DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/ researchdisclosures or call +1 (877) 291-2683. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Friday, 14 January 2011 Asian Daily (Asia Edition) EPS, TP and Rating changes EPS TP (% change) T+1 T+2 Chg Up/Dn Rating E-House China Hldg 0 (1) 0 39 O (O) Infosys (2) (2) 0 20 O (O) Indofood 35 34 33 36 O (R) BORN Initiation 32 O (NA) Genting Malaysia 13 16 32 (10) N (U) Genting 6 5 4 14 O (O) IJM Corporation 1 5 33 18 O (O) Keppel Corp 0 0 12 17 O (O) Sembcorp Industries 0 0 7 20 O (O) Sembcorp Marine 0 0 11 18 O (O) TOP 1 21 13 30 O (O) C 3 : Connecting clients to corporates Hong Kong "Consumer Survey" report luncheon Date 17 January, Hong Kong Coverage Analyst Vincent Chan/Arief Wana/Ashish Gupta Yue Yuen Industrial Holding (0551.HK) Date 25-27 January, Hong Kong Coverage Analyst Adrian Chan US JinkoSolar Holding Date 13-14 January, US Coverage Analyst Satya Kumar Esprit Holdings Date 17-28 February, US Coverage Analyst Gabriel Chan Others Taiwan Conference 2011 Date 13-14 January, Taiwan 12th Annual Financial Services Forum Date 09-11 February, Miami 14th Asian Investment Conference Date 21-25 March, Hong Kong Contact [email protected]or Your usual sales representative. Top of the pack ... Singapore Offshore and Marine Sector – Maintain OW Bhuvnesh Singh (3) New report: Ride the wave of new orders Infosys (INFO IN) – Maintain O Bhuvnesh Singh (4) Wobbly quarter but trends remain strong Singapore Property Sector Tricia Song (5) Government announces 4th and harshest set of property measures; near-term negative for residential developers TOP (TOP TB) – Maintain O Paworamon (Poom) Suvarnatemee, CFA (6) Upgrades with new LPG prices ... and the whole pack Global Global Airline Sector Sam Lee (7) A closer look at supply growth for global, Asian and Middle Eastern airlines China E-House China Holdings Ltd (EJ US) – Maintain O Jinsong Du (8) Market share gain to continue as outsourcing penetration increases Hong Kong Cathay Pacific (293 HK) – Maintain O Sam Lee (9) Decent December demand; positive indications on yields India BEML (BEML IN) – Maintain O Venugopal Garre (10) Strong order inflows in 1H; earnings momentum likely to improve Infosys (INFO IN) – Maintain O Bhuvnesh Singh (4) Wobbly quarter but trends remain strong Indonesia Indofood Sukses Makmur (INDF IJ) – Maintain O Arief Wana (11) Reinstating coverage with an OUTPERFORM - bad news is mostly priced-in; valuations are attractive PT Borneo Lumbung Energi & Metal Tbk (BORN IJ) – Initiating Coverage with O Fonny Surya (12) New report: In time to capture growth Japan Japan Telecoms Sector – Maintain OW Hitoshi Hayakawa (13) SWD Index and 3Q telecom results preview
Transcript
DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/ researchdisclosures or call +1 (877) 291-2683. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Friday, 14 January 2011
Asian Daily (Asia Edition)EPS, TP and Rating changes EPS TP (% change) T+1 T+2 Chg Up/Dn Rating E-House China Hldg 0 (1) 0 39 O (O) Infosys (2) (2) 0 20 O (O) Indofood 35 34 33 36 O (R) BORN Initiation 32 O (NA) Genting Malaysia 13 16 32 (10) N (U) Genting 6 5 4 14 O (O) IJM Corporation 1 5 33 18 O (O) Keppel Corp 0 0 12 17 O (O) Sembcorp Industries 0 0 7 20 O (O) Sembcorp Marine 0 0 11 18 O (O) TOP 1 21 13 30 O (O)
C3: Connecting clients to corporates
Hong Kong "Consumer Survey" report luncheon
Date 17 January, Hong Kong Coverage Analyst Vincent Chan/Arief Wana/Ashish Gupta
Yue Yuen Industrial Holding (0551.HK) Date 25-27 January, Hong Kong Coverage Analyst Adrian Chan
US JinkoSolar Holding
Date 13-14 January, US Coverage Analyst Satya Kumar
Esprit Holdings Date 17-28 February, US Coverage Analyst Gabriel Chan
Others Taiwan Conference 2011
Date 13-14 January, Taiwan
12th Annual Financial Services Forum Date 09-11 February, Miami
14th Asian Investment Conference Date 21-25 March, Hong Kong
Singapore Offshore and Marine Sector – Maintain OW Bhuvnesh Singh (3) New report: Ride the wave of new orders
Infosys (INFO IN) – Maintain O Bhuvnesh Singh (4) Wobbly quarter but trends remain strong
Singapore Property Sector Tricia Song (5) Government announces 4th and harshest set of property measures; near-term negative for residential developers
TOP (TOP TB) – Maintain O Paworamon (Poom) Suvarnatemee, CFA (6) Upgrades with new LPG prices
... and the whole pack Global Global Airline Sector Sam Lee (7) A closer look at supply growth for global, Asian and Middle Eastern airlines
China E-House China Holdings Ltd (EJ US) – Maintain O Jinsong Du (8) Market share gain to continue as outsourcing penetration increases
Hong Kong Cathay Pacific (293 HK) – Maintain O Sam Lee (9) Decent December demand; positive indications on yields
India BEML (BEML IN) – Maintain O Venugopal Garre (10) Strong order inflows in 1H; earnings momentum likely to improve Infosys (INFO IN) – Maintain O Bhuvnesh Singh (4) Wobbly quarter but trends remain strong
Indonesia Indofood Sukses Makmur (INDF IJ) – Maintain O Arief Wana (11) Reinstating coverage with an OUTPERFORM - bad news is mostly priced-in; valuations are attractive PT Borneo Lumbung Energi & Metal Tbk (BORN IJ) – Initiating Coverage with O Fonny Surya (12) New report: In time to capture growth
Japan Japan Telecoms Sector – Maintain OW Hitoshi Hayakawa (13) SWD Index and 3Q telecom results preview
MSCI Asian indices – valuation & perf. EPS grth. P/E (x) Performance MSCI Index 10E 11E 10E 11E 1D 1M YTD Asia F X Japan 39 13 15.1 13.4 0.0 3.6 1.6 Asia Pac F X J. 31 15 15.4 13.4 0.0 2.4 0.2 Australia 6 20 13.4 12.0 2.0 0.7 (1.7) China 24 19 14.8 12.5 0.4 2.7 4.1 Hong Kong 25 6 19.7 18.6 (0.1) 4.2 5.0 India 24 22 18.5 15.2 (2.0) (2.8) (7.4) Indonesia 20 21 15.9 13.2 0.2 (5.8) (5.7) Korea 56 6 11.1 10.4 0.3 7.6 3.7 Malaysia 28 15 18.3 15.9 0.8 7.6 5.0 Pakistan 27 14 9.3 8.1 1.9 10.5 5.3 Philippines 23 12 17.0 15.1 0.7 (0.3) (3.4) Singapore 21 11 16.1 14.5 0.5 4.2 1.9 Sri Lanka 11 109 27.6 21.9 (0.2) 3.1 1.9 Taiwan 93 11 15.1 13.6 0.4 6.7 0.8 Thailand 19 18 14.8 12.5 2.3 (0.8) (0.1)
* IBES estimates
Malaysia Genting Malaysia (GENM MK) – Upgrade to N Foong Wai Loke (14) UK and US risks Genting (GENT MK) – Maintain O Foong Wai Loke (15) New report: Attractive RNAV play IJM Corporation (IJM MK) – Maintain O Danny Goh (16) Poised for rapid expansion of construction orderbook in near term
Philippines Philippines Telecoms Sector – Maintain UW Chate Benchavitvilai (17) Price war alert – PLDT launches a dangerous tariff experiment; competition might get worse
Singapore Singapore Market Strategy – Maintain UW Sean Quek, CFA (18) Remain positive on higher-beta industrial names Singapore Property Sector Tricia Song (5) Government announces 4th and harshest set of property measures; near-term negative for residential developers Singapore Offshore and Marine Sector – Maintain OW Bhuvnesh Singh (3) New report: Ride the wave of new orders Keppel Corp (KEP SP) – Maintain O Bhuvnesh Singh (19) Catching up in 2011 Raffles Education (RLS SP) – Maintain U Su Tye Chua (20) Merchant Square acquisition: A hedge against rising rents Sembcorp Industries (KEP SP) – Maintain O Bhuvnesh Singh (21) Cheaper play on sector recovery Sembcorp Marine (KEP SP) – Maintain O Bhuvnesh Singh (22) Strong order momentum offset by risk of losing Petrobras order
South Korea Korea Economics Christiaan Tuntono (23) The BoK raises its base rate by 25 bps to 2.75% to combat rising inflation threat POSCO (005490 KS) – Maintain O Minseok Sinn (24) Weak 4Q10 earnings, but expect a better 2011 than 2010
Taiwan Taiwan Networking Equipment Sector Darryl Cheng (25) Key takeaways from CS Taiwan Investment Conference: Increasing exposure to digital home TXC Corp. Pauline Chen (26) Key takeaways from 2011 Taiwan Conference Kinsus (3189 TT) – Maintain O Pauline Chen (27) Key takeaways from 2011 Taiwan Conference Taiwan Hardware Sector Robert Cheng (28) Gartner: Global PC shipments up only 3.1% YoY in 4Q10
Thailand Thai Residential Property Sector Chai Techakumpuch (29) Recent market data should ease fear of oversupply and bodes well for the condo segment TOP (TOP TB) – Maintain O Paworamon (Poom) Suvarnatemee, CFA (6) Upgrades with new LPG prices
O=Outperform N=Neutral U=Underperform R=Restricted OW= Overweight MW=Market Weight UW=Underweight Research mailing options To make any changes to your existing research mailing details, please e-mail us directly at [email protected]
Sales Contact Hong Kong 852 2101 6218 Singapore 65 6212 3052 London 44 20 7888 4367 New York 1 212 325 5955 Boston 1 617 556 5634
Friday, 14 January 2011
Asian Daily
- 3 of 35 -
Top of the pack ... Singapore Offshore and Marine Sector-------------------------------- Maintain OVERWEIGHT New report: Ride the wave of new orders Bhuvnesh Singh / Research Analyst / 65 6212 3006 / [email protected] Gerald Wong / Research Analyst / 65 6212 3037 / [email protected] Christopher Chang / Research Analyst / 65 6212 3024 / [email protected]
● We believe that demand for high spec jackups should continue to remain strong on the back of: (1) shift towards more complex wells, (2) high returns of 12% versus financing cost of 5-6% and (3) utilisation rates of 95%. Keppel and SMM should be key beneficiaries having won 12 out 20 jackup orders in 2010. If the options on hand are exercised, Keppel and Sembcorp Marine would achieve 26% and 65% of our FY11 order forecasts of S$5.5 bn and S$4 bn, respectively. Please refer to our full report, Ride the wave of new orders, published on 13 January 2011.
● Given strong contracting activity in this market, we now find that only 14% of the fleet remains uncontracted for 2011, compared to 20% in mid-2010. Drillship orders are showing strength (six orders in past three months) and recent purchase of two Semi Subs by Seadrill indicates that this market could also pick up.
● Improving comfort on orderflow should lead to a rerating of the sector. Current multiples are in line with the historical average, and we note that the sector trades ahead of average multiples at the time of strong orderflow. We thus increase our target prices for Keppel (S$13.50 from S$12.10), Sembcorp Marine (S$6.10 from S$5.50) and Sembcorp Industries (S$6.20 from S$5.80), and maintain our OUTPERFORM rating on the stocks. STX OSV could be an inexpensive way to participate in the recovery in the O&M space, and we maintain our target price of S$1.55 (22% potential upside).
● For full report click here.
Jackup orders may continue to flow We believe that a shift towards more complex wells could lead to a continuation in strength in new orders for high spec jackups. High spec Jackups are currently enjoying day rates of US$120,000/day compared to US$90,000/day for standard jackups and also have higher utilisation rates of 95% (compared to 77% for standard Jackups). Keppel and Sembcorp Marine could be key beneficiaries of this trend, with 60% market share in new jackup orders in 2010. We believe that the strength in new Jackup orders would be reflected in a high rate of conversion of options (to place new jackup orders with yards) into firm orders. As of end-2010, Sembcorp Marine has signed options worth S$2.6 bn (or 65% of our 2011E total order forecast of S$4 bn), and Keppel has signed options worth S$1.4 bn (26% of our 2011E order forecast).
Deepwater segment poised for recovery The deepwater segment could also be exhibiting signs of life, with only 14% of the fleet uncontracted for 2011. In mid-2010, we found that around 20% of the fleet was uncontracted for year 2011. Rates have also stabilised around US$270,000/day for Semi Subs and US$470,000/day for drillships over the past few months. We believe that this could improve further as drill activity slowly resumes in the Gulf of Mexico. Good end-market demand has also led to an improvement in orders for new builds. Over the past three months, we have seen orders of six drill ships being placed (versus seven for the entire year). Demand for Semi Subs could also pick up with Seadrill recently buying two Semi Subs in the secondary market for US$1.2 bn (both under construction at Jurong Shipyard, one contracted and other speculative). OSVs also a beneficiary of improving demand As new supply of OSVs probably peaked in 2010, we believe charter rates for OSVs will show signs of improvement in 2011. The low orderbook/fleet ratio of less than 20% also supports our view that the recovery in orders for OSVs will continue. Attractive newbuilding returns of 12% at current day rates versus pre-tax borrowing costs of about 4% could also generate more orders. Maintain OVERWEIGHT on offshore and marine sector A greater certainty in orderflow should lead to an improvement of multiples for offshore and marine sector. In the previous cycle, an acceleration in orderflow led to these companies trading above their average multiples, and we believe it could be a similar case in the current cycle. Figure 2: Keppel O&M stub now trading in line with historical average
4
7
10
13
16
19
22
25
28
Dec
-200
2
Jun-
2003
Dec
-200
3
Jun-
2004
Dec
-200
4
Jun-
2005
Dec
-200
5
Jun-
2006
Dec
-200
6
Jun-
2007
Dec
-200
7
Jun-
2008
Dec
-200
8
Jun-
2009
Dec
-200
9
Jun-
2010
Dec
-201
0
Source: Bloomberg, Company data, Credit Suisse estimates Improving our target multiples to 20x for O&M part (mean + 0.5 standard deviation), we increase our target price for Keppel (S$13.50 from S$12.10), Sembcorp Marine (S$6.10 from S$5.50) and Sembcorp Industries (S$6.20 from S$5.80), and maintain our OUTPERFORM rating on the stocks. Also, on 12 January, we initiated coverage of STX OSV with an OUTPERFORM rating and a target price of S$1.55, as we believe it is an inexpensive way to participate in the recovery in orders for offshore support vessels.
Figure 1: KEP and SMM option value versus order forecast for 2011
● Infosys results were broadly in line with our expectations. Revenue growth was 5.9% QoQ (USD terms) vs our expectations of 6.4%, EBIT/PBT were 0.9%/0.2% ahead of our estimates, but PAT was 1.5% below our estimates due to higher tax rates.
● Strong sell-off in the stock clearly suggests that consensus expectations could have been significantly higher.
● While the quarter could have disappointed, a strong upmove in billing rates (like-to-like basis) clearly indicates demand trends are strong. Management also mentioned 2011 (calendar year) could exhibit more normal trends compared to rather weak 1H10. This gives us confidence that FY3/12 revenue growth could be a bit ahead of FY3/11E revenue growth of 27% YoY (USD terms).
● Stable margins and tax rates in FY3/12 should lead to EPS growth in line with revenue growth.
● We do not find the stock expensive (P/E of 22x FY3/12E) in view of the expected ~30% EPS CAGR. We maintain our OUTPERFORM rating, with a target price of Rs4,050.
In-line results Revenue grew 2.3% QoQ to Rs71,060 mn. The growth in USD terms was 5.9% QoQ, largely in line with our estimate of 6.4% QoQ growth. Constant currency QoQ growth was 4.7%.
Margins stayed flat at 30.2% while we were expecting a 40 bp drop QoQ. Thus, EBIT was 0.9% ahead of our estimates. Lower other income and higher taxes resulted in a miss on bottomline. Net profit grew 2.5% QoQ to Rs17,800 mn, 1.5% below our estimates. Weak volume growth due to seasonality, no budget flush Infosys saw volume growth of 3.1% QoQ vs 7.2% QoQ in the previous quarter. This could be explained by the lower number of working days in the quarter and due to lack of any year-end budget flush, and thus we are not overly concerned on this front.
Return of pricing power, fall in attrition are key positives In constant currency terms, offshore pricing grew 1.4%, largely due to like-to-like pricing hikes. Attrition also trended down – quarterly annualised attrition is at 18% in this quarter vs 25% average in the past two quarters. This is in line with our hypothesis on rates and attrition. For more details, see our note, Bottom-up datapoints indicate a continuation of the upgrade cycle, published on 11 Jan 2011. Management upbeat about next year’s growth outlook Management indicated 2011 could be a more normal year in terms of growth, while 2010 saw good growth only in 2H. IT budgets are expected to marginally increase in 2011, but outsourcing and offshore spend should significantly increase. Retain OUTPERFORM rating and target price We adjust our revenue, margin estimates slightly to incorporate results of this quarter. With a 30% EPS CAGR (expected) over the next two years, we do not find the stock expensive at 22x FY3/12E P/E. We maintain an OUTPERFORM, with a target price of Rs4,050.
We also note investors are largely underweight Indian IT (FIIs 285 bp vs MSCI and domestic MFs 692 bp vs Nifty, as on 30 Sep 2010). This should act as a support for the sector. We will thus take any weakness as an opportunity to accumulate the stock.
Singapore Property Sector ---------------------------------------------------------------------------------- Government announces 4th and harshest set of property measures; near-term negative for residential developers Tricia Song / Research Analyst / 65 6212 3141 / [email protected] Adam Quek / Research Analyst / 65 6212 3011 / [email protected]
● The Singapore government has announced the fourth and the harshest tightening measures since Sep 09: 1) raising the holding period for the imposition of seller’s stamp duty (SSD) to four years from three, 2) raising the SSD rates to 16%, 12%, 8% and 4% for properties sold in the first, second, third and fourth year of purchase, respectively; and 3) lowering LTV to 60% from 70% for individuals with more than one housing loan.
● We expect transaction volumes to slow down in the coming months, e.g., developer uptake fell 27% MoM in September after the 30 Aug measures. However, we expect prices to hold, as: 1) the government has reacted early since Sep 2009, and 2) we believe speculators have been weeded out while developers have healthy balance sheets and generally have little land bank.
● We expect developer shares to experience a knee-jerk negative reaction, though they already have been weak, anticipating further measures since Aug 10, e.g., CDL, AG and WINGT.
● We had expected some sort of policy overhang before the Budget in February and the General Elections, and we continue to prefer office and hospitality proxies OUE, CCT, KREIT and CDREIT.
Figure 1: Summary of the key measures by Singapore since Sep 2009 14-Sep-09 1) Reinstatement of GLS Confirmed List
2) Removal of the Interest Absorption Scheme 19-Feb-10 1) Introduced seller's stamp duty (SSD) (3%-S$5,400)
2) LTV lowered to 80% (from 90%) 21-May-10 Increased 2H10 total land supply by 32% to a record 13,905 units from
10,550 in 1H10. Specifically, raised supply via the Confirmed List by 178% to 8,135 units, exceeding the record 3,014 units in 2007
30-Aug-10 1) Increased the holding period for the imposition of SSD from one year to three years; staggered SSB: 1 year: 3%, 2 years: 2% and 3 years: 1%
2) For 2nd and more loan borrowers, increased the minimum cash payment from 5% to 10% and decreased LTV from 80% to 70%
For public housing: 1) Increased the minimum occupation period (MOP) for non-subsidised
flats to five years from three years 2) Disallowed concurrent ownership of both HDB flats and private
residential properties within the MOP 13-Jan-11 1) Holding period for the imposition of SSD raised to four years;
2) Raised the SSD rates to 16% (from 3%), 12% (from 2%), 8% (from 1%) and 4% (from 0%) for properties sold in the first, second, third and fourth year of purchase, respectively;
3) For non-individuals, LTV lowered to 50% from 70% 4) For 2nd and more loan borrowers, LTV lowered to 60% from 70%
Source: URA, HDB
The stamp duty and lower LTV emulated the ones in HK in Nov 10, but the extent of stamp duty is harsher than HK's, where homes resold within six months of purchase incur 15% stamp duty, with 6-12 months 10% and 12-24 months 5%;
We continue to prefer office and hospitality proxies OUE, CDL, CCT, KREIT and CDREIT, though CDL may witness short-term pull-back as it is still perceived as the most liquid residential proxy (38% of RNAV).
Figure 2: Subsales, a barometer of speculation, make up only 8% of total transactions, down from 13% in 2007
0
100
200
300
400
500
600
700
Jan-
09Fe
b-09
Mar
-09
Apr-0
9Ma
y-09
Jun-
09Ju
l-09
Aug-
09Se
p-09
Oct-0
9No
v-09
Dec-
09Ja
n-10
Feb-
10M
ar-1
0Ap
r-10
May-
10Ju
n-10
Jul-1
0Au
g-10
Sep-
10Oc
t-10
Nov-
10De
c-10
0%
5%
10%
15%
20%
25%
Sub Sale Sub sale as a % of total transactions [rhs]
Caveats %
Source: URA
Figure 3: Developers’ stock prices have typically fallen in knee-jerk reaction to measures, but have recovered quickly
TOP ------------------------------------------------------------------------------- Maintain OUTPERFORM Upgrades with new LPG prices EPS: ▲ TP: ▲ Paworamon (Poom) Suvarnatemee, CFA / Research Analyst / 662 614 6210 / [email protected]
● On 13 January, NEPC announced increase in LPG prices effective immediately. We view this as a long-term positive change for TOP that could add at least US$1/bbl on a sustainable basis. The change could push up its refining GRM to a new high, surpassing the level achieved in 2007-08.
● Based on the announcement, the ex. refinery price will be ~US$300/t and the Oil Fund would compensate the refineries with another US$410/t . Hence, refineries would receive a total of US$710/t, higher than the price cap of US$330/t.
● TOP should benefit the most, as most of its 36 kt-per-month LPG volumes are being sold at cap prices or used internally as fuel. We raise our earnings forecast by 21% for FY11 and 17% for FY12.
● We believe the change in LPG pricing scheme justifies the long-term rerating of TOP. We estimate that the increase in GRM by US$1/bbl over the long term will add Bt11/share to TOP’s NAV. We raise our target price to Bt99 (from Bt88) and maintain our OUTPERFORM rating.
Change is positive for TOP in the long term
On 13 January, NEPC announced increase in LPG prices effective immediately. We view this as a long-term positive change for Thai Oil (TOP.BK, Bt76.25, O [V], TP Bt99), which could add at least US$1/bbl on a sustainable basis. The change could push up its refining GRM to a new high, surpassing the level achieved in 2007-08. With the new pricing scheme, we estimate the increase in TOP’s GRM for FY11 and FY12 at US$1.3/bbl. With the new LPG price, we expect TOP’s GRM (excluding stock gains) to surpass its previous high in 2007-08. Raising our earnings estimates by 21% for FY11 and 17% for FY12 We revise up our earnings forecasts for TOP by 21% for FY11 and 17% for FY12. We base our forecasts on the assumption that TOP would raise its external sales of LPG from 18kt/month to 36kt/month. Based on the announcement, ex. refinery price will be ~US$300/t and the Oil Fund will compensate the refineries with another US$410/t. Hence, refineries would receive a total of US$710/t, higher than the
price cap of US$330/t. Conceptually, the Oil Fund would pay subsidy to local refineries (to entice higher LPG production domestically) instead of paying the subsidy to import LPG from the Middle East. The payment would be settled by Oil Fund on a monthly basis.
Figure 1: TOP's GRM (US$/bbl)
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
2006 2007 2008 2009 2010E 2011E 2012E
GRM Stock gain (loss)
Source: Company data, Credit Suisse estimates. Raising target price to Bt99 We believe that the change in LPG pricing scheme justifies the long-term rerating of TOP. We estimate that the increase of GRM by US$1/bbl over the long term will add Bt11/share to TOP’s NAV. We raise our target price to Bt99 (from Bt88) and maintain our OUTPERFORM rating.
Figure 2: P/B relative to MSCI Thailand—premium in the last up-cycle
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0Prem/Disc of TOP v s. MSCI Thailand Av erage +1 STDEV -1 STDEV
Source: Credit Suisse estimates
Figure 3: Valuations and ratings of regional refiners Company Ticker Rat. Price TP P/E
(x) P/B (x)
EV/EBITDA (x)
ROE (%)
FPCC 6505.TW U 92.7 76.0 23.5 3.7 13.3 16%SK Energy 096770.KS O 196,000 175,000 12.8 1.8 10.3 14%S-Oil 010950.KS O 94,700 110,000 11.0 2.3 7.7 22%GS Holdings 078930.KS O 71,200 68,000 10.0 1.3 10.2 13%TOP TOP.BK O 76.25 99.0 11.5 2.0 6.1 18%PTTAR PTTAR.BK U 35.75 32.0 16.6 1.6 8.7 10%Reliance RELI.BO O 1,030 1,183 16.5 2.3 9.8 15%Source: Credit Suisse estimates
Price (13 Jan 11, Bt) 76.25TP (Prev. TP Bt) 99.00 (88.00) Est. pot. % chg. to TP 3052-wk range (Bt) 80.00 - 40.00Mkt cap (Bt/US$ bn) 155.6/ 5.1
Bbg/RIC TOP TB / TOP.BK Rating (prev. rating) O (O) [V] Shares outstanding (mn) 2,040.03 Daily trad vol - 6m avg (mn) 14.1 Daily trad val - 6m avg (US$ mn) 27.6 Free float (%) 50.5 Major shareholders PTT 49.54%
Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (Bt mn) 399,125 284,123 315,534 304,706 326,029EBITDA (Bt mn) 8,936 21,552 18,269 27,020 28,342Net profit (Bt mn) 224 12,062 9,184 13,553 14,371EPS (Bt) 0.11 5.91 4.50 6.64 7.04- Change from prev. EPS (%) n.a. n.a. 1 21 17- Consensus EPS (Bt) n.a. n.a. 3.85 5.62 6.30EPS growth (%) (98.8) 5,294.9 (23.9) 47.6 6.0P/E (x) 695.8 12.9 16.9 11.5 10.8Dividend yield (%) 3.6 3.3 2.7 3.9 4.2EV/EBITDA (x) 22.1 8.8 9.8 6.1 5.4P/B (x) 2.6 2.3 2.2 2.0 1.8ROE (%) 0.4 19.2 13.4 18.1 17.4Net debt (net cash)/equity (%) 66.1 48.6 29.9 10.5 (2.7) Note 1: Thai Oil is an oil refiner, importing crude oil and refining it into gasoline, LPG, kerosene, fuel oil and chemicals and supplying it to the domestic market. Its major customers include Shell, Caltex and PTT. It also produces paraxylene and lube oil.
Friday, 14 January 2011
Asian Daily
- 7 of 35 -
Global Global Airline Sector------------------------------------------------------------------------------------------- A closer look at supply growth for global, Asian and Middle Eastern airlines Sam Lee / Research Analyst / 852 2101 7186 / [email protected]
● Based on CS aerospace analysts Ross Cowley and Robert Springarn’s estimates, Boeing and Airbus’s total delivery of large aircraft (>100 seats) will accelerate over 2011-14E, with the delivery of more than 1,000 new aircraft per annum (Figure 1). On an aggregated seat basis, 2011E deliveries will be equivalent to 8% of the current global fleet. We estimate top Asian and Middle Eastern airlines will also have gross seat deliveries of 7% and 9% (before retirement and potential production delays).
● Among Asian carriers, Air China, Korean Air, AirAsia and MAS’s 2011E seat growth could be 10% plus based on delivery schedules. On the other hand, EVA, China Airlines, Asiana and Thai Airways are likely to face less supply pressure (Figure 2).
● Based on the CS global GDP forecast of 4.4%, we expect global aviation traffic could grow 6% in 2011E. Compared to gross global capacity growth of 8%, we think the lack of capacity we saw in 2010 could ease, but we do not expect significant industry oversupply in 2011E. That said, the risk of industry oversupply is larger beyond 2011E.
● For details, please refer to our report Global Airlines: Threat from Middle East to develop over time?, dated 10 January.
Valuation metrics Target P/B (x) ROE (%) EV/EBITCompany Code Rtg Price price 11E 12E 11E 12E DAR 11EAirAsia AIRA MK O Rm2.86 4.30 1.9 1.5 19 19 7.2 Cathay Pac 293 HK O HK$22.60 27.00 1.5 1.4 24 22 6.0 Ch Airlines 2610 TT N NT$24.15 26.50 1.6 1.4 25 23 5.2 EVA Air 2618 TT O NT$34.60 36.50 1.9 1.5 33 27 5.2 MY Airlines MAS MK U Rm2.21 1.40 1.9 1.6 7 14 8.7 Qantas QAN AU O A$2.51 3.70 0.9 0.8 10 12 3.2 Sing Airlines SIA SP O S$15.44 18.50 1.3 1.3 14 16 4.0 Air China 753 HK N HK$9.50 8.00 2.5 2.2 17 9 9.0 Ch Eastern 670 HK U HK$4.03 2.20 3.4 3.2 30 7 6.7 Ch Southern 1055 HK U HK$4.75 3.00 1.5 1.6 11 2 7.9 Tiger TAHL.SI U S$1.81 1.90 4.7 3.5 31 30 19.8 KAL 003490.KS O W73,300 85,000 1.4 1.3 18 15 8.0 Asiana 020560.KS O W10,400 12,200 1.4 1.1 32 24 5.7 Thai Airways THAI.BK O Bt48.00 56.00 1.0 0.9 17 21 5.0 * O=Outperform, N=Neutral, U= Underperform Source: Company data, Credit Suisse estimates. Risk of industry oversupply still low in 2011, but 2012E? Figure 1: Aircraft deliveries for Airbus and Boeing
0200400600800
10001200
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
E20
11E
2012
E20
13E
2014
E20
15E
Boeing Airbus
No. of aircrafts
Source: Company data, Credit Suisse estimates
For 2011, there are a few mitigating factors on the supply side. Firstly, the stubbornly high fuel prices should continue to accelerate retirement of old aircraft, and storage of less-fuel-efficient aircraft (572 aircraft have been stored since 2008). Moreover, the recent failure in the test flight of the B787 could lead to further delivery delays. We forecast 27 x B787 deliveries in 2011. If these do not materialise, there will be a 12% reduction in widebody aircraft supply from 219 to 192 and 2011 widebody aircraft supply would be lower at 6% vs that of 2010’s 181. Figure 2: Current fleet and order book Current Delivery as % fleet Major order type seats ('000) 11E 12E 13E Air China 46.8 15 16 15 50x737,28xA320, 20xA330,19x777Korean Air 28.4 14 10 13 12x747, 11x777, 10x737, 10x787 AirAsia 9.5 13 45 45 88xA320 MAS 19.0 10 26 11 33x737, 19xA330, 6xA380 CX+Dragonair 40.5 8 5 2 30xA350, 18x777, 10x747, 7xA330China Eastern 44.0 7 8 6 26xA320,16xA330, 15x787, China Southern 57.2 7 10 6 55x737,23xA320, 10x787, 7xA330 Qantas+Jetstar 51.1 5 10 14 50x787, 25x737 14xA380,46xA320SIA+SIA cargo 34.2 4 3 2 20x787, 20xA350, 8xA380 Thai Airways I 27.5 2 13 14 8x777, 7xA330, 6xA380 Asiana 13.8 2 0 5 30xA350, 2x777, 1xA330 EVA 10.5 0 0 0 CAL 14.0 0 0 0 14xA350 Asia Airline 396.6 7 10 9 Top 8 ME 142.7 9 11 15 Global 1,960.7 8 9 9 Source: Company data, Credit Suisse estimates
Figure 3: Delivery schedule of top 8 ME, 12 Asian and global airlines
China E-House China Holdings Ltd--------------------------------------------- Maintain OUTPERFORM Market share gain to continue as outsourcing penetration increases EPS: ▼ TP: ◄► Jinsong Du / Research Analyst / 852 2101 6589 / [email protected] Ronney Cheung / Research Analyst / 852 2101 7472 / [email protected] Wenhan Chen / Research Analyst / 852 2101 6407 / [email protected]
Ehouse was one of the 14 companies that attended our China Property Day last Friday; the following are our key takeaways: ● Ehouse has so far secured more than 100 mn sq m of projects in
the pipeline with 30 mn sq m available for sale this year. This is partially a result of the increasing outsourcing penetration, in our view. For example, COLI has historically been selling projects itself, but has now started using E-House to sell as well.
● The slow growth of GFA sold in 2010E was primarily due to the significant YoY volume drop in major cities such as Shanghai. Despite our cautious view on the property markets in 2011, we believe Ehouse will experience 23% and 14% YoY growth in 2011E and 2012E, respectively, on higher project launches and expansion into more tier II and III.
● Management also indicated that commission rate would trend downwards to around 1% in 2010E and would become flat YoY afterwards. Hence, we trim our EPS by 1% and 7% for 2011E and 2012E, respectively. Contribution from CRIC should also see strong growth in 2011E. Maintain OUTPERFORM.
Ehouse was one of the three agents that attended our China Property Day last Friday; the following are our key takeaways: Reaping from the benefit of volume growth Ehouse has so far secured more than 100 mn sq m of projects in the pipeline with 30 mn sq m available for sale this year. Despite our UNDERWEIGHT rating on the China property sector, we believe Ehouse will experience organic growth in the primary segment (three-year CAGR (2009-12E) of 20%) on higher project launches and expansion into more tier II and III cities. So far, Ehosue has signed exclusive partnership deals with major developers such as Evergrande, China Vanke and Star River, as well as other big players such as Glorious Property, Agile and KWG.
Source: Company data, Credit Suisse estimates. Market share gain to continue Due to its strong presence in the Yangtze River Delta region, Ehouse holds a dominant position in Shanghai (we estimate market share of around 30%); but on a national level, its market share is only at around 2.2% (as of end-2009). Given how fragmented the China market is, we believe there is still substantial room for Ehouse to grow in the coming years. We estimate its market share to grow from 2.6% by end-2010 to 3.4% by end-2012.
Figure 2: Growing nationally and gaining market share
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
2007 2008 2009 2010E 2011E 2012E
Source: CEIC; Company data, Credit Suisse estimates.
In fact, one example of its recent expansion is its first entry into Southern China through its involvement in a joint agency deal in the Asian Games site. Management indicated that while Yantze River Delta region would always remain its focus, Ehouse would gradually extend its footprint into other regions such as Bohai Rim and the Pearl River Delta region. Secondary market – nowhere near harvest time yet Management indicated that although growth in the long term lies in the secondary market, the company is still at an infancy stage in this market. In fact, management believes that the primary sales segment is still going to be the main revenue driver, followed by CRIC. Ehouse has 133 stores in eight cities across China, but the secondary business contributes to only around 10% of Ehouse’s total revenue and was profitable only in 2009. We expect the secondary market to record a loss in 2010.
Price (12 Jan 11 , US$) 15.02TP (Prev. TP US$) 20.90 (20.90) Est. pot. % chg. to TP 3952-wk range (US$) 20.78 - 13.15Mkt cap (US$ mn) 1,205.7
Bbg/RIC EJ US / EJ.N Rating (prev. rating) O (O) [V] Shares outstanding (mn) 80.27 Daily trad vol - 6m avg (mn) 0.1 Daily trad val - 6m avg (US$ mn) 1.9 Free float (%) 57.6 Major shareholders Chairman Zhou &
Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (US$ mn) 154.5 299.5 349.2 433.8 498.1EBITDA (US$ mn) 45.6 116.4 99.7 134.6 159.7Net profit (US$ mn) 39.6 102.3 73.7 98.1 118.4EPS (US$) 0.49 1.28 0.93 1.23 1.49- Change from prev. EPS (%) n.a. n.a. 0 (1) (7)- Consensus EPS (US$) n.a. n.a. 0.86 1.16 1.57EPS growth (%) (10.3) 162.5 (28.0) 33.0 20.8P/E (x) 30.7 11.7 16.2 12.2 10.1Dividend yield (%) 0 1.7 1.7 1.7 1.7EV/EBITDA (x) 21.5 8.4 9.2 6.2 4.5P/B (x) 3.0 2.5 2.2 1.9 1.7ROE (%) 11.8 23.1 14.4 17.0 17.8Net debt (net cash)/equity (%) (56.2) (48.7) (54.0) (60.2) (68.8) Note 1: E-House is the largest real estate agency in China, engaging in primary housing agency, secondary housing brokerage, as well as real estate information and consulting businesses.
Friday, 14 January 2011
Asian Daily
- 9 of 35 -
Hong Kong Cathay Pacific ----------------------------------------------------------------- Maintain OUTPERFORM Decent December demand; positive indications on yields EPS: ◄► TP: ◄► Sam Lee / Research Analyst / 852 2101 7186 / [email protected] HungBin Toh / Research Analyst / 852 2101 7481 / [email protected]
● Rising 5% MoM, CX’s passenger traffic showed seasonal strength in December. Demand on key long-haul routes remained strong, but routes to London and New York were disrupted by snow storms. Cargo demand held up, with CX’s December traffic rebounding 6% MoM, after the sequential decline last month. EVA Airways in Taiwan also reported flat MoM December cargo traffic.
● CX’s passenger load factor was flat, but cargo load factor rebounded sequentially. Both remained high at 80% and 77%, respectively. According to CX’s management, the quality of passenger revenue in all classes of travel was higher, implying improving yields. This is echoed by EVA’s passenger yield in the same month, which rose 6% MoM to a record high. CX’s management cited that Cargo yields also held up well.
● CX’s forward P/B of 1.5x is less than one standard deviation above the historical average, not excessive considering our high projected FY11-12E RoAE of 22-24%. Moreover, CX is at 5.4x forward EV/EBITDAR, still 23% below the historical average.
Positive demand momentum with upside to ticket pricing
Figure 1: CX’s passenger traffic rose 5% MoM and 3% YoY
Year 12/08A 12/09A 12/10E 12/11E 12/12EEBITDRAF (HK$ mn) 214 13,560 20,172 22,290 24,982Net profit (HK$ mn) (8696) 4,694 12,636 13,068 13,676EPS (HK$) (2.21) 1.19 3.21 3.32 3.48- Change from prev. EPS (%) n.a. n.a. 0 0 0- Consensus EPS (HK$) n.a. n.a. 3.06 2.71 2.67EPS growth (%) n.a. n.a. 169.6 3.4 4.7P/E (x) NM 19.4 7.2 7.0 6.6Dividend yield (%) 0.1 0.4 4.2 7.2 7.5EV / EBITDRAF (x) 632.1 9.1 6.2 6.1 5.8P/B (x) 2.5 2.2 1.8 1.6 1.4ROE (%) (19.9) 11.9 27.1 24.0 22.4Net debt (net cash)/equity (%) 90.2 76.8 65.2 75.5 82.0 Note1:Ord/ADR=5.0000.Note2:Cathay Pacific Airways is an international airline based and registered in Hong Kong, offering scheduled passenger and cargo services to 62 destinations around the world. It has a fleet of 75 planes with an average age of 6 years..
Friday, 14 January 2011
Asian Daily
- 10 of 35 -
India BEML ----------------------------------------------------------------------------- Maintain OUTPERFORM Strong order inflows in 1H; earnings momentum likely to improve EPS: ◄► TP: ◄► Venugopal Garre / Research Analyst / 91 22 6777 3872 / [email protected] Saurabh Mishra / Research Analyst / 91 22 6777 3894 / [email protected]
● We spoke to BEML’s management to understand trends in ordering and execution. Management highlighted that the orderbook at end-Sep stood at Rs62.5 bn, implying wins of Rs26.8 bn in 1H FY11. A similar order intake in 2H, should ensure that orders are in line with our estimates. (year-end of Rs58 bn).
● BEML’s management highlighted that margins in the metro business should improve as localisation level would increase to 45% next year from 30% earlier (for Delhi metro orders).
● Management highlighted plans to scale up Defense business. BEML intends to take up refurbishment orders for tanks at KGF facility. At a later date, management expects to expand business to manufacturing of new tanks. BEML is also positioning to win orders from defense offsets. (setting up a facility near Bangalore).
● After a weak 1H , we expect earnings to recover in 2H with likely improvement in margins. Management has guided for a pre-tax profit of Rs4 bn (versus CS’s at Rs3.4 bn), and if execution shapes up well, we see room for upgrades.
Railway segment Metro. Management highlighted that delivery of Delhi metro orders were largely completed in 1H and only about four coaches need to be supplied. Of the Bangalore metro order for 150 coaches, about 15 are expected to be delivered this year (five of which are imported), and the rest in FY12. In terms of margins in metro, we sensed likelihood of some improvement given that localisation levels have reached 40% this year (from 30% last year). For the Bangalore metro-related delivery, they hope to achieve localisation of over 45%. Higher localisation levels should help improve margins for the metro segment.
Railways. Management highlighted that the Rail unit 2 at KGF (Kolar Gold fields facility) has been opened and expects to roll out about 20-25 coaches per month. The Palakkad unit has commenced production. A part of the facility is intended for defense products and
other for Railways. BEML currently manufactures components for Railways, which are supplied to Bangalore for the final assembly of the coaches. In future, complete coaches will be rolled out from Palakkad.
BEML is currently manufacturing EMUs from Bangalore, and with manufacturing of rail coaches being shifted to KGF and Palakkad, capacity will be freed in Bangalore. There are plans to deliver 36 rakes (EMU) this year.
In terms of working capital intensity, the comparison between metro and rail orders, management highlighted that it receives advances in both railway and metro business, but in Railway orders it receives several free supply items , which in the case of metro orders needs to be procured by BEML. Defense Management highlighted plans to scale up the defense business. BEML intends to take up refurbishment orders for tanks at KGF facility. These orders are being executed at Defense ordinance factories, but given lack of capacities, a large number of orders are expected to be outsourced to BEML. Management quantified that order values could range Rs1-1.5 bn p.a. At a later date, management expects to expand business to manufacturing of new tanks.
Management highlighted that it has not yet received orders through defense offset clauses. Manufacturing facilities are though being set up at Mysore and Bangalore (where they have land in the Aero SEZ). Management plans to manufacture some components for Aerospace for direct exports in the Aero SEZ. However, we did not sense any order awards in the near term. Mining equipments Post the Coal India IPO, management expects a structural increase in pace of ordering for mining equipment. For FY11, management highlighted that broadly Rs20 bn worth orders should be expected (flat YoY). Management also ruled out the threat of Chinese equipment, as it believes that given quality issues, it does not get technically qualified. (Coal India has a long process of testing and ratification of products). Broad guidance Management highlighted BEML’s gross sales target this year would be Rs42 bn. (Including value of free supply items) while PBT should track over Rs4 bn. Tax rates might be lower this year (as per 1H trends). In terms of longer-term targets, management highlighted that it would achieve Rs50 bn of gross sales, two years ahead of plan and hence new targets could be set at Rs100 bn sales in FY17. Capex this year and FY12 is expected to be Rs3 bn per year.
Price (12 Jan 11 , Rs) 970.00TP (Prev. TP Rs) 1,384 (1,384) Est. pot. % chg. to TP 4352-wk range (Rs) 1235.75 - 963.70Mkt cap (Rs/US$ mn) 40,395.7/ 897.3
Bbg/RIC BEML IN / BEML.BO Rating (prev. rating) O (O) Shares outstanding (mn) 41.65 Daily trad vol - 6m avg (mn) 0.0 Daily trad val - 6m avg (US$ mn) 0.3 Free float (%) 46.0 Major shareholders Govt of India 54%
Indonesia Indofood Sukses Makmur------------------------------------------------- Maintain OUTPERFORM Reinstating coverage with an OUTPERFORM - bad news is mostly priced-in; valuations are attractive EPS: ▲ TP: ▲ Arief Wana / Research Analyst / 6221 2553 7977 / [email protected]
● We are reinstating coverage on Indofood parent with an OUTPERFORM rating and target price of Rp6,400/share, implying 36% upside from the current level.
● Indofood’s share price has underperformed the market both in the past three and 12 months, driven by rising commodity prices and some impact from the listing of its consumer branded division. We believe that this underperformance provides a good entry level.
● In our view, rising prices of commodities (CPO and wheat) are actually positive for Indofood, as these two commodities contribute around 57% of earnings. We note however regarding the rising trend, there is always some lagging impact towards margins, as prices are only gradually adjusted, instead of immediately.
● In addition, given our view that competition in the instant noodle market has stabilised, Indofood’s pricing strategy is to maintain reasonably strategic and sustainable margins. Therefore, should input costs pressure margins, we would not be surprised if prices would also be adjusted.
Underperformance + valuations = Time to BUY
● We believe that Indofood’s share price underperformance is driven by: 1) rising commodity prices and 2) the impact from listing its CBP division. We believe these factors are priced-in.
● Rising commodity prices have impacted Indofood’s margins due to the lagging impact, but as it adjusts prices (as historically suggested), we believe these rising commodity prices should benefit Indofood overall (57% of its operating profit is from CPO and flour).
● We also believe that Indofood’s improved pricing power over the past three years should mitigate concerns over significant margin contractions at the CBP division.
● Indofood’s net gearing (after the listing of the CBP division) is expected to be down to only 42%, the lowest level historically.
● Indofood trades at a 12.4x FY11E P/E and 11.5x FY12E P/E, both at around a 20% discount to the average for Indonesia consumers and offering 36% potential upside.
PT Borneo Lumbung Energi & Metal Tbk-------Initiating Coverage with OUTPERFORM New report: In time to capture growth Fonny Surya / Research Analyst / 6221 255 37976 / [email protected] Paworamon (Poom) Suvarnatemee, CFA / Research Analyst / 662 614 6210 / [email protected]
● Initiate coverage of PT Borneo Lumbung Energy & Metal with an OUTPERFORM. BORN has been commercially producing coking coals since September 2009 and is currently the only HCC producer in Indonesia.
● Growth from leverage to prices and production. BORN is one of the very few pure HCC players in Asia, which is highly exposed to HCC prices. In addition, BORN has met its capacity expansion target to reach 3.6 mn t and ramping up to 5 mn t, which supports our volume CAGR forecast of 67% for 2010-12.
● Capacity expansion and tight supply in 2011 may boost production and spot prices above our forecast. BORN plans to ramp up capacity to 5 mn t by 2011. Further, a prolonged rainy weather may worsen supply situation, pushing prices above US$250/t.
● Our target price at Rp2,200 is based on 18x 2011E P/E, on par with its coal peers. We initiate with an OUTPERFORM.
● Risks. Besides price fluctuations, BORN’s primary risk is meeting its volume target, given its short track record and logistical challenges.
● For full report click here.
Growth from leverage to prices and ramp-up production BORN is one of the very few pure HCC players in Asia, which is directly exposed to HCC prices, at premium to other types of coking coal. We believe BORN’s high exposure to spot prices should benefit BORN, especially in the next few months, given seasonal weather disruption resulting in strengthening prices. Given BORN’s high quality, we forecast a discount of 2-5% to contract prices for BORN’s ASP.
In addition, BORN has met its capacity expansion target to reach 3.6 mn t. Worries over tight mining fleet and equipment we believe is now behind us, as currently BORN has the capacity to reach our 2011 volume forecast of 3.5 mn t. It expects to further boost its capacity to 5 mn t by the end of 2011, which supports our volume CAGR forecast of 67% between 2010 and 2012.
Figure 1: Ramping up production capacity to 5 mn t by end-2011
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2009 2010E 2011E 2012E*
Capacity Production Sales volume Source: Company data, Credit Suisse estimates Capacity expansion and potential higher prices More mining fleet and logistics infrastructure are planned for 2011, which will take capacity to 5 mn t, potentially boosting volumes above our forecast and even management’s target of 4 mn t.
Furthermore, rainy weather as forecasted by the Australian Bureau of Meteorology may worsen supply situation, pushing spot price above US$250/t, as we had witnessed in 2008 when JFY-08 settled in at US$300/t. Thus, there could be upside to our 2011E ASP of US$230/t. Target price at Rp 2,200 based on 18x 2011E P/E We set our target price at Rp 2,200, based on 18x 2011E P/E, on par with its coal peers. We see more upsides in terms of volumes, pricing and costs to our forecasts. At Rp1,670, BORN is trading at 13.8x 2011E P/E based on our earnings forecasts. However, our sensitivities to the most bullish scenarios may well place its current share price in the 8.5x-11.7x 2011E P/E range.
Figure 3: Earnings sensitivities to 2011E volumes Volumes (mn t) 2.9 3.2 3.5 3.8 4.2EPS 96 108 121 134 142P/E (Rp1,670 17.5 15.5 13.8 12.5 11.7Source: Company data, Credit Suisse estimates Risks In addition to the risks of coal price fluctuations applicable for all coal companies, risks for BORN lie primarily in the execution of its volume growth plan. Its track record is short, as its trial production started only in September 2008. To achieve its growth target, BORN needs to successfully develop infrastructure, acquire various equipment and address logistical challenges. Also, BORN needs to obtain additional borrow-use permits to expand production to other areas of its concession.
Price (11 Jan 11 , Rp) 1,670.00TP (Prev. TP Rp) 2,200 (NA) Est. pot. % chg. to TP 3252-wk range (Rp) 1740 - 1170Mkt cap (Rp/US$ bn) 29,547.3/ 3.3
Bbg/RIC BORN IJ / BORN.JK Rating (prev. rating) O (NA) [V] Shares outstanding (mn) 17,693.00 Daily trad vol - 6m avg (mn) 126.9 Daily trad val - 6m avg (US$ mn) 19.0 Free float (%) — Major shareholders —
Japan Japan Telecoms Sector ----------------------------------------------------- Maintain OVERWEIGHT SWD Index and 3Q telecom results preview Hitoshi Hayakawa / Research Analyst / 813 4550 9952 / [email protected] Akinori Kanemoto / Research Analyst / 81 3 4550 7363 / [email protected] Tomohiro Okawa / Research Analyst / 81 3 4550 9695 / [email protected]
● In the telecoms sector, we expect Softbank (9984) to raise full-year guidance, eAccess (9427) to lower guidance and NTT (9432) to revise subsidiary projections when they report their 3Q results.
● NTT DoCoMo (9437) and KDDI (9433) should leave their guidance unchanged.
● We reiterate an OUTPERFORM on Softbank, NTT and eAccess, and a NEUTRAL on NTT DoCoMo and KDDI.
● We add Murata Mfg (6981) to our Smart Wireless Device (SWD) Index.
● For full report click here. Figure 1: SWD Index performance Code Name Country CS rating Performance since
inception (%) A Agilent Technology USA O 59.92 AAPL Apple USA NR 41.68 RIMM Research In Motion USA O 37.18 GOOG Google USA O 370.80 5482 Aichi Steel Japan O 34.79 6754 Anritsu Japan NR 33.60 3049.TW Sintek Photronic Taiwan NR 33.52 005930.KS Samsung Electronics Korea O 23.02 6502 Toshiba Japan O 22.03 8069.TWO E Ink Taiwan O 21.39 094190.KQ Elk Korea NR 21.13 6146 Disco Japan O 19.43 9984 Softbank Japan O 18.42 BRTI.BO Bharti Airtel India O 6.64 TLSN.ST Teliasonera Sweden N 1.22 0941.HK China Mobile China O (0.17)RCIb.TO Rogers Communication Canada O (5.03)9427 eAccess Japan O 15.20 6981 Murata Manufacturing Japan O -Source: Credit Suisse estimates
Adding Murata Mfg to our SWD Index Murata is seeing a marked improvement in profitability, with ROC on course to surpass the peak of the previous cycle (FY3/08) as early as in FY3/12, owing to: (1) increased capex efficiency driven by higher productivity and (2) improvement in invested capital turnover resulting from a policy of returning 100% of FCF to shareholders. We also expect its income statement to improve and generate robust earnings growth through an accelerated shift to multiband, fuelled by expanding smartphone usage, and growth in value-added per handset, as the market shifts to high-performance multi-function phones, improved PC capacitor product mix and stronger growth in automotive components. While often overshadowed by growth data, we expect the policy of returning 100% of FCF to shareholders to boost total shareholder return (including dividends and share buybacks) to 5% in FY3/12 and 6% in FY3/13, which should appeal to investors. 3Q results preview Softbank: Consolidated operating profit for the first nine months looks set to reach ¥470 bn, in line with consensus estimates, but roughly 3% below our ¥482 bn forecast. This seems to reflect mobile data
ARPU trending below our estimates of ¥2,392 (¥2,290 in 2Q). Softbank may increase full-year guidance of ¥500 bn by 10% or more.
NTT DoCoMo: We expect consolidated operating profit for the first nine months to reach about ¥750 bn, in line with our as well as consensus estimates. Smartphone sales should easily beat the initial projection (500,000 units) and be on target to hit 2 mn units for full year. However, data ARPU for older iMode models lacks definition, and we expect data ARPU (on a full-year basis) to fall short of management’s ¥2,560 projection.
KDDI: We expect consolidated operating profit for the first nine months to reach about ¥360 bn, down roughly ¥17 bn YoY, but in line with our as well as consensus estimates. Data ARPU is in line with plan, but voice ARPU is weaker. Smartphone sales are solid, but standard handset inventories are a concern as a consequence. Full-year profit could fall short of plan, should KDDI start liquidating inventory. The fixed-line business looks increasingly likely to reach full-year operating profit of ¥10 bn.
NTT: We expect consolidated operating profit for the first nine months to reach about ¥1 tn, up roughly ¥100 bn YoY and in line with our estimates (¥1,042.2b n). We believe operating profit is well ahead of plan at both NTT East and NTT West (the company projects ¥102 bn combined on a full-year basis). Meanwhile, we believe operating profit at NTT Data is trailing management’s ¥75 bn full-year estimates.
eAccess: We expect consolidated operating profit for the first nine months to reach about ¥16 bn, in line with our ¥16.2 bn forecast. However, management will probably lower full-year guidance from ¥25 bn, owing mainly to results at EMOBILE. Our forecast is already lower, at ¥24.9 bn, but we expect revised guidance to be even lower.
Malaysia Genting Malaysia-----------------------------------------------------------------Upgrade to NEUTRAL UK and US risks EPS: ▲ TP: ▲ Foong Wai Loke / Research Analyst / 603 2723 2082 / [email protected]
● We raise our net profit estimates for Genting Malaysia by 13-19% to incorporate new contributions from the UK casinos and upcoming Aqueduct project in New York.
● We upgrade GENM to NEUTRAL from Underperform as it is trading at similar valuations to the Malaysian market. GENM has underperformed the GENT by 30% in the past year. Regular share buybacks should continue to provide share price support. We increase our target price to RM3.30 (from RM2.50).
● While it is positive that GENM has spent cash to diversify overseas, we expect the new ventures in the UK and US to be margin-destructive. Despite its strong track record locally, as with any new overseas ventures, we caution that there could be execution risks. GENM also has a history of related party transactions.
● We prefer parent Genting Berhad (GENT) to Genting Malaysia for stronger upside potential. GENT is also an attractive RNAV play. GENT gives cheaper exposure to GENS or GENP for free.
Upgrading to NEUTRAL We raise our net profit forecasts for Genting Malaysia (GENM) by 13-19% to incorporate new contributions from the UK casinos and upcoming Aqueduct project in New York.
We upgrade GENM to NEUTRAL from Underperform as it is trading at similar valuations to the Malaysian market. GENM has also underperformed GENT by 30% in the past year. Regular share buybacks should continue to provide share price support. The company has not committed to cancelling its shares.
While it is positive that GENM has spent cash to diversify overseas, we believe the new ventures in the UK and US are margin-destructive. Despite GENM’s strong track record locally, as with any new overseas ventures, we caution that there could be execution risks for its overseas projects. Moreover, GENM has a history of related party transactions.
Hefty taxes on the US project GENM has made US$380 mn as upfront payment for a 30-year video lottery (VLT) concession at Aqueduct racetrack in New York. There will be another US$350 mn of capex to be incurred, but US$250 mn of which will be covered by a grant from the state.
GENM plans to install 1,621 machines sometime in late spring. The plan is to have all the 4,500 machines installed by end-2011. Aqueduct’s VLT revenues will attract top-line tax of 68-69%; hence, EBITDA margins are estimated to be in mid-teens, at best. Our estimates assume that Aqueduct generates proportionate revenues to Yonkers and US$78 mn of EBITDA in 2012 (full-year of operations), based on similar profitability as Yonkers, the largest and most successful VLT venue in the state. Management is confident that Aqueduct will generate similar revenue and profit as Yonkers, given its advantage of direct subway access from New York’s Chinatown. On the contrary, our US colleagues warn that there could be risks of cost overruns, high labour cost, and that the VLT market in NY is crowded. The UK casino estate was acquired at premium valuation Genting UK (unlisted) is the largest casino operator in the UK, with 44 properties (five in London and 39 provincial casinos). It was acquired from sister company, Genting Singapore (GENS) in late 2010 for £351 mn (FY10E EV/EBITDA of 13.3x, and 11.2x on FY11E, at 60-78% premium to the UK gaming company, Rank Plc).
GENS’s acquisition cost amounted to £699 mn in 2006 but following several rounds of impairments, the book value was written down to £298 mn. The UK business was loss-making in FY07-08 and booked a net profit of £6.7 mn (US$10 mn) in FY09. However, GENM’s management believes there is room to turnaround the business and has plans to renovate older casinos with the hope of driving revenues. We prefer parent, Genting Berhad We prefer parent GENT to GENM for its stronger upside potential. GENT is also an attractive RNAV play.
Our target price of RM13.50 for GENT suggests 14% potential upside from the current level. However, in a blue-sky scenario, a revaluation of non-listed entities to 2.3x P/BV (in line with the market) suggests a blue-sky value of RM15.20 (28% potential upside).
GENT gives cheaper exposure to GENS and the two stocks are highly correlated. The differential between the current market value for GENT and its RNAV of RM5.5 bn implies that GENT gives investors exposure to Genting Singapore with a 17% discount to the current market price of S$2.20.
The differential between the current market value for GENT and its SOTP value of RM5.5 bn is well in excess of its 54.7% stake in Genting Plantations, which is currently worth RM3.6 bn.
Price (12 Jan 11, RM) 3.65TP (Prev. TP RM) 3.30 (2.50) Est. pot. % chg. to TP (10)52-wk range (RM) 3.65 - 2.51Mkt cap (RM/US$ mn) 21,590.9/ 7,049.4
Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (RM mn) 4,887 4,992 4,894 7,672 7,980EBITDA (RM mn) 2,035 2,039 1,886 2,219 2,439Net profit (RM mn) 634 1,324 1,220 1,459 1,582EPS (RM) 0.11 0.22 0.21 0.25 0.27- Change from prev. EPS (%) n.a. n.a. 13 16 19- Consensus EPS (RM) n.a. n.a. 0.22 0.24 0.26EPS growth (%) (59.2) 108.7 (7.9) 19.6 8.4P/E (x) 33.9 16.3 17.7 14.8 13.6Dividend yield (%) 1.4 1.5 1.6 1.6 1.7EV/EBITDA (x) 9.2 9.1 10.8 8.9 7.6P/B (x) 2.6 2.1 2.0 1.8 1.6ROE (%) 7.7 14.4 11.5 12.6 12.4Net debt (net cash)/equity (%) (33.6) (30.6) (9.4) (14.4) (22.3) Note 1: Ord/ADR=25.0000. Note 2: Genting Malaysia operates the Genting Highlands Resort which has, as its core activity, a casino, but complimented with hotel and theme park facilities. It also has a 19% stake in Star Cruises Ltd, which operates a cruise line in Asia and North America. Note 3: Divdend yield is net.
Friday, 14 January 2011
Asian Daily
- 15 of 35 -
Genting -------------------------------------------------------------------------- Maintain OUTPERFORM New report: Attractive RNAV play EPS: ▲ TP: ▲ Foong Wai Loke / Research Analyst / 603 2723 2082 / [email protected]
● In our view, Genting Berhad’s (GENT) valuations are attractive, it ranks as the fifth cheapest casino stock based on 2011E P/E valuations, whereas on EV/EBITDA, it is the cheapest in the world currently. We reiterate our OUTPERFORM rating.
● We have raised our FY10-12E net profit by 2-6% to reflect new gaming contributions from Genting Malaysia’s US and UK divisions, but trimmed oil and gas contributions following recent divestments.
● We raise our target price to RM13.50 (from RM13 previously). In a blue-sky scenario, a revaluation of non-listed entities suggests a blue-sky value of RM15.20 (28% potential upside).
● GENT gives cheaper exposure to GENS, and the two stocks are highly correlated. Alternatively, buy GENT and get the Genting Plantations stake for free.
● The differential between the current market value for GENT and its RNAV of RM5.5 bn implies that GENT gives investors exposure to Genting Malaysia at a 52% discount.
5th cheapest casino in the world In our view, Genting Berhad’s (GENT) valuations are attractive; it ranks as the fifth cheapest casino stock based on 2011E P/E valuations, whereas on EV/EBITDA, it is the cheapest in the world currently. Genting Berhad currently trades at an 11% discount to RNAV, compared to a historical range of 3-23%.
We have raised our FY10-12E net profit by 2-6% to reflect gaming contributions from Genting Malaysia’s new project in New York and UK casino estate, but trimmed oil and gas contributions following recent divestments. We expect strong 4Q10 results in late February, its key Singapore and Malaysia leisure operations would have benefitted from year-end festivities, while Plantations would have benefitted from the strong CPO prices.
We raise our target price to RM13.50 (from RM13), factoring in our latest RM3.30 target price (from RM2.50) for Genting Malaysia to GENT’s RNAV and continue to apply an 8% holding company
discount to RNAV. This implies 14% potential upside from current levels. In comparison, using current market prices of its listed subsidiaries, the estimated RNAV for GENT is RM13.30.
Figure 1: Genting Berhad RNAV based on CS target prices Target
price Market
cap (local) (RM mn) Using CS TP for GENM RM 3.30 19,520.5 Using CS TP for GENP RM 6.40 4,856.6 Using CS TP for GENS S$ 2.65 76,648.9 Stake Mkt cap Genting's
portionSH funds Genting's
portion (RM mn) (RM mn) (RM mn) (RM mn)Genting Malaysia 49.1% 19,520.5 9,576.8 10,137.3 4,973.3Genting Plantations 54.7% 4,856.6 2,656.6 2,548.1 1,393.8Genting Singapore 51.7% 76,648.9 39,650.5 9,817.0 5,078.3 51,883.8 11,445.4 + GENT shareholders’ funds 13,887.1- shareholders funds of listed companies -11,445.4Value of non-listed entities 2,441.7 Total sum of parts value RM 54,325.5No of Genting shares 3,713.6Genting RNAV/share RM 14.6Current market price RM 11.8Holding comp. discount 8%CS TP for Genting Berhad 13.5Source: Company data, Credit Suisse estimates Blue sky scenario RNAV is RM15.20 (28% potential upside) In a blue-sky scenario, a revaluation of non-listed entities to 2.3x P/B (in line with market) suggests a blue-sky value of RM15.20 (28% potential upside). Buy GENT and get cheaper exposure to GENS GENT gives cheaper exposure to GENS, and the two stocks are highly correlated. The differential between the current market value for GENT and its RNAV of RM5.5 bn implies GENT gives investors exposure to Genting Singapore with a 17% discount to the current market price of S$2.20. Buy GENT and the stake in GENP comes free The differential between the current market value for GENT and its SOTP of RM5.5 bn is well in excess of its 54.7% stake in Genting Plantations, which is currently worth RM3.6 bn. Buy GENT and get cheaper exposure to GENM The differential between the current market value for GENT and its RNAV of RM5.5 bn implies that GENT gives investors exposure to Genting Malaysia with a 52% discount to the current market price of RM3.60.
Price (12 Jan 11 , RM) 11.84TP (Prev. TP RM) 13.50 (13.00) Est. pot. % chg. to TP 1452-wk range (RM) 11.84 - 6.22Mkt cap (RM/US$ bn) 44.0/ 14.4
Bbg/RIC GENT MK / GENT.KL Rating (prev. rating) O (O) Shares outstanding (mn) 3,713.56 Daily trad vol - 6m avg (mn) 6.3 Daily trad val - 6m avg (US$ mn) 20.0 Free float (%) 43.0 Major shareholders Lim family 41%
Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (RM mn) 9,083 8,894 15,784 20,351 21,602EBITDA (RM mn) 3,409 3,456 6,657 7,966 8,500Net profit (RM mn) 569 1,044 1,913 2,871 3,165EPS (RM) 0.15 0.28 0.51 0.77 0.85- Change from prev. EPS (%) n.a. n.a. 6 5 2- Consensus EPS (RM) n.a. n.a. 0.59 0.73 0.83EPS growth (%) (70.4) 83.4 83.2 50.1 10.3P/E (x) 77.6 42.3 23.1 15.4 14.0Dividend yield (%) 0.4 0.5 0.5 0.5 0EV/EBITDA (x) 12.8 13.4 6.5 4.9 4.1P/B (x) 3.5 3.1 2.9 2.3 1.9ROE (%) 4.6 7.9 13.0 16.7 15.2Net debt (net cash)/equity (%) (5.0) 6.7 (4.7) (19.0) (29.7) Note1:Genting is involved in various businesses: casino and resort operations (operated by Resorts World), cruise operations (via Star Cruises), plantations and property development (via Asiatic Development), paper & packaging, oil & gas and power..Note2:Divdend yield is net.
Friday, 14 January 2011
Asian Daily
- 16 of 35 -
IJM Corporation -------------------------------------------------------------- Maintain OUTPERFORM Poised for rapid expansion of construction orderbook in near term EPS: ▲ TP: ▲ Danny Goh / Research Analyst / 603 2723 2083 / [email protected]
● Following our recent discussions with management, we believe IJM’s construction orderbook (currently at RM4.1 bn) is poised to expand rapidly over the coming months.
● We believe the group is in the advanced stages of exclusive negotiations with the government on the RM4-5 bn West Coast Expressway project, which has been earmarked for construction in the government’s latest budget. There is a good chance that this project will be awarded soon to the IJM group, doubling its orderbook.
● Having failed to secure any overseas jobs in 2010, we believe that India could be a major source of new jobs this year, as IJM is likely to be a key beneficiary of closer ties between India and Malaysia.
● We raise our FY11-13 net profit estimates by 1-5% to reflect upgrades in construction (higher orderflow assumed) and plantation earnings (higher CPO prices). We raise our target price to RM7.71 (from RM5.80) as a result of: (1) earnings upgrades and (2) roll forward effect.
Following our recent discussions with management, we believe IJM’s construction orderbook (currently at RM4.1bn) is poised to expand rapidly over the coming months. In 2010, IJM secured RM2.5 bn of new jobs comprising solely of domestic jobs. We list below some jobs that the group may secure: ● West Coast Expressway – We believe the group is in the
advanced stages of exclusive negotiations with the government on the RM4-5 bn West Coast Expressway project, which has been earmarked for implementation in the government’s latest budget. There is a good chance that this project will be awarded soon to the IJM group.
● LRT and MRT projects – As a dominant player in the pre-cast concrete pile manufacturing industry and given the group’s extensive experience in building LRT networks, IJM is well positioned to participate in the government’s development plans for the Klang Valley public transport worth RM44-45 bn.
● Roads – In the 2011 budget, the government has earmarked 5 highway projects for construction (including West Coast Expressway).
We believe IJM is eyeing construction works for the other four highways, which are being developed by government-linked investment corporations that do not have construction expertise.
● Sarawak – Management is bidding for jobs in Sarawak and is optimistic on its chances of clinching some additional work there.
● Healthcare sector – Management is actively bidding for hospital contracts and is one of the leading contractors in this field.
● India – As the most dominant Malaysian contractor in India, we expect IJM to be a major beneficiary of the MoU (memorandum of understanding) signed between India and Malaysia to enable Malaysian contractors to negotiate directly with Indian government on certain roadworks. As such, IJM is well positioned to secure works on 1,000 km of highway worth about RM17.5 bn.
The group’s construction unit is also expected to be a key earnings driver in FY11-12 with the expected surge in the inflow of new jobs and the PBT margin recovery, given that the bulk of the low-margin legacy jobs have been completed.
Figure 1: New jobs secured in 2010 Projects RM mn DateOffice towers Platinum Park 460.6 Dec-10Interstate water (JAKS jv) 160.8 Dec-10National cancer institute 690.0 Nov-102nd Penang Bridge 350.0 Jun-10Murum Access Road (Sarawak) 246.7 Apr-10Besraya extension 600.0 Mar-10Total 2,508.1 Source: Company data, Credit Suisse estimates
Earnings estimates and price target revisions – We have rasied our net profit estimates for FY11 by 1% and for FY12-13 by 5% to reflect upgrades in construction (raised new orderflow assumption for FY12-13) and plantation earnings (higher CPO prices). We have raised our target price to RM7.71 (from RM5.80) as a result of: (1) earnings upgrades and (2) roll forward effect.
Figure 2: Summary of target price change Key drivers Old Key drivers RevisedFY2011 EPS (sen) 32.2 FY2012 EPS (sen) 44.42-year EPS growth 25% 2-year EPS growth 22%P/E-to-growth (x) 0.8 P/E-to-growth (x) 0.8P/E assigned 19.7 P/E assigned 17.6"Fair" value -- P/E-to-growth 6.35 "Fair" value -- P/E-to-growth 7.80"Fair" value -- sum-of-parts 5.24 "Fair" value -- sum-of-parts 7.61Average "fair" value 5.79 Average "fair" value 7.71Source: Company data, Credit Suisse estimates
Figure 3: Changes in key assumptions Key assumptions FY11 FY12 FY13Construction new orders - new (RMmn) 2,500 5,500 4,000Construction new orders - old (RMmn) 3,500 4,000 3,500CPO price - new (RM/tonne) 2,200 2,500 2,600CPO price - old (RM/tonne) 1,900 1,900 1,900Source: Company data, Credit Suisse estimates
Price (12 Jan 11 , RM) 6.52TP (Prev. TP RM) 7.71 (5.80) Est. pot. % chg. to TP 1852-wk range (RM) 6.52 - 4.44Mkt cap (RM/US$ mn) 8,808.7/ 2,876.0
Year 3/09A 3/10A 3/11E 3/12E 3/13ERevenues (RM mn) 5,305 4,882 4,386 5,523 6,681EBITDA (RM mn) 802 848 1,060 1,320 1,484Net profit (RM mn) 290.2 332.6 455.4 630.1 750.2EPS (RM) 0.21 0.24 0.33 0.44 0.53- Change from prev. EPS (%) n.a. n.a. 1 5 5- Consensus EPS (RM) n.a. n.a. 0.30 0.35 0.42EPS growth (%) (4.3) 18.2 34.0 36.1 18.2P/E (x) 31.6 26.8 20.0 14.7 12.4Dividend yield (%) 2.9 0.8 1.6 2.2 2.6EV/EBITDA (x) 13.9 13.2 9.9 7.8 6.8P/B (x) 1.3 1.7 1.6 1.5 1.3ROE (%) 6.2 6.7 8.6 11.1 12.2Net debt (net cash)/equity (%) 49.6 40.1 26.2 20.4 14.8 Note 1: IJM Corporation Berhad operates in the construction, property development and investment holding activities. Through its subsidiaries, the company also operates in the construction, quarrying, plantation and educational businesses. Note 2: Dividend yield is net.
Friday, 14 January 2011
Asian Daily
- 17 of 35 -
Philippines Philippines Telecoms Sector-------------------------------------------- Maintain UNDERWEIGHT Price war alert – PLDT launches a dangerous tariff experiment; competition might get worse Chate Benchavitvilai / Research Analyst / 662 614 6212 / [email protected]
● PLDT’s RED mobile today (13 January 2011) launched new aggressive mobile packages. Unli “Ocho” (P8/day) offers unlimited on-net Voice and SMS for one day. This is a significant cut compared to its previous as well as other operators’ offerings (P20-25 per day).
● After a significant investment in FY09-10A, PLDT’s 1 mn RED subscribers as at December 2010 represents ~30%-50% network utilisation. These new promotions, in our view, are therefore aiming to: (1) ramp up the subscribers to fill the unutilised network quickly and (2) be an “experiment” to gauge the network capacity of competitors.
● The next important thing to look out for is whether and how much Globe and Sun will respond. Should they respond aggressively, we expect the industry’s profitability to decline, (non revenue generating) capex to increase, resulting in higher cash flow risks.
● We maintain our NEUTRAL rating on both PLDT and Globe. Both stocks are offering relatively attractive yields, but following these new promotions, there is an increase in downside risks to our forecasts and, more importantly, question over the sustainability of the industry’s dividend flow.
Figure 1: Comparative multiples P/E (X) EV/EBITDA (x) FCF yield (%) Div. yield (%) FY11E FY12E FY11E FY12E FY11E FY12E FY11E FY12EPLDT 11.3 11.1 6.0 5.9 7.7 8.6 7.7 8.6Globe 10.6 10.3 4.4 4.2 8.4 11.5 8.5 8.7Asia ex JP wireless 11.4 10.4 5.0 4.5 8.4 10.3 5.1 5.9Source: Company data, Credit Suisse estimates PLDT cut unlimited tariff to a new low at P8/day (from P20) RED mobile, one of PLDT’s (TEL.PS, P2500.00, NEUTRAL, TP P2990.00) cellular arms, launched two new aggressive packages today. Unli “Quatro” (P4/day) offers unlimited on-net SMS (RED to RED) for one day while Unli “Ocho” (P8/day) offers unlimited on-net Voice and SMS for one day. This is a significant cut (-60%) compared to RED’s previous as well as other operators’ current offerings (P20-25 per day). These offers are available to all RED subscribers and will run until 31 March 2011.
Gifts n/a 10 mins red to SMART call, 30 SMS to all
n/a 10 off-net SMS, 30 mins internet
Source: Company data, Credit Suisse estimates Why now? Classic capacity-based competition PLDT explained that this is an effort to “revive” the RED brand in the market. PLDT first turned more aggressive in the prepaid segment in 1Q10A, using RED mobile to match the unlimited offering from the third player, Sun Cellular (Not Listed). PLDT reported 381.5k RED subscribers in 3Q10 (after an aggressive subscriber churn from
1.1 mn reported in 2Q10) and guided that they would end the year with about 1mn subscribers (about 3% of its total subscriber base).
Importantly, the current “style” of competition in the Philippines of bucket plans and unlimited promotions has resulted in an increase in capex across the whole industry. PLDT maintained its guidance for P28.6 bn group capex for FY10E (20% capex to sales), representing a 13.5% increase from P25.2 bn (17.6% of sales) spent in FY08A despite a flat revenue across the period. PLDT indicated that a large portion of this capex increase has been spent on developing a network specifically to handle the unlimited traffic, with an approximate capacity of up to 3 mn subscribers. The approximately 1 mn RED mobile subscribers as at December 2010 therefore represent only 30%-50% network utilisation. These new promotions, in our view, are therefore aiming to: (1) ramp up the subscribers to fill the unutilised network quickly and (2) be an “experiment” to gauge the network capacity of competitors. What to expect? Competition – Capex – Cash flow risk Lower tariffs without any appropriate “catches” to protect ARPU is negative for the industry. While arguably one catch could be that these new offers are for RED subscribers only, such a large tariff differential, in our view, could lead the subscriber to subscribe to RED mobile as a second SIM to enjoy the service anyway.
The next important thing to look out for is whether and how much Globe and Sun will respond to these offerings. Globe indicated that it would now “monitor the take up” of this promo and will respond “appropriately” if necessary. Should Globe and Sun respond aggressively to these offers, we expect the industry’s revenue profitability to decline further. More importantly this, in our view, could trigger further upside risk to capex to match an increase in (non revenue generating) traffic. PLDT has already guided that its FY11E capex budget will be “P29 bn or higher”, while Globe guided for a “significant amount” of capex to meet the upsurge in traffic.
A combination of lower tariffs, costs pressure, and capex risk mean a downside risk to the industry cash flow generation and dividend flow. We believe that Globe could be affected more relative to PLDT given that it has a much higher exposure in cellular (86% of revenue) than PLDT (66% of revenue). A very long road to recovery; we prefer other markets We have long expected the recovery from price war in the Philippines to only be gradual given its style of competition (unlimited/bucket plans) and Globe’s long period of market share lose. This latest move by PLDT could add a further delay to the process. Perhaps more importantly, building capacity to then “give it away” in our view undermines PLDT’s credentials as a profitability-focused operator.
We maintain our NEUTRAL rating on both PLDT and Globe. Both stocks are offering relatively attractive yields, but following these new promotions, there is an increase in downside risks to our current forecasts and more questions about the sustainability of the industry’s dividend flow.
Friday, 14 January 2011
Asian Daily
- 18 of 35 -
Singapore Singapore Market Strategy ---------------------------------------------- Maintain UNDERWEIGHT Remain positive on higher-beta industrial names Sean Quek, CFA / Research Analyst / 65 6212 3337 / [email protected] Kwee Hong Ching / Research Analyst / 65 6212 3142 / [email protected]
● Since 25 November 2010, the Singapore market (MSCI Index) has risen 6%, performing in line with the region (MXASJ, +6%). Within Singapore, industrials and banks outperformed, while diversified financials (SGX), telecom, consumer staples and property lagged.
● Despite the strong performance, we remain positive on industrials. As highlighted in our Singapore market strategy 2011 outlook report, dated 25 November 2010, capital goods, transport and commodity names are export-oriented sectors in Singapore that would benefit from the recovery in global IP.
● Bottom-up, we expect further order momentum to drive the ongoing O&M sector re-rating. Within capital goods, Keppel and SembCorp Marine are among our Singapore top picks. NOL is also one of our Singapore top picks. Other industrial names we are positive on include Noble, YZJ and SCI.
● We maintain our MARKET WEIGHT stance on banks. While valuations are not demanding (main reason for the recent performance, in our view), we do not see any near-term catalysts.
*Price performance since 23 Nov 2010 Source: MSCI, Factset Singapore continues performing in line with the region Since 25 November 2010, the Singapore market (MSCI Index) has risen 6%, performing in line with the region (MXASJ, +6%). Within Singapore, industrials (+9%) and banks (+8%) outperformed, while diversified financials (SGX, -0.5%), telecom (+2%), consumer staples (+3%) and property (+4%) lagged. Within industrials, Noble (+16%), COSCO (+15%), NOL (+10%) and Keppel (+10%) have done well but ST Engg (flat) and SIA (-1%) lagged. All the banks, led by DBS, outperformed. Still positive on higher-beta names Despite the outperformance, we remain positive on industrial names (both capital goods and transport). As highlighted in our Singapore market strategy 2011 outlook report, dated 25 November 2010, the more positive global economic growth outlook (especially for the G3 economies) augurs well for Singapore. Export-oriented sectors in Singapore that would benefit from the recovery in global IP include capital goods, transport and commodity names.
Anticipating further re-rating for O&M sector From a bottom-up perspective, CS capital goods analysts Bhuvnesh Singh and Gerald Wong expect the strong order momentum in the jackup market to continue into 2011, as the shift toward more complex wells has resulted in a stratification of the offshore rig fleet toward high-spec jackups. Also, more deepwater rig orders are expected in 2H11, as more of those due for delivery this year get contracted. These, in turn, would further drive the O&M sector re-rating. Within capital goods, Keppel and SembCorp Marine are among our Singapore top picks. Investors looking for further exposure to the O&M space should also consider STX OSV. We have just initiated coverage of the stock with an OUTPERFORM rating. Please refer to the report STX OSV Holdings Ltd - Cheap play on the recovery in the offshore and marine sector, dated 12 January for details. NOL is also one of our Singapore top picks. Other industrial names we are positive on include Noble, Yangzijiang and SCI.
Figure 2: Singapore industrial stocks (CS coverage) Mkt cap Price (S$) TP UpsideCompany Bberg Rat. (S$ mn) (13 Jan) (S$) (%) BetaNoble NOBL SP O 14,110 2.34 2.60 11 1.4COSCO COS SP U 5,173 2.31 1.50 (35) 1.3NOL NOL SP O 5,995 2.32 2.43 5 1.3SMM SMM SP O 10,784 5.19 6.10 18 1.3Yangzijiang YZJ SP O 7,866 2.05 2.40 17 1.1Keppel Corp KEP SP O 18,469 11.50 13.50 17 1.0SCI SCI SP O 9,196 5.14 6.20 21 0.9SIA SIA SP O 18,607 15.54 18.50 19 0.8STE STE SP U 10,148 3.34 2.68 (20) 0.5ComfortDelGro CD SP O 3,405 1.63 1.90 16 0.5Source: Company data, Credit Suisse estimates Maintain MARKET WEIGHT for banks We continue to maintain our MARKET WEIGHT stance on banks. While valuations are not demanding (main reason for the recent performance, in our view), CS banks analysts Sanjay Jain and Anand Swaminathan do not see any near-term catalysts for the sector. Margin pressure is expected to persist for the banks in 2011, as SIBOR continues to remain low and corporate loan pricing is expected to remain under pressure from bond markets and competition from foreign banks. Within banks, OCBC remains the top pick near term – DBS on a 12-18 month view. In addition to capital goods and transport, we are also OVERWEIGHT property. We continue to be bullish on the office sector, which should see double-digit growth on cyclical recovery. Our top picks here are CDL and OUE. We remain UNDERWEIGHT telecom and consumer discretionary, and MARKET WEIGHT consumer staples and financials. Our key UNDERPERFORM ideas are SMRT, STE and Tiger Airways.
Figure 3: Credit Suisse’s Singapore top picks Mkt cap Price (S$) TP Upside 12M perf. (%) Company Bberg Rat. (S$ mn) [13 Jan] (S$) (%) Abs. Rel. to STISMM SMM SP O 10,784 5.19 6.10 18 40 27NOL NOL SP O 5,995 2.32 2.43 5 23 10CDL CIT SP O 11,584 12.74 17.16 35 10 (3)Keppel Corp KEP SP O 18,469 11.50 13.50 17 41 28Olam OLAM SP O 6,929 3.26 4.10 26 20 7Source: Company data, Credit Suisse estimates
Friday, 14 January 2011
Asian Daily
- 19 of 35 -
Keppel Corp-------------------------------------------------------------------- Maintain OUTPERFORM Catching up in 2011 EPS: ◄► TP: ▲ Bhuvnesh Singh / Research Analyst / 65 6212 3006 / [email protected] Gerald Wong / Research Analyst / 65 6212 3037 / [email protected] Christopher Chang / Research Analyst / 65 6212 3024 / [email protected]
● We maintain our OUTPERFORM rating on Keppel Corp and raise our target price from S$12.10 to S$13.50, representing a potential upside of 16%.
● Keppel secured S$3.2 bn of contracts in 2010, exceeding our forecast of S$3 bn. This included rig orders from Mermaid Maritime, Standard Drilling and Jasper Investments. If exercised, options for five additional jackup rigs worth US$1.1 bn would achieve 26% of our 2011 order forecast of S$5.5 bn. We expect continued order activity, as contract drillers upgrade their jackup fleet, and recovery in the deepwater market to re-rate the stock.
● In our view, Keppel is better positioned to win orders in the Petrobras 28 rig tender. In two potential scenarios, Keppel could win either four or seven rigs, estimated to be worth up to US$5.2 bn.
● On 2011E P/E of 14.2x, Keppel is trading in line with its historical average of 14.5x. We increase our target price to S$13.50 from S$12.10, based on an SOTP valuation.
Recovery of orders to drive re-rating Keppel secured S$3.2 bn of contracts in 2010, exceeding our forecast of S$3 bn. This included rig orders from Mermaid Maritime, Standard Drilling and Jasper Investments. If exercised, options for five additional jackup rigs worth a US$1.1 bn would achieve 26% of our 2011 order forecast of S$5.5 bn. We expect continued order activity, as contract drillers high-grade their jackup fleet, and recovery in the deepwater market to re-rate the stock.
Figure 1: KEP and SMM option value versus order forecast for 2011
1.4
2.6
5.5
4.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
KEP SMM
Option Value Order forecast for 2011
(S$ bn)
Source: Company data, Credit Suisse estimates Better positioned to win Petrobras order In our view, Keppel is better positioned to win orders in the Petrobras 28 rig tender. In two potential scenarios, Keppel could win either four or seven rigs, estimated to be worth up to US$5.17 bn.
Figure 2: Keppel O&M stub now trading in line with historical average
4
7
10
13
16
19
22
25
28
Dec
-200
2
Jun-
2003
Dec-
2003
Jun-
2004
Dec-
2004
Jun-
2005
Dec-
2005
Jun-
2006
Dec-
2006
Jun-
2007
Dec-
2007
Jun-
2008
Dec
-200
8
Jun-
2009
Dec-
2009
Jun-
2010
Dec-
2010
Source: Bloomberg, Company data, Credit Suisse estimates Valuation at a discount to historical average On 2011 P/E of 14.2x, Keppel is trading in line with its historical average of 14.5x. We increase our target price to S$13.50 from S$12.10, based on an SOTP valuation: (1) 20x O&M 2011E EPS, (2) an option value of S$0.41 from the potential Petrobras order, (3) Credit Suisse target prices for Keppel Land (S$4.48), KREIT (S$1.55) and Mobile One (S$2.66), (4) the marked-to-market value of other listed entities and (5) the asset value estimates for Keppel Bay and the infrastructure business.
Price (12 Jan 11 , S$) 11.50TP (Prev. TP S$) 13.50 (12.10) Est. pot. % chg. to TP 1752-wk range (S$) 11.60 - 8.09Mkt cap (S$/US$ bn) 18.5/ 14.3
Raffles Education -------------------------------------------------------- Maintain UNDERPERFORM Merchant Square acquisition: A hedge against rising rents EPS: ◄► TP: ◄► Su Tye Chua / Research Analyst / 65 6212 3014 / [email protected]
● RLS has exercised an option to acquire Merchant Square, a 99-year leasehold office property, for S$65 mn (or S$1,293 psf/NLA). Valuation seems fair versus recent transactions at other nearby strata-titled units in The Central (S$1,771 psf), Fook Hai Building (S$765 psf) and People’s Park Complex (S$818 psf).
● We are bullish on office rental rates on stronger-than-expected datapoints and a supportive demand-supply outlook. Hence, we believe this transaction should be positive for RLS, as the lease on its Beach Road campus expires in January 2013.
● While RLS’ current campus is not fully utilised, we do not believe RLS will downsize its operations here, which currently generates about 15-20% of its revenues and earnings. Thus, we see little scope for rental income upside from its new premises.
● RLS expects to fund the purchase through cash flows and a mortgage loan. We will revisit our forecasts after the December quarter results announcement. For now, fundamentals are uninspiring; we retain UNDERPERFORM and S$0.24 target price.
The deal RLS has exercised an option to acquire Merchant Square, a 99-year leasehold office property situated just outside Singapore’s CBD, for S$65 mn, implying S$1,293 psf/NLA. The valuation seems fair compared with recent transactions at other nearby strata-titled units in The Central (at S$1,771 psf), Fook Hai Building (S$765 psf) and People’s Park Complex (S$818 psf).
Figure 1: Recent office transactions in the vicinity Date Project name Unit price (S$ psf) Tenure 08-Nov-10 Fook Hai Building 765 99 Yrs From 18/01/1972 03-Dec-10 People’s Park Centre 818 99 Yrs From 02/06/1970 15-Dec-10 The Central 1771 99 Yrs From 02/01/2001 Source: URA The property Merchant Square is located at 51 Merchant Road, 2, 4 and 6 Fisher Street, 1, 3 and 5 Angus Street, and comprises a four-storey office tower and two blocks of shophouses. It is on a 99-year leasehold from
1993 and has a total NLA of 50,262 sf. It provides easy accessibility to the Clarke Quay MRT station (about 5-10 minutes by foot).
Figure 2: Site of new premises
Source: streetdirectory.com Bullish expectations for rent increases Our Singapore Property team is bullish on office rental rates on stronger-than-expected datapoints and supportive demand-supply outlook (see our 12 January 2010 report Singapore Office REITS – Positive momentum continues into 2011). Hence, we believe this transaction should be positive for RLS in the long term. Limited impact on RLS RLS’ current lease on its Beach Road campus expires in January 2013, after which there are plans to relocate and house its entire Singapore operations at its new premises. RLS’ current campus is accessible via both the City Hall and Bugis MRT stations (about 5 away minutes by foot).
Figure 3: Site of current campus
Source: streetdirectory.com
We understand from RLS that rental costs for Singapore are currently at S$100,000/month, or S$1.2 mn/annum, for a total NLA of 50,000 sf. While the current campus is not fully utilised, we do not believe RLS will downsize its operations here. Hence, we see little scope for rental income upside from its new premises.
Price (12 Jan 11 , S$) 0.29TP (Prev. TP S$) 0.24 (0.24) Est. pot. % chg. to TP (17)52-wk range (S$) 0.44 - 0.24Mkt cap (S$/US$ mn) 760.7/ 590.8
Sembcorp Industries-------------------------------------------------------- Maintain OUTPERFORM Cheaper play on sector recovery EPS: ◄► TP: ▲ Bhuvnesh Singh / Research Analyst / 65 6212 3006 / [email protected] Gerald Wong / Research Analyst / 65 6212 3037 / [email protected] Christopher Chang / Research Analyst / 65 6212 3024 / [email protected]
● We maintain our OUTPERFORM rating on Sembcorp Industries and increase our target price to S$6.20 from S$5.80.
● We believe that demand for high spec jackups should continue to remain strong on the back of: (1) shift towards more complex wells, (2) high returns of 12% versus financing cost of 5-6% and (3) utilisation rates of 95%. SMM should be a key beneficiary having won 12 out 20 jackup orders in 2010. Given strong contracting activity in the deepwater market, we now find that only 14% of the fleet remains uncontracted for 2011, compared to 20% in mid-2010.
● The Cascal acquisition would allow Sembcorp to gain a foothold in the municipal water segment, complementing its expertise in the industrial water sector.
● We value Sembcorp using a sum-of-the-parts valuation based on: (1) our target price of S$6.10 for SMM, (2) 12x 2011E P/E for the utilities, parks and environment business and (3) marked-to-market value of its stake in Gallant Venture.
Maintain OUTPERFORM; raise target price to S$6.20 We maintain our OUTPERFORM rating on Sembcorp Industries and increase our target price to S$6.20 from S$5.80.
Ride the wave of new orders We believe that demand for high spec jackups should continue to remain strong on the back of: (1) shift towards more complex wells, (2) high returns of 12% versus financing cost of 5-6% and (3) utilisation rates of 95%. SMM should be a key beneficiary having won 12 out 20 jackup orders in 2010. Given strong contracting activity in the deepwater market, we now find that only 14% of the fleet remains uncontracted for 2011, compared to 20% in mid-2010. Drillship orders are showing strength (six orders in the past three months), and the recent purchase of two Semi Subs by Seadrill indicates that this market could also pick up.
Figure 1: SMM – offshore and marine order forecasts, S$ bn
-
1,000
2,000
3,000
4,000
5,000
6,000
2010E 2011E 2012E
Rig building Conv ersion & others
(S$ bn)
Source: Company data, Credit Suisse estimates Cascal acquisition may be transformative The Cascal acquisition would allow Sembcorp to gain a foothold in the municipal water segment, complementing its expertise in the industrial water sector.
Figure 2: SCI – water assets before and after acquisition of Cascal
660,800 660,800
3,443,080 3,443,080
1,994,300160,000
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
Before Cascal Acquisi tion Current
Desalination Industrial Water Treatment Munic ipal Water Treatment
Source: Company data, Credit Suisse estimates Target price raised to S$6.20 We value Sembcorp using the sum-of-the-parts valuation method based on: (1) our target price of S$6.10 for SMM, (2) 12x 2011E P/E for the utilities, parks and environment business and (3) marked-to-market value of its stake in Gallant Venture.
Price (12 Jan 11 , S$) 5.18TP (Prev. TP S$) 6.20 (5.80) Est. pot. % chg. to TP 2052-wk range (S$) 5.20 - 3.43Mkt cap (S$/US$ mn) 9,266.9/ 7,197.9
Sembcorp Marine ------------------------------------------------------------ Maintain OUTPERFORM Strong order momentum offset by risk of losing Petrobras order EPS: ◄► TP: ▲ Bhuvnesh Singh / Research Analyst / 65 6212 3006 / [email protected] Gerald Wong / Research Analyst / 65 6212 3037 / [email protected] Christopher Chang / Research Analyst / 65 6212 3024 / [email protected]
● We maintain our OUTPERFORM rating on Sembcorp Marine and increase our target price to S$6.10 from S$5.50.
● Sembcorp Marine secured S$2.7 bn worth of contracts in 2010, exceeding our forecast of S$2.5 bn. If exercised, options for 11 additional jackup rigs worth US$2 bn would achieve 65% of our 2011 order forecast of S$4 bn. We expect continued order activity, as contract drillers upgrade their jackup fleet, and recovery in the deepwater market to rerate the stock.
● Having not participated in the tender involving the contract drillers, we believe the key risk to our positive call on Sembcorp Marine would be if it fails to win any order from the Petrobras tender as the fourth lowest bidder for a package of seven drillships.
● Our SOTP value of S$6.10 is based on: (1) 20x O&M 2011E EPS, (2) an option value of S$0.19 from potential Petrobras order, (3) SMM’s stake in Cosco Shipyard and (4) SMM’s equity stake in COSCO Corp.
Ride the wave of new orders We believe demand for high spec jackups should remain strong on the back of: (1) shift towards more complex wells, (2) high returns of 12% vs financing costs of 5-6% and (3) utilisation rates of 95%. SMM should be a key beneficiary, having won 12 out the 20 jackup orders in 2010. Given the strong contracting activity in the deepwater market, we now find only 14% of the fleet remains uncontracted for 2011, versus 20% in mid-2010. Drillship orders are showing strength (six orders in the past three months) and the recent purchase of two semi-subs by Seadrill indicates this market could also pick up. Strong order momentum Sembcorp Marine secured S$2.7 bn worth of contracts in 2010, exceeding our forecast of S$2.5 bn. This included rig orders from Atwood Oceanics, Transocean, Noble Drilling and Seadrill. If exercised, options for 11 additional jackup rigs worth US$2 bn would achieve 65% of our 2011 order forecast of S$4 bn. We expect
continued order activity, as contract drillers upgrade their jackup fleet, and recovery in the deepwater market to rerate the stock.
Figure 1: High-spec jackups at 95% utilisation
$0
$50,000
$100,000
$150,000
$200,000
$250,000
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
High
Spe
c Ja
ckup
Day
rate
s
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
High
Spe
c Ja
ckup
Util
izat
ion
Dayrates Utilization
Today: 95% Utilization
Source: Credit Suisse estimates, ODS-Petrodata Seven or nothing for Petrobras tender Having not participated in the tender involving contract drillers, we believe the key risk to our positive call on Sembcorp Marine would be if it fails to win any order from the Petrobras tender as the fourth lowest bidder for a package of seven drillships. Maintain OUTPERFORM, raise target price to S$6.10 Our SOTP value of S$6.10 is based on: (1) 20x O&M 2011E EPS, (2) an option value of S$0.19 from potential Petrobras order, (3) SMM’s stake in Cosco Shipyard and (4) SMM’s equity stake in COSCO Corp.
Figure 2: SMM’s P/E
4 .0 0
8 .0 0
12 .0 0
16 .0 0
20 .0 0
24 .0 0
28 .0 0
Feb-
88
Feb-
90
Feb-
92
Feb-
94
Feb-
96
Feb-
98
Feb-
00
Feb-
02
Feb-
04
Feb-
06
Feb-
08
Feb-
10
Source: Bloomberg, Company data, Credit Suisse estimates
Price (12 Jan 11 , S$) 5.19TP (Prev. TP S$) 6.10 (5.50) Est. pot. % chg. to TP 1852-wk range (S$) 5.37 - 3.31Mkt cap (S$/US$ mn) 10,785.2/ 8,377.1
Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (S$ mn) 5,064 5,725 4,849 4,630 4,999EBITDA (S$ mn) 572.5 923.5 884.0 727.5 737.1Net profit (S$ mn) 429.9 703.7 708.0 616.2 627.3EPS (S$) 0.21 0.34 0.34 0.30 0.30- Change from prev. EPS (%) n.a. n.a. 0 0 0- Consensus EPS (S$) n.a. n.a. 0.36 0.29 0.28EPS growth (%) 77.7 64.2 0.2 (13.3) 1.4P/E (x) 24.9 15.2 15.2 17.5 17.2Dividend yield (%) 2.1 2.9 2.3 2.3 2.3EV/EBITDA (x) 14.9 9.1 9.1 10.5 9.7P/B (x) 8.1 5.7 4.2 3.5 3.0ROE (%) 28.7 44.0 32.0 21.9 18.7Net debt (net cash)/equity (%) (134.7) (98.3) (88.9) (84.9) (84.8) Note1:Sembcorp Marine provides a full spectrum of integrated ship repair, shipbuilding, ship conversion, rig building and offshore engineering solutions..Note2:FY07 earnings have been adjusted to exclude the impact of loss on unauthorised transactions and share of shares.
Friday, 14 January 2011
Asian Daily
- 23 of 35 -
South Korea Korea Economics ----------------------------------------------------------------------------------------------- The BoK raises its base rate by 25 bps to 2.75% to combat rising inflation threat Christiaan Tuntono / Research Analyst / +852 2101 7409 / [email protected]
● The BoK has raised its benchmark base rate by 25 bps to 2.75%. In its policy statement, the BoK has turned more hawkish on inflation and shows stronger confidence on growth, which we think would support further rate actions in the coming months.
● We think the more hawkish attitude by President Lee’s administration against inflation is also an important support for future rate action. The government has announced its plan to freeze utility charges, cut food import tariffs and introduce tighter oversight on anti-competitive measures. While the response is visible, it remains to be seen if the measures can be effective.
● We expect the BoK to raise interest rates by another 75 bps in 2011, and the next movement in March. We believe the authority would allow some appreciation in the won to help offset the rise of imported inflationary pressure, but excessive strength would still be prevented to safeguard export competitiveness and lessen foreign capital inflows.
First hike in 2011, and more to come The Bank of Korea (BoK) has raised its benchmark base rate to 2.75% today, up 25 bps from 2.5%. We think this rate hike is to pre-empt rising inflationary pressure, as December’s CPI inflation remained elevated at 3.5% YoY, with core inflation showing signs of acceleration. The last time that the BoK raised its policy rate was on 16 November 2010.
In the policy statement, the BoK has turned more hawkish on the inflation outlook, saying that inflation pressures will likely persist, with inflation expectations likely to increase. The central bank has also turned more confident on the economy, saying that it would maintain its underlying upward trend, with the private sector leading improvement in employment. The BoK believes that the global economy will continue its recovery, though citing the European debt situation and volatile international commodity prices as risks. In our view, a more hawkish outlook on inflation and stronger confidence in the economy would support further rate actions in the coming months. Inflation should continue to trend up We think CPI inflation will continue to be driven up this year by the rising strength of economic activity and increased cost-push pressure. 1) The output gap should have closed in 2H10 and turn positive in 2011, on continued strength in consumption, fixed investments and export growth; 2) global raw material prices are expected to rise with the current global excess liquidity conditions; and 3) we expect the policy rate level to remain largely accommodating through 2011, as we estimate the neutral rate to be 3.8-4.0% (the 10-year average since 2000), compared with our end-2011 policy rate forecast of 3.5%.
We think the more hawkish attitude adopted by President Lee’s administration against inflation is an important support for future rate action. President Lee Myung-bak declared a “war on inflation” in the beginning of the year, and requested his cabinet to contain CPI inflation at around 3%, the mid-point of the BoK’s inflation target range, in 2011. Against that background, the government has announced its plan to freeze utility charges, cut food import tariffs and
introduce tighter oversight on anti-competitive measures to prevent price manipulation. While the government’s response is visible, it will remain to be seen whether the measures can be effective. With stronger growth prospects, we believe the BoK is now fully on track to normalise monetary conditions, with the aim to gradually rein in domestic demand activities and contain CPI inflation at around 3%. Normalisation to continue, with some won strength We think that the BoK will continue normalising monetary conditions over the next 12 months. After this rate hike, we currently circle the next rate movement to be in March. Chances for an earlier rate action cannot be eliminated, if CPI inflation rises above expectations and growth prospects continue to improve. We expect the BoK to raise its base lending rate by another 75 bps in 2011, raising the policy rate to 3.5% by end-2011. The risk of further increases does exist, in our view, and will depend on how the trajectory for growth and inflation evolves through the year.
We believe the authority will allow some appreciation in the won to help offset the rise in imported inflationary pressure. We expect the won to appreciate to about 1,050 by end-2011. While a stronger won would help combat inflation, we doubt the government will allow excessive strength of the currency for fear of eroding the competitiveness of the export sector. Although the global economy is expected to improve in 2011, how strongly it grows remains uncertain. We believe the authority will be cautious in safeguarding the momentum in the export sector and to prevent excessive foreign capital inflows into the economy.
Friday, 14 January 2011
Asian Daily
- 24 of 35 -
POSCO--------------------------------------------------------------------------- Maintain OUTPERFORM Weak 4Q10 earnings, but expect a better 2011 than 2010 EPS: ◄► TP: ◄► Minseok Sinn / Research Analyst / 822 3707 8898 / [email protected] Seungwoo Hong / Research Analyst / 822 3707 3795 / [email protected]
● Posco’s 4Q10 operating profit of W653 bn was below expectations mainly due to continued high raw material costs and a delayed recovery in steel demand in the region; many investors were expecting a weak profitability due to the above reasons.
● We expect a better 2011 than 2010 for Posco (particularly in 1H11) despite a few negative issues that are still in the market. First, the cheaper 4Q10 raw material contract price (-11% QoQ, blended basis) will likely benefit the company’s profitability in 1Q11. Second, steel buyers’ recent restocking trend is likely to stimulate steel demand and prices in 1H11, on top of the high seasonality in 1Q. Last, we expect a typical year-one effect of China’s 12th Five-Year Plan and a slowdown in net capacity adds in China to tighten supply-demand dynamics in the region.
● In the meantime, in the analyst meeting on 13 January, top management stated Posco’s interest in entering into the logistics business; Posco’s 2011 capex/investment plan of W7.3 tn includes W2.0 tn for new growth opportunities (i.e., M&A) versus W9.4 tn in 2010, which included W3.4 tn for the acquisition of Daewoo International.
4Q10 results were below expectations Posco, on 13 January after market close, released its 4Q10 preliminary headline numbers. While its revenue of W9,176 bn was slightly higher than expected, the operating profit of W653 bn was below expectations mainly on continued high raw material costs (affected by the expensive 3Q10 contract price), margin pressure on exports due to a delayed recovery in steel demand in the region (many investors were expecting a weak profitability in 4Q10 due to the above reasons). In the meantime, Posco’s aggregated steel product sales volume of 8.4 mn tonnes in 4Q10 increased 6% YoY and 9% QoQ, although its blended steel product ASP of W10.5 mn/t in 4Q10 reduced 2% QoQ (mainly due to the appreciation of won).
Figure 1: Posco—4Q10 results summary (parent) YoY QoQ Cons.(W bn) 4Q09 1Q10 2Q10 3Q10 4Q10 (%) (%) 4Q10ERevenues 7,288 6,950 7,933 8,524 9,176 25.9 7.6 9,063Gross profit 1,922 1,794 2,199 1,496 1,075 -44.1 -28.1 Operating profit 1,587 1,447 1,836 1,111 653 -58.8 -41.2 838Net profit 1,275 1,437 1,196 1,044 526 -58.8 -49.7 694OP margin (%) 21.8 20.8 23.1 13.0 7.1 9.2Sales volume (‘000 t) 7,944 7,475 7,831 7,739 8,419 6.0 8.8 ASP (W’ 000) 885 898 979 1,066 1,049 18.5 -1.6 Source: Company data, Bloomberg A better 2011 than 2010 We expect a better 2011 than 2010 for Posco, particularly in 1H11. First, the cheaper 4Q10 raw material contract price (-11% QoQ, blended basis) should benefit the company’s profitability in 1Q11, while most of its 1Q11 raw material consumption will be the ones purchased with 4Q10 contract price. Second, steel buyers’ recent restocking trend (propelled by concerns about steel price rise, given the expected coal price hike in 2Q11) is likely to stimulate steel demand and prices in 1H11 on top of the high seasonality in 1Q. Last, we expect a typical year-one effect of China’s 12th Five-Year plan (2011-2015) and a slowdown in net capacity adds in China (combined with the ongoing government effort in closing down old capacity) to tighten the supply-demand dynamics in the region. CS China basic materials analyst Trina Chen thinks that it is possible for China to become a net importer of steel again in 2012, depending on the pace of old capacity closure and the magnitude of capacity expansion. A few negative issues still remain though First, increased inventory after restocking in 1H11 may depress steel demand and prices in 2H11. Second, Posco does not seem to be able to fully transfer the recent raw material price hikes in its steel pricing (1Q11 blended raw material contract price was up 8% QoQ and a higher rise is expected in 2Q11 contract price, given the recent surge in spot coking coal price due to the flood in West Australia); but excess supplies remain in the regional/global steel market (global steel production utilisation is estimated still low only at around 75% currently) and the Korean government asks steel makers to minimise steel price increase, given the rising inflation pressure in the domestic economy. Last, Hyundai Steel’s (004020.KS, W134,000, UNDERPERFORM, TP W77,000) continued capacity expansion seems to be a key depressing factor in the domestic steel market, even though much of the additional volume is likely to replace Japanese imports. More M&As? Posco’s 2011 capex/investment plan of W7.3 tn includes W2.0 tn for new growth opportunities (i.e., M&As), versus its 2010 capex/investment of W9.4 tn, which includes W3.4 tn for the acquisition of Daewoo International (047050.KS, W37,250, Not Rated). In the analyst meeting on 13 January, top management admitted to Posco being interested entering into the logistics business. 005490 KS Old rating New rating Old TP New TPNov 19, 2009 OUTPERFORM OUTPERFORM W600,000 W675,000As of close of business on 12 January 2011, Credit Suisse Securities (Europe) Limited, Seoul Branch performs the role of liquidity provider on the warrants of which underlying asset is POSCO and holds 19,525,220 of warrants concerned. These may be covered warrants that constitute part of a hedged position.
Price (12 Jan 11, W) 494,000.00TP (Prev. TP W) 675,000 (675,000) Est. pot. % chg. to TP 3752-wk range (W) 624000 - 434500Mkt cap (W/US$ bn) 43,070.4/ 38.7
Bbg/RIC 005490 KS / 005490.KS Rating (prev. rating) O (O) Shares outstanding (mn) 87.20 Daily trad vol - 6m avg (mn) 0.3 Daily trad val - 6m avg (US$ mn) 133.8 Free float (%) 75.6 Major shareholders National Pension
Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (W bn) 30,642 26,954 32,984 35,753 37,189EBITDA (W bn) 8,448 5,208 7,659 8,052 8,554Net profit (W bn) 4,447 3,172 4,914 5,376 5,859EPS (W) 51,005 36,385 56,355 61,647 67,185- Change from prev. EPS (%) n.a. n.a. 0 0 0- Consensus EPS (W) n.a. n.a. 59,552 61,578 64,697EPS growth (%) 20.9 (28.7) 54.9 9.4 9.0P/E (x) 9.7 13.6 8.8 8.0 7.4Dividend yield (%) 2.0 2.0 2.0 2.0 2.0EV/EBITDA (x) 5.3 8.1 5.6 5.1 4.5P/B (x) 1.6 1.4 1.2 1.1 1.0ROE (%) 16.0 10.3 14.0 13.5 13.1Net debt (net cash)/equity (%) 5.0 (2.1) (1.1) (4.5) (10.4) Note 1: Ord/ADR=.2500. Note 2: Pohang Iron & Steel Co., Ltd. (POSCO) manufactures hot and cold rolled steel products, stainless steel products, heavy plate, and other steel products for the construction and ship building industries.
Friday, 14 January 2011
Asian Daily
- 25 of 35 -
Taiwan Taiwan Networking Equipment Sector------------------------------------------------------------------- Key takeaways from CS Taiwan Investment Conference: Increasing exposure to digital home Darryl Cheng / Research Analyst / 886 2 2715 6333 / [email protected]
● D-Link and CyberTAN attended CS Taiwan Investment Conference 2011 on 13 January.
● D-Link expects 1Q10 to follow the historical 5-8% QoQ decline, while it believes that FX rate is still a changing factor. 2011 sales could grow 10-15%, and profit margins are expected to expand on operating leverage and better product mix. In general, management is positive for 2011 outlook.
● CyberTAN expects a flattish or slightly lower 1Q11 sales after 4Q10’s +10.5% QoQ. Like D-Link, CyberTAN expects digital home products (IP cam, IP storage, TV STB) to grow to a 15-25% revenue contributor from 10-15% in 2010. In addition, CyberTAN is working with global Tier 1 TV companies on smart TV, which we believe will be a major growth driver for 2011.
● Both companies claimed they do not see component shortage for now. D-Link sees increased raw material costs, while it is negotiating with suppliers and expects to pass on the increased costs.
● Digital home has become the focus of networking companies and is expected to be a major growth driver for both CyberTAN and D-Link. IP camera and IP storage started to pick up in 2010, and smart TV is likely to come in strong in 2011. We believe CyberTAN will benefit more from the smart TV trend due to a lower existing sales base. On the other hand, D-Link’s smart TV will have relatively smaller impact to its top-line growth, and we believe its operating leverage will remain the investors’ focus.
Figure 1: D-Link's 4Q10 sales 4Q10 (NT$ mn) Oct-10 Nov-10 Dec-10 QTD/YTD CS Actual/CSSales (NT$ mn) 3,218 3,102 2,828 9,148 8,899 102.8%Seq growth (%) -1.2% -3.6% -8.8% 6.6% 3.6%YoY (%) 5.4% -0.2% 5.0% 3.4% 0.5%YTD sales (NT$ mn) 27,931 31,033 33,861 33,861 33,613 100.7%YoY (%) 10.7% 9.5% 9.1% 9.1% 8.4%Source: Company data, Credit Suisse estimates D-Link (2332.TW, OUTPERFORM) 1Q10 likely to come in line with seasonality. D-Link’s 4Q10 sales were better helped by continued sales from the e-tailors in late December, which was historically holiday season and traditional retailers already stopped taking deliveries. 1Q11 is expected to come in line with the historical 5-8% QoQ decline; however, company IR also mentioned FX rate as a changing factor.
Digital home is expected to outgrow other product lines. D-Link considers 10-15% YoY revenue growth for 2011 as an achievable goal. Of the product lines, digital home is expected to outgrow others, helped in part by new smart TV products (Boxee Box, Yahoo! TV). D-Link expects digital home to become a 11-12% revenue contributor for 2011, up from 7-8% in 2010. Switch and wireless LAN are expected to grow in line with corporate average, and broadband will undergrow as the company intends to decrease its exposure to the low-margin broadband products.
Figure 2: 2011E growth by product (%) YT3Q10 breakdown 2011E YoY 2011E GMSwitch 33 15 40+Wireless LAN 38 10-15 ~30Broadband 19 3-5 18-19Digital home 7 20-25 30-35Source: Company data, Credit Suisse estimates
D-Link’s targets are in line with our expectations. We forecasted D-Link’s 2011 sales to grow 12.9% YoY (versus company’s 10-15% target) and gross margin and operating margin at 31.8%/4.8%, respectively. We expect to see margins expansion in 2011 (2010E operating margin was 2.8%) on operating leverage and better product mix. CyberTAN (3061.TW, OUTPERFORM) CyberTAN is positive on the growth of its digital home products in 2011. The major products in the category include TV STB (IP/cable) and IP storage. Sales breakdown by product in 2010 was broadband router (65%), WiFi module (20-25%), and digital home (10-15%). In 2011, digital home (not including smart TV) is expected to grow to a 15-25% revenue contributor. Near-term outlook – stable 1Q11 CyberTAN claimed 1Q11 sales could flatten or slow slightly after the +10.5% QoQ 4Q10, partly because the fewer working days in February might bring some impact to 1Q11 shipments.
Smart TV is expected to be a new growth driver for 2011. CyberTAN is working with global Tier 1 TV companies and will ship smart TV modules for both TV set and companion box (such as Blu-ray disc player). The company is still unable to quantify the contribution by the new smart TV product line.
We currently forecast a conservative 1 mn units of smart TV module shipment by CyberTAN for 2011. Based on which, our 2011E revenue and EPS are NT$16.5 bn and NT$2.22, respectively. Per our estimates, an incremental 1 mn units of smart TV shipment would boost CyberTAN’s 2011E EPS by NT$0.56 or 25%.
Figure 4: Sensitivity analysis – EPS versus smart TV shipment and GM Shipment (mn unit) 2011E EPS 0.25 0.5 1 2 4
TXC Corp.---------------------------------------------------------------------------------------- NOT RATED Key takeaways from 2011 Taiwan Conference Pauline Chen / Research Analyst / 886 2 2715 6323 / [email protected] Josette Chang / Research Analyst / 886 2 2715 6367 / [email protected]
● At the Credit Suisse Taiwan 2011 conference, TXC, the global fifth largest quartz crystal supplier, provided its update outlook for 1Q11 and 2011. Here are our key takeaways.
● 1Q11 outlook. TXC expects 5-8% QoQ revenue decline in 1Q11, better than expectations. Key drivers are from its top customer's upward revisions in both smartphones and tablets.
● 2011 outlook. TXC targets 15-20% YoY revenue growth, driven by smartphones, tablet, networking, and its continued share gains. Relatively, TXC was more conservative on regular NB, according to management.
● Margin outlook. Assuming NT$29/US$, TXC expects its operating margin to stay flattish or up YoY, given: (1) a better product mix, (2) limited impact from rising labour costs in China and (3) disciplined pricing environment in the quartz crystal market.
● Capex updates. 2011 capex is set at NT$1.7-1.8 bn, of which NT$300 mn will be for its new investment – ingot growth. TXC expected to generate 2% revenue from this new business in 2011.
● TXC currently trades at 11.6x FY11E consensus EPS of NT$4.96, versus the Taiwan tech average FY11E P/E of 13.0x. QFII holdings are at 29.5%, versus its three-year peak of 30.5%.
Figure 1: Company summary 13 Jan Price Shares Mkt cap QFII Consensus EPS Co. Code Rating NT$ out (mn) (US$ mn) (%) 2011E 2012ETXC 3042 TT Not rated 57.3 297 587 29.5 4.96 5.87Source: Company data, Bloomberg I/B/E/S estimates Company background TXC, founded in 1983, is the fifth largest quartz crystal supplier globally. TXC believes it had an 8.3% global market share in 2009. TXC’s production sites are located in Tau-Yuan (Taiwan), Nin-Bo (China) and Chong-Chi (recently). TXC has a well-diversified product mix, including networking, mobile, PC, consumer, global EMS and auto. In addition, it has a solid customer base – Apple, HTC, Mediatek, Seagate, Quanta, Compal, Hon Hai, and Kingston, etc. 1Q11 updates TXC expected its revenue to decline by 5-8% QoQ in 1Q11. This is better than expected, considering a higher base (4Q up 7% QoQ, better than guidance for flat to 5% QoQ growth). Key drivers are from its top customer's upward revisions in both smartphones and tablets. January sales are expected to be flattish MoM. 2011 growth drivers For 2011, TXC targeted 15-20% YoY revenue growth, driven by smartphones, tablet (three projects currently), networking (mainly from Chinese customers), and its continued share gains at the expense of Japanese peers. Relatively, TXC was more conservative on regular NB growth in 2011. Margins trend Assuming NT$29/US$, TXC expected its operating margin to remain flattish or up YoY in 2011, based on the following reasons. First, a better product mix towards small-sized crystals, mainly driven by a positive product cycle and its own market share gains. Second, TXC believed the impact from a 15% YoY increase on China labour costs should be manageable, given a better product mix and its reallocation
to inland (Chong-Chin). According to TXC, direct labour cost is about 8-9% of its COGS. Lastly, TXC believes the quartz crystal market is relatively disciplined, with a limited number of players, given the higher entry barrier in terms of product quality and production scale. Capex and dividend policy 2011 capex is set at NT$1.7-1.8 bn, of which NT$300 mn will be for its new investment – ingot growth. TXC expects to generate 2% revenue from this new business this year.
TXC plans to pay NT$2-2.5 cash dividend per share and NT$0.5 stock dividend per share out of 2010 distributable earnings. This would imply 3.9% cash dividend yield based on today’s closing price.
Source: Company data Trading history and valuations TXC currently trades at 11.6x FY11E consensus EPS of NT$4.96, versus the Taiwan tech average FY11E P/E of 13.0x. QFII holdings are at 29.5%, versus its three-year peak of 30.5%.
Figure 4: TXC – consolidated income statements (NT$ ’000) 1Q10 2Q10 3Q10 4Q10PSales 2,112,528 2,338,337 2,509,797 2,683,831Gross profit 531,595 629,222 696,445 671,000Operating profit 274,540 330,649 383,596 n.aPre-tax profit 274,650 329,943 401,210 n.aNet profit 213,002 330,977 360,703 n.aEPS (NT$) 0.75 1.15 1.23 n.aNote: 4Q10 data is based on preliminary results. Source: Company data
● At Credit Suisse Taiwan 2011 conference, Kinsus provided its updated outlook for 1Q11 and 2011. Here are our key takeaways.
● Revenue outlook: Kinsus expects its substrates business to see a 5% QoQ revenue decline in 1Q11, and 20% YoY growth in 2011. We note its 1Q11 outlook is on track, but 2011 guidance could be conservative, as it does not factor in any contribution from tablets.
● Margin outlook: Kinsus expects its substrates GM to expand by 200-300 bp in 2011, due to a better product mix. We believe it is prudent to assume a flattish GM in 2011, considering the rising gold prices and expectations for NT$ appreciation.
● PCB business update: Kinsus expects a 20% YoY revenue growth with improving GM to high single-digit in 2011. We note both our revenue and GM assumptions are below its guidance, as we believe customer and product diversification take time.
● At 10.6x FY11E on ex. cash basis, Kinsus’ valuation is not demanding for a leading component supplier in the fast-growing market. We maintain our OUTPEROFRM rating.
1Q10 revenue outlook on track Kinsus expect its substrates business to see a 5% QoQ revenue decline and a continued fall in GM to 29% in 1Q11 (from 32.3% in 3Q10), due to the NT$ appreciation. While its revenue guidance is roughly in line with expectations, we note that the company seems to be toning down its GM guidance slightly, hurt by rising gold prices (gold accounts for ~20% of its COGS) and the NT$ appreciation (we estimate every 5% appreciation in the NT$/US$ will lead to 100-150 bp GM erosion). Smartphone remains the key driver in 1Q11. 2011 outlook 2011 revenue growth target is set at 20% YoY for substrates (or to an estimated NT$17.5 bn), versus our estimate for a 25% YoY growth. We note that Kinsus’ 2011 target does not factor in any contribution from tablet, and is based on NT$29/US$ exchange rate. While we think its revenue target is a bit conservative, we believe its GM target
of 32-33% in 2011 (up 200-300 bp YoY, versus CS modelled flattish YoY) might be too aggressive, considering the rising gold prices, and the expectation for NT$ appreciation, albeit of a better product mix. By product, FC-CSP (for smartphone and tablet) remains the key growth driver, followed by BT-FC (for base station). Updates on its PCB business Kinsus started to consolidate its PCB revenue from 4Q10. According to Kinsus, Piotek (previously named ‘Boardtek’) booked NT$1.8 bn in revenue in 4Q10. It is expected to see 5-10% QoQ revenue decline in 1Q11, and breakeven in 1Q11. For 2011, Piotek targets 20% YoY revenue growth with improving GM from the current 5% to high single-digit. The revenue growth and margin improvement are mainly due to a more diversified customer base (away from Pegatron) and product mix (from NB/MB centric to HDI). We note that both our revenue and GM assumptions are below the company guidance, as we believe diversification takes time. Capex updates 2011 capex for substrates business is set at NT$1.5 bn, up from NT$2 bn in 2010, mainly on capacity expansion in China (Suzhou). Kinsus also targets to expand its PCB capacity from currently 2.5 mn sft/month to 3.5 mn sft/month in 2011. Of which, 10-15% will be for HDI. We maintain OUTPERFORM Kinsus is trading at 10.6x on ex. cash basis (net cash is 13% of its market cap). We believe its valuation is not demanding for a leading component supplier in the fast-growing market. We maintain our OUTPEROFRM rating.
Taiwan Hardware Sector-------------------------------------------------------------------------------------- Gartner: Global PC shipments up only 3.1% YoY in 4Q10 Robert Cheng / Research Analyst / 886 2 2715 6361 / [email protected] Jill Su / Research Analyst / 8862 2715 6364 / [email protected]
● Gartner released preliminary 4Q10 PC market data with 3.1% YoY shipment growth; IDC also released an estimate of 2.7% YoY growth for global PC shipments in 4Q10, which is lower than the market forecast. The major reason for PC weakness is the slowdown in Asia Pacific and the consumer segment. But, PC demand for the enterprise market is still better than expected.
● The released data is similar to our conservative view on the PC market; we had forecast only 2% QoQ growth in NB shipments for the top three NB ODMs in 4Q10. Gartner added that PC sales to consumers in holidays were weak and that brands are careful on inventory before the launch of their new models with new CPU in 1Q11.
● According to Gartner, China 4Q10 PC shipment grew only 3.4% YoY, which might partly affect Lenovo’s short-term performance. However, Lenovo still showed 21% YoY shipment growth in 4Q10 – the highest among all global brands – and also benefited from the improving corporate PC market, in our view.
● According to Gartner, Acer’s shipments fell 30% YoY in the US and 2% YoY in the global market in 4Q10. We have been highlighting that Acer is losing share in the US and the impacts from the slow consumer market.
● Apart from the slow PC demand, manufacturers are suffering from the NTD appreciation and rising labour costs in China. We have been conservative on the PC sector since May 2010 and maintain our conservative view. We prefer Pegatron and Lenovo in the downstream hardware sector.
Figure 1: Global PC shipments in 4Q10 by vendors PC shipments (mn units) Market share (%)
(%) Code TP Rating 2010E 2011E 2010E 2011E 2010E 2011EPC brand Acer 2353 TT 81.0 N 15.4 13.5 2.3 2.1 30 14Asustek 2357 TT 267.0 N 10.8 11.5 1.5 1.4 24 -6Lenovo 0992.HK - 20.6 15.5 3.4 2.9 200 33EMS/ODMs Hon Hai 2317 TT 113.0 N 14.6 13.3 2.3 2.0 1 9Quanta 2382 TT 52.0 N 10.9 10.8 1.9 1.8 -4 1Compal 2324 TT 38.0 N 7.0 7.9 1.5 1.4 13 -11Wistron 3231 TT 68.2 O 9.6 8.5 1.9 1.7 24 12Pegatron 4938 TT 52.0 O 16.0 8.7 0.9 0.9 -17 84Distribution Synnex 2347 TT 84.2 O 19.8 15.7 3.4 3.0 18 26Source: Company data, Credit Suisse estimates
Friday, 14 January 2011
Asian Daily
- 29 of 35 -
Thailand Thai Residential Property Sector -------------------------------------------------------------------------- Recent market data should ease fear of oversupply and bodes well for the condo segment Chai Techakumpuch / Research Analyst / 662 614 6211 / [email protected]
● Market data reveals that Thai developers are quick to put control on supply. New launches in December were less than half that of last year’s peak month October. This should ease market’s fear that the Thai property sector will face an oversupply situation.
● Segment wise, the data shows that condos have seen the biggest slowdown in new supply in the past few months. On the other hand, developers shifted focus to townhouses (TH) where supply continued to stay above the normal average.
● Another market concern was a falling take-up rate. Though the data concurs that trend, it does reveal that take-up rate remains what should be considered healthy.
● We view this market data as positive for the sector, particularly to allay fears of oversupply. The data also paints a better picture for the condo segment than what the market seemed to have expected, boding well for condo-heavy stocks such as LPN and AP. Competition, however, continues to intensify in low-price TH, a negative for PS.
Figure 1: New supply eased off drastically
-
15,000
30,000
45,000
Jan-
10
Feb-
10
Mar-1
0
Apr-1
0
May-1
0
Jun-
10
Jul-1
0
Aug-
10
Sep-
10
Oct-1
0
Nov-1
0
Dec-1
0
SDH TH Condo
Bt mn - Developers are fast to adjust- Condo see sharp drop-off
Source: Agency for Real Estate Affairs (AREA). Developers are fast to cut down new supply One major fear recently on the Thai property market was the surge in new supply during 3Q10, which eventually peaked in October. That surge stemmed from: (1) pent up volume from 1H10 due to the Red Shirt long political protest and (2) favourable consumer confidence in 2H10.
But as has happened many times in the past, Thai developers were fast to adapt; and it appears to be no different this time. New launches, according to Agency for Real Estate Affairs (AREA), fell by more than half, from the Bt42.8 bn peak in October to just Bt20.3 bn in December, or a 52% drop (Figure 1). It fell even more in unit terms (by 57%), from 17,357 in October to just 7,432 in December. Condition for condo improving, but still competitive for TH The most notable in the recent supply cut was a sharp drop in new condos, which saw the total value of new launches plunge from Bt28.6 bn in September to a mere Bt4.1 bn in December. The drop came from all price range, but most significantly from the low-price, <Bt2 mn units. This bodes well for LPN given lower competition to concern with.
Single detached houses (SDH) and townhouses (TH), however, continued to see above average volume of new supply. In the TH segment, new supply in 4Q10 accounted for 40% of the full-year’s new supply of TH. And comparing against 4Q09, growth in value was
a huge 136% YoY. The intensity of competition was particularly high in the low-price segment, below Bt2 mn per unit. On this basis, the market environment seems to work against major TH players like PS. Take-up rate may have dropped, but is nonetheless healthy Among the three housing products (SDH, TH and condo), the biggest concern on take-up rate seems to relate to the condo segment, which has been softening over the past few months (Figure 2). However, we note that even the traditionally weak month of December, the take-up rate of new condo projects in December 2010 was still a good 34%. As a general rule of thumb, anything above 25% would be considered healthy. Therefore, at 34%, we would not consider take-up rate to be a major issue for the Thai property market.
Figure 2: Take-up rate not very high, but still very strong
5%7%
34%
0%
20%
40%
60%
80%
100%
Jan-
08
Jan-
09
Jan-
10
SDH TH Condo
Take-up rate of condo might not be on the top of the range, but still high nonetheless
Source: AREA. Opportunities in condo heavy stocks: LPN and AP The fear of potential oversupply is one of the major concerns that led to big corrections in share prices of listed developers over the last couple of months. But as market data on new launches and take-up rate is gradually emerging, we do not believe an oversupply is actually developing in the Thai property market. Discounts putting on property stocks, thus, appear unjustified.
As concern on condo oversupply lowers, while take-up rate remains healthy, we do see opportunities emerging, particularly in deep-value condo heavy stocks such as LPN and AP. They are trading at below historical average 2011 P/E of 5.5x and 6.5x, respectively. Dividend yields are also high at an estimated 9.1% for LPN and 6.3% for AP.
Valuation metrics Company Ticker CS Price Year P/E (x) P/B rating local target T T+1 T+2 (x)Asian Property AP TB O 6.10 9.10 12/09 7.7 6.5 1.5Land and Houses LH TB U 6.10 6.60 12/09 17.5 14.3 2.3L.P.N. LPN TB O 8.10 12.10 12/09 7.2 5.5 1.9Preuksa PS TB U 18.60 19.10 12/09 12.1 10.8 2.7Quality Houses QH TB O 2.28 3.30 12/09 9.1 7.2 1.4Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Source: Company data, Credit Suisse estimates
Friday, 14 January 2011
Asian Daily
- 30 of 35 -
Recently Published Research
Date Title Author(s) Tel. E-mail Thu 13 Jan Genting Foong Wai Loke 603 2723 2082 [email protected] Thu 13 Jan PT Borneo Lumbung Energi & Metal Tbk Fonny Surya 65 6212 3007 [email protected] Thu 13 Jan Singapore Offshore & Marine Bhuvnesh Singh
Disclosure Appendix Important Global Disclosures The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities. Analysts’ stock ratings are defined as follows: Outperform (O): The stock’s total return is expected to outperform the relevant benchmark* by at least 10-15% (or more, depending on perceived risk) over the next 12 months. Neutral (N): The stock’s total return is expected to be in line with the relevant benchmark* (range of ±10-15%) over the next 12 months. Underperform (U): The stock’s total return is expected to underperform the relevant benchmark* by 10-15% or more over the next 12 months. *Relevant benchmark by region: As of 29th May 2009, Australia, New Zealand, U.S. and Canadian ratings are based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe**, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. Some U.S. and Canadian ratings may fall outside the absolute total return ranges defined above, depending on market conditions and industry factors. For Latin American, Japanese, and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; for European stocks, ratings are based on a stock’s total return relative to the analyst's coverage universe**. For Australian and New Zealand stocks a 22% and a 12% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively, subject to analysts’ perceived risk. The 22% and 12% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively, subject to analysts’ perceived risk. **An analyst's coverage universe consists of all companies covered by the analyst within the relevant sector. Restricted (R): In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ coverage universe weightings are distinct from analysts’ stock ratings and are based on the expected performance of an analyst’s coverage universe* versus the relevant broad market benchmark**: Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months. Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months. Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months. *An analyst’s coverage universe consists of all companies covered by the analyst within the relevant sector. **The broad market benchmark is based on the expected return of the local market index (e.g., the S&P 500 in the U.S.) over the next 12 months. Credit Suisse’s distribution of stock ratings (and banking clients) is:
Global Ratings Distribution Outperform/Buy* 45% (61% banking clients)
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. Important Regional Disclosures Singapore recipients should contact a Singapore financial adviser for any matters arising from this research report. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at anytime after that. Please find the full reports, including disclosure information, on Credit Suisse's Research and Analytics Website (http://www.researchandanalytics.com) Important Credit Suisse HOLT Disclosures With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report. The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of default variables and incorporated into the algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. These adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur. Additional information about the Credit Suisse HOLT methodology is available on request. The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variables may also be adjusted to produce alternative warranted prices, any of which could occur. CFROI®, HOLT, HOLTfolio, HOLTSelect, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse. Additional information about the Credit Suisse HOLT methodology is available on request. Important MSCI Disclosures The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, re-disseminated or used to create any financial products, including any indices. This information is provided on an “as is” basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor’s. GICS is a service mark of MSCI and S&P and has been licensed for use by Credit Suisse.
Friday, 14 January 2011
Asian Daily
- 34 of 35 -
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683. Disclaimers continue on next page.
Friday, 14 January 2011
Asian Daily
- 35 of 35 -
Disclaimers This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG, the Swiss bank, or its subsidiaries or its affiliates (“CS”) to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients as its customers by virtue of their receiving the report. The investments or services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to your individual circumstances or otherwise constitutes a personal recommendation to you. CS does not offer advice on the tax consequences of investment and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. CS believes the information and opinions in the Disclosure Appendix of this report are accurate and complete. Information and opinions presented in the other sections of the report were obtained or derived from sources CS believes are reliable, but CS makes no representations as to their accuracy or completeness. Additional information is available upon request. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, a trading call regarding this security. Trading calls are short term trading opportunities based on market events and catalysts, while stock ratings reflect investment recommendations based on expected total return over a 12-month period as defined in the disclosure section. Because trading calls and stock ratings reflect different assumptions and analytical methods, trading calls may differ directionally from the stock rating. In addition, CS may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report. CS is involved in many businesses that relate to companies mentioned in this report. These businesses include specialized trading, risk arbitrage, market making, and other proprietary trading. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgement at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR’s, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment, in such circumstances you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed the linked site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS’s own website material) is provided solely for your convenience and information and the content of the linked site does not in any way form part of this document. Accessing such website or following such link through this report or CS’s website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is regulated in the United Kingdom by The Financial Services Authority (“FSA”). This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States by Credit Suisse Securities (USA) LLC ; in Switzerland by Credit Suisse AG; in Canada by Credit Suisse Securities (Canada), Inc..; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A.; in Mexico by Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instrument Firm, Director-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan; elsewhere in Asia/Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited , Credit Suisse Securities (Thailand) Limited, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, Credit Suisse Securities (India) Private Limited, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit Suisse Securities Indonesia, and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn. Bhd., to whom they should direct any queries on +603 2723 2020. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. Please note that this report was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not regulated by the FSA or in respect of which the protections of the FSA for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. Any Nielsen Media Research material contained in this report represents Nielsen Media Research's estimates and does not represent facts. NMR has neither reviewed nor approved this report and/or any of the statements made herein. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Copyright 2011 CREDIT SUISSE AG and/or its affiliates. All rights reserved. ASIA/PACIFIC: +852 2101-6000 EUROPE: +44 (20) 7888-8888 UNITED STATES OF AMERICA: +1 (212) 325-2000
