1. business and industrial
2. company
3. earnings

Regional Daily, 17 October 2014
5
Regional Daily
Ideas Troika
Top Stories
Hong Kong Real Estate
NEUTRAL
Pg2
In September, property sales of our 20 selected developers recorded a 27%
MoM and 10% YoY increase, thanks to more presales launches. Going
forward, we do not see big changes in selling prices and expect the inventory
level to keep rising.
Analyst: John So ([email protected])
Top Glove (TOPG MK)
Consumer Non-cyclical - Rubber Products
BUY MYR4.54 TP: MYR5.06
Mkt Cap : USD858m
Pg3
We upgrade Top Glove to BUY from Neutral, with an unchanged TP of
MYR5.06 (11.5% upside, 17x FY15F P/E). At yesterday’s briefing,
management gave clearer guidance on future growth plans, which include
focusing on production efficiency.
Analyst: Jerry Lee ([email protected])
M1 (M1 SP)
Communications - Telecommunications
BUY SGD3.44 TP: SGD4.40
Mkt Cap : USD2,511m
Pg4
M1’s results met expectations. The strong prepaid data growth and more
postpaid subs exceeding their data allowances propped up double-digit YoY
growth in 3Q14 EBITDA and core earnings. Maintain BUY, as we raise our
DCF-based TP to SGD4.40 after rolling forward our valuation to FY16.
Analyst: Jeffrey Tan ([email protected])
Keppel REIT (KREIT SP)
Property - REITS
BUY SGD1.18 TP: SGD1.18
Mkt Cap : USD2,765m
Pg5
All eyes are now on OFC to hit its breakeven rent, when its income support
ends in 2016-2017. We assume coverage of Keppel REIT with a HOLD and
DDM-based TP of SGD1.18 (CoE: 7.0%, TG: 1%), implying 0% upside.
Analyst: Ivan Looi ([email protected])
Other Key Stories
Malaysia
BAT (ROTH MK)
Consumer Non-cyclical – Tobacco
SELL MYR66.70 TP: MYR57.80
KPJ Healthcare (KPJ MK)
Consumer Non-cyclical - Healthcare
NEUTRAL MYR3.71 TP: MYR3.67
See important disclosures at the end of this report
Pg6
Better Than Expected
Analyst: Fong Kah Yan ([email protected])
Pg7
Taking Steps To Address Growing Demand
Analyst: Alexander Chia ([email protected])
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1
Sector News Flash, 16 October 2014
Real Estate
NEUTRAL (Maintained)
Macro
Risks
Home Sales Likely To Recover In October
Growth
Value






3

2

2
2
China’s property stocks index
What's new?
Index
260
In September, property sales of our 20 selected developers recorded a
27% MoM and 10% YoY increase, thanks to more presales launches.
Going forward, we do not see big changes in selling prices and expect
the inventory level to keep rising.
240
220
200
180
160
140
Our view:
120
100

80
Source: RHB, Bloomberg
Contracted sales growth
Ticker
3383 HK
688 HK
884 HK
81 HK
2007 HK
3333 HK
3900 HK
1813 HK
960 HK
813 HK
1918 HK
Company
Agile Property
China Overseas
CIFI Holdings
COGO
Country Garden
Evergrande Real Estate
Greentown China
KWG Property
Longfor
Shimao Property
Sunac China
Aggregate growth rate
FY13
YoY (%)
22%
18%
61%
26%
123%
9%
22%
33%
20%
46%
23%
FY14F
YoY (%)
4%
5%
35%
10%
10%
20%
-4%
26%
6%
9%
17%
28%
10%
Source: Bloomberg



Developers’ September contracted sales up 10% YoY. The easing of
home tightening measures continues to lead to a recovery in home sales
volume. Developers have stated that home sales looked satisfactory in
the first 10 days of October, thanks to changes in the People's Bank of
China’s (PBOC) second home mortgage policies.
A stronger rebound likely in major cities. Given the relaxation of
second home mortgage, we believe demand from home upgraders for
second homes will likely be stronger in major cities than in small Tier-3
cities. We expect home sales to recover faster in major cities like Beijing,
Guangzhou and Nanjing, and this would directly benefit KWG Property
(1813 HK, BUY, TP: HKD7.60) and Shimao Property (813 HK, BUY, TP:
HKD20.30).
Potential price downtrend amid rising supply. We expect the
inventory level to increase following massive new launches by
developers. We estimate about a 5% home price correction in the next 12 quarters, which could drag listed developers’ GPM down c.1-2ppts in
2015.
Awaiting positive signals from liquidity. The recent policy changes are
positive for the property sector but have yet to trigger a re-rating. We
believe the liquidity is still tight and would be the bottleneck for the home
sales volume rebound. We shall await more positive changes in M2,
aggregate social financing and thus, total mortgage loan growth. The
sector is now trading at a 49% discount to the net asset value (NAV),
similar to the 5-year mean at 45%, which we regard as not attractive
enough. However, the sales volume rebound in October may provide
short-term trading opportunities for large developers, including China
Overseas Land & Investment Ltd (688 HK, TAKE PROFIT, TP:
HKD22.60) and Shimao Property.
Ticker
Rating
TP (HKD)
Agile Property
3383 HK
BUY
4.8
4.09
17%
13.80
70%
China Overseas
688 HK
TAKE PROFIT
22.6
21.05
7%
25.20
16%
CIFI Holdings
884 HK
BUY
2.1
1.45
45%
3.90
63%
COGO
81 HK
NEUTRAL
6.2
4.28
45%
9.50
55%
John So +852 2103 5888
Country Garden
2007 HK
NEUTRAL
3.7
2.91
29%
5.50
47%
[email protected]
Evergrande
3333 HK
SELL
2.8
2.98
-6%
5.70
48%
Greentown China
3900 HK
NEUTRAL
7.3
7.66
-5%
18.20
58%
KWG Property
1813 HK
BUY
7.6
5.36
42%
15.20
65%
Longfor
960 HK
NEUTRAL
10.2
9.09
12%
14.60
38%
Shimao Property
813 HK
BUY
20.3
15.92
28%
29.00
45%
Sunac
1918 HK
BUY
7.6
6.45
18%
15.30
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58%2
Company
See important disclosures at the end of this report
Source: Company data, RHB
Upside
ENAV
(HKD)
Current
ENAV
discount
Price
(HKD)
Company Update, 17 October 2014
Top Glove (TOPG MK)
Buy (from Neutral)
Consumer Non-cyclical - Rubber Products
Market Cap: USD858m
Target Price:
Price:
MYR5.06
MYR4.54
Macro
Risks
Trade With Caution
Growth
Value
Top Glove (TOPG MK)
Price Close
Relative to FTSE Bursa Malaysia KLCI Index (RHS)
6.30
109
6.10
105
5.90
101
5.70
97
5.50
93
5.30
89
5.10
85
4.90
81
4.70
77
4.50
73
4.30
25
69
0
0
.
2
0
0
We upgrade Top Glove to BUY from Neutral, with an unchanged TP of .
0
MYR5.06 (11.5% upside, 17x FY15F P/E). The recent sell-down has led to 0
the stock being traded at a more attractive valuation. At yesterday’s 0
briefing, management gave clearer guidance on future growth plans,
which include focusing on production efficiency. Still, we advise
investors to be cautious due to the volatility in the equity market.

20
15

Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
5
Oct-13
Vol m
10
Source: Bloomberg
Avg Turnover (MYR/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (MYR)
Free float (%)
Share outstanding (m)
Shareholders (%)
Tan Sri Dato Sri Lim Wee Chai
KWAP
EPF
2.57m/0.80m
7.9
11.5
4.50 - 6.03
47
621
28.9
9.0
6.4
Share Performance (%)
YTD
1m
3m
6m
12m
Absolute
(19.4)
(7.9)
(2.8)
(4.6)
(21.1)
Relative
(15.1)
(4.6)
2.5
(1.4)
(20.8)


Key takeaways. We attended Top Glove’s analyst briefing yesterday.
Key takeaways were: i) global demand growth for healthcare is expected
to be c.8% per annum, ii) its margins have compressed due to intense
competition, iii) it will continue to increase its nitrile production capacity,
and iv) the surge in demand for gloves from the Ebola outbreak may not
be substantial at this moment but management expects more orders
from countries like Spain, Denmark and the UK, where its clients supply
to global bodies like the World Health Organisation (WHO) and United
Nations Educational, Scientific and Cultural Organisation (UNESCO).
Capacity expansion. Management guided that its 2015 production
capacity will rise to 2.0bn pieces per annum before increasing to 4.4bn
pieces per annum in 2016. By Sep 2016, it expects total installed
capacity to hit 49bn pieces per annum (42.6bn pieces currently). Top
Glove has allocated capex of MYR200m each for FY15 and FY16
respectively, and has set aside MYR150m for possible acquisitions. The
expansion plan will focus on boosting its nitrile glove capacity in tandem
with growing demand. It will also continue to better production efficiency
to mitigate the margin erosion that comes from intense competition and
escalating operating expenses (electricity, fuel prices etc).
Efficiency is the key. Going forward, we think that competition within
the industry may remain intense and glove makers would need to
continue to focus on improving production efficiency to mitigate the
downward pressure on their earnings margins.
Raise to BUY. We upgrade Top Glove to BUY (vs Neutral) with
unchanged MYR5.06 TP pegged to a 17x FY15F P/E, the mean of its
historical trading band. The recent selldown has led to it being traded at
more attractive valuations. Top Glove has solid fundamentals, ie a robust
balance sheet (net cash), healthy cash flow and decent dividend yields
of 3.3-3.5%. However, as market conditions are volatile, we advise
investors to be cautious.
Forecasts and Valuations
Aug-12
Aug-13
Aug-14
2,314
2,313
2,276
2,516
2,715
Reported net profit (MYRm)
203
197
180
185
189
Recurring net profit (MYRm)
202
186
180
185
189
Recurring net profit growth (%)
78.5
(8.0)
(3.0)
2.9
2.0
Recurring EPS (MYR)
0.33
0.30
0.29
0.30
0.30
DPS (MYR)
0.16
0.16
0.16
0.15
0.15
Recurring P/E (x)
13.9
15.2
15.6
15.2
14.9
P/B (x)
2.24
2.11
2.02
1.86
1.75
P/CF (x)
10.6
11.6
9.3
9.9
9.6
3.5
3.5
3.5
3.3
3.4
9.09
9.23
8.93
7.86
7.41
Total turnover (MYRm)
Shariah compliant
Jerry Lee 603 9207 7622
[email protected]
Dividend Yield (%)
EV/EBITDA (x)
Return on average equity (%)
Net debt to equity (%)
Our vs consensus EPS (adjusted) (%)
See important disclosures at the end of this report


2

.
2
0
.
2




Source: Company data, RHB
17.1
net cash
15.2
13.2
net cash
net cash
Aug-15F
12.7
net cash
(7.8)
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Aug-16F
12.1
net cash
(15.3)
3
9MFY14 Results Review, 17 October 2014
M1 (M1 SP)
Buy (Maintained)
Communications - Telecommunications
Market Cap: USD2,511m
Target Price:
Price:
SGD4.40
SGD3.44
Macro
Risks
Upwardly Mobile
Growth
Value
M1 (M1 SP)
Price Close
Relative to Straits Times Index (RHS)
3.90
107
3.80
105
3.70
103
3.60
100
3.50
98
3.40
96
3.30
94
3.20
91
3.103
89
3
0
0
.
2
0
0
M1’s 9M14 results met expectations. Strong prepaid data growth .
0
coupled with more postpaid subs exceeding their data allowances 0
propped up double-digit YoY growth in 3Q14 EBITDA and core 0
earnings. While SAC may see a further rise in 4Q14, M1’s accounting
policy on the iPhone should see its EBITDA margin outperforming its
peers’. Remain BUY, raising DCF-based TP to SGD4.40 (vs SGD4.20),
suggesting 27.9% upside, after rolling forward our valuation to FY16.


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 (%)
Axiata Group
Temasek Holdings
SPH Multimedia
2.91m/2.32m
9.3
27.9
3.17 - 3.83
37
931

28.6
19.3
13.5

Share Performance (%)
In line. M1’s 9M14 results were within expectations, at 77% and 76% of
our and consensus estimates respectively. The main takeaways were: i)
the surge in handset sales sequentially from the launch of the iPhone
6/6+, ii) a rising 22% of postpaid subs exceeding their data allowances,
and iii) the seasonal upswing in capex.
Other key highlights. M1 has enjoyed strong prepaid data growth with
38% of prepaid subs now on smartphones (86% on postpaid). Together
with the aggressive top-up promotions, prepaid ARPU spiked by 14%
QoQ, offsetting the weakness in roaming revenue and the Government’s
clampdown on SIM ownership. It expects fibre broadband ARPU to rise
further (3Q14: +7% QoQ), which suggests strong demand for the
promotional 1Gbps fibre plan that is priced very competitively in the
market (see Figure 5).
SAC may pick up further in 4Q14. Following two consecutive quarters
of contraction, M1’s subscriber acquisition cost (SAC) rose 38% QoQ
(+13.2% YoY), which incorporated a half-month impact from the launch
of the iPhone 6/6+. We expect SAC to increase further in 4Q14 with the
iPhone 6/6+ taking on the recently-launched Samsung Galaxy Note 4.
Nonetheless, we expect the impact on M1’s EBITDA margin to be
cushioned by the fair value accounting adopted on the iPhone.
Forecasts. We introduce our FY16 estimates but maintain our FY13-14F
numbers. Key earnings risks are: i) stronger-than-expected competition
and ii) higher-than-expected SAC.
Maintain BUY. We roll forward our valuation to FY16, which results in
our DCF-based TP rising to SGD4.40 (WACC: 7%, TG: 1.5%) from
SGD4.20. This presents an upside potential of 27.9%.
YTD
1m
3m
6m
12m
Forecasts and Valuations
Absolute
5.2
(1.7)
(4.2)
3.0
(1.4)
Total turnover (SGDm)
Relative
4.2
0.6
(1.0)
4.7
(2.2)
Shariah compliant


2

.
1
0
.
1




Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
1,077
1,008
1,087
1,179
1,287
Reported net profit (SGDm)
147
160
171
192
212
Recurring net profit (SGDm)
147
160
171
192
212
(10.7)
9.3
6.5
12.7
10.1
Recurring net profit growth (%)
Recurring EPS (SGD)
0.16
0.18
0.19
0.21
0.23
Jeffrey Tan +603 9207 7633
DPS (SGD)
0.15
0.21
0.21
0.21
0.21
[email protected]
Recurring P/E (x)
21.3
19.5
18.3
16.2
14.8
P/B (x)
8.97
7.91
7.97
7.80
7.30
P/CF (x)
11.4
10.4
11.4
10.6
9.6
4.2
6.0
6.0
6.0
6.0
EV/EBITDA (x)
11.4
10.8
10.4
9.4
8.8
Return on average equity (%)
43.7
43.1
43.4
48.6
51.1
Net debt to equity (%)
74.6
49.4
61.2
56.0
41.5
(1.0)
5.9
11.1
Dividend Yield (%)
Our vs consensus EPS (adjusted) (%)
Source: Company data, RHB
See important disclosures at the end of this report
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4
Results Review, 17 October 2014
Keppel REIT (KREIT SP)
Neutral (from Buy)
Property - REITS
Market Cap: USD2,765m
Target Price:
Price:
SGD1.18
SGD1.18
Macro
Risks
Expiry Of MBFC 1 And 2 Rental Support Dents DPU
Growth
Value
Keppel REIT (KREIT SP)
Relative to Straits Times Index (RHS)
100
1.25
98
1.20
96
1.15
94
1.10
92
1.05
90
1.00
180
160
140
120
100
80
60
40
20
88
0
0
.
2
0
0
Keppel REIT’s 3Q14/9M14 DPU fell 6.1/3.2% YoY on the expiry of rental .
0
support from MBFC 1 and 2 as well as higher borrowing costs. All eyes 0
are now on OFC to hit its breakeven rent, when its income support ends 0
in 2016-2017. On top of that, we have factored in the MBFC 3 acquisition
into our estimates. We assume coverage of Keppel REIT with a HOLD
and DDM-based TP of SGD1.18 (CoE: 7.0%, TG: 1%), implying 0%
upside.


Aug-14
Jun-14
Apr-14
1.30
Feb-14
102
Dec-13
1.35
Oct-13
Vol m
Price Close
Source: Bloomberg
Avg Turnover (SGD/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (SGD)
Free float (%)
Share outstanding (m)
Shareholders (%)
5.66m/4.51m
10.2
0.0
1.11 - 1.31
58
3,002
Keppel Land
Bank of New York Mellon
DBS Group Holdings
42.2
3.4
1.2
Share Performance (%)
YTD
1m
3m
6m
12m
Absolute
(0.9)
(4.1)
(8.6)
(1.7)
(5.6)
Relative
(1.9)
(1.8)
(5.4)
0.0
(6.4)


2

.
2
0
.
2





3Q14/9M14 results in line. Keppel REIT posted a 6.1/3.2% YoY decline
in 3Q14/9M14 DPU, meeting 23%/76% of our full-year estimate. The
decrease came on the back of the expiry of rental support from Marina
Bay Financial Centre (MBFC) 1 and 2, as well as higher borrowing costs.
Its portfolio occupancy rate dipped 10bps to 99.3% and aggregate
leverage edged down to 42.1% in 3Q14 (2Q14: 42.8%), while the all-in
financing cost remained unchanged at 2.2%. The REIT renewed the
leases for 25,000 sq ft in 3Q14, at a 32.3% positive rental reversion.
Currrently, rental for only 0.2% of its total space (c.5,500 sq ft) has not
yet been renewed. It is also in advanced negotiations with tenants for the
rental review of 6.3% (c.182,000 sq ft) of its total space for 4Q14.
Room to minimise potential income shortfall. The income support for
Ocean Financial Centre (OFC) will expire in 2017. Management
previously cited the monthly breakeven rent for OFC at SGD12.60-12.70
psf, higher than our estimated average passing rent of SGD9.20 psf for
3Q14. Given the lack of new Grade A office supply in the central
business district from now until mid-2016, we see room for Keppel REIT
to minimize its potential income shortfall.
MBFC 3 to complete in December. We impute the MBFC 3 acquisition
into our estimates, assuming that it is completed in Dec 2014. We also
assume a passing rent of SGD9.11 psf/month vis-à-vis the rental support
break-even rent of SGD10.80 psf/month. In addition, we forecast a
distribution per unit (DPU) CAGR of -3.2% over FY13-16F with the
progressive expiry of income support for OFC. We assume coverage of
Keppel REIT with a HOLD, and a DDM-derived TP of SGD1.18 (CoE:
7.0%, TG: 1%). Risks include further dips in FY15-16 DPU, following the
depletion and expiry of OFC rental support.

Forecasts and Valuations
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Total turnover (SGDm)
157
174
188
179
195
Net property income (SGDm)
282
312
226
215
235
Reported net profit (SGDm)
505
726
222
245
274
Total distributable income (SGDm)
202
214
218
248
230
DPS (SGD)
0.08
0.08
0.08
0.08
0.07
Ivan Looi +65 6232 3841
DPS growth (%)
74.2
1.4
(4.5)
3.1
(8.0)
[email protected]
Recurring P/E (x)
6.0
4.4
15.6
15.3
13.8
0.89
0.84
0.87
0.89
0.90
6.6
6.7
6.4
6.6
6.1
6.5
Shariah compliant
P/B (x)
Singapore Research +65 6232 3895
Dividend Yield (%)
[email protected]
Return on average equity (%)
15.0
19.7
5.4
5.8
Return on average assets (%)
8.4
11.2
3.1
3.2
3.5
5.08
4.76
1.86
1.60
2.04
0.0
0.0
0.0
Interest coverage ratio (x)
Our vs consensus EPS (adjusted) (%)
Source: Company data, RHB
See important disclosures at the end of this report
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5
Results Review, 17 October 2014
BAT (ROTH MK)
Sell (Maintained)
Consumer Non-cyclical – Tobacco
Market Cap: USD5,802m
Target Price:
Price:
MYR57.80
MYR66.70
Macro
Risks
Better Than Expected
Growth
Value
BAT (ROTH MK)
Price Close
Relative to FTSE Bursa Malaysia KLCI Index (RHS)
117
74.0
114
72.0
111
70.0
108
68.0
105
66.0
102
64.0
99
62.0
96
60.0
93
58.0
90
56.02
2
2
1
1
1
1
1
87
Vol m
76.0
0
0
.
1
0
0
British American Tobacco’s (BAT) 9M14 earnings exceeded our and .
0
consensus expectations. Despite the decline in 9M14 sales volume, net 0
profit grew 12.6% YoY on the back of a growth in revenue and its lower- 0
than-expected opex. We raise our FY14F/15F earnings by 7%/4%
respectively after updating our assumptions. Maintain SELL, with a
revised DCF-based TP of MYR57.80 (from MYR56.00, 13.4% downside).

Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
Oct-13

Source: Bloomberg
Avg Turnover (MYR/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (MYR)
Free float (%)
Share outstanding (m)
Shareholders (%)
British American Tobacco
Malaysia Ltd
EPF
11.4m/3.57m
-3.4
-13.4
58.1 - 73.4
33
286
65.0
7.8


1

.
2
0
.
1






Above expectations. British American Tobacco’s (BAT) 9M14 earnings
of MYR714.6m exceeded expectations, making up 83.6%/79% of
our/consensus full-year estimates respectively. Despite the decline in
domestic duty-free sales as well as its contract manufacturing volume,
BAT’s 9M14 earnings grew 12.6% YoY due to: i) a 4.9% revenue growth
on the back of the cumulative effect of the price hikes in June and
September last year, ii) an absence of non-recurring leaf restructuring
expenses in 2013, and iii) cost savings from improved productivity. A
third interim dividend per share of 78 sen was declared for the quarter
under review.
Outlook. Although it seems as if the industry has turned the corner,
given the decline in illegal cigarette incidences and the absence of a hike
in excise duty, we remain cautious on its longer-term outlook. This is
given the continued decline in legal sales from the stubbornly high level
of illegal cigarette trade, plus the risk of an off-budget excise duty hike.
Forecasts and risks. In view of the better-than-expected 9M14
earnings, we lift our earnings estimates for FY14 and FY15 by 7.3% and
3.9% respectively. We also take this opportunity to introduce our FY16
projections. Key risks to our forecasts include a stronger sales volume
and lower-than-expected raw material costs.
Investment case. We nudge our DCF-based TP higher to MYR57.80
(from MYR56.00) (WACC: 7.2%, TG: 1.5%) following the revision to our
forecasts. With its unattractive valuations relative to its earnings growth
as well as unappealing dividend yield, we reiterate our SELL
recommendation on the stock. The stock is currently trading at a 21.7x
FY15 P/E (+1SD from its historical 5-year mean).
Forecasts and Valuations
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
4,365
4,517
4,594
4,507
4,569
Reported net profit (MYRm)
798
823
917
877
957
Recurring net profit (MYRm)
798
823
917
877
957
Recurring net profit growth (%)
10.9
3.2
11.3
(4.3)
9.1
Recurring EPS (MYR)
2.79
2.88
3.21
3.07
3.35
DPS (MYR)
2.72
2.82
3.15
3.01
3.29
Recurring P/E (x)
23.9
23.1
20.8
21.7
19.9
Fong Kah Yan +603 9207 7668
P/B (x)
39.3
37.5
36.2
35.0
33.8
[email protected]
P/CF (x)
26.0
23.3
18.4
20.0
18.6
4.1
4.2
4.7
4.5
4.9
17.2
16.5
14.9
15.6
14.6
174.1
165.8
177.2
164.0
173.0
86.9
88.6
68.6
58.7
50.1
1.6
(5.1)
0.9
Share Performance (%)
Absolute
Relative
YTD
1m
3m
6m
12m
4.1
(5.8)
(2.0)
8.4
6.1
8.4
(2.5)
3.3
11.6
6.4
Shariah compliant
Total turnover (MYRm)
Dividend Yield (%)
EV/EBITDA (x)
Return on average equity (%)
Net debt to equity (%)
Our vs consensus EPS (adjusted) (%)
Source: Company data, RHB
See important disclosures at the end of this report
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6
Corporate News Flash, 17 October 2014
KPJ Healthcare (KPJ MK)
Neutral (Maintained)
Consumer Non-cyclical - Healthcare
Market Cap: USD1,147m
Target Price:
Price:
MYR3.67
MYR3.71
Macro
Risks
Taking Steps To Address Growing Demand
Growth
Value
KPJ Healthcare (KPJ MK)
Relative to FTSE Bursa Malaysia KLCI Index (RHS)
98
3.80
93
3.60
88
3.40
83
3.20
78
3.00
73
2.808
7
6
5
4
3
2
1
68
Jun-14
Feb-14
Aug-14
4.00
Apr-14
103
Dec-13
4.20
Oct-13
Vol m
Price Close
0
0
.
2
0
0
We see the MOU that KPJ signed for the development of KPJ .
0
Damansara Specialist 2 as positive and long overdue. The new hospital 0
is slated to cater to the rising demand for private healthcare in the 0
Damansara-Sungai Buloh vicinity. As the building will take 36 months
to complete, we maintain our earnings forecasts at this juncture.
Maintain NEUTRAL with a MYR3.67 TP (1.1% downside, 26x FY15F P/E).


Source: Bloomberg
Avg Turnover (MYR/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (MYR)
Free float (%)
Share outstanding (m)
Shareholders (%)
Johor Corp
EPF
Lembaga Tabung Haji
4.41m/1.37m
-3.8
-1.1
2.98 - 4.05
27
1,014
45.1
12.8
7.9
Share Performance (%)


2

.
2
0
.
2







Details on the MOU. KPJ Healthcare (KPJ) signed a memorandum of
understanding (MOU) on 16 Oct with Pelaburan Hartanah (PHB) and
Nadayu Properties (NPB) for the proposed development and lease of a
purpose-built hospital building, to be known as KPJ Damansara
Specialist 2. The MOU will see NPB developing a 300-bed, 9-storey
hospital building and a 636-bay car park with a certificate of completion
and compliance (CCC) for PHB within 36 months from the agreed
execution date. PHB will then execute a sale-and-purchase agreement
(SPA) with NPB for the purchase of both the land and building.
Subsequently, it will lease the building to KPJ for a 15-year period, with
an option of a renewal for another 15 years. The development will also
include a new exit ramp to the hospital. However, at this point in time,
matters relating to the timeline and costs for the development have yet to
be finalised and disclosed.
Details on the land. The land on which the hospital is to be built is
located in Mukim Batu, close to Sungai Penchala in Kuala Lumpur. The
total area is expected to be approximately 6.176 acres. The hospital will
occupy 2.95 acres of the gross area once it is completed.
Rationale of MOU. The three parties signed the MOU due to increasing
development funding costs. Management believes that established Tier1 hospitals like KPJ Damansara can afford to pay rent immediately,
thereby easing capex that can be channeled towards new hospitals in
smaller towns. KPJ Damansara Specialist has 211 beds currently.
Forecasts. We make no changes to our earnings forecasts at this
juncture as management disclosed that the hospital requires 36 months
to be developed. It also requires an additional 3-6 months to obtain
approvals from relevant authorities before it can be open to public.
Maintain NEUTRAL. We maintain our NEUTRAL call and TP of
MYR3.67 pending further disclosure on the development. Our TP is
pegged to a 26x FY15F P/E, in line with its average 3-year forward P/E.
YTD
1m
3m
6m
12m
Absolute
(4.4)
(2.4)
5.4
14.5
(7.0)
Forecasts and Valuations
Relative
(0.1)
0.9
10.7
17.7
(6.7)
Total turnover (MYRm)
Dec-12
Dec-13
2,096
2,332
2,652
3,041
3,315
Reported net profit (MYRm)
140
103
131
141
149
Recurring net profit (MYRm)
128
98
131
141
149
(11.1)
(23.3)
33.5
7.8
5.7
Recurring EPS (MYR)
0.21
0.12
0.13
0.14
0.15
Alexander Chia +603 9207 7621
DPS (MYR)
0.11
0.06
0.07
0.08
0.08
[email protected]
Recurring P/E (x)
17.9
30.8
27.8
25.8
24.4
P/B (x)
2.31
3.34
3.17
3.00
2.85
P/CF (x)
11.3
36.2
16.2
17.8
16.2
Dividend Yield (%)
3.1
1.5
2.0
2.1
2.3
EV/EBITDA (x)
7.5
12.7
11.2
10.0
9.0
Return on average equity (%)
14.5
9.6
11.7
11.9
12.0
Net debt to equity (%)
35.4
60.2
31.7
38.6
43.2
19.0
14.9
21.5
Shariah compliant
The Research Team +603 9207 7688
[email protected]
Recurring net profit growth (%)
Our vs consensus EPS (adjusted) (%)
Dec-14F
Dec-15F
Dec-16F
Source: Company data, RHB
See important disclosures at the end of this report
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7
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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