See important disclosures at the end of this report Powered by EFA TM Platform 1 Regional Daily, 15 May 2014 5 Regional Daily Ideas Troika Top Stories Samart Corp PCL [SAMART TB] Pg3 SAMART’s 1Q14F net profit came in at THB403m (+15% y-o-y), in line with our and consensus’s estimates, driven mainly by higher smartphone sales of 729,777 units (+91% y-o-y) and higher ASP of THB 2,926 (+16% y-o-y) Communications - Telecommunications BUY THB19.80 TP: THB24.00 Mkt Cap : USD611m Analyst: Kannika Siamwalla, CFA ([email protected]) First Resources [FR SP] Pg4 First Resources’ 1Q results were in line, making up 19% of our full year forecast. Earnings were down 31% yoy due to very strong FY13 and thinning refining margin in Indonesia. Production growth at 13% was still sharply better than our conservative 3%. Maintain Buy. Agriculture - Plantation BUY SGD2.53 TP: SGD2.86 Mkt Cap : USD3,201m Analyst: Alvin Tai, CFA ([email protected]) Airports of Thailand [AOT TB] Pg5 AOT’s 1HFY14 core earnings, which grew by 33% y-o-y came in line with ours but ahead of consensus. Revenue growth outpaced costs which came in flattish. We raise earnings slightly by 3.2-3.3.% for FY14-FY16. Maintain BUY at a higher FV of THB243. Transport - Aviation BUY THB192 TP: THB243 Mkt Cap : USD8,438m Analyst: Ahmad Maghfur Usman ([email protected]) Tencent [700 HK] Pg6 Tencent’s CNY5.2b 1Q14 non-GAAP earnings (+18% q-o-q, +29% y-o-y) beat street consensus by 10%. We adjusted our FY14/15/16 non-GAAP earnings by -1.7%/+6.6%/+10.2% on higher overall margins, offset by lower revenue of ecommerce business. Technology - Software & Services BUY HKD514 TP: HKD694 Mkt Cap : USD1.2bn Analyst: Yujie Li ([email protected]) Other Key Stories Indonesia Tower Bersama Infrastructure [TBIG IJ] Pg7 Good Growth Momentum Communications BUY IDR6,825 TP: IDR8,000 Analyst: Lim Tee Yang, CFA ([email protected]) XL Axiata [EXCL IJ] Pg8 Pushing Through Merger Benefits Communications - Telecommunications NEUTRAL IDR5,225 TP: IDR4,700 Analyst: Jeffrey Tan ([email protected]) Malaysia Axiata Group [AXIATA MK] Pg9 Short-Term Pain For XL Communications - Telecommunications NEUTRAL MYR6.96 TP: MYR6.65 Analyst: Lim Tee Yang, CFA ([email protected]) Tan Chong [TCM MK] Pg10 A Bumpy Ride Ahead Consumer Cyclical - Auto & Autoparts NEUTRAL MYR5.59 TP: MYR5.60 Analyst: Alexander Chia ([email protected]) Singapore Golden Agri [GGR SP] Pg11 Decent Showing Despite Weaker Downstream Agriculture - Plantation BUY SGD0.61 TP: SGD0.66 Analyst: Alvin Tai, CFA ([email protected])
Transcript
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Platform 1
Regional Daily, 15 May 2014
5
Regional Daily
Ideas Troika
Top Stories Samart Corp PCL [SAMART TB] Pg3 SAMART’s 1Q14F net profit came in at THB403m (+15% y-o-y), in line with
our and consensus’s estimates, driven mainly by higher smartphone sales of 729,777 units (+91% y-o-y) and higher ASP of THB 2,926 (+16% y-o-y)
First Resources [FR SP] Pg4 First Resources’ 1Q results were in line, making up 19% of our full year forecast. Earnings were down 31% yoy due to very strong FY13 and thinning refining margin in Indonesia. Production growth at 13% was still sharply better than our conservative 3%. Maintain Buy.
Airports of Thailand [AOT TB] Pg5 AOT’s 1HFY14 core earnings, which grew by 33% y-o-y came in line with ours but ahead of consensus. Revenue growth outpaced costs which came in flattish. We raise earnings slightly by 3.2-3.3.% for FY14-FY16. Maintain BUY at a higher FV of THB243.
Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F
Total turnover (THBm) 19,767 16,733 22,315 28,323 29,652
Reported net profit (THBm) 836 1,084 1,468 1,941 2,096
Recurring net profit (THBm) 836 1,084 1,468 1,941 2,096
Recurring net profit growth (%) 33.1 29.6 35.5 32.2 8.0
Recurring EPS (THB) 0.85 1.10 1.47 1.94 2.09
DPS (THB) 0.75 0.61 0.81 0.97 1.05
Recurring P/E (x) 23.3 18.1 13.4 10.2 9.5
P/B (x) 4.16 3.63 3.15 2.73 2.38
P/CF (x) na 4.4 9.5 19.3 11.3
Dividend Yield (%) 3.8 3.1 4.1 4.9 5.3
EV/EBITDA (x) 12.2 11.8 8.3 7.2 7.0
Return on average equity (%) 18.4 21.5 25.1 28.6 26.9
Net debt to equity (%) 124.8 120.9 94.9 91.4 82.2
Our vs consensus EPS (adjusted) (%) 0.0 0.0
Source: Company data, RHB estimates
Samart’s 1Q14 earnings of THB403m (+9% q-o-q) made up 20% of our full-year forecast, on the back of higher smartphone sales volume. Its ICT solutions unit reported flat earnings growth due to a lack of mega projects in the pipeline. However, we continue to like Samart given rising popularity of smartphones, which currently have a low penetration rate of c.40% in Thailand. BUY, with a TP of THB24.
1Q14F net profit improves. Samart Corp (Samart)’s 1Q14F net profit
came in at THB403m (+15% y-o-y, +9% q-o-q), at 20% of our full-year forecast. Sales improved to THB6.3bn (+20% y-o-y), driven mainly by higher smartphone sales of 729,777 units (+91% y-o-y). Operating profit increased at a slower pace to THB739m (+5% y-o-y), as the company tried to reduce its inventory levels via promotional sales. Meanwhile, interest expenses dropped significantly by 15% y-o-y to THB106m, as the company repaid loan from its ICT solutions business unit.
Robust business for Samart I-Mobile (SIM TB, NR). Samart’s 1Q14 total handset sales volume was around 1m units (+20% y-o-y), while its ASP rose to THB2,926 in 1Q14 from THB2,515 in 1Q13, driven by higher smartphone sales volume. Note that Samart’s total handsets sold increased 20% y-o-y in 1Q14, even as the industry sold 2% fewer handsets annually. Meanwhile, its mobile virtual network operator business incurred a loss of c.THB20m in 1Q14, which is an improvement from a loss of THB100m in 2013.
ICT unit sees flat earnings growth. The company recorded flat
earnings growth for its information and communications technology (ICT) unit, Samart Telcoms (SAMTEL TB, NR). Sales declined to THB2bn in 1Q14 (-10% q-o-q) as the company has already completed most of its 3G network installation projects in 2013. However, Samart Telcoms reported a 1Q14 net income of THB210m (+5% q-o-q) on the back of lower interest expenses. Its orderbook stood at THB6.6bn at end-1Q14 as it booked c.THB2bn revenue and signed new projects worth c.THB1.1bn in 1Q14. Its management has guided that the results of the THB3.4bn advanced passenger processing system (APPS) project and the THB2.5bn common use terminal equipment system (CUTE II) project will be announced in May-June this year.
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Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F
Total turnover (USDm) 495 603 626 743 750
Reported net profit (USDm) 196 308 238 229 279
Recurring net profit (USDm) 169 271 222 229 279
Recurring net profit growth 59.8% 60.4% (18.2%) 2.9% 22.1%
Recurring EPS (USD) 0.12 0.18 0.14 0.14 0.18
DPS (USD) 0.04 0.04 0.05 0.05 0.05
Recurring P/E (x) 17.5 11.5 14.4 14.0 11.5
P/B (x) 3.35 2.83 3.22 2.78 2.35
P/CF (x) 16.8 11.7 12.7 12.7 9.7
Dividend Yield 1.7% 2.0% 2.2% 2.4% 2.6%
EV/EBITDA (x) 11.0 8.7 10.5 10.0 8.2
Return on average equity 24.6% 30.9% 22.7% 21.3% 22.2%
Net debt to equity 15.0% 11.5% 20.9% 14.9% 5.1%
Our vs consensus EPS (adjusted) (3.8%) 2.4%
Source: Company data, RHB estimates
We continue to like First Resources although we no longer have it as our sector Top Pick. It should do only marginally better this year due to last year’s fantastic performance. Although the company has more than 90% of production from Sumatra, which was hit by drought, we have already factored in an ultra-conservative production growth number. Based on this, it is still inexpensive and still warrants a BUY.
Results in line. First Resources’ 1Q14 core earnings came in at
USD43.9m, which made up 19.2% of our full-year forecast and 18.8% of consensus. We deem the results in line.
Worse y-o-y performance. While most plantation companies reported
strong double-digit gain in 1Q earnings, First Resources’ was by a massive 31.0%. This was due to two main factors: i) refining margin is now much worse than in 1Q13 due to the new refining capacity in Indonesia, and ii) it did unusually well last year due to having the benefits of high-priced forward sale. Hence, this year, First Resources’ upstream business experienced a 15.4% y-o-y decline in profit. We do, however, expect its earnings to gradually catch up over the course of the year.
Drought concern. Sumatra’s prolonged drought last year is a cause for
concern as it should impact production this year and First Resources has more than 90% of its production in Sumatra. Our FY14 earnings forecast has factored in a very conservative production growth of just 3% vs management guidance of 5-10% growth and 1Q production growth of 13.1%. Having factored in these conservatism, it is still trading at inexpensive P/Es of 14.0x and 11.5x forward.
Maintain BUY. We are keeping our forecast unchanged as well as FV of
SGD2.86 based on 16x CY14 earnings. We maintain that First Resources is still a “must-have” plantation stock despite it no longer being our sector Top Pick.
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Platform 5
Results Review, 15 May 2014
Airports of Thailand (AOT TB) Buy (Maintained) Transport - Aviation Target Price: THB243
Market Cap: USD8,438m Price: THB192
Resilient Numbers As Costs Improves
Macro
3.00
Risks
1.00
Growth
3.00
Value
2.00
94
106
117
129
141
152
164
120
140
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180
200
220
240
Airport of Thailand (AOT TB)Price Close Relative to Stock Exchange of Thailand Index (RHS)
Forecasts and Valuations Sep-12 Sep-13 Sep-14F Sep-15F Sep-16F
Total turnover (THBm) 30,405 36,810 41,597 49,545 57,495
Reported net profit (THBm) 6,500 16,347 14,749 18,854 22,647
Recurring net profit (THBm) 6,889 10,386 14,749 18,854 22,647
Recurring net profit growth (%) 71.9 50.8 42.0 27.8 20.1
Recurring EPS (THB) 4.8 7.3 10.3 13.2 15.9
DPS (THB) 1.80 2.91 4.13 5.28 6.34
Recurring P/E (x) 39.7 26.3 18.5 14.5 12.1
P/B (x) 3.52 2.99 2.72 2.45 2.18
P/CF (x) 17.0 13.3 14.6 11.9 10.0
Dividend Yield (%) 0.9 1.5 2.2 2.8 3.3
EV/EBITDA (x) 18.1 12.7 10.9 8.6 7.4
Return on average equity (%) 8.7 19.3 15.4 17.8 19.1
Net debt to equity (%) 31.9 2.7 net cash net cash net cash
Our vs consensus EPS (adjusted) (%) 21.5 30.0 30.7
Source: Company data, RHB estimates
AOT’s commendable 1HFY14 core earnings, which grew by 33% y-o-y came in line ours but ahead of consensus. Revenue growth outpaced costs which came in flattish, thanks to its improved operating efficiency and economies of scale achieved. We raise earnings slightly by 3.2-3.3.% for FY14-FY16. This raises our FV to THB243 premised at 13x EV/EBITDA. With 26% upside, we maintain our BUY call.
Within but ahead of consensus. Airports of Thailand (AOT)’s 1HFY14
core earnings of THB7.4bn (YTD: +33%) were in line ours (at 51% of full year forecast) but exceeded consensus (at 61% of full year forecast). AOT only recorded a 2% YTD increase passenger service charge revenue due to the slowdown in passenger growth of 5% YTD which was caused by the political turmoil in Bangkok. However, thanks to the aggressive expansion of low cost carriers and the lower discount on aircraft landing charges at Don Mueang (where discounts were reduced to 20% from 30% last year), its landing and parking revenue saw a strong increase of 22.5% YTD, thus lifting total revenue by 8% YTD.
Costs remain flat. With its revenue growing 8% YTD, AOT’s operational
costs came in marginally lower (YTD: -0.1%) as a result to economies of scale and improved operational efficiencies and cost management, which would have likely led to the drop in utilities expense (YTD: -2%). The improved employee productivity, which is the biggest cost component only increased by 2% YTD. As a result core net margin expanded to 37.5% (from 30.4%).
Forecasts. As of 1HFY14, passenger only grew by 5% YTD, while
aircraft movement has grown by 15%. We reduce passenger growth forecast to 7% (from 10.4%) but raise aircraft movement growth to 16.2% (from 11.3%) due to the ongoing expansion of low cost carriers. We see the upcoming commencement of Thailand’s first long haul low cost carrier, Thai AirAsia X, to give boost to passenger numbers moving forward. We have also lowered personnel and utilities expenses as these came below our forecast. All in, earnings for FY14-FY16 are raised by 3.2%-3.3%.
BUY maintained. We roll over earnings horizon 12 months forward and
raise our FV to THB243 (from THB226) which is slightly lower than our DCF valuation of THB247 (based on a WACC of 9.2%). Our FV is premised at 13x EV/EBITDA (from 14x earlier).
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Forecasts and Valuations Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F
Total turnover (CNYm) 43,894 60,437 80,929 100,442 120,769
Reported net profit (CNYm) 12,732 15,502 22,168 29,718 36,885
Recurring net profit (CNYm) 14,287 17,063 22,913 33,168 41,053
Recurring net profit growth (%) 30.7 19.4 34.3 44.8 23.8
Recurring EPS (CNY) 7.8 9.3 12.5 18.1 22.4
DPS (CNY) 0.81 0.79 1.13 1.51 1.87
Recurring P/E (x) 52.8 44.4 33.1 22.9 18.5
P/B (x) 18.0 12.9 10.1 7.5 5.7
P/CF (x) 34.5 26.0 20.3 16.2 13.4
Dividend Yield (%) 0.2 0.2 0.3 0.4 0.5
EV/EBITDA (x) 19.0 13.8 12.3 10.5 9.0
Return on average equity (%) 35.8 30.8 33.1 33.7 31.4
Net debt to equity (%) net cash net cash net cash net cash net cash
Our vs consensus EPS (adjusted) (%) 15.2 31.0 62.2
Source: Company data, RHB estimates
Tencent’s CNY5.2bn 1Q14 non-GAAP earnings beat street consensus by 10% with revenue in line. We adjust our FY14/15/16 non-GAAP earnings by -1.7%/+6.6%/+10.2% on higher overall margins, offset by lower revenue from its e-commerce business. Our new HKD694.00 TP (from HKD638.50) comprises: i) Weixin at HKD135/share, ii) the rest of its businesses at HKD539.00/share based on 1.0x PEG, and iii) net cash of HKD20.00. Maintain BUY. Earnings beat. 1Q14 revenue of CNY18.4bn (+8% q-o-q, +36% y-o-y)
was in line with street and our estimates. 1Q14 non-generally accepted accounting principles (GAAP) profit of CNY5.2bn (+18% q-o-q; +29% y-o-y vs our CNY5.3bn estimate) beat street consensus by 10% with non-GAAP profit margin of 28.2% (+1.7ppts q-o-q) vs 26% (consensus). Internet valued-added services (IVAS), advertising and e-commerce revenue increased by 35%, 38% and 32% y-o-y respectively. Total game revenue grew by 22.6% q-o-q with mobile game topline jumping by 200% q-o-q to CNY1.8bn. Weixin and WeChat saw robust growth in combined monthly active users (MAU) of 396m (+11.5% q-o-q).
Revenue cut with higher margins. We cut our FY14F/15F/16F revenue
by 4.4%/11.1%/14.9% mainly on management guidance that e-commerce revenue should decrease over time as its focus would be on its cooperation with JD.com. We also revise upwards value-added services (VAS) and others revenue but cut its advertising topline. Since e-commerce has the lowest GPM of 4% vs overall GPM of 58% in 1Q14, the lower revenue contribution from e-commerce should boost FY14F/15F/16F GPM to 57.3%/60.6%/61.8% in our forecast. As a result, the FY14F/15F/16F non-GAAP earnings are adjusted by -1.7%/+6.6%/+10.2%.
Maintain BUY with higher HKD698TP (from HKD638.5). This is based on the SOP methodology. We value: i) Weixin (based on Weixin payment only) at the same HKD135.00/share (CNY195.5bn) – based on 8x FY17F price/sales (a 27% premium to the transaction multiple of eBay’s acquisition of PayPal in FY02) on FY17F revenue of CNY34.3bn, ii) the rest of its business at HKD539.00/share (from HKD483/share), based on the same 1.0x PEG (FY13-16 non-GAAP EPS CAGR of 34.2%) vs its peers 0.6x on its market-leading position, and iii) net cash of HKD20.00/share. Our TP implies a 44x FY14F P/E. Maintain BUY.
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Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F
Total turnover (IDRbn) 970 1,715 2,691 3,432 4,006
Reported net profit (IDRbn) 474 842 1,248 1,505 1,867
Recurring net profit (IDRbn) 389 667 1,266 1,505 1,867
Recurring net profit growth (%) 188.7 71.7 89.7 18.9 24.0
Recurring EPS (IDR) 92 145 268 314 389
DPS (IDR) 25.0 0.0 60.0 72.2 89.5
Recurring P/E (x) 74.2 47.1 25.5 21.7 17.5
P/B (x) 12.4 8.0 8.2 6.4 5.0
P/CF (x) 55.8 24.6 17.8 17.1 13.1
Dividend Yield (%) 0.4 0.0 0.9 1.1 1.3
EV/EBITDA (x) 44.3 29.6 20.5 17.1 15.1
Return on average equity (%) 20.4 25.9 31.3 33.0 31.8
Net debt to equity (%) 105.7 188.7 294.5 240.0 190.8
Our vs consensus EPS (adjusted) (%) 5.3 4.6
Source: Company data, RHB estimates
TBIG’s 1Q14 results were generally in line with our and consensus expectations. Sequential revenue growth saw continued momentum in 1Q, while EBITDA margin held steady. We maintain our view that there is still upside for TBIG, given its now cheaper valuations compared to its peer, Sarana Menara (TOWR, BUY, TP: IDR3,950), which has risen sharply. Maintain BUY.
Within expectations. Tower Bersama Infrastructure (TBIG)’s 1Q14
EBITDA of IDR640bn (+26.7% y-o-y) accounted for 23% and 24% of our and consensus full-year estimates respectively. No dividends were declared.
Growth momentum intact. Q-o-q, revenue grew 6.2%, which is still
relatively commendable despite 1Q typically being a slow quarter, given that the average run rate of sequential revenue growth in FY13 was 6.2%. The relatively strong sequential revenue growth in 1Q comes on the back of higher sequential tenancy growth of 723 (4Q: +420), which we believe may have been due to a backlog of orders unfulfilled in 4Q13. 1Q EBITDA margin was steady at 82.0% (4Q13: 82.1%). But due to a higher effective tax rate, 1Q core earnings fell 28.7% q-o-q to IDR205bn.
Forecasts. We make no change to our earnings forecasts.
Investment case. We maintain BUY on TBIG (our top pick in the tower
infrastructure sector), with a revised TP of IDR8,000 (previously IDR7,250), based on an unchanged target EV/EBITDA multiple of 16x to our FY15 EBITDA estimate of IDR3.21trn. We still like TBIG for its higher revenue exposure to major telecom operators as well as a greater proportion of its tower portfolio in densely-populated areas, which would fuel earnings growth going forward. Our target EV/EBITDA multiple is comparable to peers in developed markets that are trading at 15-17x, which we believe is justified given the strong growth prospects for the Indonesian tower market.
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Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F
Total turnover (IDRbn) 18,263 20,970 21,267 23,421 25,153
Reported net profit (IDRbn) 2,833 2,767 1,034 717 1,396
Recurring net profit (IDRbn) 3,171 2,880 1,810 717 1,396
Recurring net profit growth (%) 4.3 (9.2) (37.2) (60.4) 94.5
Recurring EPS (IDR) 373 338 213 84 164
DPS (IDR) 130 135 64 35 61
Recurring P/E (x) 14.0 15.4 24.6 62.0 31.9
P/B (x) 3.25 2.89 2.91 2.87 2.68
P/CF (x) 5.19 4.70 6.07 5.80 5.36
Dividend Yield (%) 2.5 2.6 1.2 0.7 1.2
EV/EBITDA (x) 5.04 5.23 5.86 6.04 5.09
Return on average equity (%) 22.3 19.0 6.7 4.7 8.7
Net debt to equity (%) 71.0 82.8 107.9 100.8 77.1
Our vs consensus EPS (adjusted) (%) (7.3) (5.2)
Source: Company data, RHB estimates
XL’s results, factoring in the loss-making Axis, were broadly in line. The price optimisation initiatives halted the decline in voice revenue but data monetisation remains a key challenge. Its earnings prospect hinges on the extent of revenue/cost synergies to be realised from the merger, with EPS accretion seen only in FY16. FV is raised to IDR4,700 as we now model in lower capex for FY15. NEUTRAL maintained.
Broadly in line. XL Axiata (XL)’s EBITDA accounted for 106% of
our/consensus estimates when annualised. Note the 12 days contribution from loss-making Axis (IDR64bn loss) for the quarter (acquisition completed on 19 March), which distorted below the line assessment. We expect the bulk of integration-related costs to flow through from 2Q14.
Key highlights. Mobile revenue was up 8.4% y-o-y, driven by the 30%
increase in non-SMS data and the resumption of voice revenue growth after four consecutive quarters of y-o-y declines. The positive voice traction was the result of price optimisation efforts implemented since 2H13. The fact that non-voice revenue growth continued to lag usage (+180% y-o-y) implies that data monetisation remains an uphill battle.
Outlook. XL’s earnings prospects will be dictated by revenue/cost
synergies to be extracted from the merger. The guidance on revenue growth (low teens), EBITDA margin (mid-30s) and capex (around IDR7trn) for FY14 have been reaffirmed as with the two year window (FY16) for merger to be EPS accretive. With additional 1.8GHz spectrum and the improvement in network quality, there is room for XL to exercise greater leverage on price-points, in our view.
Forecast and risks. We make no change to our FY14 forecast. FY15
EPS is increased by 15% as we now project capex to fall to IDR5trn from IDR6trn, resulting in lower depreciation expense. The earnings risks are: i) the pace of cost synergies realised and ii) higher-than-expected competition.
NEUTRAL. Investors should take some profit from recent share price
gains. The earnings upgrade for FY15 bumps up our FV to IDR4,700 (from IDR4,400), premised on 5.2x EV/EBITDA and 16x FY15 EPS.
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Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F
Total turnover (MYRm) 16,290 17,652 18,371 19,453 20,202
Reported net profit (MYRm) 2,346 2,513 2,550 2,695 2,932
Recurring net profit (MYRm) 2,539 2,784 2,761 2,695 2,932
Recurring net profit growth (%) (2.8) 9.7 (0.8) (2.4) 8.8
Recurring EPS (MYR) 0.30 0.33 0.32 0.31 0.34
DPS (MYR) 0.19 0.23 0.22 0.25 0.29
Recurring P/E (x) 23.2 21.3 21.6 22.1 20.2
P/B (x) 2.98 2.95 3.04 2.82 2.75
P/CF (x) 10.2 8.7 8.6 7.8 8.7
Dividend Yield (%) 2.7 3.3 3.1 3.6 4.2
EV/EBITDA (x) 6.97 6.83 6.73 6.87 6.40
Return on average equity (%) 12.2 12.6 12.8 13.2 13.8
Net debt to equity (%) 22.3 21.6 32.8 32.7 30.4
Our vs consensus EPS (adjusted) (%) (3.4) (4.5)
Source: Company data, RHB estimates
XL’s 1Q results were broadly in line. We raise Axiata’s FY15F EPS by 1.4% following lower capex assumptions at XL, which results in lower depreciation charges. We also tweak Axiata’s FV marginally to MYR6.65 (previously MYR6.60) following a sight revision in XL’s FV to IDR4,700 from IDR4,400. As Axiata’s short-term earnings outlook remains clouded by the XL-Axis merger, we maintain NEUTRAL on Axiata.
NEUTRAL, FV: IDR4,700), posted a 1Q14 core net loss of IDR15bn. However, we note that its 1Q core earnings include an IDR232bn realised forex loss from USD debt hedging. Excluding this forex loss, XL’s 1Q would have been broadly in line with expectations.
1.1% q-o-q (4Q13: -1.1%), as stronger data growth of 5.6% (4Q13: +4.3%) mitigated a seasonally slower quarter for voice (-4.6%) and short message service (SMS) (-2.1%). Q-o-q, while EBITDA fell only 1.2 ppts to 39.9%, XL recorded a core net loss of IDR15bn due to an IDR232bn realized forex loss from USD debt hedging.
Outlook. XL’s 1Q14 only reflects 12 days of consolidated financials, with
losses from Axis estimated at IDR64bn over that period. The real extent of losses at Axis (for a full quarter) is still uncertain. Still, management reiterated its guidance that the XL-Axis merger will be earnings-accretive by FY16. XL now has control of Axis’ spectrum, and has begun early efforts to improve voice quality at congested areas, which should help pricing power. Management maintained its EBITDA margin guidance in the mid-30s, and expects some cost reduction in 2H upon fully integrating both networks by year-end.
Forecasts. We increase Axiata’s FY15F EPS by 1.4% following a 15%
upgrade in XL’s FY15 EPS. We make no change to FY14F EPS.
Investment case. We maintain NEUTRAL on Axiata but tweak our SOP-
based FV to RM6.65. Axiata’s FY14 earnings growth outlook remains cloudy due to: i) XL’s continued challenges in monetising data, and ii) XL’s earnings dilution following its acquisition of Axis. We expect to see a meaningful earnings recovery for Axiata only in FY15.
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Platform 10
Results Review, 15 May 2014
Tan Chong (TCM MK) Neutral (Maintained) Consumer Cyclical - Auto & Autoparts Target Price: MYR5.60
Market Cap: USD1,128m Price: MYR5.59
A Bumpy Ride Ahead
Macro
2.00
Risks
2.00
Growth
3.00
Value
3.00
80
84
88
92
96
100
104
108
112
116
120
5.2
5.4
5.6
5.8
6.0
6.2
6.4
6.6
6.8
7.0
7.2
Tan Chong Motor (TCM MK)Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS)
Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F
Total turnover (MYRm) 3,860 4,088 5,198 5,579 5,958
Reported net profit (MYRm) 216 166 251 303 353
Recurring net profit (MYRm) 216 166 251 303 353
Recurring net profit growth (%) (5.9) (23.3) 51.4 20.9 16.5
Recurring EPS (MYR) 0.33 0.25 0.38 0.46 0.54
DPS (MYR) 0.09 0.09 0.16 0.19 0.22
Recurring P/E (x) 16.9 22.0 14.5 12.0 10.3
P/B (x) 1.98 1.86 1.35 1.24 1.14
P/CF (x) 21 271 na 7 8
Dividend Yield (%) 1.6 1.6 2.8 3.4 3.9
EV/EBITDA (x) 10.6 13.6 10.1 8.3 7.3
Return on average equity (%) 12.3 8.7 10.7 10.7 11.5
Net debt to equity (%) 25.7 39.7 42.2 33.5 27.7
Our vs consensus EPS (adjusted) (%) 0.0 0.0
Source: Company data, RHB estimates
1Q14 earnings disappointed on the back of weaker domestic sales volumes, higher depreciation costs, unfavourable exchange rates and start-up costs in regional markets combined with negative operating leverage leading to margin erosion. We slash our 2014/15 earnings forecasts by 14.1%/13.6% respectively and lower FV to MYR5.60. We prefer Berjaya Auto (BAUTO MK, BUY, FV: MYR2.55). Stay NEUTRAL.
Tepid 1Q14. Tan Chong reported tepid 1Q14 earnings. Revenue fell
6.9% and 12.3% q-o-q and y-o-y respectively to MYR1.26bn. This was on the back of weaker domestic Nissan and Renault volume sales that
declined 10.9% q-o-q and 18.7% y-o-y to 11,976 units. EBIT margin for the quarter fell to 5.7% vs 7.9% in 4Q13 (1Q13: 8.9%). Net profit for the
quarter fell 38.9% q-o-q and 50.7% y-o-y to MYR41.5m. Earnings for the quarter were below expectations, reaching just 14% of our previous
estimate and 13% of consensus forecast. Margin compression was due to a combination of factors, including negative operating leverage
resulting from the decline in sales volume. Tan Chong also suffered from higher depreciation costs arising from the Danang plant in Vietnam,
higher average JPY/MYR exchange rates and ongoing start-up losses in Indo-China. Domestically, management also reports higher marketing
costs as a result of a more competitive trading environment.
Challenging outlook. Tan Chong’s Indo-China business is not expected to break even until 2015. Nissan sales should pick up in 2H14, helped by
the launch of the new C-segment Sylphy (April) and D-segment Teana (June). Competition in the B-segment is increasingly fierce, with the
recent introduction of the Toyota Vios and Honda City. The completely knocked down (CKD) Serena Hybrid is scheduled for launch later this
year, while the promising Note Hatchback will only arrive in 2015.
Risks and forecasts. The key risks are weaker-than-expected consumer discretionary spending and continued losses in Indo-China. Our 2014
and 2015 forecasts are lowered by 14.1% and 13.6% respectively after cutting our volume forecasts and margin assumptions.
Investment case. Macro conditions for consumer spending on big-ticket
items will remain difficult. Competition among the Big Three non-national players will remain stiff.
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Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F
Total turnover (USDm) 5,953 6,052 6,585 7,396 8,088
Reported net profit (USDm) 1,268 410 311 380 436
Recurring net profit (USDm) 586 404 317 380 436
Recurring net profit growth 46.8% (31.0%) (21.7%) 19.9% 14.8%
Recurring EPS (USD) 0.05 0.03 0.02 0.03 0.03
DPS (USD) 0.01 0.01 0.01 0.01 0.01
Recurring P/E (x) 10.1 15.1 19.8 16.5 14.4
P/B (x) 0.74 0.73 0.72 0.71 0.69
P/CF (x) 9 18 341 116 16
Dividend Yield 2.9% 2.0% 1.1% 1.4% 1.6%
EV/EBITDA (x) 7.1 8.9 12.0 12.3 11.3
Return on average equity 17.1% 4.9% 3.6% 4.3% 4.9%
Net debt to equity 9.0% 13.6% 22.7% 32.2% 35.4%
Our vs consensus EPS (adjusted) (13.0%) (8.3%)
Source: Company data, RHB estimates
Golden Agri’s 1Q core earnings beat expectations, making up 26.5% of our full-year forecast and 23.7% of consensus. The stronger upstream performance was offset by weaker downstream margin. We are maintaining our BUY call on the stock as it is the sector proxy and a proxy to Indonesia’s rising palm oil consumption.
Another good quarter. Following a strong 4QFY13, Golden Agri
delivered another set of commendable results, with core earnings coming in at USD100.7m. This made up 26.5% of our forecast and 23.7% of consensus, which we deem better than expected. Against 1QFY13 which made up 35.6% of full-year earnings, 1QFY14 compared poorly. This was due to sharply weaker refining margin with the onset of massive new refining capacity in Indonesia.
The key forecast items. Realised CPO price of USD856/tonne was
higher than our assumption of USD844/tonne, while cash cost was lower at USD290/tonne vs our assumption of USD320. The lower cost was due to lower fertiliser price, lower fertiliser application and depreciation of the IDR against the USD. The volume of fertiliser used was lower than normal due to the extreme dryness from January to February, which resulted in the holding back of fertiliser application.
Production. The company’s nucleus production growth of 5.8% y-o-y
was slightly better than our assumption of 4.4%. Management is sticking to its 5 – 10% guidance for now but admits that the outlook is not clear. We believe our assumption is sufficiently conservative for now.
Forecast and FV. No change to our SGD0.66 FV as we are keeping our
forecast unchanged. Extreme negative weather notwithstanding, Golden Agri should experience an improvement in yield given the larger proportion of prime mature area this year (51% vs 47% last year).
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Platform 12
Results Review, 14 May 2014
Mencast Holdings (MCAST SP) Buy (Maintained) Energy & Petrochemicals - Oil & Gas Services Target Price: SGD0.76
Market Cap: USD143m Price: SGD0.60
Record Orderbook Promises Growth
Macro
2.00
Risks
2.00
Growth
3.00
Value
3.00
95
102
108
115
122
128
135
0.40
0.45
0.50
0.55
0.60
0.65
0.70
Mencast Holdings (MCAST SP)Price Close Relative to Straits Times Index (RHS)
Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F
Total turnover (SGDm) 56 84 99 137 162
Reported net profit (SGDm) 10.2 13.2 15.7 20.5 25.7
Recurring net profit (SGDm) 10.2 10.6 10.4 18.6 24.0
Recurring net profit growth (%) 20.4 3.9 (2.6) 79.6 29.0
Recurring EPS (SGD) 0.05 0.04 0.04 0.06 0.08
DPS (SGD) 0.01 0.01 0.02 0.02 0.02
Recurring P/E (x) 13.0 14.8 16.7 9.5 7.4
P/B (x) 2.46 1.92 1.70 1.52 1.29
P/CF (x) 18.4 12.1 29.3 7.0 5.0
Dividend Yield (%) 1.6 1.6 4.0 2.5 3.3
EV/EBITDA (x) 12.2 13.4 15.4 9.8 7.5
Return on average equity (%) 21.0 18.1 16.3 18.7 20.3
Net debt to equity (%) 52.3 45.2 98.3 112.6 105.6
Our vs consensus EPS (adjusted) (%) 0.0 0.0
Source: Company data, RHB estimates
1Q14 earnings were 9.6% of our FY14F forecast, but this was expected, as new facilities will only begin production in 2Q14. Core margins improved as higher utilisation of facilities offset increased depreciation; we expect this to continue in the coming quarters. Its record orderbook of SGD42.8m, up from SGD33.5m, should sustain these core improvements. Maintain BUY with our SGD0.76 TP unchanged based on 12x FY14F P/E.
1Q14 only appears to be under expectations. Mencast’s 1Q14
earnings met 9.6% of our FY14F forecast, which looks like a miss at first glance. However, note that the facility at 42B Penjuru Road will only begin operations in 2Q14, and should drive earnings growth to make up the difference in the coming quarters.
Margins improve even as increased depreciation takes its toll. Even
as depreciation more than doubled to SGD2.8m in 1Q14 from SGD1.3m in 1Q13 (due to the completion of new facilities and increased overheads from its newly-acquired subsidiaries), Mencast’s gross margin showed an uptick to 27.5% from 25.0% in 4Q13. Its core net margin also jumped to 6.4% from 3.3% over the same period.
Record orderbook promises growth. Mencast’s orderbook of
SGD42.8m hit a new record, up 28% q-o-q. As more than half of the company’s business is orderbook-driven, this indicates management’s confidence in taking in new orders with its new facilities now ready, implying potential growth ahead.
Keeping Big Hairy Audacious Goal (BHAG) in sight; maintain BUY.
At current growth rates, Mencast is well on track to hit its BHAG of SGD50m bottomline by FY20. Although valuations are not as low as some of the other companies under our coverage, and its balance sheet is looking slightly stretched due to the rapid pace of growth and acquisitions in recent years, we believe that management will continue to deliver, making it a strong candidate for long-term investment. Maintain BUY, with our SGD0.76 TP based on a 12x FY14F P/E, slightly higher than the 10x we usually use, due to the strong recurring nature of Mencast’s income.
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Platform 13
Sector News Flash, 15 May 2014
Industrial Estate Neutral
Amata Showed Strongest Profit Growth In 1Q14
Macro
3
Risks
3
Growth
1
Value
2
Industrial estate developers
FYE Dec (THBm) 1Q13 4Q13 1Q14
y-o-y
(%)
q-o-q
(%)
Revenue
AMATA 1,131 1,794 2,024 79% 13%
HEMRAJ 2,045 2,449 2,829 38% 16%
Total 3,176 4,243 4,853 53% 14%
EBITDA
AMATA 309 538 782 153% 45%
HEMRAJ 826 1,096 1,189 44% 8%
Total 1,135 1,634 1,971 74% 21%
Net profit
AMATA 130 75 433 233% 477%
HEMRAJ 902 2,233 1,042 16% -53%
Total 1,032 2,308 1,475 43% -36%
EBITDA margin (%)
AMATA 27% 30% 39%
HEMRAJ 40% 45% 42%
Net margin (%)
AMATA 11% 4% 21%
HEMRAJ 44% 91% 37%
Source: Company data, RHB estimates
Developers of factories/warehouses for rent
FYE Dec (THBm) 1Q13 4Q13 1Q14
y-o-y
(%)
q-o-q
(%)
Revenue
TICON 286 4,834 721 152% -85%
WHA 2,142 4,697 116 -95% -98%
Total 2,428 9,531 837 -66% -91%
EBITDA
TICON 356 1,790 449 26% -75%
WHA 213 1,621 113 -47% -93%
Total 569 3,411 562 -1% -84%
Net profit
TICON 255 907 144 -44% -84%
WHA 122 1,289 32 -74% -98%
Total 377 2,196 176 -53% -92%
EBITDA margin (%)
TICON 124% 37% 62%
WHA 10% 35% 97%
Net margin (%)
TICON 89% 19% 20%
WHA 6% 27% 28% Source: Company data, RHB estimates
Industrial estate developers, Amata and Hemaraj, showed decent 1Q14 results from more land transfers but we expect their performance to gradually weaken on poor YTD industrial land sales amid the political turmoil. Meanwhile, WHA & Ticon, developers of factories/warehouses for rent, will continue to show disappointing results for the next two quarters, although they will book huge profit again at end-2014 on new round of asset monetisation.
Amata Corp showed impressive 1Q14 results. The impressive results
were in terms of revenue, EBITDA and net profit as the company was able to turn almost half of the THB5.2bn backlog at end-2013 into realised revenue. Also, gross margin on industrial land sales remained healthy at 51%, which was stable q-o-q but improved sharply from only 40% in 1Q13. Both EBITDA and net margins grew y-o-y and q-o-q. 1Q14 profit of THB433m (13.5% above Bloomberg’s consensus estimates) accounted for 38% of our full-year forecast. Upsides for AMATA which have yet to be included in our forecast are: i) divestment of assets worth THB4.5bn into the new property fund, and ii) the listing of Amata Vietnam, its subsidiary. Valuation wise, AMATA is cheap, trading at 40% discount to its NAV of THB25 while its P/BV is hovering around -1SD level.
Hemaraj Land and Development’s results were modestly lower than expected. Revenue and EBITDA grew healthily mainly due to more land
transfers. Gross margin also improved both y-o-y and q-o-q. However, its bottomline growth was not that impressive due to no divestment gains as in 4Q13. 1Q14 profit of THB1.04bn (12% below Bloomberg’s consensus estimates) represented 33% of our full-year forecast. Hemaraj sold 120 rai of land in 1Q14, 7.5% of 1,600 rai targeted in 2014.
Disappointing 1Q14 results from Ticon Industrial Connection.
Despite sale of rental assets worth THB500m in 1Q14, Ticon showed disappointing net profit of THB144m, which was only half of Bloomberg’s consensus estimates. This was due to soften rental income from only 66% occupancy rate, higher financing costs and no extra gains from insurance claims. Our earnings estimates are under review.
Weak results from WHA Corp were in line. This was attributable to no
asset monetisation as in 1Q13 and 4Q13. Rental income, on the other hand, grew 21% y-o-y to THB116m, while other income, which included management fees, grew 50% y-o-y to THB33m. Net margin stood at 28%, which was stable q-o-q.
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Platform 14
Results Review, 14 May 2014
Erawan Group (ERW TB) Trading Buy (Maintained) Consumer Cyclical - Leisure & Entertainment Target Price: THB4.20
Market Cap: USD284m Price: THB3.74
Unexpected 1Q14 Profit
Macro
2.00
Risks
2.00
Growth
2.00
Value
2.00
74
82
91
99
107
116
124
2.8
3.3
3.8
4.3
4.8
5.3
5.8
The Erawan Group (ERW TB)Price Close Relative to Stock Exchange of Thailand Index (RHS)
Forecasts and Valuations Dec-11 Dec-12 Dec-13F Dec-14F
Total turnover (THBm) 3,756 4,302 4,746 4,566
Reported net profit (THBm) 491 106 610 (78)
Recurring net profit (THBm) (112) 106 (22) (78)
Recurring net profit growth (%) (59.2) na (120.6) 256.5 0.0
Recurring EPS (THB) (0.05) 0.05 (0.01) (0.03)
Recurring P/E (x) na 79.3 na na
P/B (x) 2.34 2.39 2.24 2.26
Return on average equity (%) 14.6 3.0 16.0 (1.9) 0.0
Return on average assets (%) 3.9 0.8 4.8 (0.6) 0.0
Net debt to equity (%) 168.6 178.9 123.4 117.2 0.0
Our vs consensus EPS (adjusted) (%) 0.0 0.0 0.0
Source: Company data, RHB estimates
Erawan’s weak 1Q14 earnings reflected its fragile growth profile. While the company aims to grow the economy hotel segment, its earnings continue to be volatile as luxury hotels remain its largest revenue contributor. With the hotel industry entering a low season in 2Q, we expect weak results to continue in 2Q14. Maintain TRADING BUY, as Erawan is trading at 12.5x EV/EBITDA, at its long-term mean.
1Q14 profit unexpected. Erawan Group (Erawan) posted 1Q14
earnings of THB3m (-95% q-o-q, -98% y-o-y), better than our and consensus estimates for losses. The q-o-q and y-o-y decline in earnings growth reflected a drop in occupancy rate to 65% in 1Q14 (vs 78% in 4Q13 and 85% in 1Q13), which pushed revenue per available room (RevPar) lower by 15% q-o-q and 22% y-o-y.
RevPar for luxury hotels in Bangkok slumps 38% q-o-q and 45% y-o-y. Hit by the country’s political turmoil, Erawan’s luxury hotel
operations in Bangkok (at 40% of revenue and 26% of EBITDA) posted the weakest performance with occupancy rate falling to only 47% in 1Q14 (vs 72% in 4Q13 and 82% in 1Q13), while its RevPar plummeted by 45% y-o-y. These should imply a net loss for this hotel segment. Note that the luxury hotel segment requires an occupancy rate of around 60-62% to break even.
RevPar for midscale segment slips 24% q-o-q and 22% y-o-y. The
company’s midscale hotel segment (two hotels out of three hotels) was also hit by the political impasse, but to a lesser extent than the luxury hotel segment. Occupancy rate fell to 58% in 1Q14, down from a sustainable rate of 81% in 1Q13 and 4Q13, while Revpar declined by 24% q-o-q and 22% y-o-y. Note that the midscale segment represented 18% of revenue and 20% of EBITDA.
RevPar for economy segment climbs 9% q-o-q but dips 4% y-o-y.
While the economy hotel segment was also hit by the political unrest, this was offset by its ability to adjust hotel room rates. All in, this segment proved more resilient than others and bolstered the group’s operations.
Plans to open new hotels. These include Hop Inn (200 rooms) in 3Q14,
Mercure Pattaya (210 rooms) in 4Q14, and Ibis Krabi (206 rooms) in 4Q14.
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Forecasts and Valuations Dec-11 Dec-12 Dec-13F Dec-14F Dec-15F
Total turnover (THBm) 186,096 210,729 229,120 253,500 265,200
Reported net profit (THBm) 15,568 2,740 1,326 4,269 4,673
Recurring net profit (THBm) 10,695 1,560 414 4,269 4,673
Recurring net profit growth (%) 8.3 (85.4) (73.5) 932.5 9.4
Recurring EPS (THB) 2.22 0.32 0.09 0.89 0.97
DPS (THB) 1.00 0.29 0.14 0.45 0.50
Recurring P/E (x) 11 73 275 27 24
P/B (x) 1.94 2.02 1.88 1.81 1.74
P/CF (x) 42 9 590 9 8
Dividend Yield (%) 4.2 1.2 0.6 1.9 2.1
EV/EBITDA (x) 9.8 15.0 16.5 10.2 9.8
Net debt to equity (%) 74.2 134.4 131.4 119.9 108.8
Our vs consensus EPS (adjusted) (%) 0.0 0.0 0.0
Source: Company data, RHB estimates
Indorama Ventures booked weak earnings again in 1Q14, mainly on a THB1bn inventory loss recognised during the quarter. Its USD155m EBITDA was strong, at 27% of our full-year forecast. Our current earnings estimates do not include several M&As completed or set for completion in 1H14, which should contribute positively and immediately to 2H14 cash flow and net profit. Maintain BUY and THB24.10 TP.
1Q14 net profit down. Indorama Ventures’ 1Q14 net profit fell 25% y-o-
y to THB368m, slightly higher than our preliminary estimate of THB300m. Sales increased 11% y-o-y to THB61.6bn, while operating profit surged 44% y-o-y to THB1.7bn. Total volume grew 6% y-o-y to 1.5m tonnes, as its mono-ethylene glycol (MEG) business saw smooth operations and higher production levels following a catalyst change in 2Q13. Although product prices were weaker, led by softer paraxylene (PX) prices, the company saw improved margins from its polyethylene terephthalate (PET) and fibre and yarns businesses.
Other items for 1Q14. Indorama Ventures received THB140m from
loss-of-profit insurance claims as a result of the Lopburi floods in 2011. An inventory loss of USD33m, due to a steep fall in PX prices, was recognised in 1Q14 vs inventory gains of USD11m in 1Q13.
2014 should be a better year. We expect total production to increase
10% y-o-y to 6.4m tonnes per annum (tpa). This should come from Indorama Venture’s MEG plant running at full capacity (+c.150,000 tonnes), the CP4 fibres plant in Indonesia (+c.200,000 tonnes), the Poland plant (+c.50,000 tonnes), its China operations (+c.50,000 tonnes) and existing assets (+c.200,000 tonnes). There are also no major maintenance works planned. Thus, we expect EBITDA/tonne to improve by c.USD5.00/tonne to USD90.00/tonne. Although there is little upside to the spreads, cost efficiency should help margins. Indorama Ventures’ 1Q14 EBITDA came in at USD155m (+83% y-o-y), accounting for 27% of our full-year expectation of USD570m.
EBITDA remains strong. Despite weak 1Q14 earnings (mainly due to
the THB1bn inventory loss), its EBITDA remains positive and strong. Our current earnings estimates do not include several M&As completed or set for completion in 1H14, which should contribute positively and immediately to 2H14 cash flow and net profit. Maintain BUY and THB24.10 TP.
Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F
Total turnover (THBm) 5,922 7,944 9,665 12,009 14,184
Reported net profit (THBm) 171 363 400 466 529
Recurring net profit (THBm) 171 311 400 466 529
Recurring net profit growth (%) 80.4 81.1 28.9 16.4 13.7
Recurring EPS (THB) 0.57 0.87 0.96 0.99 1.01
DPS (THB) 0.34 0.39 0.69 0.55 0.63
Recurring P/E (x) 24.3 16.0 14.5 14.1 13.8
P/B (x) 6.14 3.73 3.36 3.61 3.29
P/CF (x) 36.4 na na na 43.7
Dividend Yield (%) 2.4 2.8 5.0 4.0 4.5
EV/EBITDA (x) 14.8 11.8 14.1 10.8 10.0
Return on average equity (%) 26.4 32.6 24.4 24.8 25.0
Net debt to equity (%) 96.5 68.4 97.7 125.6 148.9
Our vs consensus EPS (adjusted) (%) 1.7 (4.8)
Source: Company data, RHB estimates
Jay Mart’s 1Q14 net profit grew 9.5% y-o-y to THB85m. While its mobile sales revenue decreased 2.5% y-o-y due to a change in revenue recognition methodology, while its debt collection and management business dropped 5.6% y-o-y. Its rental business climbed 24% y-o-y, though. We retain our FY14 earnings forecast at THB466m and maintain BUY, as the share price is 28% below our THB17.80 TP.
In line. Despite the slow 1Q14 consumer consumption levels, Jay Mart’s
earnings still increased 9.5% q-o-q to THB85m, or 19% of our full-year forecast. The higher earnings were primarily on higher sales promotional income of THB79m (+56% y-o-y) and lower mobile sales costs.
Key highlights, Revenue decreased 1.8% y-o-y to THB2.26bn, ie 20%
of our full-year forecast. Mobile sales booked a 2.5% y-o-y decrease to THB2.08bn due to the change in revenue recognition since July 2013. If the company were to adjust this change, revenue from mobile sales would have grown 7% y-o-y. Mobile phone and tablet units’ sales were estimated at 0.3m, ie 20% of our full-year forecast (1.5m units). Jay Mart’s rental business climbed 24% y-o-y to THB95m on an increase in both rental rates and areas. Its debt collection and management business booked a 5.6% y-o-y decrease to THB88m, ie the more cash the company collects, the more amortisation occurs. Net margin improved by 40bps to 3.8% (from 3.4%).
Outlook. We still have a very positive outlook on Jay Mart because of: i)
industry tailwind – the smart phone and tablet markets are estimated to grow by 30%, ii) management expects to sell 1.7m units (although our forecast is on a very conservative 1.5m), and iii) JAS Asset’s IPO in 2015.
Forecasts and risks. We retain our earnings forecast at THB466m
(+16% y-o-y). The key risks to earnings are: i) intense competition in the mobile retailer segment and ii) lower than expected consumer confidence.
BUY on weakness. While market sentiment is still depressed from its
stock dividend last month, we do recommend accumulating this counter on excessive pullback.
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Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F
Total turnover (THBm) 3,338 3,882 3,999 4,310 4,800
Reported net profit (THBm) 287 408 420 460 513
Recurring net profit (THBm) 287 407 420 460 513
Recurring net profit growth (%) 35.6 41.9 3.2 9.7 11.4
Recurring EPS (THB) 0.44 0.63 0.65 0.77 0.86
DPS (THB) 0.24 0.37 0.50 0.58 0.64
Recurring P/E (x) 19.2 13.5 13.1 11.0 9.9
P/B (x) 5.05 4.16 3.63 2.90 2.64
P/CF (x) 19.1 22.2 15.6 8.6 7.7
Dividend Yield (%) 2.8 4.4 5.9 6.8 7.6
EV/EBITDA (x) 10.9 8.7 8.8 7.2 6.4
Return on average equity (%) 27.1 33.9 29.7 28.2 28.0
Net debt to equity (%) net cash net cash net cash net cash net cash
Our vs consensus EPS (adjusted) (%) 0.0 0.0
Source: Company data, RHB estimates
Despite weakening domestic consumption, Premier Marketing posted strong results in 1Q14 with better-than-estimated earnings, thanks to improved margins. As 1Q14 represented 28% of our full-year forecast, earnings upside surprise is likely. Given consistently high profitability (ROE >30% with huge cash pile on hand), it has the cheapest valuation in the sector with P/E of only 11x. We maintain BUY at THB11.60 TP.
Better-than-estimated earnings. Premier Marketing (PM) posted 1Q14
earnings of THB130m (+14% q-o-q and +4% y-o-y), which came mainly from the recovery of its exports of canned tuna to Japan and good response to its new crispy fish snack Taro. Its 1Q14 earnings stood at 28% of our full-year forecast.
Missed topline but better margins. Given further weakening domestic
consumption, it missed its topline growth in 1Q14, falling 6% q-o-q and 1% y-o-y. However, better management of cost of goods sold (COGS) (in particular canned tuna, which comprised 25% of the revenue), this helped boost gross profit margin by 70bps q-o-q and 160bps y-o-y. In addition, with better operating cost control, selling, general and administrative expense (SG&A) fell to 13.8% in 1Q14 (down from 17.4% in 4Q13 and slightly above 12.7% in 1Q13), which enabled the company’s EBIT margin to improve by 420bps q-o-q and 50bps y-o-y.
Superior outlook remains. We maintain a BUY call on Premier
Marketing and view the company as the cheapest consumer company. Its core business in snack food is strong by itself, while its distribution business has an edge in the traditional trade channel. Given that Premier Marketing has a superior profile with sustainable high profitability and a sustainable ROE of 28-30%, coupled with a huge cash pile (at around 15% of its market cap) as well as a high dividend yield of 6-8%, it is our Top Pick among the consumer counters.
FY14/15 topline to increase 7%/11% and net profit to grow 9%/11%.
We expect domestic consumption to continue weakening in FY14, before it begins to pick up in FY15. We estimate revenue to grow 7% in FY14 vs 3% in FY13 on the back of full-year sales contribution from a new customer (Sappe) and an existing customer (Bigen), which is beginning to distribute its products via modern trade channels.
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Platform 18
Results Review, 14 May 2014
PTT (PTT TB) Neutral (Maintained) Energy & Petrochemicals - Integrated Oil & Gas Target Price: THB318
Market Cap: USD26,353m Price: THB301
1Q14 Q-o-q Earnings Improved
Macro
2.00
Risks
2.00
Growth
2.00
Value
3.00
98
102
106
111
115
119
123
250
270
290
310
330
350
370
PTT (PTT TB)Price Close Relative to Stock Exchange of Thailand Index (RHS)
Forecasts and Valuations Dec-11 Dec-12 Dec-13F Dec-14F Dec-15F
Total turnover (THBbn) 2,428 2,794 2,843 2,771 2,929
Reported net profit (THBbn) 106 105 95 102 112
Recurring net profit (THBbn) 106 105 95 102 112
Recurring net profit growth (%) 23.7 (1.6) (9.5) 8.2 9.7
Recurring EPS (THB) 37.2 36.6 33.1 35.9 39.3
DPS (THB) 13.0 13.0 13.0 12.5 13.8
Recurring P/E (x) 8.08 8.22 9.08 8.40 7.65
P/B (x) 1.55 1.42 1.26 1.15 1.05
P/CF (x) 6.70 5.04 5.49 4.47 4.70
Dividend Yield (%) 4.3 4.3 4.3 4.2 4.6
EV/EBITDA (x) 4.69 4.81 4.68 4.24 3.55
Return on average equity (%) 20.5 18.0 14.7 14.3 14.3
Net debt to equity (%) 46.9 42.7 39.2 25.1 11.3
Our vs consensus EPS (adjusted) (%) 0.0 0.0 0.0
Source: Company data, RHB estimates
PTT booked THB27.4bn in 1Q14 earnings, with forex gains/losses still the major bottomline volatility. Stripping this away, earnings for its core business and associate income stayed relatively stable. Spreads for the major commodities are continuing on the same expected trend, with stronger refining margins (although there was a slight stock loss in 1Q14), strong olefins and PE spreads, and softer PX spreads. Maintain NEUTRAL.
1Q14 net profit came in at THB27.4bn (+74% q-o-q; -23% y-o-y). This
was in line with our expectations, accounting for 27% of our full-year forecast. Forex gains/losses continue to have major impact on the group’s earnings, with a THB2.6bn forex gain recorded during the quarter vs a forex loss of THB5.2bn in 4Q13 and a THB7bn forex gain in 1Q13. The share of associate income was THB4.5bn (-19%q-o-q; -52% y-o-y). Again, associated companies also saw the same forex swing as their parent with its USD-denominated debt. For 1Q14, there was a slight stock loss but stronger gross refining margins (GRM) for the refineries. PTT’s olefins and polyethylene (PE) businesses should see strong spreads, while the aromatics spreads continue to be pulled down with the softening in paraxylene (PX) prices as more capacity enters the market this year.
Natural gas business stable. PTT’s natural gas transmission business
sales volume was relatively stable at 4,441m standard cu ft per day (mmscfd) (0% q-o-q; -5% y-o-y). Natural gas for vehicle (NGV) sales volume was 319mmscfd (6% q-o-q; 5% y-o-y) while EBIT loss was THB5.2bn (-9% q-o-q; 11% y-o-y). Gas separation plants (GSPs) sales were 1,502,000 tons (-1% q-o-q; -8% y-o-y), as a result of the shutdown of GSP#5 following a lightening incident in Aug 2013. GSP#5 should resume its full utilisation rate from 2Q14 onwards, as PTT has already installed a temporary waste heat recovery unit.
Oil marketing and trading sales volume were mixed at 6,290m litres (ml) (+4% q-o-q; +6% y-o-y) and 15,110ml (-10% q-o-q; -9% y-o-y)
respectively. Oil marketing margins improved to THB1.01 per litre (+33% q-o-q; 3% y-o-y), while oil trading margins improved to THB0.13 per litre (+44% q-o-q; +30%y-o-y).
See important disclosures at the end of this report Powered by EFATM
Platform 19
Results Review, 14 May 2014
Sriracha Construction (SRICHA TB) Neutral (from Buy) Construction & Engineering - Construction Target Price: THB36.00
Market Cap: USD331m Price: THB35.30
Lacks Near-Term Catalysts
Macro
3.00
Risks
2.00
Growth
2.00
Value
3.00
70
76
81
87
93
99
104
110
26
31
36
41
46
51
56
61
Sriracha Construction (SRICHA TB)Price Close Relative to Stock Exchange of Thailand Index (RHS)
Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F
Total turnover (THBm) 2,832 2,098 2,538 2,820 3,102
Reported net profit (THBm) 1,108 1,028 918 1,064 1,168
Recurring net profit (THBm) 1,108 800 918 1,064 1,168
Recurring net profit growth (%) (6.9) (27.7) 14.7 15.9 9.8
Recurring EPS (THB) 4.92 3.03 3.02 3.49 3.83
DPS (THB) 0.00 0.00 2.65 2.44 2.68
Recurring P/E (x) 7.2 11.6 11.7 10.1 9.2
P/B (x) 7.39 4.88 4.53 4.00 3.54
P/CF (x) 10.6 24.1 26.5 6.6 7.5
Dividend Yield (%) 0.0 0.0 7.5 6.9 7.6
EV/EBITDA (x) 4.98 8.46 8.91 6.56 5.69
Return on average equity (%) 96.8 63.0 40.2 42.0 40.8
Net debt to equity (%) net cash net cash net cash net cash net cash
Our vs consensus EPS (adjusted) (%) 0.0 0.0
Source: Company data, RHB estimates
Sricha’s 1Q14 earnings came in at THB127m (+4% y-o-y), as the company recognised revenue from TOP’s project. There is still no further progress on negotiations of its five new projects totaling THB2.8bn. With no large projects on the horizon, we expect the stock to trade within a narrow band. We downgrade Sricha to NEUTRAL, with a lower THB36 TP (from THB41).
1Q14 net profit ticks up. Sriracha Construction (Sricha)’s 1Q14 net
profit came in at THB127m (+4% y-o-y), while its 1Q14 revenue increased to THB572m (+20% y-o-y), mainly due to revenue recognition from TOP’s projects. However, EBIT only inched up by 1% y-o-y to THB157m, as the company is at the beginning of the construction phase (which does not generate much profit). As a result, net profit margin contracted to 22% in 1Q14 from 25% in 1Q13.
No progress on new projects. There is still no further progress relating
to negotiations of its five new projects: i) a power plant module in Mexico (THB500m-800m), ii) a chemical plant in Rayong (THB500m), iii) a waste incineration plant and a power plant in Myanmar (THB800m), iv) an independent power producer (IPP) power plant in Myanmar (THB700m), and v) a liquefied petroleum gas (LPG) facilities expansion project in Khao Bo Ya (THB300m-400m). However, we expect the bidding results of these projects to be announced within this year, and these projects should support the company’s earnings going forward. We maintain our full-year revenue forecast of THB2.8bn as we expect Sricha to recognise the bulk of revenue from TOP and Hyundai Linear Alkyl Benzene projects in 2Q14-3Q14. We estimated Sricha’s orderbook at c.THB1.8bn as at end-1Q14.
Downgrade to NEUTRAL, with lower THB36 TP. With no large
projects on the horizon, we expect Sricha to trade within a narrow band. Hence, we downgrade the stock to NEUTRAL, with a lower TP of THB36 (from THB41). We value Sricha at THB36/share, based on a 10.5x P/E, which is its 2-year average P/E.
20
RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. It is intended for circulation to the clients of RHB and its related companies. Any recommendation contained in this report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This report is for the information of addressees only and is not to be taken in substitution for the exercise of judgment by addressees, who should obtain separate legal or financial advice to independently evaluate the particular investments and strategies. This report may further consist of, whether in whole or in part, summaries, research, compilations, extracts or analysis that has been prepared by RHB’s strategic, joint venture and/or business partners. No representation or warranty (express or implied) is given as to the accuracy or completeness of such information and accordingly investors should make their own informed decisions before relying on the same. 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DMG & Partners Securities Pte Ltd may have received compensation from the company covered in this report for its corporate finance or its dealing activities; this report is therefore classified as a non-independent report. As of 14 May 2014, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd do not have proprietary positions in the securities covered in this report, except for: a) - As of 14 May 2014, none of the analysts who covered the securities in this report has an interest in such securities, except for: a) - Special Distribution by RHB Where the research report is produced by an RHB entity (excluding DMG & Partners Research Pte Ltd) and distributed in Singapore, it is only distributed to "Institutional Investors", "Expert Investors" or "Accredited Investors" as defined in the Securities and Futures Act, CAP. 289 of Singapore. 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21
Kong Limited), a subsidiary of OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as “RHBIB”), which in turn is a wholly-owned subsidiary of RHB Capital Berhad. RHBSHK, RHBIB and/or other affiliates may beneficially own a total of 1% or more of any class of common equity securities of the subject company. RHBSHK, RHBIB and/or other affiliates may, within the past 12 months, have received compensation and/or within the next 3 months seek to obtain compensation for investment banking services from the subject company. Risk Disclosure Statements The prices of securities fluctuate, sometimes dramatically. The price of a security may move up or down, and may become valueless. It is as likely that losses will be incurred rather than profit made as a result of buying and selling securities. Past performance is not a guide to future performance. RHBSHK does not maintain a predetermined schedule for publication of research and will not necessarily update this report Indonesia This report is published and distributed in Indonesia by PT RHB OSK Securities Indonesia (formerly known as PT OSK Nusadana Securities Indonesia), a subsidiary of OSK Investment Bank Berhad, Malaysia, which have since merged into RHB Investment Bank Berhad, which in turn is a wholly-owned subsidiary of RHB Capital Berhad. Thailand This report is published and distributed in Thailand by RHB OSK Securities (Thailand) PCL (formerly known as OSK Securities (Thailand) PCL), a subsidiary of OSK Investment Bank Berhad, Malaysia, which have since merged into RHB Investment Bank Berhad, which in turn is a wholly-owned subsidiary of RHB Capital Berhad. Other Jurisdictions In any other jurisdictions, this report is intended to be distributed to qualified, accredited and professional investors, in compliance with the law and regulations of the jurisdictions. DMG & Partners Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage DISCLAIMERS This research is issued by DMG & Partners Research Pte Ltd and it is for general distribution only. It does not have any regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluate particular investments and consult an independent financial adviser before making any investments or entering into any transaction in relation to any securities or investment instruments mentioned in this report. The information contained herein has been obtained from sources we believed to be reliable but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in this report are subject to change without notice. This report does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities. DMG & Partners Research Pte Ltd is a wholly-owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as “RHBIB” which in turn is a wholly-owned subsidiary of RHB Capital Berhad) and Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited. DMG & Partners Securities Pte Ltd and their associates, directors, and/or employees may have positions in, and may effect transactions in the securities covered in the report, and may also perform or seek to perform broking and other corporate finance related services for the corporations whose securities are covered in the report. This report is therefore classified as a non-independent report. As of 14 May 2014, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do not have proprietary positions in the subject companies, except for: a) - As of 14 May 2014, none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except for: a) - DMG & Partners Research Pte. Ltd. (Reg. No. 200808705N)
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