov 15 0.46 0.90 BUY 0.36 10: 02 Dec 15 0.50 0.90 BUY 5 6 0.31 11: 10 Dec 15 0.49 0.90 BUY 12: 17 Dec 15 0.49 0.90 BUY 0.26 7 Jan-15 May-15 Sep-15 Jan-16 Note : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank
ASIAN INSIGHTS VICKERS SECURITIES
Page 6 Page 29 Singapore Company Focus mm2 Asia
Bloomberg: MM2 SP | Reuters: MM2A.SI Refer to important disclosures at the end of this report
DBS Group Research . Equity 11 Jan 2016
BUY Premier movie producer (Initiating Coverage) Last Traded Price: S$0.78 (STI : 2,751.23) Riding on growing demand and support for local Price Target : S$1.05 (34% upside) production; gaining traction overseas High margins business model; new revenue streams Potential Catalyst: Earnings accretive acquisitions to strengthen competitive edge and build recurring income base Analyst LING Lee Keng +65 6682 3703 [email protected] Spreading its wings in China, one of the world’s most lucrative movie markets to support growth Initiate with BUY, S$1.05 TP Price Relative Riding on growing demand and support for local production; S$ Relative Index gaining traction overseas. mm2 Asia (mm2) is poised to ride on 1.0 418 the growing demand for local production and will continue to grow 0.9 368 0.8 its presence in Taiwan, Hong Kong and China, by leveraging on the 318 0.7 business relationships it has established. 0.6 268 0.5 218 168 0.4 We expect 0.3 118 Spreading its wings in China to support growth. 0.2 68 mm2 to grow at EPS CAGR of 40% for FY15 to FY18F. To support Dec-14 May-15 Oct-15 this growth, mm2 intends to spread its wings to one of the most mm2 Asia (LHS) Relative STI INDEX (RHS) lucrative movie market – China. The group has already co-produced Forecasts and Valuation FY Mar (S$m) 2015A 2016F 2017F 2018F several productions in China since 2013 and is currently working on Revenue 24.3 43.9 66.6 78.3 a few movies in China. Chinese films generally have bigger budgets EBITDA 9.92 14.8 21.2 24.9 and better margins than local productions. Pre-tax Profit 6.58 9.79 16.2 19.9 Net Profit 5.08 8.13 13.4 16.5 Net Pft (Pre Ex.) 5.13 8.13 13.4 16.5 High margins business model; new revenue streams to EPS (S cts) 2.46 3.34 5.51 6.80 strengthen competitive edge. Besides movie production and EPS Pre Ex. (S cts) 2.48 3.34 5.51 6.80 distribution which offers high gross margin of about 40% to 45%, EPS Gth (%) 67 36 65 23 mm2 recently acquired five cineplexes in Malaysia and some related EPS Gth Pre Ex (%) 68 35 65 23 Diluted EPS (S cts) 2.46 3.34 5.51 6.80 businesses. Cinemas will provide a source of recurring income to Net DPS (S cts) 0.0 0.0 0.0 0.0 the group and cost savings in the longer term, as mm2 usually has BV Per Share (S cts) 9.28 18.2 23.7 30.5 to pay about 50% of its gross intake receipts for rental of cinemas. PE (X) 31.7 23.4 14.1 11.5 PE Pre Ex. (X) 31.4 23.4 14.1 11.5 EBITDA margin for cinemas is about 15%. P/Cash Flow (X) 445.4 15.2 17.6 10.7 EV/EBITDA (X) 15.7 12.0 8.1 6.4 mm2 is trading at 23x FYMar16F Net Div Yield (%) 0.0 0.0 0.0 0.0 Initiate with BUY, S$1.05 TP. PE and 14x FY17F PE, based on its enlarged share capital, compared P/Book Value (X) 8.4 4.3 3.3 2.6 Net Debt/Equity (X) CASH CASH CASH CASH to peers’ 27x FY16F PE. Taking a 30% discount to peers given its ROAE (%) 44.5 25.6 26.3 25.1 much smaller size, we arrive at a target PE of 19x to derive our target price of S$1.05 on FY Mar17F EPS. The stock offers a Consensus EPS (S cts): - - - Other Broker Recs: B: 0 S: 0 H: 0 potential upside of 36%, and it trades at an attractive PEG of 0.31x.
ICB Industry : Consumer Services At A Glance Issued Capital (m shrs) 209 ICB Sector: Media Principal Business: mm2 Asia is a leading producer of films and Mkt. Cap (S$m/US$m) 163 / 113 TV/online content in Asia. As a producer, mm2 provides services Major Shareholders over the entire filmmaking process – from financing and production Wee Chye Ang (%) 62.5 to marketing and distribution, thus has a diversified revenue stream. Philip Apac Opp Fund (%) 8.4 Yeo Khee Seng (%) 6.2 Source of all data: Company, DBS Bank, Bloomberg Finance L.P Free Float (%) 31.3 3m Avg. Daily Val (US$m) 0.50
ed: JS / sa: YM Page 30 Company Focus
mm2 Asia
INVESTMENT THESIS
Profile Rationale mm2 Asia is a leading producer of films and TV/online Riding on growing demand and support for local content in Asia. As a producer, mm2 provides services over production; gaining traction overseas. mm2 is poised to ride the entire filmmaking process – from financing and on the growing demand for local production and it will production to marketing and distribution, and thus has a continue to grow its presence in Taiwan, Hong Kong and diversified revenue stream. China, by leveraging on the business relationships it has established.
Spreading its wings in China to support growth. We expect mm2 to grow at EPS CAGR of 40% for FY15 to FY18F. To support this growth, mm2 intends to spread its wings to one of the most lucrative movie market – China. The group has already co-produced several productions in China since 2013 and is currently working on a few movies in China. Chinese films generally have bigger budgets and better margins than local productions.
High margins business model; new revenue streams to strengthen competitive edge. Besides movie production and distribution which offers high gross margin of about 40% to 45%, mm2 recently acquired five cineplexes in Malaysia and some related businesses. Cinemas will provide a source of recurring income to the group and cost savings in the longer term, as mm2 usually has to pay about 50% of its gross intake receipts for rental of cinemas. EBITDA margin for cinemas is about 15%.
Valuation Risks mm2 is trading at 23x FYMar16F PE and 14x FY17F PE, No long term financing arrangements for productions. The based on its enlarged share capital, compared to peers’ 27x commencement of each production is dependent on mm2’s FY16F PE. Taking a 30% discount to peers given its much ability to secure funding. smaller size, we arrive at a target PE of 19x to derive our target price of S$1.05 on FY Mar17F EPS. The stock offers a Productions may be adversely affected by delays and cost potential upside of 36%, and it trades at an attractive PEG overruns. The production process is subject to a number of of 0.31x. uncertainties, most of which are beyond mm2’s control.
Unable to predict the commercial success of movies produced. Operating in the movie industry involves a substantial degree of risk as mm2’s success is affected by the commercial success of its productions, which is primarily determined by inherently unpredictable audience reactions.
Source: DBS Bank
Page 2
Page 31 Company Focus
mm2 Asia
SWOT Analysis
Strengths Weakness Integrated movie producer. mm2 has the capability and No long term financing arrangements for productions. experience to service and derive revenue from all relevant The commencement of each production is dependent on stages of the filmmaking process. mm2’s ability to secure funding.
Helmed by industry veteran. CEO Melvin Ang has 20 years Productions may be adversely affected by delays and cost of industry experience. overruns. The production process is subject to a number of uncertainties, most of which are beyond mm2’s control. Strong network of business relationships with key industry players. mm2 has forged and maintained strong business Unable to predict the commercial success of movies relationships with key industry players in Singapore, Malaysia, produced. Operating in the movie industry involves a Hong Kong, Taiwan and the PRC. substantial degree of risk as mm2’s success is affected by the commercial success of its productions, which is primarily determined by inherently unpredictable audience reactions.
Opportunities Threats Consolidating its position in local market. mm2 will leverage Movies produced are subject to censorship laws and on its entrenched position in the local market to propel itself regulations. The content of its productions and scripts are higher. As the industry leader, it is poised for more subject to censorship laws and regulations in Singapore, opportunities ahead. Malaysia and other countries where mm2 has production or distribution activities. Spreading its wings in China. mm2 also intends to spread its wings to one of the most lucrative movie market – China. The May not be able to obtain the necessary licences and/or group has already co-produced several productions in China approvals for production and distribution activities. since 2013. It is currently working on a few movies in China. Depending on the location of its production and distribution Chinese films generally have bigger budgets and better activities, it may be necessary for mm2 to obtain licences margins than local productions. and/or approvals from the relevant government authorities in order to carry out such activities. Gaining traction in other overseas markets. In the past three years, mm2 started co-producing movies in China, Taiwan and Hong Kong. Going forward, mm2 targets to co-produce more films overseas, leveraging on its successful track record.
Source: DBS Bank
Page 3 Page 32
Company Focus
mm2 Asia
Company Background
Integrated movie producer. Founded in 2008 and listed on Revenue Contribution the Catalist Board of the SGX-ST on 9 December 2014, mm2
Asia is a leading producer of films and TV/online content in Asia. As a producer, mm2 provides services over the entire Production Distribution Sponsorship filmmaking process – from financing and production to Producer fees and Licensing of movies Advertising revenue marketing and distribution. In May 2014, the group consultancy income produced / co- incorporated mm2 Entertainment Hong Kong Limited to produced by mm2 or 3rd parties establish a presence in North Asia. Sale of share of production / movie revenue rights / Third party licensing
Group Structure scrip rights agreements
mm2 Asia Grants and other contributions
Source: Company, DBS Bank mm2 Singapore mm2 Malaysia (100%) (100%) In terms of revenue breakdown, Production accounted for 61.6% of FY15 revenue, up from 33.7% in FY13.
For its cost structure, cost of sales, which include crew mm2 Hong VividThree Millinillion member salaries and renting of premises, accounts for about Kong Productions (70%) (100%) (51%) 60% of total sales. Administrative expenses, which include overhead expenses, account for another 10% to 15% of mm2 Film Distribution total revenue. (49%)
Source: Company, DBS Bank Revenue Breakdown by Segment The group derives its revenue from three main sources :- S$m Others Sponsorship S$24.3m 25 1. Production income. This is derived from all relevant Distribution Production 3.1% stages of the filmmaking process. This includes income 4.4% 20 from securing financing for a production, consultancy S$16.1m 30.9% and producers’ fees (usually about 10% to 20% of the 3.0% 15 17.3% film budget), producer bonuses (fees for helping to look S$9.9m for investors to fund the production cost), government 1.9% 10 3.5% 40.1% grants and subsidies, script development, pre- 61.6% 60.9% production, principal photography, post-production as 5 39.6% well as other contributions. 33.7% 0 2013 2014 2015 2. Distribution income. Besides distributing its own movies Source: Company, DBS Bank or those co-produced with third parties, mm2 also receives income from third party licensing arrangements. It receives distribution income from the distribution of Professional producer; investment risk mitigated films across various platforms – cinemas, Pay TV, Free TV, mm2 is a professional producer and seeks to fund all its online, DVD, airlines and others. For some films, mm2 productions through stakeholders, advertising and grants. acts as a stakeholder and is entitled to a percentage of mm2 only underwrites a portion of the budget, if it is not net receipts from the film’s distribution across these covered by the inflow of funds. platforms. Commission income also comes from the licensing of scripts, adaptation and sequel rights for its For box office receipts, about 50% will go to cinema film library via third-party licensing arrangements. operators. The balance will be for other costs, including marketing cost.
3. Sponsorship income. This is usually from advertisers to promote their products and services in mm2’s films. Production and distribution list Since 2008, the group has produced, co-produced and/or distributed over 50 films. Out of this, FY Mar15 accounted for 30 films.
Page 4 Page 33
Company Focus
mm2 Asia
Notable Production and Distribution Titles Title Year Comment Production Ah Boys to Men 2012 Singapore’s highest-grossing local production of 2012: S$6.21m Ah Boys to Men 2 2013 Singapore’s highest-grossing local production of all time: S$7.89m Ah Boys to Men 3 2015 Singapore’s highest-grossing opening weekend Asian film of all time: S$2.83m in 4 days THE LION MEN 2014 Directed by Jack Neo; cast from Ah 狮神决战 Boys to Men THE LION MEN: 2014 Directed by Jack Neo; cast from Ah ULTIMATE Boys to Men SHOWDOWN 狮神决战之 终极一战 1965 2015 A historical drama to commemorate Singapore’s 50 years of independence Co-production 为你转身 2013 mm2’s first China co-production 2014 mm2’s first Taiwan co-production 做你爱做的事 ATM 2015 mm2’s first Hong Kong co-production 提款机 Distribution THE JOURNEY 2014 Malaysia’s highest-grossing local 一路有你 production of all time: RM$17m CAFÉ . WAITING . 2014 Malaysia’s highest-grossing Taiwanese LOVE film of all time: RM$4.98m 等一个人 咖啡 ODE TO MY FATHER 2015 The second most successful film in 我们不平凡的爸爸 Korean Box Office history
Sales Trend Profitability Trend S$ m S$ m 100 90.0% 21 90 80.0% 19 80 70.0% 17 70 15 60 60.0% 50 50.0% 13 11 40 40.0% 30 9 30.0% 20 7 10 20.0% 5 0 10.0% 2014A 2015A 2016F 2017F 2018F 3 2014A 2015A 2016F 2017F 2018F
Total Revenue Revenue Growth (%) (YoY) Operating EBIT Pre tax Profit Net Profit
Source: Company, DBS Bank
Page 5
Page 34 Company Focus
mm2 Asia
Management Composition
Helmed by industry veteran. mm2 is helmed by CEO Melvin subsequently renamed as MediaCorp. With his vast Ang, who has 20 years of industry experience and was experience and together with his team of executive officers, named as one of the top 5 individuals in Singapore’s arts, the group has established a wide network of personal entertainment and lifestyle sectors in the Straits Times relationships with leading talent, crew and staff, distribution Annual Power List. Mr Ang started his career at the then companies, stakeholders and other key participants in the Television Corporation of Singapore (TCS) in 1997. TCS was movie industry. mm2 has subsidiaries in Singapore, Malaysia and Hong Kong with business partners in Taiwan and China.
Key Management Team
Melvin Ang, Melvin Ang is the (CEO) and Executive Director of mm2 Asia, responsible for overseeing and managing productions, as well as sourcing new business opportunities for the group. Mr Ang graduated from Macquarie University with a CEO & Exec. MBA in 1996. In August 1997, he was employed by the Television Corporation of Singapore as Vice President, Director Business Development. Between March 2000 and October 2000, he was appointed as Chief Business Development & Marketing Officer and Group Executive Vice President of novaSPRINT Pte Ltd. Mr Ang was subsequently employed by SPH MediaWorks Ltd as its Chief Operating Officer of its Media Business Group between November 2000 and April 2003. Between July 2003 and March 2007, Mr Ang was employed as Managing Director of MediaCorp Studios. Before setting up mm2 Malaysia and mm2 Singapore in January 2009, he served as Media Prima Berhad’s Executive Advisor between July 2007 and December 2008.
Ng Say Yong, Mr Ng is overall in charge of the creative content development of the group’s productions. He is a media industry COO veteran who has produced and directed some of the most successful TV dramas in Singapore such as ‘Growing Up ’, ‘Triple Nine ’ and ‘Shiver ’. Mr Ng joined the Singapore Broadcasting Corporation, which subsequently became Television Corporation of Singapore in 1994, as a producer and director of current affairs and entertainment programmes. In 1998, he joined MediaCorp Studios as an Assistant Vice-President and was subsequently promoted to Senior Vice President. After leaving MediaCorp Studios in 2007, Mr Ng stayed in Australia for three years before joining mm2 Singapore in 2010 as a Creative Director.
Chong How Kiat, Mr Chong is responsible for overseeing all financial and accounting matters of the group. Mr Chong started out his CFO career as an audit assistant in 1995 at KS Lam & Co, Public Accountant. Prior to joining mm2 Asia, he held the position of Finance Manager at ITD Vertex Consortium Sdn Bhd. Tan Liang Pheng, Mr Tan worked for 35 years in two multinational corporations, responsible for their accounting, treasury and financial functions, and later sat on the Board of Directors of Tetra Pak Group of Companies in Singapore. In 2009, Non-Exec. Chairman Mr Tan was appointed General Manager of Iviria Pte Ltd., and was subsequently promoted to Executive Director in & Independent 2010. Mr Tan served as Executive Director of Iviria Pte. Ltd. until November 2012. Director Mr Tay Joo Heng, Mr Tay was appointed CEO of mm2 Screen Management Sdn Bhd (mm2 Screen) with effect from 1 Oct 15. In this CEO of mm2 Screen new role, he will oversee the group’s cinema business. Mr Tay has more than 20 years of financial and operational experience in media, content production, technology and trading industries.
Angelin Ong, Ms Angelin Ong was appointed COO of mm2 Screen with effect from 1 Oct 15. In this new role, she will be COO of mm2 responsible for the overall operations of mm2 Screen. Ms. Ong will continue in her role as General Manager of mm2 Screen Malaysia. Before joining mm2 Malaysia in 2009, Ms Ong worked in various advertising agencies and also Sistem Televisyen Malaysia and AltMedia, a subsidiary of Media Prima.
Source: Company, DBS Bank
Page 6 Page 35
Company Focus
mm2 Asia
Competitive Strengths Growth Strategies
Ability to provide full spectrum of services in the entire Acquisitions to drive growth, build income base and Production and Distribution process. mm2 has the capability strengthen competitive edge and experience to service and derive revenue from all Post IPO in December 2014, mm2 has made several relevant stages of the filmmaking process. This flexibility acquisitions to maintain its competitive advantage. In April, enables the group to capitalise on a wide range of industry mm2 acquired a 51% stake in Singapore’s leading multi- opportunities and not be solely dependent on box office award winning 3D animation company, Vividthree revenue, which may be unpredictable. Productions, to strengthen its competitive advantage as a
movie producer. Subsequent to that, mm2 acquired five Strong network of business relationships with key industry cineplexes in Malaysia. The ownership of cinemas will players. Leveraging on its established commercial track provide a source of recurring income to the group and cost record, production brand names, reputation and extensive savings in the longer term, as mm2 usually has to pay about experience, mm2 has forged and maintained strong business 50% of its gross intake for rental of cinemas. Cinemas relationships with key industry players in Singapore, operation is a profitable business; the group could be Malaysia, Hong Kong, Taiwan and the PRC, including profitable even with less than 50% of the seats occupied. In stakeholders, major exhibitors, production studios, December, mm2 acquired a majority stake in a tech-setup actors/actresses, directors, crew and post-production developing interactive solutions for digital users. companies.
Cinemas An established multi-market presence. With subsidiaries in Owns five cinemas with total of 43 screens and 8,010 seats. Singapore, Malaysia and Hong Kong, and business partners mm2 bought a total of five cinemas in Malaysia. The first in Taiwan and the PRC, mm2 is able to tap on business two Cathay cineplexes were acquired in April 2015 for opportunities in these markets. By engaging talented RM40m cash. Cathay Cineplex City Square was established individuals from different countries and having access to in 2006 and now holds 14 screens with 2,826 seats in total various markets in the region, mm2 has the flexibility to and is the largest multiplex outside the Klang Valley region. produce movies that cater to the preferences of audiences in Cathay Cineplex Damansara was established in 2006 and these markets, thus increasing the commercial potential of holds 16 screens with 2,472 seats in total and is currently the each movie. largest multiplex in Petaling Jaya. Acquisition for these two
cinemas was completed in November. Experienced in various movie genres with quick response to
changing consumer preferences. mm2 has produced and In August, mm2 bought another three cinemas in Northern distributed various genres of movies including comedies, Malaysia from Mega Cinemas for a total of RM22m, funded dramas and horror. Its team of media industry veterans have by RM17m in shares and RM5m cash. Mega Cineplex Prai been quick to identify and react to changes in consumer was established in 2004 and now holds 6 screens with a preferences, resulting in commercially viable movies that total of 1420 seats. Mega Cineplex Langkawi, which is the have enabled mm2 to maximise its revenue potential. only cinema on the island of Langkawi, was established in
2011 and holds 3 screens with a total of 536 seats. Mega Committed and experienced management team with Cineplex Bertam was established in 2013 and holds 4 extensive relevant expertise. CEO and Controlling screens with a total of 756 seats. Acquisition for the Mega Shareholder, Melvin Ang, and Executive Officers, Ng Say cinemas is expected to be completed by 1Q16. Yong and Angelin Ong, have each been involved in the TV
and entertainment industries for more than a decade, and have established a wide network of personal relationships Details of cinemas acquired Cinema Place Capacity with various key players in the movie industry in Singapore Cathay Cineplex Johor Bahru 14 screens, 2,826 seats and Malaysia. Melvin Ang was named as one of the Top 5 City Square on the Straits Times annual Power List in the arts, Cathay Cineplex Damansara 16 screens, 2,472 seats entertainment and lifestyle sectors. The management team is Damansara supported by members with strong finance and accounting Mega Cineplex Prai Penang 6 screens, 1,420 seats experience, lending financial discipline and knowledge to its Mega Cineplex Langkawi 3 screens 536 seats approach on movie making. This balance of expertise and Langkawi Mega Cineplex Bertam 4 screens 756 seats experience throughout the management team differentiates Bertam mm2 in the movie making industry. Source: Company, DBS Bank
Page 7 Page 36
Company Focus
mm2 Asia
Complimentary businesses Recent events Owns majority stake in 3D company. mm2 has also bought a Acquisitions 51% stake in a 3D animation company, Vividthree Date Details Productions, for S$3.06m. Vividthree Productions specialises announced in 3D stereoscopic animation, 3D animation and visual Apr 15 Acquired a 51% stake in Singapore’s effects for feature films and commercials. It also has a film leading multi-award winning 3D animation company, Vividthree Productions for production/content development arm. The acquisition allows S$3.06m the group to diversify and expand into complementary Apr 15 Acquired two Cathay cineplexes in Malaysia business areas within the film production value chain, to for RM40m cash. strengthen its competitive advantage as a movie producer Aug 15 Bought another three cinemas in Northern and eventually gain access to new markets, customers and Malaysia from Mega Cinemas for a total of RM22m business opportunities. Dec 15 Acquired 70% stake in Millinillion, a digital media company, for approximately S$350,000. Plans to launch its own OTT. mm2 entered into an agreement in December to acquire a 70% in a tech-setup Fund raising exercises developing interactive solutions for digital users, Millinillion, Date Details for approximately S$350,000. This marks mm2’s first step announced into the digital media and technology sector. Millinillion is a 8-Apr Issued shares for acquisition of 3D company specialising in developing Business to Consumer animation company, Vividthree Productions 29-Jun Issued convertible notes due June 2017 to (B2C) mobile applications and digital interactive solutions for Phillip Asia Pacific Opportunity Fund. clients. mm2 and Millinillion will jointly develop a series of Conversion price S$0.4892 mobile applications in data-based marketing, music and 10-Jul Issued up to S$2.6m principal amount of exchangeable notes, with a Greenshoe industry talent pool management. The group also plans to Option for up to an additional S$1.3m in launch its own Over-the-top (OTT) media streaming principal amount of the Notes to 3VS1 Asia platform, allowing users to watch short films and movie Growth Fund 2 Ltd. Conversion price S$0.5635 content through devices such as mobile phones, tablets, 20-Aug Issued 9.14m shares @S$0.6351 for laptops and smart TVs. This new platform will also offer acquisition of Mega cinemas interactive features that will enable mm2 to engage a 4-Dec Placement of 6.35m shares at S$0.7872 community of users for the development of movie ideas and each marketing of mm2’s content. Source: DBS Bank
More acquisitions on the card? Consolidating its position in local market In just one year since listing in Dec 14, mm2 has made The successful box office for local productions like ‘Ah Boys several acquisitions and undertaken a few fund raising to Men’ indicates the growing demand for locally-produced exercises to fund the acquisitions. content in Singapore and Malaysia. Ah Boys to Men 1,
released in Nov-12, received box office receipts of S$6.21m As a result, its share capital base has increased 18% to about in Singapore and another RM2.02m in Malaysia. Part 2 243.5m shares, on a fully diluted basis, from 206.3m since sequel, released in Feb-13, received S$6.37m and RM3.5m in listing. On 3 Dec-15, mm2 had proposed a share split of Singapore and Malaysia respectively. Two years later, Ah every one (1) existing ordinary share into two (2) shares. The Boys to Men 3 also recorded impressive box office receipts of group believes that the reduced price of each share after the S$7.52m in Singapore and RM3.63m in Malaysia. proposed share split will make each share more affordable to investors, thus encouraging greater participation and increasing market liquidity of the shares. This exercise is also Going forward, mm2 will leverage on its entrenched position expected to broaden its shareholder base. in the local market to propel itself higher. As the industry leader, it is poised for more opportunities ahead. Following With the group on an acquisition spree based on the recent the successful launch of Ah Boys to Men, production is set to purchases of cinemas and related businesses, we would not begin on Ah Boys to Men 4 in 2017. Besides this, mm2 has rule out further acquisitions going forward. also launched “The Movie Makers Short Film Competition”, which is an initiative to discover and groom new talents in the film industry.
In terms of support, the Singapore government also plans to inject S$250m per year for the next 5 years into improving public sector communications. A portion will be used to promote the local film industry and digital video sectors
Page 8 Page 37
Company Focus
mm2 Asia
through the “Watch Local” initiative. As the industry leader, FY15 Revenue Breakdown by Country mm2 will benefit from these initiatives. FY 15 Revenue by geography With this backdrop, mm2 is poised to ride on the demand Taiwan 3% for local production. In Asia and the global scene, mm2 will Hong Kong continue to grow its presence in Taiwan, Hong Kong and China 6% 5% China, leveraging on the business relationships it has Malaysia established. 13%
Spreading its wings in China Singapore mm2 also intends to spread its wings to one of the most 73% lucrative movie market – China. The group has already co- produced several productions in China since 2013. It is currently working on a few movies in China. There will be at Source: Company, DBS Bank
least three other movie projects that could come to the
market beginning 2017. Chinese films generally have bigger
budgets and better margins than local productions.
On top of producing films that are made and distributed in China, mm2 also hopes to distribute China-made films overseas. mm2 may also look into producing reality TV, which makes up a sizeable segment of the China entertainment market.
To further cement its footfold in China, mm2 has placed more shares to Hesheng Media, which is principally involved in the business of film and television investment, production, marketing and distribution in China. Hesheng Media has been a shareholder of the group since prior to mm2’s initial public offering. Together with the recent placement, Hesheng’s stake in mm2 has increased to about 1.5%.
Thus, we expect contribution from the China market to increase from FY17 onwards, from 5% in FY15 in terms of total revenue breakdown.
Gaining traction in other overseas markets In the past three years, mm2 has started co-producing movies in China, Taiwan and Hong Kong, starting with China in 2013, followed by Taiwan and Hong Kong in 2014 and 2015 respectively. Going forward, mm2 targets to co- produce more films overseas, leveraging on its successful track record.
In Taiwan and Malaysia, mm2 has acquired films from third parties. mm2’s first Taiwan co-production was in 2014 - 做 你爱做的事. In 2014, “Café.Waiting.Love” has become the highest-grossing Taiwanese film in Malaysia of all time. “The Journey”, also in 2014, was Malaysia’s highest-grossing local production of all time, raking in RM$17m.
In terms of geographical breakdown, Singapore still accounts for the bulk of revenue contribution. Going forward, mm2 aims to target the lucrative China market. Revenue contribution from China is already creeping up, from 2% in FY14 to 5% in FY15.
Page 9 Page 38
Company Focus
mm2 Asia
Industry Landscape
Increasing box office receipts mm2 produced movies in top 5 position The trend of increasing box office receipts both globally and In FY2012 to FY2015, mm2 produced a total of 26 movies in in Asia indicates an increase in demand for movies and thus Singapore. The majority of these were in the top 5 position more revenue opportunities. According to statistics compiled in terms of gross box office receipts in Singapore. by Motion Pictures Association of America, globally, box office revenues increased by 1% in 2014 to US$36.4 bn. Growth was driven primarily by the Asia Pacific region Number of movies produced (+12%). China is the highest grossing market with US$4.8bn Year Number of movies produced FY Mar 2012 3 in box office receipts, followed by Japan (US$2.0bn) and FY Mar 2013 6 France (US$1.8bn). Cinema screens increased by 6% FY Mar 2014 8 worldwide in 2014 to over 142,000, due in large part to FY Mar 2015 9
continued double digit growth in the Asia Pacific region (+15%). Source: DBS Bank, company
Global Box Office – All Films Ranking of local films based on Singapore box US$bn office receipts 40 Film Title Ranking $35.9 $36.4 $34.7 2012 35 $31.6 $32.6 30 Ah Boys to Men Highest-grossing Local Film: S$6.21m 25 23.9 25.0 26.0 We Not Naughty 2nd Highest-grossing Local Film 20 21.0 22.4 69% 70% 72% 66% 69% Greedy Ghost 4th Highest-grossing Local Film 15 Imperfect 5th Highest-grossing Local Film 10 5 10.6 10.2 10.8 10.9 10.4 2013 0 Ah Boys to Men 2 Highest-grossing Local Film of 2010 2011 2012 2013 2014 2013 and of All Time: S$7.89m U.S./Canada International Everybody Business 4th Highest-grossing Local Film That Girl in Pinafore 5th Highest-grossing Local Film Source: Motion Pictures Association of America Ghost Child 6th Highest-grossing Local Film
In Singapore, box office receipts for major commercial 2014 cinemas rose by 2% to S$204.1m in 2014. Despite the The Lion Men Highest-grossing Local Film increase in the number of distribution channels for audio- The Lion Men: Ultimate 2nd Highest-grossing Local Film Showdown visual content, including online platforms due to the Wayang Boy 6th Highest-grossing Local Film increased internet use over the years, cinema attendance has
increased at a CAGR of 3.4% from 2000. 2015 Ah Boys to Men 3: Highest-grossing Local Film: Frogmen S$7.6m Cinema attendance and box office receipts in 1965 3rd Highest-grossing Local Film Singapore Mr Unbelievable 4th Highest-grossing Local Film Cinema attendance (m) Box office (S$m) 3688 5th Highest-grossing Local Film 25 250 Bring Back The Dead 6th Highest-grossing Local Film Source: company, DBS Bank 20 200
15 150
10 100
Box Office * (RHS) 5 50 Cinema attendance (LHS)
0 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 * based on major commercial theatres
Source: Singapore Film Commission
Page 10 Page 39
Company Focus
mm2 Asia
Valuation and recommendation With an impressive growth of >50% for FY17F based on our forecast, mm2 is trading at an attractive PE to growth (PEG) mm2’s share price has more than tripled to hit a high of of just 0.36x, compared to about 1x for its peers. S$0.88 since its listing on the Catalist Board of the SGX-ST on 9 December 2014 at S$0.25 per share (based on 16x FY14 PE). At current level, mm2 is trading at 23x FY Mar16F Project Pipeline to March 2017 PE and 14x FY Mar17F PE, based on its enlarged share Total production capital. Its peers are trading at an average PE of 27x for Movies estimate (S$m) Singapore FY16F. Taking a 30% discount to peers given its much 10 movies 10 smaller size, we arrive at a target PE of 19x to derive a TP of Malaysia S$1.05 based on FY Mar17F EPS. The TP implies potential 6 movies 3 China upside of 36% from the current price. Our forecast is 5 movies / drama 38 supported by a slew of projects in the pipeline. Furthermore, Taiwan with the group on an acquisition spree based on the recent 6 movies 11 Hong Kong purchase of cinemas and related businesses, we expect the 6 movies 8 valuation gap between mm2 and its peers to narrow. TOTAL 70
Source: DBS Bank
Peers comparison Last Mkt Cap Quoted PE (x) PE (x) P/B ROE Dvd PE to BB code Company price ($m) currency Yr 1 Yr 2 (x) (%) Yld (%) Gth (x) MM2 SP mm2 ASIA LTD 0.79 165 SGD 24.0 14.5 8.6 44.5 0 0.31
SEG SP SPACKMAN 0.15 58 SGD n.a. n.a. 2.5 -63.5 0 - VRL AU VILLAGE ROADSHOW 7.42 1,190 AUD 19.8 17.8 2.3 8.6 3.8 1.51 1132 HK ORANGE SKY GOLDE 0.63 1,728 HKD 63.0 21.0 1.0 0.2 0 0.45 1970 HK IMAX CHINA HOLD 55.00 19,543 HKD n.a. 42.2 n.a. 154.7 0 - 1060 HK ALI PICTURES 1.91 48,198 HKD n.a. n.a. 2.5 -1.9 n.a. 1326 HK PEGASUS ENT 0.65 1,640 HKD n.a. n.a. 4.3 -2.4 0 - 300027 CH HUAYI BROTHERS-A 41.72 57,930 CNY 52.5 41.4 6.3 15.3 n.a. 1.54 BONA US BONA FILM GR-ADR 13.20 855 USD 41.3 28.4 3.5 0.3 0 0.63 AMC US AMC ENTERTAINMENT 23.66 2,305 USD 22.0 17.3 1.5 6.1 3.4 0.63 041510 KS SM ENTERTAINMNT 43,000 895,359 KRW 28.3 23.3 3.1 11.2 n.a. 1.08
Average (excluding mm2) 37.8 27.3 3.0 12.9 1.0 0.97 Source: DBS Bank, Bloomberg Finance L.P.
Page 11 Page 40
Company Focus
mm2 Asia
Key Risks
commercial success of its productions, which is primarily No long term financing arrangements for productions. The determined by inherently unpredictable audience reactions. commencement of each production is dependent on mm2’s Generally, the popularity and commercial success of movies ability to secure funding by way of loans, sale of commercial produced or co-produced by mm2 depend on many factors, exploitation rights associated with the production, including critics’ reviews, negative publicity of the cast and sponsorship from third-parties, stakeholders, advertisers and other key talent, the genre and subject matter, the quality government grants. As mm2 does not have any long term and popularity of the group’s competitors’ movies released arrangements with such parties, there is no assurance that at or around the same time, the success of its promotional there will be continued availability of such financing efforts, the availability of alternative forms of entertainment, arrangements on commercial terms acceptable to mm2. general economic conditions and other factors such as Further, there is no guarantee that mm2 will be awarded prevailing consumer preferences. mm2 is unable to control government grants for movies produced. many of these factors, which may change from time to time.
Productions may be adversely affected by delays and cost Movies produced are subject to censorship laws and overruns. The production process is subject to a number of regulations. The content of its productions and scripts are uncertainties, most of which are beyond mm2’s control. The subject to censorship laws and regulations in Singapore, group would need to source for replacements if any existing Malaysia and other countries where mm2 has production or cast and/or crew members fail or are unable to continue to distribution activities. Any tightening of censorship laws and provide their services for any reason. There is no guarantee regulations may result in the group incurring additional costs that it will be able to find replacements on commercially to comply with the new censorship laws and regulations. acceptable terms and this may result in delays and cost
overruns. Other risks, such as shortages of necessary May not be able to obtain the necessary licences and/or equipment, technical difficulties with special effects or other approvals for production and distribution activities. aspects of production may also result in delays and cost Depending on the location of its production and distribution overruns. activities, it may be necessary for mm2 to obtain licences
and/or approvals from the relevant government authorities in Unable to predict the commercial success of movies order to carry out such activities. produced. Operating in the movie industry involves a
substantial degree of risk as mm2’s success is affected by the
Page 12 Page 41
Company Focus
mm2 Asia
Segmental Breakdown FY Mar 2014A 2015A 2016F 2017F 2018F
Revenues (S$m) Production & Distribution 16.1 24.3 31.8 38.8 50.5
Cinema 0.0 0.0 6.67 20.0 20.0 Other investments 0.0 0.0 5.50 7.80 7.80 Full year contribution from the five cinemas
Total 16.1 24.3 43.9 66.6 78.3
Gross profit (S$m) Production & Distribution 5.09 9.58 12.7 17.5 22.7
Cinema 0.0 0.0 3.00 9.00 9.00
Other investments 0.0 0.0 2.48 3.51 3.51
Total 5.09 9.58 18.2 30.0 35.2
Gross profit Margins (%) Production & Distribution 31.6 39.5 40.0 45.0 45.0 Cinema N/A N/A 45.0 45.0 45.0 Other investments N/A N/A 45.0 45.0 45.0
Total 31.6 39.5 41.4 45.0 45.0
Source: Company, DBS Bank
Page 13
Page 42 Company Focus
mm2 Asia
Income Statement (S$m) Margins Trend FY Mar 2014A 2015A 2016F 2017F 2018F 29.0%
Revenue 16.1 24.3 43.9 66.6 78.3 27.0%
Cost of Goods Sold (11.0) (14.7) (25.7) (36.6) (43.0) 25.0%
Gross Profit 5.09 9.58 18.2 30.0 35.2 23.0%
Other Opng (Exp)/Inc (1.4) (3.0) (7.3) (12.7) (14.1) 21.0%
Operating Profit 3.72 6.62 10.9 17.3 21.1 19.0%
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 17.0% 2014A 2015A 2016F 2017F 2018F Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Operating Margin % Net Income Margin % Net Interest (Exp)/Inc 0.0 0.0 (1.1) (1.1) (1.1) Exceptional Gain/(Loss) 0.0 (0.1) 0.0 0.0 0.0 Pre-tax Profit 3.70 6.58 9.79 16.2 19.9
Tax (0.7) (1.5) (1.7) (2.8) (3.4) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 3.04 5.08 8.13 13.4 16.5 Net Profit before Except. 3.05 5.13 8.13 13.4 16.5 EBITDA 7.16 9.92 14.8 21.2 24.9
Growth Revenue Gth (%) N/A 50.7 80.8 51.7 17.5 EBITDA Gth (%) nm 38.5 49.3 43.1 17.7 Opg Profit Gth (%) nm 78.3 65.0 58.4 21.7 Net Profit Gth (Pre-ex) nm 68.1 58.4 65.1 23.2 (%) Margins & Ratio Gross Margins (%) 31.6 39.5 41.4 45.0 45.0 Opg Profit Margin (%) 23.0 27.3 24.9 26.0 26.9 Net Profit Margin (%) 18.8 20.9 18.5 20.2 21.1 ROAE (%) 166.5 44.5 25.6 26.3 25.1 ROA (%) 34.8 18.5 13.4 14.1 13.9 ROCE (%) 104.8 37.7 17.7 19.1 19.4 Div Payout Ratio (%) 0.0 0.0 0.0 0.0 0.0 Net Interest Cover (x) NM NM 9.6 15.2 18.5
Source: Company, DBS Bank
Page 14
Page 43 Company Focus
mm2 Asia
Interim Income Statement (S$m) FY Mar 1H2015 2H2015 1H2016
Revenue 9.7 14.6 12.7 Cost of Goods Sold (4.0) (10.7) (4.3) Gross Profit 5.7 3.9 8.4 Other Oper. (Exp)/Inc (1.2) (1.8) (3.0) Operating Profit 4.5 2.1 5.4 Other Non Opg (Exp)/Inc 0.0 0.0 0.0
Associates & JV Inc 0.0 0.0 0.0 Net Interest (Exp)/Inc 0.0 0.0 0.0 Exceptional Gain/(Loss) 0.0 0.0 0.0 Pre-tax Profit 4.5 2.0 5.4 Tax (0.9) (0.6) (0.9) Minority Interest 0.0 0.0 0.0 Net Profit 3.6 1.5 4.5 Net profit bef Except. 0.0 0.0 0.0 EBITDA 5.3 4.6 6.7
Growth Revenue Gth (%) 51 (13) EBIT Gth (%) (54) 161 Volatile margins mainly due Pre Profit Gth (%) (55) 165 to different stages of revenue Net Profit Gth (Pre-ex) (%) (60) 208 recognition Margins Gross Margins (%) 58.7 26.7 66.1 EBITDA Margins (%) 54.4 31.5 52.6 Net Profit Margins (%) 37.4 10.0 35.5
Page 15
Page 44 Company Focus
mm2 Asia
Balance Sheet (S$m) Asset Breakdown FY Mar 2014A 2015A 2016F 2017F 2018F Net Fixed Assets - 33.3% Net Fixed Assets 3.86 6.45 28.8 33.2 37.6 Debtors - 33.3% Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 0.14 0.01 (3.2) (6.5) (9.7) Cash & ST Invts 0.60 5.76 23.4 29.2 42.0 Assocs'/JVs - 0.0% Inventory 1.49 4.77 5.48 7.80 9.17 Debtors 11.4 20.6 28.9 43.8 51.5 Bank, Cash Other Current Assets 0.0 0.0 0.0 0.0 0.0 Inventory - and Liquid 6.3% Assets - Total Assets 17.5 37.6 83.4 108 130 27.1%
ST Debt 0.10 0.22 0.22 0.22 0.22
Creditor 11.4 14.7 22.8 32.5 38.2
Other Current Liab 0.24 1.46 2.81 3.90 4.53 LT Debt 1.02 0.09 11.3 11.3 11.3 Other LT Liabilities 0.94 1.92 1.92 1.92 1.92 Shareholder’s Equity 3.65 19.2 44.3 57.7 74.3 Minority Interests 0.13 0.0 0.0 0.0 0.0
Total Cap. & Liab. 17.5 37.6 83.4 108 130
Non-Cash Wkg. Capital 1.23 9.19 8.72 15.2 17.9 Net Cash/(Debt) (0.5) 5.45 11.9 17.7 30.5 Debtors Turn (avg days) 128.6 240.0 205.5 199.2 222.2 Creditors Turn (avg days) 273.9 417.3 313.3 308.3 329.4 Inventory Turn (avg days) 35.9 100.2 85.6 74.0 79.1
Asset Turnover (x) 1.8 0.9 0.7 0.7 0.7 Current Ratio (x) 1.1 1.9 2.2 2.2 2.4 Quick Ratio (x) 1.0 1.6 2.0 2.0 2.2 Net Debt/Equity (X) 0.1 CASH CASH CASH CASH Net Debt/Equity ex MI (X) 0.1 CASH CASH CASH CASH Capex to Debt (%) 46.0 645.4 199.8 43.4 43.4
Source: Company, DBS Bank
Page 16
Page 45 Company Focus
mm2 Asia
Cash Flow Statement (S$m) Capital Expenditure
FY Mar 2014A 2015A 2016F 2017F 2018F S$m 25.0 Pre-Tax Profit 3.70 6.58 9.79 16.2 19.9 20.0 Dep. & Amort. 3.45 3.29 3.87 3.87 3.87 15.0 Tax Paid 0.67 1.50 (0.3) (1.7) (2.8) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 10.0 Chg in Wkg.Cap. (7.0) (12.0) (0.9) (7.6) (3.3) 5.0
Other Operating CF 1.00 1.00 0.0 0.0 0.0 0.0 2014A 2015A 2016F 2017F 2018F Net Operating CF 1.87 0.36 12.5 10.8 17.7 Capital Expenditure (-) Capital Exp.(net) (0.5) (2.0) (23.0) (5.0) (5.0) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF 0.0 0.0 0.0 0.0 0.0 Acquisition of five cinemas and a 3D Net Investing CF (0.5) (2.0) (23.0) (5.0) (5.0) company Div Paid 0.0 0.0 0.0 0.0 0.0 Chg in Gross Debt 0.0 2.94 11.2 0.0 0.0
Capital Issues 0.0 7.75 17.0 0.0 0.0 Issue of shares to Other Financing CF 0.46 (1.7) 0.0 0.0 0.0 finance recent Net Financing CF 0.46 9.05 28.2 0.0 0.0 acquisitions Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash 1.81 7.43 17.7 5.80 12.7 Opg CFPS (S cts) 4.27 5.98 5.49 7.55 8.65 Proceeds from IPO Free CFPS (S cts) 0.65 (0.8) (4.3) 2.38 5.22
Source: Company, DBS Bank
Page 17
Page 46 Singapore Company Guide Riverstone Holdings
Edition 2 Version 1 | Bloomberg: RSTON SP | Reuters: RVHL.SI Refer to important disclosures at the end of this report
DBS Group Research . Equity 11 Jan 2016
BUY More room to grow
Last Traded Price: S$2.40 (STI : 2,751.23) Lifting our 12-month TP to S$2.83 after raising FY16F/17F Price Target: S$2.83 (18% upside) (Prev S$2.83) earnings by 4%/8% on higher USD/MYR forecasts and margin assumptions, and as we revise target valuation multiple from Potential Catalyst: Capacity growth and earnings execution 18x to 20x blended FY16/17 PE as the sector has re-rated. We Where we differ: We are more bullish than consensus have lifted our ASPs (in Ringgit terms) even as we expect some of the currency gains from a strengthening US$ to be passed Analyst Paul YONG CFA +65 6682 3712 [email protected] on to customers, and have also raised margin assumptions slightly to account for better economies of scale ahead. Singapore Research Team Strong performance to continue into 4Q15. Benefitting from low raw material prices, robust demand and as three new Price Relative production lines were commissioned in 3Q15 – boosting S$ Relative Index production capacity by 13% to 5.2bn gloves, we expect top
575 and bottom line to grow in 4Q15 by 55.8% and 62.0% to 2.4 475 RM175m and RM36m respectively. This should bring FY15’s 1.9 375 net profit strongly up 77% y-o-y to RM126m. 1.4 275
0.9 175 Capacity expansion to underpin future growth, with long-term
0.4 75 upside from recent acquisition of adjoining land. Riverstone Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 plans to double its annual capacity from 4.2bn gloves in 2014 Riverstone Holdings (LHS) Relative STI INDEX (RHS) to at least 8.2bn gloves by 2018 to support growth in both its
Forecasts and Valuation cleanroom and healthcare glove segments, which could more FY Dec (RMm) 2014A 2015F 2016F 2017F than double earnings from RM71m in FY14 to RM172m by Revenue 399 581 772 913 FY17. Furthermore, Riverstone is able to grow capacity faster EBITDA 100 171 214 245 than expected as it recently acquired 9.364 acres of land for Pre-tax Profit 81.1 143 178 202 the construction of a factory and worker hostels. Net Profit 71.0 126 155 172 Net Pft (Pre Ex.) 71.0 126 155 172 Net Pft Gth (Pre-ex) (%) 6.25 11.1 13.6 15.1 Valuation: EPS (S cts) 6.25 11.1 13.6 15.1 Maintain BUY; raising 12-month TP to S$2.83. As larger peers EPS Pre Ex. (S cts) 19 77 23 11 have re-rated to 31x CY15F PE, we raise our target valuation EPS Gth Pre Ex (%) 19 77 23 11 multiple for Riverstone from 18x to 20x blended FY16/17F PE. Diluted EPS (S cts) 6.25 11.1 13.6 15.1 This implies a c.35% discount vs 28% previously, which is fair Net DPS (S cts) 2.25 3.99 4.91 5.46 BV Per Share (S cts) 32.7 39.8 48.5 58.1 given its smaller capacity. As an export play, we also like PE (X) 38.4 21.7 17.6 15.9 Riverstone as a beneficiary of the strong US$ vs RM and its PE Pre Ex. (X) 38.4 21.7 17.6 15.9 share price should further re-rate as earnings are delivered. P/Cash Flow (X) 43.4 21.6 17.5 15.3 EV/EBITDA (X) 26.3 15.3 12.1 10.5 Net Div Yield (%) 0.9 1.7 2.0 2.3 Key Risks to Our View: P/Book Value (X) 7.3 6.0 5.0 4.1 Global economic slowdown could impact cleanroom sales – Net Debt/Equity (X) CASH CASH CASH CASH which makes up c.50% of FY15 revenue. While margins for ROAE (%) 20.4 30.5 30.8 28.4 cleanroom gloves tend to be resilient, demand for cleanroom Earnings Rev (%): - 0 0 gloves could be threatened in the event of a slowdown in the Consensus EPS (S cts): 10.4 12.2 13.9 global economy. Other Broker Recs: B: 4 S: 0 H: 2 At A Glance Source of all data: Company, DBS Bank, Bloomberg Finance L.P Issued Capital (m shrs) 371 Mkt. Cap (S$m/US$m) 889 / 616 Major Shareholders Ringlet Investments Limited (%) 50.8 Wai Keong Lee (%) 11.7 Free Float (%) 37.5 3m Avg. Daily Val (US$m) 0.49 ICB Industry : Health Care / Health Care Equipment & Services
ASIAN INSIGHTS VICKERS SECURITIES Page 47 ed: TH / sa: YM Company Guide
Riverstone Holdings
Capital Expenditure (RM$m) 97 CRITICAL DATA POINTS TO WATCH 98.0 94.1 85.7 76 Earnings Drivers: 73.5 Growth in global demand for healthcare gloves, at least in near- 61.2 50 to-medium term. The Malaysian Rubber Glove Manufacturers 49.0 Association (MARGMA) estimates that demand for healthcare 36.7 24.5 gloves is likely to grow at 8-12% p.a. between 2014 and 2020. 11.5 As a relatively new entrant in the healthcare glove industry and 12.2 0.0 with ambitions to grow revenue from this segment quickly to 2013A 2014A 2015F 2016F 2017F drive its earnings, we project a ramp-up in Riverstone’s Production Capacity (m gloves) healthcare glove production at a 25.6% CAGR between FY13 and FY17F. 6,325 5,265 Long-term trends also indicate favourable demand prospects. 5,200
According to MARGMA, the global demand ratio of natural 3,998 rubber and synthetic (nitrile) rubber gloves shifted from 74:26 in 3,900 2,790 2,873 2009 to 53:47 in 2014. On the back of rising awareness of latex 2,600 CAGR 22.7% allergies in emerging economies and low cost of the synthetic variety, we expect the ratio to shift away from natural rubber 1,300 gloves – the preference of customers in the long run. Principally 0 engaged in the manufacture of nitrile gloves, Riverstone could 2013A 2014A 2015F 2016F 2017F be a beneficiary of the long-run substitution by nitrile gloves. Cleanroom Gloves (m gloves)
Capacity expansion to underpin growth. To capitalise on the 1,423 favourable demand growth outlook in both the short and long- 1,185 1,200 term, Riverstone will continue to expand its manufacturing 1,019 capacity to a minimum of 8.2bn gloves by 2018. We expect 900 795 804 new production capacities to propel top-line growth at a CAGR of 26.4% between FY13 and FY17F, as they gradually come on 600 CAGR 15.7% stream. 300
Beneficiary of strong US$ vs Ringgit. Riverstone generates a 0 2013A 2014A 2015F 2016F 2017F surplus in US$ as it receives c.90% of its revenues in US$, while c.35% of its costs are incurred in US$, and will benefit from a Healthcare Gloves (m gloves) strong US$ versus the Ringgit. All else being constant, strengthening of the US$ by 1% could boost net profit in RM 4,965 4,800 terms by c.1.2%. 4,200 4,080 3,600 2,978 Greater efficiency from higher automation and larger scale 3,000 should help to maintain margins. As Riverstone scales up on its 2,400 1,995 2,068 CAGR 25.6% production and further automation efforts, we expect net 1,800 1,200 margins to be maintained within the range of 19-21% between 600 FY14 and FY17F, which should support stable growth in net 0 profit from RM58m in FY13 to RM1172m in FY17F. 2013A 2014A 2015F 2016F 2017F
Utilization Rate
0.91 0.92 0.9 0.9 0.9 0.9
0.74
0.55
0.37
0.18
0.00 2013A 2014A 2015F 2016F 2017F Source: Company, DBS Bank ASIAN INSIGHTS VICKERS SECURITIES
Page 2 Page 48 Company Guide Riverstone Holdings
Leverage & Asset Turnover (x) Balance Sheet: 0.05 1.4 Healthy balance sheet. Riverstone has been in a net cash 0.05 1.4 position over the observed period. Our projections show that 0.04 1.3 Riverstone should be able to fund capital expenditures from 0.04 1.3 0.03 1.2 2015 to 2017 internally. 0.03 1.2 0.02 1.1 Forecast net fixed asset growth at a CAGR of c.14.7% between 0.02 1.1 2014 and 2017. With capacity expected to nearly double in 0.01 1.0 0.01 1.0 2018 from 2014 levels, we project the group’s net fixed assets 0.00 0.9 to jump by c.50% from RM228m in 2014 to RM343m in 2017. 2013A 2014A 2015F 2016F 2017F Gross Debt to Equity (LHS) Asset Turnover (RHS)
Capital Expenditure Share Price Drivers: RM Opportunities for inorganic growth. Due to the stringent 120.0 requirements for the establishment of cleanroom facilities, 100.0 Riverstone does not rule out the possibility of acquiring quality 80.0 cleanroom glove manufacturing companies in the future. 60.0
Cultivation of new markets for cleanroom products. As 40.0 cleanroom products are manufactured in controlled 20.0 environments and are subject to stringent requirements, they 0.0 2013A 2014A 2015F 2016F 2017F are able to deliver much higher margins relative to healthcare Capital Expenditure (-) gloves. The ability to cultivate new markets for cleanroom products, similar to what Riverstone recently achieved with its ROE (%) 30.0% diversification into the consumer electronics sector, should help to boost earnings. 25.0% 20.0%
Key Risks: 15.0% Global economic slowdown could impact cleanroom sales. A slowdown in the general economy could lead to declines in 10.0% discretionary spending and manufacturing activity in the HDD 5.0% industry. Although Riverstone has been gradually reducing its 0.0% exposure to HDDs, down from historical highs of up to 70%, 2013A 2014A 2015F 2016F 2017F they still make up c.50% of Riverstone’s cleanroom portfolio Forward PE Band (x) today. (x)
19.7
Intensifying competition could erode profitability. While we 17.7 believe that oversupply over the next few years is unlikely, the 15.7 influx of healthcare gloves beyond 2017 could threaten 13.7 +2sd: 14.1x Riverstone’s market share and pricing power if it fails to 11.7 +1sd: 11.6x 9.7 advance on the technological front. Avg: 9.1x 7.7 ‐1sd: 6.7x 5.7 Company Background 3.7 ‐2sd: 4.2x Riverstone Holdings (RSTON SP) is a natural rubber and nitrile Jan-12 Jan-13 Jan-14 Jan-15 (synthetic rubber) glove manufacturer specialising in cleanroom PB Band (x) and healthcare gloves. It is also engaged in the manufacture (x) and distribution of other ancillary products such as finger cots, 7.0 packaging bags and face masks. 6.0 5.0 +2sd: 4.79x 4.0 +1sd: 3.61x 3.0 Avg: 2.42x 2.0
1.0 ‐1sd: 1.24x
0.0 ‐2sd: 0.06x Jan-12 Jan-13 Jan-14 Jan-15
Source: Company, DBS Bank
ASIAN INSIGHTS VICKERS SECURITIES
Page 3 Page 49 Company Guide
Riverstone Holdings
Key Assumptions FY Dec 2013A 2014A 2015F 2016F 2017F
Capital Expenditure 11.5 94.1 50.0 76.0 97.0 Production Capacity (m 2,790 2,873 3,998 5,265 6,325 Cleanroom Gloves (m 795 804 1,019 1,185 1,423 Healthcare Gloves (m 1,995 2,068 2,978 4,080 4,965 Utilization Rate 0.90 0.90 0.90 0.90 0.91
Segmental Breakdown FY Dec 2013A 2014A 2015F 2016F 2017F
Revenues (RMm) Cleanroom Gloves 173 198 295 368 433 HealthcareGloves 173 191 275 392 468 Other Cleanroom 11.2 10.3 10.8 11.4 11.9 Total 358 399 581 772 913 Gross Profit (RMm) Cleanroom Gloves 65.9 75.4 114 140 162 HealthcareGloves 31.2 33.4 64.7 86.3 93.6 Other Cleanroom 0.74 0.12 0.12 0.13 0.14 Cleanroom gloves enjoy Total 97.8 109 178 226 256 higher margins, which Gross Profit Margins (%) are also more resilient, as Cleanroom Gloves 38.0 38.0 38.5 38.0 37.5 compared to healthcare HealthcareGloves 18.0 17.5 23.5 22.0 20.0 gloves. Other Cleanroom 6.6 1.1 1.1 1.1 1.1 Total 27.3 27.3 30.7 29.3 28.1
Income Statement (RMm) FY Dec 2013A 2014A 2015F 2016F 2017F
Revenue 358 399 581 772 913 Cost of Goods Sold (260) (290) (403) (545) (657) Gross Profit 97.8 109 178 226 256 Other Opng (Exp)/Inc (25.2) (27.8) (35.7) (48.6) (54.1) Operating Profit 72.6 81.1 143 178 202 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 72.6 81.1 143 178 202 Tax (14.7) (10.2) (17.1) (23.1) (30.3) 0.0 Minority Interest 0.0 0.0 0.0 0.0 Modest decline in Preference Dividend 0.0 0.0 0.0 0.0 0.0 operating margins as Net Profit 58.0 71.0 126 155 172 Riverstone ramps up on Net Profit before Except. 58.0 71.0 126 155 172 its marketing activities EBITDA 91.6 100 171 214 245 to match the growth in its output capacity, Growth Revenue Gth (%) 15.5 11.6 45.6 32.7 18.3 especially since it is EBITDA Gth (%) 42.1 9.7 70.2 24.9 14.8 relatively new in the Opg Profit Gth (%) 50.3 11.7 75.9 24.5 13.7 healthcare glove supply Net Profit Gth (Pre-ex) (%) 46.2 22.4 77.0 23.1 11.1 business. Margins & Ratio Gross Margins (%) 27.3 27.3 30.7 29.3 28.1 Opg Profit Margin (%) 20.3 20.3 24.5 23.0 22.1 Net Profit Margin (%) 16.2 17.8 21.6 20.0 18.8 ROAE (%) 20.1 20.4 30.5 30.8 28.4 ROA (%) 16.6 17.3 26.3 27.0 24.9 ROCE (%) 19.2 19.7 29.6 30.1 27.8 Div Payout Ratio (%) 38.1 36.1 36.1 36.1 36.1 Net Interest Cover (x) NM NM NM NM NM Source: Company, DBS Bank
ASIAN INSIGHTS VICKERS SECURITIES
Page 4 Page 50 Company Guide Riverstone Holdings
Quarterly / Interim Income Statement (RMm) FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015
Revenue 103 112 127 129 151 Cost of Goods Sold (76.2) (82.4) (87.0) (90.2) (103) Gross Profit 26.5 29.6 40.2 38.8 48.0 Other Oper. (Exp)/Inc (6.7) (7.2) (7.3) (6.6) (7.9) Operating Profit 19.8 22.4 32.9 32.2 40.1 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 19.8 22.4 32.9 32.2 40.1 Tax (3.2) (0.1) (5.9) (5.2) (4.8) Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 16.5 22.4 27.0 27.0 35.3 Net profit bef Except. 16.5 22.4 27.0 27.0 35.3 EBITDA 24.4 27.9 38.8 38.7 47.1 Tax claims should be made progressively, but finalized in Growth Revenue Gth (%) 6.0 9.1 13.6 1.4 16.8 4Q when the company has EBITDA Gth (%) 3.4 14.0 39.5 (0.4) 21.8 better visibility of earnings. Opg Profit Gth (%) 4.0 13.5 46.7 (2.1) 24.6 Net Profit Gth (Pre-ex) (%) 2.8 35.5 20.7 (0.1) 30.9 Margins Gross Margins (%) 25.8 26.4 31.6 30.1 31.9 Opg Profit Margins (%) 19.2 20.0 25.9 25.0 26.6 Net Profit Margins (%) 16.1 20.0 21.2 20.9 23.5 Margins were bolstered both y-o-y and q-o-q on the back of stronger glove demand, Balance Sheet (RMm) strengthening of the USD FY Dec 2013A 2014A 2015F 2016F 2017F against the Malaysian Ringgit,
Net Fixed Assets 153 228 249 289 343 and efficiency gains from Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 greater automation. Other LT Assets 12.4 3.11 3.11 3.11 3.11 Cash & ST Invts 114 79.4 110 134 153 Inventory 35.7 42.1 39.0 53.0 67.2 Debtors 62.5 86.7 111 148 183 Other Current Assets 2.50 1.81 1.81 1.81 1.81 Total Assets 381 441 515 629 751
ST Debt 0.0 0.0 0.0 0.0 0.0 Creditor 39.3 50.4 44.1 60.0 72.3 Other Current Liab 5.58 5.68 5.68 5.68 5.68 LT Debt 0.0 0.0 0.0 0.0 0.0 Other LT Liabilities 13.0 13.1 13.1 13.1 13.1 Shareholder’s Equity 323 372 452 551 660 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 381 441 515 629 751
Non-Cash Wkg. Capital 55.8 74.5 102 137 174 Net Cash/(Debt) 114 79.4 110 134 153 Debtors Turn (avg days) 61.5 68.2 62.2 61.4 66.1 Creditors Turn (avg days) 66.0 60.4 46.1 37.3 39.4 Inventory Turn (avg days) 50.0 52.4 39.5 33.0 35.8 Asset Turnover (x) 1.0 1.0 1.2 1.3 1.3 Current Ratio (x) 4.8 3.7 5.3 5.1 5.2 Quick Ratio (x) 3.9 3.0 4.4 4.3 4.3 Net Debt/Equity (X) CASH CASH CASH CASH CASH Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH Capex to Debt (%) N/A N/A N/A N/A N/A Z-Score (X) 29.3 25.4 28.4 23.8 21.3 Source: Company, DBS Bank
ASIAN INSIGHTS VICKERS SECURITIES
Page 5 Page 51 Company Guide
Riverstone Holdings
Cash Flow Statement (RMm) FY Dec 2013A 2014A 2015F 2016F 2017F
Pre-Tax Profit 72.6 81.1 143 178 202 Dep. & Amort. 19.0 19.4 28.4 35.9 43.2 Tax Paid (10.3) (14.8) (17.1) (23.1) (30.3) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (2.1) (25.2) (28.0) (34.7) (36.5) Other Operating CF 0.99 2.32 0.0 0.0 0.0 Net Operating CF 80.2 62.8 126 156 178 Capital Exp.(net) (40.0) (75.4) (50.0) (76.0) (97.0) 0.0 Other Invts.(net) 0.0 0.0 0.0 0.0 We expect future Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 dividend payouts to Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 remain close to current Other Investing CF 0.0 0.0 0.0 0.0 0.0 levels. Net Investing CF (40.0) (75.4) (50.0) (76.0) (97.0) Div Paid (22.5) (25.4) (45.3) (55.8) (62.0) Chg in Gross Debt 0.0 0.0 0.0 0.0 0.0 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF 30.3 1.00 0.0 0.0 0.0 Net Financing CF 7.86 (24.4) (45.3) (55.8) (62.0) Currency Adjustments 1.89 2.38 0.0 0.0 0.0 Chg in Cash 50.0 (34.6) 30.6 24.0 19.4 Opg CFPS (sen) 7.44 7.75 13.5 16.8 18.9 Free CFPS (sen) 3.64 (1.1) 6.69 7.03 7.16 Source: Company, DBS Bank
Target Price & Ratings History
S$ 2.56 Closing Target S.No. Date Rating 2 Price Price 2.36 1: 06 Nov 15 2.14 2.49 BUY 2: 04 Jan 16 2.40 2.83 BUY 2.16
1.96 1
1.76
1.56
1.36
1.16
0.96 Jan-15 May-15 Sep-15 Note : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank
ASIAN INSIGHTS VICKERS SECURITIES
Page 6 Page 52 Singapore Company Guide Sheng Siong Group
Edition 1 Version 2 | Bloomberg: SSG SP | Reuters: SHEN.SI Refer to important disclosures at the end of this report
DBS Group Research . Equity 11 Jan 2016
BUY Still Going Strong Last Traded Price: S$0.83 (STI : 2,751.23) Maintain BUY; margins, store expansion, revenue and earnings Price Target: S$1.01 (22% upside) growth remain on track. We continue to like SSG as earnings are firing on all cylinders. SSG is on track towards its 50-store Potential Catalyst: Margin expansion, store growth target, margin expansion trend is performing to our Where we differ: Below, on more muted growth expectations, and there is no let up in SSSG. The company is one of the most well-run grocery retailers in ASEAN, leading Analyst Alfie Yeo +65 6682 3717 [email protected] regional peers in profitability, cashflow generation and Andy Sim +65 6682 3718 [email protected] working capital management. Dividend continues to be
attractive at 4.4% based on FY16F DPS of 3.6 Scts.
Price Relative On track for store expansion, margins to improve going S$ Relative Index forward, longer-term drivers continue to develop. Sheng Siong 1.0 211 will have 39 stores by year-end, in line with our expectations 0.9 191 0.8 and eventual target of 50 stores. We see margins normalising 171 0.7 151 going into 4Q15 as 1) input prices for fresh food should ease 0.6 131 as logistical disruption and the haze clears up; and 2) pricing 0.5 111
0.4 91 should be less aggressive post SG50 and seventh month
0.3 71 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 promotions. Online initiative remains in the pilot phase. Online sales for grocery retail remain in its infancy in Singapore and Sheng Siong Group (LHS) Relative STI INDEX (RHS) we therefore believe Sheng Siong can afford to develop this Forecasts and Valuation FY Dec (S$m) 2014A 2015F 2016F 2017F business over a longer time frame. Developments in China Revenue 726 782 846 816 continue to be on securing suitable sites in Kunming. As the EBITDA 63.0 71.5 79.7 79.5 grocery retail scene in China is facing intensifying competition, Pre-tax Profit 57.1 68.2 74.1 74.4 especially from online channels, we also believe time is on Net Profit 47.0 56.1 60.9 61.2 Net Pft (Pre Ex.) 47.0 56.1 60.9 61.2 Sheng Siong’s side to land the ideal location. EPS (S cts) 3.13 3.73 4.05 4.07 EPS Pre Ex. (S cts) 3.13 3.73 4.05 4.07 Valuation: EPS Gth (%) 11 19 9 0 Our target price for Sheng Siong is S$1.01 based on 25x FY16F EPS Gth Pre Ex (%) 11 19 9 0 Diluted EPS (S cts) 3.13 3.73 4.05 4.07 PE. Valuation is pegged to below +1SD of its historical mean Net DPS (S cts) 2.88 3.36 3.64 3.66 and below regional peers' average of 27x PE. BV Per Share (S cts) 15.7 16.1 16.5 16.9 PE (X) 26.6 22.3 20.5 20.4 PE Pre Ex. (X) 26.6 22.3 20.5 20.4 Key Risks to Our View: Store openings, price competition. Revenue growth will be led P/Cash Flow (X) 17.4 16.8 15.6 17.0 EV/EBITDA (X) 17.7 15.7 14.0 13.9 by new store openings, since SSSG is low at <0.5%. Excessive Net Div Yield (%) 3.5 4.0 4.4 4.4 discounts and promotions in the market by competitors will P/Book Value (X) 5.3 5.2 5.0 4.9 ultimately result in lower margins. Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 24.3 23.4 24.9 24.4 At A Glance Earnings Rev (%): - - - Issued Capital (m shrs) 1,504 Consensus EPS (S cts): 3.80 4.10 4.50 Mkt. Cap (S$m/US$m) 1,248 / 865 Other Broker Recs: B: 9 S: 0 H: 0 Major Shareholders Source of all data: Company, DBS Bank, Bloomberg Finance L.P SS Holdings (%) 29.9 Lim Family (%) 34.0 Hock Leng Lim (%) 11.3 Free Float (%) 36.1 3m Avg. Daily Val (US$m) 1.1 ICB Industry : Consumer Services / Food & Drug Retailers
ASIAN INSIGHTS VICKERS SECURITIES Page 53 ed: TH / sa: JC
Company Guide
Sheng Siong Group
Rev per sqft CRITICAL DATA POINTS TO WATCH 1,935 1,890 1,890 1,815 1,800 1,718 Earnings Drivers: 1,600 Store expansion. Sheng Siong currently operates only 38 stores 1,400 (39 by year-end). Compared to the other local operators, it has 1,200 scope to expand its store network, particularly in areas such as 1,000 800 Bukit Batok, Serangoon, Hougang and Seng Kang where it has 600 a low presence. Management targets to ultimately operate 50 400 stores islandwide. In the past six years, store opening has 200 0 ranged from 0-8 stores annually, largely a function of the supply 2013A 2014A 2015F 2016F 2017F of HDB shop space available for tender and Sheng Siong’s ability to win the tenders. Sheng Siong mainly operates in HDB Operation Area (sqft) estates. 486,000 476,500 466,500 436,500 400,000 404,000 388,800 Gross margin expansion through better sales mix. The gross margin for fresh products is estimated to be >30%, and close to 291,600 20% for non-fresh grocery items. Sheng Siong’s product mix 194,400 stands at approximately 40% fresh vs 60% non-fresh. We see headroom for sales mix to improve to 50% as it skews its store 97,200 offering more towards fresh products. 0 2013A 2014A 2015F 2016F 2017F Margin expansion through bulk purchasing at its Mandai Number of stores Distribution Centre. The Mandai Distribution Centre allows 47.9 47 Sheng Siong to perform direct sourcing and bulk handling. This 44 effectively drives down input costs, resulting in cost savings and 39 38.4 better margins. We estimate that the facility is currently running 33 34 at only 60% of capacity and expects it to achieve >80% 28.8 ultimately as it secures more suppliers and products to trade 19.2 through the distribution centre. Margins are expected to trend up as utilisation increases towards optimal capacity. 9.6
0.0 Margin expansion through direct sourcing. Increasingly, Sheng 2013A 2014A 2015F 2016F 2017F Siong is sourcing directly from source such as farms instead of Same store sales growth from middlemen. The company has the resources to place 5.0% orders in cheaper but large quantities, which is welcomed by 4.5% producers. 4.0% 3.5% Uptick driven Generating more same-store-sales growth to increase revenue. 3.0% by seventh month festival, Sheng Siong has been able to maintain a positive SSSG since 2.5% 2.0% Affected by 4Q13 through longer operating hours and renovation of older SG50 1.5% promotion and stores, offering the correct products and effective marketing. discounting 1.0% Maintaining a positive SSSG will support earnings growth. 0.5% 0.0% Future earnings drivers, e-commerce and China JV (in 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 Kunming). Both developments are at their initial stages. The Gross margin market for e-commerce remains small and the business model GPM (%) in Kunming is still under trial. This is even though Sheng Siong 25 24 already has 1) an up-and-running e-commerce operation which +5.5 ppt 23 services selected areas in Singapore; and 2) the JV in Kunming 22 has already secured the relevant licences to operate there. It 21 targets to open its first Kunming store in 2H15. Downside for 20 24.2 the JV is limited to US$6m paid-up capital which is sufficient to 19 23.0 21.8 22.1 22.1 18 open 2-3 new stores. 20.5 17 18.7 16 15 08 09 10 11 12 13 14 Source: Company, DBS Bank
ASIAN INSIGHTS VICKERS SECURITIES
Page 2 Page 54 Company Guide Sheng Siong Group
Leverage & Asset Turnover (x) Balance Sheet: 0.05 2.9 Net cash of over S$125m or 8 Scts per share. The excess cash 0.05 2.8 allows for strategic store acquisitions if suitable real estate arises 0.04 2.7 for it to expand its store presence in the future. The business 0.04 0.03 2.6 generates positive working capital. Inventory is purchased on 0.03 2.5 credit, turned quickly and sold for cash. Over the past seven 0.02 2.4 0.02 years, the business has generated between S$20-75m of 2.3 operating cashflow each year. Dividend payout is attractive at 0.01 0.01 2.2 90%. We expect this to be maintained as long as there is no 0.00 2.1 significant requirement for cash funding. 2013A 2014A 2015F 2016F 2017F Gross Debt to Equity (LHS) Asset Turnover (RHS)
Capital Expenditure Share Price Drivers: S$m Strong earnings growth performance. Sheng Siong’s financial 90.0 performance has consistently met our expectations, delivering 80.0 earnings growth (CAGR of 20.4% since FY11) through a 70.0 60.0 combination of margin expansion, store growth and SSSG. It is 50.0 this consistency, together with strong dividend payout of 90% 40.0 and yield of 4%, that has led to the stock’s re-rating from 20x 30.0 20.0 to 22x FY15F PE currently. We believe continued delivery of 10.0 consistent performance and profit growth will support a strong 0.0 2013A 2014A 2015F 2016F 2017F share price. Capital Expenditure (-)
China to be a wildcard. We believe Sheng Siong’s JV in China is ROE (%) a wildcard. If operations prove to be successful in time to come, 25.0%
China will provide an alternate source of growth in the future. 20.0% There is scope for the number of stores to increase should Sheng Siong’s business model work. Downside remains limited 15.0% to US$6m for now should the JV fail. 10.0%
5.0% Key Risks: Revenue growth limited by store openings. Store expansion in 0.0% Singapore is largely dependent on the supply of new 2013A 2014A 2015F 2016F 2017F supermarket retail space released by HDB and its ability to Forward PE Band (x) secure the tenders. (x)
25.5 Excessive discounts and promotions may erode margins. +2sd: 23.7x Heavier discounts and promotions vis-a-vis competitors would 23.5 drive sales revenue, but this could be gained at the expense of 21.5 +1sd: 21.9x Avg: 20x margins. 19.5 ‐1sd: 18.1x 17.5 ‐2sd: 16.3x Company Background 15.5 Sheng Siong is the third largest supermarket operator in 13.5 Singapore, behind NTUC Fairprice and Dairy Farm Jan-12 Jan-13 Jan-14 Jan-15 International. PB Band (x) (x) 7.1
6.6 +2sd: 6.39x 6.1
5.6 +1sd: 5.72x
5.1 Avg: 5.06x 4.6 ‐1sd: 4.4x 4.1
3.6 ‐2sd: 3.74x
3.1 Jan-12 Jan-13 Jan-14 Jan-15
Source: Company, DBS Bank
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Page 3 Page 55 Company Guide
Sheng Siong Group
Key Assumptions FY Dec 2013A 2014A 2015F 2016F 2017F
Rev per sqft 1,718 1,815 1,935 1,890 1,890 Operation Area (sqft) 400,000 404,000 436,500 476,500 466,500 Number of stores 33.0 34.0 39.0 44.0 47.0
Lease of 40,000 sqft Woodlands store to expire Segmental Breakdown FY Dec 2013A 2014A 2015F 2016F 2017F
Revenues (S$m) Singapore 687 726 782 846 816
Total 687 726 782 846 816 Operating profit (S$m) Singapore 41.6 52.2 58.3 65.4 65.7
Total 41.6 52.2 58.3 65.4 65.7 Operating profit Margins Singapore 6.1 7.2 7.5 7.7 8.1
Total 6.1 7.2 7.5 7.7 8.1
Income Statement (S$m) FY Dec 2013A 2014A 2015F 2016F 2017F
Revenue 687 726 782 846 816 Cost of Goods Sold (529) (550) (589) (637) (612) Gross Profit 158 176 192 209 204 Other Opng (Exp)/Inc (117) (124) (134) (143) (138) Operating Profit 41.6 52.2 58.3 65.4 65.7 Other Non Opg (Exp)/Inc 4.89 3.80 9.31 8.04 8.04 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc 1.05 1.19 0.65 0.62 0.66 Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 47.6 57.1 68.2 74.1 74.4 Tax (8.7) (10.2) (12.2) (13.2) (13.3) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 38.9 47.0 56.1 60.9 61.2 Net Profit before Except. 38.9 47.0 56.1 60.9 61.2 EBITDA 51.7 63.0 71.5 79.7 79.5 Growth Revenue Gth (%) 7.9 5.6 7.7 8.2 (3.5) EBITDA Gth (%) 19.8 21.9 13.4 11.5 (0.2) Opg Profit Gth (%) 19.8 25.3 11.7 12.3 0.5 Net Profit Gth (Pre-ex) (%) 24.7 20.8 19.3 8.6 0.5 Margins & Ratio Gross Margins (%) 23.0 24.2 24.6 24.7 25.0 Opg Profit Margin (%) 6.1 7.2 7.5 7.7 8.1 Net Profit Margin (%) 5.7 6.5 7.2 7.2 7.5 ROAE (%) 25.8 24.3 23.4 24.9 24.4 ROA (%) 15.9 15.8 15.9 16.6 16.3 ROCE (%) 22.3 22.0 19.8 21.8 21.3 Div Payout Ratio (%) 92.5 92.1 90.0 90.0 90.0 Net Interest Cover (x) NM NM NM NM NM Source: Company, DBS Bank
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Page 4 Page 56 Company Guide Sheng Siong Group
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015
Revenue 186 178 198 179 200 Cost of Goods Sold (141) (135) (150) (134) (151) Gross Profit 45.1 43.3 48.5 45.1 48.8 Other Oper. (Exp)/Inc (31.7) (29.6) (33.9) (31.5) (33.8) Operating Profit 13.4 13.7 14.6 13.6 15.0 Other Non Opg (Exp)/Inc 1.33 0.0 2.24 2.30 2.78 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc 0.52 0.31 0.27 0.30 0.34 Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 15.2 14.0 17.1 16.2 18.1 Tax (2.8) (2.2) (3.0) (2.6) (3.5) Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 12.5 11.8 14.1 12.6 12.7 Net profit bef Except. 12.5 11.8 14.1 12.6 12.7 EBITDA 17.4 16.5 20.0 19.2 21.2
Growth Revenue Gth (%) 8.6 (4.3) 11.2 (9.8) 11.7 EBITDA Gth (%) 8.5 (5.4) 21.5 (4.2) 10.4 Opg Profit Gth (%) 7.8 2.0 6.6 (6.6) 10.5 Net Profit Gth (Pre-ex) (%) 12.6 (5.5) 19.2 (10.1) 0.2 Margins Gross Margins (%) 24.2 24.3 24.4 25.2 24.4 Opg Profit Margins (%) 7.2 7.7 7.3 7.6 7.5 Net Profit Margins (%) 6.7 6.6 7.1 7.1 6.3
Balance Sheet (S$m) FY Dec 2013A 2014A 2015F 2016F 2017F
Net Fixed Assets 90.8 161 178 181 178 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 0.0 0.0 0.0 0.0 0.0 Cash & ST Invts 99.7 130 124 132 140 Inventory 45.6 43.1 46.1 49.8 47.8 Debtors 12.3 10.8 11.5 12.4 11.9 Other Current Assets 0.0 0.0 0.0 0.0 0.0 Total Assets 248 345 359 375 377
ST Debt 0.0 0.0 0.0 0.0 0.0 Creditor 88.2 95.9 103 112 108 Other Current Liab 7.94 10.7 12.2 13.2 13.3 LT Debt 0.0 0.0 0.0 0.0 0.0 Other LT Liabilities 2.29 2.20 2.20 2.20 2.20 Shareholder’s Equity 150 236 242 248 254 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 248 345 359 375 377
Non-Cash Wkg. Capital (38.4) (52.7) (57.8) (62.7) (61.2) Net Cash/(Debt) 99.7 130 124 132 140 Debtors Turn (avg days) 5.0 5.8 5.2 5.2 5.4 Creditors Turn (avg days) 59.0 62.3 63.1 63.0 66.9 Inventory Turn (avg days) 30.1 30.0 28.3 28.1 29.8 Asset Turnover (x) 2.8 2.4 2.2 2.3 2.2 Current Ratio (x) 1.6 1.7 1.6 1.6 1.6 Quick Ratio (x) 1.2 1.3 1.2 1.2 1.3 Net Debt/Equity (X) CASH CASH CASH CASH CASH Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH Capex to Debt (%) N/A N/A N/A N/A N/A Z-Score (X) 10.7 9.9 9.4 9.1 9.2 Source: Company, DBS Bank
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Sheng Siong Group
Cash Flow Statement (S$m) FY Dec 2013A 2014A 2015F 2016F 2017F
Pre-Tax Profit 47.6 57.1 68.2 74.1 74.4 Dep. & Amort. 10.1 10.9 13.2 14.3 13.8 Tax Paid (8.7) (7.5) (10.7) (12.2) (13.2) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (2.6) 11.5 3.70 3.81 (1.5) Other Operating CF (1.2) (0.3) 0.0 0.0 0.0 Net Operating CF 45.1 71.7 74.4 80.0 73.5 Capital Exp.(net) (26.1) (80.8) (30.5) (17.5) (10.5) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 1.05 0.92 0.0 0.0 0.0 Net Investing CF (25.0) (79.9) (30.5) (17.5) (10.5) Div Paid (40.8) (40.1) (50.5) (54.8) (55.1) Chg in Gross Debt 0.0 0.0 0.0 0.0 0.0 Capital Issues 0.0 79.0 0.0 0.0 0.0 Other Financing CF 0.0 0.0 0.0 0.0 0.0 Net Financing CF (40.8) 38.9 (50.5) (54.8) (55.1) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash (20.7) 30.8 (6.5) 7.71 7.95 Opg CFPS (S cts) 3.45 4.00 4.70 5.07 4.99 Free CFPS (S cts) 1.38 (0.6) 2.92 4.16 4.19 Source: Company, DBS Bank
Target Price & Ratings History
0.96 S$ Closing Target S.No. Date Rating Price Price 0.91 5 1: 13 Jan 15 0.71 0.82 BUY 4 6 2: 26 Feb 15 0.74 0.83 BUY 0.86 3: 24 Apr 15 0.83 0.90 BUY 4: 22 Jul 15 0.88 0.98 BUY 5: 24 Jul 15 0.89 1.00 BUY 0.81 7 3 6: 23 Oct 15 0.88 1.01 BUY 7: 17 Dec 15 0.84 1.01 BUY 0.76 2
0.71
1 0.66 Jan-15 May-15 Sep-15 Jan-16 Note : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank
ASIAN INSIGHTS VICKERS SECURITIES
Page 6 Page 58 Market Focus
SMC Monthly
DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expr essed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.
DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.
ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views e xpressed in this report. As of 11 Jan 2015 the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).
COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates have a proprietary position in Ascendas India Trust, Ascendas Hospitality Trust, Ascott Residence Trust, Cache Logistics Trust, Cambridge Industrial Trust, CapitaLand Retail China Trust, CDL Hospitality Trusts, Cosco Corporation, Croesus Retail Trust, Ezion Holdings, Far East Hospitality Trust, Frasers Centrepoint Trust, Frasers Commercial Trust, Frasers Hospitality Trust, Indofood Agri Resources, Keppel
Page 59 Market Focus SMC Monthly
DC REIT, Keppel Infrastructure Trust, M1, Mapletree Commercial Trust, Mapletree Greater China Commercial Trust, Mapletree Industrial Trust, Mapletree Logistics Trust, Midas Holdings, Neptune Orient Lines, Noble Group, OUE Hospitality Trust, Parkway Life Real Estate Investment Trust, Perennial Real Estate Holdings, SMRT, Soilbuild Business Space Reit, SPH REIT, Yanlord Land Group, YTL Starhill Global REIT, Venture Corporation, Yuuzoo Corp, Ezra Holdings, recommended in this report as of 30 Nov 2015.
2. DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
3. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common equity securities of Ascott Residence Trust, Cache Logistics Trust, Croesus Retail Trust, Far East Hospitality Trust Frasers Hospitality Trust, Keppel DC REIT, Soilbuild Business Space Reit, YTL Starhill Global REIT as of 30 Nov 2015
4. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 5% of any class of common equity securities of Croesus Retail Trust as of 30 Nov 2015.
5. Compensation for investment banking services: DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Cache Logistics Trust, Croesus Retail Trust, Del Monte Pacific, Frasers Commercial Trust, Frasers Hospitality Trust, iFAST Corp Ltd, IREIT Global, Keppel DC REIT, Keppel Infrastructure Trust , OUE Commercial REIT Perennial Real Estate Holdings, Soilbuild Business Space Reit, Ezra Holdings, Tiger Airways , CITIC Envirotech as of 30 Nov 2015.
DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA, within the next 3 months, will receive or intend to seek compensation for investment banking services from ARA Asset Management as of 30 Nov 2015
DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for Cache Logistics Trust, Croesus Retail Trust, Del Monte Pacific, Frasers Commercial Trust, Frasers Hospitality Trust, iFAST Corp Ltd, IREIT Global, Keppel DC REIT, Keppel Infrastructure Trust, OUE Commercial REIT, Soilbuild Business Space Reit, Holdings, Tiger Airways in the past 12 months, as of 30 Nov 2015
DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
Directorship/trustee interests: 6. Wong Kai Yuan Jeanette, a member of DBS Group Executive Committee, is a Director and Group Executive Committee of Neptune Orient Lines as of 30 Nov 2015.
Euleen Goh Yiu Kiang, a member of DBS Group Holdings Board of Directors, is a Director of SATS as of 28 Feb 2015. Nihal Vijaya Devadas Kaviratne CBE, a member of DBS Group Holdings Board of Directors, is a Director of SATS as of 28 Feb 2015.
Woo Foong Pheng (Mrs Ow Foong Pheng), a member of DBS Group Holdings Board of Directors, is a Director of Mapletree
Greater China as of 28 Feb 2015.
RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.
Indonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.
Page 60 Market Focus
SMC Monthly
Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR
Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.
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