DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/ researchdisclosures or call +1 (877) 291-2683. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Thursday, 27 January 2011 Asian Daily (Asia Edition) EPS, TP and Rating changes EPS TP (% change) T+1 T+2 Chg Up/Dn Rating BOC Hong Kong Initiation (5) U (NA) Bank of East Asia Initiation 1 N (NA) Dah Sing Financial Initiation 21 O (NA) Hang Seng Bank Initiation 23 O (NA) Dah Sing Banking Gr Initiation 13 O (NA) Fauji Fertiliser 16 31 21 7 N (O) Alliance Global Inc 0 11 5 27 O (O) PLDT 1 0 (13) 4 N (N) CDL Hospitality Trusts 0 1 0 21 O (O) LG Electronics (13) (21) 0 (34) U (U) SPIL 7 18 29 (6) N (N) UMC 3 12 6 3 N (N) C 3 : Connecting clients to corporates Hong Kong Yue Yuen Industrial Holding (0551.HK) Date 25-27 January, Hong Kong Coverage Analyst Adrian Chan Sparkle Roll (970.HK) Date 28 January, Hong Kong Coverage Analyst Eva Wang Singapore SATS (SATS.SI) Post results Date 11 February, Singapore Coverage Analyst Su Tye Chua US Esprit Holdings (0330.HK) Date 17-18 February, US Coverage Analyst Gabriel Chan Others 12th Annual Financial Services Forum Date 09-11 February, Miami 14th Asian Investment Conference Date 21-25 March, Hong Kong China Investment Conference Date 22-24 June, China ASEAN + India Conference Date 25-26 August, Singapore Asian Technology Conference Date 14-16 September, Taiwan Contact [email protected]or Your usual sales representative. Top of the pack ... Hong Kong Banks Sector Franco Lam (3) New report: Time to cherry pick Hang Seng Bank (11 HK) – Initiating Coverage with O Franco Lam (4) Momentum turning positive China Utilities Sector – Maintain MW Edwin Pang (5) New report: What's implied in policy (IPPs) and growth (gas)? Global Economics Research Neal Soss (6) Introducing the CS Basic Materials Index ... and the whole pack Global Global Equity Research - Basic Indicators Stephane Rochon (7) Real world indicators point to continued recovery Fixed Income, FX and Commodities Global Economics Research Neal Soss (6) Introducing the CS Basic Materials Index Regional Asia Drybulk Shipping Sector – Maintain UW Sam Lee (8) Rising default risk at current low BDI? China China Property Sector – Maintain UW Jinsong Du (9) Third round of tightening is worse than Credit Suisse's already bearish view China Power Utilities Sector – Maintain OW Edwin Pang (10) Dark clouds remain but expectations are low; stay with the leader China Utilities Sector – Maintain MW Edwin Pang (5) New report: What's implied in policy (IPPs) and growth (gas)? Sinopharm (1099 HK) – Maintain O Jinsong Du (11) Rmb1.3 bn acquisition at 20-25x P/E, but full-year average should still be around 15x for acquisitions Hong Kong Hong Kong Banks Sector Franco Lam (3) New report: Time to cherry pick BOC Hong Kong (2388 HK) – Initiating Coverage with U Franco Lam (12) Potentials priced in Bank of East Asia (23 HK) – Initiating Coverage with N Franco Lam (13) Beneficiary of China tightening measures Dah Sing Financial (440 HK) – Initiating Coverage with O Franco Lam (14) Too cheap to ignore Hang Seng Bank (11 HK) – Initiating Coverage with O Franco Lam (4) Momentum turning positive Dah Sing Banking Group (2356 HK) – Initiating Coverage with O Franco Lam (15) Strong upside potential Hang Lung Properties (101 HK) – Maintain N Cusson Leung, CFA (16) 1H11 results review: core profits in line; focus on Palace 66 and Parc 66 in 2011 Orient Overseas International (316 HK) – Maintain O Sam Lee (17) 4Q10 revenue above expectation. Rate more resilient than market Indonesia PT Bukit Asam (PTBA IJ) – Maintain O Fonny Surya (18) Revisit historical domestic pricing
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DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/ researchdisclosures or call +1 (877) 291-2683. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Thursday, 27 January 2011
Asian Daily (Asia Edition)EPS, TP and Rating changes EPS TP (% change) T+1 T+2 Chg Up/Dn Rating BOC Hong Kong Initiation (5) U (NA) Bank of East Asia Initiation 1 N (NA) Dah Sing Financial Initiation 21 O (NA) Hang Seng Bank Initiation 23 O (NA) Dah Sing Banking Gr Initiation 13 O (NA) Fauji Fertiliser 16 31 21 7 N (O) Alliance Global Inc 0 11 5 27 O (O) PLDT 1 0 (13) 4 N (N) CDL Hospitality Trusts 0 1 0 21 O (O) LG Electronics (13) (21) 0 (34) U (U) SPIL 7 18 29 (6) N (N) UMC 3 12 6 3 N (N)
C3: Connecting clients to corporates Hong Kong
Yue Yuen Industrial Holding (0551.HK) Date 25-27 January, Hong Kong Coverage Analyst Adrian Chan
Sparkle Roll (970.HK) Date 28 January, Hong Kong Coverage Analyst Eva Wang
Singapore SATS (SATS.SI) Post results
Date 11 February, Singapore Coverage Analyst Su Tye Chua
US Esprit Holdings (0330.HK)
Date 17-18 February, US Coverage Analyst Gabriel Chan
Others 12th Annual Financial Services Forum
Date 09-11 February, Miami
14th Asian Investment Conference Date 21-25 March, Hong Kong
China Investment Conference Date 22-24 June, China
ASEAN + India Conference Date 25-26 August, Singapore
Asian Technology Conference Date 14-16 September, Taiwan
Hong Kong Banks Sector Franco Lam (3) New report: Time to cherry pick
Hang Seng Bank (11 HK) – Initiating Coverage with O Franco Lam (4) Momentum turning positive
China Utilities Sector – Maintain MW Edwin Pang (5) New report: What's implied in policy (IPPs) and growth (gas)?
Global Economics Research Neal Soss (6) Introducing the CS Basic Materials Index
... and the whole pack Global Global Equity Research - Basic Indicators Stephane Rochon (7) Real world indicators point to continued recovery
Fixed Income, FX and Commodities Global Economics Research Neal Soss (6) Introducing the CS Basic Materials Index
Regional Asia Drybulk Shipping Sector – Maintain UW Sam Lee (8) Rising default risk at current low BDI?
China China Property Sector – Maintain UW Jinsong Du (9) Third round of tightening is worse than Credit Suisse's already bearish view China Power Utilities Sector – Maintain OW Edwin Pang (10) Dark clouds remain but expectations are low; stay with the leader China Utilities Sector – Maintain MW Edwin Pang (5) New report: What's implied in policy (IPPs) and growth (gas)? Sinopharm (1099 HK) – Maintain O Jinsong Du (11) Rmb1.3 bn acquisition at 20-25x P/E, but full-year average should still be around 15x for acquisitions
Hong Kong Hong Kong Banks Sector Franco Lam (3) New report: Time to cherry pick BOC Hong Kong (2388 HK) – Initiating Coverage with U Franco Lam (12) Potentials priced in Bank of East Asia (23 HK) – Initiating Coverage with N Franco Lam (13) Beneficiary of China tightening measures Dah Sing Financial (440 HK) – Initiating Coverage with O Franco Lam (14) Too cheap to ignore Hang Seng Bank (11 HK) – Initiating Coverage with O Franco Lam (4) Momentum turning positive Dah Sing Banking Group (2356 HK) – Initiating Coverage with O Franco Lam (15) Strong upside potential Hang Lung Properties (101 HK) – Maintain N Cusson Leung, CFA (16) 1H11 results review: core profits in line; focus on Palace 66 and Parc 66 in 2011 Orient Overseas International (316 HK) – Maintain O Sam Lee (17) 4Q10 revenue above expectation. Rate more resilient than market
Indonesia PT Bukit Asam (PTBA IJ) – Maintain O Fonny Surya (18) Revisit historical domestic pricing
MSCI Asian indices – valuation & perf. EPS grth. P/E (x) Performance MSCI Index 10E 11E 10E 11E 1D 1M YTD Asia F X Japan 39 13 14.8 13.1 0.0 1.9 (0.3) Asia Pac F X J. 31 15 15.3 13.3 0.0 1.2 (0.6) Australia 6 20 13.5 12.0 0.2 (0.4) (1.5) China 24 19 14.4 12.1 0.5 2.0 0.8 Hong Kong 25 6 19.5 18.4 0.2 4.4 3.8 India 24 22 18.0 14.7 0.0 (6.5) (9.4) Indonesia 20 21 15.5 12.8 2.7 (3.4) (6.2) Korea 56 6 11.1 10.4 1.6 7.4 4.8 Malaysia 28 15 17.6 15.3 (0.4) 1.9 1.1 Pakistan 27 14 9.3 8.1 0.3 6.6 4.0 Philippines 23 12 16.5 14.7 (0.3) (5.7) (7.9) Singapore 21 11 15.9 14.3 1.6 4.8 1.5 Sri Lanka 11 109 27.3 21.7 (0.9) (0.2) (0.1) Taiwan 93 11 15.3 13.7 0.7 5.2 1.8 Thailand 19 18 13.9 11.8 2.2 (6.0) (7.3)
* IBES estimates
Malaysia Maybulk (MBC MK) – Maintain U Annuar Aziz (19) Baltic Drybulk Index 27% fall YTD to put downward pressure on the share price Sunway REIT (SREIT MK) – Maintain O Amir Hamzah (20) Expect yield compression to drive share price
Pakistan Fauji Fertiliser (FFC PA) – Downgrade to N Farhan Rizvi, CFA (21) Raise target price to PRs164, but downgrade to NEUTRAL on lack of near-term triggers
Philippines Alliance Global Inc (AGI PM) – Maintain O Dante Tinga, Jr. (22) Seizing Opportunities PLDT (TEL PM) – Maintain N Chate Benchavitvilai (23) 2011 outlook: intense competition, higher capex, attractive yield (but with downside risk)
Singapore Singapore Economics Kun Lung Wu (24) Industrial production fell on biomed (-11.8% MoM, sa), but the fall was not as bad as it seems China Shipbuilding Sector – Maintain UW Gerald Wong (25) Who has the greatest exposure to bulk cancellations? CDL Hospitality Trusts (CDREIT SP) – Maintain O Yvonne Voon (26) FY10 results in line; More optimistic on RevPAR outlook, and acquisition provides near term catalyst
South Korea Korea Economics Dong Tao (27) 4Q10 GDP growth moderated again to 0.5% QoQ, sa, but should improve in 2011 LG Electronics (066570 KS) – Maintain U John Sung (28) New report: Turnaround to be slower than expected
Taiwan Taiwan Brokerage Sector Chung Hsu, CFA (29) Market activities remain strong ahead of Chinese New Year Taiwan Solar Energy Sector Darryl Cheng (30) Implications of Hon Hai's participation in E-Ton Solar's private placement Acer (2353 TT) – Maintain N Robert Cheng (31) Acer 4Q10 preliminary result lower than market expectation SPIL (2325 TT) – Maintain N Randy Abrams, CFA (32) Margins troughing, but several headwinds against a strong gross margin rebound UMC (2303 TT) – Maintain N Randy Abrams, CFA (33) 4Q solid, but currency and mix slowing momentum into 2011
Thailand PTTEP (PTTEP TB) – Maintain U Paworamon (Poom) Suvarnatemee, CFA (34) 4Q10: Strong set of results – higher liquid price, falling cost Siam Cement (SCC TB) – Maintain O Paworamon (Poom) Suvarnatemee, CFA (35) 4Q10: weak operating profit but overshadowed by one-time positive surprises
O=Outperform N=Neutral U=Underperform R=Restricted OW= Overweight MW=Market Weight UW=Underweight Research mailing options To make any changes to your existing research mailing details, please e-mail us directly at [email protected]
Sales Contact Hong Kong 852 2101 6218 Singapore 65 6212 3052 London 44 20 7888 4367 New York 1 212 325 5955 Boston 1 617 556 5634
Thursday, 27 January 2011
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Top of the pack ... Hong Kong Banks Sector ------------------------------------------------------------------------------------ New report: Time to cherry pick Franco Lam / Research Analyst / 852 2101 7642 / [email protected]
● Pick and choose: HK banks are no longer value plays, as they are trading 13% and 3% above mean historical P/E and P/B since 2005. We remain positive on a selective few, as strong earnings visibility and M&A potential should further drive outperformance.
● Key catalysts for sector: The RMB liberalisation measures should remain a key catalyst for HK banks, but earnings impact should be limited in the near term. We expect a recovery in earnings through lending growth and M&A to be key areas of valuation support.
● More near-term upside risks: Earnings recovery will be driven by banks leveraging up their LDRs with more higher-yielding China related lending, which should also stabilise NIM. Negative interest rate environment would be conducive to fee income improvement.
● Stock calls: Our top picks are HSB, DSB/DSF, given overhangs largely removed, strong earnings visibility and M&A support. We have an UNDERPERFORM on BoCHK on expensive valuation, with RMB catalysts priced in. We have a NEUTRAL on WHB, as M&A valuation is priced in, and BEA on a structural low ROE.
● For full report click here. Figure 1: Current valuation vs mean valuation (since 2005) Compared with mean valuation P/E P/B P/PPOP DY2388.HK BOCHK 33% 16% 21% -16%0011.HK HSB -1% -13% 5% -13%0023.HK BEA 13% 0% 8% -7%0302.HK WHB 17% 9% 26% -5%2356.HK DSB -34% 2% 37% 75%0440.HK DSF -43% 3% 22% 89%Sector 13% 3% 14% -8%Source: Company data, Credit Suisse estimates Prefer laggards with strong earnings visibility Domestic HK banks are currently trading at 2.5x 2011E P/B and 16x 2011E P/E, which are 13% and 3% above the historical P/E and P/B range, respectively, since 2005. We believe valuations remain stretched for some and we should be selective.
We believe HSB is now in a good position for a strong rerating, supported by earnings recovery, and its premium valuation is justified with a sustainable ROE of 23%. We also like DSB/DSF, given undemanding valuation, earnings recovery and M&A valuation not priced in yet.
Our UNDERPERFORM rating on BOCHK is based on stretched valuations, as investors are already pricing in all the positive benefits of the RMB measures announced in July 2010, which delivery of RMB related earnings expectation is increasingly challenging.
BEA is a beneficiary of China’s tightening measures, but given its structural low ROE and sector low tier 1 ratio will result in higher risk of capital raisings that will cap potential upside. We believe WHB’s positive catalysts are priced in, as valuation of 2.1x 2011E P/B is approaching M&A valuation. We have a NEUTRAL rating on both the stocks. Stage set for earnings recovery We expect earnings growth of 15% for Hong Kong banks in FY11-12, supported by a recovery in operating income growth. We believe NIM should soon stabilise, with a recovery in interest income through continued loan growth momentum, particularly China lending where yields are much higher. With higher inflation outlook, fee income should benefit, with higher contribution from brokerage and wealth management product sales. Asset quality is expected to stay benign, supported by high property collateral values. Capital remains adequate and should not be a near-term concern for most banks.
Figure 2: Select financial performance/ratios FY11E Hang
SengBOC (HK)
BEA WHB DSB DSF Avg
Earnings growth 14.6 14.6 16.8 17.5 22.0 25.2 15.4 NIM 1.75 1.53 1.93 1.81 1.86 1.93 1.69Loan growth 14.8 11.9 14.0 10.8 11.5 11.5 13.1LDR 67.1 60.9 76.4 72.8 76.8 76.8 66.3China lending growth 18.0 14.0 18.0 15.0 14.0 14.0 16.0Source: Company data, Credit Suisse estimates Recent policies implications We view the RMB liberalisation measures as structurally positive for Hong Kong banks in developing into an offshore RMB financial centre, but this is long term. In the near term, the faster-than-expected accumulation of offshore RMB deposits has put margin pressure on banks, as they are unable to offload into higher yielding RMB investable assets. The recent mortgage tightening measures have limited impact, as we believe the potential slower turnover in the market and stricter mortgage standards could lead to a slower mortgage growth, which should have a limited impact on profitability, in our view.
Hang Seng Bank-----------------------------------------Initiating Coverage with OUTPERFORM Momentum turning positive Franco Lam / Research Analyst / 852 2101 7642 / [email protected]
● Initiate with OUTPERFORM: We initiate coverage on Hang Seng Bank with an OUTPERFORM rating and a target price of HK$159 (upside of 23%), as supported by improving fundamentals with strong yield support (4%) in FY11E. HSB remains our preferred pick in the large domestic HK banks
● Premier franchise, premier valuation: Currently trading at 3.4x 2011 P/B and 15x earnings (13% below its historical mean valuation), we deem the stock’s premier valuation is supported by a sustainable ROE of 23% (sector average: 15% in FY12E).
● Stage for re-rating: The bank is now staging for a strong re-rating on better earnings prospects as concerns that were dragging the stock in 2010 are now largely removed. Also given the sector’s low L/D ratio of 61% in 1H (sector: 69%), we view HSB can further leverage and capture more lending than peers. We expect earnings to improve 15%/14% in FY11/FY12 and our earnings are currently 2% above consensus.
● Investment risk: Downside risks include a further dividend cut and slower-than-expected lending and fee income growth.
Overhang largely removed Our positive view on HSB is premised on fewer overhangs on the stock. The huge underperformance in 2010 include: an unexpected dividend cut, continued margin pressure and fee income disappointment. We expect revised Basel III rules to have less impact on the bank and further dividend cut as unlikely in the near term. Margin pressure should stabilise in the near term as the bank further leveraged its loan-to-deposit ratios. We should also see fee income improvement in a negative interest rate environment. Good position for a strong recovery in earnings We expect to see strong recovery of earnings momentum for the bank. While interest rates may continue to stay at low levels in 2011, we expect increasing fee income contribution for the bank. Historically, HSB is a low loan growth bank (2003-09: avg 6%) but now we expect higher than peer growth, which should offer support to NIM as the bank leverages its LDR. HSB has the lowest LDR among
HK banks with 61% in 1H10 (sector: 69%), and it should able to capture more lending opportunities than peers. We currently forecast a lending growth of 15% in FY11E and 11% in FY12E, on top of 25% in FY10E, the highest among HK peers (sector average: 13% in FY11 and 8% in FY12)
Source: Company data, Credit Suisse estimates Premier franchise comes at premier valuation After a huge underperformance in 2010, valuation is now becoming more compelling versus historical trading range at 3.4x 2011 P/B and 15x earnings, which is 13% below its mean historical P/B multiple. Viewed as one of the best managed banks with a superior track record of ROE (2000-09: average 26%), we believe the bank should find upside support to current share price as its ROE is expected to return 24%, back to near normalised level by FY12E. Also viewed as a dividend yield stock, the current yield of 4.2% in FY11 is highest among all local banks (sector: 3%) Key risks The key downside risks for the company include a further cut in dividend and slower-than-expected lending and fee income growth.
Price (25 Jan 11, HK$) 129.50TP (Prev. TP HK$) 159 (NA) Est. pot. % chg. to TP 2352-wk range (HK$) 133.40 - 101.50Mkt cap (HK$/US$ bn) 247.6/ 31.8
Bbg/RIC 11 HK / 0011.HK Rating (prev. rating) O (NA) Shares outstanding (mn) 1,911.84 Daily trad vol - 6m avg (mn) 1.9 Daily trad val - 6m avg (US$ mn) 29.5 Free float (%) 37.8 Major shareholders HSBC Holdings:
Year 12/08A 12/09A 12/10E 12/11E 12/12EPre-prov Op profit (HK$ mn) 15,126 14,026 14,182 16,184 18,388Net profit (HK$ mn) 14,099 13,138 14,366 16,458 18,731EPS (HK$) 7.4 6.9 7.5 8.6 9.8- Change from prev. EPS (%) n.a. n.a. 0 (1) (2)- Consensus EPS (HK$) n.a. n.a. 7.5 8.6 9.9EPS growth (%) (22.7) (6.8) 9.4 14.6 13.8P/E (x) 17.6 18.8 17.2 15.0 13.2Dividend yield (%) 4.9 4.0 4.0 4.2 4.5BVPS (HK$) 27.0 32.5 35.5 38.8 42.9P/B (x) 4.8 4.0 3.6 3.3 3.0ROE (%) 26.1 23.1 22.1 23.2 24.0ROA (%) 1.9 1.7 1.7 1.8 1.8Tier 1 (%) 9.5 12.6 11.2 11.3 11.5 Note 1: Ord/ADR=1.0000. Note 2: Hang Seng Bank is one of Hong Kong's largest banks in HK with HSBC as its majority shareholder (62%). The bank provides comprehensive banking services that include corporate banking, personal banking and wealth management.
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China Utilities Sector --------------------------------------------------- Maintain MARKET WEIGHT New report: What's implied in policy (IPPs) and growth (gas)? Edwin Pang / Research Analyst / 852 2101 6406 / [email protected] Yang Y. Song / Research Analyst / 852 2101 6550 / [email protected]
● IPP and gas utilities sectors have underperformed the market over three months (except ENN). We use Credit Suisse HOLT® to understand the embedded expectations.
● CRP is our top pick in the IPP sector.Our analysis suggests that while other IPPs imply some form of return normalisation (i.e., policy risk reversal), CRP implies returns to fall below the 2008 level (the worst year for IPPs). We believe the market suggests that CRP’s investments in raising its coal self-sufficiency actually lowers its return profile over time.
● CR Gas is our top pick in the gas sector. For the gas sector, on a normalised asset growth of 20%, ENN and CR Gas imply that returns will either fall or remain flat relative to the 2010-11 levels. Given that CR Gas is still in the expansion stage, we believe this understates its potential return profile improvement and future asset growth.
● We remain sellers of HKG; it implies returns to almost double from the 2010-11 levels. For the full report, please click here.
Source: HOLT, Credit Suisse estimates, IBES What is embedded in current valuation? We use HOLT IPP and the gas utilities face separate issues. We believe the market sees the impact of the IPP sector’s policy uncertainty as negative for potential returns normalisation, as the sector trades at close to its all-time low P/B. For the gas utilities sector, with average 2011E P/E at ~19x and P/B at 3x, the market is clearly accounting for growth, which is not unfair given the opportunities as highlighted earlier. The question is, how do we quantify embedded expectations? What is embedded in current valuation? We use HOLT While the answer is subjective, we try to seek answers using Credit Suisse HOLT to look for embedded expectations on future returns (t+5). We use the default discount rate generated from HOLT and our view of normalised asset growth for the companies. Note that we have higher growth for gas versus IPPs; and within the gas sector, we have lower asset growth for mature HKG and BEH versus the rest (ENN, CRG, CGH). We believe this would already have provided some benefit given their (HKG/BEH) historical growth rates (see Figure 2). Note that the HOLT default WACC (see Figure 3) is higher for companies that are: 1) smaller in size (e.g., CPID versus CRP) and 2) that have higher gearing. This is to account for the higher “risks” embedded in companies with such characteristics.
From Figure 1, we can see that CRP is the only IPP that implies CFROI® is likely to fall from 9% in 2010-11E, or 13.6% average from 2005-07, or 8% in 2008 (the worst period for IPPs), to 5.9% in t+5. This implies that CRP’s returns, even as it invests in improving its coal self-sufficiency ratios, would fall towards its default WACC of 5.7%. From Figure 1, ENN and CR Gas implies that returns will either fall or remain flat relative to the 2010-11 level. Given that CR Gas is still in the expansion stage, we believe this understates its potential return profile improvement and future asset growth. HKG, on the other hand, implies returns to almost double from the 2010-11 level. Figure 2: Normalised asset growth: historical versus forward assumptions in our exercise
10 10 10 10
20 20
10
20
10
-5101520253035
CRP Huaneng Datang CPID CRG ENN BEH CGH HKGHis torical normalized asset growth Assumed fwd asset growth
% Generation sector Gas utilities sector
Source: HOLT, Credit Suisse estimates, IBES
Figure 3: Average 2010/11 CFROI versus HOLT default WACC
-2468101214
CRP Huaneng Datang CPID CRG ENN BEH CGH HKGAvg CFROI (10/11E) Discount rate
% Generation sector Gas utilities sector
Source: HOLT, Credit Suisse estimates, IBES Figure 4: Summary valuations Mkt Ent EV/ val val Yld P/E EBITDA Name Code Rat FX Px TP US$ mn US$ mn (%) 10E 11E 10E 11EHKG 0003 U HK$ 18.1 16.2 16,521 17,394 1.9 25.5 23.1 16.6 15.6Beijing Ent. 0392 O HK$ 46.6 60.3 6,734 6,991 1.4 18.2 16.2 7.2 6.1ENN 2688 O HK$ 24.9 23.8 3,397 3,976 1.2 21.2 18.5 11.0 8.7CR Gas 1193 O HK$ 10.5 13.8 2,425 2,649 1.0 22.3 18.8 13.2 9.3China Gas 384 N HK$ 3.4 4.39 1,896 2,546 - 13.7 13.4 8.1 7.0Average (Gas) 23.7 19.5 12.1 10.1Huaneng 902 O HK$ 4.28 5.08 7,723 27,291 4.5 13.0 12.5 8.9 8.6Datang 991 N HK$ 2.73 3.07 4,268 26,709 3.3 14.6 11.7 11.1 10.9CR Power 836 O HK$ 13.4 18.36 8,219 15,863 2.6 12.5 11.2 9.1 8.1CPID 2380 O HK$ 1.59 2.03 1,042 6,596 3.5 12.5 11.5 9.3 7.9Average (IPPs) 13.2 11.9 9.9 9.1*March YE for China Gas. Source: Company data, IBES consensus for Not Rated stocks, Credit Suisse estimates
Global Economics Research-------------------------------------------------------------------------------- Introducing the CS Basic Materials Index Neal Soss / Research Analyst / +1 212 325 3335 / [email protected] Henry Mo / Research Analyst / +1 212 538 0327 / [email protected]
● We team up with our equity analysts to develop the Credit Suisse Basic Materials Index (CSBMI), a single summary measure capturing the dynamic for the sectors covering chemicals, energy, materials, paper & packaging, and transportation & shipping.
● The CSBMI is constructed from a basket of 25 industry or sector indicators and doesn’t involve any economic data releases, which allows us to make timely inference from high frequency market data.
● The historical movement in the CSBMI tracks the global industrial production cycle closely. In addition, it also tracks other important leading indicators, including the widely watched Global Manufacturing PMI New Orders Index, ISM Manufacturing New Orders Index, and the OECD Leading Indicators.
● These results make the CSBMI a potentially useful tool in taking the real-time pulse of the global industrial sectors.
Figure 1: CSBMI vs. Global IP Momentum
Source: Thomson Reuters Datastream, Credit Suisse Introducing CS Basic Materials Index (CSBMI) We team up with our equity analysts to develop the Credit Suisse Basic Materials Index (CSBMI), a single summary measure capturing the dynamic for the sectors covering chemicals, energy, materials, paper & packaging, and transportation & shipping. Specifically, the CSBMI is a monthly index constructed to summarize variation among 25 cyclically sensitive market indicators covering the basic material sectors. Technically, the CSBMI is the first principal component (or the common trend) of the dataset consisting of these 25 indicators. Principal Component Analysis (PCA) is a mathematical procedure to synthesize datasets of high dimension into more manageable summary indices without much loss of information. It is a widely used method to derive a concise and objective measure through the noise of massive data releases. The historical movement in the CSBMI tracks the global industrial production cycle closely. In addition, it also tracks other important leading indicators, including the widely watched Global Manufacturing PMI New Orders Index, ISM Manufacturing New Orders Index, and the OECD Leading Indicators. These results make the CSBMI a potentially useful tool in taking the real-time pulse of the global industrial sectors. Fourteen of the twenty-five indicators made positive contribution to the December estimate. We expect some softening in the index’s January
performance based on the available January pricing data, but it should remain above the long-term average growth rate. Based on our equity analysts’ view on the movement of 15 key components, we expect the index to move higher in the next three months. Index components In total, we have 25 indicators that reflect the strength of underlying demand, the level of production, and the price performance of the basic materials sectors. Additionally, we chose the indicators based on criteria such as timeliness, coverage, available history, and which combination had the strongest joint correlation with global IP growth. Seventeen of the twenty-five variables are real variables. The 8 nominal variables are mostly price indicators. We intend to publish the index the third week each month. About 20 of the 25 indicators are usually released within the third week of the month. For those indicators that are not available at the time of publication, we use our equity analysts’ estimates. If no estimates are available, we simply use exponential three-month moving averages for the missing values. Index construction A brief description of the procedure follows. First, for indicators exhibiting seasonal patterns, we seasonally adjust the data using the Census X-12 program. Each stationary series is further screened for outliers. Finally, we normalize each series for volatility, so that each normalized series is specified to have a mean of zero and standard deviation of one. We then run the PCA procedure to derive the first principal component. The first principal component captures the maximum co-movement of all 25 indicators in a month. The final step is to normalize the first principal component so that the mean is zero and standard deviation is one. The CSBMI is simply a weighted average of the 25 indicators with weights being determined by their historical importance to the maximum co-movement. Revisions There are four sources of revision to our index. The first source of revision is projection error. Second, there are the routine data revisions to some of our subcomponents. Third, we re-normalize the data each month before running the PCA. The last source of revision is related to the index construction methodology. All four sources of revisions will alter the past values of CSBMI. Going forward, we expect to report the current month estimates for the latest six months as well as their previous estimates. Interpreting the results The index is constructed to have a mean value of zero. Therefore, an index level of zero will tend to correspond to the basic materials sector growing near its average growth rate. We could use the index to track the underlying direction of industrial production; in other words, is the industrial sectors speeding up, slowing down, and by what order of magnitude. This is an extract from Neal Soss’s Introducing the CS Basic Materials Index report, published on 25 January 2011. For details, please see the CS Research & Analytics website
Global Global Equity Research - Basic Indicators------------------------------------------------------------- Real world indicators point to continued recovery Stephane Rochon / Research Analyst / 212 538 6827 / [email protected]
● A New Monthly Report: Basic Indicators is a new monthly report that aims to provide insights from “real world” indicators and trends from basic material, energy, transportation and shipping sectors.
● The Credit Suisse Basic Materials Index (CSBMI) was developed in conjunction with our Global Economics Team and is a Proprietary 25 component index that we believe can be a useful tool to help investors assess where we are in the economic cycle and how to position themselves.
● A leading indicator of leading indicators: Backtested CSBMI results are encouraging. The Index leads important leading indicators such as the Global Manufacturing PMI New Orders Index, ISM Manufacturing New Orders Index, and the OECD Leading Indicators by one to two months.
● Economic recovery poised to continue: The index just moved above trend in September. Assuming the trend persists, this phase of the cycle tends to be associated with strong equity returns, particularly in more economically sensitive sectors. Our Commodities and Equities research teams expect a reacceleration in key indicators over the intermediate term.
Source: Company data, Credit Suisse estimates Basic Indicators In this new monthly report on Basic Indicators, we pull together “real world” indicators and equity analyst commentary to highlight what the worlds of basic materials, energy and transportation are telling us about the global economy. We have also developed the Credit Suisse Basic Materials Index (CSBMI) in conjunction with our Global Economics Team – a Proprietary 25 component index that we believe can be a useful tool to help investors assess where we are in the economic cycle and how to position themselves.
Overall, the equity analyst commentary (below) and the CSBMI both suggest continued recovery on the horizon. Assuming the index trend persists, this phase of the cycle tends to be associated with strong equity returns, particularly in the energy, materials and industrials sectors. Equity Analyst Sector Highlights and Top Picks: Energy: We are relatively positive on the oil supply outlook (all sources), forecasting growth of around 1.3 MBD pa. We highlight
value in Canadian names such as TLM, SU, PWT and prefer APC, NFX, SFY, WLL in the US. Metals & Mining: Q1 is typically a strong period for metals/steel-related demand, and we suspect 2011 will be no different, with the potential for a synchronized rebound in both China and Western World consumption during 1H’11. In the US, our preferred stocks are FCX, SWC and RS. In Canada, our preferred stocks are TCKb.TO, FM.TO, and BWR.TO. Globally, we prefer RIO. Chemicals: Overall given the solid demand for most major end-markets in the chemical space, we expect the group as a whole to outperform the broader market. Our favorite names: DOW in the large cap arena, CE and ASH in the mid-cap space and ROC and FOE in the small cap group. Globally, we like Saudi Basic Industries Corp. Paper & Packaging: In the containerboard area, we identify industry consolidation, input costs (mainly OCC), and export premiums as key drivers of US pricing. International Paper (IP) is our favorite way to play these trends, as it has substantial exposure to containerboard and pulp. Transportation: Rail industry carloads were up 10.1% year-over-year in 4Q10 – compared with the 12.1% year-over-year increase seen in 3Q10. Given the recent uptick in the ISM New Orders Index and the acceleration in global IP momentum, we believe that the railroads stand to benefit from continued strength in demand in 2011. Our top picks in the railroad sector are UNP and CSX. Ocean Shipping: The Baltic Dry Index (BDI) was up 6.1% year over year in 2010 driven by a surge in demand for all major dry bulks. We would highlight Textainer (TGH) and other container leasing companies as the beneficiaries of the sustained pick up in container port activity which we expect in 2011. CS Commodity Research View: While global GDP remains below trend, in large part this is due to weakness in the services sector in the G7. When modeling commodity demand, IP and Fixed Asset Investment (FAI) are better indicators. And with both IP and FAI growing above trend, markets could tighten further over coming months. CSBMI Suggests Bullish Environment for Equities In-Sample backtested results are encouraging as the index tracks other important leading indicators, including the widely watched Global Manufacturing PMI New Orders Index, ISM Manufacturing New Orders Index, and the OECD Leading Indicators. Generally, the CSBMI leads these indicators by one to two months with correlation coefficients ranging between 0.63 and 0.81. These results make the CSBMI a potentially useful tool in taking the real-time pulse of the global industrial sectors. This is an extract from Stephane Rochon’s Basic Indicators report, published on 25 January 2011. For details, please see the CS Research & Analytics website.
Thursday, 27 January 2011
Asian Daily
- 8 of 40 -
Regional Asia Drybulk Shipping Sector ------------------------------------------ Maintain UNDERWEIGHT Rising default risk at current low BDI? Sam Lee / Research Analyst / 852 2101 7186 / [email protected] HungBin Toh / Research Analyst / 852 2101 7481 / [email protected]
● Filing for court receivership, Korea Line Corp has became the latest victim of the current low BDI (has fallen 69% from mid-last year peak to 1,292.) At current level, we think some ships are not covering operating cost and some carriers will be lossmaking if this rate sustains for 2011. Nevertheless, our analysis suggested that most are not under financial distress except STXPO, which is more problematic given its weaker balance sheet.
● The weak bulk shipping market is due to excess supply, lack of new cargoes (due to decline in Australian coal exports), high spot iron ore price, increase in China iron ore production and record Chinese iron ore inventories. While there could be a short-term rate rebound on resumption of coal export from Australia and/or stronger seasonal demand post Chinese New Year (CNY), we do not think there will be a strong and sustainable rally given the massive industry oversupply.
● Stocks have underperformed but we think there are still downside risks to some, such as China Cosco, Maybulk and U-Ming, which are on high forward P/B valuations of 1.4-1.9x. On a relative basis, PacBasin is more attractive with more capacity locked-in and trading below book value.
Valuation metrics B’blg Rat- Curn’cy Sh Target % P/B (x) ROE(%) Stocks code ing px price +/- 11E 12E 11E 12ECCH 1919 HK U HK$ 8.78 7.70 -12 1.4 1.3 10 11CSD 1138 HK U HK$ 9.96 9.50 -5 1.2 1.1 10 14Maybulk MBC MK U RM 2.78 2.15 -23 1.4 1.4 10 9Pac Basin 2343 HK N HK$ 5.11 6.20 21 0.8 0.8 8 9Sincere 2605 TT N NT$ 36.30 40.00 10 1.3 1.2 12 13STX PO STX SP N S$ 13.00 12.35 -5 1.0 1.0 3 5U-Ming 2606 TT U NT$ 62.90 46.75 -26 1.9 1.8 9 10Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Source: Bloomberg, company data, Credit Suisse estimates Loss making for some at current BDI Korea Line Corp, which operates less than 3% of global bulk fleet, has filed for court receivership after it failed to renegotiate a number of lossmaking charters. At the current daily charter rates, we think capesize vessels are lossmaking on cash cost basis, and five-year old panamax vessels are not covering cash plus financing costs (Fig. 1). Figure 1: Spot freight rates and estimated break-even rates US$/day Capesize Panamax Handymax HandysizeSpot time-charter rate 8,002 12,084 14,333 11,118 Cash cost (Opex + Overheads)* 8,800 7,400 6,600 6,000 Cash + finance cost* 16,816 12,210 10,952 9,321 * Assume a 5-yr old owned ships ordered in 2002, with interest rate of 4.5%, 10-years payback and 80% loan-asset ratio; Source: Company data, Credit Suisse estimates
Our 2011E average BDI forecast is unchanged at 2,300. This is significantly higher than the current level. While there could be occasional seasonality spike from the current low level, we think there is downside risk to our full year forecast. If BDI remains at the current level for the full year, we think China Cosco and STXPO could be lossmaking this year (Fig. 2). For China Cosco, this has already taken into account of an estimated Rmb4.6 bn operating profit from container shipping. We think it has 80-90% of bulk shipping capacity
on the spot market. U-Ming also has about 50% on spot, which is vulnerable to the current low spot rates. We think balance sheets and interest coverage for most carriers will remain at comfortable levels. Only STXPO has a weaker balance sheet, and could be negatively affected by higher financial cost for its future bond issue.
Figure 2: Sensitivity on FY11E earnings and financial gearings Local currency mn Ch Cosco STX PO Pac Basin Sincere U-MingCurrent forecast (2011E BDI=2,300) Net profit 4,277* 73 119 1,971 2,601 Net gearing (%) 40.4 134.1 3.1 27.9 Net CashNet interest coverage (x)# 13.0 5.1 10.0 27.2 Int incomeIf BDI = 1,300 Net profit (900)* (78) 107 1,391 688 Net gearing 56.4 154.6 3.2 32.4 Net CashNet interest coverage (x)# 4.9 1.8 9.4 22.8 Int income# EBITDA/Net interest expense; * Pre-provision for China Cosco Source: Company data, Credit Suisse estimates Industry oversupply to continue in 2011-12E As highlighted in our report VLOCs a negative game changer (23 Nov 2010), more new ship deliveries are expected in the next seven quarters, and we expect 2011-12E net supply growth to remain at 12-13% YoY after factoring in 40% delays. The deliveries of more VLOCs (very large ore carriers) could leave the capesizes with no spot cargo demand on the Brazil-China route, pushing them to short haul routes and significantly driving down freight rates. We expect drybulk demand to grow 4.3-5.5% in 2011-12E. We think demand-supply imbalance is likely to persist for 2011-12.
Seasonally, cargo volume is weaker before CNY. Therefore, BDI could potentially rebound if flooding in Australia is resolved post CNY. That said, we think there are also other factors/risks that can cap any BDI rebound. 1) Spot Indian iron ore price is high at US$162/tonne, encouraging more domestic iron ore production in China. 2) Chinese iron ore stockpiles are at a record 77 mn tonnes. Meanwhile, China thermal coal stockpiles at Qinhuangdao port have also risen to a high of 7.2 mn tonnes. 3) Risk remains about Western Australia facing cyclones during the next few months.
Figure 3: Demand-supply imbalance will continue to depress rates
China China Property Sector----------------------------------------------------- Maintain UNDERWEIGHT Third round of tightening is worse than Credit Suisse's already bearish view Jinsong Du / Research Analyst / 852 2101 6589 / [email protected] Wenhan Chen / Research Analyst / 852 2101 6407 / [email protected] Ronney Cheung / Research Analyst / 852 2101 7472 / [email protected]
● Right after the recent sector rally, China announced severe tightening measures on property markets after the 26 January 2011 market close. We expect the share prices of China property developers, especially players with high-end focus, such as CR Land, COLI, Shimao, Greentown, KWG, Longfor, Glorious and Yanlord, to be under pressure.
● Of all the new measures (Figure 1), we believe the most negative is asking each city to set a 2011 property price target within 1Q11. This means that either high-end projects will slash their prices or the local governments will ban their sales to bring down the ASP.
● Listed developers gained market share in 2010, but even with the supply surge in 2011E , they may lose market share in some cities in 2011 amid intensified competition.
● With the continued tightening on credits for both developers and home buyers, we maintain our non-consensus call that primary housing transaction volume will decline YoY in 2011E. We maintain UNDERWEIGHT on the China property sector.
Figure 1: New tightening measures announced on 26 January 2010 after market close Key points of the measures 1 Within 1Q10, local governments to set and announce a 2011 target on controlling
property prices 2 To accelerate the development of social housing, especially rental housing 3 Business tax (5.5%) would be levied on 100% of the sales proceeds if holding
period is less than five years (previous on capital gain only); to strictly enforce the calculation and collection of LAT, especially on high-end projects with prices exceeding the city's average by a large amount
4 Mortgage down-payment for second home purchases raised from 50% to 60%, with interest rates at least 10% higher than the basis rate
5 2011 land supply in each city should not be lower than the average of actual supply in 2009 and 2010. Local government should ensure 70% or more new residential land supply is used for public housing and mid- to small-size ordinary houses; local government should confiscate land parcels that stay idle for more than 2 years, and fine developers with land parcels idle for more than one year
6 Purchase restrictions are extended for the previously 17 cities to the whole country. Every local household can only buy one more housing unit, and non-locals cannot buy any. Local households already owning two housing units or more cannot buy any more
7 Banks required to tighten the control on mortgage lending and loans to developers even further
8 Local governments that fail to control property prices will be penalized Source: The State Council 2011: Listed developers may lose market share Listed developers’ 2010 contracted sales grew by more than 30% YoY on average, versus industry growth of only 14%. We believe this was mainly because after the property market boom in 2009 listed developers increased their new starts in construction earlier and faster than their smaller peers and were able to launch more projects faster than their smaller peers in 2010.
As smaller developers also accelerated new starts in construction in 2010, we expect listed developers to face much more competition in 2011. As a result, some of them may fail to achieve the aggressive contracted sales targets they have guided for 2011.
Most imminent – high-end players should be the most vulnerable Figure 2: High-end projects as a % of developers’ 2011E launches RIC code Developer % of 2011E sales that belong
to high-end projects3383.HK Agile 32%000002.SZ China Vanke - A 10-15%0688.HK COLI 40%1109.HK CR Land 45%3333.HK Evergrande 5%3900.HK Greentown 55%2777.HK GZ R&F 28%1638.HK Kaisa 9%1813.HK KWG 88%3377.HK Sino Ocean Land 34%0813.HK Shimao 40% Source: Company data, Credit Suisse estimates
Thursday, 27 January 2011
Asian Daily
- 10 of 40 -
China Power Utilities Sector ---------------------------------------------- Maintain OVERWEIGHT Dark clouds remain but expectations are low; stay with the leader Edwin Pang / Research Analyst / 852 2101 6406 / [email protected] Yang Y. Song / Research Analyst / 852 2101 6550 / [email protected]
● For the IPP sector, operating environment in 2011 continues to be challenging. High coal prices and interest rates tightening are key risks. That said, we see mitigating factors preventing a repeat of 2008, the worst year for IPPs.
● Relative to 2008, coal self-sufficiency ratios have risen (especially CRP and Datang), thermal exposure is lowered (e.g., CPID, Datang), and NDRC continues to provide back-stop on contract coal prices.
● Stocks, on forward P/B, are trading at close to or at 4-5-year lows. Expectations for tariff hikes are low as market continues to discount policy risks.
● Changing our key sector assumptions of tariffs, coal prices, and interest rates, we lower our earnings for the four IPPs by 4-20% for 2011/12. Our target prices are down by 9-14%.
● We continue to prefer CRP as the industry leader with a higher operating efficiency. Valuation (P/B, P/E) looks reasonable as the market discounts continued delays in its coal production targets. Tariff hike news flow and meeting those targets are key catalysts.
Figure 1: China composite average coal price (ex. VAT) *
400450500550600650700750800850
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On-grid tariff hikesConcern over demand, leverage, high coal prices
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.* Composite average of Datong 5,800/6,000 kcal, Shanxi 6,500 kcal, Ordinary 4,500 kcal, Kailun/Shanxi Dahun 5,500 kcal. Source: CCTD, Credit Suisse estimates Dark clouds remain in 2011 Our China coal team sees average spot QHD price to rise 5% and 9% on tight demand-supply and domestic railway bottlenecks. With the sector’s high gearing, benchmark interest rate hikes would eat into sector profitability. We assume 130 bp increase in interest rates in 2011. Near-term inflationary concerns mean that an on-grid tariff hike could only be considered in mid-2011. We now expect an on-grid tariff hike of 5% in end-June 2011 (from 4Q10 previously). Mitigating factors against a repeat of 2008 We acknowledge these risks with the adjustment of our earnings forecasts. With key sector assumption changes, we lower sector earnings by 4-20% for 2011-12. Our target prices are lowered by 9-14% (Figure 3). That said, we believe the operating environment in 2011 will still be better compared to 2008. The sector, in general, has: 1) higher coal self-sufficiency ratios (e.g., CR Power, Datang), 2) lower thermal power exposure (e.g., CPID in hydro and Datang in coal-chemicals), and 3) NDRC’s help in securing major coal contracts (price and meeting deliveries). Example, we assume CPID’s hydro segment to contribute >100% of its earnings in 2011 (as we assume
its thermal to slip into a loss again, like 2008). For Datang, we assume non-thermal business to contribute 50% of earnings in 2011. Figure 2: Coal self sufficiency for the listed IPPs have risen over time
Huaneng 5.08 3,921 4,075 4,338 5.86 4,309 4,785 5,415 -13 -9.0 -14.8 -19.9Datang 3.07 1,918 2,431 2,627 3.37 1,918 2,531 3,078 -9 0.0 -4.0 -14.7CRP 18.36 5,114 5,720 6,653 21.3 5,261 7,001 7,857 -14 -2.8 -18.3 -15.3CPID 2.03 549 597 567 2.25 548 721 708 -10 0.2 -17.3 -19.8*CR Power reports in HK$ mn, others in Rmb mn. Source: Company data, Credit Suisse estimates P/B valuation – implying multi-year lows. Prefer CRP On forward P/B, the market is pricing IPPs stocks at or close to their all-time lows. It would imply that the market is pricing in regulatory uncertainties in terms of lack of a tariff policy that ensures a reasonable return for thermal projects. Our pick within the sector is CRP. Catalysts are tariff adjustment news flow and execution of its coal mine investments.
Figure 4: China IPP sector current P/B, its avg during Oct-Nov’08 (worst period) and the relative discount to that period (for 2010 and 2011) P/B
Sinopharm---------------------------------------------------------------------- Maintain OUTPERFORM Rmb1.3 bn acquisition at 20-25x P/E, but full-year average should still be around 15x for acquisitions EPS: ◄► TP: ◄► Jinsong Du / Research Analyst / 852 2101 6589 / [email protected]
● This morning (Wed 26 Jan), Sinopharm announced a framework agreement to acquire 60% of Lerentang (not listed), by far the largest drug distributor in Hebei province (30% market share), for no more than Rmb1.3 bn.
● We estimate that this acquisition should be valued at 20-25x 2010A P/E – significantly higher than the less than 10x P/E for Sinopharm's previous (smaller in size) acquisitions, but much lower than the 30-50x P/E for some of its competitors’ recent acquisitions in China. Moreover, the profitability of Lerentang appears very good, so this acquisition should not have the margin dilution effect caused by previous acquisitions.
● Sinopharm management maintained the guidance that the average P/E of acquisitions within 2011E should not be higher than 15x. Most of Sinopharm’s acquisition targets are now in 2nd and 3rd tier cities, where the competition for acquisition targets are much less than those in major cities.
● We believe both its organic growth and acquisitions are on track, and suggest accumulate on weakness. Maintain OUTPERFORM.
Sinopharm also believes this acquisition will help quickly increase its total sales in Hebei province to more than Rmb10 bn, and lay the foundation for accelerating growth for the whole company.
We maintain our OUTPERFORM rating on Sinopharm. Although the valuation multiple may create an initial shock to Sinopharm's share price, we believe both its organic growth and acquisitions are on track, and suggest accumulate on weakness.
Price (25 Jan 11 , HK$) 27.40TP (Prev. TP HK$) 40.00 (40.00) Est. pot. % chg. to TP 4652-wk range (HK$) 38.40 - 25.45Mkt cap (HK$/US$ mn) 62,049.2/ 7,957.9
Bbg/RIC 1099 HK / 1099.HK Rating (prev. rating) O (O) Shares outstanding (mn) 2,264.60 Daily trad vol - 6m avg (mn) 4.4 Daily trad val - 6m avg (US$ mn) 20.0 Free float (%) 27.0 Major shareholders CNPG (35.5%)
Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (Rmb bn) 38.2 47.0 66.0 90.1 116.4EBITDA (Rmb bn) 1.3 1.8 2.6 3.5 5.1Net profit (Rmb bn) 0.6 0.8 1.3 1.7 2.4EPS (Rmb) 0.36 0.47 0.56 0.73 1.07- Change from prev. EPS (%) n.a. n.a. 0 0 0- Consensus EPS (Rmb) n.a. n.a. 0.57 0.76 0.97EPS growth (%) 53.8 30.8 20.4 30.5 45.3P/E (x) 64.6 49.4 41.1 31.5 21.7Dividend yield (%) 0.3 1.5 0.4 0.6 0.8EV/EBITDA (x) 38.9 26.9 19.0 14.0 9.2P/B (x) 16.7 3.8 6.1 5.2 4.5ROE (%) 29.7 12.8 13.1 17.9 22.2Net debt (net cash)/equity (%) (2.3) (42.2) (36.8) (22.3) (37.5) Note1: Sinopharm Group Co., Ltd. is China's largest pharmacy distribution company. The Company also owns several pharmacy enterprise groups in different industries such as logistics, retail stores, pharmaceutical manufacturing, and chemical testing.
Thursday, 27 January 2011
Asian Daily
- 12 of 40 -
Hong Kong BOC Hong Kong------------------------------------ Initiating Coverage with UNDERPERFORM Potentials priced in Franco Lam / Research Analyst / 852 2101 7642 / [email protected]
● We initiate coverage on BoCHK with an UNDERPERFORM rating and a target price of HK$25. Trading at 2.2x 2011 P/B, 16% premium to historical average, we view the stock expensive given its ROE will only revert to historical average of 15% in FY12E.
● The development of Rmb business is long term and BoCHK is a beneficiary given closer alliance with Chinese corporates, Rmb clearing bank with largest Rmb markets share in HK. But we believe they are priced into stock price.
● The Rmb development has been growing faster than expected with surge in Rmb system deposits of Rmb280 bn, +346% YTD. However, the inability to deploy deposits into higher yielding investable Rmb assets has put BoCHK at disadvantage to peers.
● We expect to see earnings recovery through NIM stabilisation but lending pace could potentially lag behind peers as its HK$/US$ LDR level has already reached a historical high of 75%.
● Upside risk includes better and faster development in Rmb business that materially translates into earnings.
Earnings potentials and drawback from Rmb measures Our analysis shows that Rmb liberalisation measures can potentially contribute HK$1.8 bn or 1.3% percentage points or ROE by 2012E (from 14.8% to 16%). We have yet to factor in expectation as the potential is still remote, in our view. Moreover, the significant accumulation of Rmb deposits (Rmb280 bn, +346% YTD) is actually causing a drag to BoCHK’s margin as it is unable to offload the excess Rmb deposits into higher-yielding Rmb investable assets. The supply of Rmb investable assets is simply not enough to meet the demand. We expect further liberalisation measures to alleviate the deposit imbalance; though the timing is uncertain, with it likely to be gradual and also tightly controlled by the Chinese government. Valuations rich Trading at 2.2x 2011 P/B and 16x earnings, the bank’s valuation is currently 16% and 33% above its mean historical P/B and P/E
average, the widest gap for an HK bank. While the development is structurally positive to BoCHK, we view current valuation as unattractive given its near-term ROE will only return to historical average of 15% by 2012, implying that there will be no significant incremental earnings contribution from Rmb developments in the near term. The bank’s stock price outperformance came despite no upward revision in I/B/E/S estimates.
Figure 1: BoCHK – I/B/E/S earnings expectations
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Source: Company data, Credit Suisse estimates Earnings outlook Earnings are expected to remain under pressure in 2H10 and at least up to 1H11, on the back of the low interest rate environment. Having said that, earnings are expected to grow 15% in FY11/12E driven by strong lending opportunities, recovery of fee income and low credit cost. Despite good lending opportunities, we believe the bank’s lending growth will be capped and will be more selective as its US$/HK$ loan-to-deposit ratio is running at a historical high. Without growth in HK$/US$ deposits, we believe the bank needs to be selective in lending. On this aspect, we prefer HSB over BoCHK given a lower L/D ratio at 61% (BoCHK: 69%) and the ability to capture more lending opportunities.
Figure 2: BoCHK – Net US$/HK$ LDR
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Source: Company data, Credit Suisse estimates
Price (25 Jan 11, HK$) 26.25TP (Prev. TP HK$) 25.00 (NA) Est. pot. % chg. to TP (5)52-wk range (HK$) 28.85 - 16.08Mkt cap (HK$/US$ bn) 277.5/ 35.6
Bbg/RIC 2388 HK / 2388.HK Rating (prev. rating) U (NA) Shares outstanding (mn) 10,572.78 Daily trad vol - 6m avg (mn) 20.1 Daily trad val - 6m avg (US$ mn) 64.1 Free float (%) 34.0 Major shareholders BOC
Year 12/08A 12/09A 12/10E 12/11E 12/12EPre-prov Op profit (HK$ mn) 16,755 13,914 17,410 21,245 24,838Net profit (HK$ mn) 3,343 13,725 15,134 17,340 19,871EPS (HK$) 0.32 1.30 1.43 1.64 1.88- Change from prev. EPS (%) n.a. n.a. 2 0 (4)- Consensus EPS (HK$) n.a. n.a. 1.44 1.66 1.99EPS growth (%) (78.4) 310.6 10.3 14.6 14.6P/E (x) 83.0 20.2 18.3 16.0 14.0Dividend yield (%) 1.7 3.3 3.3 3.7 4.3BVPS (HK$) 7.8 9.7 10.8 12.1 13.3P/B (x) 3.4 2.7 2.4 2.2 2.0ROE (%) 3.8 14.8 13.9 14.3 14.8ROA (%) 0.3 1.2 1.2 1.2 1.2Tier 1 (%) 10.9 11.6 11.6 11.8 11.9 Note 1: Ord/ADR=20.0000. Note 2: BoCHK is a leading commercial banking group in HK and offers a comprehensive range of financial products and services to retail and corporate customers. It has been appointed by PBOC as the sole clearing bank for Renminbi business in HK.
Thursday, 27 January 2011
Asian Daily
- 13 of 40 -
Bank of East Asia ----------------------------------------------Initiating Coverage with NEUTRAL Beneficiary of China tightening measures Franco Lam / Research Analyst / 852 2101 7642 / [email protected]
● Initiate with Neutral: We initiate coverage of Bank of East Asia with a NEUTRAL and a target price of HK$36 (1% potential upside). We believe the bank is a key beneficiary of China’s tightening measures where more lending could potentially flow to the bank, both onshore and offshore. However, we believe these catalysts are priced in as its upside is capped, given structural low ROEs and capital pressure overhang.
● Improving earnings outlook: We expect solid earnings growth of 17% in FY11 and 16% in FY12 on NIM stabilisation from rising lending and improving loan mix to higher yielding Chinese corporate.
● Risks and limited upside: Trading at 1.6x 2011E P/B and 17x earnings, 13% above its mean historical P/E since 2005, we believe the stock is fully valued, given low structural ROE (FY12E: 11%) and near-term capital overhang. We believe M&A activities are quite unlikely, given management’s intention to stay independent.
Leveraging China network We expect BEA to be a key beneficiary of credit tightening in China, with increasing offshore lending in Hong Kong and onshore lending in China. We understand that foreign banks were less subject to the quota restrictions than large mainland Chinese banks. We currently expect its China lending book to grow 18% in FY11/FY12. Improving earnings outlook We expect solid earnings growth of 17% in FY11 and 16% in FY12 on NIM stabilisation from rising lending to higher-yielding Chinese corporate in Hong Kong and China. We believe there is less concern about a need to slow down China lending growth to meet 75% LDR by the end of the year, as there are signs that more Mainland corporate will pledge their RMB deposits in China to obtain USD funding in HK.
Besides, we believe there will be a solid recovery in fee income growth, on higher turnovers and higher incentive to buy yield-enhancing products in a negative real interest rate environment.
Asset quality for the bank is not a near-term concern in FY11, but given its increasing exposure in China, it would be vulnerable, if there are signs of a deterioration in China’s economy.
Figure 1: BEA – China lending expectations
020,00040,00060,00080,000
100,000120,000140,000160,000180,000200,000
2005 2006 2007 2008 2009 2010F 2011F 2012F
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
China Loans HK$'m Grow th %
Source: Company data, Credit Suisse estimates Structural Low ROE, capital pressure remain a major overhang Trading at 1.6x 2011E P/B and 17x earnings, we see limited upside for its share price. The stock is trading at 13% above its mean historical P/E and given no significant recovery in ROE expectations, we believe all positive catalysts are already priced in. Capital pressure overhang of core tier 1 of 9% (ex. hybrid), the lowest in the sector, should limit any share price upside. While we believe the bank is not subject to takeover in the near term, its key shareholders should provide downside support to share price.
Figure 2: BEA – lowest tier 1 ratio among peers (FY11E)
-
2.00
4.00
6.00
8.00
10.00
12.00
DSB/DSF BOC (HK) Hang Seng WHB BEA
Source: Company data, Credit Suisse estimates
Price (26 Jan 11 , HK$) 35.75TP (Prev. TP HK$) 36.00 (NA) Est. pot. % chg. to TP 152-wk range (HK$) 35.90 - 26.45Mkt cap (HK$/US$ mn) 73,001.2/ 9,374.2
Bbg/RIC 23 HK / 0023.HK Rating (prev. rating) N (NA) Shares outstanding (mn) 2,041.99 Daily trad vol - 6m avg (mn) 2.9 Daily trad val - 6m avg (US$ mn) 12.4 Free float (%) 76.0 Major shareholders Criteria 15%, Guoco
Year 12/08A 12/09A 12/10E 12/11E 12/12EPre-prov Op profit (HK$ mn) 678 4,059 4,255 5,382 6,396Net profit (HK$ mn) 39 2,565 3,617 4,225 4,901EPS (HK$) 0.02 1.39 1.86 2.07 2.38- Change from prev. EPS (%) n.a. n.a. 4 (13) (13)- Consensus EPS (HK$) n.a. n.a. 1.83 2.09 2.42EPS growth (%) (99.1) 6,454.2 33.9 11.0 14.9P/E (x) 1,683.6 25.7 19.2 17.3 15.0Dividend yield (%) 0.8 2.2 2.5 3.1 3.6BVPS (HK$) 17.5 19.0 20.9 21.9 23.1P/B (x) 2.0 1.9 1.7 1.6 1.6ROE (%) 0.1 7.6 9.3 9.7 10.6ROA (%) 0.0 0.6 0.8 0.8 0.8Tier 1 (%) 9.2 9.4 10.2 9.8 9.6 Note1:Ord/ADR=1.0000.Note2:The BEA is an independent local bank which offers a full range of wholesale and retail banking services and has an extensive branch network in Mainland China.Note3:0.
Thursday, 27 January 2011
Asian Daily
- 14 of 40 -
Dah Sing Financial--------------------------------------Initiating Coverage with OUTPERFORM Too cheap to ignore Franco Lam / Research Analyst / 852 2101 7642 / [email protected]
● Initiate with Outperform: We initiate coverage of Dah Sing Financial with an OUTPERFORM and a target price of HK$68 (20% potential upside), based on 1.5x 2011E P/B and 15x earnings. Our bullish view on the stock is based on its compelling valuation and better earnings visibility.
● Banking operation outlook: The bank’s overhang concerns about higher credit costs and capital pressures are largely removed. We expect earnings to grow 23% and 16% in FY11/FY12, respectively, on solid loan growth with stable credit costs.
● Insurance operations: DSF is in the process of rebuilding its agency force after scaling down its operations during the financial crisis, which should be supportive to premium growth, in our view. Our DSF earnings are currently 2% above consensus in 2010E.
● Key risks: Downside risk for DSF include higher than peers in credit costs and M&A potential that eventually do not materialise.
Discounted valuation The stock currently trades at 1.3x 2011E P/B, and 13x earnings, which is 43% below its mean historical P/E. We believe DSF’s improving fundamentals and M&A potential could provide further upside support to the bank’s stock price.
Figure 2: DSF – shareholder structure Major shareholders StakeDavid SY Wong's family 40.0%MUFJ 15.1%Source: Company data, Credit Suisse estimates Banking operation outlook We expect earnings to grow 23% and 16% in FY11/FY12, respectively, on solid loan growth (FY11: 12%) with stable credit costs (FY11: 10 bp). We believe DSF’s high exposure to unsecured
lending (17% vs peers: 7%) should provide better NIM support in low interest rate environment. DSF’s overhang concerns about higher credit costs and capital pressures are largely removed. We expect credit costs of 10 bp in FY11 and tier 1 of 12% post-recent capital raisings.
Figure 3: DSF – historical and outlook of credit costs
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
2008 2009 2010F 2011F 2012F
Source: Company data, Credit Suisse estimates
Figure 4: DSF – tier 1 ratio (FY11E)
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DSB/DSF BOC (HK) Hang Seng WHB BEA
Source: Company data, Credit Suisse estimates Insurance operations We expect a solid improvement in insurance earnings, as supported by higher investment returns. DSF is in the process of rebuilding its agency force after scaling down its operations during the financial crisis, which should be supportive to premium growth, in our view.
Price (26 Jan 11 , HK$) 56.05TP (Prev. TP HK$) 68.00 (NA) Est. pot. % chg. to TP 2152-wk range (HK$) 60.70 - 34.46Mkt cap (HK$/US$ mn) 16,411.7/ 2,107.4
Bbg/RIC 440 HK / 0440.HK Rating (prev. rating) O (NA) Shares outstanding (mn) 292.80 Daily trad vol - 6m avg (mn) 0.2 Daily trad val - 6m avg (US$ mn) 1.4 Free float (%) 45.0 Major shareholders Wong Family 40%,
Year 12/08A 12/09A 12/10E 12/11E 12/12EPre-prov Op profit (HK$ mn) 1,467 855 1,296 1,563 1,879Net profit (HK$ mn) 106 626 1,029 1,288 1,510EPS (HK$) 0.42 2.41 3.51 4.40 5.16- Change from prev. EPS (%) n.a. n.a. (12) (6) (7)- Consensus EPS (HK$) n.a. n.a. 3.82 4.58 5.39EPS growth (%) (89.9) 466.5 46.1 25.2 17.2P/E (x) 132.0 23.3 16.0 12.7 10.9Dividend yield (%) 1.3 0 1.6 3.1 4.6BVPS (HK$) 39.5 43.8 41.9 44.5 46.8P/B (x) 1.4 1.3 1.3 1.3 1.2ROE (%) 1.0 5.9 8.7 10.2 11.3ROA (%) 0.1 0.5 0.8 1.0 1.0Tier 1 (%) 6.8 10.2 11.9 12.0 12.0 Note1:Ord/ADR=3.0000.Note2:The Dah Sing Group is a leading financial services group in HK. It consists of two listed companies - Dah Sing Financial and Dah Sing Banking. DSF is the holding company for the group'sinsurance business, as well as the majority shareholder in DSB..
Thursday, 27 January 2011
Asian Daily
- 15 of 40 -
Dah Sing Banking Group-----------------------------Initiating Coverage with OUTPERFORM Strong upside potential Franco Lam / Research Analyst / 852 2101 7642 / [email protected]
● Overhang removed: We initiate coverage on DSB with an OUTPERFORM rating and a target price of HK$16.5, which is equivalent to 1.6x 2011E P/B and 15x earnings. We expect its discounted valuation and better earnings visibility to support a rerating.
● Solid earnings growth: We expect earnings grow 22%/16% in FY11/1FY12 on the back solid loan growth (FY11: 12%) with stable credit cost (FY11: 10 bp). Our FY11E earnings are currently 2% above consensus.
● A stable source of associate income: We believe the 20% stake in Bank of Chongqing was a great acquisition as it will continue to be a stable contributor of earnings to the bank. We expect 15% earnings contribution p.a.
● Compelling valuation: Currently trading at 1.4x 2011E P/B (WHB: 2.2x), DSB looks compelling vs peers. Compared with WHB, a bank with similar size and presence, DSB is trading at a 37% discount, which we believe is unjustified. In our view, the discount gap should narrow as the bank’s ROE further improves.
Overhang removed; solid earnings growth We expect a solid recovery in earnings for DSB, supported by robust lending growth, particularly from China and Macau, improving fee income outlook on higher turnover and a benign credit cost environment and increasing contributions from its investment in associate. We forecast earnings will grow 22% in FY11 and 16% in FY12 as ROE is expected to be 12% by FY12. This is a substantial improvement versus a meager 2% ROE in 2008. Margins could still be under pressure from mortgage re-pricing risk (e.g., prime to Hibor based), lower free-funds contribution as well as de-risking of its treasury book post financial crisis, but we expect NIM stabilisation for the bank given the higher exposure to unsecured lending. Although the stock has outperformed the HSI by 16%, we believe it has further legs to run on discounted valuation, solid improvement in ROE and capital pressure being removed.
Figure 1: DSB – recovery of ROE
0.0
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8.0
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2 00 5 20 06 2 007 20 08 2 009 20 10E 2 011 E 20 12E
Source: Company data, Credit Suisse estimates More than just an investment The associate has contributed a total of HK$389 mn of earnings to DSB, a return of 40% over its acquisition cost. The earnings momentum is likely to stay strong for its associate as we expect it to contribute approximately 15% earnings for DSB in FY11/FY12. Undemanding valuation with M&A support The current valuation of 1.4x 2011E P/B is still 34% below its mean historical P/E valuation. We view the bank has further upside potential for an earnings recovery as well as M&A valuation support. Besides WHB, we also view DSB as a favourable M&A target, given similar scale, geographical presence and concentrated shareholder structure. But we view the widening gap is unjustified given the ROE gap is narrowing between the 2 banks (e.g.,12% for DSB vs 14% for WHB by 2012E)
Figure 2: DSB – valuation discount to WHB
-2 SD, -53%
Mean, -26.64%
+2 SD, -5%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
7/4/04
11/4/04
3/4/05
7/4/05
11/4/05
3/4/06
7/4/06
11/4/06
3/4/07
7/4/07
11/4/07
3/4/08
7/4/08
11/4/08
3/4/09
7/4/09
11/4/09
3/4/10
7/4/10
11/4/10
WHB Premium to DSB -2 SD -1 SD Mean +1 SD +2 SD
Source: Company data, Credit Suisse estimates
Price (25 Jan 11, HK$) 14.58TP (Prev. TP HK$) 16.50 (NA) Est. pot. % chg. to TP 1352-wk range (HK$) 15.20 - 8.80Mkt cap (HK$/US$ mn) 17,830.4/ 2,286.8
Bbg/RIC 2356 HK / 2356.HK Rating (prev. rating) O (NA) Shares outstanding (mn) 1,222.93 Daily trad vol - 6m avg (mn) 1.4 Daily trad val - 6m avg (US$ mn) 2.5 Free float (%) 25.1 Major shareholders DSFH-75%
Year 12/08A 12/09A 12/10E 12/11E 12/12EPre-prov Op profit (HK$ mn) 1,459 610 1,060 1,255 1,511Net profit (HK$ mn) 189 601 1,074 1,310 1,525EPS (HK$) 0.20 0.60 0.96 1.07 1.25- Change from prev. EPS (%) n.a. n.a. (5) (12) (14)- Consensus EPS (HK$) n.a. n.a. 0.95 1.11 1.30EPS growth (%) (76.4) 196.1 59.8 11.9 16.4P/E (x) 72.0 24.3 15.2 13.6 11.7Dividend yield (%) 1.2 0 1.6 2.9 4.3BVPS (HK$) 8.8 9.7 10.0 10.5 11.1P/B (x) 1.7 1.5 1.5 1.4 1.3ROE (%) 2.2 6.3 9.4 10.5 11.5ROA (%) 0.2 0.5 0.9 1.0 1.1Tier 1 (%) 6.8 10.2 11.9 12.0 12.0 Note 1: DSB was incorporated on 11 March 2004, and listed following the group's reorganisation, when it became a subsidiary of DSF. From the reorganisation, DSF transferred to DSB all of its banking-related businesses in a share-for-share swap agreement.
Thursday, 27 January 2011
Asian Daily
- 16 of 40 -
Hang Lung Properties ------------------------------------------------------------- Maintain NEUTRAL 1H11 results review: core profits in line; focus on Palace 66 and Parc 66 in 2011 EPS: ◄► TP: ◄► Cusson Leung, CFA / Research Analyst / 852 2101 6621 / [email protected] Joyce Kwock / Research Analyst / 852 2101 7496 / [email protected]
● HLP announced its 1H11 results, with 13% YoY growth in rental EBIT, in line with our forecasts. 1H11 dividend was HK$0.17/sh declared.
● Plaza 66 shopping mall remains the brightest spot in HLP’s China portfolio, with 29% YoY growth in rental revenue (while overall China rental revenue was up by 19% YoY). We expect the new mall additions since 2010 to bring limited EBIT contribution in the near future. Parc 66, positioned for high-end international brands, is scheduled for opening on 26 August 2011, with 86% space already pre-leased.
● HLP remains mute on any plan of sale of The Harbourside and Long Beach, or any pre-sale of its Blue Pool Road project, which is expected to be complete by 4Q12.
● We like the company’s premium mall portfolio from a long-term perspective, although we believe its premium quality has been substantially priced in. Trading at a 4.6% discount to NAV and with limited upside to our target price, our NEUTRAL rating is maintained.
1H11 rental profits in line
HLP announced its 1H11 results, with its rental profits up 10% HoH and 13% YoY, in line with our forecasts. Without property sale in 1H11, core profit was -76% YoY. The core profit was 16% lower than our forecasts due to higher-than-expected interest expense and tax. 1H11 dividend of HK$0.17/share was declared (same as 1H10). Parc 66 scheduled for opening on 26 August 2011 Parc 66 in Jinan is seven months away from its opening in August, and 86% space has already been pre-leased. The mall is positioned for high-end international brands (60% of committed leases are foreign brands, most representing their flagship stores in Jinan).
Plaza 66 remains the brightest spot despite new additions Despite + 29% YoY growth in rental revenue for Plaza 66 mall in 1H11, the overall China rental revenue has grown 19% YoY. Further, the EBIT margin for China rental business has narrowed slightly from 85% in 1H10 to 82% in 1H11, which implies limited contribution from Palace 66, which opened on 28 June 2010. For the near future, we expect the mall of Plaza 66 to remain the brightest spot in HLP’s China portfolio. The upcoming new mall additions (Parc 66 in 2011; Forum 66 in 2012; Centre 66 in 2013) would not bring significant EBIT contribution. The marketing expenses to be incurred, in order to build the reputation, would also further reduce EBIT margin in the near future, in our view. Remains silent on Hong Kong property sales pipeline The Chairman appeared to still be adopting a wait-and-watch attitude towards the sale of The Harbourside and Long Beach. The chance of pre-sale of the Blue Pool Road project within 2011, with expected completion by 4Q12, is also low, in our view. Rich valuation with limited upside The company’s premium mall portfolio is of premium quality, in our view, although we believe this premium quality has been substantially reflected in the price. The stock is currently trading at 4.6% discount to NAV, leaving limited upside to our target price. Maintain NEUTRAL. Figure 1: 1H11 results analysis HK$ m 1H10A 1H11E 1H11A YoY% A vs EHK rental income 1,022 1,147 1,143 12% 0%China rental income 811 937 929 15% -1%Property development 5,339 0 2 -100% nmOthers -263 -150 -238 -10% 59%EBIT 6,909 1,934 1,836 -73% -5%Net interest expense -29 0 -43 48% nmOperating profit 6,880 1,934 1,793 -74% -7%Associated companies 16 18 20 25% 12%Profit before taxation 6,896 1,952 1,813 -74% -7%Taxation -1,340 -342 -387 -71% 13%Minority interest -132 -100 -151 14% 51%Core profit 5,424 1,511 1,275 -76% -16%Net adj on ppty revaluation 12,642 2,143 -83%Reported net profit 18,066 3,418 -81%Source: Company data, Credit Suisse estimates
Figure 2: FY11E NAV estimate HK$ mn HK$/share % of GNAV HK investment properties 72,938 17.2 51%HK properties under development 15,797 3.7 11%China properties 27,320 6.4 19%NPV of future projects in China 28,080 6.6 19%Gross asset value 144,134 33.9 100%Net Debt as at 30 Jun 10 12,481 2.9 Estimated NAV 156,615 36.8 Source: Company data, Credit Suisse estimates
Valuation Metrics Company Ticker CS Price Year EPS chg(%) TP (%) Up/dn EPS EPS grth (%) P/E (x) Div yld(%) ROE P/B Rating Local Target T T+1 T+2 Chg (%) T+1 T+2 T+1 T+2 T+1 T+2 T+1 (%) (x)Hang Lung Properties 101 HK N 34.90 36.20 06/09 0 0 4 1.7 2.2 193 32 20.7 15.6 2.0 10.0 2.0Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM; Source: Company data, Credit Suisse estimates
Price (26 Jan 11, HK$) 34.90TP (Prev. TP HK$) 36.20 (36.20)Est. pot. % chg. to TP 452-wk range (HK$) 40.30 - 25.95Mkt cap (HK$/US$ bn) 155.9/ 20.0
Bbg/RIC 101 HK / 0101.HK Rating (prev. rating) N (N) Shares outstanding (mn) 4,468.33 Daily trad vol - 6m avg (mn) 10.5 Daily trad val - 6m avg (US$ mn) 49.3 Free float (%) 43.0 Major shareholders Hang Lung Group
Year 6/08A 6/09A 6/10E 6/11E 6/12EEBITDA (HK$ mn) 6,504 3,191 8,867 11,635 11,742Net profit (HK$ mn) 5,123 2,388 6,998 9,260 9,325EPS (HK$) 1.24 0.58 1.69 2.23 2.25- Change from prev. EPS (%) n.a. n.a. 0 0- Consensus EPS (HK$) n.a. n.a. 1.59 1.38 1.74EPS growth (%) 150.0 (53.4) 193.0 32.3 0.7P/E (x) 28.2 60.6 20.7 15.6 15.5Dividend yield (%) 1.9 1.9 2.0 1.9 1.9EV/EBITDA (x) 23.7 49.1 17.8 13.5 13.4ROE (%) 8.5 3.6 10.0 12.3 11.4Net debt (net cash)/equity (%) (6.2) (3.5) (1.5) (2.9) (2.7)NAV per share (HK$) Disc./prem. to NAV (%) Note 1: Ord/ADR=5.0000. Note 2: Hang Lung Properties Limited, through its subsidiaries, principally engages in property development for sale and investment, property leasing, car park management and property management.
Thursday, 27 January 2011
Asian Daily
- 17 of 40 -
Orient Overseas International ------------------------------------------- Maintain OUTPERFORM 4Q10 revenue above expectation. Rate more resilient than market EPS: ◄► TP: ◄► Sam Lee / Research Analyst / 852 2101 7186 / [email protected] HungBin Toh / Research Analyst / 852 2101 7481 / [email protected]
● OOIL’s 4Q10 is impressive, with both volume and freight rates above our expectations. OOIL is able to grow 4Q10 volume sequentially, despite 4Q being seasonally weaker. The QoQ decline in its blended freight rate is less than that of CCFI. With better-than-expected operating results, we think FY10 earnings risk is on the upside.
● While current freight rates on various trades are still weakening or stabilising, we continue to be bullish on the demand outlook as suggested by leading indicators. With strong track records and good balance sheet, OOIL will continue to be a key beneficiary in the current up-cycle.
● Our target price HK$89.0 is based on 1.2x 12-month forward P/B (the mid-point between sector average and one SD above), and 1.0x book value for its investment property. OOIL is trading at sector average forward P/B of 1.1x, and among the lowest in the sector. We think this is unjustified given better operating performances, high projected FY11-12E ROAE of 13-14% and stronger balance sheet (net cash).
Good volume growth and smaller freight rates decline OOIL’s 4Q10 volume (+6% QoQ and 19% YoY) and container revenue (-3% QoQ and 42% YoY) are 9-11% above our expectation. 4Q10 freight rates grew 19% YoY but down 9% QoQ. We find this impressive, since OOIL is able to grow volume on Asia/Europe, Transatlantic and intra-Asia trades, despite 4Q being seasonally weaker.
Moreover, OOIL’s 4Q10 blended rate decline of 9% is better than the spot China outbound rate, benchmarked by China Containerized Freight Index (CCFI) of 11%. OOIL’s rates on Transpacific and Asia/Europe trades fell 9-12% QoQ, also better than CCFI decline of 11-14%, respectively. While our estimates remain unchanged and we currently expect 2H10 recurring profit of US$439 (+57% HoH), we think earnings risk is on the upside based on this set of operating results.
Figure 1: OOIL’s quarterly operating data Actual CS 4Q10 4Q10Items 4Q09 3Q10 4Q10 4Q10E YoY% QoQ%Volume handled (K TEU) 1,096 1,233 1,304 1,202 19 6- Transpacific 306 322 319 293 4 -1- Transatlantic 90 86 96 87 6 11- Asia/ Europe 175 206 216 193 23 5- Intra Asia and Australia 525 619 674 630 28 9Freight rates (US$/TEU) 976 1,273 1,165 1,134 19 -9- Transpacific 1,254 1,861 1,696 1,520 35 -9- Transatlantic 1,396 1,721 1,762 1,514 26 2- Asia/ Europe 1,266 1,718 1,508 1,593 19 -12- Intra Asia and Australia 645 756 718 762 11 -5Container revenue (US$ mn) 1,070 1,571 1,519 1,363 42 -3Source: Company data, Credit Suisse estimates We remain positive on OOIL’s operating outlook Leading indicators like US ISM index and China PMI new export orders for December continued to expand sequentially, and suggest decent Asian exports in next few months. Latest US/Europe consumer sentiment and retail data also pointed to improving demand prospects.
Our channel checks suggest that Asia/Europe rate hike in January was generally unsuccessful, while carriers got about 50% proposed peak season surcharges on the Transpacific trade (i.e., US$200/FEU out of US$400/FEU to USWC). With utilisations on key head-haul trades back to 90-96% and idle fleet only about 3% of global fleet, we think there is not much excess capacity. The recent rebound in daily charter rate also suggest a pick-up of vessel demand from operators (Figure 2).
The key reason, in our view, is the lack of confidence from carriers given the expectation of the arrival of bugger ships and thus the risk of oversupply. We think rates could remain weak post Chinese New Year, but as demand picks up starting later part of 2Q, freight rates could rise sequentially as we head into the seasonally stronger 2H. With a declining orderbook-to-fleet ratio, we think supply risk will be lower beyond 2011, which could lead to an extension of the current up-cycle.
Figure 2: Vessel daily charter rates stabilising/rebounding in January
05,000
10,00015,00020,00025,00030,00035,00040,000
Jan-
08
Apr-0
8
Jul-0
8
Oct-0
8
Jan-
09
Apr-0
9
Jul-0
9
Oct-0
9
Jan-
10
Apr-1
0
Jul-1
0
Oct-1
0
Jan-1
1
4400TEU 3500TEU
(US$/day)
Source: Company data, Credit Suisse estimates
Price (26 Jan 11, HK$) 78.80TP (Prev. TP HK$) 89.00 (89.00) Est. pot. % chg. to TP 1352-wk range (HK$) 85.25 - 49.35Mkt cap (HK$/US$ mn) 49,312.5/ 6,332.3
Bbg/RIC 316 HK / 0316.HK Rating (prev. rating) O (O) [V] Shares outstanding (mn) 625.79 Daily trad vol - 6m avg (mn) 1.1 Daily trad val - 6m avg (US$ mn) 9.7 Free float (%) 16.6 Major shareholders Tung family (67.8%)
Indonesia PT Bukit Asam ---------------------------------------------------------------- Maintain OUTPERFORM Revisit historical domestic pricing EPS: ◄► TP: ◄► Fonny Surya / Research Analyst / 6221 255 37976 / [email protected] Paworamon (Poom) Suvarnatemee, CFA / Research Analyst / 662 614 6210 / [email protected]
● In light of the domestic price negotiation, we take a closer look at PTBA’s historical pricing for Suralaya (~41% of total PTBA’s volumes) and how it has evolved over the past few years.
● PTBA’s pricing mechanism has evolved to follow market pricing. We expect a 12% YoY rise in Suralaya domestic pricing (IDR terms) based on the US$120/t benchmark. PTBA historically has been able to secure prices at a premium to general calorific adjustments (about 35% for its quality). Our sensitivity analysis shows the downside impact to earnings of 4.5-9%, if prices were to be negotiated at 0-6% increase instead.
● We think the recent news flow from PLN (not listed) on pricing is a negotiation step rather than a sign of government intervention. Despite being state-owned, we believe PTBA will not have to sell at below market prices. Negotiation is expected to conclude soon (historically by the month end), though the pricing issue could cause delays. We expect PTBA to achieve a YoY domestic price increase, which will serve as a positive catalyst.
● We maintain an OUTPERFORM, with a target price of Rp28,200 based on the JCI Index target P/E of 18x.
Revisited PTBA historical Suralaya pricing In light of the domestic price negotiation, we take a closer look at PTBA’s historical pricing for Suralaya and how it has evolved over the past few years. PTBA’s pricing has evolved to follow market pricing We expect a 12% YoY increase in Suralaya domestic pricing (IDR terms) based on the benchmark of US$120/t. PTBA historically has been able to secure prices, which were at a smaller discount to general quality discount of about 35% from Newcastle for its CV quality. Pricing mechanism has evolved as follows:
● 2005-2006: cost-plus based pricing mechanism ● 2007: domestic pricing was negotiated based on Newcastle price
● 2008: PTBA increased prices by three times, given rising coal prices, from about US$41/t in 2007 to US$67/t by June 2008, an increase of approx 63%.
● 2009: PTBA negotiated a price increase of 6.4% (43% in IDR terms, given the weakening IDR) in November 2008, despite falling global coal prices starting from September 2008.
● 2010: PTBA negotiated a price increase of 3% (23% decrease in IDR terms), given the strengthening IDR in January 2010. the government introduced the HBA (Indonesian coal index), which sets the monthly minimum price for all coal miners.
● 2011: Awaiting price negotiation, we assume an increase of 15% (12% in IDR terms) at US$85.1/t (Rp770,000/t) based on the benchmark price of US$120/t. Indonesian’s HBA typically lags about one month to Newcastle, with January’s HBA for Newcastle quality set at US$112.4/t, with coal CV of 5,000-5,200 GAR set at US$78-83/t.
Figure 1: PTBA Suralaya historical pricing Date Term Pricing
mechanism Price fixed (Rp/share)
US$/t Disc. to 1 mo NEWC
Disc. to Indonesian Benchmark
(HBA) n.a. 2005 Cost plus 272,000 28.0 -42% n.an.a. 2006 Cost plus 351,700 38.4 -21% n.an.a. 2007 Newcastle 374,912 41.0 -37% n.a27-Jan-08 2008 Newcastle 484,000 51.8 -42% n.a31-May-08 2008 Newcastle 544,750 58.7 -56% n.a30-Jun-08 2008 Newcastle 617,900 67.0 -58% n.a27-Nov-08 2009 Newcastle 884,000 71.3 -22% n.a21-Jan-10 2010 Newcastle/HBA 685,000 73.8 -19% -16%31-Jan-11 2011 Newcastle/HBA 770,000 85.1 -36% -24%Note: 2005-2007 discount is based on average annual benchmark; 2010 Indo benchmark is based on February; 2011 price is CS current assumption; Source: Company data, Credit Suisse estimates Domestic price to increase, given rising global coal prices We believe the recent news flow from PLN on domestic pricing is a negotiation step rather than a sign of government intervention. Despite being state-owned, we believe PTBA will not be required to sell at below market price. Historically, negotiation should conclude by the end of the month, but further pricing could delay the negotiation. We believe, given the rising benchmark prices and costs, PTBA should be able to achieve YoY increase in its domestic pricing, which will serve as a positive catalyst. Maintain OUTPERFORM with a target price of Rp28,200 based on JCI Index target P/E of 18x. We set our target price based on the JCI Index target P/E for 2011. At a P/E of 15x, our target price would have been set at Rp23,500, or about 17% potential upside from yesterday’s price.
Price (24 Jan 11 , Rp) 19,700.00TP (Prev. TP Rp) 28,200 (28,200) Est. pot. % chg. to TP 4352-wk range (Rp) 24900 - 15400Mkt cap (Rp/US$ bn) 45,391.4/ 5.0
Bbg/RIC PTBA IJ / PTBA.JK Rating (prev. rating) O (O) Shares outstanding (mn) 2,304.10 Daily trad vol - 6m avg (mn) 3.3 Daily trad val - 6m avg (US$ mn) 62,707.2 Free float (%) 35.0 Major shareholders Government (65%)
Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (Rp bn) 7,216 8,948 8,499 11,693 14,036EBITDA (Rp bn) 2,570 3,628 2,571 4,607 5,587Net profit (Rp bn) 1,708 2,728 2,068 3,605 4,356EPS (Rp) 741 1,184 898 1,565 1,891- Change from prev. EPS (%) n.a. n.a. 0 0 0- Consensus EPS (Rp) n.a. n.a. 928 1,516 1,794EPS growth (%) 140.0 59.7 (24.2) 74.3 20.8P/E (x) 26.6 16.6 21.9 12.6 10.4Dividend yield (%) 1.9 3.0 2.3 4.0 4.8EV/EBITDA (x) 16.5 11.2 15.7 8.4 6.6P/B (x) 11.4 7.7 6.9 5.0 3.9ROE (%) 50.3 55.3 33.2 45.9 41.8Net debt (net cash)/equity (%) (74.6) (79.1) (75.0) (74.5) (72.3) Note1:PT Bukit Asam is the only state-owned company focusing on thermal coal mine operation and marketing. It owns and mines several coal concenssions in Sumatra and Kalimantan, with total proven and probable reserve of 2 billion tonnes..Note2:Per share data on fully diluted basis.
Thursday, 27 January 2011
Asian Daily
- 19 of 40 -
Malaysia Maybulk --------------------------------------------------------------------- Maintain UNDERPERFORM Baltic Drybulk Index 27% fall YTD to put downward pressure on the share price EPS: ◄► TP: ◄► Annuar Aziz / Research Analyst / 603 2723 2084 / [email protected]
● The Baltic Drybulk Index (BDI) has fallen 27% YTD to 1,292. On a YoY basis, the BDI fell by 60% YoY.
● This weakness in the BDI is driven by oversupply concerns, as the orderbook to fleet ratio now stands at over 50%.
● We expect the demand-supply imbalance is likely to persist for at least the next two years, with supply growing at 12-13%, versus demand growth of 4-6%.
● We maintain our UNDERPERFORM rating on Maybulk. Within the Malaysian transport sector, we prefer aviation stocks: AirAsia and Malaysia Airports.
Weakness in the Baltic Drybulk Index (BDI) The BDI has fallen 27% YTD since the start of the year to 1,292. Year-on-year, the BDI has fallen by 60% (-69% versus its May 2010 peak).
Figure 1: Baltic Drybulk Index (2010-11)
500
1500
2500
3500
4500
Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11
Source: Company data, Credit Suisse estimates.
This weakness in the BDI is driven by oversupply concerns, as the orderbook-to-fleet ratio now stands at over 50%. Moreover, as highlighted in Toh Hung Bin’s Asia Drybulk Shipping Sector report (VLOCs a structural game changer, dated 23 November 2010), Very Large Ore Carriers deliveries in 2011-12 account for 23-26% of total deliveries, which would disrupt the equilibrium on long-haul routes and weaken the Baltic Drybulk Index (BDI).
Figure 2: Demand-supply imbalance to drive freight rates lower
-5.0%
0.0%
5.0%
10.0%
15.0%
2006 2007 2008 2009 2010E 2011E 2012E
Supply growthDemand growth
Source: Company data, Credit Suisse estimates.
We expect the drybulk demand-supply imbalance to remain for the next two years, with supply up 12-13%, versus 4-6% demand growth. Thus, we expect the BDI to fall in 2011 by 14% to an average of 2,300.
Figure 3: CS Baltic Drybulk Index (BDI) forecast 2010E 2011E 2012EAverage BDI 2,900 2,300 2,300YoY growth (%) 11 -21 0Source: Company data, Credit Suisse estimates. Maintain UNDERPERFORM; Prefer aviation plays Maybulk’s share price is strongly correlated with the BDI, with a correlation coefficient of 0.8. Therefore, given the current weakness in the BDI, we expect there to be downward pressure on the share price. Moreover, valuations remain unattractive, with the stock trading at an FY11 P/E of 15x. The RM2.15 target price, which is based on 1.1x FY11 P/B, implies potential downside of 23%.
We reiterate our UNDERPERFORM rating on Maybulk. Within the Malaysian transport sector, we prefer aviation plays, and have an OUTPERFORM rating on AirAsia (AIRA MK, RM2.66, OUTPERFORM, TP RM4.30) and Malaysia Airports (MAHB MK, RM6.12, OUTPERFORM, TP RM7.60).
Price (25 Jan 11 , RM) 2.80TP (Prev. TP RM) 2.15 (2.15) Est. pot. % chg. to TP (23)52-wk range (RM) 3.25 - 2.80Mkt cap (RM/US$ mn) 2,800.0/ 916.4
Bbg/RIC MBC MK / MBCB.KL Rating (prev. rating) U (U) Shares outstanding (mn) 1,000.00 Daily trad vol - 6m avg (mn) 0.3 Daily trad val - 6m avg (US$ mn) 0.3 Free float (%) 32.1 Major shareholders Kuok Group - 48.5%
Sunway REIT ------------------------------------------------------------------ Maintain OUTPERFORM Expect yield compression to drive share price EPS: ◄► TP: ◄► Amir Hamzah / Research Analyst / 603 2723 2086 / [email protected]
● 1H FY11 net property income (NPI) of RM118 mn was 48% of our FY11 estimates. NPI grew 13.8% QoQ due to strong results from the hospitality division. We expect 2H FY11 to be better on higher rentals from lease renewals at Sunway Pyramid
● 92.5% (1 mn sq ft) of Sunway Pyramid’s total net lettable area (NLA) due for renewal in FY11 have been secured, with a total rent increase of 17.1% for a three-year term (1Q FY11: 87% and +15.2% over three years).
● The hospitality segment performed well in 2Q FY11, with NPI rising 40.2% QoQ. The strong performance for the hospitality segment for 2Q FY11 was due to year-end school holidays and the occurrence of Ramadhan (fasting month) at end-1Q FY11.
● SunREIT is the largest and the most liquid REIT in the country. NPI growth is expected to be robust at a 7.3% FY10-13 CAGR, driven mainly by rental reversions in Sunway Pyramid. We expect further yield compression, as government-linked funds are hungry for liquid ‘non-sin’ yields.
1H FY11 results in line with expectations Sunway REIT’s 1H FY11 was in line with expectations. 1H FY11 net property income of RM118 mn was 48% of our FY11 estimates and 53% of consensus. We expect 2H FY11 to be better, to reflect higher rentals from lease renewals at Sunway Pyramid. SunREIT declared a distributable income of 3.3 sen per unit (49% of our FY11 estimates). Net property income (NPI) grew 13.8% QoQ due to strong results from the hospitality division.
Figure 1: Segmental QoQ performance. hospitality rose 40.2% QoQ NPI (RM mn) Retail Hospitality Office1Q FY11 37.9 11.7 5.6 2Q FY11 40.4 16.3 6.1 % change QoQ 6.5% 40.2% 7.9%Source: Company data Retail: 92.5% FY11 renewals done, +17.1% over 3 years 92.5% (1 mn sq ft) of Sunway Pyramid’s total net lettable area (NLA) due for renewal in FY11 have been secured, with total rent increase of 17.1% for a three-year term (1Q FY11: 87% and +15.2% over three years). We expect the full impact of rental renewals to be recognised in 2H FY11. Average net rent per sq ft per month for 1H FY11 is currently at RM9.39 versus our full-year expectations of RM9.72. Occupancy rates for Sunway Pyramid fell slightly to 98.1% due to fit-out for new tenancies and should recover to 99% in 2H FY11.
Occupancy rate in Sunway Carnival remained flat at 93%. Average net rent per sq ft per month rose 3.8% QoQ to RM3.80 in 2Q FY11. Hospitality: School holidays drive 2Q FY11 results The hospitality segment performed well in 2Q FY11, with NPI rising 40.2% QoQ. Occupancy rates in 2Q FY11 for Pyramid Tower Hotel and Sunway Seberang Jaya rose to 86.3% and 83.8% from 79.9% and 74.2% in 1Q FY11, respectively.
The strong performance of the hospitality segment in 2Q FY11 was due to year-end school holidays and the occurrence of Ramadhan (fasting month for Muslims) at the end of 1Q FY11. Office segment: Still resilient Occupancy rate for Menara Sunway and Sunway Tower remained flat at 99% and 97%, respectively. While outlook for the office sector remains poor for Klang Valley in general, management expects occupancy rate to stay at this level, as there are no new supply of office space within Sunway IR in the near term and Sunway Tower’s next major renewal is due only in mid-2012. Largest and most liquid M-REIT; maintain OUTPERFORM Sunway REIT is our top pick for the Malaysian REIT sector. SunREIT is the largest and the most liquid REIT in the country. NPI growth is expected to be robust at a 7.3% FY10-13 CAGR, driven mainly by rental reversions in Sunway Pyramid.
We expect further yield compression, as government-linked funds are hungry for liquid ‘non-sin’ yields. Sunway REIT has declared a total of 3.3 sen for 1H FY11 and we expect it to declare 6.7 sen for the full year, implying a gross dividend yield of 6.6%.
Figure 2: Sunway REIT’s 1H FY11 in line with expectations 2Q FY11 1Q FY11 % QoQ 1H FY11 FY CS est % of CS est FY consensus % of consensusRevenue (RM mn) 81.8 72.4 12.9% 154.2 333.6 46.2% 326.5 47.2%Net property income (RM mn) 62.8 55.2 13.8% 118.0 246.4 47.9% 223.8 52.8%Net income (RM mn) 45.2 38.4 17.8% 83.1 169.7 49.0% 173.0 48.0%Dist income (RM sen/share) 1.8 1.5 15.9% 3.3 6.7 48.5% 7.0 46.6%Source: Company data, Credit Suisse estimates
Price (25 Jan 11 , RM) 1.02TP (Prev. TP RM) 1.15 (1.15) Est. pot. % chg. to TP 1352-wk range (RM) 1.04 - 0.88Mkt cap (RM/US$ mn) 2,736.0/ 896.5
Bbg/RIC SREIT MK / SUNW.KL Rating (prev. rating) O (O) [V] Shares outstanding (mn) 2,682.35 Daily trad vol - 6m avg (mn) 6.7 Daily trad val - 6m avg (US$ mn) 2.0 Free float (%) — Major shareholders Sunway City
Year 6/09A 6/10A 6/11E 6/12E 6/13EEBITDA (RM mn) — 225.7 224.9 244.2 254.5Net profit (RM mn) — 225.7 169.7 187.4 196.2EPS (RM) 0.08 0.06 0.07 0.07- Change from prev. EPS (%) n.a. n.a. 0 0 0- Consensus EPS (RM) n.a. n.a. 0.07 0.07 0.07EPS growth (%) n.a. n.a. (24.8) 10.5 4.7P/E (x) — 12.1 16.1 14.6 13.9Dividend yield (%) 0 0 6.6 7.3 7.6EV/EBITDA (x) — 16.8 16.9 15.6 14.9ROE (%) — 17.3 6.1 6.1 6.0Net debt (net cash)/equity (%) — 40.4 36.4 33.4 31.6NAV per share (RM) 1.0 1.1 1.2 1.3Disc./prem. to NAV (%) 4.7 (6.7) (14.5) (19.2) Note1:Sunway REIT is a real estate investment trust. The REIT owns 8 assets in Malaysia in income-producing retail, office & hospitality assets..Note2:NAV = Book value.
Thursday, 27 January 2011
Asian Daily
- 21 of 40 -
Pakistan Fauji Fertiliser -----------------------------------------------------------------Downgrade to NEUTRAL Raise target price to PRs164, but downgrade to NEUTRAL on lack of near-term triggers EPS: ▲ TP: ▲ Farhan Rizvi, CFA / Research Analyst / 65 6212 3036 / [email protected]
● We revisit our financial model and increase our earnings estimates for 2010-12E by 16-31% following the 23% urea price hike, sharp upsurge in demand in 4Q10 and higher dividend income from FFC’s subsidiary, FFBL.
● FFC would be the prime beneficiary of the 23% industry urea price hike initiated by Engro to counter gas curtailment, as FFC would be subject to a lower quantum of curtailment at 10% (20% for Engro) and no forced plant shutdown. Moreover, we revise our dividend estimates for 2011-12E by 25-38% following record 4Q10 EPS and payout by FFBL, and improved margin outlook.
● Amid record 4Q10E urea offtake of 843,000 t (up 39% YoY), we expect FFC to announce full-year earnings of PRs11.2 bn (EPS PRs16.4) on 27 Jan 2011. We estimate 4Q10 EPS at PRs6.1 with a final payout estimate of PRs6/share.
● While we increase our target price by 21% to PRs164, we downgrade our stance to NEUTRAL, as we believe positives are largely priced in, with limited potential upside at current levels.
2010-12E EPS increased by 16-31%; target price raised to PRs164 We increase our 2010-12 estimates to incorporate: (1) the 23% hike in urea prices, (2) higher dividend payouts from FFBL, (3) lower production estimates due to a 10% gas curtailment and (4) higher urea offtake in 4Q10. We raise our revenue estimate by 8-11%, dividend income estimate by 25-38% and earnings by 16-31% over 2010-12E. We now expect FFC to post EPS of PRs20.2 and PRs20.5 in 2011E and 2012E, respectively, versus our earlier estimates of PRs15.5 and PRs16.5. FFC is the prime beneficiary of the price rise initiated by Engro, as it has a lower gas curtailment of 10% (20% for Engro’s new plant) and no forced shutdowns (45 days for Engro). Hence, we expect FFC’s primary profits to rise by 27-29% to US$182-190/t. As a result, we raise our target price by 21% to PRs164.
Figure 1: Summary of estimate changes 2009A 2010E 2011E 2012E CAGR 2009A-12ERevenues (PRs mn) NEW 36,163 43,965 48,501 51,041 12.2%OLD 36,163 39,551 43,972 47,315 9.4%Change (%) 0.0% 11.2% 10.3% 7.9% Urea price (US$/t) NEW 177.5 192.1 230.8 233.9 9.6%OLD 177.5 192.1 194.0 197.9 3.7%Change (%) 0.0% 0.0% 19.0% 18.2% Div. from FFBL (PRs mn) NEW 1,901 2,519 2,614 2,376 7.7%OLD 1,901 2,519 1,901 1,901 0.0%Change (%) 0.0% 0.0% 37.5% 25.0% EPS (PRs) NEW 13.0 16.4 20.2 20.5 16.5%OLD 13.0 14.2 15.5 16.5 8.3%Change (%) 0.0% 15.8% 30.8% 24.4%Source: Company data, Credit Suisse estimates Strong 4Q results likely amid surge in urea offtake FFC is expected to announce its full-year 2010 results on 27 Jan 2011, with strong 4Q10 results likely to propel earnings to PRs11.2 bn (EPS PRs16.45) – a growth of 27% YoY. The company had reported 9M 2010 EPS of PRs10.35 (up 6% YoY); however, an estimated 39% YoY surge in urea offtake in 4Q10 should drive 4Q earnings to PRs6.1/share (89% higher YoY). Along with the results, FFC is expected to announce a final cash dividend of PRs6.0/share, taking the cumulative dividend per share for the year to PRs15.5.
Figure 2: Key estimates for 4Q and full-year 2010 PRs mn Q410E Q310 Q409 YoY% QoQ% 2010E 2009 YoY%Revenues 15,460 8,559 10,430 48% 81% 43,965 36,163 22%Gross Profit 6,988 3,884 4,122 70% 80% 19,705 15,648 26%Dividend inc FFBL 594 618 594 0% -4% 2,519 1,901 33%EBITDA 7,896 3,545 3,167 149% 123% 19,876 16,041 24%EPS (PRs) 6.10 2.83 3.22 89% 116% 16.45 13.00 27%DPS (PRs) 6.00 2.00 3.25 85% 200% 15.50 13.15 18% Urea /bag (PRs) 830 840 730 14% -1% 820 719 14%Urea sales (000 tons) 843 414 605 39% 103% 2,477 2,464 1%Source: Company data, Credit Suisse estimates Valuations no longer attractive; downgrade to NEUTRAL Despite raising our target price by 21% to PRs164, we downgrade our stance to NEUTRAL, as there is limited potential upside of 7% at the current levels. FFC has rallied a significant 36% since Dec 2010 (outperforming the broader KSE 100 Index by 25%); hence, we believe all positives have largely been priced in with limited upward bias ahead. We expect the stock to consolidate its gains in the near term, supported by an expected strong full-year 2010 result and final payout announcement on 27 Jan 2011. FFC trades at 2011E EV/EBITDA and P/E of 4.3x and 7.6x, respectively, a modest 12% and 10% discount to historical multiples.
Price (25 Jan 11 ) 153.51TP (Prev. TP) 164 (135) Est. pot. % chg. to TP 752-wk range 154 - 102Mkt cap (bn) 104.2/ 1.2
Bbg/RIC FFC PA / FAUF.KA Rating (prev. rating) N (O) Shares outstanding (mn) 678.53 Daily trad vol - 6m avg (mn) 1.1 Daily trad val - 6m avg (mn) 1.7 Free float (%) 51.0 Major shareholders Fauji Foundation
Philippines Alliance Global Inc----------------------------------------------------------- Maintain OUTPERFORM Seizing Opportunities EPS: ▲ TP: ▲ Dante Tinga, Jr. / Research Analyst / 63 2 858 7751 / [email protected]
● LND a good fit for AGI. We believe AGI’s recent purchase of Fil-Estate (Bloomberg ticker LND PM) is value accretive. The acquisition significantly expands AGI’s landbank and complements the group’s growing exposure to the leisure and tourism industry. Moreover, AGI managed to complete the acquisition at a 50% discount to book, bargain valuations considering the stock market is up 112% over the past two years.
● Travellers continues to surprise on the upside. Management expects Travellers to generate over US$200 mn in EBITDA in 2011 – 33% above CS and consensus forecast. Resorts World Manila’s (RWM) popularity appears to be exceeding expectations.
● EPS and NAV upgrades. We raise our net profit forecasts for 2011 and 2012 by 11% and 14%, respectively, due to accelerating earnings growth from Travellers and crystallised benefits from the LND acquisition by late 2012. We are also raising our NAV determined target price from P13.50 to P14.15 as we value LND at book value rather than at the sub-book purchase price.
Fil-Estate acquisition a done deal. AGI announced the purchase of a 60% stake in LND (soon to be renamed Global-Estate Resorts Inc) for P5b. This was sealed with a 25% downpayment on 13 January 2011. The balance of 75% would be paid after another month of documentation work. Note that AGI is paying P1 per share for 5 bn new LND shares. As a result, LND’s total outstanding shares would increase from 3.35 bn to 8.35 bn. The P5 bn cash purchase effectively becomes a cash infusion allowing asset-rich but cash-strapped LND to pay down debts (estimated at P1.3 bn) and develop key projects.
Good pick-up for AGI. AGI purchases LND shares at a 50% discount to LND’s book value. Moreover, LND’s 2,800 ha landbank (most of which was acquired in the early 1990s) has significant exposure to tourism “hotspots” Tagaytay, Boracay, and Batangas. Hence, the acquisition strengthens AGI’s strategic focus on the leisure and tourism sectors, and is also beneficial for AGI’s property subsidiary
MEG since the group’s landbank expands from 230 ha (pre-Fil-Estate acquisition) to about 3,000 ha overnight. This provides a bigger and longer project pipeline for MEG.
Figure 1: AGI NAV computation (post LND acquisition) Businesses Ownership (%) Per share (P) % of NAVMegaworld (MEG) 48 4.86 27.5Global Estates Resorts Inc (formerly LND) 60 1.55 8.7Golden Arches Devt. Corp. (GADC) 49 0.45 2.5Emperador Distillers (EDI) 100 2.60 14.7Travellers Int'l Hotel Group 50 8.24 46.6Total NAV 17.69 Est. parent net cash (debt) as of 1Q11 (0.01)Total before conglomerate discount 17.68 Less 20% conglomerate discount (3.54)Adjusted NAV per share (P) 14.15Source: Company data, Credit Suisse estimates.
A company that has found its niche. The LND purchase solidifies AGI’s first-mover status in the Philippine tourism and leisure sectors. Note that RWM is already averaging 15,000 visitors daily (Figure 2). Management expects to hit 25,000 daily visitors by 2H11 (nearly one year ahead of management’s original target) once the adjacent Remington budget hotel opens. At present, RWM is the only privately run integrated casino in the country and has set a new benchmark for domestic entertainment destinations. In our view, there is likely to be upside risk to market estimates for RWM in the near to medium term, as RWM is the only world-class player in a difficult to quantify but apparently underserved Philippine gaming and leisure market. Over the long term, however, as competition sets in, increased affluence among domestic consumers and rising tourist arrivals would likely be needed to spur strong, sustained growth.
Figure 2: If you build it, they will come?
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10
Average Daily Visitors to Resorts World Manila since
August 2009 soft opening
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4,000
6,000
8,000
10,000
12,000
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16,000
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Average Daily Visitors to Resorts World Manila since
August 2009 soft opening
Source: Company data as of January 2011
Price (25 Jan 11 , P) 11.18TP (Prev. TP P) 14.15 (13.50) Est. pot. % chg. to TP 2752-wk range (P) 12.96 - 4.45Mkt cap (P/US$ bn) 108.7/ 2.4
Bbg/RIC AGI PM / AGI.PS Rating (prev. rating) O (O) [V] Shares outstanding (mn) 9,719.73 Daily trad vol - 6m avg (mn) 26.3 Daily trad val - 6m avg (US$ mn) 6.0 Free float (%) 48.0 Major shareholders Andrew Tan (52%)
● For FY11E, PLDT believes that the current ‘style’ of competition (unlimited and very cheap bucket plans) is unlikely to change. However, growth from broadband and corporate/SME segment could allow the company to report low single-digit revenue growth.
● As a defensive response to competition and also its intention to grow broadband quickly, PLDT’s management is finalising the plan to increase and/or accelerate its capex into FY11-12E, possibly towards P34-35 bn (or ~20% higher than FY10E).
● While the market assumes 100% payout as a base case, PLDT indicates clearly that dividend payout would depend on capex and cash flow developments. If the capex surge is temporary then the payout could be maintained. But if not, then this might change.
● We trim our FY12 EPS forecast by 1.6% but much higher capex forecasts (for limited extra revenue) mean our DCF value declines by 13.0% to P2,600/share. We now believe there’s a high probability that payout could be maintained to ‘meet’ expectation, but any downside could disappoint market. Maintain NEUTRAL.
No significant recovery in 4Q10E PLDT’s management suggested that the company’s revenue did not experience a significant recovery in 4Q10E. While there was indeed a seasonal surge in usage, the competition which has resulted in very cheap bucket and unlimited plans (although some were halted during the peak period) mean that the revenue impact was much more muted. PLDT also recorded ~P2 bn MRP costs during 4Q10E, in line with its guidance. We expect PLDT to report a 3.8% QoQ revenue growth (4.0% YoY decline) but a 5.1% QoQ decline in net profit into 4Q10E. 2011 outlook: intense competition, (much) higher capex For FY11E, PLDT believes that the current ‘style’ of competition on the mobile side is unlikely to change. For example, PLDT’s new RED mobile promo (13 January 2011) was a direct defensive response to the third player’s aggressive unlimited offerings which began to affect PLDT in FY10. The company, however, is bullish on the prospect of broadband services, corporate and SME services (now 40% of wireline), and a potential turnaround of its BPO business into FY11-
12E. Management expects growth from these operations to be able to offset the decline in traditional revenues and help deliver a low single-digit consolidated revenue growth in FY11, an improvement from a decline in FY10E.
The key surprise, however, could be on the capex side. As a defensive response to the intense competition (need to increase capacity, maintain quality) and given its intention to grow broadband quickly, PLDT’s management is finalising the plan to increase and/or accelerate its capex in FY11-12E, possibly towards P34-35 bn (24% of sales, or ~20% higher than FY10E). The final official guidance will be provided during the FY10 results conference call on 1 March 2011. We have long argued that the cheap bucket and unlimited offerings could mean (non revenue generative) capex risks. We acknowledge that part of this capex increase is to help drive faster broadband growth and also increase the operational efficiency (lower opex), but a significant increase in capex in a highly competitive environment, slow growth outlook, and high cost pressure in our view mean a downside risk to cash flow generation and profitability. 100% payout could be maintained, but with downside risk While PLDT’s ‘headline’ payout policy continues to be ‘70% regular + look back,’ the effective payout ratio over the past three years has been at 100%. We believe that this has already become the market’s base-case expectation for PLDT’s payout. Our conversation with management suggests that the payout for FY10E (i.e., March 2011E) might still be maintained at 100%, based on the ‘look back’ approach.
Going forward, however, management indicated clearly that the key determinant for dividend payout would be capex and cash flow developments. If the FY11-12E capex surge (and cash flow decline) is temporary, then it might be willing to ‘absorb’ the impact and maintain a high payout level. However, if this capex surge proves higher and/or decline gradually (e.g., prolonged price war, more capex requirements), maintaining payout at this level might not be sustainable. We note that PLDT’s management seems to understand clearly what the market’s expectation is on dividend payout, and we now believe that there’s high probability that the 100% payout will be maintained. However, it is also important to note that sustaining the 100% dividend payout here would only ‘meet,’ not beat, the current market expectation, and any downside to that could mean a disappointment. Risk-reward in balance; maintain NEUTRAL We trim down our FY11-12 EBITDA forecasts for PLDT by 0.7%-0.8%. These and the higher interest expense are partly offset by higher profit and dividend forecasts from its investment in Meralco. Our FY11-12 EPS forecasts for PLDT therefore only decline by 0.1%-1.6%. However, given the much higher FY11-12 capex forecasts (base case P33-31 bn), our DCF-based target price declines by 13% to P2,600. We expect attractive yield to continue to support the share price but there is no near-term positive catalyst. Maintain NEUTRAL.
Price (25 Jan 11, P) 2,500.00TP (Prev. TP P) 2,600 (2,990) Est. pot. % chg. to TP 452-wk range (P) 2760.00 - 2320.00Mkt cap (P/US$ bn) 473.7/ 10.6
Bbg/RIC TEL PM / TEL.PS Rating (prev. rating) N (N) Shares outstanding (mn) 189.48 Daily trad vol - 6m avg (mn) 0.1 Daily trad val - 6m avg (US$ mn) 7.1 Free float (%) 47.6 Major shareholders PCD Nominee
Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (P mn) 147,247 150,062 146,517 148,605 152,354EBITDA (P mn) 89,062 88,918 85,580 85,753 86,825Net profit (P mn) 38,415 41,340 41,563 41,101 41,310EPS (P) 204 221 222 220 221- Change from prev. EPS (%) n.a. n.a. 1 0 (2)- Consensus EPS (P) n.a. n.a. 219 223 229EPS growth (%) 9.6 8.3 0.6 (1.1) 0.5P/E (x) 12.2 11.3 11.2 11.4 11.3Dividend yield (%) 8.0 8.7 8.8 8.7 8.7EV/EBITDA (x) 5.7 6.0 6.2 6.3 6.3P/B (x) 4.7 5.0 4.9 4.9 5.0ROE (%) 37.0 42.3 44.1 43.5 43.7Net debt (net cash)/equity (%) 29.9 57.2 61.2 67.7 72.4 Note 1: Ord/ADR=1.0000. Note 2: PLDT is the largest fully intergrated telecoms company in the Philippines. The company controls a 60% market share in both wireline and wireless markets.
Thursday, 27 January 2011
Asian Daily
- 24 of 40 -
Singapore Singapore Economics----------------------------------------------------------------------------------------- Industrial production fell on biomed (-11.8% MoM, sa), but the fall was not as bad as it seems Kun Lung Wu / Research Analyst / +65 6212 3418 / [email protected]
● Industrial production (IP) fell 11.8% MoM (+9% YoY) in December on a seasonally-adjusted basis, weaker than the market’s and our expectations. The weakness was due to a sharp fall in the biomedical sector (-46% MoM).
● The volatility in the pharmaceutical sector is well-documented, and a monthly swing of 50% or more in output was not unprecedented. Biomedical production has remained on an upward trend since 2003. With new capacity coming on stream in recent years, the fall in the biomedical IP in December is likely to be temporary.
● Underlying growth momentum showed signs of a pick-up. Excluding the volatile biomedical sector, IP rose 3% MoM in December on a seasonally-adjusted basis. We maintain our view that exports and IP should gradually improve in coming months.
● The sharp fall in biomedical output suggests that real GDP growth in 4Q was likely to be lower than the government’s advance estimate. We trim our real GDP growth forecast for 2010 to 14.5% from 15.2% earlier. Our 2011 real GDP growth forecast remains unchanged at 4.7%.
Figure 1: Industrial production
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Biomedical output (index)
Industrial production (index)
Source: EDB, CEIC, Credit Suisse estimates
Industrial production fell on weak biomedical output. Industrial production (IP) fell 11.8% MoM (+9% YoY) in December on a seasonally-adjusted basis, weaker than the market’s (+16.8% YoY) and our expectations (+27% YoY). The weakness in IP was due to a sharp fall in the biomedical sector (-46% MoM), as companies shifted to a different mix of active pharmaceutical ingredients.
Temporary or permanent? The volatility in the pharmaceutical sector is well-documented, and a monthly swing of 50% or more in output was not unprecedented. Biomedical production has remained on an upward trend since 2003 (Figure 2). With new capacity coming on stream in recent years, the fall in the biomedical IP in December is likely to be temporary, in our view.
Underlying growth momentum showed signs of a pick-up (Figure 3). Excluding the volatile biomedical sector, IP rose 3% MoM in December on a seasonally-adjusted basis, its first increase since September 2010. We maintain our view that exports and IP should gradually improve on a sequential basis in the coming months, following the recent improvement in the leading indicators from the US and the EU. We expect sequential growth to move back to trend by 2Q11.
Real GDP growth likely below government’s advance estimate. The sharp fall in biomedical output in December suggests that real GDP growth in 4Q and hence 2010 was likely to be lower than the government’s advance estimate (14.7% for 2010). Incorporating this development, we trim our real GDP growth forecast for 2010 to 14.5% from 15.2% earlier. Our 2011 real GDP growth forecast remains unchanged at 4.7%.
Figure 3: IP ex. biomedical output
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IP ex biomedical output (Index, sa)
Source: EDB, CEIC, Credit Suisse estimates
Thursday, 27 January 2011
Asian Daily
- 25 of 40 -
China Shipbuilding Sector----------------------------------------------- Maintain UNDERWEIGHT Who has the greatest exposure to bulk cancellations? Gerald Wong / Research Analyst / 65 6212 3037 / [email protected] Bhuvnesh Singh / Research Analyst / 65 6212 3006 / [email protected] Christopher Chang / Research Analyst / 65 6212 3024 / [email protected]
● Korea Line, Korea’s second-largest dry bulk shipping company, filed for receivership yesterday. At current BDI levels of 1,300, the implied charter rates for capesize and panamax would be near their cash breakeven costs. This could potentially trigger cancellations of orders for newbuild orders placed with the yards.
● The Credit Suisse transport team expects the BDI to remain weak, as vessel deliveries remain elevated. The current orderbook/fleet ratio of bulk carriers of 52% is still above its historical average.
● Although Korea Line has no existing orders with Chinese yards, we believe they remain vulnerable given their exposure to the bulk carrier market. Cosco and China Rongsheng have the highest exposure. Cosco’s shipbuilding orderbook is almost entirely made up of bulk carriers, though this is partially offset by its increasing offshore presence.
● Although about half of Yangzijiang’s orderbook is in bulk carriers, most of its customers are end users in the commodity sector and hence less affected by BDI movements. Also, in the 2008-09 downturn, the company had zero cancellations.
Figure 1: Charter rates for 75,000 DWT bulk carrier near cash breakevencost
1 Year timecharter rates Average BreakevenSource: Clarksons, Credit Suisse estimates Bulk charter rates below breakeven Korea Line, Korea’s second-largest dry bulk shipping company, filed for receivership yesterday. At current BDI levels of 1,300, the implied charter rates for capesize and panamax would be near their cash breakeven costs. This could potentially trigger cancellations of orders for newbuild bulk carriers placed with the yards. Chinese yards are the most vulnerable due to their significant exposure to the bulk carrier market. Expecting the BDI to remain weak The Credit Suisse transport team expects the BDI to remain weak, as vessel deliveries remain elevated. In particular, with VLOCs (Very Large Ore Carriers, >200,000 dwt) accounting for 23-26% of 2011-12 deliveries, there is excess shipping capacity for Vale’s entire iron ore exports in the next two to three years. This could leave the capesizes with no spot cargo demand, pushing them to short-haul routes and driving down freight rates (and the BDI) significantly.
Figure 2: Orderbook/fleet ratio for bulk carriers remains elevated
Source: Clarksons, Credit Suisse estimates Cosco and China Rongsheng have significant exposure According to Clarksons data, Korea Lines has no existing orders with any of the Chinese yards.
Figure 3: Vessels on order for Korea Lines Yard No. of vessels Total DWTDaewoo 4 1,002,468Hyundai H.I. 2 498,000Naikai S.B. 1 38,000Namura Shipbuilding 2 427,000STX Dalian 2 115,400STX Shipbuild. 2 501,000Universal S.B. 3 615,000Source: Clarksons
We would highlight Cosco (UNDERPERFORM, TP $1.50) and China Rongsheng (Not rated) as having the most significant exposure to the bulk carrier market. Cosco’s shipbuilding orderbook is almost entirely made up of bulk carriers, though exposure is partially mitigated by its increasing offshore presence.
Although about half of Yangzijiang’s (OUTPERFORM, TP S$2.40) orderbook is in bulk carriers, most of its customers are end users in the commodity sector and hence should be less affected by BDI movements. Also, in the 2008-09 downturn the company had an excellent track record of achieving zero cancellations.
Figure 4: Exposure of Chinese yards to bulk carriers As of 30 Sept 2010 Rongsheng Yangzijiang Cosco Orderbook composition)
Bulk carriers and VLOCs (62%) Crude oil tankers and VLCCs (32%) Containerships (6%)
Containerships (50%) Bulk carriers (50%)
Bulk carriers (55%) Offshore (30%) Conversion and repair (15%)
Cancellations in 2008-09
24 cancellations Zero cancellations 14 cancellations and 48 deferrals
Source: Company data, Credit Suisse estimates
Thursday, 27 January 2011
Asian Daily
- 26 of 40 -
CDL Hospitality Trusts ----------------------------------------------------- Maintain OUTPERFORM FY10 results in line; More optimistic on RevPAR outlook, and acquisition provides near term catalyst EPS: ▲ TP: ▲ Yvonne Voon / Research Analyst / 65 6212 3026 / [email protected] Tricia Song / Research Analyst / 65 6212 3141 / [email protected]
● CDLHT’s FY10 DPU of 10.20S¢ (99% of ours and street’s FY10E) was in line with expectations, rising +19% YoY, driven by the strong 28% YoY RevPAR growth for its Singapore hotels (79% of 2010’s NPI) and contribution from its five Australian assets.
● There have been structural improvements in weekend occupancies (previously a drag on earnings) since IR openings and economic recovery. With occupancies sustaining at high 80-90% levels, management is more optimistic on raising room rates.
● We have revised our DDM target price to S$2.53 (from S$2.52). We are expecting 17%/ 8%/ 4% Singapore RevPAR growth for FY11/12/13E, underpinned by healthy economic conditions and strong visitor arrivals. The acquisition of Studio M in Singapore could provide a near-term catalyst. A S$250 mn acquisition at 5.6% cap rate could add 11S¢ to our S$2.53 target price.
● Given its exposure to Singapore hotels (80% of FY11E NPI), we continue to like CDLHT as it is poised to benefit from the strong growth in visitor arrivals in Singapore. We maintain our OUTPERFORM rating.
FY10 results in line CDLHT’s FY10 DPU of 10.20S¢ (99% of ours and street’s FY10E) was in line with expectations, rising +19% YoY, driven by the strong 28% YoY RevPAR growth for its Singapore hotels (79% of 2010 NPI) and contribution from its five Australian assets, acquired in Feb10.
Occupancies remain high, giving hoteliers confidence to raise rates FY10 Singapore RevPAR came in 5% below estimates because of higher weekend occupancies, which tend to be cheaper compared to weekday rates. More importantly, weekend occupancy, which previously used to be a drag on earnings (weekend occupancy about 70%, versus high 80-90% for weekdays), has dramatically improved since the opening of the IRs, and management is increasingly optimistic on raising room rates. Figure 1: CDLHT’s Singapore hotels 4Q10 4Q09 %YoY FY10 FY09 %YoY CS ‘10EAverage occupancy 90.0% 88.9% 88.6% 81.4% 88.4%Average daily rate (S$) 215 178 20.8% 215 183 17.5% 228REVPAR (S$) 194 159 22.0% 191 149 28.2% 202Source: Company data, Credit Suisse estimates Fine-tuning estimates We have fine-tuned our DPU estimates as we roll over our forecasts and introduce our FY13 estimates. We are now expecting Singapore RevPAR to +17% in 2011, 8% in 2012 and 4% in 2013. We expect 2011 RevPAR growth to be underpinned by 10-15% growth from renewals of global corporate accounts, and possibly higher for local corporate accounts, which collectively make up about 70% of its tenants. We also expect high weekend occupancies to sustain in 2011 as Credit Suisse expects 16% growth in visitor arrivals. We have subsequently revised our target price to S$2.53 (from S$2.52). Figure 2: Summary of DPU revision S$ mn New Old % chg FY11 FY12 FY13 FY11 FY12 FY11 FY12NPI 132.0 139.1 143.1 131.2 136.2 1 2Distributable inc. 117.1 123.8 127.6 117.7 123.0 -1 1DPU (S¢) 11.6 12.2 12.5 11.6 12.1 0 1Source: Credit Suisse estimates Near term catalyst: Acquisition of Studio M, Singapore Management said that Studio M has stabilised, and is ripe for injection, at the right price. Assuming 5.6% cap rate, an acquisition value of S$250 mn and 90:10 debt:equity financing, we estimate that this will add another 11S¢ to our current DDM-target price of S$2.53, and gearing post-acquisition will still be a healthy 29%. Management is also considering acquisitions in Japan and Southeast Asia, although Singapore remains its favourite market. Proxy to Singapore’s thriving hospitality sector Given its exposure to Singapore hotels (80% of FY11E NPI), we continue to like CDLHT as it is poised to benefit from the strong growth in Singapore visitor arrivals, which we believe will continue to drive stock momentum. We maintain our OUTPERFORM rating.
Year 12/09A 12/10A 12/11E 12/12E 12/13EEBITDA (S$ mn) 77.1 103.5 121.6 128.3 132.2Net profit (S$ mn) 66.1 135.9 132.5 139.3 143.3EPS (S$) 0.08 0.15 0.14 0.14 0.15- Change from prev. DPU (%) n.a. n.a. 0 1 - Consensus EPS (S$) n.a. n.a. 0.12 0.13 0EPS growth (%) n.a. 91.1 (8.8) 4.7 2.4P/E (x) 26.4 13.8 15.1 14.5 14.1Dividend yield (%) 4.1 4.9 5.5 5.8 6.0EV/EBITDA (x) 29.6 22.4 19.2 18.2 17.6ROE (%) 5.6 10.2 9.0 9.2 9.3Net debt (net cash)/equity (%) 23.3 21.5 22.4 21.6 20.9NAV per share (S$) 1.4 1.5 1.5 1.6 1.6Disc./prem. to NAV (%) 46.0 37.1 34.9 32.2 29.8 Note 1: CDLHT is a hospitality REIT with hotels in Singapore, Australia and New Zealand. Note 2: CS EPS includes revaluations and one-offs. Consensus EPS reflects DPU.
Thursday, 27 January 2011
Asian Daily
- 27 of 40 -
South Korea Korea Economics ----------------------------------------------------------------------------------------------- 4Q10 GDP growth moderated again to 0.5% QoQ, sa, but should improve in 2011 Dong Tao / Research Analyst / +852 2101 7469 / [email protected] Christiaan Tuntono / Research Analyst / +852 2101 7409 / [email protected]
● 4Q GDP grew 0.5% QoQ, sa and 4.8% YoY. The growth was faster than consensus, but continued to slow from the sequential pace seen in 3Q. For full-year 2010, GDP gained 6.1%.
● Consumption and fixed investments led the moderation in 4Q. Final consumption expenditure was up only 0.1% QoQ, sa in 4Q, slowing from the 0.8% QoQ, sa gain in 3Q. Gross fixed capital formation contracted 3% QoQ, sa.
● Exports of goods and services improved mildly but the growth was still moderate. Total exports and imports rose only 2.4% QoQ, sa and 0.1% QoQ, sa, respectively, in 4Q.
● In our view, the Korean economy is likely to improve in 2011, as suggested by the latest trend in consumption, employment, leading indicators, and global growth. We believe monetary normalisation will continue as long as the government and BoK maintain their positive growth outlook. Rate action is biased towards the upside, but the actual pace would remain data dependent.
4Q GDP growth rose 0.5% QoQ, sa and 4.8% YoY The growth pace was a bit faster than consensus expected (0.4% QoQ, sa; 4.6% YoY), but slowed again sequentially from the 0.7% QoQ, sa growth seen in 3Q10, making it the third consecutive moderation in quarterly growth pace. For full-year 2010, GDP gained 6.1%. Looking forward to 1Q11, the stabilisation of leading indicators are pointing to an exit from the current soft patch for the economy. We may see a better momentum in 1Q, helped by an improvement in global economy and domestic demand, although their strength and sustainability would remain uncertain. We are not revising our forecasts at the moment; we continue to expect that the economy will grow 4.8% in 2011. Consumption and fixed investments led the moderation in 4Q Final consumption expenditure was up only 0.1% QoQ, sa in 4Q, slowing from the 0.8% QoQ, sa gain in 3Q. Within it, private consumption grew 0.3% QoQ, sa, slowing from the 1.3% QoQ, sa
growth in 3Q. Government consumption continued contracting (fell 0.7% QoQ, sa), underlying the withdrawal of the government stimulus effect. Gross fixed capital formation contracted 3% QoQ, sa, dragged by a 1.6% QoQ, sa fall in facilities investments and a 4.5% QoQ, sa fall in construction activities. In total, domestic demand deducted 0.6 pp from the quarterly growth pace, but contributed positively to the YoY GDP growth pace (at 3.3 pp).
Exports of goods and services improved mildly but still moderate Total export and imports rose only 2.4% QoQ, sa and 0.1% QoQ, sa, respectively, in 4Q. This represented a mild pickup for exports (versus 1.7% QoQ, sa in 3Q), but a slowdown for imports (versus 2% QoQ, sa in 3Q). We expect trade to continue to record positive sequential growth in the coming quarters, as global demand improves and better domestic demand raises the need for imports. Net trade contributed 1.2 pp to the YoY headline GDP growth in 4Q, reversing the deductions in the previous three quarters, and has become the main driver of the quarterly growth pace (contributing 1.1 pp). A positive growth outlook is needed for monetary normalisation In our view, the Korean economy is likely to improve in 2011. Real retail sales have started accelerating sequentially from end-2010, while the employment market is improving. Manufacturers’ confidence and leading indicators have shown signs of stabilisation, and the PMI has recovered above 50. Exports are gaining momentum, and the global economy should continue its recovery in the near term. The confidence the government and BoK have in a stronger domestic and global economic outlook has prompted the central bank to raise interest rates in November and January to pre-empt the rising price pressure, and we believe the normalisation process will continue as long as the positive growth outlook remains on hold. While the bias of monetary policy action is geared towards more rate hikes, the actual pace of action would depend on the upcoming inflation and growth-related data.
LG Electronics ------------------------------------------------------------ Maintain UNDERPERFORM New report: Turnaround to be slower than expected EPS: ▼ TP: ◄► John Sung / Research Analyst / 822 3707 3739 / [email protected] Yonghi Li / Research Analyst / 822 3707 3761 / [email protected]
● LG Electronics (LGE) 4Q10 results, reported during market hours of 26 January, were weak as expected. Albeit marginally improved, its handset margin (one key delta for its earnings and share price) remained under pressure as expected.
● LGE indicated its handset margin could turn positive some time in 3Q10 (when its smartphone portion would reach 20-25% of its total unit shipments, for example, from 12.7% in 4Q10).
● Considering the changes in the competitive landscape of the handset market discussed previously (e.g., those with larger scale per platform could become further ASP-aggressors in the upcoming mass market) and also the likely larger cost pick-up (from capex and R&D announced today), however, we continue to believe that a turnaround in LGE’s handset margins could be delayed and/or slower than the street’s expectations.
● Reflecting these, we lower our FY11E operating profit to W867 bn from W1,053 bn. We reiterate our non-consensus bearish view on LGE with an UNDERPERFORM and a target price of W80,000.
4Q10 results – roughly in line. LGE’s operating profit came roughly in line with the street’s recent consensus, as shown in Figure 1. Albeit marginally improved, its handset margin (one key delta for LGE’s earnings and share price) remained under pressure, as expected.
1Q11/FY11 guidance – a gradual handset turnaround indicated. LGE projects its handset operating margin to turn black once smartphone’s proportional volume scale reaches 20-25% of its total. Of note, LGE estimates the portion was 12.7% in 4Q10 and would be about 19% for FY11 total, which implies LGE expects its turnaround to take place some time in 3Q11.
Our core view on its handset revisited – likely slower turnaround than projected. As discussed earlier, we agree with the street that LGE's internal smartphone capability would improve (well, it has to, given the low base). But, we believe the street is thinking this in vacuum. Competitive landscape in the handset market would not
stand still. We are already seeing several changes being unfold in the handset markets (e.g., Apple ramping up its foodchain to mass-market its iPhone). When any product becomes a mass market product, ASP competition is one of the things that usually follows. In sum, LGE, even with much-awaited smartphone models, has to compete against established players with a much larger scale per platform (e.g., Apple, Samsung Electronics, HTC who seem to have more room to endure ASP competition), implying that LGE's margin turnaround could be delayed and/or slower than the street’s expectations.
New plans on capex and R&D investment revealed – much larger than projected. Although full breakdown is not available, today LGE announced its new aggressive plans on capex (W2.3 tn, +53% YoY) and R&D (W2.5 tn, +19% YoY) for FY11. We had previously discussed that a pick-up in R&D is inevitable, as LGE would have to enter a new R&D investment cycle in handsets, given lack of smartphones after having utilised the existing feature phone platforms for several years. But, the overall pick-up looks quite larger than projected.
Forecast further revised down and UNDERPERFORM reiterated – street still too optimistic. Reflecting the likely ASP/margin pressure from competitive landscape changes and incrementally larger cost adds ahead, we further tone down our forecast, as shown in Figure 1. As such, we reiterate our non-consensus bearish view on the stock by retaining our UNDERPERFORM rating and a target price of W80,000 based on divisional EBITDA sum-of-the-parts, as before. We continue to believe that the street is too optimistic.
Rating history (066570 KS) Date Old rating New rating Old TP New TP 28 Oct 2010 NEUTRAL UNDERPERFORM W91,500 W80,000 As of close of business 25 Jan 2011, Credit Suisse Securities (Europe) Limited, Seoul Branch performs the role of liquidity provider on the warrants of which underlying assets are LGE / SEC and holds 16,871,530 / 27,094,280 of warrants concerned.
Price (25 Jan 11 , W) 121,000.00TP (Prev. TP W) 80,000 (80,000) Potential upside % to TP (34)52-wk range (W) 128000 - 92800Mkt cap (W/US$ bn) 17,502.4/ 15.6
Bbg/RIC 066570 KS / 066570.KS Rating (prev. rating) U (U) Shares outstanding (mn) 144.60 Daily trad vol - 6m avg (mn) 1.1 Daily trad val - 6m avg (US$ mn) 100.4 Free float (%) 63.2 Major shareholders LG Corp., 34.8%
Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (W bn) 27,639 30,513 30,992 35,651 37,788EBITDA (W bn) 1,940 2,371 86 1,634 2,422Net profit (W bn) 483 2,350 1,282 1,069 1,625EPS (W) 2,986 14,520 7,923 6,606 10,040- Change from prev. EPS (%) n.a. n.a. (13) (21) (15)- Consensus EPS (W) n.a. n.a. 1,663 7,950 12,144EPS growth (%) (60.5) 386.3 (45.4) (16.6) 52.0P/E (x) 40.5 8.3 15.3 18.3 12.1Dividend yield (%) 0.5 0.5 0.5 0.5 0.5EV/EBITDA (x) 5.7 3.8 101.0 5.4 3.8P/B (x) 2.1 1.7 1.5 1.4 1.2ROE (%) 6.2 24.9 11.6 8.8 12.1Net debt (net cash)/equity (%) 23.6 15.6 16.3 13.2 11.2 Note1:LG Electronics Inc. manufactures digital display equipment and home appliances. It also produces telecom equipment, such as mobile handsets, networking systems, and other communication products.
Thursday, 27 January 2011
Asian Daily
- 29 of 40 -
Taiwan Taiwan Brokerage Sector ------------------------------------------------------------------------------------ Market activities remain strong ahead of Chinese New Year Chung Hsu, CFA / Research Analyst / 8862 2715 6362 / [email protected] Michelle Chou, CFA / Research Analyst / 886 2 2715 6363 / [email protected]
● Taiwan’s market turnover has remained strong ahead of the Chinese New Year with an average daily turnover of NT$154 bn in January (vs NT$138 bn in 2010 and average of NT$144 bn in 2007-09).
● At the same time, retail long margin balance further increased in January (Figure 2), +4% from Dec-10 and +19% vs 2010’s full-year average. This suggests strong retail participation, thus, benefit domestic brokers as commission and long margin interest income together account for more than 70% of operating revenue.
● For the full year, we estimate an average turnover of NT$165 bn, or a 20% increase from 2010. This is partly based on the historical pattern since 1996 that market turnover increased by an average of 29% on the year prior to the Presidential election. There is also positive seasonal effect that turnover is typically 20% higher in the first four months of the year.
● Given the better market activities, we remain positive on brokers. We estimate Taiwan brokers are currently trading at 1.2x 3Q10A P/B, versus the historical range of 0.8x-2.0x (excluding the financial crisis). We have an OUTPERFORM rating for Yuanta, as the stock could provide one of the best exposures to both the market and the financial sector in 2011.
Figure 1: Turnover on the rise
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Figure 2: Long margin balance (NT$ bn) – proxy for retail participation
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Figure 3: We expect higher turnover ahead of 2012 and seasonality should be favourable for brokerage sector’s performance
2.5Average daily turnover (LHS) Industry P/B (excludes Yuanta)(NT$bn) (x)
Source: TEJ, Credit Suisse Research.
Figure 4: Market turnover rose ahead of past Presidential elections, reversing the trend straight after
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Figure 5: Avg market turnover for Jan-Apr is historically 20% higher than the average for May-Dec
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Source: Company data, Credit Suisse estimates
Figure 1: Taiwan brokers – valuation Last close (NT$) Mkt cap (US$ mn) 9M10A BVPS (NT$) PB (x) 2010 EPS* PE (x) 2010 mkt share (%)2885 Yuanta FHC 23.30 6,465 14.0 1.66 1.01 23.1 11.0%6008 KGI Securities 16.80 1,845 14.8 1.14 1.10 15.2 7.8%6005 Capital Securities 15.75 1,244 11.6 1.36 0.84 18.8 5.8%**2854 Polaris Securities 20.65 1,512 13.0 1.59 1.06 19.5 4.4%2856 MasterLink Securities 13.40 677 12.9 1.04 1.00 13.4 4.1%2855 President Securities 19.35 816 16.4 1.18 1.50 12.9 3.9% * 2010 EPS are preliminary numbers, ** pro forma with Taiwan International Securities> Source: TEJ, EMOPS, Company data, Credit Suisse estimates
Thursday, 27 January 2011
Asian Daily
- 30 of 40 -
Taiwan Solar Energy Sector--------------------------------------------------------------------------------- Implications of Hon Hai's participation in E-Ton Solar's private placement Darryl Cheng / Research Analyst / 886 2 2715 6333 / [email protected] Robert Cheng / Research Analyst / 886 2 2715 6361 / [email protected]
● On 25 January, E-Ton Solar’s BoD approved the funding proposal to issue 300 mn new shares at NT$20 per share (at a 59% discount to the day’s NT$48.85 close price) via private placement, implying a potential 55% share count dilution.
● Hon Hai also announced on 25 January its participation in E-Ton Solar’s private placement via four investing arms and CyberTAN. The five subsidiaries will aggregately acquire 202 mn shares, making Hon Hai a 37% investor of E-Ton Solar after the deal.
● Hon Hai had NT$223 bn in cash at end-3Q10. The NT$3 bn investment in E-Ton Solar (CyberTAN to invest another NT$1 bn) seems insignificant. On the other hand, it is helpful for E-Ton Solar having Hon Hai to back them to improve financial structure and further expansion.
● We take a positive stance on tech groups entering the solar energy industry via M&A, as it will not bring incremental capacities immediately. In addition, tech groups have ample resources in technology and finance to support the invested companies’ expansion and vertical integration, which will help them to stay competitive in the global market.
● On the other hand, standalone solar energy players will likely face a tougher competitive landscape going forward. As Chinese module makers are also penetrating into wafer/cell production, we can reasonably expect intensifying competition for outsourcing wafer/cell business.
Figure 1: Hon Hai participating E-Ton Solar’s private placement (mn
shares) Hon Hai subsidiary (mn shares)
Current share count 249 Hong Yang 90New shares issued 300 Hong Qi 15Post-deal share count 549 Bao Xin 18Share count dilution 55% Li Yi 30Price per share NT$20 CyberTAN 49Total amount NT$6 bn Total 202Source: Company data, Credit Suisse estimates Hon Hai participating in E-Ton Solar’s private placement On 25 January, E-Ton Solar's BoD approved the funding proposal to issue 300 mn new shares at NT$20 per share via private placement, a 59% discount to the close price on 25 January. E-Ton Solar will fund NT$6 bn from the new share issue. E-Ton Solar's current outstanding share is 249 mn shares, and the new share issue implies a 55% share count dilution based on the post-deal share count. The funding proposal has been approved by an extraordinary shareholder meeting held on 20 January. In the mean time, Hon Hai also announced its participation in E-Ton Solar's private placement. Hon Hai group will acquire 202 mn of the 300 mn new shares aggregately via its four
investing arms and a 12% subsidiary, CyberTAN, therefore becoming a 37% investor of E-Ton Solar after the private placement.
Figure 2: Highlights of E-Ton Solar's P&L P&L (NT$ mn) 2008 2009 YT3Q10 1Q10 2Q10 3Q10 4Q10Net sales 13,588 13,059 12,704 3,795 3,806 5,103 5,450Net income 1,213 -2,340 -2,550 -47 -2,964 461 --Rep EPS (NT$) 13.63 -15.16 -10.75 -0.21 -12.45 1.91 --Adj EPS (NT$) 7.97 -12.66 -10.43 -0.19 -12.13 1.89 --NS seq growth (%) 127.5 -3.9 -- -11.4 0.3 34.1 6.8GM (%) 12.2 1.4 7.3 6.2 6.7 8.6 --OpM (%) 8.4 -2.0 3.7 1.7 -1.8 9.3 --NM (%) 8.9 -17.9 -20.1 -1.2 -77.9 9.0 --Capacity (MWp/year) 300 360 480 360 360 480 540Shipment (MWp) 95 225 272 78 85 109 125Source: Company data Implications for the Taiwan solar energy industry E-Ton Solar was aggressive in vertical integration and diversifying into thin-film technology back in 2008, while the company was hurt by the investments in 2009 during the solar energy industry’s downturn. E-Ton Solar booked a NT$901 mn investment loss and a NT$1.9 bn impairment loss for 2Q10, and the company does not expect substantial investment loss in the future after 2Q10’s house-keeping. Its major investments now include only Gloria Solar (solar module, not listed) and Adema Tech (system integration, not listed).
Figure 3: E-Ton Solar's footprints in solar PV value chain
E-Ton Solar(540 MWp)
Gloria Solar(60 MWp) Adema Tech
Polysilicon Wafer Cell Module System
E-Ton Solar(540 MWp)
Gloria Solar(60 MWp) Adema Tech
Polysilicon Wafer Cell Module System
Source: Company data
Good for industry consolidation, bad for standalone solar energy companies. We believe vertical integration is important for Taiwanese solar energy players in order to maintain decent profit margins and to stay competitive in the future. Solar PV ASP began to decline post Spain subsidy cuts in 4Q08, and the trend should continue until solar PV ASP reaches grid parity. Vertical integration is one of the best ways to secure profit margins. In addition, as Chinese solar module makers are extending upwardly along the value chain to solar cell/wafer production, we can reasonably expect intensifying competition for outsourcing solar cell/wafer business. We view the tech groups entering solar energy industry via M&A as a positive for the industry consolidation, as it will not bring incremental capacities immediately. However, we believe the standalone solar energy companies will face a tougher competitive landscape going forward.
Figure 3: E-Ton Solar's stock trading information 26 Jan 2011 Price Shares Mkt cap Daily trad Free float QFII Cons EPS (NT$) 52-wk range (NT$) Rel performance (%) Company (NT$) (mn) (US$ mn) (US$ mn) (%) (%) 10E 11E High Low 1M 3M 12ME-Ton Solar (3452.TWO) 50.70 249.4 421.6 9.2 73.0 2.5 -5.57 4.26 71.50 35.30 10.9 11.5 (36.4)Source: TEJ, Bloomberg consensus
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Asian Daily
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Acer-------------------------------------------------------------------------------------- Maintain NEUTRAL Acer 4Q10 preliminary result lower than market expectation EPS: ◄► TP: ◄► Robert Cheng / Research Analyst / 886 2 2715 6361 / [email protected] Jill Su / Research Analyst / 8862 2715 6364 / [email protected]
● Acer announced its 4Q10 preliminary result with sales of NT$149 bn, down 11% YoY and down 11% QoQ, roughly in line with our forecast. For margin, the 4Q10 operating margin (OPM) came at 2.9%, slightly lower than Credit Suisse forecast of 3.0% OPM. We view overall result as roughly in line with our forecast. Acer’s FY10 consolidated sales and net income came at NT$629.7 bn and NT$15 bn, up 10% and 33%, respectively.
● Major reason for softer sales and OPM in 4Q10 is slow consumer PC demand from Europe and US markets. In addition, we see Acer also losing share in the USA market.
● Acer may announce full 2010 financial result in March and also provide official 2011 guidance then. The company’s original target of flat QoQ sales in 1Q11 and 15% YoY sales growth in 2011 might be a little challenged by slower PC demand, in our view.
● We currently forecast Acer’s 1Q11 sales at NT$148 bn, down 3% QoQ, with 3% OPM. We still maintain our conservative view on Acer with a NEUTRAL rating and target price of NT$81.
SPIL-------------------------------------------------------------------------------------- Maintain NEUTRAL Margins troughing, but several headwinds against a strong gross margin rebound EPS: ▲ TP: ▲ Randy Abrams, CFA / Research Analyst / 886 2 2715 6366 / [email protected] Tony Wu / Research Analyst / 8862 2715 6335 / [email protected]
● 4Q resilient. SPIL 4Q gross margin at 14.3% was above expectations of 200-300 bp drop. We expect ASE to report better-than-expected gross margin Friday with 100-200 bp 4Q/1Q drop.
● 1Q drop in line with expectations. SPIL’s 1Q11 sales were guided in line with CS and street for a mid single-digit decline, but gross margin to come down 200-300 bp on price pressure, NTD appreciation, rising gold prices and higher depreciation.
● Capex down in 2011 as expected. SPIL guided 2011 capex in line with CS at NT$10 bn, down from NT$15 bn in 2010. The lower capex will take FCF yields back to 6%.
● Business troughing, though valuation is pricing in a strong rebound. We raise our 2010/11E EPS from NT$1.69/NT$1.70 to NT$1.80/NT$2.00, near street at NT$1.78/NT$2.02, and raise our target price to NT$36 (6% FCF yield and 1.8x P/B). We stay NEUTRAL, though, as high P/E of 19x requires meaningful gross margin leverage off the 1Q11 trough. We will also monitor rising semiconductor inventory levels, as US fabless and IDMs report in the coming weeks.
Source: Company data, Credit Suisse estimates, Bloomberg consensus 4Q resilient, 1Q dipping in line with expectations SPIL already reported sales in line, down 5% QoQ, but delivered upside to gross margin, staying stable at 14.3%, better than earlier expectations of 200-300 bp drop, as rising NTD/gold prices were fully offset by internal cost down measures and faster migration to copper. The gross margin upside led to a better-than-expected 4Q10 EPS of NT$0.36 versus street at NT$0.34 and our NT$0.24. We also expect ASE to report better-than-expected gross margin Friday, with only a 100-200 bp drop for 4Q10/1Q11, as copper continues to ramp.
For SPIL’s 1Q11, sales were guided in line with CS and street for a mid single-digit drop on fewer working days in February and a slight pull-back in communications and consumer. Gross margin will fall 200-300 bp on price pressure from a major customer, a further 4% NTD appreciation, US$50 higher gold prices and 4% higher depreciation. Following the better margin resilience and in-line sales outlook, we raise our 2010/2011 EPS from NT$1.69/NT$1.70 to NT$1.80/NT$2.00, near street at NT$1.78/NT$2.02. Capex coming down as expected SPIL guided 2011 capex in line with the previous expectations of NT$10 bn, down from NT$15 bn in 2010, given the major copper build-out last year. Net bonder capacity should rise only 4% through 1H11. Capex will be front-end loaded, with POs from equipment purchases already at NT$7 bn in 1H11. The lower capex will take FCF yields back to 6% and 2010 EPS of NT$1.80 supports a 4.2% yield. Figure 2: SPIL free cash flow/enterprise value recovering in 2011 Annual (NT$ mn) CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY05-11Revenue 43,078 56,354 64,622 60,474 56,886 63,857 67,670 58,992Capital spending 7,970 10,458 11,423 9,039 4,827 10,194 10,000 9,130Capex/Revenue (%) 19 19 18 15 8 16 15 16Operating cash flow 13,091 20,125 23,965 21,722 14,568 14,407 16,678 17,794Free cash flow 5,121 9,667 12,542 12,683 9,742 4,212 6,679 8,664
Source: Company data, Credit Suisse estimates Business troughing, though several headwinds could dampen potential for a strong gross margin rebound With earnings and margins holding up better in 4Q10, we raise our target price to NT$36, a 6% FCF yield and 1.8x P/B. We stay NEUTRAL, though, as high P/E of 19x requires meaningful gross margin leverage off the 1Q11 trough. Gross margin expansion could ultimately disappoint, as: (1) utilisation already high at 85-90%, (2) price pressure is rising from a major customer, (3) depreciation +14% YoY, and (4) gold and NTD remain cost structure drags. We will also monitor rising semiconductor inventory levels, as US fabless and IDMs report in the coming weeks, which could dampen 2H11 growth momentum. Figure 3: Utilisation at 85-90% offers less easy leverage for gross margin
UMC-------------------------------------------------------------------------------------- Maintain NEUTRAL 4Q solid, but currency and mix slowing momentum into 2011 EPS: ▲ TP: ▲ Randy Abrams, CFA / Research Analyst / 886 2 2715 6366 / [email protected] Tony Wu / Research Analyst / 8862 2715 6335 / [email protected]
● 4Q results slightly better. UMC reported 4Q10 sales and EPS of NT$31.3 bn and NT$0.52, above our prior NT$0.45 and street at NT$0.47. Blended pricing grew 6% QoQ on a strong mix shift to 65 nm, offsetting 6% QoQ decline largely from Asian fabless.
● 1Q11 impacted by currency and mix. UMC’s 1Q11 guidance implies a high single-digit decline due to 7% appreciation of the NT$ and a low single-digit decline in shipments and blended US$ pricing. We modestly raise EPS estimates on slightly higher GMs and sales from NT$1.84/NT$1.61 to NT$1.90/NT$1.80.
● Capex outlook moderate, some customers could transition. UMC is maintaining a prudently more conservative stance on capex, keeping spending at US$1.8 bn and targeting long-term capex/sales back to 30-35%. The company also needs to offset or protect diversification from some of its leading edge customers.
● UMC reasonable at book value, but FCF lagging. UMC trades at 1.0x P/B, the low-end of its 0.8x-1.5x P/B range, although FCF remains low at current capex rates. We maintain our NEUTRAL rating and raise target from NT$17 to NT$18 on 1.0x 11E P/B.
4Q10 results slightly better than expected
UMC reported 4Q10 sales and EPS of NT$31.3 bn and NT$0.52, above our prior NT$0.45 and street at NT$0.47. Blended US$ pricing grew 6% QoQ on a strong mix shift to 65nm, reaching 30% in 4Q10 and supplemented by 5% contribution from 40 nm. Better pricing kept GMs resilient at 32.1%. Shipments declined 6% QoQ on a sharp decline from Asian fabless and consumers. US/European IDMs supplying into smartphones offset some of the weakness. 1Q11 impacted by currency and a slight negative mix shift UMC’s 1Q11 guidance implies a high single-digit decline due to 7% appreciation of the NT$ and a low single-digit decline in shipments and blended US$ pricing. The company is seeing some customer transitions of programmes dampening utilisation to 90% plus some impact from fewer working days in February. The combination of pricing and currency is driving GM guidance to ‘>25%’, in the range of
our 26% expectation. Overall, we modestly raise EPS estimates on slightly higher GMs and sales from NT$1.84/NT$1.61 to NT$1.90/NT$1.80.
Figure 1: Revising estimates slightly higher for UMC NT$ 4Q10 1Q11 2010 2011(mn) Actual CS(Old) Street CS CS(old) Street Guidance CS CS(old) Street CS CS(old) Street
Source: Company data, Credit Suisse estimates, Bloomberg consensus Capex outlook kept moderate UMC is maintaining a prudently more conservative stance on capex, keeping spending at US$1.8 bn and targeting long-term capex/sales back to 30-35% (implying eventually retreating to US$1.4 bn spending on a sustainable basis at current revenue run rates).
Key projects for UMC to offset at the leading edge are the gradual diversification of Xilinx and MediaTek, Infineon sale of baseband to Intel and smartphones programme loss, baseband exit by TI and more foundry alternatives for QCOM. We would also monitor rising fabless inventory levels, which could dampen 2H11 momentum.
Source: Company data, Credit Suisse estimates, Bloomberg consensus UMC reasonable at book value, but FCF now lagging UMC is trading at 1.0x P/B, still the lower end of its 0.8x-1.5x range it traded between 2004 and 2008. The stock offers some value at a 6% dividend yield at 60% payout in 2011. We stay NEUTRAL and raise target price from NT$17 to NT$18 or 1.0x 2011E P/B. While UMC has executed well and taken advantage of a tight industry environment, we believe transitions on some customer programmes longer-term and flattish free cash flow through 2010-11 caps upside.
Figure 3: UMC free cash flow moderating as capex rises
Thailand PTTEP------------------------------------------------------------------------ Maintain UNDERPERFORM 4Q10: Strong set of results – higher liquid price, falling cost EPS: ◄► TP: ◄► Paworamon (Poom) Suvarnatemee, CFA / Research Analyst / 662 614 6210 / [email protected] Puchong Kometsopha / Research Analyst / 66 2 614 6215 / [email protected]
● PTTEP reported 4Q10 net profit of Bt10 bn, in line with our forecast and market consensus. The operating results were strong with higher ASP of liquid products, and lower operating and exploration costs.
● PTTEP’s sales volume moved up 3% QoQ while ASP rose 4% QoQ. Major cost items declined QoQ, including production cost, exploration cost and DD&A. Its net profit per barrel improved 14% QoQ from US$11.5/bbl to US$13/bbl.
● We believe the benefit of the rising price of liquid products in 2011 would be offset somewhat by higher exploration costs (more active drilling activities in 2011) and higher interest costs following the conclusion of the oil sands acquisition last week.
● We maintain UNDERPERFORM with DCF-based target price of Bt169. Management has guided that the Australian government would take a decision on the Montara license in the next few weeks. PTTEP is trading in line with CNOOC on P/E. We see limited room for catch up even after the Montara overhang is lifted.
Strong set of results in 4Q10 PTTEP reported 4Q10 net profit of Bt10bn, in line with our forecast and market consensus. Its pre-forex net profit improved 11% QoQ. The operating results were strong with higher ASP of liquid products, and lower operating and exploration costs. On the revenue side, volume improved 3% QoQ and ASP rose 4% QoQ (on higher liquid price). The decline in DD&A and operating cost reflected the shut-in of high-cost projects in Australia, Jabiru and Challis since September 2010. PTTEP’s 4Q10 results reflect the performance of its core operations without any major one-time items related to the Montara project such as those recorded in the previous quarters.
Figure 1: PTTEP’s 4Q10 profit items Bt mn 4Q10 4Q09 YoY 3Q10 QOQTotal revenue 35,849 34,178 5% 35,650 1%Total production exp. (9,509) (10,046) -5% (9,725) -2%EBITDAX 26,340 24,132 9% 25,925 2%Exploration expense (576) (2,765) -79% (1,262) -54%EBITDA 25,764 21,368 21% 24,664 4%DD&A (8,573) (8,201) 5% (9,937) -14%EBIT 17,192 13,167 31% 14,726 17%Net interest expense (684) (547) 25% (602) 14%Other income/(expenses) 66 (3,836) n.m. (188) n.m.Fx and other exceptionals 200 275 -27% 1,596 -87%Tax (6,675) (4,385) 52% (4,994) 34%Reported net income 10,120 4,652 118% 10,532 -4%Core income 9,919 4,377 127% 8,936 11%Core EPS : Baht 2.99 1.32 126% 2.69 11%Production vol (mBOED) 272 250 9% 265 3%Realised price(US$/BOE ) 46.1 43.4 6% 44.5 4%Gas prices (US$/mmbtu) 5.6 5.1 10% 5.7 -2%Liquid prices (US$/bbl) 80.0 72.2 11% 71.0 13%Prod cost (US$/BOE) 3.8 5.9 -35% 4.8 -20%DD&A (US$/BOE) 11.3 10.7 6% 12.7 -11%EBITDAX (US$/BOE) 34.9 31.4 33.8 3%Net profit (US$/BOE) 13.1 5.7 130% 11.5 14%Average Bt/US$ 30.3 33.5 -10% 32.0 -5%Source: Company data, Credit Suisse estimates Earnings outlook: Expect higher cost to mute benefits of the rising price We forecast a 7% rise in PTTEP’s pre-forex profit in FY11, driven by higher ASP of liquid products (CS’s oil price assumption of US$85/bbl). The benefits, however, should be offset somewhat by higher costs. We expect the exploration cost to rise in 2011 with more active drilling activities (53 wells targeted in 2011 versus 32 wells in 2010). Also, we expect the costs related to oil sands to hurt PTTEP’s earnings. We expect the project to contribute net loss from operations. Its interest expenses should also rise with higher debts. We expect PTTEP’s ROCE to be on the downtrend with the investment in oil sands, which we estimate to account for 17% of its total assets. Maintain UNDERPERFORM We maintain UNDERPERFORM with our DCF-based target price of Bt169. Management has guided that the Australian government would take a decision regarding the Montara license in the next few weeks. We believe the risk is that the Australian government would take a politically conservative decision by issuing a show-cause notice to PTTEP and delay the process for another three-four months. PTTEP is trading in line with CNOOC (0883.HK, HK$18.72, U, TP HK$14.00) on P/E. We see limited room for catch up even after the Montara overhang is lifted.
Our earnings forecasts will be reviewed pending the change in the accounting policy. 1Q11 onwards, PTTEP will start reporting its earnings in USD based on IFRS, and will translate USD into Baht while reporting to the SET. The impact of the changes remains unclear.
Price (26 Jan 11 , Bt) 159.50TP (Prev. TP Bt) 169 (169) Est. pot. % chg. to TP 652-wk range (Bt) 192.00 - 129.50Mkt cap (Bt/US$ bn) 529.1/ 17.1
Bbg/RIC PTTEP TB / PTTE.BK Rating (prev. rating) U (U) Shares outstanding (mn) 3,317.45 Daily trad vol - 6m avg (mn) 7.5 Daily trad val - 6m avg (US$ mn) 39.7 Free float (%) 33.5 Major shareholders PTT (66.5%)
Year 12/08A 12/09A 12/10E 12/11E 12/12ERevenues (Bt mn) 132,621 115,548 138,474 144,287 181,527EBITDA (Bt mn) 98,154 72,289 102,224 104,638 129,592Net profit (Bt mn) 41,675 22,154 41,739 41,791 46,057EPS (Bt) 12.6 6.7 12.6 12.6 13.9- Change from prev. EPS (%) n.a. n.a. n.a. 0 0- Consensus EPS (Bt) n.a. n.a. n.a. 13.4 16.4EPS growth (%) 46.0 (47.0) 88.1 0.2 10.2P/E (x) 12.6 23.8 12.7 12.6 11.5Dividend yield (%) 3.4 1.7 3.2 3.2 3.5EV/EBITDA (x) 5.2 7.6 5.3 5.9 4.6P/B (x) 3.9 3.7 3.1 2.6 2.3ROE (%) 34.6 16.0 26.5 22.4 21.4Net debt (net cash)/equity (%) (16.8) 16.2 4.9 46.2 27.5 Note 1: PTTEP is the second largest producing E&P company in Thailand. As of Dec 2006, it had reserves of 923 mmboe, with 83% being natural gas.
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Asian Daily
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Siam Cement ------------------------------------------------------------------ Maintain OUTPERFORM 4Q10: weak operating profit but overshadowed by one-time positive surprises EPS: ◄► TP: ◄► Paworamon (Poom) Suvarnatemee, CFA / Research Analyst / 662 614 6210 / [email protected] Puchong Kometsopha / Research Analyst / 66 2 614 6215 / [email protected]
● SCC reported a full-year net profit of Bt37.4 bn, 8.7% above our forecast. The difference came from higher-than-expected gain from the sale of PTTCH, over Bt1 bn dividend income from Toyota Thailand and a lower effective tax rate. Operationally, however, margins were weaker across almost all segments except cement.
● The company’s weak operating profit was largely due to lower margins of paper division and volume loss from capacity shutdown of its first olefins cracker, Rayong Olefins. Cement margins held up well despite following volume and prices improved QoQ.
● SCC’s net DER fell from 76% to 45% QoQ with the proceed from the sale of its stake in PTTCH. There is no immediate capex plan besides those projects already committed. SCC announced final dividends of Bt8, representing a full-year payout of 40%.
● We forecast SCC’s core profit will grow 15% YoY in FY11, driven by higher volume from petrochemical plants. We do not expect margins recovery until 2012 onwards. We maintain our OUTPERFORM on SCC and DCF-based target price of Bt374.
One-time gains lead to positive earnings surprise SCC reported a full-year net profit of Bt37.4 bn, 8.7% above our forecast. The difference came from higher-than-expected capital gain from the sale of PTT Chemical (PTTC.BK, Bt135.50, O [V], TP Bt185.00), over Bt1 bn dividend income from Toyota Thailand (which change payout policy to 100%) and a lower effective tax rate (due to loss caused by plant shutdown in 4Q10). Operationally, however, margins were weaker across almost all segment except cement. Operating earnings were weak The operating profit came below our forecast in petrochemical and paper divisions. Petrochemical volumes fell 13% QoQ due to the shutdown of Rayong Olefins and its 50%-owned downstream plant. Paper margins contracted even after stripping out the maintenance cost of Bt600 mn. Margins dropped in printing and writing paper unit with falling prices of both pulp (-6%) and paper (-8%).
Figure 1: SCC’s 4Q10 results summary (Bt mn) 4Q10 4Q09 YoY (%) 3Q10 QoQ (%)Sales 76,252 62,030 22.9 79,060 -3.6EBITDA 9,900 9,565 3.5 10,307 -3.9EBIT 6,529 6,661 -2.0 7,015 -6.9Equity income 1,877 1,944 -3.5 2,382 -21.2Core net profit 16,673 5,332 212.7 6,558 154.2EPS (Bt) 13.89 4.44 212.7 5.46 154.2Gross margin (%) 15.3 19.6 17.5EBIT margin (%) 8.6 10.7 8.9Effective tax rate (%) 15.5 21.6 27.8Net margin (%) 21.9 8.6 8.3Polyolefins volume (kt) 374 272 37.7 432 -13.4Cement prices (Bt/ton) 1,750 1,725 1.4 1,625 7.7HDPE margin (US$/ton) 467 529 -11.7 455 2.6Source: Company data, Credit Suisse estimates Positive outlook for cement in 2011 and petrochem in 2H11 We expect margins improvement in cement with continued rise in cement prices and ~7% demand growth. Petrochemical margins would only recover in 2H11 at the earliest as the surplus capacities being absorbed in the market during 1H11.
Figure 2: EBITDA by division (Bt mn) 4Q10 YoY (%) QoQ (%) QoQ comments Cement 2,407 -6.3 -3.2 5% fall due to flood, Bt125/t rise in
price to Bt1,750/t Chemicals 2,361 -28.0 -36.6 13% fall in volume due to shutdown,
shutdown cost ~Bt600 mn Building mat 1,184 3.5 -15.1 Others 2,276 264.2 656.1 Consolidated 9,900 3.5 -3.9 Net profit 6,558 -6.2 -10.1 Source: Company data, Credit Suisse estimates Net DER fell QoQ to 45% from 76% With Bt33 bn cash raised from the sale of 16% stake in PTTCH in 4Q10, SCC’s net DER fell QoQ to 45% from 76%. Its net debt to EBITDA declined to 1.8x compared to the peak of almost 3x in FY09. We estimate SCC’s EBITDA of around Bt50 bn in FY11, compared to its planned capex of Bt15 bn and net debt of Bt84 bn. Management plans to be more active in M&A. We do not expect major acquisitions to be made, given limited opportunities which are sizable in SCC’s core businesses. With total DPS of Bt12.5, SCC’s payout ratio in 2010 is 40%. We expect the dividend payout to be raised to at least 50% in FY11, putting the yield at 4-5%. Maintain OUTPERFORM We forecast SCC’s core profit will grow 15% YoY in FY11, driven by higher volumes from petrochemical plants. We do not expect margins recovery until 2012 onwards. We maintain our OUTPERFORM on SCC and DCF-based target price of Bt374.
Price (26 Jan 11, Bt) 313.00TP (Prev. TP Bt) 374 (374) Est. pot. % chg. to TP 1952-wk range (Bt) 352.00 - 211.00Mkt cap (Bt/US$ bn) 375.6/ 12.1
Year 12/08A 12/09A 12/10A 12/11E 12/12ERevenues (Bt mn) 293,230 238,664 301,323 316,135 348,001EBITDA (Bt mn) 34,206 44,046 41,943 49,445 55,776Net profit (Bt mn) 16,771 24,346 37,382 31,372 39,085EPS (Bt) 14.0 20.3 31.2 26.1 32.6- Change from prev. EPS (%) n.a. n.a. n.a. 0 0- Consensus EPS (Bt) n.a. n.a. n.a. 26.5 31.0EPS growth (%) (44.8) 45.2 53.6 (16.1) 24.6P/E (x) 22.4 15.4 10.0 12.0 9.6Dividend yield (%) 2.4 2.7 4.0 4.2 5.2EV/EBITDA (x) 14.5 11.3 10.9 9.5 8.2P/B (x) 4.3 3.6 2.8 2.7 2.3ROE (%) 19.3 25.4 31.5 23.0 25.9Net debt (net cash)/equity (%) 108.2 92.9 52.4 56.3 41.7 Note 1: The Siam Cement Public Company Limited is Thailand's leading conglomerate with three main businesses: cement, pulp and paper and petrochemicals.
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Asian Daily
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Recently Published Research
Date Title Author(s) Tel. E-mail Wed 26 Jan China Utilities Sector Edwin Pang 852 2101 6406 [email protected] Wed 26 Jan Fauji Fertilizer Company Limited Farhan Rizvi, CFA 65 6212 3036 [email protected] Wed 26 Jan Hong Kong Banks Sector Franco Lam 852 2101 7642 [email protected] Wed 26 Jan LG Electronics John Sung
Companies mentioned Acer Inc. (2353.TW, NT$80.60, NEUTRAL, TP NT$81.00) Agile Property Holdings ltd. (3383.HK, HK$12.24, NEUTRAL [V], TP HK$12.70) Apple Inc. (AAPL, $341.40) Bank of East Asia (0023.HK, HK$35.9, NEUTRAL, TP HK$36) Beijing Enterprises Holdings (0392.HK, HK$46.10, OUTPERFORM, TP HK$60.30) BOC Hong Kong (Holdings) (2388.HK, HK$26.3, UNDERPERFORM, TP HK$25) Capital Securities Corp (6005.TW, NT$15.75, NOT RATED) CDL Hospitality Trusts (CDLT.SI, S$2.09, OUTPERFORM, TP S$2.53) China COSCO Holdings (1919.HK, HK$8.78, UNDERPERFORM [V], TP HK$7.70) China Gas Holdings Ltd (0384.HK, HK$3.39, NEUTRAL [V], TP HK$4.39) China Overseas Land & Investment (0688.HK, HK$15.18, UNDERPERFORM, TP HK$16.10) China Power International (2380.HK, HK$1.58, OUTPERFORM, TP HK$2.03) China Resources Gas (1193.HK, HK$10.40, OUTPERFORM, TP HK$13.80) China Resources Land Ltd (1109.HK, HK$14.54, UNDERPERFORM, TP HK$15.70) China Resources Power Holdings (0836.HK, HK$13.36, OUTPERFORM, TP HK$18.36) China Shipping Development (1138.HK, HK$9.96, UNDERPERFORM [V], TP HK$9.50) China Vanke Co Ltd-A (000002.SZ, Rmb8.49, OUTPERFORM [V], TP Rmb12.30) CyberTAN Technology Inc. (3062.TW, NT$40.40, OUTPERFORM, TP NT$55.00) Dah Sing Banking Group (2356.HK, HK$14.58, OUTPERFORM, TP HK$16.5) Dah Sing Financial (0440.HK, HK$56.6, OUTPERFORM, TP HK$68) Datang International Power Generation Co. Ltd. (0991.HK, HK$2.74, NEUTRAL, TP HK$3.07) Engro Corporation Ltd (EGCH.KA, PRs215.45, OUTPERFORM, TP PRs255.00) ENN Energy Holdings Ltd (2688.HK, HK$25.60, OUTPERFORM, TP HK$23.80) E-Ton Solar Tech Co Ltd (3452.TWO, NT$50.70, NOT RATED) Evergrande Real Estate Group Ltd (3333.HK, HK$4.35, OUTPERFORM [V], TP HK$5.00) Fauji Fertilizer Bin Qasim Limited (JORD.KA, PRs41.86) Fauji Fertilizer Company Limited (FAUF.KA, PRs153.51, NEUTRAL, TP PRs164.00) Greentown China Holdings Ltd (3900.HK, HK$9.28, UNDERPERFORM [V], TP HK$7.95) Guangzhou R&F Properties Co Ltd (2777.HK, HK$12.30, NEUTRAL [V], TP HK$10.30) Hang Lung Properties (0101.HK, HK$34.90, NEUTRAL, TP HK$36.20) Hang Seng Bank (0011.HK, HK$129.50, OUTPERFORM, TP HK$159) Hon Hai Precision (2317.TW, NT$120.50, NEUTRAL, TP NT$113.00) Hong Kong and China Gas (0003.HK, HK$17.92, UNDERPERFORM, TP HK$16.20) HTC Corp (2498.TW, NT$927.00, OUTPERFORM, TP NT$1040.00) Huaneng Power International Inc (0902.HK, HK$4.27, OUTPERFORM, TP HK$5.08) Infineon Technologies (IFXGn.DE, Eu7.57) Intel Corp. (INTC, $21.24, OUTPERFORM [V], TP $28.00) Kaisa Group Holdings (1638.HK, HK$2.72, OUTPERFORM, TP HK$3.30) KGI Securities (6008.TW, NT$16.8, NOT RATED) Korea Line (005880.KS, W25200, NOT RATED) KWG Property Holding Limited (1813.HK, HK$6.50, NEUTRAL [V], TP HK$6.70) LG Electronics Inc (066570.KS, W122,000, UNDERPERFORM, TP W80,000) LG Innotek (011070.KS, W139,500, UNDERPERFORM [V], TP W112,000) Malaysian Bulk Carriers (MBCB.KL, RM2.78, UNDERPERFORM, TP RM2.15) Manila Electric (Meralco) (MER.PS, P276.00, UNDERPERFORM [V], TP P194.00) Masterlink Securities (2856.TW, NT$13.4, NOT RATED) MediaTek Inc. (2454.TW, NT$401.00, UNDERPERFORM, TP NT$350.00) Orient Overseas International (0316.HK, HK$78.80, OUTPERFORM [V], TP HK$89.0) Pacific Basin Shipping Ltd (2343.HK, HK$5.11, OUTPERFORM [V], TP HK$6.20) Philippine Long Distance Telephone (TEL.PS, P2500.00, NEUTRAL, TP P2600.00) Polaris Securities (2854.TW, NT$20.65, NOT RATED) President Securities (2855.TW, NT$19.35, NOT RATED) PTT Chemical PLC (PTTC.BK, Bt135.50, OUTPERFORM [V], TP Bt185.00) QUALCOMM Inc. (QCOM, $51.52, OUTPERFORM [V], TP $60.00) Samsung Electronics (005930.KS, W975,000, OUTPERFORM, TP W1,100,000) Shimao Property Holdings Ltd (0813.HK, HK$12.60, OUTPERFORM [V], TP HK$15.15) Siam Cement (SCC.BK, Bt313.00, OUTPERFORM, TP Bt374.00) Sincere Navigation (2605.TW, NT$36.30, NEUTRAL, TP NT$40.00) Sino-Ocean Land Holdings Ltd (3377.HK, HK$5.17, NEUTRAL [V], TP HK$5.50) STX Pan Ocean (STXPx.SI, S$13.00, NEUTRAL [V], TP S$12.35) Sunway REIT (SUNW.KL, RM1.02, OUTPERFORM [V], TP RM1.15) Texas Instruments Inc. (TXN, $33.98, OUTPERFORM, TP $40.00) U-Ming Marine Transport Corp (2606.TW, NT$62.90, UNDERPERFORM, TP NT$46.75) United Microelectronics (2303.TW, NT$17.40, NEUTRAL, TP NT$18.00) Wing Hang Bank (0302.HK, HK$108.0, NEUTRAL, TP HK$114) Xilinx (XLNX, $31.78, NEUTRAL [V], TP $31.00) Yuanta Financial Holding Co Ltd (2885.TW, NT$23.3, OUTPERFORM, TP NT$27.00)
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Disclosure Appendix Important Global Disclosures The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities. Analysts’ stock ratings are defined as follows: Outperform (O): The stock’s total return is expected to outperform the relevant benchmark* by at least 10-15% (or more, depending on perceived risk) over the next 12 months. Neutral (N): The stock’s total return is expected to be in line with the relevant benchmark* (range of ±10-15%) over the next 12 months. Underperform (U): The stock’s total return is expected to underperform the relevant benchmark* by 10-15% or more over the next 12 months. *Relevant benchmark by region: As of 29th May 2009, Australia, New Zealand, U.S. and Canadian ratings are based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe**, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. Some U.S. and Canadian ratings may fall outside the absolute total return ranges defined above, depending on market conditions and industry factors. For Latin American, Japanese, and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; for European stocks, ratings are based on a stock’s total return relative to the analyst's coverage universe**. For Australian and New Zealand stocks a 22% and a 12% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively, subject to analysts’ perceived risk. The 22% and 12% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively, subject to analysts’ perceived risk. **An analyst's coverage universe consists of all companies covered by the analyst within the relevant sector. Restricted (R): In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ coverage universe weightings are distinct from analysts’ stock ratings and are based on the expected performance of an analyst’s coverage universe* versus the relevant broad market benchmark**: Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months. Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months. Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months. *An analyst’s coverage universe consists of all companies covered by the analyst within the relevant sector. **The broad market benchmark is based on the expected return of the local market index (e.g., the S&P 500 in the U.S.) over the next 12 months. Credit Suisse’s distribution of stock ratings (and banking clients) is:
Global Ratings Distribution Outperform/Buy* 45% (62% banking clients) Neutral/Hold* 42% (59% banking clients) Underperform/Sell* 11% (53% banking clients) Restricted 2%
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