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3. stocks

Regional Daily, 8 October 2014
5
Regional Daily
Ideas Troika
Top Stories
Skyworth Digital (751 HK)
Technology - Hardware & Equipment
BUY HKD4.16 TP: HKD4.70
Mkt Cap : USD1,519m
Pg2
Skyworth’s September TV revenue was up 2% y-o-y, snapping the decline
trend in the past year driven by strong overseas sales and 4K TV shipment in
China. We expect shipments in the following months to grow at a faster pace
from last year’s low base.
Analyst: Christopher Tse ([email protected])
Strategy – Thailand
OVERWEIGHT
Pg3
We remain positive on the SET Index – any correction is an opportunity to
buy. PTT and Unique remain our Top Picks. Positive catalysts from the
energy reform may support PTT’s share price, while Unique is undervalued.
We see the SET range-bound at 1,500-1,600 pts.
Analyst: Veena Naidu ([email protected])
Krung Thai Bank (KTB TB)
Financial Services – Banks
BUY THB23.0 TP: THB26.0
Mkt Cap : USD9,861m
Pg4
We expect modest improvements in KTB’s coming 3Q14 results, supported
mainly by stable NIM and lower credit cost. For FY15F, the roll-out of mega
infrastructure could underpin a 17% rebound in earnings and sustain share
price outperformance. BUY with a higher TP of THB26.00.
Analyst: Fiona Leong ([email protected])
Petra Foods (PETRA SP)
Food & Beverage Products
BUY SGD3.95 TP: SGD4.50
Mkt Cap: USD:1,887m
Pg5
In our recent visits to Jakarta and Manila, we observed that Petra is strongly
positioned for the structural growth of modern trade channels in its two core
markets. We maintain our BUY call and SGD4.50 TP.
Analyst: James Koh ([email protected])
Other Key Stories
Regional
Regional Real Estate
Pg6
Monthly Highlights
Analyst: Loong Kok Wen CFA ([email protected])
Weekly Spices
Pg7
Focus on China’s Railway, Leave Aside Occupy Central
Analyst: Leng Seng Choon CFA ([email protected])
Malaysia
Axis REIT (AXRB MK)
Property – REITS
NEUTRAL MYR3.65 TP:MYR3.60
Timber
Sector recommendation: NEUTRAL
Pg8
Smooth As SiLC
Analyst: Alia Arwina ([email protected])
Pg9
Not All Engines Are Firing
Analyst: Hoe Lee Leng ([email protected])
Thailand
Exploration & Production
Pg10
Exploration & Production
Analyst: Kannika Siamwalla, CFA ([email protected])
See important disclosures at the end of this report
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1
Corporate News Flash, 8 October 2014
Skyworth Digital (751 HK)
Buy (Maintained)
Technology - Hardware & Equipment
Market Cap: USD1,519m
Target Price:
Price:
HKD4.70
HKD4.16
Macro
Risks
Shipments Improve Slightly
Growth
Value
Skyworth Digital Holdings (751 HK)
Price Close
Relative to Hang Seng Index (RHS)
4.90
128
4.70
123
4.50
118
4.30
113
4.10
108
3.90
103
3.70
98
3.50
93
3.30
140
88




0
0
.
3
0
0
What’s new?
.
0
0
 Skyworth announced its Sept 2014 TV shipments after market close. 0
Total TV shipments rose 14% y-o-y or 20% m-o-m (Aug 2014: +18% y-oy, 18% m-o-m). China TV shipments rose 8% y-o-y or 20% m-o-m (Aug
2014: +8% y-o-y, +26% m-o-m) while overseas TV shipments expanded
36% y-o-y or 20% m-o-m (Aug 2014: +62% y-o-y, -1% m-o-m)


120
100
4K cloud TV shipments surged by a whopping 97% y-o-y this month,
bringing its shipment mix to 15% of total China TV shipments. (Aug
2014: 13%). Cloud TV shipments also rose 20% y-o-y, and the mix in
Cloud TV shipment has reached 34% (Aug 2014: 33%)
In September, total TV revenue edged up by 2% y-o-y. TV revenue from
China, however, decreased 4% y-o-y while overseas TV revenue rose
52% y-o-y on strong shipment growth.
80
Our view
40

Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
20
Oct-13
Vol m
60
Source: Bloomberg
Avg Turnover (HKD/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (HKD)
Free float (%)
Share outstanding (m)
Shareholders (%)
Wong Wai Sen, Stephen
FIL Limited
LSV Asset Management
29.7m/3.83m
6.0
13.0
3.49 - 4.79
53
2,831
35.9
6.0
5.0
Share Performance (%)



1HFY15 TV shipments have reached 5.9m units (+6% y-o-y), which is
slightly ahead of our FY15 forecast of 12m units (+5% y-o-y). We also
expect Oct-Feb 2015 TV shipments to grow at a faster pace from a low
base effect – as TV shipments in the same months last year fell at a
range of 8-22% y-o-y.
The implied 11% drop in Skyworth’s average selling price (ASP) last
month was also less severe than the 15-21% implied decline in the
previous four months. However, due to the lower ASPs, 1H15 TV sales
were down 9% y-o-y vs our +7% y-o-y estimate for FY15F (end March).
We expect TV gross margins to remain stable due to: i) the lower panel
cost, and ii) stronger sales of 4K Cloud TVs. Its blended FY15 GPM
should also see a mild upside from increased white goods contributions
(to 13% in FY15 with a 22% GPM vs 6% of FY14 sales) while the sales
mix of TVs may dip to c.70% in FY15 (FY14: 75%) with a 19% GPM.
Maintain BUY and a TP of HKD4.70, based on a 8x FY15F P/E.
Skyworth’s valuation is still undemanding, as it trades at a 7x FY15F P/E
and offers a dividend yield of 5%.
YTD
1m
3m
6m
12m
Absolute
(2.6)
(5.2)
7.5
(1.2)
8.9
Forecasts and Valuations
Mar-12
Mar-13
Mar-14
Mar-15F
Mar-16F
Relative
(2.6)
2.4
8.5
(5.4)
7.4
Total turnover (HKDm)
28,232
37,824
39,480
45,183
49,497
Reported net profit (HKDm)
1,347
1,501
1,254
3,041
1,911
Recurring net profit (HKDm)
1,380
1,539
1,336
1,654
1,901
Recurring net profit growth (%)
26.9
11.5
(13.2)
23.8
14.9
Recurring EPS (HKD)
0.52
0.56
0.48
0.59
0.68
DPS (HKD)
0.16
0.18
0.15
0.19
0.22
Recurring P/E (x)
7.94
7.39
8.75
7.07
6.15
P/B (x)
1.29
1.14
1.08
0.79
0.73
P/CF (x)
81.8
2.3
10.4
5.5
Shariah compliant
Christopher Tse +852 2103 9415
[email protected]
Kong Yong Ng 852 2103 5844
[email protected]
Dividend Yield (%)
na
3.7
4.4
3.6
4.7
5.4
EV/EBITDA (x)
7.30
7.62
8.29
4.59
3.92
Return on average equity (%)
17.3
16.3
12.1
23.8
12.4
Net debt to equity (%)
16.9
27.9
9.5
Our vs consensus EPS (adjusted) (%)
See important disclosures at the end of this report


2

.
2
0
.
2
Source: Company data, RHB
net cash net cash
2.0
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12.4
2
Strategy, 7 October 2014
Strategy - Thailand
Overweight (Maintained)
Macro
Risks
Tread With Caution In October
Growth
Value


1

1

1




1
RHB’s Top Picks
Monthly portfolio in Sep 2014
Top picks for Oct 2014
29/08/14
30/09/14
Return
UNIQ
9.85
11.3
14.7%
PTT
360
PTT
321
360
12.1%
DTAC
105
140
KBANK
225
235
4.4%
UNIQ
11.3
13.5
KTB
23.5
23.7
0.9%
PS
34.5
34.25
-0.7%
CPN
48.25
46.5
-3.6%
QH
4.44
4.22
-5.0%
Average
3.3%
SET
1.5%
30/09/14 Target Price
396
The market may see short-term profit-taking, but we remain positive on
the SET Index – any correction is an opportunity to buy. PTT and
Unique remain our Top Picks. Positive catalysts from the energy reform
may continue supporting PTT’s share price, while Unique remains
undervalued. We include Total Access Communication, given its
reasonable valuation and attractive dividend yield. We see the SET
range-bound at 1,500-1,600 pts.

Source: Companies data, RHB



RHB’s portfolio registered a 3.3% return m-o-m vs the SET Index’s 1.5%.
Our BUY calls – Unique Engineering & Construction (Unique) (UNIQ TB,
BUY, TP: THB13.50) (+14.7%) and PTT (PTT TB, BUY, TP: THB396.00)
(+12.1%) recorded strong returns. The two stocks that underperformed
and dragged down our October portfolio were Central Pattana (CPN TB,
BUY, TP: THB55.00) (-3.6%) and Quality Houses (QH TB, BUY, TP:
THB5.00) (-5.0%). Due to the weak recovery in domestic consumption,
all retailers underperformed – including Central Pattana, although it is
more exposed to more resilient mid-range to high-end consumers. We
saw profit-taking in the property sector across the board.
Our September portfolio outperformed the SET Index by 2.4%, with a
3.9% return. The index rallied strongly to 1,602pts on 29 Sept. However,
it could not sustain the 1,600 level and closed the month at 1,585.67pts,
up 1.54% m-o-m. The SET Index is up 22.1% YTD.
From our recent company visits to Siam Commercial Bank (SCB TB,
NEUTRAL, TP: THB198.00), Kasikornbank (KBANK SB, BUY, TP:
THB264.20), Bangkok Bank (BBL TB, BUY, TP: THB220.00) and Krung
Thai Bank (KTB TB, BUY, TP: THB25.10), we gather there are similar
views regarding the third-quarter performance. The economy has
bottomed out but the recovery is slow. Non-performing loans (NPLs)
during this round of a cyclical downturn have stabilised to rise very
marginally at most banks, implying that NPLs have peaked in the range
of 2.5-2.6% for the big banks. The worst of provisioning is behind us,
although provisions may stay elevated at some banks.
Loan growth is picking up gradually and FY14 loan growth should be in
the range of 5-6%. The sector that has seen a significant increase in
loans is home loans, as transfers of homes remain strong. Retail and
SME loans remain muted while corporate loans are stable. Banks are
becoming more aggressive in raising deposits but the competition for
deposits remains manageable. Most banks are guiding for stable net
interest margins (NIMs). Overall 3Q14 earnings should see q-o-q and yo-y growth of around 5%.
Company Name
Ananda Development
Price
Target
P/E (x)
P/B (x)
Yield (%)
Dec-14F
Dec-14F
Dec-14F
Rating
THB3
THB3.7
11.2
1.6
1.7
BUY
Bangkok Bank
THB212
THB220
11.0
1.3
3.7
BUY
BIG C Supercenter
THB242
THB225
26.9
4.7
1.1
BUY
Central Pattana
THB48
THB55
31.0
5.2
-
BUY
Veena Naidu License No. 24418, +66 2862 9752
Central Plaza Hotel
THB41
THB38
36.0
4.9
-
NEUTRAL
[email protected]
Charoen Pokphand
THB31
THB34
23.5
2.1
1.2
BUY
THB320
THB396
8.9
1.2
3.9
BUY
PTT
Samart Corp PCL
THB28
THB34.5
14.4
3.8
3.5
BUY
Sino-Thai Engineering & Construction PCL
THB26
THB27.5
24.8
4.6
2.0
NEUTRAL
THB5
THB5.5
na
3.0
The Erawan Group PCL
See important disclosures at the end of this report
Source: Company data, RHB
-
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BUY
3
Company Update, 8 October 2014
Krung Thai Bank (KTB TB)
Buy (Maintained)
Financial Services - Banks
Market Cap: USD9,861m
Target Price:
Price:
THB26.00
THB23.00
Macro
Risks
Operations Stable In 3Q14
Growth
Value
Krung Thai Bank Plc (KTB TB)
Relative to Stock Exchange of Thailand Index (RHS)
24.0
111
22.0
107
20.0
103
18.0
98
16.0
94
14.0
180
160
140
120
100
80
60
40
20
90


Source: Bloomberg
Avg Turnover (THB/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (THB)
Free float (%)
Share outstanding (m)
Shareholders (%)
Financial Institution
Development
FundEurope
State Street Bank
Limited
Thai NVDR
1,024m/31.9m
9.1
13.0
15.5 - 24.4
45
13,976
55.1
4.8
4.7
Share Performance (%)
YTD
1m
3m
6m
12m
Absolute
39.4
(4.6)
5.5
21.7
18.6
Relative
20.6
(2.0)
2.8
10.8
9.5
Shariah compliant

Loan growth to moderate in 2H14. After expanding its loans by an
annualised 11.6% in 1H14 (the strongest among large Thai banks), KTB
expects a moderation in loan growth in 2H14 as demand for credit has
softened in tandem with the domestic economy. Management expects
loan growth of 5-7% y-o-y by Dec 2014.
Expects stable NIM in 3Q14. Net interest margin (NIM) is expected to
be stable in 3Q14 (2Q14: +12bps q-o-q), helped by lower deposit costs
on the back of policy rate cuts in late 2013 and a moderation in deposits
growth. That said, management expects NIM to slip in 4Q14 as KTB
would likely step up the pace in deposit growth.
NPLs expand further, but at a slower pace. Management guided that
KTB would report a modest rise in non-performing loans (NPLs) in 3Q14
as the real economy remains sluggish. Management remains
comfortable with overall asset quality as it expects the SME and retail
segments to recover once GDP growth rebounds in 4Q14. We foresee a
possible decline in annualized credit cost in 3Q14 (2Q14: 120bps) as we
do not expect KTB to repeat 2Q14’s move to set aside THB3.0bn in
additional provisions.
TP rises to THB26.00, reiterate BUY. We lift our earnings forecasts by
1-3% for FY14F-FY16F, as we fine-tuned our assumptions on NIM,
credit costs and non-interest income. Our TP rises to THB26.00 on
upward revisions in assumptions for long-term growth and ROAE, as we
value the stock at 1.4x FY15F P/BV and 9.5x P/E, which is at +1SD from
its historical mean. KTB is the best-performing Thai bank stock, with a
YTD gain of 39%. We believe this outperformance is sustainable as the
bank is expected to be a major beneficiary of the government’s planned
investments in major infrastructure projects. We foresee net profit rising
by a healthy 17% in FY15F. Reiterate BUY.
Forecasts and Valuations
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Net interest income (THBm)
58,122
64,481
69,257
74,306
80,530
Reported net profit (THBm)
23,366
33,929
32,832
38,438
43,510
37.4
45.2
(3.2)
17.1
13.2
23,366
33,929
32,832
38,438
43,510
Net profit growth (%)
Recurring net profit (THBm)
Fiona Leong +603 9207 7638
Recurring EPS (THB)
1.67
2.43
2.35
2.75
3.11
[email protected]
DPS (THB)
0.73
0.88
0.95
1.12
1.29
Recurring P/E (x)
13.8
9.5
9.8
8.4
7.4
P/B (x)
1.76
1.56
1.41
1.28
1.16
Dividend Yield (%)
3.2
3.8
4.1
4.9
5.6
Return on average equity (%)
14.9
17.4
15.1
16.0
16.4
Return on average assets (%)
1.1
1.4
1.3
1.4
1.4
(0.8)
1.2
3.4
Our vs consensus EPS (adjusted) (%)
Source: Company data, RHB
See important disclosures at the end of this report


2

.
2
0
.
3
0
0
.
2
0
0
We expect Krung Thai Bank (KTB) to post a modest improvement in its .
0
coming 3Q14 results, supported mainly by stable NIM and lower credit 0
cost. We expect the imminent roll-out of mega infrastructure to 0
underpin a 17% rebound in FY15F earnings and sustain its share price
outperformance. Reiterate BUY, with a higher TP of THB26.00 (from
THB25.10) reflecting a c.13% upside and 1.4x FY15F P/BV and 9.5x P/E.

Aug-14
Jun-14
Feb-14
Apr-14
115
Dec-13
26.0
Oct-13
Vol m
Price Close
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4
Company Update, 7 October 2014
Petra Foods (PETRA SP)
Buy (Maintained)
Consumer Non-cyclical - Food & Beverage Products
Market Cap: USD1,887m
Target Price:
Price:
SGD4.50
SGD3.95
Macro
Risks
Building a Strong Position
Growth
Value
Petra Foods (PETRA SP)
Price Close
Relative to Straits Times Index (RHS)
4.30
122
4.10
117
3.90
112
3.70
107
3.50
102
3.30
97
3.10
92
2.90
3
87
2

2
Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
1
Oct-13
Vol m
1

Source: Bloomberg
Avg Turnover (SGD/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (SGD)
Free float (%)
Share outstanding (m)
Shareholders (%)
0.44m/0.35m
-2.0
14.0
3.10 - 4.20
34
611
Prudential
Aberdeen
Columbia Wanger Asset Management
5.0
5.0
2.0

Recent ground-checks suggest a strong position in modern trade.
In Jakarta, Indonesia, Petra Food’s (Petra) products continue to
dominate the chocolate confectionary shelves, with a more than 50%
space. This appears to be consistent across all formats, but particularly
in convenience stores. We note that foreign brands are making an effort
to expand their share, paying for promotional spaces, but the appeal is
still more niche, ie towards higher-end consumers.
Goya well-represented on Manila shelves. Petra has a 10% market
share in the Philippines but, in our recent visit to capital city Manila, we
believe Goya’s shelf-space in modern trade is higher than that. With its
“premium-looking” packaging, affordable price point and wide variety, we
observed many interested consumers. Petra has been steadily growing
its market share since acquiring the business in 2006 and we expect this
to continue, given that it is benefiting from the growth of modern trade.
M&A opportunities will add scale to the business. Since the
divestment of its cocoa ingredients business in Dec 2012, management
has not made any moves despite sitting on an estimated USD250m war
chest. We believe M&As and/or new strategic product categories are
likely to happen once ongoing litigation with Barry Callebaut (BARN SW,
NR) reaches certainty, as this will add scale to its consumer business
and strengthen its bargaining position with retailers.
Reiterate BUY. Our DCF-based SGD4.50 TP implies 30.9x FY15F P/E.
We believe a premium to its Indonesian peers (22.2x) is justifiable, given
its excellent management track record and purer exposure. However, we
note that the IDR’s further weakness against the USD in the last month
may erode profitability, given that more than 70% of sales are still IDRdenominated.
Share Performance (%)
YTD
1m
3m
6m
12m
Forecasts and Valuations
Absolute
22.7
2.1
4.5
6.8
12.5
Total turnover (USDm)
Relative
20.0
5.0
5.1
5.8
9.1
Shariah compliant
James Koh +65 6232 3839
[email protected]
Dec-12
Dec-13
Dec-14F
Dec-15F
472
509
541
640
783
Reported net profit (USDm)
25.7
20.5
58.0
71.3
91.6
Recurring net profit (USDm)
54.3
59.3
58.0
71.3
91.6
Recurring net profit growth (%)
38.9
9.1
(2.1)
22.8
28.6
Recurring EPS (USD)
0.09
0.10
0.09
0.12
0.15
DPS (USD)
0.04
0.06
0.04
0.05
0.07
Recurring P/E (x)
34.7
31.9
32.5
26.5
20.6
P/B (x)
5.78
6.51
5.86
5.23
4.59
2.1
22.6
21.4
19.1
1.3
2.1
1.4
1.7
2.2
23.6
20.2
19.4
15.7
12.2
P/CF (x)
Juliana Cai +65 6232 3871
Dividend Yield (%)
[email protected]
EV/EBITDA (x)
Return on average equity (%)
Net debt to equity (%)
Our vs consensus EPS (adjusted) (%)
na
8.3
6.7
120.5
net cash
19.0
20.9
Dec-16F
23.7
net cash
net cash
net cash
(9.6)
(8.2)
(5.1)
Source: Company data, OSK-DMG
See important disclosures at the end of this report


2

.
1
0
.
3
0
0
.
2
0
0
In our recent visits to Jakarta and Manila, we observed Petra is strongly .
0
positioned for the structural growth of modern trade channels in its two 0
core markets. Particularly, we believe its Goya brand enjoys greater 0
shelf-space than its 10% market share suggests. We keep our BUY call
and SGD4.50 TP (implying 14% upside), continuing to like Petra for its
pure exposure to Asean’s two biggest chocolate confectionery markets.

3
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5
Sector Update, 7 October 2014
Regional Real Estate


1

1

1
Monthly Highlights
1
Tightening measures in the regional property market seem to have
paused. The Chinese market has recently seen some loosening of
policies to address the country’s ailing housing market. For Malaysia, all
eyes will be on the 2015 Budget announcement, and we do not expect
further tightening. Meanwhile, Thai developers’ presales remain
encouraging, with strong take-ups in a few new launches.



Loong Kok Wen CFA +603 9207 7614
[email protected]
Alia Arwina +603 9207 7608
[email protected]
Goh Han Peng +65 6533 1818 ext 893

[email protected],com
Ivan Looi +65 6232 3841
[email protected],com
Lydia Suwandi +62 21 2598 6888 ext 612
[email protected]

Wanida Geisler +66 2862 9748
[email protected]
John So +852 2103 5888
[email protected]
See important disclosures at the end of this report


Malaysia: OVERWEIGHT. We expect investors’ interest in the property
sector to be tepid ahead of the 2015 Budget that will be tabled on 10 Oct.
However, we encourage investors to buy on weakness, as we do not
foresee any drastic measures to be imposed on the property sector nor
relaxation of policies to be announced. We believe the set of cooling
measures imposed in the 2014 Budget achieved its objective, and in the
meantime, we think it is too early to relax some of the measures, as the
Government remains under pressure to contain property price growth in
order to ensure housing affordability. Affordable housing players are the
safer bets. We like Tambun Indah (TILB MK, BUY, TP: MYR3.00), Matrix
Concepts (MCH MK, BUY, TP: MYR3.93) and Hua Yang (HYB MK, BUY,
TP: MYR2.74), as they are still the safer bets.
Singapore: OVERWEIGHT. Keppel Land (KPLD SP NR) and Keppel
REIT (KREIT SP TP: SGD1.66) announced the long-awaiting proposed
acquisition for Marina Bay Financial Centre (MBFC) Tower 3. We like the
acquisition as it is yield accretive and it provides income stability with
longer weighted average lease expiry (WALE) for its portfolio. Within the
REITs sector, our preference remains in commercial, retail and industrial
sub-sectors, given their more favourable demand-supply dynamics. We
continue to like Keppel REIT (KREIT SP, BUY, TP: SGD1.66), Cache
Logistics (CACHE SP, BUY, TP: SGD1.42) and Frasers Centrepoint Trust
(FCT SP, BUY, TP: SGD2.22).
Thailand: OVERWEIGHT. Our upgrade on the Thai property sector last
month is reinforced with the fast recovery in property presales after the
military coup. The recent sales performance of Asian Property (AP TB,
NEUTRAL, TP: THB8.00), Ananda (ANAN TB, BUY, TP: THB3.70) and
Supalai (SPALI TB, NEUTRAL, TP: THB27.00) is very encouraging. These
three developers have just launched their condo projects near the mass
transit stations, and received 90%, 98.5% and 70% take-up. This had
prompted us to review our forecast and TP on Ananda. For stock picks, we
continue to like Quality Houses (QH TB, BUY, TP: THB5.50) and Pruksa
(PS TB, BUY, TP: THB43.00).
Indonesia: NEUTRAL. The potential cut in fuel subsidies, and hence the
resulting inflationary pressure, could hurt property demand over the near
term. However, the long-term prospects of the Indonesian property
developers remain attractive, backed by a large population. We continue to
favour Summarecon Agung (SMRA IJ, BUY, TP: IDR1,600) and Ciputra
Surya (CTRS IJ, BUY, TP: IDR4,830).
Hong Kong: NEUTRAL. China’s Central Government has loosened
mortgage restrictions just recently. Purchasers of second homes can now
be considered as first-time buyers. They can make down payments of 30%
(from 60% or such buyers would not qualify for a housing loan previously).
Banks can also offer some 30% discount on benchmark rates for
mortgages. Therefore, such policy relaxation should lift up share prices of
property stocks over the short term. We like KWG (1813 HK, BUY, TP:
HKD7.60) and Sunac (1918 HK, BUY, TP: HKD7.60) as they should fare
better, given their more solid fundamentals.
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6
Regional Weekly, 7 October 2014
Weekly Spices
Focus on China’s Railway, Leave Aside Occupy Central
Bank Central Asia (BBCA) is attractive within the
NEUTRAL-weighted Indonesian banking sector
On the Occupy Central backdrop, we highlight HKEx-listed stocks that
remain attractive as they do not have direct exposure to Hong Kong.
With the recently-announced upper limit on Indonesia’s time deposit
rates, we still see larger Indon banks maintaining the upper hand. This
week, we initiated coverage on China’s railway and construction sector
with an OVERWEIGHT call.
The Occupy Central movement in Hong Kong attracted keen media and
investor interest last week. Since started on 27 Sep’s evening, it has turned
ugly with protesters clashing with the police, who responded with tear
gas/pepper spray. The event had an adverse impact on the Hong Kong
equity market. Investors turned risk-averse against stocks, including
small/mid caps that do not have direct exposure to HK such as Tongda
Group Holdings (698 HK, BUY, TP: HKD1.53), China Fiber Optic Network
System Group (3777 HK, BUY, TP: HKD3.00), SPT Energy Group (1251 HK,
BUY, TP: HKD4.30), Hilong Holding (1623 HK, BUY, TP: HKD5.00) and HC
International (8292 HK, BUY, TP: HKD24.57). At current levels, we still see
upside to their TPs.
Source: Bloomberg
China’s railway sector sets to gain from fixed asset
investment; BUY on China Railway Group (390 HK)
Source: Bloomberg
Leng Seng Choon, CFA +65 6232 3890
[email protected]
Hong Kong Research
Indonesia Research
Malaysia Research
Singapore Research
Thailand Research
See important disclosures at the end of this report
Singapore banks with more significant HK exposure such as DBS (DBS SP,
BUY, TP: SGD21.00) and OCBC (OCBC SP, NEUTRAL, TP: SGD10.55)
suspended services at their HK branches but resumed operations lately. We
expect the impact from the protest to be manageable for both banks, despite
their relatively large HK exposure. For instance, Greater China (including
HK) accounted for 31% or SGD762m of DBS’ 1H14 core pretax profit.
OCBC, meanwhile, delivered c.SGD625m or 23.5% of proforma 1H14 pretax
profit (including Wing Hang’s 1H14 profit). Wing Hang derived 70%, or
SGD515m, of its 1H14 profit from Hong Kong – with Macau and Taiwan
accounting for the balance.
Effective from 1 Oct 2014, Indonesia Financial Services Authority (OJK) has
imposed an upper limit on time deposit (TD) rates for banks which are under
BUKU-3 (those with core capital between IDR5trn and IDR30trn) and BUKU4 categories (those with core capital above IDR30trn). We believe the TD
rate caps may distort market mechanism and weaken mid-sized banks’
ability to compete for deposits, which could in turn hurt growth. We see
smaller banks with high TDs may benefit only in the short term on lower cost
of funds, while large banks will likely maintain the upper hand. As the
regulators’ ultimate goal seems to be lowering lending rates, caps on lending
rates cannot be ruled out going forward should these TD caps yield little
impact. We remain NEUTRAL on Indonesian banks, with BUYS on Bank
Central Asia (BBCA IJ, TP: IDR14,400), Bank Mandiri (BMRI IJ, TP:
IDR11,800) and Bank Rakyat Indonesia (BBRI IJ, TP: IDR13,800).
Earlier this week, we initiated coverage on China’s railway and construction
sector with an OVERWEIGHT rating. We are positive on this sector mainly
on: i) China's growing railway fixed asset investment (FAI), which we project
a 15% CAGR over 2013-2016F and may reach a new high of CNY950bn in
2015F, ii) strong demand for affordable housing – we forecast 2014-2016F
construction volume to be maintained at 7m units per year, driven by Premier
Li Keqiang’s "shanty town" redevelopment plan, and iii) the sector's generally
undemanding valuations. Our Top Picks are China Railway Group (390 HK,
BUY, TP: HKD6.55), China State Construction (3311 HK, BUY, TP:
HKD14.60) and China CNR (6199 HK, BUY, TP: HKD8.47).
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7
Company Update, 8 October 2014
Axis REIT (AXRB MK)
Neutral (Maintained)
Property - REITS
Market Cap: USD519m
Target Price:
Price:
MYR3.60
MYR3.65
Macro
Risks
Smooth As SiLC
Growth
Value
Axis REIT (AXRB MK)
Price Close
Relative to FTSE Bursa Malaysia KLCI Index (RHS)
3.90
106
3.70
101
3.50
96
3.30
91
3.10
86
2.90
81
2.703
76
0
0
.
2
0
0
Axis REIT (Axis) yesterday announced the proposed acquisition of an .
0
industrial asset in the SiLC industrial area, Johor. We view this 0
positively, as it may help to further drive its earnings growth. Axis is 0
targeting to complete the injection by year-end. We lift our FY15F
estimates by 5% after imputing the contribution from this acquisition.
Our DDM-based TP rises to MYR3.60 (-1.5% upside) post earnings
revision. Maintain NEUTRAL.

3
2
2

Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
1
Oct-13
Vol m
1
Source: Bloomberg
Avg Turnover (MYR/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (MYR)
Free float (%)
Share outstanding (m)
Shareholders (%)
0.78m/0.24m
-8.2
-1.5
2.80 - 3.69
57
464
EPF
KWAP
13.6
7.2
Share Performance (%)
YTD
1m
3m
6m
12m
Absolute
24.6
4.3
9.3
7.4
7.4
Relative
26.0
5.6
11.8
8.2
3.5
Shariah compliant


2

.
2
0
.
2






New yield-accretive acquisition. Axis has announced the proposed
sale-and-leaseback of a steel fabrication facility in the Southern
Industrial and Logistics Clusters (SiLC) industrial area, Johor, for total
consideration of MYR153.5m. The gross asset yield is decent, at about
7.6%. The asset has a total gross floor area (GFA) of 504k sq ft, and
comprises six buildings. The asset will be funded entirely through debt.
The REIT expects to ink the deal by year-end. Based on the
announcement, the tenant will be signing a 15-year lease with a rent
step-up of 10% every three years.
Positive prospects ahead. Axis had previously guided that it could be
injecting more assets into its portfolio by year-end. Although there could
be concerns on the assets’ location within the Nusajaya region, we
believe that Axis will be insulated from any vacancy risks. This is due to
the assets’ long-term lease and that fact that industrial assets remain
popular in Johor despite the property market slowdown. Post-acquisition,
management expects its gearing to increase to 0.39x, which is still below
the Securities Commission’s 0.5x gearing cap. That said, we expect
gearing to be pared down to c.0.34x in FY15 once the Axis completes
the placement of about 83.5m new units by early-2015.
Earnings forecasts. We do not expect any major impact to our FY14
earnings forecasts. However, we lift our FY15F earnings by about 5%
after imputing the contributions from this acquisition.
Maintain NEUTRAL. We maintain NEUTRAL on Axis, but raise our
DDM-based TP to MYR3.60 (from MYR3.34) after we revised our
earnings estimates and ascribe a lower COE of 7.38% (vs. 7.51%
previously). We view its aggressive asset acquisitions in recent months
positively and believe that more yield-accretive acquisitions could be in
the cards going forward to further drive earnings growth.
Forecasts and Valuations
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Total turnover (MYRm)
136
144
147
177
179
Net property income (MYRm)
116
123
126
152
154
Reported net profit (MYRm)
82
87
91
108
110
Total distributable income (MYRm)
82
87
91
108
110
0.19
0.19
0.21
0.20
0.20
Alia Arwina +603 9207 7608
DPS (MYR)
[email protected]
DPS growth (%)
8.1
(0.5)
13.8
(6.0)
1.2
Recurring P/E (x)
20.2
19.2
18.9
17.4
18.2
P/B (x)
1.68
1.62
1.36
1.53
1.53
Dividend Yield (%)
5.1
5.1
5.8
5.4
5.5
Return on average equity (%)
8.5
8.6
7.8
8.3
8.4
Return on average assets (%)
5.7
5.4
4.9
5.3
5.3
4.68
4.61
4.98
4.63
4.56
(0.7)
2.9
(5.5)
Interest coverage ratio (x)
Our vs consensus EPS (adjusted) (%)
See important disclosures at the end of this report
Source: Company data, RHB
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8
Sector Update, 8 October 2014
Timber
Neutral
Macro
Risks
Not All Engines Are Firing
Growth
Value


2

2

2




2
USD/JPY and MYR/JPY movement
While we continue to like the timber sector on a standalone basis on
promising prospects for the log sub-division, this is offset by the
flattish outlook for the plywood segment due to the unexciting demand
prospects from Japan and the weaker outlook for CPO prices. We
maintain our NEUTRAL call on the sector, with our Top Pick being WTK
Holdings, which is the purest timber play.

Source: Bloomberg
CPO price trend

Source: Bloomberg


Hoe Lee Leng +603 9207 7605
[email protected]
See important disclosures at the end of this report
Not all engines firing. We recently downgraded the timber sector to
NEUTRAL (from Overweight) on the back of a downward revision in our
CPO price assumptions. While we continue to like the sector on a
standalone basis on promising prospects for the log sub-division, this is
offset by the flattish outlook for the plywood segment due to the
unexciting demand prospects from Japan and weaker outlook for CPO
prices.
Mixed bag. Despite a 6.9% y-o-y increase in log production in Sarawak
in 1H14, export log prices rose 16% y-o-y in August on the back of
stronger demand from India. On the plywood front, however, the impact
of Japan increasing its sales tax, the seasonal slowdown during the
summer holiday months as well as the weakening yen has led to slower
housing starts. As a result, plywood demand has slowed even though
prices remain relatively flat y-o-y. On the CPO front, while FFB
production growth will continue to be in the double digits for Jaya Tiasa
(JT MK, SELL, TP: MYR1.81) and Ta Ann (TAH MK, NEUTRAL, TP:
MYR3.80) this would be offset by the weaker CPO prices.
Maintain NEUTRAL on the sector. Going forward, although we expect
continued strong log demand, rising log prices and increasing FFB
production from improving maturity of oil palm plantations hectarage,
these would likely be offset by weaker plywood volume and lower CPO
prices.
WTK is our Top Pick. We maintain our target 2015F P/Es of 10.0-12.0x
for the timber divisions and 16.0x for the plantation divisions. We keep
our NEUTRAL recommendations on Ta Ann and WTK (WTKH MK, TP:
MYR1.32), with WTK being the purest timber play under our coverage.
We also retain our SELL recommendation on Jaya Tiasa due to its rich
valuations.
P/E (x)
P/B (x)
Yield (%)
Dec-15F
Dec-15F
Dec-15F
MYR1.81
15.5
1.1
1.2
SELL
MYR3.95
MYR3.80
14.9
1.3
1.4
NEUTRAL
MYR1.30
MYR1.32
9.8
0.4
2.1
NEUTRAL
Com pany Nam e
Price
Target
Jaya Tiasa Holdings
MYR2.08
Ta Ann Holdings
WTK Holdings
Rating
Source: Company data, RHB
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Sector News Flash, 7 October 2014
Exploration & Production
NEUTRAL (Maintained)
Macro
Risks
New Petroleum Exploration Bidding To Begin Soon
Growth
Value


1

1

1




1
st
PTTEP expects to bid in the 21 petroleum concession round. We
believe that it is likely to win several concessions, but the success of
the exploration blocks will largely depend on the designated
exploration programmes and locations. We maintain our NEUTRAL call
on PTTEP, with a TP of THB171.10/share.



Bidding of new exploration blocks to begin this month. The Energy
st
Minister Narongchai Akrasanee expects the 21 round of petroleum
exploration bidding to open this month. This will cover 29 exploration
blocks, of which 17 blocks are in the northeast and the remainder in the
central of Thailand. The move is aimed at boosting Thailand’s petroleum
reserves. This bidding round has been delayed since 2011 due to
protests from the environmental activists. Proven domestic reserves are
expected to last only six more years, and production will decline starting
th
2016. The 20 round of exploration bidding was conducted in 2007. Of
the 28 blocks awarded, only five blocks found viable reserves. (Source:
Bangkok Post, 7 Oct 2014)
Bidding evaluation. The Department of Mineral Fuels (DMF) evaluates
bids based on work programme proposals included in the bid
submission. Proposals with more extensive work programmes are
typically favoured. Apart from this, the DMF also looks at the bidder’s
consortium profile, experience, financial backing and bank guarantee,
among others. In the last bidding round, 28 concessions were awarded,
with both large and small oil companies winning the bids. PTT
Exploration & Production (PTTEP) informs us that it will be bidding in this
round as well.
PTTEP likely to win bids. We believe that PTTEP is likely to win
several concessions, but the success of the exploration blocks will
largely depend on the designated exploration programmes and locations.
We maintain our NEUTRAL recommendation on PTTEP, with a TP of
THB171.10/share.
Company Name
PTT Exploration & Production
Price
THB154.00
Target
THB171.10
P/E (x)
P/B (x)
Yield (%)
Dec-14F
Dec-14F
Dec-14F
10.0
1.5
4.0
Rating
NEUTRAL
Source: Company data, RHB
Kannika Siamwalla, CFA +66 2862 9744
[email protected]
See important disclosures at the end of this report
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RHB Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated: Stock is not within regular research coverage
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