asia pacific daily
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Asia Pacific Daily | Equity Research | February 18, 2020
1
Asia Pacific Daily - 18 February 2020 Equity Research Reports…
▌IDEA OF THE DAY | Indonesia
Bank Mandiri (ADD, tp:IDR9,000.00▲) - It’s a bargain | P2 At 10% return on loans and 145% return on capital employed, Mandiri’s retail segment is very attractive, with ample room for growth, in our view. With more retail loans and improving profitability in other segments, primarily commercial, we expect Mandiri’s ROA (and ROE) to rise further. Steep valuation discounts to peers—especially to BRI—provides opportunity; with better profitability outlook, the discounts should narrow, we think.
———————————————————————————————————————————————————————————————————————————————————————
▌Economics IND - Economic Update - Jan 2020 trade | P3 SIN - Economic Update - 4Q19 GDP growth (revised) | P4 THB - Economic Update - 4Q19 GDP growth | P5 ———————————————————————————————————————————————————————————————————————————————————————
▌Australia Apollo Tourism & Leisure (HOLD, tp:AUD0.35▼) - Headwinds prevail | P6 Brambles (HOLD, tp:AUD12.56▲) - EMEA growth slows | P7 Corporate Travel Management (HOLD▼, tp:AUD19.40▼) - Coronavirus warrants short term … | P8 GWA Group (HOLD, tp:AUD3.67▲) - Controlling the controllable | P9 Karoon Energy (ADD, tp:AUD2.31▼) - Peru doesn’t come in | P10 Paradigm Biopharmaceuticals (REDUCE, tp:AUD2.16▲) - Cautious view remains | P11 QBE Insurance Group (ADD▲, tp:AUD16.23▲) - Turn around continues | P12 ———————————————————————————————————————————————————————————————————————————————————————
▌China/Hong Kong AIA Group (ADD, tp:HKD96.00) - Life insurance turning more desirable? | P13 Property Management (OVERWEIGHT) - Strong EPS growth to drive share prices | P14 ———————————————————————————————————————————————————————————————————————————————————————
▌India Ashok Leyland (HOLD, tp:INR82.80▼) - 3QFY20: nearly in red | P15 ———————————————————————————————————————————————————————————————————————————————————————
▌Indonesia Bank Tabungan Negara (ADD▲, tp:IDR2,300.00▲) - Risk-reward looks attractive now | P16 Cement (OVERWEIGHT) - What does full Jan 20 cement data infer? | P17 ———————————————————————————————————————————————————————————————————————————————————————
▌Malaysia AirAsia Group Berhad (REDUCE, tp:MYR1.03▼) - Heading for record FY20F losses on … | P18 AirAsia X Berhad (REDUCE, tp:MYR0..5) - Insolvency risks spike; equity issue needed | P19 Kuala Lumpur Kepong (HOLD▼, tp:MYR24.85▼) - Higher CPO price fails to lift 1QFY20 profit | P20 Malakoff Corporation (ADD▲, tp:MYR0.96▲) - Attractive dividend yield of 6-7% for FY19-21 | P21 Malaysia Airports Holdings (HOLD, tp:MYR7.47▼) - Cutting earnings to reflect Covid-19 … | P22 REIT (NEUTRAL) - Retailers asking mall owners for rent rebates | P23 ———————————————————————————————————————————————————————————————————————————————————————
▌Singapore Overseas Education Ltd (ADD, tp:SGD0.42) - Hard work pays off | P24 Singapore Airlines (HOLD, tp:SGD8.46) - Great 3Q performance, but 4Q risks abound | P25 Singapore Exchange (HOLD, tp:SGD9.40▲) - Recent positives in the price | P26 Property Devt & Invt (OVERWEIGHT) - Higher sales in Jan | P27 ———————————————————————————————————————————————————————————————————————————————————————
▌Thailand PTT Global Chemical (REDUCE, tp:THB47.50) - 4Q19: the weakest quarter in eight years | P28 Hospitals (NEUTRAL▼) - Meeting with Department of Internal Trade | P29 Telco - Mobile (NEUTRAL) - More spectrum purchases than forecast | P30
Recent CGS-CIMB Research Ideas
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KR: Han Kuk Carbon 13/2
Surging with LNGC super-cycle —————————————————————————————————————————————————————————————————————————————————
CHN: Ping An Bank 12/2 Playing the (credit) cards right. Initiate: Add —————————————————————————————————————————————————————————————————————————————————
THB: Economic Update 5/2
Feb MPC meeting —————————————————————————————————————————————————————————————————————————————————
MAL: Rubber Gloves 31/1
Coronavirus – A global health emergency —————————————————————————————————————————————————————————————————————————————————
IN: Oil & Gas Refinery 29/1
Buy on trough valuations —————————————————————————————————————————————————————————————————————————————————
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Bertram LAI
Regional Head of Research
(852) 2532-1111
Upcoming Events
Company Note | Alpha series Banks │ Indonesia │ February 17, 2020
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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Bank Mandiri It’s a bargain ■ At 10% return on loans and 145% return on capital employed, Mandiri’s retail
segment is very attractive, with ample room for growth, in our view.
■ With more retail loans and improving profitability in other segments, primarily commercial, we expect Mandiri’s ROA (and ROE) to rise further.
■ Steep valuation discounts to peers—especially to BRI—provides opportunity; with better profitability outlook, the discounts should narrow, we think.
Segment profitability analysis: Retail is very ROA lucrative … Our analysis of profitability for different loan segments, e.g. corporate, commercial, retail
(i.e. consumer, micro and small), shows a full performance spectrum — from a 10%
return on loans (ROL akin to ROA) on retail to barely 1% on commercial and about 2% on
the corporate segment. For 2020-22F, we expect retail to continue to lead growth, while
profitability for other segments to improve, which should further increase ROA/ROE.
… with ample room for growth Retail has served as a core driver of Mandiri’s positive return on assets/equity (ROA/E)
trend so far. Its growth has outpaced that of other segments, thanks to micro loans that
have grown by a 21% 2016-19 CAGR. Currently, retail is 30% of total loans (micro: 14%
of total loans). Sources of growth are: 1) the subsidised micro credit programme (Kredit
Usaha Rakyat, KUR), and 2) payroll loans, both of which are higher yielding and safer in
nature, resulting in lower credit costs which contributes to the high ROL. Mandiri has
3.5m employee payroll accounts, with only 1/5 having payroll loans, implying significant
room for future growth. Additionally, the government’s KUR disbursement target for
Mandiri is up by 25% this year, which will boost KUR growth — unlike for Bank Rakyat
Indonesia (BBRI IJ, ADD, CP: Rp4,470), the KUR is positive for Mandiri.
Most commercial heavy lifting done; fewer SOE loans are positive for NIM in corporate segment Commercial used to form 27% of loans but has reduced to 17% as of FY19 as
management has shrunk the book by -1.4% CAGR since 2015 due to NPLs. This has put
pressure on overall earnings drivers, such as loan growth, NIM, fee income, etc. Most of
the heavy lifting is done now, we think, with NPL formation trending down and improved
segment profitability. Mandiri is guiding for commercial growth to return in FY20F (at a
modest 5%), which should ease pressure on earnings. Separately, we expect improving
corporate ROL. Corporate loan growth will be mostly driven by private and not so much
by SOE loans (which generally have lower rates) this year, which is positive for NIM.
Steep valuation discount should narrow on better ROA and ROE Our cross-region analysis shows that ROA, more than ROE, drives valuation multiples.
Mandiri’s share is currently trading at a steep valuation discount to peers, especially to
BRI (-15% on P/E, -30% on P/B and -30% on market-cap/asset) and provides good
opportunity, in our view. Rising profitability is a catalyst for the share price, while M&A
noises, if any, are a risk to our call. On a higher ROA/ROE assumption, we increase our
GGM-based TP by 7% to Rp9,000, with 15% upside potential. Reiterate Add rating.
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Indonesia
ADD (no change)
Consensus ratings*: Buy 27 Hold 5 Sell 0
Current price: Rp7,850
Target price: Rp9,000
Previous target: Rp8,400
Up/downside: 14.6%
CIMB / Consensus: 3.3%
Reuters: BMRI.JK
Bloomberg: BMRI IJ
Market cap: US$26,668m
Rp365,166,656m
Average daily turnover: US$22.48m
Rp311,333m
Current shares o/s: 46,667m
Free float: 40.0% *Source: Bloomberg
Key changes in this note
FY20-21F EPS increased by 0.4% and 0.2%, respectively.
Introducing FY22F forecast.
TP up by 7% on higher ROA/ROE.
Source: Bloomberg
Price performance 1M 3M 12M
Absolute (%) 1 13.8 9.1
Relative (%) 8.3 17.6 17.7
Major shareholders % held Government of Indonesia 60.0
Insert
Analyst(s)
Laurensius TEISERAN
T (62) 21 3006 1738 E [email protected]
Leonardo TUKIMAN T (62) 21 3006 1725 E [email protected]
Financial Summary Dec-18A Dec-19A Dec-20F Dec-21F Dec-22F
Net Interest Income (Rpb) 54,623 59,440 64,826 71,438 79,559
Total Non-Interest Income (Rpb) 26,208 24,553 26,681 29,176 32,365
Operating Revenue (Rpb) 80,831 83,993 91,507 100,614 111,924
Total Provision Charges (Rpb) (8,814) (7,035) (6,899) (6,620) (6,539)
Net Profit (Rpb) 25,015 27,482 31,162 35,831 41,634
Core EPS (Rp) 536.0 588.9 667.8 767.8 892.2
Core EPS Growth 21.2% 9.9% 13.4% 15.0% 16.2%
FD Core P/E (x) 14.60 13.29 11.72 10.19 8.77
DPS (Rp) 241.2 265.0 300.5 345.5 401.5
Dividend Yield 3.08% 3.39% 3.84% 4.42% 5.13%
BVPS (Rp) 3,883 4,384 4,339 4,807 5,353
P/BV (x) 2.02 1.78 1.80 1.63 1.46
ROE 14.4% 14.2% 15.3% 16.8% 17.6%
% Change In Core EPS Estimates 0.374% 0.145%
CGS-CIMB/Consensus EPS (x) 1.02 1.04 1.09
91.0
97.0
103.0
109.0
115.0
121.0
6,100
6,600
7,100
7,600
8,100
8,600
Price Close Relative to JCI (RHS)
50
100
150
200
Feb-19 May-19 Aug-19 Nov-19
Vo
l m
2
Economics Note Indonesia February 17, 2020
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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Economics Update Jan 2020 trade
■ The trade deficit widened more than expected to US$864m in Jan as exports
unexpectedly declined by 3.7% yoy after a brief rebound in Dec.
■ Trade activity to remain underwater amid industrial activity disruptions by the
coronavirus outbreak, dampening demand for Indonesia’s key commodities.
■ We reiterate our expectation of a 25bp rate cut by Bank Indonesia on 20 Feb.
Trade deficit widened more than expected in Jan… Indonesia’s trade deficit came in wider-than-expected at US$864m in Jan (-US$62m in
Dec) as exports unexpectedly declined by 3.7% yoy, against our and market expectations
of another gain after an increase of 1.1% yoy in Dec. The decline in imports extended into
the seventh month, albeit at a milder pace of 4.8% yoy (-5.6% yoy in Dec).
… amid shift in festive celebration and weak palm oil exports While the earlier Chinese New Year (CNY) celebration this year did not result in any
reduction in working days in Indonesia (22 days), CNY holidays in the key trading
partners affected overall trade activity (-4.3% yoy in Jan vs. -2.4% yoy in Dec), with an
8.2% yoy decline in export volume and a 12.6% yoy contraction in import volume. Non-
O&G trade surplus narrowed to US$317m in Jan (+US$941m in Dec) on weaker exports
of coal as well as palm oil due to 1) higher biodiesel mandate in Indonesia, 2) weaker
palm oil production in Jan, and 3) India’s ban on refined palm oil imports. O&G trade
deficit widened to US$1.2bn in Jan (-US$1.0bn in Dec) on the back of steeper declines in
crude oil and gas prices than prices of refined oil, the main component of O&G imports.
Imports of consumption goods rose for the third month Import values of consumption goods normalised to US$1.5bn in Jan (+20.3% yoy and -
11.2% mom) from US$1.7bn in Nov-Dec which were lifted by seasonal year-end sales i.e.
harbolnas, super eleven, and black Friday. The smaller contraction in imports of capital
goods (-5.3% yoy in Jan vs. -8.4% yoy in Dec) reflected dissipation of high base effects,
while Imports of raw materials fell 7.4% yoy last month (-7.3% yoy in Dec).
Near-term risk to trade activity amid the coronavirus outbreak Trade activity will likely come under further pressure in the near term following city
lockdowns and the extended Chinese factory shutdowns to curb the spread the
coronavirus in China. China accounts for 17% of Indonesia’s exports and 26% of
Indonesia’s imports. Lower industrial activity and consumption would translate into
weaker demand for commodities, such as coal, petroleum gases, and palm oil,
Indonesia’s key exports to China. Assuming the shock is transitory and the pick-up in
industrial production with overtime could lift commodity demand later in the year, we
maintain our full-year trade deficit forecast of US$4.0bn for 2020. We expect Bank
Indonesia (BI) to lower the 7-Day Reverse Repo Rate by 25bp to 4.75% on Thu (20 Feb),
following the underperformance of the 4Q19 and 2019 GDP growth.
Figure 1: Indonesia’s trade performance
SOURCES: CEIC, CGS-CIMB RESEARCH
Indonesia
Trade forecast
Indonesia runs a trade deficit with
China as it imports more from China
than exports to China
Insert
Exports to China
Economist(s)
LIM Yee Ping
T (60) 3 2261 9083 E [email protected]
Michelle CHIA T (60) 3 2261 9097 E [email protected]
Actual
Jan-20 CGS-CIMB Cons.*
Exports (%yoy) -3.7 4.2 1.2
Imports (%yoy) -4.8 0.7 -4.8
Trade balance (US$ m) -864 -590 -375
*Bloomberg median consensus
Forecast
8
10
12
14
16
18
20
22
24
26
28
2011 2013 2015 2017 2019
% share
Exports to China (% of total exports)
Imports from China (% of total imports)
Lignite, 11%
Coal, 10%
Petroleum gases, 9%
Palm oil , 8%
Chemical w ood pulp,
soda or sulphate,
7%
Stainless steel, 6%
Copper ores, 4%
Ferro-alloys, 3%
Coconut, 3%
Others, 40%
Nov-19 Dec-19 Jan-20 1M20 Nov-19 Dec-19 Jan-20
US$ bn %share
Total trade 27.7 - -7.8 -2.4 -4.3 -4.3 -1.4 -1.1 -4.4
Exports 13.4 100.0 -6.1 1.1 -3.7 -3.7 -6.6 3.6 -7.2
Non O&G 12.6 94.0 -4.6 5.8 -0.7 -91.6 -7.9 3.1 -5.3
O&G 0.8 6.0 -21.0 -33.8 -34.7 -94.8 13.2 9.1 -28.7
Imports 14.3 100.0 -9.2 -5.6 -4.8 -4.8 3.9 -5.4 -1.6
Non O&G 12.3 86.1 -5.9 -7.2 -7.8 -7.8 1.6 -6.3 -0.7
O&G 2.0 13.9 -25.5 5.3 20.0 20.0 21.6 -0.1 -6.8
Trade balance (US$ m) -864 - -1,393 -62 -864 -864 - - -
Non O&G (US$ m) 317 - -295 941 317 317 - - -
O&G (US$ m) -1,181 - -1,098 -1,003 -1,181 -1,181 - - -
%yoy %mom
Jan-20
3
Economics Note Singapore February 17, 2020
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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Economics Update 4Q19 GDP growth (revised)
■ Singapore revised its 4Q19 GDP growth upwards to 1.0% yoy, helped by
improvements in construction and services sectors.
■ 2019 GDP growth of 0.7% was its weakest annual GDP growth since GFC.
■ MTI cuts growth forecast range to -0.5% to 1.5% for 2020F (from +0.5-2.5%).
■ We downgrade our GDP growth forecast to 0.8% for 2020F. We reiterate our
expectations for authorities to provide further fiscal and monetary stimulus.
Upward revision to 4Q GDP but slowest full-year growth since GFC Singapore’s Ministry of Trade and Industry (MTI) revised GDP growth slightly upwards
from an advance estimate of 0.8% yoy to 1.0% yoy in 4Q19 (+0.7% yoy in 3Q19). On a
seasonally-adjusted annualised basis, the GDP growth shifted up from an advance
estimate of 0.1% qoq SAAR to 0.6% qoq SAAR. Nevertheless, muted quarterly GDP
readings resulted in full-year growth of 0.7% in 2019, the slowest pace since the Global
Financial Crisis (2018: +3.4%), i.e. the lower-end of MTI’s 0.5-1.0% forecast range.
Weakened domestic demand offset by reversal in net exports A turnaround in the net exports (+0.8% pts in 4Q19 vs. -1.2% pts in 3Q19) helped offset
the weaker contribution from domestic demand to headline GDP growth in 4Q19 (+1.0%
pts vs. +2.2% pts in 3Q19). While government spending increased (+4.3% yoy in 4Q19
vs. +2.6% yoy in 3Q19), private consumption slowed to the weakest pace since 2Q17
(+2.6% yoy vs. +3.8% yoy in 3Q19) and investment activity turned negative (-1.7% yoy
vs. +2.5% yoy in 3Q19). The investment contraction was primarily driven by subdued
private sector investments in transport equipment (-32.7% yoy), other construction &
works (-19.5% yoy), and machinery & equipment (-0.3% yoy).
Services sector to be tested by coronavirus The upward revision reflected better gains in the construction cluster (+4.3% yoy in 4Q19
vs. +3.1% yoy in 3Q19; advance estimate: +2.1% yoy), supported by both the public and
private sectors. Growth in the services sector was 1.5% yoy in 4Q19, a marginal 0.1% pt
higher than the advance estimate, due to better readings across all sub-sectors except
wholesale and retail trade. That said, COVID-19 would be a major dampener on the
service sector as health precautions take a toll on tourism and domestic consumer
spending.
Manufacturing to face new hindrances after trade dispute eases Manufacturing sector remained in the red (-2.3% yoy in 4Q19 vs. -0.7% yoy in 3Q19,
advance estimate: -2.1% yoy), with weakness concentrated in electronics (-7.8% yoy),
chemicals (-8.2% yoy), and marine & offshore engineering (-24.5% yoy). Despite de-
escalating trade tensions between the US and China, Chinese factory closures following
the COVID-19 outbreak will cascade into Singapore’s manufacturing output and exports
in 1Q20F given that 17.3% of Singapore’s NODX are delivered to China.
Relying on fiscal and monetary stimulus to shore up growth The MTI has revised its 2020 GDP growth forecast range to -0.5% to +1.5% (from +0.5-
2.5%), to account for the adverse spillovers of COVID-19. We downgrade our GDP
growth projection to 0.8% for 2020F (+1.5% previously), which is within MTI’s target
range, having factored in fiscal and monetary support. We believe that the government, to
mitigate the anticipated slower growth, will roll out highly expansionary budget measures
tomorrow (18 Feb). In addition, the Monetary Authority of Singapore (MAS) could ease
the nation's monetary settings in Apr meeting by recentering the S$NEER to
accommodate the transitory shock from COVID-19, while maintaining the slope and width
of the policy band.
Singapore
GDP forecast
Better net export contribution lifted
headline 4Q19 GDP growth…
Insert
…so did upward revisions in
construction and services sectors
Economist(s)
Michelle CHIA
T (60) 3 2261 9097 E [email protected]
Sofea AZAHAR T (60) 3 2261 9096 E [email protected]
Actual
4Q19 CGS-CIMB Cons.*
Real GDP - %yoy 1.0 0.7 0.8
*Bloomberg median consensus
Forecast
0
1
2
3
4
5
6
-10
-5
0
5
10
15
1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19
%yoy
Net exports Change in inventories
Total investments Government consumption
Private consumption Real GDP (RHS)
%pt cont.
0
1
2
3
4
5
6
-1
0
1
2
3
4
5
6
1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19
%yoy
Manufacturing Construction
Services Real GDP (RHS)
%pt cont.
4
Economics Note Thailand February 17, 2020
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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Economics Update 4Q19 GDP growth
■ Thailand’s 4Q19 GDP growth slowed to 1.6% yoy due to weaker contribution
from domestic demand and net exports, and inventory de-stocking effect.
■ Underperforming growth, caused by muted domestic condition and global
epidemic, likely to prompt the BOT to reduce policy rate by 25bp in 1H20F.
Slowest growth since the military coup in 2014 Thailand’s real GDP growth decelerated to its weakest pace since 3Q14 during the
military coup (+1.6% yoy in 4Q19 vs. +2.6% yoy in 3Q19), undershooting expectations.
Domestic demand registered its slowest growth since two years ago (+2.4% yoy in 4Q19
vs. +3.4% yoy in 3Q19), while net export contribution narrowed to 3.0% pts in 4Q19
(+4.9% pts in 3Q19). Although smaller, there was still an inventory de-stocking effect,
which shaved off 2.8% pts from the headline GDP growth in 4Q19 (-4.8% pts in 3Q19),
due to rice and manufactured goods, such as sugar, plastics, synthetic rubber and refined
petroleum products. The sharp loss in growth momentum at the tail-end of 2019 brought
the full-year economic expansion to 2.4% in 2019 (+4.2% in 2018).
Global disease to interrupt external demand and tourism sector The Thai baht’s strength has led to a prolonged weakness in the country’s trade
condition, resulting in a deeper contraction in merchandise exports (-5.1% yoy in 4Q19
vs. -0.1% yoy in 3Q19). This was consistent with the subdued manufacturing sector,
which registered its steepest decline since 1Q12 (-2.3% yoy in 4Q19 vs. -0.8% yoy in
3Q19), on the back of pronounced slippages in export-oriented industries, such as
rubber, automotive, metal and steel, and refined petroleum products. Services’ exports
grew at a more modest pace of 1.1% yoy in 4Q19 (+3.2% yoy in 3Q19), on the back of a
sluggish recovery in tourist arrivals (+6.4% yoy vs. +7.2% yoy in 3Q19). Global supply
disruptions and travel bans following the outbreak would likely dampen the manufacturing
and tourism-related industries, such as accommodation and food services, and transport
and storage, in 1Q20F, like what happened during the SARS outbreak in 2003.
Budget postponement constrains public investments Total investment growth narrowed sharply to 0.9% yoy in 4Q19 (+2.7% yoy in 3Q19),
particularly held back by public investments (-5.1% yoy vs. +3.7% yoy in 3Q19) due to the
FY2020 Budget delay, especially in other construction works (-15.7% yoy vs. +1.5% yoy
in 3Q19) and equipment (-1.9% yoy vs. -0.4% yoy in 3Q19). This was consistent with the
decline in the performance of the construction sector (-1.9% yoy in 4Q19 vs. +2.7% yoy in
3Q19).
Deterioration in government and household consumption Public consumption contracted for the first time since 4Q17 (-0.9% yoy in 4Q19 vs. +1.7%
yoy in 3Q19), due to the Budget delay and muted government purchases from
enterprises and abroad (-6.5% yoy in 4Q19 vs. +5.1% yoy in 3Q19). As a result of
insufficient fiscal stimulus, weak external sector and drought, household consumption
growth moderated to 2.9% yoy in 4Q19 (+4.2% yoy in 3Q19) especially on big-ticket
items such as motor vehicles (-11.1% yoy in 4Q19 vs. -2.4% yoy in 3Q19).
Poorer growth outlook likely to prompt monetary easing Today, the National Economic and Social Development Council (NESDC) downgraded its
GDP growth projection for 2020 to 1.5%-2.5%, from 2.7%-3.7% previously (CGS-CIMB:
+2.4%). Aside from the existing headwinds such as the Budget delay, challenging
weather conditions and strong currency, the COVID-19 virus outbreak poses further
downside risks to the economy, particularly for tourism-related industries. Therefore, we
reiterate our expectation that the Bank of Thailand (BOT) would ease the monetary policy
further with another 25bp rate cut in 1H20F.
Thailand
GDP growth forecast
Subdued domestic demand and net
exports alongside inventory de-stocking
weakened headline GDP growth in 4Q19
Insert
Strong baht has dampened Thai exports
Economist(s)
Michelle CHIA
T (60) 3 2261 9097 E [email protected]
Sofea AZAHAR T (60) 3 2261 9096 E [email protected]
Actual
4Q19 CGS-CIMB Cons.*
Real GDP - %yoy 1.6 2.4 1.9
*Bloomberg median consensus
Forecast
0
1
2
3
4
5
6
-10
-5
0
5
10
15
1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19
%yoy%pt cont.
Change in inventories Net exportsTotal investments Government consumptionPrivate consumption Real GDP (RHS)
29
30
31
32
33
34
35
36
37-6
-4
-2
0
2
4
6
8
10
1Q15 4Q15 3Q16 2Q17 1Q18 4Q18 3Q19
THB/US$%yoy
Goods exports THB per US$ (RHS)
5
Autos│Australia│Equity research│February 17, 2020
IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP
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Apollo Tourism & Leisure
Headwinds prevail
ATL is facing several ‘fluid’ headwinds which have the potential to persist over the remainder of 2020 (bushfire impact on domestic tourism and coronavirus impact on global tourism).
ATL expects its underlying 1H20 NPAT to be A$11.5m (A$10.5m stat. NPAT) vs A$15m in the pcp. This was c4% below our prior 1H estimate.
Forecasting the enduring impact of the bushfires/coronavirus in 2H20 (and potentially beyond) is too difficult/uncertain for the company to quantify as yet.
We have lowered our forecasts by c20% in FY20, taking the view that domestic tourism will be significantly impacted. We have also lowered our Nth American forecasts given management’s cautionary comments on this market as well. We would highlight that there remains heightened uncertainty relating to ATL’s earnings.
We maintain a Hold rating; A$0.35 PT. However, we highlight to investors that our base case assumption is that ATL pays no dividend in FY20.
Several ‘fluid’ headwinds globally ATL is currently facing several global headwinds including: potential enduring impacts from the Australian bushfires, coronavirus and subdued global RV sales markets. The quantum of the impact from the first two aforementioned issues is yet to be determined but will clearly have an impact on 2H20 trading (at least).
1H20 NPAT to be -23% on pcp ATL recently provided a trading update, with 1H20 NPAT expected to be A$11.5m (stat. NPAT A$10.5m), down 23% on the pcp. ATL called the following in terms of the key detractors on its 1H earnings: 1) subdued global RV sales markets and low margins; 2) investments in its retail operations/guest experience; and 3) bushfire impact on last minute rental bookings in Australia.
We cut our forecasts further; flagging heightened uncertainty Forecasting the 2H (and potentially beyond) impact on ATL’s earnings is difficult (and too early for even the company to quantify as yet). We have made material reductions to our Australia Rental earnings (bushfires and some potential coronavirus impact), modest NZ rental earnings reductions (potential coronavirus impact) and material North American rental/used RV sales earnings (subdued trading conditions, coronavirus). We have downgraded our EPS forecasts in FY20/FY21/FY22 by 20%/15%/10%. We have also assumed ATL does not pay a dividend in FY20 given the highly uncertain trading conditions. Domestic tourism pressure (bushfires/coronavirus) poses the greatest risk to ATL’s earnings over the next 12 months.
Hold maintained; A$0.35 PT We are mindful of the potential for Australian tourism to be materially impacted by the recent bushfires for a period (and coronavirus, to a lesser extent). These events, which are outside ATL’s control, have the potential to weigh on its earnings and investor sentiment for some time yet. Hold rating maintained; A$0.35 PT. We note that with earnings continuing to decline this FY, there will be increased focus on ATL’s balance sheet. Key risks: increased competition, continued over-supply conditions in key markets, seasonality, tourism related shocks (eg coronavirus/bushfires), inability to recycle ex-fleet (higher funding costs), FX, movement in fuel prices and deterioration of general macro conditions.
SOURCE: MORGANS, COMPANY REPORTS
▎Australia
HOLD (no change) Current price: A$0.31
Target price: A$0.35
Previous target: A$0.44
Up/downside: 12.5%
Reuters: ATL.AX
Bloomberg: ATL AU
Market cap: US$38.75m
A$57.71m
Average daily turnover: US$0.05m
A$0.07m
Current shares o/s 183.6m
Free float: 64.5%
Price performance 1M 3M 12M
Absolute (%) -20.5 -33.3 -71.6
Relative (%) -22.9 -39.2 -89.3
Josephine LITTLE
T (61) 7 3334 4505
James BARKER
T (61) 7 3334 4893
Analyst(s) own shares in the following stock(s) mentioned in this report:
– N/A
Financial Summary Jun-18A Jun-19A Jun-20F Jun-21F Jun-22F
Revenue (A$m) 355.6 365.2 361.7 372.8 385.8
Operating EBITDA (A$m) 69.92 62.02 61.18 64.25 67.38
Net Profit (A$m) 19.50 14.69 10.84 12.35 13.53
Normalised EPS (A$) 0.11 0.08 0.06 0.07 0.07
Normalised EPS Growth 13.4% (24.7%) (26.5%) 13.7% 9.5%
FD Normalised P/E (x) 2.92 3.88 5.27 4.64 4.23
DPS (A$) 0.050 0.020 - 0.018 0.019
Dividend Yield 16.1% 6.5% 0.0% 5.7% 6.2%
EV/EBITDA (x) 4.57 6.24 6.33 6.02 5.73
P/FCFE (x) 0.46 0.54 0.35 0.38 0.34
Net Gearing 225% 276% 256% 237% 220%
P/BV (x) 0.48 0.48 0.44 0.41 0.38
ROE 17.6% 12.4% 8.7% 9.2% 9.4%
% Change In Normalised EPS Estimates (24.4%) (19.2%) (15.9%)
Normalised EPS/consensus EPS (x) 0.84 0.79 0.79
2
26
50
74
98
122
0.22
0.42
0.62
0.82
1.02
1.22
Price Close Relative to S&P/ASX 200 (RHS)
Source: Bloomberg
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Transport│Australia│Equity research│February 17, 2020
IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP
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Brambles
EMEA growth slows
BXB’s 1H20 result overall was slightly weaker than we expected. Importantly however, FY20 guidance was largely maintained.
CHEP Americas (CC EBIT +10%) and CHEP Asia-Pacific (CC EBIT +8%) were the key standouts with cash flow generation also strong. The performance of CHEP EMEA was weak (CC EBIT +2%) due to macroeconomic uncertainty and higher costs.
We decrease FY20F underlying EBIT by 2% to US$823m.
Maintain Hold rating on a higher A$12.56 target price (from A$11.45) following a roll-forward of our model to FY21 forecasts and updates to FX.
Result was slightly below our expectations BXB’s 1H20 result overall was slightly weaker than we expected with underlying EBIT up 1% to US$436m (-2% vs Morgans) and underlying NPAT rising 4% to US$279m (-2% vs Morgans). On a constant currency basis, underlying EBIT increased 5%, which was in line with management’s mid-single digit target. Importantly, FY20 guidance (constant currency including AASB16) was largely maintained with BXB expecting mid-single digit growth in both revenue and underlying EBIT. On a constant currency basis, we forecast FY20 revenue and underlying EBIT to be up 5.5%. The balance sheet remains healthy with ND/EBITDA at 0.9x (vs 1.5x in 1H19 and management’s <2.0x target) while DPS of US9.0cps was lower than our US9.9cps forecast.
Americas and Asia-Pacific were solid, but EMEA was weak The key positives from the result were CHEP Americas (CC EBIT +10%) and CHEP Asia-Pacific (CC EBIT +8%) with both segments performing better than we expected. Strong free cash flow (before dividends) of US$172m (vs US$73m in 1H19) was also a highlight on the back of improved working capital and lower capex. The key negative was CHEP EMEA with EBIT (constant currency) up only 2% (-3% vs Morgans). The region was impacted by ongoing macroeconomic uncertainty and political instability as well as higher costs (net transport, plant, depreciation and higher cost to serve). BXB’s ROIC was also weak, down 300bps to 18.2%, although most (180bps) was due to the impact of AASB16.
Buyback remains ongoing BXB advised that it is about a quarter of the way through its US$1.65bn on-market buyback, which commenced in June 2019. As at 31 December 2019, the company had purchased 51.4m shares at a cost of US$415m. We currently forecast the buyback to run through to the end of FY21.
Maintain Hold rating We make minor changes to earnings forecasts with FY20F underlying EBIT decreasing by 2% to US$823m and underlying NPAT reducing by 1% to US$515m. Our PE-based target price rises to A$12.56 (from A$11.45) due to a roll-forward of our model to FY21 forecasts and updates to FX forecasts. We continue to think BXB is a good company with strong global market positions, defensive characteristics and a healthy balance sheet. However, trading on 25.1x FY21F PE and 2.0% yield we view the valuation as fair and hence maintain our Hold rating.
SOURCE: MORGANS, COMPANY REPORTS
▎Australia
HOLD (no change) Current price: A$13.14
Target price: A$12.56
Previous target: A$11.45
Up/downside: -4.4%
Reuters: BXB.AX
Bloomberg: BXB AU
Market cap: US$13,627m
A$20,294m
Average daily turnover: US$34.04m
A$50.22m
Current shares o/s 1,504m
Free float: 100.0%
Key changes in this note
FY20F revenue unchanged.
FY20F EBIT down by 2%.
FY20F NPAT down by 1%.
Price performance 1M 3M 12M
Absolute (%) 6.9 5.9 16.9
Relative (%) 6 1 -0.6
Alexander LU, CFA
T (61) 2 9043 7901
Analyst(s) own shares in the following stock(s)
mentioned in this report:
– N/A
Financial Summary Jun-18A Jun-19A Jun-20F Jun-21F Jun-22F
Revenue (US$m) 5,568 4,595 4,754 5,019 5,294
Operating EBITDA (US$m) 1,548 1,288 1,572 1,671 1,793
Net Profit (US$m) 720 1,468 514 537 587
Normalised EPS (US$) 0.39 0.32 0.33 0.37 0.41
Normalised EPS Growth 2.7% (19.3%) 4.7% 10.2% 12.3%
FD Normalised P/E (x) 22.33 27.63 26.49 24.08 21.44
DPS (US$) 0.22 0.21 0.17 0.19 0.21
Dividend Yield 2.55% 2.35% 1.92% 2.12% 2.38%
EV/EBITDA (x) 10.59 11.35 9.59 8.92 7.97
P/FCFE (x) 34.07 7.24 35.57 12.67 43.88
Net Gearing 73.0% 13.4% 49.6% 83.8% 64.4%
P/BV (x) 4.44 3.68 4.67 5.33 4.73
ROE 20.9% 14.6% 15.5% 20.6% 23.4%
% Change In Normalised EPS Estimates
Normalised EPS/consensus EPS (x) 0.98 0.92 0.93
89.0
92.6
96.1
99.7
103.3
106.9
110.4
114.0
10.00
10.50
11.00
11.50
12.00
12.50
13.00
13.50
Price Close Relative to S&P/ASX 200 (RHS)
Source: Bloomberg
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Hospitality│Australia│Equity research│February 17, 2020
IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP
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Corporate Travel Management
Coronavirus warrants short term caution
A number of data points have already shown that that the Coronavirus has and will materially impact travel demand over at least the next few months.
In light of the significant earnings risk to the travel companies in the short term, we think it is too early to start buying them as the risk lies to the downside. Trying to forecast the downside risk at this early stage is near impossible and will depend on how long the virus lasts. Importantly, history has shown that travel demand will eventually rebound strongly post this virus as there is pent up demand.
We move CTD to a Hold recommendation until the outlook becomes clearer. Our forecasts are under review pending the release of CTD’s 1H20 result on 19 February. We expect that FY20 guidance will need to be revised for the impact of the coronavirus.
Coronavirus is impacting travel demand Airline traffic volumes and hotel books are materially down on the pcp due to the coronavirus. Many companies around the globe involved in the travel industry have already provided weak trading updates and in some cases attempted to quantify the negative impact to their earnings. A number of countries around the world are extending their travel bans to and from China. Likely revisions to economic growth (GDP) as a result of the coronavirus will also impact travel demand given its high correlation. Importantly, history has shown that travel demand will eventually rebound strongly post this virus as there is pent up demand when it is safe to travel (see charts enclosed).
Short term earnings risk Trying to forecast the downside risk at this early stage is near impossible and will depend on how long the virus lasts. We then expect that there will be a further lag impact until both consumers and corporates have confidence to return to travelling. The coronavirus will impact CTD’s Asia operations (16% of our FY20F EBITDA) and also its other regions as corporates implement short term travel bans to protect their employees. Business events and conferences around the world are also being cancelled or deferred. Given the coronavirus, we now think that CTD’s FY20 guidance for underlying EBITDA of A$165.0-175.0m (+10-16.5% on the pcp) will be difficult to achieve. Given our 1H20 forecast for an underlying EBITDA of A$65.5m (+1.3% on the pcp), to achieve the lower end of its guidance requires 2H20 EBITDA of A$100.0m, up 17.0% on the pcp.
We move to a Hold rating while there is short term uncertainty In light of the significant earnings risk to the travel companies in the short term, we think it is too early to start buying them as the risk is to the downside. We therefore move CTD to a Hold recommendation until the outlook becomes clearer. Following the derating of peer multiples, our price target has fallen to A$19.40 from A$23.40. We will review our CTD forecasts post the release of its 1H20 result on 19 February. We expect that FY20 guidance will need to be revised for the impact of the coronavirus but note that even then it will be difficult to fully forecast the impact precisely. We recognise that when the macroeconomic events and coronavirus subside, CTD is well positioned to grow strongly. Importantly, the company has a strong balance sheet to withstand any short term downturn.
SOURCE: MORGANS, COMPANY REPORTS
▎Australia
HOLD (previously ADD) Current price: A$17.01
Target price: A$19.40
Previous target: A$23.40
Up/downside: 14.1%
Reuters: CTD.AX
Bloomberg: CTD AU
Market cap: US$1,244m
A$1,852m
Average daily turnover: US$6.53m
A$9.59m
Current shares o/s 109.0m
Free float: 79.4%
Price performance 1M 3M 12M
Absolute (%) -21.9 -14 -31.3
Relative (%) -24.3 -19.9 -49
Belinda MOORE
T (61) 7 3334 4532
Kurt GELSOMINO
T (617) 3334 4858
Analyst(s) own shares in the following stock(s) mentioned in this report:
– Corporate Travel Management
Financial Summary Jun-18A Jun-19A Jun-20F Jun-21F Jun-22F
Revenue (A$m) 371.0 446.7 485.2 539.4 587.6
Operating EBITDA (A$m) 125.5 150.1 165.5 190.3 211.9
Net Profit (A$m) 86.0 96.9 105.0 121.6 135.7
Normalised EPS (A$) 0.80 0.89 0.96 1.12 1.25
Normalised EPS Growth 29.7% 11.4% 8.1% 15.8% 11.6%
FD Normalised P/E (x) 21.25 19.09 17.65 15.25 13.66
DPS (A$) 0.36 0.40 0.44 0.51 0.58
Dividend Yield 2.12% 2.35% 2.58% 3.02% 3.41%
EV/EBITDA (x) 14.60 12.10 10.88 9.15 8.04
P/FCFE (x) 45.19 34.83 26.68 15.03 16.51
Net Gearing (2.8%) (9.7%) (12.5%) (19.7%) (23.2%)
P/BV (x) 3.97 3.25 2.94 2.66 2.40
ROE 20.5% 18.9% 17.5% 18.3% 18.5%
% Change In Normalised EPS Estimates 0% 0% 0%
Normalised EPS/consensus EPS (x) 0.98 0.99 0.96
44
69
94
119
15.0
20.0
25.0
30.0
Price Close Relative to S&P/ASX 200 (RHS)
Source: Bloomberg
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Construction│Australia│Equity research│February 17, 2020
IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP
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GWA Group
Controlling the controllable
GWA’s 1H20 result overall was slightly lower than our expectations with challenging market conditions largely offset by strong cost management.
While improved market conditions are not expected until early FY21, management has maintained FY20 underlying EBIT guidance of A$80-85m (Morgans A$82.0m).
We make minor adjustments to earnings forecasts. Our target price rises to A$3.67 (from A$2.93) and we maintain our Hold rating.
Result was slightly weaker than we expected GWA’s 1H20 result (pro forma, including Methven) was marginally weaker than we expected with underlying EBIT down 12% to A$38.1m (-1% vs Morgans). Revenue fell 12% due to a 6% decline in the Australian housing market (residential detached -12%, multi-res -14%, commercial new build +2% and R&R -5%) in addition to merchant destocking. This was largely offset by strong cost control with the A$9-12m FY19-21 cost-out program and Methven synergy benefits both tracking ahead of target. This led to only a minor 10bps decline in EBIT margin to 18.5%, which was a good effort in our view. The balance sheet remains in reasonable shape with ND/EBITDA at 1.9x, while free cash flow was down to A$18.5m (vs A$33.3m in 1H19) due mainly to adverse working capital movements and higher capex. 1H20 DPS of A8.0cps was lower than our A9.0cps forecast.
FY20 earnings guidance maintained Management expects trading conditions to remain challenging in the short term with an improvement in early FY21 (previously back end of FY20) supported by an increase in house prices, higher housing turnover and early signs of a pick-up in residential construction activity. Commercial activity is expected to remain solid across the east coast. Despite the prolonged weakness in the market, GWA has maintained guidance for FY20 underlying EBIT of between A$80-85m (Morgans A$82.0m) on the back of accelerated cost savings and Methven synergy benefits.
Some good early signs for Caroma Smart Command Management advised that Caroma Smart Command is generating positive engagement in multiple commercial segments with the technology installed in 36 sites (up from 18 sites at FY19) across Australia and New Zealand. The pipeline remains solid with GWA targeting additional projects in 2H20. The technology is also getting good interest in Asia and GWA is looking to leverage Methven’s international footprint for growth over the longer term. While we currently do not factor in any earnings contribution from Caroma Smart Command, we think its water management and cost savings capability will make it increasingly attractive to commercial customers over time.
Retain Hold rating We make minor changes to earnings forecasts with FY20F underlying EBIT remaining broadly unchanged at A$82.0m while underlying NPAT reduces by 2% to A$51.9m. However, our equally-blended (PE, EV/EBITDA, DCF) target price rises to A$3.67 (from A$2.93) due to our increased confidence in management’s ability to execute on cost-out targets despite a challenging market and a roll-forward of our model to FY21 forecasts. With a 12-month forecast total shareholder return of -3% we maintain our Hold rating.
SOURCE: MORGANS, COMPANY REPORTS
▎Australia
HOLD (no change) Current price: A$3.98
Target price: A$3.67
Previous target: A$2.93
Up/downside: -7.9%
Reuters: GWA.AX
Bloomberg: GWA AU
Market cap: US$705.4m
A$1,051m
Average daily turnover: US$2.20m
A$3.42m
Current shares o/s 265.3m
Free float: 100.0%
Key changes in this note
FY20F revenue down by 2%.
FY20F EBIT unchanged.
FY20F NPAT down by 2%.
Price performance 1M 3M 12M
Absolute (%) 13.1 24.8 24.4
Relative (%) 12.2 19.9 6.9
Alexander LU, CFA
T (61) 2 9043 7901
Analyst(s) own shares in the following stock(s)
mentioned in this report:
– N/A
Financial Summary Jun-18A Jun-19A Jun-20F Jun-21F Jun-22F
Revenue (A$m) 452.5 381.7 410.9 415.8 423.4
Operating EBITDA (A$m) 89.5 82.3 102.4 106.7 108.6
Net Profit (A$m) 54.29 95.04 51.49 54.85 56.43
Normalised EPS (A$) 0.21 0.20 0.20 0.21 0.21
Normalised EPS Growth 4.30% (7.34%) 0.09% 5.70% 2.89%
FD Normalised P/E (x) 18.76 20.26 20.30 19.25 18.71
DPS (A$) 0.18 0.19 0.18 0.18 0.19
Dividend Yield 4.52% 4.65% 4.40% 4.52% 4.65%
EV/EBITDA (x) 12.89 14.51 11.67 11.08 10.75
P/FCFE (x) 26.98 18.14 25.21 22.11 22.11
Net Gearing 29.1% 37.0% 36.7% 31.5% 26.3%
P/BV (x) 3.15 2.81 2.77 2.63 2.50
ROE 17.1% 14.7% 13.8% 14.0% 13.7%
% Change In Normalised EPS Estimates
Normalised EPS/consensus EPS (x) 1.00 1.00 1.01
72.0
84.5
97.0
2.70
3.20
3.70
Price Close Relative to S&P/ASX 200 (RHS)
Source: Bloomberg
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Energy Infrastructure│Australia│Equity research│February 17, 2020
IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP
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Karoon Energy
Peru doesn’t come in
Marina-1 exploration well in offshore Peru encountered thin water-bearing sands in the primary target (no oil and only a minor amount of gas).
We estimate a dry hole cost for Karoon’s share of Marina-1 at US$56m.
Disappointing but typical of exploration, and immaterial to our investment view which is focused on the acquisition of the Bauna operations in offshore Brazil.
We have also flushed through oil price forecast cuts to FY20/21.
Current spot oil/FX would still see a supportive valuation of A$1.62 per share.
Post the Peru duster and oil price cuts our valuation has been revised to A$2.31 (from A$2.40). We maintain our Add recommendation.
Marina-1 a duster KAR has reported drill results from the Marina-1 exploration well in Block Z-38 in the Tumbes Basin in offshore Peru. Detailed logging showed Marina-1 encountered thin water-bearing sands in the primary target, finding no oil and only a minor amount of gas. The well is still being finished, and will then be plugged and abandoned, with KAR reporting the well remains on schedule and budget. We estimate KAR’s share of the dry hole cost at US$56m. We had valued KAR’s Peru interest at A$0.04ps, based a 2% risk weighting of the 256mmbbl oil target, which we have now removed.
Oil price trimmed Following the recent decline in short-term demand fundamentals we have trimmed our oil price forecasts for 2020-21 by 5-7%. This has seen our DCF valuation reduced by A$0.05ps.
Main focus back on Brazil Post drilling Peru, the focus returns to Brazil, with KAR progressing the acquisition through government approval. A critical hurdle for our investment view on KAR, we expect approval around late March/April. Currently trading at a ~50% discount to our valuation, we see finalising the acquisition as likely to drive higher confidence in KAR’s forward earnings profile (now trading at ~2x EBITDA). After removing Peru from our valuation and trimming our oil price forecasts our KAR valuation has been revised to A$2.31 (was A$2.40). As a result we maintain our Add recommendation. The key risks to our call are execution risk on the acquisition and oil price risk.
SOURCE: MORGANS, COMPANY REPORTS
▎Australia
ADD (no change) Current price: A$1.07
Target price: A$2.31
Previous target: A$2.40
Up/downside: 115.7%
Reuters: KAR.AX
Bloomberg: KAR AU
Market cap: US$397.3m
A$591.7m
Average daily turnover: US$3.35m
A$4.91m
Current shares o/s 552.9m
Free float: 85.2%
Price performance 1M 3M 12M
Absolute (%) -23.6 2.9 16.4
Relative (%) -24.5 -2 -1.1
Adrian PRENDERGAST
T (61) 3 9947 4134
Taarika RAJU
T (61) 3 9947 4109
Analyst(s) own shares in the following stock(s) mentioned in this report:
– N/A
Financial Summary Jun-18A Jun-19A Jun-20F Jun-21F Jun-22F
Revenue (A$m) 0.0 0.0 286.4 566.6 961.7
Operating EBITDA (A$m) (186.0) (42.0) 58.7 306.0 441.5
Net Profit (A$m) (183.7) (41.4) (20.7) 146.8 163.4
Normalised EPS (A$) -0.74 -0.17 -0.04 0.27 0.30
Normalised EPS Growth 125% (77%) (78%) 11%
FD Normalised P/E (x) NA NA NA 4.03 3.62
DPS (A$) - - - - -
Dividend Yield 0% 0% 0% 0% 0%
EV/EBITDA (x) NA NA 13.56 1.78 0.73
P/FCFE (x) NA NA NA 3.54 4.26
Net Gearing (60.1%) (60.3%) 25.4% (4.8%) (24.0%)
P/BV (x) 0.48 0.49 0.74 0.62 0.53
ROE (28.0%) (7.5%) (3.1%) 16.7% 15.8%
% Change In Normalised EPS Estimates (158%) (9%) (0%)
Normalised EPS/consensus EPS (x) 2.67 1.26 1.13
67
85
103
121
139
157
0.70
0.90
1.10
1.30
1.50
1.70
Price Close Relative to S&P/ASX 200 (RHS)
Source: Bloomberg
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Biotechnology│Australia│Equity research│February 17, 2020
IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP
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Paradigm Biopharmaceuticals
Cautious view remains
PAR reported its 1H20 result with expenses largely in line with expectations. No further detail or commentary was provided in the report.
We maintain our cautious view on the stock with current valuation pricing in significantly higher expectations of potential licensing deal value and market share assumptions than we see as reasonable.
We have rolled forward our model and made minor changes to our assumptions. Our price target increases to A$2.16 (from A$1.71) although we retain a Reduce recommendation. We note an investment in PAR is appropriate for investors with a higher risk profile.
1H20 results PAR posted a 1H20 net loss of A$5.1m for the period (~14% increase in the pcp). Expense items grew in line with expectations with a 35% increase in R&D and employee expenses, and a 25% increase in general and administration costs. Cash balance remains strong with A$70.1m in cash after the A$77.9m capital raise in late FY19 and a further A$1.4m via the exercising of options in the 1H20 period.
Better risk-adjusted plays in the space We remain wary after PAR’s change in strategy mid last year and what we view as interesting but inconclusive results on its Ph2b osteoarthritis (OA) trial, while follow-up studies similarly unconvincing and lack substantive clinical evidence. We view the OA data as an interesting trend but will likely require a more stringent trial design and analysis to flush out critical design parameters for a Ph3 trial and draw out a realistic commercial opportunity. Even taking into consideration our question marks over the trial quality, we still think there is value in the asset, just not at current valuations. The data shown to date, while interesting and showing positive initial trends of efficacy is by no means conclusive and given the significant risks ahead trials / approvals / costs / marketing / time-value, we continue to view PAR as a funding source for better risk-adjusted plays in the space.
Changes to forecasts We have rolled forward our model and made minor changes including re-weighting partnership and milestone assumptions based on updated biotechnology deal metrics which continue to shift toward higher back-end loaded milestone payments over the last 12 months.
Investment view – retain Reduce recommendation As a result of the changes to forecasts and rolling forward of our model, our DCF valuation and price target increases to A$2.16 (from A$1.71) although we maintain our Reduce recommendation with recent share price rally running well ahead of fundamental value and pricing in significantly higher deal values than what we are seeing across the market, in our view. We continue to advocate investors take profits but maintain a core holding if risk-profile allows. We note this investment is appropriate for investors with higher risk-profiles.
SOURCE: MORGANS, COMPANY REPORTS
▎Australia
REDUCE Current price: A$4.17
Target price: A$2.16
Previous target: A$1.71
Up/downside: -48.2%
Reuters: PAR.AX
Bloomberg: PAR AU
Market cap: US$553.9m
A$824.9m
Average daily turnover: US$2.81m
A$4.12m
Current shares o/s 192.2m
Free float: 72.2%
Price performance 1M 3M 12M
Absolute (%) 23 39.9 268.1
Relative (%) 20.6 34 250.4
Iain WILKIE
T (61) 7 3334 4521
Scott POWER
T (61) 7 3334 4884
Dr Derek JELLINEK
T (61) 2 9043 7904
Analyst(s) own shares in the following stock(s) mentioned in this report:
– N/A
Financial Summary Jun-18A Jun-19A Jun-20F Jun-21F Jun-22F
Revenue (A$m) 2.74 2.98 2.25 4.28 70.20
Operating EBITDA (A$m) -6.19 -15.89 -17.10 -50.40 15.17
Net Profit (A$m) -6.15 -15.63 -15.50 -49.21 10.82
Normalised EPS (A$) -0.04 -0.09 -0.08 -0.25 0.05
Normalised EPS Growth 22681% 115% (15%) 213%
FD Normalised P/E (x) NA NA NA NA 76.26
DPS (A$) - - - - -
Dividend Yield 0% 0% 0% 0% 0%
EV/EBITDA (x) NA NA NA NA 53.44
P/FCFE (x) NA NA NA NA 44,514
Net Gearing (18.0%) (87.4%) (88.8%) (78.0%) (48.9%)
P/BV (x) 43.52 9.68 12.26 45.59 28.53
ROE (46%) (32%) (21%) (115%) 46%
% Change In Normalised EPS Estimates
Normalised EPS/consensus EPS (x) 1.85 1.78 -0.38
70
158
245
333
420
0.70
1.70
2.70
3.70
4.70
Price Close Relative to S&P/ASX 200 (RHS)
Source: Bloomberg
1
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Insurance - General│Australia│Equity research│February 17, 2020
IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP
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QBE Insurance Group
Turn around continues
QBE’s FY19 result had been heavily pre-released. Its FY19 reported NPAT (US$550m) was largely in-line with consensus.
Overall, we think the positive underlying trends in this result, like attritional claims ratio improvement and rate increases, well outweighed the negatives.
We lift our QBE FY20F/FY21F cash NPAT by ~1%-8%. Our PT rises to A$16.23.
After the share price appreciation into year end, we took QBE off an ADD recommendation. However, we believe the positive trendline in this result, particularly rate rises, points to an upgrade cycle likely having further to run. On that basis, we switch back to an ADD recommendation.
What happened QBE’s FY19 result had been heavily pre-released, and the reported NPAT (US$550m) was largely in-line with consensus. The 2H19 dividend (A27cps) was 8% above consensus (A25cps). Arguably, the FY19 group combined operating ratio (COR - 97.5%) was a bit worse than December commentary (“slightly above” the 94.5%-96.5% target range) due to Australian bushfire claims running into year end. FY20 guidance is unchanged on the December update, e.g. a combined operating ratio of 93.5%-95.5% and a net investment return of 2.5%-3%.
The good 1) FY19 Group underlying GWP growth was solid (4% on pcp, ex divestments and FX), with all divisions seeing underlying GWP growth in the 3%-5% range; 2) Average group rate increases were 8.3% in 2H19 (4Q19 9.2%), comfortably above claims inflation (4%-5%). Management are optimistic FY20 top-line growth will more track these rate increases; 3) The FY19 attritional claims ratio (ACR 47.5%) fell ~2.5% on pcp, with improvements across all divisions; 4) The group expense ratio (14.6%) fell 0.6% on FY18 (15.2%), with a positive delta 2H19 on 1H19 (14.3% vs 14.8%); 5) Management are confident of a stronger North America result in FY20 on rate increases and expense/claims improvement; and 5) the balance sheet is solid, e.g. PCA capital ratio of ~1.7x (mid-point of the target range).
The not so good 1) QBE saw FY19 claims reserve strengthening (US$22m or 0.2% of group NEP) driven particularly by provision increases in North America ‘casualty’ classes; 2) the group ACR improvement was more mild 2H19 vs 1H19 (<0.5% on our estimate), with flatter 2H19 ACR outcomes in North America and International; 3) the ‘Lenders mortgage insurance’ (LMI) COR deteriorated further (58% vs 54% on pcp) due to further premium contraction in this business; and 4) Significant claims events in Australia in January/February means QBE has already exhausted its 1Q20 catastrophe budget for its Asia Pacific business.
Changes to forecasts and investment view We lift our QBE FY20F/FY21F cash NPAT by ~1%-8% on improved GWP and margin forecasts. Our PT rises to A$16.23 on our earnings changes and a valuation roll-forward. After the share price appreciation into year end, we took QBE off an ADD recommendation. However, we believe the positive trendline in this result, particularly rate increases, points to an upgrade cycle having further to run. On that basis, we switch back to ADD recommendation.
SOURCE: MORGANS, COMPANY REPORTS
▎Australia
ADD (previously HOLD) Current price: A$14.76
Target price: A$16.23
Previous target: A$13.02
Up/downside: 9.9%
Reuters: QBE.AX
Bloomberg: QBE AU
Market cap: US$12,938m
A$19,268m
Average daily turnover: US$34.39m
A$51.74m
Current shares o/s 1,363m
Free float: 100.0%
Price performance 1M 3M 12M
Absolute (%) 6.2 16.4 31.3
Relative (%) 5.3 11.5 13.8
Richard COLES
T (61) 2 9043 7911
Steven SASSINE, CFA
T (61) 2 9043 7905
Analyst(s) own shares in the following stock(s) mentioned in this report:
– N/A
Financial Summary FY18A FY19A FY20F FY21F FY22F
Gross Written Premium (US$m) 13,657 13,442 14,233 14,804 15,292
Net Premium (US$m) 11,640 11,609 12,278 12,768 13,190
Net Profit (US$m) 715.0 637.0 816.5 975.6 1151.3
Normalised EPS (US$) 52.6 48.0 62.1 74.2 87.6
Normalised EPS Growth -379.8% -8.6% 29.3% 19.5% 18.0%
FD Normalised P/E (x) 19.1 20.9 16.2 13.5 11.5
DPS (Acps) 50.0 52.0 51.7 62.1 73.6
Dividend Yield 3.4% 3.5% 3.5% 4.2% 5.0%
P/BV (x) 2.3 2.4 2.3 2.2 2.1
ROE (%) 8.3% 7.7% 9.8% 11.3% 12.7%
90.0
95.0
100.0
105.0
110.0
115.0
10.00
11.00
12.00
13.00
14.00
15.00
Price Close Relative to S&P/ASX 200 (RHS)
Source: Bloomberg
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10
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Company Note Insurance - Life │ Hong Kong │ February 17, 2020
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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HIGH
CONVICTION
Insert Insert
AIA Group Life insurance turning more desirable?
■ HK industry agent numbers rose 3.9% mom and an estimated 20% yoy in Dec 2019 despite the challenges posed by HK protests.
■ This is the third-highest mom growth rate over the past sixteen years.
■ We think this could be due to strong sales of tax-deferred insurance products as well as possibly employment pressures in other industries.
■ We reiterate our Add rating with an unchanged TP of HK$96. AIA Group remains our top pick among our coverage universe.
HK’s insurance agent numbers have been very resilient We had previously flagged in Fading HK protest-related uncertainty published on 21 Jan
2020 that, contrary to our initial expectations, there were no signs of agent numbers
falling, with agents up 1.3% mom in Nov 2019. This was despite both the economic
uncertainty following Hong Kong (HK) protests and weakness in insurance demand from
the mainland Chinese visitor (MCV) segment. Growth was even more impressive in Dec
2019 at 3.9% mom. This is positive for AIA Group as HK is its largest market, with the
agency channel comprising 72% of its 1H19 value of new business (VONB).
Third-highest mom growth rate since Apr 2003 Dec 2019’s growth is the third-highest mom growth rate since at least Apr 2003 (which is
when data became available). With the Insurance Authority disclosing HK agent numbers
after 23 Sep 2019 (it was previously disclosed by the Hong Kong Federation of Insurers),
we estimate agent growth was 20% yoy in HK in Dec 2019.
Tax deferred products are helping agents’ income We had previously pointed out that our channel checks indicated that the rollout of tax-
deferred annuity and health insurance products in Apr 2019 had helped insulate agents’
income from weakness in sales to MCV, both directly and indirectly. Agents benefit via
direct commission from selling tax-deferred insurance products as well as indirectly as
these products give them a reason to initiate conversations with past clients or are
conversation-starters for new clients; this also helps them sell other higher-margin
insurance products (thus providing an additional boost to agent commission income).
Agent numbers no sign of slowdown in China, Singapore, HK, TH While another possible reason for the pick-up in agent growth is that it is easier to recruit
new agents now as unemployment in other industries rises, we do not think this is the
case. We analyse agent growth trends in 2003 and early-2009 for mainland China, HK
and Singapore and see no strong direct correlation between virus outbreaks or economic
slowdowns and agent growth. It is possible a time lag (1-3 quarters) does exist, although
such a relationship will likely only be temporary and not significant.
Add rating reiterated, TP unchanged at HK$96 We value AIA Group using P/EV GGM. Potential re-rating catalysts are future China
expansion and an end to Covid-2019. Risks: currency volatility and adverse regulations.
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Hong Kong
ADD (no change)
Consensus ratings*: Buy 19 Hold 4 Sell 1
Current price: HK$80.65
Target price: HK$96.00
Previous target: HK$96.00
Up/downside: 19.0%
CGS-CIMB / Consensus: 4.2%
Reuters: 1299.HK
Bloomberg: 1299 HK
Market cap: US$125,522m
HK$974,969m
Average daily turnover: US$213.0m
HK$1,659m
Current shares o/s: 12,077m
Free float: 100.0% *Source: Bloomberg
Key changes in this note
No changes.
Source: Bloomberg
Price performance 1M 3M 12M Absolute (%) -7.6 5.6 7.8
Relative (%) -3.9 -0.1 10
Major shareholders % held Citigroup 9.0
Insert
Analyst(s)
Michael CHANG, CFA
T (852) 2539 1323 E [email protected]
Jasmine CHIN T (852) 2539 1127 E [email protected]
Financial Summary Nov-17A Dec-18A Dec-19F Dec-20F Dec-21F
Gross Premium (US$m) 30,650 38,455 36,668 39,084 42,735
Investment And Other Income (US$m)
Net Premium (US$m) 25,708 32,222 30,625 32,644 35,693
Net Profit (US$m) 6,120 3,163 6,360 5,593 7,336
Normalised EPS (US$) 0.51 0.26 0.53 0.46 0.61
Normalised EPS Growth 47% (48%) 101% (12%) 31%
FD Normalised P/E (x) 20.47 39.64 19.72 22.43 17.10
P/NB (x) 21.42 17.43 14.83 12.54 8.67
DPS (US$) 0.13 0.16 0.17 0.21 0.25
Dividend Yield 1.23% 1.52% 1.64% 1.98% 2.45%
P/EV (x) 2.50 2.30 2.00 1.83 1.63
P/BV (x) 2.99 3.21 2.88 2.67 2.43
ROE 15.9% 7.8% 15.4% 12.4% 14.9%
Normalised EPS/consensus EPS (x) 0.99 0.79 0.93
98.0
104.3
110.5
116.8
123.0
70.0
75.0
80.0
85.0
90.0
Price Close Relative to HSI (RHS)
20
40
60
80
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Sector Note Property │ China │ February 17, 2020
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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Property Management Strong EPS growth to drive share prices
■ Local governments have granted subsidies to PM companies, which helps to offset their higher expenses during the coronavirus outbreak.
■ The outbreak has presented an opportunity for them to build their reputation and community engagement, which benefits their long-term growth.
■ We estimate the sector to deliver strong EPS growth of 30-40% p.a. in FY19-21 on organic growth and M&A growth.
■ Profit alerts and inclusion into Stock Connect are near-term catalysts for the sector. Top picks: A-Living, Ever Sunshine, Aoyuan and Languang.
Shenzhen and Hangzhou announced subsidies for PM companies In response to the coronavirus outbreak, Shenzhen and Hangzhou governments have
granted subsidies to property management (PM) companies. In Shenzhen, property
management companies receive a subsidy of Rmb0.5/sqm for two months. In Hangzhou,
government will subsidise as much as 90% of the extra cost incurred. We believe other
local governments are likely to follow suit. This will help offset the higher expense
(sanitising, overtime pay etc.) incurred by the companies during the outbreak, in our view.
Coronavirus could drive the sector’s long-term growth Despite mild near-term operational impact, the coronavirus brings long-term opportunities
for property management companies. We observe that companies we cover have been
proactive in safeguarding the cleanliness of their managed communities, which may
enable them to strengthen their reputation. Higher community engagement during this
period (e.g. fresh food delivery, centralised mask and disinfectant purchases) may also
lead to a higher cash collection rate and support future value-added services (VAS)
growth. We estimate the sector to deliver strong EPS growth of 30-40% p.a. in FY19-21F
on organic and M&A growth. Please refer to our in-depth sector report for more details (A
secular high-growth and low-risk sector, 27 Nov 2019).
Profit alerts, inclusion into Stock Connect are imminent catalysts A-Living, Country Garden Services and S-Enjoy (1755 HK, Not Rated) have already
announced positive profit alert for strong FY19 results (FY19 net profit estimated to
increase by >45%, >50% and >80% respectively). We expect more to come (e.g. Ever
Sunshine and Aoyuan Healthy Life), which will support near-term share price
performance. For A-Living, the potential inclusion into Stock Connect in Feb is also a
near-term catalyst, given mainland investors’ strong interest in the sector.
Reiterate sector Overweight We stay sector Overweight. Top picks: A-Living (re-rating on enlarged scale and lower
cyclical contribution); Ever Sunshine (support from CIFI, seasoned management and
strong incentive schemes), Aoyuan Healthy Life (strong support from parent) and
Languang Justbon (valuation call; disappointing M&A progress largely factored in).
Downside risk: slower-than-expected market consolidation
Figure 1: Sector deserves higher valuations given high earnings growth and low risk
SOURCES: CGS-CIMB RESEARCH, COMPANY
China
Overweight (no change)
Highlighted Companies
A-Living Services ADD, TP HK$38.50, HK$35.85 close
Primarily supported by recent large M&As, we expect A-Living’s GFA under management to jump to 480m sq m in 2021F from 138m sq m in 2018 and forecast an EPS CAGR of 36% in 2018-21F.
Ever Sunshine ADD, TP HK$7.40, HK$7.79 close
We expect Ever Sunshine to be a key industry consolidator given its strong parent support, third-party expansion capability and successful VAS penetration. We estimate GFA under management CAGR and EPS CAGR of 43% and 52%, respectively, in FY18-21F
Languang Justbon ADD, TP HK$76.80, HK$53.15 close
Ranked 11th among the top 100 property management companies in China, we think the company’s share price is too cheap to ignore. It trades at an attractive valuation of 14x FY20F P/E.
Summary Valuation Metrics
Insert
Analyst(s)
Raymond CHENG, CFA
T (852) 2539 1324 E [email protected]
Jeffrey MAK T (852) 2539 1328 E [email protected]
Will CHU T (852) 2539 1327 E [email protected]
P/E (x) Dec-19F Dec-20F Dec-21F
A-Living Services 38.49 26.09 20.96
Ever Sunshine 54.43 35.39 24.22
Languang Justbon 21.31 15.59 11.89
P/BV (x) Dec-19F Dec-20F Dec-21F
A-Living Services 7.00 5.85 4.92
Ever Sunshine 9.82 8.03 6.35
Languang Justbon 3.58 3.02 2.50
Dividend Yield Dec-19F Dec-20F Dec-21F
A-Living Services 1.04% 1.53% 1.91%
Ever Sunshine 0.55% 0.85% 1.24%
Languang Justbon 1.17% 1.60% 2.10%
A-Living
Aoyuan Healthy Life
Colour Life
COPL
CGS Ever Sunshine
Greentown Services
Languang
0
5
10
15
20
25
30
35
40
45
0 5 10 15 20 25 30 35 40 45
FY18-23F EPS CAGR (%)
Ex-
cash
FY
21 P
/E
14
Company Note Autos │ India │ February 17, 2020
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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Insert Insert
Ashok Leyland 3QFY20: nearly in red
■ Ashok reported 3QFY3/20 EPS of Rs0.1 which was 73% below our estimate. Adjusted for employee bonus reversal, it reported a net loss for 3QFY20.
■ Cash flow and net debt improved due to inventory reduction. However, we lower our FY20F EPS by 34% and FY21-22F EPS by 5-9%.
■ We believe the valuation is no longer attractive after the recent share price increase. Reiterate Hold as product and market share risks remain high.
3QFY20 adjusted EBITDA at breakeven levels For 3QFY20, Ashok’s EBIDTA fell 2% qoq to Rs2.25bn with an 8% qoq increase in sales
volume; EBITDA missed our estimate by 28%. However, considering the one-off reversal
of employee bonus provision worth Rs1.5bn in 3QFY20, normalised EBITDA margin of
1.9% was much lower than expected. Management said a poor product mix and high
ASP discounts to halve dealer inventory led to the poor performance in 3QFY20. With a
qoq increase in interest cost (12%) and lower other income, 3QFY20 PAT fell 71% qoq to
Rs299m which was 73% below our estimate.
Weak volume recovery guidance but strong cost reduction plans Management feels that volume will be further suppressed till the June quarter due to the
emission upgrade in Apr 2020. It expects volumes to return to last year’s levels by the
Sep 2020 quarter at the earliest. Given the poor demand sentiment, it is aggressively
cutting costs (Rs5bn target for FY20F) and capex (28% reduction from plan) to Rs13bn
for FY20F. We are positive on the decrease in net debt (-31% qoq) from Sep 19’s peak
with the help of cash flow improvement.
Lower FY20-22F EPS forecasts Given the worse-than-expected truck demand slowdown on the back of poor Index of
Industrial Production (IIP) growth and slower-than-expected pre-buying of trucks (ahead
of emission cost increase), we lower our FY20F sales volume and EPS (by 34%)
forecasts. However, given its plan to introduce small trucks and cost reduction benefits
from products based on modular platform architecture, we lower our FY21F EPS by only
9% and FY22F EPS by only 5%.
Reiterate Hold The stock price increase since Sep 2019’s lows has raised the valuation to near mean 1-
year forward P/BV (Fig 7), while demand and profitability are likely to remain subdued in
the near term. We expect a recovery in truck demand only after July 2020, and see risks
from upgrade to new emission technology and market share loss for Ashok. Hence, we
reiterate our Hold rating awaiting customer response to its new products. Our DCF-based
TP falls marginally to Rs82.8.
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
India
HOLD (no change)
Consensus ratings*: Buy 22 Hold 18 Sell 9
Current price: Rs80.25
Target price: Rs82.80
Previous target: Rs83.00
Up/downside: 3.2%
CGS-CIMB / Consensus: -0.8%
Reuters: ASOK.BO
Bloomberg: AL IN
Market cap: US$3,301m
Rs235,576m
Average daily turnover: US$20.44m
Rs1,459m
Current shares o/s: 2,936m
Free float: 48.9% *Source: Bloomberg
Key changes in this note
Net sales cut by 8-11% for FY20-22F.
EBIDTA cut by 5-22% for FY20-22F.
PAT cut by 5-24% for FY20-22F.
Source: Bloomberg
Price performance 1M 3M 12M Absolute (%) -1.4 1.6 -5
Relative (%) 0.3 -0.8 -20
Major shareholders % held Hinduja Family 51.1
J P Morgan Fund 4.3
Reliance MF 4.1
Insert
Analyst(s)
Pramod AMTHE
T (91) 22 4880 5167 E [email protected]
Pravin YEOLEKAR T (91) 22 4880 5152 E [email protected]
Financial Summary Mar-18A Mar-19A Mar-20F Mar-21F Mar-22F
Revenue (Rsm) 263,564 290,550 194,495 229,834 265,832
Operating EBITDA (Rsm) 29,635 31,358 14,451 19,487 25,178
Net Profit (Rsm) 17,528 20,599 5,387 8,793 12,381
Core EPS (Rs) 6.14 7.28 2.19 3.09 4.35
Core EPS Growth 12.0% 18.6% (69.9%) 40.9% 40.8%
FD Core P/E (x) 13.08 11.03 36.60 25.97 18.45
DPS (Rs) 2.43 3.10 0.80 1.50 2.10
Dividend Yield 3.03% 3.86% 1.00% 1.87% 2.62%
EV/EBITDA (x) 5.75 6.21 14.13 10.11 7.62
P/FCFE (x) 24.3 15.6 NA 27.1 166.1
Net Gearing (0.0%) (8.9%) 10.6% 9.0% 11.3%
P/BV (x) 3.19 2.74 2.66 2.53 2.37
ROE 26.3% 26.7% 7.4% 10.0% 13.3%
% Change In Core EPS Estimates (34.0%) (9.0%) (5.4%)
CGS-CIMB/Consensus EPS (x) 0.61 0.83 0.83
66.0
77.1
88.2
99.3
110.4
54.0
64.0
74.0
84.0
94.0
Price Close Relative to SENSEX (RHS)
50
100
150
200
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Company Note Banks │ Indonesia │ February 17, 2020
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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Insert Insert
Bank Tabungan Negara Risk-reward looks attractive now ■ BTN's new CEO declared higher NPLs, increased in credit costs, and a loss
of Rp592bn for 4Q19. FY19 net profit was Rp209bn. ■ With new initiatives aimed at improving CoF, asset quality and transactional
fees, the bank targets Rp2.5tr net profit for 2020, reasonable in our view. ■ At current valuation multiples, we think most of the negatives are priced in
and BTN looks cheap, considering its improving earnings outlook.
4Q19: Overall weak—another loss-making quarter Following a Rp505bn loss in 3Q19, BTN saw another Rp592bn loss in 4Q19; these
dragged down FY19 total net profit to just Rp209bn, significantly lower than the Rp2.8tr in
FY18. 4Q19 interest income growth was weak, impacted by Rp500bn in income reversal
(due to loan quality downgrades), leading to declines in yield (-39bp qoq) and NIM (-15bp
qoq). As a result, pre-provision operating profit (PPOP) declined 39% qoq and 59% yoy
to Rp652bn; FY19 PPOP was Rp3.9tr, 25% lower yoy. 4Q19 credit cost of 181bp was a
further drag on profits. FY19 core net profit was below expectation at 19% of our forecast.
We raise FY20-21F EPS by 12-17% as we lower our cost of funds & credit cost outlook.
New CEO declared more problem loans in 4Q19… BTN's new CEO Pahala Mansury (who took over in Nov 2019), shared that new NPL
formation in 4Q19 alone totalled Rp4tr (1.6% of loans). Most of that came from the high-
rise building construction segment. Non-performing loan ratio in that segment jumped to
19% as a result, from 9% in 3Q19. Additionally, commercial NPL increased to 8.9% in
4Q19 from 7.2% in 3Q19. This led to an increase in overall NPL ratio to 4.8% and loans
at risk ratio to 15%.
…and a jacked up loan loss coverage Given the higher NPLs, BTN increased its loan loss provisions (LLP) to Rp6.1tr
(cumulated) in FY19, up 27% qoq and almost double yoy. On top of that, management
indicated that another Rp7.8tr worth of additional provisions had been booked in Jan due
to the adoption of IFRS 9 (at the expense of equity). With a total LLP of Rp14tr (Rp6.1tr +
Rp7.8tr), BTN's NPL coverage exceeds 100%; this should put the bank on a better
coverage positioning. Note that to compensate for the equity haircut, BTN had issue
Rp7.3tr worth of tier-2 capital in Dec 19/Jan 20. For 2020F, we forecast credit cost of
1.1% (FY19: 1.4%), in line with management's 1-1.2% guidance.
Attractive risk-reward profile; upgrade to Add Following a very weak FY19, management is guiding for FY20 net profit to improve to
Rp2.5tr. We view the guidance as reasonable, with key drivers being a lower cost of
funds, improving credit costs, and a modest improvement in fee income. BTN’s share
price had underperformed the market by 9% YTD, after underperforming by 20% last
year. We believe the current valuations of 6.8x P/E and 0.8x P/BV have priced in the
negatives, and that the stock is worth a re-visit. We upgrade BTN to Add with a higher
GGM-based TP of Rp2,300, as we project higher ROA for 2020-22F. Improved earnings
could catalyse the stock. Wider-than-expected NPL is a downside risk to our call.
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Indonesia
ADD (previously HOLD)
Consensus ratings*: Buy 11 Hold 9 Sell 2
Current price: Rp1,795
Target price: Rp2,300
Previous target: Rp2,100
Up/downside: 28.1%
CGS-CIMB / Consensus: 2.9%
Reuters: BBTN.JK
Bloomberg: BBTN IJ
Market cap: US$1,392m
Rp19,009,050m
Average daily turnover: US$2.51m
Rp34,969m
Current shares o/s: 10,582m
Free float: 40.0% *Source: Bloomberg
Key changes in this note
Revise EPS by 12.3% for 2020F and 17.3% for 2021F
Introduce our 2022F forecast
Source: Bloomberg
Price performance 1M 3M 12M Absolute (%) -16.5 -6.5 -27.6
Relative (%) -9.7 -2.2 -19.4
Major shareholders % held Government of Indonesia 60.0
Insert
Analyst(s)
Laurensius TEISERAN
T (62) 21 3006 1738 E [email protected]
Leonardo TUKIMAN T (62) 21 3006 1725 E [email protected]
Financial Summary Dec-18A Dec-19A Dec-20F Dec-21F Dec-22F
Net Interest Income (Rpb) 10,205 9,078 11,321 12,892 14,685
Total Non-Interest Income (Rpb) 1,934 1,960 2,114 2,308 2,527
Operating Revenue (Rpb) 12,140 11,038 13,434 15,200 17,212
Total Provision Charges (Rpb) (1,574) (3,339) (2,766) (2,613) (2,570)
Net Profit (Rpb) 2,808 209 2,299 3,375 4,476
Core EPS (Rp) 265.3 19.8 217.3 318.9 423.0
Core EPS Growth (7%) (93%) 999% 47% 33%
FD Core P/E (x) 6.76 90.77 8.26 5.63 4.24
DPS (Rp) 53.07 3.95 43.45 63.78 84.59
Dividend Yield 2.96% 0.22% 2.42% 3.55% 4.71%
BVPS (Rp) 2,253 2,252 1,676 1,951 2,310
P/BV (x) 0.80 0.80 1.07 0.92 0.78
ROE 12.3% 0.9% 11.1% 17.6% 19.9%
% Change In Core EPS Estimates 12.3% 17.3%
CGS-CIMB/Consensus EPS (x) 0.84 1.04
72.0
88.7
105.3
1,600
2,100
2,600
Price Close Relative to JCI (RHS)
50
100
150
Feb-19 May-19 Aug-19 Nov-19
Vo
l m
16
Sector Note Construction and Materials │ Indonesia │ February 17, 2020
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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HIGH
CONVICTION
Cement What does full Jan 20 cement data infer?
■ We believe a logistics breakdown, not a collapse in demand, led to the weak headline Jan 20 cement sales volume.
■ If there was inventory overstocking in 4Q19 or the demand collapsed in Jan, we believe there should have been a knee-jerk ASP reaction from players.
■ We reiterate our high-conviction Overweight call on Indonesia cement sector with SMGR as our top pick.
Logistics breakdown hurt Jan 20 sales volume Following our previous note (“Digesting ‘weak’ Jan 20 cement vol growth”), we present
evidence that a logistics breakdown, triggered by the worst torrential rain and flooding in
more than a decade, and not a collapse in demand, led to the weak headline Jan 20
domestic cement sales data. Our key observations are as follows:
● Conch’s minimal shipments to Java (-82% yoy) and Sumatra (-98% yoy). On the
back of this, Conch saw 7% lower yoy domestic cement sales (Figure 11) – the first decline since it started operation in Indonesia. Sumatra and Java accounted for only 3% of Conch’s domestic sales in 1M20 (vs. 21% in 2019). Consequently, unable to produce cement in Java, Conch could not ship cement to its Sumatra customers. Note that Conch only has a grinding plant in Java; thus, the company has to either ship clinker from its Kalimantan plant or buy from Java players. This also implies that Conch’s Java grinding plant has a very low utilisation rate and operates at a very high fixed cost per tonne – which we believe hurt overall profitability during the month.
● Bosowa recorded no Sumatra cement sales in Jan 20. This was primarily because
its Sumatra plant is just a grinding facility and due to the fact that the company was not able to source clinker from Western Java players during the month. Sumatra accounted for c.10% of Bosowa’s domestic cement sales in 2019.
● Sulawesi Island was relatively insulated from the logistics breakdown. Unlike
Sumatra, Sulawesi demand is served independently from the plants located on the island. This is reflected in Conch and Semen Tonasa’s (subsidiary of SMGR) strong Sulawesi yoy volume growth in Jan 20 (+49%/+5% yoy), as shown in Figure 11 and Figure 9 respectively. There was a 33% yoy decline in INTP’s Sulawesi cement sales due to the logistics breakdown in Western Java.
Reiterate high-conviction Overweight call, SMGR as top pick Furthermore, if there was inventory overstocking in 4Q19 (Figure 3) or a collapse in
demand in Jan, we believe there should have been a knee-jerk ASP reaction from
players across the board. On the contrary, SMGR raised its ASP by 1% mom in the
strong clusters. We reiterate Overweight on the sector and Add calls for SMGR and
INTP, with TPs of Rp18,500 and Rp24,200 respectively, based on their historical EV/t vs.
EBITDA margins. Key sector downside risks are an economic downturn and government
intervention.
Figure 1: ASP trend should provide comfort that earnings will remain resilient despite
Jan’s volume slowdown
SOURCES: COMPANY DATA, CGS-CIMB RESEARCH ESTIMATES
Indonesia
Overweight (no change)
Highlighted Companies
Indocement ADD, TP Rp24,200, Rp16,400 close
Indocement is the second-largest cement company in Indonesia, with 25mt production capacity. Its production plants are mostly located in Western Java.
Semen Indonesia ADD, TP Rp18,500, Rp11,375 close
Semen Indonesia is the largest cement player in the country, with 50mt capacity and more than 50% sales volume market share nationwide after its acquisition of Holcim in Feb 19. Its production plants are diversely located in various regions around the country.
Summary Valuation Metrics
Insert
Analyst(s)
Ricky HO
T (62) 21 3006 1727 E [email protected]
Bryan BUDIMAN T (62) 21 3006 1724 E [email protected]
P/E (x) Dec-19F Dec-20F Dec-21F
Indocement 32.14 25.63 21.19
Semen Indonesia 29.49 16.27 12.32
P/BV (x) Dec-19F Dec-20F Dec-21F
Indocement 2.52 2.47 2.42
Semen Indonesia 2.09 1.90 1.72
Dividend Yield Dec-19F Dec-20F Dec-21F
Indocement 1.90% 3.11% 3.90%
Semen Indonesia 1.83% 1.36% 2.46%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
720
730
740
750
760
770
780
790
800
810
820
Jan-
19
Feb
-19
Mar
-19
Apr
-19
May
-19
Jun-
19
Jul-
19
Aug
-19
Sep
-19
Oct
-19
Nov
-19
Dec
-19
Jan-
20
Rp
k/t
SBI-only (Holcim previously) SMGR-only Consolidated
% mom consolidated (RHS) % yoy SMGR (RHS)
Pricing harmonization period
Jan-20 ASP:SMGR: 4.7% y oy
SBI: 7.7% y oy
Blended: 5.5% y oy
17
Company Note Airlines │ Malaysia │ February 17, 2020 Shariah Compliant
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
Powered by the EFA Platform
Insert Insert
AirAsia Group Berhad Heading for record FY20F losses on Covid-19
■ Reiterate our Reduce call with a lower target price of RM1.03, as we expect the Covid-19 outbreak to cause AAGB to report heavy losses in FY20F.
■ Our target price is now based on a lower CY20F P/BV multiple of 0.73x, 2 standard deviations below the mean since 2013 (previously P/BV of 1x).
■ In the past year, AAGB had already suffered from losses arising from its aircraft sale and leasebacks; Covid-19 makes the medicine more bitter.
Significant earnings impact from Wuhan coronavirus (Covid-19) We have slashed our previous FY20F core net profit estimate of RM147m to a core net
loss of RM1.1bn on the back of the powerful negative shock of Covid-19 on demand and
yields for Malaysia AirAsia (MAA), Thai AirAsia (TAA) and Philippines AirAsia (PAA). All
three airlines in the AAGB group have significant exposure to flights to China, Hong Kong
and Macau, the epicentre of the virus outbreak. Each of the three countries also has a
much greater proportion of tourists that originate from the Greater China region than
during the 2003 SARS epidemic. As such, the partial/full travel bans to/from China
imposed by various countries will have a huge impact on travel demand. While the
airlines have reduced their capacity deployments to the Greater China region, we think
that the capacity adjustments are as yet insufficient in quantity and duration; more action
is needed to mitigate the downward spiral in earnings. Also, airlines have barely touched
capacity to other regions, e.g. on routes within ASEAN, although anecdotally, we believe
that travellers’ fears for their health are dissuading many from travelling at all. We expect
the topline impact to more than offset lower spot jet fuel prices, which have declined
considerably on the back of demand destruction caused by the Chinese lockdown and by
material global oversupply of crude oil production.
Our demand and yield assumptions for MAA, TAA and PAA slashed For MAA, our FY20F forecasts now pencil in a 9.5% yoy decline RPK demand, a 9% pts
drop in PLF to 76%, and a 3.8% drop in yields. For TAA, we have factored in a 10.5% fall
in RPK, a 6% pts fall in PLF to 78%, and a 2% decline in yields. In the case of both MAA
and TAA, we expect their North Asia RPK demand to fall 23-31% yoy, with domestic and
ASEAN travel suffering less. For PAA, we continue to expect its RPK to rise 1.1% yoy in
FY20F due to continued growth in domestic travel, although international travel demand
is expected to fall 21%. We forecast PAA’s PLF to fall 4.4% pts to a still-healthy 82% in
FY20F, although we think yields could soften 1% yoy. The negative impact of Covid-19
may be of less significance to Indonesia AirAsia (IAA) and AirAsia India (AAI) due to their
lack of exposure to North Asian flights, with AAI purely domestic for now.
With profitability already weak, Covid-19 will wreak havoc AAGB is less able to tolerate unexpected changes to demand and yields given that its
profitability has already been ravaged by the higher cost of leasing planes, with virtually
all of its planes having been sold and leased back in the past two years. AAGB has
already lost its lustre among investors, and Covid-19 will turn conditions far more hostile.
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Malaysia
REDUCE (no change)
Consensus ratings*: Buy 2 Hold 10 Sell 10
Current price: RM1.20
Target price: RM1.03
Previous target: RM1.58
Up/downside: -14.2%
CGS-CIMB / Consensus: -29.6%
Reuters: AIRA.KL
Bloomberg: AAGB MK
Market cap: US$969.2m
RM4,010m
Average daily turnover: US$6.15m
RM25.38m
Current shares o/s: 3,342m
Free float: 61.3% *Source: Bloomberg
Key changes in this note
FY19F core loss per share forecast raised
five-fold as we most likely underestimated losses for AirAsia Japan and AirAsia India.
FY20F core EPS forecast slashed to a core
loss per share on account of the Wuhan coronavirus, which primarily impacts demand and yields for Malaysia AirAsia,
Thai AirAsia and Philippines AirAsia.
FY21F core EPS forecast reduced by 24%
as we think that demand weakness in FY20F may spill over into FY21F in terms of lower yields as a result of forward bookings.
Source: Bloomberg
Price performance 1M 3M 12M
Absolute (%) -28.6 -34.8 -61.2
Relative (%) -26.3 -31.7 -52.6
Major shareholders % held
Tune Air & Tune Live 32.2
EPF 6.5
Insert
Analyst(s)
Raymond YAP, CFA
T (60) 3 2261 9072 E [email protected]
Financial Summary Dec-17A Dec-18A Dec-19F Dec-20F Dec-21F
Revenue (RMm) 9,710 10,611 12,030 11,379 12,410
Operating EBITDA (RMm) 2,077 899 2,056 1,713 2,570
Net Profit (RMm) 1,629 2,025 439 (559) 360
Core EPS (RM) 0.38 0.06 (0.06) (0.33) 0.09
Core EPS Growth (27%) (84%) (207%) 417%
FD Core P/E (x) 2.93 20.00 NA NA 13.62
DPS (RM) 0.12 0.64 0.90 0.00 0.02
Dividend Yield 10.0% 53.3% 75.0% 0.0% 1.7%
EV/EBITDA (x) 4.60 (0.07) 6.96 8.49 5.11
P/FCFE (x) 12.00 1.20 2.35 46.73 3.72
Net Gearing 111% (35%) 332% 405% 325%
P/BV (x) 0.50 0.51 0.76 0.85 0.80
ROE 17.1% 2.5% (3.3%) (22.2%) 6.1%
% Change In Core EPS Estimates (403%) (853%) (24%)
CGS-CIMB/Consensus EPS (x) 2.08 (1.14) 0.53
41
68
94
121
0.90
1.90
2.90
3.90
Price Close Relative to FBMKLCI (RHS)
100
200
300
Feb-19 May-19 Aug-19 Nov-19
Vol m
18
Company Note Airlines │ Malaysia │ February 17, 2020 Shariah Compliant
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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Insert Insert
AirAsia X Berhad Insolvency risks spike; equity issue needed
■ We reiterate our Reduce call with significantly widened core net loss forecasts on the back of the Covid-19 impact on MAAX.
■ We think that AAX will need to raise RM1bn in new equity capital this year, potentially quadrupling its share base, as the cash crunch becomes serious.
■ Target price remains 1.5 sen, still based on CY20F P/BV of 1x with the equity issue folded in; without the equity issue, AAX may be insolvent in FY20F.
Significant earnings impact from Wuhan coronavirus (Covid-19) We have almost tripled our FY20F core net loss estimate, as AAX is significantly exposed
to the epidemic, with 25% of its ASK capacity deployed to the China market, and another
36% deployed to North Asian markets of Taiwan, Japan and South Korea. North Asian
markets are close to the epicentre of the outbreak in China, and have seen travel
demand collapse during the 2003 SARS crisis. Furthermore, AAX has another 27% ASK
exposure to Australia, which is unlikely to take kindly to the health risks of travelling to
Asia at this time. Unlike its short-haul sister carrier AirAsia, AAX does not have any
exposure to the domestic market and immaterial exposure to ASEAN destinations which
are comparatively more defensive. While AAX reduced its capacity deployment to China
by 20% in Feb and plans to cut capacity to China by 70% in Mar, the capacity
adjustments are as yet insufficient in quantity and duration; more action is needed to
mitigate the downward spiral in earnings. Also, AAX has not touched capacity to other
countries, although, anecdotally, we believe that travellers’ fears for their health are
dissuading many from travelling at all. We expect the topline impact to more than offset
lower spot jet fuel prices, which have declined considerably on the back of demand
destruction caused by the Chinese lockdown and by material global oversupply.
Our demand and yield assumptions for AAX slashed For Malaysia AAX (MAAX), our FY20F forecasts now pencil in an 18.5% yoy decline RPK
demand, an 11%-pt drop in PLF to 70%, and a 3.9% drop in yields. Thai AAX is likely to
be affected as well; although only 5% of its seat capacity is deployed to China (7x weekly
to Shanghai and 4x weekly to Nanchang), 67% of its capacity flies to Japan and 25% to
South Korea, where outbound travel is likely to be hurt badly too. The Covid-19 outbreak
is the latest in a series of blows to the viability of MAAX, and absent a large equity
injection in FY20F, we think that AAX could be at risk of being insolvent by the end of this
year, with its liabilities exceeding its assets and leaving nothing to equity shareholders.
Financial SOS Our calculations suggest that AAX will need to raise RM1bn in new equity, possibly via
an issue of 12,500m new shares at 8 sen/share. This will expand the share base from the
current 4,148m to 16,648m, but keep AAX solvent with a book value of 1.5 sen/share.
AAX’s cash balances benefitted from RM909m in proceeds in sale and leasebacks of five
aircraft during 9M19, but without the benefit of this in FY20F, and on the back of
evaporating demand, AAX will need urgent financial rescue.
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Malaysia
REDUCE (no change)
Consensus ratings*: Buy 0 Hold 2 Sell 6
Current price: RM0.13
Target price: RM0.015
Previous target: RM0.015
Up/downside: -88.0%
CGS-CIMB / Consensus: -86.1%
Reuters: AAX.KL
Bloomberg: AAX MK
Market cap: US$125.3m
RM518.5m
Average daily turnover: US$0.25m
RM1.03m
Current shares o/s: 4,148m
Free float: 55.0% *Source: Bloomberg
Key changes in this note
FY19F core loss per share forecast has been widened 3% on housekeeping matters.
FY20F core net loss widened 277% on account of the coronavirus impact but core
loss per share deepened by only 180% as we have assumed that AAX will need a large dilutive equity issuance.
FY21F core loss per share forecast deepened 38% as we expect some of the yield pressures in FY20F to spill over into
FY21F on account of forward bookings.
Source: Bloomberg
Price performance 1M 3M 12M
Absolute (%) -19.4 -24.3 -56.2
Relative (%) -17.1 -21.2 -47.6
Major shareholders % held Tune Group Sdn Bhd 17.8
AirAsia Bhd 13.8
Kamarudin Meranun 8.9
Insert
Analyst(s)
Raymond YAP, CFA
T (60) 3 2261 9072 E [email protected]
Financial Summary Dec-17A Dec-18A Dec-19F Dec-20F Dec-21F
Revenue (RMm) 4,562 4,552 4,362 3,660 4,292
Operating EBITDA (RMm) 295 95 899 439 1,025
Net Profit (RMm) 98.9 (312.7) (439.7) (736.7) (123.2)
Core EPS (RM) 0.03 (0.03) (0.10) (0.11) (0.01)
Core EPS Growth (33%) (202%) 228% 7% (94%)
FD Core P/E (x) 4.09 NA NA NA NA
DPS (RM) - - - - -
Dividend Yield 0% 0% 0% 0% 0%
EV/EBITDA (x) 3.22 9.54 6.26 12.18 5.16
P/FCFE (x) 15.66 NA 0.87 NA 17.66
Net Gearing 43% 67% (18052%) 2019% 3718%
P/BV (x) 0.52 0.90 NA 5.91 21.49
ROE 12% (17%) (155%) (833%) (55%)
% Change In Core EPS Estimates (3%) (180%) (38%)
CGS-CIMB/Consensus EPS (x) 2.00 50.65 (0.91)
46.0
60.0
74.0
88.0
102.0
116.0
0.090
0.140
0.190
0.240
0.290
0.340
Price Close Relative to FBMKLCI (RHS)
20
40
60
Feb-19 May-19 Aug-19 Nov-19
Vo
l m
19
Company Note Agribusiness │ Malaysia │ February 17, 2020 Shariah Compliant
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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DOWNGRADE
Insert Insert
Kuala Lumpur Kepong Higher CPO price fails to lift 1QFY20 profit
■ KLK's 1QFY9/20 core net profit was below expectations as it accounted for only 17%/16% of our/consensus full-year forecasts.
■ The weaker results were due mainly to lower-than-expected contributions from the farming segment and associates.
■ We downgrade our rating to Hold, as we see limited upside potential at its current level and potential near-term overhang from DRP shares.
1QFY9/20 results below due to weaker oleo and faming incomes KL Kepong (KLK) posted a 34% yoy drop in its 1QFY20 core net profit (excluding
provision of inventories of RM2.6m and forex gain of RM27.7m), due mainly to weaker
oleochemical earnings, farming income and associates contribution. On a qoq basis,
1QFY20 core net profit declined by 6% as the better plantation earnings were not
sufficient to offset the weaker oleochemical and associates earnings. As expected, the
group did not declare any dividend in 1QFY20. Reported net profit fell 33% yoy due to
absence of land sale gain of RM22.5m in 1QFY19 and lower forex gain (1Q20: RM27.7m
vs. 1Q19: RM33.3m).
Key surprises from 1Q results FFB output fell by 12% yoy, which is below KLK's FY20 guidance of low single-digit
growth. As a result, we have cut our FY20F FFB output forecast to -2% yoy. The other
surprise in 1QFY20 was the sharp drop in farming income to RM8.1m (from RM56.5m in
1QFY19) as the dry season in Australia negatively impacted farm yields. Lastly, we were
caught by surprise by the sharp drop in associates/JV contributions (-86% yoy/-70% qoq
to RM1m. We understand this is because KLK did not consolidate the earnings of its 20%
stake in Synthomer (SYNT LN) in this quarter as its results are not yet publicly released.
Plantation earnings benefited from higher CPO price but … 1QFY20 plantation EBIT grew 31% yoy/27% qoq to RM160m, as higher ASPs for CPO
(+20% yoy/+15% qoq to RM2,207 per tonne) and PK (-9% yoy/+17% qoq) to RM1,247
per tonne) trumped lower FFB output (-12% yoy/-7% qoq). However, this was partially
offset by the drop in 1QFY20 manufacturing EBIT (-17% yoy/-14% qoq) to RM92m, due
to lower selling prices and unrealised fair value losses of RM4.4m from derivatives.
Downgrade to Hold due to limited upside at current level We are fine-tuning our EPS forecasts and SOP-based TP to reflect our lower FFB output
forecasts as well as for housekeeping purposes. The group’s oleo operations in China
(which made up approx. 5-6% of FY19 earnings) may see a slight negative earnings
impact from the extended closure due to lockdown measures following the current virus
outbreak. Also, there could be some short-term overhang as some investors could cash
in on the potential new shares issue (of up to 16.5m shares) at RM22.65/share under its
dividend reinvestment plan (DRP) — we gather that the take-up rate is quite strong. Key
upside/downside risks to our call are higher/lower CPO prices and FFB yields.
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Malaysia
HOLD (previously ADD)
Consensus ratings*: Buy 8 Hold 10 Sell 2
Current price: RM23.74
Target price: RM24.85
Previous target: RM24.94
Up/downside: 4.7%
CGS-CIMB / Consensus: -3.9%
Reuters: KLKK.KL
Bloomberg: KLK MK
Market cap: US$6,102m
RM25,282m
Average daily turnover: US$4.98m
RM20.57m
Current shares o/s: 1,068m
Free float: 36.6% *Source: Bloomberg
Key changes in this note
We fine-tune our FY21F/FY22F EPS by 1.6%/2.4% to reflect lower FFB output assumptions and for housekeeping purposes.
Source: Bloomberg
Price performance 1M 3M 12M Absolute (%) -2.7 6 -4.3
Relative (%) 1 9.6 4.7
Major shareholders % held Batu Kawan 47.0
Employees Provident Fund 11.9
Amanah Saham Bumiputera 4.5
Insert
Analyst(s)
Ivy NG Lee Fang, CFA
T (60) 3 2261 9073 E [email protected]
Financial Summary Sep-18A Sep-19A Sep-20F Sep-21F Sep-22F
Revenue (RMm) 18,401 15,559 16,466 17,124 17,819
Operating EBITDA (RMm) 2,132 1,474 1,731 1,796 1,851
Net Profit (RMm) 1,196 618 759 780 810
Core EPS (RM) 1.19 0.61 0.70 0.72 0.75
Core EPS Growth 17.1% (48.8%) 15.8% 2.8% 3.8%
FD Core P/E (x) 20.03 39.14 33.60 32.89 31.67
DPS (RM) 0.50 0.45 0.54 0.59 0.59
Dividend Yield 2.12% 1.89% 2.28% 2.49% 2.49%
EV/EBITDA (x) 13.48 18.62 15.94 15.48 15.05
P/FCFE (x) 56.37 9.22 35.88 96.90 52.92
Net Gearing 22.9% 25.0% 23.2% 25.1% 25.5%
P/BV (x) 2.22 2.45 2.41 2.37 2.33
ROE 11.0% 5.9% 7.2% 7.3% 7.4%
% Change In Core EPS Estimates (0.06%) 1.63% 2.37%
CGS-CIMB/Consensus EPS (x) 0.83 0.77 0.78
91.0
97.0
103.0
109.0
20.00
22.00
24.00
26.00
Price Close Relative to FBMKLCI (RHS)
2
4
6
Feb-19 May-19 Aug-19 Nov-19
Vo
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20
Company Note IPP │ Malaysia │ February 17, 2020 Shariah Compliant
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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Insert Insert
Malakoff Corporation Attractive dividend yield of 6-7% for FY19-21
■ We met Malakoff’s management recently and gathered that the group’s FY20-21F earnings profile could improve due to acquisition of Alam Flora.
■ Assuming 100% dividend payout, this translates into a decent dividend yield of c.6% for FY19-21F.
■ We upgrade Malakoff from Hold to Add with a revised SOP-based TP of RM0.96 given the better earnings outlook and attractive dividend yield.
Improving earnings outlook At a recent meeting with management, we gathered that Malakoff’s FY20-21F earnings
profile will likely improve given: (i) stable performances from Tanjung Bin Power Plant
(TBP) and Tanjung Bin Energy Power Plant (TBE) on expected lower unplanned
outages, (ii) higher associates earnings from Shuaibah due to recognition of additional
12% equity interest which will likely offset the loss of contribution from disposal of
Macarthur Wind Farm in FY19F, (iii) additional earnings contribution from the recently
acquired Alam Flora, and (iv) lower finance cost due to lower gearing level. We estimate
FY19F core net profit could be flattish vs. FY18 as Alam Flora’s contribution is expected
to be minimal given the deal was completed in Dec 2019.
Alam Flora and new business ventures to lift future earnings The power generation sector is becoming increasingly challenging especially with the
reform initiatives of Malaysia Electricity Supply Industry 2.0 (MESI 2.0) which include
moving from Power Purchase Agreement (PPA) regime to capacity and energy market.
We view the acquisition of Alam Flora positively given the additional earnings accretion
and synergistic opportunities to develop waste-to-energy (WTE) projects. Malakoff is also
exploring renewable energy (RE) project domestically, in line with the government’s aim
to increase the proportion of RE to 20% of Malaysia’s energy generation mix by 2025.
Dividend outlook Management guided that the group will likely maintain 100% dividend payout in the near
term until the DPS reaches an absolute amount of 7 sen. Assuming 100% dividend
payout, this translates into a decent dividend yield of c.6% for FY19-21F. We cut our
FY19-20F EPS forecasts by 7-10% to factor in the lower earnings from associates/joint
ventures due to widening losses at Kapar Energy Ventures.
Upgrade from Hold to Add We revise our SOP-based target price to RM0.96, as we: (i) update its cash and debt
amounts to end-2018, and (ii) adjust for Macarthur Wind Farm’s disposal and Alam
Flora’s acquisitions. We upgrade Malakoff to Add given: (i) improving earnings profile due
to additional profit contribution from Alam Flora, (ii) less-stretched balance sheet as net
gearing ratio may be reduced from 2x in FY18 to 1.7x in FY19, (iii) attractive dividend
yield of c.6% for FY19-21F, and (iv) potential one-off dividend payout of 2 sen/share from
gain on disposal of Macarthur Wind Farm (assume 20% payout of net gain).
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Malaysia
ADD (previously HOLD)
Consensus ratings*: Buy 8 Hold 3 Sell 0
Current price: RM0.86
Target price: RM0.96
Previous target: RM0.95
Up/downside: 12.2%
CGS-CIMB / Consensus: -2.7%
Reuters: MALA.KL
Bloomberg: MLK MK
Market cap: US$1,016m
RM4,203m
Average daily turnover: US$0.28m
RM1.15m
Current shares o/s: 5,000m
Free float: 39.1% *Source: Bloomberg
Key changes in this note
FY19-20F EPS cut by 7-10%.
Source: Bloomberg
Price performance 1M 3M 12M Absolute (%) 0 1.2 1.2
Relative (%) 2.3 4.3 9.8
Major shareholders % held MMC 36.5
EPF 14.3
LTH 10.1
Insert
Analyst(s)
NGO Siew Teng
T (60) 3 2261 9089 E [email protected]
Financial Summary Dec-17A Dec-18A Dec-19F Dec-20F Dec-21F
Revenue (RMm) 7,130 7,348 6,676 7,564 7,571
Operating EBITDA (RMm) 2,605 2,305 2,196 2,158 2,124
Net Profit (RMm) 295.9 274.4 241.5 284.1 306.5
Core EPS (RM) 0.047 0.048 0.048 0.057 0.061
Core EPS Growth (24.7%) 1.5% 0.4% 17.7% 7.9%
FD Core P/E (x) 18.15 17.88 17.81 15.13 14.03
DPS (RM) 0.062 0.056 0.049 0.058 0.063
Dividend Yield 7.21% 6.51% 5.75% 6.76% 7.29%
EV/EBITDA (x) 6.32 7.23 6.64 6.39 6.09
P/FCFE (x) NA NA 3.70 6.96 6.04
Net Gearing 196% 205% 174% 161% 148%
P/BV (x) 0.65 0.67 0.67 0.67 0.67
ROE 3.77% 3.67% 3.75% 4.41% 4.76%
% Change In Core EPS Estimates (9.87%) (6.98%)
CGS-CIMB/Consensus EPS (x) 0.97 1.05 1.04
96.0
102.0
108.0
114.0
0.700
0.800
0.900
1.000
Price Close Relative to FBMKLCI (RHS)
5
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Company Note Airports │ Malaysia │ February 17, 2020
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
Powered by the EFA Platform
Insert Insert
Malaysia Airports Holdings
Cutting earnings to reflect Covid-19 impact
■ Our Hold call on MAHB remains, but we cut FY20F core EPS by 27% as we expect passenger traffic to fall 9.5% yoy on the Wuhan coronavirus outbreak.
■ Any traffic rebound in 2021F is also expected to be weaker than in the post-SARS period, as the Malaysian aviation market is now oversupplied.
■ Our DCF-based target price is reduced to RM7.47.
Inbound tourist arrivals to fall 20% in 2020F due to Covid-19 During 2003, inbound tourists into Malaysia (ex-Singaporeans) fell 19% yoy due to the
SARS epidemic that began in 4Q02 and peaked in 2Q03. Tourists from North Asia
declined 37% yoy, European tourists fell 32%, tourists from Oceania fell 25%, from South
Asia down 19%, while ASEAN visitors (ex-Singapore) fell 9%. The impact was the
greatest in 2Q03, when visitors fell 52% yoy, followed by another 33% decline in 3Q03.
However, the rebound was very sharp in 2004, with tourist numbers up 33% yoy, and the
absolute number of 2004 visitors exceeded the 2002 tally by 7%. The Singapore
experience was similar, with visitor arrivals (excluding Malaysians) down 19% yoy during
2003, but the subsequent recovery led to 2004 visitor numbers that were 11% higher
than in 2002. The Singapore Tourism Board recently forecasted arrivals to Singapore to
fall 25-30% in 2020F due to the Covid-19 outbreak (we forecast a 23% drop). Malaysia
has stuck to its guns for a 30m visitor arrival target for 2020F (including Singaporeans),
up 11% yoy, but our forecast is for a 22% drop.
We expect MAHB’s passenger traffic to fall 9.5% in FY20F The Malaysian Aviation Commission recently lowered its air pax traffic forecast in 2020F
from c.5.5% previously to a growth of c.5% (4.6-5.7% range), but we think this forecast is
behind the curve. Assuming a 2.4% yoy drop in domestic pax, but a more severe 16%
drop in international pax, MAHB’s overall pax traffic will decline by 9.5% this year, vs. our
previous expectation for a modest 4.2% growth in FY20F, and also comparing poorly to
the 5.9% traffic growth of FY19. During 2003, MAHB’s pax traffic only fell 1.5%, as
domestic pax grew 2.6% while international pax fell only 8.6% yoy, because air travel
was being stimulated by the arrival of AirAsia and its low-fare offers. Now, 17 years later,
Malaysia’s air travel market is already saturated, with many airlines suffering from deep
financial problems arising from overcapacity and excessively-low fares. As a result, we
expect many airlines to implement significant capacity cuts. Furthermore, Malaysia is now
more reliant on Chinese tourists than in 2003, and the air travel curbs implemented in
China and Malaysia will have an outsized impact on airport passenger traffic. Finally, we
think the rebound in pax traffic in 2021F may only be enough to bring it back to the 2019
level, as the financial losses of 2020F may hurt airlines’ ability to maintain their networks.
Lower DCF-based target price from RM8.33 to RM7.47 Our target price has been reduced on the back of cuts to our pax traffic forecasts, partly
mitigated by a reduction in our FY20-22F capex forecasts from RM4bn to RM3bn as we
think that MAHB will defer less-critical airport improvements.
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Malaysia
HOLD (no change)
Consensus ratings*: Buy 11 Hold 8 Sell 0
Current price: RM7.00
Target price: RM7.47
Previous target: RM8.33
Up/downside: 6.7%
CGS-CIMB / Consensus: -14.2%
Reuters: MAHB.KL
Bloomberg: MAHB MK
Market cap: US$2,807m
RM11,614m
Average daily turnover: US$4.98m
RM20.52m
Current shares o/s: 1,659m
Free float: 39.5% *Source: Bloomberg
Key changes in this note
FY19F core EPS forecast tweaked upwards
slightly on housekeeping adjustments.
FY20F core EPS forecast cut by 27% as we
assume that Malaysian passenger traffic will drop 9.5% yoy, against previous expectation of 4.2% growth.
FY21F core EPS forecast cut by 8% as we lower our absolute passenger traffic forecast by 7%, as airlines may be in a financially
weaker position and be unable to expand as fast as previously.
Source: Bloomberg
Price performance 1M 3M 12M
Absolute (%) 0 -15.8 -11.2
Relative (%) 2.3 -12.7 -2.6
Major shareholders % held
Khazanah Nasional 36.7
Employees Provident Fund 12.0
Permodalan Nasional Berhad 11.8
Insert
Analyst(s)
Raymond YAP, CFA
T (60) 3 2261 9072 E [email protected]
Financial Summary Dec-17A Dec-18A Dec-19F Dec-20F Dec-21F
Revenue (RMm) 4,652 4,852 5,226 5,072 5,625
Operating EBITDA (RMm) 1,681 1,836 2,118 1,941 2,286
Net Profit (RMm) 237.7 727.3 606.2 459.3 692.6
Core EPS (RM) 0.20 0.40 0.52 0.43 0.57
Core EPS Growth 28% 101% 28% (17%) 33%
FD Core P/E (x) 34.90 17.36 13.52 16.32 12.29
DPS (RM) 0.13 0.14 0.18 0.14 0.21
Dividend Yield 1.86% 2.00% 2.61% 1.98% 2.98%
EV/EBITDA (x) 8.75 8.34 6.78 7.33 6.08
P/FCFE (x) 11.58 21.92 11.42 NA 16.72
Net Gearing 34.3% 40.4% 28.9% 26.6% 21.8%
P/BV (x) 1.29 1.27 1.22 1.18 1.11
ROE 3.76% 7.37% 9.22% 7.35% 9.31%
% Change In Core EPS Estimates 0.7% (27.4%) (8.0%)
CGS-CIMB/Consensus EPS (x) 1.04 0.70 0.98
84.0
97.3
110.7
124.0
6.10
7.10
8.10
9.10
Price Close Relative to FBMKLCI (RHS)
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Sector Flash Note Property │ Malaysia
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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REIT Retailers asking mall owners for rent rebates
■ Following the Covid-19 outbreak, retailers are urging mall owners for rental rebates of 30-50%, similar to the initiatives in Hong Kong and Singapore.
■ CMMT, IGB REIT, Pavilion REIT, and Sunway REIT have relatively larger revenue and NPI exposure to the retail space. Axis REIT has none.
■ We reiterate sector Neutral on REITs pending stimulus measures on 27 Feb.
Malaysia’s retailers taking a hit from Covid-19 outbreak ● According to edgeprop.my, retailers are urging mall and shop operators/landlords to
provide rebates of 30-50% for a period of six months from Feb 2020 as business has
been affected since the Covid-19 outbreak.
● A joint statement issued by Malaysia Retailers Association (MRA), Malaysia Retail
Chain Association (MRCA), Bumiputera Retailers Organisation (BRO), Asean Retail-
Chains & Franchise Federation (ARFF), and Branding Association of Malaysia (BAM)
states that the rebates could help tenants cope with the weakening sales.
Retailers facing up to 50% decline in revenue ● The appeal from the retail associations highlighted that since the Covid-19 outbreak,
retailers have been facing declining revenue. Since the outbreak, retail sales have
dropped by as much as 50%; some are expecting a further revenue drop of 80% over
the coming months.
● Mitigating steps such as a rental rebate by mall owners would therefore be helpful to
retailers. According to the article, similar measures were initiated by shopping malls in
Hong Kong and Singapore.
Retailers hope business would stabilise in 6-8 months ● Retailers hope that business would recover within 6-8 months. In the meantime,
several other suggestions to mall operators/owners include: flexibility to operate
shorter store hours, cutting down or reducing unproductive operational hours, free
parking for shoppers, complimentary booking of atrium areas, and marketing support
for both retailer-driven promotions and mall-wide marketing initiatives.
CMMT, IGB REIT, Pavilion and Sunway REIT have large exposures ● Within our coverage, CMMT, IGB REIT, Pavilion REIT and Sunway REIT have the
largest exposure to retail assets/malls. For CMMT, retail revenue and net property
income (NPI) make up 87-90% of total group revenue and NPI at end-FY19.
● For IGB REIT, which owns Mid Valley Mega Mall and The Gardens Mall, we estimate
that retail revenue and NPI make up 100% of total group revenue and NPI at end-
FY19. For Pavilion REIT, which owns Pavilion Mall, Intermark Mall, Elite Pavilion Mall
and DA MEN Mall, retail assets constituted 98% of total group revenue and NPI in
FY19.
● For Sunway REIT, which owns Sunway Pyramid Mall, Sunway Carnival Mall, SunCity
Ipoh Hypermarket and Sunway Putra Mall, retail contributed 68% to total group
revenue and 63% of total group NPI in FY19. Meanwhile, KLCCP and MQ REIT
generate 36-68% of total group revenue from retail space which accounts for 41-63%
of NPI (see Figure 2).
Reiterate Neutral; pending government’s stimulus measures ● A prolonged period of 30-50% rental rebates would be negative for REITs with
ownership of retail malls. If the rental rebates take effect within the next 6-8 months,
they would dent rental revenue/NPI at least over the next two quarters.
● We reiterate Neutral on REITs. We believe any initiatives to boost consumer spending
and aid retailers may be disclosed during the announcement of the Covid-19 outbreak-
related stimulus package on 27 Feb.
● Axis REIT (purer play on industrial and warehousing space) and IGB REIT (prime
asset positioning and high occupancy rates) remain our preferred picks.
Malaysia
February 17, 2020 - 9:23 PM
Neutral (no change)
Highlighted Companies
Axis REIT ADD, TP RM2.00, RM1.93 close
Axis REIT does not have exposure to the retail mall space as the group predominantly owns warehousing, logistics and industrial-type assets across its portfolio.
IGB REIT ADD, TP RM2.18, RM1.96 close
IGB REIT owns two retail assets namely Mid Valley Mega Mall and The Gardens Mall. Retail contributed almost 100% of FY19’s total revenue and NPI.
Pavilion REIT HOLD, TP RM1.79, RM1.73 close
Pavilion REIT owns four retail malls in the Klang Valley. Total retail revenue constituted 98% of both group total revenue and total NPI at end-FY19.
Summary Valuation Metrics
Insert
Analyst(s)
Sharizan ROSELY
T (60) 3 2261 9077 E [email protected]
P/E (x) Dec-19A Dec-20F Dec-21F
Axis REIT 12.30 21.53 19.49
IGB REIT 21.93 20.83 19.75
Pavilion REIT 20.55 18.96 18.19
P/BV (x) Dec-19A Dec-20F Dec-21F
Axis REIT 1.33 1.33 1.33
IGB REIT 1.84 1.85 1.86
Pavilion REIT 1.32 1.29 1.27
Dividend Yield Dec-19A Dec-20F Dec-21F
Axis REIT 4.82% 4.60% 5.08%
IGB REIT 4.68% 5.09% 5.28%
Pavilion REIT 4.92% 5.25% 5.64%
23
Company Note Education │ Singapore │ February 17, 2020
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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Insert Insert
Overseas Education Ltd Hard work pays off
■ OEL’s FY19 core net profit of S$8.0m was a slight beat; it rose 15.9% yoy, despite marginally lower revenue of S$82.0m.
■ FY19 DPS of 2.75Scts (unchanged yoy) was in line; we expect OEL to maintain this over FY20-22F, translating into 7.5% dividend yield.
■ Reiterate Add on earnings growth, attractive yield and historical low valuation of 16.8x FY21F P/E (1 s.d. below 4-year historical mean).
FY19 net profit up 15.9% yoy, above expectations Overseas Education (OEL SP) reported FY19 core net profit of S$8.0m (+15.9% yoy),
which accounted for 106%/105% of our/consensus full-year forecasts. The slight beat
came from lower-than-expected operating expenses, specifically lower finance costs
(recall that its bank loan was refinanced in April 19 at 3.4% per annum instead of the
previous interest rate of 5.2%). Revenue was spot on at S$82.0m, with stable student
enrolment numbers in 2H19 as the key positive after consecutive declines since FY14.
Little impact from Covid-19; healthy level of enquiries International schools in Singapore like OEL remain operational despite the onset of Covid-
19, unlike their peers in Hong Kong whose classes remain suspended until at least 16 Mar.
News reported that the lack of visibility on HK school reopening could disrupt the entire
school year and threaten the departure of a significant number of families. According to the
management, the virus outbreak has not caused student withdrawals for OEL, and it
continues to see healthy levels of enquiries (since HK protests started in Jun 19). We think
OEL’s smaller class size of less than 25 (vs. 30-35 students on average for other schools
in Singapore), and a bigger campus help towards lowering exposure to large crowds.
Still an attractive dividend play The group declared a final DPS of 2.75Scts for FY19, in line with its dividend track record
since listing in 2013. This is equivalent to a payout ratio of 143% and a 7.5% dividend yield.
With revenue reserves of S$66.5m (as of end-2019), minimal capex needs and projected
FCF of S$25m-27m p.a. (FY19: S$27.7m), we believe OEL can maintain its dividend
payout at S$11.4m over FY20-21F.
Reiterate Add with unchanged S$0.42 TP We continue to like OEL for its prudent management, attractive dividend yield and steady
earnings growth. We raise our FY20-22F EPS by 0.9-1.1% on the back of higher other
income. We reiterate our Add rating and TP, based on 19.5x FY21F P/E which is at -0.5
s.d. of its 4-year mean. Apart from the historical low valuation, we see privatisation potential
for the stock given that it is 65% controlled by two significant shareholders. A higher
number of foreign students relocating to Singapore is a potential re-rating catalyst. Risks
are unfavourable policy changes, rising competition and unexpected dividend cuts.
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Singapore
ADD (no change)
Consensus ratings*: Buy 2 Hold 0 Sell 0
Current price: S$0.37
Target price: S$0.42
Previous target: S$0.42
Up/downside: 15.8%
CGS-CIMB / Consensus: 0.7%
Reuters: OVER.SI
Bloomberg: OEL SP
Market cap: US$108.9m
S$151.6m
Average daily turnover: US$0.06m
S$0.08m
Current shares o/s: 415.4m
Free float: 35.2% *Source: Bloomberg
Key changes in this note
FY20/21/22F EPS increased by 1.1%/1.0%/0.9%
Source: Bloomberg
Price performance 1M 3M 12M Absolute (%) 2.8 23.7 21.7
Relative (%) 4.4 24.1 22.7
Major shareholders % held David Alan Perry 33.0
Wong Lok Hiong 31.8
Saray Developed 8.0
Insert
Analyst(s)
NGOH Yi Sin
T (65) 6210 8604 E [email protected]
Caleb PANG Huan Zhong T (65) 6210 8678 E [email protected]
Financial Summary Dec-18A Dec-19A Dec-20F Dec-21F Dec-22F
Revenue (S$m) 82.69 81.98 82.57 83.01 83.65
Operating EBITDA (S$m) 26.08 28.89 29.42 29.42 29.53
Net Profit (S$m) 6.91 8.01 8.57 9.01 9.08
Core EPS (S$) 0.017 0.019 0.021 0.022 0.022
Core EPS Growth 10.7% 15.9% 7.1% 5.0% 0.9%
FD Core P/E (x) 21.95 18.93 17.69 16.84 16.69
DPS (S$) 0.028 0.028 0.028 0.028 0.028
Dividend Yield 7.53% 7.53% 7.53% 7.53% 7.53%
EV/EBITDA (x) 8.73 7.60 7.16 6.83 6.47
P/FCFE (x) 25.33 6.20 5.98 5.99 5.92
Net Gearing 53.2% 48.8% 43.1% 36.8% 29.9%
P/BV (x) 1.06 1.09 1.11 1.13 1.15
ROE 4.75% 5.67% 6.20% 6.64% 6.82%
% Change In Core EPS Estimates 1.07% 0.98% 0.92%
CGS-CIMB/Consensus EPS (x) 1.03 1.03
88.0
106.8
125.5
0.270
0.320
0.370
Price Close Relative to FSSTI (RHS)
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Company Note Airlines │ Singapore │ February 17, 2020 Shariah Compliant
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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Insert Insert
Singapore Airlines
Great 3Q performance, but 4Q risks abound
■ 9M core net profit of S$488m was 85% of consensus but S$280m more than our full-year forecast of S$208m as we had factored in a large 4Q loss.
■ Without the Covid-19 impact, SIA could outperform our/consensus expectations but the big question now is how large the 4Q loss will be.
■ Reiterate Hold and our target price of S$8.46, still based on 0.86x CY20F P/BV (1 s.d. below mean since 2011).
Huge positive turnaround during 3QFY3/20… The SIA group performed very well, with 3Q core net profit up 33% yoy, a strong reversal
from the 1H’s 35% yoy fall in core net profit. As a recap, the poor 1H performance was on
account of the weaker cargo performance (due to the US-China trade war), higher losses
at Scoot due to heightened competition with Chinese carriers which impacted RASK and
engine problems faced by its 787-9 fleet, higher losses at SilkAir due to the grounding of
its 737 MAX 8 fleet, higher non-fuel unit costs (greater staff costs due to more headcount,
higher pay rates and higher bonus provisions, larger commission payments), and higher
share of associate losses (Virgin Australia and Vistara), all of which more than offset
stronger operating performance at SIA mainline (higher loads and RASK due to
successful revenue management) and better SIA Engineering profits.
… due to lower oil prices and lower non-fuel costs at SIA mainline In the 3Q, the challenging dynamics of the 1H seemed to be a distant memory. While the
cargo performance was still weaker yoy, SilkAir’s EBIT matched that of the previous year,
Scoot delivered a small absolute improvement and the share of associate profits was
actually higher yoy. However, the biggest star of the show was SIA mainline itself,
delivering a staggering S$445m in EBIT (+21% yoy), its highest EBIT since Oct-Dec
2007, on the back of almost three consecutive years of RASK growth and a surprising
1.9% yoy fall in non-fuel unit cost (against 1H’s 0.9% yoy increase). SIA attributed the
latter to “initiatives arising from the transformation programme” and we will seek clarity at
this morning’s analyst briefing to see if this non-fuel CASK drop is sustainable or not.
With fuel costs making up 33% of SIA group’s airline operating costs, the 6% yoy drop in
average post-hedge jet fuel price in the 3Q also made a big impact on the group’s
performance; in contrast, the 1H post-hedge jet fuel price averaged 1% higher yoy.
Outlook for 4QFY20F very uncertain; we forecast a loss Our FY20F core net profit forecast for SIA group suggests a S$280m loss for 4QFY20F.
By comparison, SIA reported a S$305m core net loss for Apr-Jun 2003 when the SARS
epidemic was at its peak. SIA noted that demand for services to China has been
“severely affected”, leading to significant capacity cuts in Feb and Mar (we estimate that
for 1QCY20F, SIA mainline cut capacity to China and HK by 31%, SilkAir cut flights to
China by 39% and Scoot cut 53% of its China flights). Our forecasts for FY21F also
reflect one quarter’s loss for 1QFY21F as a result of Covid-19. Furthermore, the drop in
oil prices may result in hedging and mark-to-market losses.
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Singapore
HOLD (no change)
Consensus ratings*: Buy 5 Hold 8 Sell 0
Current price: S$8.62
Target price: S$8.46
Previous target: S$8.46
Up/downside: -1.9%
CGS-CIMB / Consensus: -12.8%
Reuters: SIAL.SI
Bloomberg: SIA SP
Market cap: US$7,339m
S$10,216m
Average daily turnover: US$8.39m
S$11.44m
Current shares o/s: 1,184m
Free float: 40.0% *Source: Bloomberg
Key changes in this note
No change to core EPS forecasts.
Source: Bloomberg
Price performance 1M 3M 12M
Absolute (%) -4.3 -6.4 -12.7
Relative (%) -2.7 -6 -11.7
Major shareholders % held
Temasek 55.6
Insert
Analyst(s)
Raymond YAP, CFA
T (60) 3 2261 9072 E [email protected]
Financial Summary Mar-18A Mar-19A Mar-20F Mar-21F Mar-22F
Revenue (S$m) 15,526 16,319 16,667 17,398 18,714
Operating EBITDA (S$m) 2,406 2,387 2,632 3,154 3,728
Net Profit (S$m) 893.6 682.7 208.1 420.9 653.3
Core EPS (S$) 0.49 0.71 0.18 0.36 0.55
Core EPS Growth 73% 45% (75%) 102% 55%
FD Core P/E (x) 17.50 12.08 49.02 24.24 15.62
DPS (S$) 0.40 0.30 0.10 0.20 0.30
Dividend Yield 4.64% 3.48% 1.16% 2.32% 3.48%
EV/EBITDA (x) 4.66 6.03 7.69 7.49 7.04
P/FCFE (x) NA 10.60 38.07 25.56 8.89
Net Gearing 5% 28% 82% 107% 122%
P/BV (x) 0.79 0.77 0.90 0.88 0.84
ROE 4.49% 6.46% 1.69% 3.67% 5.48%
% Change In Core EPS Estimates 0% (0%) (0%)
CGS-CIMB/Consensus EPS (x) 0.34 0.56 0.86
86.0
90.5
95.0
99.5
104.0
8.30
8.80
9.30
9.80
10.30
Price Close Relative to FSSTI (RHS)
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Company Note Stockbroking & Exchanges │ Singapore │ February 17, 2020
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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Singapore Exchange Recent positives in the price
■ We now appreciate Scientific Beta better, and raise SGX's FY20-22F EPS by 0.5-4.8% to factor in its earnings potential. Our TP rises to S$9.40.
■ We stay wary of competition risks, and think SGX is fairly valued at 22.4x FY21F P/E, its 10-year historical mean. Maintain Hold with c.3% yield.
■ Jan monthly data show 12.1% and 27.0% mom surge in derivatives volume and SDAV respectively, but still below our FY20 projections.
Good news priced in; competition risk from HKEx ignored We think SGX’s recent share price strength has priced in the stronger Jan market
statistics and its 93%-stake acquisition of Scientific Beta for €186m (c.S$280m). We raise
our FY20-22 EPS forecasts by 0.5-4.8% to factor in the latter's earnings contribution. Our
TP thus increases to S$9.40, still based on its 10-year historical mean of 22.5x FY21F
P/E. Maintain Hold. Downside risks include unfavourable regulatory changes and
potential launch of MSCI A-share futures by HKEx in 2H20. Upside risks include positive
dividend surprise, and faster asset under management (AUM) growth at Scientific Beta.
Scientific Beta makes a good strategic fit in the medium term We recently attended SGX’s analyst briefing where Scientific Beta CEO Noel Amenc was
also present. Apart from potential synergies via cross-selling and product innovation, we
like SGX's acquisition of Scientific Beta for the latter's i) low client attrition risk (mainly
pension funds), ii) recurring revenue (based on 5bp of AUM on average), and iii)
positioning in a high-growth area (factor, passive, and socially responsible investing).
However, we are cautious of the near-term M&A excitement as any new product will take
some years to develop, launch and build liquidity. Established since 2012, Scientific Beta
has been profitable for around three years, implying a current cost base of c.US$6m-
10m. With this and depending on its AUM growth rates, our scenario analysis shows
possible net profit accretion of S$0.6m-5.3m and S$13.0m-24.2m to our FY20F and
FY21F forecasts respectively. We expect little financial impact from Scientific Beta in
FY20F given only five months of contribution and one-off costs (integration, amortisation,
professional fees), but it should be EPS-accretive from FY21F.
Jan volumes encouraging, but below historic average levels Jan’s monthly market statistics revealed a higher securities daily average value (SDAV),
surging 23.6% mom and 27.0% yoy to S$1.2bn on conclusion of Phase 1 deal between
the US and China, as well as impact from the evolving Covid-19 virus. Increased demand
for China A50, FX and Nifty futures underpinned the 12.1% mom and 4.5% yoy growth in
derivatives volumes to 19.5m, which still fall short of our monthly projected run-rate for
FY20F, and below the average levels seen in 2Q19-1Q20. Near-term volatility has also
not led to a stronger pick-up in open interest for equity index derivatives (Jan: 4.0m), one
of the lowest levels over the past 12 months.
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Singapore
HOLD (no change)
Consensus ratings*: Buy 3 Hold 8 Sell 5
Current price: S$9.34
Target price: S$9.40
Previous target: S$9.00
Up/downside: 0.6%
CGS-CIMB / Consensus: 9.6%
Reuters: SGXL.SI
Bloomberg: SGX SP
Market cap: US$7,185m
S$10,001m
Average daily turnover: US$17.58m
S$24.03m
Current shares o/s: 1,071m
Free float: 71.7% *Source: Bloomberg
Key changes in this note
FY20F EPS increased by 0.5%
FY21F EPS increased by 4.0%
FY22F EPS increased by 4.8%
Source: Bloomberg
Price performance 1M 3M 12M Absolute (%) 6.6 5.5 19.9
Relative (%) 8.7 6.3 20.7
Major shareholders % held SEL Holdings 23.4
Tokyo Stock Exchange 5.0
Blackrock 3.8
Insert
Analyst(s)
NGOH Yi Sin
T (65) 6210 8604 E [email protected]
Financial Summary Jun-18A Jun-19A Jun-20F Jun-21F Jun-22F
Revenue (S$m) 845 910 980 1,026 1,044
Operating EBITDA (S$m) 485.7 523.5 589.9 628.6 639.7
Net Profit (S$m) 363.2 391.1 420.8 447.0 455.1
Core EPS (S$) 0.34 0.37 0.39 0.42 0.43
Core EPS Growth 6.04% 7.97% 7.62% 6.22% 1.82%
FD Core P/E (x) 27.60 25.60 23.75 22.36 21.96
DPS (S$) 0.30 0.30 0.30 0.31 0.32
Dividend Yield 3.21% 3.21% 3.21% 3.32% 3.43%
EV/EBITDA (x) 18.86 17.67 15.44 14.24 13.78
P/FCFE (x) 29.01 37.16 20.43 19.46 19.73
Net Gearing (78.2%) (61.1%) (68.1%) (74.2%) (78.1%)
P/BV (x) 9.12 9.16 8.40 7.65 7.05
ROE 34.1% 35.8% 36.9% 35.8% 33.4%
% Change In Core EPS Estimates 0.52% 4.04% 4.77%
CGS-CIMB/Consensus EPS (x) 1.00 1.01 1.09
87.0
95.0
103.0
111.0
119.0
127.0
7.00
7.50
8.00
8.50
9.00
9.50
Price Close Relative to FSSTI (RHS)
5
10
15
Feb-19 May-19 Aug-19 Nov-19
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Sector Flash Note Property │ Singapore
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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Property Devt & Invt Higher sales in Jan
■ Private homes sales were higher mom and yoy in Jan 2020.
■ Transaction volumes may be lumpy in 2020F with near term volume remaining thin, amid a range-bound price trend due to ample launch supply.
■ Reiterate sector Overweight. Our top sector picks are UOL, CIT and CAPL.
Jan 2020 sales higher yoy ● The Urban Redevelopment Authority (URA) reported 638 units of new home sales in
Jan 2020. Excluding Executive Condominiums (ECs), 618 units changed hands, +c.15%
mom and +c.42% yoy. City fringe projects accounted for 42% of sales with previously
launched projects while suburban projects made up another c.37%. Previously launched
developments such as Jadescape, Treasure at Tampines, Parc Esta and Parc Clematis
were the top-selling projects by volume.
Quiet market in the near term ● From a take-up rate perspective, the volume transacted in Jan 2020 represent close to
a 103% take-up rate. While the recent launch of Parc Canberra EC garnered a healthy
64% take-up rate at an average selling price of S$1,085 psf, transaction volumes in the
primary and secondary markets are likely to remain thin in the near term due to Covid-
19 concerns. Our current 2020F volume sales projections remain at 9,000-10,000 units
for now.
Prices to remain range-bound ● According to the Urban Redevelopment Authority (URA) property price index, primary
home prices rose 2.7% in 2019. We think private residential prices would remain range-
bound in the near term in view of the ample supply from new launches in 2020F.
Maintain Overweight on valuations ● We retain our Overweight stance on Singapore developers as they are still trading at
attractive 45% discount to RNAV and offer upside to our TPs, which are based on an
assumed discount to RNAV. A near term catalyst would be good sell-through rates for
new launches, downside risks include weaker-than-earlier projected macroeconomic
outlook which could dampen demand for big-ticket items such as housing.
Figure 1: Singapore developers private primary monthly home sales
SOURCES: CGS-CIMB RESEARCH, URA
0
500
1000
1500
2000
2500
3000
3500
J-07 F-08 O-08 J-09 F-10 O-10 J-11 F-12 O-12 J-13 F-14 O-14 J-15 F-16 O-16 J-17 F-18 O-18 J-19
Units (excl ECs) ECs
Singapore
February 17, 2020 - 6:10 PM
Overweight (no change)
Highlighted Companies
CapitaLand ADD, TP S$4.15, S$3.72 close
As Asia’s leading diversified real estate group, strong capital recycling and deployment into new investments would continue to drive ROE, in our view. The stock is trading at a 42% discount to RNAV.
City Developments ADD, TP S$12.09, S$11.17 close
In our view, CIT’s land restocking activities would extend its residential earnings visibility. New investments in Europe and strategic investments in China would enable the group to deploy balance sheet capacity. The stock is trading at a 40% discount to RNAV.
UOL Group ADD, TP S$8.73, S$8.23 close
UOL has a high recurring income base, supported by rentals, hotel operations and investment holdings. It has good office exposure through United Industrial Corp (UIC) (UIC SP, NR). UOL is now trading at a 34% discount to RNAV.
Summary Valuation Metrics
Insert
Analyst(s)
LOCK Mun Yee
T (65) 6210 8606 E [email protected]
P/E (x) Dec-19F Dec-20F Dec-21F
CapitaLand 9.69 13.48 12.64
City Developments 16.68 22.02 22.08
UOL Group 19.16 18.27 19.78
P/BV (x) Dec-19F Dec-20F Dec-21F
CapitaLand 0.83 0.81 0.78
City Developments 1.01 0.98 0.96
UOL Group 0.70 0.69 0.67
Dividend Yield Dec-19F Dec-20F Dec-21F
CapitaLand 3.21% 3.26% 3.48%
City Developments 1.79% 1.79% 1.79%
UOL Group 2.12% 2.12% 2.12%
27
Company Note Petrochemical │ Thailand │ February 17, 2020 Shariah Compliant
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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PTT Global Chemical 4Q19: the weakest quarter in eight years
■ Gross refining margin outperformed Singapore benchmark on LSFO sales.
■ PTTGC should outperform Thai refinery peers in 1Q20F but olefins EBITDA margin (hitting 8-year low of 9.0% in 4Q19) should cap valuation upside.
Core net loss for the first time since 2011 PTTGC posted a 4Q19 net profit at THB374m, missing our estimate by 31.7% but in line
with consensus estimates. However, excluding the refinery stock gain (THB235m), hedge
gain (THB892m), and reversal of inventory impairment of THB248m, PTTGC posted a
core net loss of THB1.4bn vs. a core net profit of THB8.7bn in 4Q18. The disappointment
came mainly from the sharp decline in olefins EBITDA and net loss from the aromatics
business. FY19 net profit came in at THB11.7, down 70.8% yoy on deteriorating EBITDA
across key business units and 15% below our and consensus estimates.
Gross refining margin (GRM) beat Singapore benchmark 4Q19 market GRM was US$4.7/bbl, outperforming the Singapore GRM of US$1.6/bbl,
thanks to high low sulphur fuel oil (LSFO) sales at 15% of total refined product. PTTGC
said it has replaced all middle east crude oil with lighter crude oil from the US and West
Africa since 3Q19. Crude premium was US$6.0/bbl in 4Q19 vs. US$4.5/bbl in 3Q19.
However, PTTGC shut down its crude distillation unit (CDU) for 52 days in 4Q19,
resulting in a low utilisation rate of 51%. Together with extra cost related to maintenance
shutdown, reported EBITDA excluding inventory gain was THB383m, down 63.8% qoq.
Olefins EBITDA margin remained subdued 4Q19 olefins EBITDA was THB2.5bn, down 42.7% qoq, while EBITDA margin dropped
further to the weakest level in eight years at 9.0% (>20% during FY11-FY18). Aromatics
EBITDA turned negative at THB106m vs. THB650m in 3Q19 on weaker paraxylene (PX)
-condensate spread. Product-to-feed margin was US$91/t, down 33.1% qoq. Despite the
EBITDA loss at aromatics unit, PTTGC said it still needed to run the aromatics complex
(albeit lower rate of 87% in 4Q19 vs. 100% in 3Q19) as it still reported net profit if purified
terephthalic acid (PTA) and polyethylene terephthalate (PET) EBITDA were included.
Massive ethylene capacity addition to cap olefins EBITDA upside With the restart of CDU, PTTGC should be able to achieve a stronger GRM in 1Q20F.
We estimate that West African crude oil should represent c.20% of PTTGC’s total crude
intake, enabling it to produce LSFO and achieve higher market GRM than Thai refinery
peers in 1Q20F. But we believe PTTGC’s olefins business will continue to struggle. In
Jan-Feb 20, HDPE and LLDPE prices have yet to recover meaningfully despite market
hopes of a demand recovery from trade deals. We expect ethylene supply addition to
accelerate to 10.0mt in FY20F vs. 5.7mt in FY19, and annual demand growth to be
6.0mt. The price outlook for other chemical products, including phenol and acrylonitrile,
should also weaken yoy. We maintain our Reduce call with a TP of THB47.5, based on
FY21F EV/EBITDA of 7.0x (mid-cycle average for Asian chemicals).
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
Thailand
REDUCE (no change)
Consensus ratings*: Buy 11 Hold 16 Sell 4
Current price: THB52.50
Target price: THB47.50
Previous target: THB47.50
Up/downside: -9.5%
CGS-CIMB / Consensus: -19.8%
Reuters: PTTG.BK
Bloomberg: PTTGC TB
Market cap: US$7,544m
THB235,544m
Average daily turnover: US$30.43m
THB913.4m
Current shares o/s: 4,509m
Free float: 30.0% *Source: Bloomberg
Key changes in this note
No change.
Source: Bloomberg
Price performance 1M 3M 12M Absolute (%) -6.7 0.5 -23.6
Relative (%) -2.1 5.2 -16.9
Major shareholders % held PTT Plc 48.5
Social Security Office 1.2
Bangkok Synthetic 1.0
Insert
Analyst(s)
Amornrat CHEEVAVICHAWALKUL
T (66) 2 761 9228 E [email protected]
Financial Summary Dec-18A Dec-19A Dec-20F Dec-21F Dec-22F
Revenue (THBm) 518,655 412,810 468,541 488,863 481,713
Operating EBITDA (THBm) 56,829 24,920 41,819 39,115 41,802
Net Profit (THBm) 40,069 11,683 18,941 19,900 22,099
Core EPS (THB) 9.02 2.17 4.20 4.41 4.90
Core EPS Growth 3.8% (76.0%) 94.0% 5.1% 11.0%
FD Core P/E (x) 5.82 24.24 12.50 11.89 10.71
DPS (THB) 4.25 1.09 1.68 1.77 2.96
Dividend Yield 8.10% 2.07% 3.20% 3.36% 5.64%
EV/EBITDA (x) 4.10 10.57 6.28 6.32 5.66
P/FCFE (x) 12.27 NA 42.81 17.93 26.74
Net Gearing 13.9% 27.7% 26.5% 22.1% 19.5%
P/BV (x) 0.80 0.83 0.78 0.75 0.72
ROE 14.2% 3.4% 6.4% 6.5% 6.9%
% Change In Core EPS Estimates 0% 0%
CGS-CIMB/Consensus EPS (x) 1.02 0.88
68.0
79.4
90.9
102.3
45.0
55.0
65.0
75.0
Price Close Relative to SET (RHS)
50
100
Feb-19 May-19 Aug-19 Nov-19
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Sector Note Healthcare │ Thailand │ February 17, 2020
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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DOWNGRADE
Hospitals Meeting with Department of Internal Trade
■ The department believes that private hospitals charge excessive drug prices and service fees and that it needs to make them more transparent.
■ Although it is not clear yet what will be the next measure, there are higher regulatory risks.
■ We downgrade from Overweight to Neutral with CHG as our top pick.
Private hospitals are needed due to congestion at public hospitals We brought local institutional investors to meet with Mr. Prayoth Benyasut, deputy
director of the Department of Internal Trade (DIT), Ministry of Commerce to get a clearer
picture about the government policies on pricing in private hospitals in Thailand. The DIT
is of the view that even though every Thai has access to public healthcare system, the
availability of public hospitals for Thai people is still not good enough as patients still have
to wait in long queues in public hospitals, especially for inpatient services. As such, the
argument from private hospitals that they are just alternative healthcare for those who
can afford private hospitals cannot be justified, from the government’s point of view.
More measures on drug prices soon The DIT found that private hospitals excessively markup drug prices to the tune of
between 1,000% and 10,000%. Thus, the DIT plans to classify medicines into 12 groups
based on price. However, the authorities also mentioned that they will consult with private
hospitals that do not charge excessive drug prices as to the appropriate ceiling for drug
prices in each category.
The list of 300 service fees is next The DIT plans to announce the list of service fees such as x-ray, blood tests, room rates,
etc. private hospitals need to disclose via their websites or QR codes within the next few
weeks. This may also hurt sentiment in the sector, in our view. The DIT will also work with
the Medical Council of Thailand to publish doctor fees. However, we believe it is likely to
take some time because of potential conflict of interest.
Downgrade from Overweight to Neutral With heightened regulatory risks, we believe private hospitals’ ability to raise prices is
negatively impacted. In addition, private hospitals are affected by the weak domestic
economy and those with medical tourists, are also affected by the Covid-19 outbreak. In
addition, they are seeing more competition from public hospitals with premium services.
We recently downgraded our ratings on BDMS and BH from Add to Hold. As such, we
downgrade our sector rating from Overweight to Neutral. CHG is our top pick and we
reiterate our Add call with an unchanged THB3.0 target price, based on 38x FY21F P/E,
which is 0.5 s.d. below 5-year mean. Downside risks to our CHG call include slow ramp-
up of its two new hospitals. An upside risk is a strong jump in social security patients.
Figure 1: Hospitals’ core EPS growth (% yoy)
SOURCES: CGS-CIMB RESEARCH, COMPANY
Thailand
Neutral (previously Overweight)
Highlighted Companies
Bangkok Dusit Med Service HOLD, TP THB26.20, THB24.80 close
We believe that BDMS is likely to be affected by the government measures to make drug prices and service fees in the private hospitals more transparent.
Bumrungrad Hospital HOLD, TP THB144.0, THB132.5 close
We believe that it is likely to be affected the most by the government policies to make drug prices and service fees in the private hospitals more transparent. We believe that BH is also the most affected by the Covid-19 outbreak.
Chularat Hospital ADD, TP THB3.00, THB2.66 close
CHG is the top pick in our sector as it does not plan to add any new hospitals over the next couple of years. Furthermore, we believe that it is not likely to be affected much by government policies on drug prices and service fees.
Summary Valuation Metrics
Insert
Analyst(s)
Kasem PRUNRATANAMALA, CFA
T (66) 2 761 9221 E [email protected]
P/E (x) Dec-19F Dec-20F Dec-21F
Bangkok Dusit Med Service 26.30 38.64 34.06
Bumrungrad Hospital 25.57 26.34 24.79
Chularat Hospital 40.43 35.36 32.70
P/BV (x) Dec-19F Dec-20F Dec-21F
Bangkok Dusit Med Service 4.68 4.53 4.22
Bumrungrad Hospital 4.75 4.36 4.01
Chularat Hospital 7.32 6.78 6.32
Dividend Yield Dec-19F Dec-20F Dec-21F
Bangkok Dusit Med Service 1.17% 1.89% 1.29%
Bumrungrad Hospital 1.96% 1.90% 2.02%
Chularat Hospital 1.52% 1.74% 1.98%
-20%
-10%
0%
10%
20%
30%
40%
50%
2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2021F
Hospitals' core EPS growth (% yoy)
29
Sector Note Telecommunications │ Thailand │ February 17, 2020
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.
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Telco - Mobile More spectrum purchases than forecast ■ Auctions for 700MHz, 2600MHz and 26GHz spectrum bands occurred
yesterday (16 Feb) and the operators bought more bandwidth than expected.
■ The auction results lead us to cut ADVANC’s and TRUE’s earnings while raising DTAC’s earnings slightly in FY20-22F.
■ Reiterate Neutral; avoid Thai telcos until prepaid competition subsides.
The auction is over and the regulator raked in THB100.5bn At the 700MHz auction, CAT (2 licences, THB34.3bn) and ADVANC (1 licence,THB17.2bn) were the winners; the final prices were 95% higher than the starting price. Atthe 2600MHz auction, ADVANC (10 licences, THB19.6bn) and TRUE (9 licences,THB17.9bn) were the winners; prices were higher by only c.5%. At the 26GHz auction, ADVANC won 12 licences, TRUE bagged 8, TOT won 4 while DTAC clinched 2 with the price of THB445m per licence. In total, the National Broadcasting and Telecommunications Commission raked in THB100.5bn from 5 bidders, higher than our forecast of THB80.4bn.
Negative for ADVANC’s and TRUE’s earnings forecasts ADVANC and TRUE were the two players that won more licences than we expected. ADVANC won licences for three spectrum bands worth a combined THB42.0bn, higherthan our forecast of THB34.7bn; this leads us to cut its FY20-22F earnings by 1.7%. TRUE won licences for two spectrum bands worth THB21.4bn, higher than our forecast of THB15.9bn; this leads us to raise TRUE’s FY20F core net loss from THB475m toTHB851m. All licences have 15 years of useful life.
Slightly positive for DTAC’s earnings forecasts DTAC won 200MHz bandwidth on the 26GHz spectrum band worth THB910m. The amount of spectrum wins is lower than our forecast of 600MHz bandwidth worthTHB2.5bn on the 26GHz band. The lower amortisation expenses (c.THB109m costsavings p.a.) allow us to raise FY20-22F earnings by 1.6-2.3%. The spectrum wins have no impact on our TP since the payment for 26GHz spectrum will occur in FY20F (one-time) while the DCF valuation method we use is based on cashflows from FY21 onwards.
DTAC at risk of falling behind in the 5G race Given that CAT did not win any 2600MHz spectrum, the option of DTAC leasing 2600Mhz spectrum from CAT to roll out a 5G network is out the window. DTAC can have limited 5G coverage by switching its 2300MHz network from 4G to 5G in certain areas; thisapproach will result in lower 4G speeds in the areas of the technology switch.
Neutral: prepaid competition remains a major risk Although the auction results should begin to be priced in this week, prepaid competition intensified in Feb 2020 as operators started offering 4mbps unlimited data plans for allprepaid subscribers. A potential catalyst is easing mobile/fixed-broadband competition while a key risk is fierce mobile competition spilling over to the postpaid segment. Our toppick remains INTUCH (Add, THB67.10) for its deep discount to NAV of 28%.
Figure 1: 16 Feb spectrum auctions
SOURCES: CGS-CIMB RESEARCH, COMPANY
Thailand
Neutral (no change)
Highlighted Companies
Advanced Info Service ADD, TP THB230.0, THB204.0 close
We have an Add call on ADVANC with the TP of THB230, implying 12.4% upside from the market price. A potential catalyst for the counter is easing mobile competition in the prepaid segment.
Total Access Communication HOLD, TP THB40.20, THB42.00 close
Given our outlook for a 14% decline in FY20F core EPS and the risk it could fall behind in the 5G race, we only have a Hold call on DTAC despite its share price declining 34% since its peak in Oct 2019.
True Corporation HOLD, TP THB3.90, THB3.94 close
Due to fiercer competition in the FBB market and rising costs, we expect TRUE to remain in core net losses in 4Q19F and FY20F. We believe there are substantial downside risks to consensus estimates for 4Q19F and FY20F.
Summary Valuation Metrics
Insert
Analyst(s)
Wasu MATTANAPOTCHANART
T (66) 2 841 9033 E [email protected]
P/E (x) Dec-20F Dec-21F Dec-22F
Advanced Info Service 19.07 18.83 19.27 Total Access Communication 20.09 24.52 21.33 True Corporation NA 599.59 NA
P/BV (x) Dec-20F Dec-21F Dec-22F
Advanced Info Service 7.85 7.25 6.86 Total Access Communication 3.74 3.51 3.25 True Corporation 1.01 1.03 1.06
Dividend Yield Dec-20F Dec-21F Dec-22F
Advanced Info Service 3.93% 4.25% 4.41%Total Access Communication 3.32% 2.38% 2.34%True Corporation 2.28% 2.28% 2.28%
Unit: MHz of bandwidth 700MHz 1800MHz 2600MHz 26GHz
ADVANC 5 na 100 1200
TRUE 0 na 90 800
DTAC na na na 200
CAT 10 na 0 na
TOT na na na 400
Ending price per licence (THb m) 17,153 na 1,970 447
Price increase 95.1% na 5.8% 0.0%
Spectrum bands
30
Asia Pacific Daily | Equity Research | February 18, 2020
2
REGIONAL HEAD
Bertram LAI Regional Head of Research +852 2532 1111 [email protected]
COUNTRY HEADS OF RESEARCH
Ivy NG, CFA Siew Khee, LIM Erwan TEGUH Kasem PRUNRATANAMALA, CFA Raymond CHENG Malaysia Singapore Indonesia Thailand Hong Kong/China +60 (3) 2261-9073 +65 6210-8664 +62 (21) 3006-1720 +66 (2) 657-9221 +852 2539-1324 [email protected] [email protected] [email protected] [email protected] [email protected] KJ Hwang Pramod AMTHE South Korea India +82 (2) 6730-6123 +91 (22) 4880-5167 [email protected] [email protected]
Yolan SEIMON Anirban LAHIRI
Sri Lanka Vietnam +94 (11) 230-6273 +8428 7300-0688 (ext: 21242) [email protected] [email protected] Coverage via partnership arrangement with John
Keells Stock Brokers
Coverage via partnership arrangement with
VNDirect Securities Corporation
REGIONAL SECTOR HEADS
KJ KWANG Ivy NG, CFA Raymond YAP, CFA Offshore & Marine Plantations Transportation +82 (2) 6730-6123 +60 (3) 2261-9073 +60 (3) 2261-9072 [email protected] [email protected] [email protected]
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Asia Pacific Daily | Equity Research | February 18, 2020
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DISCLAIMER The content of this report (including the views and opinions expressed therein, and the information comprised therein) has been prepared by and belongs to CGS-CIMB save that (i) if it is a report written by the analyst(s) of John Keells Stock Brokers (“John Keells”), it belongs to John Keells; (ii) if it is a report written by the analyst(s) of SB Equities Inc (“SBE”), it belongs to SBE; and (iii) if it is a report written by the analyst(s) of Morgans Financial Limited (“Morgans”), it belongs to Morgans. This report is distributed by CGS-CIMB, and in respect of sections of the report relating to (i), (ii) and/or (iii) aforesaid, it is distributed pursuant to an arrangement between CGS-CIMB and John Keells, SBE and Morgans respectively and none of the aforesaid parties is an affiliate of CGS-CIMB.
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The information contained in this research report is prepared from data believed to be correct and reliable at the time of issue of this report. CGS-CIMB, John Keells, SBE and/or Morgans, as the case may be, may or may not issue regular reports on the subject matter of this report at any frequency and may cease to do so or change the periodicity of reports at any time. None of CGS-CIMB, John Keells, SBE or Morgans is under any obligation to update this report in the event of a material change to the information contained in this report. None of CGS-CIMB, John Keells, SBE or Morgans has any and none of them will accept any, obligation to (i) check or ensure that the contents of this report remain current, reliable or relevant, (ii) ensure that the content of this report constitutes all the information a prospective investor may require, (iii) ensure the adequacy, accuracy, completeness, reliability or fairness of any views, opinions and information, and accordingly, CGS-CIMB, John Keells, SBE and Morgans and their respective affiliates and related persons including China Galaxy International Financial Holdings Limited (“CGIFHL”) and CIMB Group Sdn. Bhd. (“CIMBG”) and their respective related corporations (and their respective directors, associates, connected persons and/or employees) shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof. In particular, CGS-CIMB, John Keells, SBE and Morgans disclaim all responsibility and liability for the views and opinions set out in this report.
Unless otherwise specified, this report is based upon reasonable sources. Such sources will, unless otherwise specified, for market data, be market data and prices available from the main stock exchange or market where the relevant security is listed, or, where appropriate, any other market. Information on the accounts and business of company(ies) will generally be based on published statements of the company(ies), information disseminated by regulatory information services, other publicly available information and information resulting from our research.
Whilst every effort is made to ensure that statements of facts made in this report are accurate, all estimates, projections, forecasts, expressions of opinion and other subjective judgments contained in this report are based on assumptions considered to be reasonable as of the date of the document in which they are contained and must not be construed as a representation that the matters referred to therein will occur. Past performance is not a reliable indicator of future performance. The value of investments may go down as well as up and those investing may, depending on the investments in question, lose more than the initial investment. No report shall constitute an offer or an invitation by or on behalf of CGS-CIMB, John Keells, SBE or Morgans or their respective affiliates (including CGIFHL, CIMBG and their respective related corporations) to any person to buy or sell any investments.
CGS-CIMB, John Keells, SBE and/or Morgans and/or their respective affiliates and related corporations (including CGIFHL, CIMBG and their respective related corporations), their directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto and may from time to time add to or dispose of, or may be materially interested in, any such securities. Further, CGS-CIMB, John Keells, SBE and/or Morgans and/or their respective affiliates and related corporations (including CGIFHL, CIMBG and their respective related corporations) do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory, underwriting or placement services for or relating to such company(ies) as well as solicit such investment, advisory or other services from any entity mentioned in this report.
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The analyst responsible for the production of this report hereby certifies that the views expressed herein accurately and exclusively reflect his or her personal views and opinions about any and all of the issuers or securities analysed in this report and were prepared independently and autonomously. No part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations(s) or view(s) in this report. The analyst(s) who prepared this research report are prohibited from receiving any compensation, incentive or bonus based on specific investment banking transactions or for providing a specific recommendation for, or view of, a particular company. Information barriers and other arrangements may be established where necessary to prevent conflicts of interests arising. However, the analyst(s) may receive compensation that is based on his/their coverage of company(ies) in the performance of his/their duties or the performance of his/their recommendations and the research personnel involved in the preparation of this report may also participate in the solicitation of the businesses as described above. In reviewing this research report, an investor should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additional information is, subject to the duties of confidentiality, available on request.
The term “John Keells Stock Brokers” shall, unless the context otherwise requires, mean each of John Keells Stock Brokers and its affiliates, subsidiaries and related corporations. The term “SB Equities Inc.” shall, unless the context otherwise requires, mean each of SB Equities Inc. and its
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affiliates, subsidiaries and related corporations. The term “Morgans Financial Limited” shall, unless the context otherwise requires, mean each of Morgans Financial Limited and its affiliates, subsidiaries and related corporations. The term “CGS-CIMB” shall denote, where appropriate, the relevant entity distributing or disseminating the report in the particular jurisdiction referenced below, or, in every other case except as otherwise stated herein, CGS-CIMB Securities International Pte. Ltd. and its affiliates, subsidiaries and related corporations.
CGS-CIMB
Country CGS-CIMB Entity Regulated by
Hong Kong CGS-CIMB Securities (Hong Kong) Limited Securities and Futures Commission Hong Kong
India CGS-CIMB Securities (India) Private Limited Securities and Exchange Board of India (SEBI)
Indonesia PT CGS-CIMB Sekuritas Indonesia Financial Services Authority of Indonesia
Malaysia CGS-CIMB Securities Sdn. Bhd. (formerly known as Jupiter Securities Sdn. Bhd.)
Securities Commission Malaysia
Singapore CGS-CIMB Research Pte. Ltd. Monetary Authority of Singapore
South Korea CGS-CIMB Securities (Hong Kong) Limited, Korea Branch Financial Services Commission and Financial Supervisory Service
Thailand CGS-CIMB Securities (Thailand) Co. Ltd. Securities and Exchange Commission Thailand
Information in this report is a summary derived from individual research reports. As such, readers are directed to the individual research report or note to review the individual Research Analyst’s full analysis of the subject company. Important disclosures relating to the companies that are the subject of research reports published by CGS-CIMB, John Keells, SBE or Morgans, as the case may be, and the proprietary position by each of them and shareholdings of its Research Analysts’ who prepared the report in the securities of the company(s) are available in the individual research report.
This report does not purport to contain all the information that a prospective investor may require. CGS-CIMB, John Keells, SBE and Morgans and their respective affiliates (including CGIFHL, CIMBG and their respective related corporations) do not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information and opinion contained in this report. None of CGS-CIMB, John Keells, SBE, Morgans and their respective affiliates and related persons (including CGIFHL, CIMBG and their respective related corporations) shall be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.
This report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CGS-CIMB’s and its affiliates’ (including CGIFHL’s, CIMBG’s and their respective related corporations’s) clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. The information and opinions in this report are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, related investments or other financial instruments or any derivative instrument, or any rights pertaining thereto.
Investors are advised to make their own independent evaluation of the information contained in this research report, consider their own individual investment objectives, financial situation and particular needs and consult their own professional and financial advisers as to the legal, business, financial, tax and other aspects before participating in any transaction in respect of the securities of company(ies) covered in this research report.
The securities of such company(ies) may not be eligible for sale in all jurisdictions or to all categories of investors.
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The current prices/yields in this issue are based upon closing prices from Bloomberg as of the day preceding publication. Please note that neither the German Federal Financial Supervisory Agency (BaFin), nor any other supervisory authority exercises any control over the content of this report.
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This publication is strictly confidential and is for private circulation only to clients of CHK.
India: This report is issued by CGS-CIMB, John Keells, SBE or Morgans, as the case may be, and distributed in India by CGS-CIMB Securities (India) Private Limited (“CGS-CIMB India”). CGS-CIMB India is a subsidiary of CGS-CIMB Securities International Pte. Ltd. which in turn is a 50:50 joint venture company of CGIFHL and CIMBG. The details of the members of the group of companies of CGS-CIMB can be found at www.cgs-cimb.com, CGIFHL at www.chinastock.com.hk/en/ACG/ContactUs/index.aspx and CIMBG at www.cimb.com/en/who-we-are.html. CGS-CIMB India is registered with the National Stock Exchange of India Limited and BSE Limited as a trading and clearing member (Merchant Banking Number: INM000012037) under the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992. In accordance with the provisions of Regulation 4(g) of the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013, CGS-CIMB India is not required to seek registration with the Securities and Exchange Board of India (“SEBI”) as an Investment Adviser. CGS-CIMB India is registered with SEBI (SEBI Registration Number: INZ000157134) as a Research Analyst (INH000000669) pursuant to the SEBI (Research Analysts) Regulations, 2014 ("Regulations").
This report does not take into account the particular investment objectives, financial situations, or needs of the recipients. It is not intended for and does not deal with prohibitions on investment due to law/jurisdiction issues etc. which may exist for certain persons/entities. Recipients should rely on their own investigations and take their own professional advice before investment.
The report is not a “prospectus” as defined under Indian Law, including the Companies Act, 2013, and is not, and shall not be, approved by, or filed or registered with, any Indian regulator, including any Registrar of Companies in India, SEBI, any Indian stock exchange, or the Reserve Bank of India. No offer, or invitation to offer, or solicitation of subscription with respect to any such securities listed or proposed to be listed in India is being made, or intended to be made, to the public, or to any member or section of the public in India, through or pursuant to this report.
The research analysts, strategists or economists principally responsible for the preparation of this research report are segregated from the other activities of CGS-CIMB India and they have received compensation based upon various factors, including quality, accuracy and value of research, firm profitability or revenues, client feedback and competitive factors. Research analysts', strategists' or economists' compensation is not linked to investment banking or capital markets transactions performed or proposed to be performed by CGS-CIMB India or its affiliates.
CGS-CIMB India does not have actual / beneficial ownership of 1% or more securities of the subject company in this research report, at the end of the month immediately preceding the date of publication of this research report. However, since affiliates of CGS-CIMB India are engaged in the financial services business, they might have in their normal course of business financial interests or actual / beneficial ownership of one per cent or more in various companies including the subject company in this research report.
CGS-CIMB India or its associates, may: (a) from time to time, have long or short position in, and buy or sell the securities of the subject company in this research report; or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company in this research report or act as an advisor or lender/borrower to such company or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.
CGS-CIMB India, its associates and the analyst engaged in preparation of this research report have not received any compensation for investment banking, merchant banking or brokerage services from the subject company mentioned in the research report in the past 12 months.
CGS-CIMB India, its associates and the analyst engaged in preparation of this research report have not managed or co-managed public offering of securities for the subject company mentioned in the research report in the past 12 months. The analyst from CGS-CIMB India engaged in preparation of this research report or his/her relative (a) do not have any financial interests in the subject company mentioned in this research report; (b) do not own 1% or more of the equity securities of the subject company mentioned in the research report as of the last day of the month preceding the publication of the research report; (c) do not have any material conflict of interest at the time of publication of the research report
Indonesia: This report is issued by CGS-CIMB, John Keells, SBE or Morgans, as the case may be, and distributed by PT CGS-CIMB Sekuritas Indonesia (“CGS-CIMB Indonesia”). The views and opinions in this research report are those of the issuer of the report, as of the date hereof and are subject to change. CGS-CIMB Indonesia has no obligation to update the opinion or the information in this research report. This report is for private circulation only to clients of CGS-CIMB Indonesia. Neither this report nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesian residents except in compliance with applicable Indonesian capital market laws and regulations.
This research report is not an offer of securities in Indonesia. The securities referred to in this research report have not been registered with the Financial Services Authority (Otoritas Jasa Keuangan) pursuant to relevant capital market laws and regulations, and may not be offered or sold within the territory of the Republic of Indonesia or to Indonesian citizens through a public offering or in circumstances which constitute an offer within the meaning of the Indonesian capital market law and regulations.
Ireland: CGS-CIMB is not an investment firm authorised in the Republic of Ireland and no part of this document should be construed as CGS-CIMB acting as, or otherwise claiming or representing to be, an investment firm authorised in the Republic of Ireland.
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New Zealand: In New Zealand, this report is for distribution only to persons who are wholesale clients pursuant to section 5C of the Financial Advisers Act 2008.
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Recipients of this report are to contact CGS-CIMB Research Pte Ltd, 50 Raffles Place, #16-02 Singapore Land Tower, Singapore in respect of any matters arising from, or in connection with this report. CGS-CIMBR has no obligation to update the opinion or the information in this research report. This publication is strictly confidential and is for private circulation only. If you have not been sent this report by CGS-CIMBR directly, you may not
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rely, use or disclose to anyone else this report or its contents.
If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CGS-CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. If the recipient is an accredited investor, expert investor or institutional investor, the recipient is deemed to acknowledge that CGS-CIMBR is exempt from certain requirements under the FAA and its attendant regulations, and as such, is exempt from complying with the following :
(a) Section 25 of the FAA (obligation to disclose product information);
(b) Section 27 (duty not to make recommendation with respect to any investment product without having a reasonable basis where you may be reasonably expected to rely on the recommendation) of the FAA;
(c) MAS Notice on Information to Clients and Product Information Disclosure [Notice No. FAA-N03];
(d) MAS Notice on Recommendation on Investment Products [Notice No. FAA-N16];
(e) Section 36 (obligation on disclosure of interest in specified products), and
(f) any other laws, regulations, notices, directive, guidelines, circulars and practice notes which are relates to the above, to the extent permitted by applicable laws, as may be amended from time to time, and any other laws, regulations, notices, directive, guidelines, circulars, and practice notes as we may notify you from time to time. In addition, the recipient who is an accredited investor, expert investor or institutional investor acknowledges that as CGS-CIMBR is exempt from Section 27 of the FAA, the recipient will also not be able to file a civil claim against CGS-CIMBR for any loss or damage arising from the recipient’s reliance on any recommendation made by CGS-CIMBR which would otherwise be a right that is available to the recipient under Section 27 of the FAA, the recipient will also not be able to file a civil claim against CGS-CIMBR for any loss or damage arising from the recipient’s reliance on any recommendation made by CGS-CIMBR which would otherwise be a right that is available to the recipient under Section 27 of the FAA.
CGS-CIMBR, its affiliates and related corporations, their directors, associates, connected parties and/or employees may own or have positions in specified products of the company(ies) covered in this research report or any specified products related thereto and may from time to time add to or dispose of, or may be materially interested in, any such specified products. Further, CGS-CIMBR, its affiliates and its related corporations do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in specified products of such company(ies), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory, underwriting or placement services for or relating to such company(ies) as well as solicit such investment, advisory or other services from any entity mentioned in this report..
South Korea: This report is issued by CGS-CIMB, John Keells, SBE or Morgans, as the case may be, and distributed in South Korea by CGS-CIMB Securities (Hong Kong) Limited, Korea Branch (“CGS-CIMB Korea”) which is licensed as a cash equity broker, and regulated by the Financial Services Commission and Financial Supervisory Service of Korea. In South Korea, this report is for distribution only to professional investors under Article 9(5) of the Financial Investment Services and Capital Market Act of Korea (“FSCMA”).
Spain: This document is a research report and it is addressed to institutional investors only. The research report is of a general nature and not personalised and does not constitute investment advice so, as the case may be, the recipient must seek proper advice before adopting any investment decision. This document does not constitute a public offering of securities.
CGS-CIMB is not registered with the Spanish Comision Nacional del Mercado de Valores to provide investment services.
Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The distribution of this report is not an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may not be forwarded to the public in Sweden.
Switzerland: This report has not been prepared in accordance with the recognized self-regulatory minimal standards for research reports of banks issued by the Swiss Bankers’ Association (Directives on the Independence of Financial Research).
Thailand: This report is issued by CGS-CIMB, John Keells, SBE or Morgans, as the case may be, and distributed by CGS-CIMB Securities (Thailand) Co., Ltd. (“CGS-CIMB Thailand”) based upon sources believed to be reliable (but their accuracy, completeness or correctness is not guaranteed). The statements or expressions of opinion herein were arrived at after due and careful consideration for use as information for investment. Such opinions are subject to change without notice and CGS-CIMB Thailand has no obligation to update the opinion or the information in this research report.
CGS-CIMB Thailand may act or acts as Market Maker, and issuer and offerer of Derivative Warrants and Structured Note which may have the following securities as its underlying securities. Investors should carefully read and study the details of the derivative warrants in the prospectus before making investment decisions.
AAV, ADVANC, AEONTS, AMATA, AOT, AWC, BANPU, BBL, BCH, BCP, BCPG, BDMS, BEC, BEM, BGC, BGRIM, BH, BJC, BPP, BTS, CBG, CENTEL, CHG, CK, CKP, COM7, CPALL, CPF, CPN, DELTA, DTAC, EA, EGCO, EPG, ERW, ESSO, GFPT, GLOBAL, GPSC, GULF, GUNKUL, HANA, HMPRO, INTUCH, IRPC, IVL, JAS, JMT, KBANK, KCE, KKP, KTB, KTC, LH, MAJOR, MBK, MEGA, MINT, MTC, ORI, OSP, PLANB, PRM, PSH, PSL, PTG, PTT, PTTEP, PTTGC, QH, RATCH, RS, SAWAD, SCB, SCC, SGP, SPALI, SPRC, STA, STEC, STPI, SUPER, TASCO, TCAP, THAI, THANI, THG, TISCO, TKN, TMB, TOA, TOP, TPIPP, TQM, TRUE, TTW, TU, VGI, WHA, BEAUTY, JMART, LPN, SISB, WORK.
Corporate Governance Report:
The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.
The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CGS-CIMB Thailand does not confirm nor certify the accuracy of such survey result.
Score Range: 90 - 100 80 - 89 70 - 79 Below 70 or No Survey Result
Description: Excellent Very Good Good N/A
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United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates.
United Kingdom and European Economic Area (EEA): In the United Kingdom and European Economic Area, this material is issued by CGS-CIMB, John Keells, SBE or Morgans, as the case may be, and is being distributed by CGS-CIMB Securities (UK) Limited (“CGS-CIMB UK”). CGS-CIMB UK is authorized and regulated by the Financial Conduct Authority and its registered office is at 27 Knightsbridge, London, SW1X7YB. The material distributed by CGS-CIMB UK has been prepared in accordance with CGS-CIMB Group’s policies for managing conflicts of interest arising as a result of publication and distribution of this material. This material is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are eligible counterparties and professional clients of CGS-CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Order”), (c) fall within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations etc”) of the Order; (d) are outside the United Kingdom subject to relevant regulation in each jurisdiction, material(all such persons together being referred to as “relevant persons”). This material is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this material relates is available only to relevant persons and will be engaged in only with relevant persons.
Where this material is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does not constitute independent “research” under the applicable rules of the Financial Conduct Authority in the UK. Consequently, any such non-independent material will not have been prepared in accordance with legal requirements designed to promote the independence of research and will not subject to any prohibition on dealing ahead of the dissemination of research. Any such non-independent material must be considered as a marketing communication.
United States: This research report is issued by CGS-CIMB, John Keells, SBE or Morgans, as the case may be, and distributed in the United States of America by CGS-CIMB Securities (USA) Inc, a U.S. registered broker-dealer and a related corporation of CGS-CIMB Securities Sdn. Bhd. (formerly known as Jupiter Securities Sdn. Bhd.), CGS-CIMB Research Pte Ltd, PT CGS-CIMB Sekuritas Indonesia, CGS-CIMB Securities (Thailand) Co. Ltd., CGS-CIMB Securities (Hong Kong) Limited and CGS-CIMB Securities (India) Private Limited, and is distributed solely to persons who qualify as “U.S. Institutional Investors” as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds, and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CGS-CIMB Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CGS-CIMB Securities (USA) Inc.
Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2019, Anti-Corruption 2019
ADVANC – Excellent, Certified, AEONTS – Good, n/a, AH – Very Good, n/a, AMATA – Excellent, Declared, ANAN – Excellent, Declared, AOT – Excellent, n/a, AP – Excellent, Certified, ASP – Very Good, Certified, BAM – not available, n/a, BANPU – Excellent, Certified, BAY – Excellent, Certified, BBL – Very Good, Certified, BCH – Good, Certified, BCP - Excellent, Certified, BCPG – Excellent, Certified, BDMS – Very Good, n/a, BEAUTY – Good, n/a, BEC – Very Good, n/a, BGRIM – Very Good, Declared, BH - Good, n/a, BJC – Very Good, n/a, BJCHI – Very Good, Certified, BLA – Very Good, Certified, BPP – Very Good, Declared, BR - Good, n/a, BTS - Excellent, Certified, CBG – Very Good, n/a, CCET – Good, n/a, CENTEL – Very Good, Certified, CHAYO - Good, n/a, CHG – Very Good, Declared, CK – Excellent, n/a, COL – Excellent, Declared, CPALL – Excellent, Certified, CPF – Excellent, Certified, CPN - Excellent, Certified, CPNREIT – not available, n/a, CRC – not available, n/a, DELTA - Excellent, Declared, DEMCO – Excellent, Certified, DDD – Very Good, n/a, DIF – not available, n/a, DREIT – not available, n/a, DTAC – Excellent, Certified, EA – Excellent, n/a, ECL – Very Good, Certified, EGCO - Excellent, Certified, EPG – Very Good, n/a, ERW – Very Good, n/a, GFPT - Excellent, Certified, GGC – Excellent, Certified, GLOBAL – Very Good, n/a, GLOW – Very Good, Certified, GPSC – Excellent, Certified, GULF – Very Good, n/a, GUNKUL – Excellent, Certified, HANA - Excellent, Certified, HMPRO - Excellent, Certified, HUMAN – Good, n/a, ICHI – Excellent, Declared, III – Excellent, n/a, INTUCH - Excellent, Certified, IRPC – Excellent, Certified, ITD – Very Good, n/a, IVL - Excellent, Certified, JASIF – not available, n/a, BJC – Very Good, n/a, JMT – Very Good, n/a, KBANK - Excellent, Certified, KCE - Excellent, Certified, KKP – Excellent, Certified, KSL – Excellent, Certified, KTB - Excellent, Certified, KTC – Excellent, Certified, LH - Excellent, n/a, LPN – Excellent, Certified, M – Very Good, Certified, MACO – Very Good, n/a, MAJOR – Very Good, n/a, MAKRO – Excellent, Certified, MALEE – Excellent, Certified, MC – Excellent, Certified, MCOT – Excellent, Certified, MEGA – Very Good, n/a, MINT - Excellent, Certified, MK – Very Good, n/a, MTC – Excellent, n/a, NETBAY – Very Good, n/a, OSP – Very Good, n/a, PLANB – Excellent, Certified, PLAT – Very Good, Certified, PR9 – Excellent, n/a, PSH – Excellent, Certified, PSTC – Very Good, Certified, PTT - Excellent, Certified, PTTEP - Excellent, Certified, PTTGC - Excellent, Certified, QH – Excellent, Certified, RATCH – Excellent, Certified, ROBINS – Excellent, Certified, RS – Excellent, n/a, RSP – not available, n/a, S – Excellent, n/a, SAPPE – Very Good, Declared, SAT – Excellent, Certified, SAWAD – Very Good, n/a, SC – Excellent, Certified, SCB - Excellent, Certified, SCC – Excellent, Certified, SCN – Excellent, Certified, SF – Good, n/a, SHR – not available, n/a, SIRI – Very Good, Certified, SPA - Good, n/a, SPALI - Excellent, n/a, SPRC – Excellent, Certified, STA – Very Good, Certified, STEC – Excellent, n/a, SVI – Excellent, Certified, SYNEX – Excellent, Certified, TASCO – Excellent, Certified, TCAP – Excellent, Certified, THANI – Excellent, Certified, TIPCO – Very Good, Certified, TISCO - Excellent, Certified, TKN – Very Good, n/a, TMB - Excellent, Certified, TNR – Very Good, Certified, TOP - Excellent, Certified, TPCH – Good, n/a, TPIPP – Good, n/a, TRUE – Excellent, Certified, TU – Excellent, Certified, TVO – Excellent, Declared, UNIQ – not available, n/a, VGI – Excellent, Certified, WHA – Excellent, Certified,
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Asia Pacific Daily | Equity Research | February 18, 2020
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WHART – not available, n/a, WICE – Excellent, Certified, WORK – Good, n/a. 1 CG Score 2019 from Thai Institute of Directors Association (IOD) 2 AGM Level 2018 from Thai Investors Association 3 Companies participating in Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of November 30, 2018) are categorised into: companies that have declared their intention to join CAC, and companies certified by CAC. 4 The Stock Exchange of Thailand : the record of listed companies with corporate sustainable development "Thai sustainability Investment 2018" included: SET and mai listed companies passed the assessment conducted by the Stock Exchange of Thailand: THSI (SET) and THSI (mai) SET listed companies passed the assessment conducted by the Dow Jones Sustainability Indices (DJSI)
Recommendation Framework
Stock Ratings Definition:
Add The stock’s total return is expected to exceed 10% over the next 12 months.
Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months.
Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months.
The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.
Sector Ratings Definition:
Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.
Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.
Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.
Country Ratings Definition:
Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.
Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.
Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.
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