Professional Documents
Culture Documents
December 3, 2013
ASIA PACIFIC
| 3 December 2013
Key Metrics
Market Indices
Australia China 'A' China 'H' Hong Kong India Indonesia Japan Korea Malay sia Philippines Singapore Taiw an Thailand ASX 200
Shanghai A
ASIAN Banks Weekly - Remain cautious on Indonesia; RHB stock of the week | P4
SET
Close 5,280 2,311 11,548 24,039 20,898 4,322 15,655 2,031 1,818 6,223 3,189 8,415 1,374
1D -0.8% -0.6% 0.9% 0.7% 0.5% 1.5% 0.0% -0.7% 0.3% 0.2% 0.4% 0.1% 0.2%
1M -2.4% 2.7% 8.1% 3.4% -1.4% -2.5% 10.2% -0.4% 0.4% 3.6% -0.4% 0.3% -3.8%
YTD 13.6% -2.7% 1.0% 6.1% 7.6% 0.1% 50.6% 1.7% 7.6% -5.5% 0.7% 9.3% -1.3%
AUSTRALIA
Metcash - From Foe to Friend | P5 Navitas - Student enrolments continue to improve in S3_13 | P6 Ramsay Health Care - Gaining scale in France | P7 SMS Mgt & Technology - Trimming | P8 Building Materials - Oct 2013 approvals up 21% | P9 Strategy - Monthly Market Review November 2013 | P10
KOREA
Autos - November sales data | P11 Telco - Overall - High MNP expected for 4Q13, MVNOs gain further traction | P12
TAIWAN
First Financial - Heading south in 2H13 | P13
530
MALAYSIA
Alliance Financial Group - Change of focus to counter weaker property loan growth | P14 Oriental Holdings - Another disappointing quarter | P15 Autos - No significant impact on per unit costs from electricity hike | P16 Building Materials - Watts up! | P17 Economic Update - Counting the impact of power hike | P18 Strategy Note - Best revision ratio since 1Q12 | P19 Strategy Flash Note - Shariah non-compliant stocks | P20
480
430
380 Nov-12
Feb-13
May-13
Aug-13
Nov-13
SINGAPORE
CIMB Yearbook - Beyond the taper | P21
Australia China Hong Kong India Indonesia Korea Malay sia New Zealand Philippines Singapore Taiw an Thailand Asia ex -Japan Asia Pac ex -Japan
2 yr EPS Forward Div Growth (%) Yield (%) 8.00 4.65 9.99 3.46 9.72 2.97 13.11 1.70 11.64 2.96 17.40 1.14 3.41 3.17 8.63 5.00 7.96 2.38 2.54 3.61 19.11 3.35 12.83 3.59 12.38 10.41 2.73 3.23
CHINA/HONG KONG
China Resources Land - MIXc: a competitive model for commercial properties | P22 SJM Holdings - Decent growth in 2014 | P23 Gaming - Strong finish to the year | P24
INDONESIA
Bank Negara Indonesia - Tying the knot | P25 Wintermar Offshore Marine - Day in the sun | P26 Economic Update - Oct trade On the mend | P27 Economic Update - Nov CPI Inflation stabilises | P28
THAILAND
Economic Update - Nov CPI inflation edges higher | P29 Strategy Flash Note - Violence offers no solution | P30
(to US$1) Australian Dollar China Renminbi Hong Kong Dollar Indian Rupee Indonesian Rupiah Japanese Yen Korean Won Malay sian Ringgit New Zealand Dollar Philippine Peso Singapore Dollar Taiw an Dollar Thai Baht
Regional Currencies
CY13 forecast Close 1.14 0.91 6.24 6.09 7.85 7.75 62.0 62.32 10,500 11,770 101.0 102.77 1,145 1,057.17 3.30 3.21 1.30 0.82 44.3 43.66 1.29 1.25 30.6 29.60 32.0 32.13
1D 0.4% 0.0% 0.0% 0.2% 1.7% -0.5% 0.1% 0.5% 0.8% 0.2% 0.0% 0.1% -0.2%
YTD -10.4% 3.3% 0.2% -14.9% -22.9% -25.2% 9.0% -1.3% 5.6% 0.4% 3.3% 2.3% -1.8%
INDIA
Auto & Parts - Overall - Falling off the festival cliff | P31 Oil & Gas Exp & Prodn - Gujarat HC orders higher royalty | P32
Upcoming Major Data Releases Event/data Country Nov ex t. trade & foreign reserv es South Korea Nov CPI & Oct ex t. trade Indonesia Nov CPI Thailand 3Q13 GDP & Oct factory orders United States Oct ex t. trade & Nov foreign reserv es Malay sia Commodities
Close 93 1,253 1,865
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 1
Compiled as @:
12/3/2013 3:31:19 AM
Calendar of Events
Calendar of Events
| 2013
November 2013
SUN MON TUE WED THU FRI
1
PHI: All Saints' Day SIN,KL: Deepavali
SAT
2 9
3
JPN: Culture Day
4
KL, IND: Awal Muharram
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
US: Thanksgiving Day
28
29
30
Page 2
| as at 3 December 2013
Australia
MTS AU MTS.AX
2-Dec-13
Metcash
$2,641.73
Daniel BROEREN
Outperform
Outperform
A$
3.60 -7.7%
3.90
-9.2 -20.3 -13.2 n.c. 1.1 1.9 -0.1 2.0 0.9 3.0 9.6 10.5 -7.9 -3.2 -2.5 16.7 12.5 11.1 -12.7 -12.9 -9.5 3.5 -3.5 -5.9
Australia
NVT AU NVT.AX
2-Dec-13
Navitas
$2,077.08
Tim PLUMBE
Neutral
Neutral
A$
5.65 +2.7%
5.50
Australia
RHC AU RHC.AX
2-Dec-13
$7,235.05
Dr Derek JELLINEK
Neutral
Neutral
A$
38.44 +10.5%
34.79
Australia
SGH AU SGH.AX
2-Dec-13
$830.29
Alexandra CLARKE
Neutral
Neutral
A$
4.51 +18.7%
3.80
Australia
SMX AU SMX.AX
2-Dec-13
$262.19
Julian GUIDO
Neutral
Neutral
A$
4.18 -12.9%
4.80
Indonesia
WINS IJ WINS.JK
2-Dec-13
$199.63
Outperform
Neutral
Rp
800 +29.0%
620
Malaysia
ORH MK OTLS.KL
2-Dec-13
Oriental Holdings
$1,660.61
Lucius CHONG
Underperform Underperform
RM
8.04 -0.4%
8.07
Taiwan
2892 TT 2892.TW
2-Dec-13
First Financial
$5,248.01
Nora HOU
Neutral
Neutral
NT$
18.50 +1.1%
18.30
Page 3
December 2, 2013
ASIA PACIFIC
LONG TERM
Conviction| |
CIMB Analyst(s)
210
190 170 150
130
110 90
May-10
May-12
May-13
May-11
Jul-10
Jul-11
Jul-12
Jan-10
Jan-11
Jan-12
Nov-10
Nov-11
Nov-12
Jan-13
Jul-13
Sep-10
Sep-11
Sep-12
SOURCE: DATASTREAM
Daehyun KIM
T (91) 22 6602 5158 E jatinder.agarwal@cimb.com T (91) 22 6602 5162 E vivek.verma@cimb.com T (91) 22 6602 5163 E umang.shah@cimb.com T (886) 2 8729 8373 E nora.hou@cimb.com
Last week, we made across-the-board adjustments to our earnings and target prices for Indonesian banks and downgraded Mandiri and BNI to Neutral (from Outperform). In Malaysia, we raised estimates and target prices for HLB and Affin while cutting both for Alliance Financial and BIMB. We also raised our estimates for RHB. We remain Overweight on the overall sector.
factor for the sector is the timing of international liquidity tightening, as Indonesian banks could potentially be the worst hit in Asia by a stronger US$ (-0.7% correlation) and higher US rates (-0.81% correlation).
Regional performances
Cautious on Indonesia
Grace WANG
We remain cautious on Indonesian banks, and downgrade industry behemoths Mandiri and BNI to Neutral. In our opinion, BRI continues to provide the best exposure to the sector. BIs hawkish stance will result in slower loan growth for the sector, and we see NPLs rising. Our caution is tempered by greater regulatory depth and stronger financial positions than during the 2005/08 cycle. We are most worried about the smaller banks, although we do not expect systemic risks. The biggest external unknown
Risers over the past week were led by India (+3.5%) and the Philippines (+3.4%). Decliners were led by Indonesia (-2.2%). Most other banking indices were flat or up modestly.
Model portfolio
Over the past week, CIMBs Asian banks model portfolio was up 0.83% against a 0.89% rise for its benchmark. Performance was held back by our short position in SBI, which continues to rebound.
We raise estimates for RHB following its stellar 3Q13 results. We see upside from continued market-share gains in investment banking and its planned entry into Indonesia.
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 4
Sep-13
Nov-13
Mar-10
Mar-11
Mar-12
Mar-13
Hadi SOEGIARTO
RetailAustralia
December 2, 2013
Metcash
MTS AU / MTS.AX
US$2,632m
A$2,889m
Market Cap
US$16.09m
A$17.76m
100.0%
Free Float
768.9 m shares
CIMB Analyst(s)
MTS today confirmed that upfront funding will be required to drive shopper-led volume growth. Beefed-up in-house marketing and a subsidised private label range have already been highlighted as examples of how the MTS will contribute to volume growth. MTS called out a 3% COGS disadvantage to the major chains which it is looking to address. Co-operation by retailers in streamlining costs-to-serve will be key to tapping that funding. Management today highlighted recent cost-cutting as a short-term solution. As such, reinvestment in the business began in 1H14. The reinstating of the DRP and lower dividend pay-out suggest the balance sheet is also being positioned to support further growth initiatives.
% chg (0.8) 0.5 (8.4) 6.6 (8.7) (1.0) (10.0) (16.0) (6.7) (32.1) (7.0) nmf (14.4) (9.2) (2.2) Comments
FYE Apr (A$m) Revenue Operating costs EBITDA EBITDA margin (%) Depn & amort EBIT Net Interest expense Other non operating income/(Expense) Associates contrib Pre-tax profit Tax Tax rate (%) Minority interests Net profit Exceptionals Reported net profit EPS (cts) DPS (cts)
1H14 (actual) 6,645 -6,426 218.4 3.29 -25 193.3 -27.00 0 0.00 166.3 -46.60 28.02 -0.70 119.0 -20.10 98.90 13.51 9.50
1H14 Variance 1H13 (f'cast) (%) (actual) 6,588 0.9 6,394 -6,341 (1.3) -6,165 247.1 (11.6) 228.9 3.75 3.58 -29 12.9 -23 218.3 (11.4) 206.2 -35.08 23.0 -29.80 0 0 0.00 0.00 183.2 (9.2) 176.4 -54.96 15.2 -53.10 30.00 30.10 2.54 (127.5) -2.00 125.7 (5.3) 121.3 0.00 nmf -39.30 125.7 (21.3) 82.00 14.62 (7.6) 15.83 10.00 (5.0) 11.50
% chg yoy 3.9 (4.2) (4.6) (10.6) (6.3) 9.4 (5.7) 12.2 65.0 (1.9) 48.9 20.6 (14.6) (17.4)
FY14F (new) 13,395 -12,918 477.5 3.56 -53 424.8 70.49 0 0.00 354.3 99.21 0.28 3.50 251.6 -20.10 231.5 28.57 22.50
FY14F (prev) 13,503 -12,982 521.5 3.86 -56 465.1 71.22 0 0.00 393.9 118.2 0.30 5.15 270.6 0.00 270.6 31.47 23.00
SOURCE: CIMB, COMPANY REPORTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 5
EducationAustralia
December 2, 2013
Navitas
COMPANY NOTE
Current A$6.05 A$5.65 A$5.50 -6.6%
Conviction| |
NVT AU / NVT.AX
US$2,070m
A$2,271m
Market Cap
US$7.32m
A$7.99m
65.0%
Free Float
375.4 m shares
Tim PLUMBE
Julian GUIDO
Positive trajectory
S3_13 enrolments
S3_13 University program (UP) enrolment numbers were impressive, increasing by +13% yoy (vs. +4.6% in S2_13 and +4% in S1_13). Australia continued to show positive signs of a recovery, with new enrolments above +30% (vs. +15% in S2_13 and +12% in S1_13) and total Australian enrolments up +13% (vs. +5% in S2_13 and -0.5% in S1_13). Importantly, this was the first time Australia has reported double digit enrolment growth since S3_09. UK enrolments grew +23%, a strong recovery after the +2% recorded in S2_13. North America EFTSUs increased +27% (vs. +22% in S2_13),
Financial Summary
Revenue (A$m) Operating EBITDA (A$m) Net Profit (A$m) Normalised EPS (A$) Normalised EPS Growth FD Normalised P/E (x) DPS (A$) Dividend Yield EV/EBITDA (x) P/FCFE (x) Net Gearing P/BV (x) ROE % Change In Normalised EPS Estimates Normalised EPS/consensus EPS (x) Jun-12A 688 126.8 73.1 0.19 (8.4%) 31.04 0.20 3.22% 18.82 35.46 50.1% 9.68 30.8%
NVT remains on track to deliver mid-teens revenue growth, however in FY14, reinvestment in the cost base has resulted in FY14 EBITDA guidance of A$138-148m, which represents growth of 6-14%. That said, in FY15 we forecast a return of the operating leverage inherent within the business model, with EPS growth of +24% off 12% revenue growth.
But priced in
We remain positive on the longer term structural story of increasing wealth in developing countries leading to increased demand for Western tertiary education. However on an FY15 PE of 22.1x, we think this is reflected in the share price.
Price Close
10
Vol m
5
Dec-12 Mar-13 Jun-13 Sep-13
Source: Bloomberg
6.05
6.37
Current
Target
5.65
Jun-13A 730 130.0 74.6 0.20 1.9% 30.45 0.20 3.22% 18.19 20.98 40.2% 9.58 31.6%
Jun-14F 841 143.0 83.0 0.22 11.3% 27.35 0.18 2.89% 16.48 38.80 34.0% 8.94 33.8% (0.00%) 0.99
Jun-15F 943 171.1 103.0 0.27 24.0% 22.05 0.22 3.64% 13.61 31.78 21.4% 8.28 39.0% 1.24% 0.99
Jun-16F 1,028 198.5 122.8 0.33 19.3% 18.49 0.26 4.30% 11.57 24.84 9.0% 7.58 42.8% 1.87% 0.99
SOURCE: CIMB, COMPANY REPORTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA
Page 6
HospitalsAustralia
December 2, 2013
COMPANY NOTE
Free Float
Target Prev. Target Up/Downside
US$7,133m
A$7,829m
Market Cap
US$14.33m
A$15.32m
57.3%
202.1 m shares
Dr Derek JELLINEK
We are very excited about the opportunityand the scale it will bring to our portfolio in France.
Chris Rex, MD
We view the acquisition as both opportunistic (favourable terms EV/EBITDA ~7.5x) and strategic (track record of driving margin gains from acquired underperforming assets and scale gained as now the third largest operator in France with 40 hospitals and 4,100 beds) and believe underlying fundamentals are supportive: 11.8% healthcare GDP expenditure versus 9.8% OECD average; ageing population (60-year-olds represent 23% of the population, 27% by 2025F, according to WHO); and compulsory health insurance (87% national, 8% private extra-cover, 5% self-pay). However, the operating environment remains challenging (pricing pressure, growing regulatory constraints and the rationalisation of services) possibly limiting strong gains and margin uplift, with flagged plans to expand some assets increasing capex (up to ~A$15m) and prolonging adequate ROI.
Price Close 39 34 29 24 2 2 1
Vol m
Financial Summary
Revenue (A$m) Operating EBITDA (A$m) Net Profit (A$m) Normalised EPS (A$) Normalised EPS Growth FD Normalised P/E (x) DPS (A$) Dividend Yield EV/EBITDA (x) P/FCFE (x) Net Gearing P/BV (x) ROE % Change In Normalised EPS Estimates Normalised EPS/consensus EPS (x) Jun-12A 3,956 583.5 241.9 1.19 17.9% 32.71 0.60 1.55% 14.86 81.16 63.7% 5.52 17.6% Jun-13A 4,175 627.7 264.4 1.36 13.7% 28.83 0.71 1.82% 13.95 28.72 64.1% 5.08 18.4% Jun-14F 4,723 724.2 301.5 1.53 12.5% 25.44 0.80 2.07% 12.37 43.00 66.1% 4.63 19.1% (0.11%) 0.97 Jun-15F 5,165 792.7 339.1 1.71 12.3% 22.66 0.89 2.30% 11.26 34.28 57.6% 4.22 19.6% 2.10% 0.97 Jun-16F 5,550 861.9 373.2 1.88 9.4% 20.71 0.98 2.53% 10.31 31.06 50.0% 3.85 19.5% 0.89% 0.96
1
Dec-12 Source: Bloomberg Mar-13 Jun-13 Sep-13
38.74
39.46
Current
Target
38.44
SOURCE: CIMB, COMPANY REPORTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA
Page 7
IT ServicesAustralia
December 2, 2013
COMPANY NOTE
Free Float
Target Prev. Target Up/Downside
US$261.2m
A$286.7m
Market Cap
US$1.52m
A$1.61m
96.6%
70.10 m shares
Trimming
Channel checks suggest that while corporate IT demand has not worsened, equally there is no current pick-up in activity. While most participants are optimistic and hopeful on a recovery in 2H14, this is yet to feed into lead indicators which are still patchy.
Julian GUIDO
We currently factor in a mild 2H14 recovery, however believe that pricing pressure will mitigate higher volumes and limit historical operating leverage in the short term. We cut EPS by 7% and 3% across FY14-15F. Our blended (PE/EBIT) price target falls to A$4.18. We maintain a Neutral rating. Channel checks across the IT industry suggest little has changed in the months post the federal election. While there is an increased sense of optimism and hope for increased activity in 2H14, this is not yet evident in the current December quarter. However, while activity has not increased post-election, equally important is that activity has not deteriorated further but rather has exhibited stabilisation. We have trimmed utilisation rates by 1% (across both halves) causing Normalised FY14F EPS to fall 7%. This change is based entirely on the organic business, with no changes to our forecasts for the two recent
Brewin KWONG
No change yet
acquisitions (Indicium and Birchman Asia Pacific). We expect SMX to report Normalised 1H14 EBITDA down 42% yoy in February (-56% yoy on an organic basis). In our view, this level of decline is likely to feature as the worst relative to the majority of listed peers. On an organic basis we expect a 46/54 1H/2H EBITDA split. But on a group normalised basis (ie, including acquisitions) the split is more heavily skewed to the 2H, ie, 41/59 given the heavy 2H skew of the recent acquisitions.
Maintain Neutral
Lead indicators remain patchy for corporate IT spend, including surveys for business confidence and IT vacancies, with no evident pick-up yet. While our existing forecasts assume some demand recovery in 2H14 we believe this will be offset by strong competition, with industry pricing pressure continuing to remain at elevated levels thereby limiting historic operating leverage benefits (ie, margin expansion). Currently SMX does not offer valuation appeal (17x PE and 12x EBIT).
Price Close
Financial Summary
Revenue (A$m) Operating EBITDA (A$m) Net Profit (A$m) Normalised EPS (A$) Normalised EPS Growth FD Normalised P/E (x) DPS (A$) Dividend Yield EV/EBITDA (x) P/FCFE (x) Net Gearing P/BV (x) ROE % Change In Normalised EPS Estimates Normalised EPS/consensus EPS (x) Jun-12A 335.5 43.98 30.60 0.44 0.1% 9.23 0.31 7.46% 5.67 11.02 (25.1%) 2.35 26.9% Jun-13A 278.5 28.57 21.12 0.29 (33.8%) 13.94 0.26 6.23% 8.57 10.21 (29.8%) 2.29 16.6% Jun-14F 296.6 24.38 15.29 0.24 (17.9%) 16.99 0.20 4.89% 11.29 NA (8.1%) 2.29 13.5% (7.66%) 0.93 Jun-15F 321.5 30.94 21.03 0.30 24.6% 13.63 0.21 5.13% 9.20 42.07 (1.7%) 2.18 16.4% (3.38%) 0.93 Jun-16F 342.3 36.04 24.54 0.35 16.7% 11.69 0.25 6.11% 8.01 24.09 1.5% 2.07 18.1% (2.50%) 0.96
1
Dec-12 Source: Bloomberg Mar-13 Jun-13 Sep-13
Current
4.18
Target
SOURCE: CIMB, COMPANY REPORTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA
Page 8
December 2, 2013
AUSTRALIA
BUILDING MATERIALS
LONG TERM
CIMB Analyst(s)
-20%
-40% -60% Oct-89 Oct-93 Oct-97 Oct-01 Oct-05 Oct-09 Oct-13
SOURCES: ABS
We focus on the original data relative to the pcp, but we note that October seasonally-adjusted approvals declined 2% from September 2013. On an original basis, building approvals were 21% ahead of October 2012 levels. QLD (+34% versus the pcp) was the key contributor to the growth in October 2013 building approvals. Importantly, VIC, which has been relatively weak for some time, saw a 25% increase in approvals. WA (+20%) also delivered strong growth. NSW, which has outperformed in recent months, delivered a relatively modest 5% improvement. We focus on detached houses and townhouses as key drivers of materials intensity. These segments improved by a robust 10% versus the pcp. However, apartments, which exhibit lower materials intensity, increased by 53% versus the pcp. Within this segment, four or more storey apartments rose
by 87% relative to October 2012 levels. The value of building approvals for non-residential construction activity increased by 13% versus the pcp.
What We Think
What Happened
Building approvals have improved for 13 of the past 14 months. Allowing for lags, we believe materials demand should gather pace in CY14. However, this improvement may lag the headline data if the apartments segment continues to capture overall housing market share.
We believe the focus should remain on mid-cycle leverage in the sector. However, current share prices appear to be reflecting much of this leverage. Against this backdrop, we retain a cautious sector stance with a preference for Fletcher Building (Outperform). We retain a Neutral rating for CSR, Adelaide Brighton and James Hardie, and an Underperform rating for Boral.
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 9
December 2, 2013
AUSTRALIA
STRATEGY
Conviction| |
CIMB Analyst(s)
Shane LEE
In local currency, the All Ordinaries (-2.0%) underperformed the US S&P500 (+2.8%), the MSCI World ex Australia Index (+1.8%) and the MSCI Regional ex Japan Index (-1.3%). The best performers for the month were Healthcare (-0.4%), Materials (-0.7%) and Financials ex Property (-1.3%). The worst performers were Energy (-6.3%), Industrials (-3.6%) and Utilities (-3.1%). The top five performers from the S&P/ASX200 (price) Index for the month were Mount Gibson Iron (17.4%), James Hardie Industries (14.7%), Myer Holdings (14.0%), Arrium (13.7%) and Atlas Iron (10.6%). The bottom five performers were Forge Group (-83.0%), Ausdrill (-49.0%), St Barbara (-41.7%), Silver Lake Resource (-39.6%) and Perseus Mining (-35.6%). The top five upgrades were Henderson Group (8.3%), James Hardie Industries (8.0%), Arrium (5.5%), Macquarie Group (4.6%) and BlueScope Steel (3.0%). The top five downgrades were Qantas Airways (-115.4%), OZ Minerals (-35.4%), Alumina (-28.0%), WorleyParsons (-20.0%) and Whitehaven Coal (-13.7%).
The top five and bottom five performing S&P/ASX 200 stocks
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 10
December 2, 2013
SOUTH KOREA
AUTOS
LONG TERM
CIMB Analyst(s)
HMC/KIAs combined Nov ex-factory sales of 666k units brought 11M13 sales to 93-94% of our 2013 targets as overseas remained intact. The weak domestic sales (-12.0% yoy, -3.5% mom) are due to the high base effect from last years individual consumption tax cut.
KIA
KIA leads its global peers in cash costs, at US$13,986 per unit. We believe that its competitive cost structure, backed by a solid 2H13 new model cycle, will give it the highest ASP-to-cash-cost spread in the coming quarters.
We remain Overweight on the Korean auto sector, with HMC as our top pick. The upcoming ASP hikes for the enhanced model cycle, backed by the direct/indirect overseas capacity expansion, remain the key catalysts. HMC reported global ex-factory sales of 408,533 units in Nov, bringing 11M13 sales to 92.7% of its 2013 target. Domestic sales fell 11.9% yoy and 5.6% mom, no thanks to last years high-base effect from the individual consumption tax cut and fewer working hours (on 5 and 8 Nov) due to the labour union leader election. HMCs US plant sales fell 6.8% yoy and 18.5% mom due to the fewer working days (19 days with thanksgiving holidays) vs. 23 days in Oct 13 vs. 20 days in Nov 12. Sales from the Turkey plant increased 14.1% mom as it took over the production of the new i10 from India after HMC's capacity was expanded in Turkey. Sales from the China plant rose 1.2% yoy and 15% mom due to the new Mistras sales of c.6k units whose production started on 19 Nov. KIA posted global ex-factory sales of 257,473 units in Nov, bringing 11M13 sales volume to 93.9% of its 2013
What Happened
target. Overseas sales increased to 218,521 units (+2.2% yoy, +4.0% mom, 11M13 at 95.4% of 2013 target of 2.27m). The US plant posted weak sales due to fewer working days; but as for the U.S retail sales in Nov, sales of the new Soul rose 165.8% mom and that of the new Facelift Sportage rose 107.1% yoy and 87% mom. The China plant posted sales of 53,012 units (+1.8% yoy, +16.5% mom) due to strong sales of the K2 (+8.1% yoy, +26.4% mom), K3 (+19% yoy, +3.6% mom), K5 (+0.5% yoy, +15.9% mom), and Sportage (+3.2% yoy, +9.2% mom).
What We Think
We expect strong sales momentum in 4Q13-2014 to come from: 1) HMCs overseas capacity expansion (150k units in China, 90k in CHMC, 100k in Turkey, 20k in Brazil via the adoption of three shifts), KIAs 150k additional China capacity in 1H14, and 2) the new model cycle starting in the local market, whose output is normalising. Stay invested. We remain positive on HMC/KIAs solid 11M13 sales and margin prospects due to the improving model cycle, backed by the potential capacity expansion in 2014.
Designed by Eight, Powered by EFA
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 11
December 2, 2013
SOUTH KOREA
TELCO - OVERALL
LONG TERM
CIMB Analyst(s)
2,500
2,000 1,500
1,000 500 0 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 OctNov
KT Corp
We foresee an uphill battle for KT in regaining its market share in LTE. But we believe gradual ARPU growth and solid dividend yields will limit its share-price downside. Longer term, we are positive on its new growth areas.
LG Uplus
We feel LGU and the market are too optimistic about potential gains from LTE. We also believe LGU will find it difficult to maintain its aggressive marketing promotions and simultaneously provide attractive returns to shareholders.
We remain Neutral on the sector, expecting sentiment on telcos to weaken on the back of heated marketing, lacklustre results as well as mobile virtual network operators (MVNOs) further traction with consumers. SK Telecom (SKT) remains our top pick. MNP in Nov was down 24% mom to 750k (Oct: 989k) and down 2% yoy (Nov 12: 763k). However, Oct-Nov MNP was the highest 2-month MNP since the beginning of 2013. 4Q13 MNP appears likely to exceed 2Q-3Q13 numbers, coming in perhaps close to 1Q13 levels. MNP winners in the month were the MVNOs (+54k vs. +47k in Oct), as they gained further traction with cost-sensitive consumers, while LG Uplus (LGU) also posted positive MNP (+22k in Nov, +36k in Oct).
Meanwhile, SKT (-53k vs. -54k in Oct) and KT (-23k vs. -29k in Oct) continued to be MNP losers, although at slower rates. In sync with the MNP data and press reports, our channel checks suggest that promotions remain active, which should result in weaker 4Q results for the telcos from higher marketing costs. This should be particularly true for KT which is looking to regain lost market share as well as LGU which is trying to maintain its momentum. We continue to recommend caution on the sector with SKT being our only Outperform recommendation on improving ARPU growth and solid dividend yields. We rate KT a Neutral and LGU an Underperform.
What We Think
What Happened
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 12
BanksTaiwan
December 2, 2013
First Financial
2892 TT / 2892.TW Current NT$17.95 NT$18.50 NT$18.30 3.1%
Conviction| |
US$5,242m
NT$155,330m
Market Cap
US$5.06m
NT$149.7m
70.0%
8,389 m shares
CIMB Analyst(s)
Nora HOU
Grace WANG
9M13 net profit came in at 83% of our original FY13 forecast. We raise our FY13 earnings estimate by 4% for reduced credit costs but trim FY14-15 by 4-6% as we expect lower investment returns to offset fee expansion. We remain Neutral while raising our SOP-based target price by 1% to NT$18.5 (1x FY14 P/BV). Overseas operations will continue to drive sentiment on the stock.
Earnings for its flagship First Bank shrank 11% qoq in 3Q13, leading to a flat yoy net profit for 9M13 due to mounting provisions (+1,688% qoq). Excluding income from financial products/investment activities, core revenues (net interest income and net fees) grew 9% yoy in 9M13. 9M13 total loans stagnated YTD due to strategically reduced government exposure (-28% YTD). However, NIM was unchanged (1.26%) for three quarters, dragged down by the falling LDR (86.5% in 3Q13 vs. 89.5% in 4Q12) despite rising NT$ and FX spreads. The 10% yoy rise in total fees in 9M13 was a nice surprise, coming from wealth management (+14% yoy) and loan-related fees (+15% yoy). NPL ratio and reserve
9MFY13 19,219 7,239 4,774 2,465 26,458 (14,035) 12,423 (987) 11,436 (2,143) 9,293 1.07 9MFY12 yoy % chg Prev. FY13F 18,790 2.3 25,226 7,638 (5.2) 9,460 4,493 6.3 6,003 3,145 (21.6) 3,457 26,428 0.1 34,686 (14,055) (0.1) (18,370) 12,373 0.4 16,316 (1,526) (35.3) (3,166) 10,847 5.4 13,150 (1,724) 24.3 (1,926) 9,123 1.9 11,224 1.06 0.9 1.34
coverage closed at 0.64% and 191.5%, respectively, at end-3Q13 after the write-off of TMT exposure of NT$3.6bn. Annualised (net) credit cost rose to 34bp in 3Q13 (2bp in 2Q13), and loan coverage and Tier 1 asset coverage both exceeded 1%. Management guided that it will make additional provisions to raise reserve coverage to above 200% for FY13. For FY14, the guidance is for SME/FX-driven total loans to grow 4-5%, NIM to rise 5bp (on portfolio adjustment), fees to increase 15% yoy and gross credit costs to normalise at 40-45bp (with at least NT$2bn in recoveries). Although no extra provisions are expected to be needed in FY14, First FHCs topline could be capped given its mediocre credit expansion and an overoptimistic fee growth target, in our view. We forecast average growth of 8% p.a. for banking PPOP and 11% p.a. for group earnings in FY13-15.
Unconfirmed outlook
No re-rating in sight
The stock is trading at around 1x FY14 P/BV, which we think is a fair reflection of its return prospects (below 9% ROEs in FY13-15, by our estimates).
FYE Dec (NT$m) Net interest income Non-interest income Fee income Other income Total income Overhead expenses Pre-provision profit Loan loss provisions & reserves Pretax profit Tax Net profit Core EPS (NT$)
Results Comparison
3QFY13 6,524 2,734 1,731 1,003 9,258 (4,648) 4,610 (972) 3,638 (707) 2,931 0.34
3QFY12 yoy % chg qoq % chg 6,345 2.8 2.2 2,653 3.1 20.3 1,385 25.0 9.5 1,268 (20.9) 45.2 8,998 2.9 6.9 (4,774) (2.6) (2.8) 4,224 9.1 19.0 (1,356) (28.3) (362.0) 2,868 26.8 (14.3) (425) 66.4 (17.2) 2,443 20.0 (13.6) 0.28 21.4 (8.1)
Comments Flat credit expansion, flat NIM Driven by wealth management and banking related fees
SOURCES: CIMB, COMPANY REPORTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 13
BanksMalaysia
December 2, 2013
FLASH NOTE
Free Float
Target Prev. Target Up/Downside
US$2,372m
RM7,648m
Market Cap
US$1.69m
RM5.43m
71.0%
1,548 m shares
CIMB Analyst(s)
What Happened
What We Think
A commitment to a 13% loan growth in 2014 is somewhat a positive surprise, given the general expectation for a slowdown in industry loan growth. To cushion the weaker traction in residential
Financial Summary
Net Interest Income (RMm) Total Non-Interest Income (RMm) Operating Revenue (RMm) Total Provision Charges (RMm) Net Profit (RMm) Core EPS (RM) Core EPS Growth FD Core P/E (x) DPS (RM) Dividend Yield BVPS (RM) P/BV (x) ROE % Change In Core EPS Estimates CIMB/consensus EPS (x) Mar-12A 667.1 577.2 1,244 2.50 502.6 0.32 22.8% 15.22 0.14 2.76% 2.43 2.03 14.1%
Vol m
3.8 6 5 4 3 2 1
Dec-12 Mar-13 Jun-13 Sep-13
94
Source: Bloomberg
4.94 5.73
Current
4.88
Mar-13A 730.4 602.6 1,333 24.50 538.0 0.35 7.0% 14.21 0.17 3.36% 2.60 1.90 13.8%
Target
Mar-14F 806.8 627.7 1,434 (51.13) 551.7 0.36 2.5% 13.86 0.18 3.61% 2.63 1.88 13.6% 0% 0.97
Mar-15F 914.8 658.4 1,573 (62.68) 620.5 0.40 12.5% 12.33 0.20 4.06% 2.83 1.75 14.7% 0% 0.99
Mar-16F 997.7 704.9 1,703 (64.13) 689.4 0.45 11.1% 11.09 0.22 4.51% 3.04 1.62 15.2% 0% 0.99
SOURCE: CIMB, COMPANY REPORTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA
Page 14
ConglomerateMalaysia
December 2, 2013
Oriental Holdings
ORH MK / OTLS.KL Current RM8.61 RM8.04 RM8.07 -6.6%
Conviction| |
US$1,657m
RM5,341m
Market Cap
US$0.24m
RM0.77m
42.1%
620.4 m shares
CIMB Analyst(s)
Lucius CHONG
bottomline, with its contribution going from 37% of core earnings to 42% by FY15. We also expect the likelihood of M&A to increase, with valuations of Indonesian plantation land coming down. ORH targets to double its 70,000ha of Indonesian land bank over the next three years, putting its RM2.6bn cash to use.
Plantations in line
We estimate ORHs 49% stake in Boon Siew Honda saw a 21% yoy and 70% qoq improvement in contribution to RM21m in 3Q13, illustrating the expanded capacity utilisation of the new Batu Kawan plant. ORH could be a good proxy for the motorcycle business in the country with its 45% market share but it only accounts for 17% of EPS.
The continued losses in the auto and plastics divisions continue to be the main worry but 3Q13 shows signs that auto losses are narrowing, which is key for overall group earnings to bottom out. .
Results Comparison
3QFY13 708.4 -649.7 58.7 8.3 -24.7 34.0 -1.5 24.3 21.5 -46.5 31.8 -9.6 30% 15.7 37.9 84.4 6.1 13.6
3QFY12 yoy % chg 740.9 -626.6 81.4 15.4 -25.9 55.5 -2.4 25.4 17.8 -10.3 86.0 -17.8 21% -13.5 54.7 65.0 8.8 10.5
EBITDA margin (%) Depn & amort. EBIT Interest expense Interest & invt inc Associates' contrib Exceptionals Pretax profit Tax Tax rate (%) Minority interests Net profit Core net profit EPS (sen) Core EPS (sen)
SOURCE: CIMB, COMPANY REPORTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. CIMB Securities Limited has had an investment banking relationship with Geely Automobile Holdings within the preceding 12 months.
Page 15
December 2, 2013
MALAYSIA
AUTOS
LONG TERM
CIMB Analyst(s)
Lucius CHONG
Toyota
Nissan
Proton
UMW Holdings
UMW Toyota and Perodua have achieved significant economies of scale due to being number one in market share in both the non-national and national segments, respectively. The recovery in Toyotas unit sales in 2014 following the launch of the new Vios should also help to spread out higher per unit production costs. Both UMW Toyota and Perodua are operating on two shifts and we do not think that they will add another.
2013
2015 target
DRB-Hicom
Proton is likely to be more vulnerable to higher electricity prices as we estimate that it is just breaking even at the EBIT level. However, like UMW and TCM, it is expected to see a significant pick-up in volumes with the introduction of the new Saga SV to spread out the higher per unit costs for electricity.
With enough capacity in the system and with the number of production shifts unlikely to increase, economies of scale should offset some of the impact from higher electricity tariffs. However, this is yet another cost pressure added to the uncertainties in the sector which is facing greater currency volatility and greater competition. We maintain a Neutral rating on the sector, with Tan Chong as our top pick. Electricity prices have been raised by an average of 14.85%. Industrial users are expected to experience an average increase of 16.85%.
companies in our coverage should not see a material impact because they have all achieved a sufficient amount of scale. They are more concerned about the effect of forex movements on costs, and the credit environment on keeping unit sales up.
What Happened
What We Think
Electricity currently makes up 11-12% of assembly line and manufacturing costs in the Malaysian auto sector. However, when supply chain activities, the distribution business and other SG&A are included, the percentage of electricity costs to total opex falls to around 4-6%. Most of the
We see no significant impact on the auto sector, particularly the auto conglomerates UMW and DRB, as their diversified earnings base should cushion the impact on EPS. For Tan Chong, the higher electricity prices could result in a 4-5% cut in EPS in theory, but as its operations ramp up from assembling and selling 50,000 units a year to its end-target of 100,000 units p.a., the higher fixed cost of electricity is spread out over the production shifts and diluted. This event nevertheless adds another negative variable to the sector and is another reason to remain selective. Tan Chong is our only Outperform and is our top pick in the sector.
Designed by Eight, Powered by EFA
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. CIMB Securities Limited has had an investment banking relationship with Geely Automobile Holdings within the preceding 12 months.
Page 16
December 2, 2013
MALAYSIA
BUILDING MATERIALS
LONG TERM
CIMB Analyst(s)
Watts up!
The Malaysian government has announced a 16.85% industrial power tariff hike effective Jan 2014. Although widely expected, this increase is a net-negative on building material players given the current industry conditions. The biggest losers are likely to be steel makers, while cement players are more insulated.
Sharizan ROSELY
EPS forecasts are intact as we have modelled in 8-15% hikes in power tariffs p.a. Our sensitivity analysis shows that for every 10% increase in electricity tariff, the EPS of cement and steel players would be shaved by 3-10%, assuming no pass through. Current industry conditions may limit the ability to fully pass on the higher costs given the competition in cement, and sustained macro risks for steel companies. Maintain Neutral. The government has announced an 16.85% average increase in power tariffs for industrial consumers effective 1 Jan 2014. Special Industrial Tariff (SIT) consumers will also continue to benefit from discounted rates.
Lafarge's and Tasek's EPS, while Ann Joo's EPS would be reduced by 9-10%. Based on our channel checks, the good news is that the actual impact on earnings could be smaller, as selected efficient manufacturers will enjoy special tariff rates for the SIT. This is in line with the recent expectations of cement companies like Lafarge. The level of discount was undisclosed. Stay on the sidelines. Medium term cost risks have emerged. The main question is whether companies can fully pass on the cost. Selling price increases may be inevitable but the impact could be muted by the current competitive environment for cement players (higher price rebates), and sustained macro risks for steel companies (dumping from China and forex risks). These factors continue to weigh on the selling prices of cement and steel products. The prevailing threats from imported steel and forex losses suggest Ann Joo is the biggest loser, though it has the cost advantage of switching to its blast furnace facility. We maintain Neutral calls on all three stocks. Switch to contractors.
What Happened
What We Think
Tasek Corporation
Electricity makes up c.10-12% of total production cost. For every 10% hike in power tariffs, we estimate a 4-5% impact on EPS, assuming no pass-through. The 20% power tariff increase would be net negative to Tasek, given the competitive landscape.
Electricity constitutes 8-12% of production cost. Every 10% increase in power tariff would cut EPS by 9-10%, but this is mitigated the ability to switch to its blast furnace facility. Ann Joo could emerge as the biggest loser in view of the sustained macro risks.
The 16.85% quantum in power tariff increase was widely expected given the government's move to scale back subsidies. The last industrial tariff hike in 2011 was 8.35%, on average. Under our coverage, we estimate that electricity usage constitutes 8-10% of total production cost for Lafarge and Tasek (cement), while it makes up 8-12% of Ann Joo's (steel). Assuming no pass through, every 10% hike in power tariff would shave 3-5% off
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 17
December 2, 2013
MALAYSIA
ECONOMIC UPDATE
CIMB Analyst(s)
The reduction in fuel subsidies for the power sector was essential to stabilise the economy."
Datuk Loo Took Gee, Secretary-General of Energy, Green Technology and Water Ministry
Industrial and commercial users which collectively consume 78% of the electricity generated will be hit the most. The heavy users of power include electronics & electrical, transport, rubber gloves, building materials, consumer and automotive industries. For consumers, the low-income group will be partially sheltered via 1) free electricity to those who use less than RM20 per month, which was implemented in 2008; 2) the decision to maintain a Lifeline Band on electricity tariff for the first 200kWh at a highly subsidised rate of 21.8 sen/kWh, which was unchanged since 1997; and 3) the decision to maintain the rate at 33.4 sen/kWh for those who consume less than 300kWh per month. This will mean no tariff increase for 4.6m consumers or 70.7% of total households. As electricity consumption makes up a 2.88% weightage in the CPI basket, a 10.6% hike in power rates for domestic users will add 0.2% pt to Jan 2014's headline inflation. The second-round impact of higher power rates depends on the degree of pass-through to end-users. If previous episodes of tariff hikes are any guide, the impact on inflation could be rather muted. Thus, we maintain our CPI growth estimates of 2.2% for this year and 3.0% for 2014, which continue to factor in some administered price adjustments, especially for fuel.
Figure 1: Tariff reviews over the years
Effective date May 1997 01 Jun 2006 01 July 2008 01 Mar 2009 01 Jun 2011 01 Jan 2014 Average increase/decrease in tariffs (%) +8.30 +12.00 +24.00 -3.66 +7.12 +14.89
SOURCES: TENAGA NASIONAL BHD (TNB), CIMB RESEARCH
Impact on inflation
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 18
December 2, 2013
MALAYSIA
STRATEGY
Conviction| |
Chemicals Commodities Conglomerate Construction and Materials Consumer Banking & Finance Healthcare Insurance Media Oil and Gas Oil Equipment and Services Property Services Shipping Technology Telecommunications Transport Infrastructure Travel & Leisure Utilities
While supporting the growth momentum, we are fully aware of the need to be fiscally responsible. We are also pursuing better targeted, efficient and effective government expenditure. One of the measures towards this goal is to gradually carry out subsidy rationalisation, with complementary measures to assist the vulnerable groups.
Datuk Seri Najib Razak, Prime Minister and Minister of Finance Malaysia
Malayan Banking
There are no changes to our end-2014 KLCI target of 1,920 points, based on an unchanged 10% premium to the 3-year moving average P/E. We continue to prefer the sectors which are likely to benefit from the Economic Transformation Programme oil & gas, construction and property. Though overall still negative, Nov's results showed signs of promise. Our earnings revision ratio improved significantly from 0.46x in Aug to 0.6x in Nov. Although a higher 29% of the stocks in our universe missed expectations vs. 24% during the Aug season, some 17% came in above compared with only 11% in Aug. This helped boost our revision ratio to its
Thanks to robust foreign exchange gains in 3Q, Maybank's 9MFY13 net profit rose by 12.5% yoy, topping our expectations. The 11.5% increase in our projected non-interest income helped to push up our forecasted FY13 EPS by 3.7%. .
highest in 18 months. In terms of companies that met expectations, the proportion fell from 66% to 53%. The sectors that disappointed still far outnumbered those that beat expectations. All in, 11 sectors disappointed (10 previously) while only five (four previously) beat expectations. The sectors that came in below expectations included autos, aviation and media.
UEM Sunrise
Land sale gains of around RM120m in 3Q13 pushed UEMSs 9M13 net profit above expectations, at 92% of our full-year forecast. Management indicated that the property cooling measures have so far not made a major impact on buyer interest in Iskandar Malaysia and Nusajaya
It looks like 2013 will be another weak year. Our core market EPS growth for 2013 stands at only 3.3%. We forecast the 2014 growth to accelerate to 11.7%, driven by higher growth from the plantations and oil & gas sectors.
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 19
December 2, 2013
MALAYSIA
CIMB Analyst(s)
Ann Joo Resources Ann Joo is still in discussions, no immediate plans to become syariah compliant
Media Chinese Int'l Oriental Holdings SP Setia Bhd Tan Chong Motor Tasek Corporation Wellcall Holdings YTL Power
Oriental Holdings
Oriental Holdings has total cash of RM2.6bn and its cash to assets ratio is above the 33% threshold. It is conserving the cash for M&A purposes in Indonesia as it seeks to double its plantation landbank. Although this event is likely to occur in the near term due to the current macro conditions in Indonesia, Oriental Holdings will still wait for the right valuations and will not accelerate its plans because of non-compliance with the cash to assets threshold.
SP Setia
SP Setia has total borrowings of RM4.54bn and its debt to asset ratio of 37% as at 31 July 2013 is above the 33% Shariah threshold. The group will seek ways to address the issue but this will likely take some time. The likely departure of CEO Tan Sri Liew Kee Sin in Mar 2014, when the third put option for the sale of his remaining stake in SP Setia is due, is of greater concern to us.
Most of the companies under our coverage that are no longer Shariah compliant are taking steps to meet the new requirements as Shariah-compliant funds have a six-month grace period before they have to take action. There are no changes to our end-2014 KLCI target of 1,920pts and preference for the oil & gas, construction and property sectors. On 29 Nov, the Securities Commission (SC) approved an updated list of stocks that were classified as Shariah compliant based on a revised methodology. 16 companies have been added to the approved list while 158 companies have been removed from the previous list that was issued in May 2013. The SC now adopts a 2-tier quantitative approach, measuring: 1) the business activity benchmark, where companies exposure to certain businesses cannot exceed 5% or 20%, and 2) the financial ratio benchmark, where the cash/debt over total assets that are not in Islamic accounts and
financing cannot exceed 33%. Investors are given six months from 29 Nov to dispose of securities that are not in compliance if the market price is equal or higher than their investment cost. If the market price is below the investment cost, investors are allowed to hold the stock until the market price is equal to the cost.
What We Think
What Happened
There are 11 companies under our coverage that have been removed from the previous list and are now not Shariah compliant. Most of the companies are seeking ways to meet the new rules in the next six months but several may not meet the deadline. We believe that these would include AirAsia, Ann Joo, Oriental and SP Setia. As these new SC rules are not a surprise, any excessive selldown of non-compliant stocks may provide investors a buying opportunity as the underlying fundamentals of these companies have not changed.
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 20
SINGAPORE
NAVIGATING SINGAPORE
CIMB Analyst(s)
99,800
150,000
191,200
800%
600%
77,500
130,000
89,400
60,200
57,600
58,100
57,000
57,000
51,300
52,500
44,600
43,700
46,400
54,500
57,200
100,000
59,600
91,200
400%
37,800
28,900
25,500
5,500
50,000
17,600
26,600
200%
0%
(50,000)
-200%
First Resources
Best proxy for rising CPO prices. Stronger CPO prices coupled with its refinery expansion in 2H13 will be tailwinds for earnings. Free cash flow should improve markedly in FY14 as capex is scaled down.
GLP is a NAV growth story. The establishment of a US$3bn China logistics fund will accelerate its asset recycling in China while assets in Japan are poised for recycling as cap rates shrink.
In 2H13, the FSSTI failed to reclaim its May high as rate-sensitive sectors stumbled. A market selloff in 2014 is possible, but it is unconstructive to worry about and position for. The only way to outperform is to select companies bottom-up, looking for those with the right business models and products. Our end-2014 FSSTI target is 3,600, based 14.4x CY15 P/E. Our top picks include DBS, FR, GLP, KEP and WIL.
We prefer stocks with some catalysts, at reasonable valuations. Our top five big-cap picks are DBS, FR, GLP, KEP and WIL. As long as the threat of rising interest rates hangs in the air, property and REITs will have little reason to do well. GLP is preferred because it can accelerate its RNAV growth with its China logistics fund. DBS is the best proxy for rising interest rates, in our view. Keppel has fewer catalysts in 2014, but margin catalysts should come back in 2015. We like the plantations sector on Indonesias intention to use crude palm oil in its biodiesel mix.
Population growth in Singapore is slowing as the country weans itself off foreign labour. Housing vacancy will rise and rents, soften bad for developers. Still, implications from the labour restructuring have been overblown. Some smaller companies may have closed but the larger ones are coping. Banks asset quality remains pristine. Singapore companies have been expanding out of their small market for years, so their share-price driver should now be execution in overseas markets.
Our top five smaller-cap conviction picks are Del Monte, Ezion, Goodpack, Midas and Sarin Tech. DELM should be able to digest its major acquisition. The next half of EZIs new fleet should contribute in 2014. GPACK has a new auto catalyst. MIDAS should benefit from a revival of train orders in China. SARIN has high earnings-growth potential from its new products.
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 21
COMPANY NOTE
Free Float
Target Prev. Target Up/Downside
US$16,057m
HK$124,484m
Market Cap
US$20.51m
HK$159.1m
34.5%
5,826 m shares
A differentiated business model (property development + IP+ value-added services), the right product ideas and strong support from the parent company are the key drivers of the success of CRL.
Wu Xiangdong, chairman
Located in the new CBD of Nanning, CRL MIXc is an unparalleled complex project and dominates the citys top-end office and residential segments. The shopping mall opened in Sep 2012 with an initial occupancy rate of 92%. The rent for its offices of Rmb160/sqm/month and ASP of Rmb23k/sq m for apartments top the market in Nanning. Our site visit also showed that MIXc offers customers an excellent shopping experience given a convenient location and access, spacious interiors and a wide range of mid-end to luxury brands.
Apart from Chengdu MIXc, CRL proves excellent performance at its four other MIXc projects, with high occupancy rates of 93-99%. We believe CRL will be a long-term winner in the commercial property segment given its prime project locations, first-mover advantage, quality design and very competitive funding cost (3.6% in 1H13). The strong pipeline, with another seven MIXc in operation in 2014-15, should strengthen its portfolio. We project CRLs rental income to post a 31% two-year CAGR to HK$8.9bn in 2015, contributing 9% of its total topline and 14% of operating profit.
Price Close 25.0 24.0 23.0 22.0 21.0 20.0 19.0 18.0 60 40
Financial Summary
Total Net Revenues (HK$m) Operating EBITDA (HK$m) Net Profit (HK$m) Core EPS (HK$) Core EPS Growth FD Core P/E (x) DPS (HK$) Dividend Yield EV/EBITDA (x) P/FCFE (x) Net Gearing P/BV (x) ROE % Change In Core EPS Estimates CIMB/consensus EPS (x) Dec-11A 35,795 10,502 8,121 1.02 33.1% 20.93 0.28 1.30% 16.11 51.46 68.9% 2.05 10.5% Dec-12A 44,364 12,986 10,569 1.25 21.9% 17.14 0.34 1.58% 13.04 14.39 49.6% 2.00 11.2% Dec-13F 75,896 15,951 8,626 1.48 18.7% 14.42 0.40 1.87% 10.91 NA 49.7% 1.65 11.9% 0% 0.95 Dec-14F 89,610 20,703 11,607 1.99 34.6% 10.72 0.54 2.52% 8.69 75.32 49.4% 1.46 14.4% 0% 1.02 Dec-15F 105,552 25,269 14,049 2.41 21.0% 8.85 0.65 3.05% 7.39 46.22 48.9% 1.28 15.4% 0% 1.00
Vol m
20
Dec-12 Mar-13 Jun-13 Sep-13
Source: Bloomberg
Current
Target
26.50
SOURCE: CIMB, COMPANY REPORTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA
Page 22
GamingHong Kong
December 2, 2013
SJM Holdings
880 HK / 0880.HK Current HK$24.95 HK$28.55 HK$28.55 14.4%
Conviction| |
FLASH NOTE
Avg Daily Turnover Free Float
Target Prev. Target Up/Downside
US$17,872m
HK$138,555m
Market Cap
US$27.45m
HK$212.3m
27.0%
5,553 m shares
CIMB Analyst(s)
Michael TING
We maintain our Outperform rating and target price of HK$28.55, still based on 11x FY15 EV/EBITDA (1 s.d above its 3-year historical average) plus HK$7.21 for the valuation of its Cotai assets in 2017. Further share price drivers could come from higher- than-expected industry GGR growth, as well as dividends and EBITDA growth that top expectations.
What Happened
SJM plans to open 30 tables at Grand Lisboa (GL) by mid-2014. This new table area will be located at the mezzanine level of GL that will undergo renovation. In 4Q14, SJM will open the new Casino Jai Alai which will include around 40 premium-mass tables. The Jai Alai will also incorporate a hotel and retail facilities. Beyond 2014, some additional property renovations at GL may be carried out to add tables. We believe that SJMs market share could see a negative impact in 2015 and 2016 as the operator will be capacity constrained while its competitors will open new properties
in Cotai over those years. SJM should be in a much better position from 2017 onwards due to the opening of its Cotai site, along with the possible staggered opening of additional hotel rooms and theme parks in Angela Leungs adjacent Cotai plot. While a deal with Angela has not been struck yet, we believe that SJMs net cash of HK$24bn and future cashflows can sufficiently cover the future capex requirements. Hence, SJMs ~75% payout ratio should be maintained.
What We Think
While SJMs near-term growth prospects are likely to trail its competitors, we see limited downside to its share price given its yield and discounted valuation. SJM is a more defensive stock compared to its Macau gaming competitors. SJM is currently trading at a 23% discount to the sector average on a consensus forward EV/EBITDA basis. Over the past three years, SJM has traded within a 10-30% discount range to the gaming sector average.
Price Close 28 26
Financial Summary
Revenue (HK$m) Operating EBITDA (HK$m) Net Profit (HK$m) Core EPS (HK$) Core EPS Growth FD Core P/E (x) DPS (HK$) Dividend Yield EV/EBITDA (x) P/FCFE (x) Net Gearing P/BV (x) ROE % Change In Core EPS Estimates CIMB/consensus EPS (x) Dec-11A 76,092 6,457 5,308 0.97 42.0% 26.80 0.73 2.93% 19.45 21.69 (66.8%) 8.01 35.0% Dec-12A 79,519 7,722 6,745 1.22 26.2% 20.66 0.90 3.61% 16.55 71.83 (51.2%) 6.96 36.4% Dec-13F 88,522 8,556 7,521 1.36 11.3% 18.53 1.03 4.13% 14.47 17.65 (64.5%) 6.15 35.5% 0% 1.01 Dec-14F 95,959 9,275 8,325 1.50 10.7% 16.74 1.14 4.57% 12.91 14.12 (74.0%) 5.50 34.9% 0% 0.99 Dec-15F 101,887 9,848 8,973 1.62 7.8% 15.54 1.23 4.93% 11.77 13.68 (80.5%) 4.97 33.9% 0% 0.96
24
22 20 18
125
115 105 95
Vol m
16 50 40 30 20 10
Dec-12 Mar-13 Jun-13 Sep-13
85
Source: Bloomberg
24.95
27.40
Current
Target
28.55
SOURCE: CIMB, COMPANY REPORTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. CIMB Securities Limited has had an investment banking relationship with Macau Legend Development Ltd within the preceding 12 months. Designed by Eight, Powered by EFA
Page 23
December 2, 2013
HONG KONG
GAMING
LONG TERM
CIMB Analyst(s)
Michael TING
40,000 35,000
30,000 25,000 20,000 15,000 10,000 5,000 -
40% 35%
30% 25% 20% 15% 10% 5% 0%
yoy chg
SOURCES: DICJ
We maintain our long-term Overweight position on Macaus gaming sector. Catalysts could come from stronger-than-expected industry GGR over the next few months. Longer term, we prefer Galaxy and Sands China due to their stronger earnings visibility from mass-gaming growth on Cotai. Macaus Nov GGR reached MOP30.2bn (+21% yoy, -17% mom). This brought 11M13 GGR to MOP327.3bn (+18.6% yoy). Nov is typically a slower month for GGR after Chinas Golden Week holidays in Oct. Yet, Novs GGR growth exceeded our expectation of 17% which we forecasted at the beginning of Nov. We believe that mass-gaming growth in Nov was probably in the mid-20% range and VIP growth, at 15-20%. For Dec, we are projecting GGR of MOP31.2bn (+11% yoy, +3% mom). Decs yoy growth rates are likely to slow from a higher base as the VIP hold rate was 3.4% in Dec 12, which helped to boost VIP revenue then. Full-year 2013
GGR should reach at least MOP358.5bn (+18% yoy). In Nov, Sands China and MGM gained the most GGR market share while Galaxy and SJM lost the most. The market-share shifts were likely due to changes in VIP hold rates. After outperforming the Hang Seng Index in Sep-Oct, Macaus gaming stocks on average traded in line with the index in Nov. Cotai related shares outperformed Peninsula shares. Macau gaming stocks are now at 15x forward consensus EV/EBITDA on average, 2 s.d. above the sectors 3-year average. Such levels historically mark the ceiling for near-term valuation re-rating. We expect Macaus gaming stocks to be range-bound until early 2014 when consensus GGR growth estimates of 10-14% for 2014 could get upgraded. 2014 GGR will likely be driven continued growth in premium mass coupled with new table and hotel capacity on Macau Fishermans Wharf. We currently forecast GGR growth of 15% for 2014.
What Happened
What We Think
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. CIMB Securities Limited has had an investment banking relationship with Macau Legend Development Ltd within the preceding 12 months.
Page 24
BanksIndonesia
December 2, 2013
FLASH NOTE
Free Float
Target Prev. Target Up/Downside
US$6,390m
Rp76,459,488m
Market Cap
US$7.56m
Rp85,544m
40.0%
18,649 m shares
CIMB Analyst(s)
We maintain our EPS targets, GGM-based target price and Neutral rating on BNI. BNI announced that Sumitomo Life has acquired a 40% stake in subsidiary BNI Life for Rp4.2tr. As the stake was in the form of new shares issued by BNI Life, the full Rp4.2tr will go into BNI Life as capital. The new life insurance partnership aims to cultivate BNIs captive market as well as sell to non-BNIs customers through BNI Lifes branches. The multiple for the transaction pre-money was 30.1x 2012 P/BV and 174.9x 2012 P/E pre-money. The transaction looks rich on paper. However, if it is evaluated on the basis of BNIs client base, the valuation is comparable with recent similar transactions. Earlier this year, Dai-Chi Life bought a 40% stake in Panin Life for Rp3.3tr, giving it exclusive rights to the latters client base. Asset-wise, Panin Bank is about 40% the size of BNI. An upfront fee is likely to be paid to
What Happened
What We Think
BNI for the access to its client base. As a comparison, Manulifes partnership with Danamon involved an upfront fee of Rp500bn and Panin Bank is also likely to receive a similar upfront fee. Assuming that BNI will be paid a fee in the range of Rp2tr-4tr and that it will be disbursed in the form of loans at a 10% rate, it could translate to 2-3% upside in the banks FY14 net profit. In the income statement, the upfront fee is also to be amortised over the life of the contract. Assuming the contract is for 10 years, it will bring another 2-3% upside to net profit. There is minimal impact on BNIs equity. The development of this transaction has been well covered by the newswires. The stocks recent valuation strength and increase in foreign ownership indicate high optimism of the transaction going through. This might limit further upside from the announcement.
Financial Summary
Net Interest Income (Rpb) Total Non-Interest Income (Rpb) Operating Revenue (Rpb) Total Provision Charges (Rpb) Net Profit (Rpb) Core EPS (Rp) Core EPS Growth FD Core P/E (x) DPS (Rp) Dividend Yield BVPS (Rp) P/BV (x) ROE % Change In Core EPS Estimates CIMB/consensus EPS (x) Dec-11A 13,196 7,601 20,797 (2,421) 5,826 285.3 30.7% 14.37 66.0 1.61% 2,023 2.03 15.0% Dec-12A 15,459 8,446 23,905 (2,525) 7,046 366.7 28.6% 11.18 62.5 1.52% 2,331 1.76 16.8% Dec-13F 18,999 9,992 28,991 (3,473) 8,484 443.7 21.0% 9.24 75.6 1.84% 2,706 1.51 17.6% 0% 1.04 Dec-14F 22,799 11,433 34,233 (5,554) 9,466 496.4 11.9% 8.26 91.0 2.22% 3,119 1.31 17.0% 0% 1.02 Dec-15F 26,663 12,950 39,612 (6,716) 10,785 567.1 14.2% 7.23 101.5 2.48% 3,591 1.14 16.9% 0% 0.99
4,700
4,200 3,700 3,200
123
111 99 88
2,700 200
150 100
76
Vol m
50
Dec-12 Mar-13 Jun-13 Sep-13
Source: Bloomberg
4,100
5,550
Current
Target
4,625
SOURCE: CIMB, COMPANY REPORTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA
Page 25
US$199.4m
Rp2,386,330m
Market Cap
US$0.05m
Rp572.4m
25.3%
Free Float
3,610 m shares
CIMB Analyst(s)
At 88% of our FY13 forecast, 9M13 core EPS was above on higher-than-expected revenue and margins. We increase our FY13-15 EPS by 13-19% to incorporate the above. Our target price rises as we roll over to 8x CY15 P/E (average for international OSV peers) and factor in a stronger US$ vs. Rp. We upgrade the stock to Outperform from Neutral with catalysts anticipated from further earnings strength and contract wins.
owned vessels jumped to 51% in 9M13 (9M12: 46.4%). In addition, the strict implementation of the cabotage rule restricted supply and supported an increase in day rates. A stronger US$ also helped to widen margins as wages and HQ costs are in Rp.
Margin strength
9M overall gross margins rose t0 31.2% from 29.3% in 9M12. The improvement sprang from the addition of mid-high-tier vessels with higher margins. Eleven of such units were added in 9M while we had only expected eight for the whole year. Mid-higher-tier vessels now account for 60% of its fleet, while utilisation remains at 75%. Gross margins for
With an uptick in E&P, 9M13 chartered vessel revenue surged 82% yoy. Margins also improved to 6.2% (9M12: 5.4%), thanks to the cabotage rule.
With the strict implementation of the cabotage rule (restricted supply) and heightened E&P (higher demand), this is Wintermars day in the sun. A potential listing of other Indonesian offshore companies could fuel interest in the sector.
Upgrade to Outperform
Results comparison
3QFY13 48.9 (31.6) 17.3 35.3 (4.6) 12.7 (1.9) 0.2 0.9 (1.4) 10.6 (0.7) 6.8 (2.8) 7.0 0.2 8.3 0.2
3QFY12 28.2 (19.5) 8.7 30.7 (3.5) 5.2 (1.2) 0.5 0.6 0.3 5.4 (0.4) 7.1 (0.8) 4.2 0.1 3.9 0.1
yoy % chg 73.5 61.9 99.5 30.5 146.4 57.8 (65.2) 56.8 (537.6) 96.5 90.4 246.4 67.9 62.9 114.7 108.3
qoq % 3QFY13 chg Cum 14.3 130.8 16.7 10.3 0.3 14.5 (25.1) 423.5 570.4 nm 26.8 (9.4) 37.3 28.1 26.5 48.2 46.4 (85.4) 45.4 34.7 (13.2) 32.2 (5.8) 0.1 1.4 (1.0) 26.9 (2.2) 8.0 (6.5) 18.3 0.5 19.2 0.5
3QFY12 Cum 85.0 (56.5) 28.6 33.6 (9.9) 18.6 (3.5) 0.5 2.7 1.6 19.9 (1.8) 9.1 (3.6) 14.5 0.4 13.0 0.4
yoy % chg 53.8 51.2 59.0 32.6 73.1 65.0 (77.4) (47.3) (163.0) 35.4 20.0 78.5 26.5 24.5 47.9 45.6
Prev. Comments FY13F 150.5 Above, higher-than-expected owned as well as chartered vessel revenues (97.8) Above, in line with higher revenue 52.7 35.0 36.1 0.6 2.3 0.5 32.1 8.5 22.3 0.6 21.9 0.6 Above, higher gross margins of 51% due to higher value of OSVs Above Above, in line with higher EBITDA Below In line Disposal loss of US$1.1m Above, in line with higher EBIT Broadly in line Above, in line with higher PBT Above 52% above on stronger revenue & margins. 9M forms 88% of full-year (3Q at 38%)
EBITDA margin (%) Depn & amort. EBIT Interest expense Interest & invt inc Associates' contrib Exceptionals Pretax profit Tax Tax rate (%) Minority interests Net profit EPS (US cts) Core net profit Core EPS (US cts)
SOURCE: CIMB, COMPANY REPORTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 26
December 2, 2013
INDONESIA
ECONOMIC UPDATE
CIMB Analyst(s)
Michelle CHIA
[The current account] should not have to be a surplus but a deficit with a sustainable figure, which is in a range of between 0.25% and 2.5% of GDP.
Agus Martowardojo, Bank Indonesia Governor
We read the surprise surplus in Oct as an anomaly propelled by the large jump in gas exports and expect the gains to be given back in Nov. Nevertheless, Octs data are encouraging, especially the upturn in non-O&G exports and signs of lower oil imports. They strengthen our view that the external imbalances will narrow, with the current account deficit improving in 2014 (-2.7% of GDP vs. -3.5% in 2013) on the back of better export shipments and curtailed import demand.
Figure 1: Indonesia's external trade
Oct 13 % of total share* % yoy 100.0 2.6 17.3 2.8 82.7 2.5 100.0 -8.9 6.7 -0.2 76.3 -6.9 17.0 -19.5 0.04 Sep 13 % mom 6.8 12.8 5.7 1.1 -3.1 2.8 -4.7 % yoy -7.5 -12.8 -6.4 1.1 0.6 1.4 -0.4 % mom 12.4 -11.2 18.6 19.2 19.9 16.1 33.9 -0.80 10M13 % yoy -5.5 -15.4 -3.0 -2.0 -1.8 2.2 -17.1 -6.36
Exports: Total Oil and gas Non-oil and gas Imports: Total Consumption goods Raw materials Capital goods Trade Balance (US$ bn)
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 27
December 2, 2013
INDONESIA
ECONOMIC UPDATE
CIMB Analyst(s)
Michelle CHIA
The low core inflation is affected by policies such as interest rates, and the fact that it remains lower than headline inflation reflects a stabilisation in our economy.
Suryamin, head of Central Statistics Agency
Food inflation stayed on a downward trajectory, easing to 12.24% (12.62% in Oct) as prices of chicken, chili and eggs slipped. These made up for a rise in housing and utility costs (5.94% vs. 5.37% in Oct), which reflected the quarterly hike in electricity tariffs. Inflation for clothing, health and education items also recorded small increases. With few clear upward risks to prices, headline inflation is likely to undershoot our end-2013 target of 8.8% to around 8.4%. With Bank Indonesia (BI) projecting an inflation rate of 9.2-9.8% following the fuel price hike, the milder inflation turnout will be a relief. Inflation is expected to moderate substantially in 2H14, giving room to reduce the BI rate to 7% by end 2014. Despite this, potential policy rate surprises in 1H14 remain on the upside given the need to address the current account deficit and the persistent weakness of the rupiah.
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 10
Jan 12
Jan 13
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 28
December 2, 2013
THAILAND
ECONOMIC UPDATE
CIMB Analyst(s)
Julia GOH
Given the benign inflation outlook and moderating household credit growth, there is room for monetary policy to mitigate downside risks to the economy.
Bank of Thailand, Monetary Policy Committee (MPC) Nov statement
Key subcomponents
In flatio n rate
Co re in flation
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 29
December 2, 2013
THAILAND
CIMB Analyst(s)
We like DTAC for its: 1) higher proportion of young and urban customers; 2) higher degree of regulatory cost-savings; 3) more conservative 3G capex; and 4) more aggressive capital management.
Bangkok Bank
A stronger balance sheet and efforts to raise its fee income make BBL attractive in the current volatile environment. Undemanding valuations also provide a buffer against downside.
Last month, we believed that the political crisis could last for some time and recommended a switch to more defensive stocks or those with less exposure to domestic demand. We retain that view and keep our 1,500 index target for end-CY14, based on 11.5x forward P/E, the markets last upcycle average. Our top picks are still BBL, IVL, PTTGC, BGH and DTAC. Over the weekend, anti-government protesters clashed with the redshirts (government supporters) in the Ram Kamheang area in eastern Bangkok, resulting in three deaths and the injury of about 50 people. Anti-government protesters are still rallying against the government in many areas, notably outside the Government House, Metropolitan Police Bureau and police headquarters. Over the weekend, the
police was forced to fire tear gas and water cannons at the crowds to prevent them from entering the premises.
What We Think
What Happened
We still believe that the government will not do anything; it will not arrest the protest leaders or use force to disperse the crowds. We also believe that Prime Minister Yingluck will not dissolve the House or resign. The redshirts decision to call off their rally on Sunday (1 Dec) confirms our view.
We remain cautious and advise investors to stick to defensive stocks. The timing of the political turmoil is unfortunate as it coincides with Thailands peak tourism season. If the situation drags on into 2014 (which we are expecting), the Thai economy will only suffer more.
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 30
December 2, 2013
INDIA
LONG TERM
CIMB Analyst(s)
Hero Motocorp
The strong rural demand and its aggressive line-up of new product launches will help it to surpass industry growth. With savings from royalties and its cost-cutting initiative, we expect our EPS estimates that are 10-12% above consensus to come through.
The fall in demand from the festival peak in Oct was worse than expected. Except for Hero and Mahindra tractors, all the companies in our coverage recorded a yoy dip in sales volumes. We recently downgraded the sector to Neutral, with Maruti and Hero Motocorp as our top picks. A continued sharp mom fall in trucks highlights our Reduce call on truck and truck component makers. All the companies in our coverage recorded a sharp mom drop as the festival euphoria has passed. The high base of last years festival season also led to a sharp yoy dip. Rural demand remains robust, as reflected in Hero Motocorps (5.6%) and Mahindra tractors (13%) growth. Contrary to our expectation, the major disappointments were Ashok Leyland (-28%), Eicher CV (-28%) and Tata Motors (-21%). Our channel checks indicate a relatively comfortable dealer inventory for Maruti and Hero Motocorp.
What Happened
With the best of the demand season behind us, the triggers for a revival in retail demand will be the marriage season, year-end discounts and new products. A strong new product pipeline, coupled with rural demand, augurs well for Hero Motocorp and Maruti. The collapse of MHCV sales volumes to the 2008 levels and the trend of declining LCV volumes concern us. Our top picks are Maruti and Hero Motocorp, due to their relatively superior sales volumes and attractive P/BV valuations. Tata Motors continued mom weakness across its domestic product lines and JLR reaching the peak of the benefits of its product mix in the near term are the reasons for our non-consensus Reduce ratings on the stocks. With the best of tractor demand behind Mahindra, we rate it a Reduce. A continued downcycle in the CV segment drives our Reduce ratings on Eicher, Bosch and Bharat Forge.
What We Think
Tata Motors
We feel that JLR is on the last leg of benefits from its enriched product mix, with RR sport ramping up and operational challenges from its China JV and Baby Jaguar underestimated at the current valuations. We rate it an Underperform as the business capital intensity risk is on the rise and its P/BV valuations are above the mean.
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 31
December 2, 2013
INDIA
LONG TERM
CIMB Analyst(s)
We retain our Neutral stance on the sector. We prefer a cheaper OIL India (6.5% dividend yield) over ONGC. As per media reports, the Gujarat High Court has directed ONGC to pay the royalty on crude produced onshore Gujarat on the gross billing rate and also to pay the underpaid amount for FY08-FY13. Under the current system, ONGC/OIL bear the fuel subsidy burden by providing a discount to OMCs on the crude purchased by the latter. Since royalty on crude (20% for onshore crude paid to respective state government & 10% for offshore crude paid to central govt.) is payable on the actual net back price to ONGC, the royalty liability is computed on the net oil price to the upstream companies (net of subsidy discount). The Gujarat state had contested this system, arguing that royalty should be paid on gross billing and not on the net (of subsidy) billing. Note that till FY08, royalty was paid on gross billing.
What Happened
Oil India
Our Add rating is based on its cheaper valuations (6.5% dividend yield) compared to the larger peer ONGC.
What We Think
applied on gross billing, then it might compensate upstream via a lower subsidy burden. It is unlikely that the upstream firms would be the ultimate losers in the state vs. the centre issue (subsidy sharing is driven by GOI's mandate). Yet, assuming this order applies, it would be negative for PSUs upstream earnings. Firstly the cumulative liability for FY08-FY13 for ONGC is Rs86bn or Rs7/share impact on book value (net of tax). Also, on a recurring basis, it would cut earnings by 5.5% (Rs2/sh) & DCF valuation by Rs16/sh. This assumes the new royalty basis would apply to all the onshore crude produced in the country and not just Gujarat crude (3.8% hit on EPS). It is logical to assume that other states would follow in Gujarat's footsteps. Similarly it would hit OILs EPS by Rs15/sh (24%) and DCF valuation by Rs45/sh apart from the one-time book value impact of Rs46/sh. Note, the higher impact on OIL is because the whole of its crude is produced in onshore assets, unlike ONGC for which onshore forms a smaller proportion. The royalty headwinds might subside if SC stays Gujarat HCs order, which is quite likely in our view. We maintain Hold on ONGC (target price of Rs290) and Add on OIL (target price of Rs530).
While the HC order is negative for ONGC/OILs earnings, we see little probability of its implementation. Firstly, ONGC is likely to appeal against this order in the Supreme Court (within 60 days). Also, we believe GOI would step in to resolve the dispute. Indeed, if royalty is
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Page 32
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The information contained in this research report is prepared from data believed to be correct and reliable at the time of issue of this report. CIMB may or may not issue regular reports on the subject matter of this report at any frequency and may cease to do so or change the periodicity of reports at any time. CIMB is under no obligation to update this report in the event of a material change to the information contained in this report. This report does not purport to contain all the information that a prospective investor may require. CIMB or any of its affiliates does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information and opinion contained in this report. Neither CIMB nor any of its affiliates nor its related persons shall be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof. This report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CIMB and its affiliates clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. The information and opinions in this report are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, related investments or other financial instruments thereof. Investors are advised to make their own independent evaluation of the information contained in this research report, consider their own individual investment objectives, financial situation and particular needs and consult their own professional and financial advisers as to the legal, business, financial, tax and other aspects before participating in any transaction in respect of the securities of company(ies) covered in this research report. The securities of such company(ies) may not be eligible for sale in all jurisdictions or to all categories of investors. Australia: Despite anything in this report to the contrary, this research is provided in Australia by CIMB Securities (Australia) Limited (CSAL) (ABN 84 002 768 701, AFS Licence number 240 530). CSAL is a Market Participant of ASX Ltd, a Clearing Participant of ASX Clear Pty Ltd, a Settlement Participant of ASX Settlement Pty Ltd, and, a participant of Chi X Australia Pty Ltd. This research is only available in Australia to persons who are wholesale clients (within the meaning o f the Corporations Act 2001 (Cth)) and is supplied solely for the use of such wholesale clients and shall not be distributed or passed on to any other person. This research has been prepared without taking into account the objectives, financial situation or needs of the individual recipient. France: Only qualified investors within the meaning of French law shall have access to this report. This report shall not be considered as an offer to subscribe to, or used in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of financial instruments and it is not intended as a solicitation for the purchase of any financial instrument. Hong Kong: This report is issued and distributed in Hong Kong by CIMB Securities Limited (CHK) which is licensed in Hong Kong by the S ecurities and Futures Commission for Type 1 (dealing in securities), Type 4 (advising on securities) and Type 6 (advising on corporate finance) activities. Any investors wishing to purchase or otherwise deal in the securities covered in this report should contact the Head of Sales at CIMB Securities Limited. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CHK has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CHK. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CHK. Unless permitted to do so by the securities laws of Hong Kong, no person may issue or have in its
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possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the securities covered in this report, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong). India: This report is issued and distributed in India by CIMB Securities (India) Private Limited (CIMB India) which is registered with SEBI as a stock-broker under the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 and in accordance with the provisions of Regulation 4 (g) of the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013, CIMB India is not required to seek registration with SEBI as an Investment Adviser. The research analysts, strategists or economists principally responsible for the preparation of this research report are segregated from the other activities of CIMB India and they have received compensation based upon various factors, including quality, accuracy and value of research, firm profitability or revenues, client feedback and competitive factors. Research analysts', strategists' or economists' compensation is not linked to investment banking or capital markets transactions performed or proposed to be performed by CIMB India or its affiliates. Indonesia: This report is issued and distributed by PT CIMB Securities Indonesia (CIMBI). The views and opinions in this research repo rt are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBI has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CIMBI. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBI. Neither this report nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesia residents except in compliance with applicable Indonesian capital market laws and regulations. Malaysia: This report is issued and distributed by CIMB Investment Bank Berhad (CIMB). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMB has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CIMB. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB. New Zealand: In New Zealand, this report is for distribution only to persons whose principal business is the investment of money or who, in the course of, and for the purposes of their business, habitually invest money pursuant to Section 3(2)(a)(ii) of the Securities Act 1978. Singapore: This report is issued and distributed by CIMB Rese arch Pte Ltd (CIMBR). Recipients of this report are to contact CIMBR in Singapore in respect of any matters arising from, or in connection with, this report. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBR has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only. If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBR.. As of December 2, 2013, CIMBR does not have a proprietary position in the recommended securities in this report. South Korea: This report is issued and distributed in South Korea by CIMB Securities Limited, Korea Branch ("CIMB Korea") which is licensed as a cash equity broker, and regulated by the Financial Services Commission and Financial Supervisory Service of Korea. The views and opinions in this research report are our own as of the date hereof and are subject to change, and this report shall not be considered as an offer to subscribe to, or used in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of financial investment instruments and it is not intended as a solicitation for the purchase of any financial investment instrument. This publication is strictly confidential and is for private circulation only, and no part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB Korea. Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The distribution of this report is not an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may not be forwarded to the public in Sweden. Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have not been and will not be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through a public offering or in circumstances which constitutes an offer or a placement within the meaning of the Securities and Exchange Law of the Republic of China that requires a registration or approval of the Financial Supervisory Commission of the Republic of China. Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (CIMBS). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBS has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CIMBS. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBS. Corporate Governance Report: The disclosure of the survey result of the Thai Institute of Directors Association (IOD) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result. Score Range: 90 100 80 89 70 79 Below 70 or No Survey Result Description: Excellent Very Good Good N/A United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates. United Kingdom and Europe: In the United Kingdom and European Economic Area, this report is being disseminated by CIMB Securities (UK) Limited (CIMB UK). CIMB UK is authorised and regulated by the Financial Services Authority and its registered office is at 27 Knightsbridge, London, SW1X 7YB. This report is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are persons that are eligible counterparties and professional clients of CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the Order); (c) are persons falling within Article 49 (2) (a) to (d) (high net worth companies, unincorporated associations etc) of the Order; (d) are outside the United Kingdom; or (e) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with any investments to which this report relates may otherwise lawfully be communicated or caused to be communicated (all such persons together being refe rred to as relevant persons). This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons.
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Only where this report is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does not constitute independent "investment research" under the applicable rules of the Financial Services Authority in the UK. Consequently, any such non-independent report will not have been prepared in accordance with legal requirements designed to promote the independence of investment research and will not subject to any prohibition on dealing ahead of the dissemination of investment research. United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S.-registered broker-dealer and a related company of CIMB Research Pte Ltd, CIMB Investment Bank Berhad, PT CIMB Securities Indonesia, CIMB Securities (Thailand) Co. Ltd, CIMB Securities Limited, CIMB Securities (Australia) Limited, CIMB Securities (India) Private Limited, and is distributed solely to persons who qualify as "U.S. Institutional Investors" as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc. Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. As at the time of publishing this report CIMB is phasing in an absolute recommendation structure for stocks (Framework #1). Please refer to all frameworks for a definition of any recommendations stated in this report.
Definition The stocks total return is expected to exceed 10% over the next 12 months. The stocks total return is expected to be between 0% and positive 10% over the next 12 months. The stocks total return is expected to fall below 0% or more over the next 12 months.
The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months. Sector Ratings Overweight Neutral Underweight Country Ratings Overweight Neutral Underweight Outperform Neutral Underperform Trading Buy Trading Sell Definition An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation. A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation. An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation. Definition An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark. A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark. An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark. The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 12 months. The stock's total return is expected to be within +/-5% of a relevant benchmark's total return. The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 12 months. The stock's total return is expected to exceed a relevant benchmark's total return by 3% or more over the next 3 months. The stock's total return is expected to be below a relevant benchmark's total return by 3% or more over the next 3 months.
* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons. CIMB Research Pte Ltd (Co. Reg. No. 198701620M)
Expected positive total returns of 10% or more over the next 12 months. Expected total returns of between -10% and +10% over the next 12 months. Expected negative total returns of 10% or more over the next 12 months. Expected positive total returns of 10% or more over the next 3 months. Expected negative total returns of 10% or more over the next 3 months.
** This framework only applies to stocks listed on the Korea Exchange, Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.
Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2012. AAV not available, ADVANC - Excellent, AEONTS Good, AMATA - Very Good, ANAN not available, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCH not available, BCP - Excellent, BEC - Very Good, BGH - not available, BJC Very Good, BH - Very Good, BIGC - Very Good, BTS - Excellent, CCET Good, CENTEL Very Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN - Excellent, DELTA - Very Good, DTAC - Very Good, EGCO Excellent, ERW Excellent, GLOBAL - Good, GLOW - Very Good, GRAMMY Excellent, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH Very Good, ITD Very Good, IVL - Very Good, JAS Very Good, KAMART not available, KBANK - Excellent, KK Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR - Good, MAKRO Very Good, MCOT - Excellent, MINT - Very Good, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - Excellent, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS Excellent, SAMART Excellent, SC Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI - Good, SPALI - Very Good, SRICHA not available, SSI not available, STA - Good, STEC - Very Good, TCAP - Very Good, THAI - Excellent, THCOM Very Good, TICON Very Good, TISCO - Excellent, TMB Excellent, TOP - Excellent, TRUE - Very Good, TTW Very Good, TUF - Very Good, VGI not available, WORK Good.
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