Regional Morning Notes - utrade.com.hk · Waskita Karya WSKT IJ 2,010.00 3,000.00 49.3 Ekovest ... UMW Holdings UMWH MK 5.56 4.80 (13.7) ... Regional Morning Notes

Wednesday , 18 Oc tober 2017

1 Refer to last page for important disclosures.

R e g i o n a l M o r n i n g N o t e s

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CHINA Sector

Consumer Page 2Better-than-expected 3Q17 F&B sales; positives largely priced in.

Healthcare Page 4Expect re-rating opportunities for small-cap pharmas.

Asian Gems Corporate Highlights

China Yongda Auto Services Holdings (3669 HK/BUY/HK$10.38/Target: HK$17.00) Page 7Auto finance emerging as new growth driver.

China Zhongwang Holding (1333 HK/NOT RATED/HK$4.12/Target: n.a) Page 10Venturing into high-end flat rolling aluminium business.

INDONESIA Asian Gems Corporate Highlights

Wijaya Karya Beton (WTON IJ/BUY/Rp585/Target: Rp1,000) Page 132017 revenue and new contract targets remain intact.

THAILAND Asian Gems Corporate Highlights

The Erawan Group (ERW TB/BUY/Bt6.65/Target: Bt8.00) Page 16Earnings growth to continue to gain momentum.

Results

TMB Bank (TMB TB/HOLD/Bt2.62/Target: Bt2.70) Page 193Q17: Earnings up 9% yoy, driven by strong non-II. Results, however, missed forecasts by 14% on higher-than-expected provisions.

KEY INDICES Prev Close 1D % 1W % 1M % YTD % DJIA 22997.4 0.2 0.7 3.0 16.4 S&P 500 2559.4 0.1 0.3 2.2 14.3 FTSE 100 7516.2 (0.1) (0.3) 3.6 5.2 AS30 5958.1 0.7 2.6 3.1 4.2 CSI 300 3913.1 (0.0) 0.6 1.8 18.2 FSSTI 3329.0 0.2 1.2 2.7 15.6 HSCEI 11568.3 (0.3) 1.3 3.3 23.1 HSI 28697.5 0.0 0.7 1.9 30.4 JCI 5947.3 (0.0) 0.7 1.1 12.3 KLCI 1749.0 (0.3) (0.7) (1.9) 6.5 KOSPI 2484.4 0.2 2.1 2.7 22.6 Nikkei 225 21336.1 0.4 2.5 7.2 11.6 SET 1724.5 (0.1) 1.9 3.2 11.8 TWSE 10723.2 (0.5) 1.8 0.9 15.9 BDI 1552 1.9 9.4 12.1 61.5 CPO (RM/mt) 2745 0.5 0.1 (4.2) (14.2) Brent Crude (US$/bbl)

58 0.1 2.2 4.1 1.9

Source: Bloomberg

TOP PICKS Ticker CP (lcy) TP (lcy) Pot. +/- (%) BUY CSPC Pharmaceutical 1093 HK 12.98 15.24 17.4 Waskita Karya WSKT IJ 2,010.00 3,000.00 49.3 Ekovest EKO MK 1.14 1.45 27.2 Gabungan AQRS AQRS MK 1.78 2.22 24.7 OCBC OCBC SP 11.50 13.38 16.3 Siam Cement SCC TB 498.00 600.00 20.5

SELL Great Wall Motor 2333 HK 11.00 5.50 (50.0) UMW Holdings UMWH MK 5.56 4.80 (13.7)

KEY ASSUMPTIONS GDP (% yoy) 2016 2017F 2018F US 1.6 2.5 2.5 Euro Zone 1.7 1.8 1.6 Japan 1.0 0.9 1.2 Singapore 2.0 2.4 2.5 Malaysia 4.2 5.0 4.9 Thailand 3.2 3.3 3.3 Indonesia 5.0 5.2 5.5 Hong Kong 1.9 2.0 2.0 China 6.7 6.6 6.3 Brent (Average) (US$/bbl) 45 52 55 CPO (RM/mt) 2,653 2,600 2,400 Source: Bloomberg, UOB ETR, UOB Kay Hian

CORPORATE EVENTS

Venue Begin Close

Analyst Presentation on Indonesia Hong Kong 17 Oct 18 Oct Consumer Piece and Strategy

Fintech Seminar 2017 Kuala Lumpur 19 Oct 19 Oct

Roadshow with PT Bumi Serpong Damai Taipei 24 Oct 25 Oct Analyst Presentation on Taipei 25 Oct 27 Oct Indonesian Construction Sector

Roadshow with Hong Leong Bank Hong Kong 26 Oct 27 Oct

Roadshow with Gabungan AQRS Singapore 31 Oct 1 Nov

Luncheon with Globetronics Technology Malaysia 1 Nov 1 Nov

UOB Kay Hian Annual Regional Strategy Kuala Lumpur 13 Nov 13 Nov Conference





SECTOR UPDATE

Consumer – China Better-than-expected 3Q17 F&B Sales; Positives Largely Priced In

Our recent channel checks suggest better-than-expected sales at F&B companies in 3Q17, thanks to strong beverage sales that are riding on the trend of favourable weather. After the recent sector rally, we see that positives have largely been priced in. We downgrade Tingyi to SELL on its stretched valuation and advise investors to take profit. We maintain our HOLD ratings on UPC and Want Want. Maintain UNDERWEIGHT on the sector.

WHAT’S NEW

Sales recovery continued in 3Q17. Our recent channel checks suggest sales recovery of F&B companies continued in 3Q17, particularly on better-than-expected beverage sales riding on favourable weather. For the instant noodles segment, the sales decline of old noodle products (which was a major drag in 1H17) appears to have stabilised due to a low base in 2H16. The increase in tourist traffic during the Golden Week holiday should also provide a short-term boost for F&B companies’ sales into 2H17.

Input cost pressure to sustain in 2H17. We notice raw material prices have stayed at relatively high levels in 2017, with sugar, PET and palm oil prices up over 20% on average. Cost pressure has not been easing into 2H17, which varies from our previous expectations. As a result, we are turning more cautious on companies’ gross profit margin assumptions and expect it to take a little longer to recover.

The trend of product premiumisation. Although we foresee the demand for F&B products remaining weak in China in the medium term, companies have accelerated product upgrades and are focused on the development of premium products to drive up sales growth and profitability. Uni-President China’s (UPC) “Soup Daren” continues to see double-digit revenue growth and now accounts for about 20% of its total noodle revenue. The company also strives for new product developments such as the carbonated Thai Lemon Tea drink. Albeit still at the early stage, we expect such a strategy to bear fruit in the long run.

INDUSTRY SALES VALUE GROWTH BY SEGMENT

-15%-10%-5%0%5%

10%15%20%25%30%

Inst

ant n

oodl

es

Beve

rage

(ove

rall)

RTD

tea

Juic

e

Milk

tea

Car

bona

ted

drin

k

Bottl

ed w

ater

Func

tiona

l drin

k

Asia

n tra

ditio

nal d

rink

2016 1H17 Source: Nielsen, UOB Kay Hian

UNDERWEIGHT (Maintained)

ANALYST(S)

Becky Han +852 2826 4837 [email protected]

Mark Chen +8621 5404 7225 ext 825 [email protected]

PEER COMPARISON Target Maket -----------PE---------- ---------P/B-------- EV/EBITDA ROE Dividend yield Company Ticker Rating Price Price Cap 2017F 2018F 2017F 2018F 2017F 2018F 2017F 2017F (lcu) (lcu) (US$m) (x) (x) (x) (x) (x) (x) (%) (%) Tingyi 322 HK SELL 12.08 10.40 8,674 36.7 31.3 3.0 2.8 10.7 10.1 8.4 1.4 Want Want 151 HK HOLD 6.18 5.60 9,904 29.6 26.3 1.7 1.6 11.7 10.9 7.3 0.7 UPC 220 HK HOLD 7.33 6.90 4,055 23.5 22.5 4.7 4.2 15.2 15.2 21.3 0.0 Average 29.9 26.7 3.1 2.9 12.5 12.1 12.3 0.7 Source: Bloomberg, UOB Kay Hian





EARNINGS REVISION

We have revised up our 2017 full-year earnings estimates of UPC to Rmb908m, largely on better-than-expected sales in 3Q17. This implies 2H17 net profit of Rmb339m, against Rmb175m in 1Q17 and Rmb395m in 2Q17. We have trimmed our estimates for Tingyi modestly on tighter gross profit margin assumptions.

EARNINGS REVISION

2017F 2018F 2019F

(Rmbm) New Old % chg New Old % chg New Old % chg UPC 908 752 21% 1,019 825 24% 1,162 938 24% Tingyi 1,567 1,587 -1% 1,838 1,893 -3% 2,301 2,296 0%

Source: UOB Kay Hian

UPC: SALES AND GROWTH ESTIMATES 2015 2016 2017F 2018F 2019F

Revenue (Rmbm) Beverage 14,051 12,181 11,808 12,256 12,846 Instant Noodles 7,567 8,221 8,304 8,597 9,032 Total 22,102 20,986 20,755 21,560 22,656 yoy % chg

Beverage 0.3 -13.3 -3.1 3.8 4.8 Instant Noodles -4.9 8.6 1.0 3.5 5.1 Total -1.7 -5.1 -1.1 3.9 5.1 Gross Margin (%) Beverage 38.4 36.1 35.7 35.7 35.8 Instant Noodles 34.0 32.5 31.8 32.2 33.0 Blended margin 36.8 34.4 34.0 34.2 34.5

Source: UPC, UOB Kay Hian

TINGYI: SALES AND GROWTH ESTIMATES 2015 2016 2017F 2018F 2019F Revenue (Rmbm) Instant Noodles 23,445 22,489 23,086 23,767 24,468 Beverage 25,466 25,210 27,183 29,273 31,324 Total 59,073 58,125 60,765 63,606 66,520 yoy % chg

Instant Noodles -12.7 -4.1 2.7 2.9 2.9 Beverage -4.1 -1.0 7.8 7.7 7.0 Total -11.1 -1.6 4.5 4.7 4.6 Gross Margin (%) Instant Noodles 30.2 28.8 27.7 28.2 28.6 Beverage 33.2 33.0 30.8 31.4 32.6 Blended margin 31.9 31.3 29.6 30.2 31.0

Source: Tingyi, UOB Kay Hian

ACTION

We maintain our medium-term cautious view on China’s F&B sector. We believe the recent share price rally is based on: a) a low base in 2016, and b) favourable weather to serve as short-term catalyst. We downgrade Tingyi to SELL with a new target price of HK$10.40 (27x 2018F PE), largely on stretched valuations. The stock has rallied over 35% in three months and now trades at a premium to historical average. We maintain our HOLD ratings for UPC and Want Want with revised target prices of HK$6.90 (25x 2018F PE) and HK$5.60 (19x 2018F PE) as we roll over to 2018 valuations.

SUGAR PRICE

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Jul-1

5

Jan-

16

Jul-1

6

Jan-

17

Jul-1

7

(Rmb/t)

Source: Wind, UOB Kay Hian PALM OIL PRICE

3,0004,0005,0006,0007,0008,0009,000

10,00011,00012,000

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Jul-1

5

Jan-

16

Jul-1

6

Jan-

17

Jul-1

7

(Rmb/t)

Source: Wind, UOB Kay Hian PET PRICE

6,000.0

7,000.0

8,000.0

9,000.0

10,000.0

11,000.0

12,000.0D

ec-1

2

Apr-1

3

Aug-

13

Dec

-13

Apr-1

4

Aug-

14

Dec

-14

Apr-1

5

Aug-

15

Dec

-15

Apr-1

6

Aug-

16

Dec

-16

Apr-1

7

Aug-

17

(Rmb/mt)

Source: Bloomberg, UOB Kay Hian F&B 1H17 RESULTS COMPARISON

1H17 Tingyi UPC P&L Total sales (Rmbm) 28.6 10.9

- Beverage 17.5 6.6 - Instant noodles 10.3 3.9 - Beverage mix 61.2% 60.6% - Instant noodles mix 36.0% 35.8%

Gross profit (Rmbm) 8.3 3.6 - Blended GPM 29.1% 33.6% - Beverage GPM 30.1% 36.7% - Instant noodle GPM 27.5% 29.9%

SG&A cost ratio 25.2% 28.0%

Operating profit (Rmbm) 1.5 0.8 - OPM 5.3% 7.2%

Net profit (Rmbm) 0.7 0.6 - Net margin 2.5% 5.2%

Balance sheet - Net gearing ratio 11% -10% - Inventory turnover (days) 13 28 - Receivable turnover (days) 11 10

Market share - Instant noodles 51.0% 21.0% - RTD tea 39.7% 31.5%

Source: Respective companies, UOB Kay Hian





SECTOR UPDATE

Healthcare – China Expect Re-rating Opportunities For Small-cap Pharmas

Triggered by policy benefits, the average PE of China’s major pharma companies ramped up 12% since 1 September. However, small-cap pharmas are significant laggards to large-cap names in terms of valuation. In the short-term, we expect re-rating opportunities for small-cap healthcare names with rapid and solid net profit growth potential in 2017/18. In the long run, the valuation premium of the China healthcare sector (over MSCI China) should further expand. Maintain OVERWEIGHT.

WHAT’S NEW

Positive policies trigger a re-rating for big pharmas…Since early-Sep 17, the average 12m-forward PE of China’s large-cap pharmas was up 12% to 18.1x (vs MSCI China: + 2.6%). The valuation premium of large-cap pharmas over MSCI China recovered to 33% in Oct 17 (vs 22% in Sep 17). We believe the re-rating was mainly due to: a) earlier-than-expected implementation of the 2017 National Reimbursement Drug List (NRDL), which will drive significant sales volume expansion for newly-included drugs; and b) new CFDA guidelines to accelerate innovative drug approvals. Leading domestic pharmas such as CSPC (1093 HK), Sino Biopharm (1177 HK) and 3Sbio (1530 HK) are key policy beneficiaries thanks to their young product portfolios and innovative drug pipelines.

…while small-cap names remain significantly undervalued. Due to tightened liquidity, the average PE of small-cap pharmas dropped to 13.7x, which is at a 25% discount to large-cap names. Their valuation premium over MSCI China shrunk to only 1% in Oct 17 (vs 40% in Oct 16). We believe China’s small-cap pharmas are largely undervalued, especially names with strong growth visibility such as Consun Pharma (1681 HK), Dawnrays (2348 HK) and BBI Life Sciences (1035 HK).

RERATING OF LARGE-CAP PHARMAS

5

7

9

11

13

15

17

19

21

23

25MXCN Index P/E (x) Large-cap pharma P/E (x)

Avg P/E = 18.3x

Avg P/E = 10.9x

33%41%99%

130%

12M forward P/E (x)

18.1x

13.6x

Source: UOB Kay Hian, Bloomberg

SMALL/MID-CAP PHARMAS REMAIN UNDERVALUED

5

7

9

11

13

15

17

19

21

23

25MXCN Index P/E (x) Small-cap pharma P/E (x)

Avg P/E = 16.3x

Avg P/E = 10.9x

0.7%34%

60%

123%

12M forward P/E (x)

13.7x

Source: UOB Kay Hian, Bloomberg

OVERWEIGHT (Maintained)

ANALYST(S)

Alex Jiang +852 2236 6749 [email protected]





STOCK IMPACT

Consun Pharma (1681 HK/NR).The company is in a leading position in China’s chronic kidney disease drug market. Meanwhile, the acquisition of Yulin Pharma will further boost net profit growth. Growth drivers include: a) fast sales expansion at Yulin after a sales force restructuring. After being acquired by Consun in 2016, Yulin Pharma made changes to its management team and grew its sales force from 100 to 285 people. In addition, the price hike of Yulin’s drugs in the OTC channel will further improve margins. Management expects Yulin’s top-line to grow 30%/25% yoy in 2017/18; b) Uremic clearance granules (UCG) (尿毒清颗粒) have been included into the Class A category of the 2017 NRDL. UCG, which is used for the treatment of stage 3 and 4 chronic kidney disease, has been promoted to being covered under Class A medical insurance (100% reimbursement). UCG’s current sales (~Rmb700m) trails far behind its potential to achieve peak sales of ~Rmb2.0b.

Valuation. Based on Bloomberg consensus, Consun Pharma is currently trading at a 9.8x 2018F PE, and its net income is expected to rise 25.7% and 15.5% yoy in 2017/18 respectively. Catalysts include the roll-out of its X-ray medical contrast (Lopamidol).

BBI Life Sciences (1035 HK/BUY/Target: HK$3.65) ranks No.1 in DNA synthesis and No.6 in gene sequencing in China, with it positioned in the upstream of China’s DNA value chain. Growth drivers include: a) industrial-scale DNA synthesis: BBI’s customer base has shifted from scientific research laboratories to molecular diagnosis companies and biological drug developers; b) deeper geographical penetration for gene sequencing: The robust growth of its sequencing business mainly comes from its penetration into tier-2/3 cities and from acquiring shares from BGI (300676 SZ) and Berry Genomics (000710 SZ); and c) accelerating overseas expansion: BBI has been aggressively venturing into Korea, UK and Singapore, with its loss-making Korea business expected to turnaround in 1H18.

Valuation. The company is currently trading at a 13.6x 2018F PE and its net income is expected to rise to Rmb64m and Rmb86m in 2017 and 2018, up 6.1% and 33.8% yoy respectively. Catalysts include: a) being granted the Shanghai clinical diagnosis licence; b) positive clinical trial results for Tianjin Henjian’s cancer peptide vaccine.

Dawnrays Pharma (2348 HK/NR). After putting an end to the use of national agents in Jul 16, the company completed the establishment of its in-house sales team and is undergoing a sales recovery. Growth drivers include: a) resumption of sales of Entecavir (Leiyide) since May 17. Domestic sales of Entecavir resumed since May 17 and sales reached Rmb100m in 1H17. Management expects Rmb100m-150m in Entecavir sales in 2H17; b) EBIT turnaround for bulk medicine in 2H17. The bulk medicine business is expected to turnaround in 2H17 after production line revamps since 2016; and c) price increase for An-series (安系列). Management expects to continue to raise ASP of the An-series in the OTC channel from Rmb0.6/tablet to ~Rmb1.0/tablet.

Valuation. As per management’s guidance, the company is expected to record a net income of Rmb320m and Rmb370m in 2017/18 respectively (up 21% and 15% yoy respectively), reflecting 8.3x 2018F PE. Catalysts include the CFDA’s marketing approval for esomeprazole by end-17.





CHINA HEALTHCARE PEERS TABLE Share Price 3M avg. daily

trading value Market cap ------ PE ------ EV/EBITDA EPS CAGR ---------- PEG -------- --------- P/B -------- ROE

Ticker Company name (HKD) (US$m) (US$m) 2017E 2018E 2017E 2018E (2017-19) 2017E 2018E 2017E 2018E 2016A 2196 HK Shanghai Fosun Pharmaceutical

Group Co Ltd 36.80 8.5 13,583 22.9x 19.5x 32.9x 27.1x 17.2% 1.3x 1.1x 3.0x 2.7x 13.9%

1093 HK CSPC Pharmaceutical Group Ltd 13.14 19.7 10,186 29.3x 23.4x 19.1x 15.6x 23.3% 1.3x 1.0x 6.6x 5.5x 22.3% 1177 HK Sino Biopharmaceutical Ltd 8.86 15.5 8,409 29.7x 26.1x 14.9x 13.0x 13.9% 2.1x 1.9x 5.6x 4.6x 23.0% 2269 HK Wuxi Biologics Cayman Inc 39.45 6.3 5,875 n.a. 69.4x 64.2x 39.2x 79.6% n.a. 0.9x 9.5x 8.4x 67.8% 874 HK Guangzhou Baiyunshan

Pharmaceutical Holdings Co Ltd 22.20 4.3 6,740 17.0x 15.4x 18.5x 16.5x 8.6% 2.0x 1.8x 1.6x 1.5x 11.7%

867 HK China Medical System Holdings Ltd

14.62 9.9 4,656 18.5x 15.9x 15.7x 13.8x 16.0% 1.2x 1.0x 4.0x 3.4x 23.9%

1513 HK Livzon Pharmaceutical Group Inc 50.05 1.8 4,530 23.5x 19.5x 18.9x 16.3x 16.1% 1.5x 1.2x 2.5x 2.3x 14.5% 1530 HK 3SBio Inc 13.94 10.8 4,532 33.8x 25.6x 23.2x 18.0x 27.5% 1.2x 0.9x 4.1x 3.6x 11.7% 460 HK Sihuan Pharmaceutical Holdings

Group Ltd 2.80 6.7 3,396 12.6x 11.4x 7.9x 7.5x 10.2% 1.2x 1.1x 1.8x 1.7x 15.5%

570 HK China Traditional Chinese Medicine Holdings Co Ltd

4.50 3.4 2,554 14.2x 12.0x 9.7x 8.4x 17.3% 0.8x 0.7x 1.3x 1.2x 8.5%

2186 HK Luye Pharma Group Ltd 4.61 7.0 1,960 13.3x 11.7x 10.1x 9.1x 12.1% 1.1x 1.0x 1.7x 1.5x 14.7% 1666 HK Tong Ren Tang Technologies Co

Ltd 10.48 3.4 1,719 17.4x 14.7x 9.2x 8.3x 11.6% 1.5x 1.3x 2.0x 1.7x 14.2%

HK-Pharma (Large cap) average

21.1x 22.1x 20.4x 16.1x 21.1% 1.4x 1.2x 3.65 3.19 20.2%

2005 HK SSY Group Ltd 3.79 1.7 1,381 17.5x 14.4x 11.4x 9.8x 21.1% 0.8x 0.7x 3.4x 2.9x 19.3% 8138 HK Beijing Tong Ren Tang Chinese

Medicine Co Ltd 10.60 0.7 1,136 18.2x 16.0x 11.6x 10.1x 13.8% 1.3x 1.2x 3.5x 3.0x 21.3%

3933 HK United Laboratories International Holdings Ltd/The

6.49 4.0 1,352 24.6x 18.7x 9.8x 8.8x 27.8% 0.9x 0.7x 1.7x 1.5x -4.9%

1558 HK YiChang HEC ChangJiang Pharmaceutical Co Ltd

21.50 1.9 1,244 16.3x 13.2x 11.1x 9.1x 21.5% 0.8x 0.6x 2.9x 2.4x 16.5%

1349 HK Shanghai Fudan-Zhangjiang Bio-Pharmaceutical Co Ltd

4.14 0.4 489 20.0x 16.7x 14.0x 11.6x 26.5% 0.8x 0.6x 3.3x 2.9x 17.6%

950 HK Lee's Pharmaceutical Holdings Ltd

6.68 0.2 505 14.3x 12.6x 10.5x 9.1x 12.1% 1.2x 1.0x 2.1x 1.9x 16.4%

1681 HK Consun Pharmaceutical Group Ltd

6.34 0.8 672 11.3x 9.7x 7.7x 6.9x 14.7% 0.8x 0.7x 2.3x 1.9x 18.1%

2348 HK Dawnrays Pharmaceutical Holdings Ltd

4.58 0.3 465 9.2x 7.9x 6.4x 5.6x n.a. n.a. n.a. 1.7x 1.5x 17.1%

1345 HK China Pioneer Pharma Holdings Ltd

2.72 0.8 464 10.9x 9.2x n.a. n.a. n.a. n.a. n.a. n.a. n.a. 22.5%

2633 HK Jacobson Pharma Corp Ltd 2.11 0.4 491 14.3x 12.4x 10.4x 9.2x 14.8% 1.0x 0.8x 2.0x 1.8x 13.5% 1011 HK China NT Pharma Group Co Ltd 2.20 0.4 439 15.5x 12.4x 11.4x 8.9x n.a. n.a. n.a. n.a. n.a. 12.1% 1061 HK Essex Bio-technology Ltd 5.03 0.2 362 16.8x 13.4x 13.5x 10.9x 23.2% 0.7x 0.6x 3.9x 3.1x 28.1% HK-Pharma (Small cap)

average 15.6x 12.9x 10.6x 9.0x 19.3% 0.9x 0.8x 2.60 2.24 16.2%

1066 HK Shandong Weigao Group Medical Polymer Co Ltd

5.71 2.4 3,273 15.1x 13.5x 9.3x 8.3x 10.8% 1.4x 1.2x 1.7x 1.5x 9.8%

853 HK Microport Scientific Corp 8.17 2.0 1,518 37.4x 25.5x 14.8x 12.9x 30.9% 1.2x 0.8x 4.1x 3.8x 4.4% 963 HK Bloomage BioTechnology Corp

Ltd 16.24 1.1 762 18.3x 15.1x 10.6x 9.2x 21.8% 0.8x 0.7x 2.9x 2.4x 16.6%

6826 HK Shanghai Haohai Biological Technology Co Ltd

37.50 0.3 769 13.5x 11.3x 7.5x 6.1x 19.0% 0.7x 0.6x 1.8x 1.6x 11.0%

1358 HK PW Medtech Group Ltd 1.84 0.8 370 9.7x 9.1x 5.1x 5.4x 9.0% 1.1x 1.0x 1.0x 0.9x 8.4% 1858 HK Beijing Chunlizhengda Medical

Instruments Co Ltd 11.66 0.1 103 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 14.0%

2393 HK Yestar Healthcare Holdings Co Ltd

3.43 1.0 955 21.0x 17.1x 10.3x 8.9x 23.4% 0.9x 0.7x 5.9x 4.9x 21.7%

1302 HK Lifetech Scientific Corp 1.97 2.2 1,092 41.6x 41.6x n.a. n.a. 11.8% 3.5x 3.5x n.a. n.a. 27.8% 775 HK CK Life Sciences Int'l Holdings

Inc 0.62 0.3 763 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 6.0%

HK MedTech average 19.2x 15.3x 9.6x 8.5x 19.2% 1.0x 0.9x 2.89 2.50 12.3% 1099 HK Sinopharm Group Co Ltd 35.05 23.6 12,419 15.8x 14.0x 9.5x 8.5x 11.6% 1.4x 1.2x 2.1x 1.9x 15.0% 2607 HK Shanghai Pharmaceuticals

Holding Co Ltd 20.30 7.2 9,119 12.9x 11.3x 12.6x 11.1x 11.8% 1.1x 1.0x 1.4x 1.3x 10.4%

3320 HK China Resources Pharmaceutical Group Ltd

9.40 6.4 7,564 17.2x 15.1x 8.2x 7.3x 14.1% 1.2x 1.1x 1.3x 1.2x 9.4%

HK Distribution average 15.3x 13.5x 10.1x 9.0x 12.5% 1.2x 1.1x 1.60 1.45 11.6% 1515 HK China Resources Phoenix

Healthcare Holdings Co Ltd 10.34 4.5 1,717 25.1x 23.5x 16.8x 14.7x 9.9% 2.5x 2.4x 2.0x 1.9x -43.1%

2666 HK Universal Medical Financial & Technical Advisory Services Co Ltd

6.89 5.0 1,514 8.8x 7.0x 19.7x 15.4x 20.6% 0.4x 0.3x 1.3x 1.2x 14.0%

2120 HK Wenzhou Kangning Hospital Co Ltd

36.80 0.1 344 27.9x 22.4x 15.0x 11.8x 24.9% 1.1x 0.9x 2.1x 2.0x 7.0%

1509 HK Harmonicare Medical Holdings Ltd

3.03 0.3 294 21.5x 17.1x 8.2x 5.8x 20.6% 1.0x 0.8x 1.3x 1.2x n.a.

1518 HK New Century Healthcare Holding Co Ltd

9.42 0.1 591 33.9x 26.3x 15.1x 12.0x 22.0% 1.5x 1.2x 3.5x 2.9x n.a.

3689 HK Guangdong Kanghua Healthcare Co Ltd

10.98 0.4 470 18.3x 15.7x 8.2x 7.0x 18.9% 1.0x 0.8x 2.4x 2.1x 20.4%

1526 HK Rici Healthcare Holdings Ltd 2.37 0.1 483 n.a. n.a. 36.1x 9.1x n.a. n.a. n.a. 2.9x 2.8x 10.2% HK Healthcare service average 25.3x 21.0x 16.5x 10.1x 19.3% 1.4x 1.2x 2.37 2.15 -1.4%

Source: Bloomberg, UBO Kay Hian





ASIAN GEMS CORPORATE HIGHLIGHTS BUY

(Maintained)

Share Price HK$10.38 Target Price HK$17.00 Upside +63.8%

COMPANY DESCRIPTION China Yongda Auto Services Holdings is an owner-operator of luxury automobile dealership stores in China. The company operates 4S dealership stores, showrooms and repair centres. It also provides car rental and finance leasing services.

STOCK DATA GICS sector AutomobileBloomberg ticker: 3669 HKShares issued (m): 1,833

Market cap (HK$m): 19,022.4Market cap (US$m): 2,438.8

3-mth avg daily t'over (US$m): 10.1

Price Performance (%) 52-week high/low HK$12.40/HK$3.60

1mth 3mth 6mth 1yr YTD(10.4) 15.6 43.6 170.3 166.2

Major Shareholders %Mr Cheung Tak On 13.39

FY17 NAV/Share (HK$) 4.55

FY17 Net Debt/Share (HK$) 4.39

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(%)(lcy)CHINA YONGDA AUTOMOBILES SER

CHINA YONGDA AUTOMOBILES SER/HSI INDEX

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Volume (m)

Source: Bloomberg

ANALYST(S)

Ken Lee +852 2236 6760 [email protected]

China Yongda Auto Services Holdings (3669 HK)

Auto Finance Emerging As New Growth Driver

Yongda attended our Asian Gems Conference in Singapore recently. During the meetings, management emphasised the expansion of its finance leasing business through cooperation with leading players in insurance, banking and internet sectors. Yongda targets to grow its interest-bearing assets to Rmb7b and Rmb12b by the end of 2017 and 2018 respectively. New-car sales margin remains on an uptrend. Store additions ytd beat management’s target. Maintain BUY. Target price: HK$17.00.

WHAT’S NEW

Strategic cooperation to boost the growth of proprietary auto finance business. Yongda’s proprietary auto finance business includes: a) finance leasing, and b) consumer loans for buying insurance. As of 30 Jun 17, Yongda had Rmb2.9b of interest-bearing assets. The company targets to have Rmb7b, Rmb12b and Rmb18b of interest-bearing assets by the end of 2017, 2018 and 2019 respectively. In order to attain the targets, Yongda plans to introduce potential strategic shareholders from the insurance, banking and e-commerce sectors to bring in synergies for the finance leasing business. The proprietary auto finance business boasts a ROA of 2.5-3.0% and will serve as a new growth driver in the coming three years.

New-car sales margin remains on uptrend Management is confident that new-car sales gross margin will improve from 3.8% in 1H17 to a higher level in 2H17. The strong new-car sales gross margin will sustain through to 2019, driven by strong new product cycles of BMW and Porsche. The market response to BMW 5-series is stronger than expected, and the model is still selling at zero discount. In 1H18, BMW will launch its flagship SUV model, the new X3 in China. By end-17, Porsche will launch the new Cayenne. Also boosting the new-car sales margin in 2H17 would be the rebate for 2016 sales received from Audi in Jul-Aug 17.

Rapid after-sales service revenue growth. Yongda’s management expressed optimism regarding its after-sales services revenue growth. The times of services provided grew 13% yoy to 750,000 units in 1H17. Management stated Yongda retains 90% of its luxury car customers owing to high quality of services. 70% of its existing customers are return customers, and can be attributed to the quality after-sales services. The repair and maintenance cost per vehicle remains stable at 1.2-1.5% of the car’s ASP. We anticipate the after-sales service revenue will continue to grow at 20% CAGR in 2017-19, given the strong new-car sales and high customer retention rate.

KEY FINANCIALS Year to 31 Dec (Rmbm) 2015 2016 2017F 2018F 2019F

Net turnover 35,658 43,033 52,172 63,067 72,595EBITDA 1,636 2,061 3,201 3,984 4,556Operating profit 1,257 1,602 2,663 3,365 3,893Net profit (rep./act.) 524 851 1,466 1,969 2,358Net profit (adj.) 587 870 1,466 1,969 2,358EPS (fen) 39.7 53.1 84.4 108.3 134.6 PE (x) 21.8 16.3 10.4 8.1 6.5 P/B (x) 3.2 2.9 2.2 1.8 1.5 EV/EBITDA (x) 14.2 11.3 7.3 5.8 5.1 Dividend yield (%) 1.2 2.2 3.1 4.1 4.4 Net margin (%) 1.6 2.0 2.8 3.1 3.2 Net debt/(cash) to equity (%) 100.7 123.3 89.8 77.6 44.2 Interest cover (x) 2.9 3.5 4.3 5.5 6.5 ROE (%) 14.5 18.9 24.5 25.2 23.5Consensus net profit - - 1,304 1,666 2,048UOBKH/Consensus (x) - - 1.12 1.18 1.15Source: China Yongda Auto Services Holdings Ltd., Bloomberg, UOB Kay Hian





Launching 3-year auto insurance plans to expand insurance agency business. In order to expand its insurance agency business, Yongda is starting to sell 3-year insurance policies (vs the conventional one-year insurance policies) for certain insurance companies. Management believes that the new product, coupled with the proprietary auto finance business, will boost the growth of insurance commission incomes.

Store additions ytd beat targets. Management expressed optimism about the expansion of dealership network. Yongda has acquired 30 dealership stores ytd via M&As and self-building, and this has already outpaced management’s target of adding 20 stores p.a.. Management guided that the new dealership stores mainly sell luxury and ultra-luxury brands eg Porsche, BMW and Jaguar. Management expects to continue growing the dealership network via M&As and self-building in 2017 and 2018.

STOCK IMPACT

We maintain our 2017-19 assumptions on Yongda’s operating figures unchanged as shown in the table on the right.

EARNINGS REVISION/RISK

Maintain net profit forecasts for 2017-19 unchanged at Rmb1,466m/Rmb1,969m/Rmb2,358m respectively, implying yoy growth of 69%/34%/20% in 2017/18/19.

VALUATION/RECOMMENDATION

Maintain BUY on Yongda due to its burgeoning earnings growth underpinned by the strategic cooperation with e-commerce, insurance and banking giants in the proprietary business and continuous expansion of dealership network. We maintain our target price of HK$17.00 based on the same target 2018F PE of 13x. Catalyst will be the release of the upbeat 3Q17 results by Oct-Nov 17.

KEY ASSUMPTIONS

(Rmbm) 2016 2017F 2018F 2019F

No. of stores Dealership + service outlets 162 192 212 232

Others 93 93 93 93

Total 255 185 305 325

Revenue

New-car sales 37,304 45,118 54,526 62,635

After-sales service 5,446 6,664 8,062 9,391

Car rental 364 400 450 500

Finance leasing 122 195 234 273 Less: Inter-segment elimination (204) (204) (204) (204)

Total 43,033 52,172 63,067 72,595

Gross margin

New-car sales 3.1 4.0 4.2 4.2

After-sales service 45.7 45.7 45.7 45.7

Car rental 28.5 28.5 28.5 28.5

Finance leasing 78.3 78.0 78.0 78.0

Overall 8.8 9.7 9.9 10.0

Commissions

Commission income 764 1,153 1,508 1,872

yoy chg (%) 67.4 55.2 32.4 25.1

Earnings

Reported net profit 851 1,466 1,969 2,358

yoy chg (%) 62.3 72.2 34.3 19.8

Core net profit 870 1,466 1,969 2,358

yoy chg (%) 48.2 68.5 34.3 19.8

Source: Yongda, UOB Kay Hian





PROFIT & LOSS

Year to 31 Dec (Rmbm) 2016 2017F 2018F 2019F

Net turnover 43,033 52,172 63,067 72,595

EBITDA 2,061 3,201 3,984 4,556

Depreciation & amortization (459) (538) (619) (663)

EBIT 1,602 2,663 3,365 3,893

Total other non-operating income (19) - - -

Associate contribution 33 25 25 25

Net interest income/(expense) (464) (608) (598) (574)

Pre-tax profit 1,152 2,080 2,792 3,344

Tax (244) (520) (698) (836)

Minorities (57) (94) (126) (150)

Net profit 851 1,466 1,969 2,358

Net profit (recurrent) 870 1,466 1,969 2,358

BALANCE SHEET Year to 31 Dec (Rmbm) 2016 2017F 2018F 2019F

Fixed assets 3,942 4,923 5,323 5,679 Other LT assets 3,442 3,437 3,433 3,429 Cash/ST investment 1,772 1,689 1,723 3,184 Other current assets 11,220 13,484 15,637 17,354 Total assets 20,375 23,533 26,116 29,645 ST debt 6,122 5,823 5,823 6,323 Other current liabilities 6,308 7,776 8,759 8,948 LT debt 158 158 158 158 Other LT liabilities 2,385 2,385 2,385 2,385 Shareholders' equity 4,962 6,914 8,443 11,188 Minority interest 441 479 549 644 Total liabilities & equity 20,375 23,533 26,116 29,645

CASH FLOW

Year to 31 Dec (Rmbm) 2016 2017F 2018F 2019F

Operating 571 1,884 2,117 3,171

Pre-tax profit 1,152 2,080 2,792 3,344

Depreciation/amortization 459 538 619 663

Working capital changes (888) (797) (1,169) (549)

Non-cash items 389 583 573 549

Tax paid (541) (520) (698) (836)

Investing (1,311) (1,461) (961) (954)

Capex (growth) (929) (750) (100) (100)

Investments - - - -

Proceeds from sale of assets - - - -

Others (382) (1,361) (861) (854)

Financing 980 (506) (1,122) (756)

Dividend payments (155) (281) (440) (591)

Issue of shares - 767 - -

Chg in borrowings 898 500 - 500

Others/interest paid 237 (1,492) (682) (665)

Net cash inflow (outflow) 240 (83) 34 1,461

Beginning cash & cash equivalent 1,532 1,772 1,689 1,723

Forex chg - 0 - -

Ending cash & cash equivalent 1,772 1,689 1,723 3,184

KEY METRICS Year to 31 Dec (%) 2016 2017F 2018F 2019F

Profitability

EBITDA margin 4.8 6.1 6.3 6.3

Pretax margin 2.7 4.0 4.4 4.6

Net margin 2.0 2.8 3.1 3.2

ROA 4.6 6.7 7.9 8.5

ROE 18.9 24.7 25.6 24.0

Growth

Turnover 20.7 21.2 20.9 15.1

EBITDA 26.0 55.3 24.5 14.4

Pre-tax profit 48.4 80.5 34.3 19.8

Net profit 62.3 72.2 34.3 19.8

Net profit (adj.) 48.2 68.5 34.3 19.8

EPS 48.2 59.5 29.3 14.2

Leverage

Debt to total capital 45.4 38.0 34.3 28.6

Debt to equity 186.3 129.4 106.0 75.7

Net debt to equity 123.3 85.4 69.5 35.1

Interest cover (x) 3.5 4.4 5.6 6.8





ASIAN GEMS CORPORATE HIGHLIGHTS NOT RATED

Share Price HK$4.12

Target Price n.a

Upside n.a

COMPANY DESCRIPTION China Zhongwang is the second largest industrial aluminium extrusion product developer in the world and largest in Asia. Besides, Zhongwang also engaged in deep-processing and aluminium flat rolled business.

STOCK DATA GICS sector Materials

Bloomberg ticker: 1333 HK

Shares issued (m): 5449.5

Market cap (HK$m): 22,451.8

Market cap (US$m): 2,875.7


Price Performance (%) 52-week high/low HK$4.90/HK$3.26

1mth 3mth 6mth 1yr YTD

7.1 21.2 29.4 21.9 33.7

Major Shareholders %

Zhongwang International 74.2

FY16 NAV/Share (Rmb) 5.74

FY16 Net Cash/Share (Rmb) -

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(%)(lcy)CHINA ZHONGWANG HOLDINGS LTD

CHINA ZHONGWANG HOLDINGS LTD/HSI INDEX

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Source: Bloomberg

ANALYST(S)

Sandra Huang Jie Qiong +8621 5404 7225 ext 804 [email protected]

China Zhongwang (1333 HK)

Venturing Into High-End Flat Rolling Aluminium Business

Post our Asian Gems Conference, China Zhongwang’s management shared some insight into its expansion plans. It has shifted its existing production facilities to produce aluminium alloy formworks (AAF), which accounted for 66% of its gross profit in 1H17. Going forward, Zhongwang will expand its second aluminium rolling production line in its Tianjin plant, adding 1.2m tonnes of production capacity. Management has guided for 2018 earnings to be flat as profit growth from the AAF segment will be offset by the start-up costs of new aluminium rolling plant.

WHAT’S NEW

Since the beginning of 2017, the company has shifted its focus to producing aluminium alloy formworks as it yields better ASP and margins. This segment now accounts for 40% of the company’s sales volume, 50% of revenue and 66% of gross profit for 1H17. Zhongwang stated that it operates on a cost plus model, and is thus able to pass through the strong aluminium cost to end-users. Management stated that they currently charge their customers processing fees as high as Rmb20,000/tonne for the final product (assuming ingot price of Rmb11,000/tonne). Based on the ASP for the AAF segment in 1H17 of Rmb32,480/tonne, spread margin was high at 61.6%. Going forward, management expects top-line growth to be driven by this segment.

Venturing into high-end flat rolling aluminium products. Zhongwang has commenced operation of its first Flat Rolling production line in its Tianjin plant (capacity of 0.6m tonnes) in Jul 17, and plans to gradually ramp up its second production line in the following two years (capacity of 1.2m tonnes). This new plant produces aluminium plates and sheets that are targeted at high-end customers. In addition, Zhongwang also acquired its first overseas company, Alunna, in Germany, which provides technical know-how and access to its high-end customer base such as Boeing and BMW.

Receivable days continued to trend up to 76 days in 1H17 (from 37 in 1H16), while inventory days trended up to 148 days (126 days in 1H16), as the company shifted its clientele to construction contractors (which require longer payback period). Management does not foresee any bad debts as it expects China to see strong economic growth.

Management expect profits to be flat next year as profit growth from the alloy formwork segment will be offset by the start-up costs of its new aluminium rolling plant. Dividend payout ratio has been on a rising trend from 35% in 2015 to 55% in 1H17, resulting in a decent annualised dividend yield of 4.8% for 2017.

KEY FINANCIALS Year to 31 Dec (Rmbm) 2013 2014 2015 2016

Net turnover (Rmbm) 14,306.8 15,971.2 16,171.2 16,695.5EBITDA (Rmbm) 3,476.8 3,862.9 4,709.3 6,183.9Operating profit (Rmbm) 2,975.2 3,266.7 3,991.6 5,428.4Net profit (rep. /act.) (Rmbm) 2,126.6 2,477.0 2,805.0 2,871.4Net profit (adj.) (Rmbm) 2,126.6 2,477.0 2,805.0 2,871.4EPS (Rmb) 0.39 0.46 0.51 0.41PE (x) 4.8 6.0 6.5 7.2P/B (x) 0.5 0.6 0.7 0.6EV/EBITDA (x) 5.5 7.6 9.8 7.7Dividend yield (%) 7.2 6.0 5.5 8.1Net margin (%) 14.86 15.51 17.35 17.41Net debt/ (cash) to equity (%) 45.19 58.51 106.54 75.57Interest cover (x) 3.9 4.2 3.1 3.1ROE (%) 11.45 11.30 11.21 10.66Source: China Zhongwang, Bloomberg, UOB Kay Hian





CONSISTANT DIVIDEND PAYOUT GROSS PROFIT BY SEGMENT IN 1H17

30.035.040.045.050.055.060.0

0.05

0.10

0.15

0.20

Dividend per share Payout ratio (RHS)

(HK$/share) (%)

Alloy formwork

66%

Aluminum extrusion

33%

Others2%

Source: Zhongwang, UOB Kay Hian Source: Zhongwang, UOB Kay Hian

TIANJIN PLANT OVERVIEW

First Line Second Line

Location Auto Parts Industrial Park in Wuqing District, Tianjin

Designed capacity 600,000 tonnes 1,200,000 tonnes

Status Commenced production Equipment Testing

Main production processes Casting, hot rolling, cold rolling, finishing

Products Plates and sheets Sheets

Applications Transportation, machinery and equipment, chemical containers, tankers, packaging, industrial, durable consumer goods. etc

Source: Zhongwang, UOB Kay Hian





PROFIT & LOSS

Year to 31 Dec (Rmbm) 2013 2014 2015 2016

Net turnover 14,306.8 15,971.2 16,171.2 16,695.5

EBITDA 3,476.8 3,862.9 4,709.3 6,183.9

Deprec. & amort. 501.2 595.5 681.9 761.3

EBIT 2,975.2 3,266.7 3,991.6 5,428.4

Net interest income/(expense) (431.3) (309.6) (344.8) (652.2)

Pre-tax profit 2,555.2 2,970.3 3,523.1 3,679.2

Tax (428.5) (493.3) (718.1) (772.0)

Net profit 2,126.6 2,477.0 2,805.0 2,871.4

Net profit (adj.) 2,126.6 2,477.0 2,805.0 2,871.4

BALANCE SHEET Year to 31 Dec (Rmbm) 2013 2014 2015 2016

Fixed assets 12,100.2 24,239.5 37,081.9 47,368.2

Other LT assets 14,061.1 10,525.5 9,608.8 6,973.8

Cash/ST investment 9,317.1 11,191.8 11,577.4 11,617.9

Other current assets 4,874.8 7,812.6 13,132.6 13,077.8

Total assets 40,353.1 53,769.4 71,400.7 79,037.7

ST debt 9,800.0 13,437.8 17,408.2 12,616.3

Other current liabilities 2,311.2 3,671.7 5,513.5 6,926.2

LT debt 8,391.6 11,987.8 21,861.1 24,703.1

Other LT liabilities 211.4 343.5 627.0 782.3

Shareholders' equity 19,638.9 24,328.6 25,991.0 34,009.9

Total liabilities & equity 40,353.1 53,769.4 71,400.7 79,037.7

CASH FLOW

Year to 31 Dec (Rmbm) 2013 2014 2015 2016

Operating 3,155.6 1,325.6 5,432.7 3,117.9

Pre-tax profit 2,555.2 2,970.3 3,523.1 3,679.2

Tax (428.5) (493.3) (718.1) (772.0)

Deprec. & amort. 501.2 595.5 681.9 761.3

Working capital changes 791.0 (1,875.1) 2,618.8 (67.4)

Non-cash items (263.2) 128.1 (673.0) (483.1)

Other operating cashflows 0.0 0.0 0.0 0.0

Investing (5,861.4) (11,232.4) (15,528.6) (6,468.6)

Capex (growth) (5,958.1) (8,759.8) (10,196.7) (6,374.5)

Investments 0.0 0.0 (4,739.4) 1,755.0

Financing 96.7 (2,472.6) (592.5) (1,849.1)

Dividend payments 4,132.7 10,053.1 10,832.6 1,175.2

Issue of shares 0.0 (1,177.9) (1,083.1) (1,042.8)

Proceeds from borrowings 10,450.8 14,317.9 26,360.9 26,258.8

Loan repayment (6,318.2) (6,473.1) (14,445.1) (30,034.8)

Others/interest paid 0.0 3,386.2 0.0 5,994.0

Net cash inflow (outflow) 1,426.9 146.3 736.8 -2,175.5

Beginning cash & cash equivalent 6,596.4 9,283.9 9,292.4 9,248.2

Changes due to forex impact 0.0 0.0 0.0 0.0

Ending cash & cash equivalent 9,317.1 11,191.8 11,577.4 11,617.9

KEY METRICS Year to 31 Dec (%) 2013 2014 2015 2016

Profitability EBITDA margin 24.30 24.19 29.12 37.04

Pre-tax margin 17.86 18.60 21.79 22.04

Net margin 14.86 15.51 17.35 17.41

ROA 5.75 5.26 4.48 3.86

ROE 11.45 11.30 11.21 10.66

Growth

Turnover 6.0 11.6 1.3 3.2

EBITDA 15.3 11.1 21.9 31.3

Pre-tax profit 9.1 16.2 18.6 4.4

Net profit 17.7 16.5 13.2 3.6

Net profit (adj.) 18.2 16.8 12.9 (20.3)

EPS 6.0 11.6 1.3 3.2

Leverage

Debt to total capital 92.6 104.5 151.1 109.7

Debt to equity 92.6 105.0 151.8 133.2

Net debt/(cash) to equity 45.19 58.51 106.54 75.57






ASIAN GEMS CORPORATE HIGHLIGHTS BUY (Maintained) Share Price Rp585

Target Price Rp1,000

Upside +70.9%

COMPANY DESCRIPTION Wijaya Karya Beton manufactures and sells precast concrete products. Its products include pre-stressed concrete piles, bridge concrete products, pre-stressed concrete pipes, railway sleepers, retaining walls and maritime concrete products.

STOCK DATA GICS sector Materials

Bloomberg ticker: WTON IJ

Shares issued (m): 8,715.5

Market cap (Rpb): 5,098.5

Market cap (US$m): 377.5


Price Performance (%) 52-week high/low Rp915/Rp520


12.5 (2.5) (24.5) (33.9) (29.1)


Wijaya Karya Persero 60.0

Koperasi Karya Mitra Satya 11.2

FY17 NAV/Share (Rp) 308

FY17 Net Debt/Share (Rp) 56

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(%)(lcy)WIJAYA KARYA BETON TBK PT

WIJAYA KARYA BETON TBK PT/JCI INDEX

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Source: Bloomberg

ANALYST(S)

Adrianus Bias +6221 2993 3990 [email protected]

Wijaya Karya Beton (WTON IJ)

2017 Revenue And New Contract Targets Remain Intact

WTON highlighted that its 2017 revenue and new contract targets remain intact and guided for a milder gross margin amid a higher portion of revenue from the ready-mix business, in-line with our expectations. WTON also reiterated that they will not be impacted by the potential new regulation of a 50% internal pre-cast supply limitation among SOE contractors. Maintain BUY with a target price of Rp1,000, pegged to -1SD to the historical average PE of 19.2x on 2018F EPS.

WHAT’S NEW

New contracts in 9M17 reached Rp4.1t; full-year target remains intact. Wijaya Karya Beton (WTON) is on track to achieve its new contract target of Rp7t in 2017 as it has secured new orders of Rp3t in 1H17 and Rp1.1t in 3Q17. Management expects new contracts worth Rp3t to be signed in 4Q19, comprising an elevated highway (its first engineering, production & installation contract worth Rp1.5t), toll road projects (Rp0.6t) and many smaller projects (Rp0.9t). Infrastructure projects accounted for 59.9% of new contracts in 3Q17, followed by energy projects at 29.9%. With these projects in the pipeline, management is optimistic and believes it is on track to achieve full-year revenue of Rp5.1t for 2017 (1H17: Rp2.0t).

No impact from the potential regulations limiting internal precast supply. Management does not expect WTON to be affected by the potential new regulation limiting parent companies from awarding more than 50% of a government contract to its subsidiary. It is unclear if the limits are placed on all government contracts secured by parent WIKA or imposed on a project by project basis. Its biggest customer WIKA accounted for 22.9% of WTON’s revenue in 2Q17 (less than 50%). WTON is less reliant on SOEs as the private sector accounts for 53.1% of its total revenue.

Rising receivables day and milder gross margin as consequences of business expansion. Management also revealed that receivables are at around 3-4 months while payables are at 2-3 months. Thus, WTON has to finance a gap of one month in working capital. However, payments from WIKA’s (parent) turnkey projects had recently been stretched to once every six months. Management intends to resolve the mismatch on its working capital by securing supply chain financing and chasing for prompt payments by WIKA. Management also expects margins to be slightly lower due to the shift in revenue mix towards ready-mix concrete for toll road projects since 2Q17. The latter is in-line with our expectations and already reflected in our current earnings estimate.

KEY FINANCIALS Year to 31 Dec (Rpb) 2015 2016 2017F 2018F 2019F Net turnover 2,653 3,482 4,858 6,361 7,861 EBITDA 328 544 639 811 989 Operating profit 238 408 500 646 798 Net profit (rep./act.) 174 272 346 455 585 Net profit (adj.) 174 272 346 455 585 EPS (Rp) 20.0 31.3 39.7 52.2 67.1 PE (x) 29.3 18.7 14.7 11.2 8.7 P/B (x) 2.3 2.1 1.9 1.7 1.5 EV/EBITDA (x) 17.2 10.4 8.9 7.0 5.7 Dividend yield (%) 1.9 1.0 1.6 2.0 2.7 Net margin (%) 6.6 7.8 7.1 7.2 7.4 Net debt/(cash) to equity (%) (13.2) 13.5 18.3 20.8 19.4 Interest cover (x) 12.7 13.6 9.4 11.3 13.8 ROE (%) 8.0 11.8 13.5 15.9 17.9 Consensus net profit - - 379 449 556 UOBKH/Consensus (x) - - 0.91 1.01 1.05 Source: Wika Beton, Bloomberg, UOB Kay Hian





NEW CONTRACT BOOKING (RPB)

Source: WTON

STOCK IMPACT

20% increase in production capacity by 2018. WIKA’s current installed capacity is at 2.7m tonnes per year. It will add one production line at its new Subang plant and another one production line at its South Lampung plant in 4Q17, which increases installed capacity to 3.0m tonnes per year. Installed capacity will increase by another 10% to 3.3m tonnes per year in 2018 from new plants in Kalimantan and Subang, West Java.

No exposure yet to Jakarta-Bandung High Speed Rail (HSR) project. Given the lingering uncertainty over the HSR project, management stated that WTON still has no exposure to the project as it has not secured any contracts yet. Currently, its parent company, WIKA has commenced land preparation for the HSR project and WTON targets to secure Rp1.5t in contracts from WIKA and around Rp2.5t from Chinese contractors involved in the HSR projects next year.

Additional capital raising option from treasury share sale. WTON currently holds 337m in treasury shares, representing 4.3% of its total outstanding shares. The treasury shares were bought in Nov 13. The company has to sell the treasury shares within six years; otherwise, the shares would be cancelled by Nov 19. It has no plans to sell any treasury shares in 2017 but may reconsider its options should share price move higher in 2018. At current prices, the potential value of those treasury shares is around Rp200b.


We maintain our earnings forecast as we foresee WTON is still on track to meet its 2017 target which is in-line with our expectation. The company’s new contract and revenue growth targets of 15-20% for 2018 are also in-line with our expectations.


Maintain BUY with a target price of Rp1,000, based on -1SD of the historical average PE of 19.2x on 2018F EPS. The stock is trading at 11.2x 2018F PE, or -1.6SD of its historical mean. We understand the scarcity premium over WTON’s valuation is no longer justifiable, but we deem the current valuation attractive considering the 29% earnings growth potential in the next two years.

CUSTOMER PROFILE AS OF 1H17

Source: WTON

PRE-CAST PRODUCTION CAPACITY (MTONNE)

Source: WTON

PRODUCTION FACILITIES No Section Area (ha) No. of

production line

1 North Sumatra 5.0 6

2 Lampung 6.1 5

3 South Lampung 27.3 3

4 Bogor 13.2 8

5 Karawang 13.8 4

6 Subang 50.0 2

7 Majalengka 6.5 3

8 Boyolali 4.1 6

9 Pasuruan 12.9 7

10 South Sulawesi 10.8 5

11 North Sumatera Mobile Plant - 1

12 PT Citra Lautan Teduh 27.5 2

13 Wika Kobe 3.5 2

14 Wika Krakatau Beton 3.0 0

15 Quarry Cigudeg 43.1 0

16 Quarry Donggala 23.7 0

17 Quarry South Lampung 42.7 0

18 Others 0.4 0

Total 293.6 54

Source: WTON





PROFIT & LOSS

BALANCE SHEET Year to 31 Dec (Rpb) 2016 2017F 2018F 2019F Year to 31 Dec (Rpb) 2016 2017F 2018F 2019F

Net turnover 3,482 4,858 6,361 7,861 Fixed assets 2,219 2,760 3,245 3,705

EBITDA 544 639 811 989 Other LT assets 3.2 3.2 3.2 3.2

Deprec. & amort. 136 139 165 191 Cash/ST investment 342 460 420 354

EBIT 408 500 646 798 Other current assets 2,098 2,428 2,936 3,426

Total other non-operating income (28) (8.6) (14) (11) Total assets 4,662 5,652 6,604 7,488

Net interest income/(expense) (40) (68) (72) (72) ST debt 470 551 571 567

Pre-tax profit 340 423 560 715 Other current liabilities 1,394 1,847 2,343 2,800

Tax (59) (74) (98) (125) LT debt 200 400 480 464

Minorities (9) (3.5) (6.3) (4.9) Other LT liabilities 108 99 103 101

Net profit 272 346 455 585 Shareholders' equity 2,422 2,686 3,038 3,487

Net profit (adj.) 272 346 455 585 Minority interest 69 69 69 69

Total liabilities & equity 4,662 5,652 6,605 7,488

CASH FLOW KEY METRICS Year to 31 Dec (Rpb) 2016 2017F 2018F 2019F Year to 31 Dec (%) 2016 2017F 2018F 2019F

Operating (206) 601 619 745 Profitability

Pre-tax profit 340 423 560 715 EBITDA margin 15.6 13.2 12.7 12.6

Tax (59) (74) (98) (125) Pre-tax margin 9.8 8.7 8.8 9.1

Deprec. & amort. 136 139 165 191 Net margin 7.8 7.1 7.2 7.4

Working capital changes (597) 135 35 13 ROA 6.0 6.7 7.4 8.3

Other operating cashflows (27) (22) (42) (48) ROE 11.8 13.5 15.9 17.9

Investing (358) (680) (650) (650)

Capex (growth) (358) (680) (650) (650) Growth

Investments 0.1 0.0 0.0 0.0 Turnover 31.3 39.5 30.9 23.6

Others 0.0 0.0 0.0 0.0 EBITDA 65.8 17.4 26.8 22.0

Financing 83 197 (10) (161) Pre-tax profit 65.1 24.5 32.1 27.8

Dividend payments 52 82 104 137 Net profit 56.7 27.0 31.6 28.5

Issue of shares 0.0 0.0 0.0 0.0 Net profit (adj.) 56.7 27.0 31.6 28.5

Proceeds from borrowings 137 282 100 (20) EPS 56.7 27.0 31.6 28.5

Others/interest paid (106) (167) (213) (278)

Net cash inflow (outflow) (481) 118 (40) (66) Leverage

Beginning cash & cash equivalent 824 342 460 420 Debt to total capital 21.2 25.7 25.3 22.5

Ending cash & cash equivalent 342 460 420 354 Debt to equity 27.7 35.4 34.6 29.6


Interest cover (x) 13.6 9.4 11.3 13.8





ASIAN GEMS CORPORATE HIGHLIGHTS BUY

(Maintained)

Share Price Bt6.65

Target Price Bt8.00

Upside +20.3%

(Previous TP Bt6.90)

COMPANY DESCRIPTION The Erawan Group (ERW) is a leading hotel investment company in Thailand. Its hotel portfolio ranges from luxury to mid-scale and economy across Thailand’s major tourist destinations.

STOCK DATA GICS sector Consumer Discretionary

Bloomberg ticker: ERW TB


Market cap (Btm): 17,127.9

Market cap (US$m): 515.8


Price Performance (%) 52-week high/low Bt6.85/Bt4.04


18.1 19.1 40.9 57.1 52.2


Wattanavekin family 30.0

Vongkusolkit family 29.8

FY17 NAV/Share (Bt) 2.09

FY17 Net Debt/Share (Bt) 3.30

PRICE CHART

80

90

100

110

120

130

140

150

160

3.50

4.00

4.50

5.00

5.50

6.00

6.50

7.00

(%)(lcy) ERAWAN GROUP PCL/THE ERAWAN GROUP PCL/THE/SET INDEX

0

20

40

60


Volume (m)

Source: Bloomberg

ANALYST(S)

Napat Vorajanyavong +662 659 8033 [email protected]

The Erawan Group (ERW TB)

Earnings Growth To Continue to Gain Momentum

We remain upbeat on ERW’s prospects on the back of its expansion plan in both Thailand and the Philippines. In addition, the heavy hotel investment during the past few years has started to pay off amid the rising number of tourist arrivals. We revise up our earnings projections for 2017-20 by 2-8%. Share price remains attractive, trading at 12.7x 2018F EV/EBITDA or -0.5SD to its 5-year mean. Maintain BUY with a target price of Bt8.00.

WHAT’S NEW

Expansion plan on track. The Erawan Group (ERW) plans to open seven new hotels in 2H17. This bodes well in supporting its long-term growth and should bring the number of ERW’s owned hotels from 41 (6,385 rooms) in 2016 to 52 hotels (7,315 rooms) by end-17. For its 5-year plan, ERW has set a 5-year capex of Bt10b for 2016-20 (Bt7b for Thailand, Bt3b for the Philippines), and this amount will be used to open more than 50 hotels in both countries. Management guidance suggests that the expansion plan remains on track. Meanwhile, we expect D/E ratio to rise to 1.9x in 2020, which is still manageable as the company’s debt covenant is 2.5x.

Expect 3Q17 earnings to have grown 43% yoy. We expect ERW to report a Bt80m core profit in 3Q17 (+43% yoy, ad +39% qoq). Key drivers would be: a) RevPar (excluding the budget segment) growth of 3% yoy, and b) EBITDA margin rising 40bp yoy to 27.8%. Overall, both Bangkok and upcountry hotels should see good performance, given the continued growth in tourist arrivals. This should bring 9M17 core profit to account for 69% of our full-year forecast.

Tourist arrivals gained momentum in 9M17. The number of tourist arrivals has continued to gain momentum, rising 5% yoy to 26.1m in 9M17. We believe tourist arrivals would be able to meet the Tourism Authority of Thailand’s (TAT) growth forecast of 6% yoy to 34.4m for 2017. Key supporting factors are continued growth in Chinese and Russian tourist numbers. ERW’s management also believes in the long-term growth prospects of the domestic tourism industry in Thailand. As economies grow, the advent of the low-cost carrier, and income levels rise, people will have a high propensity to travel more. Hence, the number of domestic travelers has continued to rise as well. Since the major markets for hotel revenue comes from Thai (16%) and Chinese (17%) travelers, ERW is a key beneficiary of growth prospects in tourism.

KEY FINANCIALS Year to 31 Dec (Btm) 2015 2016 2017F 2018F 2019F

Net turnover 5,255 5,571 6,170 6,597 7,091EBITDA 1,413 1,586 1,859 2,028 2,217Operating profit 695 856 1,039 1,179 1,292Net profit (rep./act.) 198 367 501 583 641Net profit (adj.) 194 346 501 583 641EPS (Bt) 0.1 0.1 0.2 0.2 0.3PE (x) 85.4 48.0 33.2 28.5 25.9P/B (x) 3.5 3.4 3.2 3.0 2.8EV/EBITDA (x) 17.7 15.8 13.5 12.3 11.3Dividend yield (%) 0.6 0.6 1.2 1.4 1.5Net margin (%) 3.8 6.6 8.1 8.8 9.0Net debt/(cash) to equity (%) 161.4 155.1 157.8 160.7 160.7Interest cover (x) 3.7 4.4 5.0 5.1 5.1ROE (%) 4.3 7.6 9.9 10.8 11.1Consensus net profit - - 469 544 615UOBKH/Consensus (x) - - 1.07 1.07 1.04Source: The Erawan Group, Bloomberg, UOB Kay Hian n.m. : not meaningful; negative P/E, EV/EBITDA reflected as "n.m."





STOCK IMPACT

JW Marriot Bangkok’s renovation plan will take place during 2017-19. Normally, ERW does a soft renovation for its hotels in their 10th year, and a hard renovation in the 20th year. ERW plans to renovate its JW Marriot Bangkok during the low season, which will take three years to complete (2017-19), with one-third of its inventory down for a few months in each phase. We believe downside risk is limited since: a) the renovation plan will take place during the low season, and resume operation during the high season, and b) there will be an approximate 10% increase in room rates charged after the completion of each phase of renovation.

Opportunities outside Thailand; continued focus on the Philippines. ERW’s management has viewed the Philippines as the next best hotel market apart from Thailand, based on demand and supply dynamics. Management believes that supply is still lagging in the Philippines, at a time when the domestic demand is growing, led by its growing economy. Although ERW has other countries in mind, such as Indonesia and Myanmar, they are not as economical as the Philippines to penetrate. In addition, its Hop Inn hotel in the Philippines (which opened in Dec 16) has seen an impressive performance with occupancy of around 80% in 1H17 vs its internal target of 70%.


We revise up our 2017-20 earnings forecasts by 2-8% to factor in various assumptions including: a) up-to-date hotel expansion plans. We raise our forecast on the number of total hotels to 85 by end-20 (vs previous forecast of 80 hotels), and b) higher-than-expected EBITDA margin given more economies of scale.

EARNINGS REVISION Year to 31 Dec (Btm) 2017F Old 2017F New Chg (%) 2018F Old 2018F New Chg (%) Net turnover 6,158 6,170 0.2 6,568 6,597 0.4 Core profit 493 501 1.7 553 583 5.4 SG&A to sales (%) 25.7 25.7 0bp 25.0 24.8 -20bp Gross Margin (%) 41.7 41.9 +20bp 41.7 42.0 +30bp Source: UOB Kay Hian


Maintain BUY. ERW’s share price has increased by 49% ytd compared with the average 16% of the hotel sector under our coverage. Its impressive return is in line with our optimistic view. Looking forward, we believe its share price may continue to be supported by a promising industry outlook and strong earnings growth prospect. Meanwhile, the stock is still trading at an attractive 12.7x 2018F EV/EBITDA, or -0.4SD to its 5-year mean. Maintain BUY with a target price of Bt8.00, based on DCF (WACC: 6.7%, terminal growth: 3.0%). ERW remains our top pick for the sector.

Our target price also implies 14.4x 2018F EV/EBITDA, or pegged at +0.3SD to its 5-year mean.

SHARE PRICE CATALYST

Rising number of tourist arrivals.

TOTAL REVENUE BY SEGMENT (2016)

Source: ERW, UOB Kay Hian

HOTEL STATS (EXCL. BUDGET SEGMENT)


EV/EBITDA BAND


DCF VALUATION

Long-term D/E 67%

Beta 0.8

WACC 6.7%

Terminal growth 3.0%

Valuation (Btm)

Enterprise value 29,193.1

Less: Net debt 8,945.6

Less: MI 210.8

Equity value 20,036.7

No. of shares 2,500

Target price (Bt) 8.0 Source: UOB Kay Hian





PROFIT & LOSS Year to 31 Dec (Btm) 2016 2017F 2018F 2019F

Net turnover 5,571 6,170 6,597 7,091

EBITDA 1,586 1,859 2,028 2,217

Deprec. & amort. 730 820 849 925

EBIT 856 1,039 1,179 1,292

Total other non-operating income 21 0 0 0

Associate contributions 15 20 20 20

Net interest income/(expense) (362) (372) (398) (431)

Pre-tax profit 529 687 801 881

Tax (122) (160) (187) (207)

Minorities (41) (26) (30) (33)

Net profit 367 501 583 641

Net profit (adj.) 346 501 583 641

BALANCE SHEET Year to 31 Dec (Btm) 2016 2017F 2018F 2019F

Fixed assets 11,707 12,887 14,038 15,113

Other LT assets 1,925 1,782 1,783 1,784

Cash/ST investment 795 634 689 841

Other current assets 483 438 469 503

Total assets 14,911 15,742 16,979 18,240

ST debt 2,557 2,166 2,301 2,436

Other current liabilities 1,049 1,198 1,286 1,360

LT debt 5,867 6,700 7,334 7,967

Other LT liabilities 365 282 282 282

Shareholders' equity 4,918 5,216 5,566 5,951

Minority interest 155 180 211 244

Total liabilities & equity 14,911 15,742 16,979 18,240

CASH FLOW Year to 31 Dec (Btm) 2016 2017F 2018F 2019F

Operating 1,114 1,530 1,500 1,620

Pre-tax profit 489 661 771 847

Tax (122) (160) (187) (207)

Deprec. & amort. 730 820 849 925

Associates 26 6 10 13

Working capital changes 12 203 57 41

Non-cash items (21) 0 0 0

Other operating cashflows 0 0 0 0

Investing (918) (1,835) (1,981) (1,981)

Capex (growth) (902) (1,883) (2,000) (2,000)

Capex (maintenance) 0 0 0 0

Investments 9 25 20 20

Proceeds from sale of assets 0 0 0 0

Others (26) 22 (1) (1)

Financing (412) 144 535 512

Dividend payments (100) (200) (233) (256)

Issue of shares 0 0 0 0

Proceeds from borrowings (160) 346 769 769

Loan repayment 0 0 0 0

Others/interest paid (152) (2) 0 0

Net cash inflow (outflow) (216) (161) 55 152

Beginning cash & cash equivalent 1,011 795 634 689

Changes due to forex impact 0 0 0 0

Ending cash & cash equivalent 795 634 689 841


Profitability EBITDA margin 28.5 30.1 30.7 31.3

Pre-tax margin 9.5 11.1 12.1 12.4

Net margin 6.6 8.1 8.8 9.0

ROA 2.5 3.3 3.6 3.6

ROE 7.6 9.9 10.8 11.1

Growth Turnover 6.0 10.7 6.9 7.5

EBITDA 12.2 17.2 9.1 9.3

Pre-tax profit 59.7 29.8 16.6 9.9

Net profit 85.5 36.6 16.4 9.8

Net profit (adj.) 77.9 44.9 16.4 9.8

EPS 77.9 44.9 16.4 9.8

Leverage Debt to total capital 62.4 62.2 62.5 62.7

Debt to equity 171.3 170.0 173.1 174.8







COMPANY RESULTS HOLD

(Maintained)

Share Price Bt2.62

Target Price Bt2.70

Upside +3.1%

(Previous TP Bt2.40)

COMPANY DESCRIPTION The seventh largest bank in Thailand. The bank has ING Group as the major shareholder, with a 30% stake in the bank.

STOCK DATA GICS sector Financials

Bloomberg ticker: TMB TB


Market cap (Btm): 114,860.4

Market cap (US$m): 3,474.6


Price Performance (%) 52-week high/low Bt2.62/Bt2.00


5.6 12.9 5.6 29.7 24.8


MOF 26.1

ING Bank 25.2

DBS Bank 3.3

FY17 NAV/Share (Bt) 2.06

FY17 CAR Tier-1 (%) 12.97

PRICE CHART

90

100

110

120

130

140

1.80

2.00

2.20

2.40

2.60

2.80

(%)(lcy) TMB BANK PCL TMB BANK PCL/SET INDEX

0

200

400

600


Volume (m)

Source: Bloomberg

ANALYST(S)

Thananchai Jittanoon +662 659 8303 [email protected]

TMB Bank (TMB TB)

3Q17: Earnings Below Forecast On Higher Provisions

Top-line growth was still sluggish on weak loan growth, but bottom-line growth was supported by strong non-II. Moderate NPL formation and further write-offs have forced the bank to keep credit costs at a high level to prevent coverage ratio from dropping below 140%. Maintain HOLD. Target price: Bt2.70. Entry price: Bt2.40.

RESULTS

Earnings below expectations. TMB reported a net profit of Bt2.0b, up 9% yoy. However, results were 14% below our forecast with key variance coming from higher-than-expected provisions.

STOCK IMPACT

Flattish NII. Net interest income edged slightly lower by 1% yoy (flat qoq) while loan growth was relatively weak at 0.4% qoq. Net interest margin (NIM) softened slightly by 8bp qoq to 3.11% (-13bp yoy) as a result of loan growth tilting towards low-yield lending (money market and mortgage).

Non-II was healthy. Non-interest income (non-II) growth was healthy, up 18% yoy. This was supported by net fee income which grew 37%, underpinned by a strong growth in bancassurance fees, mutual fund and other commercial fees.

Opex slightly ahead of expectations. Opex was up 8% yoy, driven by higher marketing expenses. Overall, cost/income ratio rose to 47% vs 46% forecast.

Credit costs still high. The bank’s NPL formation (by our calculation) has improved slightly to 0.36% in 3Q17 (2Q17: 0.45%). However, reported NPL balance fell slightly by 1% qoq to Bt18b or 2.44% of total loans (2Q17: 2.56%) as the bank continued to write off its NPLs (Bt2.3b). To facilitate these write-offs, credit costs were kept high at 154bp (vs our forecast of 142bp) to maintain coverage ratio at around 140% level.

KEY FINANCIALS Year to 31 Dec (Btm) 2015 2016 2017F 2018F 2019F

Net interest income 23,220 24,761 24,753 27,035 28,218Non-interest income 10,230 10,462 12,683 13,790 15,102Net profit (rep./act.) 9,333 8,226 8,605 10,846 12,233Net profit (adj.) 9,333 8,226 8,605 10,846 12,233EPS (Bt) 0.2 0.2 0.2 0.2 0.3PE (x) 12.2 13.9 13.3 10.5 9.3P/B (x) 1.5 1.4 1.3 1.2 1.1Dividend yield (%) 2.3 2.2 2.3 2.9 3.2Net int margin (%) 3.0 3.2 3.1 3.2 3.2Cost/income (%) 49.2 47.1 47.0 45.1 44.5Loan loss cover (%) 141.8 142.5 140.9 145.4 149.1Consensus net profit - - 9,056 10,727 12,571UOBKH/Consensus (x) - - 0.95 1.01 0.97Source: TMB Bank Pcl, Bloomberg, UOB Kay Hian






Earnings revisions. Factoring in the weaker-than-expected 3Q17 numbers, we have cut our 2017 earnings forecast by 6%. Accordingly our 2018 earnings forecast has also been trimmed by 4%.

EARNINGS REVISIONS (Btm) 2017F 2018F 2019F Old 9,129 11,345 12,720 New 8,605 10,846 12,233 % chg -6% -4% -4%



Re-iterate HOLD. We re-iterate our neutral view on TMB. As we roll over valuation to next year, we have raised our target price to Bt2.70 (pegged at 1.2x 2018F P/B against 11.5% ROE. Maintain HOLD with entry price at Bt2.40.

SHARE PRICE CATALYST

No near-term catalyst.

3Q17 RESULTS

Profit & Loss (Btm) 3Q17 3Q16 yoy % chg UOBHK Est. Deviation (%) Comments Net interest income 6,192 6,268 (1) 6,238 (1) Loan up 0.4% qoq Net fee & Commissions 2,791 2,034 37 2,493 12 Driven by mutual fund and bancassurance fees. Other income 392 662 (41) 550 (29) Lower forex Operating expenses (4,446) (4,123) 8 (4,231) 5 Driven by higher marketing expenses PPOP 4,929 4,841 2 5,050 (2) Credit Cost (2,391) (2,541) (6) (2,200) 9 Credit costs @ nearly 154bp to facilitate NPLs write-off PBT 2,538 2,300 10 2,850 (11) Net Profit 2,003 1,845 9 2,333 (14) EPS (Bt) 0.0 0.0 9 0.05 (14) DPS (Bt) BVS (Bt) 1.97 1.84 7 2.0 (0) Financial Ratio (%) 3Q17 3Q16 yoy chg (ppt) qoq chg (ppt) Comments NIM 3.1 3.2 (0.13) 3.2 (0.05) Loans growth skewed towards loan yield Loan Growth 4.7 4.2 0.43 6.4 (1.69) Deposit Growth 0.1 (0.6) 0.70 1.1 (1.01) Loan/Deposit Ratio 101.9 97.5 4.48 102.5 (0.61) Cost/Income Ratio (47.4) (46.0) (1.42) (45.6) (1.84) ROE 9.2 9.1 0.10 10.9 (1.65) NPLs Ratio 2.4 2.5 (0.06) 2.6 (0.12) NPLs slightly down on Bt2.3b write-off Credit Cost (bp) (154.5) (171.8) 17.35 (139.9) (14.60) Higher credit costs to facilitate write-off and to maintain

coverage ratio at 140% Loan Loss Coverage 140.8 142.3 (1.56) 146.9 (6.18) CET-1 CAR 13.6 12.9 0.70 12.3 1.30

Source: TMBl, UOB Kay Hian





PROFIT & LOSS Year to 31 Dec (Btm) 2016 2017F 2018F 2019F

Interest income 35,631 34,883 38,155 41,644

Interest expense (10,870) (10,130) (11,119) (13,426)

Net interest income 24,761 24,753 27,035 28,218

Fees & commissions 7,997 10,442 11,278 12,406

Other income 2,465 2,241 2,512 2,697

Non-interest income 10,462 12,683 13,790 15,102

Income from islamic banking 0 0 0 0

Total income 35,223 37,437 40,825 43,320

Staff costs (8,118) (8,361) (8,779) (9,218)

Other operating expense (8,471) (9,218) (9,628) (10,057)

Pre-provision profit 18,634 19,858 22,418 24,045

Loan loss provision (8,649) (9,207) (8,833) (8,724)

Other provisions 0 0 0 0

Associated companies 0 0 0 0

Other non-operating income 0 0 0 0

Pre-tax profit 9,985 10,651 13,585 15,321

Tax (1,740) (2,024) (2,717) (3,064)

Minorities (18) (22) (23) (23)

Net profit 8,226 8,605 10,846 12,233

Net profit (adj.) 8,226 8,605 10,846 12,233

BALANCE SHEET Year to 31 Dec (Btm) 2016 2017F 2018F 2019F

Cash with central bank 13,531 13,802 14,078 14,359

Govt treasury bills & securities 49,693 54,662 60,128 66,141

Interbank loans 113,858 112,719 111,592 110,476

Customer loans 569,268 610,957 654,162 700,593

Investment securities 12,423 13,666 15,032 16,535

Derivative receivables 0 0 0 0

Associates & JVs 0 0 0 0

Fixed assets (incl. prop.) 12,383 12,631 12,884 13,141

Other assets 49,844 45,565 35,357 31,221

Total assets 821,000 864,001 903,232 952,467

Interbank deposits 45,417 39,967 35,171 30,951

Customer deposits 598,948 641,396 686,294 734,334

Derivative payables 0 0 0 0

Debt equivalents 39,874 47,800 49,136 50,538

Other liabilities 52,912 44,847 34,370 29,395

Total liabilities 737,152 774,010 804,970 845,219

Shareholders' funds 83,723 89,860 98,124 107,104

Minority interest - accumulated 125 131 138 145

Total equity & liabilities 821,000 864,001 903,232 952,467

OPERATING RATIOS Year to 31 Dec (%) 2016 2017F 2018F 2019F

Capital Adequacy Tier-1 CAR 12.8 13.0 13.5 13.8

Total CAR 18.1 17.8 18.1 18.2

Total assets/equity (x) 9.8 9.6 9.2 8.9

Tangible assets/tangible common equity (x)

9.8 9.6 9.2 8.9

Asset Quality NPL ratio 2.5 2.4 2.3 2.2

Loan loss coverage 142.5 140.9 145.4 149.1

Loan loss reserve/gross loans (4.2) (4.0) (3.9) (3.8)

Increase in NPLs (14.0) 2.0 2.0 2.0

Credit cost (bp) (145.7) (145.0) (130.0) (120.0)

Liquidity Loan/deposit ratio 95.0 95.3 95.3 95.4

Liquid assets/short-term liabilities 27.5 26.6 25.8 25.0

Liquid assets/total assets 21.6 21.0 20.6 20.1


Growth Net interest income, yoy chg 6.6 0.0 9.2 4.4

Fees & commissions, yoy chg 2.2 30.6 8.0 10.0

Pre-provision profit, yoy chg 9.7 6.6 12.9 7.3

Net profit, yoy chg (11.9) 4.6 26.0 12.8

Net profit (adj.), yoy chg (11.9) 4.6 26.0 12.8

Customer loans, yoy chg 3.0 7.3 7.1 7.1

Customer deposits, yoy chg (7.1) 7.1 7.0 7.0

Profitability Net interest margin 3.2 3.1 3.2 3.2

Cost/income ratio 47.1 47.0 45.1 44.5

Adjusted ROA 1.0 1.0 1.2 1.3

Reported ROE 10.3 9.9 11.5 11.9

Adjusted ROE 10.3 9.9 11.5 11.9

Valuation P/BV (x) 1.4 1.3 1.2 1.1

P/NTA (x) 1.4 1.3 1.2 1.1

Adjusted P/E (x) 13.9 13.3 10.5 9.3

Dividend Yield 2.2 2.3 2.9 3.2

Payout ratio 30.0 30.0 30.0 30.0





Disclosures/Disclaimers This report is prepared by UOB Kay Hian Private Limited (“UOBKH”), which is a holder of a capital markets services licence and an exempt financial adviser in Singapore. This report is provided for information only and is not an offer or a solicitation to deal in securities or to enter into any legal relations, nor an advice or a recommendation with respect to such securities. This report is prepared for general circulation. It does not have regard to the specific investment objectives, financial situation and the particular needs of any recipient hereof. Advice should be sought from a financial adviser regarding the suitability of the investment product, taking into account the specific investment objectives, financial situation or particular needs of any person in receipt of the recommendation, before the person makes a commitment to purchase the investment product. This report is confidential. 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