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PREPARED BY NON-US BROKER-DEALER(S): BNP PARIBAS SECURITIES (ASIA) CO LTDTHIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES CAN BE FOUND AT APPENDIXON PAGE 26
6 August 2014
**************************************************************************************DOWNGRADETaiwan:
Uni-President: Steady growth but fairly valued (Jenny Tsai)
1216 TT; D/g to HOLD from Buy; CP: TWD56.90; TP: TWD62.00 (from TWD60.80)
Downgrade to HOLD with a TP of TWD62
2014E: P/E 24.2x, P/B 3.4x, Yield 2.5%
Click here for full story PAGE 4
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SECTOR RESEARCH / THEMATIC RESEARCH
India Banks: RBI in wait and watch mode (Avneesh Sukhija) Key benchmark rates unchanged, commentary slightly hawkish
RBI acknowledges risk to inflation; rate cut unlikely in near future
Other announcements: SLR requirement/HTM ceiling cut by 50bps
Click here for full story PAGE 5
**************************************************************************************MACRO-ECONOMICS & EQUITY STRATEGY
Asian Instant Insights
Indonesia: GDP - Q2 2014 (Philip McNicholas)
Click here for full story PAGE 6
Philippines: CPI - Jul 2014 (Philip McNicholas)Click here for full story PAGE 7
India: RBI Bi-Monthly Policy Decision (Mole Hau)
Click here for full story PAGE 8
Australia: RBA Decision - August 2014 (Mark Walton)
Click here for full story PAGE 9
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COMPANY RESEARCH (N. ASIA, ASEAN, JAPAN, INDIA)HK/China:
HKT:Question marks remain over mobile (Zoe Zhu)
6823 HK; HOLD (unchanged); CP:HKD9.02; TP: HKD8.30 CSL consolidated; DPU after rights issue unchanged y-y
2014E: P/E 24.1x, P/B 1.8x, Yield 5.3%
Click here for full story PAGE 10
.
Taiwan:
CTBC FHC:Expecting a stronger 2H (Frank Yuen)
2891 TT; BUY (unchanged); CP:TWD20.25; TP: TWD23.60
In line results excluding one-off distortions
2014E: P/E 11.2x, P/B 1.3x, Yield 2.0%
Click here for full story PAGE 11
BNP Paribas Events
CONFERENCE / CORPORATE DAY
Energy & Commodities Experts &Corporate Day
2 Sep 14
Korea Healthcare Corporate Day 22-23 Sep 14
COMPANY ROADSHOWS (By Location)
HK/China
Yangzijiang Shipbuilding(YZJSGD SP)
8 Aug 14
Wharf (4 HK) 12 Aug 14
Citic Telecom (1883 HK) 12-13 Aug 14Wheelock (20 HK) 14 Aug 14
China Longyuan Power (916 HK) 21 Aug 14
Matahari Department Store(LPPF IJ)
15-16 Sep 14
Korea
BASF (BAS GR) 7-8 Oct 14
Singapore
Yangzijiang Shipbuilding(YZJSGD SP)
6-7 Aug 14
Europe
Summit Ascent (102 HK) 29 Aug -2 Sep 14
China Telecom (728 HK) 29 Aug - 4 Sep 14
TCL Communication Technology(2618 HK)
1-4 Sep 14
Sino Land (83 HK) 1-4 Sep 14
Petronas Chemicals (PCHEMMK)
2-5 Sep 14
Huadian Power (1071 HK) 4-10 Sep 14
Matahari Department Store(LPPF IJ)
8-12 Sep 14
Shimao Property Holdings(813 HK)
23-26 Sep 14
US
Samsung Electronics (005930 KS) 4-8 Aug 14
AirAsia X (AAX MK) 25-26 Aug 14
SMIC (981 HK) 25-28 Aug 14
Delta (2308 TT) 8-12 Sep 14
Far EastTone (4904 TT) 22-26 Sep 14
Lite-On Tech (2301 TT) 29 Sep - 3 Oct 14
Others
SMIC (981 HK) 4 Sep 14
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SPOTLIGHT ON ASIA 6 AUGUST 2014
BNP PARIBAS
Our research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on http://eqresearch.bnpparibas.com/index. Please contactyour salesperson for authorisation. Please see the important notice on the back page.
**************************************************************************************COMPANY RESEARCH (N. ASIA, ASEAN, JAPAN, INDIA) (CONTD)
PCSC:Tepid growth in the near term (Jenny Tsai)
2912 TT; HOLD (unchanged); CP:TWD240.00; TP: TWD230.00 (from TWD208.00)
Stronger 2014E EPS growth on Muji disposal
2014E: P/E 28.3x, P/B 9.2x, Yield 2.5%
Click here for full story PAGE 12
.
Korea:
Daewoo Shipbuilding:Defining moment for DSME in 2Q14 (H James Yoon)
042660 KS; BUY (unchanged); CP:KRW25,200; TP: KRW32,300 (from KRW38,000)
Provisions remain biggest risk to 2Q14 earnings
2014E: P/E 16.7x, P/B 0.9x, Yield 1.2%
Click here for full story PAGE 13
.
Japan:
Chiba Bank:Adjusted NP at pre-Lehman level (Toyoki Sameshima)
8331 JP; BUY (unchanged); CP:JPY730.00; TP: JPY850.00 1Q NP sharply ahead of BNPPe and consensus
2015E: P/E 11.3x, P/B 0.8x, Yield 1.8%
Click here for full story PAGE 14
Dainippon Screen:2Q orders to grow; a good start (Yoshitsugu Yamamoto)
7735 JP; BUY (unchanged); CP:JPY475; TP: JPY600
1Q OP - JPY2.2b; 1H guidance raised above current consensus
2015E: P/E 12.5x, P/B 1.2x, Yield 0.6%
Click here for full story PAGE 15
Daikin Industries:Short-term reversal likely (Christopher Cintavey)
6367 JP; HOLD (unchanged); CP:JPY7,034; TP: JPY6,800 1Q FY3/15 results reported post-market
2015E: P/E 19.8x, P/B 2.3x, Yield 1.3%
Click here for full story PAGE 16
Kubota Corp:Balancing act (Christopher Cintavey)
6326 JP; REDUCE (unchanged); CP:JPY1,292; TP: JPY1,150
Reported better-than-expected 1Q FY3/15 results post-market
2015E: P/E 14.5x, P/B 1.6x, Yield 2.1%
Click here for full story PAGE 17
Toyota Motor:FY3/15 1Q: strong start to the year (Clive Wiggins)
7203 JP; BUY (unchanged); CP:JPY6,042; TP: JPY7,300 All-round strength
2015E: P/E 9.5x, P/B 1.2x, Yield 3.0%
Click here for full story PAGE 18
.
Malaysia:
Airasia:Conservative pax capacity growth (Arnaud Bouchet)
AIRA MK; BUY (unchanged); CP:MYR2.43; TP: MYR3.29
Change in ASK/RPK computation methodology
2014E: P/E 9.7x, P/B 1.2x, Yield 2.6%
Click here for full story PAGE 19
.
BNP Paribas Events
COMPANY ROADSHOWS (By Date)
4-8 Aug 14
Samsung Electronics (005930 KS) US
6-7 Aug 14
Yangzijiang Shipbuilding (YZJSGD SP) SG8 Aug 14
Yangzijiang Shipbuilding (YZJSGD SP) HK
12 Aug 14
Wharf (4 HK) HK
12-13 Aug 14
Citic Telecom (1883 HK) HK
14 Aug 14
Wheelock (20 HK) HK
21 Aug 14
China Longyuan Power (916 HK) HK
25-26 Aug 14
AirAsia X (AAX MK) US
25-28 Aug 14
SMIC (981 HK) US
29 Aug 2 Sep 14
Summit Ascent (102 HK) EU
29 Aug 4 Sep 14
China Telecom (728 HK) EU
1-4 Sep 14
TCL Communication Technology(2618 HK)
EU
1-4 Sep 14
Sino Land (83 HK) EU
4 Sep 14
SMIC (981 HK) Others2-5 Sep 14
Petronas Chemicals (PCHEM MK) EU
4-10 Sep 14
Huadian Power (1071 HK) EU
8-12 Sep 14
Delta (2308 TT) US
Matahari Department Store (LPPF IJ) EU
15-16 Sep 14
Matahari Department Store (LPPF IJ) HK
22-26 Sep 14
Far EastTone (4904 TT) US
23-26 Sep 14Shimao Property Holdings (813 HK) EU
29 Sep 3 Oct 14
Lite-On Tech (2301 TT) US
7-8 Oct 14
BASF (BAS GR) KR
2
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SPOTLIGHT ON ASIA 6 AUGUST 2014
BNP PARIBAS
Our research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on http://eqresearch.bnpparibas.com/index. Please contactyour salesperson for authorisation. Please see the important notice on the back page.
**************************************************************************************COMPANY RESEARCH (N. ASIA, ASEAN, JAPAN, INDIA) (CONTD)
Singapore:
Capitaland: Optimizing its portfolio (Chong Kang Ho)
CAPL SP; BUY (unchanged); CP:SGD3.44; TP: SGD3.77
1H14 results operating PATMI up 30% y-y
2014E: P/E 18.9x, P/B 0.9x, Yield 1.7%
Click here for full story PAGE 20
Far East Hospitality Trust: Challenging outlook ahead (Chong Kang Ho)
FEHT SP; HOLD (unchanged); CP:SGD0.87; TP: SGD0.91
1H14 results tracking lower
2014E: P/E 14.9x, P/B 0.9x, Yield 6.7%
Click here for full story PAGE 21
Global Logistic Prop: A surge in development starts (Chong Kang Ho)
GLP SP; BUY (unchanged); CP:SGD2.80; TP: SGD3.22
1QFY15 tracking ahead
2015E: P/E 39.4x, P/B 1.2x, Yield 1.1%Click here for full story PAGE 22
.
Philippines:
PLDT: Sales in line; margin disappoints (Kunal Vora)
TEL PM; BUY (unchanged); CP:PHP3,136.00; TP: PHP3,150.00
Mobile business disappoints; weak SMS and rising costs
2014E: P/E 17.0x, P/B 5.0x, Yield 5.5%
Click here for full story PAGE 23
.
India:
Cummins India: Guidance increase in-line (Girish Nair)KKC IN; HOLD (unchanged); CP:INR626.65; TP: INR652.00 (from INR610.00)
1QF15 earnings disappoint on weak domestic sales
2015E: P/E 24.8x, P/B 6.1x, Yield 2.5%
Click here for full story PAGE 24
Hero Motocorp: Margin concerns continue (Vijay Chugh)
HMCL IN; BUY (unchanged); CP:INR2,583.30; TP: INR3,000.00 (from INR2,775.00)
1QFY15 margin missed expectations because of duty anomalies
2015E: P/E 17.7x, P/B 7.4x, Yield 2.9%
Click here for full story PAGE 25
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Steady growth but fairly valued
Downgrade to HOLD with a TP of TWD62
We forecast reported EPS of TWD2.50 for 2014 and TWD2.96 for
2015. We see earnings growth in 2014-15, attributable to recovery in
the F&B business and cost control. Net income contributions with
modest growth should continue from PCSC, Ton Yi Industrial and
Taiwan ScinoPharm. The upside risk is F&B operating marginrecovering to more than 4% in 2014 vs our current forecast of 2.8%.
2Q14 seasonally slow for F&B, but margins should improve
Preliminary 2Q14 sales came in at TWD106bn, down 2% q-q and
flattish y-y. We expect a q-q decline in net profit on smaller disposal
gains. We forecast gross margin of 31.5% and operating margin of
5.2% for 2Q. Although we expect a higher utilities bill, F&B operating
margin should still recover on the continued streamlining of stock-
keeping units (SKUs).
Beverage sales should be strong in 3Q14 on a seasonal peak
Summer is the peak season for the beverage business. Sales of both
UPE and Ton Yi Industrial saw a rebound in June. Thus, we expect
hot weather to lead to stronger q-q sales in 3Q14.
We roll forward to a 2015E valuation; SOTP-based TP of TWD62
Our target price implies a 20.9x 2015E P/E which compares to the
regional F&B peers average of 20.5x (Bloomberg consensus). Thus,
we believe UPEs valuation is fair and already reflects the companys
earnings stability supported by its portfolio diversification. UPE is due
to host its 2Q14 analyst meeting on 12 August 2014.
2014E net earnings split
Source: BNP Paribas estimates
TW & SE AsiaF&B
10.0%
UPC16.5%
Other ChinaF&B5.4%
PCSC31.6%
Ton Yi9.1%
ScinoPharm4.4%
Disposal9.8%
Others13.2%
6AUGUST 2014
TAIWAN/FOOD BEVERAGE &TOBACCO
UNI-PRESIDENT 1216 TT
HOLDFROM BUY
TARGET PRICE TWD62.00
CLOSE TWD56.90
UP/DOWNSIDE +9.0%
PRIOR TP TWD60.80
CHANGE IN TP +2.0%
HOW WE DIFFER FROM CONSENSUS MARKET RECS
TARGET PRICE (%) 6.5 POSITIVE 11
EPS 2014 (%) (6.0) NEUTRAL 9
EPS 2015 (%) (0.0) NEGATIVE 1
Jenny [email protected]
+8862 8729 7054
Patricia [email protected]
+886 2 87297063
KEY STOCK DATA
YE Dec (TWD m) 2013A 2014E 2015E 2016E
Revenue 423,056 443,578 479,167 520,180
Rec. net profit 11,064 12,846 16,467 17,416
Recurring EPS (TWD) 2.15 2.35 3.01 3.19
Prior rec. EPS (TWD) 2.37 2.73 3.06 -
Chg. In EPS est. (%) (9.3) (14.0) (1.6) nm
EPS growth (%) (14.5) 9.5 28.2 5.8
Recurring P/E (x) 26.5 24.2 18.9 17.8
Dividend yield (%) 2.3 2.5 2.4 2.9
EV/EBITDA (x) 9.8 9.3 8.6 8.0
Price/book (x) 3.4 3.4 3.1 2.9
Net debt/Equity (%) 43.9 55.2 56.9 55.0
ROE (%) 13.1 14.4 17.1 16.6
Share price performance 1 Month 3 Month 12 Month
Absolute (%) 2.0 10.5 (8.4)
Relative to country (%) 4.4 4.2 (26.0)
Next results August 2014
Mkt cap (USD m) 10,359
3m avg daily turnover (USD m) 12.7
Free float (%) 75
Major shareholder Board of director (20%)
12m high/low (TWD) 63.20/47.60
3m historic vol. (%) 14.2
ADR ticker -
ADR closing price (USD) -
Issued shares (m) 5,463
Sources: Bloomberg consensus; BNP Paribas estimates
(59)
(39)
(19)
1
28.00
38.00
48.00
58.00
68.00
Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
(%)(TWD) Uni-President Rel to MSCI Taiwan
4
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RBI in wait and watch mode
Key benchmark rates unchanged, commentary slightly hawkish
The Reserve Bank of India (RBI) in its monetary policy review today maintained the
status quo on policy rates: repo rate of 8% (the key benchmark rate) and reverse
repo and MSF rates at 7% and 9% respectively. The RBI kept its inflation target at
8% for January 2015 and 6% for January 2016, but sees upside risks.
RBI acknowledges risk to inflation; rate cut unlikely in near future
RBIs tone in todays monetary policy seemed somewhat hawkish, as it closely took
note of the risks to inflation, such as a deficient monsoon, impact of geo-political
tensions on crude oil prices although it does not seem very concerned about
these yet. The RBI said that it is also cognizant of the supply side inflation that can
get triggered once growth starts to recover. BNPP economist Mole Hau sees the
possibility of a rate hike if monsoon or the quality of fiscal tightening disappoints.
Other announcements: SLR requirement/HTM ceiling cut by 50bps
Statutory liquidity ratio cut by 50bps:the RBI reduced the SLR by 50bps to
22%, as most public-sector banks hold SLR reserves well in excess of the
minimum requirement. Hence, the cost of funds for banks is unlikely to change.From a policy point of view, the liquidity coverage ratio (LCR) requirement under
BASEL III norms is due to be implemented in phased manner, starting at 60%, from
January 2015, and the investment in bonds required will likely be above the SLR
requirement at that point in time. Therefore, we see the possibility of further SLR
reduction. We believe todays cut is a pragmatic step by the RBI to avoid
unnecessary regulatory burden on banks.
Held-to-maturity limit at 24% (i.e., cut by 50 bps):currently, banks cannot hold
more than 24.5% of their SLR reserves as held-to-maturity (HTM) securities. Today,
the RBI reduced this ceiling by 50bps to 24%. This implies that banks will have to
transfer SLR securities earlier recognized as HTM into the available-for-sale (AFS)
or held-for-trading category (HFT) categories, after which these securities will haveto be sold in the secondary debt market. We believe this step of the RBI is aimed at
improving liquidity and creating depth in the government debt market.
What to do after the RBI policy review?
We do not expect any significant policy easing in the near term. Thus, we continue
to prefer banks with a strong retail franchise (that are not overly dependent on a
significant uptick in GDP/the infrastructure sector). We reiterate BUY on HDFC
Bank (HDFCB IN, CP INR813.00) IndusInd Bank (IIB IN, CP INR554.80) and ICICI
(ICICIBC IN, CP INR1,491.40).
6AUGUST 2014
EQUITIES RESEARCH
INDIA BANKS
Avneesh [email protected]
+91 22 6196 4352
Chetan [email protected]
+91 22 6176 5619
5
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Market Economics 6August 2014
Asian Instant Insight
Indonesia: GDP (Q2 2014)Key Facts
Q2 GDP growth was weaker than expectedat 5.1% y/y, down f rom 5.2% y/y in Q1.
In q/q terms, GDP was up an estimated4.9% annualised, up from 4.0% in Q1.
Final domestic demand softened asinvestment remained weak.
Net trade boosted the headline as importvolumes fell faster than exports.
Indonesian growth momentum improved in Q2 despitea slight drop in the annual rate of expansion. Theimprovement, however, was largely a function ofcontinued import compression. Domestic demandsoftened further, with domestic final sales experiencinga broad-based dip in momentum. Meanwhile, exportscontinued to struggle with a drop in external demandand ongoing terms of trade shock. Going forward, whilesigns of recovery are emerging, a less flatteringstatistical base suggests y/y growth rates remain underpressure. Thus, we retain our 2014 full-year GDPgrowth forecast of 5.2%.
Indonesias economy expanded 5.1% y/y in Q2, down from5.2% y/y in Q1. The outcome was below consensusexpectations for GDP growth of 5.2% y/y but above our forecastof 5.0% y/y. On a sequential basis, however, the data suggest anascent recovery in economic momentum. We estimate GDPexpanded at a 4.9% q/q saar clip, up from 4.0% q/q saar in Q1.
Dissecting the data, we find the improvement was driven largelyby net exports, which contributed 1.4pp to the headline reading,up from 0.1pp in Q1. Moreover, the uplift to net exportscontinues to be led by import compression, as incomingshipment volumes fell at a 12% q/q saar clip, translating to a5% y/y drop. This gave a 1.9pp lift to headline GDP and morethan offset the 1.1% q/q saar dip in export volumes in Q2.
Private consumption remained resilient, registering growth of5.6% y/y and accounting for 3.5pp of the 4.7% y/y gain in finaldomestic sales. Beyond this the domestic economy providedfew positives. We estimate sequential momentum in domesticfinal sales slipped to 4.1% q/q saar from 5.5% q/q saar in Q2.Moreover, the dip was broad-based with all major componentsexperiencing a slowdown. This was most evident in governmentconsumption, which shrank 0.7% y/y (-6.6% q/q saar).However, investment spending momentum also ebbed, growingan estimated 3.9% q/q saar after growing 5.2% q/q saar in Q2,thanks to sluggish capital goods spending by foreign investors.
On a sector level, a modest sequential pick up in manufacturingoutput and construction activity allowed output growth amonggoods producing industries to remain unchanged at 4.1% y/y inQ2. Unfortunately, persisting weakness in the mining-linked
activity, especially for oil & gas, indicates downward pressureon annual gains will intensify in H2. This is particularlymeaningful for fiscal balances and the current account deficit asit implies further deterioration in the oil & gas balance ifpoliticians continue to avoid fuel subsidy rationalisation.
Meanwhile, service sector growth momentum ebbed to 5.6%q/q saar in Q2 from 6.6% q/q saar in Q1, translating to a gain of6.2% y/y. While still relatively robust, this expansion wasroughly half a standard deviation below the average pace ofservice sector growth since 2000. Softer transport activity, likelyreflecting weaker import demand, and a contraction ingovernment service provision, resulting from fiscal cutbacksneeded to sustain subsidy spending, caused the slowdown inservices. This was offset by gains in wholesale & retail trade aswell as financial and business service activity.
Although less than stellar, as the outcome is broadly in line withour expectations and shows nascent signs of recovery in keysectors, we leave our 2014 and 2015 full year GDP growthforecasts unchanged at 5.2% and 5.6%, respectively. We would
caution, however, that base effects are more challenging in H2,especially in Q4 where we currently expect GDP growth will slipbelow 5.0% y/y for the first time since Q3 2009.
On a more positive note, this was the fourth consecutivequarter of double-digit nominal growth. This, coupled withrelative IDR stability, suggests the Q2 current account deficit,which we estimate at USD8.5bn, will be equal to 4% of GDP,keeping the H1 cumulative current account deficit around 3% ofGDP. Given Bank Indonesias (BI) focus on the current accountdeficit as the intermediate target for monetary policy, concernsurrounding the full-year target should ease and with it anyimpetus for further policy tightening. That said, data also showsthe ongoing terms of trade shock is still taking a toll on externalbalances. Based on the national accounts data, we estimategoods exports shrank at a 2.7% q/q saar pace, while imports
were flat. The implied deterioration clearly suggests headwindsto sustained current account improvement persist, constrainingBIs ability for a more accommodative policy bias.
Phil ip McNicholas 852 2108 [email protected]
Key Chart: Some signs of recovery
Source: CEIC, BNP Paribas
Key Chart: but domestic economy still w eak
Source: CEIC, BNP Paribas
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Market Economics 6August 2014
Asian Instant Insight
Philippines: CPI (Jul 2014)Key Facts
Headline CPI rose 4.9% y/y in July, upfrom 4.4% y/y in June.
Food prices rose 8.8% y/y in July, up f roma 7.8% y/y gain in June.
Non-food prices rose 2.5% y/y in July,down f rom 2.3% y/y in June.
Core inflation rose to 3.0% y/y in July,from 2.8% y/y in June.
July CPI was stronger than expected due totyphoon-linked supply shocks. Government policyefforts to address food supply constraints have yetto have an effect, heightening risk of inflationexpectations becoming untethered. In response, weexpect BSP to hike the OBR a further 25bp, taking itto 4.00% in September, before pausing. Yet, themove is unlikely to affect economy-wide borrowingcosts. Thus far, BSP continues to drain funds viathe SDA. However, as 2015 CPI may breach BSPs
target range, a further 25bp hike in the SDA ratetaking it to 2.50%, is likely in Q4.
Typhoon-linked supply shocks caused Philippines CPI torise to 4.9% y/y in July, up from 4.4% y/y in June. The printwas stronger than the 4.6% y/y gain both consensus andourselves had expected. The surprise gain lifted CPImomentum to a 4.6% 3m/3m saar pace from 3.0% 3m/3msaar in June. In light of this, we raise our forecast for 2015average CPI to 4.0% y/y from 3.8% y/y previously.
Core CPI rose 3.0% y/y, slightly above consensusexpectations of a 2.9% y/y gain but softer than the 3.1%y/y rise we had forecast. On a sequential basis, weestimate core CPI rose at an annualised pace of 2.1%
3m/3m sa. On a forward-looking basis, this suggestsdemand-pull price pressures are contained for themoment. However, given the Philippines low income level,inflationary expectations are very closely tied todevelopments in food prices. On that front, developmentsare far less helpful.
While non-food CPI ticked up to 2.5% y/y from 2.3% y/y inJune, food prices continued surge, rising 8.7% y/y up from7.8% y/y. Rice prices, which alone account for 8.9% of theCPI basket, rose 1.8% m/m and translated to a 14.4% y/ygain. By our estimates, rice price momentum picked up to13.2% 3m/3m saar from 11.5% 3m/3m saar in June. Thiswas the 11
th consecutive month rice prices rose at a
double-digit annualised pace. Garlic prices are also acause for concern among policy makers as garlic supplyshortages have attributed to a 16.5% y/y rise in vegetableprices.
Media reports suggest price pressures have started to
ease in vegetable markets as the government hasincreased imports to address supply shortages. Similarefforts are starting for rice with President Aquinohighlighting a substantial increase in imports in last weeksState of the Nation Address (SoNA).
As Indian policy makers have found, inflation breakoutsamong key consumer staples are the most difficult toaddress given their limited responsiveness to monetarypolicy. This is especially the case in the Philippines wherethe banking system is small and financial literacy is low.Effectively tackling the breakout will require thegovernment to continue importing fresh rice supplies untilonshore prices are again moving in tandem with Asian
benchmarks. In tandem with this, Bangko Sentral ngPilipinas (BSP) will hope to keep inflation expectationsanchored and curb potential second round effects throughanother 25bp hike in the Overnight Borrowing Rate (OBR)to 4.00% in September before pausing for the rest of 2014.
Yet, with 3-month treasury bills yielding a paltry 1.37% p.a.,reflecting ample onshore liquidity and limited bond supply,economy-wide borrowing costs are likely to be unaffectedby this. Hikes in Special Deposit Account (SDA) rate(currently 2.25%), which has become the de facto policyrate, are likely to be more meaningful. Thus far, weeklydata indicates BSP is luring funds back to the SDA, easingexcess liquidity concerns. That said, as we now see BSP
struggling to keep 2015 CPI within its target range of 2.0-4.0%, at least one more hike in the SDA appears likely in2014, though not at the September review.
Phil ip McNicholas 852 2108 [email protected]
Key Chart: Problematic rice breakout
Source: CEIC, BNP Paribas
Key Data Table
% Mar Apr May Jun Jul
CPI (m/m) -0.1 0.4 0.5 0.4 0.6
CPI (y/y) 3.9 4.1 4.5 4.4 4.9
Core (y/y)2006=100
2.8 2.9 3.1 2.8 3.0
Food (y/y) 6.0 6.5 7.1 7.8 8.8
Source: CEIC, BNP Paribas
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Market Economics 6August 2014
Asian Instant Insight
India: RBI Bi-Monthly Policy DecisionKey Facts
RBI leaves the key policy rate the repo rate unchanged at 8% as expected.
SLR was cut further to 22%, but largelysymbolic given banks excess holdings.
Junes mention of headroom for an easingof the policy stance was removed.
New mention of upside risks to 2016 CPI
target signals limited scope for easing.
As expected, RBI lef t its key policy rate unchanged atits first bi-monthly policy review since the budget wasannounced. RBI looked more confident than twomonths ago that its 8% CPI target by early 2015 will bemet. Yet, inclusion of new language acknowledgingupside risks to its 6% target by early 2016 and removalof mention of scope for policy easing shifted the policystatement in a slightly more hawkish direction as RBIwas probably underwhelmed by the budget, wheretough decisions on subsidy control were once againskirted. Like RBI, we still regard inflation risks asskewed to the upside, with the crystallisation of thoserisks largely determined by the progress of this yearsmonsoon and the quality of fiscal tightening. If eitherdisappoint, upside risks are likely to become real andrate hikes could come back onto the agenda in 2015.
As expected, Reserve Bank of India (RBI) left its key policyrate unchanged at its first bi-monthly policy review since thebudget was announced. Changes to the language and toneshifted the accompanying policy statement in a slightly morehawkish direction relative to two months ago. This movecan probably best be seen as a reflection of RBI GovernorRajan being left underwhelmed by the maiden budgetdelivered by the Finance Ministry of the Modi administrationlast month.
The statement explicitly acknowledged the recently better
than expected inflation data, as headline CPI inflation inJune, at 7.3% y/y, substantially undershot RBIs projections(even outside the 90% confidence interval) as suggested byits fan-chart in the last policy statement published in earlyJune. The benign inflation data also led RBI to sound moreconfident than two months ago that inflation at around 8per cent in early 2015 seems likely, noting that overallrisks are more balanced than in June.
The key change to the policy statement, however, was theinclusion of new language acknowledging that the risks forRBIs target of 6% by early 2016 are to the upside whileJunes mention of headroom for an easing of the policystance was dropped. INRs recent movement andstrengthening activity were added to the list of upsideinflation risks uncertainty over monsoon conditions, geo-political tensions and uncertainty over administered prices from two months ago. The prospect of better fiscalconsolidation, previously cited as one of the potentialdisinflationary factors, was absent in todays statement.
The tweaks in the language of the policy statement wereprobably a reflection of RBI being underwhelmed by theFinance Minister Arun Jaitleys budget. The admittedly-dovish tone of the June statement was more of an attemptby RBI Governor Rajan to extend a welcome hand to theruling NDA government ahead of its maiden budget in ourview. The budget ambitiously aimed to stick to the 4.1% ofGDP target for FY2015 set out by the previous government,but merely by betting once again on dubious expectationsfor subsidy control and tax-base buoyancy. With Mr. Jaitley
eschewing the opportunity to come clean on subsidies, thebudget does little to help RBI in regaining inflation control.
While necessarily stopping short of formally adoptinginflation targeting, RBI in todays statement reiterated theguidance issued in June that it remains committed tokeeping the economy on a disinflationary course, taking CPIinflation to 8% by January 2015 and 6% by January 2016.
The rapid pace of improvement in the monsoon over thepast few weeks is good news, but only to the point that ithas helped narrow the rainfall deficiency. Still 21% deficientto date, below par monsoon rains still threaten to leave thecountry on course for the worst drought since 2009 and seefood price inflation back up to double-digit territory.
While this is unlikely to be sufficient to blow CPI inflationdecisively off its target of 8% by early-2015, another freshbout of inflation in food items, which comprise over 45% ofthe CPI basket and hence play an outsized role inhouseholds inflation perceptions, will almost certainlyimpede the re-anchoring of inflation expectations. That willadd to the challenge in lowering core inflation, withaggregate demand also seen by the central bank as oncourse to strengthen.
Tight monetary policy that re-anchors household inflationexpectations is critical to RBIs disinflationary strategy.Pulling inflation expectations down from their existingdouble-digit territory is slow progress given their tendency toonly respond adaptively to current inflation. As RBI remains
committed to bringing down CPI inflation down to 6% byearly 2016, further policy tightening may be required in 2015.
Mole Hau 852 2108 [email protected]
Key Chart: Monsoon Risks
Source: BNP Paribas, IMD
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Market Economics 6August 2014
Asian Instant Insight
Australia: RBA Decision (August 2014)Key Facts
The RBA maintains the cash rate at 2.5%,as widely expected.
Its assessment of the broad growthdrivers remains unchanged.
A period of stabi li ty in interest rates isstill the most l ikely outcome.
The RBA also maintained its view that theexchange rate remains high.
The RBA has made a habit of delivering boringmonetary policy statements this year, and thismornings was no exception. As well as leaving thepolicy rate unchanged at 2.5%, the Board also opted tocarry over nearly all of the phrasing from a month agoin its media release. The key signal of intent themost prudent course is likely to be a period of stabilityin interest rates was retained. Consistent with this,our core view remains that rates will be on hold until2016. The RBA also continued to limit its publicdiscomfort about the level of the exchange rate to it
remaining high by historical standards . The stockstandard nature of the media release suggests FridaysStatement of Monetary Policy could also be a ho humaffair, though we see some risk the RBA will be moreovert about lower inflation in coming quarters.
The only notable addition in the media release was theinclusion of a sentence acknowledging the Q2 CPI data,which showed an increase in inflation, with both headlineand underlying measures affected by the decline in theexchange rate last year. In a statement devoid of any othersignificant changes in language, it was likely this mention ofhigher inflation that provoked a minor rally in AUDimmediately following the announcement.
There are no other signs that the RBA has any concerns onthe inflation front, however. Indeed, the above sentence isfollowed immediately by a re-iteration of the RBAs long-promulgated argument that wage growth has declined, isexpected to remain modest for some time and should keepinflation consistent with the target.
Moreover, the RBAs description of its growth outlook was all-but lifted verbatim from last months policy decision. Exportsgrowth is slowing after being boosted by new mining capacityearlier in the year, resource sector investment is falling in linewith the sharp correction in iron ore and coal prices, andpublic spending is scheduled to be subdued. Consumerdemand growth is simply moderate, with the only cleartailwind for GDP growth being a strong expansion in housing
construction. Overall the RBA remains hopeful thataccommodative monetary policy settings will engender anupswing in growth, but over the medium term the Bank stillexpects growth to be a little below trend over the year ahead.The RBAs expectation of below trend growth further cementsthe view that disinflationary forces are likely to dominate over
coming quarters.
In contrast to the impression given by the further increase inthe measures of headline and underlying inflation in the mostrecent, Q2, CPI data, other indicators strongly suggest thatinflation has peaked. TD Securities monthly gauge providesperhaps the clearest signal, having been a relatively accurateleading indicator of swings in official headline inflation overthe past decade, dropping to 2.6% y/y in July, and
representing the biggest decline since mid-2013. From themost recent data, movements in the retail sales implicit pricedeflator, producer price indices, house prices and commodityprices all point to lower inflation in coming quarters. Adding tothis disinflationary impetus, the impact of the decline in theexchange rate last year, to which the RBA is careful toattribute the rise in Q2 CPI inflation, is likely to counterimported inflation as AUD moves into positive year-on-yearterritory. Overall, we see a high chance of headline inflationdropping back to the middle of the 2-3% target band in Q3.
Todays relatively dull media release suggests that more ofthe same could be on offer in Fridays Statement of MonetaryPolicy. That said, with forward inflationary indicators nowpointing downwards, contrary to the upward move in the most
recent CPI print, we wonder whether the RBA may take theopportunity to lower its inflation profile a notch.
Mark Walton 852 2108 [email protected]
Key Chart: AUD helped pushed CPI higher...
-3
-2
-1
0
1
2
3
4
5
6
7
02 03 04 05 06 07 08 09 10 11 12 13 14
Australia CPI inflation, % y/y
TradablesNon-tradables
Total
RBA target band
Source: BNP Paribas, Reuters EcoWin Pro
Key Chart: but d isinflation already at work
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
04 05 06 07 08 09 10 11 12 13 14
Australia CPI inflation, % y/y
TD Securities monthly inflation gauge
Official headline
Source: BNP Paribas, Reuters EcoWin Pro
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Question marks remain over mobile
CSL consolidated; DPU after rights issue unchanged y-y
HKT reported 1H14 interim results today, the first reporting since CSL
consolidation in May. TSS remained stable with revenue +4% y-y and
EBITDA +2% y-y; the mobile business, with CSL included from May,
now makes up 23% of group revenue and 22% of group EBITDA and
the contribution should increase to one third on a full year basis. Dueto the CSL consolidation and reclassification of handset sales into
mobile from TSS previously, the y-y mobile performance in 1H is
unclear. On an enlarged basis after the rights issue, AFF per Share
Stapled Unit was down 9% y-y; interim DPU is kept the same as last
year at HKD0.21.
Some early wins from CSL integration
HKT expects to realise more synergies in the next 18-24 months as
the CSL integration continues, with savings from spectrum and cell
sites rationing, mobile plans and brand simplification, etc. It guided a
10-15% saving in mobile opex previously, which we expect to be
realised gradually as the integration progresses. According to thecompany, mobile integration has gone fairly smoothly, with low staff
turnover and fewer customer complaints.
Question marks remain over mobile
HKT indicated some future mobile tariff increases in the briefing
today, citing the cost pressures operators faced. We are of the view
that operators have always been seeking ways to pass cost
pressures onto consumers, regardless of market consolidation,
hence the tariff hike in Sep 2013, even before the CSL deal. We think
the real question is how repeatable (given the ceiling of the mobile
bill consumers are willing to bear out of disposable income) any tariff
increase can be, and whether it can be reinforced given the instability
in market segments among the operators in order to offset the mid-
to high-single-digit growth of mobile opex in general for a data centric
market like HK. HOLD with TP of HKD8.30.
6AUGUST 2014
RESULTS FLASH
HKT 6823 HKHONG KONG/DIVERSIFIED TELECOMMUNICATION
HOLD
TARGET PRICE HKD8.30
UP/DOWNSIDE -8.0%
CLOSE HKD9.02
HOW WE DIFFER FROM CONSENSUS MARKET RECS
TARGET PRICE (%) (5.7) POSITIVE 7
EPS 2014 (%) 10.8 NEUTRAL 9
EPS 2015 (%) 8.0 NEGATIVE 1
+852 2825 1120
Alen [email protected]
+8862 8729 7061
KEY STOCK DATA
YE Dec (HKD m) 2013A 2014E 2015E 2016E
Revenue 22,832 30,362 36,579 39,263
Rec. net profit 2,376 2,837 3,435 3,976
Recurring EPS (HKD) 0.37 0.37 0.45 0.53
EPS growth (%) 49.2 1.2 21.1 15.7
Recurring P/E (x) 24.4 24.1 19.9 17.2
Dividend yield (%) 5.0 5.3 6.0 6.5
EV/EBITDA (x) 10.0 8.3 7.4 6.8
Price/book (x) 1.9 1.8 1.8 1.7
Net debt/Equity (%) 71.1 80.9 78.8 75.1
ROE (%) 7.7 8.2 8.9 10.2
Share price performance 1 Month 3 Month 12 Month
Absolute (%) 3.3 11.5 15.5
Relative to country (%) (1.4) (0.7) 4.6
Mkt cap (USD m) 8,813
3m avg daily turnover (USD m) 5.4
Free float (%) 32
Major shareholder PCCW (63%)
12m high/low (HKD) 9.30/6.22
3m historic vol. (%) 24.5
ADR ticker -
ADR closing price (USD) -
Issued shares (m) 7,572
Sources: Bloomberg consensus; BNP Paribas estimates
(48)
(28)
(8)
12
3.00
8.00
13.00
18.00
23.00
28.00
Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
(%)(HKD) HKT Rel to Hang Seng Index
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Expecting a stronger 2H
In line results excluding one-off distortions
CTBC held its 1H14 results briefing today. Excluding a one-off gain
from negative goodwill (NTD14.7b), 1H14 NP was NTD13.5b or 51%
of our full-year forecast. The bright spot was strong FCY corporate
loan growth of 31% y-y in 1H14, outpacing NTD loan growth of 5.3%
y-y and driven by strong credit demand in overseas branches (+7.2%q-q) in SG and the US and, to a lesser extent, by its offshore banking
unit (-5.2% q-q). CTBCs tier 1 ratio rose back to 10.1%, within our
expectation. Its credit cost stayed low at 5bp with the corporate NPL
ratio falling further to 18bp (-7bp q-q). The group NPL ratio rose to
1.1% with the addition of Tokyo Star Bank (TSB).
Softer growth momentum in 2Q along with the sector
CTBCs wealth management fee income growth softened from the
peak in 1Q14 due to stop-selling effects. Its TMU quarterly revenue
was one of its weakest in the past two to three years. CTBCs bank
NIM contracted by 5bp to 1.54% (2bp on higher FCY funding cost
and 3bp on the consolidation of TSB). CTBC attributed the higherfunding cost to its overseas subsidiaries in the US and Indonesia that
actually strengthens its funding base, rather than from deposit
competition in the domestic market.
Expecting a stronger 2H on multiple fronts
We expect stronger earnings growth in 2H14 given an increased
contribution from TSB (its ROA improved from 19bp in 2012 to 41bp
in 2013). Management is confident it can lower TSBs funding cost
and is guiding for an annual contribution of JPY12b to represent
c17% of group earnings. CTBC is also expecting TMU momentum to
recover in 4Q14 as volumes have started to normalize since the end
of 2Q14. The shares are trading at 1.3x 12-month forward P/B and
have strong FYC growth potential. We have a BUY rating and CTBC
is our top-pick among the TW bank-centric financials.
6AUGUST 2014
RESULTS FLASH
CTBC FHC 2891 TTTAIWAN/BANKS
BUY
TARGET PRICE TWD23.60
UP/DOWNSIDE +16.5%
CLOSE TWD20.25
HOW WE DIFFER FROM CONSENSUS MARKET RECS
TARGET PRICE (%) (0.1) POSITIVE 24
EPS 2014 (%) (13.2) NEUTRAL 2
EPS 2015 (%) (2.2) NEGATIVE 1
Frank Yuen, [email protected]
+852 2825 1863
Leif [email protected]
+8862 8729 7057
KEY STOCK DATA
YE Dec (TWD m) 2013A 2014E 2015E 2016E
Operating Profit 21,552 31,238 33,893 36,425
Rec. net profit 21,503 26,585 28,525 30,641
Recurring EPS (TWD) 1.59 1.81 1.94 2.08
EPS growth (%) (13.5) 14.0 7.3 7.4
Recurring P/E (x) 12.8 11.2 10.4 9.7
Dividend yield (%) 1.9 2.0 3.2 3.3
Price/book (x) 1.5 1.3 1.1 1.0
ROE (%) 11.8 12.3 11.3 10.9
ROA (%) 0.95 0.88 0.75 0.73
Share price performance 1 Month 3 Month 12 Month
Absolute (%) 1.5 11.9 10.0
Relative to country (%) 6.2 8.0 (4.4)
Mkt cap (USD m) 9,928
3m avg daily turnover (USD m) 20.9
Free float (%) 85
Major shareholder Nan Shan Life (5%)
12m high/low (TWD) 21.70/17.71
3m historic vol. (%) 16.9
ADR ticker -
ADR closing price (USD; Date) -
Issued shares (m) 14,713
Sources: Bloomberg consensus; BNP Paribas estimates
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(4)
6
16
10.00
15.00
20.00
25.00
Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
(%)(TWD) CTBC FHC Rel to MSCI Taiwan
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Tepid growth in the near term
Stronger 2014E EPS growth on Muji disposal
We forecast reported EPS of TWD9.15 for 2014E and TWD9.3 for
2015E. In 2014E, stronger reported EPS growth of 18% y-y is due to
the one-off disposal gain of TWD1/share pre-tax from the Muji
investment in 1Q. We expect TW 7-Eleven PSD (per store daily
sales) to see low single-digit growth in 2014 and overall sales growthof 4.5% y-y, rising to 7.7% y-y in 2015E due to rapid store expansion.
Modest growth outlook in the near term; long-term positive
We are positive on PCSCs subsidiaries, such as Taiwan/Shanghai
Starbucks, 7-Eleven Philippines and Cosmed, for their L/T earnings
growth prospects. In the near term, we think margin recovery is likely
with continuing SKU adjustments, although this recovery may be
slower due to increased CVS IT expenses on store expansion.
Missing near-term catalyst to justify current high valuation
The 2Q14 preliminary sales came in at TWD51.65b, up 3.75% q-q
and 4.25% y-y. Year-to-date, PCSCs sales have risen 3.6% y-y.
However, we do not expect a strong margin recovery in 2014/2015
and subsequent improvement in recurring earnings that could justify
the current high valuation.
Maintain HOLD with TWD230 target price (24.7x 2015E P/E)
Our DCF-based TWD230 target price implies 24.7x reported 2015E
P/E vs regional peers on 22.8x (Bloomberg). Though we like PCSCs
leading position, solid execution, long-term strategies and growing
list of subsidiaries, we find its current valuation unattractive
1Q14 earnings breakdown large disposal gain from Muji investment
Source: PCSC
7-ElevenTaiwan39.1%
StarbucksShanghai
4.0%President
Pharmaceu-tical3.5%7-Eleven
Philippines1.2%
Cosmed1.8%
Disposal gains34.7%
Others15.7%
6AUGUST 2014
TAIWAN/FOOD &STAPLES RETAILING
PCSC 2912 TT
HOLDUNCHANGED
TARGET PRICE TWD230.00
CLOSE TWD240.00
UP/DOWNSIDE -4.2%
PRIOR TP TWD208.00
CHANGE IN TP +10.6
HOW WE DIFFER FROM CONSENSUS MARKET RECS
TARGET PRICE (%) (5.1) POSITIVE 16
EPS 2014 (%) (1.2) NEUTRAL 6
EPS 2015 (%) (4.9) NEGATIVE 1
Jenny [email protected]
+8862 8729 7054
Patricia [email protected]
+886 2 87297063
KEY STOCK DATA
YE Dec (TWD m) 2013A 2014E 2015E 2016E
Revenue 200,611 209,646 225,744 244,127
Rec. net profit 8,224 8,806 9,822 10,864
Recurring EPS (TWD) 7.91 8.47 9.45 10.45
Prior rec. EPS (TWD) 7.91 8.65 9.58 10.52
Chg. In EPS est. (%) 0.0 (2.0) (1.4) (0.7)
EPS growth (%) 18.2 7.1 11.5 10.6
Recurring P/E (x) 30.3 28.3 25.4 23.0
Dividend yield (%) 2.0 2.5 3.0 3.0
EV/EBITDA (x) 14.3 13.2 11.8 10.6
Price/book (x) 10.5 9.2 8.5 7.7
Net debt/Equity (%) (87.4) (84.7) (86.4) (89.9)
ROE (%) 35.3 34.7 34.9 35.2
Share price performance 1 Month 3 Month 12 Month
Absolute (%) 0.8 6.0 9.1
Relative to country (%) 3.2 (0.4) (8.6)
Next results August 2014
Mkt cap (USD m) 8,304
3m avg daily turnover (USD m) 8.2
Free float (%) 54
Major shareholder Uni-President (1216 TT) (45.4%)
12m high/low (TWD) 248.00/181.50
3m historic vol. (%) 17.2
ADR ticker -
ADR closing price (USD) -
Issued shares (m) 1,040
Sources: Bloomberg consensus; BNP Paribas estimates
(39)
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(19)
(9)
1
11
108.00
158.00
208.00
258.00
Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
(%)(TWD) PCSC Rel to MSCI Taiwan
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Defining moment for DSME in 2Q14
Provisions remain biggest risk to 2Q14 earnings
We remain cautious on DSMEs ability to increase its OPM through a
reduction in provisions, as it has undertaken various offshore projects
that could require further provisions. Interpretation of perceived risks
should be the determining factor.
How much provisioning is enough?
Provisions for doubtful accounts receivable rose by KRW76b y-y in
2012, KRW111b in 2013 and another KRW12b in 1Q14. While the
total amount of bad debt provisioning taken in 2013 remains unclear,
DSME gradually recognised bad debt provisioning each quarter to
total KRW256b in 2011 and KRW446b in 2012.
Order target may be difficult to attain in 2014
DSME has surpassed management targets in the past couple of
years, but we see a risk of not attaining the target this year, as only
36% (USD5.281b) of the 2014 new order target of USD14.5b has
been fulfilled YTD. However, there have been no offshore orders.
Maintain BUY, but with a more conservative TP of KRW32,300
We reduce our TP by 15% to KRW32,300 based on a lower target
P/B of 1.2x (previously 1.4x) as we believe the shares should trade at
a discount to our sector top pick SHI due to more uncertainty in both
earnings and order trends.
DSME P/BV discount to SHI P/BV
Source: Bloomberg
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0
20
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
(%) DSME - SHI Average (since 2009)
6AUGUST 2014
KOREA/SHIPBUILDING
DAEWOO SHIPBUILDING 042660 KS
BUYUNCHANGED
TARGET PRICE KRW32,300
CLOSE KRW25,200
UP/DOWNSIDE +28.2%
PRIOR TP KRW38,000
CHANGE IN TP -15.0%
HOW WE DIFFER FROM CONSENSUS MARKET RECS
TARGET PRICE (%) (8.3) POSITIVE 27
EPS 2014 (%) (18.3) NEUTRAL 5
EPS 2015 (%) (18.5) NEGATIVE 1
H James [email protected]
+822 2125 0533
KEY STOCK DATA
YE Dec (KRW b) 2013A 2014E 2015E 2016E
Revenue 15,305 15,998 16,028 16,129
Rec. net profit 314 289 397 395
Recurring EPS (KRW) 1,641 1,512 2,072 2,064
Prior rec. EPS (KRW) 1,641 1,512 2,072 2,064
Chg. In EPS est. (%) 0.0 0.0 0.0 0.0
EPS growth (%) (10.9) (7.8) 37.0 (0.4)
Recurring P/E (x) 15.4 16.7 12.2 12.2
Dividend yield (%) 1.2 1.2 1.2 1.2
EV/EBITDA (x) 17.2 16.9 13.3 12.6
Price/book (x) 1.0 0.9 0.9 0.8
Net debt/Equity (%) 135.6 127.4 106.9 90.1
ROE (%) 6.5 5.7 7.5 7.0
Share price performance 1 Month 3 Month 12 Month
Absolute (%) (5.8) (11.4) (12.2)
Relative to country (%) (8.4) (16.4) (19.8)
Next results August 2014
Mkt cap (USD m) 4,666
3m avg daily turnover (USD m) 36.8
Free float (%) 50
Major shareholder KDB (31%)
12m high/low (KRW) 38,400/23,950
3m historic vol. (%) 38.9
ADR ticker -
ADR closing price (USD) -
Issued shares (b) 191.3
Sources: Bloomberg consensus; BNP Paribas estimates
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8
14,370.00
24,370.00
34,370.00
44,370.00
Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
(%)(KRW) Daewoo Shipbuilding Rel to MSCI Korea
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Adjusted NP at pre-Lehman level
1Q NP sharply ahead of BNPPe and consensus
Chiba Bank reported 1Q NP of JPY23b, to significantly eclipse
BNPPe (JPY19.2b) and the IFIS consensus (JPY19.9b). 1Q included
a JPY7b profit due to negative goodwill through consolidation of
subsidiaries, but after adjustment, NP totalled JPY16b, roughly the
same as its FY3/08 level of JPY15.8b. Chiba Bank achieved a 42.5%run rate versus the full-year guidance of JPY54b, and even after
stripping out the negative goodwill, the run rate was 34%.
Int. on securities, credit costs, gains on equity sales contribute
Revenue totalled JPY42b in 1Q, on a par with the BNPPe
(JPY41.4b). Net interest income (JPY32.5b) beat the BNPPe thanks
to interest on securities, which totalled JPY6.8b vs. the BNPPe of
JPY5.6b. NIM was 1.16% in 1Q compared to the BNPPe of 1.13%.
The difference largely reflects a JPY100m credit-cost reversal vs. our
forecast of JPY800m credit costs. We were impressed by JPY1.1b
capital gains on sale of cross-shareholding equities rather than the
likes of ETF sales. According to the bank, the domestic loan yieldlikely fell 8bp y-y, which would be a concern if this continues in 2Q.
If shares weaken, opportunity to buy on dips
Management left NP guidance unchanged (1H JPY33b, full-year
JPY54b). The share price has corrected 4% after hitting JPY760 on
22 July. Therefore, we expect a positive reaction to the results.
However, if the shares soften, this would be a good opportunity to
accumulate.
6AUGUST 2014
RESULTS FLASH
CHIBA BANK 8331 JPJAPAN/BANKS
BUY
TARGET PRICE JPY850.00
UP/DOWNSIDE +16.4%
CLOSE JPY730.00
HOW WE DIFFER FROM CONSENSUS MARKET RECS
TARGET PRICE (%) 10.8 POSITIVE 8
EPS 2015 (%) 1.8 NEUTRAL 5
EPS 2016 (%) 4.5 NEGATIVE 2
Toyoki [email protected]
+81 3 6377 2250
KEY STOCK DATA
YE Mar (JPY m) 2014A 2015E 2016E 2017E
Operating Profit 70,578 71,059 76,145 83,960
NPAT 46,438 54,629 50,724 55,814
EPS (JPY) 54.89 64.57 59.95 65.97
EPS growth (%) 6.9 17.6 (7.1) 10.0
P/E (x) 13.3 11.3 12.2 11.1
Dividend yield (%) 1.7 1.8 1.8 1.9
Price/book (x) 0.8 0.8 0.7 0.7
ROE (%) 6.3 7.0 6.2 6.5
ROA (%) 0.41 0.46 0.41 0.45
Share price performance 1 Month 3 Month 12 Month
Absolute (%) (1.6) 12.7 1.1
Relative to country (%) 0.1 5.8 (5.5)
Mkt cap (USD m) 6,022
3m avg daily turnover (USD m) 17.4
Free float (%) 86
Major shareholder Mitsubishi UFJ Financial Group (7%)
12m high/low (JPY) 760.00/604.00
3m historic vol. (%) 19.5
ADR ticker -
ADR closing price (USD) -
Issued shares (m) 846
Sources: Bloomberg consensus; BNP Paribas estimates
(35)
(25)
(15)
(5)
5
362.00
462.00
562.00
662.00
762.00
862.00
Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
(%)(JPY) Chiba Bank Rel to TOPIX Index
14
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* Correction: Please note amended last sentence on front page
2Q orders to grow; a good start
1Q OP: JPY2.2b; 1H guidance raised above current consensus
1QFY3/15 OP of JPY2.2b beat the JPY1.4b Bloomberg consensus
helped by a reversal gain from inventory loss provisioning and fixed
cost reductions. SPE orders at JPY36.6b (+4% q-q) were in line with
initial guidance of JPY35b. 1H OP guidance was raised to JPY4.7b
from JPY3.5b (Bloomberg consensus: JPY3.9b).
SPE orders to trend up in 2Q and 3Q
Management guided for 2Q SPE orders of JPY38b-40b with NAND
demand rising, and foundry demand falling in the US but rising in
Taiwan. Management expects 3Q demand to be stronger depending
on foundry orders in Taiwan.
Two positives: OP outperformance and order recovery
Our JPY600 TP is based on 1.5x FY3/15E P/B. Near-term share
price performance tends to correlate closely with SPE orders. We
think investors are likely to feel positive about company guidance for
2Q and 3Q.
6AUGUST 2014
RESULTS FLASH
DAINIPPON SCREEN 7735 JPJAPAN/SEMICONDUCTORS
BUY
TARGET PRICE JPY600
UP/DOWNSIDE +26.3%
CLOSE JPY475
HOW WE DIFFER FROM CONSENSUS MARKET RECS
TARGET PRICE (%) 16.1 POSITIVE 6
EPS 2015 (%) 5.7 NEUTRAL 7
EPS 2016 (%) 4.1 NEGATIVE 3
Yoshitsugu [email protected]
+813 6377 2259
KEY STOCK DATA
YE Mar (JPY b) 2015E 2015C 2016E 2017E
Revenue 242.0 241.0 239.6 230.2
Op profit 12.5 11.2 13.0 11.2
Recurring profit 11.5 10.5 12.0 10.2
Net profit 9.0 8.3 9.5 7.7
EPS (JPY) 38 35 40 32
P/E (x) 12.5 13.6 11.9 14.6
Dividend yield (%) 0.6 1.1 0.6 0.6
EV/EBITDA (x) 6.7 - 6.2 6.4
Price/book (x) 1.2 - 1.1 1.0
Net debt/equity (%) 1.4 - (6.4) (12.5)
ROE (%) 9.9 - 9.5 7.2
Share price performance 1 Month 3 Month 12 Month
Absolute (%) (6.9) 5.1 (12.7)
Relative to country (%) (5.2) (1.8) (19.3)
Mkt cap (USD m) 1,099
3m avg daily turnover (USD m) 12.0
Free float (%) 81
Major shareholder Master Trust Bank of Japan (10%)
12m high/low (JPY) 613/420
3m historic vol. (%) 27.0
ADR ticker -
ADR closing price (USD) -
Issued shares (b) 0.237
Sources: Bloomberg; Company estimates (C); BNP Paribasestimates
(55)
(45)
(35)
(25)
(15)
(5)
252.00
352.00
452.00
552.00
652.00
Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
(%)(JPY) Dainippon Screen Rel to TOPIX Index
15
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Short-term reversal likely
1Q FY3/15 results reported post-market
1Q sales were JPY489b (+5% y-y, +9% q-q, BNPPe: JPY501b), OP
was JPY54b (+28% y-y, +50% q-q, BNPPe: JPY50b) and net income
was JPY36b (+29% y-y, +99% q-q). 1Q fixed costs were lower than
we had expected, partially due cost appropriation between 1Q and
2Q on our estimates. Domestic and European HVAC sales wereslightly lower than we had expected.
Costs are key to an FY3/15 beat (as in FY3/14)
We assume fixed labour costs grow JPY25b in FY3/15, which
appears conservative given these results. In FY3/14, costs were the
story behind rising market expectations for Daikins earnings. The
same could be true in FY3/15. We suspect Daikin, in addition to its
usual cost control programme, could pull in more synergies from the
Goodman Global deal than either we or inventors currently assume.
Priced in for now, could rally later in the year
Daikins shares fell steadily today (and could fall further in the shortterm), implying these results and the outlook for 2Q FY3/15 and
beyond are priced in for now. We expect Kubota (6326 JP, REDUCE,
CP JPY1,291.5) to reverse its recent relative under-performance
versus Daikin on the back of the two companies results today. If
earnings expectations for Daikin rise and given our relatively
conservative 9x FY3/15E target EV/EBITDA, the shares could rally in
4Q CY14.
Daikin/Kubota relative share price
Source: Bloomberg
65
115
165
215
2007 2008 2009 2010 2011 2012 2013 2014
(%) (Jan 2007=100)
6AUGUST 2014
RESULTS FLASH
DAIKIN INDUSTRIES 6367 JPJAPAN/CAPITAL GOODS
HOLD
TARGET PRICE JPY6,800
UP/DOWNSIDE -3.3%
CLOSE JPY7,034
HOW WE DIFFER FROM CONSENSUS MARKET RECS
TARGET PRICE (%) (4.7) POSITIVE 12
EPS 2015 (%) (0.6) NEUTRAL 11
EPS 2016 (%) (5.5) NEGATIVE 0
Christopher [email protected]
+81 3 6377 2258
KEY STOCK DATA
YE Mar (JPY b) 2015E 2015C 2016E 2017E
Revenue 1,941.4 1980.0 2,031.2 2,115.2
Op profit 184.5 170.0 193.7 196.9
Recurring profit 181.4 166.0 192.0 196.2
Net profit 103.3 98.0 109.4 111.8
EPS (JPY) 354 336 375 384
P/E (x) 19.8 - 18.7 18.3
Dividend yield (%) 1.3 - 1.3 1.4
EV/EBITDA (x) 9.5 - 8.9 8.3
Price/book (x) 2.3 - 2.1 2.0
Net debt/equity (%) 16.0 - 2.7 (8.2)
ROE (%) 12.3 - 11.9 11.1
Share price performance 1 Month 3 Month 12 Month
Absolute (%) 2.4 16.6 63.6
Relative to country (%) 4.1 9.7 56.9
Mkt cap (USD m) 19,989
3m avg daily turnover (USD m) 72.6
Free float (%) 84
Major shareholder Nomura Asset Management (4%)
12m high/low (JPY) 7,253/4,300
3m historic vol. (%) 24.3
ADR ticker -
ADR closing price (USD) -
Issued shares (m) 291
Sources: Bloomberg; Company estimates (C); BNP Paribasestimates
0
20
40
60
2,403.00
4,403.00
6,403.00
8,403.00
Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
(%)(JPY) Daikin Industries Rel to TOPIX Index
16
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Balancing act
Reported better-than-expected 1Q FY3/15 results post-market
For 1Q FY3/15, Kubota reported sales of JPY361b (flat y-y/-15% q-q)
vs our JPY336b estimate and OP of JPY52b (+11% y-y/-10% q-q) vs
our JPY41b estimate. Net income was JPY33b (+8% y-y/-6% q-q).
Kubotas European and North American (new model releases)
machinery & engine sales were better than we had expected; fixedcosts were in-line with expectations. Asian sales were JPY69b (-21%
y-y/+1% q-q), led by Thailand. Domestic machinery & engine sales
were JPY74b (-18% y-y). However, Kubotas European and North
American significantly outperformed apparent organic market growth
to allow machinery & engine sales to be flat y-y at JPY300b.
Company-specific growth continues while the regions shift
Kubotas 1Q FY3/15 fundamental performance was in keeping with
its history of using company-specific sales well above the end-market
trend in one or more regions to cover for weakness elsewhere.
Weaker y-y JPY benefits come off from 2Q FY3/15, but we believe
fighting local FX sales expansion in Europe and North Americashould remain a losing battle in 2Q FY3/15 and beyond.
Short term, we expect the stock to be a relative outperformer
We expect Kubotas share price to react positively to the result
tomorrow, followed by relative outperformance versus the broader
Japan machinery sector and peer Daikin (6367 JP; HOLD; CP:
JPY7034, TP: JPY6,800), which also reported 1Q FY3/15 earnings
today. In our opinion, investors looking to FY3/16 and beyond are
unlikely to be shaken from their holding on the back of these results,
pointing to Kubotas continued ability to engender company-specific
sales growth above market while limiting relative damage in
obviously weak end-markets.
6AUGUST 2014
RESULTS FLASH
KUBOTA CORP 6326 JPJAPAN/CAPITAL GOODS
REDUCE
TARGET PRICE JPY1,150
UP/DOWNSIDE -11.0%
CLOSE JPY1,292
HOW WE DIFFER FROM CONSENSUS MARKET RECS
TARGET PRICE (%) (30.2) POSITIVE 9
EPS 2015 (%) (13.3) NEUTRAL 11
EPS 2016 (%) (11.4) NEGATIVE 2
Christopher [email protected]
+81 3 6377 2258
KEY STOCK DATA
YE Mar (JPY b) 2015E 2015C 2016E 2017E
Revenue 1,468.4 1,550 1,518.6 1,523.0
Op profit 181.5 200.0 203.1 193.5
Recurring profit 183.6 210.0 205.4 196.2
Net profit 111.6 130.0 124.9 119.3
EPS (JPY) 89 104 100 95
P/E (x) 14.5 - 12.9 13.5
Dividend yield (%) 2.1 - 2.3 2.2
EV/EBITDA (x) 6.7 - 5.9 5.8
Price/book (x) 1.6 - 1.5 1.4
Net debt/equity (%) (22.9) - (25.4) (28.3)
ROE (%) 11.5 - 11.8 10.4
Share price performance 1 Month 3 Month 12 Month
Absolute (%) (10.5) (3.4) (13.1)
Relative to country (%) (8.8) (10.3) (19.7)
Mkt cap (USD m) 15,742
3m avg daily turnover (USD m) 63.1
Free float (%) 95
Major shareholder Capital World Investors (4%)
12m high/low (JPY) 1,821/1,282
3m historic vol. (%) 24.7
ADR ticker KUBTY US
ADR closing price (USD; 04 Aug 2014) 64.49
Issued shares (b) 1.3
Sources: Bloomberg; Company estimates (C); BNP Paribasestimates
(41)
(31)
(21)
(11)
(1)
9
769.00
1,269.00
1,769.00
Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
(%)(JPY) Kubota Corp Rel to TOPIX Index
17
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FY3/15 1Q: strong start to the year
All-round strength
1Q earnings were reassuringly strong, with group OPM reaching
10.8% (10.6% excluding above-line valuation gains). Prior to the
announcement, we had regarded the Asian slowdown and weak cost
control as the greatest risks to 1Q margins, but our fears were not
realized. In line with usual management practice at the 1Q stage,headline guidance numbers were unchanged.
Margin sustainability is key
Key metrics are shown in the table overleaf. By geography, a firm
North America and Middle East offset weak Japan (but not as bad as
we initially feared) and Asean. Margin delivery of the core business
appears to be basically sustainable: fixed costs were in line with
seasonal levels (although management did forecast a rising 2Q-4Q
burden); one-time valuation gains (JPY16b) were a relatively small
part of the upside surprise; normalized financial services OPM of
22% was broadly as we expected. Reflecting Toyotas broad reach,
Asia volumes were down a modest 2% y-y despite the fact thatThailand retail units were down as much as 28%. Below-line, slightly
better-than-expected net financial income, associate income and
exceptionals offset a higher-than-expected tax rate (34%, vs 32%).
Headline guidance numbers were unchanged, within which
developed market volumes were raised and EM volumes lowered;
among OP drivers: volume/mix/marketing -JPY10b, cost reduction
+JPY10b, FX +JPY55b, others (including rounding) -JPY55b.
Managing the cycle
Amid weak Japan and Asean markets, 1Q reminded us of Toyotas
ability to manage the cycle well. We expect the ebb and flow of
markets as well as slightly higher costs including TNGA-related up-
front investment to cause the OPM to ease during the rest of
FY3/15. These areas will remain the focus of our future analysis and
questions to the company. That said, todays result reaffirms our
sense that market expectations are too low, and that Toyota is the
most attractive fundamental stock among Japans automakers at
9.5x and 8.4x our unadjusted FY3/15 and FY3/16 EPS, respectively.
6AUGUST 2014
RESULTS FLASH
TOYOTA MOTOR 7203 JPJAPAN/AUTOMOBILES &COMPONENTS
BUY
TARGET PRICE JPY7,300
UP/DOWNSIDE +20.8%
CLOSE JPY6,042
HOW WE DIFFER FROM CONSENSUS MARKET RECS
TARGET PRICE (%) 0.3 POSITIVE 22
EPS 2015 (%) 3.4 NEUTRAL 7
EPS 2016 (%) 6.3 NEGATIVE 1
Clive [email protected]
+813 6377 2253
KEY STOCK DATA
YE Mar (JPY b) 2015E 2015C 2016E 2017E
Revenue 26,587.5 25,700 28,515.5 30,028.7
Op profit 2,588.3 2,300 2,845.5 3,016.5
Recurring profit 3,035.5 2,390 3,315.2 3,510.5
Net profit 1,997.9 1,780 2,215.0 2,346.9
EPS (JPY) 638 562 719 775
P/E (x) 9.5 - 8.4 7.8
Dividend yield (%) 3.0 - 3.3 3.6
EV/EBITDA (x) 2.7 - 2.3 1.9
Price/book (x) 1.2 - 1.2 1.1
Net debt/equity (%) (63.1) - (62.6) (62.2)
ROE (%) 13.5 - 14.1 14.1
Share price performance 1 Month 3 Month 12 Month
Absolute (%) (2.6) 7.3 (5.0)
Relative to country (%) (0.9) 0.4 (11.7)
Mkt cap (USD m) 184,378
3m avg daily turnover (USD m) 389.9
Free float (%) 78
Major shareholder Japan Trustee Service (10%)
12m high/low (JPY) 6,510/5,314
3m historic vol. (%) 16.3
ADR ticker TM US
ADR closing price (USD; 04 Aug 2014) 118.12
Issued shares (m) 3,167
Sources: Bloomberg; Company estimates (C); BNP Paribasestimates
(24)
(14)
(4)
6
16
3,188.00
4,188.00
5,188.00
6,188.00
7,188.00
Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
(%)(JPY) Toyota Motor Rel to TOPIX Index
18
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Conservative pax capacity growth
Change in ASK/RPK computation methodology
In 2Q14, AirAsia changed its ASK/RPK computation methodology by
using the actual number of kilometres flown vs. the theoretical
number of kilometres flown (previously flight distance for each route
flown was set and did not take into account the actual flight data).
This led to ASK/RPK y-y growth of 3%/2% in 2Q14, vs.7.8%/7.3% y-ygrowth on a like-for-like basis. We believe the methodology change
will positively impact the operating cost/ASK metric as ASK has
mechanically increased. But, revenue per ASK should be negatively
impacted. So, the overall impact should be neutral for AirAsia.
A conservative approach towards seat growth
The number of passengers in 2Q14 grew only 1% y-y, in line with the
increase of seats offered (+1% y-y). The growth was much lower
than historical numbers as the average quarterly passenger capacity
growth was around 9% for the past three years. This suggests more
capacity control by Malaysia AirAsia and it should theoretically
positively impact yields, RASK and eventually profitability.
Passengers growth in Malaysia seems to have slowed
In 2Q14, Malaysia Airports Holdings (MAHB, Not rated) passenger
numbers increased 5.6% y-y, vs. the 18.3% y-y growth reported in
2Q13. This decrease was mainly due to lower seat capacity growth,
given the more conservative growth strategy by market players.
Seats traffic/capacity
Sources: AirAsia; BNP Paribas
0
5
10
15
20
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
(y-y %) Number of passengers carried Number of seats offered
6AUGUST 2014
NEWS FLASH
AIRASIA AIRA MKMALAYSIA/TRANSPORTATION
BUY
TARGET PRICE MYR3.29
UP/DOWNSIDE +35.3%
CLOSE MYR2.43
HOW WE DIFFER FROM CONSENSUS MARKET RECS
TARGET PRICE (%) 19.63 POSITIVE 17
EPS 2014 (%) 8.70 NEUTRAL 7
EPS 2015 (%) 14.8 NEGATIVE 3
Arnaud [email protected]
+65 6210 1957
KEY STOCK DATA
YE Dec (MYR m) 2013A 2014E 2015E 2016E
Revenue 4,523 5,127 5,759 6,510
Rec. net profit 561 701 871 1,151
Recurring EPS (MYR) 0.20 0.25 0.31 0.41
EPS growth (%) (14.7) 24.8 24.4 32.1
Recurring P/E (x) 12.0 9.7 7.8 5.9
Dividend yield (%) 1.7 2.6 3.4 4.5
EV/EBITDA (x) 8.1 7.3 6.4 5.5
Price/book (x) 1.4 1.2 1.1 0.9
Net debt/Equity (%) 175.5 162.8 151.1 138.0
ROE (%) 10.8 13.2 14.7 17.0
Share price performance 1 Month 3 Month 12 Month
Absolute (%) 6.6 10.5 (23.1)
Relative to country (%) 4.7 9.6 (25.8)
Mkt cap (USD m) 2,112
3m avg daily turnover (USD m) 6.2
Free float (%) 54
Major shareholder Tune Air Sdn Bhd (13%)
12m high/low (MYR) 3.18/2.20
3m historic vol. (%) 25.4
ADR ticker -
ADR closing price (USD; Date) -
Issued shares (m) 2,783
Sources: Bloomberg consensus; BNP Paribas estimates
(70)
(50)
(30)
(10)
1.00
3.00
5.00
7.00
9.00
Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
(%)(MYR) AirAsia Rel to MSCI Malaysia
19
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Optimizing its portfolio
1H14 results operating PATMI up 30% y-y
1H sales fell to SGD1.5b, -9% y-y, due to lower revenue from
development projects in China and Singapore, but partially mitigated
by higher rentals from malls and serviced residences. 1H operating
PATMI, on the other hand, rose to SGD292m, +30% y-y, due to lower
finance costs, higher development profits from associates and higherrental contributions from malls.
Greater mix in recurring income
Post-CMA transaction, CAPL now has a resilient and stable income
stream. About 75% of its total assets are investment properties (ie
retail malls, serviced residences, etc) that generate recurring income,
and about 25% are residential development properties. We think this
could mitigate residential market headwinds in Singapore and China.
On track for targeted ROE of 8-12%
CAPL continues to target an ROE of 8-12% in the next three to five
years, especially with more development projects being completed.While interest cover improved from 5.7x at end-FY13 to 6.1x, we
note that net gearing has risen from 0.39x to 0.58x due to CAPL
having less cash and reduced minority interests. Singapore and
China remained the biggest contributors to EBIT (48.5% and 30.1%).
Discount to RNAV
Source: Company data, BNP Paribas
050
100
150
200
250
(80)
(30)
20
Jan-96
Jul-96
Feb-97
Sep-97
Apr-98
Nov-98
Jun-99
Jan-00
Aug-00
Mar-01
Oct-01
Apr-02
Nov-02
Jun-03
Jan-04
Aug-04
Mar-05
Oct-05
May-06
Dec-06
Jul-07
Jan-08
Aug-08
Mar-09
Oct-09
May-10
Dec-10
Jul-11
Feb-12
Sep-12
Apr-13
Oct-13
May-14
(SGD)(%)% premium/(discount) to RNAV (LHS)
Home price (RHS)
+1 SD = -15.2%Mean = -33.1%
-0.5 SD = -42.1%
-1 SD = -51.1%
6AUGUST 2014
RESULTS FLASH
CAPITALAND CAPL SPSINGAPORE/REAL ESTATE
BUY
TARGET PRICE SGD3.77
UP/DOWNSIDE +9.6%
CLOSE SGD3.44
HOW WE DIFFER FROM CONSENSUS MARKET RECS
TARGET PRICE (%) (1.6) POSITIVE 17
EPS 2014 (%) 11.2 NEUTRAL 3
EPS 2015 (%) 5.3 NEGATIVE 1
Chong Kang Ho, [email protected]
+65 6210 1956
KEY STOCK DATA
YE Dec (SGD m) 2013A 2014E 2015E 2016E
Revenue 3,977 3,939 5,023 4,101
Rec. net profit 850 781 816 795
Recurring EPS (SGD) 0.20 0.18 0.19 0.19
EPS growth (%) 9.6 (8.1) 4.5 (2.5)
Recurring P/E (x) 17.3 18.9 18.1 18.5
Dividend yield (%) 1.7 1.7 1.7 1.7
EV/EBITDA (x) 14.5 17.6 17.6 17.6
Price/book (x) 0.9 0.9 0.9 0.8
Net debt/Equity (%) 34.4 50.0 41.0 38.8
ROE (%) 5.5 4.8 4.9 4.6
Share price performance 1 Month 3 Month 12 Month
Absolute (%) 8.2 11.0 4.9
Relative to country (%) 6.5 8.3 2.2
Mkt cap (USD m) 11,665
3m avg daily turnover (USD m) 18.0
Free float (%) 60
Major shareholder Temasek Holdings (41%)
12m high/low (SGD) 3.45/2.72
3m historic vol. (%) 18.0
ADR ticker CLLDY US
ADR closing price (USD; 4 Aug 2014) 5.50
Issued shares (m) 4,226
Sources: Bloomberg consensus; BNP Paribas estimates
(26)
(16)
(6)
4
1.00
3.00
5.00
7.00
9.00
11.00
Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
(%)(SGD) CapitaLand Rel to St rai ts Times Index
20
-
8/11/2019 BNP-daily-20140806
21/28
Challenging outlook ahead
1H14 results tracking lower
2Q14 revenue rose 1% y-y to SGD29.6m, partly due to the
contribution from Rendezvous Hotel (acquired in Aug-13), which was
offset by falling occupancy rates and weaker room rates. DPU fell
13.3% y-y to SGD0.0124, due to higher property expenses and a
larger share base. Annualized DPU works out to SGD0.0508, about10% below our and Bloomberg consensus FY14 forecasts.
Hotels remain the weak link
The hotel occupancy rate continued to decline to 80.1%, from 87.7%
in 2Q13, while the average daily rate reached SGD188, i.e., lower by
2% y-y. Overall, RevPAR was SGD150, down 10.5%. For the
serviced residences too, the occupancy rate fell to 87.2%, from
92.6%, although the average daily rate was maintained at SGD249.
Net-net, RevPAU reached SGD218, down 5.5%.
2H14 outlook remains challenging; HOLD
The weak 1H14 operational data was partly driven by slower touristarrivals, especially from China, given recent airline mishaps. On the
2H14 outlook, the management expects hotel operations to remain
weak, but is guiding for more stable serviced residences, as these
cater to corporate travellers. A key downside risk is the outbreak of a
disease, which would impact occupancy rates.
P/BV band
Sources: Bloomberg consensus; Far East Hospitality Trust; BNP Paribas estimates
0.5
0.6
0.6
0.7
0.8
0.91.0
1.1
1.2
1.3
1.4
Aug12
Oct12
Dec12
Feb13
Apr13
Jun13
Aug13
Oct13
Dec13
Feb14
Apr14
(%)(x)
+1 SD = 1.1x
Mean = 1.0x
-1 SD = 0.9x
12M Sibor(RHS)
6AUGUST 2014
RESULTS FLASH
FAR EAST HOSPITALITY TRUST FEHT SPSINGAPORE/REAL ESTATE
HOLD
TARGET PRICE SGD0.91
UP/DOWNSIDE +5.7%
CLOSE SGD0.87
HOW WE DIFFER FROM CONSENSUS MARKET RECS
TARGET PRICE (%) 3.4 POSITIVE 0
DPS 2014 (%) 1.0 NEUTRAL 5
DPS 2015 (%) 1.7 NEGATIVE 3
Chong Kang Ho, [email protected]
+65 6210 1956
KEY STOCK DATA
YE Dec (SGD m) 2013A 2014E 2015E 2016E
Revenue 122 135 139 141
Rec. net profit 41 103 106 108
Recurring EPS (SGD) 0.02 0.06 0.06 0.06
EPS growth (%) 56.5 151.5 3.2 2.0
Recurring P/E (x) 37.4 14.9 14.4 14.1
Dividend yield (%) 6.5 6.7 6.9 7.1
EV/EBITDA (x) 21.5 21.0 20.9 20.8
Price/book (x) 0.9 0.9 1.0 1.0
Net debt/Equity (%) 43.2 50.8 53.5 56.2
ROE (%) 2.5 6.1 6.6 6.9
Share price performance 1 Month 3 Month 12 Month
Absolute (%) (1.7) (2.3) (7.0)
Relative to country (%) (3.1) (4.3) (9.0)
Mkt cap (USD m) 1,225
3m avg daily turnover (USD m) 1.1
Free float (%) 48
Major shareholder Far East Org (52%)
12m high/low (SGD) 0.95/0.76
3m historic vol. (%) 13.5
ADR ticker -
ADR closing price (USD) -
Issued shares (m) 1,765
Sources: Bloomberg consensus; BNP Paribas estimates
(28)
(18)
(8)
2
0.70
0.80
0.90
1.00
Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
(%)(SGD) Far East Hosp ital it y Trust Rel to St rai ts Times Index
21
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A surge in development starts
1QFY15 tracking ahead
1QFY15 sales reached USD169m, up 18% y-y, driven by higher
rents and continuing lease-up of projects in China. Japan revenue
was up 9% y-y, driven by fund management fees. PATMI (ex-
revaluation) reached USD61m, up 27% y-y, adjusted for the
investment of 24.4% in GLP China by an investor consortium, and
sales of assets to J-REITs. Annualised, it is 7% ahead of our FY15E.
Strong development-starts, up 127% y-y
In 1QFY15, the groups development starts were up 127% y-y to
USD883m (we estimate about 32% of the companys FY15 target).
We believe this rise was driven by the Chinese and Brazilian
markets. Notably, in China, GLP started a record USD643m of
development projects, which represent about 39% of its FY15 target
for the country. GLP maintained its FY15 guidance for the group,
although we believe there is upside risk.
Rationale for forming strategic partnership with CMSTD
On 4 August 2014, with the support of the Chinese investor
consortium, GLP took a 15.3% stake in China Materials Storage and
Transportation Development Company (CMSTD, 600787 CH),
Chinas largest state-owned warehouse logistics provider. GLP also
formed a 49:51 JV with CMSTD, where GLP will be the exclusive
developer of modern logistic facilities on CMSTDs land resources of
more than 9m sqm. In our view, this is part of GLPs strategy to
secure land for future development, amid land constraints in China.
GLP 12-month forward P/BV
Sources: Bloomberg consensus; Global Logistic Prop; BNP Paribas estimates
0.6
0.8
1.01.2
1.4
Oct10
Dec10
Feb11
Apr11
Jun11
Aug11
Oct11
Dec11
Feb12
Apr12
Jun12
Aug12
Oct12
Dec12
Feb13
Apr13
Jun13
Aug13
Oct13
Dec13
Feb14
Apr14
Jun14
(x)
+1 SD = 1.2x
Mean = 1.0x
-1 SD = 0.8x
6AUGUST 2014
RESULTS FLASH
GLOBAL LOGISTIC PROP GLP SPSINGAPORE/REAL ESTATE
BUY
TARGET PRICE SGD3.22
UP/DOWNSIDE +15.1%
CLOSE SGD2.80
HOW WE DIFFER FROM CONSENSUS MARKET RECS
TARGET PRICE (%) 0 POSITIVE 14
EPS 2015 (%) 2.3 NEUTRAL 3
EPS 2016 (%) 2.8 NEGATIVE 1
Chong Kang Ho, [email protected]
+65 6210 1956
KEY STOCK DATA
YE Mar (USD m) 2014A 2015E 2016E 2017E
Revenue 598 719 871 1,063
Rec. net profit 277 276 318 357
Recurring EPS (USD) 0.06 0.06 0.07 0.07
EPS growth (%) (26.2) (4.0) 15.2 12.4
Recurring P/E (x) 37.8 39.4 34.2 30.4
Dividend yield (%) 1.4 1.1 1.2 1.2
EV/EBITDA (x) 24.3 21.4 18.2 15.9
Price/book (x) 1.2 1.2 1.1 1.1
Net debt/Equity (%) 11.1 11.8 12.4 13.9
ROE (%) 3.2 3.1 3.4 3.6
Share price performance 1 Month 3 Month 12 Month
Absolute (%) 3.7 (0.4) (2.4)
Relative to country (%) 2.3 (2.4) (4.4)
Mkt cap (USD m) 10,857
3m avg daily turnover (USD m) 24.4
Free float (%) 61
Major shareholder GIC Private Limited (36%)
12m high/low (SGD) 3.13/2.56
3m historic vol. (%) 17.6
ADR ticker GBTZY US
ADR closing price (USD; 28 Jul 2014) 22.30
Issued shares (m) 4,834
Sources: Bloomberg consensus; BNP Paribas estimates
(23)
(13)
(3)
7
17
27
1.00
3.00
5.00
7.00
9.00
Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
(%)(SGD) Global Logistic Prop Rel to Straits Times Index
22
-
8/11/2019 BNP-daily-20140806
23/28
Sales in line; margin disappoints
Mobile business disappoints; weak SMS and rising costs
PLDTs 1H revenue came in at 49.5% of our FY14 estimate, EBITDA
48.3% and PAT 50.1%. Mobile revenue and EBITDA declined by
1.3% and 5.7%, due to pressure on SMS and higher costs. SMS
revenue fell 12% y-y compared with -1.6% y-y at Globe (GLO PM;
BUY). Management mentioned it is looking to rationalise costs. Themobile subscriber base declined q-q following a clean-up of inactive
subscribers (measured by VLR) but this increased ARPU.
Fixed line business doing well, driven by data growth
Fixed-line revenue increased 4.9% y-y, driven by data growth of
9.5% y-y. EBITDA growth was 8% y-y. PLDTs strong fixed-line
revenue is offsetting the weakness in mobile. In the fixed-line
segment, ILD/NLD revenue is under pressure, and broadband DSL
and international leased lines have been the growth drivers.
Muted growth but attractive dividend yield
Management re-iterated its net income and capex guidance, andacknowledged there has been some shift in volumes from PLDT to
Globe on the back of Globes free Facebook offer. PLDT is looking
for a strategic acquisition in the internet space and hopes to close a
transaction shortly. PLDT is on track for its FY14 annual core net
income guidance of PHP39.5b and will continue paying out its
dividend; we forecast an attractive dividend yield of 5.5% in FY14
and like PLDT despite its muted growth prospects.
Mobile margins under pressure; lowest in 10 quarters
Source: PLDT
20
25
30
35
40
4550
55
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
(%) Mobile Fixedline Blended
6AUGUST 2014
RESULTS FLASH
PLDT TEL PMPHILIPPINES/DIVERSIFIED TELECOMMUNICATION
BUY
TARGET PRICE PHP3,150.00
UP/DOWNSIDE +0.4%
CLOSE PHP3,136.00
HOW WE DIFFER FROM CONSENSUS MARKET RECS
TARGET PRICE (%) 0.5 POSITIVE 13
EPS 2014 (%) 1.0 NEUTRAL 9
EPS 2015 (%) (2.3) NEGATIVE 0
Kunal Vora, [email protected]
+91 22 6196 4384
KEY STOCK DATA
YE Dec (PHP m) 2013A 2014E 2015E 2016E
Revenue 168,331 171,050 175,765 180,920
Rec. net profit 38,717 39,957 40,229 41,639
Recurring EPS (PHP) 179 185 186 193
EPS growth (%) 2.8 3.2 0.7 3.5
Recurring P/E (x) 17.5 17.0 16.8 16.3
Dividend yield (%) 5.7 5.5 5.9 6.1
EV/EBITDA (x) 9.5 9.2 9.0 8.7
Price/book (x) 5.0 5.0 5.0 5.0
Net debt/Equity (%) 52.6 52.0 50.0 47.7
ROE (%) 27.1 29.1 29.3 30.3
Share price performance 1 Month 3 Month 12 Month
Absolute (%) 4.0 8.6 2.0
Relative to country (%) 3.7 4.5 (6.7)
Mkt cap (USD m) 15,497
3m avg daily turnover (USD m) 6.8
Free float (%) 58
Major shareholder First Pacific (26%)
12m high/low (PHP) 3,136.00/2,582.00
3m historic vol. (%) 13.8
ADR ticker PHI US
ADR closing price (USD; 4 Aug 2014) 71.25
Issued shares (m) 216
Sources: Bloomberg consensus; BNP Paribas estimates
(23)
(13)
(3)
7
17
27
1,549.00
2,049.00
2,549.00
3,049.00
3,549.00
Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
(%)(PHP) PLDT Rel to MSCI Philippines
23
-
8/11/2019 BNP-daily-20140806
24/28
Guidance increase in-line
1QF15 earnings disappoint on weak domestic sales
KKCs 1QFY15 sales missed our estimates by 9.8% on weaker than
expected domestic sales offsetting higher than expected exports.
EBITDA missed our estimates by 14.3% while Recurring PAT missed
by 19.3% on higher depreciation and lower other income which offset
lower taxes.
FY15 guidance raised in-line with our expectations
FY15 guidance was raised to 10-15% y-y growth from 0-5% on y-y
growth of 30% in exports and 5-10% in domestic sales. This was in-
line with our view that previous guidance was too conservative as it
did not factor a recovery in the domestic market, which we had.
CPCB II norms may not lead to a near-term margin increase
Costs and prices for power gensets rated above 750kVA will rise 15-
20% to comply with tighter emission norms from 1st July 2014. As
per management, higher prices may not dent demand. Also margins
would not go up in the near term due to teething troubles expected in
the new gensets. Long term, margins can improve on these gensets.
Raise TP to INR652; Maintain HOLD
We raise our TP 6.9% as we roll-over our valuation base from Jun-16
to Sep-16 . We continue to value KKC using its 10-year mean one-
year forward PE of 17.3x. We believe our earnings estimates price in
a recovery; we project earnings to grow 24.6% over FY14-17 and
believe the stock is fairly valued at c19x FY16 PE.
P/E band
Sources: Bloomberg; BNP Paribas estimates
0
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