Asia Pacific Daily - 26 July 2019 - Bursa Marketplace

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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Asia Pacific Daily - 26 July 2019 Equity Research Reports…

▌China/Hong Kong Property - Overall (NEUTRAL) - 10% earnings growth expected for 1H19 | P2 ———————————————————————————————————————————————————————————————————————————————————————

▌India Asian Paints Limited (HOLD, tp:Rs1,520.00▲) - Fairly priced; maintain Hold | P3

Mahindra & Mahindra Fin. (ADD, tp:Rs400.00▼) - Economic slowdown hurts asset quality | P4 Shriram Transport Finance (ADD, tp:Rs1,350.00▼) - Growth drops – asset quality largely … | P5

SKF India Ltd (ADD, tp:Rs2,150.00▼) - 1QFY20: Steady quarter | P6

Tata Motors (ADD, tp:Rs277.00) - JLR volatility concerns | P7 ———————————————————————————————————————————————————————————————————————————————————————

▌Indonesia

Bank Central Asia (HOLD, tp:Rp28,500.00) - 1H19 results: Strong PPOP offset by higher … | P8 ———————————————————————————————————————————————————————————————————————————————————————

▌South Korea Korea Shipbuilding & Offshore (ADD, tp:W170,000.00▼) - Good earnings, weak sentiment | P9 LG Household & Health Care Ltd (ADD, tp:W1,500,000.00) - 2Q19 review: virtue of ... | P10

Mando Corporation (ADD▲, tp:W40,000.00▲) - Self-driving outside China | P11 NAVER (HOLD▲, tp:W140,000.00▲) - Positive on Naver Pay’s spinoff | P12

SK Hynix (ADD, tp:W95,000.00▲) - Moving in the right direction for a recovery | P13 ———————————————————————————————————————————————————————————————————————————————————————

▌Malaysia Axis REIT (HOLD, tp:RM1.95) - Narrowing down its acquisition prospects | P14

CapitaLand Malaysia Mall Trust (HOLD, tp:RM1.03▼) - Prolonged impact from rental ... | P15 Pavilion REIT (HOLD, tp:RM1.91▲) - Working on DA MEN’s gradual turnaround | P16 ———————————————————————————————————————————————————————————————————————————————————————

▌Singapore Cache Logistics Trust (HOLD, tp:S$0.76▼) - Looking for a better 3Q | P17 Mapletree Commercial Trust (ADD, tp:S$2.24) - A good start | P18

ST Engineering (ADD, tp:S$4.43) - How high can it go? | P19 Thai Beverage (ADD, tp:S$0.96▲) - NDR takeaways: Solidifying its presence | P20 ———————————————————————————————————————————————————————————————————————————————————————

▌Thailand Carabao Group (ADD, tp:THB80.00▲) - More energy to run | P21 KCE Electronics (REDUCE, tp:THB13.60▼) - Strong earnings rebound not in sight | P22

Sources: CIMB. COMPANY REPORTS

Recent CGS-CIMB Research Ideas ——————————————————————————————————

KRW: Technology Components 23/07 Diverging prospects for LGI & BH —————————————————————————————————————————————————————————————————————————————————

THB: Hotels 17/7

NCPO legalisation will boost room supply —————————————————————————————————————————————————————————————————————————————————

CHN: Universal Scientific Industrial 16/07

Finding the golden child —————————————————————————————————————————————————————————————————————————————————

MAL: Rubber Gloves 12/07 Golden gloves —————————————————————————————————————————————————————————————————————————————————

KRW: Navigating South Korea: Technology

Components 10/07 Integration is key for future display tech —————————————————————————————————————————————————————————————————————————————————

Regional Equity Research Contact ————————————————————————————————— Bertram LAI

Head of Research T: (852) 2532 1111 E: [email protected]

———————————————————————————————————————————————————————————————————————————————————

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Sector Note Property │ China │ July 25, 2019



Property - Overall 10% earnings growth expected for 1H19

■ We estimate that 20 developers under our universe to deliver earnings growth of about 10% for 1H19, primarily driven by revenue growth.

■ Results for Aoyuan, Logan, Sunac, Shimao, Longfor could be strong while Agile, CR Land, Sino Ocean’s results may be weaker-than-expected.

■ We like Longfor among large-caps and prefer Shimao, CIFI and RF among mid-cap. Meanwhile, Times is our preferred choice for Greater Bay Area.

We estimate developers’ earnings increased about 10% for 1H19 Chinese developers will announce their 1H19 results in Aug (refer to Figs 5-6 for specific

dates and NDRs that we will host). For the 20 developers we cover, we estimate their

core earnings increased by 10% yoy on average, primarily driven by solid revenue growth

offset in part by some gross margin contraction. Earnings for Sunac, Aoyuan, Logan,

KWG, Longfor, Greentown, Shimao and Times are likely to stand out with 20-70% yoy

growth while earnings for Sino-Ocean, Evergrande, Agile, SZI and CR Land could be

lower-than-expected due to their high base last year or weak execution capability.

Gross margin to contract 2.1% pts to 31.4% on average Driven by higher land costs of projects to be recognised, the 1H19 gross margin of

developers should have contracted by an average of 2.1% pts to 31.4%. Agile, CR Land,

Sunac and Sino Ocean likely saw larger contractions of 3.5-15.6% pts in 1H19 on a high

margin in 1H18 or recognition of some projects with relatively low margins this year.

Net gearing remained manageable We estimate developers’ net gearing to increase slightly to about 81% in 1H19 from 76%

at end-2018. We think that the levels are manageable as we expect developers should be

able to increase their contracted sales by more than 10% this year. Meanwhile, we have

some concerns on Sunac, as we expect its net gearing could balloon to about 220% in

1H19 from 170% from end-2018 on its aggressive landbanking.

To see developers contracted sales increase by 15% for FY19 Developers registered 10% growth in 1H19 contracted sales on average. Shimao, CIFI,

Aoyuan, Yuzhou, Sino-Ocean and SZI stood out with growth of 32-49% yoy. Given more

project launches, a lower base in 2H18 and a relatively looser mortgage policy, we expect

developers’ sales momentum to accelerate in 2H19. In 1H19, developers had achieved

about 46% of full-year targets for FY19 and we estimate that they should be able to

increase their contracted sales by 15% for FY19.

Stay Neutral; top picks are Longfor, Shimoa, RF, CIFI and Times We like Longfor for large-cap on its decent earnings growth and strong balance sheet and

like Shimao, CIFI and RF for their attractive valuations. We also like Times for its high

exposure to the Greater Bay Area. Key risks include slower-than-expected economic

growth in China and potential policy tightening due to strong property markets.

Figure 1: Summary of 1H19 results preview

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

China

Neutral (no change)

Highlighted Companies

Longfor Group ADD, TP HK$40.00, HK$30.60 close

Longfor has benefited significantly from its proactive landbanking in China’s top tier cities. We forecast strong rental income growth of 20-25% p.a. in FY19-21F and a decent dividend yield of 4.6% in FY19F.

Shimao Property ADD, TP HK$28.00, HK$22.25 close

We like Shimao for its above-average sales and earnings growth over FY18-20F. It trades at a 44% discount to NAV and 6x FY19F P/E, which looks quite attractive for a quality mid-cap stock.

Times China Holdings Ltd ADD, TP HK$21.00, HK$14.50 close

We expect Times to be one of the biggest beneficiaries of the development plan for the Greater Bay Area, in which some 90% of its land bank is located. The stock, trading at 4.4x FY19F P/E and 6.8% yield, looks very attractive.

Summary Valuation Metrics

Insert

Analyst(s)

Raymond CHENG, CFA

T (852) 2539 1324 E [email protected]

Will CHU T (852) 2539 1327 E [email protected]

Jeffrey MAK T (852) 2539 1328 E [email protected]

P/E (x) Dec-19F Dec-20F Dec-21F

Longfor Group 9.84 8.01 6.66

Shimao Property 5.89 4.88 4.14

Times China Holdings Ltd 4.43 3.55 2.88

P/BV (x) Dec-19F Dec-20F Dec-21F

Longfor Group 1.78 1.58 1.40

Shimao Property 0.88 0.76 0.65

Times China Holdings Ltd 0.90 0.71 0.56

Dividend Yield Dec-19F Dec-20F Dec-21F

Longfor Group 4.57% 5.62% 6.76%

Shimao Property 5.59% 6.51% 7.59%

Times China Holdings Ltd 6.54% 8.16% 10.07%

Bloomberg

Net

gearing

Company Ticker 1H19F yoy chg 1H19F pts chg 1H19F yoy chg 1H19F yoy chg 1H19F

COLI 688 HK 102,719 16% 33.5% -2.3% 21,108 10% 0.44 10% 35%

CR Land 1109 HK 55,471 27% 38.0% -10.1% 7,803 7% 0.12 9% 40%

China Vanke - H 2202 HK 113,518 8% 32.8% -0.9% 12,229 17% NA NA 35%

CIFI 884 HK 21,955 19% 33.5% -0.2% 2,907 19% 0.08 20% 85%

Country Garden 2007 HK 187,886 42% 27.0% 0.5% 13,925 17% 0.20 8% 60%

Evergrande 3333 HK 285,331 -5% 35.0% -1.2% 27,234 -15% NA NA 145%

Greentown 3900 HK 35,210 5% 24.0% 5.9% 1,653 28% NA NA 110%

Guangzhou R&F 2777 HK 39,200 15% 36.0% -2.5% 4,532 10% 0.44 10% 170%

KWG 1813 HK 5,369 55% 30.8% -0.3% 2,765 41% 0.28 10% 70%

Longfor 960 HK 35,257 30% 35.0% -2.1% 4,476 20% 0.28 20% 55%

Shimao Prop 813 HK 55,342 30% 29.5% -1.5% 5,393 23% 0.55 10% 60%

Sino-Ocean 3377 HK 16,872 10% 20.0% -3.5% 1,146 -26% 0.10 -29% 80%

SOHO China 410 HK 899 6% 75.8% -0.1% 182 -6167% NA NA 45%

Sunac 1918 HK 74,532 60% 30.0% -4.1% 9,931 70% NA NA 220%

Yuzhou 1628 HK 11,461 24% 30.9% -0.6% 1,337 15% 0.13 14% 88%

Agile 3383 HK 27,837 15% 34.0% -15.6% 3,679 -9% 0.50 0% 85%

China Aoyuan 3883 HK 19,984 46% 28.3% -0.3% 1,548 44% NA NA 65%

Logan Property 3380 HK 23,998 58% 34.0% -3.0% 3,780 43% 0.26 30% 65%

SZ Investment 604 HK 10,463 -7% 35.0% 0.7% 1,232 -3% 0.07 0% 50%

Times China 1233 HK 12,572 20% 28.7% 0.5% 1,479 25% NA NA 65%

China Vanke - A* 000002 CH 120,635 14% 26.9% -0.5% 12,229 17% NA NA 35%

Average 16.2% 31.4% -2.1% 9% 8% 81%

Gross margin

Core earnings

(Rmb m)Revenue DPS

2

Company Note Building Materials │ India │ July 25, 2019



Insert

Asian Paints Limited

Fairly priced; maintain Hold

■ 1QFY3/20 volume growth at c.17%, ahead of our estimate, was a positive surprise. We estimate FY20F volume growth to be in the double-digits.

■ Share gains from unorganised players, increasing trend in premium products and use of waterproofing solutions will ensure double-digit volume growth.

■ We maintain our Hold call with a higher TP of Rs1,520 (47x Mar 21 EPS).

Impressive volume-led domestic sales growth Asian Paints’ 1QFY3/20 standalone revenue rose 18.2% to Rs43.8bn (our est:

Rs40.4bn). Decorative volume growth continued to be in the double-digits (c.17%). The

double-digit volume growth in the mid-premium end of the portfolio was reassuring. The

1QFY20 growth was due to 1) the offer of innovative schemes to dealers leading to

channel filling, 2) higher growth in smaller towns compared to large cities, 3) higher

marriage days, and 4) base quarter being affected by inventory destocking led by GST

rate cut. However, management cited that uncertainty looms over the demand scenario

which hinges much on economic recovery and monsoon.

International business and domestic JVs drag down overall growth Consolidated net sales were up by 16.9% to Rs51.3bn (our est: Rs47.9bn). Subsidiary

revenue grew by 9.7% to Rs7.5bn. Challenging business conditions continued to affect

Sri Lanka and Egypt. Both the domestic JVs were affected by the slowdown in the Indian

market, with the automotive JV being severely affected. Focus on product portfolio and

network expansion has ensured decent growth for the Home Improvement business amid

a slowdown in new construction.

Tight cost control leads to margin expansion 1QFY20 consolidated gross margin saw a modest uptick of 30bp to 43.5%. APNT

undertook retail price cuts of c.2-3% (0.4% on aggregate portfolio level) in its solvent

based enamel portfolio in 1Q to pass on the benefits of benign raw material cost.

EBITDA was up 24.4% yoy to Rs1.2bn as EBITDA margins expanded by 140bp to

22.5%. Advancement of ad spends to 4QFY19 and benefits from freight costs arising

from shorter distance-to-market post commercialisation of new factories led to an

operating margin expansion.

Minor tweaks in estimates; maintain Hold Asian Paints has surprised us and the market positively with higher-than-expected

volume growth. We revise our estimates mainly to incorporate the effects of the

implementation of the new accounting standard. Our revised estimates bake in revenue/

earnings CAGR of 13%/19.2% for FY19-22F. We maintain Hold with a revised target

price of Rs1,520 (47x Mar 21F, 5-year average P/E, vs. 43x earlier). Upside/downside

risks are higher-/lower-than-expected revenue growth.


India

HOLD (no change)

Consensus ratings*: Buy 22 Hold 11 Sell 5

Current price: Rs1,483

Target price: Rs1,520

Previous target: Rs1,415

Up/downside: 2.5%

CGS-CIMB / Consensus: 3.6%

Reuters: ASPN.NS

Bloomberg: APNT IN

Market cap: US$20,627m

Rs1,422,874m

Average daily turnover: US$27.37m

Rs1,899m

Current shares o/s: 959.2m

Free float: 47.2% *Source: Bloomberg

Key changes in this note

Revenue for FY20-22F cut by 1-2%.

Core EPS for FY20-21F cut by 1-2%.

Source: Bloomberg

Price performance 1M 3M 12M

Absolute (%) 7.8 2.3 1.1

Relative (%) 11.1 5.4 -1.7

Major shareholders % held Promoter & Promoter Group 52.8

LIC of India 6.5 Blackrock Inc 1.3

Insert

Analyst(s)

Amit PUROHIT

T (91) 22 4880 5178

E [email protected]

Harsh SHAH T (91) 22 4880 5179 E [email protected]

Financial Summary Mar-18A Mar-19A Mar-20F Mar-21F Mar-22F

Revenue (Rsm) 168,246 193,415 216,735 245,931 278,877

Operating EBITDA (Rsm) 31,976 37,621 45,980 54,285 63,129

Net Profit (Rsm) 20,950 21,557 26,472 31,038 36,554

Core EPS (Rs) 21.37 22.47 27.60 32.36 38.11

Core EPS Growth 3.0% 5.1% 22.8% 17.3% 17.8%

FD Core P/E (x) 69.40 66.00 53.75 45.84 38.93

DPS (Rs) 8.70 9.79 11.64 13.65 16.06

Dividend Yield 0.59% 0.66% 0.78% 0.92% 1.08%

EV/EBITDA (x) 44.31 37.65 30.98 25.83 21.88

P/FCFE (x) 151.2 154.6 122.5 36.9 35.9

Net Gearing (10.6%) (10.2%) (2.1%) (19.7%) (31.9%)

P/BV (x) 16.92 14.95 13.20 11.60 10.15

ROE 25.6% 24.0% 26.1% 26.9% 27.8%

% Change In Core EPS Estimates (0.72%) (1.65%) 1.03%

CIMB/consensus EPS (x) 1.03 1.01 1.01

83.0

87.4

91.9

96.3

100.8

1,100

1,200

1,300

1,400

1,500

Price Close Relative to SENSEX (RHS)

5

10

Jul-18 Oct-18 Jan-19 Apr-19

Vol m

3

Company Note Finance Companies │ India │ July 25, 2019



Insert Insert

Mahindra & Mahindra Finance Economic slowdown hurts asset quality

■ The disappointing 1QFY3/20 earnings were driven by a spike in GNPLs (up 150bp qoq), Rs6.2bn of provisions and a 45% spike in opex.

■ AUM growth was robust at 22% yoy but outlook is weak due to a slowdown in the economy.

■ We cut FY20-21F EPS due to higher provisions and lower loan growth estimates. Our TP is reduced to Rs400 (1.7x FY21 BV). Maintain Add.

Sharp deterioration in asset quality a key highlight of 1QFY3/20 Asset quality witnessed a sharp deterioration with headline gross NPLs increasing 150bp qoq to 7.4% in 1QFY20; consequently, credit costs rose to 3.58% vs. 2.1% in 4QFY19. Net NPLs also rose by 90bp qoq and stood at 7.4% in 1QFY20 with a PCR of 24.9%. Provisions were unexpectedly high and formed 85.5% of PPP. As per management, no additional provisions are expected unless the realisable value of disposable assets is substantially lower than expected. 1QFY20 PAT made up just 6% of our FY20F estimate.

Management guides a 15% AUM growth Management expects overall AUM/disbursement growth to weaken at ~15%/10% yoy respectively in FY20. Assets under management (AUM) growth was strong at 22% yoy in 1Q, however disbursements growth came in weak at 2.5% yoy with overall economic slowdown and poor auto demand. AUM growth was largely driven by the commercial vehicle (CV)/construction equipment (CE) segment which grew at a robust 65% yoy. The CV/CE segment comprised 19% of overall AUM vs. 18% in 4Q19.

Spreads declined driven by fall in yields Management highlighted that liquidity remains comfortable despite uncertainty in the credit market. Management said asset liability management (ALM) is comfortable in the near term. Overall spreads contracted 50bp qoq in 1QFY20 with sequential dip in yields of 40bp and stands at 14.2%. Cost of funds were flat qoq at 6.6%.

Sharp spike in opex also led to tepid PPP Net interest income for the quarter grew at 17.5% yoy. Overall PAT was down 74.6% at Rs6.84bn due to higher opex and provisions made during the quarter. Management highlighted high opex growth of 45% yoy was on account of higher employee expenses and depreciation. The cost-to-income ratio was at 43.6% in 1QFY20 vs. 41.6% in 4QFY19. Provisions formed 85.5% of operating profit, dragging the credit cost to 3.58% vs. 2.11% in 1QFY19.

Cut FY20F/21F EPS by 17.6%/12.8%; maintain Add Given the current weak economic scenario and overall auto sales, we expect loan growth to be sluggish with largely stable spreads in the medium term. As such, we cut our earnings by 17.6%/12.8% for FY20F/21F and reduce our TP to Rs400 (Rs540 previously), based on 1.7x FY21F P/BV at the company level and Rs50 for its housing subsidiary. However, we keep our Add call as valuations are attractive at 1.3x FY21F P/BV. Key risks are lower-than-expected AUM growth and weak asset quality. Potential catalysts are strong loan growth and improving asset quality.


India

ADD (no change)


Current price: Rs304.5

Target price: Rs400.0

Previous target: Rs540.0

Up/downside: 31.4%

CGS-CIMB / Consensus: -17.4%

Reuters: MMFS.NS

Bloomberg: MMFS IN


Rs188,079m


Rs920.7m




FY20F core EPS decreased by 17.6%.


FY22F numbers introduced

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -21.8 -29.8 -36.9

Relative (%) -18.5 -26.7 -39.7

Major shareholders % held Mahindra & Mahindra 51.2 LIC 3.1 UTI FUNDS MANAGEMENT 2.2

Insert

Analyst(s)

Dhiren SHAH

T (91) 22 4880 5170 E [email protected]

Siddharth TELI T (91) 22 4880 5158 E [email protected]

Saili CHHEDA T (91) 22 4880 5184 E [email protected]


Net Interest Income (Rsm) 35,025 46,700 51,803 62,065 72,010

Total Non-Interest Income (Rsm) 1,660 1,953 2,148 2,363 2,600

Operating Revenue (Rsm) 36,686 48,653 53,950 64,428 74,611

Total Provision Charges (Rsm) (5,681) (6,352) (8,599) (9,208) (10,681)

Net Profit (Rsm) 10,761 15,571 15,067 19,082 21,807

Core EPS (Rs) 18.25 25.33 24.50 31.03 35.46

Core EPS Growth 157% 39% (3%) 27% 14%

FD Core P/E (x) 16.69 12.02 12.42 9.81 8.58

DPS (Rs) 2.00 3.50 3.50 3.50 3.50

Dividend Yield 0.66% 1.15% 1.15% 1.15% 1.15%

BVPS (Rs) 156.6 177.4 197.8 224.8 256.1

P/BV (x) 1.94 1.72 1.54 1.35 1.19

ROE 13.3% 15.2% 13.1% 14.7% 14.8%

% Change In Core EPS Estimates (17.6%) (12.8%)


55.0

67.0

79.0

91.0

103.0

115.0

280

330

380

430

480

530


10

20

30


Vol m

4

Company Note Finance Companies │ India │ July 25, 2019



Insert Insert

Shriram Transport Finance Growth drops – asset quality largely stable

■ Overall economic slowdown and weak auto sector demand dragged AUM growth to 5.8% yoy in 1QFY3/20. Disbursements fell 8.4% yoy.

■ Slight deterioration in GNPLs/NNPLs which inched up 15/48bp qoq. Coverage ratio declined 2.6% pts qoq to 31.8% in 1Q.

■ We trim our FY20/21F EPS by 4.9/0.2% to factor in slightly lower asset growth and higher provisions. Maintain Add.

Modest AUM growth due to weak economic sentiment Overall AUM growth was modest at 5.8% yoy in 1QFY20. Disbursements for the quarter were down 8.4% yoy. Management highlighted that overall disbursements were down in the first month of the quarter (election impact), which led to the tepid disbursement growth in 1QFY20 (down 8.4%). New vehicle disbursements dipped 54% yoy while old vehicle disbursements grew 2.8% yoy. Management guided for overall growth of 10/15% yoy for disbursements/AUM in FY20F.

Asset quality deteriorates marginally Overall 1QFY20 gross NPL (Gross Stage 3) ratio under IndAS was higher qoq, at 8.52% vs. 8.37% in 4QFY19 with gross NPLs up 3.5% qoq to Rs89.3bn. Stage 3 coverage ratio declined qoq and stood at 31.8% in 1QFY20 vs. 34.4% in 4QFY19, while stage 1 & 2 provisions stood at 2.88% vs. 2.76% in 4QFY19. Management expects credit quality to remain largely stable unless the economic outlook weakens significantly – we factor in average credit costs at ~2.2% through FY22F.

Overall margins declined 6bp sequentially Overall NIMs for the quarter stood at 7.16% and were down 6bp sequentially – higher balance sheet liquidity was one of the key reasons for the decline in NIMs. Yields expanded by 42bp qoq in 1Q which was offset by a 40bp increase in cost of funds; yield/cost of funds came in at 15.2/9.1% respectively. We believe the increase in yields is attributable to a change in mix from new vehicle to old vehicle lending. We expect NIMs to largely stabilise at current levels unless system liquidity worsens further.

Operating performance largely in line 1QFY20 net profit rose 10.7% yoy to Rs63.4bn and PPOP was up 9.75% yoy. 1QFY20 net profit formed 22% of our full-year forecast. NII grew 8% yoy on account of higher cost of funds. Overall opex growth was 2.7% yoy, with cost-to-income ratio at 22.4% vs. 22.1% in 4QFY19. Credit costs were higher than expected, with a deterioration in asset quality to 2.13% in 1Q vs. 2.07% in 4Q.

Valuations attractive We expect an improvement in AUM growth with stable spreads in the medium term. However, given the weak economic outlook, we trim our FY20/21F EPS by 4.9/0.2%. The stock is trading at attractive valuations of 1x FY21F P/BV with ROEs of ~17%. Retain Add with a lower TP of Rs1,350 (Rs1,400 previously) which translates into 1.4x FY20F P/BV based on GGM. Prolonged low AUM growth and higher slippages are key risks.


India

ADD (no change)





Up/downside: 45.9%


Reuters: SRTR.NS

Bloomberg: SHTF IN


Rs209,946m


Rs2,227m






FY22F numbers introduced.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -17 -21.7 -26.9

Relative (%) -13.7 -18.6 -29.7

Major shareholders % held Shriram Capital ltd 26.1 HDFC Trustee Company LTD 3.3 Sanlam Life Insurance Ltd 3.0

Insert

Analyst(s)

Siddharth TELI


Dhiren SHAH T (91) 22 4880 5170 E [email protected]

Saili CHHEDA T (91) 22 4880 5184 E [email protected]

Financial Summary Mar-18A Mar-19F Mar-20F Mar-21F Mar-22F

Net Interest Income (Rsm) 68,248 78,730 84,645 99,127 111,427

Total Non-Interest Income (Rsm) 3,079 1,614 1,822 1,975 2,184

Operating Revenue (Rsm) 71,326 80,344 86,467 101,103 113,611

Total Provision Charges (Rsm) (17,223) (23,823) (25,727) (29,091) (32,467)

Net Profit (Rsm) 24,605 25,640 27,172 32,722 36,443

Core EPS (Rs) 108.4 113.0 119.7 144.2 160.6

Core EPS Growth 95.7% 4.2% 6.0% 20.4% 11.4%

FD Core P/E (x) 8.53 8.19 7.73 6.42 5.76

DPS (Rs) 11.00 12.00 13.00 13.00 12.00

Dividend Yield 1.19% 1.30% 1.40% 1.40% 1.30%

BVPS (Rs) 598 698 802 931 1,078

P/BV (x) 1.55 1.33 1.15 0.99 0.86

ROE 19.7% 17.4% 16.0% 16.6% 16.0%

% Change In Core EPS Estimates (4.89%) (0.22%)


65.0

81.7

98.3

115.0

870

1,070

1,270

1,470


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Company Note Industrial Machinery │ India │ July 25, 2019



Insert Insert

SKF India Ltd

1QFY20: Steady quarter

■ 1QFY20 sales/PAT were in line with our estimates. Higher-than-expected EBITDA (despite adverse mix) was offset by lower other income.

■ We expect revenue growth to be driven by the supply of HUB3 bearings, increasing scope in railways, and sustained growth in industrial demand.

■ Maintain Add, with a lower target price of Rs2,150 (26x Jun 21F P/E, its past 5-year average).

1QFY20 sales in line with our estimates 1QFY3/20 sales (+3% yoy) was in line with our estimate, given the expected decline in

the auto segment. Domestic auto sales fell by ~8% yoy in 1Q due to a 14% yoy decline in

OEM growth, while auto aftermarket (AM) grew by 5% yoy. Industrial sales grew ~9%

yoy, led by a 100% yoy growth in renewables on a low base (23% qoq growth); industrial

AM grew by 10%. Exports grew by 24% yoy on a low base, contributing 9% to total sales.

EBITDA margin better our estimates despite adverse mix 1QFY20 EBITDA margin of 15.4% (+8bp yoy, +62 qoq) was better than our estimate of

14.6%. A gross margin decline of 168bp yoy (-108bp qoq) was offset by a 8% yoy decline

in other expenses (aided by lower provision for bad debts). The flattish margins were

commendable given the lower share of manufacturing sales of 54% in 1QFY20 vs. 59%

in 1QFY19. Other income was down 24% yoy. 1QFY20 PAT (-3.6% yoy), in line.

Industrial segment to revive earlier than auto As per management, auto is in a downcycle and the festive season would be a trigger

point for a rebound. Industrial sector capacity utilisation stood at 75-76% and hence SKF

expects an uptick in industrial capex in the next 3-4 months, ahead of an auto segment

revival. Wind segment sales growth depends on OEM exports and management expects

growth momentum to continue for the next 3-4 quarters.

Lower commodity prices to support margins Railways sales were flattish yoy in 1Q (+22% qoq). The railway market is split into 40%

passenger railways, 40% freight and 20% locos. The company’s market share in

passenger car and locos is in the double-digits and increasing share on the freight side

would be a driver for segment growth. As per management, its HUB3 trial run is done and

awaiting approval. Earlier, management indicated that HUB3 bearings plant could provide

incremental revenue of Rs350m-500m by FY21F. There has been 2-3% softening in

commodity prices in 2QFY20, which will aid margins by 50-60bp in 2QFY20.

Maintain Add We cut our FY20F EPS by 5-6% to account for slower sales growth. Supply of HUB3

bearings, increasing scope for freight, and pick-up in industrial demand are potential

catalysts for the stock. We reiterate Add, with a lower TP of Rs2,150 (Jun 21F P/E of 26x,

its past 5-year average). Slower-than-expected auto growth is a downside risk.

[Add FP Header] [Add FP BodyText]


India

ADD (no change)


Current price: Rs1,900



Up/downside: 13.2%


Reuters: SKFB.BO

Bloomberg: SKF IN


Rs97,542m


Rs41.66m




FY20-21 EPS cut by 5-6%

Source: Bloomberg


Absolute (%) -5 -4.6 15.4

Relative (%) -1.7 -1.5 12.6

Major shareholders % held Promoter 52.6

HDFC Mutual Fund 9.3 Franklin Templeton Mutual Fund 2.4

Insert

Analyst(s)

Sachin MANIAR



Revenue (Rsm) 27,142 29,960 32,383 36,270 40,638

Operating EBITDA (Rsm) 4,348 4,859 5,034 5,775 6,549

Net Profit (Rsm) 2,959 3,358 3,397 3,939 4,508

Core EPS (Rs) 56.86 66.64 68.71 79.67 91.18

Core EPS Growth 22.9% 17.2% 3.1% 15.9% 14.4%

FD Core P/E (x) 33.41 28.51 27.65 23.85 20.84

DPS (Rs) 12.00 12.00 14.00 16.00 18.00

Dividend Yield 0.63% 0.63% 0.74% 0.84% 0.95%

EV/EBITDA (x) 21.22 18.65 17.26 14.70 12.59

P/FCFE (x) 64.51 19.44 37.93 41.58 26.91

Net Gearing (35.8%) (30.3%) (36.0%) (40.1%) (44.1%)

P/BV (x) 5.31 5.54 4.81 4.17 3.62

ROE 16.2% 19.0% 18.6% 18.7% 18.6%

% Change In Core EPS Estimates (5.48%) (5.35%) (5.40%)


97.0

107.0

117.0

127.0

1,500

1,700

1,900

2,100


200

400

600


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Company Flash Note Autos │ India │ July 26, 2019



Insert Insert

Tata Motors

JLR volatility concerns

■ Consolidated EBITDA fell 50% yoy to Rs37.9bn, some 22% below our estimate, as in-line standalone numbers were overshadowed by a JLR miss.

■ The 64% qoq rise in net debt to Rs46.5bn was disappointing. Management now expects EBIT margin to come in at the lower-end of its guidance.

■ We maintain Add rating, as low P/BV valuations (-2s.d. below mean) reflect worst-case scenario, while new products and cost cutting may surprise.

In-line India EBITDA performance ● Stand-alone India 1Q EBITDA fell 45% yoy and 36% qoq to Rs8.6bn, in line with our

expectations, as sustained improvements in the car division margins qoq helped to

overcome the disappointment in trucks.

● The net loss of Rs1.26bn was higher than our estimate due to higher interest costs.

JLR’s EBIDTA margins collapse to a new low ● JLR’s IFRS 1Q EBITDA margins collapsed 400bp to 4.9%, a new low, leading to an

EBITDA dip of 51% yoy to £213m, merely half of our expectations.

● 1Q net loss jumped 91% yoy to £402m.

● Consolidated net loss of Rs34.4bn was much higher than our expectations, as the

22% EBITDA miss was further compounded by higher interest and depreciation costs.

Management conference call highlights ● Management indicated that it was disappointed by the sharp deceleration in India

trucking and is taking time to align its production and inventory. Tata continues to be

the leader in India’s electrical vehicle segment, with a market share of 26% in bus and

65% in cars.

● JLR’s warranty costs spiked to nearly 6% of sales; management blamed it on legacy

costs and seasonality, and assured that it will reverse. The spike in variable marketing

expenses to ASP to 9% was a disappointment, impacted by mode year change for its

products.

● Management said accounting norm changes resulted in a 35bp improvement in

EBITDA margin for both the standalone company and JLR. Also, JLR incurred £100m

in Brexit-related costs in 1Q.

Maintain Add rating ● High volatility in quarterly earnings has led to fluctuations in the stock price in recent

months. Considering its attractive valuation of 0.7x 1-year forward EV/sales and

management’s cost-cutting measures leading to signs of FCF improvement, we

reiterate our Add rating.

● We value the India business at 6x and JLR at 1.3x 1-year forward EV/EBITDA, leading

to an SOP-based TP of Rs277. Key risks are a global trade war impacting premium

car demand and production.

Figure 1: 1QFY20 results summary


FYE Mar (Rs m) 1QFY20 1QFY19 yoy %

chg

qoq %

chg FY19

yoy %

chg Comments for the quarter

Revenue 614,670 680,658 (9.7) (28.9) 3,019,384 3.6 1% above estimate due to higher JLR sales

Raw Materils 397,755 430,269 (7.6) (30.4) 1,963,212 5.6

RM as % of revenue 64.7 63.2 149.7 (141.4) 65.0 127

EBITDA 37,895 73,657 (48.6) (58.3) 297,948 (11.9) 23% below our estimate on back of 47% miss in JLR

EBITDA margin (%) 6.2 10.8 (465.6) (435.6) 9.9 (172.7) 190bp below our estimate

Depn & amort. 51,117 58,571 (12.7) (4.5) 235,906 9.5

Product Devp cost W off 7,940 9,505 (16.5) (26.0) 42,246 19.6

EBIT (21,162) 5,581 nm (179.4) 19,796 (77.3)

Interest expense 17,116 13,753 24.5 7.8 57,586 23.0 45% above our estimate due to increase in debt

Interest & invt inc 8,360 2,248 271.9 (3.2) 29,653 (25.1)

Pretax profit (29,918) (5,924) nm nm (8,137) nm

Tax 1,961 (4,156) nm nm (24,375) nm

Tax rate (%) (7) 70 nm na 300 nm

Net profit (31,879) (1,768) nm nm 16,238 (60.9)

Minority Int/ Profit of Assc (2,571) 2,654 nm nm 1,077 nm JLR China loss of GBP27m

Net profit after Minority (34,450) 886 nm nm 17,315 (71.3)

Exceptionals (2,464) (19,918) nm nm (305,575) nm JLR employee separation cost of GBP12m

Other Comprehensive Inc. 13,982 16,294 nm nm 55,758 nm

Reported net profit (36,797) (18,626) nm nm (287,242) nm

Adjusted EPS (Rs) (10.1) 0.3 nm nm 5.1 nm

India

July 26, 2019 - 10:22 PM

ADD (no change) Consensus ratings*: Buy 18 Hold 17 Sell 4


Target price: Rs277.0

Previous target: Rs277.0

Up/downside: 92.0%


Reuters: TAMO.BO

Bloomberg: TTMT IN


Rs452,138m


Rs3,914m

Current shares o/s 3,396m


Key financial forecasts

Source: Bloomberg


Absolute (%) -10.1 -35 -43.9

Relative (%) -6 -32.7 -46.5

Major shareholders % held

Tata Group 38.4

LIC 5.1

Reliance capital 3.4

Insert

Analyst(s)

Pramod AMTHE


Pravin YEOLEKAR T (91) 22 4880 5152 E [email protected]

Mar-20F Mar-21F Mar-22F

Net Profit (Rsm) 74,894 116,752 151,613

Core EPS (Rs) 22.05 34.38 44.64

Core EPS Growth 333% 56% 30%

FD Core P/E (x) 6.54 4.20 3.23

Recurring ROE 11.7% 15.9% 17.5%

P/BV (x) 0.73 0.62 0.52

DPS (Rs) 0.20 0.40 0.60

Dividend Yield 0.139% 0.277% 0.416%

48.0

66.8

85.5

104.3

130

180

230

280


50

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150

200


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7

Company Note Banks │ Indonesia │ July 25, 2019



Insert Insert

Bank Central Asia 1H19 results: Strong PPOP offset by higher provisioning

■ 1H19 net profit of 12.9tr (+13% yoy) was in largely in line with our forecast and consensus'. Higher credit costs offset strong PPOP growth (+23% yoy).

■ NIM rose to 6.2% in 2Q19 vs. 6% in 2Q18 (6.2% in 1Q19). LDR edged up to 79% in 2Q19 vs. 77% in 2Q18 (81% in 1Q19).

■ Loans grew 11% yoy (+6% qoq), while NPL was flat though SML and LAR increased. No change to earnings. Hold maintained on valuations.

Strong PPOP growth offset by higher provisions 1H19 net profit of Rp12.9tr (+13% yoy) was broadly in line at 45% of our FY estimate and

consensus numbers at 44%. PPOP was strong (+23% yoy) amid strong total income

(+16%) and benign opex (+8% yoy). This was offset by a steep increase in provisioning

(+196% yoy) amid downgrades in commercial & SME loans. Credit cost stood at 0.9% in

1H19 vs. 0.4% in 1H18. BBCA still guides for credit cost of 0.5-0.6% in FY19.

NIM more resilient than peers NIM improved to 6.2% in 1H19 from 6% in 1H18 (6.2% in 1Q19) as asset yield rose to

8.1% in 1H19 vs. 7.5% in 1H18 (8% in 1Q19) offsetting COF which increased to 2% in

1H19 from 1.7% in 1H18 (2% in 1Q19). We expect NIM to stay stable going forward.

Deposits grew 9% yoy (+6% qoq). TD was up 18% yoy (+8% qoq) while CASA grew

slower (+6% yoy/+6% qoq). LDR rose to 79% in 1H19 vs. 77% in 2Q18 (81% in 1Q19).

Strong loan growth driven mostly by corporate loans Loans grew 11% yoy (+6% qoq) in 1H19 – corporate segment (+15% yoy/+6% qoq) was

the driver, mainly from trading and manufacturing sectors. This was followed by

commercial & SME (+13% yoy/+2% qoq). Investment loans (+22%/+7% qoq) outpaced

working capital loans (+11% yoy/+4% qoq). Going forward, the company expects

significant investment loan pipelines in the electricity and financial services sectors.

Consumer loans grew slower (6% yoy/ +9% qoq), mostly driven by mortgage (+11%/+5%

qoq). Loan growth guidance remains 8-10% for FY19.

Slight uptick in loans-at-risk and SML NPL stood at 1.4% (flattish yoy/1.5% in 1Q19) while SML rose 2.5% in 1H19 vs. 2.3% in

1H18 (2.1% in 1Q19) due to commercial & SME loan downgrades. Loan-at-risk rose to

4.5% in 1H19 from 4.2% in 1H18 and 1Q19. NPL coverage fell yoy to 184% vs. 188% in

1H18, but picked up from 171% in 1Q19 and 179% in FY18.

Maintain Hold We keep our Hold call due to valuations, with an unchanged GGM-based TP. Having

outperformed the JCI by 17% YTD, the stock trades at 4.6x 2019F P/BV vs. its 10-year

average of 3.4x P/BV. Potential catalysts are better-than-expected growth and margins.

Risks are worsening asset quality, and deteriorating macro (rupiah and bond yields).


Indonesia

HOLD (no change)


Current price: Rp31,250

Target price: Rp28,500

Previous target: Rp28,500

Up/downside: -8.8%


Reuters: BBCA.JK

Bloomberg: BBCA IJ


Rp770,469,056m


Rp350,227m

Current shares o/s: 24,655m



No change

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 6.4 11 32.8

Relative (%) 4.9 12 25.2

Major shareholders % held Farindo Investments (Budi Hartono/Bambang Hartono) 47.2

Insert

Analyst(s)

Erwan TEGUH


Leonardo TUKIMAN T (62) 21 3006 1725 E [email protected]

Financial Summary Dec-17A Dec-18A Dec-19F Dec-20F Dec-21F

Net Interest Income (Rpb) 42,967 45,336 49,839 55,487 61,883

Total Non-Interest Income (Rpb) 13,606 17,700 19,337 22,169 24,872

Operating Revenue (Rpb) 56,572 63,036 69,176 77,656 86,755

Total Provision Charges (Rpb) (2,633) (2,677) (2,848) (3,133) (3,462)

Net Profit (Rpb) 23,309 25,855 28,750 32,546 36,361

Core EPS (Rp) 945 1,049 1,166 1,320 1,475

Core EPS Growth 13.1% 10.9% 11.2% 13.2% 11.7%

FD Core P/E (x) 33.05 29.80 26.80 23.67 21.19

DPS (Rp) 200.1 226.4 251.1 279.2 316.1

Dividend Yield 0.64% 0.72% 0.80% 0.89% 1.01%

BVPS (Rp) 5,326 6,151 7,063 8,104 9,262

P/BV (x) 5.87 5.08 4.42 3.86 3.37

ROE 19.1% 18.3% 17.6% 17.4% 17.0%


94.0

108.6

123.2

21,000

26,000

31,000

Price Close Relative to JCI (RHS)

20

40

60


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Company Note Shipbuilding │ South Korea │ July 25, 2019



HIGH

CONVICTION

Insert Insert

Korea Shipbuilding & Offshore Good earnings, weak sentiment

■ 2Q19 EBIT was in line with our forecast, thanks to 1) 25% yoy sales growth, 2) product mix improvement, 3) a weak Won and 4) lower steel prices.

■ The management reaffirmed strong order enquiries and maintained its shipbuilding order target for FY19F (US$8bn parent-base).

■ KSO has successfully raised prices for LNGC orders that suffered delayed option exercise YTD. We expect further newbuild price hike in 2H19F.

■ SOP-based target price cut to W170,000 to reflect the weak sentiment.

2Q19 turns around as expected KSO’s W55bn 2Q19 EBIT was broadly in line with our forecast (W60bn) and way above

Bloomberg consensus (W7bn), buoyed by: 1) 25% yoy revenue growth; 2) product mix

improvement (36% of sales represented by LNGC); 3) a weak Won; and 4) lower steel

prices. Shipbuilding division posted 44% yoy revenue growth with 4% OPM, offsetting the

W31bn loss at the offshore/plant division. Net profit surprise (W202bn) was driven by a

one-off taxation write-back following KSO’s intermediate holding company transition.

Shipbuilding order target intact Despite the weak order run rate YTD, the management reaffirmed strong order enquiries

and maintained its FY19F shipbuilding order target (US$8bn parent-base). KSO is upbeat

on potential order wins across LPGC, very-large-crude-carriers (VLCC) and ad-hoc

LNGC (e.g. those dedicated to spot market demand, apart from the mega-orders

expected from Qatar/Mozambique) in Jul-Aug. KSO does not see competition with China

as a threat for LNG-marine-fuel containers, as China banks no longer offer 0% down-

payment scheme in their ship finance terms.

Priority still on LNGC price hike We were relieved by the company’s confirmation that it has raised prices for the delayed

option exercise of LNGCs already ordered (10 units), which were impacted by the US-

China trade tensions, as these are allegedly tied to charter contracts to China, i.e. which

has newly emerged as the no.1 importer of LNG globally. Given the constrained yard

capacity for LNGC globally, we see minimal risk of KSO locking in orders at a higher

price range of US$190m-195m ahead (i.e. only a few delivery slots left for FY22F while

slots for FY23-24F look set to be guaranteed by orders from Qatar/Mozambique in

4Q19F-1Q20F).

Add: Wait for sentiment recovery Given the robust earnings growth, we see the recent correction as overdone. However,

our SOP TP is trimmed to W170,000 with a lower 10x target EV/EBITDA multiple (on par

with Airbus), as we reflect slower order run-rate and dampened industrial sector

sentiment due to the trade war, weak macros (EU) and political unrest (Iran). We foresee

an inflection point with LNGC order recommencement, while Japan’s potential reluctance

to approve KSO’s merger with DSME remains the key downside risk to our call.


South Korea

ADD (no change)


Current price: W102,500

Target price: W170,000

Previous target: W200,000

Up/downside: 65.9%


Reuters: 009540.KS

Bloomberg: 009540 KS


W7,254,245m


W22,136m




FY19F EPS raised by 93%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -15.6 -16 4

Relative (%) -13.4 -10.7 12.7

Major shareholders % held Hyundai Heavy Industries Holdings 31.0 National Pension Service 9.4 KCC Corp 6.6

Insert

Analyst(s)

KJ HWANG


Alex PARK T (82) 2 6730 6131 E [email protected]


Revenue (Wb) 15,469 13,120 14,572 16,309 18,519

Operating EBITDA (Wb) 601 (128) 632 1,042 1,438

Net Profit (Wb) 2,458 (489) 322 794 1,149

Normalised EPS (W) 37,059 (7,675) 4,544 11,221 16,234

Normalised EPS Growth 417% (121%) 147% 45%

FD Normalised P/E (x) 2.77 NA 22.56 9.14 6.31

DPS (W) - - - - -

Dividend Yield 0% 0% 0% 0% 0%

EV/EBITDA (x) 17.72 NA 13.64 7.63 4.91

P/FCFE (x) 5.68 54.07 19.60 15.30 10.57

Net Gearing 22.2% 13.5% 4.6% 0.1% (5.2%)

P/BV (x) 0.52 0.61 0.62 0.58 0.53

ROE 18.2% (4.3%) 2.7% 6.5% 8.8%

% Change In Normalised EPS Estimates 92.9% 0.0% (0.0%)

Normalised EPS/consensus EPS (x) 306.5 3.7 2.8

94.0

117.3

140.7

164.0

94,000

114,000

134,000

154,000

Price Close Relative to KOSPI (RHS)

1

1

2

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Company Flash Note Personal Products │ South Korea │ July 25, 2019



Insert Insert

LG Household & Health Care Ltd 2Q19 review: virtue of consistency

■ 2Q19 OP of W302bn (+13% yoy) was largely in line with our/Street estimate.

■ Whoo brand’s sales rose a robust 24% yoy; Sum’s weaker-than-expected sales were offset by positive sales surprise from O HUI.

■ We reiterate Add with a TP of W1.5m. Sound sales growth from China should invalidate recent concerns on weak cosmetics export data.

2Q19 review : sales/OP in line ● LG Household & Health Care (LG H&H) reported 2Q19 preliminary sales of W1.83tr

(+11% yoy, -2% qoq) and OP of W302bn (+13% yoy, -6% qoq). Both figures were

largely in line with our estimates and consensus.

● The Beautiful division’s sales/OP of W1.11tr/W226bn were just 2% below our estimate

due to O HUI sales making up for lower-than-expected Sum sales.

● The non-core divisions -- Healthy and Refreshing (divisions) reported sales/OP that

were broadly in line with our estimates. Notably, LG H&H guided for marginal

downside risk in the Healthy division’s growth rate in 2H19F on the back of its recent

legal dispute with one of Korea’s prominent e-commerce companies -- Coupang

(unlisted), as LG H&H has ceased selling all products from the Refreshing division to

Coupang.

O HUI compensates for Sum’s weaker-than-expected growth ● Whoo sales rose +24% yoy in 2Q19 (+30% yoy in duty-free (DF), +34% in China on-

shore), largely in line with our estimate.

● But Sum’s sales were disappointing at merely +7% yoy (+5% yoy in DF, +43% in

China on-shore). The muted sales growth stemmed from poor sales trend in DF and

ex-DF domestic channels, on the back of Waterful product line’s waning popularity, in

our view.

● On a positive note, O HUI sales were a surprising +12% yoy (both DF and China on-

shore grew 50%+, according to company guidance), on the back of higher sales

contribution from O HUI The First (+43% yoy), its premium product line-up.

Subsequently, sales/OP shortfall due to Sum was offset to 2%/4% vs. our estimates.

Concerns on China demand look unfounded; reiterate Add ● LG H&H’s +30% yoy sales growth in China on-shore invalidates recent investor

concerns on LG H&H’s sales growth in China, stemming from Korea’s gloomy 2Q19

cosmetics export data (-5% yoy). The divergence signifies LG H&H’s unrivalled brand

positioning in the luxury segment, in our view, vs. other domestic brands, which in

aggregate are largely experiencing weaker China sales.

● We reiterate our Add call on LG H&H with an SOP-based TP of W1.5m. Higher-than-

expected luxury brand demand should catalyse the share price. Risks to our Add call

are weaker-than-expected 1) domestic DF sales growth, and 2) China onshore sales

growth. LG H&H is our top pick within the sector.

Figure 1: 2Q19 preliminary results


(W bn) 2Q19A 2Q19F Diff. (%) BBG Diff. (%) 2Q18 1Q19 % yoy % qoqSales 1,833 1,852 -1% 1,835 0% 1,653 1,875 11% -2%Beautiful 1,109 1,134 -2% 953 1,140 16% -3%Healthy 343 337 2% 337 401 2% -14%Refreshing 380 382 0% 362 334 5% 14%OP 301.5 311.5 -3% 300.4 0% 267 322 13% -6%Beautiful 225.8 234.7 -4% 194.5 246.3 16% -8%Healthy 28.2 28.0 1% 27.3 43.4 3% -35%Refreshing 47.5 48.9 -3% 45.6 32.4 4% 47%Net non-op profit -14.1 -11.9 na -13 -16 na naRecurring profit 287.4 299.6 -4% 254 307 13% -6%Tax 75.9 80.9 -6% 67 81 13% -6%Net profit 208.2 215.5 -3% 213.3 -2% 185 224 13% -7%EPS 13,331 13,798 -3% na 11,824 14,311 13% -7%OPM 16.5% 16.8% -0.4% 16.4% 0.1% 16% 17% 0% -1%NPM 11.4% 11.6% -0.3% 11.6% -0.3% 11% 12% 0% -1%

South Korea July 25, 2019 - 5:22 PM


Current price: W1,308,000

Target price: W1,500,000

Previous target: W1,500,000

Up/downside: 14.7%


Reuters: 051900.KS



W20,428,602m


W31,681m

Current shares o/s 17.72m



Source: Bloomberg


Absolute (%) -0.9 -6.2 4.1

Relative (%) 1.3 -0.9 12.8

Major shareholders % held LG Corp 34.0

National Pension Service 7.2

LG Household & Health Care Ltd 6.1

Insert

Analyst(s)

Jun LIM


Dec-19F Dec-20F Dec-21F

Net Profit (Wb) 826 929 1,046

Normalised EPS (W) 46,640 52,450 59,055

Normalised EPS Growth 21.0% 12.5% 12.6%

FD Normalised P/E (x) 28.04 24.94 22.15

Recurring ROE 21.9% 21.0% 20.1%

P/BV (x) 5.73 4.84 4.12

DPS (W) 11,274 13,946 15,703

Dividend Yield 0.86% 1.07% 1.20%

86.0

100.0

114.0

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1,200,000

1,400,000


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Company Note Auto Parts │ South Korea │ July 25, 2019



Insert Insert

Mando Corporation Self-driving outside China

■ Mando’s W52bn 2Q19 EBIT was supported by rising margin contribution from Korea/US which offset a 30% sales decline in China.

■ Attractive risk-reward from subdued price cut in Korea/US, rising ADAS sales from HMC/Kia’s new models and Chinese restocking demand in 2H19F.

■ Double-upgrade to Add prompted by 12%-35% EPS hikes for FY19F-20F.

■ Our new target price is based on a 0.3x P/SR (50% discounted to Mobis).

2Q19: Decoupling from China Mando’s W52bn 2Q19 EBIT was in line with our estimate and 12% above Bloomberg

consensus forecast even without currency boost (e.g. Won-US$ hedging policy).

Regionally, W1.46tr revenue (+2% yoy) was supported by Korea (+7.2% yoy) and North

America (+25% yoy) which offset the 30% decline in China revenue. The sales proportion

of autonomous-driving-assistance-system (ADAS) edged up to 12%.

Guiding for a 3.5% FY19F OPM During the conference call, Mando cut its FY19F EBIT margin target to 3.5% due to the

prolonged demand weakness in China, while indicating for a better 2H19F profit outlook

from Korea/US and cost savings (e.g. W6bn in FY19F/cut 10% of China’s workforce in

1Q19 and 5% in 2Q19). Mando kept its FY19F new order target at W11tr.

Korea/US outweigh China risks We believe it is still too early to eye an earnings turnaround in China until 4Q19F (e.g.

China’s MTD wholesale volume fell 14% yoy in July), but we see the 3.6% OPM as

sustainable in 2H19F, given: 1) firm margin expansion in Korea/US (c.5.5%/c.1.0%) even

after profit erosion from China (-2% EBIT contribution); 2) falling sales proportion of

China’s local OEMs (c.9%); and 3) the potentially subdued price pressure by HMC/Kia.

We raise our FY19F-20F EPS by 12%-35%.

Double-upgrade to Add (TP 40k) We double-upgrade Mando from Reduce to Add. Our new target price is based on a 0.3x

P/SR (50% discounted to Mobis which enjoys premium of after-service business). While

the share price has had high correlation with the wholesale volume in China and local

OEMs since last year (figure 2), we attribute the recent decoupling to: 1) Mando’s order

diversification to non-captive clients (e.g. US$2.1bn expected in FY19F vs. US$1.7bn in

FY18); and 2) its rising footprint in the green car space (e.g. EV production platform, E-

GMP/potential ADAS orders from foreign EV makers).

Buy parts makers / Sell HMC/Kia We see attractive risk reward in 2H19F, premised on the rising adoption rate of ADAS

products in HMC/Kia’s new models and restocking demand from Chinese car dealers in

2H19F. Meanwhile, slower-than-expected wholesale volume recovery at Chinese local

OEMs remains the key downside risk to our call.


South Korea

ADD (previously REDUCE)





Up/downside: 25.8%


Reuters: 204320.KS



W1,493,236m


W11,253m




FY19F EPS increased by 12%.



Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 8.3 -8.2 -20.2

Relative (%) 10.5 -2.9 -11.5

Major shareholders % held HALLA HOLDINGS CORPORATION 30.3 NATIONAL PENSION SERVICES 13.6

Insert

Analyst(s)

KJ HWANG


Alex PARK T (82) 2 6730 6131 E [email protected]


Revenue (Wb) 5,685 5,665 5,804 5,811 5,843

Operating EBITDA (Wb) 328.6 469.1 493.6 552.2 569.2

Net Profit (Wb) 4.8 105.7 99.1 144.2 157.5

Normalised EPS (W) 509 2,250 2,109 3,071 3,354

Normalised EPS Growth (98%) 342% (6%) 46% 9%

FD Normalised P/E (x) 62.44 14.13 15.08 10.36 9.48

DPS (W) 1,000.0 500.0 1,000.0 1,000.0 1,000.0

Dividend Yield 3.14% 1.57% 3.14% 3.14% 3.14%

EV/EBITDA (x) 4.35 6.37 6.47 5.93 5.89

P/FCFE (x) NA NA NA NA NA

Net Gearing 80% 100% 122% 116% 110%

P/BV (x) 0.22 1.05 1.15 1.06 0.98

ROE 0.3% 7.6% 7.3% 10.7% 10.7%

% Change In Normalised EPS Estimates 11.9% 34.5% 32.6%


69.0

80.1

91.2

102.3

25,000

30,000

35,000

40,000


1

1

2

2


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Company Note IT Services │ South Korea │ July 25, 2019



Insert Insert

NAVER Positive on Naver Pay’s spinoff

■ Naver’s 2Q19 OP of W128.3bn was below our estimates, no thanks to Line.

■ We still think LINE’s ramp-up could take more time. But strong domestic business likely dispels concerns on waning consolidated earnings in 2H19F.

■ We upgrade Naver to Hold and raise our SOP-based TP to W140k. We are positive on the Naver Pay spinoff, which could be worth over W1.5tr.

Concerns over LINE Pay’s competitiveness Due to LINE’s widening operating loss, Naver reported a weak 2Q19 consolidated OP of

W128.3bn, -48.8% yoy. This is 17.0% below our estimate and 17.2% below Bloomberg

consensus. However, the market seems to be ignoring the weak earnings as the share

price has risen by as much as 8% after the 2Q19 earnings conference call during which

management revealed plans to spin off Naver Pay into a separate entity.

Parent company’s performance was still strong Excluding LINE, Naver reported a solid parent-only OP of W322.5bn (17% yoy), in line

with our estimate. Naver’s CPM ad revenue rose +12% yoy, the first double-digit yoy

increase since 2Q18. Our Reduce call was premised on Naver’s warning of the threat

posed by YouTube and Instagram ads taking Naver’s market share. This apprehension

proved unfounded as CPM (click per mille) revenue growth improved in 1H19.

Positive on the spinoff; likely boosted by Naver Pay in 2H19 Naver’s Business Platform division, including Naver Shopping, registered substantial

revenue growth of 17% yoy in 2Q19. IT platform, including Naver Pay, recorded a 22.6%

yoy revenue growth, due to synergies with Naver’s strong commerce platform. Naver

announced that it plans to spin off Naver Pay, which will become a separate entity named

Naver Financial. Mirae Asset Daewoo (006800 KS, Not rated) will invest W500bn in the

new entity and likely become its second biggest shareholder after Naver.

Naver Financial could be worth W1.5tr We previously did not factor Pay’s equity value into Naver’s SOP valuation as the

business entity did not independently generate material income. However, after the

spinoff and external funding, new entity Naver Financial is likely to seek business

opportunities outside Naver, such as selling insurance, loans or securities. Using the peer

comparable valuation method (see fig 1), we now include the value of Naver’s stake in

Naver Financial’s in our SOP valuation, which could be worth over W1.5tr.

Upgrade to Hold with a higher TP of W140k We upgrade Naver from a Reduce to Hold and raise our SOP-based TP to W140K. We

raised FY20-21F EPS forecasts to reflect the higher-than-expected domestic ad revenue

growth rate. Upside risks are faster-than-expected profit contribution from LINE and an

increase in domestic video platform market share. Downside risk is decreasing market

share in domestic ad market in 2H19F.


South Korea

HOLD (previously REDUCE)





Up/downside: 4.5%


Reuters: 035420.KS



W22,084,994m


W50,361m




FY19F/20F Revenue increased by 2%/2%.

FY19F/20F OP increased by 10%/15%.

FY19F/20F/21F EPS increased by 2%/6%/10%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 17 11.2 -10.2

Relative (%) 19.2 16.5 -1.5

Major shareholders % held National Pension Service 10.0 BlackRock Inc 5.7

Insert

Analyst(s)

Namjun LEE



Revenue (Wb) 4,678 5,587 6,474 6,959 7,508

Operating EBITDA (Wb) 1,385 1,204 1,200 1,529 1,689

Net Profit (Wb) 772.9 648.8 521.8 657.8 720.2

Normalised EPADS (W) 4,705 3,907 3,186 3,992 4,370

Normalised EPS Growth 1.9% (17.0%) (18.4%) 25.3% 9.5%


DPADS (W) 197.7 257.7 278.5 156.7 217.1

Dividend Yield 0.96% 0.21% 0.12% 0.16% 0.18%

EV/EBITDA (x) 13.95 16.40 16.70 12.99 11.62

P/FCFE (x) NA 16.8 NA 130.1 101.0

Net Gearing (62.2%) (51.3%) (44.6%) (44.3%) (44.3%)

P/BV (x) 4.64 4.21 4.01 3.70 3.40

ROE 18.6% 12.9% 9.8% 11.5% 11.6%

% Change In Normalised EPADS Estimates 2.2% 5.9% 10.3%

Normalised EPADS/consensus EPADS (x) 0.97 0.87 0.76

77.0

87.0

97.0

107.0

100,000

120,000

140,000

160,000


1

1

2

2


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Company Note Semiconductor │ South Korea │ July 25, 2019



Insert Insert

SK Hynix Moving in the right direction for a recovery

■ 2Q19 OP was broadly in line with our and the latest Bloomberg consensus; net profit beat our estimate by 27% due to lower tax rate.

■ Our takeaways from Hynix’s earnings conference were positive, reaffirming our view of a constructive memory cycle recovery in FY20F.

■ We maintain Add with a higher TP, based on 1.4x FY20F P/BV (previously 1.3x), in line with its mid-cycle multiple, reflecting earnings upgrade.

Strong NAND volume growth driving revenue beat in 2Q19… While 2Q19 ASP decline (-24% qoq/-25% qoq for DRAM/NAND vs. our -26%/-22%)

appears to be in line with market expectations, NAND bit growth (40% qoq) exceeded our

estimate of 23% and the company’s previous guidance (25%). This resulted in 2Q19

revenue beating our estimate by 5% and Bloomberg consensus by 2%. 2Q19 OP came

in at W638bn, largely within expectations (our W611bn, Bloomberg: W703bn).

…leading to healthier NAND inventory exiting this year We estimate Hynix’s NAND inventory level fell to eight weeks in 2Q19 from the recent

peak of nine weeks in 1Q19, thanks to strong shipment growth in 2Q19. With increased

production cut (15% yoy by end of FY19F vs. previous plan of 10%) and elastic demand

recovery on NAND price weakness, we believe Hynix’s NAND inventory should get

normalised to 4-5 weeks level by end-FY19F, paving the way for better FY20F NAND

ASP (-7% yoy vs. -56% yoy in FY19F).

Supply discipline raising DRAM recovery visibility for FY20F We are encouraged by the management guidance of ‘significant’ capex reduction in

FY20F, which should help improve DRAM supply-demand balance next year, despite

limited demand visibility. We forecast FY20F capex to be decreased by 30-40% from our

FY19F capex estimate of W13tr (24% below W17tr in FY18). Moreover, we also welcome

Hynix’s decision to convert M10 DRAM fab into image sensor chip production (starting

from 4Q19F), which could reduce Hynix’s DRAM wafer capacity by up to 10-12%.

Potential supply disruption likely triggering restocking demand Hynix indicated that protracted control of key semiconductor raw material export by

Japan could adversely impact its memory production. Toshiba’s (6502 JP, Not rated)

power outage has already proved conducive to reviving customers’ NAND restocking

appetite, and Korea-Japan trade tension could be another swing factor in 2H19F.

Maintain Add; Risk-reward remains positive We find Hynix’s guidance as an encouraging sign of memory cycle turnaround, applying

a higher target multiple (still conservatively pegged to a mid-cycle level) with our earnings

upgrade on better memory pricing assumptions. More concerted efforts by memory

players on production discipline and improved visibility for demand should catalyse the

stock. Key risks to our call include further delay in demand recovery.


South Korea

ADD (no change)





Up/downside: 22.4%


Reuters: 000660.KS



W56,492,984m


W230,712m




FY19F/20F EPS increased by 9%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 16 -1.2 -7.2

Relative (%) 18.1 4.2 1.5

Major shareholders % held SKT 20.1

Insert

Analyst

Dohoon LEE



Revenue (Wb) 30,109 40,445 25,149 25,545 27,164

Net Profit (Wb) 10,642 15,540 1,936 2,615 3,655

Normalised EPS (W) 14,617 21,346 2,659 3,593 5,020

Normalised EPS Growth 260% 46% (88%) 35% 40%


Price To Sales (x) 1.88 1.40 2.25 2.21 2.08

DPS (W) 970 1,409 1,409 1,409 1,409

Dividend Yield 1.25% 1.82% 1.82% 1.82% 1.82%

EV/EBITDA (x) 2.68 1.73 4.65 4.22 3.75

P/FCFE (x) 21.67 29.59 NA NA 60.75

Net Gearing (13.0%) (6.6%) 4.4% 4.3% 5.1%

P/BV (x) 1.67 1.21 1.18 1.14 1.08

ROE 36.8% 38.5% 4.1% 5.4% 7.2%

% Change In Normalised EPS Estimates 8.93% 8.68% 0.09%


79.0

87.6

96.1

104.7

54,000

64,000

74,000

84,000


5

10

15


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Company Note REIT │ Malaysia │ July 26, 2019 Shariah Compliant



Insert Insert

Axis REIT

Narrowing down its acquisition prospects

■ Axis REIT continues with its aggressive pipeline of asset acquisitions with seven new potential deals by end-2019. Total value estimated at RM242m.

■ The focus will be industrial-type assets in Nusajaya, Shah Alam, Sabah and Negeri Sembilan, with a few at advance stages of SPA.

■ Potential share placement in 4Q19 is likely, while benefits of the 25bp cut in the OPR in May will be felt in 2H19, in our view.

■ We are upbeat about the acquisition pipeline but expectations of positive newsflow in 2H19 looks largely priced-in for now. Maintain Hold and TP.

Targets new acquisitions in 2H19 We attended Axis REIT’s post-2Q19 results briefing. Axis REIT targets to secure seven

new asset acquisitions in 2H19. The focus continues to be the industrial and warehousing

segment, which is the sole bright spot in the property sector. The group highlighted an

overall RM242m of potential value of asset acquisition targets. To date it has secured two

from the recent Penang acquisitions, including its third lucrative built-to-suit (BTS)

contract with FedEx. It also signed a sale and purchase agreement (SPA) for another

industrial asset in Bayan Lepas (RM20.5m). Separately, the group targets to secure

tenants for Axis Mega Distribution Centre 2 (DC) by end-2019; its fourth BTS asset.

Niche industrial-type assets in the pipeline Acquisition focus continues to be industrial-type assets: 1) Two in Nusajaya (Johor):

RM55.8m, 2) Two in Shah Alam (Selangor): RM55.8m, 3) One in Kota Kinabalu (Sabah):

RM60m and 4) One in Nilai (Negeri Sembilan): RM50m. We gather that a few prospects

are in the advance stages for a signing of the SPA in August. The group is also keen on a

potential deal in Sabah given the long-term 15-year lease and positioning within the Kota

Kinabalu Industrial Park (KKIP).

Potential share placement likely; impact of 25bp OPR cut in 2H19 We estimate that the largely debt-funded acquisition pipeline would increase gross

gearing to 0.46x from 0.38x as at end-2Q19. The group guided that a share placement

exercise is therefore a possibility in 4Q19, as it intends to sustain gearing at c. 0.4x. A

hypothetical 10% share placement at a 10% discount to current share price of RM1.85

would raise RM206m or 85% of the total required capex for all seven new assets.

Separately, Axis REIT expects the impact of the 25bp cut in the OPR in May to be felt in

2H19. Some 36% of end-Jun’s RM1.1bn total debt is pegged to a floating/variable rate.

Upbeat on expansion targets but looks priced-in; maintain Hold We came away feeling upbeat about Axis REIT’s acquisition pipeline but expectations of

more positive newsflow in 2H19 looks largely priced-in for now. Maintain Hold and TP

(TG: of 2%, COE of 7.1%). Larger asset acquisitions in 2H19F are upside risks.

Downside risk is weak portfolio rental reversions. Our FY19-21F DPU translates to

dividend yields of 4.9-5.6% vs. Malaysia’s 10-year MGS yield of 3.6%.


Malaysia

HOLD (no change)


Current price: RM1.85

Target price: RM1.95

Previous target: RM1.95

Up/downside: 5.3%


Reuters: AXSR.KL

Bloomberg: AXRB MK

Market cap: US$556.3m

RM2,289m


RM3.69m




No changes

Source: Bloomberg


Absolute (%) 5.7 4.5 23.3

Relative (%) 6.9 3.2 29.4

Major shareholders % held Employees Provident Fund (EPF) 15.8 Kumpulan Wang Persaraan (KWAP) 10.3 Amanah Raya Trustees 5.7

Insert

Analyst(s)

Sharizan ROSELY



Gross Property Revenue (RMm) 172.7 210.6 213.3 220.1 232.7

Net Property Income (RMm) 146.2 182.8 183.2 189.8 200.5

Net Profit (RMm) 122.6 155.0 114.6 119.6 128.8

Distributable Profit (RMm) 104.3 88.9 113.5 118.4 127.5

Core EPS (RM) 0.08 0.09 0.09 0.10 0.10

Core EPS Growth (0.1%) 13.8% 0.0% 4.4% 7.7%

FD Core P/E (x) 23.70 19.89 19.89 19.05 17.70

DPS (RM) 0.08 0.07 0.09 0.10 0.10

Dividend Yield 4.58% 3.90% 4.98% 5.20% 5.59%

Asset Leverage 33.0% 37.3% 38.2% 38.1% 38.0%

BVPS (RM) 1.29 1.35 1.35 1.35 1.35

P/BV (x) 1.43 1.37 1.37 1.37 1.37

Recurring ROE 6.11% 7.04% 6.90% 7.21% 7.75%

CIMB/consensus DPS (x) 0.99 1.01 1.00

92.0

101.0

110.0

119.0

128.0

137.0

1.400

1.500

1.600

1.700

1.800

1.900

Price Close Relative to FBMKLCI (RHS)

2

4

6

8


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Company Note REIT │ Malaysia │ July 26, 2019



Insert Insert

CapitaLand Malaysia Mall Trust Prolonged impact from rental downtime

■ 1H19 results were below expectations; we turn cautious on 2H19F outlook.

■ The delay in SWP’s AEI and the exit of an anchor tenant at The Mines are negative setbacks. We cut FY19-21F EPS/DPU by 7-19%.

■ Hold retained. Still-attractive revised DPU yields of 5.7-6.3%, but we cut TP.

1H19 results below expectations; DPU slipped 19% yoy 1H19 core net profit (excluding a RM30m fair valuation loss and the expected one-off

deferred tax charge) made up 42-44% of our and consensus’ full-year forecasts. The

results were below expectations as we expect 2H19F earnings to be flattish vs. 1H19, at

best, on account of a prolonged rental downtime for Sungei Wang Plaza (SWP) and

weak rental income for The Mines. Overall core net profit fell 12% yoy. 1H19 DPU fell

19% yoy to 3.2 sen; it is unlikely to meet our FY19F DPU forecast of 7.6 sen, in our view.

Portfolio rental reversion of -6.3% in 1H19 Overall portfolio rental reversion of -6.3% in 1H19 was contributed by negative reversion

of -7% for East Coast Mall (ECM), -14% for Sungei Wang Plaza (SWP), -14.9% for The

Mines, and -5.6% for 3 Damansara. Only Gurney Plaza booked a sequentially higher

positive rental reversion of +3.3% in 1H19 (1Q19: +1.5%). For its sole office asset,

Tropicana City Office Tower recorded a -3.6% rental reversion.

Prolonged rental downtime for SWP due to AEI delay During the conference call, the group highlighted that the completion of the asset

enhancement initiative (AEI) to accommodate “Jumpa” at SWP has been delayed from

mid-2019 to end-Sep, suggesting a prolonged 9-month rental downtime, which is a

negative surprise. New rental income from the total net lettable area (NLA) of 112k sq ft

is now expected to commence in 4Q19. Leasing progress stood at c.65% as at end-Jun,

with a targeted 85% of Jumpa’s NLA by 4Q19.

Negative surprise from exit of The Mines’ anchor tenant Another surprise setback at The Mines shopping mall is the exit of its anchor tenant Giant

Hypermarket in 2Q19. Forgone rental income works out to RM190k/month, likely over the

next few months, pending a targeted replacement tenant in 4Q19. Overall, we turn

cautious on earnings outlook and cut our FY19-21F EPS by 7-12% and DPU by 15-19%

which is based on a more conservative payout ratio of 91%.

Maintain Hold but with a lower TP Maintain Hold due to the still attractive revised FY19-21F DPU yields of 5-7-6.3% but we

lower our DDM-based TP to RM1.03 (COE: 7.4%; TG: 1%). Upside risk to our call is a

turnaround in rental reversions. Downside risks are prolonged negative reversions, rental

downtime at The Mines, and further delays in SWP’s AEI.


Malaysia

HOLD (no change)





Up/downside: -3.5%


Reuters: CAMA.KL

Bloomberg: CMMT MK


RM2,187m


RM0.91m




FY19-21F EPS cut by 7-12%

FY19-21F DPU cut by 15-19%

Source: Bloomberg


Relative (%) 3.1 -4 -7.6

Major shareholders % held CMMT Investment Limited 35.5 Employee Provident Fund Board 9.5 Amanah Saham Bumiputra 12.3

Insert

Analyst(s)

Sharizan ROSELY





Net Profit (RMm) 162.1 135.6 125.4 129.4 137.9


Core EPS (RM) 0.077 0.066 0.061 0.063 0.067

Core EPS Growth (4.0%) (15.1%) (7.2%) 2.8% 6.1%

FD Core P/E (x) 13.81 18.23 21.76 21.16 19.92

DPS (RM) 0.082 0.079 0.061 0.063 0.067

Dividend Yield 7.68% 7.37% 5.72% 5.88% 6.27%

Asset Leverage 32.0% 31.8% 31.9% 31.7% 31.5%

BVPS (RM) 1.32 1.05 1.04 1.05 1.05

P/BV (x) 0.81 1.02 1.03 1.02 1.02

Recurring ROE 5.88% 5.03% 4.71% 4.85% 5.13%

% Change In DPS Estimates (19.3%) (18.6%) (14.6%)


83.0

88.7

94.4

100.1

0.900

1.000

1.100

1.200


2

4

6

8


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Company Note REIT │ Malaysia │ July 26, 2019



Insert Insert

Pavilion REIT

Working on DA MEN’s gradual turnaround

■ 1H19 results were broadly in line; core net profit/DPU grew 1.4-1.8% yoy.

■ High occupancy rates and positive reversions drove overall numbers. DA MEN mall remains the weakest link pending new tenant pipeline.

■ Hold maintained with a higher TP; FY19-21F dividend yields of 5.1-5.5% are attractive and supportive of share price, in our view.

1H19 results broadly in line with expectations Pavilion REIT’s 1H19 core net profit made up 47-48% of our and consensus full-year

forecasts. We deem the results broadly in line given that 2Q19 is seasonally a slow

period for tenant sales, which only mildly improved in Jun. Overall revenue grew 11% yoy

in 1H19, despite the still-weak performance from DA MEN mall. The slight drop in 1H19

EBITDA margin to 60% in 1H19 (1H18: 63%) was largely expected given the higher

property expenses incurred. Core net profit rose 1.8% yoy in 1H19, also dented by higher

interest expenses. 1H19 DPU of 4.4 sen (+1.4% yoy) was within expectations.

Occupancy rates of 94-95% but a decline for DA MEN Excluding DA MEN Mall, Pavillion Mall, Elite Pavilion Mall (EPM), and Intermark Mall

managed to sustain occupancy rates of 94-96% as at end-Jun. The slight drop in

Pavillion Mall’s occupancy rate to 96% in end-Jun (vs. 98% in end-Mar) is not huge

concern, as it was due to the impact of temporary renovations and changeover to new

tenants. In terms of rental reversions, Pavillion Mall booked in positive mid-single-digit

rental reversion, slightly lower than Intermark Mall’s. Rental reversion for DA MEN mall

remained subdued in 2Q19.

New tenants pipeline for DA MEN mall During the conference call, the group said it expects gradual improvements in the

occupancy rate at DA MEN mall from 3Q19 onwards. End-Jun occupancy rate of 65.4%

remains subdued, down from 68% at end-Mar. The positive news is that there are several

new tenants in the pipeline, including 1) Music Box occupying 11k sq ft, 2) three new F&B

outlets, and 3) two fast food chains, among others, which will occupy level 4 of the mall.

Also, by 1Q20, a major cinema operator will occupy a 35k sq ft area offering seven

cinema halls. All in, the group expects a turnaround in occupancy rate to 85-87% for DA

MEN mall once all new tenants are in place.

Maintain Hold with a higher TP No changes to our FY19-21F EPS. We raise our DDM-based TP to RM1.91, pegged to a

lower COE of 6.9% (7.7% previously) due to the lower adjusted beta, and unchanged TG

of 1.5%. Retain a Hold rating in view of the limited upside to its share price. Its FY19-21F

dividend yields of 5.1%-5.5% are attractive vs. the 10-year MGS yield of 3.6%. Upside

risks include higher rental reversions and a recovery in occupancy rates at DA MEN. A

downside risk is increased competition from suburban malls.


Malaysia

HOLD (no change)





Up/downside: 1.2%


Reuters: PREI.KL

Bloomberg: PREIT MK


RM5,744m


RM1.08m




No change.

Source: Bloomberg


Absolute (%) 3.3 4.4 13.9

Relative (%) 4.5 3.1 20

Major shareholders % held Qatar Investment Authority 35.8 Datuk Lim Siew Choon 29.7 Datin Tan Kewi Yong 9.3

Insert

Analyst(s)

Sharizan ROSELY





Net Profit (RMm) 249.4 288.7 267.6 279.0 291.6


Core EPS (RM) 0.077 0.084 0.088 0.092 0.095

Core EPS Growth (1.25%) 9.66% 4.70% 3.97% 4.23%

FD Core P/E (x) 24.64 22.47 21.46 20.64 19.80

DPS (RM) 0.08 0.09 0.10 0.10 0.10

Dividend Yield 4.36% 4.65% 5.05% 5.24% 5.45%

Asset Leverage 25.9% 33.8% 33.6% 33.3% 32.9%

BVPS (RM) 1.30 1.31 1.31 1.33 1.35

P/BV (x) 1.45 1.44 1.44 1.42 1.40

Recurring ROE 5.91% 6.44% 6.72% 6.93% 7.12%

% Change In DPS Estimates (0.002%) (0.004%) (0.005%)


88.0

95.8

103.6

111.3

119.1

1.500

1.600

1.700

1.800

1.900


5

10


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Company Note REIT │ Singapore │ July 25, 2019



Insert Insert

Cache Logistics Trust Looking for a better 3Q

■ 2Q DPU of 1.321 Scts was below at 22% of our estimate. 1H DPU of 2.834 Scts fell short at 46% of our and consensus FY19F on weak occupancies.

■ Post 2Q19, CACHE secured commitments for 308,000 sq ft of space that raised committed occupancy to 92.6%.

■ We maintain our Hold call with a lower TP of S$0.76.

2Q19 results below expectations at 22% of our/consensus forecasts 2Q19 DPU of 1.321 Scts (-6.9% yoy, -12.7% qoq) was below expectations at 22% of

our/consensus FY19 DPU forecasts. This was due to weak occupancies at Commodity

Hub and the conversion of Precise Two from a single tenant to a multi-tenanted building.

NPI margin improved yoy due to the adoption of FRS 116 where S$1.5m of land rent was

excluded from property expenses. 1H19 DPU of 2.834 Scts (-3.1% yoy) was also below

our/expectations at 46% of FY19 DPU forecasts.

Occupancy took a hit but could see improvements soon Portfolio committed occupancy declined from 94.8% to 90.0% as at end-2Q19. This was

largely attributed to the conversion of Precise Two from a master lease to a multi-tenancy

lease structure and transitory downtime between replacement tenants at Commodity

Hub. This could improve as CACHE has secured commitment for a further 308,000 sq ft

of space, representing more than half the remaining expiring leases in FY19, after the

quarter ended. This raises committed occupancy to 92.6%. Rental reversion during 2Q19

was 19.4%, which we understand was driven by a renewal in Australia which was

previously under-rented.

Capital structure still prudently managed Gearing and financing cost remained fairly stable at 37.9% (37.4% in 1Q19) and 3.86%

(3.87% in 1Q19) respectively. Weighted average debt maturity declined to 3.5 years from

3.8 years due to natural time decay. Upcoming debt maturities in FY19 and FY20

comprise A$-denominated loans and we do not rule out a lower cost of debt due to the

declining cash rates in Australia.

Maintain Hold with a lower TP of S$0.76 We adjust our FY19-21F DPU forecasts to account for the master lease conversion and

transitory vacancies. We also incorporate the impact of the remaining rental shortfall

amount from 51 Alps Avenue to be distributed over the course of the remaining rental

period until Aug 2021. Our DDM-based TP is lowered to S$0.76 as a result. Upside risks

to our call include a faster recovery of the logistics market and accretive acquisitions.

CACHE previously mentioned South Korea as a possible market for expansion given its

sponsor’s presence there. We think that a meaningful entry into this new market could be

a portfolio deal rather than a single-asset acquisition. Further downside risks would be

large tenant non-renewals and slower backfilling of vacant space. On this front, CWT

remains current with its rents and CACHE maintains security deposits on this account.


Singapore

HOLD (no change)


Current price: S$0.80

Target price: S$0.76

Previous target: S$0.78

Up/downside: -4.5%


Reuters: CALT.SI

Bloomberg: CACHE SP


S$856.9m


S$1.54m




FY19F DPU decreased by 2.9%.

FY20F DPU increased by 1%.

FY21F DPU decreased by 0.2%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -0.6 10.4 3.9

Relative (%) -2.3 10.2 1.6

Major shareholders % held ARA RE Investment Group 9.2 Prudential 5.3 Vanguard 3.0

Insert

Analyst(s)

LOCK Mun Yee


Ervin SEOW T (65) 6210 8671 E [email protected]


Gross Property Revenue (S$m) 112.0 121.5 118.2 123.5 125.5

Net Property Income (S$m) 87.29 90.92 89.86 93.84 95.35

Net Profit (S$m) 25.26 32.03 50.62 53.98 55.28

Distributable Profit (S$m) 66.02 63.41 64.14 64.36 64.89

Core EPS (S$) 0.055 0.049 0.047 0.050 0.050

Core EPS Growth (9.3%) (11.5%) (4.2%) 5.8% 1.6%

FD Core P/E (x) 14.41 16.29 17.00 16.06 15.80

DPS (S$) 0.066 0.059 0.059 0.059 0.059

Dividend Yield 8.28% 7.43% 7.46% 7.42% 7.43%

Asset Leverage 36.2% 35.9% 37.2% 37.2% 37.3%

BVPS (S$) 0.72 0.66 0.66 0.65 0.65

P/BV (x) 1.11 1.20 1.21 1.22 1.22

Recurring ROE 7.56% 7.09% 7.09% 7.56% 7.72%

% Change In DPS Estimates (2.87%) 1.04% (0.19%)


90.0

93.6

97.2

100.8

104.4

108.0

0.600

0.650

0.700

0.750

0.800

0.850

Price Close Relative to FSSTI (RHS)

20

40

60


Vo

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17

Company Note REIT │ Singapore │ July 25, 2019



HIGH

CONVICTION

Insert Insert

Mapletree Commercial Trust A good start

■ MCT’s 1QFY3/20 DPU of 2.3 Scts was in line at 25% of our full-year forecast.

■ Vivocity continued to deliver strong performance while its office segment continued to see strong demand.

■ Maintain Add with an unchanged DDM-based TP of S$2.24.

An encouraging 1QFY20 MCT’s 1QFY3/20 gross revenue and NPI grew 3.3% and 2.8% yoy to S$112.1m and

S$88.3m, respectively, thanks to stronger performances by Vivocity, Merrill Lynch

Harbourfront (MLHF) and Mapletree Business City I (MBC I), partly offset by weaker

Mapletree Anson (MA) and PSA Building (PSAB). Actual occupancy was higher yoy at

97.3% while committed occupancy remains high at 98.9%. Portfolio rental reversion was

encouraging at 5.3%. 1Q DPU of 2.31 Scts was up 3.6% yoy, in line at 25% of our full-

year forecast.

Strong performance from Vivocity VivoCity achieved a 5.2% and 0.6% yoy improvement in 1QFY20 gross revenue and NPI

respectively, on the back of strong 7.3% positive rental reversion following the completion

of asset enhancement initiatives in FY19 and due to the effects of step-up rents. Shopper

traffic declined 2.8% yoy while tenant sales fell 4% yoy, temporarily disrupted by the

changeover of hypermarket from Giant to NTUC FairPrice which soft-opened on 16 Jul

2019. The majority of new/expanding tenants located in the remaining 24k sq ft of the

anchor space have also started operations since May 2019. Hence, we should see higher

traffic flow and tenant sales from 2QFY20 onwards.

Offices/business park continued to see strong demand Higher office NPI in 1QFY20 was driven by higher contributions from MLHF and MBC I

which offset the weaker income from PSAB and MA. The office/business park portfolio

reported 0.3% positive rental reversion for 1QFY20. MBC I’s occupancy remained high at

98.9% (+1.1% pt qoq) while MLHF was fully leased. Although PSAB and MA’s actual

occupancy dropped 5.8% pts and 4.1% pts qoq respectively, occupancy rate for both

assets remained high at >90% with committed occupancy at 93.8% to 99%. PSAB and

MA are MCT’s smaller assets, contributing only 18.6% of 1QFY20 NPI. Near-term

outlook for the office sector remains robust, driven by tightening vacancy, and we

anticipate the rental upcycle to continue. MCT has 2% and 14.3% of office rental revenue

to be re-contracted in FY20-21.

Maintain Add We maintain Add on MCT with an unchanged DDM-based TP of S$2.24. We expect the

trust to continue to deliver DPU growth, underpinned by asset enhancement activities.

Potential re-rating catalysts include acquisitions and further asset enhancements, while

downside risks are worse-than-expected retail and office rental reversion.


Singapore

ADD (no change)





Up/downside: 6.7%


Reuters: MACT.SI

Bloomberg: MCT SP


S$6,079m


S$13.77m




No change.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 1.9 11.1 28

Relative (%) -0.4 10.2 26.4

Major shareholders % held Temasek Holdings 34.1 Schroders 9.0 Vanguard Group 2.2

Insert

Analyst(s)

EING Kar Mei, CFA


LOCK Mun Yee T (65) 6210 8606 E [email protected]


Gross Property Revenue (S$m) 433.5 443.9 452.5 458.7 461.6

Net Property Income (S$m) 338.8 347.6 353.4 358.3 360.6

Net Profit (S$m) 567.6 582.3 249.5 254.2 256.4

Distributable Profit (S$m) 260.4 264.0 268.4 273.1 275.4

Core EPS (S$) 0.085 0.085 0.086 0.088 0.088

Core EPS Growth 4.14% 0.55% 1.39% 1.54% 0.55%

FD Core P/E (x) 23.80 24.68 24.36 23.99 23.86

DPS (S$) 0.090 0.091 0.093 0.094 0.094

Dividend Yield 4.30% 4.35% 4.41% 4.47% 4.49%

Asset Leverage 34.6% 33.1% 33.1% 33.1% 33.1%

BVPS (S$) 1.49 1.60 1.59 1.59 1.58

P/BV (x) 1.41 1.31 1.32 1.32 1.33

Recurring ROE 5.91% 5.52% 5.41% 5.51% 5.56%

% Change In DPS Estimates 0% 0% 0%


93.0

104.4

115.9

127.3

1.50

1.70

1.90

2.10


20

40

60


Vo

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Company Flash Note Conglomerate │ Singapore │ July 25, 2019



Insert Insert

ST Engineering How high can it go?

■ STE secured c.$1.5bn of new aero and electronics contracts in 2Q19. This is slightly lower than the S$2.1bn in 1Q19.

■ In total, however, 2Q19 contracts were higher at S$2.5bn including the S$1bn Polar Security Cutter marine contract announced earlier on 24 Apr 2019.

■ Maintain Add and TP of S$4.43 but we removed STE from our High Conviction list given its outperformance YTD and 52-week high.

S$1.5bn contracts in 2Q19 in total for Aero and Electronics ● Relative to 1Q19, aerospace and electronics contracts momentum slowed slightly. We

hope this is due to timing differences and lumpiness of awards.

● Aerospace won S$809m (1Q19: S$1.3bn, 2Q18:S$510m) in 2Q19. 1Q19 was lifted

by a 10-year heavy maintenance contract for A300s and B757 with a North American

operator. AirAsia X and Beibu Gulf Airlines maintenance were the key wins in 2Q19.

● Electronics won S$702m (1Q19: S$818m, 2Q18:S$764m) in 2Q19. Contracts won

were generally similar to the previous trend-smart mobility, satellite communications,

Internet of Things, cybersecurity, public safety and security, and defence.

● On a positive note, 1H19 contracts from aerospace totaled S$2.1bn, higher than

1H18’s of S$1.02bn and stronger hoh over 2H18 of S$1.04bn. Electronics’ 1H19

contracts won amounted to S$1.52bn, also stronger yoy and hoh (1H18:S$1.4bn,

2H18: S$786m).

2Q19 preview (results on 14 Aug) ● We expect STE to post a 2Q19 net profit of S$147m (+12% qoq, +25% yoy), with the

strongest yoy growth from marine in the absence of cost overrun provisions for the

Conro project.

● Aerospace should clock in +4% yoy in net profit with little contribution from MRAS.

However, we are watchful over management guidance on the potential loss of income

as a result of Jetairways’ aircraft grounding. Aerospace had c. US$700m of long-term

MRO contracts for Jetairways and JetLite’s fleet of 80 B737 NGs (see our report).

Maintain Add and TP of S$4.43 on blended valuations ● At c.20x CY20F, STE is trading slightly above 10-year average. It last traded at +1s.d.

of above 23x in early-2013 (yield craze) but subsequently capitulated together with

FSSTI with its earnings disappointments in FY13-14 (-2% and -1% yoy).

● This time, the double-digit earnings growth seems solid thanks to MRAS and better

marine operations and consistent strong contracts won by electronics. Key risk lies

with the global economy and trade tensions, which could slow future contract awards.

Catalyst is stronger-than-expected capacity expansion from new acquisitions.

● Our TP implies a forward P/E of 21x, or +0.5 s.d of its 5-year mean. At peak valuations

share price would trade up to S$4.80, provided earnings do not disappoint.

Figure 1: STE 2Q19F preview; 2Q19 total contracts won of S$2.5bn (details in Fig 2)


STE net profit 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19F qoq yoy

Aerospace 59.2 66.6 55.4 63.5 62.7 69.3 11% 4%

Electronics 40.3 46.7 55.5 44.1 43.4 49.4 14% 6%

Land Systems 15.6 20.4 17.6 (0.7) 15.2 16.0 5% -22%

Marine 8.7 7.6 12.8 14.5 12.0 14.5 21% 91%

Others (6.1) (23.8) (6.7) 3.1 (2.2) (2.2) 0% -91%

Total 117.7 117.5 134.6 124.5 131.1 147.0 12.1% 25.1%

443770

520 840

1,100 650 530 510 510 510 590 450

1,300 809

505

650

480

695 464

490 585 742 635 764 435 351

818

702

138

185 560

1,000

1,112

1,420

1,000

1,673 1,564

1,140 1,115 1,252

1,145 1,274 1,210

1,361

2,118

2,511

-300

200

700

1200

1700

2200

2700

3200

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19

Aero Elec Land system Marine

S$mQuarterly win

Singapore July 25, 2019 - 5:21 PM





Up/downside: 3.3%


Reuters: STEG.SI

Bloomberg: STE SP


S$13,388m


S$19.19m

Current shares o/s 3,120m



Source: Bloomberg


Absolute (%) 3.6 10.3 25.4

Relative (%) 1.3 9.4 23.8

Major shareholders % held Temasek 50.8

Aberdeen Asset Management 6.0

Capital Research Global Investor 5.5

Insert

Analyst(s)

LIM Siew Khee


Dec-19F Dec-20F Dec-21F

Net Profit (S$m) 602.6 670.0 734.6

Core EPS (S$) 0.19 0.21 0.24

Core EPS Growth 22.0% 11.2% 9.6%

FD Core P/E (x) 22.21 19.97 18.22

Recurring ROE 26.1% 27.5% 28.5%

P/BV (x) 5.65 5.35 5.05

DPS (S$) 0.16 0.16 0.16

Dividend Yield 3.61% 3.61% 3.61%

96.0

108.5

121.0

3.10

3.60

4.10


10

20

30


Vol m

19

Company Note Brewers │ Singapore │ July 25, 2019

Insert Insert

Thai Beverage NDR takeaways: Solidifying its presence

■ Thai domestic alcohol growth trends, SABECO turnaround progress and partnerships with global brewers were the hot topics during our US NDR.

■ We like THBEV for its stabilised domestic alcohol business and regard the continuous improvements at SABECO as a medium-term earnings driver.

■ M&As in Vietnam, especially involving SABECO, could unlock value. Maintain Add with a slightly higher SOP-based TP of S$0.96.

Maintain Add; stabilised domestic business and improving new unit We held an NDR for Thai Beverage (THBEV) to meet US investors on 8-12 Jul. We like

that its domestic revenue has stabilised and view improvements in SABECO as a medium-term earnings growth driver. Tie-ups with global brewers, especially involving

SABECO, could unlock value for THBEV, in our view. The stock now trades at 18.4x FY20F P/E, below its 5-year historical mean of 20.4x. We raise FY19-21F EPS by 0.1-

0.2% for higher revenue, but with lower gross margins (GPM) and higher finance costs. Stay Add on THBEV, with higher SOP-based TP of S$0.96. Potential catalysts are higher

revenue and margins. Risks are weak revenue and margins.

Domestic spirits and beer recovered, stable volume growth ahead THBEV hopes 2H19F Thai alcohol sales volumes stay in growth mode, as its hopeful

political conditions remain conducive for consumption. Our Thai analyst team mentioned that the new government (sworn in on 16 Jul) could launch several stimulus measures,

which could support strong consumption patterns, in our view. We expect THBEV’s Thai alcohol sales volumes to increase by 6.2% in 2H19F, after rising by 6.6% in 1H19.

New SABECO management hard at work Saigon Alcohol Beer and Beverages Corporation (SABECO, SAB VN, Not Rated) expects to complete a brand portfolio review exercise that will clearly define each product

line in Saigon Beer’s stable. Raw material cost optimisation is an important step that THBEV admits could be a medium-term process, given that SABECO has 26 breweries

with varying ownership stakes and procurement contracts. 1QCY19 profit after tax (PAT) before MI grew 11.6%, but SABECO is keeping to its target of 7% yoy growth for CY19F.

Tie-up with global brewer could unlock value for SABECO During the NDR, THBEV’s management fielded questions on a potential tie-up with AB

InBev, which was coincidentally seeking to price the IPO of its Asia-Pacific subsidiary and had identified Vietnam as its principal market. THBEV said it was open to tie-ups with

other brewery players, but provided no further guidance on potential partners. We think its priority in any such partnerships could be operational benefits vs. pure monetary

motivations. We believe Vietnam would continue to be one of the key markets for brewery M&As, and if such M&As involve SABECO, it could unlock value, as SABECO’s

share price is trading below THBEV’s acquisition price of VND320k/share.

3QFY9/19F earnings preview 2H core net profit is seasonally softer than 1H for THBEV. We estimate 3QFY19F

revenue grew 3.1% yoy to THB62.6bn but expect core net profit settled at c.THB5.8bn (-3.1% yoy) as 3QFY18 was helped by higher associate income. Overall, we forecast

9MFY19F core net profit grew 6.2% yoy to THB19.0bn (vs. THB17.9bn in 9MFY18).


Singapore

ADD (no change)




Previous target: S$0.94 Up/downside: 14.5%


Reuters: TBEV.SI

Bloomberg: THBEV SP


S$21,095m


S$12.26m




FY19-21F revenue increased by 2.3-2.4%.

FY19-21F EPS increased by 0.1-0.2%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 0.6 0.6 13.5

Relative (%) -1.3 0.1 12.2

Major shareholders % held Siriwana Company Ltd 45.3 MM Group Ltd 20.6 Capital Group Companies 17.2

Insert

Analyst(s)

Cezzane SEE


Financial Summary Sep-17A Sep-18A Sep-19F Sep-20F Sep-21F

Revenue (THBm) 189,997 229,695 260,657 276,052 291,973

Operating EBITDA (THBm) 31,640 31,268 39,521 42,016 45,132

Net Profit (THBm) 34,317 18,534 23,895 26,027 28,604

Core EPS (THB) 1.04 0.84 0.95 1.04 1.14

Core EPS Growth 5.6% (19.3%) 13.9% 8.9% 9.9%

FD Core P/E (x) 18.37 22.77 20.00 18.36 16.70

DPS (THB) 0.67 0.39 0.48 0.52 0.57

Dividend Yield 3.52% 2.05% 2.50% 2.72% 2.99%

EV/EBITDA (x) 13.71 20.00 15.59 14.38 13.07

P/FCFE (x) 22.76 NA 86.08 37.39 29.41

Net Gearing 23% 147% 128% 109% 90%

P/BV (x) 3.71 3.94 3.66 3.37 3.09

ROE 20.9% 16.8% 19.0% 19.1% 19.3%

% Change In Core EPS Estimates 0.157% 0.146% 0.225%


82.0

92.0

102.0

112.0

122.0

0.500

0.600

0.700

0.800

0.900


50

100

150


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20

Company Note Food & Beverages │ Thailand │ July 25, 2019



Insert Insert

Carabao Group More energy to run

■ We expect CBG to continue outperforming the SET index on the back of strong 2Q19F results, promising 2H19F outlook and justified valuation.

■ We raise our FY19-21F earnings estimates by 3.9-4.9% to reflect its upbeat 2Q19F results and brighter outlook.

■ Maintain Add, with a higher TP of THB80.

Expect upbeat 2Q19F results We expect 2Q19F net profit of THB532m, up 154% yoy and 27% qoq. This figure is

stronger than our estimate two months ago due to stronger sales to China and fatter

export margins following its switch from outsource to in-house production. CBG's sales to

China likely reached at least 30m units in 2Q19F, which would lift 1H19F volume to our

FY19F sales assumption of 40m units. We now estimate export gross margin of 42.5% in

2Q19F, higher than our previous estimate of 41% due to higher utilisation rate and

production efficiency.

3Q19F to be even more exciting Major catalysts that could foster earnings to be even stronger in 3Q19F than in 2Q19F

include 1) resumption of marketing activities, 2) wider distribution network for its new

product “180ml carbonated Carabao Green Apple flavour”, and 3) lower sugar tax. The

relaunch of marketing activities and the higher penetration rate of the new product should

cause its domestic energy drink sales to resume growth both yoy and qoq in 3Q19F. The

reduction of sugar content for its 150ml energy drink sold in Thailand should push up its

domestic gross margin by 100bp until end-Sep 2019F.

Raise FY19-21F earnings estimate by 3.9-4.9% Our topline estimates have remained broadly unchanged. Although sales to China in

2Q19F would beat our forecast, it is still unclear whether the strong sales to its distributor

in China in 2Q19 were purely from real demand or included some volume for inventory

building. A major impact on the bottomline could come from robust expansion of its

overseas gross margin. We raise our assumptions on its overseas gross margin by

112bp for FY19F and 103bp for FY20-21F, boosting our FY19-21F net profit estimates up

by 4.9%, 4.0% and 3.9%, respectively.

Maintain Add with a higher TP of THB80 We lift our DCF-derived end-2019F target price to THB80 from THB73 following our

earnings upgrade. Our new target price implies a P/E of 38x 2019F and 32x 2020F, vs.

its long-term 5-year average of 33x. We believe the strong 2Q19F earnings, promising

2H19F outlook and the current forward P/E that is still slightly below its historical average

would support its share price to continue outperforming the SET. Potential re-rating

catalysts are 1) sustained sales in China, 2) success of its 180ml Carabao Green Apple,

and 3) higher utilisation rate and efficiency at its factory. Downside risks to our Add call

are more intense competition and a strong rebound in sugar prices.


Thailand

ADD (no change)


Current price: THB74.25

Target price: THB80.00

Previous target: THB73.00

Up/downside: 7.7%


Reuters: CBG.BK

Bloomberg: CBG TB


THB74,250m


THB383.8m

Current shares o/s: 1,000.0m



FY19F EPS is increased by 4.9%



Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 2.8 21.2 56.3

Relative (%) 2.2 18.1 53.2

Major shareholders % held Sathien Tham Holding 25.0 Miss Nutchamai Thanombooncharoen 21.0 Mr. Yuenyong Opakul 7.1

Insert

Analyst(s)

Chaiyatorn SRICHAROEN, CFA



Revenue (THBm) 12,904 14,463 15,426 16,840 18,536

Operating EBITDA (THBm) 1,209 1,780 3,268 3,811 4,374

Net Profit (THBm) 1,246 1,159 2,169 2,561 2,992

Core EPS (THB) 1.25 1.16 2.17 2.56 2.99

Core EPS Growth (16.4%) (7.0%) 87.3% 18.0% 16.8%

FD Core P/E (x) 59.60 64.09 34.23 29.00 24.82

DPS (THB) 1.00 1.05 1.74 2.05 2.39

Dividend Yield 1.35% 1.41% 2.34% 2.76% 3.22%

EV/EBITDA (x) 64.02 44.39 24.08 20.60 17.86

P/FCFE (x) 300.6 114.3 53.3 44.5 35.1

Net Gearing 46.2% 62.5% 51.6% 45.4% 37.8%

P/BV (x) 10.44 10.35 9.06 8.28 7.53

ROE 17.8% 16.2% 28.2% 29.8% 31.8%

% Change In Core EPS Estimates 4.92% 3.97% 3.89%


61

94

128

161

26.0

46.0

66.0

86.0

Price Close Relative to SET (RHS)

10

20

30


Vo

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21

Company Note Technology Components │ Thailand │ July 25, 2019



Insert Insert

KCE Electronics Strong earnings rebound not in sight

■ We expect KCE to post core net profit of THB283m in 2Q19F, down 47% yoy but up 12% qoq due to seasonality and marginal GPM improvement.

■ We remain bearish on the automotive industry which KCE is most exposed to. 2020F recovery may be offset by rising minimum wage in Thailand.

■ We reiterate our Reduce call on KCE given its declining profitability and the lower possibility of a strong earnings rebound. We lower our TP to THB13.60.

2Q19F: GPM remains suppressed by strong THB/US$ We expect KCE to post a net profit of THB239m (-57% yoy, -11% qoq) in 2Q19F.

However, excluding a one-time provision for employee benefits of THB54.7m, core net

profit should stand at THB283m (-47% yoy, +12% qoq) for KCE in 2Q19F. We estimate

revenue to fall by 11% yoy from weak automotive industry sales but up 5% qoq due to

seasonality. Moreover, while we expect modest qoq margin improvement, strong

THB/US$ average of 31.6 (vs. 31.3 in 1Q19 and 31.6 in 2Q18) as well as low production

efficiency from lower utilisation rate are likely to suppress margins in 2Q19F. We expect a

GPM of 22.2% in 2Q19F (vs. 21.1% in 1Q19 and 27.8% in 2Q18).

Not the year for auto suppliers – profit warning by Continental The global auto industry has been hit particularly hard by the adoption of new emission

standards and the trade war which result in sales weakness across Europe and in China.

On 22 Jul 19, Continental (CON GR, not rated) has revised down its sales forecast by 2-

4% in 2019F, citing further decline in vehicle production. According to the company, it

now expects a decline of 5% yoy in global automobile production in 2019F. As

Continental remains one of KCE’s largest clients (around 20% of sales in FY18), we

believe KCE’s sales growth will likely remain under pressure as well in FY19F.

Car sales struggle amid weak macro and emission overhang The global car industry continues to struggle as light vehicle unit sales dropped 6% yoy in

Jun, driven by an 8% yoy decline in Europe and 9% yoy slump in China. Despite back-to-

back policy changes helping monthly passenger car sales grow for the first time in a year,

China’s auto sales fell 9% yoy to 2m units in Jun 19, according to China Association of

Automotive Manufacturers (CAAM). Nevertheless, we believe the positive sales growth in

Jun was the result of dealers offering steep discounts to clear inventory of older car

models before the implementation of the new emission standards.

Reiterate Reduce with a lower TP of THB13.60 We cut our FY19-21F core EPS by 10-12% to reflect a potential minimum wage increase

in 2020F and a stronger-than-expected THB/US$. We now assume 31.5 THB/US$ for

FY19-21F (vs. 32.0 previously). KCE looks overvalued to us given its declining

profitability. Our target price falls to THB13.60, still based on 12.6x FY20F P/E (-1 s.d.

below its 5-year historical mean of 20.0x). Upside risks to our call are weaker-than-

expected THB/US$ and stronger-than-expected auto recovery.


Thailand

REDUCE (no change)


Current price: THB18.60

Target price: THB13.60

Previous target: THB14.80

Up/downside: -26.9%


Reuters: KCE.BK

Bloomberg: KCE TB


THB21,814m


THB207.8m







Source: Bloomberg


Relative (%) -0.1 -32.3 -57.7

Major shareholders % held Ongkosit Family 33.8 HSBC (Singapore) Nominees PTE Ltd. 6.5 Mr. Panja Senadisai 4.7

Insert

Analyst(s)

Kitichan SIRISUKARCHA, CFP



Revenue (THBm) 14,195 13,982 13,002 13,739 14,444

Net Profit (THBm) 2,545 2,015 1,168 1,266 1,407

Core EPS (THB) 2.03 1.55 1.03 1.08 1.20

Core EPS Growth (19.7%) (23.9%) (33.2%) 4.5% 11.2%

FD Core P/E (x) 9.11 12.02 17.99 17.22 15.49

Price To Sales (x) 1.54 1.56 1.68 1.59 1.51

DPS (THB) 1.10 1.10 1.10 1.10 1.15

Dividend Yield 5.91% 5.91% 5.91% 5.91% 6.18%

EV/EBITDA (x) 6.58 7.43 10.06 9.81 8.89

P/FCFE (x) 13.9 14.2 12.1 120.7 10.7

Net Gearing 21.1% 13.8% 11.1% 24.2% 21.7%

P/BV (x) 1.94 1.83 1.83 1.85 1.84

ROE 22.5% 15.6% 10.2% 10.7% 11.9%

% Change In Core EPS Estimates (9.8%) (11.5%) (10.9%)


33

56

78

101

123

13.0

23.0

33.0

43.0

53.0

Price Close Relative to SET (RHS)

20

40

60


Vo

l m

22

Asia Pacific Daily | Equity Research | July 26, 2019

7

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] Dohoon LEE Pramod AMTHE South Korea India +82 (2) 6730-6121 +91 (22) 4880-5167 [email protected] [email protected]

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Keells Stock Brokers

Coverage via partnership arrangement with

VNDirect Securities Corporation

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This publication is strictly confidential and is for private circulation only to clients of CHK.

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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, AMATA, AOT, AP, BANPU, BBL, BCH, BCP, BCPG, BDMS, BEAUTY, BEM, BGRIM, BJC, BH, BLA, BLAND, BPP, BTS, CBG, CENTEL, CHG, CK, CKP, COM7, CPALL, CPF, CPN, DELTA, DTAC, EA, EGCO, EPG, ERW, ESSO, GGC, GFPT, GLOBAL, GLOW, GPSC, GUNKUL, HANA, HMPRO, INTUCH, IRPC, ITD, IVL, KBANK, KCE, KKP, KTB, KTC, LH, LPN, MAJOR, MEGA, MINT, MTLS, ORI, PRM, PSH, PSL, PTG, PTT, PTTEP, PTTGC, QH, RATCH, ROBINS, RS, SAWAD, SCB, SCC, SGP, SIRI, SPALI, SPRC, STA, STEC, SUPER, TASCO, TCAP, THAI, THANI, TISCO, TKN, TMB, TOA, TOP, TPIPL, TPIPP, TRUE, TTW, TU, TVO, UV, WHA, WHAUP, 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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Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2018, Anti-Corruption 2018

ADVANC – Excellent, Certified, AEONTS – Good, n/a, AH – Very Good, n/a, AMATA – Excellent, Declared, ANAN – Excellent, Declared, AOT – Excellent, Declared, AP – Excellent, Certified, ASP – Very Good, Certified, BANPU – Excellent, Certified, BAY – Excellent, Certified, BBL – Very Good, Certified, BCH – Good, Certified, BCP - Excellent, Certified, BCPG – Excellent, Certified, BEM – Very Good, n/a, 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, Declared, BJCHI – Very Good, Certified, BLA – Very Good, Certified, BPP – Very Good, Declared, BR - Good, Declared, BTS - Excellent, Certified, CBG – Very Good, n/a, CCET – Good, n/a, CENTEL – Very Good, Certified, CHG – Very Good, Declared, CK – Excellent, n/a, COL – Excellent, Declared, CPALL – Very Good, Certified, CPF – Excellent, Certified, CPN - Excellent, Certified, DELTA - Excellent, n/a, DEMCO – Excellent, Certified, DDD – Very Good, Declared, 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, HREIT - Excellent, Certified ICHI – Excellent, Declared, HUMAN – not available, n/a, III – Good, n/a, INTUCH - Excellent, Certified, IRPC – Excellent, Certified, ITD* – Very Good, n/a, IVL - Excellent, Certified, JASIF – not available, n/a, JWD – Very Good, n/a, KBANK - Excellent, Certified, KCE - Excellent, Certified, KKP – Excellent, Certified, KSL – Excellent, Certified, KTB - Excellent, Certified, KTC – Excellent, Certified, LH - Very Good, n/a, LPN – Excellent, Certified, M – Very Good, Certified, MACO – Very Good, n/a, MAJOR – Very Good, n/a, MAKRO – Excellent, Declared, MALEE – Very Good, Certified, MC – Very Good, Certified, MCOT – Excellent, Certified, MEGA – Very Good, n/a, MINT - Excellent, Certified, MTC – Excellent, Declared, NETBAY – Good, n/a, OSP – not available, n/a,PLANB – Excellent, Declared, PLAT – Very Good, Certified, PR9 – not available, n/a, PSH – Excellent, Certified, PSTC – Good, Certified, PTT - Excellent, Certified, PTTEP - Excellent, Certified, PTTGC - Excellent, Certified, QH – Excellent, Certified, RATCH – Excellent, Certified, ROBINS – Excellent, Certified, RS – Very Good, n/a, RSP – not available, n/a, S – Very Good, n/a, SAMART - Excellent, n/a, SAPPE – Very Good, Declared, SAT – Excellent, Certified, SAWAD – Very Good, n/a, SC – Excellent, Declared, SCB - Excellent, Certified, SCC – Excellent, Certified, SCN – Very Good, Certified, SF – Good, 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 – Very Good, Declared, TASCO – Excellent, Certified, TCAP – Excellent, Certified, THANI – Excellent, Certified, TIPCO – Very Good, Certified, TISCO - Excellent, Certified, TKN – Very Good, Declared, TMB - Excellent, Certified, TNR – Very Good, Declared, TOP - Excellent, Certified, TPCH – Good, n/a, TPIPP – Good, n/a, TRUE – Excellent, Certified, TU – Excellent, Certified, TVO – Very Good, Declared, UNIQ – Good, n/a, VGI – Excellent, Certified, WHA – Excellent, Certified, WHART – not available, n/a, WICE – Very Good, Certified, WORK –

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Good, n/a. Companies participating in Thailand’s Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of August 31, 2018) are categorized into:

- Companies that have declared their intention to join CAC, and

- Companies certified by CAC

* The company, its director or management had been reportedly accused for breaching proper corporate governance such as violation of the SEC’s regulations or charged with corruption.

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.

WJV#05b

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Asia Pacific Daily - 26 July 2019 - Bursa Marketplace

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