Asia Pacific Daily See important disclosures, including any required research certifications, beginning on page 39. 21 May 2014 Other research Hong Kong Property Sector Jonas Kan Positive P.2 Office: first segment to adjust and first to see a comeback? China Cement and Steel Weekly Felix Lam P.4 Neither getting better nor worse Tingyi Cayman Islands (322 HK) Anson Chan Not Rated P.5 Highlights of CEO’s strategy presentation Mega Financial (2886 TT) Jerry Yang Buy P.7 Core business may have attracted strategic investor Coland Holdings (4144 TT) Christine Wang Not Rated P.11 New products ahead UMW-OG (UMWOG MK) Isaac Chow Sell P.13 Results in-line, maintain SELL on stretched valuation MRCB (MRC MK) Ong Keng Wee Buy P.14 Stronger property profit but E&C still a drag AirAsia X (AAX MK) Sharifah Farah Sell P.15 Flying in the red Siam Global House Pcl (GLOBAL TB) Siriporn Arunothai Sell P.16 More earnings cuts Japan equity research Mitsubishi Electric (6503 JP) Hirosuke Tai Neutral P.17 Profitability target unimpressive Nippon Sheet Glass (5202 JP) Toru Sugiura Outperform P.19 Recent sell-off makes stock more attractive Macro research Siam Senses Pimpaka Nichgaroon P.22 Better the devil you know Taiwan Economy Christie Chien P.23 Higher export order growth for April Technical Daily Comment Eiji Kinouchi P.24 Kinouchi’s Technical Tips for Institutions Euro wrap-up Robert Kuenzel P.26 Overview Memos – quick updates CT Environmental (1363 HK) Dennis Ip P.28 Stake increase in Yinglong WWT should be EPS accretive for 2015-16E Galaxy Entertainment Group (27 HK) Alison Law P.29 1Q14 revenue beats consensus, and EBITDA broadly in line; Phase 2 on track Daiwa’s Banner Products P.31 Analysts’ company visits P.32 Economic calendar – May 2014 P.33 Rating and target-price information P.34 Recently published reports P.35 Company Roadshows 20-22 May Mitrabahtera Segara Sejati (MBSS IJ) NDR US 20-22 May KT Corp (30200 KS) NDR Tokyo 22-23 May Cromwell Property Group (CMW AU) NDR Tokyo 22-23 May SP Ausnet (SPN AU) NDR Tokyo 22-27 May Bank Negara Indonesia (BBNI IJ) NDR US 27 May Worley Parsons (WOR AU) NDR Tokyo 27 May 21Vianet (VNET US) Video Con. SG 27-28 May 21Vianet (VNET US) NDR HK 3 Jun Philippine Long Distance Tel (TEL PM) NDR EU 5-6 Jun China Suntine (956 HK) NDR Taipei 9-13 Jun Gallant Ventures (GALV SP) NDR US 10-13 Jun Thai Beverage PCL (THBEV SP) NDR US 12-13 Jun Bank Tabungan Negara Persero (BBTN IJ) NDR Tokyo 13 Jun Yoma Strategic (YOMA SP) NDR US Daiwa Asian Events Date Company Venue 21-23 May Daiwa Small/Mid Cap Corporate Day HK 26-27 May Daiwa ASEAN Conference - Thailand Corporate Day 2014 Tokyo 27-28 May Daiwa Investment Conference New York 2014 New York 30 May Daiwa Investment Conference San Francisco 2014 San Francisco 2-3 Jun Daiwa Investment Conference London 2014 London 11 Jun Daiwa-Bahana Indonesia Corporate Day: Political Beneficiaries Jakarta 12-13 Jun Daiwa Taiwan Growth Focus Corporate Day Tokyo 16 Jun Daiwa Korea Corporate Day 2014 SG Source: Daiwa Regional indices Performance chg (%) EPS growth (%) PER (x) Market 1D 1M YTD 13E 14E 13E 14E TPX 0.3 (1.7) (11.4) 9.0 10.9 13.1 11.8 HSCEI (0.3) (1.9) (8.6) 7.7 8.4 5.9 5.5 HSI 0.6 0.3 (2.0) 5.9 8.2 10.2 9.4 KOSPI (0.2) 0.3 (0.0) 34.2 16.8 10.6 9.1 TWSE (0.1) (0.9) 3.2 13.7 9.8 14.4 13.1 SENSEX* 0.1 7.7 15.1 15.4 14.6 15.7** 13.7** FSSTI 0.1 0.4 3.1 7.5 9.7 14.2 12.9 FBMKLCI* (0.3) 1.5 0.8 4.5 10.2 16.3** 14.8** SET* (1.1) (1.0) 7.4 10.2 12.1 12.4** 11.0** PCOMP* 0.2 3.2 16.9 6.9 14.6 20.0** 17.5** JCI* (2.4) (0.0) 14.5 10.9 12.9 14.9** 13.2** AS51 0.2 (0.6) 1.3 8.2 7.9 15.8 14.6 Source: Thomson Reuters *Valuation based on MSCI Universe **MSCI index priced as of 19 May
Transcript
Asia Pacific Daily
See important disclosures, including any required research certifications, beginning on page 39.
21 May 2014
Other research
Hong Kong Property Sector Jonas Kan Positive P.2 Office: first segment to adjust and first to see a comeback?
China Cement and Steel Weekly Felix Lam P.4 Neither getting better nor worse
Tingyi Cayman Islands (322 HK) Anson Chan Not Rated P.5 Highlights of CEO’s strategy presentation
Mega Financial (2886 TT) Jerry Yang Buy P.7 Core business may have attracted strategic investor
Coland Holdings (4144 TT) Christine Wang Not Rated P.11 New products ahead
UMW-OG (UMWOG MK) Isaac Chow Sell P.13 Results in-line, maintain SELL on stretched valuation
MRCB (MRC MK) Ong Keng Wee Buy P.14 Stronger property profit but E&C still a drag
AirAsia X (AAX MK) Sharifah Farah Sell P.15 Flying in the red
Siam Global House Pcl (GLOBAL TB) Siriporn Arunothai Sell P.16 More earnings cuts
Japan equity research
Mitsubishi Electric (6503 JP) Hirosuke Tai Neutral P.17 Profitability target unimpressive
Nippon Sheet Glass (5202 JP) Toru Sugiura Outperform P.19 Recent sell-off makes stock more attractive Macro research
Siam Senses Pimpaka Nichgaroon
P.22 Better the devil you know
Taiwan Economy Christie Chien P.23 Higher export order growth for April
Euro wrap-up Robert Kuenzel P.26 Overview Memos – quick updates
CT Environmental (1363 HK) Dennis Ip P.28 Stake increase in Yinglong WWT should be EPS accretive for 2015-16E
Galaxy Entertainment Group (27 HK) Alison Law P.29 1Q14 revenue beats consensus, and EBITDA broadly in line; Phase 2 on track
Daiwa’s Banner Products P.31 Analysts’ company visits P.32 Economic calendar – May 2014 P.33 Rating and target-price information P.34 Recently published reports P.35
Company Roadshows 20-22 May Mitrabahtera Segara Sejati
(MBSS IJ) NDR US
20-22 May KT Corp (30200 KS) NDR Tokyo22-23 May Cromwell Property Group
(CMW AU) NDR Tokyo
22-23 May SP Ausnet (SPN AU) NDR Tokyo22-27 May Bank Negara Indonesia (BBNI IJ) NDR US 27 May Worley Parsons (WOR AU) NDR Tokyo27 May 21Vianet (VNET US) Video Con. SG 27-28 May 21Vianet (VNET US) NDR HK 3 Jun Philippine Long Distance Tel
(TEL PM) NDR EU
5-6 Jun China Suntine (956 HK) NDR Taipei9-13 Jun Gallant Ventures (GALV SP) NDR US 10-13 Jun Thai Beverage PCL (THBEV SP) NDR US 12-13 Jun Bank Tabungan Negara Persero
(BBTN IJ) NDR Tokyo
13 Jun Yoma Strategic (YOMA SP) NDR US
Daiwa Asian Events
Date Company Venue 21-23 May Daiwa Small/Mid Cap Corporate Day HK 26-27 May Daiwa ASEAN Conference - Thailand
Corporate Day 2014 Tokyo
27-28 May Daiwa Investment Conference New York 2014
New York
30 May Daiwa Investment Conference San Francisco 2014
San Francisco
2-3 Jun Daiwa Investment Conference London 2014 London 11 Jun Daiwa-Bahana Indonesia Corporate Day:
Political Beneficiaries Jakarta
12-13 Jun Daiwa Taiwan Growth Focus Corporate Day Tokyo 16 Jun Daiwa Korea Corporate Day 2014 SG Source: Daiwa
See important disclosures, including any required research certifications, beginning on page 3
■ What's new China financial institutions have continued to lease spaces in Central in recent months, and 2 leasing deals announced on 19 May have resulted in some 22,000 sq ft and 13,107 sq ft of office spaces being taken up in Pacific Place and Exchange Square, respectively, according to the Hong Kong Economic Times (HKET). We see this as a positive sign for Hong Kong’s office market. ■ What's the impact Finally, a new type of demand has emerged for Hong Kong office property. On a standalone basis, the above 2 leases are still not large. That said, the sizes of these deals already represent improvements from the 3,000-5,000 sq ft of deals that have been the mainstream for some time. Most importantly, the tenants continue to be China financial institutions, suggesting there is finally clear demand by a specific sector for more new office spaces (see pg. 2).
Small is better than none, and can be larger over time. The magnitude of new office demand generated so far by the China financial sector is not that large. However, it already represents a notable improvement vs. 2013 and prior years. Moreover, we believe a major implication of “Shanghai Hong Kong Connect” is that Hong Kong should have an important role to play in China’s financial reform in the coming years, which should be positive for office demand. Is there pent-up demand in the office sector? Lacklustre new demand for office spaces in Hong Kong (especially in the Central sub-market) may well suggest that many existing players have been very cautious about expansion already. Our view is that market expectations and sentiment often play a very important role in the demand equation for offices, so that once there is a sufficient number of firms looking for more spaces, this may well bring out pent-up demand. As the vacancy rate in the Hong Kong office segment overall is rather low by international standards, we continue to believe that 30-50 firms looking for 3,000-5,000 sq ft of new spaces may be enough to result in a sufficient critical mass of new demand to drive an improvement in expectations and sentiment. More upside potential than downside risk for office segment. The market is well aware of the issue of high vacancy in Citibank Plaza, but the latest leasing deals suggest that this has not prevented office spaces in Pacific Place and Exchange Square from being leased out at levels of over HKD90/sq ft. We continue to consider the worst-case scenario for the office market as a multi-year doldrums period, but do not expect office rents and capital values to fall much from here. Meanwhile, there
should be the room for office rents to firm up once some moderate new demand emerges. We recently revised our forecasts for Central and office rents (see pg. 2 and our note of 14 May 2014, Will the adjustment period end in the coming months?). Among the landlords, Hongkong Land is the largest office landlord in Central, while Swire Properties is the largest office landlord by portfolio size and achieved gross rental from offices. ■ What we recommend The latest developments support our view that the office segment may stabilise earlier than the market has expected. We reaffirm our Positive sector stance and preference for Property Investors, especially those with large office exposure. As we do not envisage investment banks to resume office space expansion in Hong Kong anytime soon, we do not expect office rents to climb anywhere near as fast as before in the foreseeable future. However, Central rents stabilising or rising modestly should help stabilise the market and benefit the entire office sector, in our view. See pg. 2 for our stock recommendations. The key risk to our sector call is a major deterioration in the economic outlook for Hong Kong and China. ■ How we differ Unlike some in the market, we think Hong Kong property is merely undergoing an interim adjustment in a structural upcycle rather than the start of a trend reversal. The office segment was the first to enter an adjustment period, and we expect it to be the first to come out of it. (See too Silver lining behind office market concerns, of 24 April 2014.)
20 May 2014
Hong Kong Property Sector
Office: first segment to adjust and first to see a comeback?
• China financial firms continue
to lease new office spaces • Office should be the first
property segment to emerge from its adjustment period
Source: CEIC, CBRE, Jones Lang La Salle, Savills, Midland, Centa-City leading index, Daiwa forecasts
Note: * these revisions were made and published on 14 May 2014
Source: CEIC, CBRE, Jones Lang La Salle, Savills, Midland, Centa-City leading index, Daiwa forecasts
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Asia Pacific Daily | 3
See important disclosures, including any required research certifications, beginning on page 7
■ What’s new National cement prices were largely unchanged last week (12-16 May), with the price cut in Zhejiang Province in the east offset by the price hike in Guangxi Province to the south. With more rainy days than in the past year and no sign of credit easing, the pace of construction work remains slow. Demand for cement and other construction materials is growing, but at a slower pace, which is weighing on cement prices. Notably, cement demand rose by about 5% YoY for 4M14, compared with 8% YoY growth for 4M13. China: cement prices (CNY/tonne)
Source: Digital Cement
Last week, prices of rebar and hot-rolled coil (HRC) fell by 1.3% WoW and 0.4% WoW, reflecting the rise in
supply, while demand stayed lukewarm. With iron-ore prices falling (down 1.9% WoW), the unit EBITDA for the major steel mills is holding up at around CNY335/tonne currently, based on our estimates. Cautious market sentiment and working capital discipline continue to drive destocking for steel traders, with their inventory levels falling by 3.4% WoW and 19.5% YoY as of 16 May. Crude steel production for April rose by 4.9% YoY but was down 2% MoM to 69m tonnes. Apparent demand picked up by 3.3% YoY but declined by 1.7% MoM. China: steel prices and unit EBITDA
Source: CUSteel, Daiwa Note: Prices and unit EBITDA are averages for HRC/rebar
Angang (347HK, HKD4.45, Buy [1]) decided to roll over its benchmark selling prices from May to June. Earlier this month, Baosteel (Not rated) announced small price cuts for its major products. According to domestic news channel Security Times China, overall bank loans to the iron and steel industry have been cut by about 10% or CNY140bn since the start of 2014. Meanwhile, the interest rates charged to steel companies are also rising. Previously state-owned steel companies used to enjoy some
discounts to their borrowing rates from banks, but now many of them have to pay a premium to the PBOC benchmark rate. The rates for privately owned companies are currently even higher (about 8-12%). ■ What's the impact The long lasting tight bank credit has not only slowed down end user demand, it could result in difficulties for the steel mills in terms of maintaining continuous operations while gross profit margins are extremely thin currently. More and more privately owned steel companies in Hebei and Shanxi provinces are having difficulty accessing bank loans, while suffering higher operating costs in order to meet the government’s regulations on environmental protection. Industry consolidation, which we expect to occur from 2014 looks unavoidable, and the pace is likely to be much faster than generally perceived. ■ What we recommend China Resources Cement (CR Cement) (1313 HK, HKD4.87, Buy [1]), West China Cement (2233 HK, HKD0.79, Buy [1]) and Angang Steel are our favourite stocks. We see these companies offering the best risk-reward profiles within our China cement and steel coverage. ■ How we differ We have higher expectations than the market that steel industry consolidation will accelerate, while we are more cautious on demand for cement products.
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20 May 2014
Neither getting better nor worse
• Cement prices were largely flat last week after dropping for 3 consecutive weeks; demand growth slowed to 5% YoY for 4M14
• Cash profit margins seem to be holding up for big steel mills; consolidation could speed up on credit and environmental issues
• Investors should stay with quality plays – Angang Steel, China Resources Cement and WCC are our recommendations
See important disclosures, including any required research certifications, beginning on page 3
■ Background Tingyi Cayman Islands (Tingyi) is the largest branded producer of instant noodles, bottled tea and bottled water in China by revenue, with respective market shares of 56.4%, 51.8% and above 20% for 2013, according to AC Nielsen. Tingyi generated revenue of USD10.9bn and net profit of USD409m for 2013. The Chairman and CEO, Ing-chou Wei, presented an update on China’s food and beverages market and Tingyi’s business strategy to investors and analysts in Hong Kong on 20 May. ■ Highlights Instant noodles. Tingyi targets to raise its China market share to 60% by: 1) cementing its leadership in roast-beef and spicy-beef flavoured noodles, where it has dominant market shares (above 80%), through more targeted advertising and building a young and trendy image among young consumers, and 2)
continuous promotions, such as free sausages and price discounts, to gain market share in sub-categories where it is not yet dominant (eg, spicy pickled vegetables and braised meat). Mr Wei believes Tingyi has much more financial resources than its domestic peers with which to carry out promotions, and that Tingyi can further improve its pricing power and economies of scale long-term by achieving dominant market shares in all major instant noodle flavours. He also believes that, once Tingyi achieves such market share dominance, it can consider scaling back price discounts and free sausage gifts. It is launching new products, such as non-fry noodles, in order to raise its average product price slightly and develop a new customer base. Beverages. Tingyi is upgrading the product quality and brand image of its 4 main categories –tea, juice, water and carbonated drinks. As such, Mr Wei is positive about the beverage unit’s sales-volume growth prospects and expects it to strengthen operating leverage further as its production utilisation rate improves. Tingyi plans to increase its number of bottled water plants in China from 83 at present to 100 by end-2014 and 120 by end-2016, to gain scale advantages. Its new product initiatives planned include crystal sugar and chrysanthemum green tea, sugar-free tea and spring water. Mr Wei is optimistic on the beverage unit’s long-term profit-after-tax margin outlook, targeting to achieve 5-8% in 10 years (2013: 2.5%). Currently, Pepsi’s China beverages unit (merged with Tingyi’s beverage unit in 1Q12) is not as efficient as Tingyi’s, with revenue per staff only about one-third of that of Tingyi’s beverages unit. Mr Wei’s plan is to train Pepsi’s staff and simplify its management structure – not by laying off junior sales or production staff but
by restructuring the sales and distribution units. Tingyi is also co-developing new 100% fruit juices and new carbonated drinks with Pepsi at present. Mr Wei declined to comment on whether Pepsi will exercise its option to increase its stake in Tingyi’s beverages unit (from 5% to 20%). The option will expire in October 2015. Instant foods. Here, Mr Wei said Tingyi is seeking acquisition targets in China that: 1) generate annual sales of more than CNY3bn, 2) have a niche product portfolio, 3) sell to consumers rather than industrial users, and 4) preferably have a No. 2 market share in their product categories. Near-term, Tingyi plans to launch new potato-based snacks via its joint venture with Calbee (2229 JP, JPY2619, Buy [1]) and restructure Tingyi’s bakery unit to improve its instant food unit’s profitability. Long-term plans. Mr Wei believes a separate listing of Tingyi’s beverages and instant food (including noodles) units would be better for its business development, as in his view the 2 segments have different revenue growth prospects and financial needs. ■ Valuation Tingyi is trading at PERs of 24.5x for 2014E and 20.2x for 2015E, on Bloomberg consensus EPS forecasts.
20 May 2014
Highlights of CEO’s strategy presentation
• Will continue with promotions in noodles business
• Is positive about the operating margin outlook on scale advantages
• Looking for M&A targets in instant food business
Source: FactSet, Daiwa
Consumer Staples / China
Tingyi Cayman Islands322 HK
Not Rated
Target (HKD): n.a. Up/downside: - 19 May price (HKD): 21.95
See important disclosures, including any required research certifications, beginning on page 5
■ What's new For 1Q14, Mega Financial (Mega) announced net profit of TWD8bn (EPS: TWD0.65, up 20% YoY), equivalent to 28% of our new full-year 2014 earnings forecast. The good results were due to strong net interest-income growth of 15% YoY and fee-income growth of 7% YoY. ■ What's the impact For 2014, US Dollar loan growth should be the driver; NIM targeted to improve 1-2bps every quarter. Mega’s overall loan growth of 1.1% QoQ (10% YoY) for 1Q14 was due mainly to foreign-currency loans (up 4.3% QoQ and 11% YoY). This was due to demand resulting from the tighter liquidity conditions in China and Southeast Asia. The company is aiming for 7% YoY loan growth for 2014 and to increase its NIM by 1-2bps every quarter on loan-mix improvements. NIM rose by 1bp QoQ (8bps YoY) for 1Q14: its foreign-currency NIM rose
by 3bps QoQ (10bps YoY) while its Taiwan Dollar NIM declined by 2bps QoQ (5bps YoY). We expect Mega to continue to benefit from liquidity conditions in China. These should be neutral to tight in 2014: YTD, the 1-year US Dollar lending rate there has risen by 35bps, while rules announced on 16 May aim to regulate China banks’ interbank business on off-balance-sheet lending and reduce regulatory arbitrage. Potential introduction of a strategic investor, Temasek Holdings. On 14 May, a Commercial Times report indicated that Mega was planning to take a strategic stake in Malaysia’s RHB Bank. The report also said Temasek Holdings would take a stake in Mega after the latter took a stake in Bank International Indonesia. Although both deals have yet to be confirmed, we would view positively a strategic investment by Temasek in Mega. The outbound strategies are to make inroads into ASEAN economies’ integration in 2015 as well as to better serve clients, as Mega’s clients have been migrating their businesses to Southeast Asia from south China for the past few years. Credit cost likely to stay low. As Mega made TWD3.8bn in general provisions for 2013 and its coverage ratio rose to 934% as at end-1Q14, we now expect lower provision requirements for 2014. The new influx of NPLs fell to 0.24% of total loans for 1Q14 (2013: 0.43%). Mega had bad debt recoveries amounting to TWD650m from Taiwan Maritime Transportation in 1Q14. We are raising our 2014-16E net profit by 2-6% on the better-than-expected credit costs.
■ What we recommend We reiterate our Buy (1) rating and Gordon Growth Model-based 6-month target price of TWD28, implying a 1.4x 2014E PBR. The main risk to our view would be the weak execution of the planned government bank consolidation (see Europe NDR highlights, published on 15 April 2014). ■ How we differ We are more positive on Mega’s acquisition-pricing discipline.
20 May 2014
Core business may have attracted strategic investor
Established in February 2002 and more than 22% owned by the government, Mega Financial is a holding company composed of four main operating subsidiaries, namely, banks, bills, securities, and general insurance and securities investment trust enterprises (SITE).
See important disclosures, including any required research certifications, beginning on page 3
■ Background Founded in 2003, Coland Holdings (Coland) markets and distributes pharmaceutical products and medical devices in China. The company’s development strategy is to strengthen its market presence and increase the portfolio of products it offers through in-licensing, co-development, entering into joint ventures, and M&A. Over the past 5 years, Dai Ding (which has the generic name Adefovir, and is used as an anti- hepatitis-B virus [HBV] drug) has been Coland’s main product, accounting for more than 50% of total sales. Currently, the company is diversifying its line-up away from hepatitis-disease products. ■ Highlights Expects stable YoY earnings for 2014. Coland expects earnings growth of 15-20% YoY for this year
(2013: 17% YoY), and a gross margin of about 50% (2013: 54%). The company guides for a dividend-payout ratio of 70-80%. Driver I: new drug products in new markets. In 1H14, tenders to supply new drugs – such as Lezhiping (cardiovascular), Detrol (urology), Yi Qing (respiratory), and Ursa (hepatitis) – were launched in 3 China provinces, which the company expects should see its products available in these new markets. The company expects its respiratory products (Yi Qing and Bi Duo Yi) to be the revenue-growth drivers over 2014-15. For 1Q14, Coland’s 5 new products (Bi Duo Yi, Yi Qing, Augmentin, Detrol, and Lezhiping) accounted for 6% of its total sales. With the launch of the new products and an increase in the sales contribution of non-hepatitis drugs, Dai Ding’s contribution to sales fell to 50% for 1Q14 from 98% for 2009. Coland: Dai Ding as a % of sales
Source: Company
Driver II – new medical devices. Coland plans to launch artificial hip and knee joints (for hip or knee replacement) and ribonucleic acid (RNA) diagnosis reagents (used in in-vitro diagnosis devices [IVD]) this year. The company expects the RNA diagnosis reagents to be sold together with diagnostic devices that are due to be launched in July.
Acquisitions to continue. Coland has an aggressive acquisition strategy, aiming to take stakes of more than 50% in the target company. This is probably so it has control over the promotion of its own products. It aims to acquire another agent in southeast China this year. Coland acquired sales agents Heilongjiang TongZe (51% stake for TWD304m) in 3Q12, and Hefei Guozhen (60% stake for TWD213m) in 3Q13. Strategic investments. The company is also looking for equity-investment and joint-venture opportunities in order to broaden its product pipeline. Meanwhile, disposal gains have helped support its earnings. For example, disposal gains made up 45% of its 2013 pre-tax earnings. ■ Valuation The stock is trading currently at a PER of 16x based on the average of the 2014-15 Bloomberg-consensus forecasts (compared with a range of 13-24x over the past 3 years).
97.8% 91.5%82.3% 75.3%
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2009 2010 2011 2012 2013 1Q14
20 May 2014
New products ahead
• Company guides for 2014 earnings growth of 15-20% YoY
• Expects earnings growth to come from launch of new drug products and medical devices
• Plans to continue to look for investment opportunities to ensure future pipeline
Source: FactSet, Daiwa
Health Care / Taiwan
Coland Holdings4144 TT
Not Rated
Target (TWD): n.a. Up/downside: - 20 May price (TWD): 76.10
Shechen Pharma 4Q13 50 50.00% Controlled-release and new formulation generic - Joinsmart Biomedical 1Q14 10 40.00% Orthopaedics, sports medicine equipment -
Source: Company Source: Company
Hepatitis59%
Respiratory3%
Medical Device12%
Cardiovascular10%
Others16%
Asia Pacific Daily | 12
KDN: PP 10251/07/2013 (032736)
RESULTS NOTE
20 May 2014
Results in-line, maintain SELL on stretched valuation
1Q14 core net profit down 8% qoq, within expectations UMW-OG’s 1Q14 revenue fell by 5.1% qoq to RM195.6m due to lower revenue contribution from its hydraulic workover unit UMW GAIT 5, lesser commission income from agency business as well as absence of amortisation of deferred income on UMW NAGA 2’s mobilisation fees (ended in 4Q13). Notwithstanding the lower revenue, UMW-OG’s EBITDA was relatively unchanged qoq at RM81.7m (from RM81.6m) due to lower operating expenses. The group’s core net profit fell by 7.7% to RM53.7m (from RM58.1m) on lower net interest/ investment income as the group utilised part of its IPO proceeds on business expansion. Headline net profit grew by 5.6% qoq due to a low base effect in 4Q13 as a result of RM7.3m in IPO expenses. Overall, UMW-OG’s 1Q14 results are broadly within consensus and our earnings estimates. While UMW-OG’s 1Q14 earnings only accounts for 20-21% of consensus and our full year forecast, we expect earnings to catch-up in 2H14 after taking deliveries of 3 new jack-up rigs.
Expansion plan on track - expect delivery of 3 new rigs in 2014, 1 in 2015 UMW-OG’s expansion plan is on track. The group took delivery of UMW NAGA 5 in end-April 2014 and the rig is now chartered to Philippines’ Nido Petroleum to drill the Baragatan prospect offshore Palawan. NAGA 6 and NAGA 7 are scheduled to be delivered in September 2014 and December 2014, respectively while NAGA 8 will be delivered in September 2015. We are of the view that management is likely to slow down the pace of capacity expansion and focus on securing new contracts for the upcoming rigs.
Maintain SELL with an unchanged TP of RM3.12 We maintain our earnings forecast, SELL rating and TP of RM3.12 based on 18x CY15E EPS. While we continue to like UMW-OG for its strong management and good prospects of Malaysia’s jack-up rigs market, we believe that UMW-OG’s valuation is stretched and possibility of an upside potential is low. UMW-OG currently trades at a significant valuation premium to its global peers (7-11x CY15 consensus earnings). Even with our strong earnings growth forecast of 73% CAGR over 2012-15E, the valuation of 23x CY15E PER is rich and in our view, the risk is to the downside.
Key upside risks Key upside risks to our negative view on UMW-OG include major earnings accretive M&As, faster-than-expected expansion plans, stronger-than-expected demand for jack-up rigs and higher-than-expected earnings.
1QFY14 net jumped to RM12.0m on strong property development profit MRCB’s 1QFY14 revenue declined 21.9% YoY and 44.5% QoQ mainly due to lower revenue from engineering and construction (E&C) and reclassification of rental revenue of Platinum Sentral to discontinuing operations with the impending sale to Quill Capita Trust. 1QFY14 net profit, however, jumped to RM12.0m (including RM5.9m from discontinuing operations) compared to RM5.3m in 1QFY13 and RM1.4m in 4QFY13. E&C recorded an operating profit of RM5.4m on margin improvement while operating profit from property development surged to RM35.1m on the back of the development at Lot B and Lot D in its flagship KL Sentral project. Other income mainly came from the government interim payment for reimbursement of operating and maintenance expenses, including finance costs for the EDL toll-way concession.
Coming quarters expected to remain strong The property development division is expected to post strong profits in the next three quarters, underpinned by the development at Lot B and Lot D as well as the launch of the Old Klang Road development. However, the outlook for the E&C division remains more subdued as the group awaits the outcome of tenders on its own and through joint bids to replenish its order book, now estimated at around RM1.0bn.Gearing and interest expenses are poised to decline after the monetisation of more than RM1bn of investment assets, including the proposed sale of 30% stake in DUKE and Platinum Sentral to Quill Capital Trust.
Maintain forecasts and BUY rating with a RNAV-based TP of RM2.37 We maintain our FY14-16 forecats and BUY rating for MRCB with an unchanged target price of RM2.37. The restructuring exercise in 3QFY13 as well as tighter management control and key property development projects are expected to contribute signficantly from this year onwards. Other key stock price drivers include new contract wins, positive outcome in the PJ Sentral legal suits, and a signficant role in the development of the Sungai Buloh land. Key downside risks include: (i) further delays in contract awards; (ii) sharp spike in construction costs; (iii) further govenrment tightening measures sharply cutting property demand; and (iv) unfair valuation for its concession assets. Earnings & Valuation Summary
Below expectations AirAsia X (AAX) reported another quarter of core net loss of RM60.3m (->100% yoy) in 1Q14. This came in below both our and market expectations. For us, the discrepancy was mainly due to: i) lower-than-expected average fares (average fares in 1Q14 fell to RM467 vs. RM623 in 1Q13) and ii) higher-than-expected staff costs (+56.9% yoy), driven by the group’s expansion. Our definition of core net loss excludes 1Q14’s deferred tax rebate of RM39m and forex gain of RM10.1m. As expected, no dividend was declared.
Load active strategy – strong pax growth at the expense of yields AAX’s 1Q14 revenue grew by a strong 40% yoy to RM749.5m on the back of a 66.9% increase in the number of passengers carried. However, this was offset by a 25.1% drop in average fares, amidst a competitve operating environment as well as promotional fares offered on its newly launched routes to Shanghai, Busan and Adelaide. The higher pax growth was in tandem with the airline’s capacity expansion (+60.1% yoy) as the airline currently operates 16 aircraft vs. 9 aircraft the same period last year. Load factor remains high at 85.8%. Despite the strong revenue growth, AAX recorded a core net loss of RM60.3m as margin deteriorated on lower RASK (-12.4% yoy), higher costs as well as lower ancilliary revenue/passenger (-7.6% yoy). 1Q14 operating costs rose by 64.0% yoy on higher staff costs (+56.9% yoy) and maintenance costs (+53.4% yoy) as a result of the larger fleet. Fuel cost was up 76.9% yoy on higher fuel consumed and a stronger US$ against the RM.
Load active strategy AAX’s strategy includes; i) to introduce unique routes ii) to increase frequency on popular routes, iii) increase ancillary income per passenger, and iv) lower operational costs. AAX guided that it will continue to be load active, with a target of about 80% load factor. This, we believe, will continue to be at the expense of yields. Earnings cut, TP lowered to RM0.65, maintain SELL We have factored in a wider FY14E loss and lowered our FY15-16E estimates, after lowering our average fare assumption by 8-12% as we expect price competition to remain intense, higher staff cost assumption by 5% and imputed deferred tax assumption. Our fair value has been lowered to RM0.65 (from RM0.70), based on an unchanged FY15 P/BV multiple of 1.3x (30% discount to LCC average). We believe the discount is appropriate given its loss-making position. Maintain SELL. De-rating catalyst includes further deterioration in yields on the back of current competitive pricing outlook. Risk to our recommendation includes better-than-expected yields, which would result in a quicker-than-expected turnaround. This looks unlikely in the near term with the increasing competition from budget airlines as well as by MAS. Earnings & Valuation Summary
We cut GLOBAL’s 2014-16F earnings by 14-25% to reflect its weak SSS growth and rising depreciation from asset revaluation, leading to its first EPS fall since listing at 9% in 2014F. As we expect soft earnings momentum for the rest of this year and view its valuation as rich versus its growth outlook, we maintain our SELL call with a new Bt10.0 TP.
Earnings and TP cut; maintain SELL
We lower GLOBAL’s earnings by 25%, 19% and 14% in 2014-16F as its same-store sales (SSS) growth came in weaker than we’d expected and additional depreciation (booked in SG&A) was incurred from asset revaluation. After our cuts, we forecast GLOBAL to post an EPS drop for the first time since its 2009 listing of 9% in 2014. But we expect growth to resume in 2015 and estimate its three-year 2014-16 EPS CAGR at 19%. We expect long-term growth to remain decent but at PE of 45.9x in 2014F before falling to 34.6x in 2015F. We see GLOBAL as expensive and maintain our SELL call with a new 12-month DCF-based TP of Bt10.0 (from Bt11.0). We also expect weakening quarterly earnings momentum for the rest of this year.
EPS growth turning negative in 2014F
GLOBAL reported weak earnings in 1Q14 on weak SSS growth and rising depreciation costs in its SG&A expenses. GLOBAL, using Noble Property Valuation Co., Ltd as a third party appraisal firm, revalued its assets up by Bt3.9bn in 1Q14 and this caused depreciation to surge by Bt200m p.a. Despite our assumption of nine new stores in 2014, the impact of negative SSS growth forecast of 3.8% and a jump in SG&A expenses should outweigh rising sales. We project GLOBAL to post negative EPS growth of 9% in 2014 versus the very high 58% p.a. in 2010-12.
SSS growth prospects still look bleak
With substantially weak SSS growth of -7.1% in 1Q14, we estimate GLOBAL to report negative SSS growth of 3.8% in 2014 before turning positive to 1.8% in 2015 and 2.8% in 2016. We expect GLOBAL to report negative SSS growth over the next two quarters. Firstly, 100% of GLOBAL stores are exposed to upcountry where people’s incomes are linked to farm prices and populist policies which are now fading. Secondly, the shutdown of a GLOBAL store in Surin for a few weeks after the Surin store front collapsed, and consumers’ increased short-term safety concerns about visiting other GLOBAL stores. Thirdly, intensifying competition from local operators’ stores that opened last year.
We see a high risk of new stores missing target
GLOBAL opened two new stores in Udon Thani and Lop Buri in 1Q14 and it targets to open three stores in Chanthaburi, Trat and Phetchabun in 2Q14 and two new stores in Nong Bua Lam Phu and Buri Ram in 3Q14. Five other stores are scheduled to open in late 4Q14. Given that the construction of five new stores has not started yet, together with the Surin store incident, we see a high chance of GLOBAL being unable to reach its target of 12 new stores. We expect GLOBAL to open nine new stores p.a. in 2014-16.
COMPANY VALUATION
Y/E Dec (Bt m) 2013A 2014F 2015F 2016F
Sales 14,680 17,768 23,109 28,983
Net profit 885 815 1,085 1,501
Consensus NP 1,158 1,518 1,928
Diff frm cons (%) (29.6) (28.5) (22.2)
Norm profit 885 815 1,085 1,501
Prev. Norm profit 1,082 1,340 1,751
Chg frm prev (%) (24.7) (19.0) (14.3)
Norm EPS (Bt) 0.3 0.3 0.4 0.5
Norm EPS grw (%) 21.6 (9.1) 32.9 38.3
Norm PE (x) 41.7 45.9 34.6 25.0
EV/EBITDA (x) 25.8 22.4 17.6 14.4
P/BV (x) 3.6 2.5 2.4 2.2
Div yield (%) 0.1 0.7 0.9 1.2
ROE (%) 9.2 6.5 7.1 9.2
Net D/E (%) 32.1 34.5 46.3 52.3
PRICE PERFORMANCE
(40)
(20)
0
20
0
10
20
30
May-13 Sep-13 Jan-14 May-14
(%)(Bt/shr) GLOBAL
Rel to SET Index
COMPANY INFORMATION
Price as of 20-May-14 (Bt) 12.30
Market cap (US$ m) 1,152.4
Listed shares (m shares) 3,048.8
Free float (%) 34.0
Avg daily turnover (US$ m) 1.8
12M price H/L (Bt) 23.4/12.0
Sector Retail
Major shareholder Suriyawanakul 36.7%
Sources: Bloomberg, Company data, Thanachart estimates
Thanachart
Securities
Ad Hoc Research
Ad Hoc Research
Asia Pacific Daily | 16
Important disclosures, including any required research certifications, are provided on the last two pages of this report.
Profitability target unimpressive Hirosuke Tai (81) 3 5555-7069 [email protected]
• Targets to achieve consol. sales
of Y5 tril, op profit margin of 8% by FY20
• Profitability target unimpressive considering expected benefits from solution business
• Retain our target price of Y1,200
What’s new On 19 May, Mitsubishi Electric announced its business strategies at 1:30 p.m. and held an analyst meeting in the evening. The meeting was presented by new President and CEO Masaki Sakuyama, who took the helm in April. The firm did not disclose projected segment earnings for FY20, but may provide such detailed information in another meeting, possibly to be held in autumn (the firm usually holds an analyst meeting once a year in spring).
What’s the impact Mitsubishi Electric will celebrate the 100th anniversary of its establishment on 1 February 2021. The firm aims to achieve at least consolidated sales of Y5 trillion and an operating profit margin of 8% by FY20. It had previously targeted an operating profit margin of at least 5%, but it raised the bar as the margin already hit 5.8% in FY13 and it projects record sales for FY14 (target of Y4,180.0 bil), surpassing the current record of Y4,129.4 billion set in FY00. For finances, management
left the targets unchanged: a return on equity of 10% or more and a ratio of interest-bearing debt to total assets of 15% or below (vs. ROE of 10.9%, debt ratio of 10.3% reported for FY13). The strategies and scenarios presented were within our expectations, but did not leave us with a bad impression. In recent years, the firm has concentrated its managerial resources on core businesses while also making efforts to improve the balance sheet. In the years ahead, it will likely shift to enhancing its solution business and global operations, as well as boosting its capability to generate free cash flow. The firm has pursued a strategy to provide value-added products/services in each segment. Going forward, it will promote cross-selling across segments (especially control equipment/air conditioners for railways, lighting/ air conditioners/elevators for buildings). The percentage of global sales in the total increased to about 39% in FY13 and has risen around 10 percentage points in the last ten years. Management plans to further expand overseas sales mainly in emerging countries, where it can provide solutions to local needs. The firm seems to have more strategic options than before, including investments and M&A. It also enhanced its shareholder payouts in FY13 (dividend hike of Y6).
What we recommend We will continue to focus on the level of the operating profit margin. Given the above-mentioned sales target, an operating profit margin of 8% would be somewhat disappointing (although the target is 8% or more). Based on FY14 and FY20 company targets, the firm aims to increase sales and operating profit by Y820
billion and Y150 billion. Although the firm has not disclosed expected earnings by segment, the high growth potential of the industrial automation and home appliances segments, which boast high contribution margin ratios, suggests upside to the targeted operating profit margin if sales reach Y5 trillion. Company officials said at the meeting that there are differences in profitability among segments. In our view, there is room for improvement in energy and electronic systems
(Y mil; SEC) 3/14 3/15 E 3/16 E Sales 4,054,359 4,250,000 4,450,000Op profit 235,172 270,000 315,000Pretax income 248,990 280,000 325,000Net income 153,473 180,000 210,000EPS (Y) 71.5 83.8 97.8DPS (Y) 17.00 22.00 24.00
See end of report for notes concerning indicators.
Asia Pacific Daily | 17
Mitsubishi Electric (6503) 20 May 2014
- 2 -
operations. For power generation systems, the firm plans to expand sales to customers other than Mitsubishi Heavy Industries (7011); for transmission & distribution systems, it aims to enhance its competitiveness by utilizing new
production facilities in North America and promoting smart grid systems, including smart meters. We leave our estimates unchanged. We retain our 3 (Neutral) rating and our six-month target price of Y1,200,
which translates to an FY14 P/E of around 14X (in line with avg. multiple for capital goods sector).
Mitsubishi Electric (6503): Income Summary (Y mil; y/y %)
Important disclosures, including any required research certifications, are provided on the last two pages of this report.
Recent sell-off makes stock more attractive Toru Sugiura (81) 3 5555-7056 [email protected]
• FY14 targets lower than
expected, but see no need to change outlook on firm
• Outperform rating retained
What’s new We have revised our earnings estimates in light of FY13 results and information given during our follow-up interview with company officials. We have lowered our FY14 profit forecasts, but maintain our Outperform rating, as we still anticipate improvement in profitability and ROE.
What’s the impact The firm booked Y734 million in operating profit for FY13, broadly in line with our outlook. Restructuring benefits led to marked improvement in profitability for the architectural glass segment. Europe’s architectural glass market picked up, and therefore did not weigh on earnings. Management’s FY14 projections call for operating profit of Y21.0 billion. This figure may appear somewhat underwhelming, but this is likely because the firm has factored in (1) higher raw material costs and (2) a heavier cost burden due to capacity additions for technical glass operations in Vietnam. Furthermore, in light of recent developments, management now expects restructuring benefits in FY14 to
total just Y10.0 billion (vs. initial assumption of Y13.0 bil). Our FY14 estimates call for sales of Y638.0 billion and operating profit of Y26.0 billion. Following our discussion with company officials, we believe the above-noted cost assumptions are more or less reasonable. Nonetheless, we see scope for an overshoot vs. the firm’s profit targets, as its sales assumptions appear conservative. In particular, we believe Nippon Sheet Glass’s assumptions regarding architectural glass prices in Europe are conservative. It expects prices to be flat y/y, but we think they will rise, as supply/demand conditions have recently improved and major manufacturers have been moving to hike prices (20% q/q hikes planned). The performance of North American automotive glass operations remains sluggish, though conditions appear to be improving gradually. Such operations apparently secured a modest operating profit in FY13, after having incurred a loss in FY12. We expect profitability to continue to improve slightly through FY15. Our FY15 estimates call for consolidated sales of Y654.0 billion and operating profit of Y33.0 billion. We anticipate only modest sales growth for the architectural glass segment, but foresee solid earnings in automotive glass and technical glass. Benefits from volume growth should contribute toward profit expansion in the automotive glass segment. In our view, profit growth for the technical glass segment will be driven mainly by (1) the absence of earlier startup costs for new facilities in Vietnam, and (2) higher cover glass and glass cord sales.
What we recommend We maintain our 2 (Outperform) rating and six-month target price of Y170, which we derived by applying a P/B of about 0.9X to our end-FY15 book value estimate of Y197.61. Our FY15 estimates call for ROE to rise to 5.5%, and glass sector P/B-ROE correlations suggest that P/B multiple expansion to 1X is warranted. However, we think a P/B of about 0.9X is appropriate, given the firm’s shaky balance sheet. In our view, the recent sell-off has made the stock a more attractive investment option.
As ironic as it may sound, Siam Senses now sees the political situation developing to the point where a coup is becoming the best option. A non-coup interim government could face handicaps, posing a greater risk to the economy. Our market view has looked beyond a political resolution right from the start and we see the SET as fully valued.
Interim government in the making We have always believed an unelected interim government is the way to end Thailand’s political strife. But we adjust the probability of our scenarios to 30% coup-installed interim government: 70% non-coup interim government (from 60% coup version: 30% non-coup version: 10% election previously). Simply put, we see a 100% chance of Thailand having an unelected interim government. As for a non-coup administration, an interim government could be brought about by the Senate speaker through the invocation of the Constitution’s Article 7, proposing a non-elected PM’s name for royal endorsement.
Non-coup version could hit economy harder it’s quite clear to us the military has been trying to avoid a coup and we see the declaration of martial law early today providing support for the Senate to usher in a non-coup interim government. Although a non-coup government sounds better than a coup one to many, we ironically see it otherwise. Assuming a non-coup interim government stays in office for only a year before calling a new election, we envisage: 1) political reform facing legal barriers which may not bring an end to the decade-long political vicious cycle; 2) a political reform-missioned government which makes the economy its No.2 priority; 3) a hand-tied government lacking a parliament to pass laws; and 4) no peace for the government as we expect hardcore red-shirt activities.
The irony of a coup The word “coup” is normally perceived badly. But the irony for the current situation is as follows. 1) A coup implies a tearing up of the constitution and this could pave the way for full political reform. 2) A coup-installed government would have full authority to manage the country both politically and economically, so the lack of a parliament would not hinder it from functioning. 3) We expect the risk of violence or disturbances to the government and its members to be kept under control so the government could pursue its mission wholeheartedly. 4) We therefore expect a better economic recovery under this scenario.
GDP cuts Following on from the bad 1Q14 GDP figure, we cut our 2014 forecast to 1.2% from 2.0%. Our growth estimate remains at 3.5% in 2015 but with a lower base for the absolute GDP figure. Our GDP projections are based on a scenario of a non-coup interim government. Strangely enough, we see upside to our 2015 forecast if Thailand has a coup-installed government. Despite our belief that the imposition of martial law is a step closer to a political resolution, we remain bearish on the market as we base our view on the outlook for the economy, corporate earnings trends and valuation, where we see the SET Index as fully valued at 14x PE and already near our year-end target of 1,430.
Source: Thanachart estimates. Note: For BTS, financial year ends in March. Based on 19 May 2014 closing prices
GDP Revisions % growth 2013 2014F 2015F
New Old New Old
(%) (%) (%) (%) (%)
GDP growth 2.9 1.2 2.0 3.5 3.5
Consumption 0.3 (1.8) (1.2) 1.0 1.0
Private investment (2.8) (4.4) (2.3) 7.0 7.0
Govt investment 1.3 (12.0) (1.3) 7.0 10.0
Export (0.2) 3.0 3.5 6.0 6.0
Import (0.4) (4.2) 0.3 6.7 6.0
CPI 2.2 2.4 2.0 2.5 2.5
Bt/US$ - avg 30.7 32.8 33.6 33.5 34.0
Policy rate 2.25 2.00 2.00 2.50 2.50
Sources: NESDB, Bank of Thailand, Thanachart estimates
Than
acha
rtSe
curit
ies
Asia Pacific Daily | 22
See important disclosures, including any required research certifications, beginning on page 2
■ Summary The latest data on Taiwan’s export orders is more encouraging, but we still have some concerns about the outlook. ■ Fundamentals Taiwan’s growth rate for export orders picked up from 5.9% YoY for March to 8.9% YoY for April, higher than the Bloomberg consensus forecast of 5.7% YoY growth. On a seasonally-adjusted basis, export orders reversed from a
drop of 0.9% MoM for March to a gain of 3.4% MoM for April. Orders from the G3 economies were strong, with growth up from 6.6% YoY for March to 9.9% YoY for April, contributing 4.9pp to headline order growth. In particular, orders from Japan were robust, with growth up from 17.9% YoY for March to 30% YoY for April. Growth in orders from the US and the EU stabilised, increasing by 5.7% YoY and 6.9% YoY, respectively, for April. The ASEAN market also did well in April. Growth in orders from ASEAN rose from 12.8% YoY for March to 14.7% YoY for April. However, orders from China (including Hong Kong) remained quite soft, up only slightly from 3.1% YoY to 3.9% YoY over the same period. In terms of products, growth in orders for electronic products, machinery and chemicals increased from 10.1% YoY, 2.6% YoY and 2% YoY for March to 16.6% YoY, 12.4% YoY and 9.2% YoY, respectively, for April. These 3 products in total contributed 5.0pp to headline order growth for April, up from 2.6pp from March. On the other hand, order growth for information and communication
products and precision instruments went from 8.6% YoY and -3.6% YoY, respectively, for March, to 6.9% and 13.3% YoY for April, contributing only 0.5pp to the headline growth (down from 1.8pp for March). The latest data is more encouraging, pinning hopes on an export-led recovery for Taiwan. However, some concerns linger, in our view. First, as we have repeatedly warned, the G3 recovery could be offset by extended weaknesses in emerging economies (EM), with further risks continuing to stem from China’s slowdown. Second, Taiwan’s overseas production ratio, although down from 51.4% for March to 49.9% for April, remains quite high. Finally, the statement made by the Ministry of Economic Affairs raised our concern. It specifically attributed the recent surge in electronic product orders to some international brands that are launching high-quality but low-cost mobile devices for EM markets. In our view, this type of order could lift the total amount of export orders placed but squeeze profit margins for some Taiwanese firms as they could face more pressure on unit prices.
■ Taiwan: growth in export orders ■ Taiwan: growth in export orders and exports
Source: CEIC, Daiwa Source: CEIC, Daiwa
-15
-10
-5
0
5
10
15
20
(60)
(40)
(20)
0
20
40
60
80
Oct-0
7Ja
n-08
Apr-0
8Ju
l-08
Oct-0
8Ja
n-09
Apr-0
9Ju
l-09
Oct-0
9Ja
n-10
Apr-1
0Ju
l-10
Oct-1
0Ja
n-11
Apr-1
1Ju
l-11
Oct-1
1Ja
n-12
Apr-1
2Ju
l-12
Oct-1
2Ja
n-13
Apr-1
3Ju
l-13
Oct-1
3Ja
n-14
Apr-1
4
YoY
SAMoM
(%) (%)
(50)(40)(30)(20)(10)
010203040506070
Apr-0
8
Aug-
08
Dec-0
8
Apr-0
9
Aug-
09
Dec-0
9
Apr-1
0
Aug-
10
Dec-1
0
Apr-1
1
Aug-
11
Dec-1
1
Apr-1
2
Aug-
12
Dec-1
2
Apr-1
3
Aug-
13
Dec-1
3
Apr-1
4
Exports Export orders (1M lead)
(2MMA, % YoY)
20 May 2014
Taiwan Economy
Higher export order growth for April
• Export order growth up to
8.9% YoY and 3.4% SAMoM • Orders from the G3 were
strong, but those from China remained quite soft
• Demand for high-quality low-cost mobile devices pushed up orders for electronic products
squaring of margin long positions The Nikkei Stock Average opened Tuesday with a recovery from yesterday’s sell-off. Of note, Tokyo experienced a fall yesterday despite Friday’s rebound on Wall Street. This morning, the broader market opened higher almost across the board, indicating more strength than suggested by movements in market indices. In the wake of yesterday’s decline in Tokyo, we should note that the Nikkei Stock Average has had down days on the first business days (primarily Mondays) for the weeks since the beginning of FY14. Yesterday’s pullback in the benchmark may be attributable to yen strength and weakness in Asian shares. Meanwhile, JASDAQ’s downside breakout from the trading range since the beginning of 2014 left us with a negative impression. Notably, the six-month deadlines for closing margin long positions established at the end of 2013 to the beginning of 2014 fall around end-June. Against this backdrop, the squaring of margin long positions by retail investors could pick up speed, translating into increased selling pressure into end-June. Probably, for the same reason, the market recovery from the open seems muted. Yen could climb from current
trading levels on shrinking trade deficits
Japan’s April trade statistics are slated for release on 21 May.
We may expect imports to fall meaningfully as last-minute imports to cover last-minute purchases in the run-up to the sales tax hike will likely run their course. The already announced figures for early and mid April still indicate high levels of imports, which we may ascribe to corporate moves for restocking. Indeed, based on mid-April numbers alone, we arrived at a trade balance of almost zero. On the other hand, exports, especially those of eco-friendly cars, appear set to grow. This category of vehicles did not enjoy merits of reduced taxes for car purchases, a measure taken along with the sales tax hike.
Thus, it is very likely that last-minute purchases of eco-friendly cars surged into end-March. In this context, as the bulk of cars belonging to the category are primarily assembled in Japan, automakers may have found it difficult to export a sufficient number of such vehicles to foreign markets. Indeed, in US vehicle sales for April, Japanese players alone stood out in showing improvement. According to our sources, assemblers generally increase exports into end-month in order to achieve monthly targets. Thus, such acceleration in shipments may have served to significantly lift exports in late April.
Technical analysis / Japan20 May 2014
Japanese report: 20 May 14
Kinouchi’s Technical Tips for Institutions
Technical Daily Comment
• Downside breakout by JASDAQ yesterday suggests increased selling pressure from closing of margin long positions
12/15131.595/1
127.50
7/8111.19
9/19104.75
110.656/11
79.754/1975
90
105
120
135
Y/$ (weekly)
1997
9/15149.10
6/15151.80
8/31136.52
7/20152.85
135.958/1
121.1011/25
123.654/14121.25
12/31
138.404/27
120
130
140
150
160
1989
Y/$ (weekly)
95 96 97
87 88 89
Sales tax hike
Source: Bloomberg; compiled by Daiwa.
Asia Pacific Daily | 24
Technical Daily Comment 20 May 2014
- 2 -
Even if April ends up seeing a trade deficit of around Y650.0 billion consistent with consensus expectations, this should mean that mid/ late April saw a trade deficit of around Y150.0 billion. Assuming imports in early April was meant for restocking, we may predict a meaningful fall in such a deficit beginning in May. Consider 1989 and 1997. In the former case, Japan introduced a sales tax, while a sales tax hike was implemented in the latter case. Some time after both events, the yen showed considerable appreciation (see chart). Given this, we recommend caution over yen strength. (Comment following opening of morning session—20 May 2014)
Translation: H.M. Style check: A.C. Accuracy check: H.M.
Asia Pacific Daily | 25
Robert Kuenzel and Emily Nicol +44 20 7597 8322
Euro area
Italian industrial orders may signal growth return in Q2
The somewhat downbeat implications of last week’s major euro area releases – Q1 GDP and final April inflation – have now sunk in, with the prospect of ECB action in June looking increasingly inevitable. This week eases observers back into the flow of new data, which today came exclusively from Italy. There, industrial orders for March showed a surprisingly strong increase of 1.3% on the month, compared to an expected rise of 0.3%M/M. Although somewhat volatile, orders are a good forward indicator for industrial production (see chart). With this in mind, the steady rise in orders to +0.4%Q/Q in the first quarter bodes well for GDP growth in Q2 – a welcome respite after the unexpected -0.1%Q/Q contraction in Q1 GDP. Further news from Italy
today showed a rise in its current account surplus to €1bn in March, up from €0.3bn in March. Since 2013, Italy’s current account has on average been in surplus, for the first time in more than a decade. ECB Board members urge ABS market development
Two speeches by ECB Executive Board members Mersch and Cœuré yesterday talked up the prospect of medium-term action by the ECB to support ABS markets. Lauding the potential for ABS to diversify credit risks and raise credit provision, especially to SMEs, they stressed that the development of securitisation markets could help counterbalance the euro area’s bank-centric model. Mersch also dismissed fears of ABS being inherently risky, citing a default rate of SME-linked ABS of only 0.1%. With the ECB actively working, along with the BoE, on removing roadblocks in securitisation markets some sort of announcement of further moves towards an ABS purchase programme are on the cards at the Governing Council’s June meeting.
Tomorrow in the euro area and US
After a slow start to the week in terms of euro area data, tomorrow sees the first top-tier release as the European Commission publishes the flash May estimate of its consumer confidence indicator. Since reaching a 6½-year high in March it made further gains last month to -8.6, and yet another rise is expected for May. This buoyant consumer mood should be reflected in fairly robust household spending in Q2. Also due for release are euro area balance of payments data for March, which round off the external backdrop to the first quarter with an expected rise in the overall external surplus in March. In the markets, Germany will hold a €5bn auction for 10Y Bunds. Another data-free day from the US should see most attention turn to speeches from various Fed Committee members including Chair Yellen, as well as the publication of the minutes from the end-April FOMC meeting.
Italy: Industrial orders and production Italy: Current account balance
Source: Datastream and Daiwa Capital Markets Europe Ltd. Source: Datastream and Daiwa Capital Markets Europe Ltd.
Having hit a near-4½-year low in March, UK consumer price inflation inched higher in April for the first time in ten months. Indeed, the headline measure edged up a little more than expected, by 0.2ppt to 1.8%Y/Y, albeit still below the BoE’s 2% target and almost 1½ppts below the rate one year earlier. The increase largely reflected seasonal effects from the timing of the Easter holiday, with services price inflation (at a seven-month high of 2.8%Y/Y) boosted by higher transport costs. In particular, both air fares and sea fares rose around 20%Y/Y, compared with a fall of 6%Y/Y and rise of 3%Y/Y respectively in April 2013. ...but likely to remain below 2% target in 2014
In contrast, however, goods price inflation fell to a 4½-year low of 0.8%Y/Y in April on the back of lower food prices – just 0.5% higher than a year earlier, the softest such increase for eight years. As such, when excluding such items, along with prices of energy, alcohol and tobacco, the core rate jumped 0.4ppt to 2%, bang in line with the BoE’s target. Nevertheless, not least due to the marked appreciation of sterling – around 10% in effective terms over the past year – upward inflationary pressures should remain more limited for the time being, with the headline
rate expected to remain close to, but likely below, 2% over the coming year. House prices remain well above pre-crisis peak...
Contrary to the pickup in consumer prices, and the recent trend in housing market indicators, the latest ONS house price data (based on mortgage-financed transactions) showed that prices slipped back in March. However, the ½% monthly decline in the average house price in UK was from a record high in February and still left the average price more than 3% higher than its pre-crisis peak. Unsurprisingly, London property prices continued to drive the recovery, with prices up 17%Y/Y to leave them around 25% higher than their pre-crisis peak. ...and set to rise further?
But there was also further evidence that the positive momentum is extending to other regions of the UK. For example, property prices in all nine regions of England were up on a year-on-year basis, with three reporting average prices above their pre-crisis peaks. So while, when excluding London, the average house price took a modest step down in March it was still up more than 5%Y/Y. And, if the Rightmove survey of asking prices, which in May reported that prices were up more than 3½%M/M, and 8.9%Y/Y the fastest year-on-year rate for more than 6½ years, is anything to go by we are
likely to see continued robust house price increases over coming quarters too. FPC to act next month?
The drop in mortgage-based property prices might well in part reflect the recent decline in mortgage approvals – which in March were around 9k down from the level at the start of the year. And while this slowdown was possibly triggered by the implementation of more rigorous affordability assessments on new mortgage applicants at the start of April, with BoE Governor Carney at the weekend having noted that the housing market was currently the most significant domestic risk to financial stability, we think the FPC will also want to employ new macro-prudential tools, including stricter mortgage eligibility rules, when it meets next month. Such a move, if it works, combined with continued subdued inflationary pressures would of course provide the MPC with greater leeway to keep Bank Rate lower for longer. Tomorrow in the UK
Attention tomorrow, meanwhile, turns to the publication of the minutes from the most recent MPC meeting. And these will be watched closely for any further insight into the MPC members’ differing assessments of the amount of spare capacity in the economy. Data-wise, tomorrow brings the release of April retail sales.
Important disclosures, including any required research certifications, are provided on the last two pages of this report.
■ What is new?
• CT Environmental (CTE) has announced the acquisition of a 49% stake in Yinglong industrial WWT plant, which has effectively increased its stake from 46% to 95%. The total consideration is CNY294m (CNY196m cash portion and CNY98m debt portion), equivalent to 15.3x 2013 PER (CTE’s 2013 PER: 22x), and 1.7x 2013 PBR (CTE’s 2013 PBR: 5.9x). We estimate the acquisition would enhance the 2015/16E EPS by 3%/5%, respectively.
■ Project details and our view
• The 100ktpd Yinglong industrial WWT mainly serves textile customers, with treatment tariff at CNY4.1 per ton. CTE acquired a 46% stake in 2012 from a state-owned-enterprise and after assuming operation increased its utilization from 73% in 2012 to 95% in 2013. The 150ktpd Yinglong Phase 2 is under construction which management expects will be commissioned by 1H15. Phase 2 expansion capex was secured with CNY200m project financing. By 1H15, Yinglong’s total capacity would reach 250ktpd, representing
c.30% of WWT’s total capacity of 800ktpd.
■ Outlook for 2014-16 Management expects the total daily capacity of industrial WWT and water supply to reach at least 1mtpd by 2016 (April 2014: 475ktpd). CTE has spent CNY440m in cash for acquisitions YTD in 2014.
■ Valuation Our DCF-based 6-month target price of HKD7.0 implies a 21x 2015E PER. In addition, CTE’s 5.0x 2015E PBR is undemanding, in our view, given our forecast ROE of 31% for 2015. The main risk to our call would be greater-than-expected competition from major municipal players, foreign enterprises and new entrants. We expect net-debt-to-equity would reach 100%, hitting what we consider a comfortable gearing level of 80-100%.
Stake increase in Yinglong WWT should be EPS accretive for 2015-16E Dennis Ip, CFA (852) 2848 4068 [email protected]
Site visit to Qingyuan sludge and solid waste treatment facilities (清遠綠由) We will host a one-day site visit to the recently acquired Qingyuan sludge and solid waste facilities with CTE on 20-21 May 2014.
See our recent reports To see my initiation report on CT Environmental (14 February 2014),
please click here To see my FY13 results notes (20 March 2014), please click here To see my short comment on latest CNY115m 60ktpd WWT acquisition in
Shunde (21 March 2014), please click here To see my short comment on latest sludge treatment contract awarded by
Shenzhen Municipal Water Affair Bureau (16 April 2014), please click here To see my short comment on latest CNY525m 555ktpa sludge treatment,820ktpa solid waste treatment, and 165m p.a. pieces of environmental brick manufacturing facilities in Qingyuan (5 May 2014),
please click here
In the interests of timeliness, this document has not been edited.
Important disclosures, including any required research certifications, are provided on the last two pages of this report.
■ Highlights 1Q14 revenue beats expectations. Revenue came in at HKD20.2bn, +33% YoY and +7% QoQ and about 7% above consensus. Property EBITDA came in at HKD3.8bn (+36% YoY and 6% QoQ) and about 3% below consensus. Highlights: 1) VIP rolling increased 36% YoY and 4% QoQ, 2) good luck with a 3.3% VIP win rate (4Q13: 3.1%), and 3) mass table wins increased 46% YoY and 9% QoQ to HKD4.5bn. By segment: 1) Mass table wins increased 46% YoY to HKD4.5bn, which was ahead of the 1Q14 industry growth of 39% YoY, driven by a 10ppt YoY and 3.34ppt QoQ improvement in the mass hold rate. 2) VIP rolling increased 36% YoY to HKD433bn, far ahead of the 17% YoY industry average. VIP revenue increased 33% YoY and 9% QoQ as a result of the 20bps QoQ improvement in the win rate to 3.3%. 3) Slot and electronic game wins increased 10% YoY to HKD464m, though the results were affected by a 130bps YoY and 30 bps
QoQ decline in the hold rate to 4.7%, which management attributed to the inclusion of stadium games that are dilutive to the hold rate. Galaxy Macau. Galaxy Macau revenue came in at HKD12.8bn (+44% YoY, +9% QoQ), as both VIP and mass revenue increased 47% YoY – VIP to HKD8.7bn and mass to HKD3.3bn (VIP increased 7% QoQ and mass increased 14% QoQ). Galaxy Macau reported EBITDA of HKD2.8bn (+44% YoY and +10% QoQ). The property EBITDA margin improved 80bps QoQ on a 20bps increase in mass GGR mix. Prior to the Lunar New Year, 2 new VIP rooms consisting of 25 tables were added in Galaxy Macau, having been reallocated from mass tables at StarWorld and Galaxy Macau. StarWorld. StarWorld reported an EBITDA of HKD1.1bn (+26% YoY and +5% QoQ) in 1Q14, while revenue increased 19% YoY and 8% QoQ to HKD6.8bn. Mass revenue growth remains robust, with mass revenue up 43% YoY to HKD1.15bn. VIP revenue also sustained double-digit YoY and QoQ growth for the second consecutive quarter, at 16% and 12%, respectively, picking up HKD5.6bn in 1Q14. The property EBITDA margin declined by 110bps QoQ as the VIP GGR mix increased by 240bps QoQ. CityClubs. CityClubs casinos reported an EBITDA of HKD48m (+4% YoY and +16% QoQ) in 1Q14. Property developments. Galaxy Macau Phase 2 is on budget (HKD5.9bn invested to date) and on track to be completed by mid-2015. The tower construction currently stands at level 35, and is expected to top off in the near future, and they have been simultaneously fitting out the interior. Galaxy Macau Phase 3 & 4 plans are in the final design
stages and construction is expected to commence in late 2014, with capex of HKD50-60bn. Grand Waldo refitting works are well underway, with plans to be revealed in mid-2014 and a re-opening in early 2015. Hengqin Island continues to be in the planning stages, with a planned capex of RMB10bn. Other takeaways. On the call, management commented on the recent smoking ban that will be implemented on October 6, 2014, and it has said it is cooperating closely with the Health Department and the Macau Government in the implementation of the plan. Management also stated that it is in favour of the recent crackdown on the illegal mobile UnionPay devices (which allow Mainland Chinese to circumvent China’s currency restrictions), and that it does not believe it will have a material impact, if any, to the market, as it has been widely misunderstood that UnionPay will disappear in Macau, which it believes is not the case. Management has stated that the recent Kimren incident has had little to no impact to its VIP business due to close relationships with its own junket operators and strong liquidity. The company remains upbeat on the VIP segment, as shown in its expansion of the VIP rooms in Galaxy Macau, and has guided for high single-digit growth for VIP revenue in 2014. Despite the recent press reports and sector noise, management remains positive on Macau’s short-, medium-, and long-term prospects, and is confident that Galaxy’s development pipeline will allow the company to be strategically positioned as Asia’s economy continues to grow and as Macau diversifies itself to become a world-class tourism destination.
1Q14 revenue beats consensus, and EBITDA broadly in line; Phase 2 on track Alison Law, CFA (852) 2532 4308 [email protected] Jamie Soo (852) 2773 8529 [email protected]
Asia Pacific Daily | 29
Galaxy Entertainment Group 27 HK
20 May 2014
- 2 -
Valuation We have a Buy (1) rating on Galaxy Entertainment Group with an SOTP-based 6-month target price of HKD83.60, implying a 20.4x 2014E PER and a 15.8x EV/EBITDA. The main risks to our call include policy risks and market-share losses from new property openings. . In the interests of timeliness, this document has not been edited.
Asia Pacific Daily | 30
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Macau Gaming Sector
Macau Gaming Sector Initiation: aces to go places 11 April 2014
Multi-year drivers on the table for the sector: optimisation, infrastructure improvements, and new property developments
Potential for double-digit profit growth and attractive dividends
Sector valuations undemanding relative to growth, global peers. For the first stage of the upcycle, our top picks are Wynn, Sands
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Siam Global House Pcl More earnings cuts 11 20-May-14Total Access Comm. Power of flexibility 15 19-May-14OfficeMate Pcl Online value looks in the price 11 16-May-14Discovery Asia small-cap weekly 17 16-May-14PTT Global Chemical 1Q14 likely the year’s worst 11 15-May-14MC GROUP Pcl Inexpensive, growth, high yield 10 14-May-14Keppel Land Initiation: unduly undervalued 22 14-May-14Coal India What could change with the new government? 33 14-May-14Thai Vegetable Oil Pcl Expensive 11 9-May-14PTT Exp. & Production 2H14F recovery on the way 15 9-May-14Discovery Asia small-cap weekly 14 9-May-14Thailand Construction Sector Down but not out 29 8-May-14Korea Petrochemical Sector The worst is yet to come 35 8-May-14Central Pattana Pcl Highly resilient 12 7-May-14China Telecoms Sector On firmer ground 17 6-May-14The Erawan Group Pcl Hardest hit 11 6-May-14Towngas China 1Q14 gas sales growth on track 18 6-May-14Siam Cement Pcl Feeling the pinch 12 5-May-14China Dairy Sector Initiation: the cream is upstream 76 2-May-14Discovery Asia small-cap weekly 16 2-May-14Indorama Ventures Pcl Bottoming out, but not cheap 20 1-May-14Macau Gaming Sector Concerns on VIP look overdone 7 29-Apr-14Super Group Initiation: recovery brewing 39 29-Apr-14Samart i-Mobile Pcl Boosting earnings 8 29-Apr-14Samart Corporation Pcl Strong catalysts line up 9 29-Apr-14China Cement and Steel Weekly Will iron ore prices collapse? 9 29-Apr-14Discovery Asia small-cap weekly 19 25-Apr-14Home Product Center Cost matters 12 25-Apr-14Thailand Media Sector Valuation mismatch 40 24-Apr-14VGI Global Media Pcl Valuation looks unattractive 9 24-Apr-14
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Asia Pacific Daily | 37
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
Asia Pacific Daily | 38
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The following explains the rating system in the report as compared to KOSPI, based on the beliefs of the author(s) of this report.
"1": the security could outperform the KOSPI by more than 15% over the next six months.
"2": the security is expected to outperform the KOSPI by 5-15% over the next six months.
"3": the security is expected to perform within 5% of the KOSPI (better or worse) over the next six months.
"4": the security is expected to underperform the KOSPI by 5-15% over the next six months.
"5": the security could underperform the KOSPI by more than 15% over the next six months.
“Positive” means that the analyst expects the sector to outperform the KOSPI over the next six months.
“Neutral” means that the analyst expects the sector to be in-line with the KOSPI over the next six months
“Negative” means that the analyst expects the sector to underperform the KOSPI over the next six months
Additional information may be available upon request.
Singapore This research is distributed in Singapore by Daiwa Capital Markets Singapore Limited and it may only be distributed in Singapore to accredited investors, expert investors and institutional investors as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. By virtue of distribution to these category of investors, Daiwa Capital Markets Singapore Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section 36 relates to disclosure of Daiwa Capital Markets Singapore Limited’s interest and/or its representative’s interest in securities). Recipients of this research in Singapore may contact Daiwa Capital Markets Singapore Limited in respect of any matter arising from or in connection with the research.
Australia This research is distributed in Australia by Daiwa Capital Markets Stockbroking Limited and it may only be distributed in Australia to wholesale investors within the meaning of the Corporations Act. Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research.
Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
India
Asia Pacific Daily | 40
This research is distributed by Daiwa Capital Markets India Private Limited (DAIWA) which is an intermediary registered with Securities & Exchange Board of India. This report is not to be considered as an offer or solicitation for any dealings in securities. While the information in this report has been compiled by DAIWA in good faith from sources believed to be reliable, no representation or warranty, express of implied, is made or given as to its accuracy, completeness or correctness. DAIWA its officers, employees, representatives and agents accept no liability whatsoever for any loss or damage whether direct, indirect, consequential or otherwise howsoever arising (whether in negligence or otherwise) out of or in connection with or from any use of or reliance on the contents of and/or omissions from this document. Consequently DAIWA expressly disclaims any and all liability for, or based on or relating to any such information contained in or errors in or omissions in this report. Accordingly, you are recommended to seek your own legal, tax or other advice and should rely solely on your own judgment, review and analysis, in evaluating the information in this document. The data contained in this document is subject to change without any prior notice DAIWA reserves its right to modify this report as maybe required from time to time. DAIWA is committed to providing independent recommendations to its Clients and would be happy to provide any information in response to any query from its Clients. This report is strictly confidential and is being furnished to you solely for your information. The information contained in this document should not be reproduced (in whole or in part) or redistributed in any form to any other person. We and our group companies, affiliates, officers, directors and employees may from time to time, have long or short positions, in and buy sell the securities thereof, of company(ies) mentioned herein or be engaged in any other transactions involving such securities and earn brokerage or other compensation or act as advisor or have the potential conflict of interest with respect to any recommendation and related information or opinion. DAIWA prohibits its analyst and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analyst cover. This report is not intended or directed for distribution to ,or use by any person, citizen or entity which is resident or located in any state or country or jurisdiction where such publication, distribution or use would be contrary to any statutory legislation, or regulation which would require DAIWA and its affiliates/ group companies to any registration or licensing requirements. The views expressed in the report accurately reflect the analyst’s personal views about the securities and issuers that are subject of the Report, and that no part of the analyst’s compensation was, is or will be directly or indirectly, related to the recommendations or views expressed in the Report. This report does not recommend to US recipients the use of Daiwa Capital Markets India Private Limited or any of its non – US affiliates to effect trades in any securities and is not supplied with any understanding that US recipients will direct commission business to Daiwa Capital Markets India Private Limited.
Taiwan This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd and it may only be distributed in Taiwan to institutional investors or specific investors who have signed recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Recipients of this research in Taiwan may contact Daiwa-Cathay Capital Markets Co., Ltd in respect of any matter arising from or in connection with the research.
Philippines This research is distributed in the Philippines by DBP-Daiwa Capital Markets Philippines, Inc. which is regulated by the Philippines Securities and Exchange Commission and the Philippines Stock Exchange, Inc. Recipients of this research in the Philippines may contact DBP-Daiwa Capital Markets Philippines, Inc. in respect of any matter arising from or in connection with the research. DBP-Daiwa Capital Markets Philippines, Inc. recommends that investors independently assess, with a professional advisor, the specific financial risks as well as the legal, regulatory, tax, accounting, and other consequences of a proposed transaction. DBP-Daiwa Capital Markets Philippines, Inc. may have positions or may be materially interested in the securities in any of the markets mentioned in the publication or may have performed other services for the issuers of such securities.
For relevant securities and trading rules please visit SEC and PSE Link at http://www.sec.gov.ph/irr/AmendedIRRfinalversion.pdf and http://www.pse.com.ph/ respectively.
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This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.
Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-regulatory. Regulatory disclosures of investment banking relationships are available at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
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This material is provided as a reference for making investment decisions and is not intended to be a solicitation for investment. Investment decisions should be made at your own discretion and risk. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document, Content herein is based on information available at the time the research material was prepared and may be amended or otherwise changed in the future without notice. All information is intended for the private use of the person to whom it is provided without any liability whatsoever on the part of Daiwa Capital Markets Europe Limited, Bahrain Branch, any associated company or the employees thereof. If you are in doubt about the suitability of the product or the research material itself, please consult your own financial adviser. Daiwa Capital Markets Europe Limited, Bahrain Branch retains all rights related to the content of this material, which may not be redistributed or otherwise transmitted without prior consent.
United States 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.
Asia Pacific Daily | 41
For stocks and sectors in Malaysia covered by Affin, the following rating system is in effect:
Stocks:
BUY: Total return is expected to exceed +15% over a 12-month period
TRADING BUY (TR BUY): Total return is expected to exceed +15% over a 3-month period due to short-term positive developments, but fundamentals are not strong enough to warrant a Buy call. This is to cater to investors who are willing to take on greater risk
ADD: Total return is expected to be between 0% and +15% over a 12-month period
REDUCE: Total return is expected to be between 0% and -15% over a 12-month period
TRADING SELL (TR SELL): Total return is expected to exceed -15% over a 3-month period due to short-term negative development, but the fundamentals are strong enough to avoid a Sell call. This is to cater to investors who are willing to take on greater risk
SELL: Total return is expected to be below -15% over a 12-month period
NOT RATED: Affin Investment Bank does not provide research coverage or a rating for this company. The report is provided for information purposes only
Sectors:
OVERWEIGHT: Industry, as defined by the analyst’s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months
NEUTRAL: Industry, as defined by the analyst’s coverage universe, is expected to perform in line with the KLCI benchmark over the next 12 months
UNDERWEIGHT: Industry, as defined by the analyst’s coverage universe is expected to underperform the KLCI benchmark over the next 12 months
Conflict of Interest Disclosure: Affin
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 Affin 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.
Affin market making Affin may from time to time make a market in securities covered by this research.
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 (Thanachart Securities) Thanachart Securities 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. Thanachart Securities market making Thanachart Securities 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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(This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.)
If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items.
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When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us.
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