Equity Research Reports · PDF fileand Auric Pacific which are less reliant on global free ......

Equity research│November 10, 2016

Asia Pacific Daily - 10 November 2016

Equity Research Reports…

▌IDEA OF THE DAY | Indonesia/Thailand/China/Malaysia/Singapore Strategy Note - Potential impact of Trump’s win | P3 The initial reaction to Trump’s win has been risk-off, impacting JCI and IDR adversely. This shall pass, in our view. If Trump’s presidency leads to a harder stance on trade, the impact on Indonesia will be neutral at worst. Indonesia’s main growth driver is domestic consumption. If Trump’s win pressures DXY over the short term and leads to a looser US monetary policy for longer, it will be positive for IDR and JCI eventually. The investment thesis on Indonesia is largely unchanged, though financial sector could be more challenged, for now, in light of currency and yield volatility. Strategy Flash Note - Switch to consumer, high-yield and utility stocks | P4 Given Trump’s US election win, we believe SET will trend down in next few weeks. We advise investors to shift to more defensive domestic counters such as consumer, utility and healthcare and high-yield plays. Top picks: ADVANC, CENTEL, CK, CPALL, GPSC, JASIF LH, MAJOR, SAWAD, SCB and VGI. Strategy Flash Note - Temporary sentiment hit; fundamental impact yet to be seen | P5 Hang Seng Index dropped 2% today, hit by the results of US presidential elections. We regard the impact as more temporary and sentimental, rather than a big fundamental change to the Hong Kong stock market. Southbound inflow may underpin the market from big downside risks, in our view. Strategy Note - Potential impact of Trump win | P6 The KLCI fell 1% following Donald Trump’s victory in the US Presidential election. Trade protectionism, unpredictable policymaking, heightened global market volatility and an escalation in geopolitical tensions are potential risks to Malaysia. TPPA may not go through, as it is opposed by Donald Trump. A potential winner is the palm oil sector, while a loser could be technology sector. We maintain our end-2016 KLCI target of 1,730 and our top picks. Strategy Flash Note - Hope for some, fear for most | P7 On unprecedented political and monetary policy risks (Trump’s victory), we keep our relative sector OWs in REITS and property on yield and valuation. Banks and capital goods are the clear near-term losers on uncertainty in interest rates and oil price direction. SGX could be an immediate winner on volume spike. Our picks are: CCT, MINT, MCT, UOL, ThaiBev, Best World, Singtel, Comfort Delgro and Auric Pacific which are less reliant on global free trade. ——————————————————————————————————————————————————————————————————————————————————————— ▌Australia APN Outdoor (HOLD, tp:A$5.66▲) - Late burst of optimism | P8 Computershare (ADD, tp:A$11.28▲) - Announcing further cost out | P9 Medibank (HOLD, tp:A$2.51▼) - Reconfirming guidance at 1Q17 | P10 ——————————————————————————————————————————————————————————————————————————————————————— ▌China/Hong Kong Yuzhou Properties Co Ltd (ADD- Initiation, tp:HK$3.40) - Specialist in East China | P11 Property - Overall (NEUTRAL) - Cold but not frozen | P12 ——————————————————————————————————————————————————————————————————————————————————————— ▌India Ashok Leyland (REDUCE, tp:Rs72.30▼) - 2QFY17: Marginal relief in downcycle | P13 IT Services (OVERWEIGHT) - Any major visa woes ?...Unlikely | P14 ——————————————————————————————————————————————————————————————————————————————————————— ▌Indonesia Media Nusantara Citra (ADD, tp:Rp2,500.00▼) - 3Q16: Earnings improving but could … | P15 ——————————————————————————————————————————————————————————————————————————————————————— ▌South Korea Kolon Industries (ADD, tp:W106,000.00▼) - Temporary setback | P16 NHN Entertainment (ADD, tp:W68,000.00▼) - IP driven game success to resume | P17 ——————————————————————————————————————————————————————————————————————————————————————— ▌Malaysia Axiata Group (HOLD, tp:RM5.10▼) - Growth engine will take time to restart | P18 Malaysian Pacific Industries (HOLD, tp:RM8.60▲) - A decent start to FY17 | P19 SP Setia (HOLD, tp:RM3.10▼) - Expanding presence in Penang | P20 Economic Update - Trumping expectations | P21 ——————————————————————————————————————————————————————————————————————————————————————— ▌Singapore Auric Pacific Group Limited (ADD, tp:S$1.96▲) - A conviction turnaround | P22 CapitaLand (ADD, tp:S$4.17) - Tracking well to date | P23 Courts Asia (ADD, tp:S$0.60▲) - Growing profits with improved cost structure | P24 First Resources Ltd (ADD, tp:S$2.32▲) - Early signs of recovery in output from El Nino | P25 Frasers Centrepoint Ltd (ADD, tp:S$2.02▼) - Dragged by reduced residential and … | P26 Overseas Education Ltd (HOLD, tp:S$0.42) - Temporarily trumped by lower student enrolment | P27 Pacific Radiance (REDUCE, tp:S$0.13▼) - 3QFY16: Dim outlook; awaiting uptick in utilisation | P28 Yangzijiang Shipbuilding (ADD, tp:S$0.91▼) - Still making money | P29 ——————————————————————————————————————————————————————————————————————————————————————— ▌Sri Lanka Seylan Bank PLC - Quarterly Earnings Review on Seylan Bank PLC (SEYB) for 3Q CY16 | P30 ———————————————————————————————————————————————————————————————————————————————————————

Showcasing CIMB Research Ideas

CHN: Ctrip.com International Ltd 08/11 LThe travel destination >PDF

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CHN: Strategy Note 07/11 Low base and stabilising economy lifted 3Q earnings growth >PDF

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IND: Consumer Staples - Overall 04/11 Moving into high gear >PDF

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HKG: Wynn Macau 03/11 Slow ramp-up at Palace >PDF

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HKG: China Partytime Culture Holdings 02/11 Get the party started >PDF

Regional Equity Research Contacts

Michael GREENALL, CFP Regional Head of Research T: (60) 3 2261 9088 E: [email protected]

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CIMB Conference / Events |

CIMB Smartphone Corporate Day 21 November 2016 – HK/China/Taiwan – Hong Kong

CIMB 9th Annual Malaysia Corporate Day 05 January 2017 – Malaysia – Kuala Lumpur

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

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Equity research│November 10, 2016

▌Taiwan Compal Electronics (HOLD, tp:NT$18.80▲) - Upward revision in NB shipment guidance | P31 Gourmet Master (ADD, tp:NT$356.00▼) - Strong operating margin delivery | P32 Tung Thih (REDUCE- Initiation, tp:NT$255.00) - Rolling to a stop | P33 ——————————————————————————————————————————————————————————————————————————————————————— ▌Thailand KCE Electronics (HOLD, tp:THB120.00) - 3Q16 core earnings in line | P34 Muangthai Leasing (ADD▲, tp:THB24.00▲) - Robust earnings growth with high asset quality | P35 PTT Global Chemical (ADD, tp:THB72.00▲) - The first quarter of improving operations | P36 Siam Makro (REDUCE, tp:THB34.00▲) - Solid earnings driven by strong revenue growth | P37 Srisawad Power 1979 (ADD, tp:THB58.00▲) - Solid earnings driven by strong loan demand | P38 Thai Oil (ADD, tp:THB92.00) - A solid quarter despite a weak refinery | P39 Thai Union Group (ADD, tp:THB25.75▲) - 3Q16: Focus on long-term growth | P40 ——————————————————————————————————————————————————————————————————————————————————————— ▌Vietnam Nam Long Investment Corporation (HOLD, tp:VND23,200.00▲) - 3Q16: Slow sales … | P41



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Indonesia│Equity research│November 9, 2016

Strategy Note



Indonesia Strategy Potential impact of Trump’s win

The initial reaction to Trump’s win has been risk-off, impacting JCI and IDR ■adversely. This shall pass, in our view.

If Trump’s presidency leads to a harder stance on trade, the impact on Indonesia will ■be neutral at worst. Indonesia’s main growth driver is domestic consumption.

If Trump’s win pressures DXY over the short term and leads to a looser US ■monetary policy for longer, it will be positive for IDR and JCI eventually.

The investment thesis on Indonesia is largely unchanged, though financial sector ■could be more challenged, for now, in light of currency and yield volatility.

Beyond the initial knee jerk reaction Much like major external shocks such as the Brexit vote, the initial market reaction to Trump’s win has been risk-off. The contagion fear is driven by currency volatility and capital outflow risks. The response to such major events over the past 5 years has been: 1) the JCI and IDR initially fell 16% and 5%, respectively, when the PIIGS issue came to light in 2011, while later events (Grexit & Brexit) caused 0-1% corrections; 2) however, these initial shocks subsided fairly quickly, ranging from one week to four months.

If the US were to turn its back on global trade TPP is probably dead – Indonesia is not part of it anyway. The US is a major trade partner – it ranked #2 as an export destination and #7 for imports. Indonesia has been running a trade surplus with the US over the past 5 years, worth c.US$5.8bn p.a., arguably small change. Unlike North Asia, exports to the US are dominated by basic manufactured products while imports are mainly capital goods and food products. We believe Indonesia would not be too high on US’s list when it comes to trade deficit.

Weak dollar and looser policy for longer are positive The initial market reaction to Trump’s win has been weaker USD (weaker DXY, though EM currencies generally weakened against USD, with IDR depreciating by some 0.4% on the day) and lower probability of an FFR hike in Dec. Both are supportive of IDR and domestic bond yields, and ultimately a downside buffer for the stock market. The increase in volatility, however, may force the BI to keep its rate unchanged for longer.

A domestic centric country Indonesia’s growth drivers are government spending and household consumption. The former disappointed in 3Q while the latter was solid, contributing around 5% real growth and 55% of GDP. Government spending is expected to turn around in 4Q16 on a more realistic budget and tax amnesty boost. Trade is not projected to contribute much in 2017, similar to the dismal showing in 2016. Reforms have helped to satiate FDI/DDI, going by the ease of doing business ranking which jumped to 91 from 106 previously.

The investment thesis is unchanged under Trump presidency Investors typically focus on infra and consumption for Indonesia – both should not be much affected. Despite the peaking credit cycle and expectations of normalising credit costs in 2017, financial sector could be more challenged under the renewed volatility. For now, the market may continue to dial down on the beta. We recommend GGRM, INDF and TLKM as safe picks.

[ X ]

Figure 1: When external risk rocked the market

SOURCES: CIMB RESEARCH, COMPANY

▎Indonesia

Analyst(s)

Erwan TEGUH

T (62) 21 3006 1720 E [email protected]

Peter P. SUTEDJA, CFA T (62) 21 3006 1726 E [email protected]

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,0003,000

3,500

4,000

4,500

5,000

5,500

6,000

Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016

JCI IDR (RHS)

2011: Eurozone debt crisis first escalated

2012: Grexit

2015: Grexit 2016: Brexit2013: The Taper Tantrum

3

Thailand│Equity research

Strategy Flash Note



Thailand Strategy Switch to consumer, high-yield and utility stocks

Given Trump’s US election win, we believe SET will trend down in next few weeks. ■ We advise investors to shift to more defensive domestic counters such as ■consumer, utility and healthcare and high-yield plays.

Top picks: ADVANC, CENTEL, CK, CPALL, GPSC, JASIF LH, MAJOR, SAWAD, ■SCB and VGI.

Investors likely adopt risk-off mode ● Now that Trump has won the US presidential election, global stock markets are in

panic selling mode. The SET has come down 1.3% in the morning session and there could be more downside over the next few weeks, in our view. Since investors are unclear on the type of president that Trump will be, they are likely to be cautious on risky assets. As such, we believe markets will trend down over the next few weeks.

● Despite selling pressure from foreign investors in near term, we believe the SETshould do fairly well relative to other markets in the region. This is because the Thai economy is well diversified and relies more on domestic factors, rather than exports. Thailand also enjoys huge current account surplus of US$35bn (about 8% of GDP) at end-9M16. As such, the Thai baht should be fairly stable. Moreover, the Fed may not raise rates in Dec due to global market volatility on the back of Trump’s surprise win.

Switch to more defensive counters ● We advise investors with exposure in Thailand to seek shelter in defensive counters

for next few weeks. We like high-yield stocks and utilities, including ADVANC, JASIFand GPSC. Thai hospitals may also benefit as it would become more difficult for Muslims to go to the US for medical treatment. We think contractors would still be fine as bidding results of the East Orange Line will be known by 6 Jan 2017. We believe that CK and UNIQ should be able withstand the headwinds.

Domestic concerns should clear up soon ● Some investors are concerned about the succession issue in Thailand, as the Crown

Prince has not ascended the throne yet. We believe that His Royal Highness (HRH) will be crowned soon and he will endorse draft the constitution, which was submitted by Prime Minister Prayut today, within 90 days (i.e. by 7 Feb 2017). Therefore, the election timeline should be intact. That said, we still expect the election to take place in Dec 2017.

Sector allocation strategy and top picks ● Once domestic concerns are cleared up, we believe that the Thai market will perform

well. We focus on domestic sectors in 2017 but with a more cautious stance. That said, we advise investors to focus on consumer, consumer finance, tourism, utility and high-yield plays. Our top picks are ADVANC, CENTEL, CK, CPALL, GPSC, JASIF LH, MAJOR, SAWAD, SCB and VGI.

● However, for the medium term, we do not think that Thai hospitals will see much increase in Middle Eastern patients as low oil prices, improvement in healthcare services and changes in health insurance in those countries result in structural change in medical tourism trend (which is not likely to be reversed).

Figure 1: Top picks

SOURCES: CIMB, COMPANY REPORTS

PriceTarget

PriceCore P/E

(local curr) (local curr) CY2017 CY2016 CY2017ADVANC TB Add 153.00 205.00 13,013 15.1 -6.3% 6.2% 6.6%CENTEL TB Hold 37.75 43.00 1,458 23.6 12.9% 1.4% 1.6%CK TB Add 30.75 40.00 1,490 29.4 53.5% 1.4% 2.0%CPALL TB Add 61.50 61.00 15,805 27.2 19.8% 1.4% 1.5%GPSC TB Add 35.75 43.00 1,532 13.6 51.6% 3.1% 4.0%JASIF TB Add 12.40 13.50 1,951 12.7 10.1% 7.1% 7.7%LH TB Add 9.10 11.00 3,068 12.6 9.5% 7.0% 6.9%MAJOR TB Hold 30.25 34.00 774 21.5 13.2% 4.0% 4.4%SAWAD TB Add 42.50 58.00 1,271 17.2 29.8% 1.7% 2.3%SCB TB Add 145.50 177.00 14,133 9.7 12.0% 3.7% 4.1%VGI TB Hold 5.30 6.29 1,041 28.8 15.2% 2.2% 2.9%Average 20.4 3.1% 3.4% 3.6%

Dividend Yield (%)Bloomberg Ticker

RecMarket Cap

(US$ m)3-year EPS

CAGR (%)

▎Thailand November 9, 2016 - 5:50 PM

Highlighted companies

Advanced Info Service ADD, TP THB205.0, THB153.0 close With comparable network quality in early 2017, we see tamer competition in mobile market. Capex is expected to taper off in near term. As such, we expect ADVANC to offer high dividend yields of 6-7% in FY16-18F.

CP All ADD, TP THB61.00, THB61.50 close Given its superior and convenient store locations, 20% EPS CAGR over the next three years and strong execution track record, CPALL is likely to offer downside comfort to investors during this volatile period.

Global Power Synergy ADD, TP THB43.00, THB35.75 close Strong earnings momentum backed by improving operating efficiency and capacity growth from new SPPs and IPPs in 2016-19 are likely to make GPSC stand out from other power plays.

Election timeline

Analyst(s)

Kasem PRUNRATANAMALA, CFA T (66) 2 657 9221 E [email protected]

Event TimelineFinal version of new constitution draft 29-Mar-16Hold a referendum 07-Aug-16Royal endorsement 07-Feb-17Draft organic laws 04-Apr-17Organic laws to be passed by National Legislative Assembly 03-Jun-17Election 10-Dec-17

4

China│Equity research

Strategy Flash Note



China Strategy Temporary sentiment hit; fundamental impact yet to be seen

■ Hang Seng Index dropped 2% today, hit by the results of US presidential elections.

■ We regard the impact as more temporary and sentimental, rather than a big fundamental change to the Hong Kong stock market.

■ Southbound inflow may underpin the market from big downside risks, in our view.

Out-of-consensus US election results hit the market ● Hong Kong equity market tumbled today due to the risk-off mode of global investors

after the non-consensus results of the US presidential election, which pose much uncertainty towards the future policies of the largest economy in the world. The Hang Seng Index dropped 2.2%, comparable to other markets in the region.

Sentiment impact should be temporary ● However, we regard this volatility as a temporary event given the response to results

of the US election is more sentiment, rather than any strong and imminent fundamental impact to China. Hence, we do not expect the pressure to last for very long. Using the Brexit referendum as a reference, the Hong Kong market fell by 3% on that day but gained 3%/9%/17% in the following 1week/1months/3months.

We see potential support from southbound inflow ● We believe that the southbound inflow from domestic investors to Hong Kong market

may reaccelerate if the market pulls back significantly (Rmb4.8bn daily quota used today, highest since 19 Sep 2016), thanks to the expansion of A/H price gap in that scenario. Therefore, we believe that potential southbound inflow can underpin the market from huge downside risks as it did after the Brexit referendum in Jun.

Some possible positive changes after the election ● Despite the uncertainties posed by the election outcome, we see several potential

positive factors: 1) the market volatility may slow the pace of US Fed rate hikes, 2) the near-term potential weakening of the US dollar may temporarily relieve Rmb depreciation and capital outflow pressure, and 3) the ultimate consequence of the Trans-Pacific Partnership (TPP) regime is now in doubt given the new president’s clear resistance to it.

Trade policy the largest threat; actual impact yet to be seen ● In the medium to longer term, we believe the largest impact to China (and all other

big exporters) may come from trade as the US may roll out more protective trade policies. Trade-oriented sectors, such as machine and electrical equipment, furniture, toys and entertainment requisites, textiles, merchandisers and shipping companies, may see bigger adverse effect. That said, the actual impact can only be evaluated after control is handed over early-2017.

Figure 1: We see potential support from southbound inflow while actual impact of trade policy has yet to be seen

SOURCES: CIMB RESEARCH, WIND, BLOOMBERG

Hang Seng

Index perf

Southbound

inflow

Rmb bn

1d -3% 5

1w 3% 15

1m 9% 24

3m 17% 86

Post-Brexit referendum

Machiney, Electrical

Equipment44%

Miscellaneous Article

(furniture, toys, entertainment

requisites)11%

Textile and Textile Article

11%

Base Metal and Article

6% Footwear, Headgear, Umbrella

5%Plastic,

Rubber and Article Thereof

4%Vehicle,

Aircraft, Vessel & Transport Equipment

4%

Product of Chemcial or

Allied Industry3%Optical,

Photographic, Muscial

Instrument3%

Others9%

China export to US by product type (2015)

▎China

November 9, 2016 - 7:02 PM

Analyst(s)

Ben BEI

T (852) 2532 1116 E [email protected]

Edith QIAN T (852) 2532 1112 E [email protected]

5

Malaysia│Equity research│November 9, 2016

Strategy Note



Malaysia Strategy Potential impact of Trump win

The KLCI fell 1% following Donald Trump’s victory in the US Presidential election. ■ Trade protectionism, unpredictable policymaking, heightened global market volatility ■and an escalation in geopolitical tensions are potential risks to Malaysia.

TPPA may not go through, as it is opposed by Donald Trump. ■ A potential winner is the palm oil sector, while a loser could be technology sector. ■ We maintain our end-2016 KLCI target of 1,730 and our top picks. ■

KLCI ended 1% lower on Trump victory The KLCI ended down 16.2 points or 1% at the end of trading today, on the back of Donald Trump’s surprise victory in the US Presidential election. The market fell by as much as 23.42 points to 1,641 before rebounding to close at 1,647.6.

Concerns over trade policies and global growth The Trump victory was a surprise to the market as earlier polls showed Hillary Clinton holding a narrow lead in the days leading to the election. Trump’s win has led to a selloff in global markets due to concerns over his policy positions. Trump has said he would consider pulling the US out of multinational trade deals, or renegotiate them and impose high import tariffs on goods and services from China and Mexico. This may result in slower global growth.

Potential threats to Malaysia At this point, it is too early to triangulate the impact of Trump’s election victory on Malaysia’s economy. Nevertheless, trade is a key risk as the US constitutes RM100.7bn or 9.3% of Malaysia’s total trade in 9M16, comprising 10.4% of total exports and 8.1% of total imports. Although we think Trump’s threat to levy a 45% tariff on China has a limited chance of being realised, the indirect trade impact of such a policy is significant. We estimate about 5% of Malaysia’s intermediate exports to China are destined for the US.

Concerns over TPPA fate Trump victory has raised concerns that the Trans Pacific Partnership Agreement (TPPA), which Malaysia signed on 4 Feb 2016 and due to come into effect earliest Feb 2018, may not go through as it has been opposed by Donald Trump. In a PWC study, Textiles, Electrical and Electronics, Automotive, Plastics and Wood sectors in Malaysia are potential beneficiaries of the TPPA when it comes into effect in 2018.

Sectors that could be impacted due to protectionist policy In the short term, this news will have minimal impact on the earnings of the companies under our coverage as it is uncertain if Trump will follow through with his campaign promises. Things will become clearer after he takes office on 20 Jan 2017. The sector under our coverage most vulnerable to a protectionist policy is technology (as US may impose higher import tariffs on China) while a potential beneficiary could be the palm oil sector (assuming China buys more palm oil from Malaysia and less soybeans from US).

Buy on dips for defensive plays We maintain our KLCI target of 1,730 for end-2016 and 1,880 for end-2017 (based on 3-year average forward P/E of 16x). There are no changes to our top picks but we advocate investors buy into more defensive sectors like utilities (Tenaga Nasional) and construction (Gamuda), in view of short-term uncertainties. The top five stocks under our Add call list that have fallen the most today are Evergreen, Only World Group, Tune Protect, LBS Bina, and DRB-Hicom.

[ X ]

Figure 1: Projected impact of TPPA on 10 selected key economic sectors

SOURCES: "CIMB RESEARCH, PWC"

▎Malaysia


DRB-Hicom ADD, TP RM1.69, RM1.23 close

Our alpha pick is premised on the potential turnaround in Proton pending the entry of a new foreign partner, which we believe is imminent. Stripping out Proton's losses of RM1.4bn from our FY17F earnings, the stock is trading at a P/E of 1.9x.

Prestariang ADD, TP RM2.82, RM2.34 close

Our top small-cap pick. We expect the company to finalise the National Immigration Control System (SKIN) project concession this month, providing it with long-term recurring income. Management is looking at other areas of national security and the ESBLA projects (education).

Tenaga Nasional ADD, TP RM17.00, RM14.32 close

Management is reviewing the company's dividend policy to improve its capital structure. Assuming that Tenaga raises its payout ratio to 60% from 25% currently, its dividend yield could increase to c. 6%.

Analyst(s)

Ivy NG Lee Fang, CFA


6

Singapore│Equity research

Strategy Flash Note



Singapore Strategy Hope for some, fear for most

On unprecedented political and monetary policy risks (Trump’s victory), we keep our ■relative sector OWs in REITS and property on yield and valuation.

Banks and capital goods are the clear near-term losers on uncertainty in interest ■rates and oil price direction. SGX could be an immediate winner on volume spike.

Our picks are: CCT, MINT, MCT, UOL, ThaiBev, Best World, Singtel, Comfort Delgro ■and Auric Pacific which are less reliant on global free trade.

Murkier quarters ahead for banks and capital goods ● SGX is an immediate winner as heightened market volatility could lead to higher

market volumes in the short term. Key question is the sustainability.

● Post Trump’s victory, all eyes are on the possibility of Fed rate hikes in Dec 16 which could have an implication on bank’s earnings in FY17. Until then, the short-term US$ weakness with a Trump victory could have a negative impact on SIBOR/SOR.

● There could be more fluctuation in oil prices, postponing the hopes of recovery among the yards and oil services companies. Although most of the highly-geared Singapore offshore & marine companies have restructured/postponed bonds and debts, we still see pockets of going concern risks in 2017 for smaller names such as Swissco, Ezra and NCL.

● The immense uncertainty also diminishes the likelihood of a rumoured potential bail-out by the Singapore government, including taking over the undelivered jack-up rigs.

Property and REITS are relative call ● The potential of a delay in rate hike in the short term could favour REITS as the

market had generally priced in a rate hike in Dec 16. We retain our preference on names with clarity on the growth path: CCT, MCT and MINT.

● UOL continues to be a pick in the developer space as a laggard play, trading at -40%

to RNAV with a potential corporate exercise between UOL and UIC. The concerted UOL/Wee family stake in UIC has been raised to c.49.5% recently.

Isolators may be sheltered ● Telcos: Singtel’s valuation is more palatable since the announcement of the 4

th

mobile license application by MyRepublic, airYotta and TPG Telecom. It is now trading at historical mean of 15x CY17 P/E and a decent 5% dividend yield.

● Consumers: ThaiBev, Best World and Auric Pacific are isolators that have less

reliance on free trade. ThaiBev will enter into a seasonally stronger 4QCY16 and likely to protect its market share with no clear fightback launches from Leo. Best World is on track to hit another record earnings in FY17 with the penetration into China and full conversion to a direct selling model.

● Auric Pacific could be an undiscovered gem in the consumer staple segment. Earnings should rebound after successful rationalisation of loss-making restaurant business and scaling down Delifrance cafes.

● Transport: Comfort Delgro’s recent share price correction could be overdone and we

see catalysts from cashflow improvement and higher dividend. The diversified portfolio of buses, rail and taxi in Singapore and overseas could counter threats from taxi disruptors (Uber/Grab).

● US$ weakness: Short-term US$ weakness will lead to lower translation gains for

tech companies including Venture Corp, STE and SIA Engineering.

Figure 1: Top picks and shorts

SOURCES: CIMB, COMPANY REPORTS

Financials UW

Property OW

REITs OW

Telcos N

Transport N

Capital Goods UW

Commodities UW

Healthcare N

Gaming/ Consumer OW

Others

M1, StarhubST

CD SIA

TIAN, IHH

Venture, Valuetronics, AP Yoma

SMMSTE, CSE, MMT

WIL, GGR

THBEV, BEST, CITN SPH

Q&M, RFMD

IFAR

MCT, MINT, CCT Cache

LEAST PREFERREDTOP PICKS

DBS OCBC

WingtaiCIT, UOL

▎Singapore

November 9, 2016 - 7:22 PM


Auric Pacific ADD, TP S$1.96

Auric Pacific is deeply undervalued. Excluding net cash of S$0.65/share (end-3Q16), it is trading at 3.5x/3.2x FY16F/17F ex-cash P/E. It is a staple play in bread, butter distribution and manufacturing.

UOL ADD, TP S$7.97

Apart from strong capital deployment, potential corporate exercise between UOL and UIC developing could be a key catalyst. The concerted UOL/Wee family stake in UIC has been raised to c.49.5% recently.

Thai Bev ADD, TP S$1.14

Further beer market share gains are likely as we believe its competitor is unlikely to roll out drastic rebranding measures. Margin expansion from lower depreciation could also catalyse the stock.

Sector ratings

Analyst(s)

LIM Siew Khee


OVERWEIGHT NEUTRAL UNDERWEIGHT

Gaming/

ConsumerHealthcare Capital Goods

Property Telcos Commodities

REITs Transport Financials

Sector ratings

7

Media - Overall│Australia│Equity research│November 9, 2016

IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP

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APN Outdoor

Late burst of optimism

APN Outdoor has upgraded its FY16 forecasts after a late surge in bookings for ■both digital and static billboard advertising for both November and December.

We have upgraded our forecasts and now sit in the middle of the revised guidance ■range for FY16 EBITDA to fall in a range between A$84m and A$86m.

Our discounted cash flow valuation has increased to A$5.83/share (up from ■A$5.63/share). Our target price has lifted to A$5.66/share (from A$5.44/share).

Our HOLD recommendation is maintained. ■

Strong forward bookings Strong December-quarter demand for both digital and static billboard sites has led APN Outdoor to upgrade its full-year forecasts in a range between 2.3% to 6.3%. The company now expects to report FY17 EBITDA in a range of A$84m to A$86m, up from the previous range of A$79m-A$84m, which had been downgraded just months earlier after a lacklustre start to H2. APO upgraded its forecasts after forward bookings for the months of November and December returned to double-digit growth after a slump in the previous quarter.

Digital roll out humming along One contributor to the guidance upgrade was the company's success in rolling out new digital sites. The company has so far this year commissioned 32 new digital screens, and four more screens are likely to be completed before year end. The likely FY17 addition of 36 new screens is far better than the company’s former plan to complete 20-25 new digital screens this year. The number of screens in operation at year end will translate into a higher base level of revenues for FY18.

Risks and catalysts Risks to our valuation and target price being achieved include: 1) softening of overall media demand and demand for outdoor advertising in particular; 2) delays in rolling out new digital billboards; 3) changes in the regulatory environment for permitting new billboards; and 4) irrational competitor behaviour. Potential re-rating catalysts include: 1) a continuation of the strong media demand seen in the last few weeks into FY17; and 2) continuing successes in rolling out new digital billboards at a rapid rate.

Investment view Shares in APN Outdoor offer investors exposure to the growth in outdoor advertising in Australia and New Zealand. Due to the conversion of static billboards to digital signs, we see reasonable prospects for several more years of earnings growth. As the share price trades close to our valuation and target price, we retain a HOLD recommendation.

SOURCE: MORGANS, COMPANY REPORTS

▎Australia

HOLD (no change) Current price: A$5.42

Target price: A$5.66

Previous target: A$5.44

Up/downside: 4.5%

Reuters: APO.AX

Bloomberg: APO AU

Market cap: US$695.3m

A$903.1m

Average daily turnover: US$10.46m

A$13.74m

Current shares o/s 166.6m

Free float: 81.3%

Key changes in this note

FY16F EPS increased by 3.8%.



Price performance 1M 3M 12M

Absolute (%) 1.3 -30.3 9.3

Relative (%) 5.1 -25.2 8.5

Ivor RIES

T (61) 3 9947 4182

E [email protected]

Financial Summary Dec-15A Dec-16F Dec-17F Dec-18F Dec-19F

Revenue (A$m) 300.8 327.7 363.5 389.0 415.4

Operating EBITDA (A$m) 73.3 85.1 100.9 110.9 121.3

Net Profit (A$m) 40.95 49.56 58.58 65.38 72.50

Normalised EPS (A$) 0.26 0.31 0.37 0.41 0.45

Normalised EPS Growth 76.3% 19.7% 17.8% 11.2% 10.5%

FD Normalised P/E (x) 20.88 17.45 14.81 13.32 12.06

DPS (A$) 0.16 0.17 0.21 0.24 0.25

Dividend Yield 2.86% 3.20% 3.89% 4.34% 4.57%

EV/EBITDA (x) 13.15 11.53 9.53 8.46 7.52

P/FCFE (x) 93.40 74.59 19.68 16.92 14.78

Net Gearing 24.4% 28.5% 19.0% 10.4% 2.3%

P/BV (x) 3.64 3.27 2.94 2.66 2.41

ROE 18.6% 19.7% 20.9% 20.9% 21.0%

% Change In Normalised EPS Estimates 3.79% 5.00% 4.55% 4.15%

Normalised EPS/consensus EPS (x) 1.06 1.11 1.10 1.12

75

95

115

135

155

4.00

5.00

6.00

7.00

8.00

Price Close Relative to S&P/ASX 200 (RHS)

Source: Bloomberg

5

10

15

20

Nov-15 Feb-16 May-16 Aug-16

Vo

l m

8

IT Services│Australia│Equity research│November 9, 2016


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Computershare

Announcing further cost out

CPU’s AGM has seen it reconfirm FY17 guidance for management EPS to be ■slightly up on FY16.

CPU’s structural cost review has also identified an additional US$60m-US$70m in ■costs to be taken out of the business over FY17-FY20.

We make nominal changes to FY17 forecast EPS, but lift FY18/FY19F EPS by ■~5%.

Maintain Add recommendation. Trading on ~13x FY17F PE, we still see CPU as ■reasonable value.

AGM commentary CPU’s AGM commentary provided an update to the market on the company’s structural cost review and FY17 guidance. Overall the structural cost review, foreshadowed at the CPU investor day, has identified an additional US$60m-US$70m in costs that can be taken out of the CPU business over the FY17-FY20 period. On FY17 performance so far, management noted 1Q17 was consistent with prior year and has reaffirmed FY17 guidance for management EPS to be slightly up on FY16.

Cost out plan larger than we expected The US$60m-US$70m in cost out identified in today’s structural cost review is in addition to the US$25m-US$30m in cost benefits to flow from the US premise rationalisation. In addition, management also noted there would be a stage 3 of the cost review with the size of benefits yet to be determined. Overall, the additional cost out identified today is larger than we had envisaged and equates to about 4-5% of CPU’s FY16 cost base.

Changes to forecasts We make nominal changes to FY17 forecast EPS, but lift FY18/FY19F EPS by ~5%. Changes to our numbers reflect factoring in the cost out plan announced by CPU today. We lift our DCF-based valuation by 5% to A$11.28 (previously A$10.82).

Investment view – Maintain Add recommendation We moved CPU to an Add recommendation post the FY16 result reflecting increased confidence that earnings had finally plateaued. With interest rates globally bottoming we see earnings pressures for CPU abating to some degree, allowing recent work done by management to improve underlying operations to become more visible. Trading on ~13x FY17F PE, we still see CPU as reasonable value.


▎Australia

ADD (no change) Current price: A$10.30



Up/downside: 9.5%

Reuters: CPU.AX

Bloomberg: CPU AU

Market cap: US$4,333m

A$5,627m


A$20.22m


Free float: 100.0%


Absolute (%) -4.5 15.5 -6.1

Relative (%) -0.7 20.6 -6.9

Richard COLES

T (61) 2 9043 7911

E [email protected]

Financial Summary Jun-15A Jun-16A Jun-17E Jun-18E Jun-19E

Rev enue (A$m) 1,976 1,974 2,084 2,139 2,199

Net Prof it (A$m) 333 303 311 343 366

Normalised EPS (A$) 59.7 55.0 56.7 62.8 66.9

Normalised EPS Growth -0.44% -7.93% 3.22% 10.62% 6.64%


DPS (cps) 31.0 33.0 35.0 37.0 39.0

Div idend Yield 3.1% 3.1% 3.3% 3.5% 3.8%

P/BV (x) 4.8 5.1 4.7 4.4 4.0

ROE (%) 27.2% 26.5% 27.1% 27.8% 27.1%

70.0

81.3

92.5

103.8

115.0

8.30

9.30

10.30

11.30

12.30


Source: Bloomberg

2

4

6

8


Vol m

9

Insurance - General│Australia│Equity research│November 9, 2016


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Medibank

Reconfirming guidance at 1Q17

MPL’s AGM commentary, in our view, pointed to a 1Q17 operating environment ■broadly in-line with previous guidance.

MPL remains relatively coy about 1Q17 claims utilisation trends, with the company ■still expecting some normalisation from favourable FY16 levels.

We make minor earnings changes with FY17F EPS lifted by 2%, but future year ■EPS forecasts lowered by 1-2%.

Maintain Hold recommendation. On ~17x FY17F PE, we see MPL as fair value. ■

AGM key points MPL’s AGM commentary pointed to a 1Q17 operating environment broadly in-line with previous guidance. Management noted a soft premium environment affected by an overall slowing market and market share losses. While management said top-line growth of 1.3% for four months (4% annualised) was slightly below its expectations, it was ahead of our previous 3% forecast. On claims costs, management still expects industry conditions to be comparable to 2H16, with some expected normalisation in hospital utilisation to be offset by payment integrity program/hospital re-contracting benefits. The FY17 Health Insurance (HI) operating profit target of A$490m is above our A$480m expectation but broadly per consensus.

Broad industry claims trends provide comfort on guidance MPL remains relatively coy about 1Q17 claims utilisation trends, in our view, with the company still expecting some normalisation from favourable FY16 levels. We think hospital claims utilisation remains a difficult area to get a consensus view on. Indeed while Ramsay recently reaffirmed guidance, noting hospital admission growth in line with longer term trends, both Healthscope and NIB Holdings have said hospital utilisation remained low in 1Q17. At the very least recent industry commentary appears neutral to positive for MPL, providing confidence on MPL’s FY17 guidance.

Changes to forecasts We lift FY17 forecast EPS by ~2% on improved HI profit expectations, but slightly lower forecasts in future years (1-2%) as we take a more conservative view on longer term margins as hospital utilisation normalises. We lower our SOTP-based MPL valuation by 3% to A$2.51 from A$2.60.

Investment view MPL has overall delivered strong results since listing, in our view. However while further cost out and low claims utilisation may provide a near-term tailwind, we see current industry profitability as the peak of the cycle. We remain of the view that if MPL cannot restore HI top-line growth, it could return to being a mid-single digit EPS growth stock quickly when cost out ends. In that scenario its current 17x FY17F PE multiple could be hard to justify. We maintain our Hold recommendation.


▎Australia

HOLD (no change) Current price: A$2.55



Up/downside: -1.5%

Reuters: MPL.AX

Bloomberg: MPL AU


A$7,023m


A$39.52m


Free float: 100.0%


Absolute (%) 4.1 -16.7 6.7

Relative (%) 7.9 -11.6 5.9

Richard COLES

T (61) 2 9043 7911

E [email protected]

Financial Summary Jun-15A Jun-16A Jun-17E Jun-18E Jun-19E

Revenue (A$m) 6,576 6,742 6,992 7,283 7,621

Net Profit (A$m) 285 418 412 425 437

Normalised EPS (A$) 10.4 15.2 15.0 15.4 15.9

Normalised EPS Growth n/a 46% -1% 3% 3%


DPS (A$) 5.3 11.0 11.2 11.6 11.9

Dividend Yield 2.2% 4.5% 4.6% 4.7% 4.9%

P/BV (x) 5.7 4.3 4.0 3.8 3.5

ROE (%) 20.5% 27.3% 25.3% 24.5% 23.7%

81.0

99.8

118.5

137.3

1.90

2.40

2.90

3.40


Source: Bloomberg

20

40

60

80

100


Vol m

10

Property Development│Hong Kong│Equity research│November 9, 2016

Company Note │ Alpha series



Yuzhou Properties Co Ltd Specialist in East China

We initiate coverage with an Add and target price of HK$3.4, based on 60% ■discount to NAV. This is in line with our target discount for other small developers.

Expansion in strategic cities to drive volume growth; contracted sales and revenue ■to double by 2018. Relatively high gross margin at 32-33% vs. peers’ 26%.

We expect core EPS to rise 15% in FY16, 28% in FY17 and 21% in FY18; core ■margin to maintain at 14% on volume growth, interest savings and JV contribution.

Healthy financials; net gearing to stay below 70%; borrowing cost to dip below 6%. ■

Small but competitive; top runner in Xiamen for 10 years Yuzhou is a leading developer based in West Straits. Despite competition from national market leaders, Yuzhou remains the top seller in Xiamen and Hefei. The company’s success has demonstrated that its strong brand name, built on localisation and a superior landbanking strategy, can outweigh competitors with larger market caps.

Paving the way for expansion Since its listing in 2009, Yuzhou has been actively expanding to a new city every year. Yuzhou has designated six strategic cities, i.e. Xiamen, Hefei, Fuzhou, Shanghai, Nanjing and Hangzhou, in its expansion plan. These cities present strong take-up and offer high margins (30-50%). Except Hangzhou, Yuzhou has built up a decent landbank in other cities over the past 2.5 years.

Strong volume growth as key driver to earnings We expect Yuzhou’s contracted sales and revenue to post a 3-year CAGR of 27% and 25%, respectively, in FY16-18, doubling from the 2015 level, on the back of more saleable resources. Owing to the surging land prices over the past 1.5 years, we expect a moderate decline in gross margin from 35.8% in 2015 to 32.9%/33.1%/32.1% in FY16/17/18F. Nevertheless, strong volume growth, lower financing cost and more contribution from JV are expected to grow core EPS by 15%/28%/21%YoY in FY16-18F.

Offering attractive yield of 7-11% in FY16-18 Management guided that it will pay about one-third of its earnings as dividend. We estimate that its DPS will increase from Rmb0.2 in FY16 to Rmb0.3 in FY18. This translates into 7-11% yield in FY16-18. Such a high yield looks very attractive for many insurance companies looking for high yield plays.

Prudent financial management Despite its rapid expansion, Yuzhou has recorded net cash inflow for four consecutive years, as investments are carefully matched with inflow of funds. Net gearing has been maintained at a healthy level of 60-80% since 2011(Jun 16: 75%). Average borrowing cost has been steadily declining from 9.7% in 2012 to 6.3% in 1H16, which is expected to dip below 6% by end-FY16, in our view.

Attractive valuation, 3 reasons for further re-rating Yuzhou is trading at a 67% discount to our FY17F NAV, 4x 2017E P/E and 7% dividend yield (industry average: 42%, 6x and 5%). Going forward, we identify 3 reasons for further re-rating, 1) above-market dividend yield (7% vs 5%) which is well-covered by solid earnings prospect, 2) investors will review small-cap universe at the dawn of SZ-HK connect, and 3) this name is still undercovered by sell-side. Key risks include further tightening policies, weak demand given the recession and dividend risk.

Hong Kong

ADD (previously NOT RATED) Consensus ratings*: Buy 7 Hold 1 Sell 0

Current price: HK$2.84

Target price: HK$3.40

Previous target: HK$

Up/downside: 19.7%

CIMB / Consensus: 5.9%

Reuters: 1628.HK

Bloomberg: 1628 HK


HK$10,837m


HK$25.81m

Current shares o/s: 3,245m

Free float: 31.8% *Source: Bloomberg


Not applicable.

Source: Bloomberg


Absolute (%) -2.1 13.6 46.4

Relative (%) 1.9 11.8 46.2

Major shareholders % held Lam Lung On (chairman) 68.3

Analyst(s)

Siu Fung LUNG, CFA


Raymond CHENG, CFA T (852) 2539 1324 E [email protected]

SOURCE: COMPANY DATA, CIMB FORECASTS

Financial Summary Dec-14A Dec-15A Dec-16F Dec-17F Dec-18F

Total Net Revenues (Rmbm) 7,837 10,376 14,338 17,202 20,372

Operating EBITDA (Rmbm) 2,745 3,114 3,940 4,693 5,397

Net Profit (Rmbm) 1,308 1,657 1,930 2,463 2,972

Core EPS (Rmb) 0.30 0.44 0.51 0.65 0.78

Core EPS Growth (21.6%) 48.5% 14.8% 27.6% 20.7%

FD Core P/E (x) 8.38 5.58 4.91 3.85 3.19

DPS (Rmb) 0.13 0.15 0.18 0.23 0.27

Dividend Yield 5.2% 6.1% 7.1% 9.1% 11.0%

EV/EBITDA (x) 6.13 5.81 4.76 4.15 3.83

P/FCFE (x) 1.70 4.13 6.41 4.75 5.46

Net Gearing 59.8% 79.4% 69.6% 61.1% 55.9%

P/BV (x) 1.05 0.99 0.81 0.66 0.54

ROE 13.2% 18.2% 18.1% 19.0% 18.8%

% Change In Core EPS Estimates

CIMB/consensus EPS (x) 1.01 1.09 1.11

89.0

108.4

127.9

147.3

1.40

1.90

2.40

2.90

Price Close Relative to HSI (RHS)

10

20

30

40


Vo

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11

Navigating China│Property - Property - Overall│Equity research│November 9, 2016

Sector Note

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFACustomEntityStatement

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Property - Overall Cold but not frozen

■ We believe the sizeable housing market in China offers opportunities for quality developers to gain market share from market consolidation ahead.

■ Our nine-factor scorecard assesses the competitiveness of a developer. COLI, Longfor and CIFI are likely winners; Sunac, Greentown, Country Garden are losers.

■ Meanwhile, we cut developers’ target prices by an average 11% on the back of our downgrade of the sector from Overweight to Neutral due to tightening policies.

■ We project sales volume to fall 10% in 2017 but prices to be stable and expect the current policy stance to prevail in 2017.

■ The China property sector’s undemanding valuation of a 45% discount to NAV, 7x FY17 P/E and 5% dividend yield should protect against downside risk.

Downgrade sector to Neutral on policy We downgrade the China property sector from Overweight to Neutral due to policy concerns and we cut developers’ target prices by 11% on average by widening our target NAV discounts across the broad. We downgrade Country Garden, Greentown and Sunac to Reduce from Hold and Agile to Hold from Add and upgrade Evergrande to Hold from Reduce. Meanwhile, we initiate coverage on Yuzhou with an Add rating.

Expect volume to fall but prices to remain stable in 2017 We expect transaction volume to fall 10% in 2017 but for prices to remain relatively stable on households’ strong holding power. The sector is unlikely to see a significant drop in sales volume as there is ample liquidity in China. Meanwhile, we expect China housing demand to stay high given urbanisation and the Chinese’s fondness for property. For 2018, we expect both volume and price to be largely stable.

Who are the winners in a consolidated market? Given China’s sizeable housing demand and the fact that it is the world’s largest housing market, we believe quality developers should be able to benefit. Our nine-factor scorecard assesses a developer’s overall competitiveness and suggests that COLI, Longfor and CIFI are the likely winners in a consolidated market while Sunac, Greentown and Country Garden could be losers.

Top Adds and top Reduces COLI, Longfor and CIFI are our top Adds due to their above-average earnings growth, decent land bank duration and exposure and healthy financials while Sunac, Country Garden and Vanke-A are our top Reduces.

Sector valuation undemanding Despite our downgrades, we think the sector’s undemanding valuations - 45% discount to NAV, 7x FY17 P/E and 5% yield - should protect against significant downside from the current level.

Key risks Local governments may tighten the screws further if property prices continue to rise, dragging down developers’ share prices. Meanwhile, banks may limit their liquidity for the sector, which could affect developers’ overall operations.

[ X ]

Figure 1: Nine-factor scorecard to identify the good and the bad

SOURCES: CIMB RESEARCH, COMPANY

▎China

Neutral (previously Overweight)


China Overseas Land & Investment Ltd ADD, TP HK$31.50, HK$24.05 close

We believe COLI will benefit from its CITIC acquisition, especially its margins and earnings growth in the next few years. It trades at an attractive 31% discount to NAV, 7x FY17 P/E and 3.5% yield.

CIFI Holdings ADD, TP HK$2.85, HK$2.27 close

We expect CIFI’s earnings to increase 20-25% p.a. in FY16-18F given its strong sales and margin recovery. It also offers attractive dividend yields of 8-10% in FY16-18F.

Longfor Properties ADD, TP HK$15.40, HK$10.08 close

Longfor has benefited significantly from its proactive landbanking in top-tier cities and we expect its rental income to record strong growth of 20-30% p.a. in the next few years. It offers a potential dividend yield of 5.4% in FY16F.

Summary valuation metrics

Analyst(s)

Raymond CHENG, CFA


Siu Fung LUNG, CFA T (852) 2539 1327 E [email protected]

10

20

30

40

50

60

70

25 30 35 40 45 50

Inexpensive and low score

High score but expensiveExpensive and low score

SOHO

AgileSunac

Sino Ocean

Evergrande

Shimao

Yuzhou

R&F

CIFI

Longfor

Country Garden

Inexpensive and high score

Greentown

CR Land

COLI

Vanke

Dis

co

un

tto

NA

V (

%)

KWG

Total score

Buy

Sell

P/E (x) Dec-16F Dec-17F Dec-18F

China Overseas Land & Investment Ltd 7.87 6.75 5.94

CIFI Holdings 4.69 3.89 3.33

Longfor Properties 6.47 5.72 5.01

P/BV (x) Dec-16F Dec-17F Dec-18F

China Overseas Land & Investment Ltd 1.09 0.97 0.87

CIFI Holdings 0.85 0.70 0.58

Longfor Properties 0.85 0.78 0.70

Dividend Yield Dec-16F Dec-17F Dec-18F

China Overseas Land & Investment Ltd 3.76% 4.25% 4.80%

CIFI Holdings 7.53% 9.33% 11.20%

Longfor Properties 5.41% 6.12% 6.99%

12

http://www.efa.biz/

Autos│India│Equity research│November 9, 2016

Company Note


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Ashok Leyland 2QFY17: Marginal relief in downcycle

2QFY17 EPS dipped 14.6% yoy to Rs1, which beat our/ Bloomberg consensus ■estimates by 11%. 1HFY17 EPS formed 40% our FY3/17 estimate.

Short-term sales mix improvement, with more spare parts and exports, led to 40bp ■EBITDA margin rise qoq that outperformed our forecast.

We downgrade our MHCV industry sales growth estimate for FY17 and build in ■Hinduja Foundries merger impact, leading to FY17-19F EPS cuts of 6-8%.

Reduce maintained, with a cut in DCF-based target price to Rs72.3. ■

EBIDTA dipped 14% yoy in 2QFY17 Ashok’s 2QFY17 EBITDA dipped 14% yoy to Rs5.37bn, which was 6% ahead of our and Bloomberg consensus estimates. Higher ASP (2.9% qoq) and lower raw material cost (-100bp qoq) led to 2QFY17 EBITDA beating our forecast. EBITDA margin improved 40bp qoq to 11.6% on a 5.5% qoq rise in sales volume. 2QFY17 EPS of Rs1 was ahead of our estimate by 11% due to lower tax and interest expense. Net debt increase of 17% qoq to Rs18.7bn on the back of rising working capital is a concern to us.

Management conference call highlights Management highlighted the improved sales mix, with more spare parts, defence and exports, as the key reason for the 40bp EBITDA margin improvement in 2QFY17. It is hopeful that transporters will overcome liquidity issue in short term (from Rs500 and Rs1,000 currency change programme) and participate in buying opportunities ahead of BS-IV emission cost hike effective in Apr 2017. Management plans to reduce exposure to cyclical domestic trucks from 55% of sales in 2Q to 40%.

Short-term relief in MHCV downcycle The sharp decline of 14.2% yoy and 7.7% qoq in 2QFY17 domestic MHCV industry sales volume was worse than our industry downgrade assumption of +10% in Jun 2016. The improvement seen in Oct 2016 industry sales was driven by high ASP discounts and low base benefits. We downgrade FY17F domestic MHCV industry sales volume growth from +10% to -7%, as recovery in economic activity has been slower than expected. This led to our sharp c.10% cut in Ashok sales volume for FY17F.

FY17-19F PAT cut by 3-5% We incorporate Hinduja Foundries merger effects (started on 1 Oct 2016) into our FY17 earnings estimate. We estimate that this will lead to Rs2.5bn sales for 2HFY17F and marginally negative EBITDA margins. This leads EBITDA cuts of 6-12% for FY17-19F. The lower interest cost benefit seen in 2QFY17 limits our PAT cuts to 3-5% for FY17-19F. Furthermore, after building in the 2.8% equity dilution from the merger, our EPS is lowered by 6-8% for FY17-19F.

DCF-based target price cut, Reduce maintained Building in our FY17-19F EPS cuts, we reduce DCF-based target price from Rs83.6 to Rs72.3. Ashok’s forward P/BV valuation has corrected from +2 s.d. above historical mean in Jun 2016 to +1 s.d. above mean now, which we deem rich for MHCV downcycle. Except for short-term benefit from buying pre-BS-IV emission cost hike, we think fundamental cycle revival will be delayed to Sep 2017. Reiterate Reduce, with our FY17-19F EPS 11-23% below consensus. Earlier-than-expected MHCV industry demand revival is a key risk.

▎India

REDUCE (no change) Consensus ratings*: Buy 26 Hold 6 Sell 11

Current price: Rs91.75

Target price: Rs72.30

Previous target: Rs83.60

Up/downside: -21.2%

CIMB / Consensus: -27.5%

Reuters: ASOK.BO

Bloomberg: AL IN


Rs261,109m


Rs917.2m




FY17-19F revenue cut by 7-9%.

FY17-19F EBITDA cut by 6-12%.

FY17-19F EPS cut by 6-8%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 13 2.9 4.7

Relative (%) 14.7 5 -0.3

Major shareholders % held Hinduja Family 50.4

LIC 3.7

Government Pension Fund 1.9

Analyst(s)

Pramod AMTHE



Financial Summary Mar-15A Mar-16A Mar-17F Mar-18F Mar-19F

Revenue (Rsm) 135,622 188,216 197,839 227,550 260,404

Operating EBITDA (Rsm) 10,339 21,660 21,881 22,513 27,291

Net Profit (Rsm) 3,230 5,571 13,000 13,329 15,438

Core EPS (Rs) 0.87 3.80 4.27 4.55 5.28

Core EPS Growth 337% 12% 7% 16%

FD Core P/E (x) 105.4 24.1 21.5 20.1 17.4

DPS (Rs) 0.45 0.95 1.10 1.20 1.40

Dividend Yield 0.49% 1.04% 1.20% 1.31% 1.53%

EV/EBITDA (x) 25.92 12.01 11.73 10.96 8.78

P/FCFE (x) 118.3 23.5 NA 406.2 40.8

Net Gearing 63.4% 24.3% 38.9% 23.6% 12.7%

P/BV (x) 6.55 5.98 4.87 4.12 3.51

ROE 6.9% 25.9% 25.0% 22.2% 21.8%

% Change In Core EPS Estimates (5.72%) (7.54%) (7.67%)


72.0

85.3

98.7

112.0

125.3

72.0

82.0

92.0

102.0

112.0

Price Close Relative to SENSEX (RHS)

50

100

150


Vol m

13

Technology│India│Equity research

Sector Flash Note



IT Services Any major visa woes ?...Unlikely

After the 2016 US presidential elections, many investors are worried about any ■major adverse changes in outsourcing and/or visa policies.

Based on past reforms, we believe any new visa reforms are unlikely to materially ■impact the sales growth potential but can result in margin pressure.

We currently have Overweight sector stance. We will be watchful of any major ■adverse visa reforms as they could pose risks.

Visa reforms – a key topic in 2016 US election campaign ● In the 2016 US presidential election campaign, both Democrats and Republicans

created a lot of noise about immigration and/or H-1B/L1 visa reforms.

● The H1B and L1 Visa Reform Act, 2016 was introduced in Jul 2016 by one member each from the Democratic Party and the Republican Party, and the act proposed to prohibit companies from hiring H1B employees if they have more than 50 employees and more than 50% of their employees are H-1B/L1 visa holders.

● This act, if implemented, would affect the US operations of Indian IT companies.

Similar reforms were proposed earlier as well ● The earlier Immigration bill, which amongst others, also proposed changes relating to

H-1B/L1 visa issuance similar to the Visa Reform Act, 2016. However, this was only passed by the Senate in Jun 2013.

● The recent enacted reforms of Dec 2015 resulted in just an increase in the new visa application fees, which in our view had a 20-40bp impact on the margins of most Indian IT large caps (which was reflected in 1HFY17 financials).

What are the worries? ● Now that the 2016 US presidential elections are over, many investors are worried

about the likely implementation of any immigration/visa reforms and their impact on the revenue growth potential of many IT companies (through proposals similar to the Visa Reform Act, 2016) and/or an increase in the visa related costs through further hikes in the visa application fees and/or higher threshold salaries for visa holders.

Our view ● In our view, most of the future visa reforms, if any, are unlikely to impact revenue

growth potential of the sector materially.

● Certain media reports indicate that if reforms like the Visa Reform Act, 2016 are passed in their original/similar forms, they would be in violation of the General Agreement on Trade in Services (GATS).

● Many Indian IT vendors post 2013 accelerated their investments to recruit Americans. HCLT claims that less than 50% of its employees in the US are visa holders.

● According to a Bloomberg report, the total US tech oriented unemployment rate was around 3% as at end-3Q16, substantially lower than the overall rate of c.4.9%. As such, as the biggest IT spender, we think the US has a shortage of local IT talent.

Reasonable valuations with attractive FCF yield ● Besides reasonable P/E valuations of most stocks with high cash generation

capabilities (resulting in high FCF yield of 5.0-7.6% for FY18F across top-5 large caps incl. TechM) and consistent revenue wallet share gains by Indian IT players (despite volatile global macros), we do not expect any material downside in valuation multiples over the medium to long term.

● HCLT, Infosys, TechM and NITEC remain our preferred bets. Major adverse macro events and/or strong regulatory action against outsourcing in key markets are risks.

Figure 1: Low U.S. tech unemployment rate indicates shortage of skilled labour

Price, valuation and yield on this page is based on prices as on close of business, 8

th Nov 2016; SOURCES: BLOOMBERG

1.0

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14

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▎India

November 10, 2016 - 10:18 PM

Overweight (no change)


HCL Technologies ADD, TP Rs970.0, Rs809.0 close

With strong positioning in growing services, incl. IMS/Engg./R&D, together with improving traction in digital, HCLT’s earnings predictability is improving. It is relatively better placed than peers to weather visa woes.

Infosys ADD, TP Rs1,220, Rs983 close

Infosys’s sales growth is likely to be at the upper end of most peers. With its increased aggression in sales, delivery and improving deal win ratio, current valuation offers favourable risk-reward.

Tata Consultancy Services HOLD, TP Rs2,400, Rs2,283 close

We do not expect any re-rating catalyst for TCS in near term as besides increasing sales growth headwinds, it will be difficult for it to manage its EBIT margin within its targeted range in FY17F. We prefer HCLT/Infosys.

Summary valuation metrics

Analyst(s)

Sandeep SHAH


P/E (x) Dec-16F Dec-17F Dec-18F

HCL Technologies 13.90 12.68 11.53

Infosys 15.49 14.23 12.71

Tata Consultancy Services 16.45 15.22 13.78

P/BV (x) Dec-16F Dec-17F Dec-18F

HCL Technologies 3.60 3.17 2.80

Infosys 3.26 2.93 2.62

Tata Consultancy Services 5.06 4.28 3.66

Dividend Yield Dec-16F Dec-17F Dec-18F

HCL Technologies 3.12% 3.38% 3.73%

Infosys 2.68% 2.93% 3.28%

Tata Consultancy Services 2.20% 2.47% 2.78%

14

Media - Integrated│Indonesia│Equity research│November 9, 2016

Company Note


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Media Nusantara Citra 3Q16: Earnings improving but could be better

■ 9M16 core net profit of Rp1.2tr (+25% yoy) was in line at 74% of our and consensus’ forecasts. That revenue had not picked up faster was the only disappointment.

■ Related-party investments dropped to 10% of assets at end-9M16, the lowest level ever, and FCF surged to Rp807bn (15% of sales in 9M16).

■ MNCN continued to lead audience share in 10M16, especially for prime time. This and the improving economic outlook suggest acceleration in future earnings growth.

■ MNCN’s current valuation of 14.9x forward P/E (at 24% discount to its 5-year mean and 28% discount to SCMA) suggests that it has yet to win market confidence.

In-line 9M16 results but earnings growth could have been better 9M16 revenue of Rp5.3tr (+4.6% yoy) was below our expectation at 72% of our FY16F (vs. 76% 3-year mean) but in line with consensus (74%), backed by 10% rate card hike. 3Q16 revenue of Rp1.7tr was flat yoy but -16.4% qoq due to seasonality. 9M16 core net profit of Rp1.2tr (+24.5% yoy) was in line at 74% of our and consensus estimates (vs. 72% 3-year mean). 3Q16 core net profit of Rp388bn rose 54.3% yoy but -21.3% qoq, marred by seasonality. 2Q-3Q revenue rose 5.9% yoy and core net profit was up 19%.

Improving balance sheet Related-party investments fell to Rp1.5tr or 10% of assets at end-9M16, the lowest level ever. Net gearing was 27.7% at end-9M16 (25% at end-1H16 and end-FY15) as MNCN bought back 202.5m shares (1.4% of shares outstanding) in 3Q16. Capex of Rp660bn in 9M16 was -53.6% from FY15, raising FCF to Rp807bn at end-9M16 (1H16: Rp664bn FY15: -Rp59bn), on track to meet our FY16 FCF forecast of Rp902bn. We expect FCF to improve as big capex is over and MNCN benefits from economic recovery.

Audience share leadership continues MNCN kept its strong hold on TV audience share in 10M16, with 44.9% prime time share (+10.6% pts yoy) and 37.1% all time share (+2.6% pts yoy). Its flagship station RTCI maintained industry leadership with 29.7% prime time share (+11% pts yoy) and 19.7% all time share (+3.6% pts yoy). In Sep 2016, seven of the nation's 20 top drama series were aired by MNCN (“Anugerah Cinta” and “Anak Jalanan” were top two). Its knack for churning out soap opera hits has been consistent over the past 2 years.

Ad spend outlook brighter Gross ad spend increased by 9% yoy in 3Q16 and 17.7% yoy in 9M16. By product category, beverages (+19.5% yoy), food (+17% yoy), and toiletries (+15.3% yoy) were top contributors to ad spend in 3Q16. On the back of a better economic outlook and further recovery in consumer spending, we expect consumer companies’ ad spend to accelerate in 2017. This would benefit media companies, especially MNCN, as it commanded dominant audience share in 9M16.

Reiterate Add 9M16 results were largely in line but the share price has not reacted positively, which we believe the underlying tone was it needed to exceed expectation to allay concerns over CG (corporate governance). MNCN trades at 14.9x forward P/E or at 23.6% below 5-year mean and 28.0% discount to SCMA, implying weak market confidence. After some housekeeping, we trim FY16-18F EPS by 1-2%, although we project robust 4Q16 earnings. This lowered TP to Rp2,500, still based on 19.2x forward P/E (5-year mean).

▎Indonesia

ADD (no change) Consensus ratings*: Buy 10 Hold 4 Sell 1

Current price: Rp1,950

Target price: Rp2,500

Previous target: Rp2,550

Up/downside: 28.2%


Reuters: MNCN.JK

Bloomberg: MNCN IJ


Rp27,838,402m


Rp26,767m




FY16F EPS decreased by 1%.



Source: Bloomberg


Absolute (%) -5.3 -9.7 11.1

Relative (%) -7 -9.9 -8.7

Major shareholders % held Global Mediacom 64.2

Analyst(s)

Dian OCTIANA

T (62) 21 3006 1738

E [email protected]

Linda LAUWIRA T (62) 21 3006 1734 E [email protected]



Revenue (Rpb) 6,666 6,445 7,082 7,995 9,108

Operating EBITDA (Rpb) 2,778 2,403 2,853 3,389 3,988

Net Profit (Rpb) 1,761 1,185 1,655 1,933 2,391

Core EPS (Rp) 127.6 102.6 115.9 135.4 167.5

Core EPS Growth 1.2% (19.6%) 13.0% 16.8% 23.7%

FD Core P/E (x) 15.37 19.12 16.92 14.49 11.71

DPS (Rp) 62.19 41.12 57.40 67.05 82.94

Dividend Yield 3.19% 2.11% 2.94% 3.44% 4.25%

EV/EBITDA (x) 10.23 12.75 10.99 8.89 7.39

P/FCFE (x) NA 112.4 20.4 16.6 15.8

Net Gearing 1.9% 23.8% 28.8% 12.8% 5.2%

P/BV (x) 3.12 3.10 3.00 2.50 2.22

ROE 22.3% 16.4% 18.2% 19.0% 20.2%



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15

Chemicals - Others│South Korea│Equity research│November 9, 2016

Company Note


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Kolon Industries Temporary setback

■ Kolon Industries’ 3Q16 OP was 27% below consensus due largely to the labour strike at Hyundai Motor Group and unfavourable FX rates.

■ We see the 3Q16 miss as temporary and normalisation of domestic auto production along with a rebound in FX rates should meet market expectations in 4Q16.

■ Management confirmed that the expansion plan of the tyre cord plant in Vietnam should be finalised within end-2016.

■ Catalysts: 1) confirmation of CPI film usage by major display panel makers, and 2) capacity expansion of key products (tyre cord, airbags, hydrocarbon resin, etc.).

3Q16 earnings disappoint Kolon Industries (KI) reported 3Q16 operating profit that was 27-29% below consensus and our expectation, due largely to lower-than-expected industrial material margins and contraction in the domestic outdoor apparel market. Net profit missed our expectation by 33% that reflected W8bn additional taxes due to a special tax audit but offset by W9bn gains on available for securities sales.

Industrial materials margin contraction temporary We think the industrial materials (IM) earnings miss will be temporary given the unexpectedly long strike at Hyundai Motor Group in 3Q16 that led to 26% qoq lower auto production compared to a 3-8% qoq decline in 3Q in 2013-15. Of the W10bn qoq decline in 3Q16 IM OP, we estimate that W6bn was due to margin compression of Kolon Glotech (car seat manufacturer) and W1bn on FX impact. We expect IM margins to recover in 4Q16 along with the normalisation of domestic auto production and FX rates.

Structurally lower chemicals margins While we believe that IM margins should recover, we think that the chemicals divisions may see limited improvement in margins due to increasing hydrocarbon resin production in FY17F. ExxonMobil is expected to open its 90kT hydrocarbon resin plant in Singapore by FY17F, compared to 38kT capacity for Kolon Industries. As a result, we lower our expectation for chemicals OP by 12-14% for FY17-18F in view of limited spread expansion despite a turnaround in naphtha price.

Investment in CPI film production proceeding as planned Management noted in its 3Q16 earnings conference that its investment is proceeding as originally planned despite uncertainties over Samsung Electronics’ foldable phone launch. However, management sees the recent Galaxy Note 7 issue as favourable for the company as there has been more focus on quality over price for handset materials given the superior quality of Kolon Industries’ CPI film over its peers.

One-off tax provisions In 3Q16, KI reflected only 10% of the reported W74bn additional tax from the recent special tax audit. The company plans to appeal the charges and we think it has a good chance of recovering part of the reported amount given that the average refund on excessive taxation claims has been 29% in the past three years (2013-15).

Maintain Add We reiterate our Add rating with a slightly lower SOP-based target price of W106k as we lower our FY16-18F EPS by 6-9% on lower-than-expected earnings from chemicals. Key catalysts include: 1) higher visibility on the launch of foldable devices, and 2) confirmation of capacity expansion plans. Key risks include faster-than-expected development of CPI films by competitors and emergence of new materials.

▎South Korea


Current price: W74,500

Target price: W106,000

Previous target: W115,000

Up/downside: 42.3%


Reuters: 120110.KS

Bloomberg: 120110 KS


W1,873,771m


W10,568m

Current shares o/s: 25.12m



FY16-18F Revenue decreased by 2-4%.

FY16-18F EPS decreased by 6-9%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -7.9 -12.1 12.7

Relative (%) -5.4 -10.7 14.6

Major shareholders % held Kolon Corp, etc 33.7

National Pension Service 11.8

KB Asset Management 6.4

Analyst(s)

TJ OK




Revenue (Wb) 5,338 4,857 4,612 4,918 5,204

Operating EBITDA (Wb) 360.4 474.3 498.7 548.2 598.2

Net Profit (Wb) 42.3 (144.4) 203.0 236.5 284.5

Normalised EPS (W) 1,685 -5,748 8,082 9,416 11,325

Normalised EPS Growth (62%) (441%) 17% 20%

FD Normalised P/E (x) 49.94 NA 10.41 8.93 7.43

DPS (W) 500 555 900 1,000 1,100

Dividend Yield 0.67% 0.74% 1.21% 1.34% 1.48%

EV/EBITDA (x) 10.14 7.89 7.26 6.25 5.33

P/FCFE (x) NA 3,841 42 16 28

Net Gearing 82.0% 92.8% 75.5% 59.8% 44.4%

P/BV (x) 0.99 1.08 0.97 0.87 0.78

ROE 2.3% (8.1%) 11.2% 11.7% 12.6%

% Change In Normalised EPS Estimates (8.50%) (7.69%) (6.18%)

Normalised EPS/consensus EPS (x) 0.97 0.97 1.03

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16

IT Services│South Korea│Equity research│November 9, 2016

Company Note


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NHN Entertainment IP driven game success to resume

3Q16 OP disappointed due to lower-than-expected mobile gaming revenues from ■Japan.

Gaming revenues should recover in 4Q16 as we see grossing rank of Disney Tsum ■Tsum recovering back to 1H16 levels along with new game launches in 4Q16.

Payco should continue to gain payment market share as it expands partnerships ■with credit card companies.

We maintain Add with a lower SOP-based target price of W68k. ■

3Q16 earnings disappointment NHN Entertainment (NHNE) reported 3Q16 operating profit that missed our and consensus estimates by 78-82% due to lower-than-expected mobile gaming revenues. Its marketing expenses on Payco are trending in line with expectations. However, the performance of God of High School was below our expectations and overseas mobile gaming revenues were hit by the popularity of Pokemon Go in Japan. Net profit also came in 58% below our estimate.

Disney Tsum Tsum recovering The biggest contributor to 3Q16 earnings disappointment was the lower-than-expected revenue generated by Disney Tsum Tsum in Japan. Due to the popularity of Pokemon Go, Disney Tsum Tsum’s quarterly average grossing rank dropped to 6.1 in 3Q16 from 4.2 in 1H16. However, the rank has recovered to 4.7 in 4Q16 and we believe the overseas mobile revenues should recover sequentially as the popularity of Pokemon Go subsides.

Plans to launch more games with popular IPs NHNE plans to launch an iOS version of its God of High School mobile game in 4Q16 which could boost its domestic revenues in the quarter. However, we think that the new game cycle will become more prominent from 1Q17, as the most anticipated game utilising the IP of Rovio’s Angry Bird has been delayed from 4Q16 to 1Q17. NHNE also plans to launch a new game called Tune Pop in 1Q17; this game will utilise the popular Naver webtoon IP.

Payco’s payment market share to rise While Payco’s contribution to revenues was still low at 1.3% in 3Q16, we believe its market share will rise sequentially as it expands alliances with credit card companies. In 2Q16, it signed an agreement with Lotte Card (10% market share of personal credit card use in 2015) to integrate Payco in the credit card’s payment system. It also signed a similar agreement with Samsung Card in 3Q16 (18% market share).

Maintain Add with a lower target price of W68k We maintain Add on NHNE with a lower SOP-based target price of W68k (previously W73k). We raise our FY16F net profit by 28% to reflect one-off gains from the sale of available-for-sale securities. However, we lower FY17-18F net profit by 11-12% to reflect the slowdown in mobile revenues in Japan and delays in the launch of new games. Key catalyst is higher-than-expected gaming revenue while risks are further delays in the launch of new games and higher Payco-related marketing spending.

▎South Korea


Current price: W48,650

Target price: W68,000

Previous target: W73,000

Up/downside: 39.8%


Reuters: 181710.KS

Bloomberg: 181710 KS


W951,838m


W4,057m




FY17-18F OP decreased by 14-18%.

FY17-18F EPS decreased by 11-12%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -15.4 -24.9 -13.4

Relative (%) -10.7 -20.7 -10.1

Major shareholders % held Lee, Junho, etc 34.0

Analyst(s)

TJ OK




Revenue (Wb) 557 645 855 943 1,004

Net Profit (Wb) 50.8 164.0 66.3 57.2 85.0

Normalised EPS (W) 3,348 9,446 3,390 2,922 4,345

Normalised EPS Growth 175% 182% (64%) (14%) 49%


Price To Sales (x) 1.32 1.31 1.11 1.01 0.95

DPS (W) - - - - -

Dividend Yield 0% 0% 0% 0% 0%

EV/EBITDA (x) 10.75 NA 8.09 5.64 3.32

P/FCFE (x) NA NA 64.02 20.99 12.90

Net Gearing (30.9%) (32.2%) (31.0%) (33.4%) (36.8%)

P/BV (x) 0.72 0.67 0.64 0.61 0.58

ROE 5.0% 13.4% 4.5% 3.8% 5.3%

% Change In Normalised EPS Estimates 27.7% (12.0%) (10.6%)


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17

Telco - Mobile│Malaysia│Equity research│November 9, 2016

Shariah Compliant

Company Note


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Axiata Group Growth engine will take time to restart

Any real financial rebound at Celcom would take another 12-18 months, in our view. ■ Rising depreciation on high capex would limit Axiata’s FY17-18F earnings growth. ■ Robi-Airtel merger could hit Axiata’s FY17 core net profit by at least 5-6%. ■ 3Q16 results preview: we estimate core net profit will fall by 7% qoq (-33% yoy). ■ Maintain Hold. Target price cut 7% to RM5.10. We prefer Digi for Malaysian telcos. ■

Do not expect major Celcom recovery in the short term New Celcom CEO, Michael Kuehner, came on board on 1 Sep and has been given an 18-month target to rejuvenate Celcom and get it to perform better than peers, financially and operationally. Axiata says this is an extensive task that involves: i) re-energising its staff force, ii) improving go-to-market strategies, iii) building a comparable, if not superior, mobile network versus peers, and iv) strengthening its product portfolio. As such, any real financial improvement would only be seen in 12-18 months, in our view.

High capex to result in rising depreciation We gather from Axiata that Celcom’s FY17-18F capex could stay high at around FY16 guidance of RM1.5bn (FY13-15 average of RM884m p.a.) due to mobile network investments and to support its fixed-mobile convergence play. Dialog’s capex could also rise to around RM900m in FY17F (FY16F: RM700m) due to its FTTH network rollout. Given the high average group capex of RM5.7bn p.a. in FY16-18F (FY13-15F: RM4.2bn p.a.), we see Axiata’s depreciation rising 29% to RM5.4bn in FY15-18F.

Robi-Airtel integration cost to impact Axiata’s FY17F earnings The Robi-Airtel Bangladesh merger is targeted for completion by year-end. We gather from Axiata that Robi will incur estimated integration cost of c.US$59m (RM248m) and bear 4-5% interest cost on US$93m (RM390m) debt consolidated from Airtel. These alone will hit our FY17F core EPS by 5-6%, excluding Airtel’s own negative EBITDA. There could also be one-off impairment charges in FY17F as Robi intends to reuse only 40-50% of Airtel’s equipment. Axiata only sees group net profit accretion in FY19F.

3Q16 results preview: Unlikely to excite We expect Axiata’s 3Q16 core net profit to come in at c.RM345m, or 7% lower qoq (-33% yoy) due to: i) a RM15m drag from XL, which recorded wider losses, ii) RM20m lower associate earnings from M1 and Idea Cellular, and iii) weaker seasonality (monsoon) at NCell. These may be partially offset by higher earnings at Celcom due to lower traffic cost and normalisation in USP fees qoq.

FY16-18F EPS cuts We cut FY16-18F core EPS by 5.7-13.1%, mainly to factor in lower earnings from Celcom, XL, Idea and M1. Post-revision, we forecast that Axiata’s core EPS will decline by 23.2% in FY16 and be flat in FY17, as we expect the slight earnings improvement at XL and Celcom to be offset by lower contribution from Idea. We then forecast core EPS to increase 7.6% in FY18, driven by stronger earnings at XL and Robi.

Maintain Hold; target price lowered to RM5.10 We maintain our Hold rating on Axiata with a 7.3% lower SOP-based target price of RM5.10. Axiata’s FY17 EV/OpFCF of 15.1x is in line with the ASEAN telco average, albeit at a 18% discount to its Malaysian telco peers. We see little earnings growth in FY17F, as the Robi-Airtel merger is likely to further dilute earnings once completed. Upside risk is stronger-than-expected recovery at Celcom and XL, while downside risks are more intense competition and 700MHz spectrum refarming in Malaysia.

▎Malaysia

HOLD (no change) Consensus ratings*: Buy 2 Hold 24 Sell 3

Current price: RM4.70

Target price: RM5.10

Previous target: RM5.50

Up/downside: 8.5%


Reuters: AXIA.KL

Bloomberg: AXIATA MK


RM42,164m


RM25.97m




FY16F-18F core EPS cut by 6-13%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -9.6 -17 -23.8

Relative (%) -9.5 -16.5 -22.5

Major shareholders % held Khazanah 38.1

Employees Provident Fund 11.8

Amanah Saham Bumi 6.6

Analyst(s)

FOONG Choong Chen, CFA




Revenue (RMm) 18,712 19,883 21,209 22,453 23,468

Operating EBITDA (RMm) 7,000 7,284 8,115 8,831 9,319

Operating EBITDA Margin 37.4% 36.6% 38.3% 39.3% 39.7%

Net Profit (RMm) 2,365 2,554 1,617 1,615 1,737

Core EPS (RM) 0.26 0.24 0.18 0.18 0.20

Core EPS Growth (15.2%) (9.7%) (23.0%) (0.1%) 7.6%

FD Core P/E (x) 17.83 19.74 25.63 25.66 23.85

DPS (RM) 0.22 0.20 0.16 0.16 0.17

Dividend Yield 4.68% 4.26% 3.32% 3.31% 3.56%

EV/EBITDA (x) 6.19 6.28 6.37 6.02 5.72

P/FCFE (x) NA NA 38.92 21.37 20.27

Net Gearing 38.9% 42.3% 62.2% 66.1% 63.2%

ROE 11.2% 9.4% 6.8% 6.8% 7.1%



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Semiconductor│Malaysia│Equity research│November 9, 2016

Shariah Compliant

Company Note


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Malaysian Pacific Industries A decent start to FY17

■ 1QFY17 core net profit was in line at 26%/28% of our/consensus FY17 forecast.

■ Core net profit grew 9% qoq in 1QFY17, driven by favourable forex from a strengthening US$ vs. RM, but fell 7% yoy due to weak industry sales.

■ MPI declared a first interim dividend of 8 sen, in line with our expectation.

■ Maintain Hold, with a slightly higher TP of RM8.60 as we roll over our valuation.

■ We prefer Inari for exposure to tech sector due to stronger earnings growth outlook.

1QFY17 results in line with expectations 1QFY17 revenue fell by 7% yoy from RM387m to RM358m due to lower sales in the consumer electronics segment, especially for smartphones. However, the decline was cushioned by stronger sales in the automotive segment. As a result of lower sales and higher effective tax rate, core net profit fell by 7% yoy from RM44m to RM41m (after adjusting for inventory write-offs). MPI declared a first interim dividend of 8 sen in the quarter, in line with our expectation.

Boost from stronger US$ against RM On a qoq basis, 1QFY17 revenue increased by 3.8% from RM345m due to favourable forex due to the depreciation of RM against US$. Stripping out the currency impact, MPI still showed underlying sales growth of 2.8%. This is slightly ahead of the flat revenue guidance from management in its last briefing. We attribute this to higher utilisation from new smartphone model launches and strategic shift in its portfolio mix towards advanced packages with lower average selling prices.

Expecting a seasonally weaker demand for 4Q We expect MPI to record sequentially lower revenue in 2QFY16 due to seasonality (its 2Q tends to be weaker) and sluggish industry demand outlook. However, the company may still benefit from the volatility in the currency movement given that the RM continues to depreciate against the US$, by some 3% so far in 2QFY17 relative to 1QFY17. Therefore, we expect MPI to maintain its profitability level in 2QFY17.

Potential for higher dividend payout MPI’s financial position remains strong, in our view, with a healthy net cash balance of RM335m (US$79m) at end-Sep 2016. Hence, we think there is ample room for the company to increase its dividend payout to its historical average level of above 50%. Moreover, management is not expecting FY17 capex to be higher than FY16's in view of the sluggish industry demand outlook. To recap, MPI does not have a stipulated payout policy, but it has an average payout of 31% in the past two years.

Maintain Hold with a higher RM8.60 target price We maintain our Hold rating, with a higher target price of RM8.60 as we roll forward our valuation to CY18F, still based on 11x P/E, a 10% discount to the sector mean of 12x. Switch to Inari for its stronger earnings growth outlook relative to the sector. We see recovery in smartphone demand, sustainable margin expansion and higher dividend payout as key upside risks to our call. Meanwhile, weaker smartphone demand and lower dividend payout are key downside risks.

▎Malaysia





Up/downside: 10.3%


Reuters: MPIM.KL

Bloomberg: MPI MK


RM1,551m


RM1.09m




No change.

Source: Bloomberg


Relative (%) 0.8 -3 11.2

Major shareholders % held Hong Leong Manufacturing 50.3

ASB 4.0

Analyst(s)

Mohd Shanaz NOOR AZAM



Financial Summary Jun-15A Jun-16A Jun-17F Jun-18F Jun-19F

Revenue (RMm) 1,390 1,463 1,539 1,599 1,662

Net Profit (RMm) 108.5 149.7 158.1 167.2 176.3

Core EPS (RM) 0.53 0.71 0.75 0.80 0.84

Core EPS Growth 91.2% 33.4% 5.6% 5.7% 5.4%

FD Core P/E (x) 14.59 10.93 10.35 9.79 9.29

Price To Sales (x) 1.18 1.12 1.06 1.02 0.99

DPS (RM) 0.20 0.23 0.28 0.33 0.35

Dividend Yield 2.56% 2.95% 3.59% 4.23% 4.49%

EV/EBITDA (x) 4.82 3.87 3.48 2.94 2.43

P/FCFE (x) 13.79 8.02 8.33 5.32 5.26

Net Gearing (5.7%) (24.3%) (34.9%) (49.6%) (60.9%)

P/BV (x) 1.91 1.67 1.52 1.39 1.28

ROE 14.1% 16.3% 15.4% 14.8% 14.3%

% Change In Core EPS Estimates 0% 0% 0%


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19

Property Devt & Invt│Malaysia│Equity research│November 9, 2016

Shariah Compliant

Company Note


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SP Setia Expanding presence in Penang

■ Setia’s acquisition of a 1,675-acre land plot in mainland Penang for RM620m is expected as it has been raising funds for landbanking recently.

■ However, it will only start to develop this land within the next 3-4 years. This is negative for Setia’s earnings in FY16-18F as it raises its net interest cost.

■ We cut our FY16-18F EPS by 1-20% to reflect higher interest cost and dilution impact of a higher share base arising from its recent dividend reinvestment plan.

■ We also cut our target price, based on 30% discount to RNAV, to RM3.10 to reflect the dilution impact. Maintain Hold. Prefer Eco World.

Maiden entry into mainland Penang Setia announced that it has accepted an award of tender for the purchase of a plot of freehold land measuring 1,675 acres in Seberang Perai Utara, Penang, for RM620m (US$148m). The land is situated about 18km away from Butterworth and 32km away from the Penang Bridge. The group said that the land has a gross development value of (GDV) of RM9.6bn and potential development period of 15 to 20 years.

A reasonable price The price tag of RM620m translates to about RM8.50 psf or 6.5% of the project’s potential GDV. This is lower than the recent acquisition of a 375-acre land plot in Penang by Eco World, whereby the land cost made up 11% of the project’s GDV. However, we gather from the company that this project is expected to be launched within the next 3 -4 years while Eco World’s project will be launched within the next one year. As such, we believe the price Setia is paying is reasonable.

Financed by preference shares rights issue We expect Setia to finance this acquisition with the proceeds from its rights issue of preference shares, which could raise up to RM1.15bn by Dec 2016. We expect Setia’s net gearing to remain at a comfortable level of 0.37x after the rights issue and payment for this land acquisition.

Negative earnings impact the next 3-4 years While this acquisition will raise Setia’s total GDV by 15% to RM80bn and therefore strengthen its long-term earnings growth prospects, we estimate that it could reduce Setia’s net profit by about 3% for the next few years by raising its net interest cost. We cut our FY16-18 EPS projections by 1-20% to reflect the higher net interest cost associated to this acquisition, as well as the dilution impact arising from a recent dividend reinvestment plan (DRP) exercise.

Cutting target price to RM3.10 We raise our RNAV for Setia by 1% to RM12.5bn after imputing the surplus value from this acquisition. However, our target price is cut to RM3.10 to reflect the higher share base after the completion of the DRP exercise.

More landbanking near term? Setia will still be left with c.RM500m of proceeds from the rights issue after the payment for this acquisition. We expect it to continue to scout for landbanking opportunities. We may turn more positive on the stock if Setia secures a good acquisition – one that targets the mass-market segment and can be developed over a short period of time. Upside risk to our Hold call is stronger-than-expected sales while downside risk is deterioration of sentiment in the property market.

▎Malaysia





Up/downside: -1.9%


Reuters: SETI.KL

Bloomberg: SPSB MK


RM8,908m


RM11.17m




FY16-18F EPS cut by 1-20%

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -9.2 1.3 -5.7

Relative (%) -8.1 2.8 -3.4

Major shareholders % held PNB 66.1

KWAP 8.6

EPF 5.1

Analyst(s)

SAW Xiao Jun, CFA




Total Net Revenues (RMm) 4,139 5,780 4,737 3,643 4,122

Operating EBITDA (RMm) 803 1,239 943 602 755

Net Profit (RMm) 469.3 786.3 773.4 633.8 584.2

Core EPS (RM) 0.19 0.31 0.30 0.22 0.21

Core EPS Growth 6.1% 65.2% (1.6%) (26.2%) (7.8%)

FD Core P/E (x) 16.94 10.25 10.43 14.12 15.32

DPS (RM) 0.11 0.20 0.18 0.13 0.12

Dividend Yield 3.60% 6.24% 5.79% 4.27% 3.93%

EV/EBITDA (x) 12.43 7.84 10.53 18.38 14.38

P/FCFE (x) 17.62 7.23 18.21 24.45 12.00

Net Gearing 26.2% 17.1% 18.7% 6.7% 4.0%

P/BV (x) 1.20 1.04 1.01 0.87 0.85

ROE 7.6% 10.9% 9.5% 7.7% 6.9%



83.0

89.0

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101.0

107.0

113.0

2.70

2.90

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3.70


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20

Malaysia│Economics Update│November 9, 2016

Economics Note



Economics Update Trumping expectations

Trump becomes the 45th

US President by a margin of 276-218, upending pre-vote ■predictions. Republicans complete clean sweep of House and Senate.

Trade protectionism, unpredictable policymaking, heightened global market volatility, ■slower global growth and escalation in geopolitical tensions are risks to Malaysia.

Probability of Fed interest rate hike in Dec has diminished. BNM may cut OPR if ■downside risks to growth materialise. Maintain forecast of 25bp OPR cut by 1H17.

Donald Trump and Republicans secure one-party government Republican candidate Donald Trump has won the 2016 US presidential election by a margin of 276-218 – an outcome that ran counter to pre-voting expectations of victory for the Democrat’s Hillary Clinton. The Republican Party also captured both the US Senate and House of Representatives, marking the first one-party government since 2011. While a Clinton victory was widely perceived by the market as being a vote for the status quo, Trump’s election represented a break from the establishment.

Tempering Trump’s campaign rhetoric We expect the Senate and House of Representatives to act as checks and balances to the more extreme elements of Trump’s campaign manifesto such as trade protectionism, a nationalist pivot in US security and foreign policy, isolationist immigration policy and the re-negotiation of US debt obligations. That said, Trump’s lack of a track record in elected office makes for a tricky assessment of the president-elect’s future economic, trade and foreign policy. For more clarity on how Trump will bridge the gap between policy and rhetoric, we would watch for the appointment of key economic advisors leading up to the inauguration on 20 Jan 2017 (see Fig 7).

Trade protectionism a key threat to Malaysia At this point, it is too early to triangulate the impact of Trump’s election victory on Malaysia’s economy. Nevertheless, trade is a key risk as the US constitutes RM100.7bn or 9.3% of Malaysia’s total trade in 9M16, comprised of 10.4% of total exports and 8.1% of total imports. Although we think Trump’s threat to levy a 45% tariff on China has limited chance of being realised, the indirect trade impact of such a policy is significant. We estimate that about 5% of Malaysia’s intermediate exports to China are destined for the US. Trump’s election also significantly raises the risk of the Trans-Pacific Partnership falling through.

Near-term risk of capital flow reversal The initial market reaction has been generally negative in the emerging markets, with investors seeking safe havens. In the event of sustained uncertainty in global markets and flight to quality, Malaysia’s high foreign shareholding of equities (22.8%) and government bonds (35.7%) is a risk.

Uncertainty diminishes probability of Fed rate hike in Dec The implied probability of a Federal Reserve interest rate hike in Dec has reduced from 84% the day before the election to 47%. Bank Negara Malaysia (BNM) has issued a statement saying that it is closely monitoring the situation, and the MPC meets on 23 Nov. The materialisation of downside risks to growth and global market volatility could compel BNM to adopt a more accommodative monetary policy stance. We continue to expect one 25bp OPR cut from BNM by 1H17.

X#

Figure 1: US Fed Funds rate and Malaysia’s Overnight Policy rate


▎Malaysia

X#

2016 US Election Outcome

An unexpected victory for Trump

Economist(s)

Michelle CHIA


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21

Food & Beverages│Singapore│Equity research│November 9, 2016

Company Note


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Auric Pacific Group Limited A conviction turnaround

■ Auric’s 9M16 core net profit beat our expectations, at 104% of our full-year forecast.

■ Core net profit rose 76% yoy in 3Q16 (9M16: +207% yoy) due to broad-based profitability improvement across different business segments.

■ Management expects the rationalisation efforts to continue driving and sustaining profit recovery. We raise our FY16F-18F core EPS by 23-26%.

■ Net cash strengthened to S$81.3m in 3Q16, representing 55% of group market cap.

■ Maintain Add, TP raised to S$1.96 (based on 25% liquidity discount to FY17F SOP).

Substantial profit improvement in 3Q and 9M16 Auric’s 9M16 core net profit exceeded our full-year forecast, at 104%. Core net profit rose 76% yoy in 3Q16 to S$5.5m (3Q15: S$3.1m) on broad-based profit improvement across all business segments. For 9M16, core net profit rose 207% yoy to S$15.7m (9M15: S$5.1m). Group revenue saw a slight dip of 2.7% yoy in 3Q16 (9M16: 2.3% dip), due to the closure of a number of loss-making cafés under the Delifrance brand and some non-performing restaurant outlets under Food Junction Group.

Core businesses stayed upbeat; previous drags turned around The group’s two core businesses, 1) wholesale and distribution, and 2) bread and butter manufacturing, continued yielding growth in 3Q16, with pretax profit improvement of S$0.4m and S$0.6m, respectively. After years of losses, the Delifrance café operation posted its maiden positive profit in 3Q16 at S$1.1m (3Q15: S$0.6m loss, 2Q16: S$0.1m loss) thanks to the significant rationalisation efforts in the past two years. Food Junction Group also saw higher pretax profit during the quarter at S$0.8m (3Q15: S$0.6m).

Significant net cash position and strengthened free cashflow Auric’s net cash position continued to strengthen over the past few quarters, and stood at S$81.3m at end-3Q16 (4Q15: S$45m, 2Q16: S$69m), or 55% of group market cap. Free cashflow improved substantially to S$37m in 9M16 (9M15: S$4.1m), a reflection of 1) overall improving group profitability, and 2) lower capex burden due to the scale-down of food retail business (i.e. Delifrance cafés and Food Junction restaurant operations).

Rationalisation driving and sustaining profit recovery We expect management’s rationalisation efforts to continue driving and sustaining Auric’s profit recovery ahead. On 10 Oct, Auric announced the disposal of two loss-making restaurant-related subsidiaries to a third party. We are positive on the disposal, considering that: 1) the S$2 consideration vs. the subsidiaries’ total net tangible liability position of S$7.2m would allow Auric to realise a gain of S$7.2m (to be recognised in 4Q16); and 2) the disposed subsidiaries would no longer be a drag to group profitability.

Deeply undervalued consumer staple play We raise our FY16F-18F core EPS by 23-26% to reflect its strong 3Q/9M16 profit and profit sustainability. Auric currently trades at FY16F/17F core P/E of 7.7x/7.3x, a heavy discount vs. bakery peers’ average of 17.1x/13.8x, or general F&B players’ 26.9x/23.3x. This has yet to take into account its much stronger balance sheet vs. peers. Excluding net cash of S$0.65/share (end-3Q16), Auric trades at 3.5x/3.2x FY16F/17F ex-cash P/E.

A possible privatisation target Given Auric's significant net cash (55% of its market cap) and minority shareholder interest of only 23.83%, we think it is a proper privatisation target. We note that Dr Andy Adhiwana, CEO and a major shareholder of the group, acquired over 5% of Auric's shares in the open market in the past one year or so. Expensive M&A is a key risk.

▎Singapore


Current price: S$1.18

Target price: S$1.96

Previous target: S$1.69

Up/downside: 66.4%


Reuters: AURI.SI

Bloomberg: AP SP


S$148.3m


S$0.09m




FY16F core EPS increased by 26%.



Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 0.9 31.1 55.3

Relative (%) 3.9 33.9 62.2

Major shareholders % held Lippo China Resources Limited 49.3

Dr Andy Adhiwana 26.9

Analyst(s)

Roy CHEN, CFA


William TNG, CFA T (65) 6210 8676 E [email protected]



Revenue (S$m) 424.1 432.6 422.8 430.5 442.4

Operating EBITDA (S$m) 17.25 24.38 35.98 37.85 39.16

Net Profit (S$m) 0.23 (40.84) 18.09 20.42 21.62

Core EPS (S$) (0.01) 0.06 0.15 0.16 0.17

Core EPS Growth (61%) 175% 7% 6%

FD Core P/E (x) NA 21.35 7.75 7.26 6.86

DPS (S$) 0.020 0.020 - 0.020 0.020

Dividend Yield 1.69% 1.69% 0.00% 1.69% 1.69%

EV/EBITDA (x) 6.28 4.27 1.92 1.43 0.94

P/FCFE (x) NA 155.9 5.3 8.5 7.5

Net Gearing (19.4%) (27.8%) (44.6%) (48.1%) (51.8%)

P/BV (x) 0.71 0.93 0.83 0.75 0.69

ROE (0.3%) 3.8% 11.3% 10.9% 10.5%

% Change In Core EPS Estimates 26.1% 24.1% 22.7%


90

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22

Property Devt & Invt│Singapore│Equity research│November 9, 2016

Company Note


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CapitaLand Tracking well to date

Robust 3Q16 performance, 3Q/9M net profit makes up 35%/81% of our FY16 ■forecast.

Singapore and China residential delivers strong performance on increased sales. ■ Steady rental contributions as tenant sales and shopper traffic grew positively. ■ New acquisitions boosted serviced residence income. ■ Maintain Add, with an unchanged target price of S$4.17. ■

3Q16 results summary For 3Q16, CAPL reported revenue of S$1,373.7m, up 28.4% yoy and net profit of S$247.5m, up 27.7% yoy. 9M16 net profit was broadly in line with our estimate at 81% of our full-year forecast. Excluding one-offs, core net profit would have been S$251.8m, +54.5% yoy. The better showing was due to higher Singapore and China residential contributions and increased retail rental and serviced residence income. Singapore and China remained key contributors accounting for 80% of 3Q16 EBIT.

Pick up in sales volume in Singapore Singapore residential saw 206 unit sales valued at S$525m in 3Q, bringing YTD sales to S$1.24bn, 3x 9M15 level. These include progressive sales at d’Leedon, The Interlace, SkyVue and Cairnhill Nine. Launch of Victoria Park Villas in Sep had garnered take up rate of 16% so far. The group has a remaining S$1.9bn worth of residential inventory in Singapore, accounting for 4% of total assets.

Boosted by high handover, strong pre-sales China recorded a strong 3Q with a handover of 3,254 units valued at Rmb4.68bn (9M: 5,684 units, Rmb7.72bn) from Riverfront Hangzhou, New Horizon Shanghai and Vermont Hills in Beijing. It has another 9,800 units pre-sold worth Rmb14bn, of which c.40% are expected to be recognised in 4Q16, with a further 1,840 launch ready units in the pipeline. Despite the recent cooling measures, the group does not expect the impact to be significant as its projects target mainly first timers and upgraders.

Steady rental contributions Retail rental contributions improved slightly with higher income from China, thanks to the opening of CapitaMall Sky+ and new acquisitions in Malaysia and Japan. On a local currency basis, same-store NPI growth ranged from 2.2% in Singapore to 6.1% in Japan and 17.3% in India with occupancy remaining above the 90% mark. Shopper traffic and tenant sales continue to inch up in China

Inorganic growth lifts serviced residence contributions Although Revpau fell 3% yoy, dragged by Singapore, China, Europe, Gulf region and India, there were higher contributions from properties acquired in 2015-16. The group has 29,682 operational units which contributed S$112m of fee income in 9M16 and is expected to deliver an estimated additional S$74m when the 17,380 pipeline units are completed.

Maintain Add Maintain Add. We leave our FY16-18 EPS estimates relatively unchanged with an unchanged RNAV-based TP of S$4.17, pegged to a 20% discount to revalued asset backing of S$5.21. We like CAPL for its capital recycling model. With a gearing of only 0.47x, the group is well positioned to capitalise on new investment opportunities including setting up of Raffles City China Fund II (RCCF II) and more private equity funds. Risks include slower than expected deployment of capital into new projects.

▎Singapore





Up/downside: 36.2%


Reuters: CATL.SI

Bloomberg: CAPL SP


S$12,966m


S$25.90m




No changes.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -2.9 -5.6 -5.3

Relative (%) -1 -3.8 1

Major shareholders % held Temasek Holdings 40.9

Blackrock 6.0

Analyst(s)

LOCK Mun Yee


YEO Zhi Bin T (65) 6210 8669 E [email protected]


Financial Summary Dec-14A Dec-15A Dec-16F Dec-17F Dec-18F Total Net Revenues (S$m) 3,925 4,762 4,402 4,221 3,973 Operating EBITDA (S$m) 1,008 1,199 1,355 1,540 1,682 Net Profit (S$m) 1,161 1,129 940 734 790 Core EPS (S$) 0.17 0.18 0.17 0.17 0.19 Core EPS Growth 25.1% 5.8% (3.4%) 1.9% 7.6% FD Core P/E (x) 21.72 20.53 21.25 20.86 19.38 DPS (S$) 0.09 0.14 0.11 0.08 0.09 Dividend Yield 2.94% 4.51% 3.54% 2.63% 2.86% EV/EBITDA (x) 33.60 26.68 21.49 21.16 19.37 P/FCFE (x) 5.88 22.99 5.63 9.29 8.55 Net Gearing 76.7% 38.4% 24.9% 30.3% 30.3% P/BV (x) 0.78 0.75 0.72 0.65 0.65 ROE 4.34% 4.39% 4.09% 3.86% 3.95% % Change In Core EPS Estimates 0.00% 0.00% 0.00% CIMB/consensus EPS (x) 1.20 0.94 0.92

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23

Retail│Singapore│Equity research│November 9, 2016

Company Note


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Courts Asia Growing profits with improved cost structure

2QFY17’s net profit (S$6.7m, +11% yoy) was slightly ahead of expectations, 1H ■formed 65%/67% of our/consensus FY17F.

Sales was fairly muted (-3% yoy) as the retail environment remained challenging. ■This was in line with expectations.

The positive is Courts continues to benefit from cost efficiency measures. The lower ■SG&A and tax credits from Indo’s losses more than mitigated the sales decline.

Our TP rises to S$0.60 as we roll forward to CY18F and adjust for share buybacks. ■

Doing fairly well in a still challenging sales environment Retail sales in a challenging macro environment is difficult but Courts’ sales actually showed resilience. Sales in Singapore remained relatively flat (+0.5% yoy) while Malaysia reported a 12.9% yoy decline (a better -9% in constant currency terms). In the context of an unforeseen recall of the Samsung Note 7 and Hari Raya timing differences which brought forward some festive buying to 1QFY17, we view the group’s 2Q 3% sales decline as highly commendable.

GPM sequentially weaker, but still above historical levels 2Q’s GPM of 33.9% might look weak, especially after 1Q’s record high GPM of 36.1%. However, we note that 2QFY17 carried lower earned service charge income in Malaysia and unfavourable sales mix from higher corporate sales. We also suspect there could have been an element of post-festive discounting. Nonetheless, these are still healthy levels (2-yr historical average GPM was 32.9%).

Better cost structure The bright spots were in better overall cost controls. Going down the line, distribution expenses/sales were down 0.3%pt yoy due to lower ad spend and better warehouse management in Malaysia. Admin expenses/sales were also down 0.2%pt yoy, which was even more impressive given that occupancy costs were higher as the group opened new stores in Indonesia and Malaysia. Lower finance charges and tax credits helped further. Overall, we think the company now operates on a much leaner cost structure.

Indonesia still not up to scale, to breakeven in two years Sales in Indonesia was up 70% yoy in 2Q on the back of contributions from new stores but is still loss-making. Indonesia has been generating quarterly losses of S$2m-3m over the past 8 quarters and we attribute this to both start-up costs and sub-scale operations. Going forward, Courts is still targeting more store openings and management has guided breakeven in two years (i.e. FY19).

Credit collection in check We note that management first brought up credit collection concerns in 1QFY17 and cited economic uncertainties as possible headwinds. However, we still do not see any red flags. Reported delinquency rates and impairment losses are still at reasonable levels and remain fairly unchanged.

Maintain Add We lift our FY17-19F EPS by 3% on slightly better margins. However, our TP rises by a larger magnitude as we roll forward to CY18F and after we adjust for further share buybacks. Our TP is now S$0.60 (based on 10.2x CY18 P/E, still based on -1s.d. level). Downside risks include unexpectedly large credit losses. Maintain Add.

▎Singapore





Up/downside: 35.5%


Reuters: COUR.SI

Bloomberg: COURTS SP


S$226.9m


S$0.10m




FY17F EPS increased by 3%.



Source: Bloomberg


Relative (%) 4.1 18.6 25.8

Major shareholders % held Singapore Retail Group 73.9

Terence O'Connor 3.4

Analyst(s)

Jonathan SEOW



Financial Summary Mar-15A Mar-16A Mar-17F Mar-18F Mar-19F

Revenue (S$m) 758.5 770.4 767.4 791.9 825.2


Net Profit (S$m) 17.36 20.28 25.20 28.41 30.79

Core EPS (S$) 0.032 0.039 0.049 0.055 0.060

Core EPS Growth (37.9%) 22.9% 25.7% 12.8% 8.4%

FD Core P/E (x) 13.86 11.51 9.08 8.00 7.38

DPS (S$) 0.013 0.013 0.016 0.018 0.020

Dividend Yield 2.93% 2.93% 3.69% 4.16% 4.50%

EV/EBITDA (x) 8.33 6.98 6.30 5.88 5.53

P/FCFE (x) 22.43 6.05 15.63 NA NA

Net Gearing 72.4% 76.6% 63.3% 59.1% 55.5%

P/BV (x) 0.80 0.79 0.74 0.69 0.65

ROE 5.83% 6.89% 8.39% 8.93% 9.11%



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142.0

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0.340

0.390

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0.490


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24

Agribusiness│Singapore│Equity research│November 9, 2016

Company Note


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First Resources Ltd Early signs of recovery in output from El Nino

9M16 core earnings were above our forecast but below consensus estimates ■ FFB output fell 11%/14% yoy in 3Q16 /9M16 due to El Nino-induced drought. ■ Higher CPO price and net drawdown of inventory lifted plantation earnings in 3Q16. ■ Refinery and processing profit improved qoq due to higher volumes and margins. ■ Maintain Add with higher target price of S$2.32 (13x FY18 P/E) due to rollover ■effect.

3Q core earnings above our estimates First Resources’ (FR) 9M16 core net profit was above our forecast, but below consensus. 9M16 core net profit made up 89% of our full-year forecast but only 67% of the consensus number. We expect weaker earnings in 4Q, which is seasonally the lower production period for the group. As expected, no dividend was declared in 3Q16.

Firing on all cylinders in 3Q The group’s 3Q16 core net profit rose 33% qoq to US$35m due mainly to higher earnings from its plantation as well as refinery and processing divisions. Plantation EBITDA jumped 18% qoq due to higher palm product prices and FFB output (+43% qoq). Refinery and Processing EBITDA posted a profit of US$11m in 3Q16 against a loss of US$7m in 2Q16 due to higher utilisation at its processing plants and margin.

Stronger ASPs and net drawdown of inventory in 3Q ASP achieved for CPO grew 23% qoq to average US$611 per tonne in 3Q16, which is lower than the 3Q16 CPO price for Belawan of US$694 per tonne. This could be due to forward sales, the US$50 per tonne export levy and higher export sales. The 3Q results were also boosted by a net inventory draw down of 33,000 tonnes in 9M16 compared to a net inventory build-up of 92,000 tonnes in 9M15.

Higher selling prices trumped lower output in 3Q16 The group’s 3Q16 core net profits grew 13% yoy as higher CPO prices trumped lower FFB output, weaker refining margins and higher depreciation charges. However, 9M16 net profit fell 24% due to weaker plantation and downstream earnings. FFB output fell 11%/14% yoy in 3Q/9M16 as yields were negatively affected by the El Nino. Depreciation charges grew by 81% in 3Q and 73% in 9M16 due to the adoption of IFRS 41 and 16.

Outlook for the rest of the year The group indicated that CPO prices continue to be influenced by competing oils and the low crude oil prices. It expects the Indonesian biodiesel mandate and the current low palm oil inventories to provide support for prices. It also indicated that it saw less pronounced declines in production volumes in 3Q16 compared to 1H16 as the El Nino impact gradually tapers off. It expects FY16’s production to be weaker than FY15’s.

Revision to earnings forecasts and target prices

We raise our FY16 earnings forecasts by 15% to reflect higher palm kernel prices and processing volumes. However, we cut FY17 earnings to reflect lower yield expectation. Our target price rises to S$2.32 as we roll over to end 2017 (based on FY18 P/E of 13x, its average historical P/E). We keep to our Add call due to the group’s estates’ young age profiles (50% of planted estates below seven years old). Key re-rating catalyst is stronger-than-expected earnings. Key risks are lower CPO prices and production.

▎Singapore





Up/downside: 28.4%


Reuters: FRLD.SI

Bloomberg: FR SP


S$2,867m


S$4.31m






Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 0.6 13.8 -9.5

Relative (%) 3.6 16.6 -2.6

Major shareholders % held Eight Capital Inc 63.2

FMR 6.3

DB Intl Trust Singapore 5.6

Analyst(s)

Ivy NG Lee Fang, CFA




Revenue (US$m) 615.5 453.7 471.9 645.4 728.8

Operating EBITDA (US$m) 297.6 213.3 208.7 308.8 361.8

Net Profit (US$m) 173.4 107.9 86.6 164.7 202.3

Core EPS (US$) 0.11 0.07 0.05 0.10 0.13

Core EPS Growth (20.2%) (36.3%) (21.6%) 90.3% 22.8%

FD Core P/E (x) 11.86 18.63 23.76 12.49 10.17

DPS (US$) 0.036 0.027 0.016 0.031 0.038

Dividend Yield 2.80% 2.07% 1.26% 2.40% 2.95%

EV/EBITDA (x) 7.87 11.24 11.43 7.66 6.40

P/FCFE (x) 18.32 NA 47.98 26.94 17.30

Net Gearing 20.8% 27.7% 24.7% 20.3% 14.0%

P/BV (x) 1.93 2.07 1.95 1.76 1.57

ROE 16.9% 10.7% 8.4% 14.8% 16.3%

% Change In Core EPS Estimates 14.9% (3.0%)


75.0

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105.0

115.0

1.40

1.60

1.80

2.00

2.20


5

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Vol m

25

Property Devt & Invt│Singapore│Equity research│November 9, 2016

Company Note


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Frasers Centrepoint Ltd Dragged by reduced residential and impairments

FY16 net profit was below our and market expectations, at 75% of our forecast ■ Slowdown in Singapore residential contributions and impairments in Australia were ■a drag on performance

Gearing lower at 64.4% after listing on FLT, strengthen balance sheet for more ■capital reinvestment

Maintain Add with a slightly lower RNAV-based TP of S$2.02 ■

FY16 results highlights FCL’s FY16 net profit was down 23% yoy to S$597.2m, while revenue dipped a smaller 3.4%. Earnings came in below our and market expectations, dragged by a S$47m impairment of residential inventory in Australia, as well as slower development profits from Singapore and international SBUs and lower fair value gains. Excluding one-offs, the bottomline would have been S$479.9m, -12% yoy. The group proposed a final DPS of 6.2 Scts, bringing FY16 total DPS of 8.6 Scts or a 5.8% yield.

Project completions a drag on Singapore earnings Singapore PBIT fell 25% yoy to S$428m, impacted by lower residential development profits on completion of ongoing projects and absence of fair value gains in FY16. This was partly offset by higher income from its REITs. Looking ahead, there is a remaining S$0.7bn of yet-to-be recognised residential pre-sales, as well as sales from Parc Life EC and North Park Residences. In addition, the group plans to launch its Siglap Rd site (800-900 units) in 1QCY17. This should extend earnings visibility.

Taking impairment on residential projects Australia PBIT dipped 19% yoy to S$218m due to a S$47m impairment of residential inventory, largely in Western Australia as well as lower C&I contributions following the spin-off of Frasers Logistics Trust (FLT), partly offset by maiden income from the trust. There is S$1.9bn of unbilled residential revenue in Australia. This is likely to be partly recognised when an est. 3,000 units are handed over in FY17. FCL plans to market another 2,500 residences in FY17 and this should continue to drive residential earnings.

Gearing has improved to 64.4% Following the listing of FLT, FCL’s gearing has improved to 64.4%. Even after taking into account the recent acquisition of a stake in TICON, gearing should remain below its optimal guidance of 0.8x. Cost of debt is low at 3.1%, and 86% of loans are on fixed rate terms. This puts the group in a strong position to roll out its development activities in Singapore (Frasers Tower and Northpoint City), build up its landbank in Australia, and explore new opportunities in emerging markets.

Maintain Add We cut our FY17-18F EPS by 4.6-12.6% to take into account the latest results. We also introduce FY19F projections. Hence, our RNAV and TP is trimmed slightly to S$2.88 and S$2.02. FCL is trading at a 48% discount to RNAV. We maintain our Add call on the expectation that the group would reinvest its capital into accretive new projects. Meanwhile earnings visibility remains strong with S$3.1bn of unrecognised revenue and high dividend yield of 5.8%. Risk is a slowdown in key markets, which would delay sales.

▎Singapore





Up/downside: 33.9%


Reuters: FRCT.SI

Bloomberg: FCL SP


S$4,364m


S$0.72m




FY17F net profit decreased by 4.6%.

FY18F net profit decreased by 12.6%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 0.7 -1.6 -9.3

Relative (%) 3.7 1.2 -2.4

Major shareholders % held TCC 59.5

Thai Bev 28.5

Analyst(s)

LOCK Mun Yee


YEO Zhi Bin T (65) 6210 8669 E [email protected]


Financial Summary Sep-15A Sep-16A Sep-17F Sep-18F Sep-19F

Total Net Revenues (S$m) 3,562 3,440 2,994 3,698 3,031

Operating EBITDA (S$m) 918 821 922 1,146 1,054

Net Profit (S$m) 308.6 491.1 448.7 594.2 529.6

Core EPS (S$) 0.09 0.14 0.15 0.20 0.18

Core EPS Growth (52.3%) 56.1% 13.7% 32.4% (10.9%)

FD Core P/E (x) 17.27 11.06 9.73 7.35 8.24

DPS (S$) 0.086 0.086 0.086 0.086 0.086

Dividend Yield 5.71% 5.71% 5.71% 5.71% 5.71%

EV/EBITDA (x) 17.54 19.74 17.69 14.31 15.64

P/FCFE (x) 129.4 NA NA NA 22.2

Net Gearing 83.6% 68.1% 67.0% 65.2% 63.8%

P/BV (x) 0.56 0.54 0.53 0.50 0.49

ROE 3.40% 4.97% 5.49% 7.02% 6.02%

% Change In Core EPS Estimates (4.6%) (12.6%)


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115.7

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1.700


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Vol m

26

Education│Singapore│Equity research│November 9, 2016

Company Note


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Overseas Education Ltd Temporarily trumped by lower student enrolment

■ Cost-savings from reduced staff strength unable to offset falling revenue from student withdrawals; 9M16 core net profit below expectations at 36% of our FY16F.

■ Potential recovery in student enrolment; lower personnel costs more visible in FY17F.

■ OEL declared interim DPS of 0.69 Scts. No change to our dividend forecasts -- we still see 4.8-6.0% dividend yield for FY16F-18F.

■ Hold rating kept with unchanged DCF-derived target price of S$0.42 (WACC: 8%) as we roll our valuation over to end-FY17F.

Still struggling with enrolment numbers, but things could improve Enrolment for the new academic semester in Aug 16 at OEL failed to keep up with student withdrawals, resulting in 7.4%/4.4% yoy decline in 3M/9M16 revenue. Management attributed the student withdrawals to the increasing relocation of expat families from Singapore. Student numbers could improve gradually from FY17F as management observed more registrations for the new semester in Jan 17, assuming student outflow tapers off.

Cost-savings more visible from FY17F onwards We saw 3Q16 personnel expenses come down 5.4% yoy, as some staff contracts were not renewed due to the reduced size of student population. We expect more visible effects of such cost savings starting FY17F, as the school continues to manage its staff strength to align with the ideal teacher-to-student ratio of 1:10. Overall, 9M16 core net profit trailed expectations at 36% of our full-year forecast.

Singapore ranks top 10 foreign direct investment (FDI) destination Apart from being one of the top few destinations for expat families, Singapore was recently ranked the 10

th most attractive nation in the world for foreign direct investment,

according to A.T. Kearney’s FDI Confidence Index. Management believes OEL is well-poised to benefit from any expansion of foreign investment into Singapore, given its new campus and quality of school programmes.

Sustainable dividends? OEL’s prudent approach towards capital management was reflected in its lower interim dividend of 0.69 Scts in 3Q16 (vs. 1.38 Scts in 3Q15). Given its cash-generative business, we maintain our forecasted 2 Scts DPS for FY16F, implying dividend yield of 4.8%. A stronger earnings outlook could support higher dividends, in our view.

Maintain Hold; await clarity on turnaround We trim our assumptions for tuition fees and personnel costs, which led to 49-58% cuts in FY16F-18F EPS estimates. Our DCF-based target price is intact at S$0.42 (WACC: 8%) as we roll our valuation over to end-FY17F. We maintain our Hold call as we see no near-term catalysts. Our projected double-digit EPS growth in FY17-18F is largely due to lower staff costs and normalising of high effective tax rate from deferred tax liabilities. Changes in student enrolment numbers are key upside/downside risk to our call.

▎Singapore





Up/downside: 0.7%


Reuters: OVER.SI

Bloomberg: OEL SP


S$172.4m


S$0.03m







Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -7.8 -4.6 -32

Relative (%) -5.9 -2.8 -26.1

Major shareholders % held PDAC Pte Ltd 32.6

WLH Pte Ltd 31.3

Analyst(s)

NGOH Yi Sin


William TNG, CFA T (65) 6210 8676 E [email protected]



Revenue (S$m) 101.5 96.7 90.3 90.5 91.5


Net Profit (S$m) 21.96 15.26 4.44 6.35 7.65

Core EPS (S$) 0.053 0.037 0.011 0.015 0.018

Core EPS Growth (9.4%) (30.5%) (70.9%) 43.2% 20.4%

FD Core P/E (x) 7.85 11.30 38.85 27.14 22.54

DPS (S$) 0.027 0.028 0.020 0.023 0.025

Dividend Yield 6.63% 6.63% 4.82% 5.42% 6.02%

EV/EBITDA (x) 6.68 9.21 10.45 9.61 9.22

P/FCFE (x) 11.32 NA 20.19 15.27 8.61

Net Gearing 15.6% 57.9% 59.0% 58.6% 52.7%

P/BV (x) 1.10 1.11 1.14 1.16 1.19

ROE 14.5% 9.8% 2.9% 4.2% 5.2%



68.0

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27

Offshore & Marine│Singapore│Equity research│November 9, 2016

Company Note


Powered by the

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Pacific Radiance 3QFY16: Dim outlook; awaiting uptick in utilisation

3Q16 core net loss of US$16.2m was below our and Bloomberg consensus core net ■loss expectations of US$2.4m and US$9m, respectively.

9MFY16 featured: i) still low utilisation and daily charter rates; ii) third consecutive ■quarter of gross loss (US$8.2m), and iii) negative operating cash flow of US$11.6m.

We cut FY16F-18F EPS significantly for cuts in vessel utilisation and EBITDA ■margins.

Maintain Reduce call with lower TP of S$0.13, now based on 0.2x FY17F P/BV ■(previously 0.3x FY17F P/BV) as we discount for weak operational performance.

Missing expectations 9MFY16 core net loss of US$36.9m was below our full-year loss expectations of US$9.6m and was 93% of consensus core net loss of US$35.9m. Estimated 9MFY16 EBITDA was negative US$8.7m (versus positive EBITDA of US$39.6m in 9MFY15).

Utilisation and charter rates still languishing OSV revenues fell qoq by 28% on lower utilisation of c.40% vs. mid 50% in 2Q16. We believe the subsea division could have performed better qoq as one of the diving support vessels (DSV) started work in Jun-16. Management guided that 9MFY16 OSV and subsea utilisation was c.50% and c.20%, respectively; still low in our view.

Offshore support vessel owners to lag in any sector uptick We suspect PACRA’s utilisation will be muted for at least the next six months as offshore support vessel providers typically experience lag in spillover effects from any movement in crude oil prices. The existing vessel supply glut notwithstanding.

Resuming coverage and trimming FY16-18F EPS significantly We lower FY16F-18F vessel utilisation to 43.2-57.5% (from 50.2-59.9%) and reduce FY16/17/18F EBITDA margins to -19.8%/4.7%/23.0% (from 20.1%/23%/28%), largely as we foresee that subsea division margins will remain negative until FY18F. Our key changes reduce our FY16/17/18F forecasts to net losses of US$46.2m/US$26.3m/US$8.1m (from -US$9.6m/-US$2.97m/net profit of US$4.6m).

Tight cash flow position in FY16F-18F We foresee FY16-17F cash flows to be tight, as long as asset utilisation remains stifled. With 3QFY16 outstanding cash balance of US$29.5m, PACRA is likely to rely on short-term facilities for financing needs in the near term, in our view. We forecast FY17F operational cash flow to remain in negative territory. Management has no foreseeable vessel capex for FY16-FY18F. 9MFY16 operational cash burn was US$38m.

Possible cash call in 2017? We would not be surprised if PACRA engages in a financing exercise in end-2017/early 2018 in expectation of its S$100m MTN bond due in Aug 2018, given that operational performance is likely to stay muted in the near term.

Maintain Reduce call with lower TP of S$0.13 We resume coverage with a Reduce call and lower TP, now based on 0.2x FY17F P/BV (previously 0.3x FY17F P/BV). The stock is undoubtedly trading at trough valuations (less than 1 s.d. below historical mean of 0.3x) but we remain conservative for now, given PACRA’s weak 9MFY16 operational performance. We would turn more positive upon seeing an uptick in vessel utilisation and positive operating cash flow. An upside risk is higher vessel utilisation upon a sector recovery

▎Singapore





Up/downside: -16.2%


Reuters: PACI.SI

Bloomberg: PACRA SP


S$109.9m


S$0.06m




FY16-18F revenue reduced by 21.3-14.1%.

FY16-18F EPS decreased by 280-795%

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -8.9 12.4 -59.5

Relative (%) -7 14.2 -53.2

Major shareholders % held Pang Yoke Min 65.4

Mok Weng Vai 6.4

Yong Yin Min 3.8

Analyst(s)

Cezzane SEE


LIM Siew Khee T (65) 6210 8664 E [email protected]



Revenue (US$m) 172.2 121.8 72.4 91.0 108.3

Operating EBITDA (US$m) 57.83 27.30 (14.34) 4.27 24.93

Net Profit (US$m) 68.32 3.83 (46.21) (26.25) (8.08)

Core EPS (US$) 0.096 0.007 (0.065) (0.037) (0.011)

Core EPS Growth 20% (92%) (971%) (43%) (69%)

FD Core P/E (x) 1.15 14.94 NA NA NA

DPS (US$) 0.024 0.007 - - -

Dividend Yield 21.4% 6.7% 0.0% 0.0% 0.0%

EV/EBITDA (x) 5.3 16.1 NA 143.6 24.2

P/FCFE (x) 1.63 NA NA 10.19 NA

Net Gearing 52% 86% 143% 159% 160%

P/BV (x) 0.19 0.19 0.22 0.23 0.24

ROE 17.4% 1.3% (11.8%) (7.4%) (2.4%)

% Change In Core EPS Estimates (388%) (795%) (280%)


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28

Offshore & Marine│Singapore│Equity research│November 9, 2016

Company Note


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Yangzijiang Shipbuilding Still making money

YZJ is relatively stronger than peers. It has cash, profits and valuation is cheap. ■ 3Q16 NP of Rmb281m below our estimate and consensus due to higher tax charge. ■This would reverse in 4Q16 as YZJ obtained preferential tax status.

But order momentum is slower at US$650m won YTD. Management guiding down ■2016 target to US$1bn. We expect some new orders in the short-term.

Working capital weakened with lesser orders and slower progressive payment. ■However YZJ’s balance sheet is stronger than peers as its net gearing is only at 6%.

Management aims to keep DPS for FY16 at S$0.035-0.045, translating into 4.7-6%. ■Yield. Maintain Add with lower target price of S$0.91.

One offs and tax expense Notable one-offs in 3Q16 include: 1) Rmb531m impairment for 13 owned and operated bulk carriers as value per ship fell from c.US$16m-17m in 2015 to US$13m-13.8m now, 2) Rmb219m general provision made on c.Rmb900m in Huaxi, and 3) Rmb434m income recognised from advanced payment due to cancelled contract. Tax expense had lower tax credit on impairment loss. New Yangzi yard has received the high-tech status and qualified for 15% preferential tax rate and we expect a reversal of c.Rmb130m by 4Q16.

Good execution, steady margins but cancellation risks remain Shipbuilding related gross margin improved qoq to 18% in line with higher number of vessels delivered (8 in 3Q16 vs. 7 in 2Q16). Six vessels were cancelled during the quarter. Work has not started for these vessels and YJZ has collected c.20% of deposits for the contracts.

Order outlook is a macro call YZJ has secured US$650m worth of new orders YTD, short of our target of US$1.8bn. It is now guiding to close 2016 with US$1bn with some contracts in the pipeline in the near term. We cut our order win assumptions to US$1.2bn in FY17 (previously US$1.8bn). Order momentum largely depends on the global and China economy. Order book stood at US$4.4.bn, comprising 44 containerships, 37 bulk carriers, two LNG carriers and two Very Large Gas Carriers (VLGC).

Working capital weakens but balance sheet solid Operating cashflow was negative Rmb487m as a result of lower order and slower progressive payment from customers. However, YZJ still has Rmb5.8bn of cash and net gearing at 6% to finance constructions ahead, in our view. Investment in HTM reduced slightly qoq to Rmb11bn from Rmb12bn. Average return of investments is now at about 8%, with longer tenure and government-linked notes.

Keep for dividend 9M16 NP was below at 62% of our FY16 forecast due to higher taxes. Our FY16-18F EPS forecasts are cut by 11-19% to reflect our cut in orders and lower subsidy income. We roll forward our target price to CY17, now based on 0.75x (previously 0.8x) P/BV in line with its ROE. Management is confident of paying dividend of S$0.035-0.045, which translates into a yield of 4.7-6%. Maintain Add. Key catalysts include stronger-than-expected order wins. Key risks include a major blow up in HTM investments.

▎Singapore





Up/downside: 13.8%


Reuters: YAZG.SI

Bloomberg: YZJSGD SP


S$3,066m


S$9.76m







Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 3.9 -2.4 -33.9

Relative (%) 5.8 -0.6 -27.6

Major shareholders % held Newyard Worldwide 24.2

Lido Point Investment 14.0

Hongkong Hengyua 10.8

Analyst(s)

LIM Siew Khee




Revenue (Rmbm) 15,354 16,014 11,958 10,653 9,402

Operating EBITDA (Rmbm) 3,989 4,133 2,543 2,514 2,230

Net Profit (Rmbm) 3,483 2,460 1,639 1,643 1,416

Core EPS (Rmb) 0.91 0.64 0.43 0.43 0.37

Core EPS Growth 12.5% (29.4%) (33.3%) 0.2% (13.8%)

FD Core P/E (x) 4.30 6.08 9.13 9.10 10.57

DPS (Rmb) 0.25 0.21 0.17 0.17 0.15

Dividend Yield 6.35% 5.49% 4.38% 4.39% 3.79%

EV/EBITDA (x) 5.05 3.97 5.80 5.53 5.81

P/FCFE (x) 6.82 3.63 10.58 13.42 13.86

Net Gearing 25.6% 10.2% 4.6% 2.6% 0.4%

P/BV (x) 0.73 0.69 0.66 0.63 0.61

ROE 18.2% 11.6% 7.4% 7.1% 5.9%



61.0

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29

Sri Lanka Equities

QUARTERLY HIGHLIGHTS

November 2016

John Keells Stock Brokers (Pvt) Ltd.

A JKSB Research Publication

Janaghan Jeyakumar [email protected]

Seylan Bank PLC (SEYB)

This document is published by John Keells Stockbrokers (Pvt.) Limited for the exclusive use of their clients. All information has been compiled from available documentation andJKSB’s own research material. Whilst all reasonable care has been taken to ensure the accuracy of the contents of this issue, neither JKSB nor its employees can accept responsibilityfor any decisions made by investors based on information contained herein.

SEYB 3Q PROFIT 8.1%

Healthy growth in total operating income (driven by both NII & non-interest income)SEYB's net interest income experienced a healthy increase of 12.9% YoY as the positive

impact from the strong loan book growth of 29.1% YoY was partially offset by the YoY

contraction of NIMs from 4.54% to 4.00%. On the other hand, SEYB's non-interest income

increased sharply by 46.3% YoY mainly with the help of the steep rise in net trading income

(+Rs.402 Mn) which was driven by the mark-to-market profits stemming from favourable

rate movements during the quarter. Consequently, the proportion of non-interest income in

total operating income (before impairment) increased from 22.6% to 27.5%.

Higher impairment charges and operating expenses affected bottom line growthSEYB's total impairment charges for the quarter were higher by Rs.324 Mn comparing to 3Q

CY15 which included a reversal of Rs.222 Mn in collective impairment charges. Although

SEYB's total operating income increased by 20.4% YoY, the increase in impairment charges

restricted the growth in net operating income to 12.0% YoY. In addition to this, SEYB's

bottom line growth was affected by the 15.1% YoY increase in operating expenses. Conse-

quently, SEYB recorded an 8.1% YoY increase in earnings to equity during the quarter. For

the cumulative period 9M CY16, SEYB's earnings have increased marginally by 3.7% YoY.

Strong growth in loans & deposits; but CASA ratio has reducedDuring the quarter, SEYB's loan book expanded from Rs.207.7 bn to Rs.222.1 bn (+Rs.14.4

bn) which translates to a strong loan book growth of 6.9% QoQ (+29.1% YoY). The main

contributors to the growth in loan book during the quarter were term loans (+Rs.10.1 bn),

overdrafts (+Rs.2.6 bn) and export bills (Rs.1.3 bn). Although deposits experienced a strong

growth of 25.6% YoY, CASA ratio dropped to 33.7% in 3Q CY16 from 39.5% in 3Q CY15.

This drop in CASA ratio can be explained by the temporary widening of the rate differential

between savings and fixed deposits in a rising interest rate environment. However, we believe

improving the CASA Ratio to 40% over the next 3 years will be an important cost manage-

ment objective for SEYB. In order to further expand its funding base, SEYB has recently

announced its plan to raise Rs.5bn in debentures with an option to issue debentures for an

additional Rs.3bn in the case of over subscription.

Reducing NPL ratio & cost-to-income ratio can support future earnings growthAlthough comparing to 2Q CY16, SEYB's gross NPL ratio increased from 4.63% to 5.12%

and net NPL ratio increased from 3.03% to 3.60%, reductions in NPL ratios remain key to

SEYB's earnings growth in the near future. SEYB's cost-to-income ratio for the quarter stood

at 52.5% and we expect this to decline below 50% over the next 3 years. Furthermore, we also

expect SEYB to expand its branch network from 166 to 225 branches over the next 3-5 years

NBVPS (Rs.) 79.93

Issued Share Capital (Shares 'mn) 344.96 (Rs. Mn) (Rs. Mn) (Rs. Mn) (Rs. Mn) (Rs. Mn) (Rs.)

Market Capitalisation (Rs. 'mn) 26,230 This quarter 3Q CY2016 3,413 4,707 4,425 1,616 1,082 3.14

Forecast Earnings CY16E (Rs. 'mn) 4,020 Previous 3Q CY2015 3,024 3,909 3,950 1,508 1,001 2.90

CY16E EPS (Rs.) 11.65 Change (%) 12.9 20.4 12.0 7.2 8.1 8.1

PER (X) CY16E- Voting 7.7 This 9 months 9M CY2016 9,576 12,903 12,308 4,184 2,818 8.17

PER (X) CY16E- Non-Voting 5.3 Previous 9M CY2015 8,874 11,977 11,459 4,084 2,717 7.87

Current PBV (X)-Voting 1.1 Change (%) 7.9 7.7 7.4 2.4 3.7 3.7

Current PBV (X)-Non Voting 0.8

EPSSEYB 3Q CY16 Net

Interest

Income

Total

Operating

Income

Operating

Income after

Impairment

PBTEarnings

to

Equity

LAST PRICE

Rs. (Voting/Non-Voting)

CONSIDER BUY


CONSIDER SELL


52 WEEK HIGH


52 WEEK LOW


90.00/61.50 80.00/60.00 110.00/90.00 101.00/75.50 79.00/59.30

30

Tech Manufacturing Services│Taiwan│Equity research│November 10, 2016

Company Note


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Compal Electronics Upward revision in NB shipment guidance

We transfer coverage of Compal due to a change in internal resource allocation. ■ Compal expects positive yoy shipment unit growth in 2017 for commercial NBs, ■driven by operating system upgrades to Windows 10.

The non-PC segment should remain Compal’s key margin driver in 2017 while a ■higher commercial NB mix is icing on the cake.

Maintain Hold. Our target price is lifted to NT$18.8, still based on 10x FY16 P/E ■(down-cycle average), after an FY16 EPS increase of 6.2% for higher NB margins.

3Q16: margin expansion offset by FX loss Compal reported 3Q16 net profit of NT$2.2bn (US$69m; +26% qoq, -25% yoy), which was in-line with our forecast but 10% below consensus due to unexpected FX loss of NT$822m (US$26m). 9M was 70% of our FY16 forecast. 3Q16 operating profit of NT$3.5bn (+43% qoq, +34% yoy) was 22%/25% above our/consensus estimates as operating margin rose to 1.75% from 1.40% in 2Q16, thanks to higher gross margin from non-commodity NBs such as ultra-thin, ultra-light and gaming notebook (NB) products.

4Q16: beginning of a commercial NB replacement cycle? Compal has raised its NB shipment growth guidance for 4Q16 to 5-10% qoq from flat qoq previously, citing improved demand for commercial NBs. Management suggests that we may be at the beginning of the next commercial NB replacement cycle, stimulated by operating system upgrades to Windows 10. We forecast Compal’s NB shipment to grow by 6% qoq in 4Q16 and 3% yoy in 2017 on better NB demand from the commercial segment as well as market share gains for its key NB customers.

Non-PC segment growth to normalise in 2017 Compal’s expectation for smart device unit shipment growth has normalised to single-digits yoy for 2017 because new clients for handset assembly are increasingly difficult to find as the smartphone market consolidates. Meanwhile, its venture into IPC is unlikely to have meaningful sales contribution without additional acquisitions given the fragmented nature of IPCs, in our view. We believe internet of things (IoT) will contribute minimally to the topline before 2018, after which we expect IoT demand to accelerate.

Limited risk exposure to LeTV Management explained that the size of its net accounts receivable (A/R) exposure to LeTV’s smartphone business is limited as the smartphone assembly orders involve components that are consigned by LeTV. Thus, Compal does not bear the full dollar risk of a handset. We estimate Compal’s A/R outstanding to LeTV at NT$220m - less than 1% of Compal’s total A/R of NT$182bn as at 3Q16. However, if Compal were to bear the full dollar risk of a handset, the receivable risks could be c.6% of total A/R.

Maintain Hold We lift our target price to NT$18.8, still based on 10x FY16 P/E (down-cycle average), as we revise up our FY16F EPS forecast by 6.2% on better-than-expected NB gross margin. We see limited downside risks to Compal’s current market price but its mixed outlook of a marginally improving personal computer (PC) segment offset by normalised growth for non-PC does not warrant a compelling theme for an Add.

▎Taiwan


Current price: NT$18.45

Target price: NT$18.80

Previous target: NT$17.50

Up/downside: 1.9%


Reuters: 2324.TW

Bloomberg: 2324 TT


NT$81,635m


NT$160.3m




FY16F/17F/18F Revenue increased by 0.9%/0.5%/0.1%.

FY16F/17F/18F EPS increased by 6.2%/2.0%/0.8%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -3.9 -10 -8.2

Relative (%) -0.4 -7.7 -11.7

Major shareholders % held Kinpo Electronics, Inc. 3.4

Standard Bank & Fidelity Low-Priced 3.4

Shin Kong Life Insurance Co., Ltd. 2.8

Analyst(s)

James TAN


Felix PAN T (886) 2 8729 8386 E [email protected]



Revenue (NT$m) 845,701 847,306 757,500 796,639 802,285

Net Profit (NT$m) 7,034 8,685 8,329 9,389 9,539

Normalised EPS (NT$) 1.59 1.95 1.86 2.10 2.13

Normalised EPS Growth 184% 23% (5%) 13% 2%


Price To Sales (x) 0.10 0.10 0.11 0.10 0.10

DPS (NT$) 1.00 1.50 1.20 1.38 1.69

Dividend Yield 5.42% 8.13% 6.50% 7.50% 9.18%

EV/EBITDA (x) 3.46 3.80 2.84 4.04 3.31

P/FCFE (x) 1.9 147.2 4.6 NA 3.6

Net Gearing (4.2%) (4.3%) (16.2%) 4.9% (5.5%)

P/BV (x) 0.81 0.79 0.77 0.75 0.74

ROE 7.18% 8.47% 7.91% 8.67% 8.60%

% Change In Normalised EPS Estimates 6.19% 1.99% 0.82%


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Food Retail│Taiwan│Equity research│November 9, 2016

Company Note


Powered by the

EFA Platform

Gourmet Master Strong operating margin delivery

3Q16 net profit beat our forecast and consensus on better operating margin. 9M16 ■net profit made up 71% of our full-year forecast.

China SSSG has resumed to 2-3%, which should alleviate investors’ concerns about ■weak China growth.

US store expansion will be the focus for 2017, and we expect US’s higher operating ■margin to continue driving the operating margin recovery of the company.

Taiwan is still seeing profitability improving, with store openings accelerating. ■ Maintain Add as Gourmet Master’s earnings growth is one of the fastest among our ■Taiwan non-tech coverage.

3Q16 results beat our forecast Gourmet Master reported a 3Q16 EPS of NT$3.34, up 20% yoy and 32% qoq, beating our forecast by 10% and consensus by 9%. The surprise came from a higher gross margin of 59% (+2.8% pts yoy) and operating margin of 11.5% (+1.9% pts yoy), mainly due to cost savings from the consolidation of its central kitchens in China (now 100% completed) and tax benefit from the recent implemented value-added tax (VAT) reform in China. 3Q16 OPM has reached a record-high since its last peak in 1Q12.

China SSSG resumed to 2-3% in Oct Some investors have been worried about weak 3Q16 China sales, as sales in Rmb terms grew by 2% yoy while SSSG was flattish. But our checks indicate the lower 3Q16 revenue growth was more to do with weather issues (flooding in Jul in central and southern China, and overall poor weather in Aug) and an earlier moon festival this year vs. 2015 (sales of bakery normally drops right after moon festival). We have now seen China sales resume to 8% yoy growth in Oct, with 2-3% SSSG (similar to 1H16).

US expansion will be the focus for 2017 Given that the restructuring of China stores and consolidation of China central kitchens are largely done, management said it will focus on store expansion in the US in 2017. Gourmet Master is guiding the addition of 10-15 stores in 2017 (store growth 30-50% yoy). According to management, the operating margin for US operations improved to c.13-14% from c.12-13% in 1H16, now 3-4% higher than China operation. Therefore, we expect margin improvement to continue in 2017 as the US becomes a new driver.

Taiwan and China will also see moderate store expansion Taiwan sales grew 11% yoy in 3Q16 while net profit grew 27% on the back of improving profitability due to successful store remodeling. We have seen store expansion reaccelerating in 9M16 with 35 stores added, as the new store format attracted more franchisees to sign up for new stores. Management is now guiding to open 30 stores in Taiwan in 2017. For China, the company guides to open 40-50 stores in 2017.

Maintain Add; operating margin recovery is main catalyst We cut our FY16-18F earnings forecasts by 1-8% to factor in lower store expansion for China in 2017-18, hence, our target price falls to NT$356, still based on 25x FY17 P/E, inline with Greater China restaurant/staples leaders. We see the recent correction (-11% since Oct vs. TAIEX -3%) as an over-reaction on concerns over weak China sales, but we believe such concerns should abate post the 3Q16 results and Oct sales announcement. Maintain Add for its attractive growth (20% EPS CAGR in FY16-18F).

▎Taiwan




Previous target: NT$380.0

Up/downside: 25.8%


Reuters: 2723.TW

Bloomberg: 2723 TT


NT$41,934m


NT$75.70m




FY16F net profit decreased by 1%.



Source: Bloomberg


Relative (%) -5.8 -11.4 39.4

Major shareholders % held Management, BOD, Employees 54.0

Cathay Life Insurance 4.4

FIL 3.2

Analyst

Jack LIN


SOURCES: COMPANY DATA, CIMB FORECASTS


Revenue (NT$m) 17,921 20,457 22,305 25,742 29,242

Operating EBITDA (NT$m) 1,768 2,789 3,515 4,114 4,648

Net Profit (NT$m) 528 1,139 1,713 2,111 2,461


Normalised EPS Growth (8%) 116% 50% 23% 17%


DPS (NT$) 1.24 1.14 2.38 5.78 7.12

Dividend Yield 0.44% 0.40% 0.84% 2.04% 2.52%

EV/EBITDA (x) 22.29 13.78 10.56 8.79 7.52

P/FCFE (x) 216.9 58.9 58.7 23.0 18.5

Net Gearing (37.2%) (40.2%) (51.7%) (54.7%) (58.4%)

P/BV (x) 6.24 5.49 4.95 4.30 3.74

ROE 8.2% 15.9% 21.3% 23.1% 23.5%

% Change In Normalised EPS Estimates (5.8%) (6.3%) (12.0%)


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32

Auto Parts│Taiwan│Equity research│November 9, 2016

Company Note │ Alpha series



Tung Thih Electronic Co Ltd Rolling to a stop

We initiate coverage on TTE with a Reduce rating in view of likely slower China/SUV ■growth in 2017 resulting in TTE performing below the market’s high expectations.

TTE is the largest parking aid system supplier in China. It benefits from growth in ■demand for parking sensors and cameras from rising ADAS and SUV popularity.

Limited exposure to mature markets and lack of high-end ADAS products or radar ■technology are major concerns for the company amid China demand slowdown.

Our TP of NT$255 is based on 15x FY17 P/E (cycle average). We believe most ■positives are priced in and valuation will revert to historical range on slower growth.

China passenger vehicle market growth may slow down in 2017 China government policy and subsidy have had significant influence on the domestic passenger vehicle (PV) market. With the expiry of the auto tax break at year-end, we project that China’s PV market may only expand 4% yoy in 2017, much lower than the 13.5% in 2016. We expect the 3-year CAGR to decline from 8.7% in 2014-16 to 3.3% in 2017-19. Given its high exposure to China (85% of FY16 sales), we believe TTE would not be immune to a slowdown in China despite continual market share expansion.

SUV penetration could hit a plateau Owing to high SUV exposure (60-70% of FY16 sales), TTE’s sales and earnings are highly correlated to SUV demand in China as parking aid systems and rear-view cameras are practically standard specifications for new SUVs. Once the SUV penetration rate hits 40% in China and the government subsidy expires, we expect SUV growth to decelerate in China, which could possibly slow the increase in parking sensors and camera per vehicle.

Long-term ADAS outlook is promising In the longer term, the outlook for the Advanced Driver Assistance System (ADAS) in mature markets is still promising due to the push for driving safety and from regulations. It may still be too early for fully autonomous cars (levels 4-5) but we foresee conditional automation (level 3) on the road in the next five years. In contrast to mature markets, the specifications competition among car makers is still a key driver for upgrades in the China market, instead of regulations.

Limited exposure to mature markets and radar tech are concerns TTE’s sales exposure to mature markets is limited due to: 1) the closed supply chain, especially in the EU and 2) its competitors having complete product portfolios and long relationships with OEMs. D2XX is a good start for TTE to penetrate GM’s global models but the contribution outside China is still small. Higher-end ADAS products (AEB, FDW) need radar technology, the missing piece of the puzzle for TTE, as its ultrasonic and optical technologies are not suitable for long-range and high-speed environments.

Initiate with Reduce We initiate coverage with a Reduce in view of: 1) expected slowdown in China PV market and decelerating SUV growth in 2017, and 2) its current valuation appears to have priced in the positives. Our TP of NT$255 is based on 15x FY17 P/E (cycle average) in line with local peers but at a discount to global peers due to technology gap. Our FY17-18 EPS forecasts are 18-29% below the consensus. Upside risks are better than expected China PV market or penetration rate for parking sensor or camera.

▎Taiwan

REDUCE Consensus ratings*: Buy 12 Hold 4 Sell 0



Previous target: NT$

Up/downside: -18.4%


Reuters: 3552.TW

Bloomberg: 3552 TT


NT$26,364m


NT$596.8m




Not applicable.

Source: Bloomberg


Absolute (%) -33.3 -34 21.4

Relative (%) -29.8 -31.7 17.9

Major shareholders % held Chen Hsin-Chung 4.5

Chuan Hang Investment Co 3.8

Chen Sheng-Ju 3.7

Analyst(s)

Felix PAN


James TAN T (886) 2 8729 8378 E [email protected]



Revenue (NT$m) 5,142 7,039 9,890 11,130 13,283

Operating EBITDA (NT$m) 778 1,244 2,056 2,304 2,728

Net Profit (NT$m) 454 770 1,290 1,452 1,741


Normalised EPS Growth (17.1%) 66.7% 66.5% 12.2% 19.9%


DPS (NT$) 3.40 5.23 8.81 9.91 11.89

Dividend Yield 1.09% 1.67% 2.82% 3.17% 3.81%

EV/EBITDA (x) 33.76 21.46 12.57 11.70 9.38

P/FCFE (x) NA 35 14 2,752 11

Net Gearing 12.9% 11.0% (13.4%) 8.3% (15.1%)

P/BV (x) 8.00 7.08 5.80 5.03 4.30

ROE 15.1% 22.0% 31.1% 29.5% 30.4%

% Change In Normalised EPS Estimates


87

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167

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247

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620


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Technology Components│Thailand│Equity research│November 9, 2016

Company Note


Powered by the

EFA Platform

KCE Electronics 3Q16 core earnings in line

■ KCE posted all-time high quarterly core net profit of THB777m (US$22m; +1% qoq, +29% yoy) in 3Q16.

■ The change in shipment term delayed revenue recognition in 3Q.

■ 4Q16 shipment volume to dip slightly due to seasonality.

■ Outstanding GPM and NPM make KCE the most interesting among major auto PCB makers globally.

■ THB120 target price based on 16x FY18F P/E. Maintain Hold due to limited upside.

In line 3Q16 result driven by higher efficiency KCE reported another quarterly high core net profit of THB777m (US$22m; +1% qoq, +29% yoy), 2% above our and Bloomberg consensus forecasts. Although 3Q16 revenue was slightly lower qoq due to delays in revenue recognition, improving efficiency, coupled with a lower SG&A-to-sales ratio, led to positive qoq core next profit growth for the quarter. 9M16 core net profit jumped 45% yoy to THB2,272m (US$66m), accounting for 70% of our FY16 forecast.

More shipment, less revenue 3Q16 revenue was THB3,515m (US$102m), down 2% qoq but up 6% yoy. The lower revenue qoq was a result of the baht appreciation and changes in shipment terms from air freight to sea freight by its existing customers, which delayed revenue recognition and turned its positive 2% shipment volume into negative 2% qoq sales. Higher sales volume and better plant efficiency lifted GPM to 36%.

Seasonally softer volume shipped in 4Q16 expected We expect 4Q16 shipment volume to soften by 5-7% qoq due to low seasonality, although the extent of revenue recognition will depend on the actual amount consigned during the quarter. Moreover, we expect the efficiency of its plants to help KCE maintain its impressive GPM at 36%. The company plans to have 300k of its new plant's 500k sq ft per month capacity ready for next year’s production by year-end, with the balance 200k sq ft capacity planned for installation in mid-FY17.

The most outstanding auto PCB producer Continental Motors projects the usage of sensors in a car will grow by 13% p.a. on average in the next five years (2015-2020). We expect most of the auto printed circuit board (PCB) makers to grow along with the industry uptrend. However, we believe KCE is the most competitive candidate given its outstanding cost control, which resulted in impressive GPM and NPM that are double those of its nearest major peer (shown in Figure 5).

Upside now limited Although KCE's outlook is decent, our valuation points to limited share price upside. Therefore, we maintain our Hold call, with an unchanged target price of THB120, based on 16x FY18F P/E (2 s.d. above its five-year average). For the short term, we see any price correction as an opportunity to accumulate the stock. Upside risks to our call are higher-than-expected GPM and SG&A-to-sales ratio. Downside risks are appreciation of the Thai baht and an economic slowdown.

▎Thailand


Current price: THB111.0

Target price: THB120.0

Previous target: THB120.0

Up/downside: 8.1%


Reuters: KCE.BK

Bloomberg: KCE TB


THB65,058m


THB244.9m




No change.

Source: Bloomberg


Relative (%) 2.4 9.3 73.8

Major shareholders % held Ongkosit Family 33.8

HSBC (Singapore) Nominees PTE Ltd. 6.5

Mr. Panja Senadisai 4.7

Analyst(s)

Kitichan SIRISUKARCHA, CFP




Revenue (THBm) 11,284 12,449 15,382 17,402 19,034

Net Profit (THBm) 1,936 2,192 3,250 3,882 4,311

Core EPS (THB) 3.36 3.80 5.64 6.74 7.48

Core EPS Growth 78.6% 13.2% 48.3% 19.4% 11.1%

FD Core P/E (x) 33.04 29.18 19.68 16.48 14.84

Price To Sales (x) 5.67 5.14 4.16 3.68 3.36

DPS (THB) 1.10 1.50 1.95 2.35 3.69

Dividend Yield 0.99% 1.35% 1.75% 2.11% 3.32%

EV/EBITDA (x) 28.19 22.44 16.23 13.80 12.39

P/FCFE (x) 59.96 47.90 26.71 22.65 11.99

Net Gearing 84.5% 69.4% 45.2% 23.2% 0.6%

P/BV (x) 10.05 7.92 6.88 5.28 4.34

ROE 37.0% 30.4% 37.4% 36.3% 32.1%



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34

Finance Companies│Thailand│Equity research│November 9, 2016

Company Note



Muangthai Leasing Robust earnings growth with high asset quality

3Q16 net profit of THB401m (US$11.5m), +82% yoy and +33.5% qoq. ■ Hefty loan growth with strong asset quality. ■ Operating cost efficiency with low funding cost. ■ Revise up our FY16-18F EPS forecasts by 7.8-13.1%. ■ Upgrade from Hold to Add with a higher target price of THB24. ■

3Q16 net profit of THB401m (US$11.5m) MTLS reported 3Q16 net profit of THB401m, up 82% yoy and 33.5% qoq. This was 18% better than our forecast and 21% above consensus. Positive earnings surprise was from lower-than-expected credit cost. Meanwhile, its pre-provision operating profit came in line with our expectation. Its 9M16 net profit was up 67.8% yoy and was better than our expectation at 80% of our previous FY16F estimate.

Hefty loan growth with strong asset quality Loan growth was lofty at 19% qoq and 62% from end of FY15. This came in ahead of our full-year assumption of 52% whereas MTLS had 1,515 branches by end-3Q16 and it targets to have 1,600 branches by end of FY16. Its NPL ratio was stable qoq at 0.95% while MTLS set aside lower-than-expected credit cost at 150bp. Our 3Q16 estimate was 240bp. The special mention loans to total loan ratio was stable qoq at 20%. MTLS's NPL coverage ratio remained high at 287%.

Operating cost efficiency with low funding cost 3Q16 cost-to-income ratio was 48.2%, down from 49% in 2Q16. This was better than our previous FY16F assumption at 53.2% and indicated that MTLS’s operating cost efficiency is improving. The company has expanded its branch network, adopting a small branch format which requires low investment cost of THB200k-450k per branch. Meanwhile, its funding cost in 3Q16 stayed low at 3.0%. This helped maintain its high net-interest margin at 21% for 3Q16.

Revise up our FY16-18F EPS forecasts by 7.8-13.1% We upgrade our earnings forecasts on higher loan growth assumption in FY16F and lower cost-to-income ratio estimates. Details of our earnings revisions are in Figure 3. MTLS aims to have 2,200 branches in FY17F. Its loan growth will be intact given that the company has penetrated into bigger ticket size loans which are four-wheeler-backed loans and land-backed loans. They contributed 32.7% and 6.4% respectively to its total loans in 2Q16. MTLS is expanding its branch network in south and northeast Thailand.

Upgrade from Hold to Add with a higher target price of THB24 We upgrade our rating from Hold to Add due to its robust loan growth with a higher GGM-based target price from THB21 to THB24 which is based on 7.0x FY17 P/BV (assuming LT ROE of 29% and COE of 12%). MTLS is a leading asset-backed loan lender in Thailand while the majority of its loan portfolio has motorcycles as collateral. Potential re-rating catalyst will come from the consensus’s earnings upgrade.Meanwhile, downside risk to our call is a spike in NPLs.

▎Thailand

ADD (previously HOLD) Consensus ratings*: Buy 12 Hold 3 Sell 1

Current price: THB19.40 Target price: THB24.00 Previous target: THB21.00 Up/downside: 23.7% CIMB / Consensus: -10.0%

Reuters: MTLS.BK Bloomberg: MTLS TB Market cap: US$1,177m THB41,128m Average daily turnover: US$3.50m THB122.1m Current shares o/s: 2,120m Free float: 25.0% *Source: Bloomberg


FY16F EPS increased by 7.8%. FY17F EPS increased by 12.7%. FY18F EPS increased by 13.1%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 5.4 2.6 0 Relative (%) 5 4.7 -6.7

Major shareholders % held Petaumpai Family 66.0

Analyst (s)

Weerapat WONK-URAI T (66) 2 657 9224 E [email protected] SOURCE: COMPANY DATA, CIMB FORECASTS

Financial Summary Dec-14A Dec-15A Dec-16F Dec-17F Dec-18FNet Interest Income (THBm) 1,301 1,998 3,507 4,774 5,571Total Non-Interest Income (THBm) 288.7 333.8 482.3 602.4 701.9Operating Revenue (THBm) 1,590 2,331 3,989 5,377 6,272Total Provision Charges (THBm) (14.2) (24.7) (390.9) (482.8) (564.9)Net Profit (THBm) 544 825 1,326 1,824 2,127Core EPS (THB) 0.29 0.39 0.63 0.86 1.00Core EPS Growth 18.9% 32.1% 60.7% 37.6% 16.6%FD Core P/E (x) 65.87 49.85 31.02 22.55 19.34DPS (THB) 0.13 0.20 0.32 0.44 0.52Dividend Yield 0.67% 1.03% 1.66% 2.28% 2.66%BVPS (THB) 2.41 2.67 2.97 3.39 3.88P/BV (x) 8.05 7.28 6.53 5.73 5.01ROE 15.5% 15.3% 22.2% 27.1% 27.6%% Change In Core EPS Estimates 7.8% 12.7% 13.1%CIMB/consensus EPS (x) 1.09 1.07 0.96

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Petrochemical│Thailand│Equity research│November 9, 2016

Company Note


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PTT Global Chemical The first quarter of improving operations

3Q16’s results were weak, as expected, due to a weak olefins and refinery margins. ■ However, 3Q16’s EBITDA margin was relatively resilient at 12%, thanks to higher ■olefin margins offsetting the weaker margins for refinery and aromatics.

9M16 net profit was 74% of our full-year forecast. We revise down our FY16F EPS ■by 3.9% and for FY17-18F by 2-2.5% to reflect our 0.5% lower utilisation rate.

Improving operational reliability is a key catalyst for the share price. ■ Maintain Add. We raise our target price to THB72, based on 6.5x CY18F ■EV/EBITDA (0.5 s.d. below its historical average) as we roll over to FY18.

Improvements on the way 3Q16’s net profit was weak at THB6.3bn, up 26% qoq and 416% yoy but missing our estimate by 15% and consensus by 10%. The key culprits were the 8% yoy weaker HDPE price that led to a lower EBITDA margin for its gas-based ethane cracker at 22%, down from 23% in 2Q16. Overall EBITDA margin was 14%, down from 15% in 2Q16, due to the lower HDPE price, but partly offset by the improving olefin margins driven by the rising utilisation rate for the high-margin ethane cracker.

Olefins improved but with room to rise further In 3Q16, PTTGC posted higher volumes and margins for its olefin unit by reporting a net profit of THB4.5bn and improved operating performance for the first time after two years of operational disruptions. Olefin utilisation rate was 92%, up from 85% in 2Q16 and 81% in 1Q16. An 8% yoy drop in high-density polyethylene (HDPE) price to US$1,153/t due to lower oil prices worsened olefins earnings. The unit gained THB1.2bn in insurance income for the loss suffered by the shutdown of olefins #3 in 2Q16.

Aromatics weakened Although PX-and benzene-condensate margins remained weak due to oversupply, the unit posted a solid net profit of THB613m in 3Q16, up from a loss of THB868m in 3Q15. Utilisation rate was 75%, down from 83% in 2Q16, but up from 57% in 3Q15. PX-condensate spread dipped 4% yoy and 2% qoq to US$405/t due to the weak demand, leading to a drop (-32% yoy, -27% qoq) in P2F margin to US$147/t.

Refinery improved but still a drag 3Q16 refinery earnings were weak at THB1.2bn, up from a loss of THB429m in 3Q15, given the market gross refining margin on the back of lower demand and oversupply. Market GRM was weak at US$4.06/bbl, down 16% yoy and 11% qoq, due to the weaker Dubai and gasoline-Dubai spreads and the lower utilisation rate. EBITDA margin for the refinery unit rose to 5% in 3Q16, up from 3% in 2Q16 and 4% in 3Q15, due to improved utilisation rate post shutdown in 2Q16.

Rising confidence on improving operations is key catalyst We believe a key catalyst for the share price will be PTTGC’s continued improved operations in the form of rising utilisation rate after a series of operational disruptions that rocked investors’ confidence, leading to a valuation discount. We keep our Add call and raise our target price from THB70, based on 6.5x CY17 EV/EBITDA, to THB72, based on 6.5x CY18 EV/EBITDA as we roll over our valuation from FY17 to FY18.

▎Thailand





Up/downside: 20.5%


Reuters: PTTG.BK

Bloomberg: PTTGC TB


THB266,503m


THB659.0m




FY16F EPS decreased by 3.9%

FY17F EPS decreased by 2.5%

FY18F EPS decreased by 2%

Source: Bloomberg


Relative (%) -0.8 -1.1 -0.9

Major shareholders % held PTT Plc 49.0

Analyst(s)

Suwat SINSADOK, CFA, FRM




Revenue (THBm) 574,010 403,440 374,323 425,219 430,281

Operating EBITDA (THBm) 33,169 42,234 40,825 55,992 61,178

Net Profit (THBm) 17,275 20,502 20,539 33,003 39,352

Core EPS (THB) 2.63 4.99 4.56 7.33 9.01

Core EPS Growth (63.9%) 89.4% (8.6%) 60.7% 23.0%

FD Core P/E (x) 22.69 11.98 13.11 8.16 6.63

DPS (THB) 1.73 2.05 2.05 3.30 3.94

Dividend Yield 2.89% 3.43% 3.44% 5.52% 6.59%

EV/EBITDA (x) 10.16 6.84 7.16 5.26 4.73

P/FCFE (x) 21.70 6.98 37.40 88.37 6.66

Net Gearing 32.7% 17.3% 19.2% 19.8% 17.8%

P/BV (x) 1.12 1.16 1.16 1.12 1.09

ROE 5.0% 9.5% 8.9% 13.9% 16.6%



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36

Retail│Thailand│Equity research│November 9, 2016

Company Note


Powered by the

EFA Platform

Siam Makro Solid earnings driven by strong revenue growth

3Q16 core net profit beat our forecast and consensus by 5% and 11%, respectively, ■on the back of robust SSSG of 6.3% and sales from new stores.

Significant improvement in GPM from 2Q was mainly from 1) change in marketing ■strategy to refocus on margins and 2) favourable product mix.

We see benefits of leveraging on partners’ expertise in premium food services in the ■recent overseas acquisitions of food services businesses in SG, UAE, and HK.

Maintain Reduce. Our DCF-based target price is raised to THB34 (WACC: 7.2%, ■TGR: 3%) as we roll forward cash flow to FY17F.

Strong 3Q16 results Makro reported 3Q16 core net profit of THB1.4bn, up 12.9% yoy and 24.3% qoq mainly due to solid revenue growth from strong SSSG and contribution from new stores. Sales rose 12.9% yoy to THB41.3bn, driven by SSSG of 6.3% in 3Q16 (vs. 6.0% in 2Q16 and -0.7% in 3Q15) and contributions from 13 new stores rolled out in the past 12 months. 9M16 was in line and formed 73% of our FY16F estimate and 71% of consensus.

GPM strongly improved from 2Q GPM jumped to 9.7% in 3Q16 from 8.5% in 2Q16, driven by 1) a change in the strategy to refocus on margins rather than offering aggressive price discounts for traffic, and 2) afavourable sales mix of better-margin fresh food products. Fresh food continued itsdouble-digit growth and contributed 32% of sales in 3Q16 (vs. 30% in 2Q16), with dry food at 58% and non-food at 10%. In our view, intense competition in hypermarkets in 3Q16 subsided mainly because BIGC ceased to target resellers.

New stores’ sales supported revenue growth; will fa de in FY17F The contribution from new stores fed the solid revenue growth of 12.9% yoy in 3Q16. Makro opened four new stores in 3Q16 and at end-3Q16, it operated 101 cash-and-carry stores in Thailand. It is on track to achieve its target of 12 new stores in FY16F. However, it has scaled down its FY17F expansion plans from 11-12 new stores to 7-8 stores in various formats (vs. 13-14 new stores opened in FY14-15), primarily because it has reached its target of having a presence in all provinces.

Getting more active in overseas expansion On 31 Oct, Makro agreed to buy 80% stakes in 4 food-service companies – one each in Singapore and UAE, and two in HK – for THB 3.1bn. We see the benefits of leveraging on partners’ expertise and existing customer base for sourcing and distributing premium food supplies, including Halal products. In addition, its Cambodia plans are going forward with the first store expected to open in 4Q17. However, due to limited financial guidance, we have not factored in overseas contributions into our forecasts for now.

Maintain Reduce We keep our earnings forecasts and reiterate our Reduce call. We deem the valuation demanding at 28x FY17F P/E (0.25 s.d. below its 5-yr historical mean) with its 8.4% forecast net profit CAGR in FY15-18F; retail peers’ average is 26.7x. In our view, the keyrevenue growth driver is fading as expansion plans in Thailand have been scaled down, while we also anticipate pressure from pre-operating costs of its overseas expansion.Upside risks include higher-than-expected gross margin.

▎Thailand


Current price: THB34.25 Target price: THB34.00 Previous target: THB31.50 Up/downside: -0.7% CIMB / Consensus: -8.5%

Reuters: MAKR.BK Bloomberg: MAKRO TB Market cap: US$4,703m THB164,400m Average daily turnover: US$0.23m THB8.06m Current shares o/s: 4,800m Free float: 2.1% *Source: Bloomberg


Target price rolled forward to FY17F.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 2.2 3 -12.2 Relative (%) 1.8 5.1 -18.9

Major shareholders % held Siam Makro Holdings 55.0 CPALL PCL 24.7 CPALL PCL 18.2

Analyst (s)

Kasem PRUNRATANAMALA, CFA T (66) 2 657 9221 E [email protected]


Financial Summary Dec-14A Dec-15A Dec-16F Dec-17F Dec-18FRevenue (THBm) 139,271 152,604 170,705 187,407 204,622Operating EBITDA (THBm) 7,816 8,920 9,074 10,259 11,758Net Profit (THBm) 4,922 5,378 5,178 5,844 6,858Core EPS (THB) 1.03 1.12 1.08 1.22 1.43Core EPS Growth 14.5% 9.3% (3.7%) 12.9% 17.3%FD Core P/E (x) 33.40 30.57 31.75 28.13 23.97DPS (THB) 0.77 0.85 0.82 0.92 1.08Dividend Yield 2.25% 2.48% 2.39% 2.70% 3.16%EV/EBITDA (x) 21.12 18.92 18.79 16.55 14.34P/FCFE (x) 59.71 95.81 58.38 34.53 29.68Net Gearing 5.2% 30.9% 39.5% 32.0% 22.5%P/BV (x) 12.86 11.57 10.64 9.75 8.88ROE 41.3% 39.8% 34.9% 36.2% 38.8%% Change In Core EPS Estimates 0% 0% 0%CIMB/consensus EPS (x) 0.97 0.95 0.96

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Finance Companies│Thailand│Equity research│November 9, 2016

Company Note


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Srisawad Power 1979 Solid earnings driven by strong loan demand

3Q16 net profit was THB543m (US$15.5m), up 46.8% yoy and 25.2% qoq ■ Robust loan growth from its branch expansion ■ Intact asset quality with lower credit cost qoq ■ Positive surprise from lower operating cost and funding cost ■ Maintain our Add rating but with a higher GGM-based target price to THB58 (based ■on 7.1x FY17F P/BV)

3Q16 net profit of THB543m (US$15.5m) SAWAD’s 3Q16 net profit rose by 46.8% yoy and 25.2% qoq to THB543m, which was 11% higher than our previous estimate and 14% above the street’s forecast. The positive earnings surprise came from higher-than-expected non-interest income growth and lower-than-expected credit cost and low cost-to-income ratio. Net profit for 9M16 rose by a massive 48.8% yoy to form 76% of our previous FY16F estimate.

Robust loan growth from its branch expansion Loan growth in 3Q16 came in at a robust 12% qoq and up 35% from the end of FY15. This was stronger than our previous FY16F assumption of 25%. The key growth drivers in 3Q16 were mainly the company's branch expansion in Thailand and strong demand for asset-pledged loans. Note that we do not yet have the loan breakdown for 3Q16. There was no impact from the Pracharath loan scheme, the government's soft loan package.

Asset quality intact, with lower credit cost qoq 3Q16 NPL ratio was 4.5%, down from 4.6% in 2Q16. The special mention loans to total loans ratio was flat qoq at 18%. This implies that SAWAD's asset quality has remained intact. It has set aside a lower credit cost qoq at 97bp and its NPL coverage ratio was at 63.8%. We think SAWAD has stringent risk management by giving low loan-to-value at 40-50% which allows the company to recover from the resale of foreclosed assets.

Positive surprise from lower operating cost and funding cost Cost-to-income ratio for 3Q16 was 45%, lower than our estimate of 47.6%. SAWAD had operating cost efficiency and there were no concerns on cost overruns from its aggressive branch expansion. SAWAD had 2,000 branches as at end-3Q16, already meeting its target for FY16. Meanwhile, its funding cost in 3Q16 continued to fall to 3.3% which was lower than our assumption of 3.4%, thanks to the low interest rate environment. Net interest margin was relatively flat qoq at 25.6% in 3Q16.

Maintain Add with higher target price of THB58 We revise up our FY16-18F EPS forecasts by 2.9-6.1% from higher loan growth assumptions, lower cost-to-income ratio and falling credit costs. We maintain our Add rating but raise our GGM target price from THB56 to THB58, which is based on 7.1x FY17F P/BV (assuming LT ROE of 31% and CoE of 12%). We believe that potential re-rating catalysts will be its successful overseas business expansion and bad-debt management business. Downside risk to our call is a spike in NPLs.

▎Thailand





Up/downside: 36.5%


Reuters: SAWA.BK

Bloomberg: SAWAD TB


THB44,434m


THB233.5m







Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 14.9 11.8 -1.2

Relative (%) 14.5 13.9 -7.9

Major shareholders % held Kaewbootta Family 52.0

Analyst(s)

Weerapat WONK-URAI




Net Interest Income (THBm) 1,736 2,534 3,614 4,807 5,816

Total Non-Interest Income (THBm) 735 963 1,352 1,961 2,418

Operating Revenue (THBm) 2,471 3,496 4,967 6,767 8,234

Total Provision Charges (THBm) (188.8) (168.1) (232.0) (373.0) (465.7)

Net Profit (THBm) 855 1,336 1,955 2,589 3,091

Core EPS (THB) 0.98 1.32 1.89 2.48 2.96

Core EPS Growth (6.1%) 35.4% 43.1% 30.9% 19.4%

FD Core P/E (x) 43.51 32.13 22.46 17.16 14.37

DPS (THB) 0.02 0.03 0.75 0.99 1.18

Dividend Yield 0.05% 0.07% 1.76% 2.33% 2.78%

BVPS (THB) 3.43 4.67 6.42 8.15 7.16

P/BV (x) 12.38 9.10 6.61 5.21 5.93

ROE 37.5% 32.6% 34.0% 34.0% 38.6%



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Oil & Gas Refinery│Thailand│Equity research│November 9, 2016

Company Note


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Thai Oil A solid quarter despite a weak refinery

A solid 3Q16 core net profit was driven by non-refinery earnings thanks to its ■strategic success in integration and diversification.

TOP’s non-refinery earnings more than offset its poor refinery earnings. ■ 9M16 net profit was 2% below at 87.6% of our full-year forecast but we maintain our ■EPS estimates as we expect seasonally lower net profits for non-refinery.

Non-refinery earnings could overshadow the refinery unit in FY16-18. ■ Maintain Add and TP of THB92, based on industry-average 6x CY18 EV/EBITDA. ■

No more a refinery-driven play 3Q16’s core net profit was THB2.3bn, down 69% qoq, missing our estimate by 5%, and consensus by 4%. Similar to 2Q16, the solid result was due to the stronger earnings from the non-refinery businesses (aromatics, lube, and power) which more than offset weaker refinery earnings. The reported net profit was THB2.9bn, up from a loss of THB2.3bn in 3Q15 but down 62% qoq, driven mainly by 1) inventory loss of THB0.5bn, 2) THB0.5bn FX gain, and 3) hedging gain of THB0.2bn.

Non-refinery as a core strength led by power In 3Q16, non-refinery earnings accounted for 55% of TOP’s net profit. Power earnings rose to THB0.5bn, up 138% yoy and 7% qoq, driven by rising equity income from GPSC and improving earnings from SPPs which accounted for 16% of net profit, driven by 19.5% qoq electricity dispatched volume for SPPs. Solvent net profit dipped to normal level of THB84m after a peak in 2Q16. Aromatics and lube contributed THB889m and THB163m to net profit, accounting for 30% and 5.5% respectively of 3Q16 net profit.

Aromatics and lube – weak but profitable 3Q16 earnings from aromatics was THB889m, up 18% qoq, due to the 8% qoq higher PX-gasoline and 26% qoq higher benzene-gasoline spreads despite the flat qoq utilisation rate at 80%. Lube earnings fell 65% qoq due to lower demand and poorer bitumen-fuel oil margin and lower utilisation rate to 62%, down from 84% in 2Q16, due to the 31-day planned maintenance shutdown.

Refinery – weak as expected Core refinery earnings, excluding inventory loss, was down 15.5% qoq to THB1.6bn in 3Q16, driven by the 2.3% qoq weaker market GRM to US$4.3/bbl due to the poorer diesel and gasoline-Dubai spreads on oversupply and lower utilisation rate to 107%, down from 109% in 2Q16. However, this was in line with our and market expectations. We expect net profit from refinery to improve in 4Q16 driven by rising diesel-Dubai and gasoline-Dubai spreads on seasonally high demand for the upcoming winter season.

Non-refinery earnings sustainability over volatile refinery earnings The in-line 3Q16 results despite weak refinery earnings confirmed our positive view on TOP’s business transformation that included the capacity additions for power, downstream specialty for aromatics and lube, and solvent. We believe TOP’s lower earnings volatility and higher margin will lead to sustainable valuation re-rating. We maintain our Add call and target price of THB92, based on 6.5x CY18 EV/EBIDA, an industry average. Risks to our call include lower oil price and weak refinery demand.

▎Thailand





Up/downside: 24.7%


Reuters: TOP.BK

Bloomberg: TOP TB


THB150,452m


THB487.0m




No changes.

Source: Bloomberg


Relative (%) 3.5 20.6 25

Major shareholders % held PTT Plc 49.5

Credit Agricole 3.1

Analyst(s)

Suwat SINSADOK, CFA, FRM




Revenue (THBm) 390,090 293,569 214,551 290,239 286,462

Operating EBITDA (THBm) (189) 23,309 27,156 27,682 28,313

Net Profit (THBm) (4,026) 12,181 17,598 18,120 18,362

Core EPS (THB) (2.46) 7.32 8.63 8.88 9.00

Core EPS Growth (138%) 18% 3% 1%

FD Core P/E (x) NA 10.07 8.55 8.30 8.19

DPS (THB) 1.17 2.43 3.88 4.00 4.05

Dividend Yield 1.59% 3.29% 5.26% 5.42% 5.49%

EV/EBITDA (x) NA 7.06 4.68 3.91 2.72

P/FCFE (x) 16.97 8.30 4.53 7.10 4.42

Net Gearing 32.1% 23.1% (13.2%) (26.8%) (48.2%)

P/BV (x) 1.82 1.63 1.44 1.32 1.22

ROE (5.8%) 17.1% 17.9% 16.6% 15.5%



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Food & Beverages│Thailand│Equity research│November 9, 2016

Company Note


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Thai Union Group 3Q16: Focus on long-term growth

TU posted 3Q16 core net profit of THB1.4bn (US$40.7m, -16% yoy, -5% qoq), which ■was 7-8% below our and Bloomberg consensus forecasts.

9M16 core net profit was below expectations, at 73% of our FY16 forecast due to ■the sharp increase in raw material prices.

3Q16 sales rose by a strong 7.7% yoy, with robust contribution from recently-■acquired companies and growth across most business units.

The recent acquisitions, contribution from new innovative products and GPM ■normalisation should support TU’s long-term earnings growth, in our view.

Reiterate Add, with higher target price of THB25.75 based on 16.1x FY18 P/E. ■3Q16 results lower than expected TU reported 3Q16 net profit of THB1.6bn (US$45.5; -12% yoy, +4.4% qoq). Excluding one-off items such as tax credit from salmon business losses in 1H16, 3Q16 core net profit was THB1.4bn (US$40.7; -16% yoy, -5% qoq), lower than our and Bloomberg consensus forecasts by 7.2% and 8.7%, respectively. The key culprit behind the sharp drop in 3Q16 EPS was the spike in raw material prices, particularly salmon and tuna prices. Therefore, GPM contracted from 17.3% in 3Q15 to 14.1% in 3Q16.

Solid sales growth continues TU reported record-high quarterly sales of THB35bn in 3Q16 (+7.7% yoy, 2% qoq)driven by the consolidation of Ruegen Fisch and Chez Nous, coupled with some product repricing due to the surge in raw material prices. Most business categories showed improvement in 3Q16 sales volume, especially shrimp (+8.3% yoy), sardine & mackerel (+38% yoy) and value-added products (+31% yoy). This indicates that TU’s fundamentals and global operations are strong despite the volatile raw material costs.

Expect GPM to normalise in FY17F In spite of the weak performance in 3Q16, we expect GPM to gradually normalise in FY17F due to internal cost control and product repricing. Additionally, tuna prices seem to have stabilised since Jun 2016, which would allow for better inventory management. We also have seen some improvement in the salmon business, with operating losses narrowing from US$10m in 1H16 to US$3m in 3Q16, as TU has been in negotiationswith customers and suppliers. In our view, salmon business should break even in FY17.

Strong earnings catalyst in FY17F We believe that FY17-18F will be critical years for TU, given its recent investment in product innovation and acquisitions in 2016. We expect to see significant results from itsGlobal Innovation Incubator (GII) R&D centre next year. We also expect the recent acquisitions of Red Lobster, Avanti and Chez Nous to deliver material profit contribution in FY17F. These factors, together with margin normalisation, leads us to expect FY17Fcore EPS growth of 30%, higher than its peers’ average of 23%.

Maintain Add We keep our Add call and raise our target price to THB25.75, based on 16.1x FY18 P/E,as we roll over from FY17 valuation to FY18. We also trim our core EPS forecasts by 4.4-7.3% in FY16-18 to reflect the lower-than-expected 3Q16 results. Downside risks to our call are: 1) overhang from high tuna and salmon prices, and 2) delay in new product launches.

▎Thailand





Up/downside: 16.0%


Reuters: TU.BK

Bloomberg: TU TB


THB105,934m


THB312.4m



Key changes in this note FY16F revenue increased by 5.4%. FY16-18F EPS decreased by 4.4-7.3%. FY16F ROE decreased by 5%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 5.7 1.4 24.7 Relative (%) 5.3 3.5 18

Major shareholders % held Thai NVDR 10.5 Chansiri Thiraphong 5.2 Mitsubishi Corporation 4.6

Analyst(s)

Kitichan SIRISUKARCHA, CFP T (66) 2 657 9232 E [email protected]


Financial Summary Dec-14A Dec-15A Dec-16F Dec-17F Dec-18FRevenue (THBm) 121,402 125,183 144,823 158,568 165,732Operating EBITDA (THBm) 9,508 9,469 9,460 11,585 12,577Net Profit (THBm) 5,092 5,302 5,185 6,725 7,619Core EPS (THB) 1.09 1.11 1.09 1.41 1.60Core EPS Growth 75.0% 2.2% (2.2%) 29.7% 13.3%FD Core P/E (x) 20.41 19.98 20.43 15.75 13.90DPS (THB) 0.54 0.61 0.56 0.72 0.82Dividend Yield 2.43% 2.75% 2.51% 3.26% 3.69%EV/EBITDA (x) 15.34 14.86 15.34 12.83 11.79P/FCFE (x) 100.4 7.8 NA NA 30.3Net Gearing 84% 70% 107% 106% 98%P/BV (x) 2.43 2.31 2.08 1.96 1.83ROE 12.2% 11.9% 10.7% 12.8% 13.6%% Change In Core EPS Estimates -4.7% -7.3% -4.4%CIMB/consensus EPS (x) 0.90 0.98 0.99

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Property Devt & Invt│Vietnam│Equity research│November 9, 2016

Company Note

THIS REPORT IS PREPARED IN ASSOCIATION WITH VNDIRECT SECURITIES CORPORATION. PLEASE SEE DISCLAIMER AND IMPORTANT NOTICES APPEARING AT THE END OF THIS DOCUMENT.IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

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Nam Long Investment Corporation 3Q16: Slow sales of new “affordable villa” product

■ NLG’s revenue surged 158% in 9M16 and net profit rose 110% yoy, driven by completion and delivery of ~1,450 Ehome units.

■ 9M16 net profit met 58% of our FY16 forecast, and was in line with our forecast.

■ 10M16 presales increased by 20% yoy in terms of volume but 45% yoy in terms of value because NLG is now selling more mid-range housing products.

■ NLG launched a new project to tap increasing demand for villas in D9, but only 9% of NLG’s new villas were sold three months after launch.

■ The stock is trading at 30% discount to NAV, but we maintain our Hold rating on NLG as 60% of NAV is tied up in the 300ha Waterpoint project (30km from HCMC).

9M16 revenue growth driven by condominium sales NLG’s revenues derived from the sale of condominiums surged 165% yoy in 9M16 thanks to the completion and delivery of ~720 affordable units in the Ehome 3 project and ~730 mid-range units in the Flora Sakura and Bridgeview projects. Most of those units were sold in FY15, but revenues from sale of those apartments can only be recognised upon unit delivery. Condominiums accounted for 84% of 9M16 revenues, with the remainder derived from the sale of land plots in Binh Duong and Can Tho.

Margin contraction due to discount programme for Flora Sakura NLG’s gross margin dropped by 5% pts yoy in 9M16 primarily because of the higher proportion of revenue derived from the Flora Sakura project. Flora Sakura is NLG’s first mid-range project in D9, so the company offered buyers a ~5% discount on the purchase price of apartments in this project. For that reason, the Flora Sakura project only generates 22% gross margin (vs. 25-28% of NLG’s affordable housing projects) despite its mid-range positioning.

Benefits from fast growing, emerging middle class The number of mid-range apartments NLG sold in 9M16 grew by 16% yoy, driven by the growing appetite of the emerging middle class for such products. The value of NLG’s pre-sold apartments rose ~45% yoy in 10M16 to VND2tr, thanks to the sales of its two “Flora” brand mid-range condo projects in District 9 that were both developed in JV’s with two different Japanese developers. The proportion of NLG’s revenue derived from selling mid-range apartments surged from 22% in 9M15 to 50% in 9M16.

NLG has started to develop gated communities NLG is developing four gated community projects in order to capture the fast-growing demand from Vietnam’s emerging middle class and to position itself in the mid-tier segment of HCMC’s housing market. NLG launched 273 units under two projects in 1Q16 and 2Q16, but has only sold ~76 units at end-3Q16, despite the booming landed property market. In our view, this is because NLG’s price point is about 10% higher than its main competitor KDH’s and its product features seem to be less appealing.

Still Hold, with higher target price based on 25% discount to RNAV We keep our Hold call though it is trading at 30% discount-to-NAV due to: 1) our concerns about NLG’s ability to monetise its 300ha Waterpoint project, and 2) weak performance of its new “affordable villa” product. Downside risks include construction delays in delivering pre-sold units. Upside risks include a potential windfall from the revaluation of Aquamarine project, as NLG will likely secure a foreign partner to develop this 36ha project. Our TP increase is due to the RNAV adjusted for some small projects.

▎Vietnam


Current price: VND22,500

Target price: VND23,200

Previous target: VND21,500

Up/downside: 3.1%


Reuters: NLG.VN

Bloomberg: NLG VN


VND3,197,577m


VND4,106m




No change.

Source: Bloomberg


Relative (%) 1.5 -0.9 -4.4

Major shareholders % held Nguyen Xuan Quang 14.4

ASPL V6 Limited 6.9

Nguyen Bich Ngoc 6.4

Analyst(s)

VO Phuc Nguyen


EFATableCorpFP|



Total Net Revenues (VNDb) 867 1,260 2,536 2,440 2,452

Operating EBITDA (VNDb) 117.4 160.9 436.2 441.3 490.8

Net Profit (VNDb) 95.6 208.2 278.0 327.5 347.2

Core EPS (VND) 833 1,511 1,964 2,313 2,453

Core EPS Growth 276% 81% 30% 18% 6%

FD Core P/E (x) 27.01 14.89 11.46 9.73 9.17

DPS (VND) 437.6 433.8 480.4 960.9 960.9

Dividend Yield 1.94% 1.93% 2.14% 4.27% 4.27%

EV/EBITDA (x) 23.08 21.65 8.23 8.28 7.16

P/FCFE (x) NA NA 8.40 19.01 7.82

Net Gearing 11.5% 8.1% 8.5% 10.3% 4.8%

P/BV (x) 1.56 1.44 1.32 1.24 1.15

ROE 5.9% 10.0% 12.0% 13.1% 13.0%



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Asia Pacific Daily│Equity research│November 10, 2016

REGIONAL HEAD

Michael William GREENALL Regional Head of Research +60 (3) 2261 9088 [email protected]

COUNTRY HEADS OF RESEARCH

Ivy NG, CFA Siew Khee. LIM Erwan TEGUH Kasem PRUNRATANAMALA, CFA Michael KOKALARI, CFA Malaysia Singapore Indonesia Thailand Vietnam +60 (3) 2261 9073 +65 6210 8664 +62 (21) 3006 1720 +66 (2) 657 9221 +84 907 974408 [email protected] [email protected] [email protected] [email protected] [email protected] Bertram LAI Dohoon LEE Eric LIN Pramod AMTHE Joyce Anne, RAMOS Hong Kong/China South Korea Taiwan India Philippines +852 2532 1111 +82 (2) 6730 6121 +886 (2) 8729 8380 +91 (22) 6602-5167 +63 (2) 888 7293 [email protected] [email protected] [email protected] [email protected] [email protected] Coverage via partnership arrangement with Yolan SEIMON SB Equities Sri Lanka +94 (11) 2306273 [email protected] Coverage via partnership arrangement with John Keells Stock Brokers

REGIONAL SECTOR HEADS

KJ KWANG Ivy NG, CFA Raymond YAP, CFA Offshore & Marine Plantations Transportation +82 (2) 6730 6123 +60 (3) 2261 9073 +60 (3) 2261 9072 [email protected] [email protected] [email protected]

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None of CIMB, John Keells, SBE or Morgans has any and none of them will accept any, obligation to (i) check or ensure that the contents of this report remain current, reliable or relevant, (ii) ensure that the content of this report constitutes all the information a prospective investor may require, (iii) ensure the adequacy, accuracy, completeness, reliability or fairness of any views, opinions and information, and accordingly, CIMB, John Keells, SBE and Morgans and their respective affiliates and related persons (and their respective directors, associates, connected persons and/or employees) shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof. In particular, CIMB, John Keells, SBE and Morgans disclaim all responsibility and liability for the views and opinions set out in this report. Unless otherwise specified, this report is based upon reasonable sources. Such sources will, unless otherwise specified, for market data, be market data and prices available from the main stock exchange or market where the relevant security is listed, or, where appropriate, any other market. Information on the accounts and business of company(ies) will generally be based on published statements of the company(ies), information disseminated by regulatory information services, other publicly available information and information resulting from our research. Whilst every effort is made to ensure that statements of facts made in this report are accurate, all estimates, projections, forecasts, expressions of opinion and other subjective judgments contained in this report are based on assumptions considered to be reasonable as of the date of the document in which they are contained and must not be construed as a representation that the matters referred to therein will occur. Past performance is not a reliable indicator of future performance. The value of investments may go down as well as up and those investing may, depending on the investments in question, lose more than the initial investment. No report shall constitute an offer or an invitation by or on behalf of CIMB, John Keells, SBE or Morgans or their respective affiliates to any person to buy or sell any investments. CIMB, John Keells, SBE and/or Morgans and/or their respective affiliates and related companies, their directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto and may from time to time add to or dispose of, or may be materially interested in, any such securities. Further, CIMB, John Keells, SBE and/or Morgans and/or their respective affiliates and related companies do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory, underwriting or placement services for or relating to such company(ies) as well as solicit such investment, advisory or other services from any entity mentioned in this report. CIMB, John Keells, SBE and/or Morgans and/or their respective affiliates may enter into an agreement with the company(ies) covered in this report relating to the production of research reports. CIMB, John Keells, SBE and/or Morgans may disclose the contents of this report to the company(ies) covered by it and may have amended the contents of this report following such disclosure. The analyst responsible for the production of this report hereby certifies that the views expressed herein accurately and exclusively reflect his or her personal views and opinions about any and all of the issuers or securities analysed in this report and were prepared independently and autonomously. No part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations(s) or view(s) in this report. The analyst(s) who prepared this research report are prohibited from receiving any compensation, incentive or bonus based on specific investment banking transactions or for providing a specific recommendation for, or view of, a particular company. Information barriers and other arrangements may be established where necessary to prevent conflicts of interests arising. However, the analyst(s) may receive compensation that is based on his/their coverage of company(ies) in the performance of his/their duties or the performance of his/their recommendations and the research personnel involved in the preparation of this report may also participate in the solicitation of the businesses as described above. In reviewing this research report, an investor should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additional information is, subject to the duties of confidentiality, available on request. The term “John Keells Stock Brokers” shall, unless the context otherwise requires, mean each of John Keells Stock Brokers and its affiliates, subsidiaries and related companies. The term “SB Equities Inc.” shall, unless the context otherwise requires, mean each of SB Equities Inc. and its affiliates, subsidiaries and related companies. The term “Morgans Financial Limited” shall, unless the context otherwise requires, mean each of Morgans Financial Limited and its affiliates, subsidiaries and related companies. The term “CIMB” shall denote, where appropriate, the relevant entity distributing or disseminating the report in the particular jurisdiction referenced below, or, in every other case, CIMB Group Holdings Berhad ("CIMBGH") and its affiliates, subsidiaries and related companies.

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Country CIMB Entity Regulated by Hong Kong CIMB Securities Limited Securities and Futures Commission Hong Kong India CIMB Securities (India) Private Limited Securities and Exchange Board of India (SEBI) Indonesia PT CIMB Securities Indonesia Financial Services Authority of Indonesia Malaysia CIMB Investment Bank Berhad Securities Commission Malaysia Singapore CIMB Research Pte. Ltd. Monetary Authority of Singapore South Korea CIMB Securities Limited, Korea Branch Financial Services Commission and Financial Supervisory Service Taiwan CIMB Securities Limited, Taiwan Branch Financial Supervisory Commission Thailand CIMB Securities (Thailand) Co. Ltd. Securities and Exchange Commission Thailand

Information in this report is a summary derived from individual research reports. As such, readers are directed to the individual research report or note to review the individual Research Analyst’s full analysis of the subject company. Important disclosures relating to the companies that are the subject of research reports published by CIMB, John Keells, SBE or Morgans, as the case may be, and the proprietary position by each of them and shareholdings of its Research Analysts’ who prepared the report in the securities of the company(s) are available in the individual research report. This report does not purport to contain all the information that a prospective investor may require. CIMB, John Keells, SBE and Morgans and their respective affiliates do not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information and opinion contained in this report. None of CIMB, John Keells, SBE, Morgans and their respective affiliates and related persons shall be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof. This report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CIMB and its affiliates’ clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. The information and opinions in this report are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, related investments or other financial instruments or any derivative instrument, or any rights pertaining thereto. Investors are advised to make their own independent evaluation of the information contained in this research report, consider their own individual investment objectives, financial situation and particular needs and consult their own professional and financial advisers as to the legal, business, financial, tax and other aspects before participating in any transaction in respect of the securities of company(ies) covered in this research report. The securities of such company(ies) may not be eligible for sale in all jurisdictions or to all categories of investors.

Australia : The distribution of this report is not an offer to buy or sell to any person within or outside Australia or a solicitation to any person within or outside of Australia to buy or sell any instrument described herein. This report is being issued outside Australia to a limited number of institutional investors and may not be provided to any person other than the original recipient and may not be reproduced or used for any other purposes. Canada: This research report has not been prepared in accordance with the disclosure requirements of Dealer Member Rule 3400 – Research Restrictions and Disclosure Requirements of the Investment Industry Regulatory Organization of Canada. For any research report distributed by CIBC, further disclosures related to CIBC conflicts of interest can be found at https://researchcentral.cibcwm.com . China: For the purpose of this report, the People’s Republic of China (“PRC”) does not include the Hong Kong Special Administrative Region, the Macau Special Administrative Region or Taiwan. The distributor of this report has not been approved or licensed by the China Securities Regulatory Commission or any other relevant regulatory authority or governmental agency in the PRC. This report contains only marketing information. The distribution of this report is not an offer to buy or sell to any person within or outside PRC or a solicitation to any person within or outside of PRC to buy or sell any instruments described herein. This report is being issued outside the PRC to a limited number of institutional investors and may not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. France: Only qualified investors within the meaning of French law shall have access to this report. This report shall not be considered as an offer to subscribe to, or used in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of financial instruments and it is not intended as a solicitation for the purchase of any financial instrument. Germany: This report is only directed at persons who are professional investors as defined in sec 31a(2) of the German Securities Trading Act (WpHG). This publication constitutes research of a non-binding nature on the market situation and the investment instruments cited here at the time of the publication of the information. The current prices/yields in this issue are based upon closing prices from Bloomberg as of the day preceding publication. Please note that neither the German Federal Financial Supervisory Agency (BaFin), nor any other supervisory authority exercises any control over the content of this report. Hong Kong: This report is issued and distributed in Hong Kong by CIMB Securities Limited (“CHK”) which is licensed in Hong Kong by the Securities and Futures Commission for Type 1 (dealing in securities), Type 4 (advising on securities) and Type 6 (advising on corporate finance) activities. Any investors wishing to purchase or otherwise deal in the securities covered in this report should contact the Head of Sales at CIMB Securities Limited. The views and opinions in this research report are of CIMB, John Keells, SBE or Morgans, as the case may be, as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CHK has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CHK. India: This report is issued and distributed in India by CIMB Securities (India) Private Limited (”CIMB India") which is registered with SEBI as a stock-broker under the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992, the Securities and Exchange Board of India (Research Analyst) Regulations, 2014 (SEBI Registration Number INH000000669) and in accordance with the provisions of Regulation 4 (g) of the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013, CIMB India is not required

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to seek registration with SEBI as an Investment Adviser. The research analysts, strategists or economists principally responsible for the preparation of this research report are segregated from equity stock broking and merchant banking of CIMB India and they have received compensation based upon various factors, including quality, accuracy and value of research, firm profitability or revenues, client feedback and competitive factors. Research analysts', strategists' or economists' compensation is not linked to investment banking or capital markets transactions performed or proposed to be performed by CIMB India or its affiliates.” Indonesia: This report is issued and distributed by PT CIMB Securities Indonesia (“CIMBI”). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBI has no obligation to update its opinion or the information in this research report. Neither this report nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesian residents except in compliance with applicable Indonesian capital market laws and regulations. This research report is not an offer of securities in Indonesia. The securities referred to in this research report have not been registered with the Financial Services Authority (Otoritas Jasa Keuangan) pursuant to relevant capital market laws and regulations, and may not be offered or sold within the territory of the Republic of Indonesia or to Indonesian citizens through a public offering or in circumstances which constitute an offer within the meaning of the Indonesian capital market law and regulations. Ireland: CIMB is not an investment firm authorised in the Republic of Ireland and no part of this document should be construed as CIMB acting as, or otherwise claiming or representing to be, an investment firm authorised in the Republic of Ireland. Malaysia: This report is issued and distributed by CIMB Investment Bank Berhad (“CIMB”) solely for the benefit of and for the exclusive use of our clients. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMB has no obligation to update, revise or reaffirm its opinion or the information in this research reports after the date of this report. New Zealand: In New Zealand, this report is for distribution only to persons who are wholesale clients pursuant to section 5C of the Financial Advisers Act 2008. Singapore: This report is issued and distributed by CIMB Research Pte Ltd (“CIMBR”). CIMBR is a financial adviser licensed under the Financial Advisers Act, Cap 110 (“FAA”) for advising on investment products, by issuing or promulgating research analyses or research reports, whether in electronic, print or other form. Accordingly CIMBR is a subject to the applicable rules under the FAA unless it is able to avail itself to any prescribed exemptions. Recipients of this report are to contact CIMB Research Pte Ltd, 50 Raffles Place, #19-00 Singapore Land Tower, Singapore in respect of any matters arising from, or in connection with this report. CIMBR has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only. If you have not been sent this report by CIMBR directly, you may not rely, use or disclose to anyone else this report or its contents. If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. If the recipient is an accredited investor, expert investor or institutional investor, the recipient is deemed to acknowledge that CIMBR is exempt from certain requirements under the FAA and its attendant regulations, and as such, is exempt from complying with the following : (a) Section 25 of the FAA (obligation to disclose product information); (b) Section 27 (duty not to make recommendation with respect to any investment product without having a reasonable basis where you may be reasonably expected to rely on the recommendation) of the FAA; (c) MAS Notice on Information to Clients and Product Information Disclosure [Notice No. FAA-N03]; (d) MAS Notice on Recommendation on Investment Products [Notice No. FAA-N16]; (e) Section 36 (obligation on disclosure of interest in securities), and (f) any other laws, regulations, notices, directive, guidelines, circulars and practice notes which are relates to the above, to the extent permitted by applicable laws, as may be amended from time to time, and any other laws, regulations, notices, directive, guidelines, circulars, and practice notes as we may notify you from time to time. In addition, the recipient who is an accredited investor, expert investor or institutional investor acknowledges that a CIMBR is exempt from Section 27 of the FAA, the recipient will also not be able to file a civil claim against CIMBR for any loss or damage arising from the recipient’s reliance on any recommendation made by CIMBR which would otherwise be a right that is available to the recipient under Section 27 of the FAA, the recipient will also not be able to file a civil claim against CIMBR for any loss or damage arising from the recipient’s reliance on any recommendation made by CIMBR which would otherwise be a right that is available to the recipient under Section 27 of the FAA. South Korea: This report is issued and distributed in South Korea by CIMB Securities Limited, Korea Branch (“CIMB Korea”) which is licensed as a cash equity broker, and regulated by the Financial Services Commission and Financial Supervisory Service of Korea. In South Korea, this report is for distribution only to professional investors under Article 9(5) of the Financial Investment Services and Capital Market Act of Korea (“FSCMA”). Spain: This document is a research report and it is addressed to institutional investors only. The research report is of a general nature and not personalised and does not constitute investment advice so, as the case may be, the recipient must seek proper advice before adopting any investment decision. This document does not constitute a public offering of securities. CIMB is not registered with the Spanish Comision Nacional del Mercado de Valores to provide investment services. Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The distribution of this report is not an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may not be forwarded to the public in Sweden. Switzerland: This report has not been prepared in accordance with the recognized self-regulatory minimal standards for research reports of banks issued by the Swiss Bankers’ Association (Directives on the Independence of Financial Research).

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Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have not been and will not be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through a public offering or in circumstances which constitutes an offer or a placement within the meaning of the Securities and Exchange Law of the Republic of China that requires a registration or approval of the Financial Supervisory Commission of the Republic of China. Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (“CIMBS”) based upon sources believed to be reliable (but their accuracy, completeness or correctness is not guaranteed). The statements or expressions of opinion herein were arrived at after due and careful consideration for use as information for investment. Such opinions are subject to change without notice and CIMBS has no obligation to update its opinion or the information in this research report. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient are unaffected. CIMB Securities (Thailand) Co., Ltd. may act or acts as Market Maker, and issuer and offerer of Derivative Warrants and Structured Note which may have the following securities as its underlying securities. Investors should carefully read and study the details of the derivative warrants in the prospectus before making investment decisions. AAV, ADVANC, AMATA, ANAN, AOT, AP, BA, BANPU, BBL, BCP, BDMS, BEAUTY, BEC, BEM, BH, BJCHI, BLA, BLAND, BTS, CBG, CENTEL, CHG, CK, CKP, CPALL, CPF, CPN, DELTA, DTAC, EARTH, EGCO, EPG, GL, GLOW, GPSC, GUNKUL, HANA, HMPRO, ICHI, INTUCH, IRPC, ITD, IVL, JAS, KBANK, KCE, KKP, KTB, KTC, LH, LHBANK, LPN, M, MAJOR, MINT, PLANB, PLAT, PS, PTG, PTT, PTTEP, PTTGC, QH, ROBINS, RS, S, SAMART, SAMTEL, SAWAD, SCB, SCC, SCCC, SCN, SGP, SIRI, SPALI, SPCG, STEC, STPI, SVI, TASCO, TCAP, THAI, THCOM, TICON, TISCO, TMB, TOP, TPIPL, TRUE, TTA, TTCL, TTW, TU, UNIQ, UV, VGI, VNG, WHA, WORK. Corporate Governance Report: The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result.

Score Range: 90 - 100 80 - 89 70 - 79 Below 70 or No Survey Result Description: Excellent Very Good Good N/A

United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates. United Kingdom: In the United Kingdom and European Economic Area, this report is being disseminated by CIMB Securities (UK) Limited (“CIMB UK”). CIMB UK is authorized and regulated by the Financial Conduct Authority and its registered office is at 27 Knightsbridge, London, SW1X7YB. Unless specified to the contrary, this report has been issued and approved for distribution in the U.K. and the EEA by CIMB UK. Investment research issued by CIMB UK has been prepared in accordance with CIMB Group’s policies for managing conflicts of interest arising as a result of publication and distribution of investment research. This report is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are eligible counterparties and professional clients of CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Order”), (c) fall within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations etc”) of the Order; (d) are outside the United Kingdom subject to relevant regulation in each jurisdiction, or (e) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with any investments to which this report relates may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons. Where this report is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does not constitute independent “investment research” under the applicable rules of the Financial Conduct Authority in the UK. Consequently, any such non-independent report will not have been prepared in accordance with legal requirements designed to promote the independence of investment research and will not subject to any prohibition on dealing ahead of the dissemination of investment research. Any such non-independent report must be considered as a marketing communication. United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S. registered broker-dealer and a related company of CIMB Research Pte Ltd, CIMB Investment Bank Berhad, PT CIMB Securities Indonesia, CIMB Securities (Thailand) Co. Ltd, CIMB Securities Limited, CIMB Securities (India) Private Limited, and is distributed solely to persons who qualify as “U.S. Institutional Investors” as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds, and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB Securities (USA) Inc, is a FINRA/SIPC

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member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc. Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2015, Anti-Corruption Progress Indicator 2015. AAV – Very Good, 3B, ADVANC – Excellent, 3A, AEONTS – Good, 1, AMATA – Very Good, 2, ANAN – Very Good, 3A, AOT – Very Good, 2, AP - Good, 3A, ASK – Very Good, 3B, ASP – Very Good, 4, BANPU – Very Good, 4, BAY – Very Good, 4, BBL – Very Good, 4, BCH – not available, no progress, BCP - Excellent, 5, BEM – not available, no progress, BDMS – Very Good, 3B, BEAUTY – Good, 2, BEC - Good, 3B, BH - Good, 2, BIGC - Excellent, 3A, BJC – Good, 1, BLA – Very Good, 4, 1, BTS - Excellent, 3A, CBG – Good, 1, CCET – not available, 1, CENTEL – Very Good, 3A, CHG – Good, 3B, CK – Excellent, 3B, COL – Very Good, 3A, CPALL – Good, 3A, CPF – Very Good, 3A, CPN - Excellent, 5, DELTA - Very Good, 3A, DEMCO – Very Good, 3A, DTAC – Excellent, 3A, EA – not available, 3A, ECL – Good, 4, EGCO - Excellent, 4, EPG – not available, 3B, GFPT - Very Good, 3A, GLOBAL – Very Good, 2, GLOW - Good, 3A, GPSC – not available, 3B, GRAMMY - Excellent, 3B, GUNKUL – Very Good, 1, HANA - Excellent, 4, HMPRO - Excellent, 3A, ICHI – Very Good, 3A, INTUCH - Excellent, 4, ITD – Good, 1, IVL - Excellent, 4, JAS – not available, 3A, JASIF – not available, no progress, JUBILE – Good, 3A, KAMART – not available, no progress, KBANK - Excellent, 4, KCE - Excellent, 4, KGI – Good, 4, KKP – Excellent, 4, KSL – Very Good, 2, KTB - Excellent, 4, KTC – Very Good, 3A, LH - Very Good, 3B, LPN – Excellent, 3A, M - Good, 2, MAJOR - Good, 1, MAKRO – Good, 3A, MALEE – not available, 2, MBKET – Good, 2, MC – Very Good, 3A, MCOT – Excellent, 3A, MEGA – Very Good, 2, MINT - Excellent, 3A, MTLS – Good, 2, NYT – Good, no progress, OISHI – Very Good, 3B, PLANB – Good, 3B, PS – Excellent, 3A, PSL - Excellent, 4, PTT - Excellent, 5, PTTEP - Excellent, 4, PTTGC - Excellent, 5, QH – Very Good, 2, RATCH – Excellent, 3A, ROBINS – Excellent, 3A, RS – Very Good, 1, SAMART - Excellent, 3B, SAPPE - Good, 3B, SAT – Excellent, 5, SAWAD – Good, 1, SC – Excellent, 3B, SCB - Excellent, 4, SCBLIF – not available, no progress, SCC – Excellent, 5, SCN – Good, 1, SCCC - Good, 3A, SIM - Excellent, 3B, SIRI - Good, 1, SPALI - Excellent, 3A, SPRC – not available, no progress, STA – Very Good, 1, STEC – Very Good, 3B, SVI – Very Good, 3A, TASCO – Very Good, 3A, TCAP – Very Good, 4, THAI – Very Good, 3A, THANI – Very Good, 5, THCOM – Excellent, 4, THRE – Very Good, 3A, THREL – Very Good, 3A, TICON – Very Good, 3A, TISCO - Excellent, 4, TK – Very Good, 3B, TKN – not available, no progress, TMB - Excellent, 4, TPCH – Good, 3B, TOP - Excellent, 5, TRUE – Very Good, 2, TTW – Very Good, 2, TU – Very Good, 3A, UNIQ – not available, 2, VGI – Excellent, 3A, WHA – Good, 3A, WORK – not available, no progress.

Comprises level 1 to 5 as follows: Level 1: Committed Level 2: Declared Level 3: Established (3A: Established by Declaration of Intent, 3B: Established by Internal Commitment and Policy) Level 4: Certified Level 5: Extended.

CIMB Recommendation Framework Stock Ratings Definition: Add The stock’s total return is expected to exceed 10% over the next 12 months. Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months. Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months. The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.

Sector Ratings Definition: Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute

recommendation. Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute

recommendation. Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute

recommendation.

Country Ratings Definition: Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to

benchmark. Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark. Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to

benchmark.

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