Regional Daily, 10 November 2014 5 Regional Daily Ideas Troika Top Stories Westports Holdings (WPRTS MK) Transport - Logistics BUY MYR2.93 TP: MYR3.44 Mkt Cap : USD2,986m Pg3 Management guided for a 5-10% growth in container throughput in FY15. It is also pushing for the upside tariff revision as well as the extension on investment tax allowance – the status of which remains unknown – to go through. Maintain BUY, with a higher DCF-based TP of MYR3.44 Analyst: Ahmad Maghfur Usman ([email protected]) Yangzijiang (YZJSGD SP) Industrial - Shipbuilding BUY SGD1.16 TP: SGD1.68 Mkt Cap : USD3,426m Pg4 Yangzijiang’s 9M14 core PATMI met 75% of our FY14F forecast. It is now on the central government’s “White List” of shipyards, giving it policy support and making it easier to secure financing and new orders. Analyst: Lee Yue Jer, CFA ([email protected]) Upstream Oil & Gas Oil & Gas NEUTRAL Pg5 IMA’s Oct statistics points to stable FPSO demand and anticipation of 13-16 awards per year. Nevertheless, we maintain NEUTRAL on this subsegment given the downside risk, with Bumi Armada as our preferred pick. Analyst: Kong Ho Meng ([email protected]) Other Key Stories Indonesia Sarana Menara Nusantara (TOWR IJ) Communications-Telecommunications Infrastructure BUY IDR4,145 TP: IDR5,000 HongKong AAC Technologies Holdings (2018 HK) Technology - Handset Components SELL HKD46.20 TP: HKD40.30 China Railway & Construction Sector OVERWEIGHT Pg6 Scaling New Heights Analyst: Jeffrey Tan ([email protected]) Pg7 Another Disappointing Quarter Analyst: Kong Yong Ng ([email protected]) Pg8 Mexico Cancels HSR Tender: Good Entry Point Analyst: Winston Cao ([email protected]) Malaysia Supermax (SUCB MK) Consumer Non-cyclical - Rubber Products NEUTRAL MYR2.33 TP: MYR2.16 Pg9 Analyst: Jerry Lee ([email protected]) Ta Ann Holdings (TAH MK) Agriculture - Timber BUY MYR3.80 TP: MYR3.80 Pg10 Hektar REIT (HEKT MK) Property - REITS NEUTRAL MYR1.53 TP: MYR1.43 Pg11 Singapore Trek 2000 (TREK SP) Technology - Technology BUY SGD0.39 TP: SGD0.61 See important disclosures at the end of this report A Disappointing Quarter Strategies Revealed Analyst: Hoe Lee Leng ([email protected]) Flattish Short-Term Prospects Analyst: Alia Arwina ([email protected]) Pg12 Back On Trek! Analyst: Jarick Seet ([email protected]) Powered by EFATM Platform 1 Regional Daily, 10 November 2014 Neratel (NERT SP) Communications-Telecommunications Infrastructure NEUTRAL SGD0.81 TP: SGD0.83 Pg13 CWT Limited (CWT SP) Transport – Logistics BUY SGD1.66 TP: SGD2.00 Pg14 Venture Corp (VMS SP) Technology - Electronics NEUTRAL SGD7.55 TP: SGD7.50 Pg15 CapitaLand (CAPL SP) Property - Real Estate BUY SGD3.15 TP: SGD3.54 Pg16 Thailand Advanced Information Tech (AIT TB) Communications - Telecommunications NEUTRAL THB38.50 TP: THB39.50 Bangkok Aviation Fuel Services (BAFS TB) Transport - Aviation NEUTRAL THB36.80 TP: THB39.80 Supported By Dividend Yield Analyst: Jarick Seet ([email protected]) Commodity Trading Business Margins Improve Analyst: Shekhar Jaiswal ([email protected]) Weakness Persists Analyst: Jarick Seet ([email protected]) Housekeeping In Progress Analyst: Ivan Looi ([email protected]) Pg17 3Q14 Earnings Down 18.7% YoY Analyst: Veena Naidu License No. 24418, ([email protected]) Pg18 9M14 Net Profit Down 28% YoY Analyst: Kannika Siamwalla, CFA ([email protected]) PTT Global Chemical (PTTGC TB) Pg19 Energy & Petrochemicals - Downstream Products BUY THB59.80 TP: THB70.70 3Q14 Net Profit Rises 25% QoQ Symphony Communication (SYMC TB) Communications - Telecommunications NEUTRAL THB17.50 TP: THB16.90 Earnings Drop On Network Depreciation See important disclosures at the end of this report Pg20 Analyst: Kannika Siamwalla, CFA ([email protected]) Analyst: Veena Naidu License No. 24418, ([email protected]) Powered by EFATM Platform 2 Company Update, 10 November 2014 Westports Holdings (WPRTS MK) Buy (Maintained) Transport - Logistics Market Cap: USD2,986m Target Price: Price: MYR3.44 MYR2.93 Macro Risks Throughput To Grow 5-10% Next Year Growth Value Westports Holdings (WPRTS MK) Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) 3.20 122 3.10 118 3.00 115 2.90 111 2.80 107 2.70 103 2.60 100 2.50 96 2.40 25 92 0 0 . 2 0 0 At a recent conference call, Westports’ management guided for a 5-10% . 0 growth in container throughput in FY15. It is also pushing for the 0 upside tariff revision as well as the extension on investment tax 0 allowance – the status of which remains unknown – to go through. Maintain BUY, with a higher DCF-based TP of MYR3.44 (from MYR3.29) offering a 17.3% upside, premised on a 6.6% WACC (from 6.7%). 20 15 Sep-14 Jul-14 May-14 Mar-14 Jan-14 5 Nov-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 (%) Pembinaan Redzai SB Hutchison Whompoa Ltd Lankayan Ventures SB 8.32m/2.57m -1.0 17.3 2.49 - 3.10 12 3,410 42.4 23.6 4.7 Share Performance (%) YTD 1m 3m 6m 12m Absolute 15.8 (3.0) 2.1 10.6 14.5 Relative 17.7 (2.9) 4.0 12.1 13.1 Investment tax allowance extension is still uncertain. The likelihood of Westports obtaining an extension on its investment tax – which expires this year – remains uncertain. If the extension is approved, management said that the effective tax rate for FY15 could hover slightly below 20%. Otherwise, a 24% effective tax rate would be more likely. We have been conservative in our earnings estimate and imputed an investment tax allowance for 2015, reflected in the low single-digit earnings growth for FY15F. Management currently has the next 12 months to make a case to obtain the extension. Throughput guidance. Management expects to book single-digit growth in throughput for 4Q14, which would bring FY14 container throughput growth to 9-13%. It also projected FY15 throughput to grow 5-10% YoY. Update on tariff revision. We understand that the tariff hike proposal has been given the green light by the Port Klang Authority, and is pending the final approval from the Ministry of Transport. Note that we have not factored in a tariff hike in our throughput forecasts. Update on Ocean Three alliance. The Ocean Three alliance is expected to commence in Jan 2015, which could bring in more box contribution to Westports. This would be offset by the box outflow from the M2 alliance (between Maersk and Mediterranean Shipping Company). We expect a net addition of 450k boxes from the impact of these two alliances in FY15. Ocean Three members contributed 4m twenty-foot equivalent units (TEUs) in FY13, according to management. Forecasts. Our box volume forecasts for FY14/FY15/FY16 lift by 1.8%/ 5.4%/5.3% after we impute a 450k-500k throughput net addition from the impact of the alliances, bringing our FY14/FY15/FY16 throughput growth estimates to 9.0%/8.4%/6.7% respectively. This, however, would be offset by higher staff costs. The impact of these factors on FY14-15 bottomlines would be negligible, but cuts our FY16F earnings by 4%. BUY, at a higher TP of MYR3.44 (from MYR3.29) premised at a WACC of 6.6% (from 6.7%) after factoring in lower market returns. We have also raised our FY15 capex projection to MYR440m. Forecasts and Valuations Shariah compliant 2 . 2 0 . 2 Dec-12 Dec-13 1,227 1,348 1,501 1,664 1,816 Reported net profit (MYRm) 303 428 509 511 568 Recurring net profit (MYRm) 361 435 509 511 568 Total turnover (MYRm) Dec-14F Dec-15F Dec-16F Ahmad Maghfur Usman 603 9207 7654 Recurring net profit growth (%) (1.7) 20.4 17.0 0.4 11.2 [email protected] Recurring EPS (MYR) 0.31 0.13 0.15 0.15 0.17 DPS (MYR) 1.70 0.10 0.11 0.11 0.12 9.5 23.0 19.6 19.6 17.6 2.30 6.23 5.59 5.22 4.76 5.8 15.2 14.0 13.5 12.4 58.0 3.3 3.8 3.8 4.3 6.4 15.3 13.5 12.3 11.2 Return on average equity (%) 21.5 27.7 30.0 27.6 28.3 Net debt to equity (%) 24.8 34.8 34.6 39.0 35.6 8.2 4.8 16.5 Recurring P/E (x) P/B (x) P/CF (x) Dividend Yield (%) EV/EBITDA (x) Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report Source: Company data, RHB Powered by EFATM Platform 3 Results Review, 10 November 2014 Yangzijiang (YZJSGD SP) Buy (Maintained) Industrial - Shipbuilding Market Cap: USD3,426m Target Price: Price: SGD1.68 SGD1.16 Macro Risks Enjoys Government White List Support Growth Value Yangzijiang Shipbuilding (YZJSGD SP) Relative to Straits Times Index (RHS) 108 1.25 104 1.20 101 1.15 97 1.10 93 1.05 89 1.00 86 0.95 82 0.90 100 90 80 70 60 50 40 30 20 10 78 Sep-14 Jul-14 May-14 Mar-14 Jan-14 Source: Bloomberg Avg Turnover (SGD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (SGD) Free float (%) Share outstanding (m) Shareholders (%) 10.3m/8.13m 18.1 44.8 1.01 - 1.24 64 3,832 Ren Yuanlin Lido Point Investments Hong Kong Hengyuan Invt 26.0 10.3 8.7 Share Performance (%) Margins and PATMI remain strong. YZJ has again proved skeptics wrong by delivering a healthy 3Q14 with gross shipbuilding margins maintained at 20%, translating into a healthy PATMI of CNY811m. The QoQ fall in PATMI was largely due to a small spike in shipbuilding revenue in 2Q14 combined with a tax writeback which elevated the bottomline. YZJ is solidly on track to deliver FY14F core PATMI of CNY3.1bn, with 9M14 figure at c.CNY2.3bn. Held-to-maturity (HTM) assets under control. YZJ has reduced its HTM assets slightly QoQ, with the quantum now standing at CNY12.6bn from CNY13.0bn. We expect a slow decline in this figure in inverse relation with the overall health of the shipbuilding industry, as funds are gradually redirected towards YZJ’s core shipbuilding business. One of 51 yards on China’s “White List”. YZJ is one of only 51 (out of >1,500) yards in China which have made it to the Central Government’s “White List”, having met requirements in environmental protection and production efficiency. These yards will receive policy support, making it easier for them to secure financing, and therefore new orders. We expect YZJ to make full use of this new status to remain at the forefront of Chinese shipbuilding. Recall that YZJ was the first shipyard in China to secure orders for 10,000 containerships – we expect the company to move towards 14,000 twenty-foot equivalent unit (TEU) vessels and liquid petroleum gas (LPG) carriers next. Still the most profitable yard in China. YZJ stands out as the single most profitable shipyard company in China, on top of being one of the most technologically-advanced. Maintain BUY with a SOP-based TP of SGD1.68, which values the shipbuilding business at 8x FY14F trough earnings. YTD 1m 3m 6m 12m Absolute (2.5) 0.4 5.5 0.9 (4.2) Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F Relative (6.3) (0.7) 6.5 (0.4) (6.8) Total turnover (CNYm) 15,706 14,799 14,339 14,532 16,988 Reported net profit (CNYm) 3,977 3,581 3,096 3,452 3,466 Recurring net profit (CNYm) 3,977 3,581 3,096 3,103 3,466 Recurring net profit growth (%) 34.6 (10.0) (13.5) 0.2 11.7 Recurring EPS (CNY) 1.04 0.93 0.81 0.81 0.90 DPS (CNY) 0.28 0.24 0.24 0.24 0.24 Recurring P/E (x) 5.27 5.86 6.77 6.76 6.05 P/B (x) 1.62 1.35 1.18 1.03 0.92 6.9 6.9 Shariah compliant Lee Yue Jer, CFA +65 6232 3898 [email protected] Jesalyn Wong +65 6232 3872 P/CF (x) [email protected] Dividend Yield (%) na 11.3 na 5.2 4.4 4.4 4.4 4.4 EV/EBITDA (x) 3.68 3.56 3.52 4.06 3.26 Return on average equity (%) 34.7 25.1 18.6 18.1 8.3 7.0 19.3 8.7 Net debt to equity (%) Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report 2 . 1 0 . 2 0 0 . 3 0 0 Yangzijiang’s (YZJ) 3Q14 PATMI was healthy at CNY811m (-1% YoY, - . 0 34% QoQ), with 9M14 core PATMI meeting 75% of our FY14 forecast. Its 0 orderbook stands strong at USD4.6bn. YZJ has been included in the 0 Chinese Government’s White List of shipyards, which avails it policy support, making it easier to secure financing and therefore orders. We still find YZJ the strongest shipbuilder in China in a recovering industry. Maintain BUY with a SOP-based TP of SGD1.68 (45% upside). Nov-13 Vol m Price Close 1.30 Source: Company data, RHB 18.1 Powered by EFATM Platform 16.1 net cash 27.9 4 Sector Update, 10 November 2014 Upstream Oil & Gas NEUTRAL (Maintained) Macro Risks Oct 2014 FPSO Commentary Growth Value FPSO peer valuations (P/E) Peers Ticker 1-year forward P/E Bumi Armada Yinson SBM Offshore Modec BW Offshore Teekay BAB MK YNS MK SBMO NA 6269 JP BWO NO TK US 18.2 22.7 7.2 11.4 8.5 38.0 Weighted avg Weighted avg Ex-M’sia 21.5 22.5 Source: Bloomberg, RHB IMA’s global floating production contracts and planned projects’ October statistics point to stable FPSO demand. Nevertheless, we maintain NEUTRAL on this sub-segment with Bumi Armada as our preferred pick. While FPSOs are classified under production capex and are relatively sheltered from oil price movement vs exploration assets, we remain cautious on the downside risks, given the current sentiment. FPSO peer valuations (EV/EBITDA) Peers Ticker 1-year forward EV/EBITDA Bumi Armada Yinson SBM Offshore Modec BW Offshore Teekay BAB MK YNS MK SBMO NA 6269 JP BWO NO TK US 8.5 15.1 8.8 10.2 5.2 11.5 Weighted avg Weighted avg Ex-M’sia 9.9 9.9 Source: Bloomberg, RHB Kong Ho Meng +603 9207 7620 [email protected] The Research Team +603 9207 7680 [email protected] Stable floating production system (FPS) statistics. This floating, production, offloading and storage (FPSO) update is our second view of International Maritime Associates’ (IMA) October FPS data. Active FPSOs rose 3% YoY to 163 units (FPS: +2% to 256 units). Four fewer FPSOs were on order (to 36 units) on new deliveries. Five more were off field. All in, active FPSOs are unchanged at 75% of total inventory. Leading IMA indicators. 233 FPS projects were in various stages of planning (+6 units YoY, +4 units MoM), 58% of them FPSOs. 15% of FPS projects may advance to the engineering, procurement and construction (EPC) stage within the next 18 months (September: 13%). 48% of them were in development stages and may require 18-48 months to advance to EPC (September: 50%). The 37% balance may require 410 years to reach EPC (September: 37%). Risks. Namely: i) project planning and final investment decision (FID) delays (IMA estimates ~65% of projects could reach FID in the next five years while ~15% may not proceed to development), ii) exploration and production players cutting capex/realigning investments to shale/tight oil & gas projects, iii) ~10% of projects have alternative production solutions, iv) cost overruns on supply chain constraints and deepwater project challenges, and v) a drilling market downturn causing sizable rig stacking may delay production projects in the planning pipeline. Maintain NEUTRAL view. We expect 13-16 worldwide FPSO awards annually (average) in the next five years (past 10-year average: 13-14 contracts), based on IMA data. While we are cautious on the risks, we believe most projects will see through to production, even at current oil price levels (USD80-USD85/barrel), as leading indicators show some projects are close to EPC and a few oil majors may prioritise production targets more importantly. Utilisation rebound for deepwater drilling and crude oil supply disruption, leading to more demand for production/new sources of supply, could hasten FPSO project planning. Reaffirm BUY on Bumi Armada and NEUTRAL on Yinson. Bumi Armada’s market capitalisation is 0.3x of its MYR25bn firm orderbook (trading at FY15F 18x P/E, 9x EV/EBITDA) while Yinson’s market capitalisation is 1x of its MYR2.8bn firm orderbook (trading at FY16F 23x P/E, 15x EV/EBITDA). These are compared to the global average forward EV/EBITDA of 10x, ie unchanged from two months ago. Assuming no new contract awards, this will not alter 2-year earnings visibility but may de-rate DCF valuations, ie MYR1.89 for Bumi (33% upside) and MYR2.25 for Yinson (19% downside). Company Name See important disclosures at the end of this report P/E (x) P/B (x) Yield (%) Dec-15F Dec-15F Dec-15F Rating - BUY Price Target Bumi Armada MYR1.42 MYR2.24 18.5 0.7 Yinson Holdings MYR2.75 MYR2.60 22.7 2.2 - NEUTRAL Source: Company data, RHB Powered by EFATM Platform 5 3 3 2 2 Results Review, 7 November 2014 a Sarana Menara Nusantara (TOWR IJ) Communications - Telecommunications Infrastructure Market Cap: USD3,481m Buy (Maintained) Target Price: Price: IDR5,000 IDR4,145 Macro Risks Scaling New Heights Growth Value Sarana Menara Nusantara (TOWR IJ) Price Close Relative to Jakarta Composite Index (RHS) 4,400 164 4,200 157 4,000 150 3,800 143 3,600 136 3,400 129 3,200 122 3,000 115 2,800 108 2,600 101 2,400 6 94 4 3 Sep-14 Jul-14 May-14 Mar-14 Jan-14 1 Nov-13 Vol m 2 Source: Bloomberg 186m/0.02m -3.6 20.6 2,575 - 4,200 62 10,203 Tricipta Mandhala Gumilang PT Caturguwiratna Sumapala PT T Rowe Price International 16.7 16.0 7.0 Share Performance (%) YTD 1m 3m 6m 12m Absolute 50.7 1.1 4.0 9.1 59.4 Relative 32.2 (0.2) 3.8 4.3 45.5 Above expectations. Sarana Menara Nusantara’s (SMN) 9MFY14 EBITDA of IDR2.54trn (+33.1% YoY) made up 82% of our and 78% of consensus’ full-year EBITDA estimates, mainly due to the stronger-thanexpected sequential revenue growth arising from the improvement in revenue momentum of its key customers. Strong demand from Tier-1 customers. Tower rental revenue growth from SMN’s top 3 customers (76% of revenue), Telkomsel, Hutchison and XL Axiata (XL) (EXCL IJ, BUY, TP: IDR6,280) accelerated QoQ to 43.3% from 12.1% in 2Q14. While Telkomsel’s revenue contribution is the smallest among the top-tier customers (19%), its tower rental revenue grew the fastest, at 86% QoQ (+220% YoY), a reflection of the aggressive 3G rollout across Java and ex-Java. SMN’s tenancy additions fell 35% QoQ to 732 from a high base of 1,122 in 2Q14. Coupled with the 50% lower tower builds during the quarter (3Q14: 417 vs 2Q14: 821), overall tenancy ratio was maintained at 1.85. Tracking in line with guidance. With tower builds of 1,578 in 9MFY14, SMN is very much on track to meet the guidance of 1,500-2,000 tower builds for 2014, supported by the still robust 3G network expansion by the mobile operators. While the company recently lost the bid for XL’s towers to Solusi Tunas Pertama (SUPR IJ, NR), we see scope for more inorganic expansion given SMN’s relatively more healthy balance sheet, with 3QFY14 net debt/annualised quarter (LTA) EBITDA falling to 1.8x from 2.2x in 2Q14 and 2.9x in 3Q13. Forecasts and risks. We raise our FY14 and FY15 earnings forecasts by 12% and 6% respectively after factoring in lower tax rate, lower opex and higher tenancies. Key risks to our forecasts are: i) weaker-thanexpected tower/tenancy growth and ii) faster-than-anticipated consolidation within the telco industry. Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F 1,651 2,265 3,197 3,771 4,195 Reported net profit (IDRbn) 284 347 205 1,166 1,280 Recurring net profit (IDRbn) 332 630 1,056 1,016 1,180 89.4 67.8 (3.8) 16.1 33 62 104 100 116 127 67 40 42 36 P/B (x) 27.8 12.4 11.9 9.3 7.4 P/CF (x) 26.8 20.7 22.1 20.0 18.0 EV/EBITDA (x) 34.1 26.1 18.9 16.0 14.4 Return on average equity (%) 20.7 14.1 5.9 28.7 24.9 345.6 202.4 219.0 178.3 136.8 (14.2) (20.8) Total turnover (IDRbn) Shariah compliant Jeffrey Tan +603 9207 7633 [email protected] Recurring net profit growth (%) Recurring EPS (IDR) Recurring P/E (x) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) na Source: Company data, RHB See important disclosures at the end of this report 3 . 1 0 . 3 0 0 . 3 0 0 SMN’s results surprised on the upside from stronger-than-expected . 0 revenue growth in 3QFY14. We keep our BUY rating with TP lifted to 0 IDR5,000 (+21% upside) from IDR4,800 based on unchanged 17x FY15 0 EV/EBITDA. This follows the 6-12% upgrade in our FY14/15 earnings forecasts. We expect the strong growth in tower builds/tenancies to continue on the back of the aggressive 3G site rollouts by the telcos. 5 Avg Turnover (IDR/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (IDR) Free float (%) Share outstanding (m) Shareholders (%) Powered by EFATM Platform 6 Results Review, 10 November 2014 AAC Technologies Holdings (2018 HK) Technology - Handset Components Market Cap: USD7,317m Sell (Maintained) Target Price: Price: HKD40.30 HKD46.20 Macro Risks Another Disappointing Quarter Growth Value AAC Technology (2018 HK) Relative to Hang Seng Index (RHS) 47.0 150 42.0 135 37.0 120 32.0 105 27.0 50 45 40 35 30 25 20 15 10 5 90 May-14 0 0 . 1 0 0 AAC announced a second consecutive set of disappointing quarterly . 0 results. 3Q14 recurring net profit fell 8.9% YoY, missing consensus by 0 16% mainly due to the drag by Samsung. We forecast 4Q14 revenue to 0 grow 43% QoQ and 36% YoY, on the back of strong demand for iPhone 6. However, we reduce our FY14-16 earnings forecasts by 12%/9%/6% and TP to HKD40.30 (13% downside, 14x FY15F P/E). Keep SELL given its still expensive valuations. Sep-14 165 Jul-14 52.0 Mar-14 180 Jan-14 57.0 Nov-13 Vol m Price Close Source: Bloomberg Avg Turnover (HKD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (HKD) Free float (%) Share outstanding (m) Shareholders (%) Management Capital Group JPMorgan Chase & Co. 78.8m/10.2m 2.4 -12.8 30.0 - 53.2 23 1,228 40.3 19.1 17.4 Share Performance (%) YTD 1m 3m 6m 12m Absolute 22.7 3.8 (5.1) 4.9 45.7 Relative 21.2 2.8 (2.1) (3.9) 42.3 2 . 2 0 . 2 Hiccup in speakerbox sales. AAC Technologies Holdings’ (AAC) 3Q14 revenue and recurring earnings both missed our forecast by 30% and street estimate by 16%. Its 2Q14 results also missed expectations. Behind the 11% QoQ topline growth, acoustics products revenue fell 11% QoQ and 25% YoY (in particular, speakerbox sales mix fell to just 31% from a peak of 50% in 3Q13), as Samsung’s (005930 KS, NR) market share is under pressure, while we believe the adoption of the speakerbox by Chinese customers has yet to pick up substantially as the mass rollout of 4G products is shifting to 4Q14 or 1Q15. Non-acoustic products revenue jumped 260% QoQ and its sales mix reached 26% (2Q14: 8%). Its mix in 9M14 reached 14%, close to management’s FY14 target of 15-20%. 3Q14 GPM slightly improved to 42.3% (2Q14: 42.1%) on further automation, and non-acoustics products GPM should be close to 40%. Opex eased to 13.6% of revenue (2Q14: 14.7%), but still slightly above our 13.2% forecast and 3Q13’s 12.6%. Strong 4Q guidance but could be another letdown. At its conference call, management guided for a “very strong percentage double-digit QoQ growth” in 4Q14 revenue, on the back of strong demand for iPhone 6. However, we still cut both our 4Q14 revenue forecast by 10% to CNY2,961m (+43% QoQ, +36% YoY) and that for recurring NP to CNY809m (+47% QoQ, +37% YoY). For FY15, management believes adoption of speaker boxes by new Chinese customers will be its key growth driver and anticipates its sales mix to return to the 45-50% levels, but we are concerned about speakerbox ASPs, especially for Chinese clients, as brand competition intensifies. The adoption of haptic solutions in new devices (eg smartwatches) will likely drive non-acoustic sales. Maintain SELL with a lower TP of HKD40.30 (from HKD41.40). We cut our FY14-16 earnings estimates by 12%/9%/6%, mainly on lower revenues. Our new TP is based on a 14x FY15F P/E (from 13x), still set at its 3-year mean forward P/E, implying a 13% downside. Dec-12 Dec-13 Total turnover (CNYm) 6,283 8,096 8,741 10,254 11,782 Reported net profit (CNYm) 1,763 2,578 2,338 2,786 3,194 Recurring net profit (CNYm) 1,691 2,244 2,338 2,787 3,194 Recurring net profit growth (%) 55.7 32.7 4.2 19.2 14.6 Kong Yong Ng +852 2103 5844 Recurring EPS (CNY) 1.38 1.83 1.90 2.27 2.60 [email protected] DPS (CNY) 0.41 1.05 0.77 0.92 1.05 Recurring P/E (x) 26.5 20.0 19.2 16.1 14.0 P/B (x) 7.37 5.69 4.90 4.10 3.47 P/CF (x) 33.6 17.9 15.4 14.4 12.3 1.1 2.9 2.1 2.5 2.9 EV/EBITDA (x) 19.2 15.0 14.0 11.4 9.6 Return on average equity (%) 32.6 36.9 27.5 27.8 26.8 Shariah compliant Christopher Tse +852 2103 9415 [email protected] Forecasts and Valuations Dividend Yield (%) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report Source: Company data, RHB Dec-14F Dec-15F Dec-16F net cash net cash net cash net cash net cash (6.4) (11.5) Powered by EFATM Platform (14.3) 7 Sector News Flash, 10 November 2014 China Railway & Construction Sector Overweight Macro Risks Mexico Cancels HSR Tender: Good Entry Point Growth Value 3 1 3 3 China Railway Group (390 HK) What’s new Price Close Recommendations & Target Price 6.55 na 7.00 6.00 5.00 4.00 3.00 2.00 Buy 1.00 Nov-09 Neutral Sell Feb-11 Trading Buy May-12 Take Prof it Not Rated Aug-13 Source: Bloomberg Mexico axes Chinese-led consortium’s HSR tender. According to AFP, Mexican President Enrique Pena Nieto has cancelled a Chineseled consortium’s high-speed railway (HSR) tender to build a route between two major cities in the country, ie Mexico City and Queretaro. Mexico will restart the tendering process in the near term. Share prices of China Railway Group (CRG) (390 HK, BUY, TP: HKD6.55) and China Railway Construction Corp (CRCC) (1186 HK, BUY, TP HKD10.97) dropped 5.4% and 5.8% respectively during last Friday’s afternoon trading session. Our view China Railway Construction Corp (1186 HK) Price Close 11.0 na 12.5 Recommendations & Target Price 11.5 10.5 9.5 8.5 7.5 6.5 5.5 4.5 3.5 Buy Neutral 2.5 Nov-09 Feb-11 Sell Trading Buy May-12 Take Prof it Aug-13 Source: Bloomberg [email protected] Minor impact on China firms’ business outlook. The contract size for the project’s construction and equipment portions only accounted for 2% (CRCC’s) and 1.8% (CSR’s) total 2013 new contract wins. Not Rated Winston Cao +852 2103 9414 Unconventional tender cancellation. We do not see any reason behind the cancellation. The consortium, which included CRCC and CSR Corp (1766 HK, NEUTRAL, TP: HKD7.47), was the only bidder for Mexico’s first HSR project. Other global competitors withdrew due to the short preparation period. Nothing to do with CRG. CRG was not one of the joint bidders. Hence, the cancellation will not affect its orderbook and business outlook. Will only strengthen China’s overseas strategy. Volatility over a single overseas project will not pull back China’s commitment to expand into the overseas market. To the contrary, it will likely inspire the Chinese Government to put more effort and support into domestic companies’ overseas exploration, in our view. Good entry point for all railway-related names. We believe the market’s negative reaction to this news will not last long on the back of the aforementioned reasons, and we see a good entry point for all railway stocks. We reiterate our positive outlook on China’s railway and construction sector on the back of huge demand potential domestically and globally. We also maintain CRG as our Top Pick with HKD6.55 TP derived from 8x FY15F P/E, representing a 35% upside. We also believe CRCC will rebound after the market stabilises and we maintain our BUY call on the stock with a HKD10.97 TP, based on 7.5x FY15F P/E, ie a 37% upside. CSR and China CNR (CNR) (6199 HK, BUY, TP: HKD8.47) are both in trading suspension due to the potential merger. Company Name Ticker Price (HKD) Target P/E (x) (HKD) Dec-14F P/E (x) Dec-15F Rating China Railway Group 390 HK 4.85 6.55 7.3 5.9 BUY China Railway Construction 1186 HK 8.02 10.97 6.6 5.4 BUY China State Construction Int'l 3311 HK 11.78 14.63 12.6 8.8 BUY China CNR 6199 HK 7.66 8.47 11.6 10.9 BUY CSR Corp 1766 HK 7.89 7.47 14.5 12.7 NEUTRAL China Communications Construction 1800 HK 6.84 5.82 6.9 6.4 NEUTRAL Source: Company data, RHB See important disclosures at the end of this report Powered by EFATM Platform 8 Results Review, 10 November 2014 Supermax (SUCB MK) Neutral (Maintained) Consumer Non-cyclical - Rubber Products Market Cap: USD472m Target Price: Price: MYR2.16 MYR2.33 Macro Risks A Disappointing Quarter Growth Value Supermax (SUCB MK) Relative to FTSE Bursa Malaysia KLCI Index (RHS) 114 2.70 105 2.50 97 2.30 89 2.10 80 1.90 18 16 14 12 10 8 6 4 2 72 Jul-14 Mar-14 Sep-14 2.90 May-14 122 Jan-14 3.10 Nov-13 Vol m Price Close 0 0 . 2 0 0 Supermax’s 9M14 earnings came in below expectations, which we . 0 believe was mainly due to lower production capacity and a challenging 0 operating environment. We revise our earnings forecasts as we believe 0 the company may need more time to fully commission its production lines. We maintain our NEUTRAL stance on Supermax with a revised TP of MYR2.16 from MYR2.31 (12x FY15F P/E, 7.3% downside). Source: Bloomberg Avg Turnover (MYR/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (MYR) Free float (%) Share outstanding (m) Shareholders (%) 4.13m/1.27m 35.2 -7.3 2.07 - 3.04 53 677 Dato' Seri Stanley Thai Datin Seri Cheryl Tan 20.4 15.1 2 . 2 0 . 2 Below expectations. Supermax’s 9M14 net profit of MYR81.2m (-21% YoY) fell short of expectations, meeting only 63%/65% of our/consensus full-year estimates. This was partly attributed to the output loss at one of its plants in Alor Gajah, Melaka, which faced a production issue in 4Q13. The problem was only fully resolved in stages towards end-2Q14. Besides, some capacity was temporarily lost at its other factories as Supermax resumed its scheduled automation programme. Also, we believe the average selling prices (ASPs) have continued to trend down across the company’s range of products, in tandem with lower raw material prices coupled with price competition in the market. Supermax declared a 2.0 sen interim dividend for the quarter under review (cumulative 5.0 sen for 9M14). Earnings revision. We lower our key assumptions on Supermax’s utilisation rate and ASPs, which lead to a 17%/23% cut in our earnings forecasts for FY14/FY15 respectively. We expect FY14 earnings to be dragged by its 1H14 results. It takes time for the company to fully commission its production lines, and it continues to face a challenging operating environment with declining raw material costs (resulting in a downward revision in our ASP assumptions), a rise in other operating expenses (other than raw materials), and intensified competition within the glove industry. Maintain NEUTRAL. Following the downward revision in our FY14-15 earnings forecasts, we lower our TP to MYR2.16 (from MYR2.31), implying a 7.3% downside. Our TP is pegged to a 12x FY15F P/E (rolled over from FY14F P/E), which is the mean of its historical trading band. We understand that management is organising an analyst briefing soon. Share Performance (%) YTD 1m 3m 6m 12m Absolute (15.9) 1.7 1.7 0.9 (8.3) Relative (14.0) 1.8 3.6 2.4 (9.7) Shariah compliant Forecasts and Valuations Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F Total turnover (MYRm) 997 1,127 1,032 1,074 1,187 Reported net profit (MYRm) 121 129 110 121 130 Recurring net profit (MYRm) 121 129 110 121 130 Recurring net profit growth (%) 16.5 6.1 (14.3) 9.6 7.4 Recurring EPS (MYR) 0.18 0.19 0.17 0.18 0.20 DPS (MYR) 0.05 0.05 0.05 0.05 0.06 Jerry Lee +603 9207 7622 Recurring P/E (x) 12.7 12.0 14.0 12.8 11.9 [email protected] P/B (x) 1.85 1.72 1.59 1.46 1.34 P/CF (x) 9.5 6.9 6.6 12.5 13.6 Dividend Yield (%) 2.1 2.1 2.2 2.3 2.5 EV/EBITDA (x) 9.46 7.81 9.33 8.87 8.61 Return on average equity (%) 15.1 14.9 11.8 11.9 11.8 Net debt to equity (%) 18.6 24.0 12.4 13.2 15.0 (11.5) (17.8) (22.9) Our vs consensus EPS (adjusted) (%) Source: Company data, RHB See important disclosures at the end of this report Powered by EFATM Platform 9 Company Update, 10 November 2014 Ta Ann Holdings (TAH MK) Neutral (Maintained) Agriculture - Timber Market Cap: USD422m Target Price: Price: MYR3.80 MYR3.80 Macro Risks Strategies Revealed Growth Value Ta Ann Holdings (TAH MK) Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) 4.70 121 4.50 117 4.30 113 4.10 109 3.90 104 3.70 100 3.50 3 96 0 0 . 1 0 0 Ta Ann’s analyst briefing hosted by its CEO was informative, touching . 0 on the new timber licencing policy in Sarawak, its strategy to address 0 its loss-making venture in Tasmania, as well as its plans to expand its 0 palm oil landbank. We make no changes to our forecasts and maintain our SOP-based TP of MYR3.80, as we believe lower CPO prices will likely offset stronger timber earnings. 3 2 2 Sep-14 Jul-14 May-14 Mar-14 Jan-14 1 Nov-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 (%) 1.00m/0.31m 26.1 0.0 3.65 - 4.49 34 371 Mountex SB Datuk Wahab b Hj Dollah EPF 21.0 11.0 9.7 Share Performance (%) YTD 1m 3m 6m Absolute (8.9) (3.8) (9.5) (9.5) 12m 1.6 Relative (7.4) (3.7) (7.9) (8.4) (0.4) Shariah compliant Hoe Lee Leng +603 9207 7605 [email protected] Key highlights from Ta Ann’s analyst briefing hosted by its CEO, Dato Wong Kuo Hea include: i) As a result of the Sarawak government’s new timber licencing policy, Ta Ann is proposing to amalgamate its four timber licences to form a new Forest Management Unit (FMU), which will have a tenure of 60 years (from 5-15 years currently). Timber companies would then have to get their FMUs re-certified under the Malaysian Timber Certification Scheme (MTCS) and certified by the Forest Stewardship Council (FSC) in New Zealand, which would alleviate pressures from non-governmental organisations (NGOs). Ta Ann does not expect any changes to its logging quota from this new ruling. We are positive, given the longer licence tenure and the more environmentally-friendly policies. ii) Ta Ann’s converted 48,000 cu m/year plywood (from veneer) mill in Tasmania is nearing completion and will commence operations in early 2015. As a condition of the agreement reached between Ta Ann and the Tasmanian government in 2013, Ta Ann is required to keep its operations running for the next five years. With the new plywood mill, Ta Ann will save on transport costs and sell its plywood domestically (as Australia currently imports 35,000 cu m of tropical plywood per month). We understand that margins are about 10-15% for this product. We are not imputing any contributions from this plant into our forecast yet, although we estimate this could add 8-12% to our forecasts, assuming a 100% take-up. iii) Ta Ann will finish planting up all its plantable palm oil land by 2015 and is looking to expand its landbank, preferably in Sarawak. Maintain NEUTRAL. While we are positive on the latest developments and continue to like Ta Ann’s strong FFB production growth of 10-20% p.a. over the next few years, this would not be enough to offset the impact of lower CPO prices, given its sensitivity to CPO price movements, where every MYR100/tonne could impact earnings by 7-9%. Our SOP-based TP is maintained at MYR3.80. Forecasts and Valuations Dec-11 Dec-12 Dec-13 Total turnover (MYRm) 926 790 774 973 1,184 Reported net profit (MYRm) 158 57 58 99 99 Recurring net profit (MYRm) 163 67 64 99 99 119.6 (59.2) (4.2) 55.3 (0.4) Recurring EPS (MYR) 0.53 0.18 0.17 0.27 0.27 DPS (MYR) 0.20 0.05 0.05 0.06 0.06 7.2 21.2 22.1 14.2 14.3 1.25 1.46 1.40 1.30 1.21 P/CF (x) 4.5 15.0 6.3 13.8 9.8 Dividend Yield (%) 5.3 1.3 1.3 1.4 1.4 EV/EBITDA (x) 4.9 10.1 9.6 7.5 6.9 Return on average equity (%) 18.0 6.0 5.9 9.5 8.8 Net debt to equity (%) 27.7 34.3 24.8 20.8 17.5 (7.9) (28.3) Recurring net profit growth (%) Recurring P/E (x) P/B (x) Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report 2 . 2 0 . 2 Source: Company data, RHB Dec-14F Powered by EFATM Platform Dec-15F 10 Results Review, 10 November 2014 Hektar REIT (HEKT MK) Neutral (Maintained) Property - REITS Market Cap: USD183m Target Price: Price: MYR1.43 MYR1.53 Macro Risks Flattish Short-Term Prospects Growth Value Hektar REIT (HEKT MK) Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) 104 1.56 102 1.54 101 1.52 99 1.50 98 1.48 96 1.46 95 1.44 93 1.42 92 1.40 2 1 1 1 1 1 90 0 0 . 2 0 0 Hektar REIT’s 9M14 net profit came in line at 72%/74% of our/consensus . 0 estimates. Earnings growth stayed flattish as it continued to be affected 0 by Central Square’s ongoing refurbishments. Nonetheless, we believe 0 that earnings should come in stronger in FY15. Management has reaffirmed its commitment to a 10.5 sen dividend payout for FY14. Maintain NEUTRAL and DDM-based TP of MYR1.43 (6.6% downside). Sep-14 Jul-14 May-14 Mar-14 Jan-14 Nov-13 Vol m 1.58 Source: Bloomberg Avg Turnover (MYR/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (MYR) Free float (%) Share outstanding (m) Shareholders (%) 0.12m/0.04m -2.0 -6.6 1.45 - 1.57 28 401 Hektar Group Frasers Centrepoint Trust 40.1 31.2 Share Performance (%) Absolute Relative Results in line. Hektar REIT’s 3Q14 net profit of MYR10.9m (-2.1% YoY, -5.2% QoQ) brought 9M14 net profit to MYR32.8m (flat YoY), coming in at 72%/74% of our/consensus estimates. 9M14 revenue growth was flattish as it continued to be affected by disruptions from Central Square’s (CS) ongoing asset enhancement initiatives (AEI). 9M14 net property income (NPI) was still stable at 59.7% (9M13: 60.2%), although earnings were slightly affected by the electricity tariff hike. Meanwhile, it has announced a DPU of 2.60 sen for 3Q14, on track to meet our full-year forecast. Its overall portfolio occupancy is still stable at 94.5%, and the average rental reversion is about 7% YTD. No surprises expected going into 4Q14. Hektar REIT continues to make good progress on the AEI front. The AEI for CS is almost completed, with only the cinema yet to complete its fit-out. The positive impact from the AEI has started to show, as it recently managed to secure a new tenant at double the rental rate of the previous tenant. We reiterate our view that the full impact from this refurbishment should only be seen from 1Q15 onwards. Mahkota Parade’s AEI, which will see the expansion of its cinema to 10 screens (from four currently), is well underway. Management expects the cinema extension works to be completed in January. Overall, although earnings will likely remain flattish going into 4Q14, management reaffirms its commitment to a DPU of at least 10.5 sen for FY14. Earnings forecasts. We make no changes to our FY14/FY15 earnings forecasts. We have also introduced our FY16 forecasts. Maintain NEUTRAL. Our DDM-based TP is unchanged at MYR1.43. Given Hektar REIT’s past track record, we are still confident with its DPU delivery. YTD 1m 3m 6m 12m 2.0 1.3 1.3 1.3 (1.3) Forecasts and Valuations (2.7) Total turnover (MYRm) 3.9 1.4 3.2 2.8 Shariah compliant Alia Arwina +603 9207 7608 [email protected] 2 . 2 0 . 2 Dec-12 Dec-13 Dec-14F Dec-15F 103 120 123 130 Dec-16F 134 Net property income (MYRm) 63.8 74.1 73.0 76.7 77.7 Reported net profit (MYRm) 39.8 46.1 45.9 48.4 48.7 Total distributable income (MYRm) 39.8 46.1 45.9 48.4 48.7 DPS (MYR) 0.11 0.11 0.11 0.11 0.11 DPS growth (%) 0.0 0.0 0.4 2.0 0.5 Recurring P/E (x) 13.8 13.3 13.4 12.7 12.6 P/B (x) 1.03 1.00 0.99 0.98 0.98 Dividend Yield (%) 6.9 6.9 6.9 7.0 7.1 Return on average equity (%) 7.4 7.6 7.5 7.8 7.8 Return on average assets (%) 4.1 4.3 4.2 4.4 4.4 3.48 3.39 3.38 3.51 3.45 (2.4) (1.0) (0.5) Interest coverage ratio (x) Our vs consensus EPS (adjusted) (%) Source: Company data, RHB See important disclosures at the end of this report Powered by EFATM Platform 11 Results Review, 10 November 2014 Trek 2000 (TREK SP) Buy (Maintained) Technology - Technology Market Cap: USD89.5m Target Price: Price: SGD0.61 SGD0.39 Macro Risks Back On Trek! Growth Value Trek 2000 International (TREK SP) Relative to Straits Times Index (RHS) 0.36 168 0.31 145 0.26 122 0.21 98 0.16 4 4 3 3 2 2 1 1 75 Jul-14 Mar-14 Toy deal kicking in. Trek 2000 International’s (Trek) initial USD25m deal to supply its signature wireless Flucards to Rely/Mattel (MAT US, NR) commenced in 3Q14. This has led to 3Q14 revenue surging 119% YoY to USD35.6m from USD16.3m, and NPAT leaping 144.5% to USD0.76m from USD0.31m. Licencing revenue in 3Q14 grew 23% to USD0.6m, and may continue to increase going forward as sales increase. Exciting new projects in the pipeline – Cloud Stringers and consumer solid-state drives (SSDs). We expect the ramp-up of Cloud Stringers, a digital (cloud-based) marketplace that transmits and transacts online content globally, to commence by the end of the year. Furthermore, its partnership with Panasonic (6752 JP, NR) as well as multiple news agencies and freelance journalists could boost the content and number of users of this site. In addition, its latest joint venture with Unimicron Technology Corp, a subsidiary of United Microelectronics Corp (UMC) (2303 TT, NR) to produce portable consumer electronics, may potentially contribute to its FY15 earnings. Source: Bloomberg Avg Turnover (SGD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (SGD) Free float (%) Share outstanding (m) Shareholders (%) 0.30m/0.24m 56.4 56.4 0.19 - 0.43 55 298 Henn Tan Toshiba Finance Creative Technology 35.2 17.7 9.2 Share Performance (%) YTD 1m 3m 6m 12m Absolute 95.0 2.6 77.3 99.0 90.2 Relative 91.1 1.2 78.0 97.3 87.4 Shariah compliant Poised for a great leap in FY15; maintain BUY. As the deal with Rely/Mattel just commenced in 3Q, we expect orders to pick up at a fast pace, especially in FY15. We estimate OEM Flucard sales to double to USD100m in FY15 from USD50m in FY14, with Rely/Mattel contributing a significant portion as it looks to launch an educational toy into the US market by the end of FY14. Going forward, with a number of exciting new projects lining up, coupled with its strong and successful research and development team, we are very positive on Trek’s outlook and a potential strong comeback in FY15. Maintain BUY with a SGD0.61 TP, pegged to a 16x FY15 P/E, implying a 56% upside from current levels. Forecasts and Valuations Dec-13 Dec-14F Dec-15F Dec-16F 74 100 151 203 233 Reported net profit (USDm) 0.3 2.1 9.2 14.1 17.3 Recurring net profit (USDm) 0.3 2.1 9.2 14.1 17.3 Recurring net profit growth (%) 0.0 632.7 339.1 54.0 22.4 0.00 0.01 0.03 0.05 0.06 0.002 0.008 0.008 0.008 0.008 Total turnover (USDm) Recurring EPS (USD) DPS (USD) Dec-17F Jarick Seet +65 6232 3891 Recurring P/E (x) 313 43 10 6 5 [email protected] P/B (x) 2.25 2.27 1.93 1.54 1.22 P/CF (x) 42.7 21.7 8.1 5.4 4.5 0.7 2.5 2.5 2.5 2.5 24.6 17.4 7.3 4.8 3.5 0.0 5.3 21.4 27.0 26.3 net cash 2.1 4.4 0.0 0.0 Terence Wong CFA +65 6232 3896 Dividend Yield (%) [email protected] EV/EBITDA (x) Return on average equity (%) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) net cash net cash 0.0 0.0 Source: Company data, RHB See important disclosures at the end of this report 2 . 2 0 . 3 0 0 . 2 0 0 Trek’s 3Q14 revenue surged 119% YoY to USD35.6m from USD16.3m . 0 while its NPAT jumped 144.5% YoY to USD0.76m, driven partially by 0 increased sales to a number of new MNC customers, as well as its toy 0 deal with Rely/Mattel which commenced in 3Q14. 9M14 NPAT to shareholders of SGD1.7m made up 81% of our estimate, well on track. We expect its wireless Flucard orders from Rely/Mattel to surge, especially in FY15. Maintain BUY and SGD0.61 TP (56% upside). Sep-14 192 May-14 0.41 Jan-14 215 Nov-13 Vol m Price Close 0.46 Powered by EFATM Platform 12 Results Review, 10 November 2014 Neratel (NERT SP) Neutral (Maintained) Communications - Telecommunications Infrastructure Market Cap: USD227m Target Price: Price: SGD0.83 SGD0.81 Macro Risks Supported By Dividend Yield Growth Value Neratel (NERT SP) Price Close Relative to Straits Times Index (RHS) 0.85 108 0.80 104 0.75 100 0.70 96 0.65 92 0.60 2 1 1 1 1 1 88 0 0 . 2 0 0 Neratel’s 9M14 NPAT of SGD11.6m only makes up 56% of our FY14 . 0 NPAT estimates. As a result, we slash our FY14 revenue and NPAT 0 estimates by 7.7% and 17% to SGD191m and SGD17m respectively. We 0 change our valuation methodology to a DCF valuation as well to reflect the cash-generative value of the business. As Neratel is supported by an attractive 7.4% dividend yield, we maintain NEUTRAL with a slightly higher DCF-based TP of SGD0.83 (from SGD0.72) a 2.5% upside. Sep-14 Jul-14 May-14 Mar-14 Jan-14 Nov-13 Vol m Source: Bloomberg Avg Turnover (SGD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (SGD) Free float (%) Share outstanding (m) Shareholders (%) 0.11m/0.09m 2.5 2.5 0.68 - 0.82 47 362 Northstar 53.0 Share Performance (%) 2 . 1 0 . 2 Telecom segment affected by revenue recognition date. Neratel’s 3Q14 revenue dipped slightly by 1% YoY to SGD49.7m as a 29.6% decline from the telecom segment due to revenue recognition was partially offset by higher turnover from the infocom segment, which grew 29.2% YoY. However, gross profit margin shrank to 30.2% from 30.5% partially due to a change in sales mix in product, project and services. 3Q14 NPAT inched up slightly by 7.5% YoY to SGD3.54m from SGD3.3m. Dividend yield to maintain around 7.4%. We expect management to still be able and reward shareholders with at least an annual dividend of SGD0.06 in FY14&15, which constitutes an attractive dividend yield of around 7.4% in both years, unless they suffer a plunge in its earnings. Future key drivers - network infrastructure & payment solutions. Going forward, we expect these two business segments to continue to deliver strong blended growth of above 20%, offsetting any decline in revenue from the telecom segment. Maintain NEUTRAL with a DCF-backed revised TP of SGD0.83. Jarick Seet will assume coverage of Neratel. As Neratel’s 9M14 NPAT of SGD11.6m makes up only 56% of our FY14 NPAT estimates, partly due to higher operating expenses and lower-than-expected turnover, we slash our FY14 revenue and NPAT estimates by 7.7% and 17% respectively to SGD191m and SGD17m. In addition, we switch to a DCF based TP (WACC 8.5%, TG=0%) of SGD0.83 from a historical P/E valuation of SGD0.72 to fully reflect the cash-generative nature of this business. As the company still has a healthy balance sheet with a net cash position supported by an attractive dividend yield of around 7.4%, we maintain NEUTRAL. Dec-11 Dec-12 Dec-13 Dec-14F 156 179 178 191 212 Reported net profit (SGDm) 13.5 19.4 23.5 17.0 19.2 Recurring net profit (SGDm) 13.5 19.4 17.5 17.0 19.2 Recurring net profit growth (%) 23.8 43.6 (10.0) (2.5) 13.0 Recurring EPS (SGD) 0.04 0.05 0.05 0.05 0.05 DPS (SGD) 0.00 0.08 0.06 0.06 0.06 Jarick Seet +65 6232 3891 Recurring P/E (x) 21.7 15.1 16.8 17.2 15.3 [email protected] P/B (x) 4.79 4.45 4.43 4.77 4.97 P/CF (x) 11.1 18.6 12.1 13.0 14.8 0.0 9.9 7.4 7.4 7.4 12.5 9.0 10.0 10.5 10.1 21.9 30.5 35.5 26.6 31.9 YTD 1m 3m 6m 12m Absolute 14.9 0.6 3.2 11.0 8.7 Relative 11.1 (0.5) 4.2 9.7 6.1 Shariah compliant Forecasts and Valuations Total turnover (SGDm) Terence Wong CFA +65 6232 3896 Dividend Yield (%) [email protected] EV/EBITDA (x) Return on average equity (%) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) Dec-15F net cash net cash net cash net cash net cash 0.0 0.0 Source: Company data, RHB See important disclosures at the end of this report Powered by EFATM Platform 13 Results Review, 10 November 2014 CWT Limited (CWT SP) Buy (Maintained) Transport - Logistics Market Cap: USD769m Target Price: Price: SGD2.00 SGD1.66 Macro Risks Commodity Trading Business Margins Improve Growth Value CWT (CWT SP) Relative to Straits Times Index (RHS) 1.90 141 1.80 135 1.70 129 1.60 122 1.50 116 1.40 110 1.30 104 1.20 97 1.10 5 5 4 4 3 3 2 2 1 1 91 Sep-14 Jul-14 May-14 Mar-14 Jan-14 Source: Bloomberg Avg Turnover (SGD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (SGD) Free float (%) Share outstanding (m) Shareholders (%) 1.04m/0.82m 19.3 20.5 1.24 - 1.83 39 600 Sr. management & related Transamerica Investment Fidelity International 60.7 0.7 0.7 Share Performance (%) Strong revenue growth. CWT’s 9M14 revenue jumped 121% YoY, with all segments reporting higher revenues. Revenue from financial services surged the most by 428% YoY to SGD169m, aided by rising trade services. Commodity marketing revenue soared 134% YoY to SGD11,045m due to higher trading volume. Logistics revenue continued to rise sequentially in 3Q14, with 9M14 revenue growing 12% YoY, driven by the addition of new warehouse space in 1Q14. Commodity marketing margins expand. 3Q14 commodity marketing revenue grew 3% QoQ and we expect the segment revenue to keep growing in 4Q14 amid a seasonal pickup in naphtha trading volume. Segment gross margins also expanded sequentially over the last two quarters to 0.94% in 3Q14 from 0.77% in 1Q14. As CWT builds confidence among its customers to move larger commodity trading volumes, we believe its margins should improve gradually over 20152016. New warehouses may boost margin. Among the two new warehouses that will be added by end-2014, the space at Singapore Wine Vault has been fully taken up and customers have committed to taking up 80% of the Pandan Logistics Centre. Warehouse space is the key growth driver in the high-margin logistics business segment and these new warehouses will boost CWT’s Singapore warehouse space by 40%. The logistics segment made up 45% of its 9M14 gross profit (GP) and fetched a higher GP margin of 17.6% vs a dismal 0.85% GP margin for the commodity marketing business, which only accounted for 35% of GP. Maintain BUY. We introduce 2016 EPS and roll forward our SGD2.00 TP to Sep 2015, offering a 20.5% upside. We apply a 9x P/E (vs 10x earlier) to rolling four-quarter EPS to account for the company’s potential slower growth over 2015-2016F. YTD 1m 3m 6m 12m Absolute 22.5 0.0 (0.3) 6.1 24.8 Forecasts and Valuations Relative 18.6 (1.4) 0.4 4.4 22.0 Total turnover (SGDm) Shekhar Jaiswal +65 6232 3894 [email protected] Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F 5,397 9,097 16,291 17,782 18,877 Reported net profit (SGDm) 108 106 135 145 158 Recurring net profit (SGDm) 87 96 134 145 158 Recurring net profit growth (%) 57.0 10.3 40.3 8.1 8.6 Recurring EPS (SGD) 0.14 0.16 0.22 0.24 0.26 DPS (SGD) 0.03 0.03 0.04 0.05 0.05 Recurring P/E (x) 11.5 10.4 7.4 6.9 6.3 P/B (x) 1.71 1.51 1.29 1.12 0.98 P/CF (x) Dividend Yield (%) na na 4.49 na 6.94 1.5 1.8 2.1 2.7 EV/EBITDA (x) 11.7 18.3 11.2 10.3 9.1 Return on average equity (%) 20.4 17.1 18.9 17.5 16.5 Net debt to equity (%) 60.4 159.5 134.0 127.1 103.9 17.6 5.0 19.3 Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report 3 . 2 0 . 2 0 0 . 3 0 0 CWT’s 9M14 net profit made up 81% of our estimate. While margins . 0 declined YoY due to higher contribution from low-margin commodity 0 trading business, 9M14 profit grew 66% YoY on strong revenue growth. 0 Despite concerns over slower trading volume growth amid an oversupplied copper market, we expect its new warehouses to provide stable growth and higher margins. We adjust EPS accordingly and roll forward our unchanged SGD2.00 TP (20.5% upside) to Sep 2015. BUY. Nov-13 Vol m Price Close Source: Company data, RHB Powered by EFATM Platform 2.9 14 Results Review, 10 November 2014 Venture Corp (VMS SP) Neutral (Maintained) Technology - Electronics Market Cap: USD1,600m Target Price: Price: SGD7.50 SGD7.55 Macro Risks Weakness Persists Growth Value Venture Corporation (VMS SP) Price Close Relative to Straits Times Index (RHS) 8.20 105 8.00 102 7.80 99 7.60 96 7.40 93 7.20 90 7.00 2 2 2 1 1 1 1 1 87 0 0 . 1 0 0 Ventures’ 3Q14 revenue inched up 1.7% YoY to SGD599m while NPAT . 0 rose 3.2% YoY to SGD36.1m. However, its 9M14 NPAT of SGD100.5m 0 only made up 70% of our FY14 estimate of SGD143m. This prompted us 0 to trim our FY14 NPAT estimate by 2.8% to SGD139m, resulting in a lower TP of SGD7.50 from SGD7.71 (0.7% downside, 14.8x FY14 P/E). Going forward, we still expect management to keep up with the SGD0.50 annual dividend. Maintain NEUTRAL. Sep-14 Jul-14 May-14 Mar-14 Jan-14 Nov-13 Vol m Source: Bloomberg Avg Turnover (SGD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (SGD) Free float (%) Share outstanding (m) Shareholders (%) 2.04m/1.61m 9.3 -0.7 7.16 - 8.13 90 275 Aberdeen Asset Mgmt Sprucegrove Investment Ngit Liong Wong 26.0 8.0 7.0 1 . 1 0 . 1 Underperforming our NPAT estimate. Venture’s 3Q14 topline increased slightly by 1.7% YoY to SGD599m from SGD588m, while its bottomline inched up 3.2% to SGD36.1m from SGD35m. Typically, we expect the second half of the year to be stronger than the first, but we did not see much improvement during 3Q14. As a result, 9M14 NPAT of SGD100.5m only made up 70% of our FY14 NPAT estimate of SGD143m. Weakness still persists from M&A activities. Computer peripherals and data storage sales slipped 17.7% to SGD167.8m for 9M14 from SGD204m in 9M13. This was mainly due to a drop in orders from its key customers, who have recently undergone merger and acquisition (M&A) activities. We expect weakness to persist in the next few quarters, with a slow recovery in orders. Going forward, growth will be likely driven by its test and measurement business segment. 3D printing contribution to come in only from FY16 onwards. Management highlighted that its 3D printing is still in the initial R&D stages and do not expect significant earnings contribution from this segment in the near future. Maintain NEUTRAL with a lower TP of SGD7.50. We expect FY15 earnings to grow at a tepid rate of below 8%, as the company’s capex spending show no signs of increasing, while weakness may persist due to its clients’ M&A activities. However, we expect Venture to still be able to pay at least SGD0.50 of dividends annually. Coupled with a strong balance sheet, we expect its share price to be supported by an attractive dividend yield of about 6-7%. Maintain NEUTRAL, with a lower TP of SGD7.50 from SGD 7.71 (0.7% downside, 14.8x FY14 P/E) Share Performance (%) YTD 1m 3m 6m 12m Absolute (1.7) (0.7) (6.7) 4.3 (3.8) Relative (5.6) (2.1) (6.0) 2.6 (6.6) Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F 2,432 2,388 2,330 2,401 2,498 Reported net profit (SGDm) 157 140 131 139 150 Recurring net profit (SGDm) 157 140 131 139 150 (17.1) (10.8) (6.1) 6.1 7.7 Recurring EPS (SGD) 0.57 0.51 0.48 0.51 0.54 Total turnover (SGDm) Recurring net profit growth (%) Shariah compliant DPS (SGD) 0.55 0.50 0.50 0.50 0.55 Jarick Seet +65 6232 3891 Recurring P/E (x) 13.2 14.8 15.8 14.9 13.9 [email protected] P/B (x) 1.11 1.15 1.14 1.14 1.14 P/CF (x) 8.2 15.6 19.4 12.3 12.1 Terence Wong CFA +65 6232 3896 Dividend Yield (%) 7.3 6.6 6.6 6.6 7.3 [email protected] EV/EBITDA (x) 7.74 9.18 9.82 9.06 8.47 8.4 7.6 7.2 7.6 8.2 Return on average equity (%) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) net cash net cash net cash net cash net cash 0.0 0.0 Source: Company data, RHB See important disclosures at the end of this report Powered by EFATM Platform 15 Results Review, 10 November 2014 CapitaLand (CAPL SP) Buy Property - Real Estate Market Cap: USD10,383m Target Price: Price: SGD3.54 SGD3.15 Macro Risks Housekeeping In Progress Growth Value CapitaLand (CAPL SP) Price Close Relative to Straits Times Index (RHS) 3.50 110 3.40 108 3.30 106 3.20 103 3.10 101 3.00 99 2.90 97 2.80 94 2.70 92 2.60 60 90 0 0 . 2 0 0 CapitaLand’s 3Q14/9M14 results were largely in line with our . 0 expectations. Assume coverage with BUY and a RNAV-derived TP of 0 SGD3.54 (12% upside). The company sold 3,288 homes in China in 0 9M14 (3Q14:1,057 units) vs 5,786 units (3Q13: 1,646 units) a year ago. We see sustained demand from upgraders and first-timers for the rest of the year, bolstered by the recent relaxation of mortgage rules and easing credit in China. 50 40 30 Sep-14 Jul-14 May-14 Mar-14 Jan-14 10 Nov-13 Vol m 20 Source: Bloomberg Avg Turnover (SGD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (SGD) Free float (%) Share outstanding (m) Shareholders (%) 26.3m/20.8m 22.9 12.4 2.72 - 3.45 60 4,258 Temasek Holdings Pte Ltd Blackrock Vanguard PLC 39.5 6.0 1.0 Share Performance (%) YTD 1m 3m 6m 12m Absolute 4.0 2.3 (6.8) 1.6 2.9 Relative 0.1 0.9 (6.1) (0.1) 0.1 3Q14/9M14 results in line. CapitaLand recorded 3Q14/9M14 operating PATMI of SGD129.5m/SGD421.8m (+37.0%/+32.4% YoY) respectively, primarily driven by higher contribution from the shopping mall business, development projects in China and Vietnam, and lower finance costs. Sky Habitat and Sky Vue are 68% and 73% sold respectively. YTD, CapitaLand sold about 237 residential units in Singapore (YTD Sep 2013: ~1,151 units), with a total sales value of SGD444m, compared with SGD2.2bn a year ago. According to the Urban Redevelopment Authority (URA), ASPs for Sky Vue and Sky Habitat are SGD1,426/SGD1,482 psf respectively (see Figures 2-5), with smaller units on average being sold at the former. In China, the company sold 3,288 residential units, compared with 5,786 units a year ago. Sales were mostly from the following projects: La Botanica in Xi’an, The Loft in Chengdu, The Metropolis in Kunshan, Vista Garden in Guangzhou and The Paragon in Shanghai. In 4Q14, another 4,000 units are expected to be ready for launch. For projects that have been launched, CapitaLand expects to complete about 1,000 residential units in 4Q14. They are mainly from Central Park City in Wuxi and International Trade Centre in Tianjin. Our view. CapitaLand remains long-term positive on Singapore and China. The Raffles City portfolio is set to be another growth segment, with another four Raffles Cities under construction (~75% of the combined floor area) to be progressively completed in 2016-2019. We are keeping our eyes on further cost-cutting ahead, with management focusing on improving ROEs to 8-12% on a sustainable basis via longterm capital allocation. At a 0.58x P/RNAV, we maintain that the stock’s valuation is undemanding. We assume coverage on CapitaLand with a BUY recommendation and a RNAV-derived TP of SGD3.54, implying a 12% upside. Forecasts and Valuations Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F 3,301 3,977 3,196 3,839 4,137 Recurring P/E (x) 14.4 15.8 14.0 18.2 14.5 P/B (x) 0.89 0.83 0.80 0.78 0.76 Return on average equity (%) 6.2 5.4 5.8 4.3 5.3 Return on average assets (%) 2.5 2.1 2.2 1.7 2.1 44.7 39.4 56.1 54.1 50.0 0.0 0.0 0.0 Total turnover (SGDm) Shariah compliant Ivan Looi +65 6232 3841 [email protected] Singapore Research +65 6533 0781 [email protected] 2 . 2 0 . 2 We are keeping our eyes on further cost-cutting ahead, with 960 736 926 management focus on improving 930 ROEs to850 8-12% on a sustainable basis Recurring net profit (SGDm) 736 that926 via long-term capital allocation. At930 a 0.65x850 P/RNAV,960 we maintain the Recurring net profit growth (%) (12.0) (8.7) 13.0 (23.3) 25.7 stock’s valuation is undemanding. We assume coverage of CapitaLand Recurring (SGD) 0.22 0.20 0.23 0.17 0.22 withEPS a RNAV-derived TP of SGD3.15. Reported net profit (SGDm) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) Source: Company data, RHB See important disclosures at the end of this report Powered by EFATM Platform 16 Results Review, 10 November 2014 Advanced Information Tech (AIT TB) Communications - Telecommunications Market Cap: USD242m Neutral (from Buy) Target Price: Price: THB39.50 THB38.50 Macro Risks 3Q14 Earnings Down 18.7% YoY Growth Value Advanced Information Tech (AIT TB) Relative to Stock Exchange of Thailand Index (RHS) 130 39.0 126 37.0 121 35.0 117 33.0 112 31.0 108 29.0 103 27.0 99 25.0 94 23.0 90 21.0 10 9 8 7 6 5 4 3 2 1 85 0 0 . 3 0 0 AIT’s 3Q14 earnings fell 69.1% QoQ to THB87.9m on the political unrest . 0 and the completion of several large projects in 2Q14. Downgrade to 0 NEUTRAL (from Buy) on AIT’s 34% YoY orderbook decline, with a 0 THB39.50 TP (2.6% upside). While 9M14 earnings made up 81.3% of our FY14 estimates, we keep our forecasts, as we expect the company to recognise only c.THB1.0bn of its THB1.98bn orderbook in 4Q14. Sep-14 Jul-14 May-14 Mar-14 Jan-14 Nov-13 Vol m Price Close 41.0 Source: Bloomberg Avg Turnover (THB/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (THB) Free float (%) Share outstanding (m) Shareholders (%) 39.7m/1.23m -14.3 2.6 22.8 - 39.5 65 206 Siripong Oontornpan Thai NVDR Chotiwat Duntanasarn 8.9 8.8 4.5 2 . 2 0 . 3 Booked 3Q14 earnings of THB87.9m, down 18.7% YoY and 69.1% QoQ. Advanced Information Tech’s (AIT) 3Q14 earnings declined significantly QoQ on lower sales volume and a drop in GPM. Sales dropped 69.1% QoQ to THB1.22bn, post completion of several largescale state enterprise projects in 2Q14 and delays in new ICT projects due to the recent political unrest. 3Q14 EBIT margin declined to 8.1% from 2Q14’s 13.4%, as projects in the quarter under review yielded lower GPM. Hence, AIT’s net margin contracted QoQ to 7.2% in 3Q14 (2Q14: 11.5). Orderbook declines. AIT’s orderbook declined to THB1.98bn as at end3Q14 (3Q13: THB3.50bn). This was mainly due to the company recognising the bulk of its orderbook revenue in 1H14 as well as the slowdown in government projects. Although 9M14 earnings accounted for 81.3% of our full-year earnings forecast, we still maintain our FY14 numbers as we expect AIT to only recognise around THB1bn from its current THB1.98bn orderbook in 4Q14. However, we expect the company’s earnings to grow by at least 5% YoY in FY15. This is because we anticipate its orderbook picking up substantially in 3Q14 as Thailand’s 2015 Fiscal Budget has already been approved. Downgrade to NEUTRAL (from Buy). We downgrade AIT to NEUTRAL due to the 43% YoY deterioration in its orderbook and the limited upside to our current TP of only 2.6%. We believe that the share price has already factored in most of the positive news flow about the Government’s digital economy investment plan, given that the price has surged 52.4% YTD. AIT is now trading at 10.7x FY15F P/E, ie +2SD from its 8-year mean. Moreover, the company’s low orderbook should limit its earnings growth in FY15. Share Performance (%) YTD 1m 3m 6m 12m Absolute 52.5 11.6 25.2 31.6 29.0 Relative 31.0 9.4 21.6 19.3 19.1 Shariah compliant Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F 4,801 4,139 5,965 6,382 6,702 Reported net profit (THBm) 439 366 568 704 741 Recurring net profit (THBm) 439 366 568 704 741 Recurring net profit growth (%) 13.0 (16.5) 54.9 24.1 5.2 Recurring EPS (THB) 6.57 5.38 4.13 3.41 3.59 DPS (THB) 4.44 4.68 1.50 2.39 2.51 5.9 7.2 9.3 11.3 10.7 1.88 1.83 3.30 3.04 2.80 7 108 Dividend Yield (%) 11.5 12.1 EV/EBITDA (x) 3.58 Return on average equity (%) 33.2 net cash 13.2 Total turnover (THBm) Veena Naidu License No. 24418, 66 2862 9752 Recurring P/E (x) [email protected] P/B (x) P/CF (x) Chun Phokaisawan Net debt to equity (%) Our vs consensus EPS (adjusted) (%) na 17 12 3.9 6.2 6.5 5.33 6.73 8.50 7.97 25.9 29.5 28.1 27.2 net cash 5.0 3.1 14.6 32.5 Source: Company data, RHB See important disclosures at the end of this report Powered by EFATM Platform 17 Company Update, 7 November 2014 Bangkok Aviation Fuel Services (BAFS TB) Transport - Aviation Market Cap: USD571m Neutral (Maintained) Target Price: Price: THB39.80 THB36.80 Macro Risks 9M14 Net Profit Down 28% YoY Growth Value Bangkok Aviation Fuel Services (BAFS TB) Price Close Relative to Stock Exchange of Thailand Index (RHS) 41.0 144 39.0 138 37.0 133 35.0 127 33.0 122 31.0 116 29.0 111 27.0 105 25.0 100 23.0 1 94 9M14 net profit was down 28% YoY at THB614m as BAFS recognised THB217.2m of extraordinary income in 9M13 (none in 9M14). BAFS is moving ahead with the Suvarnabhumi Airport Phase 2. It is also awaiting the awards announcement for the Myanmar airport project and its domestic multiproduct pipeline project. Maintain NEUTRAL and TP of THB39.80 (based on DCF valuation, 9M14 net profit was THB614m (-28% YoY), accounting for 73% of our WACC 9%), an upside 8.3%.increased to THB2.1bn (+11% YoY), full-year forecast. Total of revenues as Bangkok Aviation Fuel Services (BAFS) had not yet consolidated Fuel Pipeline Transportation (FPT) into its financial statements in the first six months of 2013. Total jet fuel volume declined 2.2% YoY to 3,644.4m litres and total flights increased by 5.2% YoY to 158,484 flights for 9M14. Note that for 9M13, there was a reversal of allowance of THB123.8m for doubtful accounts, due to the THB76.1m gains on the acquisition of FPT and compensation for flood damages in 2011, which amounted to THB17.3m. 1 1 1 Sep-14 Jul-14 May-14 Mar-14 Jan-14 Nov-13 Vol m Source: Bloomberg Avg Turnover (THB/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (THB) Free float (%) Share outstanding (m) Shareholders (%) Thai Airways Pcl. Esso (Thailand) Pcl. PTT Pcl 3.26m/0.10m 8.2 8.3 25.0 - 39.5 48 510 Growth remains on track. Although the Suvanhabhumi Phase 2 has been scaled down for the moment, BAFS informs us that it is moving ahead with its expansion plans. The company has already signed a MOU with the AOT, in which there is a clause that indemnifies BAFS should there be any major delays in the expansion of Phase 2. Still awaiting approval for pipeline. BAFS is still awaiting government approval for its proposed 550km multi-product crude oil pipeline. BAFS expects approval should come in 1H15, if it is going to be approved. The company has been short-listed for a contract to build and operate the depot, refueling, hydrant transportation system at five airports in Myanmar (Yangon, Mandalay, Hongsawadee, Tachelek and Haho). Awards are expected to be announced by this November. 22.6 7.1 7.1 Share Performance (%) YTD 1m 3m 6m 12m Absolute 33.6 2.1 2.1 15.7 45.5 Forecasts and Valuations Relative 12.1 (0.1) (1.5) 3.4 35.6 Total turnover (THBm) Shariah compliant Kannika Siamwalla, CFA 66 2862 9744 [email protected] Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F 2,409 2,537 2,916 3,126 3,241 Reported net profit (THBm) 527 797 1,054 927 983 Recurring net profit (THBm) 527 695 878 927 983 Recurring net profit growth (%) (1.7) 31.8 26.3 5.6 6.1 Recurring EPS (THB) 1.03 1.36 1.72 1.82 1.93 DPS (THB) 0.65 0.72 0.81 1.00 0.91 Recurring P/E (x) 35.5 27.0 21.3 20.2 19.1 P/B (x) 5.14 4.57 3.94 3.59 3.28 P/CF (x) 20.1 19.7 16.4 14.2 13.5 1.8 2.0 2.2 2.7 2.5 EV/EBITDA (x) 13.1 12.6 12.5 11.6 11.0 Return on average equity (%) 14.6 20.6 23.8 18.6 Net debt to equity (%) 48.5 29.9 11.8 3.5 net cash 0.0 0.0 Dividend Yield (%) Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report Source: Company data, RHB Powered by EFATM Platform 18.0 18 2 . 1 0 . 2 0 0 . 3 0 0 . 0 0 0 Company Update, 7 November 2014 PTT Global Chemical (PTTGC TB) Buy (Maintained) Energy & Petrochemicals - Downstream Products Market Cap: USD8,207m Target Price: Price: THB70.70 THB59.80 Macro Risks 3Q14 Net Profit Rises 25% QoQ Growth Value PTT Global Chemical (PTTGC TB) Relative to Stock Exchange of Thailand Index (RHS) 84.0 118 79.0 108 74.0 98 69.0 88 64.0 78 59.0 68 54.0 50 45 40 35 30 25 20 15 10 5 58 Sep-14 Jul-14 May-14 Mar-14 Jan-14 Source: Bloomberg Avg Turnover (THB/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (THB) Free float (%) Share outstanding (m) Shareholders (%) PTT Plc. Thai NVDR HSBC (Singapore) Nominees PTE LTD 612m/19.0m 27.1 18.4 56.8 - 80.0 51 4,509 48.9 7.2 2.8 Absolute Relative YTD 1m 3m 6m 12m (24.4) 3.0 (8.8) (14.3) (24.6) (34.5) (45.9) Major commodity prices and spreads moved in line with our expectations. Refined product spreads were mixed, as fuel oil and jet spreads improved, while all refineries under our coverage recorded stock losses as crude oil prices dipped in 3Q14. Olefins and polymer spreads improved on higher product prices and lower feedstock costs. Meanwhile, aromatics spreads also improved over the past quarter with paraxylene (PX) prices having bottomed out in 2Q14. 3Q14 net profit came in at THB7.5bn (+25% QoQ, -21% YoY), in line with our expectations. PTT Global Chemical’s (PTTGC) refinery ran at a 102% utilization rate. It booked a stock loss of USD2.92/barrel (bbl), with hedging gains of USD0.70/bbl and a gross refining margin of USD3.83/bbl. Its polyethylene plants ran at a 104% utilization rate, while olefins spreads improved over the past quarter. Meanwhile, the company’s aromatics plants ran at a 83% utilization rate, with PX spreads rebounding from their lows in 2Q14 and benzene spreads remaining strong. Note that in 2Q14, PTTGC recognized an impairment loss of THB2.2bn as a result of business restructuring. 4Q14F outlook: olefins spreads at 2-year high. We expect its core earnings to be healthy in 4Q14. However, whether PTTGC will report further stock losses/gains will depend on the closing price of crude oil at the end of the year. We expect its plants to run at full capacity in the final quarter of the year. The latest commodity prices indicate that polymer spreads are now at 2-year highs. This is a result of lower feedstock prices – crude oil (USD83.99/bbl, -17% QoQ), condensate (USD724/ton, -17% QoQ) and naphtha (-21% QoQ) – while product prices have so far remained stable and strong. Forecasts and Valuations Share Performance (%) 0.8 (12.4) (26.6) Shariah compliant Kannika Siamwalla, CFA 66 2862 9744 [email protected] Dec-11 Dec-12 Dec-13F Dec-14F Dec-15F 500,305 565,617 552,881 527,437 539,554 Reported net profit (THBm) 30,033 34,001 33,277 27,304 36,191 Recurring net profit (THBm) 30,033 34,001 33,277 29,242 36,191 Recurring net profit growth (%) 84.0 13.2 (2.1) (12.1) 23.8 Recurring EPS (THB) 6.65 7.54 7.38 6.49 8.03 DPS (THB) 2.33 3.40 3.33 2.73 3.62 Recurring P/E (x) 8.98 7.93 8.10 9.21 7.44 P/B (x) 1.36 1.21 1.13 1.13 1.04 P/CF (x) 9.76 5.33 7.29 4.95 4.79 3.9 5.7 5.6 4.6 6.1 EV/EBITDA (x) 7.23 6.59 6.20 6.01 5.03 Return on average equity (%) 14.3 16.2 14.4 11.4 14.5 Net debt to equity (%) 46.8 32.3 32.2 37.5 27.1 0.0 0.0 0.0 Total turnover (THBm) Dividend Yield (%) Our vs consensus EPS (adjusted) (%) Source: Company data, RHB See important disclosures at the end of this report 2 . 3 0 . 1 0 0 . 2 0 0 PTTGC booked 3Q14 earnings of THB7.5bn (+25% QoQ, -21% YoY), and . 0 a THB2.8bn stock loss. Major commodity spreads moved in line with 0 our expectations, and olefins and aromatics spreads improved in 3Q. 0 PTTGC is now trading at distressed levels (-2SD from its forward 1.1x P/BV) but is still attractive vis-a-vis the regional peer average, as it has a much lower P/E, and higher ROE and ROA – even though its P/BV is slightly higher. BUY, with a THB70.70 TP (1.2x 2015 P/BV,18.4% upside). Nov-13 Vol m Price Close Powered by EFATM Platform 19 Results Review, 7 November 2014 Symphony Communication (SYMC TB) Communications - Telecommunications Market Cap: USD160m Neutral (from Buy) Target Price: Price: THB16.90 THB17.50 Macro Risks Earnings Drop On Network Depreciation Growth Value Symphony Communication (SYMC TB) Price Close Relative to Stock Exchange of Thailand Index (RHS) 21.0 173 20.0 165 19.0 157 18.0 149 17.0 141 16.0 133 15.0 125 14.0 117 13.0 109 12.0 101 11.0 12 93 Below expectations. Symphony Communication’s (Symphony) 3Q14 core earnings fell 26.2% QoQ and 36.7% YoY to THB38.1m, only 58%/54% of our/consensus FY14 forecasts. The disappointing earnings were mainly on higher depreciation, ie 14.2% QoQ and 55.7% YoY. Key highlights. Symphony’s 3Q14 revenue grew 2.6% QoQ and 20.1% YoY to THB329.6m, which represented 70% of our FY14 forecast. This was contributed by 3% QoQ and 120.9% YoY growth in international private leased circuit (IPLC), and an 11.3% QoQ and 19.6% YoY rise in private network services. Due to increasing demand for international connectivity, IPLC now contributed over 25% of its service income. By contrast, digital broadcast revenue dropped 11.6% QoQ as some customers suspended their contracts. Domestic network rental costs continued to decline (down 0.3% QoQ) on a network switch while international network rental fees shed 3.1% QoQ. Hence, EBITDA and net margins fell 5.4ppts and 10.4ppts YoY to 40.3% and 11.5% respectively. 8 6 Sep-14 Jul-14 May-14 Mar-14 Jan-14 2 Nov-13 Vol m 4 Source: Bloomberg 4.97m/0.15m 5.1 -3.4 12.7 - 19.8 49 300 16.3 15.6 8.1 Share Performance (%) Forecasts and risks. Symphony reaffirmed its FY14 YoY revenue growth guidance of 30% but revised digital broadcast to 20% (from 38%) and private networks to 25% YoY (from 30%) while IPLC will still grow 200% YoY. Key risks are higher-than-expected depreciation and extraordinary services expenses. Submarine cable. This investment is currently under final discussion with its partners and it expects to sign the contract in December. Valuation. We lowered our DCF-based TP to THB16.90 (WACC: 11.3%, TG: 3%) from THB19.60 previously, implying 26.6x FY15F P/E. We reduced our FY14F/FY15F earnings by 24.6%/26% to THB181m/THB197m (from THB240m/THB267m) respectively on unexpected high depreciation expenses from its new domestic network. YTD 1m 3m 6m 12m 28.7 2.9 4.8 0.0 38.9 Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F 29.0 Total turnover (THBm) 693 808 1,017 1,332 1,566 Reported net profit (THBm) 212 237 249 181 197 Recurring net profit (THBm) 212 238 246 181 197 Recurring net profit growth (%) 7.1 12.1 3.5 (26.6) 9.2 Recurring EPS (THB) 0.71 0.79 0.82 0.60 0.66 DPS (THB) 0.68 0.53 0.58 0.42 0.46 Recurring P/E (x) 24.7 22.1 21.3 29.0 26.6 P/B (x) 4.71 4.40 4.13 3.96 3.79 Vikran Lumyai +66 2862 9999 Ext 2028 P/CF (x) 16.8 11.5 9.6 6.6 7.1 [email protected] Dividend Yield (%) 3.9 3.0 3.3 2.4 2.6 EV/EBITDA (x) 11.8 10.8 11.5 10.3 8.6 Return on average equity (%) 19.1 20.5 20.2 13.9 14.6 Absolute Relative 7.2 0.7 1.2 (12.3) Shariah compliant Veena Naidu License No. 24418, 66 2862 9752 [email protected] Net debt to equity (%) Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report 3 . 2 0 . 3 0 0 . 2 0 0 Core 9M14 earnings declined 28.1% YoY on a 335% YoY surge in . 0 international network rental fees and higher depreciation (56.5% YoY) 0 from a domestic network expansion. Downgrade to NEUTRAL and lower 0 our DCF-based TP to THB16.90 (WACC: 11.16%, TG: 3%, 3.4% downside) from THB19.60. We lower our FY14/FY15F earnings 24.6%/26%, anticipating higher-than-expected depreciation expenses. 10 Avg Turnover (THB/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (THB) Free float (%) Share outstanding (m) Shareholders (%) Kranphol Asawasuwan Teerarat Pantarasutra Pongthep Thanakijsuntorn Source: Company data, RHB net cash net cash 30.8 46.5 62.0 (29.9) (40.2) Powered by EFATM Platform 20 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 Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. It is intended for circulation to the clients of RHB and its related companies. Any recommendation contained in this report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. 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DMG & Partners Research Guide to Investment Ratings Kuala Lumpur Hong Kong Singapore Malaysia Tel : +(60) 3 9280 2185 Fax : +(60) 3 9284 8693 19 Des Voeux Road Central, Hong Kong Tel : +(852) 2525 1118 Fax : +(852) 2810 0908 Tel : +(65) 6533 1818 Fax : +(65) 6532 6211 Buy: Share price may exceed 10% over the next 12 months Trading Buy:Malaysia Share price may exceed 15% over theRHB nextOSK 3 months, however longer-term outlook remains uncertain Research Office Securities Hong Kong Ltd. (formerly known DMG & Partners Neutral: Share mayInstitute fall within months as 12 OSK Securities Securities Pte. Ltd. RHB price Research Sdn the Bhdrange of +/- 10% over the next Take Profit: Target price has been attained. Look to accumulate at lower levels Hong Kong Ltd.) Level 11, Tower One, RHB Centre 10 Collyer Quay Sell: Share price may more than 10% over the next 12 months Jalanfall TunbyRazak 12th Floor #09-08 Ocean Financial Centre Lumpur World-Wide House Singapore 049315 Not Rated: Stock isKuala not within regular research coverage DISCLAIMERS Phnom Penh This research is issuedJakarta by DMG & Partners Research Pte Ltd and it is forShanghai general distribution only. It does not have any regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluate particular PT RHB OSK and Securities Indonesia (formerlyfinancial known asadviser RHB OSK (China) Advisory Ltd. into any RHBtransaction OSK Indochina Securities Limited (formerly investments consult an independent before makingInvestment any investments or Co. entering in relation to any securities or PT OSKmentioned Nusadana in this report. (formerly known as OSK (China) Investment known as OSK Indochina Securities Limited) investment instruments Securities Indonesia) Plaza CIMB Niaga Advisory Co. Ltd.) Suite 4005, CITIC Square No. 1-3, Street 271 Sangkat Toeuk Thla, Khan Sen Sok Tel : +(6221) 2598 6888 Tel : +(8621) 6288 9611 Fax: +(855) 23 969 171 The information contained herein has been obtained from sources 1168 we believed to be reliable but we do not make any representation or warranty nor 14th Floor Nanjing West Road Phnom Penh accept any responsibility or liability as to its accuracy, completeness orShanghai correctness. are subject to change Jl. Jend. Sudirman Kav.25 20041Opinions and views expressed in this report Cambodia without notice. Jakarta Selatan 12920, Indonesia China Tel: +(855) 23 969 161 Fax : +(6221) 2598or6777 Faxof: +(8621) 6288 9633or sell any securities. 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