Asia Pacific Daily See important disclosures, including any required research certifications, beginning on page 26. 5 July 2013 Company Roadshows Date Company Event Venue 4-5 Jul Sansiri (SIRI TB) NDR SG 5 Jul Thai Oil PCL (TOP TB) NDR Tokyo 8-9 Jul Hanssem (009240 KS) NDR HK 10 Jul Hanssem (009240 KS) NDR SG 11 Jul S1 Corporation (012750 KS) Video Con. UK 12 Jul Geely (175 HK) Discovery Lunch HK 12 Jul Geely (175 HK) Video Con. Tokyo 12 Jul Geely (175 HK) Video Con. SG 12 Jul Geely (175 HK) Video Con. Taiwan 15 Jul Daphne (210 HK) NDR HK 16 Jul Daphne (210 HK) Video Con. Tokyo 16 Jul SinoMedia (623 HK) Luncheon HK 16 Jul SinoMedia (623 HK) Video Con. SG 18-19 Jul Ayala Corporation (AC PM) NDR Tokyo 23 Jul Cosco Pacific (1199 HK) Discovery Lunch HK 23 Jul Cosco Pacific (1199 HK) Video Con. SG 24 Jul Hilong (1623 HK) Discovery Lunch HK 24 Jul Hilong (1623 HK) Video Con. SG Daiwa Asian Events Date Company Venue 10-11 Jul Daiwa HK China Investment Seminar 2013 Tokyo 29-Aug Daiwa ASEAN Conference - HOSE Vietnam Corporate Day SG 19-20 Sep Daiwa India Corporate Day Tokyo 21-22 Oct Daiwa ASEAN Conference - Best of Indonesia 2013 Tokyo 23-25 Oct Daiwa ASEAN Conference - Best of Indonesia 2013 Toronto, New York 19-22 Nov Daiwa Investment Conference Hong Kong 2013 HK Source: Daiwa Regional indices Performance chg (%) EPS growth (%) PER (x) Market 1D 1M YTD 13E 14E 13E 14E HSI 1.6 (8.2) (9.7) 10.2 8.1 9.3 8.6 HSCEI 1.4 (14.4) (21.1) 8.9 9.2 5.8 5.3 SENSEX* 1.2 (0.7) (0.1) 10.7 15.5 13.6** 11.8** KOSPI 0.8 (7.6) (7.9) 28.9 19.1 9.0 7.6 TWSE (0.2) (3.6) 2.5 39.8 13.3 14.1 12.4 FSSTI 0.6 (4.4) (0.6) 1.5 9.5 13.9 12.7 ASX 200 1.1 (2.2) 3.1 (2.8) 10.0 14.4 13.1 TOPIX (0.3) 4.0 36.2 59.1 10.2 13.5 12.3 Source: Thomson Reuters *Valuation based on MSCI India **MSCI India price as of 3 Jul Analyst Rating Page Daiwa’s Banner Products P.2 Macro research Technical Daily Comment Eiji Kinouchi P.3 Kinouchi’s Technical Tips for Institutions Euro area wrap-up Economic Research Team P.4 Overview Other research Henderson Land (12 HK) Jonas Kan Buy P.6 The start of a relaxation of measures? Country Garden (2007 HK) Felix Lam Buy P.10 Expecting a strong 2H13 NTPC (NTPC IN) Saurabh Mehta Buy P.14 Improving long-term fuel security PTT Exp. & Production (PTTEP TB) Supanna Suwankird Sell P.18 Limited upside from Hess Japan equity research Isuzu Motors (7202 JP) Eiji Hakomori Buy P.19 See 1Q op profit topping firm’s target; recent domestic truck orders appear strong Analysts’ company visits P.20 Economic calendar – July 2013 P.21 Rating and target-price information P.22 Recently published reports P.22
Transcript
Asia Pacific Daily
See important disclosures, including any required research certifications, beginning on page 26.
5 July 2013 Company Roadshows
Date Company Event Venue 4-5 Jul Sansiri (SIRI TB) NDR SG 5 Jul Thai Oil PCL (TOP TB) NDR Tokyo 8-9 Jul Hanssem (009240 KS) NDR HK 10 Jul Hanssem (009240 KS) NDR SG 11 Jul S1 Corporation (012750 KS) Video Con. UK 12 Jul Geely (175 HK) Discovery
Lunch HK
12 Jul Geely (175 HK) Video Con. Tokyo 12 Jul Geely (175 HK) Video Con. SG 12 Jul Geely (175 HK) Video Con. Taiwan 15 Jul Daphne (210 HK) NDR HK 16 Jul Daphne (210 HK) Video Con. Tokyo 16 Jul SinoMedia (623 HK) Luncheon HK 16 Jul SinoMedia (623 HK) Video Con. SG 18-19 Jul Ayala Corporation (AC PM) NDR Tokyo 23 Jul Cosco Pacific (1199 HK) Discovery
Top Three-Year Buys in Asia: Broadening our horizons 12 April 2013
Our analysts stress-test their highest-conviction investment ideas on a three-year view
We provide fair-value estimates over the same horizon for 23 stocks in six markets in Asia ex-Japan
On near- and medium-term valuations, plus structural growth, AviChina, Liansu, Chailease, Jasmine Intl and Largan stand out
John Hetherington, CFA (852) 2773 8787 ([email protected]) Daiwa and Thanachart Securities Research Teams
Siam Senses
Thailand
Siam Senses: The Thai recipe 10 April 2013
Siam Senses expects the SET boom to continue and the recipe comprises four key drivers – fund inflows, the subprime economy, the wealth-creation effect and a strong expansion mentality. To us, risk is not a bubble burst but fund outflows and a new interest rate cycle. Our SET target is lifted to 1,700, which still offers a 3% yield.
Daiwa research is available electronically on Bloomberg, Reuters, Thomson One Analytics, FactSet, TMC, Capital IQ and Daiwa’s L-ZONE. Please contact your Daiwa sales representative for more information.
Recent gainers led overall weakness in Japan shares Japanese shares faced a modest setback at the opening. The US market fared well on Wednesday. This morning in Tokyo, however, media reports of political uncertainty in Egypt and possible collapse of the Portuguese government prompted investors to lock in gains generated by strong performance over the past week. Selling pressure was particularly strong among sectors that had advanced sharply over the past week, such as some real estate and financial stocks, steelmakers, and rubber products. The Nikkei Stock Average fell below 14,000 in early trading. It then erased some losses and moved around the 14,000 mark. We now see a near-term key technical level at 14,179, which represents a retracement of half of the decline from the 23 May intraday high of 15,942 to the 13 June intraday low of 12,415. Y/$ at key technical level The dollar climbed above Y100/$ but then fell below this level again. The exchange rate is currently close to its five-week earlier level. If history is a guide, the direction of the yen/dollar rate hinges on whether it breaks upside from the five-week earlier level. If it takes some time before the yen/dollar rate breaks above the key technical level, the yen could start to gain ground against the dollar through late July in line with the five-week earlier trend (see chart in Wednesday’s Tips).
Conversely, an upside breakout from the five-week rate would signal a short-term weakening trend for the yen, boding well for strength in shares of blue-chip exporters. Spotlight on trading houses if WTI breaks out from consolidation WTI crude futures have recently advanced sharply, rising above $100/bbl. Crude prices are approaching the apex of their triangle pattern that started since the Lehman crisis and appear set to break out from consolidation (see chart). Techincals suggest a possible sharp rise in crude futures. According to media reports, the recent increase in WTI crude futures reflects a decline in inventory in the US. Given dollar appreciation, it has also been driven by a recovery in the overall US economy, in our view.
In fact, it is now possible that the Fed will start winding down QE3 in the near term. Against this backdrop, interest-sensitive stocks have pulled back sharply, representing a great rotation of funds from this group of stocks to cyclicals (see 31 May Tips). In the US, such a great rotation coincided with a prominent rise in WTI futures in 1999-2000 (see oval in chart). Notably, the wholesale trade sector (trading houses) performed strongly in Tokyo during this period. When a recovery in the US economy comes into the spotlight in the stock market, buying interest tends to shift to blue-chip exporters. Additionally, trading houses and other basic materials-related stocks would also attract attention if an upside breakout of WTI crude futures is confirmed. (Comment following opening of morning session—4 July 2013)
Technical analysis / Japan
4 July 2013Japanese report: 4 Jul 13
Kinouchi’s Technical Tips for Institutions
Technical Daily Comment
• Y/$ at key technical level; spotlight on trading houses if WTI breaks out from consolidation
Source: Bloomberg; compiled by Daiwa.
98/117.82
00/937.20
03/337.83
06/777.03
08/7145.29
11/4113.93
12/2109.77
86.6813/4
10.7298/12
17.4501/11
50.4807/1
33.8708/12
75.6711/10
13/7101.24
10
160
20
40
60
80
100
120
140 WTI crude oil prices (monthly)
GreatRotation
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
($)
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Economic Research Team +44 20 7597 8326
Euro area
Portuguese party leaders talk
Today should have been all about European monetary policy, as the latest ECB Governing Council and BoE MPC meetings concluded. And while the announcements from both central banks proved noteworthy (see below) attention also inevitably remained on Portugal, where 10Y yields yesterday briefly rose above 8% for the first time since November as the government appeared on the verge of disintegration. After initial discussions yesterday evening, today brought further efforts at a rapprochement between the key protagonists of the political crisis – Prime Minister Coelho and Paulo Portas, the leader of Portugal’s coalition government junior partner CDS party whose resignation as foreign minister escalated the current crisis. So, there were hopes that a compromise might be found to keep
the government together and keep the Troika reform programme on track. Politics unpredictable
The whims of Portuguese politicians are hard to predict, however, and there is no precedent of a post-dictatorship Portuguese coalition government lasting a full term in office. Moreover, the contraction in Portuguese GDP this year is now expected to be at least twice as deep (more than 2%) as the government previously expected, pushing up both the debt stock and the unemployment rate (see charts), with further painful structural reforms demanded by the Troika. So, even if there is a deal to keep the government together over the near term, there will remain significant risks that the deal will collapse before too long, heralding early elections. No imminent fiscal crisis
With the Portuguese government having already raised sufficient funds to meet its budgetary needs this year, there is no risk of imminent fiscal collapse. And unlike Italy’s Five Star
Movement under comedian Beppe Grillo, no new populist party has emerged in Portugal since the crisis to challenge the country’s commitment to euro area membership. Therefore, while the main opposition Socialist party is currently leading in the polls, the policy platform of the government likely to emerge from any early election is unlikely to differ markedly from the current coalition. The government might also, in due course, find that the Troika is willing to let it go easier on the fiscal austerity. So, the current political spat might prove to be a temporary blip and need not lead to full-blown crisis. Nevertheless, the risks of a second Portuguese bailout in 2014 – together with the prerequisite restructuring of privately held bond debt – have without doubt increased. ECB leaves rates unchanged...
While events in Portugal provided the ECB with a timely reminder that the single currency’s crisis is far from over, recent sentiment surveys have suggested that, after six consecutive quarters, the euro area economy has
Portugal: General government debt Portugal and euro area: Unemployment rate
Source: IMF and Daiwa Capital Markets Europe Ltd. Source: Datastream
80
85
90
95
100
105
110
115
120
125
130
2009 2010 2011 2012 2013 2014
Programme review (June 2013) Original programme (June 2011)
Overview • European equities, Bunds and Gilts made gains after Draghi stated that
ECB rates will remain at present or lower levels for an extended period and the BoE stated that recent moves in market interest rates were not warranted by economic developments.
• Attention tomorrow will remain on political developments in Portugal and Greece’s troika negotiations. Data-wise, the latest German factory orders figures might be most notable.
Daily bond market movements
Bond Yield Change*
BKO 0 06/15 0.114 -0.052
OBL 0¼ 04/18 0.608 -0.054
DBR 1½ 05/23 1.650 -0.010
UKT 2¾ 01/15 0.384 -0.026
UKT 1¼ 07/18 1.369 -0.051
UKT 1¾ 09/22 2.384 -0.011
*Change from close as at 4.30pm BST. Source: Bloomberg
Euro area wrap-up 04 July 2013
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finally stopped contracting. So, there was no surprise that the ECB left its interest rates unchanged today. And, as was expected, the ECB also unveiled no new non-standard measures. …but offers forward guidance
The Governing Council also saw no need to change its assessment of the economic outlook, expecting only a gradual recovery to be underway by year-end, and anticipating that price pressures and credit dynamics would remain subdued. But recognising that the recent tightening of global money and financial market conditions – prompted by Bernanke’s comments on 19 June – might negatively affect economic conditions in the euro area, the Governing Council agreed unanimously a marked change from its previous habit of refusing to pre-commit on future policy. In particular, Draghi stated that the Governing Council expects the key ECB interest rates to remain at present or lower levels for an unspecified ‘extended period’. So, he left open the possibility of a future further cut in the refi rate to below the current 0.5% level, and/or a move to a negative deposit rate, if economic or monetary conditions demanded it. And repeating that the ECB would continue to provide ample liquidity to the market, Draghi left open the possibility of future LTROs too. Tomorrow in the euro area and US
In the euro area, focus tomorrow will remain on political developments at the periphery. In addition to the ongoing shenanigans in Portugal, in order to unlock the next tranche of its aid before more than €2bn of bonds mature in August, Greece’s government is set to continue talks with the troika in an attempt to demonstrate that it remains on track to meet its reform goals ahead of Monday’s Eurogroup meeting. Datawise, tomorrow brings German factory orders, Spanish industrial
production and French trade figures, all for May. In the US, when markets reopen tomorrow all eyes will be on the latest monthly employment report, which is expected to show that non-farm payrolls were up almost 170K in June, with the unemployment rate down 0.1ppt to 7.5%.
UK
Monetary policy unchanged, but post-meeting statement released
Today’s BoE meeting, the first chaired by new BoE Governor Mark Carney, unsurprisingly saw both rates and the asset purchase target left unchanged. But, in a sign of the new leadership, the MPC issued a post-meeting statement, unusual when there is no change in policy. And this perhaps gave a hint of how the Carney-led MPC will provide more guidance on policy than it ever did under Mervyn King. In particular, the statement was explicit that the recent upward move in the expected path of Bank Rate was “not warranted by the recent developments in the domestic economy”, a statement of the obvious, but one that saw Gilts rally hard on the back of, with 2Y yields dropping 9bps in the immediate aftermath of the announcement. There was also a hint of more in the way of explicit guidance to come. Having already been asked by the government to provide an assessment next month of the case for adopting some form of forward guidance, including the possible use of Fed-style intermediate thresholds, today’s statement implied that the August meeting would indeed see more formal forward guidance adopted. So, while the recent improvement in the UK’s economic outlook means that more QE seems unlikely in the near term, the MPC does look set to become much more explicit about how it views the future path of policy evolving, including
perhaps triggers for future action, providing greater certainty for both market participants and the general public about the MPC’s future actions. Tomorrow in the UK
It should be a quiet end to the week in the UK with no data due for release.
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■ What's new The government has announced (on 4 July) plans related to the development of the Designated New Development Areas (where Henderson Land [Henderson] owns land), and we see these main changes: 1) focusing on two areas (Kwu Tung and Fanling North) first, and 2) raising the plot ratio to a maximum of 6x (from 2-5x) and accepting joint development with private parties on selected sites. (See pg. 2 for details.) This could be positive for Henderson, in our view. ■ What's the impact A constructive step in the right direction. We think the changes are aimed at creating more residential units at a faster pace than before. We see them as a constructive step towards addressing the housing issue in Hong Kong, as in our view the key really lies in making more effective use of the land in the New Territories. Neutral for developers overall at this stage. The impact for the property developers would depend on how much of their land would be resumed and how much can be used
for joint development, as well as the price the government offers to buy the resumed land. We see the plans as neutral at this stage, although having some concrete proposals to start with should be better than none at all. Will this mark the start of a relaxation of government housing market measures? Mr C.Y. Leung noted in June that the government does not plan to remove its various measures because there is not yet a steady increase in the future supply of residential units. However, with the latest lengthening of the pre-sale period from 20 months to 30 months as well as this latest proposal (the number of units built is estimated to increase by about 13,400 units), we believe the drivers for a steady increase in the supply over time should start to fall into place. Henderson should be well-positioned. Of Henderson’s 5.1m sq ft of land area in the North East New Development areas, the largest part (over 2m sq ft) is in the Ping Che area, which is not included in this plan. Thus, we do not think the group would be affected much by the government’s proposal to buy out some of the land in these two areas. Indeed, given that Henderson Land owns as much as 42.8m sq ft of farmland, the most important issue for it, in our view, should be getting the government to recognise that making more effective use of the land in the New Territories is the way to address the housing issue. ■ What we recommend We consider it inevitable that more people will migrate to live in areas 40-90 minutes from the CBD in the development of metropolitan cities and that, as such, some farmland in the New Territories must have value; so must old buildings in the urban
area. We see Henderson as the best investment for this theme, and reaffirm our Buy (1) rating with a six-month target price of HKD61.18, based on a 30% discount to our end-2013E NAV of HKD87.45. The key risk to our view would be a major fall in property prices in Hong Kong. ■ How we differ We think the required conditions are building up for the government to relax some of its property measures, and see this as a potential share-price catalyst for Henderson that seems yet to be recognised by the market.
4 July 2013
The start of a relaxation of measures?
• Revised proposals are aimed at boosting future housing supply
• A constructive step in the right direction, in our view
Centa-City Leading (CCL) Index vs. four major developers’ share price performance (to week ended 23 June 2013)
North East New Territories New Development Areas
Source: Datastream, Daiwa estimates Source: Hong Kong SAR Government
North East New Territories New Development Areas: major planning parameters New Development Area
Kwu Tung North Fanling North Ping Che / Ta Kwu Ling Total
Development theme Mixed development node Riverside township Quality business / residential area Major land uses Residential, commercial, R&D, and nature
park Residential, government facilities Special industries, industries
2-5 2-6 +0-4x Total land area (ha.) 450 450 No change 166 164 -1% 171 616 614 -0.3% Population (no.) 81,900 101,600 +24% 52,100 73,300 +41% 17,600 134,000 174,900 +31% Total no. of residential units
Henderson Land is one of the largest property companies in Hong Kong and has diversified investments in the residential-, office- and retail-property sectors. It is the largest holder of agricultural land in Hong Kong currently and also the largest shareholder in HK and China Gas as well as Miramar Hotel and HK Ferry. In recent years, Henderson Land has been increasing its investment in China property, and has a landbank of more than 100m sq ft in the country currently.
■ What's new Country Garden achieved contracted sales of CNY33.7bn for 1H13 (up 94% YoY), accounting for 54% of the company’s full-year 2013 target and 53% of our forecast for 2013. The sell-through rate of new launches, including brand new projects and new phases of existing projects, was 60-70%. In 2H13, the company will continue to have new launches, of which the main ones will be Malaysia projects and Ten Miles Gold Coast in Shandong Province. ■ What's the impact Country Garden’s contracted sales YTD impressed us, not only in terms of the amount but also on the ASP and geographical mix. We estimate that its contracted ASP for 1H13 was over CNY6,600/sq m, up 9% YoY and 6% above our forecast. In terms of the geographical split, 45% of the contracted revenue was generated outside Guangdong Province. Country Garden would like to achieve an equal split in contracted revenue between Guangdong and other areas. This could be reached by end-2013 at the earliest, in our view.
We see upside to our forecasts for contracted sales for 2013 and net income for 2014. If we exclude the exceptionally strong contracted sales in January (CNY7.3bn), based on just the run-rate for February-June (CNY5.3bn on average with a CNY4.7-5.9bn range), its contracted sales for 2013 could reach CNY65bn. Country Garden expanded its territory to Malaysia last year. It plans to launch the Danga Bay project in Johor Bahru first in July-August. It has already received 3,000 subscriptions to reserve the units for Phase 1 of the project, of which most are from its existing customers in China. We estimate an ASP of CNY10,000-11,000 per sq m for Phase 1. The Danga Bay project will have 9,000 units in total and will be developed into phases. Country Garden also plans to launch its other two projects in Malaysia later this year. Ten Miles Gold Coast in Shandong is another key new project due to be launched in 2H13 (more likely in 4Q13). It is located in Haiyang, a coastal city between Yantai and Qingdao City. The ASP and GFA for the launch have yet to be finalised. ■ What we recommend Trading at just a 1.1x PBR for 2014E, with ROE forecast by us at about 20% for 2013-15, and at a 2013E dividend yield of 5.3% based on our DPS, we continue to see Country Garden as a very attractive stock and reiterate our Buy(1) rating. Our six-month target price of HKD5.50 is based on a 20% discount to our end-2013E NAV. Country Garden is one of our four top sector picks. We see a sharp rise in its inventory level as a key risk. Investors have increasing concerns about the financing situation of China property developers given the issues
of China’s interbank market and its shadow banking system. Yet we believe the impact is fairly limited for Country Garden given its small exposure to trust loans (less than CNY2bn at end-2012) and its fairly healthy-looking balance sheet. ■ How we differ We are more optimistic than the market on its contracted sales growth and expansion in Malaysia. We would see strong sales for its Danga Bay project as a very positive catalyst as we believe the project is not well-appreciated by analysts.
4 July 2013
Expecting a strong 2H13
• About 54% of 2013 contracted sales target achieved in 1H13
• Successful launch of its first Malaysia project would be a strong share-price catalyst
Country Garden was listed on the Hong Kong Stock Exchange in April 2007 and is an integrated property development company with the construction business having started in Guangdong Province. Its business comprises construction, decoration, project development, property management, as well as hotel development and management.
■ What's new NTPC is the prime beneficiary of the government’s recent coal block allocations (on 3 July 2013). Out of the 14 coal blocks allocated with reserves totalling 7.8bn tonnes, NTPC has been allocated four coal blocks (with about 25% of the total reserves), which will help to secure its long-term coal requirements, especially for 8.5GW of its capacity. (See also our note: A buying opportunity, of 4 February 2013.) ■ What's the impact Background. In December 2012, the Ministry of Coal (MoC) had invited applications for auctions of 17 coal blocks to government companies through a competitive bidding process. Under the auction process, NTPC has been allocated four coal blocks with combined reserves of about 2bn tonnes.
NTPC: new coal blocks allocated Mine State Reserves (mt)Bhalumuda Chhattisgarh 550Banai Chhattisgarh 629Chandrabila Odisha 550Kudanali-Luburi Odisha 266
Source: Press Information Bureau of India
Long-term fuel supply looks secured. 1) The allocation of these four blocks should secure NTPC’s long-term fuel requirements. This follows the MoC’s prior approval given in principle for the allocation of coal mines for nearly 8.5GW of capacity to be commissioned post FY17. NTPC: projects in-principle approved by MoC for allocation of coal mines Project Capacity (MW)Kudgi 2,400 Gadarwara 1,600 Barethi 3,960 Unchahar - Stage-IV 500 Total 8,460
Source: Company
2) With NTPC and Coal India (CIL) having agreed to sign fuel-supply agreements (FSA) for about 10GW of capacity commissioned post March 2009, this removes uncertainty on fuel supply for NTPC’s plants commissioned since then (see pg. 2). 3) Further, the start of production from existing captive mines (detailed on pg. 2) will help secure fuel for about 2.5GW of NTPC’s capacities that do not have letters of allocation (LoA) from CIL. NTPC: 12th FYP capacities that do not have LoAs Plant MWBarh-1 Unit 3 660Vindhayachal - V 500Barh - II Unit 1 660Barh - II Unit 2 660Total 2480
Source: Company
■ What we recommend Post its share-price correction over the past month, NTPC’s FY14E PBR
of 1.4x (past-8-year trough) looks compelling, as does its dividend yield. We reaffirm our Buy (1) rating and SOTP-based six-month target price of INR178. NTPC is still our top sector pick. Further delays than expected in projects commissioning would be a risk. ■ How we differ Our FY14-15E EPS are 3-4% above the Bloomberg consensus ones, probably because we expect a more limited fall in incentive income.
4 July 2013
Improving long-term fuel security
• Allocation of coal mines should assure long-term fuel security
• Also, recent FSA approvals by NTPC and Coal India remove fuel supply uncertainty on about 10GW of its capacity
Forecast revisions (%)Year to 31 Mar 13E 14E 15ERevenue change - - -Net profit change - - -Core EPS (FD) change - - -
75
84
93
101
110
135
145
155
165
175
Jul-12 Oct-12 Jan-13 Apr-13 Jul-13
Share price performance
NTPC (LHS)Relative to SENSEX Index (RHS)
(INR) (%)
12-month range 138.10-174.35Market cap (USDbn) 19.733m avg daily turnover (USDm) 12.73Shares outstanding (m) 8,245Major shareholder President of India (75.0%)
NTPC had already signed FSAs with CIL for capacities that were commissioned up to March 2009. Of the coal-based capacities that have been commissioned between March 2009 and March 2013 (6.9GW), NTPC has LoAs from CIL. However, of the capacities being commissioned between April 2013 and March 2017 (6GW, on our forecasts), only 2.5GW does not have LoAs from CIL and their fuel requirements (around 14m tonnes) are likely to be sourced from the ramp-up of coal from NTPC’s captive mines. NTPC: coal mapping for standalone capacity additions Periods of capacity commissioning MW FSA (m tonnes) New FSA (m tonnes) Captive coal (m tonnes) CommentCapacities up to March 2009 (old FSA) 23,895 125 - - 114.7MT with CIL and 10.2MT with SCCLCapacities between March 2009-March 2013 (with LoA) 6,960 - 30.1 - NTPC receiving coal under MoU route until new FSA is signedCapacities between April 2013-March 2017 (with LoA) 3,570 - 14.9 -Capacities between April 2013-March 2017 (without LoA) 2,480 - - 14 Supply expected to be met from ramp-up of captive minesTotal 36,905 125 45 14
Source: Company, MoC
NTPC: receipts of coal against annual contracted quantity CIL: trend in dispatches
Source: Company Source: Company
NTPC: status of existing captive mines
Mine Reserves
(m tonnes) PRC (m tonnes)
Approval of mining plan
Forest clearance
Environmental clearance
Land acquisition
Mine developer & operator
Start of production Remarks
Pakri Barwadih 1,436 15 √ √ √ Not complete √ 2013
Resettlement & Rehabilitation plan has been cleared by government of Jharkhand. Hazaribaug-Banadag Railway-link – Indian Railways has started construction work. Media reports suggest that work has been stalled at the site due to opposition from local residents.
NTPC is India's largest power utility company, with operational capacity of 37GW and targets to add 14GW of capacity in 12th Five Year Plan. The company generates bulk electricity and in turn sells it to state electricity boards. It operates on regulated return business model, with a fixed ROE of 15.5%.
We see no fundamental change in PTTEP’s operations with a lackluster medium-term oil price outlook on a weak Chinese economy. The acquisition of Hess’s assets, if successful, would only bring slight upside to our earnings forecast, in our view.
Big picture remains unchanged Our view on PTTEP’s business remains unchanged. We see the company offering soft earnings growth while it’s in a low RoE cycle given a falling margin as a result of rising operating costs from overseas investments in their early operational stages. With attempts to find new reserves and grow production as domestic gas in the Gulf of Thailand starts running out, PTTEP plans to continue a long period of heavy investment capex for exploration and production overseas and onshore domestic projects. We don’t see oil prices as a push factor for the share price in the medium term given the slowdown in China’s economy dulling commodity prices. We maintain our SELL call with a 12-month DCF SoTP TP of Bt140. At 10.6x 2013F PE, PTTEP also doesn’t look cheap compared with China National Offshore Oil Corp’s (883 HK) 9.3x and Cairn India’s (CAIRN IN) 4.8x, per the Bloomberg consensus.
We see Montara contributing a loss Montara finally started up commercially on 20 June, which we see as good news, although we believe the market is too positive about its earnings contribution. With estimated depreciation expenses of US$80/bbl and operational costs of US$10-15/bbl, we expect Montara to contribute a bottom-line loss to PTTEP in 2013 based on the current Dubai oil price hovering around US$100/bbl. Note that Montara should produce 12,000bpd of oil in 2013, 25,000bpd in 2014 and 2015, falling to 7-8,000bpd in the next two years before running out in 2018.
Upside from M&As but not too exciting Given that PTTEP already has an ownership stake in the two Thai assets (see pg 2) and has expressed a desire to expand its asset base, we expect PTTEP to bid for US-based Hess’s planned asset sales in Thailand and Indonesia. 1) Both assets are operational and thus could immediately lift PTTEP’s earnings. 2) As PTTEP is familiar with the assets in Thailand (Pailin and Sinphuhorm), we expect it to propose bid prices that yield reasonable returns. Hess has set the bid deadline for mid-July, according to Reuters. We roughly estimate the assets would add just 7-8% to PTTEP’s earnings based on our assumption of a 15% ROI on the US$1bn acquisition cost (based on the company’s preparations for a US$600-700m credit line as part of its funding sources). We see these asset values already being reflected in the share price.
2Q13F earnings preview We forecast PTTEP to post net profits of Bt13bn in 2Q13 (from Bt20bn in 1Q13) on a drop in oil prices (Dubai was down US$8/bbl from 1Q13 to US$100) and huge unrealized forex items estimated at Bt4.5bn-5.0bn. Excluding the extra items, we project its norm earnings at Bt16bn, dropping by 6% q-q. This would bring results in 1H13 to Bt33bn, or to 56% of our full-year earnings forecast.
COMPANY VALUATION
Y/E Dec (Bt m) 2012A 2013F 2014F 2015F
Sales 212,537 233,990 253,440 269,917
Net profit 57,316 59,467 60,385 61,459
Consensus NP ⎯ 64,144 67,896 62,038
Diff frm cons (%) ⎯ (7.3) (11.1) (0.9)
Norm profit 60,090 59,467 60,385 61,459
Prev. Norm profit ⎯ 59,467 60,385 61,459
Chg frm prev (%) ⎯ 0.0 0.0 0.0
Norm EPS (Bt) 17.6 15.0 15.2 15.5
Norm EPS grw (%) 31.2 (15.1) 1.5 1.8
Norm PE (x) 9.0 10.6 10.5 10.3
EV/EBITDA (x) 3.9 4.2 3.9 3.8
P/BV (x) 1.9 1.7 1.6 1.4
Div yield (%) 3.7 3.8 3.8 3.9
ROE (%) 22.8 17.2 15.8 14.7
Net D/E (%) 13.8 14.2 12.8 10.5
PRICE PERFORMANCE
COMPANY INFORMATION
Price as of 4-Jul-13 (Bt) 159.00
Market cap (US$ m) 20,303.2
Listed shares (m shares) 3,970.0
Free float (%) 34.7
Avg daily turnover (US$ m) 30.6
12M price H/L (Bt) 174.5/141.0
Sector Energy
Major shareholder PTT Pcl 65.3%
Sources: Bloomberg, Company data, Thanachart estimates
100
120
140
160
180
200
Jul-12 Nov-12 M ar-13 Jul-13
(Bt/shr)
(60)(50)(40)(30)
(20)(10)010
(%)PTTEP Rel to SET Index
Th
an
ach
art
Sec
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ties
Th
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See 1Q op profit topping firm’s target; recent domestic truck orders appear strong Eiji Hakomori (81) 3 5555-7072 [email protected]
• 1Q op profit likely reached Y43
bil, in line with or narrowly above firm’s target
• Expect firm to retain FY13 projections, but domestic orders likely brisk
• Stock again undervalued after pullback on concern over emerging markets
What’s new This report presents our outlook on Isuzu ahead of the upcoming 1Q FY13 earnings release, based on recent trends and an interview with company officials. What’s the impact We forecast roughly Y43 billion in operating profit for 1Q FY13 (vs. Y28.1 bil in 1Q FY12; firm projects Y80 bil for 1H FY13). We suspect that this would be either in line with or slightly above the firm’s 1Q target, given that it typically sees little q/q change in profit between 1Q and 2Q. Vehicle sales volumes were probably broadly in line with management’s outlooks for all markets in 1Q. Domestic truck sales were down 2% y/y to 11,600 units. Growth in
pickup truck sales may have softened the overall decline, which owed largely to lower standard truck sales, partly due to a difficult y/y comparison (new-car subsidies boosted commercial truck sales in 1Q FY13). Faced with a difficult y/y comparison, overseas operations likely suffered a y/y drop of nearly 10% in export volume for commercial vehicles (trucks), though local sales have apparently been brisk. On the other hand, shipment volume for light commercial vehicles (LCV; pickup trucks; mainly shipped to Thailand) probably rose by about 10% as a result of near-full capacity utilization, partly due to a backlog of orders placed amid Thailand’s tax credit program. The ongoing improvement in margins for LCV sales in Thailand since 4Q FY12 likely offset a drag on operating profit from lower exports and a worsened sales mix for domestic truck operations. We think benefits from the weak yen and streamlining efforts will have boosted profit in the absence of any severe drags from cost items. 1Q FY13 earnings may have been slightly stronger than the firm expected, due to differences in currency effects and the timing of cost booking. Nonetheless, we think management will retain its FY13 projections, as overall earnings are probably broadly on pace with its outlook, and visibility on economic trends in emerging markets appears clouded. That said, recent analysis suggests that domestic orders have also been improving recently at other truck manufacturers besides Isuzu (firm assumes no y/y change in domestic
market size in FY13). This likely owes partly to post-quake reconstruction and replacement demand. However, as suggested at Isuzu’s analyst meeting in early FY13, LCV orders from Thailand have apparently been slightly weaker than management initially expected. We plan to revisit our earnings estimates after the 1Q earnings release, but any revisions to our figures will probably be minor. We expect FY13 earnings to be roughly in line with the firm’s projections,
China Cement and Steel Weekly Living in the headwinds 9 3-Jul-13Singapore REIT Sector Recalibrating investment stance 48 3-Jul-13Pan-Asia Autos Sector Where do we see most value? 64 2-Jul-13Singapore Banks Sector NIM: light at the end of the tunnel 43 1-Jul-13Discovery Asia small-cap weekly 23 28-Jun-13Korea Banks Sector Woori privatisation: one step closer 25 26-Jun-13Korea Retail Sector Structural growth provides a sweet spot 65 26-Jun-13The Link REIT A buying opportunity 32 25-Jun-13China Cement and Steel Weekly Seasonal factors set to dominate 9 24-Jun-13Metro Pacific Investments Initiation: the Midas touch 20 21-Jun-13Titan Industries Major regulatory overhang finally seems behind us 12 21-Jun-13Discovery Asia small-cap weekly 18 21-Jun-13Shriram Transport Finance Changing for the better 15 20-Jun-13Chow Tai Fook Jewellery Refocusing on fundamentals 14 19-Jun-13Eicher Motors Powered by Royal Enfield 14 19-Jun-13Pan-Asia Strategy Weak-Yen plays to fly higher 72 18-Jun-13Discovery Asia small-cap weekly 13 14-Jun-13China Cement and Steel Weekly Demand faces headwinds 9 10-Jun-13Asian Paints Sales and earnings should improve, but valuation looks rich 16 10-Jun-13Discovery Asia small-cap weekly 14 7-Jun-13
*The 20 most recent reports published by Daiwa
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Daiwa’s Asia Pacific Research Directory
SOUTH KOREA
Chang H LEE (82) 2 787 9177 [email protected] Head of Korea Research; Strategy
Sung Yop CHUNG (82) 2 787 9157 [email protected] Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; Shipbuilding; Steel
Adrian LOH (65) 6499 6548 [email protected] Head of Singapore Research, Regional Head of Oil and Gas; Oil and Gas (ASEAN and China); Capital Goods (Singapore)
Ramakrishna MARUVADA (65) 6499 6543 [email protected] Head of ASEAN & India Telecommunications; Telecommunications (ASEAN & India)
HONG KONG
Hiroaki KATO (852) 2532 4121 [email protected] Regional Research Head
John HETHERINGTON (852) 2773 8787 [email protected] Regional Deputy Head of Asia Pacific Research; Regional Head of Product Management
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Jonas KAN (852) 2848 4439 [email protected] Head of Hong Kong Research; Head of Hong Kong and China Property; Regional Property Coordinator; Property Developers (Hong Kong)
Jeff CHUNG (852) 2773 8783 [email protected] Automobiles and Components (China)
Grace WU (852) 2532 4383 [email protected] Head of Greater China FIG; Banking (Hong Kong, China)
Jerry YANG (852) 2773 8842 [email protected] Banking (Taiwan)/Diversified Financials (Taiwan and China)
Joseph HO (852) 2848 4443 [email protected] Head of Industrials and Machineries (Hong Kong, China); Capital Goods –Electronics Equipments and Machinery (Hong Kong, China)
Winston CAO (852) 2848 4469 [email protected] Capital Goods – Machinery (China)
Kelvin LAU (852) 2848 4467 [email protected] Head of Transportation (Hong Kong, China); Hong Kong and China Research Coordinator; Transportation (Regional)
Jibo MA (852) 2848 4489 [email protected] Head of Custom Products Group; Custom Products Group
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Japan: Notes concerning market data and investment indicators Estimates by Daiwa Shares outstanding: Common shares outstanding (excl. treasury stock) Market cap: Based on shares outstanding and closing price as of indicated date EV: Market cap + interest-bearing debt – liquidity on hand EBITDA: Operating profit + depreciation ROE: Net income / average of start-FY and end-FY shareholders’ equity (for SEC-reporting firms net income attributable to shareholders
of the parent / average of start-FY and end-FY shareholders’ equity) Share Price Chart and per-share figures retroactively adjusted to reflect stock splits/reverse stock splits
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This report is distributed in the U.S. by Daiwa Capital Markets America Inc. (DCMA). It may not be accurate or complete and should not be relied upon as such. It reflects the preparer’s views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DCMA’s views at any time. Neither DCMA nor the preparer has any obligation to update this report or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives, financial situation and needs. This report does not recommend to U.S. recipients the use of any of DCMA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (telephone 212-612-7000).
Ownership of Securities
For “Ownership of Securities” information please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Investment Banking Relationships
For “Investment Banking Relationships” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
DCMA Market Making
For “DCMA Market Making” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Research Analyst Conflicts
For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions.
Research Analyst Certification
For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report. The following explains the rating system in the report as compared to relevant local indices, based on the beliefs of the author of the report. "1": the security could outperform the local index by more than 15% over the next six months. "2": the security is expected to outperform the local index by 5-15% over the next six months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next six months. "4": the security is expected to underperform the local index by 5-15% over the next six months. "5": the security could underperform the local index by more than 15% over the next six months.
For stocks in Thailand covered by Thanachart Securities, the following rating system is in effect:
Ratings are based on absolute upside or downside, which is the difference between the target price and the current market price. If the upside is 10% or more, the rating is BUY. If the downside is 10% or more, the rating is SELL. For stocks where the upside or downside is less than 10%, the rating is HOLD. Unless otherwise specified, these ratings are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal rating.
For the sector, Thanachart looks at two areas, ie, the sector outlook and the sector weighting. For the sector outlook, an arrow pointing up, or the word “Positive”, is used when Thanachart sees the industry trend improving. An arrow pointing down, or the word “Negative”, is used when Thanachart sees the industry trend deteriorating. A double-tipped horizontal arrow, or the word “Unchanged”, is used when the industry trend does not look as if it will alter. The industry trend view is Thanachart’s top-down perspective on the industry rather than a bottom-up interpretation from the stocks that Thanachart covers. An “Overweight” sector weighting is used when Thanachart has BUYs on majority of the stocks under its coverage by market cap. “Underweight” is used when Thanachart has SELLs on majority of the stocks it covers by market cap. “Neutral” is used when there are relatively equal weightings of BUYs and SELLs.
Ownership of Securities
For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Investment Banking Relationships
For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Relevant Relationships (TNS)
TNS may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage.
TNS market making
TNS may from time to time make a market in securities covered by this research. Additional information may be available upon request.
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