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Deutsche Bank Markets Research
Asia
Pan-Asia
Strategy
Periodical
Asia Equities Daily Focus: Asian Edition
Date
30 October 2014
Today's research headlines Asian Edition
________________________________________________________________________________________________________________
Deutsche Bank AG/Hong Kong
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 148/04/2014.
Mark Lawson, CFA
Research Analyst
(+852) 2203 5934
INDEX EQUITIES Close 1D Chg %Chg
SHSZ300 2451.38 34.73 1.44
HSCEI 10724.15 175.32 1.66
HSI 23819.87 299.51 1.27
TWSE 8903.68 130.13 1.48
KOSPI 1961.17 35.49 1.84
FSSTI 3224.03 12.38 0.39
KLCI 1839.55 13.87 0.76
SENSEX 27098.17 217.35 0.81
NIFTY 8090.45 62.85 0.78
SET 1562.67 6.14 0.39
JCI 5074.06 72.75 1.46
PCOMP 7093.31 26.57 0.38
ASX200 5447.68 -4.92 -0.09
FOREX (vs US$) Close 1D Chg YTD
Rmb 6.11 0.00 -0.93
HK$ 7.75 0.00 -0.01
NT$ 30.37 -0.02 -1.85
Won 1047.33 -2.25 0.24
S$ 1.28 0.01 -1.17
M$ 3.27 0.00 0.10
Rupee 61.36 0.03 0.72
Baht 32.49 0.05 0.66
Rupiah 12083.00 -86.00 0.73
Peso 44.72 -0.06 -0.72
A$ 0.88 -0.01 -1.38
LATEST COMMODITY PRICES Commodities Close 1D Chg YTD
West Texas 82.20 0.78 -16.48
Brent 85.92 0.69 -22.47
CRB 274.90 2.81 -1.88
Copper 307.95 -1.35 -9.33
Gold (Spot) 1212.01 -16.54 0.53
Alum. (LME) 1996.00 13.00 10.87
Baltic Dry 1395.00 110.00 -38.74
Source: Bloomberg Finance LP
TOP STORIES Alibaba (BABA.N), USD99.68, Buy, Price Target USD112.70
Stepping more meaningfully into monetization: initiation of coverage
Alan Hellawell III
Page 6
JD.com (JD.OQ), USD24.78, Hold, Price Target USD26.60
The rising cost of market share gains; Initiate with Hold
Alan Hellawell III
Page 7
Softbank (9984.T), JPY7509.00, Buy, Price Target JPY9500.00
Initiation of coverage What's the encore? Peter Milliken Page 8
India 2020: Steel & iron ore Get set, Go Abhay Laijawala Page 9
RECOMMENDATION CHANGE United Microelectronics (2303.TW), TWD12.65, Buy, Price Target TWD15.00
Better-than-expected 28nm progress; upgrading to Buy
Michael Chou Page 10
ESTIMATES & TARGET PRICE CHANGES Wynn Macau (1128.HK), HKD28.05, Hold, Price Target HKD24.70
3Q beat; parentco raised DPS by 20% Karen Tang Page 11
Delta Electronics (2308.TW), TWD189.00, Buy, Price Target TWD213.00
Positive long-term outlook despite minor 3Q14 miss
Birdy Lu Page 12
Hankook Tire (161390.KS), KRW51900.00, Buy, Price Target KRW66000.00
3Q14 beat consensus, highest OPM since 1Q10, improving outlook
Sanjeev Rana Page 13
Dish TV (DSTV.BO), INR57.15, Buy, Price Target INR65.00
Is the broadcaster-DTH nexus edging out cable?
Gaurav Bhatia Page 14
Tech Mahindra Ltd (TEML.BO), INR2398.00, Buy, Price Target INR3300.00
Share gains drive Sept-Q beat; reiterating top Buy
Aniruddha Bhosale
Page 15
Nippon Accom. Fund (3226.T), JPY399000.00, Hold, Price Target JPY400000.00
Maintaining Hold Yoji Otani Page 16
STRATEGY/ECONOMICS Asia Pac Weekly ETF Market Review
Japan witness inflows while China saw outflows
Shan Lan Page 17
Data Flash Japan: September industrial production Mikihiro Matsuoka
Page 18
FX Daily How to lose friends and influence people: the SNB's dilemma
Oliver Harvey Page 19
DEutsche JApan View on FX Is failure to reach BoJ's inflation target a disappointment?
Taisuke Tanaka Page 20
US Daily Economic Notes The advance real GDP release rarely tells the full story
Joseph LaVorgna
Page 21
ADDITIONAL RESEARCH Air China (0753.HK), HKD4.89, Buy, Price Target HKD5.40
3Q14 post-results conference call takeaways - outlook improving
Vincent Ha Page 22
Bank of Communications (3328.HK), HKD5.80, Buy, Price Target HKD6.90
In-line 3Q14 results; nearing an inflection point on asset quality
Tracy Yu Page 23
BYD (1211.HK), HKD53.95, Hold, Price Target HKD45.90
3Q14 results in line; FY14 guidance a disappointment
Vincent Ha Page 24
30 October 2014
Asia Equities Daily Focus: Asian Edition
Page 2 Deutsche Bank AG/Hong Kong
ADDITIONAL RESEARCH China CITIC Bank (0998.HK), HKD5.00, Hold, Price Target HKD5.00
3Q14 results miss by 5%; private placement plan in focus
Tracy Yu Page 25
China consumer staples Buzzword added: unseasonably cool summer
Winnie Mak Page 26
CHINA EASTERN AIRLINES (0670.HK), HKD2.80, Buy, Price Target HKD2.85
3Q14 results broadly in-line with ex-FX earnings growth in 9M14
Vincent Ha Page 27
China Hongqiao Group Limited (1378.HK), HKD5.82, Buy, Price Target HKD8.30
Hongqiao New Material 3Q14 earnings beat estimates; Buy
James Kan Page 28
China Merchants Bank (3968.HK), HKD14.10, Buy, Price Target HKD18.97
3Q14 results - a small beat with a lot of moving parts
Tracy Yu Page 29
China Property Developers register strong sales momentum in October
Tony Tsang Page 30
China Property Hangzhou Tour Takeaways: strong recovery momentum continues
Tony Tsang Page 31
China Shipping Development Co. Ltd. (1138.HK), HKD5.10, Buy, Price Target HKD8.00
A soft 3Q probably priced in; a much better 4Q yet to be discounted; Buy.
Sky Hong Page 32
Hengdeli (3389.HK), HKD1.23, Hold, Price Target HKD1.58
Watch business in HK remains tough Anne Ling Page 33
CNBM (3323.HK), HKD7.22, Sell, Price Target HKD6.02
3Q14 first take; not as good as it seems Johnson Wan Page 34
CNOOC Ltd (0883.HK), HKD12.56, Hold, Price Target HKD13.17
Did we hear that correctly? David Hurd Page 35
Fosun Pharma (2196.HK), HKD26.80, Hold, Price Target HKD27.00
Stable growth ahead; outlook reaffirmed Jack Hu Page 36
Huadian Power (1071.HK), HKD5.60, Buy, Price Target HKD6.70
Key takeaways from conference call Michael Tong Page 37
ICBC (1398.HK), HKD5.11, Buy, Price Target HKD6.80
In-line 3Q14 results with a beat on NIM and capital position
Tracy Yu Page 38
Jiangxi Copper (0358.HK), HKD13.34, Hold, Price Target HKD13.70
Jiangxi Copper 3Q14 results beat DBe and consensus; Maintain Hold
James Kan Page 39
PetroChina (0857.HK), HKD9.84, Hold, Price Target HKD10.10
Soft oil - already impacting results David Hurd Page 40
AU Optronics (2409.TW), TWD13.70, Hold, Price Target TWD12.30
Capacity constraints may limit revenue growth opportunity in 4Q14
Seung Hoon Han
Page 41
Chunghwa Telecom (2412.TW), TWD92.40, Hold, Price Target TWD87.50
A new focus emerges Peter Milliken Page 42
Realtek Semiconductor (2379.TW), TWD111.00, Hold, Price Target TWD102.00
Steady growth with slightly rich valuation; Hold maintained
Jessica Chang Page 43
DGB Financial Group (139130.KS), KRW16350.00, Buy, Price Target KRW20000.00
Margin pressure starts to materialize Jeehoon Park Page 44
Doosan Infracore (042670.KS), KRW11250.00, Buy, Price Target KRW16000.00
3Q14 OP in line, NP lower on forex loss, investment thesis intact
Sanjeev Rana Page 45
Kepco E&C (052690.KS), KRW69500.00, Buy, Price Target KRW71000.00
Weaker than expected results from low service sales portion
Sanghi Han Page 46
LG Electronics (066570.KS), KRW67800.00, Hold, Price Target KRW84000.00
In-line 3Q14; LCD TV appears rosier than expected in 4Q14
Hanjoon Kim Page 47
LG Innotek (011070.KS), KRW101500.00, Hold, Price Target KRW135000.00
Stronger smartphone-related components, weaker LED
Hanjoon Kim Page 48
Naver (035420.KS), KRW778000.00, Buy, Price Target KRW889000.00
Share buyback and capital injection into Camp Mobile
Hanjoon Kim Page 49
Nexen Tire (002350.KS), KRW13550.00, Hold, Price Target KRW14400.00
3Q14 results largely in line, US faring better
Sanjeev Rana Page 50
DB EVENTS DB COMPANY ROADSHOWS
Ascendas India Trust: Post Results Update - HK 10/30 Minor International Public Company Ltd - Company Update - SG 10/30 Mindray Medical: Post Results Update - HK 11/ 5-7 Voya Financial, Inc.: Company Update - HK 11/17 & SG 11/18 AMATA Corporation Public Company Limited: Company Update - SG 12/1-2 DB ANALYST ROADSHOWS Shawn Park: 2015 Asia Petrochemical & Korea Oil Refining Sector Outlook - HK 10/30 Yuliang Chang: 4Q14 China Equity Strategy - Reduce Beta to Weather through the Downdraft - SG 10/30 Pandora Lee: CN Brokers + TW Financial Update - HK 11/4, KL 11/5 & SG 11/6-7 Alan Hellawell & Vivian Hao: China TMT Update - HK 10/30-31 Khoi LeBinh, Vincent Zoonekynd & Ada Lau: Asia Quant Strategy - HK 10/30-31 David Hurd & Shawn Park: Essentially Oil & Gas - HK 10/30 James Kan & Johnson Wan: Have We Bottomed Yet? - SEL 10/31/ KL 11/12/ SG 11/13-14/ HK 11/24-26 & BEI 12/17 Anne Ling & Winnie Mak: Essentially Consumer - HK 11/3 Alan Hellawell & Vivian Hao: Essentially Internet - HK 11/4 Anuj Singla: India Metal & Mining Sector Update - SG 11/4-5 & HK 11/6 Tony Tsang & Jason Ching: Golden 4Q14 taking shape - BEI 11/6 James Kan & Johnson Wan: Essentially Basic Materials - HK 11/10 Sanghi Han: Asia EPC and Korea Utilities Outlook - HK 11/10-11 & SG 11/12-13 Sanjeev Rana & Kevin Chong: Essentially Industrials (Shipbuilding) - SG 11/11 Sanjeev Rana: Korean Autos/Shipbuilding/Machinery Sector Update - SG 11/10-11 & HK 11/12-13 Manish Shukla: India Financials - SG 11/10-11 & HK 11/12-13 Zhiwei Zhang: China 2015 Macro Outlook: Slower Growth Leads to Interest Rate Cuts - SG 11/11-13 Johnson Wan & James Kam: Cement, Paper and Oilfield Services - HK 11/10-11, SHA 11/24-25, BEI 11/26, TPE 11/27-28, HK 12/8-9, SG 12/10-11 & SEL 12/15 Esther Chwei & Tracy Yu (SG only): Sector Update - SHA 11/11-12, BEI 11/14, KL 11/17, SG 11/18-19 & HK 11/25-26 Vincent Ha & Sanjeev Rana: Essentially Autos & Auto Parts - HK 11/12 Michael Tong: China Utility/Renewable/Environmental Sector 2015 Outlook - BJ 11/18-19 & SHA 11/20-21 Joe Liew, Aun-Ling Chia & Kevin Chong: Essentially Malaysia -SG 11/18 Yaron Kinar: American Life Insurance Industry Update - HK 11/19 Jessica Chang: Taiwan IC design, Distribution and Touch Panel - SHA 11/19, BEI 11/20, SG 1/6-7 Jan & HK 1/8-9 Joe Liew: Top Picks in Singapore / Malaysia, HK 11/19-20, KL 12/1 & SG 12/2 & 5 Tracy Yu, Yuliang Chang & team: Essentially China Macro & Financials - HK 11/ 21 Seunghoon Han & Hanjoon Kim: Korea Technology/Hardware/Internet Sector Update - HK 11/24-25 & SG 11/26-27 Nash Shivaruchiwong: Thai Property Sector Outlook - HK 11/24-25, KL 11/26 & SG 11/27-28 Michael Chou: Asian Tech Growth Outlook and Semi Updates - SG 11/24-25 & HK 11/26-27 Abhay Laijawala & Team: Essentially India - 11/25 Esther Chwei, Pandora Lee & Franco Lam: Essentially China Insurance & Brokers / Taiwan Financials / HK Banks - HK 11/25 Seung Hoon Han & Han Joon Kim: Essentially Korea Technology - HK 11/25 Abhay Laijawala & team: Essentially India - HK 11/ 26 Peter Milliken & team: Essentially Telecommunications -HK 11/ 27 Michael Tong: Essentially Power - HK 12/4 Khoi Le Binh: Essentially Quantitative Research - HK 12/5 Tony Tsang & Jason Ching: Essentially Property - HK 12/8 Karen Tang: Essentially Gaming & Lodging: - HK 12/10 Joe Liew, Joy Wang, Kevin Chong & Franco Lam: Essentially Singapore - SG 12/4 Javed Jussa & Khoi LeBinh: US & Asia Quantitative Strategy - SHA 12/4, HK 12/5 & SG 12/8 Tony Tsang, Jason Ching & Joy Wang: Essentially Property - SG 12/16 Peach Patharavanakul: Thai Bank-Econ Market, HK 12/1-2 & SG 12/3-4 Joe Phanich: Thailand Telecom Upcountry Mobile Data Usage + Energy sector update, KL 12/8, SG 12/9-10 & HK 12/11-12 Vincent Ha: China Auto/Auto Dealer Sector Update - SHA 12/9-10, BJ 12/11-12, HK 12/15-16, SEL 1/7, SG 1/19-20 Vincent Ha & Joe Liew: Essentially Auto & Industrials (Airlines) - SG 1/20
Source: Deutsche Bank
30 October 2014
Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 3
SK Telecom (017670.KS), KRW269500.00, Hold, Price Target KRW320000.00
3Q14 disappoints; cautious outlook on H/S reform law earnings impact
John Kim Page 51
Singapore Property Feedback from investor meetings Joy Wang Page 52
Gamuda (GAMU.KL), MYR4.99, Buy, Price Target MYR5.38
Gamuda-MMC appointed as PDP for MRT 2
Aun-Ling Chia Page 53
Bank BJB (BJBR.JK), IDR745.00, Buy, Price Target IDR1150.00
Weak 9M14 results as NPL crept higher Raymond Kosasih
Page 54
CIMB Niaga (BNGA.JK), IDR920.00, Hold, Price Target IDRNA
3Q14 profit free falling (-60% qoq); below DB on high provision
Raymond Kosasih
Page 55
Matahari Department Store (LPPF.JK), IDR15150.00, Buy, Price Target IDR20000.00
3Q14 results are largely on track, despite slow expansion
Adi Putra Page 56
Modernland (MDLN.JK), IDR499.00, Buy, Price Target IDR640.00
Slow 3Q14...as expected Edeline Rasjid Page 57
Summarecon (SMRA.JK), IDR1235.00, Buy, Price Target IDR1580.00
Expanding geographical presence Albert Saputro Page 58
XL Axiata (EXCL.JK), IDR5475.00, Buy, Price Target IDR7400.00
3Q14 results : Slow top line growth; below expectations
Raymond Kosasih
Page 59
Minor International PLC (MINT.BK), THB34.50, Hold, Price Target THB33.00
Expect mild YoY earnings growth in 3Q14
Chalinee Congmuang
Page 60
Siam Cement (SCC.BK), THB434.00, Buy, Price Target THB508.00
Results beat on FX gain Aekapop Guruvanich
Page 61
Grasim (GRAS.BO), INR3438.25, Buy, Price Target INR4075.00
2Q earnings come ahead as VSF profits rebound from low base
Chockalingam Narayanan
Page 62
PNB (PNBK.BO), INR903.05, Buy, Price Target INR1000.00
CMD fails to get an extension; await new government policy
Manish Karwa Page 63
Sesa Sterlite (SESA.BO), INR255.30, Hold, Price Target INR265.00
Operating performance in line; coal cost increase affects aluminum
Anuj Singla Page 64
Tata Motors Ltd (TAMO.BO), INR525.10, Buy, Price Target INR560.00
Updating our 2QFY15 forecasts for lower JLR wholesales
Srini Rao Page 65
Titan (TITN.BO), INR411.00, Buy, Price Target INR420.00
Competition has relaunched advance purchase scheme
Manoj Menon Page 66
Advance Residence Inv. (3269.T), JPY255600.00, Hold, Price Target JPY250000.00
Maintaining Hold Yoji Otani Page 67
Fukuoka FG (8354.T), JPY518.00, Hold, Price Target JPY526.00
Fukuoka FG announces upward guidance revision
Yoshinobu Yamada
Page 68
Bridgestone (5108.T), JPY3535.50, Buy, Price Target JPY4450.00
Nikkei preview of 3Q results Kurt Sanger Page 69
Mitsui Fudosan (8801.T), JPY3130.00, Hold, Price Target JPY3350.00
Industrial production momentum continues to follow '97 pattern
Yoji Otani Page 70
Keyence (6861.T), JPY47615.00, Buy, Price Target JPY52000.00
2Q results surprise: overshoot and first dividend hike in 7 years
Takeshi Kitaura Page 71
Makita (6586.T), JPY5770.00, Hold, Price Target JPY5500.00
1H guidance raised, but effective downgrade for 2H profit unexpected
Takeshi Kitaura Page 72
MegaChips (6875.T), JPY1404.00, Hold, Price Target JPY1400.00
Acquiring MEMS SiTime Corp for $200m Yasuo Nakane Page 73
Nomura Holdings (8604.T), JPY636.40, Buy, Price Target JPY900.00
2Q: Lower tax rate boosted NP. Buyback is 2x-plus vs our expectation
Masao Muraki Page 74
Toshiba Tec (6588.T), JPY688.00, Buy, Price Target JPY730.00
TGCS earnings contribution delayed; rise in large-scale projects' sales likely
Yu Yoshida Page 75
The notes and reports contained in this Daily are all excerpts of previously published documents. Please refer to the published
notes on our web site for details on risks, valuations and earnings changes.
30 October 2014
Asia Equities Daily Focus: Asian Edition
Page 4 Deutsche Bank AG/Hong Kong
DAILY REVISIONS
RATING CHANGES
Company Ticker Date New Previous
Alibaba BABA.N 29-Oct Buy NR
JD.com JD.OQ 29-Oct Hold NR
NMDC NMDC.BO 29-Oct ▼ Hold Buy
NAMI.BO 29-Oct ▼ Hold Buy
Steel Authority of India SAIL.BO 29-Oct ▲ Buy Hold
United Microelectronics 2303.TW 29-Oct ▲ Buy Hold
TARGET PRICE CHANGES
Company Ticker Date New Previous Chg (%)
Alibaba [Buy] BABA.N 29-Oct 112.70
Bangkok Bank [Buy] BBL.BK 28-Oct ▼ 222.00 223.00 -0.4
Delta Electronics [Buy] 2308.TW 29-Oct ▼ 213.00 220.00 -3.2
Dish TV [Buy] DSTV.BO 29-Oct ▼ 65.00 68.00 -4.4
Hankook Tire [Buy] 161390.KS 29-Oct ▲ 66,000.00 60,000.00 10.0
JD.com [Hold] JD.OQ 29-Oct 26.60
JSW Steel [Buy] JSTL.BO 29-Oct ▲ 1,578.00 1,542.00 2.3
NMDC [Hold] NAMI.BO 29-Oct ▼ 173.00 214.00 -19.2
NMDC.BO 29-Oct ▼ 173.00 214.00 -19.2
Steel Authority of India [Buy] SAIL.BO 29-Oct ▲ 100.00 92.00 8.7
Tata Steel [Buy] TISC.BO 29-Oct ▲ 675.00 665.00 1.5
Tech Mahindra Ltd [Buy] TEML.BO 29-Oct ▲ 3,300.00 3,000.00 10.0
Uni-President China [Hold] 0220.HK 29-Oct ▲ 6.70 6.20 8.1
United Microelectronics [Buy] 2303.TW 29-Oct ▲ 15.00 14.00 7.1
Wynn Macau [Hold] 1128.HK 29-Oct ▲ 24.70 23.00 7.4
EPS REVISIONS
Company Ticker Date FY New Previous Chg (%)
Alibaba [Buy] BABA.N 29-Oct Mar 14 11.80
Mar 15 12.92
Mar 16 19.82
Mar 17 26.61
Delta Electronics [Buy] 2308.TW 29-Oct Dec 14 ▼ 8.83 8.96 -1.4
Dec 15 ▼ 10.64 10.97 -3.0
Dec 16 ▼ 13.16 13.62 -3.4
Dish TV [Buy] DSTV.BO 29-Oct Mar 14 ▲ -0.36 -0.53 32.6
Mar 15 -0.26 2.35 nm
Mar 16 ▼ 2.60 3.69 -29.4
Mar 17 4.07
Fosun Pharma [Hold] 2196.HK 29-Oct Dec 15 ▲ 0.68 0.68 0.1
Dec 16 ▲ 0.85 0.85 0.3
Grasim [Buy] GRAS.BO 29-Oct Mar 15 ▼ 234.80 242.86 -3.3
Mar 16 ▼ 291.99 302.63 -3.5
Mar 17 386.71
Hankook Tire [Buy] 161390.KS 29-Oct Dec 14 ▲ 5,847.89 5,686.52 2.8
Dec 15 ▲ 6,265.82 6,265.12 0.0
Dec 16 ▲ 6,644.16 6,643.99 0.0
Indofood [Buy] INDF.JK 29-Oct Dec 14 ▲ 466.09 423.71 10.0
Dec 15 ▲ 550.78 550.77 0.0
JD.com [Hold] JD.OQ 29-Oct Dec 13 0.26
Dec 14 -0.58
Dec 15 -0.12
Dec 16 0.49
JSW Steel [Buy] JSTL.BO 29-Oct Mar 15 ▲ 104.78 103.60 1.1
Mar 16 ▲ 120.19 113.83 5.6
Mar 17 ▲ 142.05 138.83 2.3
Manila Electric Company [Buy] MER.PS 29-Oct Dec 14 ▲ 15.84 15.40 2.9
Dec 15 ▲ 15.97 15.54 2.7
Dec 16 ▲ 13.92 13.66 1.9
Matahari Department Store [Buy] LPPF.JK 29-Oct Dec 14 ▼ 514.05 554.62 -7.3
Dec 15 ▼ 697.73 719.06 -3.0
30 October 2014
Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 5
DAILY REVISIONS
EPS REVISIONS
Company Ticker Date FY New Previous Chg (%)
NMDC [Hold] NMDC.BO 29-Oct Mar 15 ▼ 18.32 18.69 -2.0
Mar 16 ▼ 19.13 19.77 -3.2
Mar 17 ▼ 21.11 21.31 -1.0
Realtek Semiconductor [Hold] 2379.TW 29-Oct Dec 14 ▲ 6.43 6.37 0.9
Dec 15 ▲ 7.03 7.03 0.0
Dec 16 ▲ 7.47 7.47 0.0
Steel Authority of India [Buy] SAIL.BO 29-Oct Mar 15 ▼ 7.07 8.43 -16.2
Mar 16 ▼ 8.53 8.60 -0.8
Mar 17 ▼ 10.16 10.38 -2.2
Tata Steel [Buy] TISC.BO 29-Oct Mar 15 ▼ 54.42 54.69 -0.5
Mar 16 ▲ 63.97 63.10 1.4
Mar 17 ▲ 79.41 73.13 8.6
Tech Mahindra Ltd [Buy] TEML.BO 29-Oct Mar 15 ▼ 150.42 151.32 -0.6
Mar 16 ▼ 190.81 191.87 -0.6
Mar 17 ▼ 214.19 215.38 -0.6
Tenwow [Buy] 1219.HK 29-Oct Dec 14 ▼ 0.17 0.18 -5.4
Dec 15 ▲ 0.20 0.20 0.4
Dec 16 ▼ 0.23 0.23 -0.2
Tingyi [Hold] 0322.HK 29-Oct Dec 14 ▼ 0.09 0.09 -5.2
Dec 15 ▼ 0.12 0.12 -1.1
Dec 16 ▼ 0.13 0.13 -1.3
Tsingtao Brewery Co Ltd-H [Hold] 0168.HK 29-Oct Dec 14 ▼ 1.52 1.59 -4.5
Dec 15 ▼ 1.92 1.92 -0.1
Dec 16 ▼ 2.28 2.29 -0.2
Uni-President China [Hold] 0220.HK 29-Oct Dec 14 ▼ 0.11 0.15 -28.0
Dec 15 ▼ 0.21 0.23 -6.0
Dec 16 ▼ 0.27 0.29 -6.1
United Microelectronics [Buy] 2303.TW 29-Oct Dec 14 ▲ 0.92 0.79 15.5
Dec 15 ▲ 0.93 0.70 33.9
Dec 16 ▲ 0.98 0.68 43.2
Wynn Macau [Hold] 1128.HK 29-Oct Dec 14 ▲ 1.38 1.34 3.4
Dec 15 ▲ 1.26 1.18 6.4
Dec 16 ▲ 1.31 1.23 6.3 Source: Deutsche Bank
Rating
BuyAsiaChina
TechnologySoftware & Services
Company
AlibabaDate29 October 2014
Initiation of Coverage
Stepping more meaningfully into monetization: initiation of coverage
Reuters Bloomberg Exchange Ticker BABA.N BABA US NYS BABA
Forecasts And Ratios
Year End Mar 31 2013A 2014A 2015E 2016E 2017E
Sales (CNYm) 34,517.0 52,504.0 78,163.6 108,472.6 136,859.6
EBITDA (CNYm) 11,731.0 26,303.0 31,067.9 50,101.9 68,916.2
Reported NPAT (CNYm) 8,404.0 23,076.0 31,868.3 40,992.2 57,802.6
Reported EPS FD(CNY) 3.52 9.90 12.65 15.67 21.84
DB EPS FD(CNY) 5.76 11.80 12.92 19.82 26.61
DB EPS growth (%) 141.4 105.0 9.5 53.4 34.3
PER (x) – – 46.3 30.2 22.5
EV/EBITDA (x) – – 42.5 25.3 17.4
Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close
Seeking "all-in-one" relevance
________________________________________________________________________________________________________________
Price at 27 Oct 2014 (USD) 97.79
Price target - 12mth (USD) 112.70
52-week range (USD) 97.79 - 84.95
NASDAQ 100 4,046
Alan Hellawell III
Research Analyst (+852) 2203 6240 [email protected]
Vivian Hao
Research Analyst (+852) 2203 6241 [email protected]
Ross Sandler
Research Analyst (+1) 415 262-2028 [email protected]
Price/price relative
84
88
92
96
100
9/14
Alibaba
NASDAQ 100 (Rebased)
Performance (%) 1m 3m 12m
Absolute 8.1 – –
NASDAQ 100 -0.2 2.0 19.6
Source: Deutsche Bank
Alibaba marked the first stage of its evolution with the roll-out of a largely un-monetized and highly scalable platform. Similar to its peers, with scale firmly established, we see Alibaba pursuing ever deeper forms of monetization through business model shift, heightened competition for the advertising tools on its platform, and the introduction of a growing array of valuable ancillary services. We initiate coverage with a Buy in expectation of further secular growth from core e-commerce, and view largely M&A-driven diversification as potential options to the business.
E-commerce should remain core growth driver; Ali seeks broader relevance Alibaba is by magnitudes the world's largest e-commerce platform. The company seeks to leverage its massive traffic volumes, peerless big data capabilities and other scale advantages to broaden its dominance in not just e-commerce, but effectively every significant emerging paradigm in China internet. The company has meaningful investment in areas ranging from on-line finance to offline-to-online (O2O), to mobile to social and entertainment.
Margins should bottom in FY15, and inflect Albeit off an already large base, we expect the company to continue to enjoy robust revenue growth thanks to: 1) a mobile take rate ramp, 2) monetization improvement thanks to faster Tmall growth and 3) favorable shift from category mix (eg. O2O segments) to boost take-rate. As a result, we expect the co to realize margin improvement from FY16 onward as leverage re-appears.
Initiate coverage with a Buy and a target price of $112.7 Our target price of $112.7 is based on a weighted average of 1) 44x CY15E non-GAAP PER (50% weighting), 2) 18x CY15E EV/EBITDA (30% weighting) and 3) a residual 20% weighting assigned to a DCF based fair value. TP implies a CY15E PER of 38x, a PEG of 1.1x against a CY15~17E earnings CAGR of 35.1%, a CY15E EV/EBITDA at 30x. Implied PE is in-line with selected global comps, EV/EBITDA is at a significant premium. Key risks: slower than expected mobile take-rate improvement, macro slowdown and competition on mobile.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 6 Deutsche Bank AG/Hong Kong
Rating
HoldAsiaChina
TechnologySoftware & Services
Company
JD.comDate29 October 2014
Initiation of Coverage
The rising cost of market share gains; Initiate with Hold
Reuters Bloomberg Exchange Ticker JD.OQ JD US NMS JD
Forecasts And Ratios
Year End Dec 31 2012A 2013A 2014E 2015E 2016E
Sales (CNYm) – 69,340.0 112,417.2 163,317.0 219,713.9
Reported EPS FD(CNY) – -0.06 -5.20 -1.93 -1.63
DB EPS FD(CNY) – 0.26 -0.58 -0.12 0.49
Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close
Initiate coverage of JD.com with Hold on fair valuation
________________________________________________________________________________________________________________
Price at 28 Oct 2014 (USD) 24.78
Price target - 12mth (USD) 26.60
52-week range (USD) 32.64 - 20.10
NASDAQ 100 4,046
Alan Hellawell III
Research Analyst (+852) 2203 6240 [email protected]
Vivian Hao
Research Analyst (+852) 2203 6241 [email protected]
Price/price relative
16
20
24
28
32
36
5/14
JD.com
NASDAQ 100 (Rebased)
Performance (%) 1m 3m 12m
Absolute -8.0 -16.0 –
NASDAQ 100 -0.2 2.0 19.6
Source: Deutsche Bank
We expect JD, as a leading ecommerce platform in China, to continue to gain market share by leveraging its fully-integrated fulfillment infrastructure and in-house delivery service. We expect margins to improve gradually thanks to category expansion toward higher margin non-3C products and marketplace growth. JD's partnership with Tencent should provide potential mobile upside. We remain cautious on profitability given heavy capex and aggressive efforts around lower tier market penetration. We initiate with a DCF and EV/sales valuation approach, suggesting a TP of $26.6. Hold.
B2C ecommerce leader with comprehensive logistics network Leveraging its strong merchandise sourcing capabilities and comprehensive logistics network, we expect JD.com to continue to outpace industry growth rates and further cultivate market leadership. We expect overall GMV to grow 93% YoY and 56% YoY in 2014 and 2015, compared to B2C industry growth of 73% and 54% according to iResearch. We, however, expect ongoing fulfillment infrastructure investment and geographical expansion to weigh on profitability in the coming years despite improving customer experience.
Category expansion and marketplace growth drive margin improvements Having started as a specialist 3C retailer, JD.com has since expanded into home appliances and general merchandise via its direct sales and marketplace models. We expect a marketplace ramp and favorable product mix shift away from 3C toward higher margin products to help drive margin expansion over time. We expect GM and non-GAAP NM to reach 11.7%/13.5%/13.8% and -0.6%/-0.1%/+0.3% in 2014/15/16E, respectively.
Initiate coverage with Hold rating and TP of US$26.6 We derive our 12-month target price of US$26.6 based on an equally weighted DCF valuation and 1.2x EV/sales approach on FY2015 estimates. We adopt a 12.3% WACC and a terminal growth rate of 3% for DCF. We set 1.2x 2015E EV/sales based on comparable domestic names including VIPS, Dangdang, and Jumei. JD’s shares underperformed the Nasdaq index by ~19% in the last three months, and currently trade at 1.1x EV/sales. Hold on fair valuation. Better integration with Wechat/Weixin and QQ mobile, and faster-than-expected category/marketplace expansion could provide potential upside. Key downside risks include more intensive peer competition and uncertain margin impact relating to lower tier city penetration.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 7
Rating
BuyJapan
Telecom
Company
SoftbankDate29 October 2014
Initiation of Coverage
Initiation of coverageWhat's the encore?
Reuters Bloomberg Exchange Ticker 9984.T 9984 JP TYO 9984
ADR Ticker ISIN SFTBY US83404D1090
Forecasts And Ratios
Year End Mar 31 2014A 2015E 2016E 2017E
Sales (JPYbn) 6,667 7,648 7,698 7,743
Operating profit (JPYbn) 887 1,151 1,158 1,159
Net profit (JPYbn) 527 1,050 598 676
EPS (JPY) 439.0 458.2 497.1 561.4
EBITDA (JPYbn) 1,787 2,208 2,274 2,283
P/E (x) 15.5 16.4 15.1 13.4
EV/EBITDA (x) 9.1 7.9 7.6 7.4
ROE (%) 29.5 43.9 19.5 19.1
P/BV (x) 4.8 3.2 2.7 2.4
Source: Deutsche Bank estimates, company data
Building the cast for an encore
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (JPY) 7,509
Price target - 12mth (JPY) 9,500
52-week range (JPY) 9,174 - 6,749
Peter Milliken
Research Analyst (+852) 2203 6190 [email protected]
Price/price relative
1500
3000
4500
6000
7500
9000
10500
10/12 4/13 10/13 4/14
Softbank
TOPIX (Rebased)
Performance (%) 1m 3m 12m
Absolute -3.8 -0.4 2.4
TOPIX -6.4 -3.0 4.9
Source: Deutsche Bank
Stock data
Market cap (JPYbn) 9,020
Market cap (USDm) 83,517
Shares outstanding (m) 1,201.3
Major shareholders –
Free float (%) 80
Avg daily value traded (USDm)
303.6
Source: Deutsche Bank
Key indicators (FY1)
ROE (%) 43.9
Net debt/equity (%) 191.6
Book value/share (JPY) 2,353.09
Price/book (x) 3.2
Net interest cover (x) 3.7
Operating profit margin (%) 15.0
Source: Deutsche Bank
We believe Softbank's Alibaba hangover is about to be shaken off. The lifting of analyst coverage restrictions should highlight Softbank's value while also indicating the arbitrage benefits of getting Alibaba exposure through its shareholder - and so perhaps reversing technical selling of Softbank. The stock's 40% discount to sum-of-parts is unusually wide given the quality of management. We expect the stock to bounce back through year-end as it comes back into focus. We initiate with Buy, and a JPY9,500 price target.
Key question 1: Is there more value hiding within the group? We surveyed the company’s investments and failed to find evidence of large scale value creation aside from the well known listcos. We highlight that Softbank has been unusual in generating two top 30 internet stocks by market cap, but found no evidence suggesting another winner bubbling to the surface, and consider recent hires a flag that growth will largely be acquisition-based ahead. The biggest near-term value drivers appear to be existing key assets.
Key question 2: How large a holdco discount should there be? We measured discounts on similar firms to conclude what an appropriate holdco discount is. We found evidence for holdco discounts in Asia to be mixed, and for integrated operators, tended to be small. As such, we consider Softbank’s wide discount an anomaly. The opportunity to invest alongside one of Asia’s leading entrepreneurs, at a substantial discount to NAV, should allow long-term outperformance for investors.
Valuation and risks We value the company based on sum-of-parts at ¥9,500/share. The company trades on just 16.4x P/E for FY3/15, which is below the 18x median of regional telco peers, and occurs despite 66% of its net value coming from Alibaba, which itself trades on internet valuations. The key risk in our view is high exposure to Alibaba and internet multiple sustainability.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 8 Deutsche Bank AG/Hong Kong
AsiaIndiaResources Metals & Mining
Industry
India 2020:Steel & iron ore
Date30 October 2014
FITT Research
Get set, Go
Direct beneficiary of East Asian economic model
________________________________________________________________________________________________________________
Abhay Laijawala
Research Analyst (+91) 22 7180 4031 [email protected]
Anuj Singla
Research Analyst (+91) 22 7180 4172 [email protected]
Key Changes
Company Target Price Rating
TISC.BO 665.00 to 675.00(INR)
-
JSTL.BO 1,542.00 to 1,578.00(INR)
-
SAIL.BO 92.00 to 100.00(INR)
Hold to Buy
NMDC.BO 214.00 to 173.00(INR)
Buy to Hold
Source: Deutsche Bank
Top picks
Tata Steel (TISC.BO),INR472.50 Buy
JSW Steel (JSTL.BO),INR1,248.75 Buy
Source: Deutsche Bank
Companies Featured
Tata Steel (TISC.BO),INR472.50 Buy 2014A 2015E 2016EP/E (x) 9.2 8.7 7.4EV/EBITDA (x) 6.3 5.9 5.3Price/book (x) 0.9 1.0 0.9
JSW Steel (JSTL.BO),INR1,248.75 Buy 2014A 2015E 2016EP/E (x) 10.3 11.9 10.4EV/EBITDA (x) 5.8 6.3 5.6Price/book (x) 1.2 1.3 1.2
Steel Authority of India (SAIL.BO),INR83.10
Buy
2014A 2015E 2016EP/E (x) 14.5 11.8 9.7EV/EBITDA (x) 11.3 9.3 7.4Price/book (x) 0.7 0.8 0.7
NMDC (NMDC.BO),INR164.75 Hold 2014A 2015E 2016EP/E (x) 7.8 9.0 8.6EV/EBITDA (x) 4.0 4.7 4.7Price/book (x) 1.8 2.0 1.8Source: Deutsche Bank
The Modi administration’s policy initiatives clearly point to India embarking on an East Asian economic model. We expect the steel sector to be a direct beneficiary of the two most important elements of the East Asian model (1) the move to materials intensive growth from an aggressive focus on heavy infrastructure build out and revitalizing manufacturing, and (2) a conscious attempt to keep the currency weak. Importantly, India’s transition to materials intensive growth will coincide with a period of subdued raw material prices.
Our comprehensive 2020 analysis throws up three non consensus takeaways (1) Indian steel consumption growth to reach an inflection point of 15% YoY in FY18, (2) Domestic production will significantly lag consumption despite large expansions by incumbent companies. India to emerge as a large net importer of steel by FY18 with imports constituting 17% of total consumption by 2020, (3) iron ore imports should peak in FY15 at an historic high of 15.5mt. Abating regulatory headwinds over next 2 years should ensure that India not only remains self sufficient in iron ore but also reverts back to being a net exporter from FY16, though at far lower levels compared to its historical averages.
Virtuous cycle of cash flow, profitability and balance sheet improvement Our comprehensive 2020 analysis of steel stocks under coverage suggests (i) the combination of materials intensive growth, INR depreciation and a subdued raw material pricing outlook will expand RoEs (by 870bps to a sector average of 16.2%) and significantly improve cash flows of incumbent companies over the next 5 years resulting in material improvement in balance sheets which have been a key concern, (ii) we see compelling shareholder value creation over FY14-20 in SAIL, Tata Steel, and JSW Steel driven by volume growth, product mix improvement and balance sheet deleveraging.
SAIL – upgrading to Buy, NMDC – downgrading to Hold SAIL’s extensive expansion & modernization plan has faced inordinate delays, leading to a declining earnings trajectory. We believe that the worst of the delays are now behind and we should see an improving volume and profitability trajectory as newly commissioned, more efficient facilities ramp up and benefits of operating leverage begin to flow. For NMDC, we see pricing headwinds in FY16 driven by (i) weak international iron ore pricing outlook, which is likely to encourage substitution of domestic supplies by imports, (ii) improving iron ore supply situation in India as the regulatory headwinds abate.
Top picks: Tata Steel, JSW Steel The proposed commissioning of the Odisha Greenfield plant within a twelve month period of achieving optimal ramp up of legacy Jamshedpur operation will be transformational for Tata Steel. Robust cash flow generation in India will allow company to fund Odisha Phase II from internal generation helping alleviate investor angst over perennially stretched balance sheet. Our positive investment thesis for JSW Steel is built around (i) Value harnessing initiatives at Dolvi, (ii) gains from value addition at Vijayanagar as company moves towards a product differentiation strategy.
Valuations and risks We value Indian steel and mining stocks on EV/EBITDA basis. Key risks: rise in steel imports from China, continuing regulatory constraints on iron ore mining.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 9
Rating
BuyAsiaTaiwan
TechnologySemiconductor & Equipment
Company
UnitedMicroelectronics
Date29 October 2014
Recommendation Change
Better-than-expected 28nm progress; upgrading to Buy
Reuters Bloomberg Exchange Ticker2303.TW 2303 TT TAI 2303
ADR Ticker ISINUMC US9108734057
Forecasts And Ratios
Year End Dec 31 2012A 2013A 2014E 2015E 2016E
DB EPS FD(TWD) 0.62 1.00 0.92 0.93 0.98
DB EPS growth (%) -26.9 61.3 -8.3 1.7 4.8
PER (x) 20.8 12.3 13.8 13.6 12.9
Price/BV (x) 0.7 0.7 0.7 0.7 0.7
Yield (net) (%) 3.1 4.1 3.6 3.7 3.9
ROE (%) 3.8 6.2 5.5 5.5 5.6
Source: Deutsche Bank estimates, company data1 DB EPS is fully diluted and excludes non-recurring items2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close
Raising estimates
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (TWD) 12.65
Price target - 12mth (TWD) 15.00
52-week range (TWD) 16.50 - 11.90
Taiwan Stock Exchange (TWSE)
8,774
Michael Chou
Research Analyst(+886) 2 2192 [email protected]
Kevin Wang
Research Analyst(+886) 2 2192 [email protected]
Key changes
Rating Hold to Buy
Price target 14.00 to 15.00 7.1%
Sales (FYE) 135,213 to 139,692
3.3%
Op prof margin (FYE)
6.0 to 7.2 19.8%
Net profit (FYE)
9,908.1 to 11,444.7
15.5%
Source: Deutsche Bank
Price/price relative
9
11
12
14
15
17
18
10/12 4/13 10/13 4/14
United Microelectron
Taiwan Stock Exchang (Rebased)
Performance (%) 1m 3m 12m
Absolute 0.4 -13.7 0.0
Taiwan Stock Exchange (TWSE)
-2.1 -6.6 4.2
Source: Deutsche Bank
DB EPS estimates vs. consensus
Year 2014E 2015E
DB's estimates (NT$) 0.92 0.93
Consensus estimates (NT$)
0.80 0.82
DB over consensus(%)
15% 14%
Source: Bloomberg Finance LP, Deutsche Bank estimates
UMC guides for more than 6% of sales from 28nm, and more than 50% of 28nm from high-k metal gate (HKMG) in 4Q14. This is better than our estimates of 5% and 30%, respectively. We attribute this to faster-than-expected yield rate improvement and customers' migration to 28nm from 65/40nm for ultra/low-end mobile chips. We increase our 2014-16 EPS forecasts by 16%/34%/43% to factor in faster-than-expected 28nm ramp. We now expect its 28nm sales to account for 14%/20% of total foundry operation's sales in 2015-16 vs. our previous estimates of 10%/15%. We lift our target price from NT$14 to NT$15 and upgrade our rating from Hold to Buy.
3Q14 missedEPS was NT$0.23 in 3Q14 (down 16% QoQ and YoY), below our estimate of NT$0.29 and the consensus estimate of NT$27. This stemmed from lower-than-expected margins. GM stayed flat QoQ at 24% in 3Q14, below our estimate of 26.3%. Consolidated OPM (foundry and solar operation) dropped 3.3ppt to 4.8% in 3Q14, below our estimate of 9.0%. This was due to an impairment loss from a solar subsidiary company.
4Q14 guidance beatsManagement guides for 2% QoQ sales decline in 4Q14 (3% QoQ shipmentdecline and 1% QoQ ASP increase), better than our estimate of 8% QoQ sales decline. This is attributable to ASP expansion and better-than-expected 28nm sales portion in 4Q14. Management expects foundry operatiomid-20% in 4Q14, higher than our estimate of 20.5%. Management guides that 28nm GM could reach 12-inch average GM by mid-2015, earlier than our estimate of mid-2016 due to better-than-expected yield rate improvement.
Valuation and risks We shift our target price multiple from 0.8x 2014-15E average P/B to 0.9x 2015E P/B. This is 12% higher than the fair P/B of 0.8x, generated by the Gordon Growth Model (6.5% LT ROE, 7.63% cost of equity and 2.5% LTindustry growth). This premium reflects our positive view that the improved 28nm progress should enable earnings growth in 2015-16 vs. our previous estimate of earnings decline. Downside risks: slower-than-expected 28nm ramp, sharper-than-expected 28nm ASP cuts, demand and currency.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 10 Deutsche Bank AG/Hong Kong
Rating
HoldAsiaHong Kong
ConsumerHotels / Leisure / Gaming
Company
Wynn Macau AlertDate29 October 2014
Results
3Q beat; parentco raised DPS by 20%
Reuters Bloomberg Exchange Ticker1128.HK 1128 HK HSI 1128
ADR Ticker ISINWYNMY US98313R1068
________________________________________________________________________________________________________________
Price at 28 Oct 2014 (HKD) 26.75
Price target - 12mth (HKD) 24.70
52-week range (HKD) 38.35 - 24.30
HANG SENG INDEX 23,143
Karen Tang
Research Analyst(+852) 2203 [email protected]
Key changes
Price target 23.00 to 24.70 7.4%
Sales (FYE) 30,665 to 30,496 -0.5%
Op prof margin (FYE)
24.5 to 25.4 3.7%
Net profit (FYE)
6,751.7 to 6,987.2
3.5%
Source: Deutsche Bank
Stock data
Market cap (HKDm) 138,766
Market cap (USDm) 17,889
Shares outstanding (m) 5,187.5
Major shareholders Wynn Resort Ltd (72%)
Free float (%) 28
Avg daily value traded (USDm)
27.3
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (HKDm) 31,341 30,496 31,541
Net Profit (HKDm)
7,700.9 6,987.2 6,122.3
DB EPS (HKD) 1.46 1.38 1.26
PER (x) 16.6 19.4 21.3
Yield (net) (%) 6.1 5.5 5.5
Source: Deutsche Bank
3Q property EBITDA rose 6% qoq to US$326m vs. consensus US$280mWynn Macau just reported 3Q which beat recently-cut Street expectations by 15% on solid margins. 3Q property EBITDA rose 6% qoq to US$325.5m (-1%yoy) as margin expanded 260bps qoq (155bps yoy) to 34.5% on rev mix shift.While acknowledging competitive pressures, mgmt said its mass margin had remained largely stable over the past 3 quarters though admitting this may not be sustainable. As expected, parentco WYNN US raised regular DPS by 20% to US$1.5/quarter and announced a special div of US$1.0/shr. While we do not expect Wynn Macau to pay special div, we do think this should give investors
2013. TThis amounts to 5.5% div yield, which supports our Hold rating. Lift 2014-15 EBITDA by 3-6% on margins. Lift TP from HK$23 to HK$24.8.
Conf call highlightsWeak Oct: Mgmt felt the impact from: (1) smoking ban; (2) political
-corruption campaigns; (4) extremely
from 10.8% in Sept to 8.5% in Oct. Mgmt said luck-adj mkt shr c.10%.
Smoking ban: Mgmt admitted some impact on business though they are still in discussion with govt on finalizing smoking vs. non-smoking areas.Thankfully, its Cotai property is very smokers-friendly as all premium mass and VIP rooms have smoking balconies overlooking the performance lake.
Cotai capex slightly raised: Capex raised from US$4.0bn to US$4.1bn,partly to reflect higher payroll for pre-opening costs. Cotai on schedule foropening in early 2016 as the main contractor is on track to hand over theproperty by Dec 2015 for pre-opening training.
West casino re-modeling: On schedule to re-open two junket rooms in Jan2015. These new junket rooms will have direct street access.
3Q results highlightsTable yield management impressive Despite adding 9 tables, mass table yield remained flat qoq (+38% yoy) at US$17.8k/day. On our calculation, Wynn Macau likely table yield as MGM lost mass market share (-0.2ppt) in 3Q.
VIP rolling declined 5% qoq (vs. market -15% qoq) as liquidity for mid-sized junkets stabilized in 3Q. VIP hold was slightly lower at 2.8% vs. 2Q 2.9%.
Non-gaming revenue was flat qoq to US$99m as Hotel RevPAR fell -2% qoq (+8% yoy) to US$322.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 11
Rating
BuyAsiaTaiwan
TechnologyHardware & Equipment
Company
Delta ElectronicsDate28 October 2014
Company Update
Positive long-term outlook despiteminor 3Q14 miss
Reuters Bloomberg Exchange Ticker2308.TW 2308 TT TAI 2308
Forecasts And Ratios
Year End Dec 31 2012A 2013A 2014E 2015E 2016E
Sales (TWDm) 171,759.9 177,053.1 191,358.7 208,838.1 233,555.7
EBIT (TWDm) 17,352.0 19,508.4 23,751.6 28,294.2 34,602.9
DB EPS FD(TWD) 6.65 7.29 8.83 10.64 13.16
OLD DB EPS FD(TWD) 6.65 7.29 8.96 10.97 13.62
% Change 0.0% 0.0% -1.4% -3.0% -3.4%
DB EPS growth (%) 45.5 9.6 21.1 20.5 23.6
BV/Shares (x) 34.5 31.7 34.6 38.1 42.6
Yield (net) (%) 5.6 4.2 3.7 4.5 5.6
PER (x) 14.2 18.7 21.4 17.8 14.4
Source: Deutsche Bank estimates, company data1 DB EPS is fully diluted and excludes non-recurring items
Minor miss in 3Q14 results, but positive tone for long term
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (TWD) 189.00
Price target - 12mth (TWD) 213.00
52-week range (TWD) 218.00 - 143.00
Taiwan Stock Exchange (TWSE)
8,774
Birdy Lu, CFA
Research Analyst(+886) 2 2192 [email protected]
Key changes
Price target 220.00 to 213.00 -3.2%
Sales (FYE) 191,463 to 191,359
-0.1%
Op prof margin (FYE)
12.8 to 12.4 -3.0%
Net profit (FYE)
21,831.1 to 21,524.0
-1.4%
Source: Deutsche Bank
Price/price relative
80
120
160
200
240
10/12 4/13 10/13 4/14
Delta Electronics
Taiwan Stock Exchang (Rebased)
Performance (%) 1m 3m 12m
Absolute 0.8 -8.3 21.5
Taiwan Stock Exchange (TWSE)
-2.1 -6.6 4.2
Source: Deutsche Bank
Stock data
Market cap (USDm) 15,159
Major shareholders Management (16%)
Free float (%) 54
Avg daily value traded (USDm)
38.1
Source: Deutsche Bank
Key indicators (FY1)
Net debt/equity (%) -40.5
Book value/share (TWD) 34.64
Price/book (x) 5.46
Operating profit margin (%) 12.4
Source: Deutsche Bank
Delta 3Q14 EPS slightly missed the market expectation due to higher opex, with 4Q guidance largely in line. When asked about the long-term outlook, the Chairman showed confidence in maintaining high EPS growth in coming years through both top-line growth and margin expansion; retain Buy.
3Q results missed on higher opex; 4Q14 guidance in line with expectationDelta reported 3Q14 EPS of TWD2.4 (+11% QoQ; +29% YoY) on sales of TWD50.4bn (+6% QoQ; +9% YoY). Sales roughly met our/consensus estimates, while net profit missed by 5%/3%, due to higher opex, as well as aminor miss in GPM. GPM declined by 0.1pt to 27.3% (vs. our 27.5%), due to China labor cost increase and unfavorable product mix in networking BU. Opexrose by 6% QoQ/15% YoY to TWD7.5bn (vs our TWD7.2bn), due to higher sales/admin expenses for its own-brand business. For 4Q14, Delta expects sales could decline slightly QoQ, as PC/game console components (35% of sales) entered slow season, despite passive components (power choke for iPhone) and telecom power solutions in high demand. Delta doesn t give GPM guidance, but we expect it to improve by 0.6pt QoQ due to better product mix.
Positive tone for 2015 and beyondDuring the Q&A session, the Chairman highlighted: (1) there is room for both sales and OPM to improve in the long term, driven by product expansion,market share gain and better product mix; (2) it hopes 2015 EPS growth will besimilar to 2014 (~20% YoY growth) and ROE could achieve 25% by 2016 (vs 22% now); (3) high-margin industrial automation, telecom power and passiveproducts will serve as key growth drivers; and (4) in order to achieve the long-term goal, investments in RD and overseas sales offices will continue (Delta hopes to drive OPM by increasing GPM rather than cutting opex ratio).
Valuation and investment risksWe trim our 2014-16 EPS forecasts by 1% to 3%, mainly to reflect opex increase, and reduce our target price from TWD220 to TWD213. We base our target price on 20x 2015E P/E. This implies 0.9x PEG, which is in line with global IA system and solution providers. Downside risks include forex fluctuation, slower 4G network upgrades in China and stagnant IA capex.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 12 Deutsche Bank AG/Hong Kong
Rating
BuyAsiaSouth Korea
Automobiles & Components
Company
Hankook TireDate29 October 2014
Forecast Change
3Q14 beat consensus, highest OPM since 1Q10, improving outlook
Reuters Bloomberg Exchange Ticker161390.KS 161390 KS KSC 161390
Forecasts And Ratios
Year End Dec 31 2012A 2013A 2014E 2015E 2016E
Sales (KRWbn) 7,029 7,069 6,739 7,083 7,588
Reported NPAT (KRWbn) 704.7 735.0 724.4 776.2 823.0
DB EPS FD (KRW) 5,689 5,934 5,848 6,266 6,644
DB EPS growth (%) 4.3 -1.4 7.1 6.0
PER (x) 8.1 9.2 8.9 8.3 7.8
Source: Deutsche Bank estimates, company data1 DB EPS is fully diluted and excludes non-recurring items2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close
Strong volume growth in US/EU, signs of price competition easing; Buy
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (KRW) 51,900
Price target - 12mth (KRW) 66,000
52-week range (KRW) 65,500 - 48,350
KOSPI 1,925.68
Sanjeev Rana
Research Analyst(+82) 2 316 [email protected]
Key changes
Price target 60,000.00 to 66,000.00
10.0%
Sales (FYE) 6,628 to 6,739 1.7%
Op prof margin (FYE)
15.0 to 15.5 3.6%
Net profit (FYE)
704.4 to 724.4 2.8%
Source: Deutsche Bank
Price/price relative
30000
40000
50000
60000
70000
10/12 4/13 10/13 4/14 10/14
Hankook Tire
KOSPI (Rebased)
Performance (%) 1m 3m 12m
Absolute 1.2 -12.6 -19.8
KOSPI -5.0 -6.6 -6.1
Source: Deutsche Bank
line, which came in 4% ahead of expectations. Hankook signaled that, with raw material prices bottoming out, price competition within the industry is showing signs of easing. News of rising inventory negatively affected the stock price in 3Q, but according to Hankook, thanks to an aggressive sales effort,inventory fell from 67 days at the end of 1H to 57 days at the end of 3Q. We
expansion CAGR of 6.3% until 2018, we maintain our Buy rating.
3Q14 helped by strong volume growth, higher UHP and lower raw materialAlthough revenue was down 5% YoY, OP was up 14%, while NP was flat. OPM was 16.1% vs. 13.5% in 3Q13 and 15.1% in 2Q14 and the highest since 1Q10. YoY improvement in OPM was mainly driven by lower natural/synthetic rubber input prices (down 30%/7% YoY), and overall raw material cost was down 12% YoY. SG&A ratio was 19.6% vs. 20.7% in 2Q14 and 19.1% in 3Q13,helped by lower dealer incentives. Global sales volume was up 5.2% YoY (production down 1.4%). Despite decent demand in major markets, ASP pressure continued, with global ASP down 4.3% YoY and 0.5% QoQ, even though it is clear that the pace of ASP decline is moderating. UHP tire volume as a % of total was 28.9% vs. 25.8% in 3Q13 and 28.8% in 2Q14.
Key takeaways from analyst meeting Hankook is seeing stable demand growth in US/EU, while price competition remains fierce in China. It plans to launch a low-price brand for its tires later this year. In the long term, it expects global tire demand to rise 4.8% in 2012-2020 (revenue terms) vs. 11.3% in 2002-2011, but thanks to capacity expansion and brand improvement, it expects to outperform global industry demand growth. It expects its new US plant to start production in early 2017.
Maintaining Buy with a revised target price of W66,000We maintain our Buy with a revised target price of W66,000 as we roll over our valuation base year to 2015. Our target price is based on 10.5x15E PER, whichis a 10% premium to its three-year trading average. We believe Hankook scapex plan gives it long-term earnings visibility and that its valuation premium over global peers is justified. Key risks to our forecast: better-than-expectedrise in natural/synthetic rubber prices and lower-than-expected demand.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 13
Rating
BuyAsiaIndia
MediaBroadcasting / Movie & Entertainment
Company
Dish TVDate29 October 2014
Results
Is the broadcaster-DTH nexus edging out cable?
Reuters Bloomberg Exchange TickerDSTV.BO DITV IN BSE DSTV
Forecasts And Ratios
Year End Mar 31 2013A 2014A 2015E 2016E 2017E
Sales (INRm) 21,668.0 25,089.8 27,144.6 30,298.5 34,474.5
EBITDA (INRm) 5,795.2 6,261.3 6,520.0 7,738.0 9,555.0
DB EPS FD(INR) -1.18 -0.36 -0.26 2.60 4.07
OLD DB EPS FD(INR) -0.78 -0.53 2.35 3.69
% Change 51.3% -32.6% -110.9% -29.4%
DB EPS growth (x) -52.3 69.8 27.9 56.3
PER (x) 22.0 14.1
EV/EBITDA (x) 14.5 10.6 10.2 8.1 6.1
Source: Deutsche Bank estimates, company data1 DB EPS is fully diluted and excludes non-recurring items2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close
Strongest subscriber addition in the past eight quarters.
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (INR) 57.15
Price target - 12mth (INR) 65.00
52-week range (INR) 63.05 - 43.65
Bombay Stock Exchange (BSE 30)
26,881
Gaurav Bhatia
Research Analyst(+91) 22 7180 [email protected]
Manoj Menon
Research Analyst(+91) 22 7180 [email protected]
Key changes
Price target 68.00 to 65.00 -4.4%
Sales (FYE) 26,843 to 27,145 1.1%
Op prof margin (FYE)
7.2 to 1.2 -83.7%
Net profit (FYE)
2,502.7 to -272.6 -110.9%
Source: Deutsche Bank
Price/price relative
30
45
60
75
90
105
120
10/12 4/13 10/13 4/14
Dish TV
Bombay Stock Exchang (Rebased)
Performance (%) 1m 3m 12m
Absolute 5.6 -4.3 12.4
Bombay Stock Exchange(BSE 30)
1.1 3.4 28.4
Source: Deutsche Bank
Dish TV reported Q2FY15 results in line with our estimates. Net revenue rose 12% YoY (+3% vs. Deutsche Bank est.), and EBITDA was up 4.5% YoY (-1% vs. Deutsche Bank est.). Two key positives during Q2FY15: (a) 378K net subscriber addition an eight-quarter high, and (b) the content deal with Zee and Star is behind us without a significant increase in content cost. Delay in phase 3/4 of digitization and the broadcaster-MSO tussle benefit DTH companies. Consistent FCF generation would result in a stronger balance sheet, in our view. Valuation at 8x FY16 EV/EBITDA is compelling. Maintaining Buy.
Is the broadcaster-DTH nexus edging out MSOs?Star and Zee are hard-negotiating content deals with MSOs. However, Dish TV content negotiation deal with Star and Zee has worked out without asignificant increase in the cost, and the company has not changed its guidance of a low-single-digit content cost increase for FY15. During the same period, Star and Zee have put Hathway on RIO. Star has also moved the deal with Den networks on RIO recently, which will significantly increase content cost for Den. However, the broadcasters seem to be a little more generous to DTH players. The small carriage fees paid to DTH may just be one of the reasons for this generosity.
DTH is benefitting from a delay in digitization phase 3 and 4 Despite 378k net subscriber addition, the highest in eightmarket share has not increased, which implies that the DTH industry subscriber additions have been very strong during the quarter and are probably taking market share away from cable.
Maintaining Buy with a revised target price of INR65 (4% cut)We cut our FY15/16 EBITDA estimates by 2%/4% to factor in higher ad spendsgoing forward. We have also increased our interest cost assumptions in FY15/16. The impact on earnings is much higher due to high financial leverage and high depreciation. FY16 earnings are cut by 29%. We now expect FY15 to report a minor loss. Our DCF valuation implies a target price of INR65 (11x FY16 EV/EBITDA). Key risk: slower-than-expected growth in ARPU.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 14 Deutsche Bank AG/Hong Kong
Rating
BuyAsiaIndia
TechnologySoftware & Services
Company
Tech Mahindra LtdDate29 October 2014
Forecast Change
Share gains drive Sept-Q beat; reiterating top Buy
Reuters Bloomberg Exchange TickerTEML.BO TECHM IN BSE TEML
Forecasts And Ratios
Year End Mar 31 2013A 2014A 2015E 2016E 2017E
Sales (INRm) 143,320.0 188,313.3 222,448.6 266,798.4 309,155.3
EBITDA (INRm) 30,631.0 41,836.3 44,857.5 52,069.4 56,590.4
Reported NPAT (INRm) 19,553.3 26,821.9 32,139.6 40,769.9 45,764.6
DB EPS FD(INR) 92.23 125.53 150.42 190.81 214.19
OLD DB EPS FD(INR) 92.23 125.53 151.32 191.87 215.38
% Change 0.0% 0.0% -0.6% -0.6% -0.6%
DB EPS growth (%) 2.7 36.1 19.8 26.9 12.3
PER (x) 9.3 11.3 15.9 12.6 11.2
EV/EBITDA (x) 4.6 5.9 11.2 9.0 7.5
Source: Deutsche Bank estimates, company data1 DB EPS is fully diluted and excludes non-recurring items2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close
Strong all-round performance
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (INR) 2,398.00
Price target - 12mth (INR) 3,300.00
52-week range (INR) 2,520.00 - 1,521.05
Bombay Stock Exchange (BSE 30)
26,881
Aniruddha Bhosale
Research Analyst(+91) 22 7180 [email protected]
Key changes
Price target 3,000.00 to 3,300.00
10.0%
Sales (FYE) 221,842 to 222,449
0.3%
Op prof margin (FYE)
- 0.0%
Net profit (FYE)
32,332.6 to 32,139.6
-0.6%
Source: Deutsche Bank
Price/price relative
800
1200
1600
2000
2400
2800
10/12 4/13 10/13 4/14
Tech Mahindra Ltd
Bombay Stock Exchang (Rebased)
Performance (%) 1m 3m 12m
Absolute -3.5 9.9 57.4
Bombay Stock Exchange (BSE 30)
1.1 3.4 28.4
Source: Deutsche Bank
Tech Mahindra's Sept-Q results were significantly ahead of our and street estimates. In particular (a) strong revenue growth in top customers, (b) healthy deal signings and employee addition and (c) a better-than-expected improvement in operating margins underscore our positive view. We believe the robust balance sheet, competitive pricing and potential market share gains by leveraging Satyam's relationships should help the company gain share. We expect TechM to deliver a USD revenue CAGR of 20.3% and earnings CAGR of 19.3% over FY15-17. We reiterate the stock as a top Buy (along with TCS), with a revised target price of INR3,300.
Revenue growth beats expectations yet againRevenues of USD900mn (+5.2% qoq, 1.1% above our estimate) were driven by strong growth in the telecom vertical (+7.3% qoq) and North America (+9.7%qoq). Enterprise (non-telecom) revenues grew a healthy 3.1% qoq. Operating margin (EBIT) at 17.4% (+218bps qoq, in line with DBe) benefitted primarily from lower visa costs, a weak rupee and better utilisation. Net income of INR7.2bn was 9.2% below our estimate but in line with the street on lower-than-expected other income (INR1,034mn vs our estimate of INR1,574mn). The 200bps rise in attrition to 18% was a key negative.
Revenue contribution from enterprise business expected to riseDespite being the smallest of the top five Indian vendors, Sept-Qincremental revenue addition of USD45mn qoq (behind only TCS and Infosys) shows that the company is making market share gains (see Figure 1). Moreover, the 3.1% qoq USD revenue growth in the enterprise business (seeFigure 2) and three large deal wins in the manufacturing vertical suggest that growth in the following quarters should be broad-based.
Reiterating top Buy with a revised target price of INR3,300Our target price is based on a P/E of 17.5x FY16E (17.5x FY15E/09 earlier) earnings (PEG of 0.8). Downside risks include 1) high vertical and clientconcentration and 2) currency fluctuation risk.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 15
Rating
HoldJapan
REITs
Company
Nippon Accom. Fund
Date29 October 2014
Forecast Change
Maintaining Hold
Reuters Bloomberg Exchange Ticker3226.T 3226 JT TYO 3226
Rental housing demand remains stable
________________________________________________________________________________________________________________
Price at 28 Oct 2014 (¥) 398,500
Price target - 12mth (¥) 400,000
52-week range (¥) 400,000 - 323,233
Yoji Otani, CMA
Research Analyst(+81) 3 [email protected]
Akiko Komine, CMA
Research Analyst(+81) 3 [email protected]
Key changes
Target price (¥)
390,000 to 400,000
2.6%
EPU (¥, 6mth) 7,597 to 7,753 2.1%
DPU (¥, 6mth) 7,597 to 7,753 2.1%
Source: Deutsche Securities Inc.
Price/price relative
240000280000320000360000400000440000480000520000
10/12 4/13 10/13 4/14
Nippon Accom. Fund
TOPIX (Rebased)
Performance (%) 1m 3m 12m
Absolute 5.3 0.9 16.6
TOPIX -6.0 -2.6 4.5
Source: Deutsche Securities Inc.
Stock data
Market cap (¥bn) 184
Foreign shareholding ratio (%) 13
TOPIX 1,252
Source: Deutsche Securities Inc.
We believe the Abe government's growth strategy will result in an increase of low wage workers. In other words, it will likely become increasingly difficult for the middle class to own a home. This means demand for rental properties will increase. We maintain our view that residential REIT major Nippon Accommodations Fund (NAF) will benefit from this development. However, we reiterate our Hold rating because the recent unit price is close to our target unit price.
Higher rental earnings and lower financing costs contributeds FP8/14 results confirmed favorable business conditions. FP8/14 DPU
was ¥7,672, 5.1% above initial guidance. The overshoot was due to outperformance of rental earnings and lower-than-expected financing costs. Newly announced guidance for FP2/15 projects further improvement in non-operating gains compared to FP8/14.
Increasing target price from ¥390,000 to ¥400,000 We base our valuation on the FFO multiple for J-REITs. We first set the FFO multiple for Nippon Building Fund (NBF), the largest J-REIT, and then set multiples for other J-REITs by referencing historical movements relative to NBF.We have applied 0.75x as NAF's FFO multiple relative to NBF and 16.2x as NAF s FFO multiple (NBF's target multiple of 21.6 x 0.75). Our new target investment unit price for NAF of ¥400,000 reflects our earnings forecast revisions and a new combined FP2/15 and FP8/15 FFO per unit target of 16.2x. This target price is equivalent to a dividend yield of 3.9%section for details).
RisksDownside risks include: 1) losing property pipelines from its sponsor, 2) adoption of policies giving an extreme advantage for home ownership and a disadvantage for rental housing, and 3) substantial dilution from a capital increase. Upside risks include: 1) being able to acquire many high yield prime properties, and 2) government policies that drive up residential leasing demand.
Forecasts and ratios
6 months base 8/14A 2/15E 2/15CoE 8/15E 2/16E 8/16E
Revenues (¥bn) 10.2 10.1 10.1 10.2 10.1 10.2
Operating profit (¥bn) 4.3 4.3 4.3 4.3 4.3 4.3
Recurring profit (¥bn) 3.5 3.6 3.6 3.6 3.6 3.6
Net profit (¥bn) 3.5 3.6 3.6 3.6 3.6 3.6
Dividend per unit (¥) 7,672 7,753 7,750 7,700 7,701 7,701
Dividend yield (%) 4.1 3.9 3.9 3.9 3.9
FFO/unit (¥) 12,198 12,253 12,201 12,201 12,201
P/FFO ratio (x) 15.5 16.3 16.3 16.3 16.3
Revised NAV/unit (¥) 313,652 316,667 313,360 310,147 306,974
P/NAV ratio (x) 1.2 1.3 1.3 1.3 1.3
LTV (%) 53.5 53.5 53.5 53.5 53.5
No. of units outstanding (thou) 461.4 461.4 461.4 461.4 461.4
Source: Company, Deutsche Securities forecast
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 16 Deutsche Bank AG/Hong Kong
Asia Synthetic Equity & Index Strategy
Asia Pac Weekly ETF Market Review
Date29 October 2014
Japan witness inflows while China ssaw outflows
________________________________________________________________________________________________________________
Contributors
Shan Lan
Strategist(+852) 22036716
Sebastian Mercado
Strategist
(+1) 212 [email protected]
Ari Rajendra
Strategist(+44) 20 [email protected]
Data in this report is as of 24 October 2014.Market ReviewLast week, Asia-Pacific region had positive markets except China. Compared tothe week before, from north to south:
Japan (Nikkei 225) +5.22%South Korea (KOSPI2) +1.28%China (CSI 300) -2.09%Taiwan (TWSE) +1.56%Hong Kong (HSI) +1.21%Singapore (FSSTI) +1.73%Australia (S&P/ASX 200) +2.67%
New Product Launch ReviewDuring last week, two new Fixed Income ETFs were listed in Asia-pacific ETP market. E-Fund Management and China Merchants Fund management listed one Fixed Income ETF each on Shenzhen Stock Exchange both benchmarking Chinese Money Market instruments.
ETP Weekly Flows Weekly inflows in Japan, China saw outflowsAsia-Pacific ETP market recorded inflows of +$1.8bn during last week(+$2.1bn over the prev. week), setting the YTD weekly flows average at +$477mn (+$20.5bn in YTD flows). Developed markets (DM) benchmarkedETFs recorded inflows of +$1.4bn led by Japan focused ETFs (+$1.3bn). Emerging markets (EM) ETF flows remained in negative territory (-$374mn) primarily by outflows in China focused ETFs (-$541mn). Among other sub-segments, leveraged long strategy ETFs saw inflows of +$796mn over the last week.
Winners and losers:: At ETP level, Daiwa ETF - Nikkei 225 (1320 JP), Next Funds Nikkei 225 Leveraged Index ETF (1570 JP) and Samsung KODEX Leverage ETF (122630 KS) were the largest flows receivers of the week collecting +$529mn, +$450mn, and +285mn respectively. Over the same period, biggest outflows were experienced by iShares FTSE A50 China Index ETF (2823 HK) and Harvest Shanghai and Shenzhen 300 Index ETF (159919 CH) recording -$218mn and -$184mn of outflows respectively.
Turnover Review Floor activity down by 6.4%Asia-Pacific ETP turnover totaled $18.76bn for the last week, 6.4% down from
untry level, stock exchanges in Japan topped the turnover ranking with aggregate turnover of $7.2bn, -4% down ascompared to previous week, followed by China ($6bn, +13%), South Korea($3.3bn, -10%), and Hong Kong ($1.8bn, -38%). Among equity ETFs, leveraged long strategy, Emerging country, Asia-Pac developed country, and short strategy ETFs were the most traded products recording total turnovers of $6.7bn, $5.4bn, $2bn and $0.6bn respectively. Within fixed income ETFs, money market ETFs recorded turnover of $2.8bn (+53%) over the last week.
Assets under Management Review Assets increased by $5bnAsia-Pac ETP AUM increased by $5bn during last week and closed the week at$186.4bn. On a year-to-date basis, Asia-Pac ETP market is up by +$17.4bn or 10.3% above .
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 17
Japan Data FlashEconomics Date29 October 2014
Japan: September industrial production
________________________________________________________________________________________________________________
Mikihiro Matsuoka
Chief Economist(+81) 3 [email protected]
Production probably bottomed in August with a 2.7% rise in SeptemberJapan s industrial production rose a seasonally-adjusted 2.7% MoM in September, beating both the consensus (2.2%) and our forecasts (1.1%). The shipment of consumer durables rose 7.7%, the first rise in eight months. We believe that the negative payback following April s consumption tax hike is dissipating, where it has been concentrated in consumer durables, such as autos and consumer electronics. If an end to the decline in housing starts in both August and September (to be released on 31 October) is confirmed, we believe the negative payback was largely gone by August/September. That said, the recovery trend in production seems slow, considering the METI-compiled production forecast at -0.1% MoM in October and +1.0% in November.
Industrial shipments rose 4.3%, inventories were down 0.8% and the inventory-shipment ratio was down 5.7%. A jump in production was observed in information & communication devices (12.4% MoM), petroleum & coal (6.6%), electric parts & devices (5.8%), electrical machinery (5.4%) and transport equipment (4.7%). A large decline in inventories was seen in electrical machinery (-6.4%), non-ferrous metals (-5.5%), and electric parts & devices (-4.5%). Inventories in electrical machinery and transport equipment have remained high, which is our concern.
Many products have seen production recovery by more than 10% MoM: buses and trucks in transport equipment; car navigation/audio equipment, notebook PCs, batteries in consumer durables; turbine and engine generators, induction motors, power transformers in electrical machinery; engineering & construction machinery (bulldozers, cranes, land finishing machinery); and metal cutting/forming machinery.
We forecast the second round of the consumption tax hike to 10% in October 2015 as scheduled with a 90% probability. We believe the size of the dislocation of demand should be smaller next time than this time because of the following: 1) the hike is 2pp, 2) an introduction of reduced rate(s) on food, 3) further improvement in employment and wages over the next 12 months, and 4) no need to further replace consumer durables in 18 months.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 18 Deutsche Bank AG/Hong Kong
Global Foreign ExchangeFX SpotFX Volatility
Date29 October 2014
FX DailyHow to lose friends and influence people: the SNB's dilemma
________________________________________________________________________________________________________________
Oliver Harvey
Macro strategist(+44) 20 754-51947
Safe haven inflows into Switzerland are starting to unwind. According to SNB
2013 to 200bn today, just 20bn above the level when the SNB imposed the EUR/CHF floor in September 2011 in the balance of payments, which recorded nearly CHF 150bn of inflows during the Eurozonecrisis, is 30bn off its peak. There is also little evidence that recent geopolitics has spurred renewed inflows. Fiduciary deposits, which should be the least price-sensitive of all foreign cash in Switzerland, have been collapsing.
foreign-held francshave been eagerly gobbled up by domestic investors, who also absorbed most of the liquidity generated by SNB intervention. Domestic bank deposits have accelerated rapidly since mid-2011 and now represent around 90% of the value of sight deposits at the SNB versus 10% for foreign deposits (see chartson following page). By following the breadcrumdiscover where this extra demand for cash has come from: since 2009, Swiss investors have built up an underweight in foreign bonds of around CHF 250bn, almost exactly matching the increase in domestic bank deposits. For context, this is about the same as the lascurrent account surpluses.
for a central bank to impose negative rates on domestic savers than foreign speculators. This is a key difference from the Danish example and probably
to embrace the measure. Second, the SNB will be fighting the liquidity preference of residents rather than the relative attractiveness of Switzerland as safe-haven in foreign eyes. Driving real rates lower by going negative would still be effective, and we believe may be the only way to preserve the EUR/CHF floor and guard against deflationary dynamics. However, it raises the question of how easily Swiss investors would substitute cash for other domestic assets, exacerbating overvaluations in house prices, equities and bonds. This seems particularly relevant given that the foreign assets the Swiss have been shedding European bonds are either at nosebleed highs or appear vulnerable to a return of risk premia.
In sum, a move to negative rates in Switzerland would make the concerns expressed by the Riksbank over housing imbalances yesterday look quaint by comparison, and necessitate massive macro-prudential policy measures.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 19
Japan Foreign ExchangeFX Spot
Date29 October 2014
DEutsche JApan View on FXIs failure to reach BoJ's inflation target a disappointment?
________________________________________________________________________________________________________________
Taisuke Tanaka
Strategist(+81) 3 [email protected]
As expected, inflation will not likely reach 2% over two years; QQE to carry into at least a third year
In April 2014, the BoJ under Governor Haruhiko Kuroda decided to implement a quantitative and qualitative monetary easing (QQE) policy that aimed to bring core CPI inflation up to 2% as it doubled the monetary base over two years. We are nearing the two year mark, but inflation will likely stagnate at around 1% for the time being. We are seeing an increasingly disapproving tone used against Governor Kuroda's BoJ for failing to achieve its target.
It has been pointed out that the BoJ may stop using language that suggests it will reach the 2% target in 2015. However, this is in keeping with what many economists have been expecting, namely that the road to sustainable core CPI inflation of 2% would be a difficult one. Our economist, Mikihiro Matsuoka, has been saying from the start that there is no need to be overly disappointed if the inflation target is not reached, and sees Japan's economy improving cyclically as the BoJ's bold QQE policy is carried out.
We need to take a relaxed long-term perspective that sees inflation driven mostly by yen depreciation in the first one to two years of QQE, and then arising out of cyclical wage increases as the economy improves during the third and fourth years. Tokyo being awarded the 2020 Olympics adds to this process as various construction projects are being fast tracked, and the resulting labor shortages are putting more upward pressure on wages.
That said, the BoJ's inflation target is also facing headwinds such as low inflation in the US and Europe, a global economy that lacks vigor, and a laggard domestic demand recovery following the consumption tax hike. Due to these factors, the BoJ will not likely stop QQE at two years, but maintain the policy for at least a third year. With a strong US economy and QQE continuing, we see macroeconomic conditions continuing to favor USD/JPY bulls into2015-16.
Figure 1: Outstanding QQE by BoJ will continue
0
10
20
30
40
50
60
70
2007 2008 2009 2010 2011 2012 2013 2014 2015
% of GDP
BoJ
ECB
FRB
Source: Deutsche Securities, BoJ, FRB, ECB, Bloomberg Finance L.P.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 20 Deutsche Bank AG/Hong Kong
United States Economics Date29 October 2014
US Daily Economic NotesThe advance real GDP release rarely tells the full story
________________________________________________________________________________________________________________
Joseph LaVorgna
Chief US Economist(+1) 212 [email protected]
Brett Ryan
Economist(+1) 212 [email protected] Release Forecast Previous Consensus
8:30 am Real GDP (Adv Q3 14): +4.0% +4.6% +3.0%GDP deflator: +1.0% +2.1% +1.4%
8:30 am Initial jobless claims (10/25): 285k 283k 285kSource: Deutsche Bank, Bloomberg Finance LPCommentary for Thursday: Advance Q3 real GDP is released this morning. Fed policymakers did not have the data It is imperative to note that the initial snapshot on GDP is highly preliminary and prone to substantial revision. re will be two more revisions to Q3 output over the next two months. Then in July, the GDP data will be revised back several years. History often changes. For example, this past July we learned after the fact that second half 2013 real GDP was a robust 4%, which was in line with our initial expectations. It turned out that the October 2013 federal government shutdown had no impact whatsoever on economic activity. For the full year, 2013 real GDP growth was revised up a substantial 50 basis points (bps) to 3.1%. CConsequently, we need to be careful not to overreact to the initial GDP reading. Since Q2 2011, the reading on real GDP growth has been revised up in 11 out of 13 quarters by an average of 65 bps, which is a substantial amount. We expect this pattern to repeat for Q3 because of the upward revisions to July and August nonfarm payrolls these data are highly correlated with real GDP growth.
One area of the economy that is projected to have performed well is capital spending (capex) despite the weaker than expected durable goods orders data.The September durable goods report showed transportation-related weakness in headline orders, which fell -1.3% in the month following a record large drop of -18.3% previously. The last two mont a+22.5% increase in July. However, core durable goods orders, which exclude defense and aircraft, were soft, as well. They were down -1.7% after edging up +0.3% previously. We are not overly concerned about the recent weakness in core orders for a number of reasons: One, core orders were up over 10% in the quarter. Two, ISM new orders remain elevated. Three, capex plans are upbeat according the Richmond Fed and Duke University CFO surveys. Four, the capacity utilization rate continues to grind higher. Capacity utilization, currently at 79.3%, is only marginally below the 80% level that historically has been associated with robust, double-digit gains in capex. Regarding GDP, it is the core shipments data that are used in the GDP accounts, and they were especially strong last quarter. SShipments of nondefense capital goods excluding aircraft grew at an 11.1% annualized rate last quarter, which is the largest increase since Q3 2011 (19.7%). As illustrated in the chart below, this surge in core shipments is consistent with a double-digit increase in capex.
A three-year high in core shipments bodes well for Q3 capex
Source: Census, BEA, Haver Analytics & Deutsche Bank
Policy Speeches8.00 am: Fed Chairwoman Yellen speaks on diversity in economics in Washington, DC
2014 Yearend TargetsReal GDP growth: +2.6% Q4/Q4Core CPI: +2.1% Q4/Q4Unemployment rate: 5.8%Fed Funds: 0.15%
Treasury ScheduleSize Prev
1:00pm 7Y Note (auc) $29B $29B
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 21
Rating
BuyAsiaChina
TransportationAir
Company
Air China AlertDate29 October 2014
Company Update
3Q14 post-results conference call takeaways - outlook improving
Reuters Bloomberg Exchange Ticker0753.HK 753 HK HKG 0753
ADR Ticker ISINAIRYY US00910M1009
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (HKD) 4.89
Price target - 12mth (HKD) 5.40
52-week range (HKD) 6.16 - 4.24
HANG SENG INDEX 23,520
Vincent Ha, CFA
Research Analyst(+852) 2203 [email protected]
Joe Liew, CFA
Research Analyst(+65) 6423 [email protected]
Fei Sun
Research Associate(+852) 2203 [email protected]
Stock data
Market cap (HKDm) 63,984
Market cap (USDm) 8,248
Shares outstanding (m) 13,084.8
Major shareholders CNACG (58.5%)
Free float (%) 30
Avg daily value traded (USDm)
5.0
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (CNYm) 98,181 106,567 115,094
Net Profit (CNYm)
3,263.6 2,636.1 4,279.7
DB EPS (CNY) 0.14 0.20 0.25
PER (x) 33.7 19.1 15.7
Yield (net) (%) 1.0 1.0 1.7
Source: Deutsche Bank
Air China hosted a post-3Q14-results analyst conference call on 29 October. Key takeaways are as follows:- 4Q14-2015E outlook: Management remains cautiously optimistic on outlookfor 2015 on the back of 1) yield improvement; 2) stable passenger traffic growth; 3) lower jet fuel cost; and 4) flattish operating expenses. The airline sees favorable trend in 4Q14 forward booking for both domestic and international routes with increase in load factor.- Yield: Air China recorded YoY improvement in passenger yield in 3Q14 with growth in domestic and international flights, yet partially offset by weak yield in regional routes. According to the management, the airline will focus onmaintaining a favorable yield trend since they do not see much upside from the overall 80% passenger load factor.- International routes: While yield on Europe routes and newer US routes wasweak in 3Q14, mature US routes indeed recorded YoY yield growth.Meanwhile, the recovery pace of Japan routes is ahead of management expectation. With less capacity expansion plan to international routes in 2015E, Air China believes that the company will achieve yield improvement.Moreover, management does not see any de-railing of outbound travel demand.- Cargo: Air China targets to achieve small FY14E profit in Air China Cargo, the cargo JV with Cathay Pacific (0293.HK, Buy, HK$14.34), as it has made profit for the past several months, according to the management. While cargo yield remains under pressure, Air China foresees improvement in demand, especially for international routes, with increasing fleet utilization. In addition, lower jet fuel price also contributed to Air China Cargo- Front cabin weak in 3Q14 for domestic flights due to the lack of recovery of business travel demand, according to the company. On the other hand, management remains positive on premium classes on long-haul international routes.
Deutsche Bank view maintaining Buy on core operation improvementWe think that the core earnings outlook for Air China remains favorable with resilient traffic growth and stabilizing in passenger yield. Therefore, we maintain our Buy recommendation, considering its undemanding 0.85x FY15E P/BV with gradual core ROE recovery to about 8% in FY16E. Key downside risks include RMB depreciation, slower-than-expected recovery pace of passenger yield and business travel demand.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 22 Deutsche Bank AG/Hong Kong
Rating
BuyAsiaChina
Banking / FinanceBanks
Company
Bank of Communications
Date29 October 2014
Results
In-line 3Q14 results; nearing an inflection point on asset quality
Reuters Bloomberg Exchange Ticker3328.HK 3328 HK HKG 3328
ADR Ticker ISINBCMXY US0616051019
________________________________________________________________________________________________________________
Price at 28 Oct 2014 (HKD) 5.72
Price target - 12mth (HKD) 6.90
52-week range (HKD) 5.96 - 4.55
HANG SENG INDEX 23,520
Tracy Yu
Research Analyst(+852) 2203 [email protected]
Hans Fan, CFA
Research Analyst(+852) 2203 [email protected]
Michael Zhang, CFA
Research Associate(+852) 2203 [email protected]
Stock data
Market cap (HKDm) 424,784
Market cap (USDm) 54,759
Shares outstanding (m) 74,263.0
Avg daily value traded (USDm)
22.9
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Provisioning (CNYm)
18,410.0 22,868.2 25,461.4
Pre-prov profit (CNYm)
98,277 108,795 117,359
EPS (CNY) 0.84 0.90 0.96
PER (x) 5.4 5.0 4.7
Yield (net) (%) 5.7 6.0 6.4
Source: Deutsche Bank
Stable results; weakening asset quality offset by stronger operating profitsIn line with our forecasts, BoCom reported NPAT of Rmb14.7bn (up 6.3% yoy) for 3Q14 and Rmb51.5bn (up 5.8% yoy) for the first nine months of the year, which accounted for 77% of our full year estimates. The results were driven by PPOP growth of 16.9% yoy and credit costs of 73bps (3Q13: 61bps). In the post results conference call, management highlighted that their loan review suggests the current level of gross NPL formation, which we estimate to be 93bps in 3Q14 (1H14: 71bps) is close to the peak, and should start tapering from 1H15. At 0.7x 2014E P/B, we maintain a Buy rating on the stock, with a target price of HK$6.9.
3Q14 results review a beat on fee income and capital positionNet interest income rose by 7.8% yoy, driven mainly by a stable NIM of 2.42% (down 2bps qoq) and loan growth of 8.1% yoy. Non-interest income grew by 39.2% yoy as strong net fee income increased by 29.9% yoy, despite tighter regulations on bank services fee. With operating expenses growth of 8.7% yoy, its CIR fell to 41.8% (3Q13: 43.5%). In addition, BoCom reported a higher tier 1 ratio of 11.1% and CAR of 13.8%, up 40bps and 105bps qoq, as the bank slowed RWA growth and issued sub-debt of Rmb28bn during the quarter. With the proceeds of the overseas sub-debt of US$1.2bn and EUR500m to be booked in 4Q, capital positions should continue to strengthen.
Slowing deposit growth due to the implementation of Notice 236 (2014) Due to both the new regulation by the CBRC to limit deposit deviation ratio to
deposit balance contracted by 5.9% qoq (up 1.1% yoy), thereby capping this the
computation of LDR, regulatory LDR was reported to be 73.9% (Cap: 75%). If Fx businesses is included, which is now exempted from the LDR computation, LDR would become 75.5%.
Asset quality weakened on slowing economy, with stable coverage ratios BoCom reported NPL ratio of 1.17%, with NPL balance growing by 5.5% qoq to Rmb40.8bn. We estimate that BoCom wrote-off and disposed NPLs of Rmb2.75bn and Rmb3.2bn respectively in 3Q14, leading to a gross NPL formation rate of 93bps in 3Q14, as against 71bps in 1H14. With credit costs of(2Q14: 204.2%), while provision to loan coverage ratio rose to 2.36% (2Q14: 2.3%).
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 23
Rating
HoldAsiaChina
Automobiles & Components
Company
BYD AlertDate29 October 2014
Results
3Q14 results in line; FY14 guidance a disappointment
Reuters Bloomberg Exchange Ticker1211.HK 1211 HK HKG 1211
ADR Ticker ISINBYDDY US05606L1008
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (HKD) 53.95
Price target - 12mth (HKD) 45.90
52-week range (HKD) 57.00 - 34.95
HANG SENG INDEX 23,520
Vincent Ha, CFA
Research Analyst(+852) 2203 [email protected]
Fei Sun
Research Associate(+852) 2203 [email protected]
Stock data
Market cap (HKDm) 127,004
Market cap (USDm) 16,372
Shares outstanding (m) 2,354.1
Major shareholders Wang Chuan-fu(24%)
Free float (%) 37
Avg daily value traded (USDm)
26.9
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (CNYm) 49,768 54,892 67,940
Net Profit (CNYm)
553.1 1,158.3 2,061.1
DB EPS (CNY) 0.23 0.48 0.83
PER (x) 105.6 89.0 51.1
Yield (net) (%) 0.2 0.2 0.4
Source: Deutsche Bank
BYD - monthly PV sales trend
-100%-50%0%50%100%150%200%250%300%
010,00020,00030,00040,00050,00060,00070,00080,000
01/07 07/08 01/10 07/11 01/13 07/14
(Units) (YoY%)
Source: CAAM
3Q14 profit as guided but no earnings recovery expected for FY14BYD reported its 3Q14 results under PRC GAAP. Tedged up by 8.1% YoY to RMB13.7bn, despite 17.5% YoY decline in totalvehicle sales volume, probably driven by the 8.9 times YoY surge in new energy vehicle (NEV) sales and solid handset component sales, in our view.Meanwhile, 3Q14 net profit dropped by 26.1% YoY to RMB28.2m, in line with
4 results announcement. gross profit margin shrank by 2.3ppt YoY. Together with a 1.8ppt YoY rebound onSG&A ratio, net profit margin fell to merely 0.2% in 3Q14. W3Q14 earnings weakness is attributable to weak conventional vehicle sales.In addition, BYD states in the announcement that its FY14 net profit is likely to drop by about 9.6-22.3% YoY to RMB430-500m, considerably below our estimate of RMB1,158m and consensus estimates of RMB1,201m. In other words, the 4Q13 net profit guidance of RMB41.1m-111.1m also implies a lackof strong earnings recovery. BYD attributes the full-year earnings decline to the weak performance of its conventional vehicle business and solar business, while staying upbeat on NEV and handset component sales outlook.
DB view near-term earnings concern likely to be offset by NEV sales outlookGiven profit guidance, we think that ours and consensusforecasts are subject to downside risk, and this may lead to nearer term share price pressure. However, we think the market will rather strong NEV sales growth amidbattery capacity bottleneck. With launches of new conventional car modelsexpected in 4Q14 (such as S7 SUV) and increasing handset component sales,
recovery should be more sure-footed, in our view. We maintain Hold. Key upside risk: rapid NEV sales ramp-up with positive operating leverage. Key downside risks: a further letdown in vehicle sales.
Figure 1: BYD quarterly operational and financial trends
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14Total vehicle sales volume (units) 142,872 118,519 110,479 134,754 103,514 104,721 91,190 YoY% 25.0% 28.0% 13.7% -11.5% -27.5% -11.6% -17.5%New energy vehicle sales (units) 638 1,157 546 784 3,396 4,171 5,379 YoY% 3.9% 94.1% -31.5% -31.6% 432.3% 260.5% 885.2%Gross revenue (RMBm) 12,883.9 13,157.1 12,663.6 14,158.8 11,723.9 14,991.8 13,692.9 YoY% 9.8% 21.3% 20.3% 3.0% -9.0% 13.9% 8.1% Gross profit margin 15.9% 15.9% 15.0% 14.7% 17.0% 16.5% 12.7%Net profit (RMBm) 112.4 314.6 38.2 88.0 11.97 348.73 28.22 YoY% 315.6% n.a. 727.5% 45.4% -89.4% 10.9% -26.1% Net profit margin 0.9% 2.4% 0.3% 0.6% 0.1% 2.3% 0.2%
Source: Company data, China Association of Automobile Manufacturers (CAAM), Deutsche Bank
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 24 Deutsche Bank AG/Hong Kong
Rating
HoldAsiaChina
Banking / FinanceBanks
Company
China CITIC Bank Alert
Date29 October 2014
Results
3Q14 results miss by 5%; private placement plan in focus
Reuters Bloomberg Exchange Ticker0998.HK 998 HK HKG 0998
ADR Ticker ISINCHCJY US1693892028
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (HKD) 5.00
Price target - 12mth (HKD) 5.00
52-week range (HKD) 5.22 - 3.62
HANG SENG INDEX 23,520
Tracy Yu
Research Analyst(+852) 2203 [email protected]
Hans Fan, CFA
Research Analyst(+852) 2203 [email protected]
Michael Zhang, CFA
Research Associate(+852) 2203 [email protected]
Stock data
Market cap (HKDm) 233,935
Market cap (USDm) 30,157
Shares outstanding (m) 46,787.0
Avg daily value traded (USDm)
22.1
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Provisioning (CNYm)
11,940.0 15,761.7 18,417.2
Pre-prov profit (CNYm)
64,378 74,507 83,182
EPS (CNY) 0.84 0.94 1.03
PER (x) 4.1 4.2 3.8
Yield (net) (%) 7.4 5.9 6.6
Source: Deutsche Bank
Mixed results; Hold rating maintainedCNCB reported 3Q14 NPAT of Rmb10.2bn, down 2.1% yoy, which was 4.9% behind our estimates as PPOP growth slowed to 16.2% yoy (1H14: 27.6% yoy), driven by 32% qoq drop in non-interest income, while high credit costs of 116bps were in line with our expectation. Despite that the market might react positively to the newly announced private placement plan to China Tobacco Corporation, we maintain a Hold rating on CNCB as we believe the bank is fundamentally more vulnerable than its peers to slowing economy/interest rate deregulations.
Removal of capital overhang is a positive development The bank announced its plan to raise Rmb11.9bn of capital through a private placement of 2.46bn A-shares to China Tobacco Corporation at a price of
exercise should boost its 3Q14 pro forma tier-1 ratio by 44bps to 9.73%, with relatively limited dilution impact on EPS (down 4.2%) and ROAE (down 24bps).
Continued asset quality deterioration on slowing economy deteriorate in 3Q14. We estimate the bank
wrote-off and/or disposed NPL of Rmb1.1bn, thereby translating into a higher NPL formation rate of 100 NPL balance rose by 16.6% qoq to Rmb29.4bn, accounting for 1.39% of loans (up 19bps qoq). With credit costs of 116bps, its provision to loan ratio improved to 2.51% from 2.30% in 2Q14, but NPL coverage ratio fell to 182% from 193% in 2Q14.
3Q14 results Positives: NIM, fee, CIR, capital; Negatives: deposits, LDRNet interest income rose by 4.1% qoq and 10.4% yoy as NIM expansion of 8bps qoq (down 19bps yoy) to 2.43% offset the contraction in AIEA of 1.2% (up 21.6% yoy). Together with the strong fee income growth of 36.6% yoy,gross revenue grew by 14.1% yoy. With operating expenses growth of 10.4%
deposit balance contracted by 5.8% qoq (up 9.2% yoy), resulting in slower loan growth of 0.2% qoq (up 12.8% yoy) and a rise in LDR to 73.9% (2Q14: 69.4%). CNCB1 and CAR improved by 58bps qoq and 201bps qoq to 9.29% and 12.99%, respectively, due to shrinking assets (down 6.2% qoq) and the issuance of tier-2 debt instruments of Rmb37bn in August 2014.
Deleveraging of non-standard assets; more details expected from the briefing Following the implementation of circular 127 to regulate the inter-bank businesses, CNCB had scaled back its exposure to non-standardized assets, as evidenced by decreases in reverse repo assets (down 27% qoq) and receivable investment (down 9% qoq). We will seek more details on the private placement, asset quality and deposit growth from the analyst conference call held by the bank on 30 October 2014.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 25
AsiaHong KongConsumer
Industry
China consumer staples
Date29 October 2014
Forecast Change
Buzzword added: unseasonably cool summerThe adverse impact of a cool summer
________________________________________________________________________________________________________________
Winnie Mak
Research Analyst(+852) 2203 [email protected]
Key Changes
Company Target Price Rating
0220.HK 6.20 to 6.70(HKD) -
Source: Deutsche Bank
Companies Featured
Tingyi (0322.HK),HKD19.14 Hold2013A 2014E 2015E
P/E (x) 36.7 28.4 21.1EV/EBITDA (x) 14.3 11.2 9.1Price/book (x) 6.0 4.7 4.3
Uni-President China (0220.HK),HKD7.01 Hold2013A 2014E 2015E
P/E (x) 56.8 49.6 25.7EV/EBITDA (x) 17.3 13.9 9.5Price/book (x) 2.8 2.2 2.0
Tsingtao Brewery (0168.HK),HKD56.75 Hold2013A 2014E 2015E
P/E(x) 35.0 29.4 23.3EV/EBITDA(x) 17.8 16.9 13.4Price/book(x) 5.0 3.9 3.5
Tenwow (1219.HK),HKD2.73 Buy2013A 2014E 2015E
P/E (x) 15.6 13.0 10.5EV/EBITDA (x) 9.3 7.8 6.2Price/book (x) 2.5 1.8 1.6Source: Deutsche Bank
According to the 3Q14 results release, Coca Cola (KO US; Buy) saw its sales volume decline by 1% in 3Q14 in China due to an unseasonably cool summer (1Q14: +12%; 2Q14: +9%). Pepsi (PEP US; Buy) said its beverage volume sales declined by high single digit in 3Q14. SAB Miller (SAB.L, Hold) said its revenue in China grew by 1% with a 3% lager volume decline for the six months ended September 2014 (2Q14: +4% volume and +8% revenue). Yanjing Brewery (000729 CH, NR) revenue was flat in 3Q14, with NPAT declining by 7% yoy. The cool summer led us to review all Chinese beverage and beer companies under our coverage.
Tingyi 3Q14 previewW 3% yoy to USD209m in 3Q14, thanks to cost cutting at the Pepsi JV level. We lowered our 2014E NPAT by 5% to reflect the cool summer and the anticipated weakness in noodles in 4Q14. Wekeep our DCF-based TP at HKD21.4 (3.9% RFR, 5.6% ERP, 1.0 beta, debt-free structure and 2% terminal growth) and Hold recommendation unchanged. Key upside risks include unexpected and earnings accretive M&A, and a sudden recovery in consumption. Key downside risk is intensifying competition.
UPC 3Q14 previewUPC has
started the rebranding of its beverage products; we have also raised our A&P expenses ratio to reflect higher investment in brand equity and, as a result, we lower our NPAT forecast by 6%. Given the better long-term growth outlook following the improved branding strategy, and reduced maintenance capexpost further disposal of machinery, we increased our DCF-based TP to HKD6.7 from HKD6.2 (3.9% RFR, 5.6%ERP, 1.0 beta, 10% long-term DDE, 2% TG);maintaining Hold. Key upside risks include better-than-expected new product launch(es). Key downside risks: a prolonged price war and input cost hikes.
Tsingtao 3Q14 previewDue to the cool summer, we expect Tsingtao to report a 9% yoy NPAT decline in 3Q14 to RMB700m, and we have lowered our 2014 NPAT forecast by 4%. We keep our DCF-based TP unchanged at HKD61, factoring in 3.9% RFR, 5.6% ERP, 1.0 beta, debt-free structure and 2% TG. We maintain Hold. Key risks include stronger-than-expected beer consumption growth on the upside, increases in input costs and A&P expenses on the downside.
Tenwow 2014-16E NPAT revisions
summer, which will affect its 2014E NPAT by 5%, and keep our 2015-16E NPAT largely unchanged. We keep our DCF-based TP for Tenwow unchanged at HKD3.7 (3.9% RFR, 5.6% ERP, a 1.0 beta, a debt free structure and 2% TG) and maintain Buy. Keydownside risks include intensifying competition and an economic slowdown.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 26 Deutsche Bank AG/Hong Kong
Rating
BuyAsiaChina
TransportationAir
Company
China Eastern Airlines Alert
Date29 October 2014
Results
3Q14 results broadly in-line with ex-FX earnings growth in 9M14
Reuters Bloomberg Exchange Ticker0670.HK 670 HK HKG 0670
ADR Ticker ISINCEA US16937R1041
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (HKD) 2.80
Price target - 12mth (HKD) 2.85
52-week range (HKD) 3.27 - 2.30
HANG SENG INDEX 23,520
Vincent Ha, CFA
Research Analyst(+852) 2203 [email protected]
Joe Liew, CFA
Research Analyst(+65) 6423 [email protected]
Fei Sun
Research Associate(+852) 2203 [email protected]
Stock data
Market cap (HKDm) 35,488
Market cap (USDm) 4,575
Shares outstanding (m) 12,674.3
Major shareholders CEA Hldg (64%)
Free float (%) 36
Avg daily value traded (USDm)
2.8
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (CNYm) 90,970 95,600 103,093
Net Profit (CNYm)
2,372.6 1,213.5 2,441.7
DB EPS (CNY) 0.04 0.10 0.12
PER (x) 54.6 23.0 18.3
Yield (net) (%) 0.0 0.0 1.7
Source: Deutsche Bank
CEA - passenger traffic and capacity growth
-40%
-20%
0%
20%
40%
60%
80%
01/08 01/09 01/10 01/11 01/12 01/13 01/14
Passenger traffic (RPK YoY%) Passenger capacity (ASK YoY%)
Source: Company data
3Q14 net profit decline on rising operating expenses and finance costChina Eastern Airlines (CEA) just released its 3Q14 results under PRC GAAP. The airline recorded a 2.0% YoY increase in 3Q14 gross revenue to RMB26.1bnon a 3.5% passenger traffic (PRK) YoY growth. The difference in the growth pace of RPK and revenue implies that yield still remained weak in 3Q14 peak season, in our view. Together with 1) a faster 4.9% YoY growth in operating expenses than revenue growth and 2) a surge in finance cost (probably due to the lagging effects of 1H14 RMB depreciation, in our view) 3Q14 net profit declined by 26.7% YoY to RMB2.0bn.
On a positive note, if stripping out the finance expense, CEA indeed reported a32.0% YoY growth in ex-finance cost 9M14 net profit to RMB4.0bn.
Deutsche Bank view we expect sequential improvement in core operationW reported net profit accounts for 170% of our FY14 earnings estimates, we do not think our forecasts are too conservative considering 4Q is usually a slow season for Chinese airlines with possible quarterly net loss. We
in the medium to long run given 1) decline in jet fuel price, 2) continual increase in leisure travel demand and 3) passenger traffic upsid the further development of the Shanghai Free Trade Zone and the opening of Disneyland in 2015E.
We maintain our Buy recommendation, despite apparently limited share price upside, since 1) we still expect CEA to achieve a higher-than-historical-average core ROE in future while it is trading at only 0.9x FY15E P/BV, and 2) potential earnings upside with falling jet fuel price. Key downside risks include weaker-than-expected recovery pace in passenger yield and business travel demand.
Figure 1: China Eastern Airlines 3Q14 results summary (in PRC GAAP)(RMBm) 3Q14 3Q13 YoY Remarks
Gross revenue 26,144 25,633 2.0% 3.5% RPK growth partially offset by weak yield
Operating expenses (24,415) (23,276) 4.9% SG&A expenses remained flattish YoY
Finance expense (417) (25) n.m.
Operating profit 1,353 2,384 -43.2% Excluding finance expense and investment income, operating profit declined 26.7% YoY
Net profit 2,044 2,788 -26.7% In 9M14, net profit declined by 39.7% YoY to RMB2.1bn
Source: Company data, Deutsche Bank
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 27
Rating
BuyAsiaChina
ResourcesMetals & Mining
Company
China Hongqiao Alert
Date29 October 2014
Results
Hongqiao New Material 3Q14 earnings beat estimates; Buy
Reuters Bloomberg Exchange Ticker1378.HK 1378 HK HSI 1378
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (HKD) 5.82
Price target - 12mth (HKD) 8.30
52-week range (HKD) 6.84 - 4.61
HANG SENG INDEX 23,520
James Kan
Research Analyst(+852) 2203 [email protected]
Stock data
Market cap (HKDm) 34,251
Market cap (USDm) 4,415
Shares outstanding (m) 5,885.0
Free float(%) 15
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (CNYm) 29,404 36,764 42,998
Net Profit (CNYm)
5,592.7 5,090.5 6,397.5
DB EPS (CNY) 0.92 0.84 1.06
PER (x) 3.7 5.5 4.3
Source: Deutsche Bank
Hongqiao's equity structure
China Hongqiao Group Limited (Cayman Islands)
Hongqiao Hong Kong (Hong Kong)
Hongqiao New Material (PRC)
Aluminium & Power (PRC)
Hongqiao Investment (BVI)
100%
100%
100%
100%
100%
Zhengtong (PRC)
Source: Deutsche Bank, company data
Hongqiao announced earnings results of its major subsidy, Hongqiao New Material on PRC GAAP basis in 3Q14 on Oct 27. Hongqiao New Material is 100% owned by Hongqiao Group con New Material achieved an
DBe and 37% of that in Bloomberg consensus. With a positive outlook on the cost advantage and volume growth and also on improved
utilization rate in aluminium industry, we reiterate Buy on Hongqiao.
which could be attributable to ASPincrease, in-line with Changjiang Aluminium spot price increase in the period.
attributable to coal price weakness and improving self-sufficiency in alumina and electricity. As such, New Mate30% , resulting in a 37% QoQ increase in NPAT.
Company competitiveness on the back of industry turnaround; Buy re-iteratedWith NP in the first three quarters achieving RMB4,081mn, webelieve Hongqi likely outperform DB estimates for FY14, if there is no big shock in aluminium price. We are positive on utilization rate improvement of aluminium smelters and we believe Hongqiao will benefit from improved ASP and volume growth as well as its cost advantage built on high self-sufficiency in alumina and electricity. Therefore, we reiterate our Buy rating for Hongqiao.
Figure 1:3Q14* 2Q14* QoQ 3Q13* YoY Dbe** % of
DbeCons.** % of
Cons.
Revenue 9,354 9,190 2% 7,847 19% 36,764 25% 36,720 25%
COGS (6,370) (6,894) -8% (5,790) 10% (27,936) 23% (28,023) 23%
GP 2,985 2,297 30% 2,058 45% 8,828 34% 8,697 34%
SG&A (119) (128) -7% (108) 10% (699) 17% (91) 131%
OP 2,535 1,848 37% 1,641 54% 8,338 30% 8,606 29%
NPAT 1,912 1,393 37% 1,243 54% 5,091 38% 5,204 37%
Changjiang Aluminium price (excluding VAT)
12,025 11,225 7% 12,276 -2% na na na na
Source: Deutsche Bank, company data. *: New Material. **: Hongqiao.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 28 Deutsche Bank AG/Hong Kong
Rating
BuyAsiaChina
Banking / FinanceBanks
Company
China Merchants Bank Alert
Date29 October 2014
Results
3Q14 results - a small beat with a lot of moving parts
Reuters Bloomberg Exchange Ticker3968.HK 3968 HK HKG 3968
ADR Ticker ISINCIHKY US16950T1025
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (HKD) 14.10
Price target - 12mth (HKD) 18.97
52-week range (HKD) 17.08 - 12.22
HANG SENG INDEX 23,520
Tracy Yu
Research Analyst(+852) 2203 [email protected]
Hans Fan, CFA
Research Analyst(+852) 2203 [email protected]
Michael Zhang, CFA
Research Associate(+852) 2203 [email protected]
Stock data
Market cap (HKDm) 355,606
Market cap (USDm) 45,841
Shares outstanding (m) 25,220.3
Avg daily value traded (USDm)
40.2
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Provisioning (CNYm)
10,218.0 15,202.0 19,396.4
Pre-prov profit (CNYm)
78,555 89,580 99,820
EPS (CNY) 2.21 2.23 2.41
PER (x) 5.6 5.0 4.6
Yield (net) (%) 5.0 6.0 6.5
Source: Deutsche Bank
A small beat on strong PPOP growth; Buy maintained with PT of HK$18.97CMB reported 3Q14 NPAT of Rmb15.3bn, up 16% yoy, which was 2.7% ahead of our estimates, making Rmb45.8bn for 9M14 (also up 16% yoy), which accounted for 81% of our full year estimates. The 3Q14 results were driven by strong PPOP growth of 24% yoy and high credit costs of 93bps (3Q13: 60bps), given weakening asset quality. With a P/PPOP of 3.1x for 2014 (H-sharesaverage: 3.2x), we expect CMB to outperform peers once credit costs normalize.
3Q14 Positives: fee, CIR, capital; Negatives: NIM, depositsNet interest income rose by 2.7% qoq and 13% yoy, driven by AIEA growth of 4.4% qoq (up 29.4% yoy), which offset the decline in NIM by 11bps qoq to 2.39%. We attribute the NIM compression to the delayed effect from the robust deposit growth in 2Q14 (up 11.9% qoq) and the drop in demand deposit mix by 300bps qoq to 46.6%. Net fee income growth remained strong at 39.8% yoy, driven mainly by custodian services, bank card and agency service fees. As a result, revenue grew by 21.8% yoy, outpacing OpEx growth of 18.3% yoy and leading to an improving CIR of 37.2% (3Q13: 38.3%). core tier 1 and CAR improved by 54bps qoq and 48bps qoq to 10.01% and 11.93%, respectively, due to both shrinking assets (down 6.2% qoq) and the adoption of IRB approach in phases.
New rules to discourage period-end deposit gathering slowed deposit growth resulting in
slower loan growth of 1% qoq (up 12.5%) and a rise in LDR to 74.9% (2Q14: 70.8%). Following the implementation of circular 127 to regulate the inter-bank businesses, CMB had scaled back its exposure to non-standardized assets to Rmb522bn or 11% of total assets (2Q14: 12%). This included proprietaryinvestments (down 13% qoq) and reverse repo (down 11% qoq). According tothe 3Q14 result announcement, the bank has met all regulatory requirements, including sufficient capital/provision coverage.
High provision coverage ratio to buffer against asset quality deterioration13.6% qoq to Rmb26.9bn or 1.1% of loans (up
12bps qoq). We estimate that CMB wrote-off and disposed NPLs of Rmb3.8bn during the quarter, leading to rising gross NPL formation rate of 116bps of loans, up from 95bps in 1H14. With credit costs of 93bps, its provision to loan ratio rose to 2.51% (2Q14: 2.46%), while NPL coverage ratio dropped to 228% from 251% in 2Q14.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 29
AsiaHong KongPropertyProperty
Industry
China PropertyDate29 October 2014
Industry Update
Developers register strong sales momentum in October Strong sales momentum among developers in October
________________________________________________________________________________________________________________
Tony Tsang
Research Analyst(+852) 2203 [email protected]
Jason Ching, CFA
Research Analyst(+852) 2203 [email protected]
Top picks
COLI (0688.HK),HKD21.85 Buy
China Resources Land (1109.HK),HKD17.74
Buy
Guangzhou R&F (2777.HK),HKD8.21 Buy
Kaisa (1638.HK),HKD2.80 Buy
CSCEC (601668.SS),CNY3.30 Buy
Source: Deutsche Bank
Companies Featured
COLI (0688.HK),HKD21.85 BuyChina Resources Land (1109.HK),HKD17.74
Buy
Guangzhou R&F (2777.HK),HKD8.21 BuyKaisa (1638.HK),HKD2.80 BuyCSCEC (601668.SS),CNY3.30 BuyChina Merchants Property (000024.SZ),CNY12.92
Buy
Country Garden Holdings (2007.HK),HKD3.00
Sell
Evergrande (3333.HK),HKD2.97 SellShimao Property (0813.HK),HKD16.12 SellGemdale Corp (600383.SS),CNY7.66 SellChina Vanke (000002.SZ),CNY9.22 BuyChina Vanke (2202.HK),HKD14.18 HoldChina Ovs Grand Oceans (0081.HK),HKD4.05
Buy
Greentown China (3900.HK),HKD7.89 BuyYuexiu Property (0123.HK),HKD1.37 BuySource: Deutsche Bank
We surveyed 20 key listed developers for an update on latest sales momentum to check whether the strong sales during the Golden Week holiday could be sustained throughout the month. We found a positive response. Based on our survey, nine and 11 developers, respectively, are expecting MoM and YoY increases in contracted sales. On the back of the active launches responding to
ng on 30 September, we expect a continued recovery in sales volume in 4Q14.
Developers confirmed substantial recovery in physical property market in October after PBOC easingBased on MTD sales momentum, most of the 20 developers indicate they willachieve or are very likely to achieve MoM increases in contracted sales in October. Even more encouraging is that most of them indicate they will likely achieve YoY increases in contracted sales for October. On an MoM basis, based on the latest sales momentum, eight out of the 20 developers are confident of achieving an MoM increase in contracted sales value with just onestating its MoM sales will decrease in October. Eleven developers said they could achieve YoY increases in sales and, again, only one would likely post a YoY decrease.
Strong sales should continue to the end of the yearOne of the reasons for the strong sales momentum is more active launches by the developers. Many developers have started launching their new or major existing projects in 4Q, and expect the launch pace to sustain till end-2014. In addition, based on our property tours earlier this month, as well as media reports (like Hexun and JRJ), developers are still willing to offer promotionsand discounts to maintain sales momentum. The physical market situation hasstrengthened substantially following the latest easing of the mortgage rules by the PBOC, which has significantly boosted sentiment. In addition, more banks have started implementing the PBOC policy easing, and therefore we expect a continued recovery in sales volume over the next three months.
COLI, Vanke, COGO, Greentown and Yuexiu on track to achieve sales target
Developers have performed differently in their full-year sales target hit-rates so far. As a reference, by end-September, listed developers have on average achieved 58% of their full-year target, lower than the 75% target achieved in9M13. However, we see COLI, China Vanke, COGO, Greentown and Yuexiu are well on track to achieve their 2014 sales targets.
Top picks: COLI, CSCEC, CR Land, CMPD, Kaisa, R&FOur positive industry views are supported by the currently cheap valuations of the China property stocks. Our top picks are those with: 1) favourable landbank vintage (i.e. management has good market expertise in timing market cycles); 2) the ability to obtain cheap financing; 3) good revenue diversification (like a sizeable and growing investment property portfolio); and/or 4) very attractive valuations. We retain Sells on Shimao, Evergrande, Country Garden, Agile(HKD4.15), and Gemdale given high financial risk and/or margin pressure. Our target prices are based on discounts to NAV. Key risks: unexpected economic and policy volatility.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 30 Deutsche Bank AG/Hong Kong
AsiaHong KongPropertyProperty
Industry
China PropertyDate29 October 2014
Industry Update
Hangzhou Tour Takeaways: strong recovery momentum continuesHangzhou property tour confirmed physical market in the recovery stage
________________________________________________________________________________________________________________
Tony Tsang
Research Analyst(+852) 2203 [email protected]
Jason Ching, CFA
Research Analyst(+852) 2203 [email protected]
Top picks
COLI (0688.HK),HKD22.20 Buy
CSCEC (601668.SS),CNY3.38 Buy
China Resources Land (1109.HK),HKD17.94
Buy
China Merchants Property (000024.SZ),CNY12.92
Buy
Source: Deutsche Bank
Companies Featured
COLI (0688.HK),HKD22.20 BuyCSCEC (601668.SS),CNY3.38 BuyChina Resources Land (1109.HK),HKD17.94
Buy
China Merchants Property (000024.SZ),CNY12.92
Buy
Kaisa (1638.HK),HKD2.81 BuyGuangzhou R&F (2777.HK),HKD8.30 BuyEvergrande (3333.HK),HKD2.98 SellShimao Property (0813.HK),HKD16.36 SellCountry Garden Holdings (2007.HK),HKD3.02
Sell
Agile Property (3383.HK),HKD4.17 SellGemdale Corp (600383.SS),CNY7.93 SellChina Vanke (000002.SZ),CNY9.22 BuyChina Vanke (2202.HK),HKD14.46 HoldLongfor (0960.HK),HKD8.69 BuySunac (1918.HK),HKD6.26 HoldSource: Deutsche Bank
Our target prices are based on discounts to NAV. Key risks: unexpected economic and policy volatility.
We hosted a property tour in Hangzhou, visiting property projects and meeting with agents and consultants. While the Hangzhou property market is still facing inventory problems, physical market situations have strengthened substantially following the latest HPR relaxation and PBOC mortgage easing, which has significantly boosted the confidence of first-time homebuyers and upgraders. More importantly, the strong momentum built up during the Oct Golden Week holiday has been sustained, and more homebuyers are now jumping out of the sidelines as price expectations are changing.
Strong momentum should be sustained over next 6 monthsOn 29 July, the Hangzhou government announced the first relaxation of HPRs (properties of over 140sqm in the city districts and all properties in Yuhang and Xiaoshan District removed from HPRs), followed by a full relaxation in 29 August. According to Centaline, average sales volume in Jan-July 2014 was about 6,000 units per month. After the HPR relaxations, average monthly sales volume was about 9,500. Then the PBOC mortgage easing was announced on 30 Sep. In Oct MTD (up to 28 Oct), sales volume already reached 10,200 units. For recent new launches with reasonable pricing, sales-through rates of at least 70-80% were achieved on the first day. Centaline expects that, as developers continue to offer promotion and discounts, and as more details of the announced PBOC easing are implemented (Centaline expects RRR cuts and interest rate cuts, and more mortgage discounts in 2015), the strong sales momentum should be sustained in the next 6 months.
There is no room to raise prices, howeverAccording to Centaline, on inventory level (available for sale properties, including properties under construction with presale permits but not yet sold), it is now about 140k units in Hangzhou. As a reference, inventory level in 2009 was about 70k units. Hence, overall, there is no room for developers to increase property prices at the moment as homebuyers, although they are jumping out of sidelines, are still price sensitive and are looking for the bestvalue given a certain price level. Looking ahead into 2015, as new construction starts in 2014 YTD showed negative YoY growth, and there were no land sales in the first 7 months of 2014, the inventory overhang should start to improve gradually in 2015. Centaline expects new supply to fall next year, and pricing power should recover in 2H15 for prime-location, city-center projects.
Residential market entered the recovery period; positive 12-month outlookAfter more than 2 years of property market tightening, government policies onthe property market have started to turn towards loosening in Aug 2014, with HPRs and mortgage restrictions being relaxed. Such relaxation, together with improving housing affordability (except for Tier-1 cities), have substantially boosted homebuyers' sentiment on the demand-side. Meanwhile, developers' willingness to cut prices plus declines in land sales and construction starts are leading to improving supply-side dynamics. We expect the physical residential market to recover over 12 months, in 3 phases: 1) normalizing inventory periods in 4Q14-1Q15; 2) ASPs bottoming out in 2Q15; and 3) gradual ASP recovery in 2H15. Overall, we expect continued recovery in sector fundamentals and more positive catalysts for the sector during this 12-month recovery period.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 31
Rating
BuyAsiaChina
TransportationMarine
Company
China Shipping Dvlpmt Alert
Date29 October 2014
Results
A soft 3Q probably priced in; a much better 4Q yet to be discounted; Buy.
Reuters Bloomberg Exchange Ticker1138.HK 1138 HK HSI 1138
ADR Ticker ISINCSDXY US1694082009
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (HKD) 5.10
Price target - 12mth (HKD) 8.00
52-week range (HKD) 6.23 - 4.03
HANG SENG INDEX 23,520
Sky Hong, CFA
Research Analyst(+852) 2203 [email protected]
Joe Liew, CFA
Research Analyst(+65) 6423 [email protected]
Stock data
Market cap (HKDm) 17,363
Market cap (USDm) 2,238
Shares outstanding (m) 3,404.6
Major shareholders China Shipping Corp (46%)
Free float (%) 54
Avg daily value traded (USDm)
7.1
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (CNYm) 11,344 14,517 17,439
Net Profit (CNYm)
-2,234.2 721.4 1,849.2
DB EPS (CNY) -0.66 0.21 0.54
PER (x) 19.0 7.4
Yield (net) (%) 0.0 1.7 4.5
Source: Deutsche Bank
3Q core earnings dip into red, but this probably has already priced inHeadline net profit in 3Q was RMB43m (vs. a net loss of RMB247m in 3Q13). However, excluding scrapping subsidy of RMB215m and other non-operating items, its core operations incurred a net loss of RMB130m (vs. core net profit of RMB52m in 2Q and RMB48m in 1Q). The soft results were mainly because both dry bulk and tanker rates, given the slow season, remained sluggish during the period. Particularly, due to the lower coal consumption by coastal IPPs and higher hydro power on ample rainfall, coastal coal shipping demand suffered greatly in 3Q. Qinhuangdao to Shanghai coal shipping rate has hit the record-low of RMB20/t during the period.Quickly looking into key financials. As rates improved, 3Q revenue was up 8%YoY (shipments 4% YoY), outpacing both operating cost (+3% YoY) and SGAexpense (+6% YoY). Net finance cost rose 52% YoY on higher interest-bearing debt, but this was more than offset by the higher profit from associates and JVs and non-operating earnings. While we had expected to see a core loss in 3Q, we admit that the magnitude was a bit larger than we had anticipated. Having said that, in light of sharp stock pullback since mid-Sept, we think this weak 3Q probably has already been reflected in the price. More importantly, we would expect investors to focus on 4Q and outlook, which has dramatically improved lately.
Outlook has greatly improved lately, which is yet in the price, in our view; BuyAs a few major segments for CSD are under long-term contracts (i.e. domestic
exposed to spot dry bulk indeed drive its earnings delta.Speaking of the VLCC, crude oil shipments to Asia has sharply improved latelyon the combination of the seasonal demand, Chinaprice, and improved refinery margins. VLCC rates for TD3 route (from Middle East to Far East) have climbed to US$40k/day from less than 20k/day early this
n <30k). As the peak level of VLCC rates typically would occur in Dec-Jan, we see more upside to the rates in coming months. As for domestic coal shipping, rates have also started moving up recently as coming winter season along with the expectation of further rise in coal price has resulted in re-stocking by costal IPPs. Qinhuangdao to Shanghai rate has improved to RMB25/t from 21-22/t during 1H this month. We expect rates to further improve for the rest of the year as reduction of coal imports, winter season and possible bad weather should lead to tighter S/D for this market. Lastly, BDI has been soaring lately, rising 50% to c.1,400 in last eight trading days largely on Capesize. With more shipments from Vale hitting the water ahead, we expect Capesize S/D to become even tighter, which in turn should lift the BDI highershould bring positive sentiment on the stock, in our view. At 0.6x forward P/B, the stock seems to be still discounting a loss-making scenario, which looks overly pessimistic. Buy with TP of HK$8, based on 0.9x P/B.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 32 Deutsche Bank AG/Hong Kong
AsiaHong KongConsumer
Industry
China/HK RetailDate29 October 2014
Industry Update
Watch business in HK remains tough
________________________________________________________________________________________________________________
Anne Ling
Research Analyst(+852) 2203 [email protected]
Focus stocks
Hengdeli (3389.HK),HKD1.23 Hold Price Target HKD1.58Source: Deutsche Bank
Read through profit warnings of Sincere Watch and Oriental WatchSincere Watch (SW) and Oriental Watch (OW) announced profit warnings regarding their 1HFY15 results on 23 and 28 October, respectively. We expect SW to record a 5%/40% yoy decline in revenue/NP while OW is expected to record a significant decrease in NP. Aside from company specific issues, both stated the decline in revenues was due to slowdown in the luxury segment.
Deutsche Bank viewAbout d on the sales performance of the 4 listed watch companies by market (Figure 1 & 2), performance in HK in general has been weaker than other markets mainly China). 1H14. We believe this is due to: 1) change in mix of tourist arrivals with more arrivals from same day travelers, who tend to shop for daily necessities; 2) anti-extravagance and anti-corruption campaign in China.
Into 4Q14, we think these 2 factors remain an overhang albeit well digested. Still, we see additional negative factors weighing on the luxury segment: 1)weaker domestic consumption should political uncertainty remain in HK; or 2)changes in regulations on IVE (individual visa scheme) for mainland travelers.
We currently have a Hold recommendation on Hengdeli. Although its HK operation remains challenging, its China operation (60% of sales) is benefiting from a more diversified price range with mass market watches (retail price below RMB30,000 per piece) accounting for over 50% of its China operation.
Figure 1: Sales and profit mix for the latest reporting period Figure 2: Sales and profit YoY% for latest reporting period
Sincere Watch (FY14)
Oriental Watch (FY14)
Emperor Watch & Jewelry (1HFY14)
Hengdeli-retailing (1HFY14)
(444.HK, NR) (398.HK, NR) (887.HK, NR) (3389.HK, Hold)Sales mix %Hong Kong 69.1% 68.1% 83.5% 38.9%PRC and Macau 25.5% 59.5%Other Asian locations 5.5% 1.6%Segment results mix %Hong Kong 63.4% 117.0% 85.7% 44.6%PRC and Macau 32.2% 54.1%Other Asian locations 4.4% 1.3%
31.9%
-17.0%
16.5%
14.3%
Sincere Watch Oriental Watch Emperor W&J HengdeliYoY % 2HFY14 2HFY14 1H14 1H14Sales
Hong Kong -25.7% -11.7% -6.4% 12.2%Others 4.8% -2.0% -9.7% 12.6%
Total -19.4% -8.8% -6.9% 12.4%Segment results
Hong Kong -32.2% -75.1% -25.6% 50.3%Others -14.8% -383.9% -2.0% 8.1%
Total -26.9% -83.6% -22.9% 23.6%NPAT -74.8% -99.4% -33.2% 2.6%
Source: Deutsche Bank, Company Data, Note: for Hengdeli, Hong Kong market includes Harvest Max business; Sincere Watch and Oriental Watch have fiscal year ends of 31 March
Source: Deutsche Bank, Company Data, Note: for Hengdeli, Hong Kong market includes Harvest Max business ; Sincere Watch and Oriental Watch have fiscal year ends of 31 March
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 33
Rating
SellAsiaChina
ResourcesConstruction Materials
Company
CNBM AlertDate28 October 2014
Results
3Q14 first take; not as good as it seems
Reuters Bloomberg Exchange Ticker3323.HK 3323 HK HKG 3323
ADR Ticker ISINCBUMY US16947K1079
________________________________________________________________________________________________________________
Price at 28 Oct 2014 (HKD) 7.09
Price target - 12mth (HKD) 6.02
52-week range (HKD) 9.01 - 6.79
HANG SENG INDEX 23,143
Johnson Wan
Research Analyst(+852) 2203 [email protected]
Stock data
Market cap (HKDm) 38,279
Market cap (USDm) 4,935
Shares outstanding (m) 5,399.0
Major shareholders CNBM Group (60%)
Free float (%) 33
Avg daily value traded (USDm)
21.0
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (CNYm) 117,688 128,401 143,314
Net Profit (CNYm)
5,761.9 4,305.3 4,940.0
DB EPS (CNY) 1.07 0.80 0.91
PER (x) 6.6 7.0 6.1
Yield (net) (%) 2.3 2.1 2.5
Source: Deutsche Bank
Surprising 49% QoQ earnings improvement despite weaker QoQ operating numbersCNBM announced is 3Q14 results with bottom line of RMB1.8bn or EPS of RMB0.34/sh, down 5% yoy. 9M14 NPAT reached RMB3.6bn, up 11% YoY. These results come as a surprise to us as an analysis of its operating numbers would indicate that both volume and GP has fallen 10% QoQ but yet CNBM's earnings were up 49% QoQ. After further analysis, we see that CNBM has understated its SG&A expense as they booked a RMB5.2bn expense in 2Q14 versus a RMB2.8bn expense in 3Q14. We believe these expenses will normalize in their full year results so we remain our cautious view on the counter. Reiterate SELL with TP of HKD6.02.
Figure 1:1Q14 2Q14 3Q14 1Q13 2Q13 3Q13 3Q14 QoQ 3Q14 YoY
ASP (RMB/t) 261 253 240 291 268 253 -5% -5%
GP(RMB/t) 69 71 64 65 67 60 -10% 7%
Volume (mt) 49 84 75 36 60 63 -10% 20%Source: Deutsche Bank, Company data
Figure 2: terly financialsRMB Million 1Q14 2Q14 3Q14 1Q13 2Q13 3Q13 3Q14 QoQ 3Q14 YoY
Revenue 21,997 33,784 32,702 19,696 30,835 31,635 -3% 3%
Gross Profit 5,427 9,471 8,820 3,868 7,729 8,874 -7% -1%
SG&A (2,265) (5,168) (2,805) (1,795) (4,290) (2,987) -46% -6%
EBIT 3,467 5,983 5,985 2,631 4,552 5,993 0% 0%
Finance costs (2,491) (2,906) (2,709) (1,879) (2,440) (2,621) -7% 3%
Income taxes (291) (884) (637) (236) (584) (607) -28% 5%
NPAT 556 1,242 1,849 323 1,030 1,945 49% -5%
EPS 0.10 0.23 0.34 0.06 0.19 0.36 49% -5%Source: Deutsche Bank, Company data
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 34 Deutsche Bank AG/Hong Kong
Rating
HoldAsiaChina
EnergyOil & Gas
Company
CNOOC Ltd AlertDate29 October 2014
Results
Did we hear that correctly?
Reuters Bloomberg Exchange Ticker0883.HK 883 HK HKG 0883
ADR Ticker ISINCEO US1261321095
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (HKD) 12.56
Price target - 12mth (HKD) 13.17
52-week range (HKD) 15.98 - 11.54
HANG SENG INDEX 23,520
David Hurd, CFA
Research Analyst(+852) 2203 [email protected]
Stock data
Market cap (HKDm) 560,476
Market cap (USDm) 72,251
Shares outstanding (m) 44,623.9
Major shareholders CNOOC (71%)
Free float (%) 22
Avg daily value traded (USDm)
126.9
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (CNYm) 285,225 273,714 273,505
Net Profit (CNYm)
55,829.2 54,356.9 50,271.2
DB EPS (CNY) 1.25 1.22 1.13
PER (x) 9.5 8.1 8.8
Yield (net) (%) 3.8 3.7 3.4
Source: Deutsche Bank
CNOOC held its 3Q14 Operating Review tonightCNOOC Ltd does not report Qtly financials. CNOOC provides production, Capex and Revenues 1Q and 3Q/ 9-months and full financials for Interim and Full Year results. CNOOC reported soft 3Q14 production relative to our estimates. For 3Q14, CNOOC Ltd reported 102.9 mmBoe of production vs. our estimate of 111.3 and 2Q14 production of 103.2 mmBoe. Production for 3Q14 of 102.9 mmBoe was down Y/y vs. 3Q13 production of 103.4 mmBoe.
FY14e guidance for BOE production remained unchanged at 422 to 435 mmBOE vs. FY13 production of 411.41 mmBoe. Management also retained its 6-10% CAGR production guidance for 2011-
Did we hear that correctly?At the end of the call, CNOOC confirmed that its 6-10% CAGR production guidance for 2011-15e would include the acquisition of Nexen. Who moved my cheese? Since 2011 and confirmed annually by management
s 6-10% CAGR production guidance for 2011-15 never before included the acquisition of Nexen. To the contrary, the 6-10% CAGR guidance was always noted to be CNOOC (x-Nexen) organic production. To us, this sounds like an acknowledgement that CNOOC Ltd may not hit its long held production target of 6-10% CAGR 2011-15, excluding Nexen. What a bomb-shell to drop at the very end of the 3Q14 conference call.
Production, ASPs, Revenues and 2015e Capex
bbl which was spot in line with our assumed 3% discount to Brent. For 9-P was US$ 103.90/ bbl or a 2.4% discount to Brent in
for cumulative 9-months, it was US$ 6.5/ mcf (+16.2% Y/y). The natural gas ASPs do not surprise us giv as price increases, July 2013 (+15.3%) and Sept 2014 (+18.2%). Production was soft in Europe on the oil side at 4.5 mmbls vs. 7.6 mlnbls 3Q13. As per management this was a programmed shut-down of Buzzard field production, already back on-line. Natural gas production of 10.5 Bcf from Eastern South China Sea was materially behind Wood Mac and our 28 Bcf / quarter. Long Lake production picked up, although not broken out by management from Syncrude production. As reported, revenue 3Q14 of Rmb 49.3bn was -6.4% lower than 3Q13 revenue. The CFO of CNOOC commented on the call that 2015 Capex would be lower than 2014 Capex. We maintain our Hold rating on CNOOC Ltd in light of materially lower oil prices as recently seen in the global markets.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 35
Rating
HoldAsiaChina
Health CareHealth Care
Company
Fosun PharmaDate29 October 2014
Results
Stable growth ahead; outlook reaffirmed
Reuters Bloomberg Exchange Ticker2196.HK 2196 HK HSI 2196
Forecasts And Ratios
Year End Dec 31 2012A 2013A 2014E 2015E 2016E
Sales (CNYm) 7,278.3 9,921.5 12,202.2 15,338.6 18,756.5
EBITDA (CNYm) 892.9 1,443.2 1,741.9 2,236.3 2,732.3
DB EPS FD(CNY) 0.33 0.43 0.53 0.68 0.85
PER (x) 28.0 26.8 38.6 30.2 24.3
EV/EBITDA (x) 12.2 13.5 22.1 16.5 12.5
Source: Deutsche Bank estimates, company data1 DB EPS is fully diluted and excludes non-recurring items2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close
Growth recovery on track for key franchises
________________________________________________________________________________________________________________
Price at 28 Oct 2014 (HKD) 26.20
Price target - 12mth (HKD) 27.00
52-week range (HKD) 30.65 - 16.98
HANG SENG INDEX 23,520
Jack Hu, Ph.D
Research Analyst(+852) 2203 [email protected]
Price/price relative
Performance (%) 1m 3m 12m
Absolute 1.6 -3.1 44.0
HANG SENG INDEX -0.7 -3.7 3.1
Source: Deutsche Bank
Related recent research Date
How organic is the profit growth 29 Aug 2014Source: Deutsche Bank
Fosun reported revenue/non-GAAP EPS of RMB3.1bn/0.16 in 3Q14, representing 21.8%/34.4% YoY growth. Management reiterated 2014 profit guidance of RMB1.25bn, vs. RMB1.05bn for 9M14, suggesting 84% of the mission was completed. Fosun also indicated that growth recovery for Aohong is on track in 3Q14, while expecting completion of few hospital acquisitions in the near term despite slight delays. We believe the current stock price has largely reflected its 3-year growth potential of 25% CAGR (2013-15).
Above 20% organic profit growth in 3Q14Excluding 23% of the Aohong and contribution from Chancheng hospital, the organic profit growth in 3Q14 was north of 20%, according to the company. We remind investors that the organic growth in 1H14 was about 18% based on our estimates ( ow organic is the profit growth , dated 29 August). While management did not give any details on Aohong recovery, we highlight 1) end user data suggested low-teen growth vs. 18% decline as reported for 1H14; 2) modest growth deceleration of Aodejin/Bangting in 3Q14 at hospital level. It remains unclear to us how inventory stuffing and destocking impacted reported data in 2013 and 1H14. On drug tender, Fosun is confident about its risk mitigation strategy for top revenue drivers, while conceding that slight price erosion is expected.
Expecting more hospital deals to be closed in near term Despite delays in M&A, management is prepared to close few deals in the near term. We believe the management team might target an addition of 2,000 beds by YE14. In addition to private hospitals, Fosun is positioning for public hospitals on two fronts: acquiring hospitals affiliated with large SOEs and building new hospitals in collaboration with large public hospitals with a brand name on local level.
Maintain target price of HKD27; risksWe maintain our target price of HKD27, based on 28x 2015E non-GAAP core (ex-hospital) EPS of HKD0.83 and 47x 2015E hospital EPS of HKD0.09. We continue to believe current valuation has fully reflected its near-term growth potential. Key upside risks include more acquisitions, less pricing pressure and quicker ramp-up of new products. Downside risks include less M&A, more pricing pressure and more dilution.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 36 Deutsche Bank AG/Hong Kong
Rating
BuyAsiaChina
UtilitiesUtilities
Company
Huadian Power Alert
Date29 October 2014
Company Update
Key takeaways from conference call
Reuters Bloomberg Exchange Ticker1071.HK 1071 HK HKG 1071
ADR Ticker ISINHPIFY US4432971061
________________________________________________________________________________________________________________
Price at 28 Oct 2014 (HKD) 5.32
Price target - 12mth (HKD) 6.70
52-week range (HKD) 5.86 - 3.01
HANG SENG INDEX 23,520
Michael Tong, CFA
Research Analyst(+852) 2203 [email protected]
Yingying Dong
Research Associate(+852) 2203 [email protected]
Stock data
Market cap (HKDm) 39,214
Market cap (USDm) 5,055
Shares outstanding (m) 8,029.3
Major shareholders Huadian Group (50.01%)
Free float (%) 36.1
Avg daily value traded (USDm)
10.8
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (CNYm) 66,049 67,845 74,647
Net Profit (CNYm)
4,096.9 5,400.0 5,559.8
DB EPS (CNY) 0.652 0.673 0.631
PER (x) 4.1 6.2 6.6
Yield (net) (%) 8.3 6.5 6.1
Source: Deutsche Bank
4Q output not a concern; fuel cost decline better-than-expected; BuyWe hold a post 3Q results conference call for Huadian this morning. Overall, we see a solid 4Q output growth given its high heating exposure and low base last year, suggesting a 3% output growth in FY14E as highly achievable; on the other hand, with 3Q unit fuel cost (UFC) down 5.5% qoq, the FY14E decline is likely to reach 12%, exceeding its earlier guidance of 10%. We like the company given its 1) defensive utilization outlook given favorable exposure in Shandong province; 2) higher chance of asset injection, which will likely be settled without further equity placement; and 3) cheapest valuation of 6.2x 14E PE among the peers. Buy.
9M utilization out-performed; 3% output growth in 14E highly achievableIn 9M14, Huadian s utilization of coal-fired units remained largely flat at 4,046hrs despite a nationwide average of 3,512hrs (-190hr yoy) thanks to its high exposure in Shandong, where thermal utilization stands high at 3,796hrs (+25hrs). Given the limited new capacity and power import capacity still takesyears to ramp up in Shandong, management expects a continued high utilization in the province over the next two years. Besides, as Huadian has a high capacity mix of co-generation units, we expect limited volatility in 4Q output and believe our current output forecast of 181bn kWh as highly achievable (implied 46.5bn kWh in 4Q, vs. 46.8bn kWh in 3Q).
12% FY14E coal price decline likely vs. earlier 10% guidance In 9M14, Huadian s standard coal price was down 11.6% to Rmb596/ton, with 3Q coal price down 14% yoy and 5.5% qoq to Rm557/ton. As of mid-Oct, Huadian s coal price further retreated to c.Rmb550/ton. Combined with a historical-high inventory of c.40 days, we believe Huadian will be able to maintain a low fuel cost even if there is potential coal price rebound at year-end. Assuming a similar 4Q coal price as 3Q, we calculated Huadian s full-year coal price will be down 12% yoy (vs. 10% decrease guided post interim results).Huadian s FY14 earnings sensitivity to 1% unit fuel cost decline is 3.7%.
Asset injection w/o placement; relieved concern over gas-fired units Management highlights that they are comfortable with the current gearing post the A+H share placement in June, and the potential asset injection will be done via internal cash and debt raising instead of further placement. Regarding the market concern over Huadian s pipeline of gas-fired units, the construction progress has been put on hold before return profile crystallizes, while the profitability of operating units in Zhejiang (pass-through achieved) and Tianjin(heating units) remain satisfactory. On the other hand, the 2015E wind capacityaddition will be move ahead to before mid-year. In 3Q, the effective interest rate slightly increased to 5.76%. However, the company advised that c.90% of its loans could enjoy timely interest rate adjustment if there s rate cut by government.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 37
Rating
BuyAsiaChina
Banking / FinanceBanks
Company
ICBC AlertDate29 October 2014
Results
In-line 3Q14 results with a beat on NIM and capital position
Reuters Bloomberg Exchange Ticker1398.HK 1398 HK HSI 1398
ADR Ticker ISINIDCBY US4558071076
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (HKD) 5.11
Price target - 12mth (HKD) 6.80
52-week range (HKD) 5.60 - 4.34
HANG SENG INDEX 23,520
Tracy Yu
Research Analyst(+852) 2203 [email protected]
Hans Fan, CFA
Research Analyst(+852) 2203 [email protected]
Michael Zhang, CFA
Research Associate(+852) 2203 [email protected]
Stock data
Market cap (HKDm) 1,795,603
Market cap (USDm) 231,471
Avg daily value traded (USDm)
161.7
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Provisioning (CNYm)
38,321.0 50,229.1 60,247.8
Pre-prov profit (CNYm)
374,761 402,628 435,384
EPS (CNY) 0.75 0.78 0.83
PER (x) 5.7 5.2 4.9
Yield (net) (%) 6.2 6.8 7.2
Source: Deutsche Bank
Solid 3Q14 results despite challenging environment: Buy rating maintainedICBC reported NPAT of Rmb72.4bn, (up 7.7% yoy) in 3Q14 and Rmb220.5bn (up 7.3% yoy) for the first nine months of the year, which accounted for 80.5% of our full year estimates. The results were driven by PPOP growth of 10.8%yoy and low credit costs of 31bps (3Q13: 27bps). We believe the key positives of the 3Q14 results are (1) NIM up 4bps qoq to 2.68%, (2) low operating expense growth of 3.6% yoy leading to an improving CIR of 33.2% (3Q13: 34.7%) and (3) core tier 1 and CAR higher by 43bps and 53bps qoq to 11.8% and 14.2%. This offsets the 1.7% yoy decline in net fee and commission income, which has led to a 6.5% yoy drop in non-interest income. We maintain a Buy rating on ICBC, with target price of HK$6.8.
Credit costs looked low given weakening asset quality ICBC reported NPL ratio of 1.06%, with NPL balance growing by 9.2% qoq to Rmb115.5bn. We estimate that ICBC wrote-off and/or disposed NPL of Rmb9.8bn in 3Q14, implying a higher gross NPL formation rate of 73bps, compared with 56bps in 1H14. As the bank set aside credit costs of 31bps only, both NPL and loan coverage ratio dropped to 216.6% and 2.3% respectively, as against 238% and 2.36% as of June 2014.
One-off drop in net fee income due to new regulation on bank service fees Net fee income fell by 22.2% qoq and 1.7% yoy in 3Q14 due to the new regulation, implemented in August 2014, to lower bank service fees charged to customers, especially the settlement fees. Amongst the big four banks, ICBC had the highest exposure to settlement related fee income, which made up 5.3% of its revenue in 1H14, followed by 4.6%, 3.7% and 2.9% for ABC, BOC and CCB respectively.
Stable profitability and slower RWA growth to boost capital positions
4.4% yoy) as the introduction of the cap on deposit deviation ratio at 3%discouraged deposit gathering during the period-end. As loan growth of 1.9% qoq (up 12.5% yoy) outpaced deposit growth, LDR rose to 70.8%, up from 67.7% in 2Q14. Reflecting slower asset growth of 7.5% yoy (down 0.8% qoq),
3bps and 53bps qoq to 11.8% and 14.2% respectively. During the quarter, ICBC issued new sub-debt of Rmb200bn to re-finance maturing debt of Rmb160bn.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 38 Deutsche Bank AG/Hong Kong
Rating
HoldAsiaChina
ResourcesMetals & Mining
Company
Jiangxi Copper AlertDate29 October 2014
Results
Jiangxi Copper 3Q14 results beat DBe and consensus; Maintain Hold
Reuters Bloomberg Exchange Ticker0358.HK 358 HK HKG 0358
ADR Ticker ISINJIXAY US47737M1027
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (HKD) 13.34
Price target - 12mth (HKD) 13.70
52-week range (HKD) 15.18 - 11.84
HANG SENG INDEX 23,520
James Kan
Research Analyst(+852) 2203 [email protected]
Stock data
Market cap (HKDm) 46,193
Market cap (USDm) 5,955
Shares outstanding (m) 3,462.7
Major shareholders Jiangxi Copper Corp (37%)
Avg daily value traded (USDm)
12.0
Free float(%) 61
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (CNYm) 175,292 184,334 196,418
Net Profit (CNYm)
3,555.7 3,037.9 2,875.7
DB EPS (CNY) 0.90 0.81 0.76
PER (x) 14.0 13.0 13.8
Yield (net) (%) 4.0 4.0 3.8
Source: Deutsche Bank
Jianxi Copper`s 3Q14 results beat DBe and Bloomberg consensusJiangxi Copper announced 3Q14 results in according with PRC GAAP before the market open on Oct 29th. Its 3Q14 YTD topline reached RMB147bn, up 12% YoY, representing 80% of DB estimate and 83% of Bloomberg consensus. However, the revenue increases mainly due to raising its copper trading business. And its 3Q14 YTD NPAT was RMB2,325m, down 6% YoY, achieving 77% of DB estimate and 90% of market consensus. The company`s bottom line beat DBe and consensus mainly due to non-operating income`s contribution (fair value gain and investment income adds up to RMB1,256m).
Good management cost control in 3Q14 but sustainability remains to be seenIn 3Q14 alone, Jiangxi Copper`s NPAT increased 33% QoQ to RMB1,128m. Its NP increase mainly supported by its good management cost control. The company`s SG&A cost dropped 33% QoQ to RMB479m. However, currently its SG&A percentage of revenue is already less than 1% (0.88%), which is at the company`s historical low level. Therefore, we are concerned that it may not be easy for the management team to cut SG&A costs further.
Gross profit margin is in a downward trajectoryDue to involving more in trading business, Jiangxi Copper`s gross profit margin continues to be dragged down by the low margin business. In 3Q14, the company`s sales increased 6% QoQ, but its GP growth is only 4% QoQ and GPM declined to 3.3%. It seems the company`s profit generating capability ofits main business is shrinking.
Maintain Hold due to copper price and cost control effectiveness uncertaintyDB global commodity team forecasts the copper price will still be in adownward trend in coming years. Meanwhile, the company`s ability tosustainably improve its cost control remains to be seen. So maintain Hold.
Figure 1: Jiangxi Copper 3Q14 results details (PRC GAAP)3Q14YTD
3Q13YTD
YoY DBe % of DBe
Cons % of Cons.
3Q14 2Q14 QoQ
Revenue 147,427 131,935 12% 184,334 80% 177,315 83% 54,491 51,647 6%
COGS 143,347 126,764 13% 178,031 81% 171,797 83% 52,684 49,913 6%
GP 4,081 5,171 -21% 6,303 65% 5,518 74% 1,807 1,735 4%
SG&A 1,436 1,908 -25% 2,396 60% 1,578 91% 479 717 -33%
Other income*
1,256 416 202% na na na na 444 150 195%
OP 2,765 3,320 -17% 4,215 66% 3,940 70% 1,369 1,083 26%
NPAT 2,325 2,470 -6% 3,038 77% 2,572 90% 1,128 849 33%
CFO 4,517 2,917 55% 5,536 82% na na 456 3,749 -88%Source: Deutsche Bank, *: fair value gain and investment income
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 39
Rating
HoldAsiaChina
EnergyOil & Gas
Company
PetroChina AlertDate30 October 2014
Results
Soft oil - already impacting results
Reuters Bloomberg Exchange Ticker0857.HK 857 HK HKG 0857
ADR Ticker ISINPTR US71646E1001
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (HKD) 9.84
Price target - 12mth (HKD) 10.10
52-week range (HKD) 11.62 - 7.33
HANG SENG INDEX 23,520
David Hurd, CFA
Research Analyst(+852) 2203 [email protected]
Stock data
Market cap (HKDm) 1,800,926
Market cap (USDm) 232,157
Shares outstanding (m) 183,021.0
Major shareholders CNPC Group (87.2%)
Free float (%) 14
Avg daily value traded (USDm)
114.6
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (CNYm) 2,258,124 2,298,587 2,340,003
Net Profit (CNYm)
129,598.8 132,207.8 134,727.7
DB EPS (CNY) 0.71 0.72 0.74
PER (x) 10.6 10.7 10.5
Yield (net) (%) 4.3 4.2 4.3
Source: Deutsche Bank
PetroChina (PTR) reported soft 3Q14 results tonightPTR reported 3Q14 results of Rmb 0.15/ share vs. our 0.18/ share est. and Bbrg consensus of 0.17/ share. Operating results disappointed on the E&P Division, the Refining Division and the Marketing Divisio
7.1% was soft vs. 2Q14 margin of 8.9% and a 1H14 of 8.4%. The 3Q14 tax rate
+21% (1Q-3Q) vs. our full year estimate of 20%.
Financial ResultsPTR reported 3Q14 Net Income of Rmb 27.9bn (0.153/ share) vs. our Rmb 33.6bn (0.184/ share) and 3Q13 Net Income of Rmb 29.7bn (0.163/ share). Operating Income was Rmb 42.5bn vs. our 49.1bn and 3Q13 of Rmb 43.9bn. Revenues were reported at Rmb 600.5bn vs. our 583.7bn and 3Q13 of Rmb 581.6bn. -months result was Rmb 0.556/ share vs. our full year estimate of Rmb 0.72/ share and Bbrg consensus of Rmb 0.73/ share.
Operating results:Divisional E&P operating results 3Q14 were Rmb 43.7bn vs. our Rmb 48bn and 2Q14 of 49.5bn. Refining results were soft with a 3Q14 loss of Rmb -1.75bn vs. our 1.5bn estimated gain. We suspect that the lower than estimated results at the Refinery level were due to the falling oil price and as a result inventorylosses 3Q/ 2Q crude purchases. Chemicals reported a 3Q14 loss of Rmb -3.5bn vs. our estimate of thein operating income vs. our 3.5bn and 2Q14 results of Rmb 4.8bn it looks as
have slowed again 3Q14. The Gas & Pipeline Division surprised to the upside by reporting Rmb 5.1bn in Operating Income vs. our estimate of 3.0bn and 2Q14 result of Rmb 2.7bn. The natural gas pricehikes seem to be helping results at this division.
Physical operating resultsPTR reported 9-month oil production growth of +0.3% y/y which is lagging full year guidance of 0.5 to 1.0% pa. Natural gas production grew +7.1% Y/ y which is in-line with the 3Q14 average sales price for natural gas was US$ 6.28/ mcf representing a +16.8%
-month ASP on crude sold was US$ 99.9/ bbl 9-month 2014 ASP discount to Brent (-6.2%) is
just shy of our estimated full year -7% discount. We maintain our Hold rating on PTR on the back of soft oil prices.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 40 Deutsche Bank AG/Hong Kong
Rating
HoldAsiaTaiwan
TechnologyHardware & Equipment
Company
AU Optronics AlertDate29 October 2014
Results
Capacity constraints may limit revenue growth opportunity in 4Q14
Reuters Bloomberg Exchange Ticker2409.TW 2409 TT TAI 2409
ADR Ticker ISINAUO US0022551073
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (TWD) 13.70
Price target - 12mth (TWD) 12.30
52-week range (TWD) 14.90 - 8.44
Taiwan Stock Exchange (TWSE)
8,774
Seung Hoon Han
Research Analyst(+82) 2 316 [email protected]
Stock data
Market cap (TWDm) 120,931
Market cap (USDm) 3,979
Shares outstanding (m) 9,624.0
Major shareholders Qisda Corp (7.5%)
Free float (%) 80
Avg daily value traded (USDm)
30.9
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (TWDm) 416,363 397,507 405,980
Net Profit (TWDm)
4,180.4 6,621.8 13,669.7
DB EPS (TWD) 0.43 0.69 1.42
PER (x) 26.4 19.9 9.6
Yield (net) (%) 0.0 0.0 0.0
Source: Deutsche Bank
Strong 3Q14 results with strength across all applicationsAUO reported strong 3Q14 results which was significantly higher than our estimates mainly driven by better panel pricing. Revenues were NT$107bn in 3Q14 (up 4.7% qoq), while operating profit was NT$8.8bn (up 125% qoq) and net profit was NT$7.3bn (up 81% qoq). The strength in revenues came equally across all applications although total area shipment (up 4% qoq) was slightly lower than our 5% estimate due to capacity constraints. AUO guidance suggests revenues may decline 4% qoq mainly driven by lower utilization rates. AUO plans to use the seasonally weak 4Q/1Q to do annual maintenance and R&D activity that should result in lower capacity. With lack of capacity, we believe further revenue growth from 3Q14 levels may be difficult to achieve without stronger panel prices. We plan to revisit our estimates post earnings season.
AUO utilization rates remained at mid 90% in 3Q14, similar to 2Q14 levels as demand for large size TVs remained strong. Large size TVs (50inch and above) accounted for 25% of total revenue, up from 23% in 2Q14 which led to AUO facing capacity constraints. However, AUO expects revenues to fall in 4Q14 mainly driven by 1) weaker small size shipments (down low teens% qoq), 2) typical seasonal demand weakness and 3) annual maintenance which may last until 1Q15. With utilization rates falling to low 90% in 4Q14, down from mid 90% in 3Q14, operating margins may fall sequentially on higher fixed cost.
AUO profitability higher than Korean peers despite no iPhone 6 exposure
qoq was stronger than AUO display revenue growth of 5.2% on higher mix of
this implies that large size panels are driving panel makers profitability andsupports our view that Apple driven revenue upside may limit profit upside.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 41
Rating
HoldAsiaTaiwan
TelecommunicationsFixed Line
Company
Chunghwa TelecomDate29 October 2014
Results
A new focus emerges
Reuters Bloomberg Exchange Ticker2412.TW 2412 TT TAI 2412
ADR Ticker ISINCHT US17133Q5027
Forecasts And Ratios
Year End Dec 31 2012A 2013A 2014E 2015E 2016E
Sales (TWDm) 221,424.0 228,000.0 225,068.8 225,688.5 225,693.4
EBITDA (TWDm) 82,469.0 80,038.0 77,887.9 77,465.7 77,309.0
Reported NPAT (TWDm) 42,329.0 39,850.0 37,072.8 35,904.9 35,763.4
Reported EPS FD(TWD) 5.46 5.14 4.78 4.63 4.61
DB EPS FD(TWD) 5.46 5.14 4.78 4.63 4.61
DB EPS growth (%) -5.9 -7.0 -3.2 -0.4
PER (x) 16.9 18.3 19.3 20.0 20.1
EV/EBITDA (x) 8.0 9.0 9.2 9.2 9.2
DPS (net) (TWD) 5.35 4.53 4.53 4.16 4.15
Yield (net) (%) 5.8 4.8 4.9 4.5 4.5
Source: Deutsche Bank estimates, company data1 DB EPS is fully diluted and excludes non-recurring items2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close
On track to beat guidance
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (TWD) 92.40
Price target - 12mth (TWD) 87.50
52-week range (TWD) 96.90 - 90.10
Taiwan Stock Exchange (TWSE)
8,774
Peter Milliken
Research Analyst(+852) 2203 [email protected]
Price/price relative
80
90
100
110
120
130
10/12 4/13 10/13 4/14
Chunghwa Telecom
Taiwan Stock Exchang (Rebased)
Performance (%) 1m 3m 12m
Absolute 1.5 0.9 -0.9
Taiwan Stock Exchange (TWSE)
-2.1 -6.6 4.2
Source: Deutsche Bank
Chunghwa Telecom's pre-emptive bid to build share prior to the entry of new entrants has succeeded in accelerating subscriber growth, but has pushed ARPU down just as fast, to below NT$600. Net income in the quarter fell 8.8% to NT$9.7bn, which given the iPhone launch and LTE roll-out costs is within forecasts, and the company appears on track to comfortably meet our FY143 forecast. New CEO, Rick Tsai, appears to be focusing on efficiency, which encourages us, with capex forecast of NT$40b now said to be 10% too high, given efforts to make capex more demand based, rather than coverage based. We find this a good sign, and believe much else can be done.
Quarterly highlightsThe company appears to be pushing to increase its scale. Its ARPU discount to the market has widened in the push to gain subs, but that probably insulates it from competition ahead, while also providing a base to build off should LTE promotional prices end. Chunghwa Telecom management had a similar, tone to FET management: they would like higher tiered prices, but will consider the competitive environment. However its target of taking 40% of 4G subscribers by year-end implies it will not be the price setter on the upside. Domestic fixed revenue rose 0.6% YoY in 3Q, with ICT and MOD revenue rise offsetting voice weakness. Internet revenues rose 2.2% on improved HiNet and VAS revenues.
Valuation and risksWhile our earnings forecasts imply rich valuation multiples we are encouraged by the more commercial tone of the new CEO, and believe there is much efficiency to be gained ahead. We value CHT using DCF analysis based on 6.4% WACC and 0% terminal growth. Key downside risks include new entrants, voice revenue decline not decelerating as expected and lack of special dividend. Key upside risks include mobile ARPU growing faster than expected.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 42 Deutsche Bank AG/Hong Kong
Rating
HoldAsiaTaiwan
TechnologySemiconductor & Equipment
Company
RealtekSemiconductor
Date29 October 2014
Results
Steady growth with slightly rich valuation; Hold maintained
Reuters Bloomberg Exchange Ticker2379.TW 2379 TT TAI 2379
Forecasts And Ratios
Year End Dec 31 2012A 2013A 2014E 2015E 2016E
Sales (TWDm) 24,614 28,180 31,637 34,496 36,904
Net Income 2,254 3,035 3,896 3,548 3,772
Reported EPS FD(TWD) 4.53 6.02 7.71 7.03 7.47
DB EPS FD(TWD) 4.53 6.02 6.43 7.03 7.47
% Change 0.0% 0.0% 0.9% 0.0% 0.0%
DB EPS growth (%) 39.6 32.9 6.9 9.2 6.3
PER (x) 12.6 11.9 17.3 15.8 14.9
DPS (net) (TWD) 2.27 3.36 4.53 5.80 5.28
Yield (net) (%) 4.0 4.7 4.1 5.2 4.8
ROE (%) 12.7 16.1 19.2 16.7 17.0
Source: Deutsche Bank estimates, company data1 DB EPS is fully diluted and excludes non-recurring items2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close
Healthy outlook, yet valuation not attractive
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (TWD) 111.00
Price target - 12mth (TWD) 102.00
52-week range (TWD) 119.50 - 68.30
Taiwan Stock Exchange (TWSE)
8,774
Jessica Chang
Research Analyst(+886) 2 2192 [email protected]
Key changes
Sales (FYE) 31,613 to 31,637 0.1%
Op prof margin (FYE)
9.8 to 9.4 -4.8%
Net profit (FYE)
3,895.7 to 3,895.6
-0.0%
Source: Deutsche Bank
Price/price relative
45
60
75
90
105
120
135
10/12 4/13 10/13 4/14
Realtek Semiconducto
Taiwan Stock Exchang (Rebased)
Performance (%) 1m 3m 12m
Absolute 4.7 17.2 59.7
Taiwan Stock Exchange (TWSE)
-2.1 -6.6 4.2
Source: Deutsche Bank
Stock data
Market cap (TWDm) 56,050
Market cap (USDm) 1,844
Shares outstanding (m) 505.0
Free float (%) 73
Avg daily value traded (USDm)
18.3
Source: Deutsche Bank
Key indicators (FY1)
ROE (%) 19.2
Net debt/equity (%) -50.8
Book value/share (TWD) 41.6
Operating profit margin (%) 9.4
Source: Deutsche Bank
Realtek is enjoying steady core earnings growth this year on stabilized PC demand, while its Ethernet chip business is supported by market share gains and its TV business keeps growing, driven by 4K TV. Management expects its WiFi business, the largest single contributor, to sustain healthy growth in the long term on increasing applications despite tablet demand being mature. We maintain Hold and suggest waiting for better entry points.
3Q14 results below on weakened marginsReported on 29 October, Realtek s sales were NT$8.3bn in 3Q14, up 2.8% QoQ and 15.7% YoY, below DBe and weaker than major Taiwanese peers. GMs fellby 140ppt QoQ to 43.5%, due to pricing pressure and unfavorable product mix.Opex was up 3.8% QoQ to NT$2.82bn, a record level. Its net income of NT$1.2bn was up 18.4% QoQ, lower than DBe of NT$1.4bn largely due to it only recording half of its ISSC investment disposal gains of ~NT$800 in 3Q14. We see its operational result as slightly below expectations, especially on GMs.
4Q14 entering low seasonWhile Realtek again did not give specific guidance, it expects sales to cool offa bit QoQ in 4Q14. We forecast its sales to slow down by 4.4% QoQ in 4Q14,with GM maintained at 43.5%. Realtek expects to record the other half of its ISSC disposal gains in 4Q14 or 1Q15. For 2015, Realtek has a lukewarm view on PC and expects growth across its major product segments (Networking, PC and Multimedia) next year.
Maintaining Hold; keeping target price at NT$102; risksWe maintain our FY14-16E earnings forecast broadly unchanged. We thuskeep our target price at NT$102 based on 14.5x FY15E EPS. Realtek share price has been resilient lately amid the market correction, partly thanks to its handsome ISSC investment disposal gains. However, we consider its sharesslightly pricy now, and we thus maintain Hold. Risks: 1) strong/weak demand for WiFi chip, PC demand and TV SOC; and 2) easing/intensifying competition.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 43
Rating
BuyAsiaSouth Korea
Banking / FinanceBanks
Company
DGB FGDate29 October 2014
Results
Margin pressure starts to materialize
Reuters Bloomberg Exchange Ticker139130.KS 139130 KS KSC 139130
Forecasts And Ratios
Year End Dec 31 2012A 2013A 2014E 2015E 2016E
Provisioning (KRWbn) 164 155 206 170 178
Pre-prov profit (KRWbn) 523 494 576 616 674
Net profit (KRWbn) 273 239 265 320 358
EPS (KRW) 2,039.20 1,784.56 1,973.79 2,388.01 2,667.03
EPS growth (%) -10.6 -12.5 10.6 21.0 11.7
PER (x) 6.9 9.0 8.3 6.8 6.1
Price/book (x) 0.8 0.8 0.8 0.7 0.6
DPS (net) (KRW) 330.00 280.00 340.00 370.00 400.00
Yield (net) (%) 2.3 1.7 2.1 2.3 2.4
ROE (%) 11.4 8.7 8.5 9.6 9.8
ROE Adj(%) 11.4 9.1 9.4 10.5 10.7
Source: Deutsche Bank estimates, company data1 DB EPS is fully diluted and excludes non-recurring items2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close
A leading signal of margin pressure for the sector
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (KRW) 16,350
Price target - 12mth (KRW) 20,000
52-week range (KRW) 18,100 - 14,450
KOSPI 1,925.68
Jeehoon Park
Research Analyst(+82) 2 316 8908
Emily Yi
Research Associate(+82) 2 316 8913
Price/price relative
12000
13500
15000
16500
18000
19500
10/12 4/13 10/13 4/14
DGB FG
KOSPI (Rebased)
Performance (%) 1m 3m 12m
Absolute -3.0 1.2 -1.8
KOSPI -5.0 -6.6 -6.1
Source: Deutsche Bank
DGB FG posted 3Q14 net profit of W75bn, up 3.4% QoQ from W72bn in 2Q14. The results were broadly in line with Bloomberg consensus (W75bn), and adjusted for the unusual provision items we estimate that earnings were around W80bn. The key issue in the results, however, was the NIM, which contracted 9bp QoQ to 2.52%, largely as a result of the steep decline in market rates since June. DGB guided for roughly 5bp additional margin contraction in 4Q14 before NIM starts to rebound from 1Q15. We continue to rate the stock a Buy on its strong loan growth capability, but given the cautious guidance we believe near-term weakness is possible.
Strong loan growth offsets margin contractionDaegu Bank posted 3.7% QoQ loan growth, mostly in manufacturing sector SME, bringing YTD won currency loan growth to 12.4%, already ahead of our full year estimate of 10.5%. We continue to view the strong loan growth capability amid solid asset quality control as a key strength, and believe this was the key reason why earnings did not miss by very much despite the weak margins. As for the margins, we believe the main reason why
han the larger banksloans are mostly linked to financial debenture rates, which started to decline from early June, We believe the
that DGB will fully reflect the rate cut impact more quickly than the larger banks.
Valuation and risksWe derive our target price using the Gordon Growth Model (PBR=(ROE-g)/(COE-g)), assuming 10.6% ROE, 8.2% COE and 2% terminal growth. We also apply a 30.5% discount on ROE on the back of our analysis of historical ROE and PBR. Downside risks include any slowdown in the Daegu-Gyeongbuk
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 44 Deutsche Bank AG/Hong Kong
Rating
BuyAsiaSouth Korea
IndustrialsManufacturing
Company
Doosan InfracoreDate29 October 2014
Results
3Q14 OP in line, NP lower on forex loss, investment thesis intact
Reuters Bloomberg Exchange Ticker042670.KS 042670 KS KSC 042670
Forecasts And Ratios
Year End Dec 31 2012A 2013A 2014E 2015E 2016E
Sales (KRWbn) 8,158 7,737 7,892 8,365 8,792
Reported NPAT (KRWbn) 340.3 -101.8 74.5 178.8 260.6
DB EPS FD(KRW) 2,018 -592 359 862 1,256
DB EPS growth (%) 14.1 139.9 45.7
PER (x) 9.4 31.3 13.1 9.0
Source: Deutsche Bank estimates, company data1 DB EPS is fully diluted and excludes non-recurring items2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close
DI remains a key play on construction demand recovery in developed markets
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (KRW) 11,250
Price target - 12mth (KRW) 16,000
52-week range (KRW) 15,450 - 10,550
KOSPI 1,925.68
Sanjeev Rana
Research Analyst(+82) 2 316 [email protected]
Price/price relative
10000
12000
14000
16000
18000
10/12 4/13 10/13 4/14
Doosan Infracore
KOSPI (Rebased)
Performance (%) 1m 3m 12m
Absolute -1.3 -14.8 -25.2
KOSPI -5.0 -6.6 -6.1
Source: Deutsche Bank
negative impact from a strong KRW and weak demand in Chconstruction equipment products continue to gain market share in NA/EU.
and only 12% comes from China vs. 30% in 2011. In addition, DI has restructured its work force and production sites in China over the last two years, which has significantly brought down its fixed cost. We remain positive on DI's prospects and keep it as our top pick in the Korean machinery sector.
3Q14 impacted by forex and weak demand in China, Bobcat remains strong3Q14 revenue and OP was down 5% and 3% YoY and OPM was 5.6% vs. 5.5% in 3Q14 and 6.9% in 2Q14. A key reason for the weak top line growth was the 8% YoY appreciation of the KRW against the USD and weak excavator demand in China. At the NP level, DI enjoyed a tax benefit of W48.2bn related to the split of DIBH earlier this year. By business, construction equipment revenue was down 5% YoY hit by a 45% decline in revenue from China and a strong KRW. On the other hand, the profitability of DIBH (Bobcat) excluding the currency impact remained solid, with the top and bottom line growing 8% and 2% respectively (OPM of 8.4% vs. 8.8% in 3Q13 and 8.7% in 2Q14). The engine business also showed solid OP of W9bn vs. loss of W6bn a year ago and OPM of 5.7%, driven by rising installation of newly-developed G2 engines on the excavators sold by Bocat and the sale of generator engines. The engine business posted its fourth consecutive quarterly OP and we expect margin on this business unit to rise to 7%E in 2015 vs. 2.4% in 2014E. Despite revenue decline of 44% in China, OPM improved to 4.0% vs. negative 6.8% a year ago,on the back of enhanced cost structure and restructuring undertaken last year.
Maintaining Buy with SOTP-based target price of W16,000, key risksWeak excavator sales in China and Doosan group-related issues have been a big drag on the share price YTD. However, we believe China excavator demand has bottomed, and DI has ruled out participation in any capital raising by Doosan group companies. We maintain our Buy rating on DI with a targetprice of W16,000, based on SoTP valuation. Trading at 0.7x15E PB and 7.7x 15E EV/EBITDA, DI is cheap relative to its history. Key risk: demand slowdown in US/China and failure to reduce high gearing valuation levels.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 45
Rating
BuyAsiaSouth Korea
UtilitiesUtilities
Company
Kepco E&C AlertDate29 October 2014
Results
Weaker than expected results from low service sales portion
Reuters Bloomberg Exchange Ticker052690.KS 052690 KS KSC 052690
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (KRW) 69,500
Price target - 12mth (KRW) 71,000
52-week range (KRW) 69,600 - 46,400
KOSPI 1,925.68
Sanghi Han, CFA
Research Analyst(+82) 2 316 [email protected]
Dianna Kang
Research Associate(+82) 2 316 [email protected]
Stock data
Market cap (KRWbn) 2,656
Market cap (USDm) 2,531
Shares outstanding (m) 38.1
Major shareholders Kepco (70.86%)
Free float (%) 25.1
Avg daily value traded (USDm)
5.556
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (KRWbn) 755 844 956
Net Profit (KRWbn)
34.4 92.1 132.2
DB EPS (KRW) 817 2,416 3,469
PER (x) 90.0 28.8 20.0
Yield (net) (%) 0.6 1.6 2.2
Source: Deutsche Bank
3Q14 review: big earnings miss Kepco E&C reported worse-than-expected 3Q14 results after market hours. 3Q sales of W193bn (+19% yoy, -9% qoq) fell 16% short of Bloomberg consensus, while operating profit of W12bn (+289% yoy, -33% qoq) missed the Street sexpectations by 62%. Weak results are attributable to drop in service sales and lower service sales portion; service business is more profitably than construction division. Sales recognition for Shingori #5,6 dropped qoq based on a high base effect and as progression rate was adjusted , while sales from thermal power plant orders received in 3Q will be recognized starting from 4Q. Overall drop in service sales led to the sharp fall in margins. YTD new orders stand at W1tr, equivalent to 86% of DB estimate of W1.2tr.
Earnings outlook We expect 4Q earnings to post solid top-line growth and recovering margins as greater sales are recognized from service division, especially from Shingori #5,6 project and the two thermal power plant orders received over the pastmonth. Our Buy call is based on clear margin improvement longer term as service sales pick up. We will review our model after the full audit report is released in November when margin breakdowns will be available.
Figure 1: 3Q14P vs. DB estimates vs. consensus 3Q14P 3Q13 yoy 2Q14 qoq 3Q14 DB diff 3Q14 Cons diff
Sales 193 162 19.4 212 -9.0 217 -11.1 229 -15.8
Service 120 126 -4.7 139 -13.5
Construction 73 35 105.4 73 -0.3
Gross profit 37 33 9.6 55 -33.2
Operating profit 12 3 289.2 30 -61.5 33 -64.7 31 -62.0
Pre-tax profit 11 4 143.6 31 -65.3 35 -68.9 35 -68.6
Net profit 8 1 576.4 23 -63.2 26 -67.4 26 -67.6
Gross margin 19.0 20.7 25.9
Operating margin 6.0 1.9 14.3 15.2 13.4
Pre-tax margin 5.6 2.8 14.8 16.1 15.1
Net margin 4.4 0.8 10.9 12.0 11.4Source: Company data, Bloomberg Finance LP, Deutsche Bank estimates
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 46 Deutsche Bank AG/Hong Kong
Rating
HoldAsiaSouth Korea
TechnologyHardware & Equipment
Company
LG ElectronicsDate30 October 2014
Results
In-line 3Q14; LCD TV appears rosier than expected in 4Q14
Reuters Bloomberg Exchange Ticker066570.KS 066570 KS KSC 066570
Forecasts And Ratios
Year End Dec 31 2012A 2013A 2014E 2015E 2016E
DB EPS FD(KRW) 369 978 5,372 6,868 7,667
DB EPS growth (%) 164.7 449.5 27.9 11.6
Price/BV (x) 1.07 1.05 0.97 0.88 0.81
ROE (%) 0.5 1.5 8.0 9.4 9.5
EV/EBITDA (x) 7.3 6.2 4.7 4.2 3.4
PER (x) 199.2 76.2 12.6 9.9 8.8
Source: Deutsche Bank estimates, company data1 DB EPS is fully diluted and excludes non-recurring items2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close
Stronger-than-expected 4Q outlook
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (KRW) 67,800
Price target - 12mth (KRW) 84,000
52-week range (KRW) 79,200 - 59,400
KOSPI 1,925.68
Hanjoon Kim
Research Analyst(+82) 2 316 [email protected]
Price/price relative
50000
60000
70000
80000
90000
100000
10/12 4/13 10/13 4/14
LG Electronics
KOSPI (Rebased)
Performance (%) 1m 3m 12m
Absolute 2.3 -9.0 0.3
KOSPI -5.0 -6.6 -6.1
Source: Deutsche Bank
LGE reported 3Q14 results with revenues of W14,916bn (-3% qoq, 7% yoy) and operating profit of W461bn (-24% qoq, 112% yoy). Results were mostly in line with our estimates, although stronger-than-expected handset profitability offset the weaker profit in home appliances (which faced pricing competition and inventory destocking). Despite the recent share price correction arising
orm bill, LGE appeared unfazed, offering a robust outlook for 4Q14. LGE also seemed positive on LCD TV
help improve sentiment towards the stock. We maintain Hold, TP W84,000.
Key highlights of 3Q14 results and 4Q outlookWe see the following as the key takeaways from 3Q14 results: 1) MC division OPM improved to 3.9% (vs. DBe of 2.7%) with record smartphone shipment of 16.8m (vs. DBe of 16m). For 4Q14, LGE anticipated a decline due to its product lifecycle, but its outlook of 2.0% was higher than our 1.4% forecast. 2) While LCD TV sales in 3Q were 3.9% below our expectation due to a post-World Cup impact, LGE believed it could outperform market growth in 4Q with a higher mix of premium LCD TVs. 3) For home appliances, LGE anticipates a recovery in 4Q after a weaker-than-expected 3Q due to inventory de-stocking.
Overseas gains outweigh headwinds in the domestic handset marketIn light of rising competition in the handset industry as well as the adverse impact from the handset distribution reform bill in Korea, LGE has started taking steps to introduce new platforms targeting mid- to low-end segments. LGE believes the headwinds in the domestic market should be more than offset by gaining traction overseas. In 3Q14, total shipments in the domestic market decreased 22% qoq due to weak demand, whereas sales increased by 39% qoq in North America.
Valuation and risksOur target price is based on a SOTP valuation comprising its TV, handset andhome appliance divisions and stake in LG Display. Upside risks include 1) earnings surprise in the handset division and 2) LGE benefiting from a faster-than-expected housing market recovery in developed markets. Downside risks include 1) KRW/USD depreciation and 2) weak sell-through in smartphones.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 47
Rating
HoldAsiaSouth Korea
TechnologyHardware & Equipment
Company
LG InnotekDate30 October 2014
Results
Stronger smartphone-relatedcomponents, weaker LED
Reuters Bloomberg Exchange Ticker011070.KS 011070 KS KSC 011070
Forecasts And Ratios
Year End Dec 31 2012A 2013A 2014E 2015E 2016E
DB EPS FD(KRW) -1,240 771 8,067 10,822 13,425
DB EPS growth (%) 946.3 34.1 24.1
Price/BV (x) 1.31 1.28 1.27 1.13 1.00
ROE (%) -1.9 1.2 11.9 12.7 14.0
EV/EBITDA (x) 6.4 5.2 3.9 3.6 3.2
PER (x) 110.0 12.6 9.4 7.6
Source: Deutsche Bank estimates, company data1 DB EPS is fully diluted and excludes non-recurring items2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close
Positive on smartphone-related components; underperformed LED
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (KRW) 101,500
Price target - 12mth (KRW) 135,000
52-week range (KRW) 150,000 - 75,000
KOSPI 1,925.68
Hanjoon Kim
Research Analyst(+82) 2 316 [email protected]
Price/price relative
60000
80000
100000
120000
140000
160000
10/12 4/13 10/13 4/14
LG Innotek
KOSPI (Rebased)
Performance (%) 1m 3m 12m
Absolute -18.1 -17.8 16.8
KOSPI -5.0 -6.6 -6.1
Source: Deutsche Bank
LG Innotek reported 3Q14 revenues of W1,649bn (6.9% qoq, 3.4% yoy) and operating profit of W102bn (14.5% qoq, 84.6% yoy). Results were mostly in line with our estimates, although weaker-than-expected LED business offset stronger results driven by smartphone components. We estimate solid demand from Apple may drive strong camera module shipment growth in 4Q14, while LED competition may intensify. We believe consensus estimates already reflect strong iPhone shipments, but they may not fully reflect weakening LED in4Q14. Despite recent share price weakness, we see limited upside to the share price in the near term due to weakening LED pricing. We maintain Hold.
Camera modules expected to see strong revenue increase in 4Q14In 3Q14, smartphone-related components benefited from new product launch from LGE and Apple. We estimate camera module revenues to increase 30% qoq in 4Q14, which is stronger than our previous 19% estimate, driven byupside to iPhone shipments. iPhone shipment guidance is 5.3%/16.8% higher than our 37.3M/56.0M(3Q14/4Q14) estimates. In addition, camera module shipments to LGE are likely to fall in 4Q due to slowing domestic demand.
Intensified LED competition leading to weaker 4Q14 profitabilityNotably, intensified LED competition led to an aggressive pricing environment.The LED operating margin seems to have fallen significantly below our -4% estimate due to stronger pricing erosion. Recent share price weakness seems to reflect rising concerns over worsened competition in LED; however, we are still cautious about its downturn trend. We expect overall profitability in 4Q14 to fall short of our 5% OPM estimate. With downside risk to 4Q14 consensus(5% OPM), we see limited upside to the share price.
Valuation and risksWe value LG Innotek at 1.5x 2015 P/B, at historical average P/B. Key upside risks are stronger-than-expected shipment growth for LGE/LGD and Apple-related components. Key downside risks are weak end-demand and KRW/USD appreciation.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 48 Deutsche Bank AG/Hong Kong
Rating
BuyAsiaSouth Korea
TechnologySoftware & Services
Company
Naver AlertDate29 October 2014
Breaking News
Share buyback and capital injection into Camp Mobile
Reuters Bloomberg Exchange Ticker035420.KS 035420 KS KSC 035420
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (KRW) 778,000
Price target - 12mth (KRW) 889,000
52-week range (KRW) 853,000 - 560,000
KOSPI 1,925.68
Hanjoon Kim
Research Analyst(+82) 2 316 [email protected]
Dan Kong
Research Associate(+82) 2 316 [email protected]
Stock data
Market cap (KRWbn) 25,645
Market cap (USDm) 24,431
Shares outstanding (m) 33.0
Free float (%) 82
Avg daily value traded (USDm)
95.186
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (KRWbn) 2,312 2,851 3,540
Net Profit (KRWbn)
325.8 470.0 888.1
DB EPS (KRW) 8,036 17,990 26,941
PER (x) 58.9 43.2 28.9
Yield (net) (%) 0.2 0.1 0.2
Source: Deutsche Bank
In-line with shareholder return policy guidanceAfter market hours, following a BoD meeting held during the day, Naver announced plans to buyback 329,627 shares, equivalent to 1% of its total share base. Based on 28 Oct closing price of W804,000, this totals to W265bn. The buyback will take place from 30 Oct 2014 until 29 Jan 2015 through the open market. Daily purchase limit will be 32,963 shares, which is 25% of its 30-day daily average trading volume. Naver has maintained a shareholder return policy around the lines of share buyback equivalent to 1% of share base, or 30% previous year net profit.
Also decides to inject W40bn into Camp MobileOn the same day, Naver also disclosed that it will be injecting an additional W40bn into Camp Mobile. The company is the operator of BAND, the leading closed SNS platform in Korea. Management commented that the funds will be used for marketing overseas and working capital.
Not a significant event; focus on 3Q earningsThe buyback translates into a ~60% payout of 2013 net profit excluding W100bn one-off regulatory expenses. Although the cash size of the buyback was larger than normal, the decision was still in-line with guidance in terms of share count. Thus we do not expect this to provide meaningful support to share price. Rather, we suggest investors to focus on 3Q earnings which will be reported on 30 Oct. Key points to watch out for during the earnings call include: 1) increasing revenue contribution from LINE games in Southeast Asia, 2) update on new games including Line Trio and Legion of Heroes, and 3) additional details on new business initiatives announced earlier during the month at the LINE conference.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 49
Rating
HoldAsiaSouth Korea
Automobiles & Components
Company
Nexen TireDate29 October 2014
Results
3Q14 results largely in line, US faring better
Reuters Bloomberg Exchange Ticker002350.KS 002350 KS KSC 002350
Forecasts And Ratios
Year End Dec 31 2012A 2013A 2014E 2015E 2016E
Sales (KRWbn) 1,706 1,728 1,766 1,915 2,069
Reported NPAT (KRWbn) 134.3 124.0 143.8 158.4 176.4
DB EPS FD (KRW) 1,415 1,306 1,515 1,668 1,858
DB EPS growth (%) -7.7 16.0 10.1 11.4
PER (x) 13.0 11.7 8.9 8.1 7.3
EV/EBITDA (x) 9.7 8.1 6.1 5.3 4.7
Source: Deutsche Bank estimates, company data1 DB EPS is fully diluted and excludes non-recurring items2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close
3Q14 revenue and OP helped by better pricing and volume in the US
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (KRW) 13,550
Price target - 12mth (KRW) 14,400
52-week range (KRW) 17,200 - 12,600
KOSPI 1,925.68
Sanjeev Rana
Research Analyst(+82) 2 316 [email protected]
Price/price relative
8000
12000
16000
20000
24000
10-11 4-12 10-12 4-13 10-13 4-14
Nexen Tire
KOSPI (Rebased)
Performance (%) 1m 3m 12m
Absolute 0.0 -20.3 -13.7
KOSPI -5.0 -6.6 -6.1
Source: Deutsche Bank
although pre-tax profit missed expectations on forex translation loss. The 3Q
seen in 1H14 is easing, and companies are seeing a better volume and pricing environment in the US. If the US government imposes anti-dumping tariffs on tires from China, it could be very positive for Korean tire makers. However, we maintain Hold on Nexen as we view its valuation at 8x15E P/E as quite fair.
3Q14: Volume growth, better mix in US/Korea and lower raw material cost3Q14 revenue was flat, OP was up 6% and PTP was down 37% YoY on forex loss. OPM was 11.2% vs. 10.6% in 3Q13 and 11.3% in 2Q14. Despite a 7% YoY increase in volume, the revenue was flat YoY due to 8.3% YoY decline in ASP (+0.3% QoQ) and a strong KRW. In the profitable US market, revenue was up 40% QoQ (-15% YoY) on the back of higher sales volume and better mix.OPM was also helped by lower natural and synthetic rubber input cost (down 28%/3% YoY), and overall raw material cost was down 8% YoY (down 1.8% QoQ). On the negative side, the UHP tire revenue portion declined to 32.9% of the total vs. 34.3% in 3Q13 and 34.1% in 2Q14. Profitability of China operations deteriorated as the company implemented price cuts for its OEM customers, mix turned unfavorable and it incurred a forex loss on its shipments to Europe from the China plant. Pre-tax profit was down 37% due to forex translation loss on Nexen s US$300m dollar-denominated debt.
Expecting OP margin to remain resilient in 4Q on lower raw material costThanks to its capacity expansion plan, Nexen expects global tire sales volume to grow 8%/14% in 2014/15. It expects raw material prices to remain supportive in the near term, with raw material input cost declining 3.5% QoQ in 4Q. This should result in OP margin remaining resilient in 4Q.
Maintaining Hold rating; we prefer Hankook over NexenWe maintain our Hold rating with a target price of W14,400 (based on 9.5x14E P/E). We believe valuation at 8.8x14E P/E is pricing in most positives,while we are concerned about its aggressive expansion plans and high net gearing ratio (91%). Key risks are better-/worse-than-expected demand in key markets such as the US/EU.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 50 Deutsche Bank AG/Hong Kong
Rating
HoldAsiaSouth Korea
TelecommunicationsWireless
Company
SK Telecom AlertDate29 October 2014
Results
3Q14 disappoints; cautious outlook on H/S reform law earnings impact
Reuters Bloomberg Exchange Ticker017670.KS 017670 KS KSC 017670
ADR Ticker ISINSKM US78440P1084
________________________________________________________________________________________________________________
Price at 28 Oct 2014 (KRW) 276,500
Price target - 12mth (KRW) 320,000
52-week range (KRW) 298,500 - 196,500
KOSPI 1,925.68
John Kim
Research Analyst(+82) 2 316 [email protected]
Dan Kong
Research Associate(+82) 2 316 [email protected]
Stock data
Market cap (KRWbn) 22,314
Market cap (USDm) 21,257
Shares outstanding (m) 80.7
Major shareholders SK Holdings (23.5%)
Free float (%) 64
Avg daily value traded (USDm)
49.443
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (KRWbn) 16,602 17,548 18,384
Net Profit (KRWbn)
1,580.1 1,761.4 2,376.8
DB EPS (KRW) 19,569 21,814 29,435
PER (x) 10.5 12.7 9.4
Yield (net) (%) 4.6 3.4 3.4
Source: Deutsche Bank
3Q14 below estimatesSKT reported 3Q14 results which were below both our estimates. Revenues were W4,367bn (QoQ +1.4%, YoY +5.9%), operating profit W537bn (QoQ -1.7%, YoY -2.6%), and net profit W532bn (QoQ +6.6%, YoY +5.5%). While revenues grew thanks to billing ARPU increasing to W36,417 (QoQ +1.1%, YoY +4.3%) on the back of unlimited LTE plans, operating profit remained flat along with marketing expenses despite the benign marketing environment due to high base effect from 2Q14 when the 45-day operating suspensions took place. Meanwhile, net profit benefited from record high SK Hynix earnings. We plan to revisit our estimates post earnings season.
Highlights from the callFirst, management gave a cautious near term earnings outlook following the handset distribution reform bill, stating that MNP marketing cost savings will partially be offset by increasing retention upgrade subsidies and membership plans. Second, LTE penetration was forecasted to reach low-60% levels by yearend 2014 and increase by ~10% annually to reach 80% by yearend 2016. Thirdly, the company sounded confident on spectrum capacity despite growing LTE data usage.
Maintain Hold; target price W320,000We maintain our Hold rating on the stock with a target price of W320,000. The entire sector is likely to benefit from a benign 4Q marketing environment. However, SKT currently trades at narrower relative valuation discount to its regional peers and dividend yield is at par. With low possibility of improved shareholder return policies, we see limited upside to share prices from current levels.
Figure 1: 3Q14 earnings summary
SKT (Wbn) 3Q13 2Q14 3Q14A QoQ YoY 3Q14E Diff 2014E YTDRevenue 4,125 4,305 4,367 1.4% 5.9% 4,440 -1.6% 17,548 73.4%Service rev 3,223 3,264 3,304 1.2% 2.5% 3,456 -4.4% 13,659 72.0%
EBITDA 1,258 1,264 1,258 -0.4% 0.0% 1,326 -5.1% 4,813 72.3%EBIT 552 546 537 -1.7% -2.6% 586 -8.4% 1,891 70.6%NP 504 499 532 6.6% 5.5% 521 2.0% 1,761 73.8%EBITDA margin 30.5% 29.3% 28.8% 29.9% 27.4%EBIT margin 13.4% 12.7% 12.3% 13.2% 10.8%NP margin 12.2% 11.6% 12.2% 11.7% 10.0%
Mktng exp 827 825 832 0.8% 0.6% 834 -0.3% 3,389 81.4%% of svc rev 26% 25% 25% 24% 25%
Billing ARPU (W) 34,909 36,026 36,417 1.1% 4.3% 36,302 0.3% 36,088
Source: Deutsche Bank
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 51
AsiaSingaporeProperty
Industry
Singapore PropertyDate29 October 2014
Industry Update
Feedback from investor meetings
________________________________________________________________________________________________________________
Joy Wang
Research Analyst(+65) 6423 [email protected]
Chien-Fie Man
Research Analyst(+65) 6423 [email protected]
Focus stocks
CapitaLand Ltd (CATL.SI),SGD3.13 Buy Price Target SGD3.95City Developments (CTDM.SI),SGD9.55 Buy Price Target SGD12.00Wing Tai Hldgs (WTHS.SI),SGD1.76 Buy Price Target SGD2.15Ascendas Real Estate (AEMN.SI),SGD2.31 Hold Price Target SGD2.25CapitaMall Trust (CMLT.SI),SGD1.94 Buy Price Target SGD2.05CapitaCommercial Trust (CACT.SI),SGD1.65 Hold Price Target SGD1.62Mapletree Commercial Trust (MACT.SI),SGD1.44 Buy Price Target SGD1.48Mapletree Industrial Trust (MAPI.SI),SGD1.44 Buy Price Target SGD1.48Source: Deutsche Bank
We met up with investors recently on the back of our sector report dated 15 October 2014 Singapore Property Time to switch? Our non-consensus call was met with a mixed feedback.
Yes, office is likely to peak in 2015Most agreed with our view on the office that rental will peak next year given the increase in the supply pipeline from 2016 onwards and the seemingly slowing demand shown from the mediocre pre-commitment level at CapitaGreen and South Beach. Market is looking at a potential delay of the completion of Marina One, but recognized that supply in 2016 without Marina One is still higher than the long-run average. While the timing of the exit is debated, and we acknowledge the near-term positive momentum in the rental and investment market for Singapore office, we believe that the near-term strength provides a good exit opportunity.
Yes, interest rate increase will affect the S-REITs sectorSurprisingly, most agreed with our preference for developers over REITs and acknowledge the fact that REITs will start to underperformance when rates started moving up. That said, little is prepared to lighten the holding in the sector at this stage especially given the uncertainties around interest rate outlook and the fact we are getting close to year-end. CapitaMall Trust and Ascendas REIT were the two REITs mostly mentioned given the undemanding valuation. Our preference is for CapitaMall Trust given the stabilizing operating performance, limited growth expectation by the market and attractive valuation. We highlight risks of negative rental reversion for Ascendas REIT looking 12 months out. CapitaMall Trust, Mapletree Commercial Trust and Mapletree Industrial Trust are our preferred REIT picks.
Not sure if, residential is likely to bottom in 2015Most of the debate was on our call for a bottoming of the residential market. Key concerns include the significant supply in the pipeline, the weak rental market, the lack of clarity on the source of demand and the affordability which could be negatively affected by the potential increase in interest rate. We acknowledge the fact that it is difficult to pin point the trigger for a turning point at this stage with market still in the process of price discovery. However, looking back at previous cycles, establishment of market clearing price is a powerful event which triggers recovery in volume and therefore share price performance of the developers. We highlight that at the end of 2008, market was equally concerned about the future supply, sliding property prices, lack of demand and the lack of affordability. Yes, market conditions are vastly different this time around, but yet the market clearing mechanism should be similar in our view and therefore our non-consensus call on the residential market.
Despite the various debate on the residential sector, most investors seem to have the view that policy measures could be tweaked by end of 2015 as prices (URA PPI) would have declined enough by then; and therefore potential for share price rebound for the residential developers.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 52 Deutsche Bank AG/Hong Kong
Rating
BuyAsiaMalaysia
TransportationInfrastructure
Company
Gamuda AlertDate29 October 2014
Company Update
Gamuda-MMC appointed as PDP for MRT 2
Reuters Bloomberg Exchange TickerGAMU.KL GAM MK KLS GAMU
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (MYR) 4.99
Price target - 12mth (MYR) 5.38
52-week range (MYR) 5.00 - 4.28
KLSE COMPOSITE 1,826
Aun-Ling Chia, CFA
Research Analyst(+60) 3 2053 [email protected]
Stock data
Market cap (MYRm) 11,360
Market cap (USDm) 3,468
Shares outstanding (m) 2,276.6
Major shareholders Skim Amanah Saham Bumiputra
(8.6%)Free float (%) 66
Avg daily value traded (USDm)
8.5
Source: Deutsche Bank
Key data
FYE 7/31 2014A 2015E 2016E
Sales (MYRm) 2,230 2,508 2,310
Net Profit (MYRm)
719.4 743.0 764.0
DB EPS (MYR) 0.31 0.31 0.32
PER (x) 15.1 16.1 15.7
Yield (net) (%) 2.6 2.4 2.4
Source: Deutsche Bank
MRT 2 PDP appointment paves way for physical work to start in mid 2016On 28 October 2014, Gamuda Berhad announced it had received a letter from Mass Rapid Transit Corporation Sdn Bhd, appointing a joint venture company to be established between MMC Corporation Berhad and Gamuda as the Project Delivery Partner (PDP) for the implementation of the KVMRT: Sungai Buloh Serdang Putrajaya Line/Line 2 Project. No other details were
in a project delivery partner agreement to be negotiated and agreed later.
The PDP appointment is a relief confirmation of MRT 2 project, after being delayed by nearly a year.
We have previously estimated MRT 2 to cost c. RM25bn.
We expect the implementation of MRT 2 to be similar to MRT 1 where Gamuda/MMC will earn a fixed PDP fee on the total project cost of MRT 2 excluding underground work. Gamuda/MMC will have to bid for the underground package, estimated at RM10bn and is largely expected to succeed with little competition. Balance of work for MRT 1 underground stood at RM2.0bn at end July.
Our earnings forecasts have incorporated RM5bn of MRT 2 underground work (being its 50% share) and a lower 5% PDP fee (MRT 1 earns 6% fee) on the remaining above ground work of RM15bn (or RM7.5bn being its 50% share). We further assume physical work to commence by mid 2016, i.e., contributing from FY17 onwards.
Three key catalysts: MRT 2, water resolution and new Penang job winAs per our alert dated 8 October, we identified MRT 2 as one of the three near term catalysts. The rests are a resolution in SPLASH water deadlock and a potential sizeable contract win in Penang Integrated Transport Project. The Penang job, if successful, should give a material lift in GaFY17E onwards. Maintain buy.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 53
Rating
BuyAsiaIndonesia
Banking / FinanceBanks
Company
Bank BJB AlertDate28 October 2014
Results
Weak 9M14 results as NPL crept higher
Reuters Bloomberg Exchange TickerBJBR.JK BJBR IJ JKT BJBR
________________________________________________________________________________________________________________
Price at 28 Oct 2014 (IDR) 735
Price target - 12mth (IDR) 1,150
52-week range (IDR) 1,165 - 720
Jakarta Comp. Index 5,001.30
Arinta Harsono
PT Deutsche Bank Verdhana IndonesiaResearch Analyst(+62) 21 2964 [email protected]
Raymond Kosasih, CFA
PT Deutsche Bank Verdhana IndonesiaResearch Analyst(+62) 21 2964 [email protected]
Stock data
Market cap (IDRbn) 7,127
Market cap (USDm) 584
Shares outstanding (m) 9,696.3
Major shareholders W.Java Govt (38%)
Free float (%) 25
Avg daily value traded (USDm)
0.983
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Provisioning (IDRbn)
616.1 655.9 758.0
Pre-prov profit (IDRbn)
2,331 2,126 2,355
EPS (IDR) 137.81 115.34 125.17
PER (x) 7.8 6.4 5.9
Yield (net) (%) 7.7 13.0 10.9
Source: Deutsche Bank
Bank BJB reported a 3Q14 NP of Rp238bn (+57% qoq), resulting in a 9M14 NP of Rp716bn (-35% yoy), falling short of consensus and DB14e. Weak results are primarily contributed by higher NPLs and credit costs. This implies a B/S ROAE of 14.5% (+494bps qoq and -770bps yoy). 3Q14 PPOP of Rp524bn (+25% qoq), results in 9M14 PPOP of Rp1.5tr (-16% yoy), accounting for 69% of DB14e. NIM of 6.7% is up 30bps qoq due to: 1) Asset yield increase as loan growth is driven more by high-yield consumer loans, and 2) CoF decline as the bank repriced down its max TD rate starting from 2Q14 and higher CASA ratio of 52.7% (vs 50.2% in 2Q14)
On the B/S, loans grew 3% qoq (12% yoy) and deposits grew 3% qoq (14% yoy), which implies an LDR of 83% (-30bps qoq and -186bps yoy). More than 90% of its qoq loan growth is contributed by consumer segment while the bank halts growth micro and mortgage. NPL of 4.1% is up 10bps qoq as micro and mortgage NPLs are up 320bps and 70bps respectively.Post results, despite moderating risks of higher funding costs due to stabilising liquidity, BJBR still has to improve its asset quality. Our key concern lies on its non-consumer loan underwriting. Despite its high div yield, unless the bank is able to improve its asset quality, the bank will continue to underperform.
Figure 1: Summary of quarterly financials
R pbn 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Qo Q 9M 13 9M 14 Yo Y D B 14E D B 14EN II 1,154 1,241 1,179 1,208 1,080 1,040 1,155 11% 3,574 3,275 -8% 4,743 69%Fee base income 64 78 67 84 65 90 75 -17% 209 230 10% 323 71%T o tal inco me 1,218 1,319 1,246 1,292 1,145 1,130 1,230 9% 3,783 3,505 -7% 5,067 69%Operating expenses (656) (717) (699) (743) (643) (729) (725) -1% (2,072) (2,097) 1% (3,165) 66%P P OP 562 611 576 489 517 420 524 25% 1,749 1,461 -16% 2,126 69%P ro visio ns (94) (138) (141) (243) (104) (204) (201) -1% (373) (509) 36% (656) 78%P B T 468 473 441 371 414 203 308 52% 1,382 925 -33% 1,470 63%N P 372 376 348 280 326 152 238 57% 1,096 716 -35% 1,150 62%R atio s %NIM 8.2% 8.2% 8.0% 8.0% 6.8% 6.4% 6.7%Asset yield 12.8% 12.7% 12.8% 12.9% 12.5% 12.4% 12.6%COF 4.6% 4.6% 4.8% 4.9% 5.8% 6.0% 5.9%Loan YoY 38% 36% 36% 28% 20% 14% 12%Loans QoQ 7% 11% 6% 2% 1% 5% 3%Deposit YoY -5% 11% 7% -1% 26% 13% 14%Deposit QoQ -4% 13% 3% -12% 23% 1% 3%LDR 84.1% 82.1% 84.5% 97.8% 79.9% 82.9% 79.9%CIR 55.0% 54.7% 55.6% 56.1% 55.4% 59.8% 59.4%CAR 17.2% 16.4% 16.4% 16.5% 16.2% 15.8% 16.2%NPL 2.1% 2.3% 2.5% 2.8% 3.8% 4.0% 4.1%NPL coverage 78.1% 81.8% 82.9% 79.7% 68.5% 73.5% 79.4%ROAE 25.4% 25.5% 22.2% 17.0% 20.1% 9.6% 14.5%Cost of credit (bps) 95 128 121 201 85 162 153
Source: Deutsche Bank and company
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 54 Deutsche Bank AG/Hong Kong
Rating
HoldAsiaIndonesia
Banking / FinanceBanks
Company
CIMB Niaga AlertDate29 October 2014
Results
3Q14 profit free falling (-60% qoq); below DB on high provision
Reuters Bloomberg Exchange TickerBNGA.JK BNGA IJ JKT BNGA
________________________________________________________________________________________________________________
Price at 28 Oct 2014 (IDR) 910
Price target - 12mth (IDR) NA
52-week range (IDR) 1,085 - 880
Jakarta Comp. Index 5,001.30
Raymond Kosasih, CFA
PT Deutsche Bank Verdhana IndonesiaResearch Analyst(+62) 21 2964 [email protected]
Arinta Harsono
PT Deutsche Bank Verdhana IndonesiaResearch Analyst(+62) 21 2964 [email protected]
Stock data
Market cap (IDRbn) 22,870
Market cap (USDm) 1,875
Shares outstanding (m) 25,131.6
Major shareholders CIMB Group (97.9%)
Free float (%) 3
Avg daily value traded (USDm)
0.044
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Provisioning (IDRbn)
1,203.5 1,801.9 2,293.1
Pre-prov profit (IDRbn)
6,245 7,316 8,179
EPS (IDR) 170.40 164.05 174.91
PER (x) 6.9 5.5 5.2
Yield (net) (%) 0.0 0.0 0.0
Source: Deutsche Bank
3Q14 profit free falling (-60% qoq)BNGA reported its 3Q14 NP of Rp343bn (-60% qoq), resulting in 9M14 NP of Rp2.3tr (-29% yoy), which only accounts for 56% of DB14e and implies a B/S ROAE of a mere 5.2%. The main reason for massive qoq decline is significantjump in credit costs (CoC). Indeed, CoC has shot up to 224bps in 3Q14 (up from 70bps in 2Q14) as NPL rose to 3.4% (+40bps qoq, +110bps yoy). Yet, despite higher CoC, NPL coverage ratio dipped to 81% (from a high of 113% in 4Q13). We also notice special mention assets also on the rise to 4.9% (from 3.8% in 2Q14) with the outstanding special mention assets of Rp14.9tr (+53.3% qoq). For this reason, we think high CoC is not yet over for BNGA. See table below for details on 3Q14 results. Operational numbers also under pressuresAt operating level, 3Q14 PPOP of Rp1.4tr (-5% qoq), results in 9M14 PPOP of Rp4.6tr (-11% yoy) which accounts for 62% of DB14e. NIM of 5.3% is flat qoq (but down 50bps yoy) on largely higher funding costs. Although we see system liquidity stability, we see limited rooms for NIM uplift as LDR already at 100% (+70bps qoq; +460bps yoy).Post results (along with other mid-to-small banks), we reiterate major banks as our preferred banking stocks.
Figure 1: Summary of quarterly financials
Rpbn 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 QoQ YTD YoY %vs DB14e
% DB14eInt inc 4,246 4,245 4,545 4,834 4,884 5,100 5,289 3.7 15,273 17.2 76.1 20,066 Int exp 1,816 1,760 1,949 2,225 2,359 2,512 2,616 4.1 7,488 35.5 84.2 8,890 NII 2,430 2,485 2,596 2,609 2,525 2,588 2,673 3.3 7,785 3.6 69.7 11,175 Total inc 3,552 3,551 3,770 3,760 3,680 3,515 3,464 (1.5) 10,659 (2.0) 74.9 14,228 PPOP 1,739 1,644 1,839 1,843 1,681 1,513 1,431 (5.4) 4,625 (11.4) 62.4 7,416 Prov 295 180 367 356 200 370 930 151.0 1,500 78.0 83.2 1,802 NP 1,054 1,080 1,078 1,071 1,098 854 343 (59.8) 2,296 (28.5) 55.7 4,123 Ratios % 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14NIM 5.8 5.8 5.8 5.6 5.4 5.3 5.3Loan yoy 13.3 9.8 12.0 8.0 9.5 9.1 7.3 Deposit yoy 25.6 9.0 11.5 8.4 (3.5) 10.6 2.3 CASA 45.2 43.5 42.6 42.6 43.3 43.8 44.2 NIM 5.8 5.8 5.8 5.6 5.4 5.3 5.3 B/S ROAE 19.7 19.5 18.7 17.6 17.4 13.1 5.2 CAR 15.2 16.0 15.8 15.1 16.4 16.1 16.0 LDR 87.9 100.7 95.4 95.9 99.7 99.3 100.0 NPL 2.4 2.3 2.4 2.3 2.6 3.1 3.4 NPL cov 106 110 108 113 96 84 81 LLR 2.6 2.5 2.5 2.6 2.5 2.6 2.8
Cost of credit (bps) 81 48 96 91 50 91 224
Source: Deutsche Bank and company
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 55
Rating
BuyAsiaIndonesia
ConsumerRetail / Wholesale Trade
Company
Matahari Department Store
Date29 October 2014
Results
3Q14 results are largely on track, despite slow expansion
Reuters Bloomberg Exchange TickerLPPF.JK LPPF IJ JKT LPPF
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (IDR) 15,150
Price target - 12mth (IDR) 20,000
52-week range (IDR) 17,025 - 10,400
Jakarta Comp. Index 5,001.30
Adi Putra
PT Deutsche Bank Verdhana IndonesiaResearch Analyst(+62) 21 2964 [email protected]
Reggy Susanto, CFA
PT Deutsche Bank Verdhana IndonesiaResearch Analyst(+62) 21 2964 [email protected]
Stock data
Market cap (IDRbn) 44,193
Market cap (USDm) 3,624
Shares outstanding (m) 2,917.0
Major shareholders
Free float (%) 47
Avg daily value traded (USDm)
5.761
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (IDRbn) 6,754 8,129 9,766
Net Profit (IDRbn)
1,150.2 1,499.5 2,035.3
DB EPS (IDR) 394 514 698
PER (x) 27.2 29.5 21.7
Yield (net) (%) 0.0 1.0 1.4
Source: Deutsche Bank
3Q14 results are largely in-line: sales +12% yoy on SSSG of 9.7%MDS posted 3Q14 gross sales of Rp5tr (+12% yoy, +52% qoq) on SSSG of 9.7% (came from 2.4% volume growth and 7.1% AUR growth) and net profit of Rp1.06tr (+10% yoy, +193% qoq). This brought 9M14 net profit to Rp1.1tr (+18% yoy) accounted for 71% of DB FY14F earnings.
It opened 3 new stores YTD, closed 1 not-performing store and temporarily closed 1 store due to fire to have 127 stores and c.830k sqm of selling space now. MDS plans to open another 6 stores by year end, and another 12-14 stores in 2015 (of which 10 MoUs have been signed).3Q14 merchandise gross margin +40bps yoy (-130bps qoq) to 34.4%, due to higher contribution from higher-margin Direct Purchase, accounted for 33.2% of gross sales - up from 31.7% in 3Q13 (down from 35.4% in 2Q14).It did Rp370bn voluntary debt prepayment in 3Q14, and plans to do further prepayment in 4Q14. Aiming to be debt-free by the end of 2015.With a strong mid-income customer base of almost 2.9mn active members, management believes it is able to withstand any macro headwinds, such as potential fuel price hike. At 21x FY15F PER, we reiterate MDS as ourpreferred stock in the Indonesian retail space. Maintain Buy.
Figure 1: LPPF quarterly summary
in Rp bn 3Q13 4Q13 1Q14 2Q14 3Q14 9M14 Cons.% of cons.
DBe % of DBe
Net sales 2,367 1,646 1,480 1,849 2,710 6,039 8,162 74% 8,129 74%Gross profit 1,521 1,078 924 1,184 1,718 3,827 5,121 75% 5,250 73%EBIT 816 396 263 444 920 1,627 2,162 75% 2,142 76%Net profit 635 251 123 239 699 1,060 1,591 67% 1,499 71%Net sales YoY 17% 21% 18% 25% 14% 18% 21% 20%GP YoY 14% 19% 16% 22% 13% 16% 17% 20%EBIT YoY 7% 28% 24% 24% 13% 18% 21% 20%Net profit YoY 34% 78% 50% 31% 10% 18% 38% 30%Net sales QoQ 60% -30% -10% 25% 47%GP QoQ 57% -29% -14% 28% 45%EBIT QoQ 128% -51% -34% 69% 107%Net profit QoQ 247% -60% -51% 94% 193%Gross margin 34.0% 35.0% 34.4% 35.8% 34.3% 34.8% 34.3%EBIT margin 18.2% 12.8% 9.8% 13.4% 18.4% 14.8% 14.0%Net margin 14.2% 8.1% 4.6% 7.2% 14.0% 9.6% 9.8%
Source: Deutsche Bank, company, Bloomberg Finance LP
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 56 Deutsche Bank AG/Hong Kong
Rating
BuyAsiaIndonesia
Mid & Small Caps
Company
Modernland AlertDate29 October 2014
Results
Slow 3Q14...as expected
Reuters Bloomberg Exchange TickerMDLN.JK MDLN IJ JKT MDLN
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (IDR) 499
Price target - 12mth (IDR) 640
52-week range (IDR) 545 - 374
Jakarta Comp. Index 5,001.30
Edeline Rasjid
PT Deutsche Bank Verdhana IndonesiaResearch Associate(+62) 21 2964 [email protected]
Albert Saputro
PT Deutsche Bank Verdhana IndonesiaResearch Analyst(+62) 21 2964 [email protected]
Stock data
Market cap (IDRbn) 6,254
Market cap (USDm) 513
Shares outstanding (m) 12,533.1
Major shareholders
Free float (%) 64
Avg daily value traded (USDm)
0.0
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (IDRbn) 1,844 3,165 2,846
Net Profit (IDRbn)
2,451.6 818.6 573.8
DB EPS (IDR) 196 65 46
PER (x) 2.1 7.6 10.9
Yield (net) (%) 0.0 1.0 0.7
Source: Deutsche Bank
MDLN 3Q14 Net Profit reported at Rp23bn (-87%YoY and -82%QoQ)-25%YoY) which accounts for
FY14 forecast. The slow 3Q14 is somewhat expected, mainly due to the lower installment payment from ASRI (in regards for the north Serpong landbank acquisition). We highlight that earnings contribution from land sales to ASRI is high (roughly Rp269bn) as n.margin from this transaction is about 75%. Further, despite the relatively slow 3Q14, we remain comfortable with our FY14 forecast (as we expect ASRI payment to pick up in 4Q14), but seeing downside risks to consensus forecast.
MDLN 3Q14 Revenue reported at Rp457bn (+24%YoY but -54%QoQ)This brings MDL %YoY) which accounts for 71% and 68 The slower revenue recognition is mainly caused by the lower installment payment from Alam Sutera and as the company is yet to recognized land sales to AEON in JGC (pending for the mall development approval, which takes longer than expected due to the election period).
During the 3Q14, ASRI merely made a payment of Rp142bn bringing overall 9M14 payment to Rp542bn (vs. the Rp900bn targetthis year). Both companies (ASRI and MDLN) suggested that the remaining Rp358bn payment would be made in 4Q14. MDLN highlights that the lower payment made by ASRI in 3Q14 is due to the delay in land measurement process, which now has been resolved.
New access should provides pricing catalyst The South Gate access connecting JGC to Bekasi main road have been opened early this month. This progress on the access improvement supports our thesis for land price appreciation of 10-15%/pa esp. later after the direct toll road access (Tanjung Priok Cakung toll road) to JGC is opened.
Maintain our Buy recommendation We have a Rp640/share target price for MDLN. The stock is currently trading at 7.6x and 10.9x 2014-15 PER and 53% discount to NAV. Despite the slow
s sales in JGC and Cikande are strong. Recently,the company received 94% take-up rate from its residential launching and booked Rp805bn marketing sales in October bringing overall sales to Rp3.2tn (roughly 86- .
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 57
Rating
BuyAsiaIndonesia
PropertyProperty
Company
Summarecon AlertDate29 October 2014
Company Update
Expanding geographical presence
Reuters Bloomberg Exchange TickerSMRA.JK SMRA IJ JKT SMRA
________________________________________________________________________________________________________________
Price at 28 Oct 2014 (IDR) 1,220
Price target - 12mth (IDR) 1,580
52-week range (IDR) 1,395 - 760
Jakarta Comp. Index 5,001.30
Albert Saputro
PT Deutsche Bank Verdhana IndonesiaResearch Analyst(+62) 21 2964 [email protected]
Edeline Rasjid
PT Deutsche Bank Verdhana IndonesiaResearch Associate(+62) 21 2964 [email protected]
Stock data
Market cap (IDRbn) 17,601
Market cap (USDm) 1,443
Avg daily value traded (USDm)
2.336
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (IDRbn) 4,094 4,012 4,549
Net Profit (IDRbn)
1,109.2 1,076.4 1,117.0
DB EPS (IDR) 77 75 77
PER (x) 13.5 16.4 15.8
Yield (net) 1.6 1.9 1.8
Source: Deutsche Bank
Some of the apartmennt launch in Serpong area
Source: Company data
Expanding presenceAs reported by IFT, Summarecon has allocated Rp1tr for land acquisition in
area including outside Java. It is also open to the idea of doing joint venture orjoint operation model for the new landbank, which is similar to the Ciputra model. Some of the area that it is looking includes Yogyakarta, Central Java, East Java, Sulawesi, and South Sumatra. Further, the company also plans to start developing a mixed-use development project for landbank within the city (including the one in Slipi, West Jakarta).
name is on the top 5 most recognized developers in Indonesia), 2) good access to capital (especially as the company recently raised Rp1.1tr of bond with potential for an additional Rp300bn bond raising), and 3) good track record on developing greenfield projects. Launching new apartment projects in SerpongThe company is launching two apartment towers in Serpong with two different pricing segments, totaling to 360 units. The first tower (tower Bryant) mainly cater mid-to-low market segment with first phase consisting 241 units and pricing around Rp330-755m/unit (implying Rp13-14m/sqm). The other tower (tower Herald) catering more on the mid-to-upper market segment, consisting of 119 units and pricing around Rp760m-1.8bn (implying Rp19m/sqm). The 1st phase of the launch is expected to yield around Rp300bn in marketing sales,but depending on demand it may launch additional tower. (as of currently, the
arketing sales has reached Rp3.6tr or 83% of our FY14 forecast of Rp4.3tr Rp4.5tr).
The new mixed-use development area is located across the existing Summarecon Mall Serpong, which will eventually have 4 apartment towers ofmid-to-high end market segment, 6 apartment towers of mid market segment,and commercial area.Keeping the installment payment schemeThe company is keeping its installment payment scheme at a maximum 48 months (roughly inline with construction period), despite some peers are offering a longer installment period (inc. LPKR, which allows 10 years installment period). Maintain BuyWe reiterate our Buy rating on the stock with Rp1,580/shr price target. The stock currently trades on 16x 2014-15E PER with 49% discount to NAV.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 58 Deutsche Bank AG/Hong Kong
Rating
BuyAsiaIndonesia
Telecommunications
Company
XL Axiata AlertDate29 October 2014
Results
3Q14 results : Slow top line growth; below expectations
Reuters Bloomberg Exchange TickerEXCL.JK EXCL IJ JKT EXCL
ADR Ticker ISINPTXKY US69369R1005
________________________________________________________________________________________________________________
Price at 28 Oct 2014 (IDR) 5,750
Price target - 12mth (IDR) 7,400
52-week range (IDR) 6,925 - 4,000
Jakarta Comp. Index 5,001.30
Raymond Kosasih, CFA
PT Deutsche Bank Verdhana IndonesiaResearch Analyst(+62) 21 2964 [email protected]
Peter Milliken
Research Analyst(+852) 2203 [email protected]
Nicholas Nugroho
PT Deutsche Bank Verdhana IndonesiaResearch Analyst(+62) 21 2964 [email protected]
Stock data
Market cap (IDRbn) 48,921
Market cap (USDm) 4,012
Shares outstanding (m) 8,526.3
Major shareholders Indocel Holdings (66.7%)
Free float (%) 33
Avg daily value traded (USDm)
4.052
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (IDRbn) 21,350 23,790 25,703
Net Profit (IDRbn)
1,032.8 1,107.3 1,347.2
DB EPS (IDR) 233 29 158
PER (x) 21.1 196.6 36.4
Yield (net) (%) 1.0 0.9 1.1
Source: Deutsche Bank
Lower 3Q14 net losses on less FX lossesXL reported its 3Q14 results which were below our projections. 3Q14 loss of Rp418bn is half of 2Q14 loss of Rp861bn on lower FX losses as Rp depreciated at lower rate than it was in 2Q14. Core profit (ex FX and one-off), the co booked 9M14 loss of Rp40bn, compared to our FY14 core profit of Rp227bn. For reference, our 2014 projections incorporate gain of Rp1.8tr from tower divestment, which we believe should be booked in 4Q14e.
Sluggish top line growth, slow turnaround; hence no margin improvement qoqAt operating level, XL reported weaker than expected revenue. Indeed, 3Q14 rev of Rp6.0tr (-0.5% qoq), bringing 9M14 rev to Rp17.6tr (+11.0% yoy) which represents 74% of DB FY14e. Weak qoq can be attributed to declining voice rev to Rp2.0tr (-2.0% qoq) and sluggish data/VAS rev growth to Rp1.7tr (+2.3% qoq). Sluggish data reflected lower blended pricing qoq of 3.4% to Rp41/MB (from Rp49 in 2Q14). Consequently, XL had 3Q14 EBITDA of Rp2.0tr (flat qoq); bringing 9M14 EBITDA to Rp6.3tr (-1.5% yoy) with no margin improvement on
Post results, we think the stock could under-perform.plan to have limited 4G launch should enhance its market positioning.
Figure 1: XL 3Q14 results
QoQ (Rpbn) 1Q14 2Q14 3Q14 QoQ 9M13 9M14 YoY 2014F vs DBGross rev 5,526 6,069 6,041 (0.5) 15,884 17,636 11.0 23,790 74.1- Voice 1,875 2,055 2,013 (2.0) 5,722 5,943 3.9 8,136 73.0- Non-voice 2,418 2,902 2,939 1.3 6,780 8,259 21.8 10,945 75.5
- SMS 1,097 1,225 1,224 (0.1) 3,424 3,546 3.6 4,664 76.0- Data / VAS 1,273 1,628 1,665 2.3 3,196 4,566 42.9 6,050 75.5
Op. inc 642 353 154 (56.4) 2,134 1,149 (46.1) 2,047 56.1Margin 11.6% 5.8% 2.5% 13.4% 6.5% 8.6%EBITDA 2,199 2,063 2,061 (0.1) 6,419 6,323 (1.5) 8,532 74.1Margin 39.8% 34.0% 34.1% 40.4% 35.9% 35.9%- FX gain (loss) 478 (994) (419) (57.8) (715) (936) 30.8 (750) 124.7- Others (21) (86) (34) (60.8) (85) (140) 65.1 1,850 (7.6)PBT 591 (1,086) (579) (46.6) 1,193 (1,074) N/A 1,476 (72.8)NP 378 (861) (418) (51.4) 916 (901) N/A 1,107 (81.4)NP ex Forex/one-off 12 3 (56) 1,556 (40) 227
1Q14 2Q14 3Q14 QoQSMS price (Rp) 17.2 17.3 18.0 0.9RPM (Rp) 77.5 80.0 82.9 3.3QoQ MOU (Bn) 24.2 24.9 22.6 2.9QoQ SMS 63.8 70.1 62.9 9.9Data traffic (PB) 22.0 29.8 34.7 35.5Data price (Rp/MB) RHS 51.0 49.3 40.6 (3.4)Capex as % of rev (RHS) 29.21 31.06 20.43 Net debt (cash) 25,923 27,795 27,360 Net debt (cash) to equity % 179 213 196
Source: Deutsche Bank and company data
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 59
Rating
HoldAsiaThailand
ConsumerFood & Beverage
Company
Minor International PLC Alert
Date29 October 2014
Results
Expect mild YoY earnings growth in 3Q14
Reuters Bloomberg Exchange TickerMINT.BK MINT TB SET MINT
ADR Ticker ISINMNILY US60433U1043
________________________________________________________________________________________________________________
Price at 28 Oct 2014 (THB) 34.25
Price target - 12mth (THB) 33.00
52-week range (THB) 38.00 - 18.70
SET 1,557
Chalinee Congmuang
Deutsche TISCO Investment Advisory Co. LtdResearch Analyst(+66) 2 633 [email protected]
Stock data
Market cap (THBm) 137,053
Market cap (USDm) 4,224
Shares outstanding (m) 4,001.6
Major shareholders Minor Holdings Co (17.9%)
Free float (%) 55.0
Avg daily value traded (USDm)
9.5
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (THBm) 34,669 37,121 42,079
Net Profit (THBm)
4,101.4 4,363.3 5,337.5
DB EPS (THB) 0.96 1.09 1.33
PER (x) 25.2 31.4 25.7
Yield (net) (%) 2.5 1.3 1.6
Source: Deutsche Bank
Expect MINT to report 3Q14 net profit of Bt752m (+22% QoQ, +6% YoY). We also
should be driven by improved economies of scale stemming from a stronger hotel occupancy rate while YoY growth should be driven by improved profitability at
Company is expected to report 3Q14 results on Nov 13th
revenue from its hotel business to come in at Bt2,687m (-2% QoQ, -3% YoY). Its 3Q14F owned-hotel Revpar should be Bt3,589 (+1% YoY). While upcountry and overseas hotels recorded solid occupancy rates of 61% (flat YoY) and 53% (+4% YoY) respectively, occupancy at Bangkok hotels fell 20% YoY to 48%.
Dragged by restaurant business in China and Singapore of which SSSg remained
With AVC as the only sole revenue contribution, we estimate revenue from real estate in 3Q14 to drop by 26% YoY. With deposits already being paid, MINT may book some revenue from either St. Regis (2 units left) or its Samui Estate in 4Q14.
for 62% of our FY14 profit forecast of Bt4,363m vs. historical range of more than
4Q14-1Q15.
Figure 1: Consolidated quarterly earnings
(Bt m) 3Q13 2Q14 3Q14F QoQ (%) YoY (%) 9M14F YoY (% )Sales & service income 8,471 8,515 8,556 0.5 1.0 26,909 6.4 Revenue from hotel 2,767 2,740 2,831 3.3 2.3 9,137 4.9 Revenue from restaurant 3,352 3,844 3,805 -1.0 13.5 11,585 12.8 Revenue from real estates 1,031 682 759 11.4 -26.4 2,052 -8.7 Gross profit 4,793 4,693 4,824 2.8 0.7 15,308 5.1S&A Expenses 4,198 4,312 4,244 -1.6 1.1 13,223 7.6Net profit before extra item 707 548 752 37.3 6.4 2,720 20.9Net profit 707 617 752 21.9 6.4 2,789 9.6EPS (Bt) 0.18 0.15 0.19 21.9 6.4 1.02 12.4EBITDA 1,218 1,060 1,260 18.9 3.5 4,122 -0.1 EBIT 596 381 581 52.5 -2.5 2,085 -8.7 Occupancy rate-ow ned (%) 66.0 51.0 55.0 57.0RevPar-ow ned (Bt/ night) 3,553 3,199 3,589 12.2 1.0 4,095 -3.2SSSG- restaurant (%) 0.0 1.5 1.2 -0.2Gross Margin (%) 56.6 55.1 56.4 56.9EBIT Margin (%) 7.0 4.5 6.8 7.7EBITDA Margin (%) 14.4 12.4 14.7 15.3Net Profit Margin (%) 8.3 7.2 8.8 10.4
Source: Deutsche Bank
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 60 Deutsche Bank AG/Hong Kong
Rating
BuyAsiaThailand
ResourcesConstruction Materials
Company
Siam Cement AlertDate29 October 2014
Results
Results beat on FX gain
Reuters Bloomberg Exchange TickerSCC.BK SCC TB SET SCC
ADR Ticker ISINSCVPY US8257101068
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (THB) 434.00
Price target - 12mth (THB) 508.00
52-week range (THB) 478.00 - 380.00
SET 1,557
Pope Guruvanich
Deutsche TISCO Investment Advisory Co. LtdResearch Analyst(+66) 2 633 [email protected]
Stock data
Market cap (THBm) 520,800
Market cap (USDm) 16,052
Shares outstanding (m) 1,200.0
Major shareholders The Crown Property Bureau
(30%)Free float (%) 70
Avg daily value traded (USDm)
17.4
Source: Deutsche Bank
Key data
FYE 12/31 2013A 2014E 2015E
Sales (THBm) 434,251 477,285 495,471
Net Profit (THBm)
36,719.4 32,689.4 39,606.5
DB EPS (THB) 30.60 27.24 33.01
PER (x) 14.4 15.9 13.1
Yield (net) (%) 3.5 3.0 3.5
Source: Deutsche Bank
SCC reported 3Q14 net profit of Bt7.847bn, down 8% QoQ and 20% YoY. The results beat consensus estimate of Bt7.232bn by 8% (according to Bloomberg Finance LP) due to a Bt680m FX gain. KKey points;
Cement business softened; Cement business EBITDA declined 5% QoQ due to cement and building materials domestic demand softness (demand dropped 3% YoY), as reflected in the domestic grey cement price which fell slightly QoQ to Bt1,950-2,000/ton.
Chemicals business reaped high margins; despite the sharp crude oil (and naphtha) prices drop, HDPE and PP prices rose 2-3% QoQ respectively, resulting in a sharp widening of HDPE-naphtha (+US$73/ton) and PP-naphtha (+US$84/ton) margins by to US$691/ton and US$716/ton respectively.
Paper business EBITDA fell 4% QoQ due to the maintenance shutdown of various paper machines and utilities units.
Figure 1:
2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 % YoY % QoQSales 106,541 113,860 104,412 121,765 124,795 124,275 9% 0%Gross Profit 17,528 19,836 17,171 20,066 19,006 19,674 -1% 4%Interest Expense 2,181 2,013 3,314 2,057 1,984 1,313 -35% -34%Net Result of Inv. in Asso. 1,897 1,309 1,739 1,725 1,117 1,639 25% 47%Net Profit 9,924 9,793 8,207 8,381 8,532 7,847 -20% -8%EPS (Bt) 8.27 8.16 6.84 6.98 7.11 6.54 -20% -8%EBITDA 15,488 16,617 15,450 15,071 15,825 14,203 -15% -10%SCG Chemicals 4,218 5,945 5,235 4,834 4,671 5,745 -3% 23%SCG Paper 2,498 2,236 1,947 2,789 2,569 2,147 -4% -16%SCG Cement - Building Materials 6,275 6,852 6,272 7,445 6,747 6,380 -7% -5%Other 2,544 44 1,970 116 1,807 -52 n.a. n.a.
Source: Deutsche Bank
We also attended quarterly management briefing. KKey takeaways;Cement demand bottomed out; Management believes cement demand has already bottomed out in 3Q14 (declining 3% QoQ), and expect sequential improve from next quarter onwards (expecting 0% growth for the whole year). For next year, management expects cement demand to grow by 5-6% YoY and look for a sharp improvement in 2Q15 to be driven by private investments.Cement competition to be manageable; Management believes there has been little price pressure from domestic competition, while SCG should be able to maintain its cement price by improving its bagged cement product mix.Long Son Petrochem complex has made progress as the local authority has started the land compensation process and SCC is finalizing its EIA and EHIA reports. SCC will accept contractor bids next month. The project startup is expected in 2019.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 61
Rating
BuyAsiaIndia
Conglomerates
Company
Grasim AlertDate29 October 2014
Results
2Q earnings come ahead as VSF profits rebound from low base
Reuters Bloomberg Exchange TickerGRAS.BO GRASIM IN BSE GRAS
ADR Ticker ISINGRSXY US3887064000
Price at 28 Oct 2014 (INR) 3,375.00
Price target - 12mth (INR) 4,075.00
52-week range (INR) 3,720.00 - 2,436.40
Bombay Stock Exchange (BSE 30)
26,881
Chockalingam Narayanan
Research Analyst(+91) 22 7180 [email protected]
Manish Saxena
Research Analyst(+91) 22 7180 [email protected]
Stock data
Market cap (INRm) 309,396
Market cap (USDm) 5,045
Shares outstanding (m) 92
Major shareholders Promoters (25.19%)
Free float (%) 74
Avg daily value traded (USDm)
5.1
Source: Deutsche Bank
Key data
FYE 3/31 2014A 2015E 2016E
Sales (INRm) 277,134 324,984 376,973
Net Profit (INRm)
20,920.6 21,552.0 26,800.6
DB EPS (INR) 227.96 234.80 291.99
PER (x) 11.8 14.4 11.6
Source: Deutsche Bank
Holdco discount has narrowed marginally
0
10
20
30
40
50
60
70
-50%
-45%
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
Aug
-10
Nov
-10
Feb-
11
May
-11
Aug
-11
Nov
-11
Feb-
12
May
-12
Aug
-12
Nov
-12
Feb-
13
May
-13
Aug
-13
Nov
-13
Feb-
14
May
-14
Aug
-14
Cement business Holdco discount - P/E of 5x parent company earnings
VSF EBITDA/kg
Source: Bloomberg Finance LP, Deutsche Bank
Grasim 2Q results came ahead of both our and street expectations with a PAT of INR 2.99 bn (down 28% YoY) and this was driven primarily by VSF profits rebounding to INR 15/kg (thanks to benign pulp costs). This augurs well from a stock perspective, as in the past 5 years the Holdco discount has broadly tracked the movement of the VSF profitability. However, for this discount to narrow further, we may need to see a more sustained recovery in VSF business profits to medium term given the Chinese cotton policy and the overall excess supply in the VSF industry. We retain Buy with a SOTP based INR 4075/sh 12 month target given valuations at 11.6x FY16 P/E appear attractive. In the near term though, the consolidation moves (both overseas and domestic), if any, of its subsidiary UltraTech could weigh on its valuations.
Other key highlights from the results and post earnings callglobally,
management had nothing further to add from the stock exchange clarification given by subsidiary UltraTech. They highlighted that they look at overseas opportunities from time to time but India will remain the high priority market. In that light, if opportunities are available, they will look at leveraging the balance sheet of UltraTech (and possibly Grasim).** With regards to the operational numbers, Net sales grew by 13% YoY to INR 15.8 bn driving an EBITDA of INR 2.14 bn (down 23% YoY) and a Net income of INR 2.99 bn (down 28% YoY). ** VSF business saw its EBITDA rise by c86% QoQ (but down 37% YoY) on the back of a strong jump in volumes to 101kt (from recent capacity expansions) and the benign pulp costs (down 8% QoQ). ** In the Chemicals business, the revenues grew by 64% YoY on the back of the strong 28% volume growth in Caustic Soda and the ramp up in Epoxy unit. EBITDA Margin however fell 110 bps to 23.2% from weak caustic soda prices.
Figure 1: 2QFY14 Standalone results a brief snapshot
INR mn 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 YoY (%) DBe Var (%)
Net Sales 14,055 14,558 15,284 14,236 15,823 13% 16,136 -2%
EBITDA 2,772 2,088 1,587 1,408 2,139 -23% 1,708 25%
Net Income 4,135 1,261 1,303 1,058 2,994 -28% 2,858 5%
VSF realisations (INR/kg) 123 122 122 119 119 -3% 118 1%
VSF EBITDA (INR/kg) 25.8 17.4 12.9 9.4 15.0 -42% 9.9 51%
VSF Volumes 93,025 97,049 99,385 86,389 100,927 8% 100,467 0%Source: Company data, Deutsche Bank
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 62 Deutsche Bank AG/Hong Kong
Rating
BuyAsiaIndia
Banking / FinanceBanks
Company
PNB AlertDate29 October 2014
Company Update
CMD fails to get an extension; await new government policy
Reuters Bloomberg Exchange TickerPNBK.BO PNB IN BSE PNBK
________________________________________________________________________________________________________________
Price at 28 Oct 2014 (INR) 921.00
Price target - 12mth (INR) 1,000.00
52-week range (INR) 1,038.00 - 499.70
Bombay Stock Exchange (BSE 30)
26,881
Manish Karwa
Research Analyst(+91) 22 7180 [email protected]
Manish Shukla
Research Analyst(+91) 22 7180 [email protected]
Stock data
Market cap (INRm) 333,466
Market cap (USDm) 5,438
Shares outstanding (m) 362.1
Major shareholders Govt of India (57.8%)
Free float (%) 42
Avg daily value traded (USDm)
16.7
Source: Deutsche Bank
Key data
FYE 3/31 2014A 2015E 2016E
Provisioning (INRm)
45,170.9 50,451.9 56,161.4
Pre-prov profit (INRm)
92,076 108,470 129,422
EPS (INR) 93.43 112.17 141.64
PER (x) 6.5 8.2 6.5
Yield (net) (%) 1.7 3.0 3.0
Source: Deutsche Bank
PNB CMD does not get an extension, seven PSU banks now without CMDMedia reports (Business Standard, 29 Oct) indicate that the government has not given extension to Punjab National Bank Chairman and Managing Director Mr. K R Kamath after he completed his 5-year term on Oct 28.
Mr Kamath joined PNB in Oct 2009 and has another 13 months to superannuation (60 years). It was widely expected that Mr Kamath will get an extension, as it has happened in the past (Mr M.V. Nair of Union Bank had got a one year extension on similar grounds)
In case of PNB, we believe that this creates some uncertainty about the change and could lead to increased fears about asset quality which is already very stressed. Even growth could get impacted.
With Mr. government banks Syndicate Bank, Oriental Bank of Commerce, Canara Bank, United Bank of India, Indian Overseas Bank and Bank of Baroda, are running without full-time chairmen. Vijaya Bank CMD is retiring in December.
Transparency in CMD and ED selection process a long term positiveWe believe that the bank heads more transparent is a big positive change and first of the few changes that the government may be making.
We believe that the new selection process could aim at splitting the post of CMD and ensuring that only those candidates with a longer tenure of 3-5 years are selected for the top post, in line with the recommendations suggested by Dr P. J. Nayak committee.
However, in the interim till such time that the new process is formalized and new CMDs appointed it will cause uncertainty for these PSU banks as this is likely to impact decision making at these banks, which can potentially impact large ticket credit growth
On PSU banks, we have our preference for the larger PSU banks SBI, PNBand BOB. However, in the very near term PNB, BOB given the uncertainty related to change in leadership may trade weaker than others.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 63
Rating
HoldAsiaIndia
ResourcesMetals & Mining
Company
Sesa SterliteDate29 October 2014
Results
Operating performance in line; coal cost increase affects aluminum
Reuters Bloomberg Exchange TickerSESA.BO SSLT IN BSE SESA
Forecasts And Ratios
Year End Mar 31 2013A 2014A 2015E 2016E
Sales (INRm) 27,489.0 661,524.1 776,080.3 840,004.7
EBITDA (INRm) 4,655.0 196,245.6 274,413.5 296,887.7
EBIT(INRm) 2,680 127,422 180,685 194,371
Reported EPS FD(INR) 7.69 21.24 19.19 22.15
Reported NPAT (INRm) 22,802.0 62,985.0 56,888.7 65,683.4
DB EPS growth (%) -75.2 176.2 -9.7 15.5
DB EPS FD(INR) 7.69 21.24 19.19 22.15
PER (x) 23.2 8.0 13.3 11.5
EV/EBITDA (x) 89.4 6.1 5.1 4.4
Yield (net) (%) 0.1 1.9 0.8 0.9
Source: Deutsche Bank estimates, company data1 DB EPS is fully diluted and excludes non-recurring items2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close
Operating performance in line; earnings affected by lower other income
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (INR) 255.30
Price target - 12mth (INR) 265.00
52-week range (INR) 314.40 - 171.65
Bombay Stock Exchange (BSE 30)
26,881
Anuj Singla
Research Analyst(+91) 22 7180 [email protected]
Abhay Laijawala
Research Analyst(+91) 22 7180 [email protected]
Price/price relative
-100
0
100
200
300
400
10/12 4/13 10/13 4/14
Sesa Sterlite
Bombay Stock Exchang (Rebased)
Performance (%) 1m 3m 12m
Absolute -5.5 -12.0 28.1
Bombay Stock Exchange (BSE 30)
1.1 3.4 28.4
Source: Deutsche Bank
Sesa Sterlite's (SSLT) operating performance in 2Q'FY15 was in line with ourestimates (DBe). Consolidated EBITDA at INR63.3bn (+12% QoQ) was in line with DBe and consensus. Recurring net profit at INR14.5bn (-22% QoQ), excluding forex gains/losses, was 18% below DBe, due to lower-than-expected other income (-40% vs. DBe, -40% QoQ) and 4% below consensus, due to timing of maturity of investments in Fixed Maturity Plans (FMPs). Interest cost declined by 4% QoQ on account of refinancing of project loan and repayment of loan related to Cairn acquisition. The buyout of the government's residual stake in HZL remains a management priority. We maintain Hold on the stock.
High coal costs affected power, aluminum profitability, 2H to be betterDespite higher LME aluminum prices and thealuminum EBITDA was 12% below DBe due to higher power and bauxite costs. Coal and power costs increased sharply as tapering at Balco and reduced availability of e-auction coal forced increased reliance on high-cost imported coal. However, with availability from Coal India likely to improve in the seasonally strong 2H combined with a weak outlook for international thermal coal prices, the company is optimistic about a sequential reduction in coal and power costs.
Deleveraging remains a key strategic priority; HZL buyout in focusSSLT reiterates deleveraging as a key strategic priority for the group, with high leverage at the standalone entity and limited cash fungibility remaining key areas of investor concern. We believe that acquisition of a residual stake in FCF-generating Hindustan Zinc is a critical step towards the achievement of these objectives.
SOTP-derived target price of INR265/share; risksWe value Sesa Sterlite using a SOTP valuation, given the varied nature and dynamics of the individual business segments. Key upside and downside risksrelate to regulatory risks, coal sourcing and costing, and mining tax. See p. 8.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 64 Deutsche Bank AG/Hong Kong
Rating
BuyAsiaIndia
Automobiles & Components
Company
Tata Motors Ltd Alert
Date29 October 2014
Company Update
Updating our 2QFY15 forecasts for lower JLR wholesales
Reuters Bloomberg Exchange TickerTAMO.BO TTMT IN BSE TAMO
ADR Ticker ISINTTM US8765685024
________________________________________________________________________________________________________________
Price at 28 Oct 2014 (INR) 508.30
Price target - 12mth (INR) 560.00
52-week range (INR) 537.00 - 336.60
Bombay Stock Exchange (BSE 30)
26,881
Amyn Pirani
Research Analyst(+91) 22 7180 [email protected]
Stock data
Market cap (INRm) 1,635,861
Market cap (USDm) 26,675
Shares outstanding (m) 3,218.3
Major shareholders Tata group (47.1%)
Free float (%) 40
Avg daily value traded (USDm)
53.1
Source: Deutsche Bank
Key data
FYE 3/31 2014A 2015E 2016E
Sales (INRm) 2,279,459 2,501,143 2,890,457
Net Profit (INRm)
139,910.2 184,843.8 204,839.3
DB EPS (INR) 41.47 57.44 63.65
PER (x) 8.2 8.8 8.0
Yield (net) (%) 0.6 0.3 0.5
Source: Deutsche Bank
Cutting our 2QFY15 revenue and EBITDA forecasts by 5%; full year numbers unchanged JLR wholesale sales for 2QFY15 at 103,975 units (+2% YoY) came in 5.6%lower than our expectations of 110,117 units (+8% YoY). We are adjusting our quarterly forecasts for Tata Motors to reflect this outcome. At this stage, we are not making any changes to our FY15 forecasts. We believe that the impact of the lower 2Q volumes will be offset in 2H driven by the launch of the new Discovery Sport and Jaguar XE.
2QFY15: our revised forecasts (see table below for variance with earlier forecasts)Consolidated revenue Rs 615bn (+8.1% YoY), EBITDA Rs 101bn (+16.8% YoY), EBITDA margin 16.4% (-80bps QoQ), PAT Rs 47bn (+22.5% YoY).JLR: Revenue GBP 4942m (+7.2% YoY), EBITDA GBP 989m (+22.2% YoY), EBITDA margin 20% (-30bps QoQ), Recurring PAT GBP 554m (+31.9% YoY)Parent: Revenue Rs 86bn (-3% YoY), EBITDA Rs (1.5)bn, EBITDA margin (1.7%), Recurring PAT Rs (7.4)bn.
Figure 1: Tata Motors variance in 2QFY15 consolidated forecastsRs mn Old DBe New DBe Variance %
Net Revenues 643,689 615,011 -4.5%
EBIDTA 106,142 100,870 -5.0%
EBITDA margin 16.5% 16.4%
PAT 50,706 46,752 -7.8%Source: Deutsche Bank
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 65
Rating
BuyAsiaIndia
ConsumerRetail / Wholesale Trade
Company
Titan AlertDate29 October 2014
Industry Update
Competition has relaunched advance purchase scheme
Reuters Bloomberg Exchange TickerTITN.BO TTAN IN BSE TITN
________________________________________________________________________________________________________________
Price at 20 Oct 2014 (INR) 382.70
Price target - 12mth (INR) 420.00
52-week range (INR) 408.00 - 214.55
Bombay Stock Exchange (BSE 30)
26,430
Manoj Menon
Research Analyst(+91) 22 7180 [email protected]
Gaurav Bhatia
Research Analyst(+91) 22 7180 [email protected]
Stock data
Market cap (INRm) 339,756
Market cap (USDm) 5,545
Shares outstanding (m) 887.8
Major shareholders TIDCO (28%)
Free float (%) 49
Avg daily value traded (USDm)
6.185
Source: Deutsche Bank
Key data
FYE 3/31 2014A 2015E 2016E
Sales (INRm) 109,158 120,328 142,031
Net Profit (INRm)
7,411.4 9,149.8 11,445.3
DB EPS (INR) 8.35 10.31 12.89
PER (x) 29.1 37.1 29.7
Yield (net) (%) 1.0 0.7 0.9
Source: Deutsche Bank
We believe Titan is still fine-tuning its advance purchase scheme; the delay may impact revenues near termTitan had announced the launch of a new advance purchase scheme on 24th
September, and as per our reconnaissance, the scheme has not been operationalized as yet. On the ground, store managers are still unaware of the contours of the scheme. The Diwali festival has already passed; we expect Titan to launch the scheme soon.
We wrote previously thatfrom 3QFY15, as c.30% of annual jewellery sales (possibly higher if we consider the 50% consumer upsizing) were from GHS (see Deep-dive into
-today, buy-tomorrow schemes dated 3 March 2014).
Competition has already soft-launched an alternativeKalyan Jewelers, a significant player in south India, has already launched an alternative scheme.
Modality - The sales person asks the customer to select a jewellery item from a catalog, to decide the approximate ticket size for the purchase. He then divides the total price by 11 to calculate the monthly installment over 11 months. In the 11th month, the customer can buy the article with the accumulated amount and the company charges a much lower making charge of 2.5% to 8% instead of 10% to 18%. Since the company gives a discount on the making charge, it complies with the RBI regulation of the cap of 12% return on the deposit. While this scheme may not be as attractive as earlier ones, it is still better than not having one at all. Another jeweler, Joy Alukkas, has also relaunched the old 11+1 scheme, which is available at the store although it is not publicized through its website.
Golden harvest scheme has in the past built a strong customer connectTitan gained a lot of positives from the scheme: a) It locked in a customer, b) it facilitated big-ticket purchases by helping customers save for them, c) the customer would often purchase much more than the maturity amount(typically >50% higher), d) some customers would come to the store to pay the installments, increasing footfall and probability of a purchase.
We stay positive on the consumer and continue to recommend a basket of Titan, Asian Paints (INR 646, Buy), Nestle (INR 5,965, Buy), ITC (INR 350, Buy)and Godrej Consumer (INR 925.50, Buy).
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 66 Deutsche Bank AG/Hong Kong
Rating
HoldJapan
REITs
Company
Advance Residence Inv.
Date29 October 2014
Forecast Change
Maintaining Hold
Reuters Bloomberg Exchange Ticker3269.T 3269 JT TYO 3269
Rental housing demand remains stable
________________________________________________________________________________________________________________
Price at 28 Oct 2014 (¥) 254,100
Price target - 12mth (¥) 250,000
52-week range (¥) 263,600 - 206,500
Yoji Otani, CMA
Research Analyst(+81) 3 [email protected]
Akiko Komine, CMA
Research Analyst(+81) 3 [email protected]
Key changes
EPU (¥, 6mth) 4,497 to 4,547 1.1%
DPU (¥, 6mth) 4,500 to 4,577 1.7%
Source: Deutsche Securities Inc.
Price/price relative
160000
200000
240000
280000
320000
10/12 4/13 10/13 4/14
Advance Residence In
TOPIX (Rebased)
Performance (%) 1m 3m 12m
Absolute 1.1 2.7 14.9
TOPIX -6.0 -2.6 4.5
Source: Deutsche Securities Inc.
Stock data
Market cap (¥bn) 330
Foreign shareholding ratio (%) 22
TOPIX 1,252
Source: Deutsche Securities Inc.
We believe the Abe government's growth strategy will result in an increase of low wage workers. In other words, it will likely become increasingly difficult for the middle class to own a home. This means demand for rental properties will increase. We maintain our view that residential REIT major Advance Residence Investment (ADR) will benefit from this development. However, we reiterate our Hold rating because the recent unit price is close to our target unit price.
FP7/14 EPU tops ¥4,500 for first time since merger ADR s FP7/14 earnings per unit (EPU) of ¥4,523 exceeded the targeted ¥4,500 for the first time since the merger with Nippon Residential Investment. At the results briefing, ADR's management said it will disclose the next target when it is able to comfortably keep EPU above ¥4,500, but that the DPU level is likely to shift from ¥4,700 to ¥4,800. We expect ADR to be able to achieve ¥4,700 in FP7/15 due to property acquisitions.
Maintaining target price of ¥250,000We base our valuation on the FFO multiple for J-REITs. We first set the FFO multiple for Nippon Building Fund (NBF), the largest J-REIT, and then set multiples for other J-REITs by referencing historical movements relative to NBF.We have applied 0.9x as ADR's FFO multiple relative to NBF and 19.4x as ADR 9). We have revised our earnings forecast, but our target price remains unchanged at ¥250,000.This target price is equivalent to a dividend yield of 3.7details).
RisksDownside risks include: 1) losing property pipelines from its sponsor, and 2) adoption of policies giving an extreme advantage for home ownership and a disadvantage for rental housing. Upside risks include: 1) being able to acquire many high yield prime properties, and 2) government policies that drive up residential leasing demand.
Forecasts and ratios
6 months base 7/14A 1/15E 1/15CoE 7/15E 1/16E 7/16E
Revenues (¥bn) 14.7 14.7 14.5 15.1 15.0 15.1
Operating profit (¥bn) 7.5 7.5 7.4 7.7 7.7 7.7
Recurring profit (¥bn) 5.9 5.9 5.8 6.1 6.1 6.1
Net profit (¥bn) 5.9 5.9 5.8 6.1 6.1 6.1
Dividend per unit (¥) 4,593 4,577 4,500 4,700 4,700 4,700
Dividend yield (%) 3.7 3.7 3.7 3.7 3.7
FFO/unit (¥) 6,355 6,459 6,639 6,639 6,639
P/FFO ratio (x) 19.2 19.4 19.1 19.1 19.1
Revised NAV/unit (¥) 186,961 188,894 187,250 185,501 183,768
P/NAV ratio (x) 1.3 1.3 1.4 1.4 1.4
LTV (%) 52.4 53.3 53.3 53.3 53.3
No. of units outstanding (thou) 1,300.0 1,300.0 1,300.0 1,300.0 1,300.0
Source: Company, Deutsche Securities forecast
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 67
Japan
Financials / Banks
Industry
Bank SectorDate29 October 2014
Industry Update
Fukuoka FG announces upward guidance revision
________________________________________________________________________________________________________________
Yoshinobu Yamada
Research Analyst(+81) 3 [email protected]
1H and full-year guidance revised up On the 28th, Fukuoka FG raised guidance for 1H consolidated NP from ¥15.5bn to ¥22bn, and full-year guidance from ¥33bn to ¥36bn. Its dividend is linked to earnings, and projected annual DPS increased from ¥11 to ¥12. Although management lowered guidance for 1H core NOP at the parent level (total of three banks) from ¥36bn to ¥35.5bn, it revised its outlook for credit costs from a ¥4.1bn expense to a reversal gain of ¥4.7bn. It also maintained its full-year core NOP projection at ¥72bn, but changed its credit costs assumption from an ¥8bn expense to a reversal gain of ¥800m. In our 19 September report titled "2Q preview: Above guidance across the sector", we forecasted Fukuoka FG's 1H consolidated NP at ¥20bn, but we have also been saying that earnings forecasts may be revised up due to credit costs. Therefore, the announcement did not surprise. While investors could view the boost to NP from lower than expected credit costs as a temporary, and thus neutral, factor, we think it is important to recognize that in Fukuoka FG's case this results in a dividend increase.
Next candidate for an upward guidance revision Of the 13 banks we cover, SMFG and Fukuoka FG have now announced upward guidance revisions. Furthermore, we see upward revisions by Resona HD and Shizuoka Bank as highly probable. Mizuho FG may also raise guidance due to credit costs.
Spotlight is on SMFG's dividend In terms of 1H capital policy, a dividend increase by SMFG is likely drawing the most attention. The market consensus appears to already forecast that the annual dividend will be raised from ¥120 to ¥130. How policy plays out versus consensus could thus have an impact on share-price performance over the short term. Higher than expected NP will speed up the accumulation of core capital. We reiterate our view that MUFG and SMFG may consider repurchasing shares from FY3/16 in order to maintain target ROE levels.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 68 Deutsche Bank AG/Hong Kong
Rating
BuyJapan
AutomobilesAuto Parts & Tyres
Company
Bridgestone AlertDate29 October 2014
Company Update
Nikkei preview of 3Q results
Reuters Bloomberg Exchange Ticker5108.T 5108 JT TYO 5108
ADR Ticker ISINBRDCY US1084412055
________________________________________________________________________________________________________________
Price at 28 Oct 2014 (¥) 3,506
Price target - 12mth (¥) 4,450
52-week range (¥) 3,990 - 3,230
Kurt Sanger, CFA
Research Analyst(+81) 3 [email protected]
Stock data
Market cap (¥bn) 2,745
Shares outstanding (m) 783
Foreign shareholding ratio (%) 31.3
TOPIX 1,252
Source: Deutsche Securities Inc.
Key data
FYE 12/31 2013A 2014E 2015E
Sales (¥bn) 3,568.1 3,642.2 3,837.5
OP (¥bn) 438.1 490.1 535.1
RP (¥bn) 434.8 481.4 534.0
NP (¥bn) 202.1 309.0 347.7
EPS (¥) 258 395 444
P/E (x) 12.9 8.9 7.9
Source: Deutsche Securities Inc.
Nikkei previews 3Q OP decline of 9% YoY to ¥115-120bn.We do not know from where the paper gets its figures, but as the main local financial paper such articles do garner attention. The paper is projecting 1-3Q OP of ¥340bn on revenue of ¥2.7tr. These figures imply 3Q OP in the ¥115-120bn range and an OPM 12-12.5%. This implies a -9% YoY decline in 3Q OP, but off a very elevated base (3Q CY13 14.3% vs 1H 11.2%; 4Q 12.4%). We are projecting OP ¥127bn for 3Q and ¥490bn for the FY. Bloomberg FY consensus OP is in-line with our own. On that basis, BS would need to achieve OP ¥145bn-¥150bn in 4Q to meet street expectation, which may prove difficult.
Quarterly earnings projections have proven to be a thankless taskOur view on Bridgestone is that it is extremely difficult accurately forecast quarterly earnings. For a start, basic model inputs lack visibility during the quarter including production levels, by brand retail performance, and actual input prices versus spot rates. f quarterly earnings including one-off adjustments at subsidiaries for which there is no disclosure. 2Q & 3Q FY13 were fine examples of this. Margins in 2Q (12.7%) shot up 160bps to 14.3% in 3Q on slightly lower revenue and similar pricing due to variance in other factors. In 1HCY14 a large hit came from S.American currencies. The point here is that investors should have a range of earnings they are comfortable with and look to understand larger swings.
Operating environment positives and negativeIn 1H, BS was hit by lower production in ASEAN, currency hits from S.America, some weaker pricing in its mid-tier US brands, and a correction in mining tires. On the plus side, its premium tire business grew OP by ¥9-10bn(DBe) and material prices (+¥39bn) net of indexed and volitional price adjustments (-¥26bn) were a positive ¥13bn (DBe). Currency added ¥19bn and it was disciplined on marketing expense. In 2H, the realized price of rubber in 2Q was around $2.09 and is set to fall to around $1.75 by 4Q, we estimate (~+¥2bn to DBe) , while the ¥/US$ is also favorable (+¥6-7bn DBe; +13-14bn
3Q call was that the relative regional and product segment exposure impacts the overall commentary on the pricing environment. There, BS looks less exposed with Europe an estimated 11% of revenue and 4% of OP. Mining related demand did continue to correct, as expected. Into FY15, we see headwind in Japan, ASEAN and mininig easing and forex positive. Investors seem to fixate on price adjustments and perceived deflation (ie. lower revenue) but the tire business is about managing the spread of input and pricing. We see attractive upside.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 69
Japan
Construction
Industry
Construction Sector Date29 October 2014
Industry Update
Industrial production momentum continues to follow '97 pattern
________________________________________________________________________________________________________________
Yoji Otani, CMA
Research Analyst(+81) 3 [email protected]
Akiko Komine, CMA
Research Analyst(+81) 3 [email protected]
September industrial production index shows improved momentum We follow industrial production index momentum as a leading indicator for private-sector construction demand, and the momentum improved from -7.8% in August to -3.3% in September. The production index was +2.7% MoM compared with the consensus forecast of +2.2%, but significantly below the previous survey forecast of +6.0%. This highlights the fact that production hasdeclined for the second consecutive quarter.
Sharp decline after September 97 improvementThe momentum of the industrial production index improved in September, but the pattern is similar to that seen in September 97 (Figure 1). The improvement then was followed by a sharp decline, and capital investment plans were postponed or canceled, leading to economic weakness. This time, there is the additional factor of the scheduled second consumption tax hike;hence, we see a strong possibility that the decline will be worse than in '97.
Private sector construction demand to slow Although the momentum of the industrial production index improved in September, we expect a further decline in private sector construction orders in 2H given that is no change in the weakening trend. This means that investors should be cautious on the construction sector as well as on the real estate sector.
Figure 1: Industrial production momentum (1997 consumption tax hike and
current)
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
1/95 1/12
4/95 4/12
7/95 7/12
10/95 10/12
1/96 1/13
4/96 4/13
7/96 7/13
10/96 10/13
1/97 1/14
4/97 4/14
7/97 7/14
10/97 1/98 4/98
(%)1995-1998 2012-2014
Note: Industrial production momentum refers to YoY production minus YoY inventories. Source: Ministry of Economy, Trade and Industry, Deutsche Securities
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 70 Deutsche Bank AG/Hong Kong
Rating
BuyJapan
Machinery
Company
Keyence AlertDate29 October 2014
Results
2Q results surprise: overshoot and first dividend hike in 7 years
Reuters Bloomberg Exchange Ticker6861.T 6861 JP TYO 6861
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (¥) 47,615
Price target - 12mth (¥) 52,000
52-week range (¥) 48,095 - 36,510
Takeshi Kitaura
Research Analyst(+81) 3 5156-6738
Stock data
Market cap (¥bn) 2,888
Shares outstanding (m) 61
Foreign shareholding ratio (%) 45.9
TOPIX 1,252
Source: Deutsche Securities Inc.
Key data
FYE 3/20 2014A 2015E 2016E
Sales (¥bn) 265.0 306.9 351.1
OP (¥bn) 130.7 156.5 181.9
RP (¥bn) 136.7 161.5 187.1
NP (¥bn) 85.9 103.4 119.7
EPS (¥) 1,417 1,705 1,975
P/E (x) 25.6 27.9 24.1
Source: Deutsche Securities Inc.
Market likely to view 2Q overshoot and dividend hike favorably, reiterate Buy Keyence's 2Q results beat our forecasts, setting a historical quarterly high. The favorable results were a surprise, but in addition to this, we believe the market did not expect the large dividend hike, and take a positive view of this. We reiterate our Buy rating given strong results and increased shareholder returns.
2Q OP ¥45.7bn: Japan and overseas drive growth 2Q sales were ¥85.2bn (+22% YoY), OP ¥45.7bn (OP margin 53.7%), and EPS ¥522. OP beat our forecast of ¥40bn. Sales growth was driven by both Japan (2Q +13.6% YoY) and overseas (+25.6%). Japan growth was driven by products for electrical and precision machinery (1H +25% YoY), autos and transport machinery (+20%), and metals and machine tools (+15%), but there was growth across all sectors. 2Q (Jul-Sep) overseas sales growth was robust in all regions: the Americas (+36% in local-currency terms), Asia (+17%), and Europe and others (+18%). OP margin improved 2.4ppt YoY in tandem with sales growth, also contributing to historical-high profit. Capex recurrence and still-high cost-reduction needs appear to have contributed directly to earnings in Japan, and efforts to increase staff to earnings overseas.
Increased dividend guidance more positive for the market than just the figure The company increased annual DPS, which has been fixed at ¥60 for the past seven years, to ¥200. The company, which has a fundamental policy of stable dividends, based this hike on factors such as earnings and financial condition. The hike increases the payout ratio almost threefold (FY3/14: 4% our forecast FY3/15: 12%). While the figure is not necessarily high, we believe it is likely to be viewed favorably by the market. We view the hike as indicating the company's confidence in future earnings growth and financial condition, and believe we can expect further dividend hikes going forward together with earnings growth and cash generation. We also take a positive view of 1H OP of ¥82.2bn and EPS of ¥921, as this represents 53% and 54% respectively of our full-year forecasts.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 71
Rating
HoldJapan
Machinery
Company
Makita AlertDate29 October 2014
Company Update
1H guidance raised, but effectivedowngrade for 2H profit unexpected
Reuters Bloomberg Exchange Ticker6586.T 6586 JP TYO 6586
ADR Ticker ISINMKTAY US5608773009
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (¥) 5,770
Price target - 12mth (¥) 5,500
52-week range (¥) 6,410 - 4,600
Takeshi Kitaura
Research Analyst(+81) 3 [email protected]
Stock data
Market cap (¥bn) 783
Shares outstanding (m) 136
Foreign shareholding ratio (%) 29.6
TOPIX 1,252
Source: Deutsche Securities Inc.
Key data
FYE 3/31 2014A 2015E 2016E
Sales (¥bn) 383.2 372.2 388.3
OP (¥bn) 54.9 62.5 68.7
RP (¥bn) 57.0 64.1 70.3
NP (¥bn) 38.5 44.8 49.1
EPS (¥) 283 330 362
P/E (x) 18.9 17.5 15.9
Source: Deutsche Securities Inc.
1H guidance raised, but 2H profit guidance effectively lowered Makita has revised up 1H earnings. Implied 2Q earnings are at a similarly favorable level to 1Q even taking account of reversal of some of the Numazu plant closure expenses. However, the firm left its full-year guidance intact, meaning it has effectively lowered guidance for 2H profit by the same amount as the 1H overshoot. We view 2H guidance as excessively cautious, but believe the market was expecting upward revision, and see the lack thereof as acting negatively for the shares in the near term. Our rating is Hold based on earnings and valuations. The firm's results announcement is scheduled for 15:20 JST on 31 Oct.
2Q OP slightly higher than 1Q excluding special factors The company revised 2Q sales from ¥91.7bn to ¥105.8bn, OP from ¥13.4bn to ¥20.3bn, and EPS from ¥67 to ¥102. The main factor in the upward revision to OP is favorable sales (positive forex impact on sales highly likely offset in CNY at the profit level). 2Q OP includes ¥1.1bn in reversal of Numazu plant closure expenses. Excluding this factor, the 2Q OP level is close to that in 1Q when the 1Q figure of ¥17.6bn is similarly adjusted for special factors (inventory valuation loss impact around ¥1bn), suggesting base earnings continuing robust.
Effective lowering of 2H profit guidance a surprise for the market The firm left its initial guidance intact at ¥385bn for sales, ¥59.5bn for OP, and ¥293 for EPS based on uncertainty about the global situation and demand trends from 3Q. The upward revision to 1H guidance effectively means a ¥6.9bn downward revision to the 2H OP outlook. We believe the market will also view the implied 2H OP of only ¥21.1bn as excessively cautious given earnings progress. Nevertheless, we believe there were some expectations of upward revisions, and see the reduced likelihood thereof ahead of the results as acting negatively in the near term.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 72 Deutsche Bank AG/Hong Kong
Rating
HoldJapan
TechnologyElectronics / Industrial
Company
MegaChips AlertDate29 October 2014
Company Update
Acquiring MEMS SiTime Corp for $200m
Reuters Bloomberg Exchange Ticker6875.T 6875 JT TYO 6875
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (¥) 1,404
Price target - 12mth (¥) 1,400
52-week range (¥) 1,629 - 1,101
Yasuo Nakane, CMA
Research Analyst(+81) 3 [email protected]
Stock data
Market cap (¥bn) 33
Shares outstanding (m) 23
Foreign shareholding ratio (%) 13.5
TOPIX 1,252
Source: Deutsche Securities Inc.
Key data
FYE 3/31 2014A 2015E 2016E
Sales (¥bn) 58.5 62.3 67.3
OP (¥bn) 4.2 3.3 4.1
RP (¥bn) 4.3 3.3 4.1
NP (¥bn) 4.7 2.0 2.5
EPS (¥) 202 84 108
P/E (x) 7.2 16.8 13.0
Source: Deutsche Securities Inc.
MegaChips announced it is buying SiTime Corporation for some $200m. SiTime is a fabless company with its head office in the US. It is involved in micro electro-mechanical systems (MEMS) oscillators. In FY13 it had sales of some $15m and OP of -$13m, with net assets of -$2.5m and liabilities of $15m-plus. MegaChips will use bank borrowing for the $200m investment and almost the entire amount will be written off (intangible fixed assets five years, the remainder 10 years. The company will write down some ¥3bn/year in the first five years). SiTimes is the largest maker of MEMS oscillators and aims to replace quartz resonators (current market size some ¥400bn) using superior size (-85% vs quartz), low power consumption (-50%), and impact resistance. Currently it supplies DSC, E-readers, and telecoms equipment makers. In future it will launch next-generation products with greater precision and stability than quartz and aims to enter the market for wearable and mobile devices. It targets sales of $40m-plus and breakeven OP in FY15 and sales of $100m-plus and an OP margin of 20%-plus in FY18. MegaChips aims to generate YoY OP growth in FY15 even after factoring in higher writedowns from this acquisition.
Our basic evaluation is positive. We see limits to scale expansion and profit growth based only on supplying ASIC to specific customers in Japan so MegaChips needs a new growth source. The significance of this acquisition is considerable in light of the future potential of timing devices and MEMS technology, exploitation of overseas customers in the mobile segment, and shift toward in-house products. That said, the acquisition price is high and does not seem undervalued (more than five years needed to recoup investment), so the company cannot afford to fail on this project. For better or worse operational and earnings volatility will likely increase. We intend to review our stance after further discussion with management.
30 October 2014 Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 73
Rating
BuyJapan
Financials / Securities
Company
Nomura HoldingsDate29 October 2014
Results
2Q: Lower tax rate boosted NP. Buyback is 2x-plus vs our expectation
Reuters Bloomberg Exchange Ticker8604.T 8604 JP TYO 8604
ADR Ticker ISINNMR US65535H2085
Forecasts And Ratios
Year End Mar 31 2014A 2015E 2015CoE 2016E
Net Revenues (¥bn) 1,557.1 1,518.8 1,564.5
YoY (%) -14.1 -2.5 3.0
Pre-tax Profit (¥bn) 361.6 299.7 333.7
Net profit (¥bn) 213.6 178.8 202.9
EPS (¥) 58 48 53
P/E (x) 13.1 12.8 11.4
Source: Deutsche Securities Inc. estimates, company data
Share buybacks more than double expected level
________________________________________________________________________________________________________________
Price at 28 Oct 2014 (¥) 610
Price target - 12mth (¥) 900
52-week range (¥) 824 - 577
Masao Muraki, CMA
Research Analyst(+81) 3 [email protected]
Price/price relative
150
300
450
600
750
900
1050
10/12 4/13 10/13 4/14
Nomura Holdings
TOPIX (Rebased)
Performance (%) 1m 3m 12m
Absolute -9.3 -9.1 -17.8
TOPIX -5.8 -2.5 4.7
Source: Deutsche Securities Inc.
Stock data
Market cap (¥bn) 2,301
Shares outstanding (m) 3,775
Foreign shareholding ratio (%) 34.1
TOPIX 1,254
Source: Deutsche Securities Inc.
Key indicators (FY1)
DPS (¥) 15
BPS (¥) 697
ROE (%) 7.0
Source: Deutsche Securities Inc.
Nomura announced a buyback of up to 40m shares or ¥28bn when it disclosed results on 28 October. Based on a share price of ¥609.6 the buyback will be up to ¥24.4bn. This exceeds the ¥10bn buyback we assumed in our 30 September report and is positive. Nomura pays dividends of ¥21.8bn (our forecast ¥18bn) relative to 1H NP of ¥72.7bn (DB ¥62.4bn) and the payout ratio is 30% (DB 29%). Total payout to shareholder is 69% (DB 46%). Nomura says that 20m shares are for the exercising of options but there has been little progress on option exercising. Excluding the 20m shares, total payout is 49% (DB 46%).We think this buyback underscores the management confidence in the capital and revenue base and a 'fighting pose' protecting existing shareholders in the event of excessive sell-off to the shares. We expect ~50% payout given a high CET 1 ratio (11.8%) and without major risk taking. It could also rise well above 50% when P/B is below 1x.
Wholesale and retail profits beat our forecastNet revenues (three-segment total) rose 3% QoQ to ¥330.2bn (DB ¥319bn) and pretax profit rose 48% to ¥68.8bn (DB ¥65bn), beat expectations. NP and DPS outperformed as the consolidated tax rate declined from 59% in 1Q to 28% (DB 40%) due to improved overseas P/L and one-off tax benefit in Japan (Fig 2).
P/B 0.87x, 4.6% dividend & buyback yields (2Q run rate)Annualized ROE was 8.4%. Annualized EPS was ¥56.6 and shareholder s yieldwas 4.6% (Note). The yield would be 4.1% even if the tax rate was 36%. Yen depreciation and retained earnings boosted BPS to ¥704 (DB ¥694) and P/B is low 0.87x. Tangible BPS is ¥672 and tangible P/B is 0.91x. Nomura has a plan to expand the market share in overseas businesses by using Moody's two notch rating hike and to monetize the ¥1.76trn (pretax) of net losses carried forward held outside Japan. We reiterate our Buy rating.
Valuation and risksOur target price is ¥900 (P/B of 1.3x, tangible P/B of 1.4x, FY3/16E P/E of 17x).We assume that ¥10tr in funds will be shifted to equity investment trustsannually and that Nomura HD's market share is 22% (¥2.2tr annually). Duringthe fund shift from "savings to investment" in 2005-06, Nomura's projected P/Ewas 21x, P/B 1.8x, and relative P/B 1.0x (TSE average P/B: 1.8x). Downsiderisks include upheaval in domestic and foreign markets, SIFI certification and systemically important nonbank company certification in the US, a focus back to transaction-based revenues, and rising policy and litigation risks.
Note: We calculate the 2Q annualized yield at 4.6% by using (1) annualized, diluted EPS of ¥56.6 and (2) payout ratio of 50%).
30 October 2014 Asia Equities Daily Focus: Asian Edition
Page 74 Deutsche Bank AG/Hong Kong
Rating
BuyJapan
TechnologyElectronics / Precision & Imaging
Company
Toshiba Tec AlertDate29 October 2014
Results
TGCS earnings contribution delayed; rise in large-scale projects' sales likely
Reuters Bloomberg Exchange Ticker6588.T 6588 JP TYO 6588
________________________________________________________________________________________________________________
Price at 29 Oct 2014 (JPY) 688
Price target - 12mth (JPY) 730
52-week range (JPY) 745 - 573
TOPIX 1,252
Yu Yoshida
Research Analyst(+81) 3 [email protected]
Kazuyuki Ageishi
Research Associate(+81) 3 [email protected]
Stock data
Market cap (JPYbn) 189
Market cap (USDm) 1,748
Shares outstanding (m) 274.5
Free float (%) 8
Source: Deutsche Securities Inc.
Key data
FYE 3/31 2014A 2015E 2016E
Sales (JPYbn) 499 523 544
Net Profit (JPYbn)
6.8 13.7 15.5
DB EPS (JPY) 24.71 49.92 56.48
PER (x) 24.0 13.8 12.2
Yield (net)(%) 1.4 2.2 2.5
Source: Deutsche Securities Inc.
2Q OP of ¥7.6bn falls short of consensus/our forecast Toshiba Tec reported 2Q OP of ¥7.6bn, slightly ahead of guidance (¥7.4bn) but below the Bloomberg consensus (¥8.1bn) and our forecast (¥8.3bn). The system solutions business (domestic, mainly POS) business outperformed guidance as impact from the consumption tax hike was smaller than expected, but the global solutions business (overseas) underperformed slightly. OP at Toshiba Global Commerce Solutions (TGCS), the POS business acquired from IBM, broke even versus 1H guidance of ¥1bn due to higher development expense to secure systems orders from major North American retailers and one-time systems integration expenses. FY3/15 OP guidance maintained at ¥28bn Management changed its full-year forex assumption from ¥100/$ to ¥105/$ but maintained guidance for sales (¥520bn) and OP (¥28bn). We should not read anything into management leaving the full-year sales target unchanged, though we might have expected an upward revision, as the internal target appears to have been increased. The ¥/EUR assumption is unchanged at ¥138/EUR so the impact of forex assumption changes on OP is negligible. Share price may react somewhat negatively near term, but briefing gives favorable impression The share price may react slightly negatively near term as TGCS's breakeven point and 2Q OP, as in 1Q, fell short of consensus expectations. However, as outlined above, major North American retailers have decided to take the new omni-channel compatible software TCxGravity. While this is now generating upfront expenses, over the next few years we look for large POS hardware orders along with software sales. Recently the sales strategy of selling through agents to local retailers also appears to be progressing favorably, particularly in Europe. We see the risk of near-term profit underperformance at TGCS due to upfront expenses. However, we feel reassured about FY3/15 profit because demand for copiers is strong, particularly in the US, as the company anticipated, which should offset TGCS underperformance as it did in 1H. Theresults briefing, which touched on the increasing likelihood of medium-termsales expansion at TGCS, gave a positive impression. Figure 1: Earnings summary
(¥mn) 14/31Q A 2Q A 2Q E 3Q E 4Q E 2Q CoE A BBG BBG
NewSales 120,889 135,403 136,100 124,400 141,511 129,111 498,870 522,900 520,000 522,300 544,300 540,767
YoY 4.9% 7.2% 7.7% 3.0% 3.7% 2.2% 23.6% 4.8% 4.2% 4.7% 4.1% 3.5%Operating profit 4,602 7,616 8,300 6,200 9,898 7,398 23,086 29,000 28,000 28,467 32,200 32,000
YoY 19.6% 12.3% 22.4% 39.7% 23.4% 9.1% 45.3% 25.6% 21.3% 23.3% 11.0% 12.4%Margin 3.8% 5.6% 6.1% 5.0% 7.0% 5.7% 4.6% 5.5% 5.4% 5.5% 5.9% 5.9%
Recurring profit 3,294 6,663 7,800 5,700 10,206 7,706 20,060 27,000 26,000 26,533 30,200 30,067YoY -4.4% 5.4% 23.4% 43.3% 61.5% 21.9% 34.9% 34.6% 29.6% 32.3% 11.9% 13.3%Margin 2.7% 4.9% 5.7% 4.6% 7.2% 6.0% 4.0% 5.2% 5.0% 5.1% 5.5% 5.6%
Net profit 1,630 3,518 4,400 3,100 4,570 3,370 7,133 13,700 12,000 13,973 15,500 17,230YoY 1.1% 54.4% 93.1% 79.3% 202.0% 47.9% 14.8% 92.1% 68.2% 95.9% 13.1% 23.3%Margin 1.3% 2.6% 3.2% 2.5% 3.2% 2.6% 1.4% 2.6% 2.3% 2.7% 2.8% 3.2%
EPS 5.9 12.8 16.0 11.3 16.7 12.3 26.0 49.9 43.7 50.9 56.5 62.8YoY 1.2% 54.2% 92.9% 79.3% 202.2% 47.7% 14.8% 92.1% 68.2% 95.9% 13.1% 23.3%
BPS n.a. n.a. n.a. n.a. n.a. n.a. 577 623 n.a. 628 663 667DPS n.a. n.a. n.a. n.a. n.a. n.a. 8.0 15.0 13.0 13.7 17.0 16.3P/E n.a. n.a. n.a. n.a. n.a. n.a. 26.5 13.8 15.7 13.5 12.2 11.0P/B n.a. n.a. n.a. n.a. n.a. n.a. 1.19 1.10 n.a. 1.10 1.04 1.03Dividend yeild n.a. n.a. n.a. n.a. n.a. n.a. 1.2% 2.2% 1.9% 2.0% 2.5% 2.4%
15/3DBEDBE CoE
15/3 15/3 16/3
Source: Company data, Bloomberg Finance LP, Deutsche Bank estimates
30 October 2014 Asia Equities Daily Focus: Asian Edition
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30 October 2014
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Equity rating key Equity rating dispersion and banking relationships
Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock. Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. Notes:
1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were:
Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12-month period Sell: Expected total return (including dividends) of -10% or worse over a 12-month period
55 %
39 %
6 %22 % 22 %
10 %0
50
100
150
200
250
300
350
400
450
Buy Hold Sell
Asia-Pacific Universe
Companies Covered Cos. w/ Banking Relationship
30 October 2014
Asia Equities Daily Focus: Asian Edition
Deutsche Bank AG/Hong Kong Page 77
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