Asia Pacific Daily See important disclosures, including any required research certifications, beginning on page 85. 14 November 2016 Top story P.3 Daiwa Investment Conference Hong Kong 2016 Conference highlights - China was the main focus of our guest speakers — the macro challenges it is now facing, as well as the rise of protectionism - Attendees also heard from Daiwa’s Japan Strategist, a Macau lawmaker on the policy outlook for Gaming, and our ASEAN partners - In total, more than 150 Pan-Asian corporates were in attendance. This report summarises our conference-related research -- John Hetherington/ Asia ex-Japan Research Team Major changes Analyst Rating Page Quanta Computer (2382 TT) Steven Tseng Outperform → Hold P.4 3Q16 margins a positive surprise, but may not persist Nok Airlines Pcl (NOK TB) Saksid Phadthananarak Hold → Sell P.8 Dropping coverage Target price ↓68.4% to Bt6.00 GFPT Public Co Ltd (GFPT TB) Kalvalee Sell P.9 Earnings peaking out Thongsomaung Target price ↑22.6% to Bt13.00 Other research Discovery John Choi P.10 Asia Small-cap Weekly China Wind Sector Dennis Ip Positive P.11 Prefer Longyuan over Huaneng Renewables China Taiping Insurance Holdings (966 HK) Leon Qi Buy P.13 Negatives look overly priced in Joy City Property (207 HK) Cynthia Chan Buy P.17 Some fine-tuning; positive transformation stays intact Guotai Junan International (1788 HK) Leon Qi No Rating P.21 Focus on traditional sell-side business China Maple Leaf Educational Systems (1317 HK) Alex Liu No Rating P.23 Company sees limited impact from new education law Industrial Bank of Korea (024110 KS) Mike Oh Outperform P.25 Interest income outlook turns positive SM Entertainment (041510 KS) Kevin Jin Buy P.29 Limited downside risk ASUSTeK Computer (2357 TT) Steven Tseng Hold P.33 4Q16 guidance suggests no clear seasonality General Interface Solution (6456 TT) Kylie Huang Outperform P.37 Embracing strong seasonality in 2H16 ComfortDelGro Corp (CD SP) Jame Osman Buy P.41 Comforting operational trends M1 (M1 SP) Ramakrishna Hold P.45 Conference takeaways: focusing on fixed-line and IOT Maruvada MSM (MSM MK) Yap Po Leen Hold P.49 Not so sweet raw sugar prices Manappuram Finance (MGFL IN) Punit Srivastava Outperform P.50 AUM growth picks up further; PAT up 205% Company Roadshows Date Company Event Venue 14-17 Nov Lai Sun Development (488 HK) NDR US 15 Nov Westpac Banking Corporation (WBC AU) NDR AU 17 Nov Lee&Man Paper Group Luncheon HK 17 Nov SATS Ltd (SATS SP) Group Luncheon Tokyo 21 Nov Sinotrans (598 HK) Group Luncheon (VC) HK 21 Nov Sinotrans (598 HK) Group Luncheon (VC) SG 21-25 Nov President Chain Store (2912 TT) NDR EU 21-25 Nov China Telecom (728 HK) NDR EU 22 Nov Angang Steel (347 HK) Telecon. HK 22 Nov BWP Trust (BWP AU) NDR SG 23 Nov BWP Trust (BWP AU) NDR HK 23 Nov LG U Plus (032640 KS) NDR EU Daiwa Asian Events Date Company Venue 21-22 Nov Daiwa Asia Communidation Days London 8-9 Dec Daiwa Taiwan Corporate Day Tokyo 2016 Tokyo 27 Feb-3 Mar 2017 Daiwa Investment Conference Tokyo 2017 Tokyo Source: Daiwa Regional indices Performance chg (%) EPS growth (%) PER (x) Market 1D 1M YTD 16E 17E 16E 17E TPX 0.1 1.6 (10.9) 12.0 8.7 14.6 13.5 HSCEI (1.2) (3.8) (2.4) (3.4) 5.3 7.2 6.9 HSI (1.3) (4.3) 2.8 (2.1) 9.5 12.7 11.6 KOSPI (0.9) (2.3) 1.2 26.3 12.3 11.1 9.9 TWSE (2.1) (2.8) 7.4 0.5 9.4 14.9 13.7 SENSEX* (2.5) (4.5) 2.7 10.3 19.3 19.4** 16.3** FSSTI (0.7) (1.5) (2.4) (5.8) 4.8 13.5 12.9 FBMKLCI* (1.1) (2.1) (3.4) (3.1) 6.4 16.9** 15.9** SET* (1.3) 3.6 16.0 11.6 9.3 15.4** 14.1** PCOMP* (2.9) (7.3) 0.3 8.5 7.5 19.1** 17.8** JCI* (4.0) (2.8) 13.9 6.1 14.9 18.4** 16.0** AS51 0.8 (2.0) 1.4 8.9 7.6 16.0 14.9 Source: Thomson Reuters *Valuation based on MSCI Universe **MSCI index priced as of 10 Nov Asia Pacific Daily | 1
Transcript
Asia Pacific Daily
See important disclosures, including any required research certifications, beginning on page 85.
14 November 2016
Top story P.3
Daiwa Investment Conference Hong Kong 2016 Conference highlights
- China was the main focus of our guest speakers — the macro challenges it is now facing, as well as the rise of protectionism
- Attendees also heard from Daiwa’s Japan Strategist, a Macau lawmaker on the policy outlook for Gaming, and our ASEAN partners
- In total, more than 150 Pan-Asian corporates were in attendance. This report summarises our conference-related research -- John Hetherington/ Asia ex-Japan Research Team
Major changes Analyst Rating Page
Quanta Computer (2382 TT) Steven Tseng Outperform → Hold
P.4 3Q16 margins a positive surprise, but may not persist
Nok Airlines Pcl (NOK TB) Saksid Phadthananarak
Hold → Sell P.8 Dropping coverage
Target price ↓68.4% to Bt6.00
GFPT Public Co Ltd (GFPT TB) Kalvalee Sell P.9 Earnings peaking out Thongsomaung
Target price ↑22.6% to Bt13.00 Other research
Discovery John Choi P.10 Asia Small-cap Weekly
China Wind Sector Dennis Ip Positive P.11 Prefer Longyuan over Huaneng Renewables
China Taiping Insurance Holdings (966 HK)
Leon Qi Buy P.13
Negatives look overly priced in
Joy City Property (207 HK) Cynthia Chan Buy P.17 Some fine-tuning; positive transformation stays intact
Guotai Junan International (1788 HK) Leon Qi No Rating P.21 Focus on traditional sell-side business
China Maple Leaf Educational Systems (1317 HK)
Alex Liu No Rating P.23
Company sees limited impact from new education law
Industrial Bank of Korea (024110 KS) Mike Oh Outperform P.25 Interest income outlook turns positive
SM Entertainment (041510 KS) Kevin Jin Buy P.29 Limited downside risk
ASUSTeK Computer (2357 TT) Steven Tseng Hold P.33 4Q16 guidance suggests no clear seasonality
General Interface Solution (6456 TT) Kylie Huang Outperform P.37 Embracing strong seasonality in 2H16
ComfortDelGro Corp (CD SP) Jame Osman Buy P.41 Comforting operational trends
M1 (M1 SP) Ramakrishna Hold P.45 Conference takeaways: focusing on fixed-line and IOT
Maruvada
MSM (MSM MK) Yap Po Leen Hold P.49 Not so sweet raw sugar prices
Manappuram Finance (MGFL IN) Punit Srivastava Outperform P.50 AUM growth picks up further; PAT up 205%
Company Roadshows Date Company Event Venue 14-17 Nov Lai Sun Development (488 HK) NDR US 15 Nov Westpac Banking Corporation
(WBC AU) NDR AU
17 Nov Lee&Man Paper Group Luncheon
HK
17 Nov SATS Ltd (SATS SP) Group Luncheon
Tokyo
21 Nov Sinotrans (598 HK) Group Luncheon (VC)
HK
21 Nov Sinotrans (598 HK) Group Luncheon (VC)
SG
21-25 Nov President Chain Store (2912 TT) NDR EU 21-25 Nov China Telecom (728 HK) NDR EU 22 Nov Angang Steel (347 HK) Telecon. HK 22 Nov BWP Trust (BWP AU) NDR SG 23 Nov BWP Trust (BWP AU) NDR HK 23 Nov LG U Plus (032640 KS) NDR EU
Daiwa Asian Events Date Company Venue 21-22 Nov Daiwa Asia Communidation Days London 8-9 Dec Daiwa Taiwan Corporate Day Tokyo 2016 Tokyo 27 Feb-3 Mar 2017
Outperform P.54 Review of 10 Nov events associated with Opdivo
Nitto Denko (6988 JP) Takumi Sado Neutral P.55 Announced tie-up for investigational liver cirrhosis drug
Macro research
ASEAN Intelligence Rohan Dalziell P.56 What matters this week
Indonesia: Currency update Harry Su P.57 IDR depreciation: Don’t panic
Thailand Economics Kampon P.58 Gauging a car sales recovery Adireksombat, Ph.D.
Yen 4Sight Emily Nicol P.59 Highlights Memos – quick updates
Accordia Golf Trust (AGT SP) David Lum P.62 2QFY17 results: operations in line, but DPU below our forecast
Alibaba (BABA US) John Choi P.63 “Double Eleven” GMV reaches CNY120.7bn, up 32% YoY; 82% of GMV from mobile devices
Hengan International Group (1044 HK) Anson Chan P.68 Daiwa investment conference takeaways
Vard Holdings (VARD SP) Royston Tan P.70 Still in the red
Vinda International (3331 HK) Anson Chan P.72 Management meeting update
WH Group (288 HK) Anson Chan P.74 Conference takeaways
XTEP International (1368 HK) Adrian Chan P.76 3Q16 SSSG and 2Q17 sales fair results update
Yestar International (2393 HK) Carlton Lai P.78 Acquisition spree continues; 5th IVD acquisition announced
Korea: share prices and Daiwa recommendation trends P.80 Daiwa’s Banner Products P.81 Rating and target-price information P.82 Recently published reports P.83
Asia Pacific Daily | 2Asia Pacific Daily | 2
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Asia ex Japan Strategy
Summary: This report is a compendium of research produced during the 11th annual Daiwa Investment Conference Hong Kong, a 4-day event that concluded on Friday, 11 November. The conference featured a full day of speeches and panels, followed by 3 days of interactions involving clients and the 150-plus Pan-Asia companies in attendance. Along with summaries of our keynote events and our analysts’ sector-level takeaways, the report features wraps from our meetings with 32 of the more than 100 Asia ex-Japan companies at the event. This year’s keynote speech was by Dr Mingchun Sun, CIO and Chairman of Deepwater Capital (“What’s behind China’s investment slowdown”), who contrasted the overcapacity issues in major sectors with a rough estimate of how much more FAI would theoretically be needed to sustain growth in the coming years. He made the case for a great transition (multi-year slowdown in growth; rise of new sectors, fall of traditional ones; shift to a more market-oriented, private-sector-driven system; and change in growth drivers from investment to consumption) that will enhance China’s long-term growth outlook while providing real opportunities for equity investors. Daiwa Economist Mr Kevin Lai followed up with a timely presentation on “The rise of new protectionism and other issues”, with a particular focus on Donald Trump’s campaign position on China. Crunching the numbers, Kevin argued that a 45% tariff on China would lead to a USD420bn, or 87%, drop in exports from China to the US on an annual basis. Also, he looked at the political roadmap for China in 2017. Separately, Mr Kazuhiro Miyake, Daiwa’s Chief Strategist on Japanese Equity, spoke of a potential Japanese market rally, with profit momentum set to pick up from 2H FY16, and highlighted: 1) domestic demand-oriented (non-financial), downstream, defensive industries, 2) foreign demand-driven, downstream (consumer-related) industries, and 3) small/mid-caps. Daiwa’s Gaming analyst, Mr Jamie Soo, hosted a video briefing with legislator Mr José Pereira Coutinho, who argued that the mid- to long-term policy environment would be relatively stable, though efforts would be made to correct some of the issues that have emerged in recent months. And the research heads at Daiwa’s ASEAN alliance partners – Thanachart Securities, Affin Hwang, Bahana Securities, and Saigon Securities – held a lunch panel discussing their respective markets and economies, before hosting one-on-one workshops with attendees. Finally, in keeping with the conference’s Pan-Asia flavour, Daiwa ran several thematic side trips, comprising the Australia Search for Dividend & Growth Tour, Guangdong Small-Mid Cap Tour, China Environmental Tour, Guangzhou Auto Tour, Macau Tour, Vietnam Tour and China Wind Power Tour.
11 November 2016
Daiwa Investment Conference Hong Kong 2016
Conference highlights
China was the main focus of our guest speakers — the macro challenges it is now facing, as well as the rise of protectionism
Attendees also heard from Daiwa’s Japan Strategist, a Macau lawmaker on the policy outlook for Gaming, and our ASEAN partners
In total, more than 150 Pan-Asian corporates were in attendance. This report summarises our conference-related research
Given its deteriorating market position, we now forecast NOK to make losses in 2017-18 and downgrade our call to SELL from Hold with a new TP of Bt6.0. With trading liquidity drying up, we also terminate coverage of NOK and recommend investors to switch to AAV and BA as we expect them to continue reaping the benefits of their expertise.
Deteriorating market position NOK is one of Thailand’s low-cost carriers focusing on the domestic market. Its strategy is to serve more destinations, have greater flight frequencies and cover less competitive routes to command price premiums. Unfortunately, when its competitors expanded aggressively into its niche market, the resulting fierce pricing competition since 2014 put NOK’s margin under pressure. It suffered even more losses when it expanded into the overseas market by forming NokScoot, a joint venture with Scoot, a low-cost carrier owned by Singapore Airlines. Despite the significant drop in jet fuel prices, its high non-oil costs with low network coverage caused NokScoot to report a loss of Bt377m in 9M16 and Bt1.2bn in 2015.
Chinese zero-dollar tour crackdown Besides intense competition, NOK has also suffered from a pilot shortage, forcing the company to cut domestic flights while its domestic passenger revenues (83% of NOK’s total passenger revenues in 9M16) fell by 12% y-y in 9M16 and its market share fell to 21% in 1H16 vs. 28% in 1H15. Even though its international passenger revenues (17% of total passenger revenues in 9M16) grew by 122% y-y in 9M16, over 60% came from charter flights to China where we are concerned about a slowdown in Chinese tourist growth due to the crackdown on Chinese zero-dollar tours. Along with an expected rise in jet fuel prices, we forecast NOK to continue making losses in 2017-18.
TP is cut to Bt6/share We now forecast NOK to make losses of Bt1.3-2.5m in 2016-18 based on the following assumptions. First, given fierce competition, we forecast its passenger yield at Bt2.3-2.35 per revenue passenger kilometers (RPK) in 2016-18 vs. Bt2.4 in 2015 and Bt2.2 in 9M16. Second, we project jet fuel prices of US$55-67 in 2016-18 vs. US$52 so far this year. Third, we assume an exchange rate of Bt35.5-37/US$1 in 2016-18F vs. Bt35.2 so far this year. After rolling over our base year to 2017F, our DCF-based 12-month TP falls to Bt6.0 from Bt19.0. We downgrade our call to SELL from Hold.
AAV, BA in better positions in our view Given its deteriorating business outlook with trading liquidity drying up from US$5.8m in 2013 to only US$0.4m so far this year, we drop NOK from our coverage and recommend investors to switch to Asia Aviation (AAV TB, Bt7.05, BUY) for its robust competitiveness due to its lowest operating costs and strong network to cover the mass markets, and Bangkok Airways (BA
TB, Bt24.6, BUY) for its unique advantage of owning Samui airport and codeshare strategy to command price premiums.
COMPANY VALUATION
Y/E Dec (Bt m) 2015A 2016F 2017F 2018F
Sales 13,753 15,951 16,560 17,950
Net profit (726) (2,474) (1,571) (1,254)
Consensus NP 182 408 672
Diff frm cons (%) na na na
Norm profit (726) (2,474) (1,571) (1,254)
Prev. Norm profit 737 814 1,002
Chg frm prev (%) na na na
Norm EPS (Bt) (1.2) (4.0) (2.5) (2.0)
Norm EPS grw (%) na na na na
Norm PE (x) na na na na
EV/EBITDA (x) na na na na
P/BV (x) 1.5 8.2 na na
Div yield (%) 0.0 0.0 0.0 0.0
ROE (%) na na na na
Net D/E (%) na na na na
PRICE PERFORMANCE
(20)(15)(10)(5)05101520
456789
10
Nov-15 Feb-16 May-16 Aug-16 Nov-16
(%)(Bt/shr) NOK Rel to SET Index
COMPANY INFORMATION
Price as of 11-Nov-16 (Bt) 7.50
Market Cap (US$ m) 132.8
Listed Shares (m shares) 625.0
Free Float (%) 49.0
Avg Daily Turnover (US$ m) 0.4
12M Price H/L (Bt) 9.30/6.40
Sector Transport
Major Shareholder Thai Airways 39.2%
Sources: Bloomberg, Company data, Thanachart estimates
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Asia Pacific Daily | 8
Please see the important notice on the back page
SELL (Unchanged) TP: Bt 13.00 (From: Bt 10.60 )
Change in Numbers Downside : 11.6% 11 NOVEMBER 2016
GFPT Public Co Ltd (GFPT TB)
Earnings peaking out
GFPT has benefited from low raw material prices and an export recovery this year, leading to our earnings upgrades of 8-32% in 2016-18F. However, we believe its earnings already peaked out in 3Q16 and we forecast 5-10% earnings drops in 2017-18F on lower gross margins and an already high export base. Reaffirm SELL.
Not cheap in our view; SELL GFPT’s 9M16 earnings came in much stronger than we’d expected and we upgrade our earnings estimates by 8-32% in 2016-18F and lift our DCF-based 12-month TP, after rolling over our valuation base year to 2017F, to Bt13.0 (from Bt10.6 previously). The strong earnings were a result of low raw material prices and a recovery in chicken exports. Raw material prices of its feed meal (corn and soybean meal) fell by 10% y-y in 9M16 while its chicken export volume was up 24% y-y during the same period. However, we project softening earnings momentum from 4Q16F onwards on the back of lower export volume growth and margins, and we project earnings to contract by 5-10% in 2017-18F. We reaffirm our SELL on GFPT shares as we see the stock as expensive on 13.2x PE and given its earnings contraction trend.
Already high export base We believe GFPT’s export volume peaked in 3Q16 at 8,000 tonnes, or a 51% y-y increase. Strong growth was seen in sales to Japan (50% of GFPT’s total export volume), Europe (32%) and Malaysia (16%). We consider the peak season’s 8,000 tonnes as a high base compared to the average 3Q export volume of 5,800 tonnes over the past three years. Both export volume and prices have already started to come down in 4Q16. We expect only 5% export volume growth in 2017F vs. 16% in 2016F because of weakening demand from Europe and an already high base of export volume growth to Japan.
Lower chicken prices We lower our domestic chicken price assumptions to Bt38/kg (from Bt40) in 2016-18F to reflect increased supply from the capacity expansion of broiler farms over the past six months. Despite the chicken price spiking to Bt44/kg in August, it has averaged around Bt38/kg YTD. With more supply, chicken prices are down from their peak to Bt36.5 at present. On the cost side, despite GFPT still benefiting from low raw material prices, we project GFPT’s gross margin to soften from 14% in 2016F to 13% in 2017F because of pressure from domestic chicken prices.
No growth from associates GFPT owns 49% stake in processed chicken companies, McKey Food and GFN. We foresee stable profit from McKey (mainly exports) but forecast volatile earnings contributions from GFN. This is because GFN has suffered from low selling prices of its by-products in Thailand (chicken parts that are left over from its meat exports). We therefore estimate the combined earnings contribution from those two companies at Bt350m p.a. in 2016F and 2017F.
COMPANY VALUATION
Y/E Dec (Bt m) 2015A 2016F 2017F 2018F
Sales 16,467 16,970 17,682 17,932
Net profit 1,195 1,472 1,395 1,260
Consensus NP 1,499 1,618 1,739
Diff frm cons (%) (1.8) (13.8) (27.6)
Norm profit 1,189 1,472 1,395 1,260
Prev. Norm profit 1,115 1,064 1,170
Chg frm prev (%) 32.0 31.1 7.7
Norm EPS (Bt) 0.95 1.2 1.1 1.0
Norm EPS grw (%) (32.3) 23.8 (5.2) (9.7)
Norm PE (x) 15.5 12.5 13.2 14.6
EV/EBITDA (x) 11.6 9.2 9.0 9.2
P/BV (x) 2.0 1.8 1.6 1.5
Div yield (%) 1.7 2.4 2.3 2.4
ROE (%) 13.2 14.9 12.8 10.7
Net D/E (%) 37.7 22.5 12.4 5.5
PRICE PERFORMANCE
(10)01020304050
68
1012141618
Nov-15 Feb-16 May-16 Aug-16 Nov-16
(%)(Bt/shr) GFPT Rel to SET Index
COMPANY INFORMATION
Price as of 11-Nov-16 (Bt) 14.70
Market Cap (US$ m) 522.0
Listed Shares (m shares) 1,253.8
Free Float (%) 44.2
Avg Daily Turnover (US$ m) 2.4
12M Price H/L (Bt) 15.90/9.55
Sector Agri
Major Shareholder Sirimongkolkasem family 53%
Sources: Bloomberg, Company data, Thanachart estimates
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Asia ex Japan Small Cap
What’s new: The 11
th Daiwa Investment Conference in Hong Kong
concluded this week, with over 150 companies in attendance. A number of
our covered China textile companies attended, and it seemed to us that
overall industry sentiment remains positive from an order book perspective.
Many investors took the opportunity to ask what the impact of a Trump
administration may have on the textile companies, but in reality it is too early
for management to know, given that Trump has yet to take office. However,
we note that most Hong Kong-listed China textile companies should have at
least some production capacity outside of China by the end of 2017. We
make no changes to our top-5 small-cap picks this week. Discovery idea: China Maple Leaf Education Group (1317 HK, not rated),
a leading international school operator in China, participated at the Daiwa
Investment Conference on 8-9 November. The company remains confident in
doubling its annual student enrolment base from around 20,000 currently to
40,000 by the 2019/2020 school year. We note that recent changes to
China’s education regulatory framework have been the main focus during
investor meetings. However, management currently sees limited financial
impact from the recent revisions to the education law in China. Pick of the week: We initiated coverage on the China Paper and Packaging sector with a positive rating. We have noticed that the demand-supply dynamics of the industry appear to finally be improving, and have
allowed both Nine Dragons Paper (NDP; 2689 HK, HKD6.40, Buy [1]) and
Lee & Man Paper (L&M; 2314 HK, HKD5.77, Outperform [2]) to recently
post record net profits. We have a Buy (1) call on NDP and a 12-month TP of
HKD7.70. NDP is our top sector pick. We also initiated coverage on L&M with
an Outperform (2) rating and 12-month TP of HKD6.40. Daiwa’s small-cap top picks
(USDm) price price upside PER PBR EBITDA ROE yield
Best Pacific International
2111 HK 883.34 HKD Buy 6.7 8.4 25.4% 14.8 3.4 9.9 24.75 2.72 The company is transitioning into a major sportswear fabrics supplier and we expect accelerated sales and earnings growth in 2016-18E. The ramp up of its lace business should help sustain its gross margin.
CJ CGV 079160 KS 1,270.74 KRW Buy 69,100 100,500 45.4% 37.5 1.6 15.8 5.83 n.a. CJ CGV is successfully penetrating China’s movie market with its 4DX offering. Its recent acquisition of Mars (top movie chain in Turkey) should expand its earnings potential.
Hota Industrial Manufacturing
1536 TT 907.14 TWD Buy 122.00 161 32.0% 24.6 6.8 16.6 29.03 2.85 Expecting solid order growth from major clients such as Borg Warner, Tesla, and Punch, and a more favourable currency trend. Recent correction looks overdone.
IMAX China Holding
1970 HK 1,635.34 HKD Buy 36 44 23.2% 33.5 7.9 21.7 26.79 n.a. One of the best stocks to capture the upside in China's growing discretionary spending and box office boom. The earnings quality should improve in FY16-18E, with increasing recurring revenues.
Nien Made Enterprise
8464 TT 3,385.48 TWD Buy 365.00 425 16.4% 29.7 9.2 19.0 31.98 2.38 Ongoing market-share gains in both of ready-made and custom-made segments. Rising custom-made product revenue and highly vertical integration bode well for margin expansion and bottom-line growth.
Source: FactSet, Daiwa forecasts; prices as of 10 November 2016; Note: O/P = Outperform
11 November 2016
Discovery
Asia Small-cap Weekly
The 11th Daiwa Investment Conference in Hong Kong concluded this
week, with over 150 companies in attendance Discovery idea: China Maple Leaf Education Pick of the week: China Paper and Packaging Sector
See important disclosures, including any required research certifications, beginning on page 3
China Utilities
What's new: China Longyuan (916 HK, HKD5.71, Buy [1]) and Huaneng
Renewables (HNR, 958HK, HKD2.53, Outperform [2]) both achieved
decent utilisation hour growth of 10% YoY and 9% YoY, respectively, in
October 2016. But going forward, we expect Longyuan to deliver more
sustainable and stronger utilisation hour growth during 4Q16-1Q17. What's the impact: Longyuan: reduction in curtailment rate to fuel persistent and accelerating utilisation hour improvement of 10-15% YoY in 4Q16-1Q17. Longyuan’s curtailment rate for 9M16 was 12%, down
from 18% for 9M15. In October, its curtailment rate fell more to 10%, down
10pp from 2015. Thus, the continued drop in curtailment rate, especially in
Heilongjiang, Ningxia and Gansu has led to a persistent and accelerating
utilisation hour growth, from 4% YoY in July to 10% YoY in October. We see
the momentum continuing, with growth hitting 10-15% YoY in 4Q16 -1Q17. HNR: relying on better wind speed to drive utilisation growth, but unlikely to sustain from January 2017. HNR, due to its geographic
exposure, was less affected by grid curtailment than Longyuan during
2H15-1Q16. As HNR’s utilisation hour trend largely depends on wind
speed, it has low visibility, in our view, as evidenced by the fluctuations in
its utilisation hour growth which was 28% YoY in August, 2% YoY in
September and 9% YoY in October. Given the high base in 1H16, we think
HNR’s utilisation growth may not be sustainable as we move into 2017. Besides, Longyuan has stronger cash flow and financial status. Backed by the largest operating base among its peers, Longyuan is likely
to achieve positive free cash flow in 2018, on our estimates, making it the
earliest in the sector to do so. Hence, Longyuan’s net gearing, should trend
lower from 2017 (from 197% in 2016E to 183% in 2018E). By contrast, we
expect HNR to achieve positive free cash flow only in 2020-21, with its net
gearing forecast to be over 260% during 2016-18. What we recommend: We have a Positive stance on China Wind power
sector for the bottoming out of utilisation hours. In our recent thematic
report (Power struggle: all fighting a losing battle?), we flagged Longyuan
as our top sector pick, with a Buy (1) call and 12-month TP of HKD8.60
based on a 13x 2017E PER. For HNR, we have an Outperform (2) rating
and 12-month TP of HKD2.95, based on 8x 2017E PER. Downside risk
would be a slower-than-expected recovery in wind utilisation hours. How we differ: While the market seemingly prefers HNR for its stronger
earnings growth in 2016E, we favour Longyuan for its higher net-profit
CAGR of 18% for 2016-18E vs. HNR’s 14%.
11 November 2016
China Wind Sector
Prefer Longyuan over Huaneng Renewables
Longyuan to have more persistent yet accelerating utilisation improvement of 10-15% YoY in 4Q16-1Q17
HNR is relying on better wind speed to drive its utilisation growth, but unlikely to sustain from January 2017 given a high base in 1H16
Longyuan to see positive free cash flow in 2018E vs. HNR’s 2020-21E, and a decline in net gearing to 180% in 2018E vs. HNR’s 260%
Longyuan & HNR: utilisation hour growth since 3Q16
Source: Company Note: While HNR’s utilisation growth fluctuated with wind
speed, Longyuan’s utilisation growth is persistent and accelerating on curtailment improvement.
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec2015 2016
0%
10%
20%
30%
40%
50%
60%
70%
Heilongjiang Jilin Liaoning InnerMongolia
Gansu Ningxia
2015 2016
1,750
1,800
1,850
1,900
1,950
2,000
2,050
2,100
2,150
2013 2014 2015 2016E 2017E 2018E
Longyuan HNR
(8,000)
(6,000)
(4,000)
(2,000)
0
2,000
4,000
6,000
8,000
2016E 2017E 2018E 2019E 2020E 2021E
LYP HNR
Asia Pacific Daily | 12
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China Financials
What's new: Taiping attended the Daiwa Investment Conference in Hong
Kong on 9-11 November. Investors were mostly focused on its life
insurance strategy, potential acquisitions and dividend policy going forward. What's the impact: Potential acquisitions. Taiping said it prefers to be very
selective and rational in making acquisitions, and would only buy a bank if it
serves its core insurance business and could be acquired at a reasonable
price. Besides the distribution channel, it values a bank’s customer relationship
and customer behaviour big data. We understand that Taiping has been
holding the acquisition funds since May 2015, which is dragging down its ROE. Products. Most of Taiping Life’s in-force policies are participating and annuity
products with a 2.5% guarantee rate (GR); others are mainly traditional and
health products with a 3.0-3.5% GR. Although it has not yet finalised its product
strategy, it has a 2.5% GR participating product ready for a jumpstart in 2017. Agency team. After the rapid growth in its agent headcount in 2015 (+73%
YoY), management targets the agent number to be c.250k by end-2016,
implying much lower YoY growth of only 8%. For the next 1-2 years, it plans to
focus more on training and increasing productivity than headcount expansion. P&C insurance combined ratio is guided to be flat YoY in 2016 vs. 2015. Investment. Taiping’s new money yield stood at c.4.6% in 1H16. Going
forward, it plans to invest more in long-term assets, especially long-term
debt and overseas commercial properties. Overseas assets currently
account for 4-5% of its total investment portfolio. What we recommend: Taiping is trading at a 0.4x 2017E P/EV under its
current EV assumptions and our revised 2017E P/EV. We think the potential
for Taiping to start paying dividends will catalyse its share price, particularly
with its currently low valuation seemingly pricing in many downside
scenarios, (See Dividend upside starting to emerge). Another major drag for
Taiping’s valuation is the possibility of it buying a majority stake in a bank. Taiping’s 2017E PBR of 0.7x is similar to the 2017E average of the H-share
China banks (see also Attractive risk/reward profile). We reiterate our Buy (1)
rating on Taiping and keep our SOTP-based 12-month TP unchanged at
HKD29. Our 2016-18E net profit revisions of -6% to +10% were on the mark-to-market of the recent A-share movement and underwriting profitability
pressure in P&C. The key risk: overpaying for potential acquisitions. How we differ: Although we share the market’s concern on M&A risk for
Taiping, the stock’s PBR has already reached that of the China banks.
11 November 2016
Negatives look overly priced in
Selective on M&A, but holding too much cash is dragging down ROE Likely relying on 2.5% GR products for a jumpstart in 2017 New-money yield of 4.6% in 1H16; reaffirm Buy (1) and TP of HKD29
Source: Bloomberg, Daiwa forecasts; Note: 1) Priced as of 11 Nov 2016; 2) EV (Adjusted 1) assumes that investment yield assumption is revised down to 4.0% for all the insurers; 3) EV (Adjusted 2) assumes that investment yield
assumption is revised down by 150bps and risk discount rate also revised down by 150bps at the same time for all the insurers.
92% 92%
65% 65% 58%
26% 25% 33%
(10%)0%
10%20%30%40%50%60%70%80%90%
100%
2012 2013 2014 2015 1H16
Traditional Participating Annuity ST A&T Others
8
11
16
20
27
0
5
10
15
20
25
30
2012 2013 2014 2015 1H16
(CNY '000)
Term deposits 11.4%
Bonds 41.5%
Equity 8.6%
Debt products 17.2%
Cash and equivalents
6.5%
Others 14.8%
53.4% 52.2% 52.8% 54.5% 54.2% 50.4%
46.5% 47.6% 47.0% 45.4% 45.6% 49.2%
0%
20%
40%
60%
80%
100%
2011 2012 2013 2014 2015 1H16
Loss Ratio Expense Ratio
Asia Pacific Daily | 14
3
China Taiping Insurance Holdings (966 HK): 11 November 2016
Financial summary Key assumptions
Profit and loss (HKDm)
Change (YoY %) and margins (%)
Source: FactSet, Daiwa forecasts
Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E
China Taiping Insurance is a cross-border insurance conglomerate in China and has its headquarter
in Hong Kong. It was founded in 1929 and became a subsidiary of the former People’s Insurance
Company of China (PICC) in 1956. In 1999, the former PICC (Group) divested its overseas business
to set up China Insurance Co., Ltd, the predecessor of today’s Taiping. Its businesses include the life
and non-life insurance businesses, reinsurance business, and financial leasing business. It has the
broadest overseas network among its China insurance peers, spanning East Asia, Southeast Asia,
Australia and Europe.
Asia Pacific Daily | 16
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China Real Estate
What's new: Joy City attended the Daiwa Investment Conference in Hong
Kong and we have an update on the company’s developments. What's the impact: Malls under management continue to do well amidst a challenging environment. Tenant sales in the malls under Joy City rose
20% YoY in 9M16, supporting our view that the group possesses the
expertise to manage large-scale mid-range malls in China. It has
completed the first phase of its transformation into a China mall specialist in
September 2016, after it sold a 49% stake in its 6 major malls to Joy City
Commercial Property Fund. We expect the group to continue to move
ahead in this transformation – it has so far secured three malls in Tianjin,
Kunming and Guiyang since 2015, on its asset-light approach and we
expect it to announce more in the coming months. We see this as a
credible way to capitalise on the group’s retail management expertise and
the oversupply situation in the China retail property sector. Property development would be a fading business. We believe that the
group has now settled on the above new strategy, and hence it would likely
move on to monetise its property development land bank at favourable
prices. We now assume that the launch date for the group’s Shanghai Joy
Mansion One project will be deferred to 2017 due to likely delays in
obtaining a pre-sales permit, and expect the pre-sales and completion
dates of its upcoming property projects to be more spread out. At the same
time, we have also estimated the group would pay additional property tax of
CNY40m, CNY89m and CNY98m in 2016, 2017 and 2018, respectively,
due to a change in the property tax law in Beijing (from July onwards, it
would be set at 12% of the rental income rather than 1.2% of the adjusted
historical cost of the property). All in all, after adjusting for these factors, we
lower our 2016-18 earnings forecasts for Joy City by 26-33%. What we recommend: We believe Joy City is now transitioning to a new
business model revolving around malls in the mainland (for both ownership
and management), and hence the key to its share-price increase will likely
be the progress it can make in its transformation and whether it can seize
the opportunities offered by the oversupply of retail malls in China. We
believe that it has been making progress along this line and hence reaffirm
our Buy (1) rating, although we lower slightly our 12-month TP to HKD1.45
(from HKD1.55) after taking into account its latest property sales schedule
and the new property tax law in Beijing. Our TP of HKD1.45 is derived from
a 50% target NAV discount applied to our lowered end-2016E NAV of
HKD2.90 (from HKD3.10). Key risks: a plunge in retail sales in China and
failure to secure management contracts for more malls in China. How we differ: We see Joy City as a company which is building a
differentiated business model to ride on China’s retail mall sector, but this
has yet to be fully recognised by the market.
11 November 2016
Some fine-tuning; positive transformation stays intact
Credentials in mall management continues to strengthen Transforming into a mall specialist with a differentiated model TP lowered slightly to HKD1.45 after some fine-tuning; reaffirm Buy (1)
Joy City Property is a commercial property developer and manager that focuses on the development,
operation, sales, leasing and management of shopping malls under its “Joy City” brand and other
commercial properties in Mainland China. Its parent, COFCO Corporation, is one of the 21 state-owned enterprises that have been granted approval to engage in real estate development in China.
Asia Pacific Daily | 20
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Hong Kong Financials
Background: Guotai Junan International (GTJA) attended Daiwa’s
Investment Conference in Hong Kong on 11 November. We believe
investors were interested in its margin finance business and the potential
for its new financial products business. Highlights: Margin finance (MF) has been the largest earnings driver for
GTJA over the past 5 years. Income from loans and financing rose by
23.5% YoY in 1H16, and is still the largest earnings stream for the
company. The growth of margin-loan balances has been stable at above
65% YoY for 2012-2015. Management said its margin-loan balance is likely
to maintain a high growth rate in 2017 but the pace of growth might slow
due to the expanding base. The interest rate for margin loans has remained at around 8% over the past
five years, with a pricing mechanism of the Hong Kong Prime Rate plus
300bps. Management guided that the interest rate for margin loans would
remain at around 8% in 2017, due to low bargaining power from its large
retail client base and the low sensitivity to interest rates from mainland
clients (91% of its brokerage clients were from China at end-1H16). Brokerage commission weakened from an average of 14bps in 2015 to
around 13bps for 2016 due to increasing competition. GTJA’s brokerage
commission ranges from 8-18bps depending on trading volume. The
Shanghai Stock Connect (Northbound) made up 10% of its brokerage
trades in 1H16. GTJA’s investment banking business has focused on small-and-mid- sized Chinese corporate clients, for which demand to list on the Hong Kong
Stock Exchange has been stable, in contrast to falling demand from large
Chinese corporates. As GTJA has a long history in the Hong Kong capital
market, management said the company has established strong ties with
both global and regional institutional investors to pitch its small-and-mid
size IPOs and secondary financing deals. For the DCM business, GTJA
has benefited from a growing issuance of US dollar bonds by both Chinese
corporates and Chinese local governments, which we believe is likely to
continue to grow in 2017, given market expectations of further CNY
depreciation. Valuation: GTJA’s share price is up 15.4% YTD as of 11 November. It is
trading at a PBR of 2.3x for 2017E and a PER of 15.5x for 2017E on the
Bloomberg consensus forecasts, both higher than that for its peers.
11 November 2016
Focus on traditional sell-side business
GTJA attended the Daiwa Investment Conference in Hong Kong Margin finance rate likely to be maintained but commissions weakening Building on its edge in small-and-mid-sized corporate finance
Source: Bloomberg, Daiwa Note: Daiwa forecasts for CITICS, HTS, CGS, GFS and Huatai H-share; Bloomberg consensus for other stocks. Priced as of 10 November 2016.
17%
13%
16%
1%
52%
Brokerage
Corporate finance
Financial products, marketmaking and investment
Asset management
Loans and financing
91%
6%
3%
China
Hong Kong
Others
Asia Pacific Daily | 22
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Hong Kong Consumer Discretionary
Background: China Maple Leaf Education Group, a leading international school operator in China, participated in the Daiwa Investment Conference held in HK on 8-9 November. The company remains confident in doubling its annual student enrolment base from around 20,000 currently to 40,000 by 2019/2020 school year. We noticed that the recent changes to China’s education regulatory framework have been the main focus during investor meetings. However, the management currently sees a limited financial impact from the recent revisions to the education law in China. Highlights: Management sees limited operational and financial impact from the new education regulations in China. The China Government’s recent revisions to the relevant laws governing the Chinese education sector divide private schools into “for-profit schools” vs. “not-for-profit schools”. Going forward, only not-for-profit schools would be allowed to provide compulsory education (ie, primary and middle school, Grades 1-9) with favourable tax treatment. For-profit schools could retain high flexibility on tuition fees and will be subject to normal corporate tax rate. China Maple Leaf has elected all its schools currently operating in China as schools that “do not require a reasonable return” and are likely to be termed as “not-for-profit” schools under the new regulatory framework. The management believes the new regulations do not limit the profitability of the company’s existing schools, but may limit the dividend payments to the school sponsors (a concept similar to equity holders). For this reason, the company does not see material tax and profitability impact rising from the new regulations. A closer look at China Maple Leaf’s asset-light expansion model. In 2012, the company adopted an “asset-light model” to develop new schools with local governments. Under this, the local governments provide lands and construct the school buildings, while China Maple Leaf operates the schools for 30-50 years. In exchange, the company pays the government either a rental fee (not exceeding 8% of total school revenue) or a management fee (equivalent to c.45-50% of accumulated school net income). The management believes that such an expansion model will lower the company’s upfront capex requirement for opening new schools. Over the next 2-3 years, it plans to open new schools in various cities in China including Xi’an, Yancheng, Weifang, Chongqing and Shijiazhuang, using this asset-light model. The company plans to post its FY16 (August year-end) results by the end of November and is targeting earnings growth of no less than 40% YoY. Valuation: The stock is currently trading at FY16E PER of 20x and FY17E PER of 16x, based on the Bloomberg consensus forecasts.
11 November 2016
Company sees limited impact from new education law
Management does not expect material tax rate changes in the short term School network expansion likely to be driven by asset-light model China Maple Leaf is trading at a 20x FY16E PER (August year-end)
China Maple Leaf Educational Systems (1317 HK): 11 November 2016
China Maple Leaf: existing schools (as of November 2016)
By City Year of
Opening Estimated Capacity High School Middle School
Elementary School Pre-school
Foreign National School Total Remarks
1) Self-owned schools
Dalian 1995 5,890 1 1 1
1 4
Dalian Pre-school n/a 1,800
10
10
Wuhan 2007 3,500 1 1 1
1 4
Tianjin (Taida) 2008 3,200 1 1 1
3 Acquired
Chongqing 2009 1,500 1 1 1 1
4
Zhenjiang, Jiangsu 2011 1,600 1 1 1
3
Shanghai 2013 2,000 1 1
2
Jingzhou, Hubei 2015 1,500
1 1
2 Acquired
Yiwu, Zhejiang 2015/2016 3,200 1 1 1
1 4 High school and foreign national
schools in Yiwu will be relocated to a new asset light campus
Pinghu, Zhejiang 2016 2,000
1 1 1
3
Sub-total
26,190 7 9 8 12 3 39
2) Asset light schools
Luoyang 2012 2,700 1 1 1
3 Profit sharing
Ordos 2012 1,300
1 1 1
3 No profit sharing & rental
Pingdingshan 2014 650
1 1 1
3 Profit sharing
Tianjin (Huayuan) 2014 1,600
1 1
2 Rental payment
Xi'an 2016 2,000
1 1
2 Profit sharing
Huai'an, Jiangsu 2016 500
1 1
2 Rental payment
Tianjin (Kaifaqu) 2016 150
1
1 Profit sharing
Kamloops, British Columbia
2016 250 1
1 Rental payment
Sub-total
9,150 2 6 6 3 - 17
Total
35,340 9 15 14 15 3 56
By Region No. of Cities Estimated Capacity High School Middle School
Elementary School Pre-school
Foreign National School Total Remarks
China 14 35,090 8 15 14 15 3 55 14
Canada 1 250 1
1 1
Total
35,340 9 15 14 15 3 56
Source: Company
China Maple Leaf: pipeline for new school (as of November 2016)
Cities Estimated Capacity High School Middle School Elementary
School Pre-school Foreign National
School Total Remarks
2016/2017 school year
Asset light schools
Cities in Hubei 150~130
1~2
1~2 Profit sharing
Total 150~130
1~2
1~2
2017/2018 school year
Asset light schools
Xi'an 1,500~2,000 1
1 2 Profit sharing
Huzhou, Zhejiang 1,500~1,800
1 1 1
3 Profit sharing
Weifang 1,800~2,000
1 1 1
3 MOU#
Yancheng, Jiangsu 750
1 1
2 Profit sharing
Chongqing (Liangping) 1,800
1 1 1
3 Rental payment
Total 7,350~8,350 1 3 4 4 1 13
2018/2019 school year / after 2018/2019 school year
Asset light schools
Yancheng, Jiangsu 1,800 1 1
2 Profit sharing
Dalian 1,800
1 1 1
3 MOU#
Shijiazhuang 1,500
1 1 1
3 MOU#
Chongqing (XT Data Valley) 1,800
1 1 1
3 MOU#
TBC
Beijing
Under negotiation
Shenzhen
Under negotiation
Total 6,900 1 4 3 3 - 11
Source: Company
Asia Pacific Daily | 24
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Korea Financials
What’s new: IBK attended the Daiwa Investment Conference in Hong Kong on 9-10 November. We believe there was a lot investor interest in IBK, likely due to recent favourable changes to its interest-rate outlook. What's the impact: Brighter interest income outlook: Investors were surprised at the recent hike in market interest rates and this should prove positive for the Korean banking sector, including IBK, in our view. Most investors now agree that the Bank of Korea (BoK) is unlikely to implement a rate cut this year, resulting in more resilient interest income for IBK next year. However, we expect loan growth to slow due to the government’s
property market regulations and weakening domestic economic growth. We expect IBK’s KRW loan growth to slow to 4.2% YoY in 2017 (vs. 9M16 loan growth of 6.4%). We now expect IBK’s NIM to rise by 2bps YoY in 2017 (from flat YoY) as the BoK has held interest rates steady since June 2016 and given the favourable spread conditions on its loan book. Asset quality: Investors were slightly concerned over QoQ rises in IBK’s NPL ratio (1.42% in 3Q16) and delinquency ratio (0.80% in 3Q16). IBK assured investors that its 3Q16 NPL ratio was close to its annual target of 1.41% and that the NPL ratio will come down QoQ due to a seasonal rise in NPL sales in 4Q. Investors believed that this should not be a major risk factor as long as IBK’s delinquency ratio remained below 100bps. Dividend outlook and capital adequacy: IBK affirmed a 31% payout ratio (parent basis) for 2016 and plans to deliver a 40% payout ratio by 2019. Some investors believed that a possible sale of IBK’s stake in KT&G in 2017 could support a rise in its 2017 DPS. Despite IBK’s recent share price advance, we consider its potential dividend yields of 3.7% in 2016 and 4.4% in 2017 to be attractive. IBK was also confident that its CET-1 ratio requirements for 2019 should exceed the minimum regulatory requirement of 9.5% (including a counter-cyclical buffer of 2.5%) and its capital ratio should not be an obstacle to raising payouts gradually YoY. What we recommend: As a result of the recent market interest rate hike, we expect IBK’s YoY interest income growth to become more sustainable. We maintain our Outperform (2) rating and raise our 12-month target price to KRW15,500, applying a Gordon Growth Model-derived target PBR of 0.54x (previously 0.5x) on our 2017E BVPS. We raise our 2017-18E EPS by 5-10% to reflect our view of an improving NIM and stable credit cost. Key risk: an unexpected spike in SME delinquency of over 100 bps. How we differ: Our 2017-18E core EPS are higher than the Bloomberg consensus as we are more bullish on IBK’s interest income trend.
11 November 2016
Interest income outlook turns positive
IBK attended the Daiwa Investment Conference in Hong Kong Credit quality is likely to improve in 4Q16 Reiterating our Outperform (2) rating; raising TP to KRW15,500
Source: Bloomberg (non-asterisked companies), Daiwa forecasts (* companies) Note: share prices as at 11 Nov 2016, except for US and European shares (10 Nov 2016)
84%
79%
68%
87%
97%
82%81%
66%
84%
92%
60%
65%
70%
75%
80%
85%
90%
95%
100%
KBFG SFG HFG Woori IBK
2015 9M16
330
430 450 500
600 650
24.2%
27.3%25.8%
27.0%
30.5%
32.7%
20%
22%
24%
26%
28%
30%
32%
34%
36%
0
100
200
300
400
500
600
700
2013 2014 2015 2016E 2017E 2018E
DPS Pay-out ratio(RHS)
(KRW)
Asia Pacific Daily | 26
3
Industrial Bank of Korea (024110 KS): 11 November 2016
Financial summary Key assumptions
Profit and loss (KRWbn)
Change (YoY %)
Source: FactSet, Daiwa forecasts
Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E
Established in 1961, Industrial Bank of Korea (IBK) specialises in lending to SMEs. The bank commands the biggest share (over 20%) of the SME lending market in Korea. IBK has a funding advantage because it is allowed to issue small and medium industry finance (SMIF) bonds of an amount of up to 20 times the bank’s paid-in capital plus its reserves. IBK is likely to pay higher dividends than its peers in coming years as state-owned corporates, such as IBK, are highly encouraged by the government to raise dividend payouts.
Asia Pacific Daily | 28
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Korea Consumer Discretionary
What's new: SM Entertainment’s (SME) operating profit beat the
Bloomberg consensus by 31% in 3Q16 on the back of strong concert
revenue and merchandise sales. We expect the strong earnings trend to
continue throughout 2017 driven by artist expansion. We reaffirm our Buy
(1) rating as we believe that uncertainty over the China division has been
priced in and forecast EPS growth of 65% for 2017. What's the impact: SME’s operating profit of KRW13.5bn was 31% above
the Bloomberg consensus, largely due to strong concert revenue and
merchandising sales. Its TV production subsidiary SMC&C also saw strong
earnings along with increased content production. After beating the market
consensus in 3Q16, SME’s strong earnings trend should continue
throughout 2017, in our view. For 4Q16, we expect operating profit to
increase by 270% YoY to KRW8.4bn due to: 1) a low base effect from last
year, with a KRW5bn one-off cost for its China headquarters, and 2) an
increased Japanese concert audience (200,000 in 4Q15 vs 400,000 in
4Q16). And for 2017, we forecast operating profit to grow by 54% YoY as
SME’s main artists TVXQ! and members of Super Junior are scheduled to
return from military service, while its new boy bands should make their
debut in overseas markets such as China and Japan in 2017. However, we
believe it will take time for investor sentiment on the K-wave to improve
given South Korea’s recent missile deployment. In addition, there is a risk
of delay/cancellation of TV appearances/ads and concerts. Hence, to
reflect the uncertainties faced by its China business and possible profit
misses, we lower our 2017-18E EPS by 22% and 20%, respectively. What we recommend: As political conflict between South Korea and
China has yet to be resolved, uncertainties remain over the China division
and could continue to weigh on valuations, in our view. Nevertheless, we
reaffirm our Buy (1) rating as we believe the uncertainty in China is
effectively priced in, and the better-than-expected earnings in 3Q16 and the
potential 65% YoY EPS growth for 2017E will support current share-price
levels. Although we cut 2016-18E EPS by 3-22%, we raise our 12-month
TP to KRW37,000 from KRW35,000, based on an unchanged target PER
of 27x (the stock’s average 12-month forward PER from 2010) applied to
2017E (previously blended 2016/17E earnings) . The key risk to our call:
political conflict with other countries such as China and Japan. How we differ: Our EPS forecasts for 2017-18 are 15%and 8% below the
Bloomberg consensus, respectively, as we are more conservative on its
China division and the company’s ability to achieve a profit.
11 November 2016
Limited downside risk
3Q16 operating profit beats consensus estimate by 31% We forecast 65% YoY EPS growth next year due to artist expansion We reaffirm our Buy (1) rating and raise our TP to KRW37,000
SM Entertainment is one of the biggest K-POP management companies in Korea. The company
trains and manages artists and actors, with popular artists such as EXO, TVXQ, Girl's Generation,
Super Junior and others under its management.
Asia Pacific Daily | 32
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Taiwan Information Technology
What's new: Asustek hosted an analyst meeting today (11 November) to
report its 3Q16 results, which beat estimates on better non-op income.
Looking into 4Q16, the company’s revenue guidance looks soft to us and
suggests no clear seasonality, due mainly to the lacklustre PC demand. What's the impact: 3Q16 results. Net profit came in at TWD5.98bn (EPS:
TWD8.0), above our estimate (TWD5.69bn) and the Bloomberg consensus
(TWD5.56bn), thanks to higher dividend incomes from Advantech and
Pegatron. Gross margin in 3Q16 rose to 13.9%, vs. 13.4% in 2Q16 due
mainly to more contribution from new products (eg, Zenbook 3 and Zenfone
3), but marketing expenses also increased which led to a stable operating
margin of 4.0%, largely in line with our estimate of 3.9%. 4Q16 guidance looks soft. Asustek expects its 4Q16 revenue to be in the
range of TWD100-110bn, which is below our prior forecast (TWD120bn)
and suggests no clear seasonality (vs. TWD107.5bn in 3Q16 revenue). PC: Asustek expects 0-5% QoQ growth in its PC revenue, which is below
the 13-14% QoQ growth in 4Q over the past two years. The management
attributes the soft guidance to overall PC market weakness, but still expects
demand for its Zenbooks, 2-in-1 devices, and gaming PC to remain solid. Mobile: Company guides for 10-20% QoQ growth in mobile revenue (both
smartphone and tablet). It expects smartphone to be the major driver given
the ramp-up in shipments of Zenfone 3, while tablets are likely to stay flat. Others: Asustek expects 5-10% QoQ decline in its component revenue
(mainly motherboard and graphic cards). Also, Asustek will launch “Zenbo”,
its first home robot, in December. Zenbo may not contribute much to 4Q16
results, but we think it could become a fresh contributor from 2017 onwards. Margins: Asustek expects its 4Q16 operating margin to be 3.75%-4.25%,
ie, stable QoQ. We remain cautious, however, on the potential downside
risk from likely higher marketing expenses for the year-end holiday season. What we recommend: We trim our 2016E EPS by 1% to reflect its weaker
4Q16 guidance, but raise our 2017-18E EPS by 3-4% to mainly factor in the
likely recurring dividend incomes. As such, based on our revised 1-year-forward EPS (4Q16 to 3Q17) and an unchanged PER of 11x (near the mid-point of its past-3-year range of 7-14x), we trim our 12-month TP to TWD250
(from TWD253). We remain cautious on Asustek’s revenue growth outlook,
but think its new products (eg, Zenfone in 3Q16, Zenbo in December 2016)
may become effective catalysts at times. Key upside/downside risks: better-/worse-than-expected earnings contribution from its smartphone business. How we differ: We are more wary than the market of the potential
competitive pressure on Asustek’s smartphone business.
11 November 2016
4Q16 guidance suggests no clear seasonality
3Q16 core earnings in line; non-op income higher than expected Lacklustre 4Q16 guidance suggests no seasonal growth Reiterating Hold (3); trimming TP to TWD250 (from TWD253)
Established in 1990, Asustek Computer is currently the fifth largest PC brand in the world in terms of market share, according to IDC. The company spun off its PC ODM operation in 2010 (which is later on known as Pegatron Corp.) and fully concentrates on its own-brand business, with major products including notebooks, tablets, motherboards, graphic cards, and other PC peripherals.
Asia Pacific Daily | 36
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Taiwan Information Technology
What's new: GIS released strong 3Q16 results on 11 November, affirming
our view that 2Q16 should mark the bottom for GIS. We expect the
company to deliver a back-loaded 2016 and resume profitability due to the
strong ramp-up of 3D touch modules for the iPhone 7/7 Plus. GIS remains
our preferred stock in the touch panel space. What's the impact: Impressive 3Q16 results. GIS’s 3Q16 revenue came
in at TWD19.9bn, up by 93% QoQ but down 27% YoY, and in line with our
estimate. Driven by a favourable product mix and economies of scale on a
high utilisation rate, GIS’s operating margin improved to 5.8% in 3Q16,
significantly better than the -3.7% in 2Q16 and much better than our and
street estimates of 3-3.5%. GIS reported a 3Q16 EPS of TWD3.2 (from a
loss in 2Q16), better than our and the consensus estimates of TWD1.5-1.8. 4Q16 should be another strong quarter. Looking into 4Q16, we expect
revenue momentum to remain strong due to solid demand for the new
iPhones and the initial ramp-up in shipments of new iPads. In total, we
expect GIS to deliver 4Q16 revenue of TWD27.3bn (up 37% QoQ, down
27% YoY) with EPS of TWD3.3, up 4% QoQ but down 11% YoY. Earnings growth likely to resume in 2017. GIS suffered from iPhone and
iPad order adjustments in 1H16, resulting in a muted 2016 with flat YoY
earnings. We believe 2017 should be a better year driven by strong
demand for new iPhones and increasing MegaSite orders from new iPads.
We expect GIS to achieve earnings growth of 15% YoY for 2017 and 11.4%
YoY for 2018. In the long term, we believe GIS is in a position to win new
lamination orders from Apple on the likely adoption of OLED in iPhones
from 2H17. However, we have not yet factored this into our model. What we recommend: We raise our 2016-18E EPS by 5-38% to factor in
the better-than-expected 3Q16 results and our more upbeat margin
assumptions. We reiterate our Outperform (2) rating and raise our 12-month TP to TWD93 (from TWD90), based on a target PER of 11x (from
12x), near the low end of the stock’s historical range of 8-19x, applied to
our revised 2017 EPS. We apply a lower PER to factor in the risk of high
volatility in GIS’s earnings delivery and the rising global economic
uncertainty. Key risk to our call: greater-than-expected pricing competition. How we differ: Our 2017 earnings forecast is 21% higher than the Bloomberg consensus due to our more upbeat gross-margin outlook.
11 November 2016
Embracing strong seasonality in 2H16
3Q16 results beat on favourable product mix; strong outlook for 4Q16 Expect to resume earnings growth in 2017 on new product ramp-up Reiterate Outperform (2); raising TP to TWD 93 from TWD90
General Interface Solution (GIS), founded in 2011 as the touch panel module manufacturing unit of
Hon Hai Group, provides integrated touch panel services to clients through 3 manufacturing facilities
located in China and Taiwan. GIS was listed on the TWSE in 2015.
Asia Pacific Daily | 40
See important disclosures, including any required research certifications, beginning on page 5
Singapore Industrials
What's new: While ComfortDelGro’s (CDG) 3Q16 results were mixed
versus our expectations, its operational trends remain resilient. We believe
the market concerns have been adequately discounted in the 16% pullback
in CDG’s shares over the past 3 months, and see current price levels as an
attractive entry point for investors. Reaffirm Buy (1). What's the impact: CDG reported 3Q16 net profit (PATMI) of SGD87.3m
(up 2.5% YoY) on a 0.2pp YoY improvement in operating margin and a
3.1% YoY decline in revenue. While revenue was in line with our estimate,
net profit came in 3.1% below due mainly to sharper-than-expected impact
of unfavourable currency translation. On a constant currency basis, 3Q16
operating profit would have increased 2.4% YoY (vs. -1.4% YoY). Operational trends. CDG’s 3Q16 taxi-segment operating margin (up 0.2pp
YoY) was the key positive surprise – its performance continues to defy
investor scepticism brought upon by concern over competitive pressures
from private hire car services (Uber/Grab). Looking ahead, we expect the
segment to remain resilient, on stable fleet growth and the conversion of its
Singapore taxi fleet to newer i40 models (CDG said around 53% remain
unconverted) which command a higher rental rate. Meanwhile, CDG’s
3Q16 bus-segment operating margin (-0.6pp YoY) surprised us negatively.
Management attributed this mainly to currency translation effects, and
highlighted that underlying operations in the UK remain healthy. We believe
4Q16 will reveal the magnitude of operating-margin improvement expected
in its Singapore bus operations, following the transition to a new asset-light
model in September 2016 (our forecast: 8.0%). Overall, we are trimming our 2016-18E EPS by 3-4% after reducing our
bus-segment operating-margin assumptions to factor in a weaker GBP, as
well as on incorporating the recently announced 5.7% reduction in
Singapore public transport fares into our 2017-18 rail-segment forecasts. What we recommend: We reaffirm our Buy (1) rating on the stock, with a
higher DCF-based 12-month TP of SGD3.64 (from SGD3.54) driven by our
EPS forecast changes and as we roll over our valuation base to 2017. We
continue to believe CDG’s defensive business, sustainable earnings growth
profile, what we see as an attractive 2017E dividend yield of 4.1% and
growing net cash position (3Q16: SGD259m) remain underappreciated by
investors. Key risk: unfavourable regulatory policies. How we differ: We believe the attractiveness of a new contracting model
for CDG’s Singapore bus segment could be under-appreciated by some in
the market.
11 November 2016
Comforting operational trends
3Q16 results were mixed versus our forecasts Taxi-segment margin the strongest achieved in the past 5 years Reaffirming our Buy (1) rating; raising TP to SGD3.64 on rollover
ComfortDelGro is a multi-modal land transport services provider, operating a fleet of over 46,000
vehicles across several countries, including Singapore, UK, Australia and China. The company was
formed following the merger of Comfort Group and DelGro Corporation in 2003.
Asia Pacific Daily | 44
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Singapore Telecommunication Services
What's new: M1 participated in Daiwa’s Investment Conference in Hong
Kong on 8-9 November. New entrant threats, mobile revenue trends and growth strategy were key topics of discussions among investors. What's the impact: M1 said it expects the regulator to make a decision on new entrants within the coming weeks. In case a new player does emerge, the company intends to defend its customer base, though management also qualified this by saying that the company doesn’t need to compete on price alone given that its brand commands a premium in the market. M1 said it is taking some pre-emptive measures to promote customer loyalty and pointed out to its recent increase its advertising spend (3Q16: +24% YoY) as one such measure aimed at refreshing its brand image. With regards to the weak mobile-service revenue trends (3Q16: -6.6% YoY) the company reiterated that the recently launched data ‘upsize’ offers were
not to be blamed. In fact, according to M1, a large portion (26%) of customers who signed-up for ‘upsize’ offers still exceeded their monthly data allowances. Management instead attributed the weakness to falls in roaming and international call revenue, launch of local data-alert service in May, and accelerated pace of voice-to-data substitution. We think M1’s
explanations make sense as they are consistent with the commentary from its peers – the soft 3Q16 mobile revenue was an industry-wide trend. In order to drive medium-term growth, M1 said it is focusing on three areas. First, it is pushing ahead and is making good inroads in the fixed-line market, particularly in the corporate segment. Management said M1 has won few contracts over the past month, which should support its revenue in 2017-18. Second, M1 plans to complete the rollout of internet-of-things (NB-IOT) network by 2Q17, which management believes could open new avenues of growth in areas such as fleet management and retail. Third, management said it is scouting for suitable M&A opportunities. We observe that there appears to be a slight shift in company’s M&A strategy – it appears to be keener than before in exploring opportunities – though management also reaffirmed its dividend policy (minimum 80% pay out) and its focus on value accretive deals. What we recommend: We reiterate our Hold (3) rating with an unchanged 12-month DDM-based target price of SGD 2.23. We see upside risk to our target price if a new entrant fails to emerge in the industry, while high competitive pressures would pose downside risks. How we differ: Unlike some in the market, we believe new entrant risks are largely discounted given the roughly 25% YTD decline in share price.
11 November 2016
Conference takeaways: focusing on fixed-line and IOT
M1 is focusing on fixed-line and internet-of-things to drive growth The company seems keener than before in scouting for M&A targets Reiterating our Hold (3) rating and TP of SGD2.230
M1 – founded in August 1994 – is a mobile operator in Singapore, engaged principally in the provision of mobile-voice and data-communication services. The company was listed on the Singapore Stock Exchange in December 2002.
Asia Pacific Daily | 48
11 November 2016
Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)
Page 1 of 6
Not so sweet raw sugar prices MSM’s 1H16 net profit has already shown signs of being impacted by raw sugar prices as the gross margin dropped by 8.5ppts YoY to 16%. We caution that there might be a chance of further earnings downside, especially in 2017 if raw sugar prices continue to spike. We are still waiting for potential cost benefits to emerge from MSM’s Dubai operations. Maintain HOLD rating and TP of RM4.72.
Raw sugar prices have increased by 43% ytd According to the United States Department of Agriculture (USDA), global sugar consumption for 2016/17 is forecasted at a record 174m mt, exceeding production at 169m mt. While sugar consumption growth has been sustained by drawing down existing stock levels in 2015/16, stocks are approaching historically low levels. As a result, the raw sugar price has spiked to 21.65 cts/lb as of 10 November 2016, an increase of 43% ytd.
Potential downside to MSM’s earnings from 3Q16E MSM’s 1H16 gross margin has dropped by 8.5ppts YoY to 16%. YTD, raw the sugar cost is at 17.9 cts/lb vs. the 2015 average of 15.3 cts/lb. While the government has increased the wholesale price of refined sugar by about 30% from RM1,900/tonne to RM2,400-2,500/tonne from August 2016 to account for this increase, recall that the average selling price for domestic sugar in Malaysia is still fixed at a price ceiling of RM2.84/kg. As of 1H16, the domestic market accounted for 44% of MSM’s sales volumes, followed by the industries segment (40% of sales volume) and export segment (16% of sales volume). Thus, while we assume average raw sugar prices of 17.5/16.5/16 cts/pound in 2016E/17E/18E, we caution that a further spike in raw sugar prices may lead to further downside to MSM’s earnings. Based on our back-of-the-envelope analysis, a 1ct/lb increase in the cost of MSM’s raw sugar would cause a 36%/24%/24% drop in 2016E/17E/18E net profit, keeping other factors constant. Nonetheless, MSM’s setting up of the Dubai office should assist with sourcing of raw sugar, which would potentially bring lower costs and tax rates.
Maintain HOLD and TP of RM4.72 We make no changes to our earnings while we await 3Q16E results next week and maintain our HOLD call with a 12-month target price of RM4.72 based on an unchanged 2017E PER of 12.5x (past-3-year mean). Also recall that MSM’s capacity should expand by 1m mt to 2.35m mt through the refinery in Johor, expected to be fully operational in 1Q18. Downside risks: i) further spike in raw sugar prices; ii) a weaker RM vs. the US$; iii) weaker-than-expected domestic sugar demand and iv) higher operational costs. Upside risks: stronger-than-expected sugar demand.
See important disclosures, including any required research certifications, beginning on page 5
India Financials
What's new: Manappuram Finance reported another strong performance
in 2Q FY17 with net-profit growth of 205% YoY and 20% QoQ, driven by
robust AUM growth of 42% YoY on a consolidated basis in 2Q FY17. Gold
as well as non-gold AUM reported high growth rates in 2Q FY17. We
expect loan growth to remain robust for FY17 though there could be some
slowdown in 3Q FY17 due to the demonetisation measures announced by
the Government of India on 8 November. The company said there could be
a 10 day impact on repayments. We believe this may result in some
slowdown in AUM growth depending on how the government and banks
manage the demonetisation process (old 500- and 1,000-Rupee notes
being taken out of circulation) in the country, but it should not incur any
material net profit loss. What's the impact: Gold loan AUM rose by 30% YoY and 9% QoQ from
average growth of around 12% YoY over the previous 3 quarters (3Q FY16-1Q FY17). Non-gold AUM reached 15% of AUM in 2Q FY17 from 13% QoQ
in 1Q FY17 and 7% in 2Q FY16; management guides for non-gold loans to
reach around 25% of total AUM by FY18. Within non-gold AUM
microfinance, commercial vehicle and home loans posted strong growth of
25-27% QoQ. Consequently, NII increased by 78% YoY and 14% QoQ,
despite the interest spread narrowing slightly by 11bps QoQ to 15.8%. The
company does not intend to increase its number of gold loan branches as it
is focusing on increasing its current branch utilisation and digital lending
platform. Opex-to-AUM declined to a commendable 6.9% of in 2Q FY17
from 8.2% in 2Q FY16. What we recommend: Given the strong AUM growth, low delinquencies along with improving branch utilisation we are raising our 12-month target price by 15% to INR115 (from INR100) and now value the stock at a PBR of 2.9x on our average FY17-18E BVPS (against 2.5x earlier), based on our Gordon Growth Model. A sharp fall in international gold prices remains the key risk to our call as it could lead to a substantial slowdown in gold AUM growth, and also result in interest income reversals. How we differ: While the stock has been significantly rerated over the past
9-10 months, we believe the market is still wary of the company’s past
financial performance, which has been volatile. However, we believe
management has substantially restructured the existing business and
reduced the interest-income volatility risk by reducing the tenor of loans
substantially from 1 year to around 3 months. Also, regulatory guidelines on
both gold loans and micro-finance business are much stricter now. Hence,
we expect the company’s profitability to remain strong, leading to a further
rerating of the stock.
11 November 2016
AUM growth picks up further; PAT up 205%
Gold loan AUM rose by 30% YoY for 2Q FY17 Non-gold AUM formed 15% of AUM in 2Q FY17 from 13% QoQ Reiterate Outperform (2); raising TP to INR115 (from INR100)
Review of 10 Nov events associated with Opdivo Media reports say MHLW set for 50% cut to Opdivo’s NHI price Opdivo met primary endpoint in Phase III study as gastric cancer drug Rival Keytruda could debut in Feb 2017 as first-line lung cancer drug
What’s new: 10 November saw three major events associated with Ono Pharmaceutical’s investigational anti-PD-1 antibody Opdivo. In the early hours of the day, several media outlets reported that the government is now set to cut the NHI reimbursement price for Opdivo by 50%. After the market close, Ono Pharmaceutical announced that Opdivo met the primary endpoint in Phase III (ONO-4538-12) study as a gastric cancer drug. Also on the day, the Ministry of Health, Labour and Welfare (MHLW) announced that the 24 November meeting of the Second Committee on Drugs under the Pharmaceutical Affairs and Food Sanitation Council (PAFSC) will discuss whether to make some revisions to its approval for MSD’s anti-PD-1 antibody Keytruda. Details: According to the media reports, the MHLW is to decide on the NHI price cut at a meeting of the Central Social Insurance Medical Council slated for 16 November. Meanwhile, Ono Pharmaceutical announced that the Phase III study on Opdivo showed a clinically meaningful extension of overall survival vs. placebo in patients with gastric and gastroesophageal junction cancer refractory or intolerable to standard therapies. Lastly, also according to media, the PAFSC committee’s 24 November meeting will discuss whether to approve an additional indication (non-small cell lung cancer) for Keytruda, among other agendas. Of note, MSD reportedly scrapped the plan of putting Keytruda on the NHI drug price list in November and will instead aim for the listing after approval for the additional indication. What's the impact: We now see a stronger likelihood of a 50% cut to Opdivo’s NHI price in 2017, which is a negative for our earnings estimates assuming a 25% cut in that year. However, the 10 November media reports held no fresh surprises, as we had not left out the chance of a 50% cut in light of earlier reports. Meanwhile, Ono Pharmaceutical is likely to use the Phase III study results in the filing for adding the new indication of gastric cancer for Opdivo. We note that the firm is eligible to receive a higher proportion of profits on Opdivo in Japan than in other regions. More importantly, there are a large number of gastric cancer patients in Japan, almost as many as lung cancer patients. Given this, we have a positive impression of the favorable Phase III data, which bodes well for Opdivo sales volume growth over the medium term, although the results overall were largely as we had expected. As for Keytruda, if the committee gives a green light to the additional indication, Opdivo’s rival will likely be approved officially in December. Then, the filing of the request thereafter for adding Keytruda to the NHI price roster would lead to listing in February 2017. All in all, Keytruda now looks more likely to be launched in February 2017, after the additional approval as a first-line lung cancer drug. For Opdivo, Keytruda would be the first rival in the Japanese market.
Japan
Pharmaceuticals 11 November 2016 Japanese report: 11 November 2016
Important disclosures, including any required research certifications, are provided on the last two pages of this report.
Share Price Chart
Source: Compiled by Daiwa.
Market data 12-month range (Y) 5,175-8,964
Market cap (Y mn; 10 Nov) 1,178,688
Shares outstanding (000; 11/16) 162,309
Foreign ownership (%; 3/16) 39.7
Investment Indicators 3/16 3/17 E 3/18 E
P/E (X) 14.7 23.2 21.2
EV/EBITDA (X) 6.3 7.7 7.1
P/B (X) 1.92 1.92 1.82
Dividend yield (%) 1.93 1.93 1.93
ROE (%) 13.3 8.3 8.8
Net debt/equity (X) -0.4 -0.4 -0.4
Income Summary
(IFRS; Y mn) 3/16 3/17 E 3/18 E
Revenue 793,054 734,000 752,000
Op profit 102,397 68,000 73,500
Pretax income 101,996 67,700 74,100
Net income 81,683 50,700 55,600
EPS (Y) 495.2 312.4 342.6
DPS (Y) 140.00 140.00 140.00
See end of report for notes concerning indicators.
Nitto Denko (6988)
Target price: Y7,000 (as of 21 Jul)
Share price (10 Nov): Y7,262 | Up/downside: -3.6%
Announced tie-up for investigational liver cirrhosis drug Firm to out-license new liver cirrhosis drug to Bristol-Myers Squibb To get $100mn upfront payment, royalties upon progress in development Deal positive; underlines drug’s significant potential
What's new: Nitto Denko announced an agreement with Bristol-Myers Squibb for the out-licensing of a drug used to treat liver cirrhosis. Key takeaways: On 10 November, Nitto Denko and major US pharmaceutical maker Bristol-Myers Squibb (BMS) announced that they had entered an agreement under which Nitto Denko will out- license a nucleic acid drug used to treat liver cirrhosis, for which it is currently holding clinical trials. From now on, BMS will be responsible for the development, manufacture, and commercialization of the drug globally. BMS will make an upfront payment of $100mn (over Y10bn) to Nitto Denko, which is also eligible to receive royalties and milestone payments based on progress in development and commercialization (amount only disclosed for upfront payment). The agreement also grants BMS the option to receive exclusive licenses for nucleic acid drugs for the treatment of lung fibrosis and other organ fibrosis (nucleic acid drug for cancer treatment under development by Nitto Denko, but not covered by announced deal). What we recommend: We basically view the announcement as a positive development, as it indicates that a major third-party pharmaceutical company rates the drug’s potential highly. Given that the initiative for developing the drug will shift to BMS, hereafter we will probably only learn about development progress from BMS releases.
Japan
Chemicals 11 November 2016 Japanese report: 11 November 2016
No Capital Markets and Services Licence has been issued by the Malaysian Securities Commission to any member of Daiwa Capital Markets and accordingly this report and any part of its content may not be distributed or made available by any means within Malaysia.
Asia Pacific Daily | 56
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2013
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Equity House
Spotlight
12 November 2016
Disclosure: Bahana Securities does and seeks to do business with companies covered in its research reports. Investors should consider this report as only a single factor
in making their investment decision.
Please see the important disclaimer information on the back of this report
We try to estimate front-loaded demand created by the first-car scheme and check if the payback is over and find that passenger cars should see a faster recovery, as the payback period looks to be over. Commercial cars will likely see a see slower rebound as further front-loaded demand was seen in 4Q15 on a new excise tax program.
2017F car sales: not that fast and furious Expectations for 2017F car sales are running high as a large batch of cars under the first-car scheme will be eligible for sale with no tax penalty. From our analysis, we expect the first positive growth in car sales since 2013. However, the recovery will likely be gradual. In detail, we project commercial and passenger car sales combined to reach 769k (+4% y-y) in our base-case scenario. Passenger cars should see a faster recovery, as the payback looks to be over. On the other hand, commercial cars should see a slower rebound as further front-loaded demand was seen in 4Q15 on the back of a new excise tax program.
Payback looks over for passenger cars… We estimated domestic passenger car sales using the simple annualized average growth from recent years before the first-car scheme to gauge the extent of front-loaded demand created by the program in 2012-13. We find front-loaded demand could amount to as much as 386k cars (242k in 2012, 144k in 2013, see Exhibit 4). This significant front-loaded demand has been followed by a long payback period of falling car sales (May 2013-April 2016), which we think is already over for passenger cars. From our projections, we expect passenger car sales to reach a bottom in 2016F and gradually rebound in 2017F. In detail, we estimate 2017F passenger car sales to reach 299k (12% y-y growth) under our base-case scenario.
…but not for commercial cars Using the same method to estimate front-loaded demand and payback for commercial car sales, we find that first-car scheme front-loaded demand for commercial cars is about 416k (255k in 2012, 161k in 2013, see Exhibit 6). However, the payback period doesn’t look over as there was further front-loaded demand created by the new excise tax scheme at the end of 2015, resulting in a sharp increase in commercial car sales in 4Q15F (17.4% y-y). Our projection indicates that commercial car sales should reach 470K in 2017F (flat y-y growth compared with sales in 2016F) under our base-case scenario. We therefore believe that a commercial car sales recovery in 2017F will likely be slower than for passenger cars.
Supply-side data also suggest a modest recovery We double-checked our expectation of a modest recovery in car sales next year with recent supply-side automotive data. 9M16 car production growth (3% y-y) remains slow and 60% of the production is for export (vs. the 2005-10 average of 50%). Recent 3Q16 automotive capacity utilization (seasonally adjusted) is around 78%, lower than the rate in the same period last year (83%). The Automotive Manufacturing Production Index also suggests the same declining trend as the index in 3Q16 fell by 7%.
ECONOMIC MONITOR
Passenger Car Sales Projections
347 388 434 485369 299 267 299
242 144
26
26
173 307 411
0100200300400500600700800
2010
2011
2012
2013
2014
2015
2016
F
2017
F
EstimatesPaybackPent-up demand from floodsFront-loaded demandActual
('000 units)
Sources: Bank of Thailand, Thanachart estimates
Commercial Car Sales Projections
454 434 506 534 514 506 471 470
255 16145
45
52 95 157
0100200300400500600700800900
2010
2011
2012
2013
2014
2015
2016
F
2017
F
EstimatesPaybackPent-up demand from floodsFront-loaded demandActual
('000 units)
Sources: Bank of Thailand, Thanachart estimates
Total Car Sales Projections
800 795 923 911 881 799 739 769
448 333184 344 48964
64
0200400600800
1,0001,2001,4001,600
2010
2011
2012
2013
2014
2015
2016
F
2017
F
EstimatesPent-up demand from floodsFront-loaded demandActual
('000 units)
Sources: Bank of Thailand, Thanachart estimates
Than
acha
rtSe
curit
ies
Than
acha
rtSe
curit
ies
Asia Pacific Daily | 58
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More benign market trend to be sustained? While the near-term outlook for Japanese economic growth had started to look a little more upbeat as the government’s latest fiscal stimulus package takes effect, the belated financial market response to Donald Trump’s election victory – in anticipation of significant near-term US fiscal stimulus – might possibly, if sustained, add further support. Having earlier in the week met to consider the merits of policy intervention to cap the appreciation of the yen as investors initially responded in shock to the election result, policymakers would have been encouraged to see the exchange rate subsequently fall to a multi-month low. Ongoing depreciation, of course, would give welcome support to the value of exports and profit margins, as well as a renewed inflationary impulse. And having closed the week at near-seven-month highs, ongoing equity market gains would be expected to give some support to consumer spending via confidence and wealth effects – the BoJ has previously suggested that a 10% gain in stock prices could add about 0.2-0.3ppt to full-year consumption growth. Consumption indicators provide mixed messages Certainly, having remained sluggish since the consumption tax was hiked in 2014, consumer spending could do with additional impetus. The past week’s data releases, however, provided mixed messages about its strength in the third quarter. While the BoJ’s consumption activity and Cabinet Office’s synthetic consumption indices returned to positive growth in September, the respective increases of 0.3%M/M and 0.1%M/M were just a fraction of the declines seen in August. Admittedly, the weakness in the BoJ’s index principally reflected a decline in the non-durable goods component, while the durable goods index encouragingly jumped more than 6%M/M, to leave it up more than 4% over the third quarter as a whole. And overall, the consumption activity index was up ½%Q/Q in Q3, the first quarterly increase for a year. In contrast, however, the synthetic consumption index – the measure that correlates most closely to the national accounts measure of household expenditure – was down 0.2% compared with Q2, the first quarterly decline in three. Tertiary activity slips back in September Against the backdrop of relatively subdued household spending services sector output growth has moderated over recent months, with tertiary activity down 0.1%M/M following a flat reading in August. The weakness principally reflected notable declines in the wholesale and ICT sectors, which together
Japan Economic Research
11 November 2016
Yen 4Sight
Highlights
The latest consumption-related indicators provided mixed messages about growth in Q3.
But real wage growth continued to edge higher in September, while sentiment surveys were more upbeat in Q4.
Focus in the coming week will be on the first estimate of Q3 GDP on Monday, which might well show the third consecutive quarter of positive growth.
provided a 0.7ppt drag on tertiary activity. However, in contrast, and further evidence of the buoyancy of construction activity, there was a marked pickup in civil engineering services, as well as retail trade. And, over the third quarter as whole, total tertiary activity – which accounts for about two-thirds of the economy – was still up 0.4%Q/Q, the firmest quarterly reading since Q215. Taken together with the strong performance in the manufacturing sector – which accounts for roughly one fifth of economic output and saw production rise more than 1%Q/Q, we maintain our view that GDP growth in Q3 – for which data are due for release on Monday – remained positive, albeit moderating to just 0.1%Q/Q. Underlying wage growth edging higher With some of the recent weakness in consumption attributed not least to adverse weather conditions, and consumer confidence improving in tandem with ongoing increases in employment, consumption should resume an upward trend in the current quarter. Admittedly, the latest labour earnings figures continued to report only modest growth in total cash earnings in September, of 0.2%Y/Y, up from a flat reading in August. But regular wages were firmer, with growth of 0.4%Y/Y the strongest for six months. And there was a pickup in wage growth in the construction sector, where the labour market is undeniably very tight, as well at firms in the retail, education and ICT sectors. Moreover, with headline inflation still firmly in negative territory, real contractual wage growth of 1%Y/Y was the strongest for six years. And with the labour market arguably at its tightest for 2½ decades, we should see further modest upward pressure over coming months too. Machine orders point to capex growth ahead The tight labour market also lends itself to increased capital spending, which was hinted at by the past week’s machine orders data. Admittedly, the headline figure was disappointing, with core orders down in September for a second successive month and by a steeper-than-expected 3.3%M/M, to leave the annual pace of growth at just 4.3%, down from 11½%Y/Y previously. However, orders data are notoriously volatile. And, excluding those items that are typically most erratic, on a smoothed basis orders were actually much firmer in the third quarter, up more than 7%Q/Q, the strongest quarterly increase since Q213, albeit following a decline of more than 9%Q/Q in Q2. And given the still elevated backlog of unfinished orders, together with some more upbeat sentiment surveys of late, machine orders suggest that private sector capex should provide greater support to GDP growth over coming months. Surveys signal improved economic conditions Certainly, the past week’s sentiment surveys signalled a further improvement in economic conditions in the fourth quarter. For example, the headline current conditions index from the economy watchers survey rose in October to its highest level since January and was expected to rise further above the long-run average over coming months. The Reuters Tankan survey was also encouraging about business conditions in November, with the headline DI for large manufacturers increasing for the third consecutive month to its highest in fifteen months as improvements were reported in all the key export-oriented sectors. Non-manufacturers were also reportedly more positive, with construction firms remaining very upbeat, while there was a notable pickup in confidence in the retail sector. And non-manufacturers anticipated a modest
Average wage growth
Source: MHLW, Thomson Reuters and Daiwa Capital Markets Europe Ltd.
Regular wage growth
Source: MHLW, Thomson Reuters and Daiwa Capital Markets Europe Ltd.
Real wage growth
Source: MHLW, Thomson Reuters and Daiwa Capital Markets Europe Ltd.
Private sector capex and machine orders*
*Orders data have three-month lead. Source: Cabinet Office,
Thomson Reuters and Daiwa Capital Markets Europe Ltd.
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Overtime and bonus paymentsRegular wagesAverage labour earnings, %, Y/Y, 3mma
% point contribution to Y/Y growth
-2
-1
0
1
2
3
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Construction ManufacturingWholesale and retail trade Total
improvement in conditions over the coming three months too, although manufacturers were more downbeat about the near-term outlook. Admittedly, this survey was conducted just ahead of the US election result and it remains to be seen how Japanese manufacturers will assess conditions going forward in light of increased uncertainty about the US policy ahead, although the trend financial markets at the end of the past week will clearly be welcomed. Deflationary pipeline pressures are easing While a weaker yen would also give a boost to inflation, the latest corporate goods price index suggested that deflationary pipeline pressures were already moderating last month. In particular, the headline rate increased 0.5ppt to -2.7%Y/Y, the softest year-on-year decline since June 2015. Due in part to base effects as past steep declines fell out of the arithmetic, the annual rate of decline in imported producer prices also eased to a fourteen-month low, albeit still deep in negative territory at -14.4%Y/Y in yen terms. There was a moderation in the decline in final consumer goods prices too, with the year-on-year rate up to a five-month high. But with consumer goods prices still down almost 4%Y/Y, there will remain downward pressures in the pipeline of overall consumer price inflation over coming months. Nevertheless, given the increased share of imports of consumption of durables goods over recent years, the exchange rate has become more important in determining prices of such goods. Indeed, the BoJ estimates that, over the past decade and a half, on average a 10% yen depreciation increased the consumer durable goods CPI rate – which accounts for 6 percent of the overall CPI – six quarters ahead by 2½ppts, compared with a boost of less than ½ppt between 1990 and 2010. So, while the response of overall consumer prices is inevitably more limited, a significant weakening of the yen would no doubt provide a welcome boost. The week ahead in Japan and the US The key Japanese release in the coming week will be the aforementioned first estimate of Q3 GDP on Monday. While private consumption and net trade are expected to have provided negligible contributions to GDP growth last quarter, positive readings from private and public investment are expected to have underpinned (perhaps very) modest growth for the third consecutive quarter. Monday also brings revised industrial production figures for September. Meanwhile, Wednesday sees the release of October’s overseas visitor numbers, which are expected to confirm that the number of tourists exceeded 20 million in the year to last month. In the JGB market, a 5Y auction will be conducted on Tuesday followed by a 20Y auction on Thursday. In the US, it will be busy one for top-tier releases, including October’s retail sales (Tuesday), industrial production (Wednesday) and CPI figures (Thursday). Expectations are for a further modest increase in retail sales and industrial output at the start of Q4, while headline inflation is expected to have edged higher to a two-year high of 1.6%Y/Y. However, this is likely to principally reflect a higher contribution from energy prices. Indeed, when excluding energy and foods, core CPI is forecast to remain unchanged at 2.2%Y/Y for the fifth month out of the past six. Other releases include November’s Empire manufacturing index and September’s business inventories (Tuesday), September capital flows data and November’s NAHB housing market index (Wednesday), October’s housing starts and November’s Philly Fed index (Thursday). Supply-wise, the US Treasury will sell 10Y TIPS on Thursday.
Machine orders backlogs
Source: Thomson Reuters and Daiwa Capital Markets Europe Ltd.
Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16Consumer price inflationChange in nominal effective exchange rate, 9-month lead (rhs)Imported consumer goods PPI, 9-month lead (rhs)
%, Y/Y, 3mma %, Y/Y, 3mma
Depreciation
Appreciation
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Important disclosures, including any required research certifications, are provided on the last three pages of this report.
• AGT announced its 2Q FY17 results on 11 November 2016, after market hours.
• The operating profit and net profit were in line with our forecasts.
• However, the 2Q FY17 DPU was 71% lower than our forecast due largely to a higher-than-expected negative change in working capital (of JPY1.6bn). We believe this is probably a seasonal issue and expect the item to reverse in 4QFY17 (as a similar situation occurred in FY16).
• AGT declared a semi-annual DPU of SGD0.0245, which was 37% lower than our forecast of SGD0.0393. On an adjusted basis, the 1H FY17 DPU was 5% lower YoY.
• Our full-year DPU forecast for FY17 is SGD0.0688 and we have assumed a JPY/SGD exchange rate of 75.6, which is almost on par with the spot rate.
• AGT’s results briefing is scheduled for 14 November 2016.
• As of 30 September 2016, AGT’s book value was SGD1.01 per unit while the loan-to-value ratio was 28.8%..
• We have a Buy (1) rating with a DDM-derived 12-month target price of SGD0.88.
• A risk to our call would be poor operating performance in the coming quarters due to bad weather conditions.
AGT: quarterly results summary (SGDm) JPYm 2Q FY16 1Q FY17 2Q FY17 2QE Var % var Revenue 12,981 14,417 12,978 13,241 (263) (2) Expenses (11,002) (11,442) (10,775) (11,002) 227 (2) Operating profit 1,979 2,975 2,203 2,239 (36) (2) Net profit 1,577 2,221 1,667 1,591 76 5 Available for distribution 707 1,526 497 1,736 (1,239) (71) Distribution 637 1,526 497 1,736 (1,239) (71) DPU (JPY) 0.58 1.39 0.45 1.58 (1.13) (71) Actual DPU (SGD)* 0.0232 n.a. 0.0245 0.0393 (0.0147) (37)
Source: AGT, Daiwa forecasts Note: *semi-annual distribution In the interests of timeliness, this document has not been edited.
• Daiwa Securities group subsidiary Daiwa PI Partners Co.Ltd. has extended to Accordia Golf Co, Ltd.(“Accordia Golf”) a loan facility with stock acquisition rights. • Another Daiwa Securities group subsidiary, Daiwa Real Estate Asset Management Co. Ltd., has entered into an asset management agreement to provide
advice to a godo kaisha SPC established for the purpose of acquiring from Accordia Golf shares in Accordia Golf subsidiaries owning golf courses. Daiwa Real Estate Asset Management Co. Ltd. owns a 51% stake in the trustee-manager that assumes the role of trustee and asset manager of Accordia Golf Trust, a tokumei kumiai (silent partnership) investor in the SPC. (Accordia Golf owns a 49% stake in the trustee-manager).
• When Accordia Golf Trust was listed on the Singapore Exchange, Daiwa Securities group was one of the underwriters and sellers of Accordia Golf Trust units in Japan and abroad (Daiwa Securities Co. Ltd. was sole seller in Japan). As a joint global coordinator, Daiwa Securities group subsidiary Daiwa Capital Markets Singapore Limited provided general advice concerning Accordia Golf Trust, including with regard to structuring the trust vehicle.
Asia Pacific Daily | 62
Important disclosures, including any required research certifications, are provided on the last three pages of this report.
Our initial thoughts on “Double Eleven” results: The CNY120.7bn (USD17.7bn, 32% YoY growth) GMV (Gross Merchandise Value) of Alibaba’s annual Double Eleven sales event came in above our and street expectations of around CNY110-120bn (c. 20-30% YoY growth). While we feel the market is already less focused on the absolute level of GMV growth rate compared to several years ago considering the very large base, we view this year’s Double Eleven promotion as another milestone for Alibaba on its way to expand beyond its core ecommerce business to cloud and digital entertainment. Reiterate Buy(1) and TP of USD125. Key highlights • Double Eleven promotion GMV achieves 32% YoY growth
The annual “Double Eleven” promotion on Tmall, Alibaba’s Chinese retail B2C platform, achieved CNY120.7bn (USD17.7bn) in gross GMV settled in one day. This result implies around 32% YoY growth compared to last year’s result of CNY91.2bn. To give a better illustration, this year’s Double Eleven Tmall GMV was 146% higher than the 2015 US Thanksgiving – Cyber Monday total e-commerce sales value of USD7.2bn, according to comScore. Mobile GMV alone increased 58% YoY and accounts for 81.9% of total Double Eleven GMV, vs. 68.7% in CY2016, illustrating the company’s successful transition in light of consumers’ mobile-centric shopping behavior.
• While Double Eleven GMV become less relevant in predicting quarterly GMV
growth... As detailed below, we noticed that, in recent years, the Double Eleven GMV YoY growth has become less relevant in predicting quarterly GMV growth. Double Eleven GMV was up 57.7% YoY and 59.7% YoY in FY15 and FY16, respectively while 3QFY15 and 3QFY16 total China retail GMV was up 48.8% YoY and 22.5% YoY, respectively. This is likely due to the inevitable cannibalization of the Double Eleven promotion to the normal retail cycle considering customers might delay settling the transactions before Double Eleven. For this reason, we maintain our quarterly GMV growth forecasts of around 18-22% YoY.
• ...the scale of Double Eleven GMV still matters as it showcases Alibaba’s vast
technology capability On the other hand, we view the record Double Eleven GMV as a testimony to Alibaba’s top-notch technology infrastructure. In our view, Double Eleven could be considered as a “stress test”, while the company's previous investment in cloud infrastructure proves its capability on dealing with the vast amount of traffic and transaction volume in one single day. Total number of transactions settled through Alipay reached 1.05bn, up 48% YoY. At the peak level, concurrent payment transactions processed per second reaching around 120,000 in CY2016 vs. 86,500 in CY2015, a 39% YoY increase.
• Ant Financial Group enhances consumer spending level and merchants’ working-
capital conditions We are particular impressed by how Ant Financial Group (Alibaba’s financial-services-related party) helped lift consumer spending levels on Alibaba. Around 20% of Double Eleven GMV is settled using Huabei, Alibaba’s consumer financing loan (essentially a virtual credit card). Between 1 September to 31 October, Ant Financial Group has also
granted over CNY50bn in loans to over 133m merchants to improve their working capital condition when preparing for this year’s Double Eleven promotion.
• Double Eleven Gala and Alibaba’s goal to occupy consumer mind-share & pocket-
share via digital entertainment On the back of last year’s success, Alibaba held a warm-up gala variety show right before the Double Eleven sales event on November 10. We participated the gala and believe that the gala was a powerful promotional tool for Alibaba to increase user engagement level. From a high level, we view the Double Eleven promotion event itself as essentially a giant marketing campaign to promote Alibaba’s brand equity beyond e-commerce within Chinese consumers. We think the company’s strategic thinking behind digital entertainment is easy to characterize – as consumers are changing from buying physical products online to buying service and content online, Alibaba wants to increase its pocket-share among consumers and defend competitors by enhancing mind-share.
Recommendation: We have a Buy (1) call with a 12-month target price of USD125, set at a 34x PER applied to the average of our FY17-18E non-GAAP EPS. Alibaba is our top sector pick. Key risk to our call: a slowdown in the Taobao marketplace. Alibaba: Tmall Double Eleven GMV Historical Data
Alibaba: photos of Double Eleven Gala variety shows
Source: Daiwa
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Alibaba (BABA US)
11 November 2016
4
Alibaba: staff from Ant Financial Group showcases face-scan payment
Source: Daiwa
Asia Pacific Daily | 66
Alibaba (BABA US)
11 November 2016
5
Alibaba: photos of Double Eleven media center
Source: Daiwa In the interests of timeliness, this document has not been edited.
Asia Pacific Daily | 67
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What’s new: Hengan International’s (Hengan) management attended the Daiwa
Investment Conference in Hong Kong. Key takeaways are: (1) Tissue paper sales growth
momentum picked up in 2H16, but diaper segment continues to be a drag, (2) E-commerce ramping up rapidly as a result of increase in online marketing, and (3) increase
in A&P and administrative spending will likely be offset by lower sales and distribution cost
resulting in stable operating expenses in 2H16. Key highlights: Encouraging trend for tissue paper in 2H16. Management expects
tissue sales growth rate in 2H16 to outpace that of 1H16 (+5% YoY) and attributed this to
robust growth in e-commerce sales and the improved product packaging. Tissue paper
segment is also expected to see a HoH improvement in gross profit margin (37.7% in
1H16) due to a decline in wood pulp price (from USD540/ ton in 1H16 to USD500/ ton in
2H16 YTD). Operating profit margin is also expected to see slight HoH improvement
despite the anticipated increase in A&P spend, which will be offset by the lower material
costs. Overcapacity continues to be an issue in the tissue paper industry leading to a drop
in ASP driven by increase in promotions, but management indicated that the ASP decline
has been more than offset by robust volume growth. Muted growth for sanitary napkins and diapers. For sanitary napkins, sales growth rate
in 2H16 is expected to be slower than in 1H16 (+9% YoY) mainly due to delay of new
product launches (mature lady series). However, despite the rebound in oil prices,
management expects gross profit margin for sanitary napkins in 2H16 to be comparable to
1H16 (71.8%) as a result of overcapacity in petrochemical materials. The decline in diaper
sales is expected to narrow in 2H16 in comparison to 1H16 (-11% YoY) as a result of better
allocation of resources invested into more popular high-end diaper products and
minimizing offerings of less popular ones. Gross profit margin should trend similar to that of
sanitary napkins, though management indicated that there could be upside due to better
diaper product mix. Catching up in e-commerce. As a relatively late entrant, Hengan has been ramping up its
market share in the e-commerce space by 1) shifting more A&P budget to online
marketing, 2) increasing participation in marketing campaigns on e-platforms and 3)
dealing directly with online platforms instead of going through third party distributors.
Hengan has been seeing double digit growth in e-commerce in 2H16 YTD, and has moved
up in popularity ranking on e-platforms (e.g. Hengan’s sanitary napkin products now rank
no. 1 and 2 from no. 4 and 5 in 1H16 on JD.com and Tmall, respectively). E-commerce
currently contributes less than 5% of Hengan’s total sales. Management expects online
sales contribution to climb over 10% by 2H17. 2H16 expenses to remain stable. Management expects operating expenses to stay
stable overall in 2H16, with A&P cost seeing sequential HoH decline but higher YoY
increase. However, the elevated A&P expense should be offset by a decrease in sales cost
(for offline channels) in 2H16. Transportation cost could see slight increase due to the
increase in oil price. Due to the engagement of several consultants to reform sales team
and centralize administrative service centers, Hengan’s administrative expenses is likely to
trend up, though this should be offset by a decline in distribution costs. Management
indicated that Hengan’s investment in upgrading and reforming its back office and sales
teams should be completed by 2017 and should start seeing margin benefits in
2H17/2018. Other takeaways. Management expects FX loss to narrow further in 2H16 and guided the
effective tax rate to be at around 24% for 2016, down from 28% in 2015 (due to the
payment of a one-off large dividend withholding tax in 2H15). Management reminded
investors that the loss (RMB18.5m) on redemption of a convertible bond in 1H16 is non-recurrent in 2H16 and the non-cash profit generated from the spin-off of the snack
business in July 2016 will be booked in 2H16.
What’s new: We reiterate our Hold (3) rating on Hengan with a 12-month target price of
HKD64.0. Our target price is based on an unchanged 18x 2016E PER, which is at a slight
discount to the international peer average (20x) due to Hengan’s slower EPS growth
prospects for 2016-18. Key upside risk to our call: product-mix upgrades; key downside
risks: a rebound in raw-material costs and a sustained slowdown in sanitary napkin sales
growth. In the interests of timeliness, this document has not been edited.
Asia Pacific Daily | 69
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What’s new: Vard Holdings (VARD) announced its 3Q16 results before market hours on
11 November. Revenue declined by 34% to NOK1.5bn while losses narrowed from
NOK486m in 3Q15 to NOK80m this quarter. There were no significant one-off items this
quarter, whereas last year losses were clouded by c.NOK239m in net FX-related losses.
9M16 revenue amounted to NOK5.7bn and management guides that the company is still
on track to hit revenue north of NOK8bn for full-year 2016. What’s the impact: Losses due to low revenue recognition. Vard continued to incur
losses this quarter largely a result of low revenue recognition as Vard Niteroi fully ceased
operation. The Brazilian yard that has been fully shut down used to contribute c.NOK1-1.5bn in revenue to the Group. As a result of still high fixed costs, Vard recorded NOK80m
in losses attributable to equity holders. However, on a gross profit basis (Revenue - Materials, subcontracting and others), the current quarter registered one of the highest
gross profit margins in the company’s history at c.43% due to the absence of large material
costs in relation to high value projects. Notwithstanding the current quarter low revenue
recognition, Vard’s management guides that its full-year 2016 revenue should surpass
NOK8bn. Strong new order wins YTD. 3Q16 new order wins amounted to NOK3.3bn which
brought YTD16 new order wins to NOK10.2bn, already in excess of 2014 NOK9.45bn and
2015 NOK3.6bn in new orders. This brought its order backlog to NOK14.1bn with 45
vessels to be progressively delivered from 2016-19. Out of these 45 vessels, there are 14
offshore related vessels consisting of 3 platform support vessels (PSVs) and 11 Offshore
Subsea Construction Vessel (OSCVs). The bulk of these 14 offshore-related vessels
should be delivered by 1H17, with only 2 vessels to be delivered in 2018. Risk of additional provisions. While most of its offshore-related vessels are still on-track
for delivery, we believe that a handful of these vessels, particularly that of the 3 PSVs to
Island Offshore is at risk of deferment/cancellation. According to an article on TradeWind
dated 18th October, Island Offshore is forecasting more PSVs to be stacked against the
current bleak market backdrop. The company has got 5 PSVs stacked but is exploring
potential conversion and modification opportunities. The 3 PSVs that Vard is constructing
for Island Offshore could potentially be deferred or cancelled which could mean additional
provisions required to be made by Vard, in our view. What we recommend: We have a Sell (5) call and a 12-month target price of SGD0.134
on the basis of 0.81x adjusted P/NTA. Key upside risk: sustainable improvement in gross
In the interests of timeliness, this document has not been edited.
Asia Pacific Daily | 71
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What’s new: We recently met management of Vinda International (Vinda), one of our top
Pan-Asia picks in the China Household and Personal Products space. The key takeaways
are: (1) Overall sales growth slowed in 3Q and was mainly due to slower growth via offline
channels, (2) E-commerce continues to be a key growth driver and (3) management sees
significant sales-growth potential in personal care products in China. Key highlights: Offline sales dragged 3Q sales growth. Management attributed the
slowdown in sales growth in 3Q to slower sales via offline channels, though noted that
fundamentals have remained largely unchanged and that Vinda continued to gain market
share despite softer sales growth. Management believes that sales growth will pick up the
pace again in 4Q and remains confident in being able to achieve double-digit YoY full-year
sales growth. E-commerce a bright spot. The softer offline sales growth in 3Q was largely
compensated by robust growth in Vinda’s e-commerce sales, which saw double-digit YoY
growth. Management indicated that Vinda’s products are ranked no.1 in terms of sales on
all e-platforms and the currently has ~25% market share in online tissue sales. The
company attributed its online success to 1) having first-mover advantage, 2) strong
logistics cooperation with some e-platforms, and 3) online operations being under a
marketing team that functions concurrently and harmoniously with the company’s offline
sales team. As a recap, e-commerce sales now contribute 18% to Vinda overall sales, up
from 13% in 2015 and 4% in 2014. Ample room for growth in personal care. Personal-care product sales in Asia currently
contribute roughly 21% to Vinda’s overall sales, with China now accounting for 3-4%.
Management believes that there is still a lot of room for growth in China in the personal-care segment. Feminine care has been seeing strong top-line growth and the company
intends to roll out a premium feminine-care brand by the end of the year to capture market
share in the premium-market segment. The company hopes to boost incontinence-product
sales through educating nurses to become ambassadors for the brand. Vinda has
partnered with the local government in Guangdong to set up training centers to train and
certify local nurses on knowledge and the use of incontinence products. Management
hopes to expand this strategy to other cities should the strategy prove to be successful.
Paper capacity utilization rate seeing improvement. According to management, Vinda’s
tissue capacity utilization rate is currently at around 70-80%, above the industry utilization
rate of ~70%. The company continues to uphold a steady ASP by not engaging in an
industry price war, though they noted that they did increase the amount of promotions in
some categories (eg, toilet rolls), given the competitive environment. Financials. Vinda’s net gearing ratio stood at 74% as of June 2016, but has since seen
improvement, according to management. The company targets to reduce its gearing ratio
to the 60-70% level, and intends to maintain its dividend policy of a payout ratio of less
than 25%. Vinda does not expect to incur any major CAPEX going forward and guided
around HKD1bn in annual capex for tissue production. Management indicated that raw
material prices have been steady and should remain stable in the short term.
Important disclosures, including any required research certifications, are provided on the last three pages of this report.
What’s new: WH Group attended the Daiwa Investor Conference in Hong Kong. We have the following key takeaways: Highlights: China -9M16 revenue fell short of previous management growth target due to weak consumption sentiment, a high pork price has affected sales volume of fresh pork and meat products. Smithfield brand packaged products have been launched in first tier cities like Beijing and Shanghai recently and have received good consumer responses, and ASPs of these products are 20-30% above Shuanghui branded products. But it will take more consumer education to increase popularity of Western style products in China. Meanwhile, they have set up 8 R&D centres in China for developing regional and localised flavour meat products (e.g. spicy products in Sichuan province). Moreover, as WH is a distant number one in China packaged meat market (market share: c. 18% at present while the next 10 players have <10% in aggregate), they have much better economies of scale and resources to gain further market share through industry consolidation. Smithfield - profit growth will continue to be driven the "One Smithfield" efficiency enhancement program to cut sales and production costs (eg. Reorganising sales teams and production plants). Management expects to see another 1-1.5 pp operating margin improvement over 12-18 months. While the hog segment has been loss-making YTD, it was fully offset by the strong fresh pork and packaged meat segment, and effective hedging against grain costs. Pork imports from US to China. Smithfield is likely to achieve its target of exporting 0.3m tonnes to China in 2016 (+100% YoY), hence enjoy the hog price spread between China and US (3x). WH has also started importing from Europe (mainly Romania) and will consider other low cost areas such as Brazil in the future. The trading profit will be allocated between US, Hong Kong ( trading company) and China operations. Besides, through optimization of product mix and exporting the low-value parts of hog to China, effective ASPs of US hog and fresh pork operations can also be enhanced. Financials - management targets to reduce USD500m of debt in 2017E and seek to refinance some debts at lower financial costs (In October, WH received a BBB+ credit rating from Fitch for the first time). With balance sheet and cash flow continue to be strengthened, management believes that they can expand outside China and the US ( e.g. Europe) in the long term. CDH share sales- After the recent sales, CDH’s (a private equity firm) stake in WH has declined from 19% to 12%. On the other hand, management bought back a c.2% stake on August 16 and is unlikely to do so again in the near term, in our view.
Source: Bloomberg, Daiwa estimates Recommendation: We have an Outperform (2) rating and 12-month TP of HKD7.30, based on a target PER of 13.8x applied to the average of our 2016-17E EPS. Our TP incorporates a PER of 13.6x for the China operations (at a 20% discount to the average of its peers given its higher net gearing) and 14x PER for the US operations (in line with the US peer average). The key risk to our call: unexpected hedging losses for the US operations. For our latest report on WH Group, please see: click here Pork trade continues to support sales volume growth on 14 Oct 2016 In the interests of timeliness, this document has not been edited.
Important disclosures, including any required research certifications, are provided on the last three pages of this report.
What’s new: Xtep announced its latest operational update with 3Q16 SSSG up by a mid-single digit YoY and 2Q17 sales fair results up by a low-single digit YoY. Impact: SSSG in line with expectations. The mid-single digit YoY SSSG was in line with our expectation and was driven by increased sales of the brand’s functional footwear and apparel. During the quarter, the retail discount was c.25% (improving slightly from 2Q16) and channel inventory was largely stable at 4.5-5 months. Sales fair results mixed. The order book growth of a low-single digit YoY was largely ASP-driven and was admittedly below our expectations. According to the announcement, the company’s supply chain improvements are expected to shorten the production cycle for a reduced replenishment lead time, which management expects would be reduced from previously over 8 weeks to 4-5 weeks. Going forward, the company expects the contribution from replenishment orders to increase, while sales fair orders would be kept at a minimum level per the group’s guidance to the distributors. Management noted that replenishment orders accounted for a low-single digit portion of revenue previously. With an increasing contribution from replenishment orders, management believes this would allow the group to react quicker to changes in retail market conditions, hence reducing inventory risk in its channels. China sportswear sector: Trade fair results (YoY %)
Anta Peak Li Ning Xtep 361
1Q15 + low double digit + mid-teens +mid-twenties + low single digit 8% 2Q15 + low double digit + mid-teens + mid-teens + low single digit 11% 3Q15 + low double digit + mid-teens + high-teens + low single digit 16% 4Q15 + low double digit + mid-teens +low-teens + low single digit 18% 1Q16 + low double digit + mid-teens + mid-teens 10% 15% 2Q16 + low double digit + mid-teens + high-teens 10% 15% 3Q16 + high single digit +low-teens + low-teens + high single digit + high single digit 4Q16 + low double digit - low single digit + high single digit + high single digit + high single digit 1Q17 + mid single digit n.a. + high single digit + mid single digit + high single digit 2Q17 + mid single digit n.a. + high single digit + low single digit + high single digit
Source: Company, Daiwa China sportswear sector: SSSG (YoY %)
Anta Peak Li Ning Xtep 361
1Q15 + high single digit +mid single digit + high single digit + mid single digit 6.3% 2Q15 + high single digit +mid single digit +low teens + high single digit 7.2% 3Q15 + high single digit + high single digit +mid single digit + high single digit 8.4% 4Q15 + mid single digit +mid single digit +low single digit + mid single digit 7.9% 1Q16 + mid single digit* flat +low single digit + mid single digit 7.2% 2Q16 + high single digit* n.a. + high single digit + mid single digit 7.0% 3Q16 + low double digit* n.a. + high single digit + mid single digit 7.3%
Source: Company, Daiwa * based on overall sell-through growth of its ANTA branded products Recommendation: While we foresee limited share-price catalysts in the short term, we expect the shares to be rerated upon signs that the transformation would bear fruit in 2017-18. Nonetheless, we see limited downside risk at current valuations, with the stock trading at a 9x 2017E PER on a 5.7% 2017E dividend yield. We have a 12-month target price of HKD4.90, which is based on a PER of 12.5x applied to our average 2016-17E EPS. The main risk: weaker-than-expected consumer sentiment.
For our latest report on XTEP, please see Valuations attractive despite lack of near-term catalysts, 19 September 2016. In the interests of timeliness, this document has not been edited.
Important disclosures, including any required research certifications, are provided on the last three pages of this report.
What’s New?: Yestar International announced the acquisition of Guangzhou Shengshiyuan, its fifth IVD-related acquisition and third IVD acquisition of 2016. This follows on the heels of its fourth acquisition (Shenzhen De Run Li Jia) announced 2 weeks ago and its 3rd acquisition 4 weeks ago (Guanghou Hongen). The acquisition follows the exact same structure as the previous four, and we believe it will be immediately earnings accretive in 2017. Key highlights: Three acquisitions announced within 30 days. Yestar announced 3 acquisitions two weeks apart from each other, all 3 of which are distributors of Roche Diagnostics products in China for the in-vitro diagnostics (IVD) industry. We are not surprised by the quick back-to-back acquisitions, since the company had likely aimed to deploy the USD200m recently raised (6.9% senior notes due 2021) as soon as possible. With this third acquisition, and assuming the CNY350m in debt has been refinanced, we believe over 90% of the USD200m in bond proceeds has now been used. Hence, we would expect any further acquisitions in the near future to be relatively small in size, if any. All three recent acquisitions were in Guangdong. The 3 acquisitions announced in 2016 focused on distributing Roche’s IVD products to hospitals in Guangdong. Specifically, Guangzhou Shengshiyuan has the authorization and dealership agreements in the Guangdong and Hainan provinces. While this is the same as Guangzhou Hongen (the third acquisition), we believe both companies do not overlap in distribution, and target a different area within the provinces. As Guangdong province has the 6th highest number of hospitals in China and is rapidly developing its hospital network, we believe the province is an attractive location for Yestar and Roche to expand. A predictable deal structure. Like all of its acquisitions so far, Yestar will first acquire 70% of the distributor, followed by 3 years of profit guarantee and the obligation to acquire the rest of the 30% stake, if all the profit guarantees are met. The acquisition is valued at CNY167m for the 70% stake and the profit guarantees for 2017-19 are CNY23.80m, CNY29.75m and CNY37.20m. This implies that the forward PER acquisition multiple is 10.0x (based on the 2017 profit guarantee) which is lower than the 12.0x multiple for the 4th acquisition 2 weeks ago and in-line with the 10.0x multiple for its 3rd acquisition. However, we note that the growth rate of the profit guarantees is 25%, the slowest of all 3 recent acquisitions. Like the previous acquisitions, the company is obligated to acquire the remaining 30% equity interest for 10x 2019E net profit if all the profit guarantees are met (capped at CNY120m). We have not factored in the 4th and 5th acquisitions into our model, but if both acquisitions were to close before 2017, based on the profit guarantees, they would add CNY0.024 per share to our 2017 EPS estimate, for 16% accretion.
Source: Daiwa, company Recommendation: We have a 12-month target price of HKD5.20, based on a 33x PER (roughly 0.8x PEG and equivalent to just under 2SD above its average 1-year forward trading range) on the average of our 2016-17E EPS. We have a Buy (1) rating. The key risk to our call would be if future acquisitions do not come through. Please see 4th acquisition announced (27 October 2016) for details of the previous Shenzhen De Run Li Jia acquisition. Please see Roll-up story continues to unfold (13 October 2016) for details of the previous Guangzhou Hongen acquisition. In the interests of timeliness, this document has not been edited.
Korea: share prices and Daiwa recommendation trends Industrial Bank of Korea: share price and Daiwa recommendation trend
Source: Daiwa Note: where appropriate, historical target prices have been adjusted to reflect the current share count
SM Entertainment: share price and Daiwa recommendation trend
Source: Daiwa Note: where appropriate, historical target prices have been adjusted to reflect the current share count
Date Target price Rating Date Target price Rating Date Target price Rating23/01/15 15,000 Outperform 24/09/15 16,000 Outperform 11/10/16 14,000 Outperform14/04/15 17,000 Outperform 23/02/16 13,500 Outperform
15,000
17,000
16,000
13,50014,000
10,000
11,000
12,000
13,000
14,000
15,000
16,000
17,000
18,000
19,000
Nov
-13
Dec
-13
Jan-
14
Feb-
14
Mar
-14
Apr-1
4
May
-14
Jun-
14
Jul-1
4
Aug-
14
Sep-
14
Oct
-14
Nov
-14
Dec
-14
Jan-
15
Feb-
15
Mar
-15
Apr-1
5
May
-15
Jun-
15
Jul-1
5
Aug-
15
Sep-
15
Oct
-15
Nov
-15
Dec
-15
Jan-
16
Feb-
16
Mar
-16
Apr-1
6
May
-16
Jun-
16
Jul-1
6
Aug-
16
Sep-
16
Oct
-16
Nov
-16
Target price (KRW) Closing Price (KRW)
Date Target price Rating Date Target price Rating Date Target price Rating17/11/15 60,000 Buy 16/08/16 35,000 Buy
60,000
35,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
55,000
60,000
Nov
-13
Dec
-13
Jan-
14
Feb-
14
Mar
-14
Apr-1
4
May
-14
Jun-
14
Jul-1
4
Aug-
14
Sep-
14
Oct
-14
Nov
-14
Dec
-14
Jan-
15
Feb-
15
Mar
-15
Apr-1
5
May
-15
Jun-
15
Jul-1
5
Aug-
15
Sep-
15
Oct
-15
Nov
-15
Dec
-15
Jan-
16
Feb-
16
Mar
-16
Apr-1
6
May
-16
Jun-
16
Jul-1
6
Aug-
16
Sep-
16
Oct
-16
Nov
-16
Target price (KRW) Closing Price (KRW)
Asia Pacific Daily | 80
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China Paper and Packaging Sector
China Paper and Packaging Sector: Initiation: in with the trash, out with the cash 4 November 2016 After 5 years, the argument for “better industry supply and demand” is coming to fruition; major paper producers should benefit the most Containerboard capacity growth frenzy appears to be over; cash flow improvements open up options to deleverage or increase dividends Initiating with a Positive sector rating, and a Buy (1) on Nine Dragons Paper and an Outperform (2) on Lee & Man Paper
China Power Sector: Power struggle: all fighting a losing battle? 3 November 2016 Demand slowdown, overcapacity and tariff liberalisation to hit coal-fired power returns first, with collateral damage thereafter Non-hydro clean power utilisation hours are protected; but project IRRs are capped as tariffs head lower, driven by the policy cycle Coal-fired likely the first to fall. Beyond that: short-term positives for wind, solar shifting to DG, go coastal with WTE
China Aircraft Leasing Sector: Why everyone wants a piece of this pie 17 October 2016 The aircraft leasing industry is likely to draw more attention from investors in the coming years We see the industry as attractive for investors seeking high earnings growth and good visibility Initiating on BOC Aviation, our top pick for its attractive valuation, with a Buy (1) call; reiterating Buy (1) on China Aircraft Leasing
China Education Sector: Initiation: A-Team – where education meets aspiration 10 October 2016 Expanding companies in an ever-expanding market – why we believe China K-12 private tutoring stocks are “must-owns” Our deep dive into China’s data on newborns points to an acceleration in urban-area K-12 student enrolments over the next 10 years Initiating with a Buy (1) on TAL Education, which is our top sector pick, and a Buy (1) on New Oriental Education Group
Daiwa research is available electronically on Bloomberg, Reuters, Thomson One Analytics, FactSet, Capital IQ and Daiwa’s L-ZONE. Please contact your Daiwa sales representative for more information.
Rating and target-price information Bloomberg 12M rating 12M target price* Company name code Country Previous Latest Previous Latest DateComfortDelGro Corp CD SP Singapore Buy - Buy 3.54 ↑ 3.64 11-Nov-16Joy City Property 207 HK China Buy - Buy 1.55 ↓ 1.45 11-Nov-16SM Entertainment 041510 KS Korea Buy - Buy 35000 ↑ 37000 11-Nov-16General Interface Solution 6456 TT Taiwan Outperform - Outperform 90 ↑ 93 11-Nov-16ASUSTeK Computer 2357 TT Taiwan Hold - Hold 253 ↓ 250 11-Nov-16Industrial Bank of Korea 024110 KS Korea Outperform - Outperform 14000 ↑ 15500 11-Nov-16Nok Airlines NOK TB Thailand Buy ↓ Sell 19 ↓ 6 11-Nov-16GFPT PCL GFPT TB Thailand Sell - Sell 10.6 ↑ 13 11-Nov-16Manappuram Finance MGFL IN India Outperform - Outperform 100 ↑ 115 11-Nov-16Power Finance Corp POWF IN India Buy - Buy 130 ↑ 155 10-Nov-16IMAX China Holding 1970 HK China Buy - Buy 46 ↓ 44 10-Nov-16Ennoconn 6414 TT Taiwan Outperform - Outperform 594 ↓ 550 10-Nov-16VTech 303 HK Hong Kong Outperform - Outperform 90 ↑ 107 10-Nov-16Pegatron Corp 4938 TT Taiwan Outperform ↓ Hold 83 ↑ 85 10-Nov-16Kakao 035720 KS Korea Buy - Buy 113000 ↓ 103000 10-Nov-16SATS SATS SP Singapore Hold - Hold 5.22 ↓ 4.97 10-Nov-16China Resources Beer 291 HK China Hold - Hold 15.5 ↑ 17.3 10-Nov-16CT Environmental Group 1363 HK China Buy - Buy 2.8 ↓ 2.7 10-Nov-16China Aircraft Leasing Group 1848 HK China Buy - Buy 11 ↑ 11.5 10-Nov-16Kasikornbank PCL KBANK TB Thailand Sell ↑ Hold 175 ↓ 174 10-Nov-16NCsoft 036570 KS Korea Buy - Buy 295000 ↑ 317000 10-Nov-16City Developments CIT SP Singapore Buy - Buy 10.80 ↓ 10.75 10-Nov-16Loen Entertainment 016170 KS Korea Buy - Buy 89000 ↑ 90600 10-Nov-16CapitaLand CAPL SP Singapore Buy - Buy 3.97 ↓ 3.84 9-Nov-16Bank Danamon Indonesia BDMN IJ Indonesia Hold ↑ Buy 3400 ↑ 4000 9-Nov-16Bank Bukopin BBKP IJ Indonesia Hold ↑ Buy 640 ↑ 1000 9-Nov-16Bank Tabungan Pensiunan Nasional BTPN IJ Indonesia Reduce ↑ Buy 2100 ↑ 3300 9-Nov-16Bank Pembangunan Daerah Jawa Timur BJTM IJ Indonesia Reduce ↑ Hold 450 ↑ 475 9-Nov-16Bank Mandiri Persero BMRI IJ Indonesia Buy - Buy 12500 ↑ 12900 9-Nov-16Frasers Centrepoint FCL SP Singapore Buy - Buy 1.98 ↓ 1.87 9-Nov-16Anta Sports Products 2020 HK China Buy - Buy 22.6 ↑ 26 9-Nov-16Yangzijiang Shipbuilding YZJSGD SP China Underperform - Underperform 0.83 ↓ 0.75 9-Nov-16Lafarge Malaysia LMC MK Malaysia Hold - Hold 8.6 ↓ 7.0 9-Nov-16PetroVietnam Gas GAS VN Vietnam Sell ↑ Hold 57500 ↑ 62000 9-Nov-16Note: Daiwa’s 30 most recent rating/target-price changes *Local currency; D: delisted
Asia Pacific Daily | 82
Recently published reports
Research reports* Subtitle No. of pages
Date of publication
Daiwa Investment Conference Hong Kong 2016
Conference highlights 106 11-Nov-16
Discovery Asia Small-cap Weekly 23 11-Nov-16Greater China Smartphone Sector iPhone 7 Plus strong; dual-cam poised to shine 9 10-Nov-16Indonesia Banking Update Robust earnings growth 16 9-Nov-16China Autos – PV Weekly Monitor 1-31 October: sales volume growth decelerates slightly 12 9-Nov-16China Economy President Trump: what now for China? 15 9-Nov-16Hong Kong Property A trigger for greater share consolidation; we would accumulate on
pullbacks 10 7-Nov-16
China Paper and Packaging Sector Initiation: in with the trash, out with the cash 84 4-Nov-16Discovery Asia Small-cap Weekly 27 4-Nov-16ASEAN Intelligence What matters this week 226 4-Nov-16China Power Sector Power struggle: all fighting a losing battle? 224 3-Nov-16Hota Industrial Manufacturing Upgrading: 3Q16 results miss, but orders intact 13 3-Nov-16Havells India Initiation: turning into a compounding story 35 3-Nov-16Malaysia Strategy Mind the gap 159 2-Nov-16Waskita Beton Precast Concrete growth story 43 1-Nov-16Thailand Hotel Sector Moderate impact 21 1-Nov-16Discovery Asia Small-cap Weekly 19 28-Oct-16Airports of Thailand Pcl Not all about China 16 27-Oct-16China Autos – PV Weekly Monitor 1-21 October: sales volume steady 12 26-Oct-16Westports Port of entry 22 26-Oct-16Thailand Media Sector Beyond a painful 4Q16F 45 25-Oct-16Macau Gaming Sector Tug of war between the bulls and the bears 44 24-Oct-16Nien Made Enterprise Initiation: a window to the future 22 24-Oct-16Thailand Retail Sector Slow consumption in 4Q16F 43 24-Oct-16Beauty Community A quantum leap 16 24-Oct-16China Autos – PV Weekly Monitor 1-14 October: sales volume decelerates 12 19-Oct-16China Household & Personal Products China: still a big diaper market for Japanese players 37 19-Oct-16China Longyuan Power Riding on stronger utilisation recovery in 2017-18 20 18-Oct-16China Aircraft Leasing Sector Initiation: cruising with a strong tailwind 80 17-Oct-16Siam Senses A low-risk bubble 15 17-Oct-16Thaicom Public Co Ltd Lost in space 14 14-Oct-16
*The 30 most recent reports published by Daiwa Asia Pacific Markets Closed
Hong Kong China SG Malaysia Korea Taiwan Australia New
Zealand India Thailand Philippines Indonesia
Nov 16 14 1, 30
Asia Pacific Daily | 83
Daiwa’s Asia Pacific Research Directory HONG KONG Takashi FUJIKURA (852) 2848 4051 [email protected] Regional Research Head Jiro IOKIBE (852) 2773 8702 [email protected] Co-head of Asia Pacific Research John HETHERINGTON (852) 2773 8787 [email protected] Co-head of Asia Pacific Research Rohan DALZIELL (852) 2848 4938 [email protected] Regional Head of Asia Pacific Product Management Kevin LAI (852) 2848 4926 [email protected] Chief Economist for Asia ex-Japan; Macro Economics (Regional) Olivia XIA (852) 2773 8736 [email protected] Macro Economics (Hong Kong/China) Kelvin LAU (852) 2848 4467 [email protected] Head of Automobiles; Transportation and Industrial (Hong Kong/China) Brian LAM (852) 2532 4341 [email protected] Auto Components; Transportation – Railway; Construction and Engineering (China) Leon QI (852) 2532 4381 [email protected] Banking; Diversified financials; Insurance (Hong Kong/China) Yan LI (852) 2773 8822 [email protected] Banking (China) Anson CHAN (852) 2532 4350 [email protected] Consumer (Hong Kong/China) Adrian CHAN (852) 2848 4427 [email protected] Consumer (Hong Kong/China) Jamie SOO (852) 2773 8529 [email protected] Gaming and Leisure (Hong Kong/China) John CHOI (852) 2773 8730 [email protected] Head of Hong Kong and China Internet; Regional Head of Small/Mid Cap Carlton LAI (852) 2532 4349 [email protected] Small/Mid Cap (Hong Kong/China) Dennis IP (852) 2848 4068 [email protected] Power; Utilities; Renewables and Environment (Hong Kong/China) Jonas KAN (852) 2848 4439 [email protected] Head of Hong Kong and China Property Cynthia CHAN (852) 2773 8243 [email protected] Property (China) Thomas HO (852) 2773 8716 [email protected] Custom Products Group PHILIPPINES Patricia TAMASE (63) 2 797 3024 [email protected] Banking
SOUTH KOREA Sung Yop CHUNG (82) 2 787 9157 [email protected] Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; Shipbuilding; Steel Mike OH (82) 2 787 9179 [email protected] Banking; Capital Goods (Construction and Machinery) Iris PARK (82) 2 787 9165 [email protected] Consumer/Retail SK KIM (82) 2 787 9173 [email protected] IT/Electronics – Semiconductor/Display and Tech Hardware Thomas Y KWON (82) 2 787 9181 [email protected] Pan-Asia Head of Internet & Telecommunications; Software – Internet/On-line Games Kevin JIN (82) 2 787 9168 [email protected] Small/Mid Cap TAIWAN
Rick HSU (886) 2 8758 6261 [email protected] Head of Regional Technology; Head of Taiwan Research; Semiconductor/IC Design (Regional) Christie CHIEN (886) 2 8758 6257 [email protected] Banking; Insurance (Taiwan); Macro Economics (Regional) Steven TSENG (886) 2 8758 6252 [email protected] IT/Technology Hardware (PC Hardware) Kylie HUANG (886) 2 8758 6248 [email protected] IT/Technology Hardware (Handsets and Components) Helen CHIEN (886) 2 8758 6254 [email protected] Small/Mid Cap INDIA Punit SRIVASTAVA (91) 22 6622 1013 [email protected] Head of India Research; Strategy; Banking/Finance Saurabh MEHTA (91) 22 6622 1009 [email protected] Capital Goods; Utilities SINGAPORE Ramakrishna MARUVADA (65) 6499 6543 [email protected] Head of Singapore Research; Telecommunications (China/ASEAN/India) David LUM (65) 6329 2102 [email protected] Banking; Property and REITs Royston TAN (65) 6321 3086 [email protected] Oil and Gas; Capital Goods Shane GOH (65) 64996546 [email protected] Property and REITs; Small/Mid Cap (Singapore)
Jame OSMAN (65) 6321 3092 [email protected] Transportation – Road and Rail; Pharmaceuticals and Healthcare; Consumer (Singapore)
Asia Pacific Daily | 84
Daiwa’s Offices
Office / Branch / Affiliate Address Tel Fax
DAIWA SECURITIES GROUP INC
HEAD OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6753 (81) 3 5555 3111 (81) 3 5555 0661
Daiwa Securities Trust Company One Evertrust Plaza, Jersey City, NJ 07302, U.S.A. (1) 201 333 7300 (1) 201 333 7726
Daiwa Securities Trust and Banking (Europe) PLC (Head Office) 5 King William Street, London EC4N 7JB, United Kingdom (44) 207 320 8000 (44) 207 410 0129
Daiwa Capital Markets America Inc. New York Head Office Financial Square, 32 Old Slip, New York, NY10005, U.S.A. (1) 212 612 7000 (1) 212 612 7100
Daiwa Capital Markets America Inc. San Francisco Branch 555 California Street, Suite 3360, San Francisco, CA 94104, U.S.A. (1) 415 955 8100 (1) 415 956 1935
Daiwa Capital Markets Europe Limited, London Head Office 5 King William Street, London EC4N 7AX, United Kingdom (44) 20 7597 8000 (44) 20 7597 8600
Daiwa Capital Markets Europe Limited, Frankfurt Branch Neue Mainzer Str. 1, 60311 Frankfurt/Main, Germany (49) 69 717 080 (49) 69 723 340
Daiwa Capital Markets Europe Limited, Paris Representative Office 17, rue de Surène 75008 Paris, France (33) 1 56 262 200 (33) 1 47 550 808
Daiwa Capital Markets Europe Limited, Geneva Branch 50 rue du Rhône, P.O.Box 3198, 1211 Geneva 3, Switzerland (41) 22 818 7400 (41) 22 818 7441
Daiwa Capital Markets Europe Limited, Moscow Representative Office
Daiwa Securities Capital Markets Korea Co., Ltd. 20 Fl.& 21Fl. One IFC, 10 Gukjegeumyung-Ro, Yeongdeungpo-gu, Seoul, Korea
(82) 2 787 9100 (82) 2 787 9191
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(86) 10 6500 6688 (86) 10 6500 3594
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HEAD OFFICE 15-6, Fuyuki, Koto-ku, Tokyo, 135-8460, Japan (81) 3 5620 5100 (81) 3 5620 5603
MARUNOUCHI OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6756 (81) 3 5555 7011 (81) 3 5202 2021
New York Research Center 11th Floor, Financial Square, 32 Old Slip, NY, NY 10005-3504, U.S.A. (1) 212 612 6100 (1) 212 612 8417
London Research Centre 3/F, 5 King William Street, London, EC4N 7AX, United Kingdom (44) 207 597 8000 (44) 207 597 8550
Asia Pacific Daily | 85
Japan: Notes concerning market data and investment indicators Estimates by Daiwa Shares outstanding: Common shares outstanding (excl. treasury stock) Market cap: Based on shares outstanding and closing price as of indicated date EV: Market cap + interest-bearing debt – liquidity on hand EBITDA: Operating profit + depreciation ROE: Net income / average of start-FY and end-FY shareholders’ equity (for SEC-reporting firms net income attributable to
shareholders of the parent / average of start-FY and end-FY shareholders’ equity) Share Price Chart and per-share figures retroactively adjusted to reflect stock splits/reverse stock splits
Asia Pacific Daily | 86
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Neither Daiwa Securities Group Inc. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. 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Daiwa Securities Group Inc., Thanachart Securities, Affin Hwang Investment Bank Berhad, PT.Bahana Securities, their respective subsidiaries or affiliates, or their respective directors, officers and employees from time to time have trades as principals, or have positions in, or have other interests in the securities of the company under research including market making activities, derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationship For “Investment Banking Relationship”, please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. 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Other than disclosures relating to Daiwa, this research is based on current public information that Affin Hwang and Daiwa consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The analysts named in this report may have from time to time discussed with clients, including Daiwa’s salespersons and traders, or may discuss in this report, trading strategies that reference catalysts or events that may have a near-term impact on the market price of the equity securities discussed in this report, which impact may be directionally counter to the analysts' published price target expectations for such stocks. Any such trading strategies are distinct from and do not affect the analysts' fundamental equity rating for such stocks, which rating reflects a stock's return potential relative to its coverage group as described herein. 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Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Investors should review current options disclosure documents in relation to such investments. Portions of this publication are prepared by PT. 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Neither Daiwa Securities Group Inc. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication constitutes the views of the analyst(s) named herein and does not necessarily reflect those of Daiwa Securities Group Inc. and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. Neither Daiwa Securities Group Inc. nor any of its affiliates is licensed to undertake any business within the Republic of Indonesia. Any display of any trade name or logo of the Daiwa Securities Group Inc. on this publication shall not be deemed to be an undertaking of any business within the Republic of Indonesia. Daiwa Securities Group Inc., its subsidiaries or affiliates, or its or their respective directors, officers and employees from time to time may have trades as principals, or have positions in, or have other interests in the securities of the company under research including derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures. Portions of this publication are prepared by Thanachart Securities Public Company Limited and distributed outside Thailand by Daiwa Securities Group Inc. and/or its non-U.S. affiliates except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Thanachart Securities Public Company Limited (“Thanachart Securities”), Daiwa Securities Group Inc. nor any of their respective parent, holding, subsidiaries or affiliates, nor any of their respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication constitutes the views of the analyst(s) named herein and does not necessarily reflect those of Thanachart Securities, Daiwa Securities Group Inc. and/or their respective affiliates nor any of their respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. All research reports are disseminated and available to our clients simultaneously through electronic publication to our internal client websites. Not all research content is redistributed to our clients or available to third-party aggregators, nor is Daiwa responsible for the redistribution of our research by third party aggregators. IMPORTANT This report is provided as a reference for making investment decisions and is not intended to be a solicitation for investment. Investment decisions should be made at your own discretion and risk. Content herein is based on information available at the time the report was prepared and may be amended or otherwise changed in the future without notice. We make no representations as to the accuracy or completeness. Daiwa Securities Co. Ltd. retains all rights related to the content of this report, which may not be redistributed or otherwise transmitted without prior consent. Ratings Issues are rated 1, 2, 3, 4, or 5 as follows:
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1: Outperform TOPIX/benchmark index by more than 15% over the next 12 months. 2: Outperform TOPIX/benchmark index by 5-15% over the next 12 months. 3: Out/underperform TOPIX/benchmark index by less than 5% over the next 12 months. 4: Underperform TOPIX/benchmark index by 5-15% over the next 12 months. 5: Underperform TOPIX/benchmark index by more than 15% over the next 12 months. Benchmark index: TOPIX for Japan, S&P 500 for US, STOXX Europe 600 for Europe, HSI for Hong Kong, STI for SG, KOSPI for Korea, TWII for Taiwan, and S&P/ASX 200 for Australia. (Criteria above apply to rating assignments or updates from Jan 2015. For ratings assigned or updated prior to Jan 2015, criteria refer to performance vs. TOPIX/benchmark index over six months.) Japan Conflicts of Interest: Daiwa Securities Co. Ltd. may currently provide or may intend to provide investment banking services or other services to the company referred to in this report. In such cases, said services could give rise to conflicts of interest for Daiwa Securities Co. Ltd. Daiwa Securities Co. Ltd. and Daiwa Securities Group Inc.: Daiwa Securities Co. Ltd. is a subsidiary of Daiwa Securities Group Inc. Ownership of Securities: Daiwa Securities Co. Ltd. may currently, or in the future, own or trade either securities issued by the company referred to in this report or other securities based on such financial instruments. Daiwa Securities Group has filed major shareholding reports for the following companies of which it owns over 5% (as of 14 October 2016): DAISUE CONSTRUCTION (1814); ICHIKEN (1847); NISSEI BUILD KOGYO (1916); TAKAHASHI CURTAIN WALL (1994); Accordia Golf (2131); Genky Stores (2772); Nippon Healthcare Investment Corporation (3308); KFC (3420); KAWADA TECHNOLOGIES (3443); KI-STAR REAL ESTATE (3465); Billing System (3623); KOEI TECMO HOLDINGS (3635); PAPYLESS (3641); Enigmo (3665); Konoshima Chemical (4026); SEPTENI HOLDINGS (4293); Tri Chemical Laboratories (4369); RaQualia Pharma (4579); NOZAWA (5237); Nakayama Steel Works (5408); Toho Zinc (5707); TOKYO ROPE MFG. (5981); LINKBAL (6046); Allied Architects (6081); WILL GROUP (6089); NS TOOL (6157); Kamakura Shinsho (6184); HIRATA Corporation (6258); TAZMO (6266); SANSO ELECTRIC (6518); W-SCOPE (6619); MITSUMI ELECTRIC (6767); SUMIDA CORPORATION (6817); ADVANTEST (6857); Ferrotec (6890); ENOMOTO (6928); TAIYO YUDEN (6976); Astmax (7162); GMO Click Holdings (7177); Daiko Denshi Tsushin (8023); Money Partners Group (8732); Daiwa Office Investment Corporation (8976); Japan Rental Housing Investments (8986); Cerespo (9625); Imperial Hotel (9708); PARKER CORPORATION (9845). Lead Management: Daiwa Securities Co. Ltd. has lead-managed public offerings and/or secondary offerings (excluding straight bonds) in the past twelve months for the following companies: Yoshimura Food Holdings K.K. (2884); Torikizoku (3193); Activia Properties (3279); SIA REIT (3290); AEON REIT Investment Corporation (3292); Hulic Reit (3295); BEENOS (3328); Tosei Reit Investment Corporation (3451); Kenedix Retail REIT Corporation (3453); Samty Residential Investment Corporation (3459); KI-STAR REAL ESTATE (3465); Mitsui Fudosan Logistics Park Inc. (3471); SHOEI YAKUHIN (3537); Nousouken (3541); KOMEDA Holdings (3543); Defactostandard (3545); KUSHIKATSU TANAKA (3547); BAROQUE JAPAN LIMITED (3548); Mynet (3928); BENEFIT JAPAN (3934); Globalway (3936); Silver Egg Technology (3961); FUSO CHEMICAL (4368); OAT Agrio (4979); Interworks (6032); FIRSTLOGIC (6037); NIPPON VIEW HOTEL (6097); Recruit Holdings (6098); So-net Media Networks (6185); Atrae (6194); IWAKI (6237); TSUBAKI NAKASHIMA (6464); REFINVERSE (6531); Japan Investment Adviser (7172); THE FIRST BANK OF TOYAMA (7184); AEON Financial Service (8570); ORIX JREIT (8954); HEIWA REAL ESTATE REIT (8966); Daiwa Office Investment Corporation (8976); Japan Hotel REIT Investment Corporation (8985); GAKKYUSHA (9769). (list as of 1 November 2016) The Affiliates of Daiwa Securities Group Inc.* engaged in investment banking service (lead-manager/joint lead-manager/co-manager of public offerings and/or secondary offerings [excluding straight bonds]) in the past twelve months for the following companies: Mirae Asset Life Insurance Co Ltd (085620 KS); China Reinsurance Group Corporation (1508 HK). *Affiliates of Daiwa Securities Group Inc. for the purposes of this section shall mean any one or more of: Daiwa Capital Markets Hong Kong Limited, Daiwa Capital Markets SG Limited, Daiwa Capital Markets Australia Limited, Daiwa Capital Markets India Private Limited, Daiwa-Cathay Capital Markets Co., Ltd., Daiwa Securities Capital Markets Korea Co., Ltd. Notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable to where report is distributed by Daiwa Securities Co. Ltd.) If you decide to enter into a business arrangement with our company based on the information described in this report, we ask you to pay close attention to the following items. In addition to the purchase price of a financial instrument, our company will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be
included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. In some cases, our company also may charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident.
For derivative and margin transactions etc., our company may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements.
There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements.
There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by our company. Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. * The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc. When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with our company. Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association Disclosure of Interest of Thanachart Securities - Disclosure of Interest of Affin Hwang Investment Bank - Disclosure of Interest of Bahana Securities - Investment Banking Relationship Within the preceding 12 months, Bahana Securities has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: Aneka Tambang Persero Tbk PT (ANTM IJ); PT Telekomunikasi Indonesia (Persero) Tbk (TLKM IJ); PT Waskita Beton Precast Tbk (WSBP IJ). Hong Kong This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司) (“DHK”) which is regulated by the Hong Kong Securities and Futures Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research. Relevant Relationship (DHK) DHK may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. Korea The developing analyst of this research and analysis material hereby states and confirms that the contents of this material correctly reflect the analyst’s views and opinions and that the analyst has not been placed under inappropriate pressure or interruption by an external party. Name of Analyst: Mike Oh/ Kevin Jin
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Disclosure of Analysts’ Interests If an analyst engaging in or a person who exercises influences on the preparation or publication of a Research Report containing recommendations for general investors to trade financial investment instruments with regard to which the analyst or the influential person has personal interests and if the recommendations contained in the Report may have impacts on the personal interests, Daiwa Securities Capital Markets Korea Co., Ltd.(“Daiwa Securities Korea”)shall ensure that the Analyst or the influential person notifies that he/she has personal interests with regard to: 1. The equity, the equity-linked bonds and the instruments with the subscription right to the equity issued by the legal entity covered in the Research Report (or the legal entity subject to the
investment recommendations); 2. The stock option granted by the legal entity covered in the Research Report (or the legal entity subject to the investment recommendations); or 3. The equity futures, the equity options and the equity-linked warrants backed by the equity prescribed in the preceding Paragraph 1 as the underlying assets. Legal Entities subject to Research Report Coverage Restrictions Daiwa Securities Korea hereby states and confirms that Daiwa Securities Korea has no conflicts of interests with the legal entity covered in this Research Report: 1. In that Daiwa Securities Korea does NOT offer direct or indirect payment guarantee for the legal entity by means of, for instance, guarantee, endorsement, provision of collaterals or the
acquisition of debts; 2. In that Daiwa Securities Korea does NOT own one-hundredth (or 1/100) or more of the total number of outstanding equities issued by the legal entity; 3. In that The legal entity is NOT an affiliated company of Daiwa Securities Korea pursuant to Sub-paragraph 3, Article 2 of the Monopoly Regulation and Fair Trade Act of Korea; 4. In that, although Daiwa Securities Korea offers advisory services for the legal entity with regard to an M&A deal, the size of the M&A deal does NOT exceed five-hundredths (or 5/100) of the
total asset size or the total number of equities issued and outstanding of the legal entity; 5. In that, although Daiwa Securities Korea acted in the capacity of a Lead Underwriter for the initial public offering of the legal entity, more than one-year has passed since the IPO date; 6. In that Daiwa Securities Korea is NOT designated by the legal entity as the ‘tender offer agent’ pursuant to the Paragraph 2, Article 133 of the Financial Services and Capital Market Act or
the legal entity is NOT the issuer of the equity subject to the proposed tender offer; this requirement, however applies until the maturity of the tender offer period; or 7. In that Daiwa Securities Korea does NOT have significant or material interests with regard to the legal entity. Disclosure of Prior Distribution to Third Party This report has not been distributed to the third party in advance prior to public release. The following explains the rating system in the report as compared to KOSPI, based on the beliefs of the author(s) of this report. "1": the security could outperform the KOSPI by more than 15% over the next 12 months, unless otherwise stated. "2": the security is expected to outperform the KOSPI by 5-15% over the next 12 months, unless otherwise stated. "3": the security is expected to perform within 5% of the KOSPI (better or worse) over the next 12 months, unless otherwise stated. "4": the security is expected to underperform the KOSPI by 5-15% over the next 12 months, unless otherwise stated. "5": the security could underperform the KOSPI by more than 15% over the next 12 months, unless otherwise stated. “Positive” means that the analyst expects the sector to outperform the KOSPI over the next 12 months, unless otherwise stated. “Neutral” means that the analyst expects the sector to be in-line with the KOSPI over the next 12 months, unless otherwise stated “Negative” means that the analyst expects the sector to underperform the KOSPI over the next 12 months, unless otherwise stated Additional information may be available upon request. Singapore This research is distributed in Singapore by Daiwa Capital Markets Singapore Limited and it may only be distributed in Singapore to accredited investors, expert investors and institutional investors as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. By virtue of distribution to these category of investors, Daiwa Capital Markets Singapore Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section 36 relates to disclosure of Daiwa Capital Markets Singapore Limited’s interest and/or its representative’s interest in securities). Recipients of this research in Singapore may contact Daiwa Capital Markets Singapore Limited in respect of any matter arising from or in connection with the research. Australia This research is distributed in Australia by Daiwa Capital Markets Australia Limited and it may only be distributed in Australia to wholesale investors within the meaning of the Corporations Act. Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research. India This research is distributed in India to Institutional Clients only by Daiwa Capital Markets India Private Limited (Daiwa India) which is an intermediary registered with Securities & Exchange Board of India as a Stock Broker, Merchant Bank and Research Analyst. Daiwa India, its Research Analyst and their family members and its associates do not have any financial interest save as disclosed or other undisclosed material conflict of interest in the securities or derivatives of any companies under coverage. Daiwa India and its associates may have received compensation for any products other than Investment Banking (as disclosed) or brokerage services from the subject company in this report during the past 12 months. Unless otherwise stated in BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action, Daiwa India and its associates do not hold more than 1% of any companies covered in this research report. There is no material disciplinary action against Daiwa India by any regulatory authority impacting equity research analysis activities as of the date of this report. Taiwan This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd. and it may only be distributed in Taiwan to specific customers who have signed recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd. and non-customers including (i) professional institutional investors, (ii) TWSE or TPEx listed companies, upstream and downstream vendors, and specialists that offer or seek advice, and (iii) potential customers with an actual need for business development in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Neither Daiwa-Cathay Capital Markets Co., Ltd. nor its personnel who writes or reviews the research report has any conflict of interest in this research. Since Daiwa-Cathay Capital Markets Co., Ltd. does not operate brokerage trading business in foreign markets, this research is “without recommendation” to any foreign securities and Daiwa-Cathay Capital Markets Co., Ltd. does not accept orders from customers to trade in such securities that are without recommendation. Recipients of this research in Taiwan may contact Daiwa-Cathay Capital Markets Co., Ltd. in respect of any matter arising from or in connection with the research. Philippines This research is distributed in the Philippines by DBP-Daiwa Capital Markets Philippines, Inc. which is regulated by the Philippines Securities and Exchange Commission and the Philippines Stock Exchange, Inc. Recipients of this research in the Philippines may contact DBP-Daiwa Capital Markets Philippines, Inc. in respect of any matter arising from or in connection with the research. DBP-Daiwa Capital Markets Philippines, Inc. recommends that investors independently assess, with a professional advisor, the specific financial risks as well as the legal, regulatory, tax, accounting, and other consequences of a proposed transaction. DBP-Daiwa Capital Markets Philippines, Inc. may have positions or may be materially interested in the securities in any of the markets mentioned in the publication or may have performed other services for the issuers of such securities. For relevant securities and trading rules please visit SEC and PSE link at http://www.sec.gov.ph/irr/AmendedIRRfinalversion.pdf and http://www.pse.com.ph/ respectively. United Kingdom This research report is produced by Daiwa Securities Co. Ltd. and/or its affiliates and is distributed in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority (“FCA”) and is a member of the London Stock Exchange and Eurex . This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available. Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-regulatory. Germany This document is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany.
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Bahrain This research material is distributed in Bahrain by Daiwa Capital Markets Europe Limited, Bahrain Branch, regulated by The Central Bank of Bahrain and holds Investment Business Firm – Category 2 license and having its official place of business at the Bahrain World Trade Centre, South Tower, 7th floor, P.O. Box 30069, Manama, Kingdom of Bahrain. Tel No. +973 17534452 Fax No. +973 535113 United States This report is distributed in the U.S. by Daiwa Capital Markets America Inc. (DCMA). It may not be accurate or complete and should not be relied upon as such. It reflects the preparer’s views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DCMA’s views at any time. Neither DCMA nor the preparer has any obligation to update this report or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives, financial situation and needs. This report does not recommend to U.S. recipients the use of any of DCMA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (Tel no.212-612-7000). Ownership of Securities: For “Ownership of Securities” information please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationships: For “Investment Banking Relationships” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. DCMA Market Making: For “DCMA Market Making” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Research Analyst Conflicts: For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions. Research Analyst Certification: For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report. The following explains the rating system in the report as compared to relevant local indices, unless otherwise stated, based on the beliefs of the author of the report. "1": the security could outperform the local index by more than 15% over the next 12 months. "2": the security is expected to outperform the local index by 5-15% over the next 12 months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next 12 months. "4": the security is expected to underperform the local index by 5-15% over the next 12 months. "5": the security could underperform the local index by more than 15% over the next 12 months. Disclosure of investment ratings Rating Percentage of total Buy* 64.0% Hold** 21.2% Sell*** 14.8%
Source: Daiwa Notes: data is for single-branded Daiwa research in Asia (ex Japan) and correct as of 30 September 2016. * comprised of Daiwa’s Buy and Outperform ratings. ** comprised of Daiwa’s Hold ratings. *** comprised of Daiwa’s Underperform and Sell ratings. For stocks and sectors in Malaysia covered by Affin Hwang, the following rating system is in effect: Stocks: BUY: Total return is expected to exceed +10% over a 12-month period HOLD: Total return is expected to be between -5% and +10% over a 12-month period SELL: Total return is expected to be below -5% over a 12-month period NOT RATED: Affin Hwang Investment Bank Berhad does not provide research coverage or rating for this company. Report is intended as information only and not as a recommendation Sectors: OVERWEIGHT: Industry, as defined by the analyst’s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months NEUTRAL: Industry, as defined by the analyst’s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months UNDERWEIGHT: Industry, as defined by the analyst’s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months Conflict of Interest Disclosure: Affin Hwang Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationships For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Relevant Relationships Affin Hwang may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. Affin Hwang market making Affin Hwang may from time to time make a market in securities covered by this research.
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For stocks and sectors in Indonesia covered by Bahana Securities, the following rating system is in effect: Stock ratings are based on absolute upside or downside, which is the difference between the target price and the current market price. Unless otherwise specified, these ratings are set with a 12-month horizon. It is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal rating. "Buy": the price of the security is expected to increase by 10% or more. "Hold": the price of the security is expected to range from an increase of less than 10% to a decline of less than 5%. "Reduce": the price of the security is expected to decline by 5% or more. Sector ratings are based on fundamentals for the sector as a whole. Hence, a sector may be rated “Overweight” even though its constituent stocks are all rated “Reduce”; and a sector may be rated “Underweight” even though its constituent stocks are all rated “Buy”. “Overweight”: positive fundamentals for the sector. “Neutral”: neither positive nor negative fundamentals for the sector. “Underweight”: negative fundamentals for the sector. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationships For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Relevant Relationships (Bahana Securities) Bahana Securities may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. Bahana Securities market making Bahana Securities may from time to time make a market in securities covered by this research. For stocks in Thailand covered by Thanachart Securities, the following rating system is in effect: Ratings are based on absolute upside or downside, which is the difference between the target price and the current market price. If the upside is 10% or more, the rating is BUY. If the downside is 10% or more, the rating is SELL. For stocks where the upside or downside is less than 10%, the rating is HOLD. Unless otherwise specified, these ratings are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal rating. For the sector, Thanachart looks at two areas, ie, the sector outlook and the sector weighting. For the sector outlook, an arrow pointing up, or the word “Positive”, is used when Thanachart sees the industry trend improving. An arrow pointing down, or the word “Negative”, is used when Thanachart sees the industry trend deteriorating. A double-tipped horizontal arrow, or the word “Unchanged”, is used when the industry trend does not look as if it will alter. The industry trend view is Thanachart’s top-down perspective on the industry rather than a bottom-up interpretation from the stocks that Thanachart covers. An “Overweight” sector weighting is used when Thanachart has BUYs on majority of the stocks under its coverage by market cap. “Underweight” is used when Thanachart has SELLs on majority of the stocks it covers by market cap. “Neutral” is used when there are relatively equal weightings of BUYs and SELLs. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action . Investment Banking Relationships For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action . Relevant Relationships (Thanachart Securities) Thanachart Securities may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. Thanachart Securities market making Thanachart Securities may from time to time make a market in securities covered by this research. Additional information may be available upon request. Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.) If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items. • In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in
the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. • In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan. • For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the
amount of the transaction will be in excess of the required collateral or margin requirements. • There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices,
real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements. • There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us. • Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. • *The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content
of each transaction etc. • When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions
regarding the signing of the agreement with us. Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, Financial Futures Association of Japan Japan Securities Investment Advisers Association Type II Financial Instruments Firms Association
